---



U.S. GEOTHERMAL INC.________

Consolidated Financial Statements March 31, 2010

****

---











REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

To the Board of Directors and
Stockholders of U.S. Geothermal Inc.

We have audited the accompanying consolidated balance sheets
of U.S. Geothermal Inc. as of March 31, 2010 and 2009, and the related
consolidated statements of income, stockholders' equity and comprehensive
income, and cash flows for the years ended March 31, 2010, 2009 and 2008. We
also have audited U.S. Geothermal Inc.'s internal control over financial
reporting as of March 31, 2010, based on criteria established in Internal
Control - Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). U.S. Geothermal Inc.'s
management is responsible for these financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management's Annual Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on these financial
statements and an opinion on the company's internal control over financial
reporting based on our audits.

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 and whether
effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting include obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
out opinions.

A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.







---

U.S. Geothermal Inc.
Page 2 of 2

Because of inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluations of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the financial statements referred to above
present fairly, in all material aspects, the consolidated financial position of
U.S. Geothermal Inc. as of March 31, 2010 and 2009 and the results of its
operations and its cash flows for the three years ended March 31, 2010, 2009 and
2008 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, U.S. Geothermal Inc. maintained, in all
material aspects, effective internal control over financial reporting as of
March 31, 2010, based on criteria established in Internal Control -
Integrated Frameworkissued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).

/s/ BehlerMick PS

BehlerMick PS
Spokane, Washington

June 8, 2010

---

|U.S. GEOTHERMAL INC.       
|---------------------------
|CONSOLIDATED BALANCE SHEETS
|(Stated in U.S. Dollars)   

|                                                                                    |   | March 31, 2010 |   |   | March 31, 2009 |  
|----------------------------------------------------------------------------------- | - | -------------- | - | - | -------------- | -
|                                                                                    |   |                |   |   |                |  
|ASSETS                                                                              |   |                |   |   |                |  
|                                                                                    |   |                |   |   |                |  
|Current:                                                                            |   |                |   |   |                |  
|Cash and cash equivalents                                                           | $ | 12,970,612     |   | $ | 3,452,091      |  
|Restricted cash (note 3)                                                            |   | 585,000        |   |   | 485,000        |  
|Receivable from
      subsidiary                                                    |   | 335,684        |   |   | 271,475        |  
|Trade
      accounts receivable                                                     |   | 176,880        |   |   | 114,424        |  
|Other current assets                                                                |   | 152,950        |   |   | 135,805        |  
|Total current assets                                                                |   | 14,221,126     |   |   | 4,458,795      |  
|                                                                                    |   |                |   |   |                |  
|Investment in equity securities (note
      4)                                      |   | 210,975        |   |   | 150,169        |  
|Investment in subsidiaries (note 5)                                                 |   | 18,103,239     |   |   | 18,501,533     |  
|Property, plant and equipment, net
      of accumulated depreciation (note
      6) |   | 16,550,006     |   |   | 13,156,700     |  
|Intangible assets, net of accumulated amortization (note
      7)                   |   | 16,642,515     |   |   | 16,184,146     |  
|Total
      assets                                                                  | $ | 65,727,861     |   | $ | 52,451,343     |  
|                                                                                    |   |                |   |   |                |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                |   |                |   |   |                |  
|                                                                                    |   |                |   |   |                |  
|Current Liabilities:                                                                |   |                |   |   |                |  
|Accounts payable and
      accrued liabilities                                      | $ | 446,790        |   | $ | 449,559        |  
|Related
      party accounts payable                                                |   | 1,897          |   |   | 2,491          |  
|Current portion of
      capital lease obligation                                   |   | 11,837         |   |   | 10,998         |  
|Total current liabilities                                                           |   | 460,524        |   |   | 463,048        |  
|Long-term Liabilities:                                                              |   |                |   |   |                |  
|Capital
      lease obligation, less current portion                                |   | 27,108         |   |   | 38,945         |  
|Stock compensation
      payable                                                    |   | 1,823,751      |   |   | 1,933,255      |  
|Promissory note payable (note 10)                                                   |   | 230,000        |   |   | -              |  
|Total liabilities                                                                   |   | 2,541,383      |   |   | 2,435,248      |  
|                                                                                    |   |                |   |   |                |  
|Commitments and Contingencies (note 17)                                             |   | -              |   |   | -              |  
|STOCKHOLDERS EQUITY                                                                |   |                |   |   |                |  
|Capital stock:                                                                      |   |                |   |   |                |  
|Authorized:                                                                         |   |                |   |   |                |  
|250,000,000 common shares with a $0.001 par value                                   |   |                |   |   |                |  
|Issued
      and outstanding:                                                       |   |                |   |   |                |  
|78,647,776 shares at March 31, 2010 and                                             |   |                |   |   |                |  
|62,033,882 shares at March 31, 2009                                                 |   | 78,648         |   |   | 62,034         |  
|                                                                                    |   |                |   |   |                |  
|Additional paid-in capital                                                          |   | 83,667,011     |   |   | 64,694,849     |  
|Accumulated other comprehensive income                                              |   | 136,693        |   |   | 95,891         |  
|Accumulated deficit                                                                 |   | (21,353,761    | ) |   | (15,514,911    | )
|                                                                                    |   | 62,528,591     |   |   | 49,337,863     |  
|                                                                                    |   |                |   |   |                |  
|Non-controlling interest (note 18)                                                  |   | 657,887        |   |   | 678,232        |  
|Total stockholders equity                                                          |   | 63,186,478     |   |   | 50,016,095     |  
|                                                                                    |   |                |   |   |                |  
|Total liabilities and
      stockholders equity                                    | $ | 65,727,861     |   | $ | 52,451,343     |  

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

-1-

---

|U.S. GEOTHERMAL INC.                 
|-------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS
|(Stated in U.S. Dollars)             

|                                                                                             |   | Year Ended March 31, |  
|-------------------------------------------------------------------------------------------- | - | -------------------- | -
|                                                                                             |   |                      |  
|                                                                                             |   | 2010                 |  
|                                                                                             |   |                      |  
|Operating Revenues:                                                                          |   |                      |  
|Energy sales, San Emidio                                                                     | $ | 1,743,984            |  
|Energy credit
      sales, San Emidio                                                        |   | 51,695               |  
|Land, water, and mineral rights
      lease                                                  |   | 209,544              |  
|Management fees                                                                              |   | 250,000              |  
|Gain from
      investment in subsidiary                                                     |   | 323,929              |  
|Total
      operating revenues                                                               |   | 2,579,152            |  
|                                                                                             |   |                      |  
|Operating Expenses:                                                                          |   |                      |  
|Consulting fees                                                                              |   | 59,777               |  
|Corporate
      administration                                                               |   | 803,417              |  
|Professional and management fees                                                             |   | 1,669,227            |  
|Salaries and
      wages                                                                     |   | 1,171,752            |  
|Stock based compensation                                                                     |   | 1,468,169            |  
|Travel and
      promotion                                                                   |   | 308,502              |  
|Plant operations, San Emidio                                                                 |   | 2,942,548            |  
|Lease and
      equipment repair                                                             |   | 138,953              |  
|Total
      operating expenses                                                               |   | 8,562,345            |  
|                                                                                             |   |                      |  
|Loss from Operations                                                                         |   | (5,983,193           | )
|                                                                                             |   |                      |  
|Other Income (Loss):                                                                         |   |                      |  
|Foreign
      exchange gain (loss)                                                           |   | 20,004               |  
|Other income                                                                                 |   | -                    |  
|Interest
      income                                                                        |   | 103,994              |  
|Total
      other income                                                                     |   | 123,998              |  
|                                                                                             |   |                      |  
|Net Loss                                                                                     |   | (5,859,195           | )
|                                                                                             |   |                      |  
|Net loss attributable to
      the non-controlling interest                                  |   | 20,345               |  
|                                                                                             |   |                      |  
|Net Loss Attributable to U.S. Geothermal Inc.                                                |   | (5,838,850           | )
|                                                                                             |   |                      |  
|Other Comprehensive Income:                                                                  |   |                      |  
|Unrealized gain on investment in equity securities                                           |   | 40,802               |  
|                                                                                             |   |                      |  
|Comprehensive Loss Attributable to U.S. Geothermal
      Inc.                                | $ | ( 5,798,048          | )
|                                                                                             |   |                      |  
|Basic And Diluted Net Loss Per Share Attributable
      to U.S. Geothermal Inc.              | $ | (0.09                | )
|                                                                                             |   |                      |  
|Weighted Average Number of Shares
      Outstanding for Basic and Diluted
      Calculations |   | 64,814,882           |  

