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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934

For the fiscal year ended March 31, 2006

Commission File Number 333-117287

US GEOTHERMAL INC.(Exact Name of Registrant as Specified in Its Charter)

|Delaware                                 | 84-1472231         
|---------------------------------------- | -------------------
|(State or Other Jurisdiction of          | (I.R.S. Employer   
|Incorporation or Organization)           | Identification No.)
|                                         |                    
|1509 Tyrell Lane, Suite B                |                    
|Boise, Idaho                             | 83706              
|(Address of Principal Executive Offices) | (Zip Code)         

208-424-1027(Registrants Telephone
Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:
NONE

Securities registered under Section 12(g) of the Exchange Act:
NONE

Check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
Yes XXNo ___

Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is ot contained in this form, and no
disclosure will be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [XX ]

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Issuers revenues for its most recent year: $NIL

The aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such
common equity, as of May 31, 2006: $32,961,555

Number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date.

|Class of Equity         | Shares Outstanding as of May 31, 2006
|----------------------- | -------------------------------------
|Common stock, par value | 43,303,844                           
|$ 0.001 per share       |                                      

Transitional Small Business Disclosure Format (check one)
Yes ____   No XX

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U.S. Geothermal Inc. and Subsidiaries

Form 10-KSB

For the Year ended March 31, 2006

**INDEX**

|                                                                                                                                | Page
|------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                |     
|PART
      I.                                                                                                                  |     
|                                                                                                                                |     
|Item
      1. Description of Business                                                                                           | 5   
|                                                                                                                                |     
|Item
      2. Description of Property                                                                                           | 15  
|                                                                                                                                |     
|Item
      3. Legal Proceedings                                                                                                 | 22  
|                                                                                                                                |     
|Item
      4. Submission of Matters to a Vote of Security Holders                                                               | 22  
|                                                                                                                                |     
|PART
      II.                                                                                                                 |     
|                                                                                                                                |     
|Item
      5. Market for Common Equity and Related Stockholder Matters                                                          | 23  
|                                                                                                                                |     
|Item
      6. Managements Discussion and Analysis or Plan of Operations                                                        | 30  
|                                                                                                                                |     
|Item
      7. Financial Statements                                                                                              | 34  
|                                                                                                                                |     
|Item
      8. Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure                        | 57  
|                                                                                                                                |     
|Item
      8A. Controls and Procedures                                                                                          | 57  
|                                                                                                                                |     
|Item
      8B. Other Information                                                                                                | 57  
|                                                                                                                                |     
|PART
      III.                                                                                                                |     
|                                                                                                                                |     
|Item
      9. Directors, Executive Officers, Promoters and Control Persons;
      Compliance with Section 16(a) of the Exchange | 58  
|                                                                                                                                |     
|Item
      10. Executive Compensation                                                                                           | 60  
|                                                                                                                                |     
|Item
      11. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters             | 62  
|                                                                                                                                |     
|Item
      12. Certain Relationships and Related Transactions                                                                   | 63  

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|Item
      13. Exhibits                               | 63
|----------------------------------------------------- | --
|                                                      |   
|Item
      14. Principal Accountant Fees and Services | 64

This report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Act of 1934, as amended, including, but not limited to,
our statements on strategy, operating forecasts, and our working capital
requirements and availability. In addition, from time to time, the company or
its representatives have made or may make forward-looking statements, orally or
in writing. Such forward-looking statements may be included in, but are not
limited to, various filings made by the company with the Securities and Exchange
Commission (the SEC), press releases or oral statements made by or with the
approval of an authorized executive officer of the company. Forward-looking
statements consist of any statement other than a recitation of historical fact
and can be identified by the use of forward-looking terminology such as may,
expect, anticipate, estimate, or continue or the negative thereof or
other variations thereon or comparable terminology. Actual results could differ
materially from those projected or suggested in any forward-looking statements
as a result of a wide variety of factors and conditions, including, but not
limited to, the factors and conditions described in the discussions of Risk
Factors and Managements Plan of Operations in this report and in other
documents the company files from time to time with the Securities and Exchange
Commission. The reader is cautioned that the company does not have a policy of
updating or revising forward-looking statements and thus the reader should not
assume that silence by management of the company over time means that actual
events are bearing out as estimated in such forward-looking statements.





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Part I

ITEM 1. DESCRIPTION OF BUSINESS

The Companys Business

U.S. Geothermal Inc. (the company, GTH or we or us or
words of similar import) is in the renewable green energy business. Through
its subsidiary, U.S. Geothermal Inc., an Idaho corporation (Geo-Idaho,
although our references to the company include and refer to our operations
through Geo-Idaho), we are developing geothermal energy power plants in the Raft
River area of Idaho. As more thoroughly discussed in the section below on
Managements Plan of Operations, the company has entered into a power purchase
agreement, at 10 megawatts (MW), with Idaho Power Company, and is in the process
of developing the power plant for the first phase of production.

Business Development

Geo-Idaho was formed as an Idaho corporation in February 2002
to conduct geothermal resource development. On March 5, 2002 Geo-Idaho entered
into a letter agreement with the previous owner, pursuant to which Geo-Idaho
agreed to acquire all of the real property, personal property and permits that
comprised the owners interest in the Raft River project. We generally refer to
this real and personal property interests as the Vulcan Property. On December
3, 2002 the letter agreement was replaced by a formal agreement with the
previous owner (the Vulcan Agreement), which provided for the acquisition, in
stages, of 100% of the Vulcan Property in consideration for shares and warrants
of Geo-Idaho and cash payments to or on behalf of the previous owner of up to
$600,000 (for 100% of the Vulcan Property). Geo-Idaho also agreed that, as a
condition to completing the purchase of and as an owner of the Vulcan Property,
it would work to advance the Raft River Project by expending at least $200,000
for a work program (which has since been completed). By August 1, 2005,
Geo-Idaho had paid the previous owner $617,000 in securities and cash payments,
and had completed the work program, to bring its percentage ownership in the
Vulcan Property to 100%.

The company and Geo-Idaho entered into a merger agreement on
February 28, 2002, which was amended and restated on November 30, 2003, and
closed on December 19, 2003. In accordance with the merger agreement, GTH
acquired Geo-Idaho through the merger of Geo-Idaho with a wholly-owned
subsidiary, EverGreen Power Inc., an Idaho corporation formed for that purpose.
Geo-Idaho is the surviving corporation and the subsidiary through which GTH
conducts operations. As part of this acquisition, we changed our name to U.S.
Geothermal Inc. Because the former Geo-Idaho shareholders became the majority
holders of GTH, the transaction is treated as a reverse takeover for
accounting purposes.

Competition

Although the market for different forms of energy is large and
dominated by very powerful

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players, we perceive our industrial competition to be
independent power producers and in particular those producers who provide
green renewable power. Our definition of green power is electricity derived
from a source that does not pollute the air, water or earth. Sources of green
power, in addition to geothermal, include wind, solar, biomass and run-of-the
river hydroelectric. A number of states have instituted renewable portfolio
standards (RPS) that require utilities to purchase a minimum percentage of
their power from renewable sources. For example, RPS statutes in California and
Nevada require 20% renewable, and according to the Department of Energys Energy
Efficiency and Renewable Energy department, utilities in 34 states nationwide
are providing their customers with the opportunity to purchase green, renewable
power through premium pricing programs. As a result, we believe green power is a
niche sub-market, in which many power purchasers are or are increasing or
committing to increase their investments. Accordingly, the conventional energy
producers do not provide direct competition.

In the Pacific Northwest there are currently no geothermal
facilities. There exist a number of wind farms, as well as biomass and
run-of-the river hydroelectric facilities. However, GTH believes that the
combination of greater reliability and baseload generation from geothermal,
access to infrastructure for deliverability, and a low "full life" cost will
allow it to successfully compete for long term power purchase agreements.

Governmental Approvals and Regulation

GTH is subject to both federal and state regulation in respect
of the production, sale and distribution of electricity. Federal legislation
includes The Public Utilities Act of 1935 (which has two titles: The Public
Utility Holding Company Act ("PUHCA") and the Federal Power Act), as well as the
Public Utility Regulatory Policies Act of 1978 ("PURPA") and the Energy Policy
Act of 1992 ("EPACT "). Because GTH is defined as an independent power producer
under the rules and regulations of the Federal Energy Regulatory Commission
("FERC"), the relevant aspects of federal legislation are that its electrical
generating facilities qualify under the policy set forth under PURPA which
encourages alternative energy sources such as geothermal, wind, biomass, solar
and cogeneration. Additionally, under EPACT, the company is currently exempt
from PUHCA legislation regulating rates for electricity on the wholesale
level.

The State of Idaho also regulates electricity through the Idaho
Public Utility Commission ("IPUC"). Regulated utilities have the exclusive right
to distribute and sell electricity within their service area. They may purchase
electricity in the wholesale market from independent producers like GTH. The
IPUC, in accordance with Federal PURPA legislation has the authority to set the
rules and regulations governing the sale of electricity generated from
alternative energy sources. Regulated utilities are required to purchase
electricity on an avoided cost basis from qualifying facilities.

Currently, the IPUC defines such a facility as having an
average output capacity of 10 Megawatts (MW) per month and a contract term of up
to 20 years. All PURPA contracts in Idaho are subject to the approval of the
IPUC. GTH is not required to market any of the electricity that it may generate
at Raft River to Idaho utilities; under EPACT, it can transmit and sell its
electricity in another state. Nonetheless, GTH initially signed three 10 MW
power

-6-

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purchase agreements (PPA) with the Idaho Power Company
(Idaho Power).

On May 8, 2006, Idaho Power confirmed that GTH would be allowed
to bid the Raft River Unit 1 project into the recently issued Idaho Power
geothermal Request for Proposal for Geothermal Power. If Idaho Power selects
GTH as a successful bidder, the Company expects that under a new PPA with Idaho
Power, which would replace the current PPA, the Unit 1 power plant will be
allowed to sell its full output capacity of up to 13 MW annual average, instead
of being capped at ten average MWs per month as mandated under the current PPA.
This 30% increase in plant output would be achieved with no additional capital
investment and is expected to decrease the operating cost per kilowatt-hour.

With carbon regulation widely anticipated to increase the cost
of power sourced from coal, and limited opportunities to purchase baseload
geothermal power, the company has found that utilities across the Western United
States have been eager to discuss power purchases from its Raft River geothermal
resource. As a result of the increased interest, US Geothermal elected to
withdraw its Unit 2 and Unit 3 Idaho Power PPAs without submitting them to the
IPUC for approval in order to pursue larger capacity PPAs with other utilities.
With the concurrence of Idaho Power, the Unit 2 and Unit 3 10MW contracts have
been voided without further obligation on either party.

Eugene Water and Electric Board (EWEB), from Eugene, Oregon
and US Geothermal have signed a letter of intent for EWEB to purchase the full
13 MW electrical output of Unit 2. The parties have exchanged a draft PPA and
intend to complete it by July 2006. Upon execution of the EWEB PPA, and if Unit
1 is successful in the Idaho Power Request for Proposal, then the total output
from the Unit 1 and Unit 2 Raft River power plants will be 26 MW from two
plants, instead of the originally planned 30 MW from three plants, resulting in
substantial capital and operating cost savings through improved economy of
scale.

In addition, the strong regional interest in geothermal power
has resulted in several utilities from California to Washington entering into
discussions with US Geothermal to purchase the electrical power output of Unit
3. Subject to drilling confirmation of sufficient geothermal resource, the power
plant output from three units at Raft River would be 39 MW, instead of the
maximum 30MW under the previous Idaho Power PPA provisions.

GTH will require the approval of various federal, state and
local authorities for construction of a geothermal facility at Raft River. These
authorities include the U.S. Fish and Wildlife Service, Environmental Protection
Agency, Idaho Department of Environmental Quality, Idaho Department of Water
Resources, Idaho Bureau of Hazardous Materials, Idaho State Historical Society,
Cassia County and the Southern Idaho Regional Solid Waste District. We have
retained Kleinfelder Inc. of Boise, Idaho, an independent environmental and
regulatory consultant, to advise GTH as to the siting and design for purpose of
governmental approvals. Additionally, David Evans & Associates of Boise,
Idaho is providing consulting and engineering services for transmission and
interconnection issues and the preparation of the application for a conditional
use permit. Centra Consulting, Inc. of Boise, Idaho has been retained to assist
with State of Idaho air quality and cooling water reuse permitting.

-7-

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Environmental Compliance

As GTHs design and permitting activities have progressed, it
has further refined and clarified the environmental issues for which it will
have to demonstrate compliance in the construction and operation of a geothermal
facility at Raft River. Please see discussion below under Permittingin
Item 6- Managements Plan of Operations. The relevant legislation
includes: Clean Air Act, Endangered Species Act, Clean Water Act, Rivers and
Harbors Act, National Historic Preservation Act, National Pollutant Discharge
Elimination System, Resource Conservation and Recovery Act, Idaho Solid Waste
Facilities Act and the IDAPA Drilling for Geothermal Resource Rules. The
environmental assessment that the company is conducting will identify any
additional steps that are needed to comply with these acts.

We believe that a geothermal facility can be designed,
constructed and placed into operation at Raft River that will meet environmental
compliance requirements. At this time, the company does not believe that the
cost of compliance at the federal, state and local levels will be
significant.

Employees

GTH currently has six full-time employees. Once construction
financing for the first power plant is obtained, we intend to engage additional
consultants and service providers. As part of the ongoing operating requirements
of the first power plant, we intend to hire approximately 10 to 12 operating
staff, at an estimated annual cost of $635,000. The Company also continuously
considers acquisition opportunities; if the company is successful in making
acquisitions, additional management and administrative staff may be added.

Risk Factors

An investment in shares of our common stock involves a high
degree of risk. Potential investors should consider the following factors, in
addition to the other information provided by the company in its filings with
the SEC in evaluating our business and proposed activities before they purchase
any shares of our common stock.

Risks Relating To Our Business

We have a limited operating history, have incurred losses to
date, and cannot give any assurance that we can ever attain profitability.
Our company has been engaged in limited activities in the geothermal business
since Geo-Idahos incorporation in February 2002. As a result of our brief
operating history, our operating results from historical periods are not readily
comparable to and may not be indicative of future results. We have not generated
revenues from operations to date, and cannot give any assurance that we will be
able to generate revenues in the future. For the years ended March 31, 2003,
2004, 2005 and 2006, we incurred net losses of ($164,909), ($676,398),
($1,830,421), and ($1,523,385) respectively. At March 31, 2005, and March 31,
2006, we had accumulated deficits

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of ($3,709,150) and ($5,232,535), respectively. We expect to
incur losses for at least the next 18 months. We cannot give you any assurance
that we will soon make a profit or that we will ever make a profit. To achieve
profitability, we must, among other things, obtain financing to build and
commission a geothermal electrical power generation facility for our initial
power purchase agreements.

Our future performance depends on our ability to establish
that the geothermal resource is economically sustainable.Geothermal
resource exploration and development involves a high degree of risk. The
recovery of the amounts shown for geothermal properties and related deferred
costs on our financial statements, as well as the execution of our business plan
generally, is dependent upon the existence of economically recoverable and
sustainable reserves.

We have a need for substantial additional financing and will
have to significantly delay, curtail or cease operations if we are unable to
secure such financing.We require substantial additional financing to
fund the cost of continued development of the Raft River project and other
operating activities, and to finance the growth of our business, including the
construction and commissioning of a power generation facility. We may not be
able to obtain the needed funds on terms acceptable to us or at all. Further, if
additional funds are raised by issuing equity securities, significant dilution
to our current shareholders may occur and new investors may get rights that are
preferential to current shareholders. Alternatively, we may have to bring in a
joint venture partner to fund further development work, which would result in
reducing our interest in the project.

