---



U.S. GEOTHERMAL INC.________Consolidated Financial StatementsMarch 31, 2011

---













REPORT OF INDEPENDENT REGISTERED PUBLIC 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, 2011 and 2010, and the related consolidated
statements of income, stockholders equity and comprehensive income, and cash
flows for each of the years in the threeyear period ended March 31, 2011. We
also have audited U.S. Geothermal Inc.s internal control over financial
reporting as of March 31, 2011, based on criteria established in Internal
ControlIntegrated Frameworkissuedby 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 included 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
our 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 its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation 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 respects, the consolidated financial position of
U.S. Geothermal Inc. as of March 31, 2011 and 2010, and the results of its
consolidated operations and its cash flows for each of the years in the three-
year period ended March 31, 2011 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 respects, effective internal control
over financial reporting as of March 31, 2011, based on criteria established in
Internal ControlIntegrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).

/s/ BehlerMick
PSBehlerMick PS Spokane, Washington

June 7, 2011

---

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

|                                                                                                                                                                                                  |   | March 31, 2011 |   |   | March 31, 2010 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------- | - | - | -------------- | -
|                                                                                                                                                                                                  |   |                |   |   |                |  
|ASSETS                                                                                                                                                                                            |   |                |   |   |                |  
|                                                                                                                                                                                                  |   |                |   |   |                |  
|Current:                                                                                                                                                                                          |   |                |   |   |                |  
|Cash and
      cash equivalents                                                                                                                                                                   | $ | 8,098,905      |   | $ | 12,970,612     |  
|Restricted cash (note 3)                                                                                                                                                                          |   | 645,000        |   |   | 585,000        |  
|Receivable
      from subsidiary                                                                                                                                                                  |   | 282,257        |   |   | 335,684        |  
|Trade accounts receivable                                                                                                                                                                         |   | 532,605        |   |   | 176,880        |  
|Other
      current assets                                                                                                                                                                        |   | 164,239        |   |   | 152,950        |  
|Total current assets                                                                                                                                                                              |   | 9,723,006      |   |   | 14,221,126     |  
|                                                                                                                                                                                                  |   |                |   |   |                |  
|Deposit on mineral rights
      purchase                                                                                                                                                          |   | 200,000        |   |   | -              |  
|Investment in equity securities (note
      4)                                                                                                                                                    |   | 178,486        |   |   | 210,975        |  
|Investment in subsidiaries
      (note 5)                                                                                                                                                         |   | 17,968,651     |   |   | 18,103,239     |  
|Property, plant and equipment, net of
      accumulated depreciation (note 6)                                                                                                                     |   | 40,295,117     |   |   | 16,550,006     |  
|Intangible assets, net of
      accumulated amortization (note 7)                                                                                                                                 |   | 16,957,708     |   |   | 16,642,515     |  
|Total
      assets                                                                                                                                                                                | $ | 85,322,968     |   | $ | 65,727,861     |  
|                                                                                                                                                                                                  |   |                |   |   |                |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                              |   |                |   |   |                |  
|                                                                                                                                                                                                  |   |                |   |   |                |  
|Current Liabilities:                                                                                                                                                                              |   |                |   |   |                |  
|Accounts payable and accrued liabilities                                                                                                                                                          | $ | 940,563        |   | $ | 446,790        |  
|Related
      party accounts payable                                                                                                                                                              |   | 2,338          |   |   | 1,897          |  
|Current portion of capital lease obligation                                                                                                                                                       |   | 12,736         |   |   | 11,837         |  
|Promissory
      note payable, current (note 10)                                                                                                                                                  |   | 230,000        |   |   | -              |  
|Total current liabilities                                                                                                                                                                         |   | 1,185,637      |   |   | 460,524        |  
|Long-term Liabilities:                                                                                                                                                                            |   |                |   |   |                |  
|Capital lease obligation, less current portion                                                                                                                                                    |   | 14,372         |   |   | 27,108         |  
|Promissory
      note payable (note 10)                                                                                                                                                           |   | -              |   |   | 230,000        |  
|Stock compensation payable                                                                                                                                                                        |   | 1,527,829      |   |   | 1,823,751      |  
|Convertible
      loan payable (note 11)                                                                                                                                                          |   | 5,132,740      |   |   | -              |  
|Construction loans payable (note 12)                                                                                                                                                              |   | 11,651,861     |   |   | -              |  
|Total liabilities                                                                                                                                                                                 |   | 19,512,439     |   |   | 2,541,383      |  
|                                                                                                                                                                                                  |   |                |   |   |                |  
|Commitments and Contingencies (note
      19)                                                                                                                                                     |   | -              |   |   | -              |  
|STOCKHOLDERS EQUITY                                                                                                                                                                              |   |                |   |   |                |  
|Capital stock (authorized: 250,000,000 common
      shares with a $0.001 par value; issued and outstanding shares at March 31,
      2011 and 2010 were: 84,761,956 and 78,647,776; respectively) |   | 84,762         |   |   | 78,648         |  
|                                                                                                                                                                                                  |   |                |   |   |                |  
|Additional paid-in capital                                                                                                                                                                        |   | 90,283,987     |   |   | 83,667,011     |  
|Accumulated other
      comprehensive income                                                                                                                                                      |   | 108,990        |   |   | 136,693        |  
|Accumulated deficit                                                                                                                                                                               |   | (25,308,177    | ) |   | (21,353,761    | )
|                                                                                                                                                                                                  |   | 65,169,562     |   |   | 62,528,591     |  
|                                                                                                                                                                                                  |   |                |   |   |                |  
|Non-controlling interest
      (note 20)                                                                                                                                                          |   | 640,967        |   |   | 657,887        |  
|Total stockholders equity                                                                                                                                                                        |   | 65,810,529     |   |   | 63,186,478     |  
|                                                                                                                                                                                                  |   |                |   |   |                |  
|Total liabilities and
      stockholders equity                                                                                                                                                  | $ | 85,322,968     |   | $ | 65,727,861     |  