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

-2-

---

|U.S. GEOTHERMAL INC.                 
|-------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|(Stated in U.S. Dollars)             

|                                                                    |   | For the Year Ended March 31, |  
|------------------------------------------------------------------- | - | ---------------------------- | -
|                                                                    |   | 2010                         |  
|                                                                    |   |                              |  
|Operating Activities:                                               |   |                              |  
|Net loss                                                            | $ | (5,859,195                   | )
|Add non-cash items:                                                 |   |                              |  
|Depreciation and amortization                                       |   | 990,061                      |  
|Gain on operations of
      subsidiary                              |   | (323,929                     | )
|Foreign exchange (gain) loss                                        |   | (20,004                      | )
|(Gain) loss on disposal
      of equipment                          |   | 900                          |  
|Stock based compensation                                            |   | 1,468,169                    |  
|Change in non-cash working capital items:                           |   |                              |  
|Accounts receivable                                                 |   | (126,665                     | )
|Accounts payable and
      accrued liabilities                      |   | (101,770                     | )
|Prepaid expenses & other                                            |   | (17,145                      | )
|Total
      cash used by operating activities                       |   | (3,989,578                   | )
|                                                                    |   |                              |  
|Investing Activities:                                               |   |                              |  
|Purchases of property, plant and
      equipment                    |   | (4,828,128                   | )
|Cash released from
      (restricted by) external entities          |   | (100,000                     | )
|Cash released from escrow for property
      acquisition            |   | -                            |  
|Investment in
      subsidiaries and equity securities              |   | -                            |  
|Distributions from subsidiary                                       |   | 722,222                      |  
|Proceeds from sale of
      equipment                               |   | 500                          |  
|Total
      cash used by investing activities                       |   | (4,205,406                   | )
|                                                                    |   |                              |  
|Financing Activities:                                               |   |                              |  
|Issuance of share
      capital, net of share issue cost            |   | 17,494,503                   |  
|Proceeds from promissory note                                       |   | 230,000                      |  
|Principal payments on
      capital lease                           |   | (10,998                      | )
|Total
      cash provided by financing activities                   |   | 17,713,505                   |  
|                                                                    |   |                              |  
|Increase (Decrease) in Cash and Equivalents                         |   | 9,518,521                    |  
|                                                                    |   |                              |  
|Cash and Cash Equivalents, Beginning of Period                      |   | 3,452,091                    |  
|                                                                    |   |                              |  
|Cash and Cash
      Equivalents, End of Period                      | $ | 12,970,612                   |  
|                                                                    |   |                              |  
|Supplemental Disclosures:                                           |   |                              |  
|Non-cash investing and financing activities:                        |   |                              |  
|Amendment to geothermal
      lease with common stock               | $ | -                            |  
|Purchase of equipment with capital
      lease                      |   | -                            |  
|Contribution of
      geothermal rights by non-controlling interest |   | -                            |  
|Purchase of property and equipment on
      account                 |   | 12,733                       |  
|                                                                    |   |                              |  
|Other Items:                                                        |   |                              |  
|Interest paid                                                       |   | 19,546                       |  

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

-3-

---

|U.S. GEOTHERMAL INC.                                            
|----------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
      EQUITY
|For the Years Ended March 31, 2008, 2009 and 2010               
|(Stated in U.S. Dollars)                                        

|                                                                                                                         |  | Number of Shares |   |   | Common Shares |  |   | Additional Paid-In Capital |  |   | Stock Issuable |  |   | AccumulatedDeficit |   |   | Accumulated **Comprehensive**
      Income |  |   | Non- controlling Interest |   |   | Totals     |  
|------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | - | - | ------------- |  | - | -------------------------- |  | - | -------------- |  | - | ------------------ | - | - | ------------------------------------------ |  | - | ------------------------- | - | - | ---------- | -
|                                                                                                                         |  |                  |   |   |               |  |   |                            |  |   |                |  |   |                    |   |   |                                            |  |   |                           |   |   |            |  
|Balance at April 1, 2007                                                                                                 |  | 43,810,512       |   | $ | 43,811        |  | $ | 25,781,832                 |  | $ | -              |  | $ | (7,012,684         | ) | $ | -                                          |  | $ | -                         |   |   | 18,812,959 |  
|                                                                                                                         |  |                  |   |   |               |  |   |                            |  |   |                |  |   |                    |   |   |                                            |  |   |                           |   |   |            |  
|Capital stock issued as a result of
      a      private placement closed June 5,
      2007,      net of issuance costs |  | 9,090,900        |   |   | 9,091         |  |   | 17,757,681                 |  |   | -              |  |   | -                  |   |   | -                                          |  |   | -                         |   |   | 17,766,772 |  
|Shares issued for stock options
      and      warrants exercised                                                        |  | 2,437,841        |   |   | 2,437         |  |   | 4,255,203                  |  |   | -              |  |   | -                  |   |   | -                                          |  |   | -                         |   |   | 4,257,640  |  
|Stock based compensation                                                                                                 |  | -                |   |   | -             |  |   | 738,014                    |  |   | -              |  |   | -                  |   |   | -                                          |  |   | -                         |   |   | 738,014    |  
|Net loss for the year                                                                                                    |  | -                |   |   | -             |  |   | -                          |  |   |                |  |   | (3,314,473         | ) |   | -                                          |  |   | -                         |   |   | (3,314,473 | )
|                                                                                                                         |  |                  |   |   |               |  |   |                            |  |   |                |  |   |                    |   |   |                                            |  |   |                           |   |   |            |  
|Balance at April 1, 2008                                                                                                 |  | 55,339,253       |   | $ | 55,339        |  | $ | 48,532,730                 |  | $ | -              |  | $ | (10,327,157        | ) | $ | -                                          |  | $ | -                         |   | $ | 38,260,912 |  
|                                                                                                                         |  |                  |   |   |               |  |   |                            |  |   |                |  |   |                    |   |   |                                            |  |   |                           |   |   |            |  
|Capital stock issued as result of a
      private      placement closed April 28,
      2008, net      of issuance costs |  | 6,382,500        |   |   | 6,383         |  |   | 13,711,784                 |  |   | -              |  |   | -                  |   |   | -                                          |  |   | -                         |   |   | 13,718,167 |  
|Capital stock issued for amendment
      to      royalty agreement with the
      Kosmos      Company                    |  | 290,000          |   |   | 290           |  |   | 782,710                    |  |   | -              |  |   | -                  |   |   | -                                          |  |   | -                         |   |   | 783,000    |  
|Shares issued for stock options
      and      warrants exercised                                                        |  | 22,134           |   |   | 22            |  |   | 10,418                     |  |   | -              |  |   | -                  |   |   | -                                          |  |   | -                         |   |   | 10,440     |  
|Adjustment to entitlement shares
      from      consolidated Mango and US
      Cobalt      stock consolidations        |  | (5               | ) |   | -             |  |   | -                          |  |   | -              |  |   | -                  |   |   | -                                          |  |   | -                         |   |   | -          |  
|Formation contribution by
      non-      controlling interest (Gerlach
      Green      Energy, LLC)                    |  | -                |   |   | -             |  |   | -                          |  |   | -              |  |   | -                  |   |   | -                                          |  |   | 697,000                   |   |   | 697,000    |  
|Stock based compensation                                                                                                 |  | -                |   |   | -             |  |   | 1,657,207                  |  |   | -              |  |   | -                  |   |   | -                                          |  |   | -                         |   |   | 1,657,207  |  
|Unrealized gain on investment                                                                                            |  | -                |   |   | -             |  |   | -                          |  |   | -              |  |   | -                  |   |   | 95,891                                     |  |   | -                         |   |   | 95,891     |  
|Net loss                                                                                                                 |  | -                |   |   | -             |  |   | -                          |  |   | -              |  |   | (5,187,754         | ) |   | -                                          |  |   | (18,768                   | ) |   | (5,206,522 | )
|Balance at March 31, 2009                                                                                                |  | 62,033,882       |   |   | 62,034        |  |   | 64,694,849                 |  |   | -              |  |   | (15,514,911        | ) |   | 95,891                                     |  |   | 678,232                   |   |   | 50,016,095 |  

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

-4-

---

|U.S. GEOTHERMAL INC.                                                        
|----------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
      EQUITY - Continued
|For the Years Ended March 31, 2008, 2009 and 2010                           
|(Stated in U.S. Dollars)                                                    

|                                                                                                                                         |  | Number of Shares |  |   | Common Shares |  |   | Additional Paid-In Capital |  |   | Stock Issuable |   |   | Accumulated Deficit |   |   | Accumulated Comprehensive Income |  |   | Non- controlling Interest |   |   | Totals     |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- |  | - | ------------- |  | - | -------------------------- |  | - | -------------- | - | - | ------------------- | - | - | -------------------------------- |  | - | ------------------------- | - | - | ---------- | -
|                                                                                                                                         |  |                  |  |   |               |  |   |                            |  |   |                |   |   |                     |   |   |                                  |  |   |                           |   |   |            |  
|Balance at April 1, 2009                                                                                                                 |  | 62,033,882       |  | $ | 62,034        |  | $ | 64,694,849                 |  | $ | -              |   | $ | (15,514,911         | ) | $ | 95,891                           |  | $ | 678,232                   |   | $ | 50,016,095 |  
|                                                                                                                                         |  |                  |  |   |               |  |   |                            |  |   |                |   |   |                     |   |   |                                  |  |   |                           |   |   |            |  
|Stock issued from the exercise of
      stock      options                                                                               |  | 304,375          |  |   | 304           |  |   | 368,110                    |  |   | -              |   |   | -                   |   |   | -                                |  |   | -                         |   |   | 368,414    |  
|Subscription receipts issued August
      17,      2009 (note 9)                                                                         |  | -                |  |   | -             |  |   | -                          |  |   | 9,120,294      |   |   | -                   |   |   | -                                |  |   | -                         |   |   | 9,120,294  |  
|Stock issued from subscription
      receipts on      December 17, 2009 (note
      9)                                                   |  | 8,100,000        |  |   | 8,100         |  |   | 9,112,194                  |  |   | (9,120,294     | ) |   | -                   |   |   | -                                |  |   | -                         |   |   | -          |  
|Capital stock issued as result of a
      private      placement closed March 16,
      2010, net      of issuance costs (note
      10) |  | 8,209,519        |  |   | 8,210         |  |   | 7,914,186                  |  |   | -              |   |   | -                   |   |   | -                                |  |   | -                         |   |   | 7,922,396  |  
|Stock based compensation                                                                                                                 |  | -                |  |   | -             |  |   | 1,577,672                  |  |   | -              |   |   | -                   |   |   | -                                |  |   | -                         |   |   | 1,577,672  |  
|Unrealized gain on investment                                                                                                            |  | -                |  |   | -             |  |   | -                          |  |   | -              |   |   | -                   |   |   | 40,802                           |  |   | -                         |   |   | 40,802     |  
|Net loss                                                                                                                                 |  | -                |  |   | -             |  |   | -                          |  |   | -              |   |   | (5,838,850          | ) |   | -                                |  |   | (20,345                   | ) |   | (5,859,195 | )
|                                                                                                                                         |  |                  |  |   |               |  |   |                            |  |   |                |   |   |                     |   |   |                                  |  |   |                           |   |   |            |  
|Balance at March 31, 2010                                                                                                                |  | 78,647,776       |  | $ | 78,648        |  | $ | 83,667,011                 |  | $ | -              |   | $ | (21,353,761         | ) | $ | 136,693                          |  | $ | 657,887                   |   | $ | 63,186,478 |  

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

-5-

---

|U.S. GEOTHERMAL INC.                      
|------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|March 31, 2010                            
|(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, U.S.A. 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 constructs and manages power plants that utilize
geothermal resources to produce energy. The Companys operations have been,
primarily, focused in the Western United States of America.