It is very costly to place geothermal resources into
commercial production.Before the sale of any power can occur, it will
be necessary to construct a gathering and disposal system, a power plant, and a
transmission line, and considerable administrative costs would be incurred,
together with the drilling of additional wells. We have estimated these costs to
be around US $38,000,000 to be incurred over an eighteen month period. To fund
expenditures ofthis magnitude, we may have to find a joint venture participant
with substantial financial resources. There can be no assurance that a
participant can be found and, if found, it would result in GTH having to
substantially reduce its interest in the project.

We may not be able to manage our growth.Significant
growth in our operations will place demands on our operational, administrative
and financial resources, and the increased scope of our operations will present
challenges to us due to increased management time and resources required and our
existing limited staff. Our future performance and profitability will depend in
part on our ability to successfully integrate the operational, financial and
administrative functions of Raft River and other acquired properties into our
operations, to hire additional personnel and to implement necessary enhancements
to our management systems to respond to changes in our business. There can be no
assurance that we will be successful in these efforts. Our inability to
integrate acquired properties, to hire additional personnel or to enhance our
management systems could have a material adverse effect on our results of
operations.

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If we incur material debt to fund our business, we could
face significant risks associated with such debt levels.We will need to
procure significant additional financing to construct, commission and operate a
power plant at Raft River in order to generate and sell electricity. If this
financing includes the issuance of material amounts of debt, this would expose
GTH to risks including, among others, the following:

•          
  a portion of our cash flow from operations would be used for the payment of
  principal and interest on such indebtedness and would not be available for financing
  capital expenditures or other purposes;

•          
  a significant level of indebtedness and the covenants governing such indebtedness
  could limit our flexibility in planning for, or reacting to, changes in our
  business because certain activities or financing options may be limited or prohibited
  under the terms of agreements relating to such indebtedness;

•          
  a significant level of indebtedness may make us more vulnerable to defaults
  by the purchasers of electricity or in the event of a downturn in our business
  because of fixed debt service obligations; and

•          
  the terms of agreements may require us to make interest and principal payments
  and to remain in compliance with stated financial covenants and ratios. If the
  requirements of such agreements were not satisfied, the lenders would be entitled
  to accelerate the payment of all outstanding indebtedness and foreclose on the
  collateral securing payment of that indebtedness, which would likely include
  our interest in the project.

In such event, we cannot assure you that we would have
sufficient funds available or could obtain the financing required to meet our
obligations, including the repayment of outstanding principal and interest on
such indebtedness.

The success of our business relies on retaining our key
personnel.We are dependent upon the services of our President and Chief
Executive Officer, Daniel J. Kunz, our Chief Operating Officer, Douglas J.
Glaspey, and Kevin Kitz, our Vice President  Project Development. The loss of
any of their services could have a material adverse effect upon us. GTH has
executed employment agreements with these persons but does not have key-man
insurance on any of them.

Our development activities are inherently very risky.The risks involved in the development of a geothermal resource cannot be
over-stated. The development of a geothermal resource is such that there cannot
be any assurance of success. Exploration costs are not fixed, and the resource
cannot be relied upon until substantial development has taken place, which
entails high exploration and development costs. The costs of development
drilling are subject to numerous variables which could result in substantial
cost overruns. Drilling for geothermal resource may involve unprofitable
efforts, not only from dry wells, but from wells that are productive but do not
produce sufficient net revenues to return a profit after drilling, operating and
other costs.

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Our drilling operations may be curtailed, delayed or cancelled
as a result of numerous factors, many of which are beyond our control, including
economic conditions, mechanical problems, title problems, weather conditions,
compliance with governmental requirements and shortages or delays of equipment
and services. If our drilling activities are not successful, we would experience
a material adverse effect on our future results of operations and financial
condition.

In addition to the substantial risk that wells drilled will not
be productive, or may decline in productivity after commencement of production,
hazards such as unusual or unexpected geologic formations, pressures, downhole
fires, mechanical failures, blowouts, cratering, explosions, uncontrollable
flows of well fluids, pollution and other physical and environmental risks are
inherent in geothermal exploration and production. These hazards could result in
substantial losses to us due to injury and loss of life, severe damage to and
destruction of property and equipment, pollution and other environmental damage
and suspension of operations. As protection against operating hazards, we
maintain insurance coverage against some, but not all, potential losses. We do
not fully insure against all risks associated with our business either because
such insurance is not available or because the cost of such coverage is
considered prohibitive. The occurrence of an event that is not covered, or not
fully covered, by insurance could have a material adverse effect on our
financial condition and results of operations.

The impact of governmental regulation could adversely affect
our business.Our business is subject to certain federal, state and
local laws and regulations, including laws and regulations on taxation, the
exploration for and development, production and distribution of electricity, and
environmental and safety matters. Many laws and regulations require drilling
permits and govern the spacing of wells, rates of production, prevention of
waste and other matters. Such laws and regulations may increase the costs of
planning, designing, drilling, installing, operating and abandoning our
geothermal wells, the power plant and other facilities. In addition, our
operations are subject to complex environmental laws and regulations adopted by
federal, state and local jurisdictions where we operate. We could incur
liability to governments or third parties for any unlawful discharge of
pollutants into the air, soil or water, including responsibility for remedial
costs. We could potentially discharge such materials into the environment in any
of the following ways:

- from a well or drilling equipment at a drill site;
- leakage from gathering systems, pipelines, power plant and storage tanks;
- damage to geothermal wells resulting from accidents during normal
  operations; and
- blowouts, cratering and explosions.

In addition, the submission and approval of environmental
impact assessments may be required. Environmental legislation is evolving in a
manner which means stricter standards, and enforcement, fines and penalties for
non-compliance are more stringent. Environmental assessments of proposed
projects carry a heightened degree of responsibility for companies and

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directors, officers and employees. The cost of compliance with
changes in governmental regulations has a potential to reduce the profitability
of operations.

Because the requirements imposed by such laws and regulations
are frequently changed, we cannot assure you that laws and regulations enacted
in the future, including changes to existing laws and regulations, will not
adversely affect our business. In addition, because we acquire interests in
properties that have been operated in the past by others, we may be liable for
environmental damage caused by such former operators.

Industry competition may impede our growth.The
electrical power generation industry, of which geothermal power is a
sub-component, is highly competitive and we may not be able to compete
successfully or grow our business.

We compete in areas of pricing, grid access and markets. The
industry in the Pacific Northwest, in which the Raft River project is located,
is complex as it is composed of public utility districts, cooperatives and
investor-owned power companies. Many of the participants produce and distribute
electricity. Their willingness to purchase electricity from an independent
producer may be based on a number of factors and not solely on pricing and
surety of supply.

Claims have been made that some geothermal plants cause
seismic activity and related property damage.There are approximately two
dozen geothermal plants operating within a fifty-square-mile region in the area
of Anderson Springs, in Northern California, and there is general agreement that
the operation of these plants causes a generally low level of seismic activity.
Some residents in the Anderson Springs area have asserted property damage claims
against those plant operators. There are significant issues whether the plant
operators are liable, and to date no court has found in favor of such claimants.
Even if liability is imposed on operators in the Anderson Springs area, we do
not believe the area of the Raft River project or our intended operation of a
power plant present the same geological or seismic risks.

Actual costs of construction or operation of a power plant
may exceed estimates used in negotiation of power purchase agreements.The companys initial power purchase contract is under rates established
by the Idaho Public Utility Commission, using an avoided-cost model for cost
of construction and operating costs of a power plant. If the actual costs of
construction or operations exceed the model costs, the company may not be able
to build the contemplated power plant, or if constructed, may not be able to
operate profitably.

Payments under our initial power purchase agreement may be
reduced if we are unable to forecast our production adequately.Under
the terms of our initial power purchase agreement, if we do not deliver
electricity output within 90% to 110% of our forecasted amount, payments for the
amount delivered will be reduced, possibly significantly. If the company
consistently mis-forecasts its output, its revenues will be reduced, and we may
not be able to operate profitably.

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There are some risks for which we do not or cannot carry
insurance.Because our current operations are limited in scope, GTH
carries public liability insurance and directors and officers liability
coverage, but does not currently insure against any other risks. As its
operations progress, GTH will acquire additional coverage consistent with its
operational needs, but GTH may become subject to liability for pollution or
other hazards against which it cannot insure or cannot insure at sufficient
levels or against which it may elect not to insure because of high premium costs
or other reasons. In particular, coverage is not available for environmental
liability or earthquake damage.

Our officers and directors may have conflicts of interests
arising out of their relationships with other companies.Several of our
directors and officers serve (or may agree to serve) as directors or officers of
other companies or have significant shareholdings in other companies. To the
extent that such other companies may participate in ventures in which GTH may
participate, the directors may have a conflict of interest in negotiating and
concluding terms respecting the extent of such participation. If a conflict of
interest arises, a director who has such a conflict will abstain from voting for
or against the approval of such a participation or such terms. From time to time
several companies may participate in the acquisition, exploration and
development of natural resource properties thereby allowing for their
participation in larger programs, permitting involvement in a greater number of
programs and reducing financial exposure in respect of any one program. It may
also occur that a particular company will assign all or a portion of its
interest in a particular program to another of these companies due to the
financial position of the company making the assignment. Under the laws of the
State of Delaware, the directors of GTH would be required to act honestly, in
good faith and in the best interests of GTH.

In determining whether or not GTH would participate in a
particular program and what interest GTH would acquire in it, the directors
would primarily consider the degree of risk to which GTH would be exposed and
its financial position at that time.

Risks Relating To The Market For Our Securities

A significant number of shares of our common stock are
eligible for sale in the United States, which could have an adverse effect on
the market price for our common stock and could adversely affect our ability to
raise needed capital.Currently, the number of shares in the public
float on the TSX Venture Exchange and over-the-counter market in the U.S. is
approximately 41,153,535. The market price for our common stock could decrease
significantly and our ability to raise capital could be adversely affected by
the availability of such a large number of shares.

Our officers and directors hold sufficient shares that
acting collectively they may be able to influence the outcome of matters
submitted to the shareholders.Our officers and directors own in the
aggregate approximately 13% of the companys securities, on a fully diluted
basis. If the officers and directors were to act collectively, assuming they
continue to own all of their shares, there is a substantial likelihood that they
would be able to

-13-

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influence the election of the directors of the company and the
outcome of all corporate actions requiring the approval of the shareholders,
such as mergers and acquisitions, in their own interests and to the detriment of
the other shareholders.

The possible issuance of substantial amounts of additional
shares without shareholder approval may dilute the percentage ownership of our
shareholders.There are 43,303,844 shares of our common stock
outstanding and 8,591,129 shares of common stock issuable upon exercise or
conversion of outstanding options and warrants. There are 100,000,000 shares of
our common stock authorized for issuance. All of our authorized shares in excess
of those currently outstanding may be issued without any action or approval by
our shareholders and may dilute the percentage ownership of our current
shareholders.

Because the public market for shares of our common stock is
limited, investors may be unable to resell their shares of common stock.There is currently only a limited public market for our common stock on
the TSX Venture Exchange and on the Over-the-Counter Bulletin Board in the
United States, and investors may be unable to resell their shares of common
stock. The development of an active public trading market depends upon the
existence of willing buyers and sellers that are able to sell their shares and
market makers that are willing to make a market in the shares. Under these
circumstances, the market bid and ask prices for the shares may be significantly
influenced by the decisions of the market makers to buy or sell the shares for
their own account, which may be critical for the establishment and maintenance
of a liquid public market in our common stock. Market makers are not required to
maintain a continuous two-sided market and are free to withdraw firm quotations
at any time. We cannot give you any assurance that an active public trading
market for the shares will develop or be sustained.

The price of our common stock is volatile, which may cause
investment losses for our shareholders.The market for our common stock
is highly volatile, having ranged in the last twelve months from a low of
CDN$0.66 to a high of CDN$1.45 on the TSX Venture Exchange and from a low of
US$0.50 to a high of US$1.00 on the Over-the-Counter Bulletin Board. The trading
price of our common stock on the TSX Venture Exchange and on the OTCBB is
subject to wide fluctuations in response to, among other things, quarterly
variations in operating and financial results, and general economic and market
conditions. In addition, statements or changes in opinions, ratings, or earnings
estimates made by brokerage firms or industry analysts relating to our market or
relating to our company could result in an immediate and adverse effect on the
market price of our common stock. The highly volatile nature of our stock price
may cause investment losses for our shareholders.

Our common stock is considered to be a penny stock, which
may make it more difficult for investors to sell their shares.Our common
stock is considered to be a penny stock. The Securities and Exchange
Commission has adopted rules that regulate broker-dealer practices in connection
with transactions in penny stocks. Penny stocks generally are equity
securities with a price of less

-14-

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than $5.00 (other than securities registered on certain
national securities exchanges or quoted on NASDAQ, provided that current price
and volume information with respect to transactions in such securities is
provided by the exchange or system). Prior to a transaction in a penny stock, a
broker-dealer is required to:

•          
  deliver a standardized risk disclosure document prepared by the Securities and
  Exchange Commission that provides information about penny stocks and the nature
  and level of risks in the penny stock market;

•          
  provide the customer with current bid and offer quotations for the penny stock;

•          
  explain the compensation of the broker-dealer and its salesperson in the transaction;

•          
  provide monthly account statements showing the market value of each penny stock
  held in the customers account; and,

•          
  make a special written determination that the penny stock is a suitable investment
  for the purchaser and receive the purchasers written agreement to the
  transaction.

These requirements may have the effect of reducing the level of
trading activity in the secondary market for our stock and investors may find it
more difficult to sell their shares.

ITEM 2. DESCRIPTION OF PROPERTY

The Raft River project, where the companys geothermal
operations are located, is in south-central Idaho, approximately 55 miles
southeast of Burley, the county seat of Cassia County. Burley, population 8,300,
is the local agricultural and manufacturing center for the area, providing a
full range of light to heavy industrial services.

A commercial airport is located 90 miles to the northeast in
Pocatello, Idaho. Pocatello, population 53,000, is a regional center for
agriculture, heavy industry (mining, phosphate refining), technology and
education with Idaho State University. Malta, a town with a population of 180,
is 12 miles north of the project site where basic services, fuel, and groceries
are available. Year-round access to the project from Burley is via Interstate
Highway 84 south to State Highway 81 south, then east on the Narrows Canyon
Road, an improved county road.

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The Raft River project currently consists of ten parcels
(generally referred to as the U.S. Geothermal Property, the Crank Lease, the
Newbold Lease, the Jensen Investments Leases, the Stewart Lease, the Bighorn
Mortgage Lease, the Doman Lease, the Griffin Lease, and the Glover Lease)
comprising 783.93 acres of fee land and 4,736.79 acres of contiguous leased
geothermal rights located on private property in Cassia County, Idaho. All
parcels are defined by legal subdivision or by metes and bounds survey
description. The ten parcels are as follows:

The U.S. Geothermal Property.The U.S. Geothermal
Property is comprised of three separate purchases that total 783.93 acres; the
Vulcan Property, the Elena Corporation Property and the Dewsnup property. The
Vulcan Property includes both surface and geothermal rights and consists of two
parcels. The first parcel has a total area of approximately 240 acres and three
geothermal wells (RRGE-1, RRGP-4 and RRGP-5) are located on this parcel. The
second parcel has a total area of approximately 320 acres, and three additional
geothermal wells (RRGE-3, RRGI-6 and RRGI-7) are located on this parcel. A
fourth well, RRGE-2, although located on the property covered by the Crank
lease, was acquired by the company as part of its purchase of the Vulcan
Property.