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)

|                                                                                       |   | Years Ended March 31, |  
|-------------------------------------------------------------------------------------- | - | --------------------- | -
|                                                                                       |   | 2011                  |  
|                                                                                       |   |                       |  
|Operating Revenues:                                                                    |   |                       |  
|Energy sales, San
      Emidio                                                         | $ | 2,438,471             |  
|Energy credit sales, San Emidio                                                        |   | 79,569                |  
|Land, water, and
      mineral rights leases                                           |   | 196,893               |  
|Management fees                                                                        |   | 250,000               |  
|Gain from
      investment in subsidiary                                               |   | 288,612               |  
|Total operating revenues                                                               |   | 3,253,545             |  
|                                                                                       |   |                       |  
|Operating Expenses:                                                                    |   |                       |  
|Consulting fees                                                                        |   | 20,823                |  
|Corporate administration                                                               |   | 740,560               |  
|Professional and
      management fees                                                 |   | 1,108,170             |  
|Salaries and wages                                                                     |   | 1,084,385             |  
|Stock based
      compensation                                                         |   | 1,066,565             |  
|Travel and promotion                                                                   |   | 378,528               |  
|Plant operations,
      San Emidio                                                     |   | 2,760,309             |  
|Lease and equipment repair                                                             |   | 133,555               |  
|Total operating expenses                                                               |   | 7,292,895             |  
|                                                                                       |   |                       |  
|Loss from Operations                                                                   |   | (4,039,350            | )
|                                                                                       |   |                       |  
|Other Income (Loss):                                                                   |   |                       |  
|Foreign exchange gain (loss)                                                           |   | (4,922                | )
|Other
      income                                                                     |   | 29,844                |  
|Interest income                                                                        |   | 42,092                |  
|Total
      other income                                                               |   | 67,014                |  
|                                                                                       |   |                       |  
|Net Loss                                                                               |   | (3,972,336            | )
|                                                                                       |   |                       |  
|Net loss
      attributable to the non-controlling interest                            |   | 17,920                |  
|                                                                                       |   |                       |  
|Net Loss Attributable to U.S. Geothermal
      Inc.                                    |   | (3,954,416            | )
|                                                                                       |   |                       |  
|Other Comprehensive Income (Loss):                                                     |   |                       |  
|Unrealized gain (loss) on
      investment in equity securities                        |   | (27,703               | )
|                                                                                       |   |                       |  
|Comprehensive Loss Attributable to U.S.
      Geothermal Inc.                          | $ | (3,982,119            | )
|                                                                                       |   |                       |  
|Basic And Diluted Net Loss Per Share
      Attributable to U.S. Geothermal Inc.        | $ | (0.05                 | )
|                                                                                       |   |                       |  
|Weighted Average Number of
      Shares Outstanding for Basic and Diluted Calculations |   | 79,831,008            |  

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 Years Ended March 31, |  
|------------------------------------------------------------- | - | ----------------------------- | -
|                                                              |   | 2011                          |  
|                                                              |   |                               |  
|Operating Activities:                                         |   |                               |  
|Net loss                                                      | $ | (3,972,336                    | )
|Non-cash items:                                               |   |                               |  
|Depreciation and amortization                                 |   | 1,304,939                     |  
|Gain on
      operations of subsidiary                        |   | (288,612                      | )
|Foreign
      exchange (gain) loss                            |   | 4,922                         |  
|Loss on
      equity investment                               |   | 4,964                         |  
|Loss on
      disposal of equipment                           |   | -                             |  
|Stock
      based compensation                                |   | 1,066,565                     |  
|Change in non-cash working
      capital items:               |   |                               |  
|Accounts
      receivable                                     |   | (302,298                      | )
|Accounts
      payable and accrued liabilities                |   | (15,436                       | )
|Prepaid
      expenses & other                                |   | (11,289                       | )
|Total
      cash used by operating activities                 |   | (2,208,581                    | )
|                                                              |   |                               |  
|Investing Activities:                                         |   |                               |  
|Purchases
      of property, plant and equipment              |   | (13,070,992                   | )
|Investment by non-controlling interest                        |   | 1,000                         |  
|Cash
      restricted by regulating entities                  |   | (60,000                       | )
|Cash paid
      on deposit of mineral rights purchase         |   | (200,000                      | )
|Cash
      released from escrow for property acquisition      |   | -                             |  
|Investment in subsidiaries and equity securities              |   | -                             |  
|Distributions from subsidiary                                 |   | 418,236                       |  
|Proceeds
      from sale of equipment                         |   | -                             |  
|Total
      cash used by investing activities                 |   | (12,911,756                   | )
|                                                              |   |                               |  
|Financing Activities:                                         |   |                               |  
|Issuance
      of share capital, net of share issue costs     |   | 5,260,467                     |  
|Proceeds
      from notes payable                             |   | 5,000,000                     |  
|Principal
      payments on capital lease                     |   | (11,837                       | )
|Total
      cash provided by financing activities             |   | 10,248,630                    |  
|                                                              |   |                               |  
|Increase (Decrease) in
      Cash and Equivalents             |   | (4,871,707                    | )
|                                                              |   |                               |  
|Cash and Cash Equivalents,
      Beginning of Period          |   | 12,970,612                    |  
|                                                              |   |                               |  
|Cash and Cash Equivalents, End of Period                      | $ | 8,098,905                     |  
|                                                              |   |                               |  
|                                                              |   |                               |  
|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           |   | 509,650                       |  
|Plant
      construction from construction loan               |   | 11,433,435                    |  
|Capitalized accrued interest                                  |   | 351,166                       |  
|                                                              |   |                               |  
|Other Items:                                                  |   |                               |  
|Interest
      paid                                           |   | 9,955                         |  

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

-3-

---

U.S.GEOTHERMALINC.CONSOLIDATEDSTATEMENTSOFCHANGESINSTOCKHOLDERSEQUITYFor the Years
Ended March 31, 2009, 2010 and 2011(Stated in U.S. Dollars)

|                                                                                                         |  |            |   |   |        |  |   | Additional |  |   |          |  |   |             |   |   | Accumulated       |  |   | Non-        |   |   |            |  
|-------------------------------------------------------------------------------------------------------- |  | ---------- | - | - | ------ |  | - | ---------- |  | - | -------- |  | - | ----------- | - | - | ----------------- |  | - | ----------- | - | - | ---------- | -
|                                                                                                         |  | Number of  |   |   | Common |  |   | Paid-In    |  |   | Stock    |  |   | Accumulated |   |   | **Comprehensive** |  |   | controlling |   |   |            |  
|                                                                                                         |  | Shares     |   |   | Shares |  |   | Capital    |  |   | Issuable |  |   | Deficit     |   |   | Income            |  |   | Interest    |   |   | Totals     |  
|                                                                                                         |  |            |   |   |        |  |   |            |  |   |          |  |   |             |   |   |                   |  |   |             |   |   |            |  
|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.GEOTHERMALINC.CONSOLIDATEDSTATEMENTSOFCHANGESINSTOCKHOLDERSEQUITY-ContinuedFor the Years Ended March 31, 2009, 2010 and 2011(Stated
in U.S. Dollars)