All references to dollars or $ are to United States dollars
and all references to $ CDN are to Canadian dollars.

Basis of Presentation

The Company consolidates subsidiaries that it controls
(more-than-50% owned) 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, as well as one
controlling interest. 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)  | Gerlach Geothermal LLC (organized in the State of
      Delaware);       
| | iv)   | U.S. Geothermal Services, LLC (organized in the State of
      Delaware);
| | v)    | USG Nevada LLC (organized in the State of
    Delaware);                 
| | vi)   | USG Gerlach LLC (organized in the State of
    Delaware);                
| | vii)  | USG Oregon LLC (organized in the State of
  Delaware)                    
| | viii) | Oregon USG Holdings, LLC (organized in the State of
      Delaware); and 
| | ix)   | U.S. Geothermal Guatemala, S.A.                                          

All intercompany transactions are eliminated upon
consolidation.

Raft River Energy I LLC (RREI), previously a 100% owned
subsidiary, was consolidated through July 2006, after which the entity is
recorded under the equity method (note 4).

In cases where the Company owns a majority interest in an
entity but does not own 100% of the interest in the entity it recognizes a
non-controlling interest. The Company will recognize 100% of the assets and
liabilities of the entity, and disclose the non-controlling interest. The
statements of operations will consolidate the subsidiarys full operations, and
will separately disclose the elimination of the non-controlling interests
allocation of profits and losses.

-6-

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Accounting Method

The Companys consolidated financial statements are prepared
using the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP) and have been
consistently applied in the preparation of the consolidated financial
statements.

Use of Estimates

The preparation of consolidated 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 consolidated 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 consolidated 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 consolidated financial position and consolidated results of
operations.

Cash and Cash Equivalents

The Company considers all unrestricted cash, short-term
deposits, and other investments with original 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
Note 3.

Trade Accounts Receivable Allowance for Doubtful
Accounts

Management estimates the amount of trade accounts receivable
that may not be collectible and records an allowance for doubtful accounts,
accordingly. The allowance is an estimate based upon aging of receivable
balances, historical collection experience, and the periodic credit evaluations
of our customers financial condition. Receivable balances are written off when
we determine that the balance is uncollectible. As of March 31, 2010 and 2009,
there were no balances that were over 90 days past due and no balance in
allowance for doubtful accounts was recognized.

Concentration of Credit Risk

The Companys cash and cash equivalents, including restricted
cash, consisted of commercial bank deposits, money market accounts, and petty
cash. Cash deposits are held in a commercial bank in Boise, Idaho. The accounts
are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to
$250,000 per legal entity through December 31, 2013. At March 31, 2010, the
Company held no deposits not subject to FDIC insurance. The money market funds
totaled $13,025,588, and are invested in government backed securities and not
subject to deposit insurance.

Equity Securities

We determine the appropriate classification of marketable
securities at the time of purchase and reevaluate this designation as of each
balance sheet date. We classify these securities as either held-to-maturity,
trading, or available-for-sale. All marketable securities and restricted
investments were classified as available-for-sale securities. The Company classifies its
investments as available for sale because it does not intend to actively buy
and sell for short-term profits. The Company's investments are subject to market
risk, primarily interest rate and credit risk. The fair value of investments is
determined using observable or quoted market prices for those securities.

-7-

---

Available-for-sale securities are carried at fair value, with
unrealized gains and losses included as a component of accumulated other
comprehensive income (loss). Realized gains and losses, declines in value judged
to be other than temporary and interest on available-for-sale securities are
included in net income. The cost of securities sold is based on the specific
identification method.

Allocation of Profits and Losses from Subsidiaries with
Complex Ownership Structures

For subsidiaries that have contractually complex ownership
rights, benefits and obligations, the Company utilizes the hypothetical
liquidation at book value method (HLBV) for allocating profits and losses.
This method utilizes the specific terms outlined in the subsidiarys operating
agreement or other authoritative documents. These terms may include cash
disbursement terms, associated financial instruments, debt arrangements, and
rights to specific revenue streams.

According to the operating agreement, upon liquidation and,
after payment of all outstanding debts, any remaining funds would be distributed
to the Members in accordance to their positive capital account balance ratio.
Certain contract provisions contain allocation of profit and loss items to
arrive at the capital account balances. Since the Company is currently the
minority member recording their investment in RREI under the equity method, we
utilize a hypothetical liquidation at book value at each balance sheet date to
value our investment.

For our investment in RREI, the investment will change based
upon actual capital contributions, actual cash distributions, 70% of revenue
from renewable energy credits, and 1% of all other profit and loss items. See
Note 5.

Property, Plant and Equipment

Property, plant and equipment, including assets under capital
lease, are recorded at historical cost. Costs of acquisition of geothermal
properties are capitalized on a geothermal reservoir basis. If a geothermal
reservoir is abandoned, the associated costs that have been capitalized are
charged to income in the year of abandonment. Major improvements that
significantly increase the useful lives and/or capabilities of the assets are
capitalized. Expenditures for repairs and maintenance are charged to expense as
incurred.

Depreciation is calculated on a straight-line basis over the
estimated useful life of the asset. Where appropriate, terms of property rights
and revenue contracts can influence the determination of estimated useful lives.
Estimated useful lives by major asset categories are summarized as follows:

|                                        |  | Estimated Useful
|--------------------------------------- |  | ----------------
|Asset Categories                        |  | Lives in Years  
|                                        |  |                 
|Furniture, vehicle and other equipment  |  | 4               
|Power plant, buildings and improvements |  | 15 to 30        
|Wells                                   |  | 30              
|Well pumps and components               |  | 5 to 15         
|Pipelines                               |  | 30              
|Transmission lines                      |  | 30              

-8-

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Intangible Assets

All costs directly associated with the acquisition of
geothermal and water rights are capitalized as intangible assets. These costs
are amortized over their estimated utilization period. There are several factors
that influence the estimated utilization periods as well as underling fair value
that include, but are not limited to, the following:

-     contractual expiration
terms of the right,      -    
contractual terms of an associated revenue contract (i.e.,
PPAs),      -     compliance
with utilization and other requirements, and     
-     hierarchy of other right holders who share the same
resource.

Currently, amortization expense is being calculated on a
straight-line basis over an estimated utilization period of 30 years. If an
intangible water or geothermal right is forfeited or otherwise lost, the
remaining unamortized costs are expensed in the period of forfeiture. An
impaired right is reduced to its estimated fair market value in the year the
impairment in realized. Costs incurred that extend the term of an intangible
right are capitalized and amortized over the new estimated period of
utilization.

Impairment of Long-Lived Assets

The Company 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. Management
believes that there have not been any circumstances that have warranted the
recognition of losses due to the impairment of long-lived assets as of March 31,
2010.

Stock Options Granted to Employees and
Non-employees

The Company follows financial accounting standards that require
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.

Non-employee stock-based compensation is granted at the Board
of Directors discretion to award select consultants 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.

Under the fair value recognition provisions, 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. 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.

The Company has adopted a standard that states that if certain
conditions are present surrounding the issuance of equity instruments as share
based compensation, then circumstances may warrant the recognition of a
liability for financial reporting purposes. One such condition is present when
the Company issued stock options denominated in a foreign currency
(Canadian dollars) to employees. Authors of the standard have reasoned that when
a condition is present that creates a financial risk to the recipient in
addition to normal market risks (i.e., foreign currency translation risk), then
the instrument takes on the characteristics of a liability, rather than an
equity item. As the underlying stock options are exercised or are forfeited,
then the stock based compensation liability will be reduced. The Companys
financial statements reflect these changes in the consolidated balance sheet. As
the value of the options change over the vesting periods, these changes will
ultimately be reflected in the amount of expense charged to operations.

-9-

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Earnings Per Share

The Company follows financial accounting standards, 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, 2010 and 2009, they were not included in the
calculation of earnings per share because their inclusion would have been
considered anti-dilutive. Total common stock equivalents at March 31, 2010 and
2009 were 96,404,418 and 69,655,857; respectively

Financial Instruments

The Companys financial instruments consist of cash and cash
equivalents, trade account and other receivables, 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 and is included in
other current assets.

The Companys functional currency is the U.S. dollar. Monetary
items are converted into U.S. dollars at the rate prevailing at the balance
sheet date. Resulting gains and losses are generally included in determining net
income for the period in which exchange rates change.

Revenue

Revenue Recognition

The energy sales revenue is recognized when the power is
produced and delivered to the customer under the terms defined in the Power
Purchase Agreements. Revenues from energy credits sales are recognized when the
Company has met the terms of certain energy sales agreements with a financially
capable buyer and has met the applicable governing regulations. Management fee
income is recognized when the services have been provided. Royalties and Lease
revenues are recognized as the resource has been utilized and other contractual
obligations have been met.

Revenue Source

All of the Companys direct and indirect operating revenues
originate from energy production from its interests in geothermal power plants
located in the states of Idaho and Nevada. All of the management fees and
royalty revenues are earned from its subsidiary located in South Eastern Idaho.
All of the power sales are earned from a power plant located in North Western
Nevada.