The Elena Property is comprised of surface and geothermal
rights to approximately 100 acres of property, excluding the oil and gas rights
to the property. The property is contiguous to other properties owned or leased
by the company.

The Dewsnup Property is comprised of the surface and geothermal
rights to approximately 123.93 acres of property, excluding the oil and gas
rights to the property, but including all water

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and water rights. The property is contiguous to other
properties owned or leased by the company.

The Crank Lease.The Crank lease covers approximately
160 acres of mineral and geothermal rights, with right of ingress and
egress.

The Newbold Lease.The Newbold lease covers approximately
  20 acres of both surface and geothermal rights.

The Jensen Investments Leases.The first Jensen
Investments lease covers approximately 2,954.75 acres of geothermal rights only.
It is contiguous with the Vulcan property and property covered by the Crank
lease. The second Jensen Investments lease covers approximately 44.5 acres of
surface and geothermal rights, and is contiguous with property covered by the
first Jensen lease.

The Stewart Lease.The Stewart Lease covers
approximately 317.54 acres on two adjoining parcels. Parcel 1 contains
approximately 159.04 acres and includes surface and geothermal rights. Parcel 2
contains approximately 158.50 acres and only covers surface rights. The
underlying geothermal rights for Parcel 2 are subject to the first Jensen
Investments Lease.

The Bighorn Mortgage Lease.The Bighorn Mortgage lease
covers approximately 280 acres of surface and geothermal rights.

The Doman Lease.The Doman lease covers approximately
640 acres of surface and geothermal rights, excluding oil and gas rights.

The Griffin Lease.The Griffin lease contains
approximately 160 acres of geothermal rights.

The Glover Lease.The Glover lease contains
approximately 160 acres of geothermal rights.

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Lease/Royalty Terms

The Crank lease, the Newbold lease, the Jensen Investments
leases, the Bighorn Mortgage lease, the Doman lease, the Griffin lease and the
Glover lease have royalties payable under the following terms:

|(a) | Energy produced, saved and used for the generation of
      electric power, which is then sold by lessee, has a royalty of ten percent
      (10%) of the net proceeds.    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Energy produced, saved and sold by lessee, then used by
      the purchaser for generation of electric power, has a royalty of ten
      percent (10%) of the market value.
|(c) | Energy produced, which is used for any purpose other than
      the generation of electricity has a royalty of five percent (5%) of the
      gross proceeds.              

The Stewart lease has production royalties payable under the
following terms:

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|(a) | Energy produced, saved and sold by the Lessee, then used
      by the purchaser for generation of electric power, has a royalty of ten
      percent (10%) of the market value of the electric power.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Energy produced, saved and used for the generation of
      electric power, which is then sold by Lessee, has a royalty of three
      percent (3%) of the market value of the electric power.       
|(c) | Energy produced, which is used for any purpose other than
      the generation of electricity has a royalty of five percent (5%) of the
      gross proceeds.                                        

No production royalties have been paid to date under any of the
leases. All of the leases may be extended indefinitely if production is achieved
during the primary term, so long as production is maintained. For each lease
other than the Crank Lease (see below), once production is achieved the amounts
due annually will be the greater of the production royalty and the minimum
payment for the last year of the primary term. All payments under the leases are
made annually in advance on the anniversary date of the particular lease. In
addition, the following lease and other royalty terms apply to the individual
leases:

The Crank Lease.The lease agreement with Janice Crank
was originally entered into June 28, 2002, and had a primary term of 5 years.
After GTH provided evidence to the lessor that the well (RRGE2) located on
lessors property is not owned by the lessor (but instead is included in the
Vulcan Property), a new lease was entered into on June 28, 2003, with a
four-year initial term. Advance production royalties (on a June to June basis)
are payable under the Crank lease as follows:

- Year 1 (Paid June 2002 under original lease): US $5,000
- Year 2 (Paid June 2003 under original lease): US $10,000
- Year 3 (Paid June 2004 under renegotiated lease): US $10,000
- Year 4: Due June 2005: US $10,000
- Year 5: Due June 2006: US $10,000

Payments for years 2002 through 2006 are advances against
future production royalties. For later years, during commercial production,
there is a minimum annual production royalty of US $18,000. If the initial
commercial production from the well is delayed past the primary lease term, the
company will seek an amendment to extend the primary term to the initial
commercial plant production date. The minimum amount that will be payable over
the course of the leases is $45,000. Maximum amounts payable will depend on
production from the property.

The Newbold Lease. The company leases this property
pursuant to a lease agreement with Jay Newbold dated March 1, 2004. The Newbold
lease has a primary term of 10 years (through February 28, 2014) and is extended
indefinitely so long as production from the geothermal field is maintained.
Lease payments are as follows:

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- Years 1-5: $10.00 per acre or $200 per year
- Years 6-10: $15.00 per acre or $300 per year

The minimum amount that will be payable over the course of the
lease is $2,500. Maximum amounts payable will depend on production from the
property.

The Jensen Investments Leases.The first Jensen
Investments lease was originally with Sergene Jensen, as lessor, is dated July
11, 2002, and has a primary term of 10 years. In September 2005, the property
subject to the lease was conveyed and the lease was assumed by Jensen
Investments, Inc. Lease payments (on a July to July basis) are as follows:

- Years 1-5: US $2.50 per acre or $7,386.88 per year
- Years 6-10: US $3.00 per acre or $8,864.25 per year

The minimum amount that will be payable over the course of the
lease is $81,255.65. Maximum amounts payable will depend on production from the
property.The second Jensen Investments lease, with Jensen Investments,
Inc., is dated July 12, 2002, and has a primary term of 10 years. Lease payments
(on a July to July basis) are as follows:

- Years 1-5: US $2.50 per acre or $111.25 per year
- Years 6-10: US $3.00 per acre or $133.50 per year

The minimum amount that will be payable over the course of the
lease is $1,223.75. Maximum amounts payable will depend on production from the
property.

The Stewart Lease.The Stewart lease, with Reid and Ruth
Stewart, is dated December 1, 2004, and has a primary term of 30 years. Lease
payments are as follows:

- Year 1: US $8,000
- Year 2: US $5,000.
- Year 3-30: $5,000 plus an annual increase of 5% per year.

The minimum amount that will be payable over the course of the
lease is $319,614.00. Maximum amounts payable will depend upon production from
the property.

The Bighorn Mortgage Lease.The Bighorn Mortgage lease,
with Bighorn Mortgage

Corporation, is dated July 5, 2005, and has a primary term of
10 years. Lease payments are as follows:

-20-

---

- Year 1-5: US $1,400.
- Year 6-10: US $2,100.

The minimum amount that will be payable over the course of the
lease is $17,500.00. Maximum amounts payable will depend upon production from
the property.

The Doman Lease.The Doman lease, with Dale and Ronda
Doman, is dated June 23, 2005, and has a primary term of 10 years. Lease
payments are as follows:

- Year 1-5: US $1,600.
- Year 6-10: US $3,200.

The minimum amount that will be payable over the course of the
lease is $24,000.00. Maximum amounts payable will depend upon production from
the property.

The Griffin Lease.The Griffin lease, with Michael and
Cleo Griffin, Harlow and Pauline Griffin, Douglas and Margaret Griffin, Terry
and Sue Griffin, Vincent and Phyllis Jorgensen, and Alice Mae Griffin Shorts, is
dated June 23, 2005, and has a primary term of 10 years. Lease payments are as
follows:

- Year 1: US $1,600.
- Year 2-5: US $800.
- Year 6-10: US $1,200.

The minimum amount that will be payable over the course of the
lease is $10,800.00. Maximum amounts payable will depend upon production from
the property.

The Glover Lease.The Glover lease, with Philip Glover,
is dated January 25, 2006, and has a primary term of 10 years. Lease payments
are as follows:

- Year 1: US $2,100.
- Year 2-5: US $1,600.
- Year 6-10: US $2,400.

The minimum amount that will be payable over the course of the
lease is $20,500.00. Maximum amounts payable will depend upon production from
the property.

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The total minimum amount payable under all of the leases during
their primary terms is $522,393.43. The above listed lease payments are payable
annually in advance, and are current through lease years beginning in 2005.

We lease general office space for our executive office in Boise
at an annual cost of $30,506. The underlying lease is a year-to-year lease that
expires on January 31, 2007.

With the construction of the power plant included in phase one
of the Raft River project, management has increased the general liability and
umbrella liability insurance coverage, as deemed necessary. Additional builders
risk insurance will be obtained prior to construction of the power plant.

ITEM 3. LEGAL PROCEEDINGS

As of March 31, 2006, management is not aware of any legal
proceedings in which the Company is a party, as plaintiff or defendant, or which
involve any of its properties.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS

None.

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Part II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDERMATTERS

Effective June 3, 2005, the common stock of US Geothermal Inc.
has been listed for trading on the Over-The-Counter Bulletin Board (the
Bulletin Board) under the trading symbol UGTH. The first trades of our
shares on the Bulletin Board started June 8, 2005, and trading has been very
limited since then; there can be no assurance that a viable and active trading
market will develop. There can be no assurance that even if a market is
developed for our shares, there will be a sufficient market so that holders of
common shares will be able to sell their shares, or with respect to any price at
which holders may be able to sell their shares. Future trading prices of our
common shares will depend on many factors, including, among others, our
operating results and the market for similar securities.

Our common shares are traded on the TSX Venture Exchange under
the symbol GTH. The following sets forth information relating to the trading of
GTH shares on the TSX Venture Exchange. The trading prices reflect the reverse
stock-split on a 5 to 1 basis, which was effected December 19, 2003. In
accordance with TSX Venture Exchange policy, the trading of GTH shares was
halted on April 3, 2002, prior to the announcement of the acquisition of
Geo-Idaho, pending the completion of that acquisition. The last trade of shares
of GTH prior to the halt was at CDN $0.80 per share ($0.16 pre-consolidation).
Trading resumed on December 22, 2003 with the initial trade not occurring until
January 5, 2004.

BID PRICES2004(CDN)
    (CDN)First Quarter
    $0.90
    $0.54Second Quarter
    $1.05
    $0.70Third Quarter
    $1.10
    $0.76Fourth Quarter
    $1.05
    $0.802005(CDN)
    (CDN)First Quarter
    $1.10
    $0.80Second Quarter
    $0.90
    $0.61Third Quarter
    $0.90
    $0.67Fourth Quarter
    $0.86
    $0.662006CDN
    CDNFirst Quarter
    $1.45
    $0.75Second Quarter
    $1.20
    $0.80


As of May 31, 2006, we had approximately 325 stockholders of
record.

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The Company has never paid and does not intend to pay dividends
on our common stock in the foreseeable future. We currently intend to retain any
future earnings for reinvestment in our business. Any future determination to
pay cash dividends will be at the discretion of our board of directors and will
be dependent upon our financial condition, results of operations, capital
requirements and other relevant factors. All of the common shares are entitled
to an equal share in any dividend declared and paid.

The following table details the number of securities authorized
for issuance under the Companys equity compensation plans:

Plan Category
    Number of securities to be issued upon
      exercise of outstanding options, warrants and rights
    Weighted average exercise price of
      outstanding options, warrants and rights
    Number of securities remaining available
      for future issuanceEquity compensation plans approved by security
      holders
    2,788,628
    CDN $0.806
    641,212Equity compensation plans not approved by security
      holders
    Nil
    Nil
    NilTotal
    2,788,628
    CDN $0.806
    641,212


Recent Sales of Unregistered Securities

During the past three years, GTH has issued the following
unregistered securities:

1.          
Pursuant to agreements executed April 25, 2003, GTH issued convertible
promissory notes in the aggregate principal amount of $269,000 for bridge
financing pending completion of the merger acquisition of Geo-Idaho, to a group
of six investors, including Daniel Kunz and Kevin Kitz, officers of the company.
The investors were either "accredited investors" as defined in Regulation D, or
the transactions were with non-US persons and took place outside of the United
States, as defined in Regulation S. The notes were issued in transactions exempt
from the registration requirements of the Securities Act in reliance on and
compliance with Regulations D and S. Each of such persons represented to the
company that he purchased the notes for his own account, for investment and not
with a view to the distribution of the notes. The notes were issued with a
restrictive legend and stop transfer instructions were placed against the
transfer of the notes. No commissions were paid with respect to the
issuance.

2.          
On December 19, 2003, GTH issued 6,939,992 shares of its common stock and
2,420,217 warrants to purchase its common stock in exchange for 100% of
Geo-Idaho's outstanding shares and warrants. The shares were issued to the
following persons, each of whom was a security holder of Geo-Idaho, in reliance
on Section 4(2):

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NAME
    NO. OF SHARESVulcan Power Company
    1,755,156Daniel J. Kunz
    1,254,769Douglas J. Glaspey
    1,014,649Paul A. Larkin
    863,187Ronald Bourgeois
    821,425Tom Menning
    183,332Grim Estate Ltd.
    180,000Donald Nelson
    108,000Ronald C. Yanke
    108,000Ross Beaty
    85,000Gerald Sneddon
    80,000John H. Walker
    73,807Sneddon Family Trust
    50,000Steve R. Smith
    45,000Burton Egger
    40,000Steven Chi
    36,667Dr. John Swartley
    36,667John W. Leonard
    35,000William Brock
    33,333Robert Falls
    24,000Steven Jensen
    21,000John Beaulieu
    20,000William Batiuk
    17,000Barry Marcus
    15,000Roscoe Ward
    5,000H. Cobbs
    4,000Veritable Quandry LLC
    10,000Ed Cryer
    10,000Mary Mink
    10,000


The warrants were issued solely to Vulcan Power Company, the
sole warrant holder of Geo-Idaho, in reliance on Section 4(2), and were
exercisable at a price of $0.75 per share, until December 15, 2005, at which
time they expired. Pursuant to the negotiated agreement of the parties, and as
approved by the TSX Venture Exchange, the shares were exchanged on a one-for-one
basis with all shareholders other than Vulcan Power Company, which received
shares and warrants so that Vulcan Power would own 14% on a non-diluted and 25%
on a fully-diluted basis after closing (and taking into account the private
placement discussed in paragraph 8, below). The warrants were valued using the
Black Scholes model at $0.26 each, or $629,256 in the aggregate, and recorded on
our financial statements as an addition to deficit. Each of such persons
represented to Geo-Idaho that he purchased the securities for his, her or its
own account, for investment and not with a view to the distribution of the
securities. The certificates for the securities bear a restrictive legend and
stop transfer instructions have been placed against the transfer of the
securities.

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3.          
Also on December 19, 2003, GTH sold 3,322,221 shares of common stock and
1,661,110 warrants to purchase shares of its common stock in a private offering
under Regulations D and S, at a price of $0.45 per unit (a unit being one share
and one-half share purchase warrant), for gross proceeds of $1,494,999. The
warrants are exercisable at an exercise price of $0.75 until December 15, 2005,
subject to acceleration upon 30 days notice once the company obtains a license
from permitting authorities for a 10 megawatt power plant and corresponding
power purchase and power transmission agreements. The warrants were valued using
the Black Scholes model at $0.26 each, or $431,889 in the aggregate. Of the 13
purchasers, two were residents of the United States who represented that they
were "accredited investors" under Regulation D, and the remaining 11 sales were
to non-US persons and took place outside of the United States, as defined in
Regulation S. Daniel J. Kunz, an officer and director of GTH, subscribed for
1,111,111 units. Toll Cross Securities of Toronto, Canada, was paid a cash fee
of $52,500 and issued warrants exercisable until December 15, 2005, to purchase
83,333 shares of GTH at an exercise price of $0.45, as compensation for its
services in connection with the private offering. An additional $22,622 was
incurred in legal expenses relating to the offering and together with the
$52,500 cash and $25,437 fair value of the Agents warrants ($0.26 per warrant,
calculated using the Black Scholes model) made up the $100,559 which was charged
to share issue costs. The securities were issued in transactions exempt from the
registration requirements of the Securities Act in reliance on and compliance
with Regulations D and S. Each of such persons represented to the company that
he purchased the securities for his own account, for investment and not with a
view to the distribution of the securities. The certificates for the securities
bear a restrictive legend and stop transfer instructions have been placed
against the transfer of the securities.