|                                                                                                             |  |            |  |   |        |  |   | Additional |  |   |            |   |   |             |   |   | Accumulated       |   |   | Non-        |   |   |            |  
|------------------------------------------------------------------------------------------------------------ |  | ---------- |  | - | ------ |  | - | ---------- |  | - | ---------- | - | - | ----------- | - | - | ----------------- | - | - | ----------- | - | - | ---------- | -
|                                                                                                             |  | Number of  |  |   | Common |  |   | Paid-In    |  |   | Stock      |   |   | Accumulated |   |   | **Comprehensive** |   |   | controlling |   |   |            |  
|                                                                                                             |  | Shares     |  |   | Shares |  |   | Capital    |  |   | Issuable   |   |   | Deficit     |   |   | Income            |   |   | 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 13)                                                 |  | -          |  |   | -      |  |   | -          |  |   | 9,120,294  |   |   | -           |   |   | -                 |   |   | -           |   |   | 9,120,294  |  
|Stock issued from
      subscription receipts on December 17, 2009 (note 13)                                 |  | 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     |  | 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 |  
|                                                                                                             |  |            |  |   |        |  |   |            |  |   |            |   |   |             |   |   |                   |   |   |             |   |   |            |  
|Capital stock issued as
      result of a direct placement closed March 4, 2011, net of issuance costs       |  | 5,112,000  |  |   | 5,112  |  |   | 4,926,877  |  |   | -          |   |   | -           |   |   | -                 |   |   | -           |   |   | 4,931,989  |  
|Stock issued from the exercise of stock
      options                                                        |  | 297,180    |  |   | 297    |  |   | 328,318    |  |   | -          |   |   | -           |   |   | -                 |   |   | -           |   |   | 328,615    |  
|Stock issued for the stock
      compensation plan (restricted shares)                                       |  | 235,000    |  |   | 235    |  |   | 232,415    |  |   | -          |   |   | -           |   |   | -                 |   |   | -           |   |   | 232,650    |  
|Stock issued, restricted until vesting period
      complete (note 15)                                       |  | 470,000    |  |   | 470    |  |   | 28,252     |  |   | -          |   |   | -           |   |   | -                 |   |   | -           |   |   | 28,722     |  
|Initial formation
      contribution by non-controlling interest in Oregon USG Holdings, LLC
      (note 20) |  | -          |  |   | -      |  |   | -          |  |   | -          |   |   | -           |   |   | -                 |   |   | 1,000       |   |   | 1,000      |  
|Stock compensation liability                                                                                 |  | -          |  |   | -      |  |   | 1,101,114  |  |   | -          |   |   | -           |   |   | -                 |   |   | -           |   |   | 1,101,114  |  
|Unrealized gain on investment                                                                                |  | -          |  |   | -      |  |   | -          |  |   | -          |   |   | -           |   |   | (27,703           | ) |   | -           |   |   | (27,703    | )
|Net loss                                                                                                     |  | -          |  |   | -      |  |   | -          |  |   | -          |   |   | (3,954,416  | ) |   | -                 |   |   | (17,920     | ) |   | (3,972,336 | )
|                                                                                                             |  |            |  |   |        |  |   |            |  |   |            |   |   |             |   |   |                   |   |   |             |   |   |            |  
|Balance at March 31, 2011                                                                                    |  | 84,761,956 |  | $ | 84,762 |  | $ | 90,283,987 |  | $ | -          |   | $ | (25,308,177 | ) | $ | 108,990           |   | $ | 640,967     |   | $ | 65,810,529 |  

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

-5-

---

U.S. GEOTHERMAL INC.NOTES TO CONSOLIDATED
FINANCIAL STATEMENTSMarch 31, 2011(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, previously a 100% owned subsidiary,
was consolidated through July 2006, after which the entity is recorded under the
equity method.

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-

---

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, 2011 and 2010,
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 commercial banks in Boise, Idaho and Portland,
Oregon. Deposits are guaranteed by the Federal Deposit Insurance Corporation
(FDIC) up to $250,000 per legal entity through December 31, 2013. At March 31,
2011, the Companys total cash balance, excluding money market funds, was
$1,133,878, and bank deposits amounted to $1,255,208. The difference was due to
outstanding checks and deposits. Of the bank deposits, $318,670 was not covered
by or was in excess of FDIC insurance guaranteed limits. At fiscal year end, the
Companys money market funds invested in government backed securities totaled
$7,610,027, and were not subject to deposit insurance.

Equity Securities

The Company determine the appropriate classification of
marketable securities at the time of purchase and reevaluate this designation as
of each balance sheet date. The Company classify these securities as either

-7-

---

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.

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. Interest costs incurred during the construction period of defined
major projects from debt that is specifically incurred for those projects are
capitalized.

-8-

---

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 UsefulAsset Categories
    
    Lives in YearsFurniture, vehicle and other equipment
    
    3 to 5Power plant, buildings and improvements
    
    3 to 30Wells
    
    30Well pumps and components
    
    5 to 15Pipelines
    
    30Transmission lines
    
    30


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 underlying 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 for assets
placed in service. 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 is 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. 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,
2011.

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 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 reward 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.

-9-

---

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.

Stock Based Compensation Granted to Employees

The Company recognizes the value of common stock granted to
employees and directors over the periods in which the services are received. The
value of those services is based upon the estimated fair value of the common
stock to be awarded. Estimated fair value is adjusted each reporting period. At
the end of each vesting period, estimated fair value is adjusted to fair market
value. The adjustment is reflected in the reporting period in which the vesting
occurs.

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, 2011 and 2010, 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, 2011 and
2010 were 102,665,193 and 96,404,418; 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.

-10-

---

Revenue

Revenue RecognitionThe 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 SourceAll 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.

Recent Accounting Pronouncements

Accounting for Various TopicsIn
January 2010, FASB issued Financial Accounting Standards Update 2010-22,
Accounting for Various Topics(Update 2010-22). Update 2010-22 provides
clarifications when to separate financial statement elements based upon
materiality and volatility. The update was issued August 2010. Management
believes that the Company is currently in compliance with the applicable
contents of this update, and will continue to evaluate its impact on financial
statements.

Accounting for Technical Amendments to Various SEC Rules
and SchedulesIn January 2010, FASB issued Financial
Accounting Standards Update 2010-21, Accounting for Technical Amendments to
Various SEC Rules and Schedules(Update 2010-21). Update 2010-21 provides
clarifications on terminology on various elements that primarily pertain to the
statement of equity. It also provided guidance on the proper reporting of
changes in certain elements of equity. The update was issued August 2010.
Management believes that the Company is currently in compliance with the
applicable contents of this update, and will continue to evaluate its impact on
financial statements.