-10-

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Recent Accounting Pronouncements

Fair Value Measurements

In January 2010, FASB issued Financial Accounting Standards
Update 2010-06, Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements(Update 2010-06).
Update 2010-06 is intended to improve disclosures originally defined in
accounting standards.Update 2010-06 requires new discloses summarized as
follows:

| | 1) | Transfers in and out of Levels 1 and 2. A reporting
      entity should disclose separately the amounts of significant transfers in
      and out of Level 1 and Level 2 fair value measurements and describe the
      reasons for the transfers.                            
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2) | Activity in level 3 fair value measurements. In the
      reconciliation for fair value measurements using significant unobservable
      inputs (Level 3), a reporting entity should present separately information
      about purchases, sales, issuances, and
settlements.

The new disclosures and clarifications of existing disclosures
are effective for interim and annual reporting periods beginning after December
15, 2009, except for the disclosures about purchases, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair value measurements.
Those disclosures are effective for fiscal years beginning after December 15,
2010, and for interim periods within those fiscal years. The Company is still
evaluating the impact of this Update. The Company does not expect the adoption
of this standard to have a direct quantitative material impact on its financial
position or results of operations. Management expects that it will have an
impact on the content of future financial statement disclosures.

Subsequent Events

On January 2010, FASB issued Financial Accounting Standards
Update 2010-09, Subsequent Events (Topic 958): Amendments to Certain
Recognition and Disclosure Requirements(Update 2010-09). Update 2010-09
issued to provide clarification of questions that have arisen in practice about
Topic 855, Subsequent Events. This Update addresses both the interaction of the
requirements of this Topic with the SECs reporting requirements and the
intended breadth of the reissuance disclosure provision related to subsequent
events. Amendments of this Update will be effective for interim or annual
periods ending after June 15, 2010. The Company has adopted this Update.

Compensation-Stock Compensation

On January 2010, FASB issued Financial Accounting Standards
Update 2010-13, Compensation-Stock Compensation (Topic 718): Effect of
Denominating the Exercise Price of a Share-Based Payment Award in the Currency
of the Market in Which the Underlying Equity Security Trades.(Update
2010-13). Update 2010-13 provides amendments to Topic 718 to clarify that an
employee share-based payment award with an exercise price denominated in the
currency of a market in which a substantial portion of the entitys equity
securities trades should not be considered to contain a condition that is not a
market, performance, or service condition. Therefore, an entity would not
classify such an award as a liability if it otherwise qualifies as equity.
Amendments of this Update are effective for fiscal years, and interim periods
within those fiscal years beginning on or after December 15, 2010. The Company
is still evaluating the impact of this Update. The adoption of this Update may
have an impact in the statement of financial position.

-11-

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NOTE 3  RESTRICTED CASH

The Company maintains cash balances that are restricted under
Letter of Credit covenants for State and Federal well bonding requirements.
These bonds renew on an annual basis. Restricted cash balances and explanations
of the nature of the restrictions are summarized as follows:

|                                                                                                               |  |   | March 31, |  |   | March 31, | 
|-------------------------------------------------------------------------------------------------------------- |  | - | --------- |  | - | --------- | 
|State Agency                                                                                                   |  |   | 2010      |  |   | 2009      | 
|                                                                                                               |  |   |           |  |   |           | 
|Idaho Department of Water Resources,
      Geothermal Well Bond                                                |  | $ | 260,000   |  | $ | 260,000   | 
|State of Nevada Division of Minerals, Statewide Drilling
      Bond                                            |  |   | 50,000    |  |   | 50,000    | 
|Bureau of Land Management, Geothermal Lease
      Bonds                                                        |  |   | 150,000   |  |   | 150,000   | 
|Oregon Department of Geology and Mineral
      Industries,          Mineral
      Land and Reclamation Program |  |   | 125,000   |  |   | 25,000    | 
|                                                                                                               |  |   |           |  |   |           | 
|                                                                                                               |  | $ | 585,000   |  | $ | 485,000   | 

These bonding requirements ensure that the Company has
sufficient financial resources to construct, operate & maintain geothermal
wells while safeguarding subsurface, surface and atmospheric resources from
unreasonable degradation, and to protect ground water aquifers and surface water
sources from contamination. Other future costs of environmental remediation
cannot be reasonably estimated and have not been recorded.

NOTE 4  INVESTMENT IN EQUITY SECURITIES

Investments in equity securities consisted of the following:

|                                      |   | Amount  |  
|------------------------------------- | - | ------- | -
|Available-for-sale equity securities: |   |         |  
|Cost basis                            | $ | 88,515  |  
|Unrealized gains                      |   | 95,891  |  
|Foreign
      exchange losses         |   | (34,237 | )
|Fair
      value at March 31, 2009    |   | 150,169 |  
|Unrealized
      gains                |   | 54,812  |  
|Unrealized losses                     |   | (14,010 | )
|Foreign
      exchange gains          |   | 20,004  |  
|                                      |   |         |  
|Fair value at March 31,
      2010    | $ | 210,975 |  

NOTE 5  INVESTMENT IN SUBSIDIARIES

Raft River Energy I is a joint venture between the Company and
Raft River I Holdings, LLC a subsidiary of Goldman Sachs Group, Inc. An
Operating Agreement governs the rights and responsibilities of both parties.
RREI is a voting interest entity recorded on the financial records of the
Company as an equity investment. For book and income tax purposes, Raft River I
Holdings, LLC will receive a greater proportion of the share of losses and other
income tax benefits. Additionally, during the initial years of operations Raft
River I Holdings, LLC will receive a larger allocation of cash distributions.

RREI resulted from an August 9, 2006 agreement between the
Company 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, the Company sold 50% of its ownership in Raft River Energy to Raft
River Holdings, LLC. As a result of the agreements, the Company was required to
contribute cash and property sufficient to complete a 10 megawatt power plant,
and Raft River Holdings was required to contribute $34,170,100.

-12-

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As of March 31, 2010, the Company has contributed $17,953,640
in cash and property to the project, while Raft River Holdings, LLC has
contributed $34,170,100.

For periods prior to August 2006, the Company was the 100%
owner of RREI and consolidated the loss. For the period August 2006 to September
2009, U.S. Geothermal Inc. recorded RREI under the equity method of accounting
for investments in subsidiaries based on the HLBV method.

Effective December 26, 2008, the fiscal year for RREI was
changed to a calendar year due to the conversion of Goldman Sachs to a bank
holding company. RREIs latest financial information is summarized as follows:

|                       |   | As of December |  |   | As of November | 
|---------------------- | - | -------------- |  | - | -------------- | 
|                       |   | 31, 2009       |  |   | 28, 2008       | 
|                       |   |                |  |   |                | 
|Total current assets   | $ | 808,084        |  | $ | 1,994,238      | 
|Property and equipment |   | 47,993,261     |  |   | 50,016,779     | 
|                       | $ | 48,801,345     |  | $ | 52,011,017     | 
|                       |   |                |  |   |                | 
|Total liabilities      | $ | 791,116        |  | $ | 1,434,413      | 
|Total members equity  |   | 48,010,229     |  |   | 50,576,604     | 
|                       | $ | 48,801,345     |  | $ | 52,011,017     | 

|                                                           |   |              |   |   |              |  |   | Fiscal Year  |   |   | Fiscal Year  |  
|---------------------------------------------------------- | - | ------------ | - | - | ------------ |  | - | ------------ | - | - | ------------ | -
|                                                           |   | Year Ended   |   |   | Month Ended  |  |   | Ended        |   |   | Ended        |  
|                                                           |   | December 31, |   |   | December 26, |  |   | November 28, |   |   | November 30, |  
|                                                           |   | 2009         |   |   | 2008         |  |   | 2008         |   |   | 2007         |  
|                                                           |   |              |   |   |              |  |   |              |   |   |              |  
|Operating revenues                                         | $ | 4,718,949    |   | $ | 537,831      |  | $ | 4,880,303    |   | $ | 96,743       |  
|Operating earnings (loss)                                  |   | (2,278,806   | ) |   | 352,483      |  |   | (528,916     | ) |   | (929,615     | )
|Net earnings (loss)                                        |   | (2,270,718   | ) |   | 352,960      |  |   | (448,593     | ) |   | (834,234     | )
|                                                           |   |              |   |   |              |  |   |              |   |   |              |  
|U.S. Geothermal Inc., portion of net
      earnings (loss) | $ | 279,072      |   | $ | 54,713       |  | $ | (156,060     | ) | $ | (161,092     | )

For the Companys investment in RREI, the investment will
change based upon actual capital contributions, actual cash distributions, 70%
of revenue from renewable energy credits and 1% of all other profits and losses.

-13-

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The Companys investment in the RREI has changed since March
31, 2007 as follows:

|               |  |                             |  |   | Increase (Decrease) in |  
|-------------- |  | --------------------------- |  | - | ---------------------- | -
|Year ended     |  | Activity                    |  |   | Investment             |  
|               |  |                             |  |   |                        |  
|March 31, 2007 |  | Investment Account Balance  |  | $ | 6,360,349              |  
|               |  | Capital
      Contributions |  |   | 10,641,871             |  
|               |  | Allocation of profit/loss   |  |   | 6,479                  |  
|               |  | Prepaid amount              |  |   | 97,000                 |  
|March 31, 2008 |  | Investment Account Balance  |  |   | 17,105,699             |  
|               |  | Capital
      Contributions |  |   | 948,054                |  
|               |  | Allocation of profit/loss   |  |   | 539,815                |  
|               |  | Prepaid amount              |  |   | (97,000                | )
|March 31, 2009 |  | Investment Account Balance  |  |   | 18,496,568             |  
|               |  | Cash
      distributions    |  |   | (722,222               | )
|               |  | Allocation of profit/loss   |  |   | 323,929                |  
|March 31, 2010 |  | Investment Account Balance  |  | $ | 18,098,275             |  

An investment in a northwest British Columbia geothermal
prospect totaling $4,965 and $4,965 for the years ended March 31, 2010 and 2009
is also recorded on the balance sheet as an investment in subsidiary in addition
to the investment in Raft River Energy I LLC.