4.          
On February 20, 2004, GTH issued 385,864 shares and 192,932 share purchase
warrants in connection with the conversion of $147,000 of principal and $26,639
in interest of the promissory notes referred to in paragraph 5, above. Mr. Kunz
did not participate in the conversion, and was repaid his principal and
interest. The warrants are exercisable until February 17, 2006, at an exercise
price of $0.75 per share, and are subject to acceleration upon 30 days notice
once the company obtains a license from permitting authorities for a 10 megawatt
power plant and corresponding power purchase and transmission agreements. The
securities were issued in transactions exempt from the registration requirements
of the Securities Act in reliance on and compliance with Regulations D and S.
Each of such persons represented to the company that he purchased the securities
for his own account, for investment and not with a view to the distribution of
the securities. The certificates for the securities bear a restrictive legend
and stop transfer instructions have been placed against the transfer of the
securities. No commissions were paid with respect to the issuance.

5.          
On September 17, 2004, GTH sold 4,000,001 shares of common stock and 4,000,001
warrants to purchase shares of its common stock in a private offering under
Regulation S, at a price of CDN $0.85 per unit (a unit being one share and one
warrant), for gross proceeds of CDN $3,400,000. The units consist of one share
and a warrant which entitles the holder to purchase one share at an exercise
price of CDN $1.25 until September 17, 2006. GTH may accelerate the exercise
period of the warrants on twenty days notice if the closing price of the
companys

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---

common shares on a public market exceeds CDN $1.65 for twenty
consecutive business days. The value of each warrant (using the Black-Scholes
model) was $0.30, and the aggregate value of the 4,000,001 warrants was
$1,190,697. The securities were issued in transactions exempt from the
registration requirements of the Securities Act in reliance on and compliance
with Regulation S. Each of such persons represented to the company that he
purchased the securities for his own account, for investment and not with a view
to the distribution of the securities. The certificates for the securities bear
a restrictive legend and stop transfer instructions have been placed against the
transfer of the securities. Dundee Securities Corporation of Toronto, Canada,
was paid a cash fee of CDN $238,000, and issued a compensation option to
acquire 280,000 units at an exercise price per unit of CDN $0.85, until
September 17, 2006, and valued at $133,341 ($0.30 per warrant, using the
Black-Scholes model). The warrants included in Dundees units are also subject
to acceleration, whether or not the compensation option has been exercised. An
additional CDN $31,977.45 was incurred in legal expenses relating to the
offering, as well as CDN $18,190 in fees to the TSX Venture Exchange which
together with the CDN $238,000 cash paid to Dundee made up the $225,131 cash
component of issuance costs. With the $131,341 which was the fair value of the
Dundee compensation option, the total charged to share issue costs was
$358,472.

6.          
On October 19, 2004, GTH issued a total of 278,735 shares on the exercise of
stock options issued under the companys stock option plan to officers and
directors of the company as follows:

Optionee
    Number
      of Shares PurchasedDaniel Kunz
    86,506Douglas Glaspey
    77,866Ron Bourgeois
    27,733Paul Larkin
    86,630Total
    278,735


7.          
During February 2005, GTH issued 100,000 shares to Elena Corporation as partial
consideration for purchase of 100 acres known as the Elena Property. Elena
Corporation represented to the company that it purchased the securities for its
own account for investment, and not with a view to the distribution of the
securities. The certificates for the securities bear a restrictive legend and
stop transfer instructions have been placed against the transfer of the
securities. No commissions were paid with respect to the issuance.

8.          
On February 18, 2005, GTH issued 30,000 shares on the exercise of stock options
issued under the companys stock option plan to Ron Bourgeois. Mr. Bourgeois
represented to the company that he purchased the securities for his own account
for investment, and not with a view to the distribution of the securities. The
certificates for the securities bear a restrictive legend and stop transfer
instructions have been placed against the transfer of the securities. No
commissions were paid with respect to the issuance.

9.          
On April 11, 2005, GTH issued 17,778 common shares upon the exercise of stock
options issued to a consultant of the company under the companys stock option
plan. He

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represented to the company that he purchased the securities for
his own account for investment, and not with a view to the distribution of the
securities. The certificates for the securities bear a restrictive legend and
stop transfer instructions have been placed against the transfer of the
securities. No commissions were paid with respect to the issuance.

10.          
On July 22, 2005, GTH issued 40,000 common shares upon the exercise of stock
options issued to a consultant of the company under the companys stock option
plan. He represented to the company that he purchased the securities for his own
account for investment, and not with a view to the distribution of the
securities. The certificates for the securities bear a restrictive legend and
stop transfer instructions have been placed against the transfer of the
securities. No commissions were paid with respect to the issuance.

11.          
On December 28, 2005, GTH issued 100,000 common shares upon the exercise of
stock options under the companys stock option plan to Douglas Glaspey, an
officer and director of the Company and 83,333 common shares to Toll Cross
Securities upon the exercise of agent warrants. Each represented to the company
that they purchased the securities for their own account for investment, and not
with a view to the distribution of the securities. The certificates for the
securities bear a restrictive legend and stop transfer instructions have been
placed against the transfer of the securities. No commissions were paid with
respect to the issuance.

12.          
On January 3, 2006, GTH issued 100,000 common shares to Daniel Kunz, an officer
and director of the Company, and 100,000 common shares to Ron Bourgeois upon the
exercise of stock options issued under the companys stock option plan. Each
represented to the company that they purchased the securities for their own
account for investment, and not with a view to the distribution of the
securities. The certificates for the securities bear a restrictive legend and
stop transfer instructions have been placed against the transfer of the
securities. No commissions were paid with respect to the issuance.

13.          
On January 9, 2006, GTH issued 138,370 common shares upon the exercise of stock
options issued under the companys stock option plan (113,370 to Paul Larkin, a
director of the Company, and 25,000 to a consultant). Each represented to the
company that they purchased the securities for their own account for investment,
and not with a view to the distribution of the securities. The certificates for
the securities bear a restrictive legend and stop transfer instructions have
been placed against the transfer of the securities. No commissions were paid
with respect to the issuance.

14.          
On February 6, 2006, GTH issued 120,000 common shares to Kevin Kitz as a signing
bonus as part of an employment agreement. He represented to the company that he
purchased the securities for his own account for investment, and not with a view
to the distribution of the securities. The certificates for the securities bear
a restrictive legend and stop transfer instructions have been placed against the
transfer of the securities. No commissions were paid with respect to the
issuance.

-28-

---

15.          
On February 9, 2006, GTH issued 25,000 common shares upon the exercise of stock
options issued under the companys stock option plan to a consultant of the
Company. He represented to the company that he purchased the securities for his
own account for investment, and not with a view to the distribution of the
securities. The certificates for the securities bear a restrictive legend and
stop transfer instructions have been placed against the transfer of the
securities. No commissions were paid in respect to the issuance.

16.          
On February 17, 2006, GTH issued 192,934 common shares to consultant and
employees of the Company upon the exercise of stock purchase warrants. Each
represented to the company that they purchased the securities for their own
account for investment, and not with a view to the distribution of the
securities. The certificates for the securities bear a restrictive legend and
stop transfer instructions have been placed against the transfer of the
securities. No commissions were paid with respect to the issuance.

17.          
On March 13, 2006, GTH issued 15,000 common shares to a consultant of the
Company upon the exercise of stock options issued under the companys stock
option plan. She represented to the company that she purchased the securities
for her own account for investment, and not with a view to the distribution of
the securities. The certificates for the securities bear a restrictive legend
and stop transfer instructions have been placed against the transfer of the
securities. No commissions were paid with respect to the issuance.

18.          
On April 3, 2006, GTH sold 25,000,000 shares of common stock in a private
offering under Regulation D, at a price of CDN $1.00 per share for gross
proceeds of CDN $25,000,000. The securities were issued in transactions exempt
from the registration requirements of the Securities Act in reliance on and
compliance with Regulation D. Each of such persons represented to the company
that it purchased the securities for its own account, for investment and not
with a view to the distribution of the securities. The certificates for the
securities bear a restrictive legend and stop transfer instructions have been
placed against the transfer of the securities. Dundee Securities Corporation of
Toronto, Canada, was paid a cash fee of CDN $1,522,500, and issued a
compensation option to acquire 1,522,500 shares at an exercise price per share
of CDN $1.00, until April 3, 2008. An additional CDN $202,200 was incurred in
legal expenses relating to the offering, as well as CDN $32,100 in fees to the
TSX Venture Exchange which together with the CDN $1,522,500 cash paid to Dundee
made up the $1,756,800 cash component of issuance costs.

19.          
On May 23, 2006, GTH issued 40,000 common shares to a consultant of the Company
upon the exercise of stock options issued under the companys stock option plan.
He represented to the company that he purchased the securities for his own
account for investment, and not with a view to the distribution of the
securities. The certificates for the securities bear a restrictive legend and
stop transfer instructions have been placed against the transfer of the
securities. No commissions were paid in respect to the issuance.

-29-

---

ITEM 6. MANAGEMENTS PLAN OF OPERATIONS

U.S. Geothermal Inc. is a Delaware corporation. The Companys
shares of common stock trade on the TSX Venture Exchange under the symbol GTH
and on the Bulletin Board under the symbol UGTH. On December 19, 2003, the
Company acquired all of the outstanding securities of U.S. Geothermal Inc., an
Idaho corporation (Geo-Idaho) incorporated in February 2002, through a
transaction merging Geo-Idaho into Evergreen Power Inc., a wholly-owned Idaho
subsidiary formed for purposes of the merger transaction. Following the merger,
the Company changed its name from U.S. Cobalt Inc. to U.S. Geothermal Inc.
Pursuant to the merger, Geo-Idaho became the surviving subsidiary of the
Company, and Evergreen Power, Inc. ceased to exist. GTH is still a development
stage company and has produced no revenues to date.

During the three months ended March 31, 2006, GTH was focused
on (1) negotiating the long-term financing of the construction of Phase I of the
Raft River, Idaho geothermal project (Raft River), (2) the procurement of
construction agreements for items not covered under the Ormat EPC agreement, (3)
securing additional working capital through the completion of a private
placement, and (4) the evaluation of potential new geothermal project
acquisitions.

On March 9, 2006, GTH signed the Interconnection and Wheeling
Agreement with Raft River Rural Electric Cooperative (RRREC) which allows
electricity generated at the Phase I power plant to be delivered through RRREC
transmission lines and delivered into the BPA substation for delivery to Idaho
Power Co.

On April 26, 2006, GTH issued a Notice to Proceed to Ormat
under the Ormat EPC agreement as amended April 25, 2006. An initial payment of
$2,020,000 allows Ormat to proceed with ordering of equipment with significant
manufacturing lead times. Under the amendment, Ormat commits to a guaranteed
final completion date of November 25, 2007 on the Phase I facility.

On May 8, 2006, Idaho Power confirmed that GTH would be allowed
to bid the Raft River Unit 1 project into the recently issued Idaho Power
geothermal Request for Proposal for Geothermal Power. If Idaho Power selects
GTH as a successful bidder, the Company expects that under a new PPA with Idaho
Power which could replace the current PPA, the Unit 1 power plant will be
allowed to sell its full output capacity of up to 13 MW annual average, instead
of being capped at ten average MWs per month as mandated under the current PPA.
This 30% increase in plant output would be achieved with no additional capital
investment and is expected to decrease the operating cost per kilowatt-hour.

With carbon regulation widely anticipated to increase the cost
of power sourced from coal, and limited opportunities to purchase baseload
geothermal power, the company has found that utilities across the Western United
States have been eager to discuss power purchases from the Raft River geothermal
resource. As a result of the increased interest, US Geothermal elected to
withdraw its Unit 2 and Unit 3 Idaho Power PPAs without submitting them to the
IPUC for approval in order to pursue larger capacity PPAs with other utilities.
With the concurrence of Idaho Power, the Unit 2 and Unit 3 10MW contracts have
been voided without further obligation on either party.

-30-

---

Eugene Water and Electric Board (EWEB), from Eugene, Oregon
and US Geothermal have signed a letter of intent for EWEB to purchase the full
13 MW electrical output of Unit 2. The parties have exchanged a draft PPA and
intend to complete it by July 2006. Upon execution of the EWEB PPA, and if Unit
1 is successful in the Idaho Power Request for Proposal, then the total output
from the Unit 1 and Unit 2 Raft River power plants will be 26 MW from two
plants, instead of the originally planned 30 MW from three plants, resulting in
substantial capital and operating cost savings through improved economy of
scale.

In addition, the strong regional interest in geothermal power
has resulted in several utilities from California to Washington entering into
discussions with US Geothermal to purchase the electrical power output of Unit
3. Subject to drilling confirmation of sufficient geothermal resource, the power
plant output from three units at Raft River would be 39 MW, instead of the
maximum 30MW under the previous Idaho Power PPA provisions.

On May 16, 2006, GTH signed a $225,000 construction contract
with RRREC for construction of the well distribution lines for delivery of
electricity from the power plant to the well heads for the Phase I facility.

On May 22, 2006, GTH signed a $2,600,000 construction contract
with Industrial Builders for completion of the construction of the pipelines
connecting the wells at Raft River with the power plant facility to be
constructed by Ormat.

On May 24, 2006, GTH signed a geothermal lease agreement with
JR Land and Livestock Inc. for the lease of approximately 5,409 acres of
surface, mineral and geothermal rights in Malheur County, Oregon. The lease term
is for ten years with lease payments of $15,000 at signing, $20,000 in first
year, $25,000 in second year, and $30,000 for each subsequent year. A resource
evaluation study will be initiated to quantify the geothermal resource.

On May 25, 2006, GTH signed a drilling contract with Union
Drilling for the re-work of wells previously drilled for Phase I, and the
drilling of additional wells to be included in Phase II of the Raft River
project. The total cost of Phase I and II drilling to be completed by Union
Drilling is estimated at $13,000,000 and should be completed within six months
after drilling is started. The timing of the Phase I drilling costs of
$5,000,000 and the Phase II drilling costs of $8,000,000 are discretionary
depending on the availability of cash funds.

PLAN OF OPERATIONS

The Companys plan of operations for the next 12 months
includes the following elements:

| | (1) | Finalize negotiations with qualified investors for
      financing to construct the phase one power plant and close the transaction
      to allow financing drawdown. 
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Finalize construction agreements regarding the
      engineering, procurement and construction for aspects of the project not
      included under the Ormat agreement.
| | (3) | Continue permitting activities.                                                                                                                                        
| | (4) | Initiate formal discussions to sell renewable energy
      certificates at phase one Raft River.                                                                       
| | (5) | Initiate project construction for first power
    plant.                                                                                                               

- 31 -

---

| | (6) | Work on new replacement Raft River phase two power sales
      agreements.                     
| | --- | -----------------------------------------------------------------------------------------------
| | (7) | Drill Raft River phase two production and injection
      wells.                               
| | (8) | Evaluate the geothermal resource potential of the new
      Oregon property.                   
| | (9) | Continue to seek and acquire additional geothermal
      resource properties and/or operations.