Compensation-Stock CompensationIn
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-

---

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
    
    2011
    
    
    2010Idaho Department of Water
      Resources, Geothermal Well Bond
    $
    260,000
    
    $
    260,000Bureau of Land Management, Geothermal Lease
      Bond  Gerlach Geothermal
    
    10,000
    
    
    -State of Nevada Division of
      Minerals, Statewide Drilling Bond
    
    50,000
    
    
    50,000Bureau of Land Management, Geothermal Lease
      Bonds
    
    150,000
    
    
    150,000Oregon Department of Geology
      and Mineral Industries, Mineral Land and Reclamation Program
    
    175,000
    
    
    125,000$
    645,000
    
    $
    585,000


These bonding requirements ensure that the Company has
sufficient financial resources to construct, operate and 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 (150,000 shares of a publicly
traded geothermal corporation) activities consisted of the following:

AmountAvailable-for-sale equity securities:Cost basis
    $
    88,515Unrealized gains
    
    95,891Foreign exchange losses
    
    (34,237
    )Fair
      value at March 31, 2009
    
    150,169Net unrealized gains/(losses)
    
    40,802Foreign exchange gains
    
    20,004Fair value at
      March 31, 2010
    
    210,975Net unrealized gains/(losses)
    
    (27,703
    )Foreign exchange losses
    
    (4,786
    )Fair
      value at March 31, 2011
    $
    178,486


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.

-12-

---

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 power
plant, and Raft River Holdings was required to contribute $34,170,100.

As of March 31, 2011, 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 periods after August 2006, 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:

|                       |   | December 31, |  |   | December 31, |  |   | November 28, | 
|---------------------- | - | ------------ |  | - | ------------ |  | - | ------------ | 
|                       |   | 2010         |  |   | 2009         |  |   | 2008         | 
|                       |   |              |  |   |              |  |   |              | 
|Total current assets   | $ | 908,866      |  | $ | 808,084      |  | $ | 1,994,238    | 
|Property and equipment |   | 45,939,087   |  |   | 47,993,261   |  |   | 50,016,779   | 
|                       | $ | 46,847,953   |  | $ | 48,801,345   |  | $ | 52,011,017   | 
|                       |   |              |  |   |              |  |   |              | 
|Total liabilities      | $ | 434,925      |  | $ | 791,116      |  | $ | 1,434,413    | 
|Total members equity  |   | 46,413,028   |  |   | 48,010,229   |  |   | 50,576,604   | 
|                       | $ | 46,847,953   |  | $ | 48,801,345   |  | $ | 52,011,017   | 

|                                                           |   | Year         |   |   | Year         |   |   | Month        |  |   | Fiscal Year  |  
|---------------------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ------------ |  | - | ------------ | -
|                                                           |   | Ended        |   |   | Ended        |   |   | Ended        |  |   | Ended        |  
|                                                           |   | December 31, |   |   | December 31, |   |   | December 26, |  |   | November 28, |  
|                                                           |   | 2010         |   |   | 2009         |   |   | 2008         |  |   | 2008         |  
|                                                           |   |              |   |   |              |   |   |              |  |   |              |  
|Operating revenues                                         | $ | 4,542,477    |   | $ | 4,718,949    |   | $ | 537,831      |  | $ | 4,880,303    |  
|Operating earnings (loss)                                  |   | (747,544     | ) |   | (2,278,806   | ) |   | 352,483      |  |   | (528,916     | )
|Net earnings (loss)                                        |   | (747,396     | ) |   | (2,270,718   | ) |   | 352,960      |  |   | (448,593     | )
|                                                           |   |              |   |   |              |   |   |              |  |   |              |  
|U.S. Geothermal Inc., portion of net
      earnings (loss) | $ | 375,053      |   | $ | 279,072      |   | $ | 54,713       |  | $ | (156,060     | )

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-

---

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

Increase (Decrease) inYear ended
    
    Activity
    
    
    InvestmentMarch 31, 2007
    
    Investment Account Balance
    
    $
    6,360,349Capital
      Contributions
    
    
    10,641,871Allocation of profit/loss
    
    
    6,479Prepaid
      amount
    
    
    97,000March 31, 2008
    
    Investment Account Balance
    
    
    17,105,699Capital
      Contributions
    
    
    948,054Allocation of profit/loss
    
    
    539,815Prepaid
      amount
    
    
    (97,000
    )March 31, 2009
    
    Investment Account Balance
    
    
    18,496,568Cash
      distributions
    
    
    (722,222
    )Allocation of profit/loss
    
    
    323,929March 31, 2010
    
    Investment Account Balance
    
    
    18,098,275Cash distributions
    
    
    (418,236
    )Allocation of profit/loss
    
    
    288,612March 31, 2011
    
    Investment Account Balance
    
    $
    17,968,651


An investment in a northwest British Columbia geothermal
prospect totaling $0 and $4,964 as of March 31, 2011 and 2010 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, 2011, the Company was
primarily focused on the development of the Neal Hot Springs, Oregon and San
Emidio, Nevada projects. At Neal Hot Springs, drilling and testing costs for
wells #2, 8, 10 and 13 amounted to approximately $7.6 million during the fiscal
year. Over $3.5 million in legal, design, permitting and initial construction
costs were incurred for the Neal Hot Springs plant site and pipelines. The total
costs of the Neal Hot Springs project are estimated to be $106 million. Power
plant construction costs, at San Emidio amounted to approximately $12.1 million
during the fiscal year. The plant is expected to be completed in September 2011,
and construction costs are expected to total $25 million. Also, at San Emidio,
approximately $718,000 ($410,000 reimbursed by a federal grant) was incurred for
surface geological mapping and a seismic survey.

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 had
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.

-14-

---

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

March 31, 2011
    
    
    March 31, 2010Land
    $
    652,507
    
    $
    652,507Power production plant
    
    2,275,474
    
    
    1,665,882Wells
    
    3,617,312
    
    
    3,617,312Furniture and equipment
    
    874,132
    
    
    785,6067,419,425
    
    
    6,721,307Less: accumulated depreciation
    
    (2,426,017
    )
    
    (1,396,605
    )4,993,408
    
    
    5,324,702Construction in progress
    
    35,301,709
    
    
    11,225,304$
    40,295,117
    
    $
    16,550,006


For the year ended March 31, 2011, the Company incurred
interest costs of $361,121, of which $351,166 was capitalized as a component of
the Neal Hot Springs and San Emidio projects. Interest costs incurred during the
years ended March 31, 2010 and 2009 were not significant and no interest was
capitalized for those years.

Depreciation expense charged to operations for the years ended
March 31, 2011, 2010, and 2009 amounted to $1,029,412; $714,534 and $612,491;
respectively.