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

During the fiscal year ended March 31, 2010, the Company
continued well field evaluation and development activities at Neal Hot Springs,
Oregon. Well No. 5 (NHS-5) costing approximately $1.9 million was
substantially completed in October 2009. At fiscal year end, over $379,000 has
been spent on temperature gradient wells. Transmission line surveying and
engineering costs were incurred for approximately $191,000. Engineering, design
and permitting costs of approximately $365,000 were incurred for the future
power plant and plant site.

Land and a building were purchased in San Emidio, Nevada for
approximately $262,000 for the site of new power plant. Improvements that
amounted to over $336,000 were made to the old San Emidio power plant during the
fiscal year.

During the fiscal year ended March 31, 2009, construction of
Well No. 1 (NHS-1) at Neal Hot Springs, Oregon was substantially completed
that totaled approximately $2.3 million.

Effective May 1, 2008, the Company acquired a production plant
and wells located in the San Emidio Desert area north of Reno, Nevada for
approximately $4.5 million from Empire Geothermal Power LLC and Michael B.
Stewart. The power plant is comprised of four binary cycle units, a wet cooling
tower and nine geothermal wells developed in a proven geothermal reservoir. The
Company began the expansion of the San Emidio well field with drilling
activities that totaled over $1.9 million.

-14-

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Property, plant and equipment, at cost, are summarized as
follows:

|                               |   | March 31, 2010 |   |   | March 31, 2009 |  
|------------------------------ | - | -------------- | - | - | -------------- | -
|Land                           | $ | 652,507        |   | $ | 384,000        |  
|Power production plant         |   | 1,665,882      |   |   | 1,329,527      |  
|Wells                          |   | 3,617,312      |   |   | 3,617,312      |  
|Furniture and equipment        |   | 785,606        |   |   | 704,887        |  
|                               |   | 6,721,307      |   |   | 6,035,726      |  
|Less: accumulated depreciation |   | (1,396,605     | ) |   | (686,471       | )
|                               |   | 5,324,702      |   |   | 5,349,255      |  
|Construction in progress       |   | 11,225,304     |   |   | 7,807,445      |  
|                               |   |                |   |   |                |  
|                               | $ | 16,550,006     |   | $ | 13,156,700     |  

Changes in Construction in Progress for the fiscal year ended
March 31, at cost, are summarized as follows:

|                                   |   | March 31, 2010 |  |   | March 31, 2009 |  
|---------------------------------- | - | -------------- |  | - | -------------- | -
|Beginning balance                  | $ | 7,807,445      |  | $ | 3,096,106      |  
|Current development construction   |   | 3,417,859      |  |   | 5,006,644      |  
|Transfers into
      production    |   | -              |  |   | (295,305       | )
|Write-off of unsuccessful projects |   | -              |  |   | -              |  
|Ending balances                    | $ | 11,225,304     |  | $ | 7,807,445      |  

Construction in Progress, at cost, consisted of the following
projects/assets by location at fiscal year ends, are as follows:

|                                                              |   | March 31,  |  |   | March 31, | 
|------------------------------------------------------------- | - | ---------- |  | - | --------- | 
|                                                              |   | 2010       |  |   | 2009      | 
|Raft River, Idaho:                                            |   |            |  |   |           | 
|Unit
      II, power plant, substation and transmission lines | $ | 733,284    |  | $ | 731,100   | 
|Unit II,
      well construction                              |   | 2,085,250  |  |   | 2,077,604 | 
|                                                              |   | 2,818,534  |  |   | 2,808,704 | 
|San Emidio, Nevada:                                           |   |            |  |   |           | 
|Power plant (Re-power
      project)                          |   | 50,872     |  |   | 15,521    | 
|Interconnection studies for transmission line                 |   | 76,032     |  |   | 75,665    | 
|Well construction                                             |   | 2,678,102  |  |   | 2,534,244 | 
|                                                              |   | 2,805,006  |  |   | 2,625,430 | 
|Neal Hot Springs, Oregon:                                     |   |            |  |   |           | 
|Two
      production wells                                    |   | 4,916,905  |  |   | 2,312,232 | 
|Buildings and site
      preparation                          |   | 493,852    |  |   | 41,599    | 
|Transmission lines and substation                             |   | 191,007    |  |   | 19,480    | 
|                                                              |   | 5,601,764  |  |   | 2,373,311 | 
|                                                              |   |            |  |   |           | 
|                                                              | $ | 11,225,304 |  | $ | 7,807,445 | 

Depreciation expense was charged to operations for the years
ended March 31, 2010, 2009, and 2008 amounted to $714,534, $612,491 and $56,769;
respectively.

-15-

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NOTE 7  INTANGIBLE ASSETS

On February 19, 2010, the Company completed a water rights
purchase agreement between Empire Farms, LLC for the purchase of approximately
724 acre feet of water rights located in the San Emidio Dessert in Nevada for a
final purchase price of $700,000.

During the fiscal year ended March, 31, 2009, the Company
contributed $300,000 in geothermal and mineral rights to a newly formed company,
and the other partner contributed $697,000 in geothermal leases and mineral
rights. Additional details are provided in note 16.

Intangible assets, at cost, are summarized as follows:

|                               |   | March 31, 2010 |   |   | March 31, 2009 |  
|------------------------------ | - | -------------- | - | - | -------------- | -
|Surface water rights           | $ | 5,484,059      |   | $ | 4,766,341      |  
|Geothermal and mineral rights  |   | 11,686,549     |   |   | 11,670,371     |  
|                               |   | 17,170,608     |   |   | 16,436,712     |  
|Less: accumulated amortization |   | (528,093       | ) |   | (252,566       | )
|                               | $ | 16,642,515     |   | $ | 16,184,146     |  

Estimated aggregate amortization expense for the next five
fiscal years is as follows:

|                       |   | Projected | 
|---------------------- | - | --------- | 
|                       |   | Amounts   | 
|Years ending March 31, |   |           | 
|2011                   | $ | 275,527   | 
|2012                   |   | 275,527   | 
|2013                   |   | 275,527   | 
|2014                   |   | 275,527   | 
|2015                   |   | 275,527   | 
|                       |   |           | 
|                       | $ | 1,377,635 | 

Amortization expense was charged to operations for the years
ended March 31, 2010, 2009 and 2008 amounted to $275,526, $252,566, and $0;
respectively.

NOTE 8  PROVISION FOR INCOME TAXES

Income taxes are provided based upon the liability method.
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 accounting
standards to allow recognition of such an asset.

At March 31, 2010, the Company had net deferred tax assets
calculated at an expected rate, noted in the table below, of approximately
$4,897,000 (March 31, 2009 - $4,018,000). 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, 2010 and 2009.

-16-

---

The significant components of the net deferred tax asset
calculated with the estimated effective income tax rate at March 31, 2010 and
March 31, 2009 were as follows:

|                                                                                                    |   | March 31,  |   |   | March 31,  |  
|--------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                                                    |   | 2010       |   |   | 2009       |  
|Deferred tax assets*:                                                                               |   |            |   |   |            |  
|Net operating loss carry forward                                                                    | $ | 4,611,000  |   | $ | 4,217,000  |  
|Stock based
      compensation                                                                      |   | 512,000    |   |   | -          |  
|                                                                                                    |   |            |   |   |            |  
|Deferred tax liabilities*:                                                                          |   |            |   |   |            |  
|Depreciation and
      amortization                                                                 |   | (226,000   | ) |   | (199,000   | )
|Net deferred income tax asset                                                                       |   | 4,897,000  |   |   | 4,018,000  |  
|Deferred tax asset valuation allowance                                                              |   | (4,897,000 | ) |   | (4,018,000 | )
|                                                                                                    |   |            |   |   |            |  
|Net deferred tax asset                                                                              | $ | -          |   | $ | -          |  
|* - significant components of deferred assets and
      liabilities are considered to be long-term. |  

The Companys estimated effective income tax rate is summarized
as follows:

|                                                    |  | For the years ended March 31, |  
|--------------------------------------------------- |  | ----------------------------- | -
|                                                    |  | 2010                          |  
|                                                    |  |                               |  
|U.S. Federal statutory rate                         |  | 34.0%                         |  
|Average State income tax, net of federal tax effect |  | 3.8                           |  
|Production tax credits                              |  | (2.0                          | )
|Net
      effective tax rate                        |  | 35.8%                         |  

At March 31, 2010, the Company had net income tax operating
loss carry forwards of approximately $13,678,000 ($10,187,000 in March 31,
2009), which expire in the years 2023 through 2030. The change in the allowance
account from March 31, 2009 to March 31, 2010 was $879,000.

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.

Accounting for Income Tax Uncertainties and Related
Matters

We may be assessed penalties and interest related to the
underpayment of income taxes. Such assessments would be treated as a provision
of income tax expense on our financial statements. For the years ended March 31,
2010 and 2009, no income tax expense has been realized as a result of our
operations and no income tax penalties and interest have been accrued related to
uncertain tax positions. The Company files income tax returns in the U.S.
federal jurisdiction and in the States of Idaho and Oregon. These filings are
subject to a three year statute of limitations. Our evaluation of income tax
positions included the fiscal years ended March 31, 2009, 2008, and 2007 which
could be subject to agency examinations as of March 31, 2010. No filings are
currently under examination. No adjustments have been made to reduce our
estimated income tax benefit at fiscal year end. Any valuations relating to
these income tax provisions will comply with U.S. generally accepted accounting
principles.