Project Financing.Our cash position as at March 31,
2006, is adequate to fund our general operating activities through March 31,
2008, although the Company will have to obtain additional capital to construct
the initial Raft River power plant and any other power plants. The Company
believes it is in the final stages of negotiations for a $35 million project
investment by a third party and expects to close the transaction by July 31,
2006. Total capital expenditures for the phase one project are currently
estimated to be between $38 and $40 million. We expect we will finance the
project through a combination of equity from the Company and a third party. We
anticipate that some or all of the equity may be raised through the issuance of
shares, exercise of existing outstanding warrants, and/or through the sale of
ownership interest in tax credits and benefits.

Discussions for both construction and long-term financing for
the initial facility have taken place with several financing entities, which
specialize in project debt financing and raising the tax oriented equity portion
of the capital cost for the project, and with potential participants who may be
interested in utilizing tax credits and benefits that may be available to the
project. The current negotiations for financing of the phase one plant are with
one of those entities. In connection with the anticipated financing, on August
18, 2005, GTH created a special purpose entity (an SPE) by filing a
Certificate of Formation with the state of Delaware to create Raft River Energy
I LLC. As a condition of the anticipated financing, GTH may be required to
transfer the geothermal assets associated with the phase one power plant to this
SPE, and the ownership interests of the SPE would form part of the security for
the financing.

Permitting.In preparation for project financing, a Phase
  I Environmental Site Assessment was completed by Kleinfelder on October 21,
  2005. The Phase I assessment identified two underground storage tanks, which
  have since been removed. An ALTA land title survey that covers all lands owned
  or leased by the company has been completed and Land America Commercial Services
  is preparing an ALTA Extended title insurance policy for the project, which
  the Company anticipates acquiring for the benefit of its project financing lenders.

The Companys permitting activities are continuing as the
project develops. A Conditional Use Permit for the first two power plants was
issued by the Cassia County Planning and Zoning Commission on April 21, 2005.
The Idaho Department of Environmental Quality issued the Air Quality Permit to
Construct on May 26, 2006. The Department of Army Corps of Engineers and the
Idaho Department of Water Resources, after the submittal of a joint application
by the Company, have determined that the Raft River project does not need to
obtain a Section 404 Clean Water Act permit for the project as it is currently
designed. Various other county, state and federal permits will be required for
the project, including a Cassia County Building Permit.

-32-

---

Potential Acquisitions.GTH intends to continue its
growth through the acquisition of ownership or leasehold interests in properties
and/or property rights that it believes will add to the value of the Companys
geothermal resources, and through possible mergers with or acquisitions of
operating power plants and geothermal or other renewable energy properties.

On May 24, 2006, GTH signed a geothermal lease agreement with
  JR Land and Livestock Inc. for the lease of approximately 5,409 acres of surface,
  mineral and geothermal rights in Malheur County, Oregon. The lease term is for
  ten years with lease payments of $15,000 at signing, $20,000 in first year,
  $25,000 in second year, and $30,000 for each subsequent year. A resource evaluation
  study will be initiated to quantify the geothermal resource.

-33-

---

ITEM 7. FINANCIAL STATEMENTS





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

CONSOLIDATED FINANCIAL STATEMENTS(Stated in U.S. Dollars)

MARCH 31, 2006 and 2005





-34-

---

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheet of
  U.S. Geothermal Inc. (an exploration stage company) as of March 31, 2006, and
  the related consolidated statements of operations, stockholders equity
  and cash flows for the year then ended and for the period from February 26,
  2002 (inception) through March 31, 2006. These consolidated financial statements
  are the responsibility of the Companys management. Our responsibility
  is to express an opinion on these consolidated financial statements based on
  our audit. The financial statements of U.S. Geothermal Inc. as of March 31,
  2005 were audited by other auditors whose report dated June 16, 2005 expressed
  an unqualified opinion on those financial statements.

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

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

Williams & Webster, P.S. 
  Certified Public Accountants 
  Spokane, Washington 
  June 23, 2006

-35-

---

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

|                                                  |   | March 31,  |   |   | March 31,  |  
|------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                  |   | 2006       |   |   | 2005       |  
|                                                  |   |            |   |   |            |  
|ASSETS                                            |   |            |   |   |            |  
|                                                  |   |            |   |   |            |  
|Current                                           |   |            |   |   |            |  
|Cash and cash equivalents                         | $ | 196,499    |   | $ | 1,957,075  |  
|Restricted cash (see Note
      10)               |   | 19,961,890 |   |   | 0          |  
|Refundable tax credit                             |   | 4,703      |   |   | 3,095      |  
|Prepaid expenses and other                        |   | 6,726      |   |   | 29,099     |  
|Total
      Current Assets                        |   | 20,169,818 |   |   | 1,989,269  |  
|                                                  |   |            |   |   |            |  
|Property, Plant and Equipment(see Note 4)         |   | 1,726,115  |   |   | 595,701    |  
|Total Assets                                      | $ | 21,895,933 |   | $ | 2,584,970  |  
|                                                  |   |            |   |   |            |  
|LIABILITIES                                       |   |            |   |   |            |  
|                                                  |   |            |   |   |            |  
|Current                                           |   |            |   |   |            |  
|Accounts payable and accrued liabilities          | $ | 270,831    |   | $ | 160,260    |  
|Related party accounts
      payable              |   | 10,083     |   |   | 4,842      |  
|Total
      Current Liabilities                   |   | 280,914    |   |   | 165,102    |  
|                                                  |   |            |   |   |            |  
|STOCKHOLDERS EQUITY                              |   |            |   |   |            |  
|Capital stock                                     |   |            |   |   |            |  
|Authorized:                                       |   |            |   |   |            |  
|100,000,000 common shares with a $0.001 par value |   |            |   |   |            |  
|Issued and Outstanding:                           |   |            |   |   |            |  
|18,263,844
      shares at March 31, 2006 and     |   | 18,264     |   |   | 17,332     |  
|17,331,429 shares at March 31, 2005               |   |            |   |   |            |  
|Capital stock issuable                            |   | 20,134,260 |   |   | 0          |  
|Additional paid-in capital                        |   | 5,338,200  |   |   | 3,485,642  |  
|Stock purchase warrants                           |   | 1,324,038  |   |   | 2,460,782  |  
|Accumulated other comprehensive income            |   | 32,792     |   |   | 165,262    |  
|Accumulated deficit before development stage      |   | (1,037,422 | ) |   | (1,037,422 | )
|Accumulated deficit during development stage      |   | (4,195,113 | ) |   | (2,671,728 | )
|Total Stockholders Equity                        |   | 21,615,019 |   |   | 2,419,868  |  
|Total Liabilities and Stockholders Equity        | $ | 21,895,933 |   | $ | 2,584,970  |  

Approved on behalf of the Board:

|Doug
      Glaspey, Director |  | Paul Larkin, Director
|------------------------------ |  | -----------------------

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

-36-

---

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

|                                              |   | YEAR       |   |   | CUMULATIVE    |  
|--------------------------------------------- | - | ---------- | - | - | ------------- | -
|                                              |   | ENDED      |   |   | PERIOD FROM   |  
|                                              |   | MARCH 31   |   |   | FEB. 26, 2002 |  
|                                              |   | 2006       |   |   | 2005          |  
|                                              |   |            |   |   |               |  
|Revenue                                       | $ | -          |   | $ | -             |  
|                                              |   |            |   |   |               |  
|Operating Expenses                            |   |            |   |   |               |  
|Consulting fees                               |   | 54,513     |   |   | 489,747       |  
|Administrative and development costs          |   | 185,186    |   |   | 118,098       |  
|Exploration expenditures                      |   | -          |   |   | 438,885       |  
|Professional fees                             |   | 386,275    |   |   | 321,081       |  
|Management fees                               |   | 36,415     |   |   | 86,463        |  
|Salaries and wages                            |   | 639,927    |   |   | 207,759       |  
|Travel and promotion                          |   | 360,753    |   |   | 89,497        |  
|Loss from
      Operations                    |   | (1,663,069 | ) |   | (1,751,530    | )
|                                              |   |            |   |   |               |  
|Other Income (Expense)                        |   |            |   |   |               |  
|Foreign exchange gain (loss)                  |   | 116,408    |   |   | (95,885       | )
|Interest income                               |   | 23,276     |   |   | 16,994        |  
|**Loss
      Before Income Taxes**            |   | (1,523,385 | ) |   | (1,830,421    | )
|                                              |   |            |   |   |               |  
|Income Taxes(see Note 2g)                     |   | -          |   |   | -             |  
|                                              |   |            |   |   |               |  
|Net Loss                                      | $ | (1,523,385 | ) | $ | (1,830,421    | )
|                                              |   |            |   |   |               |  
|                                              |   |            |   |   |               |  
|Basic And Diluted Net Loss Per Share          | $ | (0.09      | ) | $ | (0.12         | )
|                                              |   |            |   |   |               |  
|                                              |   |            |   |   |               |  
|Weighted Average Number Of Shares Outstanding |   | 17,797,637 |   |   | 15,209,468    |  
|for Basic and Diluted Calculations            |   |            |   |   |               |  
|                                              |   |            |   |   |               |  
|                                              |   |            |   |   |               |  
|Other Comprehensive Income (Loss)             |   |            |   |   |               |  
|Net loss for
      the period                 | $ | (1,523,385 | ) | $ | (1,830,421    | )
|Foreign currency translation
      adjustment |   | (132,470   | ) |   | 165,262       |  
|                                              |   |            |   |   |               |  
|Total Comprehensive
      Loss                | $ | (1,655,855 | ) | $ | (1,665,159    | )

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

-37-

---

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

|                                  |   | YEAR ENDED |   |   | FROM          |  
|--------------------------------- | - | ---------- | - | - | ------------- | -
|                                  |   | March 31   |   |   | FEB. 26, 2002 |  
|                                  |   | 2006       |   |   | 2005          |  
|                                  |   |            |   |   |               |  
|                                  |   |            |   |   |               |  
|Operating Activities              |   |            |   |   |               |  
|Net loss for the period           | $ | (1,523,385 | ) | $ | (1,830,421    | )
|Add: Non-cash items:              |   |            |   |   |               |  
|Depreciation                      |   | 1,350      |   |   | 1,399         |  
|Shares issued for other than cash |   | -          |   |   | -             |  
|Stock based compensation          |   | 180,779    |   |   | 295,540       |  
|                                  |   |            |   |   |               |  
|                                  |   |            |   |   |               |  
|Change in non-cash                |   |            |   |   |               |  
|working                           |   |            |   |   |               |  
|capital items:                    |   |            |   |   |               |  
|                                  |   | 115,812    |   |   | (20,363       | )
|Accounts payable and accrued      |   |            |   |   |               |  
|Liabilities                       |   |            |   |   |               |  
|Prepaid expenses                  |   | 22,373     |   |   | (29,099       | )
|Refundable tax credit and grant   |   | (1,608     | ) |   | 4,805         |  
|receivable                        |   |            |   |   |               |  
|Total Cash Used by Operating      |   | (1,204,679 | ) |   | (1,578,139    | )
|Activities                        |   |            |   |   |               |  
|Investing Activities              |   |            |   |   |               |  
|Purchases of property, plant and  |   | (1,131,764 | ) |   | (41,331       | )
|equipment                         |   |            |   |   |               |  
|Cash acquired on business         |   | -          |   |   | -             |  
|combination                       |   |            |   |   |               |  
|Total Cash Provided (Used) by     |   | (1,131,764 | ) |   | (41,331       | )
|Investing Activities              |   |            |   |   |               |  
|                                  |   |            |   |   |               |  
|Financing Activities              |   |            |   |   |               |  
|Issuance of share capital, net of |   | 708,337    |   |   | 2,576,562     |  
|share issue cost                  |   |            |   |   |               |  
|Total Cash Provided by Financing  |   | 708,337    |   |   | 2,576,562     |  
|Activities                        |   |            |   |   |               |  
|                                  |   |            |   |   |               |  
|Foreign Exchange Effect On        |   |            |   |   |               |  
|Cash And Cash Equivalents         |   | (132,470   | ) |   | 129,470       |  
|                                  |   |            |   |   |               |  
|                                  |   |            |   |   |               |  
|                                  |   |            |   |   |               |  
|Increase (Decrease) In Cash And   |   | (1,760,576 | ) |   | 1,086,562     |  
|Cash Equivalents                  |   |            |   |   |               |  
|                                  |   |            |   |   |               |  
|Cash And Cash Equivalents,        |   |            |   |   |               |  
|Beginning Of Period               |   | 1,957,075  |   |   | 870,513       |  
|                                  |   |            |   |   |               |  
|Cash And Cash Equivalents, End    | $ | 196,499    |   | $ | 1,957,075     |  
|Of Period                         |   |            |   |   |               |  

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

-38-

---

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

|                                            |   | YEAR ENDED |  |   | FROM          | 
|------------------------------------------- | - | ---------- |  | - | ------------- | 
|                                            |   | MARCH 31   |  |   | FEB. 26, 2002 | 
|                                            |   | 2006       |  |   | 2005          | 
|                                            |   |            |  |   |               | 
|                                            |   |            |  |   |               | 
|Supplemental Disclosure                     |   |            |  |   |               | 
|Taxes paid                                  | $ | -          |  | $ | -             | 
|Interest paid                               |   | -          |  |   | -             | 
|Non-cash investing and financing activities |   |            |  |   |               | 
|Shares issued for settlement of debt        |   | -          |  |   | -             | 
|Shares issued for professional services     |   | -          |  |   | -             | 
|Shares issued for geothermal property       |   | -          |  |   | -             | 
|Warrants issued for share issue cost        |   | -          |  |   | -             | 

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

-39-

---

|U.S. GEOTHERMAL INC.                                
|----------------------------------------------------
|(A Development Stage Company)                       
|                                                    
|CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY      
|                                                    
|FROM INCEPTION, FEBRUARY 26, 2002, TO MARCH 31, 2006
|(Stated in U.S. Dollars)                            

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

-40-

---

|U.S. GEOTHERMAL INC.                                      
|----------------------------------------------------------
|(A Development Stage Company)                             
|                                                          
|CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (Continued)
|                                                          
|FROM INCEPTION, FEBRUARY 26, 2002, TO MARCH 31, 2006      
|(Stated in U.S. Dollars)                                  