Changes in Construction in Progress for the fiscal years ended
March 31, 2011 and 2010, are summarized as follows:

|                                         |   | March 31, 2011 |   |   | March 31, 2010 | 
|---------------------------------------- | - | -------------- | - | - | -------------- | 
|Beginning balances                       | $ | 11,225,304     |   | $ | 7,807,445      | 
|Current development construction         |   | 25,300,205     |   |   | 3,417,859      | 
|Grant reimbursements                     |   | (1,223,800     | ) |   | -              | 
|Transfers into production                |   | -              |   |   | -              | 
|Write-off of
      unsuccessful projects |   | -              |   |   | -              | 
|Ending balances                          | $ | 35,301,709     |   | $ | 11,225,304     | 

-15-

---

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

|                                                              |   | March 31,  |   |   | March 31,  | 
|------------------------------------------------------------- | - | ---------- | - | - | ---------- | 
|                                                              |   | 2011       |   |   | 2010       | 
|Raft River, Idaho:                                            |   |            |   |   |            | 
|Unit
      II, power plant, substation and transmission lines | $ | 1,000,273  |   | $ | 733,284    | 
|Unit II, well construction                                    |   | 2,888,972  |   |   | 2,085,250  | 
|Grant reimbursements                                          |   | (791,687   | ) |   | -          | 
|                                                              |   | 3,097,558  |   |   | 2,818,534  | 
|San Emidio, Nevada:                                           |   |            |   |   |            | 
|Power plant (Re-power project)                                |   | 12,104,457 |   |   | 50,872     | 
|Interconnection studies for transmission line                 |   | 197,679    |   |   | 76,032     | 
|Well construction                                             |   | 3,396,408  |   |   | 2,678,102  | 
|Grant reimbursements                                          |   | (432,113   | ) |   | -          | 
|                                                              |   | 15,266,431 |   |   | 2,805,006  | 
|Neal Hot Springs, Oregon:                                     |   |            |   |   |            | 
|Wells                                                         |   | 12,546,127 |   |   | 4,916,905  | 
|Buildings and site preparation                                |   | 4,064,074  |   |   | 493,852    | 
|Transmission lines and substation                             |   | 327,519    |   |   | 191,007    | 
|                                                              |   | 16,937,720 |   |   | 5,601,764  | 
|                                                              |   |            |   |   |            | 
|                                                              | $ | 35,301,709 |   | $ | 11,225,304 | 

NOTE 7  INTANGIBLE ASSETS

In April 2010, the Company incurred consulting fees of $600,000
necessary to acquire the 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.

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.

Intangible assets, at cost, are summarized as follows:

|                                     |   | March 31, 2011 |   |   | March 31, 2010 |  
|------------------------------------ | - | -------------- | - | - | -------------- | -
|                                     |   |                |   |   |                |  
|In operation:                        |   |                |   |   |                |  
|Geothermal and mineral rights        | $ | 8,265,800      |   | $ | 8,265,800      |  
|Less: accumulated
      amortization |   | (803,620       | ) |   | (528,093       | )
|                                     |   |                |   |   |                |  
|                                     |   | 7,462,180      |   |   | 7,737,707      |  
|Inactive:                            |   |                |   |   |                |  
|Surface water rights                 |   | 5,469,861      |   |   | 5,484,059      |  
|Geothermal and mineral rights        |   | 4,025,667      |   |   | 3,420,749      |  
|                                     |   |                |   |   |                |  
|                                     | $ | 16,957,708     |   | $ | 16,642,515     |  

-16-

---

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

|                       |   | Projected | 
|---------------------- | - | --------- | 
|                       |   | Amounts   | 
|Years ending March 31, |   |           | 
|2012                   | $ | 275,527   | 
|2013                   |   | 275,527   | 
|2014                   |   | 275,527   | 
|2015                   |   | 275,527   | 
|2016                   |   | 275,527   | 
|                       |   |           | 
|                       | $ | 1,377,635 | 

Amortization expense charged to operations for the years ended
March 31, 2011, 2010 and 2009 amounted to $275,527; $275,527 and $252,566;
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, 2011, the Company had net deferred tax assets
calculated at an expected rate, noted in the table below, of approximately
$6,743,000 (March 31, 2010 - $4,942,000). 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, 2011 and 2010.

The significant components of the net deferred tax asset
calculated with the estimated effective income tax rate at March 31, 2011 and
2010 were as follows:

|                                       |   | March 31,  |   |   | March 31,  |  
|-------------------------------------- | - | ---------- | - | - | ---------- | -
|                                       |   | 2011       |   |   | 2010       |  
|Deferred tax assets*:                  |   |            |   |   |            |  
|Net operating
      loss carry forward | $ | 6,379,000  |   | $ | 4,924,000  |  
|Stock based
      compensation         |   | 806,000    |   |   | 515,000    |  
|                                       |   |            |   |   |            |  
|Deferred tax liabilities*:             |   |            |   |   |            |  
|Depreciation and amortization          |   | (442,000   | ) |   | (497,000   | )
|Net deferred income tax asset          |   | 6,743,000  |   |   | 4,942,000  |  
|Deferred tax asset valuation allowance |   | (6,743,000 | ) |   | (4,942,000 | )
|                                       |   |            |   |   |            |  
|Net deferred tax asset                 | $ | -          |   | $ | -          |  

* - significant components of
deferred assets and liabilities are considered to be long-term.

-17-

---

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

|                                                          |  | For the years ended March 31, |  
|--------------------------------------------------------- |  | ----------------------------- | -
|                                                          |  | 2011                          |  
|                                                          |  |                               |  
|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, 2011, the Company had net income tax operating
loss carry forwards of approximately $17,622,000 ($13,678,000 in March 31,
2010), which expire in the years 2023 through 2031. The change in the allowance
account from March 31, 2010 to March 31, 2011 was $1,801,000.

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,
2011, 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, 2011, 2010, and 2009, could
be subject to agency examinations as of March 31, 2011. 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.

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 option of $5,345 at the end of the lease term
scheduled for November 2012. At March 31, 2011, equipment under capital lease
amounted to $53,450 ($28,507 accumulated amortization). The schedule of minimum
lease payments is as follows:

|Years Ending March
      31, |  |   | Principal |  |   | Interest |  |   | Totals | 
|---------------------------- |  | - | --------- |  | - | -------- |  | - | ------ | 
|2012                         |  | $ | 12,736    |  | $ | 1,580    |  | $ | 14,316 | 
|2013                         |  |   | 14,372    |  |   | 518      |  |   | 14,890 | 
|                             |  | $ | 27,108    |  | $ | 2,098    |  | $ | 29,206 | 

-18-

---

NOTE 10  PROMISORY NOTE PAYABLE

On July 7, 2009, the Company financed the purchase of 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. Currently, the Company is in compliance with the note
requirements.

NOTE 11  CONVERTIBLE PROMISSORY NOTE

In September 2010, the Companys wholly owned subsidiary
(Oregon USG Holdings LLC) entered into agreements that formulated a strategic
partnership with Enbridge (U.S.) Inc. (Enbridge) to provide up to $23.8
million in funds for the Neal Hot Springs geothermal project located in Eastern
Oregon.