-17-

---

NOTE 9 - CAPITAL LEASE OBLIGATION

Effective November 10, 2008, the Company entered into a capital
lease obligation for the purchase of a forklift that is payable in monthly
payments of $1,193 including interest to Wells Fargo Equipment, Inc. The
contract includes a purchase of option of $5,345 the end of the lease term
scheduled for November 2012. At March 31, 2010, equipment under capital lease
amounted to $53,450 ($14,253 accumulated amortization). The schedule of minimum
lease payments is as follows:

|Years Ending March
      31, |  |   | Principal |  |   | Interest |  |   | Totals | 
|---------------------------- |  | - | --------- |  | - | -------- |  | - | ------ | 
|2011                         |  | $ | 11,837    |  | $ | 2,479    |  | $ | 14,316 | 
|2012                         |  |   | 12,736    |  |   | 1,580    |  |   | 14,316 | 
|2013                         |  |   | 14,372    |  |   | 518      |  |   | 14,890 | 
|                             |  | $ | 38,945    |  | $ | 4,577    |  | $ | 43,522 | 

NOTE 10  PROMISORY NOTE PAYABLE

On July 7, 2009, the Company financed the purchase 40 acres of
land and a building on property adjacent to our San Emidio power plant facility
with a promissory note. The note for $230,000, is payable in 24 successive
monthly installments commencing on the second month following the date of
disbursement. The first 23 payments consist of interest only on the outstanding
principal at 3.25% per annum. The entire principal and the accrued interest are
due on the final payment. The note is unsecured. In the event of an assignment
for the benefit of creditors, application for the appointment of a receiver or
filing of a voluntary or involuntary petition in bankruptcy by or against the
Company, the holder may declare this note immediately due and payable in
full.

NOTE 11  SUBSCRIPTION RECEIPTS/STOCK ISSUABLE

In the second quarter ended September 30, 2009, the Company
entered into an agreement to privately place approximately 8,100,000
Subscription Receipts (Receipt) at $1.35 CDN ($1.22) per Receipt for gross
proceeds of approximately $10,935,000 CDN ($9,882,000). Each Receipt was
automatically exchanged, without additional consideration on the exchange date
for one (Unit) of the Company. The exchange date was December 17, 2009. Each
Unit consisted of one share of common stock of the Company and one half of one
common stock purchase warrant (a "Warrant"). Each Warrant entitled 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.

NOTE 12 - CAPITAL STOCK

The Company is authorized to issue 250,000,000 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.

On March 16, 2010, the Company completed a private placement
stock offering where the Company issued 8,209,519 shares of Common Stock at a
price of $1.05 per share for gross proceeds of $8.6 million ($7,922,396 net
proceeds). Each investor was, also, issued a common share purchase warrant
(Warrant) exercisable for 50% of the number of shares of Common Stock
purchased. Each Warrant is exercisable at $1.25 per share for a period of five
years beginning September 16, 2010.

-18-

---

During the quarter ended March 31, 2010, the Company issued
75,000 common shares to an employee of the Company upon exercise of stock
options at a strike price of $0.90.

During the quarter ended December 31, 2009, the Company issued
181,375 common shares to employees and consultants of the Company upon exercise
of stock options at a strike prices between $0.72 and $0.92.

As described in Note 9, the Company issued 8,100,000 shares for
$1.35 CDN ($1.22) on December 17, 2009 for the exchange of subscription
receipts.

During the quarter ended September 30, 2009, the Company issued
48,000 common shares to employees of the Company upon exercise of stock options
at a strike price of $0.92.

During the quarter ended March 31, 2009, the Company verified
an adjustment of 5 shares required for entitlement shares to be issued for the
stock consolidations of Consolidated Mango (1999) and US Cobalt (2003) shares.
These shares remain in escrow until the Consolidated Mango and US Cobalt shares
are redeemed for U.S. Geothermal Inc. common shares.

During the quarter ended December 31, 2008, the Company issued
22,134 common shares to an officer of the Company upon exercise of stock options
at a strike price of $0.60 CDN.

During the quarter ended June 30, 2008, the Company entered
into an agreement with a Canadian investment dealer, in which an underwriter
agreed to purchase 4,260,000 units of the Companys equity interests. Each unit
comprised one common share of the Companys stock and one half of one common
share purchase warrant. The initial offering, completed on April 28, 2008,
generated gross proceeds $10,011,000 CDN (approximately $10,154,458) at a price
of $2.35 CDN per share. Each warrant will entitle the holder the right to
acquire one additional common share of the Company for a period of 24 months
following the closing of the offering for $3.00 per share. In addition, the
Underwriters exercised their option to purchase an additional 2,122,500 units at
the issue price of the offering, resulting in the issuance of a total of
6,382,500 units for aggregate gross proceeds of approximately $15 million
CDN.

During the quarter ended June 30, 2008, the Company issued
290,000 common shares at a price of $2.70 per share to the Kosmos Company in
exchange for a favorable amendment to the existing royalty agreement. The
royalty agreement is applicable to the operations of the newly acquired San
Emidio plant.

NOTE 13 - STOCK BASED COMPENSATION

The Company has a stock option plan (the Stock Option Plan)
for the purpose of attracting and motivating directors, officers, employees and
consultants of the Corporation and advancing the interests of the Corporation.
The Stock Option Plan is a 10% rolling plan approved by shareholders in
September 2006, whereby the Company can grant options to the extent of 10% of
the current outstanding common shares. Under the plan, all forfeited and
exercised options can be replaced with new offerings. As of March 31, 2010, the
Company can issue stock option grants totaling up to 7,864,778 shares. 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 25% vesting on the
date of grant and 25% vesting every six months thereafter. Effective April 1,
2007, all grants will be stated in U.S. dollars. The Company recognizes
compensation expense using the straight-line method of amortization.
Historically, the Company has issued new shares to satisfy exercises of stock
options and the Company expects to issue new shares to satisfy any future
exercises of stock options. At March 31, 2010, the Company had 5,729,875 options
granted and outstanding.

-19-

---

During the quarter ended September 30, 2009, the Company
granted 80,000 stock options to employees exercisable at a price of $1.58 until
September 23, 2014.

During the quarter ended June 30, 2009, the Company granted
1,795,000 stock options to employees and consultants exercisable at a price of
$0.92 until May 26, 2014.

The following table reflects the summary of stock options
outstanding at March 31, 2007 and changes during the years ended March 31, 2008,
2009 and 2010:

|                                    |  |              |   |   | Weighted  |  |   |          |  |   |           |  
|----------------------------------- |  | ------------ | - | - | --------- |  | - | -------- |  | - | --------- | -
|                                    |  |              |   |   | Average   |  |   | Weighted |  |   |           |  
|                                    |  | Number of    |   |   | Exercise  |  |   | Average  |  |   | Aggregate |  
|                                    |  | shares under |   |   | Price Per |  |   | Fair     |  |   | Intrinsic |  
|                                    |  | options      |   |   | Share     |  |   | Value    |  |   | Value     |  
|                                    |  |              |   |   |           |  |   |          |  |   |           |  
|Balance outstanding, March 31, 2007 |  | 2,936,128    |   | $ | 0.91      |  | $ | 0.76     |  | $ | 2,225,222 |  
|Forfeited                           |  | (5,000       | ) |   | 0.94      |  |   | 0.80     |  |   | (4,000    | )
|Exercised                           |  | (806,250     | ) |   | 0.80      |  |   | 0.63     |  |   | (511,494  | )
|Granted                             |  | 775,000      |   |   | 2.41      |  |   | 1.66     |  |   | 1,288,080 |  
|Balance outstanding, March 31, 2008 |  | 2,899,878    |   |   | 1.22      |  |   | 1.03     |  |   | 2,997,808 |  
|                                    |  |              |   |   |           |  |   |          |  |   |           |  
|Forfeited                           |  | (238,494     | ) |   | 0.98      |  |   | 0.63     |  |   | (151,013  | )
|Exercised                           |  | (22,134      | ) |   | 0.57      |  |   | 0.28     |  |   | (6,093    | )
|Granted                             |  | 1,600,000    |   |   | 2.19      |  |   | 0.87     |  |   | 1,394,017 |  
|Balance outstanding, March 31, 2009 |  | 4,239,250    |   |   | 1.62      |  |   | 1.00     |  |   | 4,234,719 |  
|Forfeited                           |  | (80,000      | ) |   | 2.34      |  |   | 1.95     |  |   | (156,000  | )
|Exercised                           |  | (304,375     | ) |   | 0.90      |  |   | 0.82     |  |   | (249,588  | )
|Granted                             |  | 1,875,000    |   |   | 0.95      |  |   | 0.78     |  |   | 1,466,898 |  
|Balance outstanding, March 31, 2010 |  | 5,729,875    |   | $ | 1.49      |  | $ | 0.92     |  | $ | 5,296,029 |  

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
volatility 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 assumptions used to calculate the fair value are
as follows:

|                        |  | Year Ended March 31, | 
|----------------------- |  | -------------------- | 
|                        |  | 2010                 | 
|Dividend yield          |  | 0                    | 
|Expected volatility     |  | 71-93%               | 
|Risk free interest rate |  | 0.46-1.32%           | 
|Expected life (years)   |  | 3.17                 | 

-20-

---

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, 2010:

|  | OPTIONS OUTSTANDING |  |           |  |  |              |  | 
|- | ------------------- |  | --------- |  |  | ------------ |  | 
|  |                     |  |           |  |  | REMAINING    |  | 
|  | EXERCISE            |  | NUMBER OF |  |  | CONTRACTUAL  |  | 
|  | PRICE               |  | OPTIONS   |  |  | LIFE (YEARS) |  | 
|  |                     |  |           |  |  |              |  | 
|$ | 1.00 CDN            |  | 1,443,000 |  |  | 1.00         |  | 
|  | 1.15 CDN            |  | 78,750    |  |  | 1.33         |  | 
|  | 1.40 CDN            |  | 157,500   |  |  | 1.83         |  | 
|  | 0.92                |  | 1,740,625 |  |  | 4.15         |  | 
|  | 1.78                |  | 95,000    |  |  | 3.48         |  | 
|  | 2.22                |  | 1,475,000 |  |  | 3.12         |  | 
|  | 2.41                |  | 660,000   |  |  | 2.33         |  | 
|  | 1.58                |  | 80,000    |  |  | 4.17         |  | 
|  |                     |  |           |  |  |              |  | 
|$ | 1.49                |  | 5,729,875 |  |  | 2.77         |  | 