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

-41-

---

|U.S. GEOTHERMAL INC.                                      
|----------------------------------------------------------
|(A Development Stage Company)                             
|                                                          
|CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (Continued)
|                                                          
|FROM INCEPTION, FEBRUARY 26, 2002, TO MARCH 31, 2006      
|(Stated in U.S. Dollars)                                  

|                                                                 |  | NUMBER     |  |   |        |  |   | ADDITIONAL |  |   | CAPITAL    |  |   | STOCK      |   |   | ACCUM.   |   |   |            |   |   |            |  
|---------------------------------------------------------------- |  | ---------- |  | - | ------ |  | - | ---------- |  | - | ---------- |  | - | ---------- | - | - | -------- | - | - | ---------- | - | - | ---------- | -
|                                                                 |  | OF         |  |   |        |  |   | PAID-IN    |  |   | STOCK      |  |   | PURCHASE   |   |   | OTHER    |   |   | ACCUM.     |   |   |            |  
|                                                                 |  | SHARES     |  |   | AMOUNT |  |   | CAPITAL    |  |   | ISSUABLE   |  |   | WARRANTS   |   |   | INCOME   |   |   | DEFICIT    |   |   | TOTAL      |  
|                                                                 |  |            |  |   |        |  |   |            |  |   |            |  |   |            |   |   |          |   |   |            |   |   |            |  
|Balance, March 31, 2004                                          |  | 12,922,693 |  | $ | 12,923 |  | $ | 1,881,636  |  | $ | -          |  | $ | 1,136,744  |   | $ | 35,792   |   | $ | (1,878,729 | ) | $ | 1,188,366  |  
|                                                                 |  |            |  |   |        |  |   |            |  |   |            |  |   |            |   |   |          |   |   |            |   |   |            |  
|                                                                 |  |            |  |   |        |  |   |            |  |   |            |  |   |            |   |   |          |   |   |            |   |   |            |  
|Shares and warrants issued for cash at a price of $0.66 in       |  |            |  |   |        |  |   |            |  |   |            |  |   |            |   |   |          |   |   |            |   |   |            |  
|a private placement, net of share
      issue costs of           |  | 4,000,001  |  |   | 4,000  |  |   | 1,103,082  |  |   | -          |  |   | 1,324,038  |   |   | -        |   |   | -          |   |   | 2,431,120  |  
|$225,131 paid in cash and $133,341 paid by the                   |  |            |  |   |        |  |   |            |  |   |            |  |   |            |   |   |          |   |   |            |   |   |            |  
|issuance of 280,000 agents
      warrants- September 17,        |  |            |  |   |        |  |   |            |  |   |            |  |   |            |   |   |          |   |   |            |   |   |            |  
|2004                                                             |  |            |  |   |        |  |   |            |  |   |            |  |   |            |   |   |          |   |   |            |   |   |            |  
|Shares issued for property at a price of $0.60-
      February   |  | 100,000    |  |   | 100    |  |   | 60,251     |  |   | -          |  |   | -          |   |   | -        |   |   | -          |   |   | 60,351     |  
|22, 2005                                                         |  |            |  |   |        |  |   |            |  |   |            |  |   |            |   |   |          |   |   |            |   |   |            |  
|Shares issued for stock options exercised                        |  | 308,735    |  |   | 309    |  |   | 145,133    |  |   | -          |  |   | -          |   |   | -        |   |   | -          |   |   | 145,442    |  
|Stock options granted                                            |  | -          |  |   | -      |  |   | 295,540    |  |   | -          |  |   | -          |   |   | -        |   |   | -          |   |   | 295,540    |  
|Foreign currency translation gain                                |  | -          |  |   | -      |  |   | -          |  |   | -          |  |   | -          |   |   | 129,470  |   |   | -          |   |   | 129,470    |  
|Net loss for the year                                            |  | -          |  |   | -      |  |   | -          |  |   | -          |  |   | -          |   |   | -        |   |   | (1,830,421 | ) |   | (1,830,421 | )
|                                                                 |  |            |  |   |        |  |   |            |  |   |            |  |   |            |   |   |          |   |   |            |   |   |            |  
|Balance, March 31, 2005                                          |  | 17,331,429 |  |   | 17,332 |  |   | 3,485,642  |  |   | -          |  |   | 2,460,782  |   |   | 165,262  |   |   | (3,709,150 | ) |   | 2,419,868  |  
|Stock options granted                                            |  | -          |  |   | -      |  |   | 180,780    |  |   | -          |  |   | -          |   |   | -        |   |   | -          |   |   | 180,780    |  
|Expiration of stock purchase warrants                            |  | -          |  |   | -      |  |   | 1,061,145  |  |   | -          |  |   | (1,061,145 | ) |   | -        |   |   | -          |   |   | -          |  
|Shares issued for stock options and warrants
      exercised     |  | 932,415    |  |   | 932    |  |   | 610,633    |  |   | -          |  |   | (75,599    | ) |   | -        |   |   | -          |   |   | 535,966    |  
|Foreign currency translation loss                                |  | -          |  |   | -      |  |   | -          |  |   | -          |  |   | -          |   |   | (132,470 | ) |   | -          |   |   | (132,470   | )
|Capital stock issuable as result of a private
      placement to |  |            |  |   |        |  |   |            |  |   |            |  |   |            |   |   |          |   |   |            |   |   |            |  
|be closed April 3, 2006                                          |  | -          |  |   | -      |  |   | -          |  |   | 20,134,260 |  |   | -          |   |   | -        |   |   | -          |   |   | 20,134,260 |  
|Net loss for the year                                            |  |            |  |   |        |  |   |            |  |   |            |  |   |            |   |   |          |   |   |            |   |   |            |  
|                                                                 |  | -          |  |   | -      |  |   | -          |  |   | -          |  |   | -          |   |   | -        |   |   | (1,523,385 | ) |   | (1,523,385 | )
|Balance, March 31, 2006                                          |  |            |  |   |        |  |   |            |  |   |            |  |   |            |   |   |          |   |   |            |   |   |            |  
|                                                                 |  | 18,263,844 |  | $ | 18,264 |  | $ | 5,338,200  |  | $ | 20,134,260 |  | $ | 1,324,038  |   | $ | 32,792   |   | $ | (5,232,535 | ) | $ | 21,615,019 |  

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

-42-

---

|U.S. GEOTHERMAL INC.                      
|------------------------------------------
|(A Development Stage Company)             
|                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|MARCH 31, 2006                            
|(Stated in U.S.
      Dollars)            

NOTE 1  NATURE OF OPERATIONS AND GOING CONCERN

a) Organization

When U.S. Cobalt Inc. (GTH or the Company)
  completed a reverse take-over on December 19, 2003, the former stockholders
  of U.S. Geothermal Inc. (GEO - Idaho), a company incorporated on
  February 26, 2002 in the State of Idaho, acquired control of GTH (Note 3). 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.

b) Development Stage Activities

The Company has been in the development stage since its formation
  and has not yet realized any revenues from its planned operations. GEO - Idaho
  operates for the purpose of acquiring geothermal properties and entered into
  an agreement with the previous owner, pursuant to which the Company has acquired
  a 100% interest in the Raft River Geothermal Property located in Cassia County,
  Idaho (Note 4).

c) Going Concern

Based on the Companys projected spending over the next
  12 months and the $20,134,260 cash received from the private placement completed
  April 3, 2006, the Companys auditors have removed the going concern qualification
  from the Companys financial statements. Management believes that sufficient
  funding will be available to meet its business objectives, including anticipated
  cash needs for working capital, and is currently evaluating several financing
  options for construction of the phase one power plant. As shown in the accompanying
  consolidated financial statements, the Company has incurred an accumulated deficit
  of $5,232,535 for the period from February 26, 2002 (inception) to March 31,
  2006, and has no revenue from operations.

-43-

---

NOTE 2- ACCOUNTING POLICIES

a) Basis of Presentation

These consolidated financial statements have been prepared in
  accordance with accounting principles generally accepted in the United States.
  These consolidated financial statements include the accounts of the following
  companies:

U.S. Geothermal Inc. (incorporated in
  the State of Delaware); 
  U.S. Geothermal Inc. (incorporated in the State of Idaho); 
  U.S. Cobalt Inc. (incorporated in the State of Colorado); 
  Raft River Energy I LLC (incorporated in the State of Delaware); 
  US Geothermal Services, LLC (incorporated in the State of Delaware).

All inter-group transactions are eliminated on consolidation.

b) Use of Estimates

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

c) Recent Accounting Pronouncements

In March 2006, the Financial Accounting Standards Board issued
  Statement of Financial Accounting Standards No. 156, Accounting for Servicing
  of Financial Assetsan amendment of FASB Statement No. 140. This
  statement requires an entity to recognize a servicing asset or servicing liability
  each time it undertakes an obligation to service a financial asset by entering
  into a servicing contract in any of the following situations: a transfer of
  the servicers financial assets that meets the requirements for sale accounting;
  a transfer of the servicers financial assets to a qualifying special-purpose
  entity in a guaranteed mortgage securitization in which the transferor retains
  all of the resulting securities and classifies them as either available-for-sale
  securities or trading securities; or an acquisition or assumption of an obligation
  to service a financial asset that does not relate to financial assets of the
  servicer or its consolidated affiliates. The statement also requires all separately
  recognized servicing assets and servicing liabilities to be initially measured
  at fair value, if practicable and permits an entity to choose either the amortization
  or fair value method for subsequent measurement of each class of servicing assets
  and liabilities. The statement further permits, at its initial adoption, a one-time
  reclassification of available for sale securities to trading securities by entities
  with recognized servicing rights, without calling into question the treatment
  of other available for sale securities under Statement 115, provided that the
  available for sale securities are identified in some manner as offsetting the
  entitys exposure to changes in fair value of servicing assets or servicing
  liabilities that a servicer

-44-

---

elects to subsequently measure at fair value and requires separate
  presentation of servicing assets and servicing liabilities subsequently measured
  at fair value in the statement of financial position and additional disclosures
  for all separately recognized servicing assets and servicing liabilities. This
  statement is effective for fiscal years beginning after September 15, 2006,
  with early adoption permitted as of the beginning of an entitys fiscal
  year. Management believes the adoption of this statement will have no impact
  on the Companys financial condition or results of operations.

In May 2005, the Financial Accounting Standards Board issued
  Statement of Financial Accounting Standards No. 154, Accounting Changes
  and Error Corrections, (hereinafter SFAS No. 154) which replaces
  Accounting Principles Board Opinion No. 20, accounting Changes, and SFAS
  No. 3, Reporting Accounting Changes in Interim Financial Statements 
  An Amendment of APB Opinion No. 28. SFAS No. 154 provides guidance on
  accounting for and reporting changes in accounting principle and error corrections.
  SFAS No. 154 requires that changes in accounting principle be applied retrospectively
  to prior period financial statements and is effective for fiscal years beginning
  after December 15, 2005. Management does not expect SFAS No. 154 to have a material
  impact on the Companys financial position, results of operations, or cash
  flows.

In December 2004, the Financial Accounting Standards Board issued
  Statement of Financial Accounting Standards No. 153. This statement addresses
  the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion
  No. 29, Accounting for Nonmonetary Transactions, is based on the
  principle that exchanges of nonmonetary assets should be measured based on the
  fair value of the assets exchanged. The guidance in that opinion, however, included
  certain exceptions to that principle. This statement amends Opinion 29 to eliminate
  the exception for nonmonetary exchanges of similar productive assets and replaces
  it with a general exception for exchanges of nonmonetary assets that do not
  have commercial substance. A nonmonetary exchange has commercial substance if
  the future cash flows of the entity are expected to change significantly as
  a result of the exchange. This statement is effective for financial statements
  for fiscal years beginning after June 15, 2005. Earlier application is permitted
  for nonmonetary asset exchanges incurred during fiscal years beginning after
  the date of this statement is issued. Management believes the adoption of this
  statement had no impact on the financial statements of the Company at December
  31, 2005 and 2004.

In December 2004, the Financial Accounting Standards Board issued
  a revision to Statement of Financial Accounting Standards No. 123R, Accounting
  for Stock Based Compensation. This statement supersedes APB Opinion No.
  25, Accounting for Stock Issued to Employees, and its related implementation
  guidance. This statement establishes standards for the accounting for transactions
  in which an entity exchanges its equity instruments for goods or services. It
  also addresses transactions in which an entity incurs liabilities in exchange
  for goods or services that are based on the fair value of the entitys
  equity instruments or that may be settled by the issuance of those equity instruments.
  This statement focuses primarily on accounting for transactions in which an
  entity obtains employee services in share-based payment transactions. This statement
  does not change the accounting guidance for share based payment transactions
  with parties other than employees provided in Statement of Financial Accounting
  Standards No. 123. This statement does not address the accounting for employee
  share ownership plans, which are subject to AICPA Statement of Position 93-6,
  Employers Accounting for Employee Stock Ownership Plans. The
  Company has not yet determined the impact to its financial statements from the
  adoption of this statement.

-45-

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d) Cash and Cash Equivalents

Cash and cash equivalents consist of cash and short term deposits
  with maturities of no more than ninety days when acquired.

e) Property, Plant and Equipment

Costs of acquisition of geothermal properties are capitalized
  on an area-of-interest basis. Amortization of these costs will be on a unit-of-production
  basis, based on estimated proven geothermal reserves should such reserves be
  found. If an area of interest is abandoned, the costs thereof are charged to
  income in the year of abandonment.

The Company expenses all costs related to the development of
  geothermal reserves prior to the establishment of proven and profitable reserves.
  Other equipment is recorded at cost. Depreciation of other equipment is calculated
  on a straight-line basis at an annual rate of 30%.

f) Impairment of Long-Lived Assets

SFAS No. 144- Accounting for the Impairment or Disposal
  of Long-Lived Assets establishes a single accounting model for long-lived
  assets to be disposed of by sale including discontinued operations. SFAS 144
  requires that these long-lived assets be measured at the lower of the carrying
  amount or fair value less cost to sell, whether reported in continuing operations
  or discontinued operations.

g) Income Taxes

The Company accounts for income taxes pursuant to SFAS No. 109-
  Accounting for Income Taxes. Under SFAS No. 109, the Company is
  required to compute tax asset benefits for net operating losses carried forward.
  Potential benefits of net operating losses have not been recognized in these
  financial statements because the Company cannot be assured it is more likely
  than not it will utilize the net operating losses carried forward in future
  years.

The significant components of the deferred tax asset at March
  31, 2006 and March 31, 2005 were as follows:

|                                       |   | March 31,  |  |   | March 31,  | 
|-------------------------------------- | - | ---------- |  | - | ---------- | 
|                                       |   | 2006       |  |   | 2005       | 
|Net operating loss carryforward        | $ | 5,196,418  |  | $ | 3,541,913  | 
|Deferred tax asset:                    | $ | 1,767,000  |  | $ | 1,204,000  | 
|Less valuation allowance for tax asset |   | -1,767,000 |  |   | -1,204,000 | 
|Net deferred tax asset                 | $ | -          |  | $ | -          | 

At March 31, 2006 and March 31, 2005, the Company has net operating
  loss carryforwards of approximately $5,196,418 and $3,541,913 respectively,
  which expire in the years 2023 through 2025. The change in the allowance account
  from March 31, 2005 to March 31, 2006 was $563,000.

-46-

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h) Financial Instruments

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

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

i) Basic and Diluted Loss Per Share

In accordance with SFAS No. 128- Earnings Per Share,
  the basic loss per common share is computed by dividing net loss available to
  common stockholders by the weighted average number of common shares outstanding.
  As the Company generated net losses in each of the periods presented, the basic
  and dilutive loss per share is the same, as any exercise of options or warrants
  would be anti-dilutive.

j) Foreign Currency Translation

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

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

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

k) Asset Retirement Obligations

SFAS No. 143- Accounting for Asset Retirement Obligations
  requires legal obligations associated with the retirement of long-lived assets
  to be recognized at their fair value at the time the obligations are incurred.
  Upon initial recognition of a liability, that cost should be capitalized as
  part of the related long-lived asset and allocated to expense over the useful
  life of the asset.

NOTE 3 - REVERSE TAKE-OVER

Effective December 19, 2003, GTH acquired 100% of the issued
  and outstanding voting shares of GEO - Idaho by issuing 6,939,992 common shares
  and 2,420,217 share purchase warrants, of which 2,150,309 common shares and
  no share purchase warrants were held in escrow as at December 31, 2005 (as at
  March 31, 2005, 4,243,325 common shares and 1,946,937 share purchase warrants
  were held in escrow). Each share purchase warrant entitled the holder to purchase
  one additional common share at a price of $0.75 per share until December
  19, 2005. As of December 31, 2005, the 2,420,217 stock purchase warrants noted
  above have expired without

-47-

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exercise. Since the transaction resulted in the former shareholders
  of GEO - Idaho owning the majority of the issued shares of GTH, the transaction,
  which is referred to as a reverse take-over, has been treated for
  accounting purposes as an acquisition by GEO - Idaho of the net assets and liabilities
  of GTH. Under this purchase method of accounting, the results of operations
  of GTH are included in these financial statements from December 19, 2003. GEO
  - Idaho is deemed to be the purchaser for accounting purposes. Accordingly,
  its net assets are included in the balance sheet at their previously recorded
  values.