A component of this funding included a $5 million unsecured
convertible promissory note that was signed on September 8, 2010. The note is
payable on demand on September 30, 2011, including interest at 4.75% per annum.
Upon conversion, the note shall be considered to be fully satisfied, including
interest, and shall be treated for all purposes as a contribution to Oregon USG
Holding LLC as of the conversion date. The conversion occurs automatically upon
the closing of the Department of Energy (DOE) guaranteed project loan. The
Company has the option to pay all accrued interest in cash prior to the
conversion date. The loan shall become payable in full at the option of the
Enbridge following any of the circumstances that create an Event of Default.
Notable Events of Default include the DOE or relevant governmental authority
communicates that it will not or does not intend to guarantee the Project Loan
or the Project is unable to obtain a reservoir certificate by an independent
reservoir engineer. Repayment of the note is guaranteed by U.S. Geothermal, Inc.

In April 2011, the conditions of the conversion were met. See
Note 21 for details.

NOTE 12  CONSTRUCTION NOTES PAYABLE

Effective August 27, 2010, the Companys wholly owned
subsidiary (USG Nevada LLC) signed a construction loan agreement with Benham
Constructors LLC (Benham). Benham will be the primary contractor in the
relocation and replacement of the existing power plant. The new 8.6 net megawatt
power plant is expected to cost approximately $25 million, and is expected to be
completed October 2011. Upon completion, the Company will pay the debt in full
within 30 days of receipt of the final statement prepared by Benham. Interest
will accrue on outstanding balance at 9.5% per annum. When due, the Company
expects to obtain funds to repay the loan balance with a long-term project loan.
The loan is non-recourse and is secured by the Projects assets. Title of all
work and materials shall pass to the Company the later of delivery to the Site
or upon payment in full.

NOTE 13  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

-19-

---

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 14 - 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 10, 2011, the Company issued 705,000 shares for the
stock compensation plan (restricted shares) approved on September 10, 2010. The
shares will be distributed to qualified recipients according to the approved
vesting schedule. See note 15 for details.

On March 7, 2011, the Company issued 5,000,000 shares of Common
Stock at a price of $1.00 per share. Each investor received a Common Stock
Purchase Warrant exercisable for 50% of number of shares of Common Stock
purchased. Each Warrant will entitle the holder to purchase one additional share
of Common Stock for $1.075 per share. The Warrants expire March 3, 2012. The
issue included a placement agent fee of 112,000 Common Shares and 56,000
Warrants with the same terms.

During the year ended March 31, 2011, the Company issued
297,180 common shares to employees of the Company upon exercise of stock
options. Common shares of 272,180 were issued at a strike price of $1.00 CDN and
25,000 were issued at $0.92.

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.

During the year ended March 31, 2010, the Company issued
304,375 common shares to employees and consultants of the Company upon exercise
of stock options at strike prices between $0.72 and $.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 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 year ended March 31, 2009, 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

-20-

---

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 15 - STOCK BASED COMPENSATION

The Company has a stock incentive plan (the Stock Incentive
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 Incentive Plan is a 15% rolling plan approved by
shareholders in December 2009, whereby the Company can grant options to the
extent of 15% of the current outstanding common shares. Under the plan, all
forfeited and exercised options can be replaced with new offerings. As of March
31, 2011, the Company can issue stock option grants totaling up to 12,714,296
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 are 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, 2011, the Company
had 6,703,195 options granted and outstanding.

On September 10, 2010, the Company granted 1,300,000 stock
options to employees exercisable at a price of $0.86 until September 10, 2015.

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

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

On August 9, 2008, the Company granted 95,000 stock options to
employees exercisable at a price of $1.58 until August 9, 2013.

On May 19, 2008, the Company granted 1,505,000 stock options to
employees and consultants exercisable at a price of $2.41 until May 19, 2013.

-21-

---

The following table reflects the summary of stock options
outstanding at March 31, 2008 and changes during the years ended March 31, 2009,
2010 and 2011:

|                                    |  |              |   |   | Weighted  |  |   |          |  |   |           |  
|----------------------------------- |  | ------------ | - | - | --------- |  | - | -------- |  | - | --------- | -
|                                    |  |              |   |   | Average   |  |   | Weighted |  |   |           |  
|                                    |  | Number of    |   |   | Exercise  |  |   | Average  |  |   | Aggregate |  
|                                    |  | shares under |   |   | Price Per |  |   | Fair     |  |   | Intrinsic |  
|                                    |  | options      |   |   | Share     |  |   | Value    |  |   | Value     |  
|                                    |  |              |   |   |           |  |   |          |  |   |           |  
|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 |  
|                                    |  |              |   |   |           |  |   |          |  |   |           |  
|Forfeited                           |  | (29,500      | ) |   | 2.00      |  |   | 0.66     |  |   | (19,597   | )
|Exercised                           |  | (297,180     | ) |   | 0.99      |  |   | 0.99     |  |   | (294,066  | )
|Granted                             |  | 1,300,000    |   |   | 0.86      |  |   | 0.58     |  |   | 752,206   |  
|Balance outstanding, March 31, 2011 |  | 6,703,195    |   | $ | 1.38      |  | $ | 0.86     |  | $ | 5,734,572 |  

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, |  |  |            | 
|----------------------- |  | ---------- |  |  | -------------------------- |  |  | ---------- | 
|                        |  | 2011       |  |  | 2010                       |  |  | 2009       | 
|Dividend yield          |  | 0          |  |  | 0                          |  |  | 0          | 
|Expected volatility     |  | 89-92%     |  |  | 71-93%                     |  |  | 71-82%     | 
|Risk free interest rate |  | 0.26-0.78% |  |  | 0.46-1.32%                 |  |  | 1.74-2.23% | 
|Expected life (years)   |  | 3.19       |  |  | 3.17                       |  |  | 3.25       | 

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.