The following table summarizes information about the stock
options outstanding at March 31, 2009:

|  | OPTIONS OUTSTANDING |  |           |  |  |              |  | 
|- | ------------------- |  | --------- |  |  | ------------ |  | 
|  |                     |  |           |  |  | REMAINING    |  | 
|  | EXERCISE            |  | NUMBER OF |  |  | CONTRACTUAL  |  | 
|  | PRICE               |  | OPTIONS   |  |  | LIFE (YEARS) |  | 
|  |                     |  |           |  |  |              |  | 
|$ | 0.72 CDN            |  | 12,500    |  |  | 0.58         |  | 
|  | 0.90 CDN            |  | 237,500   |  |  | 0.58         |  | 
|  | 1.00 CDN            |  | 1,443,000 |  |  | 2.00         |  | 
|  | 1.15 CDN            |  | 78,750    |  |  | 2.33         |  | 
|  | 1.40 CDN            |  | 157,500   |  |  | 2.83         |  | 
|  | 1.78                |  | 95,000    |  |  | 4.48         |  | 
|  | 2.22                |  | 1,505,000 |  |  | 4.12         |  | 
|  | 2.41                |  | 710,000   |  |  | 3.33         |  | 
|  |                     |  |           |  |  |              |  | 
|$ | 1.62                |  | 4,239,250 |  |  | 2.98         |  | 

-21-

---

A summary of the status of the Companys nonvested stock
options outstanding at March 31, 2007 and changes during the fiscal years ended
March 31, 2008, 2009 and 2010 are presented as follows:

|                          |  |            |   |   | Weighted        |  |   | Weighted   | 
|------------------------- |  | ---------- | - | - | --------------- |  | - | ---------- | 
|                          |  |            |   |   | Average Grant   |  |   | Average    | 
|                          |  | Number of  |   |   | Date Fair Value |  |   | Grant Date | 
|                          |  | Options    |   |   | Per Share       |  |   | Fair Value | 
|                          |  |            |   |   |                 |  |   |            | 
|Nonvested, March 31, 2007 |  | 1,071,500  |   | $ | 0.91            |  | $ | 0.82       | 
|Granted                   |  | 775,000    |   |   | 2.41            |  |   | 1.54       | 
|Vested                    |  | (1,422,125 | ) |   | 2.15            |  |   | 1.37       | 
|Forfeited                 |  | (5,000     | ) |   | 0.96            |  |   | 0.80       | 
|Nonvested, March 31, 2008 |  | 419,375    |   |   | 1.08            |  |   | 1.43       | 
|Granted                   |  | 1,600,000  |   |   | 2.19            |  |   | 1.22       | 
|Vested                    |  | (980,881   | ) |   | 2.25            |  |   | 1.26       | 
|Forfeited                 |  | (238,494   | ) |   | 0.98            |  |   | 0.63       | 
|Nonvested, March 31, 2009 |  | 800,000    |   |   | 2.19            |  |   | 1.20       | 
|                          |  |            |   |   |                 |  |   |            | 
|Granted                   |  | 1,875,000  |   |   | 0.95            |  |   | 0.70       | 
|Vested                    |  | (1,681,500 | ) |   | 1.52            |  |   | 0.97       | 
|Forfeited                 |  | (80,000    | ) |   | 2.34            |  |   | 0.90       | 
|Nonvested, March 31, 2010 |  | 913,500    |   | $ | 0.95            |  | $ | 0.69       | 

As of March 31, 2010, there was $411,575 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 options vested at
March 31, 2010 and 2009 was $1,468,169 and $1,614,789; respectively.

Stock Purchase Warrants

At March 31, 2010, the outstanding broker warrants and share
purchase warrants consisted of the following:

|                   |  |          |  |   | Broker   |  |  |           |  |   |          | 
|------------------ |  | -------- |  | - | -------- |  |  | --------- |  | - | -------- | 
|                   |  |          |  |   | Warrant  |  |  | Share     |  |   | Warrant  | 
|                   |  | Broker   |  |   | Exercise |  |  | Purchase  |  |   | Exercise | 
|Expiration Date    |  | Warrants |  |   | Price    |  |  | Warrants  |  |   | Price    | 
|                   |  |          |  |   |          |  |  |           |  |   |          | 
|April 28, 2010     |  | 191,475  |  | $ | 2.34     |  |  | 3,191,250 |  | $ | 3.00     | 
|August 17, 2011    |  | 243,000  |  |   | 1.22     |  |  | 4,050,000 |  |   | 1.75     | 
|September 16, 2015 |  | 246,285  |  |   | 1.25     |  |  | 4,104,757 |  |   | 1.25     | 

NOTE 14  FAIR VALUE MEASUREMENT

On April 1, 2008, the Company adopted the provisions related to
its financial assets and liabilities measured at fair value on a recurring
basis. Current U.S. generally accepted accounting principles establishes a fair
value hierarchy that prioritizes the inputs used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurement) and the lowest
priority to unobservable inputs (Level 3 measurement).

-22-

---

The three levels of the fair value hierarchy are as
follows:

Level 1  Quoted prices are available
in active markets for identical assets or liabilities. Active markets are those
in which transactions for the asset or liability occur with sufficient frequency
and volume to provide pricing information on an ongoing basis.

Level 2  Pricing inputs are other than
quoted prices in active markets included in Level 1, which are either directly
or indirectly observable as of the reporting date. Level 2 includes those
financial instruments that are valued using models or other valuation
methodologies. These models are primarily industry-standard models that consider
various assumptions, including quoted forward prices for commodities, time
value, volatility factors, and current market and contractual prices for the
underlying instruments, as well as other relevant economic measures.
Substantially all of these assumptions are observable in the marketplace
throughout the full term of the instrument, can be derived from observable data
or are supported by observable levels at which transactions are executed in the
marketplace.

Level 3  Pricing inputs include
significant inputs that are generally unobservable from objective sources. These
inputs may be used with internally developed methodologies that result in
managements best estimate of fair value. Level 3 instruments include those that
may be more structured or otherwise tailored to the Companys needs.

Financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the fair
value measurement. The Companys assessment of the significance of a particular
input to the fair value measurement requires judgment, and may affect the
valuation of fair value assets and liabilities and their placement within the
fair value hierarchy levels.

The following table discloses by level within the fair value
hierarchy the Companys assets and liabilities measured and reported on its
Consolidated Balance Sheet as of March 31, 2010 at fair value on a recurring
basis:

|                                |   | Total      |  |   | Level 1    |  |   | Level 2 |  |   | Level 3 | 
|------------------------------- | - | ---------- |  | - | ---------- |  | - | ------- |  | - | ------- | 
|Assets:                         |   |            |  |   |            |  |   |         |  |   |         | 
|Money market accounts           | $ | 13,025,588 |  | $ | 13,025,588 |  | $ | -       |  | $ | -       | 
|Investment in equity securities |   | 210,975    |  |   | -          |  |   | 210,975 |  |   | -       | 
|                                | $ | 13,236,563 |  | $ | 13,025,588 |  | $ | 210,975 |  | $ | -       | 

As allowed by current financial reporting standards, the
Company has elected not to implement fair value recognition and reporting for
all non-financial assets and non-financial liabilities, except for those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis, that is, at least annually.

-23-

---

Changes in Level 3 assets measured at fair value on a recurring
basis for the years ended March 31, 2010 and 2009:

|                                                             |   | Amounts  |  
|------------------------------------------------------------ | - | -------- | -
|Investment in equity securities:                             |   |          |  
|Balance at March 31, 2008                                    | $ | -        |  
|Purchases                                                    |   | 88,515   |  
|Realized gains/losses                                        |   | -        |  
|Foreign exchange loss                                        |   | (34,237  | )
|Unrealized gain included in other
      comprehensive income |   | 95,891   |  
|Balance at March 31, 2009                                    |   | 150,169  |  
|Purchases                                                    |   | -        |  
|Realized gains/losses                                        |   | -        |  
|Foreign exchange loss                                        |   | 11,156   |  
|Unrealized gain
      included in other comprehensive income |   | 92,247   |  
|Transfer out of classification                               |   | (253,572 | )
|Balance at March 31, 2010                                    | $ | -        |  

The equity securities purchased in June 2008 are actively
traded on a stock exchange; however, the securities held by the Company are
subject to trading restrictions. Therefore, the investment was moved from Level
3 to Level 2.

NOTE 15 - RELATED PARTY TRANSACTIONS

At March 31, 2010 and 2009 the amounts of $1,897 and $2,491,
respectively, are payable to directors and officers of the Company. These
amounts are unsecured and due on demand.

The Companys subsidiary Raft River Energy I, LLC (RREI) owed
the Company $356,571 and $271,475 at March 31, 2010 and 2009; respectively, for
operating and maintenance expenses. The receivable balance is comprised of
unsecured demand obligations due within twelve months. The Company received the
following revenues from RREI:

|                    |   | Year Ended March 31, | 
|------------------- | - | -------------------- | 
|                    |   | 2010                 | 
|Management fees     | $ | 250,000              | 
|Lease and royalties |   | 209,544              | 
|                    | $ | 459,544              | 

The Companys equity investment in RREI is adjusted monthly for
our share of the profit and loss based on various revenue stream and cost
allocations. Our share of the costs to RREI associated with the above noted
management fees and lease and royalty revenues are deemed immaterial at this
time, and related U.S. Geothermal, Inc.s revenues and RREI costs have not been
eliminated in the financial statements.