The Company has determined that the share purchase warrants issued
  as part of the transaction have a fair value of $629,256 as determined by using
  the Black-Scholes pricing model with the assumptions as stated in Note 5. The
  amount is considered to be additional consideration given to the former GEO
  - Idaho shareholders and, as such, has been allocated, along with the net liabilities
  assumed of GTH, to deficit.

The acquisition is summarized as follows:

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

The net liabilities assumed have been charged to accumulated
  deficit.

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

GEO - Idaho entered into an agreement, as amended December 3,
  2002, with the previous owner to purchase up to a 100% interest in the Raft
  River Geothermal Property (the Property) located in Cassia County,
  Idaho, in exchange for 1,895,000 shares (the old shares), 1,612,000
  warrants (the old warrants) of GEO  Idaho, and up to $600,000
  in cash. A condition to acquiring 100% of the Property is the completion by
  GEO - Idaho of at least a $200,000 work program on the Property. The old shares
  and old warrants were exchanged subsequent to December 31, 2002 (as part of
  the reverse take-over described in Notes 3 and 5) for shares and warrants of
  the Company.

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

During the year ended March 31, 2005, the Company acquired 100
  acres of surface and energy rights in exchange for a cash payment of $40,000
  and issuance of 100,000 common shares valued at $60,351.

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

-48-

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|                                            |   | March 31, |   |   | March 31, |  
|------------------------------------------- | - | --------- | - | - | --------- | -
|                                            |   | 2006      |   |   | 2005      |  
|Geothermal property (land and equipment)    |   |           |   |   |           |  
|Balance, beginning of period                | $ | 592,351   |   | $ | 492,000   |  
|Shares issued                               |   | -         |   |   | 60,351    |  
|Cash payments                               |   | 182,728   |   |   | 40,000    |  
|Balance, end of period                      |   | 775,079   |   |   | 592,351   |  
|                                            |   |           |   |   |           |  
|Construction in Process- Raft River Project |   |           |   |   |           |  
|Balance, beginning of period                |   | -         |   |   | -         |  
|Power Plant One                             |   | 565,459   |   |   | -         |  
|Transmission Lines and Substation           |   | 139,193   |   |   | -         |  
|Pipelines                                   |   | 78,478    |   |   | -         |  
|Well Drilling                               |   | 165,906   |   |   | -         |  
|Balance, end of period                      |   | 949,036   |   |   | -         |  
|                                            |   |           |   |   |           |  
|Other equipment                             |   |           |   |   |           |  
|Balance, beginning of period                |   | 5,325     |   |   | 3,994     |  
|Acquisitions                                |   | -         |   |   | 1,331     |  
|Balance, end of period                      |   | 5,325     |   |   | 5,325     |  
|Less: Accumulated depreciation              |   | (3,325    | ) |   | (1,975    | )
|Net balance, end of period                  |   | 2,000     |   |   | 3,350     |  
|                                            |   |           |   |   |           |  
|                                            | $ | 1,726,115 |   | $ | 595,701   |  

NOTE 5 - CAPITAL STOCK

On March 13, 2006, the Company issued 15,000 common shares upon
  the exercise of 15,000 options at an exercise price of $0.60 CDN ($0.51 U.S.
  as of March 13, 2006).

On February 17, 2006, the Company issued 192,934 common shares
  upon the exercise of 192,934 stock purchase warrants at an exercise price of
  $0.75 U.S.

On February 9, 2006, the Company issued 25,000 common shares
  upon the exercise of 25,000 options at an exercise price of $0.60 CDN ($0.51
  as of February 9, 2006).

On February 6, 2006, the Company issued 120,000 common shares
  as a signing bonus as part of an employment agreement at a deemed price of $0.72
  CDN ($0.61 U.S. as of February 6, 2006.

On January 9, 2006, the Company issued 138,370 common shares
  upon the exercise of 138,370 options at an exercise price of $0.60 CDN ($0.51
  U.S. as of January 9, 2006).

On January 3, 2006, the Company issued 200,000 common shares
  upon the exercise of 200,000 options at an exercise price of $0.60 CDN ($0.51
  U.S. as of January 3, 2006).

On December 28, 2005, the Company issued 183,333 common shares
  upon the exercise of 100,000 options at an exercise price of $0.60 CDN ($0.51
  U.S. as of December 28, 2005) and 83,333 purchase warrants at an exercise price
  of $0.45 U.S.

-49-

---

On July 22, 2005, the Company issued 40,000 common shares upon
  the exercise of 40,000 options at an exercise price of $0.60 CDN ($0.51 U.S.
  as of July 22, 2005).

On April 11, 2005, the Company issued 17,778 common shares upon
  the exercise of 17,778 options at an exercise price of $0.90 CDN ($0.73 U.S.
  as of April 11, 2005).

On February 23, 2005, the Company issued 100,000 common shares
  at a price of $0.60 for two parcels of land and energy rights adjacent to its
  Raft River Property valued at $60,351.

On February 18, 2005, the Company issued 30,000 common shares
  upon the exercise of 30,000 stock options at an exercise price of $0.60 CDN
  ($0.49 U.S. as at February 18, 2005).

On October 20, 2004, the Company issued 278,735 common shares
  upon the exercise of 278,735 stock options at an exercise price of $0.60 CDN
  ($0.47 U.S. as at October 20, 2004).

In payment for services provided in connection with the private
  placement described below, the Company paid $225,131 in cash and granted 280,000
  agents warrants exercisable at a price of $0.85 CDN ($0.72 U.S. as at
  September 30, 2005) until September 17, 2006. The warrants are exercisable into
  units identical (including with respect to acceleration) to the units offered
  in the private placement. The fair value of $133,341, as calculated by the Black-Scholes
  model, was recorded as a share issue cost.

On September 17, 2004, the Company issued 4,000,001 units for
  a private placement at a price of $0.85 CDN ($0.66 U.S. as at September 17,
  2004) per unit. Each unit consists of one common share and one share purchase
  warrant. Each share purchase warrant entitles the holder to purchase one additional
  common share at a price of $1.25 CDN ($1.06 U.S. as at September 30, 2005) per
  share until September 17, 2006. Should the closing price of the Companys
  common shares exceed $1.65 CDN ($1.40 U.S. as at September 30, 2005) per share
  for twenty consecutive trading days, the exercise date of the warrants may be
  accelerated to a date not earlier than twenty days following the date of the
  press release indicating the acceleration.

During the year ended March 31, 2004, the Company made cash payments
  totalling $137,398 pursuant to the convertible notes described below. On February
  20, 2004, the Company issued 385,864 units, at a value of $0.45 per unit, on
  conversion of amounts due under the convertible promissory notes totalling $173,639,
  including unpaid principal of $147,000 and interest accrued at a rate of 20%
  per annum totalling $26,638. Each unit has identical terms and conditions to
  the units issued in the December 2003 private placement described below, other
  than the expiration date of the warrants which expire on February 17, 2006.

On December 19, 2003, the Company issued 6,939,992 shares and
  2,420,217 warrants (the new warrants) to the shareholders of GEO
  - Idaho to effect the reverse take-over (RTO) described in Note
  3. Pursuant to the negotiated agreement of the parties, as approved by the TSX
  Venture Exchange, the GEO - Idaho shares were exchanged on a one-for-one basis
  with all GEO - Idaho shareholders other than Vulcan Power Company, which received
  shares and warrants so that Vulcan Power would own 14% on a non-diluted and
  25% on a fully-diluted basis after closing (taking into account the private
  placement closed in conjunction with the RTO discussed below). To meet these
  percentages, Vulcan was issued 1,755,159 shares and the 2,420,217 new warrants.
  Vulcan had held 1,895,000 GEO-Idaho shares and 1,612,000 GEO - Idaho warrants
  prior to the

-50-

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RTO. The new warrants, issued only to Vulcan as the sole old
  warrant holder of GEO - Idaho, have an exercise price of $0.75 per share and
  expire December 19, 2005. Concurrently with the RTO, the Company issued 3,322,221
  units for a private placement at a price of $0.45 per unit. Each unit consists
  of one common share and one half of one share purchase warrant. Each full share
  purchase warrant entitles the holder to purchase one additional common share
  at a price of $0.75 per share until December 19, 2005. The share issuance costs
  of this issuance were $100,559. Of this amount, $75,122 was paid in cash and
  $25,437 was paid by the issuance of 83,333 agents warrants to purchase
  up to 83,333 common shares, exercisable at a price of $0.45 until December 19,
  2005. The value assigned to the new warrants was $629,256 ($0.26 per warrant),
  and the value assigned to the warrants included in the units was $431,889 ($0.26
  per warrant) as calculated by the Black-Scholes model. The exercise date of
  the warrants issued in connection with the RTO, the private placement and agent
  services can be accelerated to 30 days after written notice from the Company
  provided that the Company has obtained both: (i) all material permits and licenses
  necessary to authorize initiation of construction of a 10 megawatt power plant;
  and (ii) power purchase and transmission agreements for such plant. The fair
  value of the agents warrants of $25,437 ($0.30 per warrant) was calculated
  by the Black-Scholes model. The share issue costs have been netted against the
  proceeds allocated to additional paid in capital.

On April 25, 2003, the Company committed to issue convertible
  promissory notes in an aggregate principal amount of $269,000. The notes were
  convertible, at the option of the holder, into units identical in terms to the
  units described above, except with respect to the expiration date of the units,
  as described above. The notes carried an interest rate of 20%.

On February 14, 2003, the Company issued 151,170 common shares
  to directors of the Company for management services. These shares had a fair
  value on that date of $45,350. Accordingly, these shares were recorded as a
  charge to management fees in the consolidated statement of operations.

On November 1, 2002, the Company issued 1,023,667 common shares
  at a price of $0.30 per share for cash proceeds of $307,100 and 10,000 common
  shares for services related to the geothermal property. The shares issued for
  services had a fair value on that date of $3,000. Accordingly, these shares
  were recorded as a charge to exploration expenditures in the consolidated statement
  of operations.

On May 28, 2002, the Company issued 395,000 common shares at
  a price of $0.25 per share for cash proceeds of $98,750 and issued 5,000 common
  shares for consulting services. The shares issued for services had a fair value
  on that date of $1,250. Accordingly, the shares issued for services were recorded
  as a charge to consulting fees in the consolidated statement of operations.

Escrow Shares

The following common shares and share purchase warrants are in
  escrow at the dates shown:

|                        |  | March 31, |  |  | March 31, | 
|----------------------- |  | --------- |  |  | --------- | 
|                        |  | 2006      |  |  | 2005      | 
|                        |  |           |  |  |           | 
|Common shares           |  | 2,150,309 |  |  | 4,243,325 | 
|Share purchase warrants |  | 0         |  |  | 1,946,937 | 

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The escrow shares and warrants are or were held in escrow pursuant
  to standard requirements of the TSX Venture Exchange, which required that escrow
  conditions be placed upon the shares and share purchase warrants issued in conjunction
  with the acquisition of GEO - Idaho (Note 3) and the concurrently completed
  private placement (Note 5). Shares are released from escrow at six month intervals,
  with the last release from escrow scheduled for December 19, 2006. All stock
  purchase warrants previously held in escrow expired as of December 31, 2005,
  without exercise.

NOTE 6 - STOCK -BASED COMPENSATION

The Companys stock option plan provides for the grant of
  incentive stock options enabling the holders to purchase up to 2,584,000 common
  shares. The plan is for employees, consultants, officers and directors of the
  Company. 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.
  Because the plan has historically been administered in Canada by Pacific Corporate
  Trust, the Company has issued stock options with an exercise price stated in
  Canadian dollars per share.

During the quarter ended June 30, 2005, the Company granted 50,000
  stock options to a consultant exercisable at a price of $0.72 CDN ($0.61 USD
  as at December 31, 2005) until April 19, 2010.

During the year ended March 31, 2005, the Company granted 560,000
  stock options to consultants, directors and officers exercisable at prices ranging
  from $0.72 to $0.90 CDN ($0.61 to $0.77 USD as at December 31, 2005).

During the year ended March 31, 2004, the Company granted 1,745,000
  stock options to consultants, directors and officers exercisable at a price
  of $0.60 CDN ($0.51 USD as at December 31, 2005) until January 3, 2009.

Compensation expense related to stock options granted is recorded
  at their fair value as calculated by the Black-Scholes option pricing model.
  Compensation expense of $25,509 was included in consulting fees and $155,271
  was included in salaries and wages for the twelve months ended March 31, 2006
  (March 31, 2005 - $295,541).

The changes in stock options are as follows:

|                                    |  | NUMBER    |   |   | WEIGHTED | 
|----------------------------------- |  | --------- | - | - | -------- | 
|                                    |  | SHARES    |   |   | AVERAGE  | 
|                                    |  | UNDER     |   |   | EXERCISE | 
|                                    |  | OPTIONS   |   |   | PRICE    | 
|                                    |  |           |   |   |          | 
|Balance outstanding, March 31, 2004 |  | 1,745,000 |   | $ | 0.60 CDN | 
|                                    |  |           |   |   |          | 
|Cancelled                           |  | (240,000  | ) |   | 0.60 CDN | 
|Exercised                           |  | (308,735  | ) |   | 0.60 CDN | 
|Granted                             |  | 470,000   |   |   | 0.72 CDN | 
|Granted                             |  | 90,000    |   |   | 0.90 CDN | 
|Balance outstanding March 31, 2005  |  | 1,756,265 |   |   | 0.65 CDN | 

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|Cancelled                          |  | (182,267  | ) |   | 0.60 CDN | 
|---------------------------------- |  | --------- | - | - | -------- | 
|Exercised                          |  | (518,370  | ) |   | 0.60 CDN | 
|Granted                            |  | 50,000    |   |   | 0.72 CDN | 
|Exercised                          |  | (17,778   | ) |   | 0.90 CDN | 
|Cancelled                          |  | (22,222   | ) |   | 0.90 CDN | 
|Balance outstanding March 31, 2006 |  | 1,065,628 |   | $ | 0.67 CDN | 

The following table summarizes information about the number of
  shares under stock options outstanding and exercisable at March 31, 2006:

OPTIONS OUTSTANDING
      OPTIONS EXERCISABLEMARCH 31,
      MARCH 31,2005
      2006
      REMAININGEXERCISE
      NUMBER OF
      NUMBER OF
      CONTRACTUAL
      NUMBER OFPRICE
      SHARES
      SHARES
      LIFE (YEARS)
      SHARES$ 0.60 CDN
      1,196,265
      495,628
      2.76
      495,6280.72 CDN
      470,000
      520,000
      3.67
      390,0000.90 CDN
      90,000
      50,000
      3.67
      37,500$ 0.67 CDN
      1,756,265
      1,065,628
      3.25
      923,128


The fair value of the stock options granted was estimated using
  the Black-Scholes option-pricing model and is amortized over the vesting period
  of the underlying options. The weighted average fair value of options granted
  was $0.50 per share. The assumptions used to calculate the fair value are as
  follows:

|                        |  | 2005    |  |  | 2004    | 
|----------------------- |  | ------- |  |  | ------- | 
|                        |  |         |  |  |         | 
|Dividend yield          |  | 0       |  |  | 0       | 
|Expected volatility     |  | 116%    |  |  | 136%    | 
|Risk free interest rate |  | 3.88%   |  |  | 4.18%   | 
|Expected life           |  | 5 Years |  |  | 5 Years | 

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.