-22-

---

The following table summarizes information about the stock
options outstanding at March 31, 2011:

|  | OPTIONS OUTSTANDING |  |           |  |  |              |  | 
|- | ------------------- |  | --------- |  |  | ------------ |  | 
|  |                     |  |           |  |  | REMAINING    |  | 
|  | EXERCISE            |  | NUMBER OF |  |  | CONTRACTUAL  |  | 
|  | PRICE               |  | OPTIONS   |  |  | LIFE (YEARS) |  | 
|  |                     |  |           |  |  |              |  | 
|$ | 1.00 CDN            |  | 1,170,820 |  |  | 0.03         |  | 
|  | 1.15 CDN            |  | 78,750    |  |  | 0.33         |  | 
|  | 1.40 CDN            |  | 157,500   |  |  | 0.81         |  | 
|  | 2.41                |  | 652,500   |  |  | 1.31         |  | 
|  | 2.22                |  | 1,465,000 |  |  | 2.13         |  | 
|  | 1.78                |  | 95,000    |  |  | 2.49         |  | 
|  | 0.92                |  | 1,715,625 |  |  | 3.15         |  | 
|  | 1.58                |  | 68,000    |  |  | 3.48         |  | 
|  | 0.86                |  | 1,300,000 |  |  | 4.45         |  | 
|  |                     |  |           |  |  |              |  | 
|$ | 1.38                |  | 6,703,195 |  |  | 2.36         |  | 

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         |  | 
|  | 2.41                |  | 660,000   |  |  | 2.33         |  | 
|  | 2.22                |  | 1,475,000 |  |  | 3.12         |  | 
|  | 1.78                |  | 95,000    |  |  | 3.48         |  | 
|  | 0.92                |  | 1,740,625 |  |  | 4.15         |  | 
|  | 1.58                |  | 80,000    |  |  | 4.17         |  | 
|  |                     |  |           |  |  |              |  | 
|$ | 1.49                |  | 5,729,875 |  |  | 2.77         |  | 

-23-

---

A summary of the status of the Companys nonvested stock
options outstanding at March 31, 2008 and changes during the fiscal years ended
March 31, 2009, 2010 and 2011 are presented as follows:

|                          |  |            |   |   | Weighted        |  |   | Weighted         | 
|------------------------- |  | ---------- | - | - | --------------- |  | - | ---------------- | 
|                          |  |            |   |   | Average Grant   |  |   | Average          | 
|                          |  | Number of  |   |   | Date Fair Value |  |   | Grant Date       | 
|                          |  | Options    |   |   | Per
      Share |  |   | Fair
      Value | 
|                          |  |            |   |   |                 |  |   |                  | 
|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    |   |   | 1.08            |  |   | 1.43             | 
|                          |  |            |   |   |                 |  |   |                  | 
|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             | 
|                          |  |            |   |   |                 |  |   |                  | 
|Granted                   |  | 1,300,000  |   |   | 0.86            |  |   | 0.58             | 
|Vested                    |  | (1,557,500 | ) |   | 0.90            |  |   | 0.66             | 
|Forfeited                 |  | (6,000     | ) |   | 1.58            |  |   | 0.39             | 
|Nonvested, March 31, 2011 |  | 650,000    |   | $ | 0.86            |  | $ | 0.58             | 

As of March 31, 2011, there was $341,567 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, 2011 and 2010 was $805,193 and $1,468,169; respectively.

Stock Compensation Plan (Restricted Shares)

On September 10, 2010, the Company granted officers, directors
and select employees 705,000 common shares that will be distributed in three
six-month vesting periods. The recipients meet the vesting requirements by
maintaining employment and good standing with the Company through the vesting
periods. After vesting, there are no restrictions on shares. On March 10, 2011,
the 705,000 common shares were issued to the recipients and held by the Company.
All of these shares were considered to be issued and outstanding. On March 11,
2011, 235,000 common shares vested valued at $0.99 per share, and the shares
were released to the qualified recipients. The remaining vesting schedule is as
follows:

|                        |  | Number of Shares | 
|----------------------- |  | ---------------- | 
|Remaining Vesting Dates |  | Vesting          | 
|September 10, 2011      |  | 235,000          | 
|March 11, 2012          |  | 235,000          | 
|                        |  | 470,000          | 

-24-

---

Stock Purchase Warrants

At March 31, 2011, 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    | 
|August 17, 2011    |  | 243,000  |  | $ | 1.22     |  |  | 4,050,000 |  | $ | 1.750    | 
|March 4, 2012      |  | -        |  |   | -        |  |  | 2,556,000 |  |   | 1.075    | 
|September 16, 2015 |  | 246,285  |  |   | 1.25     |  |  | 4,104,757 |  |   | 1.250    | 

NOTE 16  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).

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.

-25-

---

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, 2011 at fair value on a recurring
basis:

|                                |   | Total     |  |   | Level 1   |  |   | Level 2 |  |   | Level 3 | 
|------------------------------- | - | --------- |  | - | --------- |  | - | ------- |  | - | ------- | 
|Assets:                         |   |           |  |   |           |  |   |         |  |   |         | 
|Money market accounts           | $ | 7,610,027 |  | $ | 7,610,027 |  | $ | -       |  | $ | -       | 
|Investment in equity securities |   | 178,486   |  |   | -         |  |   | 178,486 |  |   | -       | 
|                                | $ | 7,788,513 |  | $ | 7,610,027 |  | $ | 178,486 |  | $ | -       | 

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.

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

|Investment in equity securities:                             |   |          |  
|------------------------------------------------------------ | - | -------- | -
|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 17 - RELATED PARTY TRANSACTIONS

At March 31, 2011 and 2010 the amounts of $2,338 and $1,897,
respectively, are payable to directors and officers of the Company for routine
expense reimbursement. These amounts are unsecured and due on demand.

The Companys subsidiary Raft River Energy I, LLC (RREI) owed
the Company $282,257 and $335,684 at March 31, 2011 and 2010; 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:

|                    |   |         |  |   | Years Ended March 31, | 
|------------------- | - | ------- |  | - | --------------------- | 
|                    |   | 2011    |  |   | 2010                  | 
|Management fees     | $ | 250,000 |  | $ | 250,000               | 
|Lease and royalties |   | 196,893 |  |   | 209,544               | 
|                    | $ | 446,893 |  | $ | 459,544               | 

-26-

---

The Companys equity investment in RREI is adjusted monthly for
its 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.

The Company paid directors fees in the amounts of $67,500,
$60,000 and $60,000 for the years ended March 31, 2011, 2010 and 2009;
respectively.

NOTE 18 - 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, 2011 |  |   | Canadian GAAP
      March 31, 2011 |  |   | U.S. GAAP March
      31, 2010 |  |   | Canadian GAAP
      March 31,2010 | 
|------------------------------------------ | - | ------------------------------ |  | - | ---------------------------------- |  | - | ------------------------------ |  | - | --------------------------------- | 
|Plant, Property and Equipment              | $ | 40,295,117                     |  | $ | 40,735,728                         |  | $ | 16,550,006                     |  | $ | 16,990,617                        | 
|Intangible Assets                          |   | 16,957,708                     |  |   | 16,957,708                         |  |   | 16,642,515                     |  |   | 16,642,515                        | 
|Total Assets                               |   | 85,322,968                     |  |   | 85,763,579                         |  |   | 65,727,861                     |  |   | 66,168,472                        | 
|Stockholders Equity                       |   | 65,169,562                     |  |   | 65,610,173                         |  |   | 62,528,591                     |  |   | 62,969,202                        | 
|Total Liabilities and Stockholders Equity | $ | 85,322,968                     |  | $ | 85,763,579                         |  | $ | 65,727,861                     |  | $ | 66,168,472                        | 

|Consolidated Statements of Operations
      and Comprehensive Loss |   | U.S. GAAP Year
      Ended March 31, 2011 |   |   | Canadian GAAP
      Year Ended March 31, 2011 |   |   | U.S. GAAP Year
      ended March 31, 2010 |   |   | Canadian GAAP
      Year ended March 31, 2010 |  
|------------------------------------------------------------------ | - | ----------------------------------------- | - | - | --------------------------------------------- | - | - | ----------------------------------------- | - | - | --------------------------------------------- | -
|Loss from Operations                                               | $ | (4,039,351                                | ) | $ | (4,039,351                                    | ) | $ | (5,907,481                                | ) | $ | (5,907,481                                    | )
|Net Loss Attributable to U.S. Geothermal Inc.                      | $ | (3,954,416                                | ) | $ | (3,954,416                                    | ) | $ | (5,763,138                                | ) | $ | (5,763,138                                    | )