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The Company incurred the following transactions with directors
and officers:

|                        |   | Year Ended March 31, | 
|----------------------- | - | -------------------- | 
|                        |   | 2010                 | 
|Director fees           | $ | 60,000               | 
|Administrative services |   | -                    | 
|Consulting fees         |   | -                    | 
|                        | $ | 60,000               | 

NOTE 16 - 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 (U.S.
GAAP). The material difference in respect to these financial statements between
U.S. GAAP 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.) were 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, 2010 |  |   | Canadian
      GAAP March 31, 2010 |  |   | U.S. GAAP
      March 31, 2009 |  |   | Canadian GAAP
      March 31, 2009 | 
|------------------------------------------ | - | ------------------------------ |  | - | ---------------------------------- |  | - | ------------------------------ |  | - | ---------------------------------- | 
|Plant, Property and Equipment              | $ | 16,547,730                     |  | $ | 16,988,341                         |  | $ | 13,156,700                     |  | $ | 13,597,311                         | 
|Intangible Assets                          |   | 16,642,515                     |  |   | 16,642,515                         |  |   | 16,184,146                     |  |   | 16,184,146                         | 
|Total Assets                               |   | 65,746,473                     |  |   | 66,187,084                         |  |   | 52,451,343                     |  |   | 52,891,954                         | 
|Stockholders Equity                       |   | 63,262,190                     |  |   | 63,702,801                         |  |   | 49,337,863                     |  |   | 49,778,474                         | 
|Total Liabilities and Stockholders Equity | $ | 65,746,473                     |  | $ | 66,187,084                         |  | $ | 52,451,343                     |  | $ | 52,891,954                         | 

|Consolidated Statements of
      Operations and Comprehensive Loss |   | U.S. GAAP
      Year Ended March 31, 2010 |   |   | Canadian GAAP
      Year Ended March 31, 2010 |   |   | U.S. GAAP
      Year ended March 31, 2009 |   |   | Canadian GAAP
      Year ended March 31, 2009 |  
|------------------------------------------------------------------ | - | ----------------------------------------- | - | - | --------------------------------------------- | - | - | ----------------------------------------- | - | - | --------------------------------------------- | -
|Loss from Operations                                               | $ | (5,907,481                                | ) | $ | (5,907,481                                    | ) | $ | (5,324,666                                | ) | $ | (5,324,666                                    | )
|Net Loss Attributable to U.S. Geothermal Inc.                      | $ | (5,763,138                                | ) | $ | (5,763,138                                    | ) | $ | (5,187,754                                | ) | $ | (5,187,754                                    | )

NOTE 17 - 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 in Washoe County
Nevada; Neal Hot Springs, Oregon and adjoining the Raft River properties in Raft
River, Idaho. The Company incurred total lease expenses for years ended March
31, 2010, 2009 and 2008, totaling $92,117, $81,392 and $82,700; respectively.

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BLM Lease Agreements

Idaho

On August 1, 2007, the Company signed a geothermal resources
lease agreement with the United States Department of the Interior Bureau of Land
Management (BLM). The contract requires an annual payment of $3,502 including
processing fees. The primary term of the agreement is 10 years. After the
primary term, the Company has the right to extend the contract. BLM has the
right to terminate the contract upon written notice if the Company does not
comply with the terms of the agreement.

San Emidio

The lease contracts are for approximately 21,905 acres of land
and geothermal rights located in the San Emidio Desert, Nevada. The lease
contracts have primary terms of 10 years. Per federal regulations applicable for
the contracts, the lessee has the option to extend the primary lease term
another 40 years if the BLM does not need the land for any other purpose and the
lessee is maintaining production at commercial quantities. The leases require
the lessee to conduct operations in a manner that minimizes adverse impacts to
the environment.

Gerlach

The Gerlach Geothermal LLC assets are comprised of two BLM
geothermal leases and one private lease totaling 3,615 acres. Both BLM leases
have a royalty rate which is based upon 10% of the value of the resource at the
wellhead. The amounts are calculated according to a formula established by
Minerals Management Service (MMS). One of the two BLM leases has a second
royalty commitment to a third party of 4% of gross revenue for power generation
and 5% for direct use based on BTUs consumed at a set comparable price of $7.00
per million BTU of natural gas. The private lease has a 10 year primary term and
would receive a royalty of 3% gross revenue for the first 10 years and 4%
thereafter.

Granite Creek

The Company has three geothermal lease contracts with the BLM
for the Granite Creek properties. The lease contracts are for approximately
5,414 acres of land and geothermal water rights located in North Western Nevada.
The lease contracts have primary terms of 10 years. Per federal regulations
applicable for the contracts, the lessee has the option to extend the primary
lease term another 40 years if the BLM does not need the land for any other
purpose and the lessee is maintaining production at commercial quantities. The
leases state annual lease payments of $5,414, not including processing fees, and
expire October 31, 2012.

Office Lease

The Company entered into a 3 year lease contract effective
January 1, 2008 through January 31, 2011, for general office space for an
executive office located in Boise, Idaho. The lease payments are due in monthly
installments that start at $5,637 per month and increase annually to $5,981 per
month. The Company incurred total office lease expenses for years ended March
31, 2010, 2009 and 2008, totaling $70,026, $67,987 and $11,275; respectively.

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The following is the total contracted lease operating
obligations (operating leases, BLM lease agreements and office lease) for the
next five fiscal years:

|Year Ending March 31, |  |   | Amount  | 
|--------------------- |  | - | ------- | 
|2011                  |  | $ | 154,124 | 
|2012                  |  |   | 94,579  | 
|2013                  |  |   | 66,642  | 
|2014                  |  |   | 64,138  | 
|2015                  |  |   | 57,099  | 
|Thereafter            |  |   | 74,192  | 

Power Purchase Agreements

The Company has signed a power purchase agreement with Idaho
Power Company for sale of power generated from its joint venture Raft River
Energy I, LLC. 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 will govern the operational revenues for the initial phases of the
Companys operating activities.

The Company signed a power purchase agreement on March 12, 2008
with Eugene Water and Electric Board for the planned phase two power plant at
Raft River, Idaho. The agreement allows for variable output up to a maximum of
16 megawatts with a term of 25 years. The agreement is subject to successful
drilling and resource development.

As a part of the purchase of the assets from Empire Geothermal
Power, LLC and Michael B. Stewart acquisition (Empire Acquisition), a power
purchase agreement with Sierra Pacific Power Company was assigned to the
Company. The contract has a stated expected output of 3,250 kilowatts maximum
per hour and extends through 2017. All power produced will be purchased and
there are no penalties for not meeting or exceeding expected output levels.

401(k) Plan

The Company offers a defined contribution plan qualified under
section 401(k) of the Internal Revenue Code to all its eligible employees. All
employees are eligible at the beginning of the quarter after completing 3 months
of service. The plan requires the Company to match 25% of the employees
contribution up to 6%. Employees may contribute up to the maximum allowed by the
Internal Revenue Code.

NOTE 18  JOINT VENTURES

Raft River Energy I LLC

Raft River Energy I is a joint venture between the Company and
Raft River I Holdings, LLC a subsidiary of Goldman Sachs Group, Inc. An
Operating Agreement governs the rights and responsibilities of both parties. At
fiscal year end, the Company had contributed approximately $17.9 million in cash
and property, and Raft River I Holdings, LLC has contributed approximately $34
million in cash. Profits and losses are allocated to the members based upon
hypothetical liquidation at book value method. For income tax purposes, Raft
River I Holdings, LLC will receive a greater proportion of the share of losses
and other income tax benefits. This includes the allocation of production tax
credits, which will be distributed 99% to Raft River I Holdings, LLC and 1% to
the Company during the first 10 years of production. During the initial years of
operations Raft River I Holdings, LLC will receive a larger allocation of cash
distributions. During the initial term of the agreement, the Company accounts
for its investment in this LLC under the equity method as a voting interest
entity.

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Gerlach Geothermal LLC

On April 28, 2008, the Companyformed Gerlach
Geothermal, LLC (Gerlach) with our partner,Gerlach Green Energy, LLC
(GGE). The purpose of the joint venture is the exploration of the Gerlach
geothermal system, which is located in northwestern Nevada, near the town of
Gerlach. Based upon the terms of the members agreement, the company owns a 60%
interest and GGE owns a 40% interest in Gerlach Geothermal, LLC. The agreement
gives GGE an option to maintain its 40% ownership interest as additional capital
contributions are required. If GGE dilutes to below a 10% interest, their
ownership position in the joint venture would be converted to a 10% net profits
interest. The Company has contributed $746,000 in cash and $300,000 for a
geothermal lease and mineral rights; and the GGE has contributed $697,000 of
geothermal lease, mineral rights and exploration data.

The consolidated financial statements reflect 100% of the
assets and liabilities of Gerlach, and report the current non-controlling
interest of GGE. The full results of Gerlachs operations will be reflected in
the statement of operations with the elimination of the non-controlling interest
identified.

NOTE 19  SUBSEQUENT EVENTS

The Company has evaluated events and transactions that have
occurred after the balance sheet date through June 9, 2010, which is considered
to be the issuance date. The following event was identified for disclosure:

Republic of Guatemala Concession

On April 15, 2010, the Company announced that its wholly owned
subsidiary (U.S. Geothermal Guatemala S.A.) was awarded a geothermal energy
rights concession in Guatemala. The concession area is located 14 miles
southwest of Guatemala City. The concession contains 24,710 acres (38.6 square
miles) of energy rights located in the center of the Aqua and Pacaya twin
volcano complex. A key asset included in the concession is the El Ceibillo
geothermal project which has nine existing geothermal wells. Two wells are
currently producing steam for local industrial use.

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