The Companys consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles.
Effective our fiscal year beginning April 1, 2011, the Company will provide an
explanation of differences between U.S. GAAP and International Financial
Reporting Standards (IFRS) in a footnote to the financial statements.

-27-

---

NOTE 19 - COMMITMENTS AND CONTINGENCIES

Operating Lease AgreementsThe 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, 2011, 2010 and 2009,
totaling $153,918, $177,109 and $81,392; respectively.

BLM Lease Agreements

IdahoOn 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. The Company believes
that it is in compliance with all of the lease terms.

San EmidioThe 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.

GerlachThe 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 CreekThe 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 LeaseThe Company signed in a
one year lease contract January 2011 for general office space for the executive
office located in Boise, Idaho. The contract includes two one year renewal
options for the Company. The lease payments are due in monthly installments of
$6,160. The Company incurred total office lease expenses under the current
contract and the prior contract for years ended March 31, 2011, 2010 and 2009,
totaling $72,306, $70,200 and $67,987; respectively.

-28-

---

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  | 
|2012        | $ | 167,167 | 
|2013        |   | 77,627  | 
|2014        |   | 67,611  | 
|2015        |   | 58,652  | 
|2016        |   | 55,352  | 
|Thereafter  |   | 21,946  | 

Power Purchase AgreementsThe 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.

In December of 2009, the Companys subsidiary (USG Oregon LLC),
signed a power purchase agreement with Idaho Power Company for the sale of power
generated by the Neal Hot Springs, Oregon project. The agreement has a term of
25 years and provides for the purchase of power up to 25 megawatts (22 megawatt
planned output level). Beginning 2012, the flat energy price is $96 per megawatt
hour. The price escalates annually by 6 percent in the initial years and by 1.33
percent during the latter years of the agreement. The approximate 25-year
levelized price is $117.65 per megawatt hour.

401(k) PlanThe 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.

Mineral Rights Option AgreementOn May
24, 2010, USG Oregon LLC (a subsidiary of the Company) entered into an option
agreement that allows for exclusive purchase of all mineral rights associated
with 2,110 acres of land located in Malheur County, Oregon. Per the terms of the
agreement, the Company transferred $200,000 to the seller. To exercise the
option agreement, the Company must pay an additional $200,000 prior to November
25, 2012. If the second payment is not made, the Company loses all rights
associated with the agreement.

-29-

---

NOTE 20  JOINT VENTURES/NON-CONTROLLING INTEREST

Raft River Energy I LLCRaft 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.

Gerlach Geothermal LLCOn 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.

Oregon USG Holdings LLCIn September
2010, Oregon USG Holdings LLC (wholly owned by U.S. Geothermal Inc.) signed an
LLC Operating Agreement with Enbridge Inc. for the right to participate in the
Companys project in the Neal Hot Springs project located in Malheur County,
Oregon. The agreement provided for the issuance of a $5 million promissory note,
with a conversion option, from Enbridge to Oregon USG Holdings LLC to provide
funding for the completion of the drilling and testing activities (see Note 11
for details). Upon completion of the independent reservoir engineers report at
Neal Hot Springs, Enbridges promissory note shall be converted into a direct
equity ownership in Oregon USG Holdings LLC. Enbridge will earn a 20% direct
ownership from conversion of $5 million convertible note and making an
additional payment of $13.8 million to Oregon USG Holdings LLC. In the event of
cost overruns for the project and at the Companys election, an additional
payment obligation of up to $5 million may be contributed by Enbridge that would
increase their direct ownership by 1.5 percentage points for each $1 million
contributed. Added to their base 20% ownership, additional payments could
increase Enbridges ownership to a maximum of 27.5% .

During the year ended March 31, 2011, Enbridge contributed
$1,000 for the right to acquire a 20% ownership interest in Oregon USG Holdings
LLC subject to completing the additional payment obligations and conversion of
the promissory note.

See description of the conversion event that occurred
subsequent to the fiscal year end in Note 21.

-30-

---

NOTE 21  SUBSEQUENT EVENT

The Company has evaluated events and transactions that have
occurred after the balance sheet date through June 9, 2011, which is considered
to be the issuance date. The following event was identified for disclosure:

Conversion of Loan to Equity and Capital
ContributionIn April 2011, the DOE guaranteed project loan was
closed which triggered the terms of the conversion agreement. The unsecured
convertible promissory note in the amount of $5,000,000 was converted to an
equity interest in Oregon USG Holding LLC. With the note conversion and the
additional capital contribution of $13.8 million, the partner (Enbridge)
received a 20% ownership interest in Oregon USG Holdings LLC and has the right
to acquire up to a maximum of 27.5% . Oregon USG Holdings LLC has full ownership
of USG Oregon LLC.

San Emidio Nevada Project Purchase AgreementOn June 1, 2011, the Company announced the signing of a 25 year power
purchase agreement between its wholly owned subsidiary (USG Nevada LLC) and NV
Energy for the purchase of an annual average of up to 19.9 net megawatts of
energy produced from the San Emidio Geothermal Project located in Washoe County,
Nevada. This agreement is still subject to approval by the PUC.

Repairs Agreement for Raft River Energy I LLCOn May 17, 2011, Raft River I Holdings, LLC consented to a repair plan
for both under performing wells utilized by Raft River Energy I, LLC (wells
RRG-2 and RRG-7). A Repair Services Agreement was executed between U.S
Geothermal Services, LLC (USG Services) and Raft River Energy I LLC, whereby
USG Services will provide up to $1.65 million in funding and manage the well
repairs. The cost of the repairs will be repaid preferentially from project cash
flow at a rate of 90% of increased cash created by the repairs. A management fee
of 12.75% of the actual repair cost incurred will be paid to USG Services. The
outstanding balance of the repair cost will also earn USG Services interest
income at the rate of 12.0 % per-annum.

-31-

---