Stock Purchase Warrants

As at March 31, 2006 (8,637,593 as at March 31, 2005), the following
  share purchase warrants are outstanding:

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WARRANTS
      EXERCISABLEISSUED
      INTO NUMBER
      
      
      FAIRPURSUANT TO
      OF COMMON
      EXERCISE
      EXPIRATION
      VALUESHARES
      PRICE
      DATE
      AT ISSUANCEPrivate placement
      4,000,001
      $1.25 CDN
      September 17, 2006
      $1,190,697Agents warrants
      280,000
      $0.85 CDN
      September 17, 2006
      $133,3414,280,001
      
      
      $1,324,038


On February 17, 2006, stock purchase warrants representing 192,934
  common shares at an exercise price of $0.75 were exercised.

Effective December 19, 2005, stock purchase warrants representing
  4,081,327 shares at an exercise price of $0.75 expired without exercise, while
  83,333 stock purchase warrants at an exercise price of $0.45 were exercised.

The Black-Scholes option pricing model was used to determine
  the fair value of the warrants, with the following assumptions:

|                        |  | 2005      |  |  | 2004      | 
|----------------------- |  | --------- |  |  | --------- | 
|                        |  |           |  |  |           | 
|Dividend yield          |  | 0%        |  |  | 0%        | 
|Expected volatility     |  | 150%      |  |  | 136%      | 
|Risk free interest rate |  | 2.65%     |  |  | 4.18%     | 
|Expected life           |  | 24 months |  |  | 24 months | 

NOTE 7 - RELATED PARTY TRANSACTIONS

As at March 31, 2006 and March 31, 2005, the amounts of $10,083
  and $4,842 are payable to directors and officers of the Company. These amounts
  are unsecured and due on demand.

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

|                        |   | 12 Months |  |   | 12 Months | 
|----------------------- | - | --------- |  | - | --------- | 
|                        |   | March 31, |  |   | March 31, | 
|                        |   | 2006      |  |   | 2005      | 
|                        |   |           |  |   |           | 
|Administrative services | $ | 19,584    |  | $ | 18,142    | 
|Management fees         |   | 21,500    |  |   | 64,196    | 
|Consulting fees         |   | 24,960    |  |   | 49,194    | 
|Legal fees              |   | 871       |  |   | 14,913    | 
|Rent                    |   | 13,863    |  |   | 11,273    | 
|                        |   |           |  |   |           | 
|                        | $ | 80,778    |  | $ | 157,718   | 

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

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

Consolidated Balance Sheets
      U.S. GAAP March 31, 2006
      Canadian GAAP March 31, 2006
      U.S. GAAP March 31, 2005
      Canadian GAAP March 31, 2005Plant, Property & Equipment
      $ 1,726,115
      $ 2,166,726
      $ 595,701
      $ 1,054,199Total Assets
      21,895,933
      22,336,544
      2,584,970
      3,043,468Stockholders Equity
      21,615,019
      22,055,630
      2,419,868
      2,878,366Total Liabilities & 
        Stockholders Equity
      21,895,933
      22,336,544
      2,584,970
      3,043,468


Consolidated Statements of Operations and Comprehensive Loss
      U.S. GAAP Twelve Months ended March 31, 2006
      Canadian GAAP Twelve Months ended March 31, 2006
      U.S. GAAP Twelve Months ended March 31, 2005
      Canadian GAAP Twelve Months ended March 31, 2005Exploration Expenditures
      $ 0
      $ 0
      $ 438,885
      $ 0Loss from Operations
      (1,663,069)
      (1,607,755)
      (1,751,530)
      (1,312,645)Net Loss
      (1,523,385)
      (1,468,071)
      (1,830,421)
      (1,391,536)


NOTE 9 - COMMITMENTS AND CONTINGENCIES

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

2006
      $ 28,8502007
      $ 20,1002008
      $ 20,4002009
      $ 20,8002010
      $ 23,800


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

-55-

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On December 5, 2005, the Company signed a contract with Ormat
  Nevada, Inc. (Ormat) for Ormat to construct a 13 MW geothermal power plant at
  Raft River, Idaho for a lump sum price of $20,200,000 (exclusive of taxes).
  The Company expects the output of the plant will be used to meet power delivery
  requirements of the Companys agreements with Idaho Power Company.

On April 3, 2006, the Company completed a private placement of
  25,000,000 common shares at a price of $1.00 CDN ($0.86 U.S. as of April 3,
  2006). Proceeds, net of financing fees, totaled $20,134,260. Of the net proceeds,
  $172,370 had been received in the Companys bank accounts prior to year
  end. Since the subscription forms reflected a March 30, 2006 date, and the remainder
  of the cash was on deposit with Dundee Securities, the private placement was
  recorded as Restricted Cash and as Capital Stock Issuable
  in these financial statements. Upon the issuance of the common shares on April
  3, 2006, all cash restrictions were lifted.

We lease general office space for our executive office in Boise
  at an annual cost of $30,506. The underlying lease is a year-to-year lease that
  expires on January 31, 2007.

NOTE 10- SUBSEQUENT EVENTS

On April 3, 2006, the Company completed a private placement of
  25,000,000 common shares at a price of $1.00 CDN ($0.86 U.S. as of April 3,
  2006). Proceeds, net of financing fees, totaled $20,134,260. Of the net proceeds,
  $172,370 had been received in the Companys bank accounts. Since the subscription
  forms reflected a March 30, 2006 date, and the remainder of the cash was on
  deposit with Dundee Securities, the private placement was reflected as Restricted
  Cash and as Capital Stock Issuable in these financial statements. Upon the issuance
  of the common shares on April 3, 2006, all cash restrictions were lifted.

On April 27, 2006, the Company and Ormat amended the contract
  to construct the phase one geothermal power plant in order to allow commencement
  of construction in advance of project financing. In connection with the amendment,
  the Company issued a Notice to Proceed to Ormat, which commissioned them to
  immediately proceed with final detailed engineering and place orders for long-lead
  time equipment and material components. This schedule is intended to provide
  first synchronization of the phase one power plant in September 2007 with full
  commercial operations no later than November 2007.

-56-

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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ONACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 8A. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the
participation of our management, including the Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on that evaluation,
our management, including the CEO and CFO, concluded that the disclosure
controls and procedures were effective as of March 31, 2006, in ensuring that
all material information required to be filed in this annual report has been
made known to them in a timely manner.

There has been no change to our internal control over financial
reporting during the quarter or fiscal year ended March 31, 2006 that has
materially affected, or is likely to materially affect, our internal control
over financial reporting.

The company is not required to have, nor was Williams &
Webster engaged to perform, an audit of internal control over financial
reporting. The audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectives of the companys internal control over financial reporting.
Accordingly, Williams & Webster expressed no such opinion.

ITEM 8B. OTHER INFORMATION

None.

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PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROLPERSONS; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT

The following sets forth certain information concerning the
current directors, executive officers and significant employees of our company.
Each director has been elected to serve until our next annual meeting of
stockholders and until his successor has been elected and qualified. Each
executive officer serves at the discretion of the board of directors of our
company.

|NAME                   | AGE | POSITION                                             
|---------------------- | --- | -----------------------------------------------------
|                       |     |                                                      
|Daniel J. Kunz         | 54  | Chief Executive Officer,
      President and Director
|Douglas J. Glaspey (1) | 53  | Chief Operating Officer and Director                 
|John H. Walker         | 57  | Chairman of the Board and
      Director             
|Paul A. Larkin (1) (2) | 56  | Director                                             
|Jon Wellinghoff (1)    | 57  | Director                                             
|Kerry D. Hawkley       | 52  | Chief Financial Officer                              
|Kevin Kitz             | 45  | Vice President, Development,
      Geo-Idaho         
|Robert Cline           | 49  | Vice President, Engineering, Geo-Idaho               

| | (1) | Member of the Audit Committee.   
| | --- | ---------------------------------
| | (2) | Audit Committee Financial Expert.

Daniel J. Kunz is the President and Chief Executive
Officer and a director of GTH and the President of Geo-Idaho. He has served as a
director of the company since March 2000, and was Chairman of the Board of
Directors from March 2000 until December 2003. Prior to the acquisition of
Geo-Idaho, he served as a director and the President for that company from
February 2002 until the acquisition. Mr. Kunz was an executive of Ivanhoe Mines
Ltd. from 1997, and served as its President and Chief Executive Officer from
November 1, 2000 until March 1, 2003. From March 2, 2003 until March 8, 2004,
Mr. Kunz served as Interim President of Jinshan Gold Mines Inc. Mr. Kunz has
more than 29 years of experience in international mining, engineering and
construction, including, marketing, business development, management,
accounting, finance and operations, having held key positions in MK Gold Company
(President & CEO) and Morrison Knudsen Corporation (Vice President &
Controller, and as CFO to the Mining Group). Mr. Kunz holds a Masters of
Business Administration and a Bachelor of Science in Engineering Science. He is
currently a director of several companies publicly traded on the TSX Venture
Exchange, including Jinshan Gold Mines Inc., Triumph Gold Corp., Tyner Resources
Ltd., and Chesapeake Gold Corp. Mr. Kunz serves as Chairman of the Board of
Directors of China Mineral Acquisition Corporation, which is a publicly traded
company on the OTC Bulletin Board.

Douglas J. Glaspey is the Chief Operating Officer and a
director of GTH. He has served as a director of the company since March 2000,
and served as its President from March 2000 until the acquisition of Geo-Idaho.
He also served as a director and the Chief Executive Officer of Geo-Idaho from
February 2002 until the acquisition, and continues to serve as President. From
December 1986 to the present, Mr. Glaspey has been a Metallurgical Engineer and
Project Manager with Twin Gold Corporation. Mr. Glaspey has 28 years of
operating and management experience. He holds a Bachelor of Science in Mineral
Processing Engineering and an Associate of Science in Engineering Science. His
experience includes production management, planning

-58-

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and directing resource exploration programs, preparing
feasibility studies and environmental permitting. He has formed and served as an
executive officer of several private resource development companies in the
United States, including Drumlummon Gold Mines Corporation and Black Diamond
Corporation.

John H. Walkeris a director and the Chairman of the
Board of directors of GTH. He has held that position since December 2003. He has
served (and continues to serve) as Chief Executive Officer of Mihaly
International Canada Limited since 1987. Prior to that Mr. Walker was a Senior
Advisor to Falconbridge Limited from September 2000 to April 2002; and Managing
Director of Loewen, Ondaatje, McCutcheon, from November 1996 to August 2000. Mr.
Walker holds a Master of Environmental Studies degree from York University in
Toronto. For many years he was an executive with Ontario Hydro where he directed
programs in renewable energy and international business development,
specifically in respect of thermal power generation. Currently as CEO of Mihaly
International Canada Limited, based in Oakville, Ontario, he provides services
to development and mining companies, corporations, banks, and insurance
companies on a range of issues related to project management, construction, fuel
supply, build own operate and transfer, project finance and risk management.

Paul Larkin serves as a director of GTH, a position he
has held since March 2000. He served as Secretary of GTH until December, 2003,
and served as a director and the Secretary-Treasurer of Geo-Idaho from February
2002 until the acquisition.Since 1983, Mr. Larkin has also been the
President of the New Dawn Group, an investment and financial consulting firm
located in Vancouver, British Columbia, and the President of Tyner Resources
Ltd., a TSX Venture Exchange listed company. New Dawn is primarily involved in
corporate finance, merchant banking and administrative management of public
companies. Mr. Larkin held various accounting and banking positions for over a
decade before founding New Dawn in 1983, and currently serves on the boards of
the following companies which are listed on the TSX Venture Exchange: Eventure
Capital Corp., and Tyner Resources Ltd.

Jon Wellinghoff is a director of GTH, a position he has
held since December 2003. Since November 2000, Mr. Wellinghoff has been an
attorney in private practice with the firm of Beckley Singleton of Las Vegas,
Nevada. From May 1999 to November 2000, he served as Regional Manager of
Noresco, and served as General Counsel with Nevada P.U.C. from May 1998 to May
1999. He was an attorney in private practice from July 1989 until joining Nevada
P.U.C. Mr. Wellinghoff has an extensive background in the renewable energy field
including, Federal Trade Commission with a focus on renewable energy
development. He was the first Nevada Consumer Advocate and wrote the first
integrated resource planning acts for Nevada. He has been involved with and
advised clients in connection with the negotiation of power purchase agreements
with utilities and PURPA issues. Mr. Wellinghoff drafted and advocated the
Nevada Renewable Portfolio Standard, and is counsel for other geothermal and
renewable power producers.

Kerry D. Hawkley serves as the companys Chief Financial
Officer. He has served as the companys controller since July 2003, and became
CFO as of January 1, 2005. Since July 2003, he has also provided, and continues
to provide, consulting services to Triumph Gold Corp. From 1998 to June 2003,
Mr. Hawkley served as controller, director and treasurer of LB Industries. Mr.
Hawkley has over 29 years experience in all areas of accounting, finance and
administration.

-59-

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He holds Bachelor of Business Administration degrees in
Accounting and Finance. He started his career as an internal auditor with Union
Pacific Corporation and has held various accounting management positions in the
oil and gas, truck leasing, mining and energy industries.

Kevin Kitz is the Vice President-Development of
Geo-Idaho. He joined the company in April 2003. He is a mechanical engineer with
19 years of geothermal power plant design, construction and operating experience
with UNOCAL, with whom he worked until November 2002. He holds a Bachelor of
Science in Mechanical Engineering and Material Science, and is a Professional
Engineer in California. During his career with Unocal, he was a Production and
Operations Engineer at the 75MW Salton Sea geothermal power plant in southern
California, a Senior Production Engineer at the Geysers geothermal field in
northern California, and a Power Plant Engineering Advisor in the Philippines
for geothermal power plants ranging from 12 to 55 MW.

Robert Cline is the Vice President-Engineering of
Geo-Idaho. He joined the company in February 2005. He is a civil engineer with
24 years experience developing energy and water resources projects in the
western U.S. He holds Bachelor of Science degrees in Civil Engineering and
Physics, and is a Professional Engineer in Arizona and Oregon. Prior to joining
US

Geothermal, he was the Manager Engineering at Ida-West Energy
Company, playing a key role in developing several hydroelectric and gas-fired
generating facilities, and was instrumental in several highly successful
hydroelectric acquisitions. Prior to 1991, he worked nine years for the US
Bureau of Reclamation where he was involved in engineering, contracting and
construction of various water resources related projects in Arizona.

Code of Ethics.Management submitted a proposed Code of
Ethics to the Board of Directors for review and comment. The Board approved the
code of ethics at the board meeting held in conjunction with the annual general
meeting in September 2005. The code of ethics applies to all directors, officers
and employees of the company. The Code of Ethics is included in the Companys
web page at www.usgeothermal.com.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth information concerning the
annual compensation earned or paid to Daniel Kunz, the chief executive officer
(the "named executive officer") for the year ended March 31, 2006. No executive
officer of GTH or Geo-Idaho had compensation that exceeded $100,000 during the
fiscal years ending March 31, 2005 and March 31, 2006. Long term compensation in
the form of options that had been issued prior to December 19, 2003, were
cancelled in accordance with the vote of the shareholders of GTH approving the
acquisition of Geo-Idaho. Annual bonuses or other compensation have not been
paid to the named executive officer for any period prior to March 31, 2006,
except for the stock options listed below.

Mr. Kunz has an employment agreement with the company which
provides that he will devote at least one-half of working time to the company.
Mr. Kunz may engage in other business activities provided he does not engage in
any activities which another executive officer determines is competitive, or
will otherwise interfere with the performance of Mr. Kunzs duties to the
company. In addition to monetary compensation, Mr. Kunz is entitled to receive
incentive stock options as determined by the companys board of directors,
benefits (including for

-60-

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immediate family) as are or may become available to other
employees, and vacation. The employment agreement may be terminated by the
company without notice, payment in lieu of notice, severance or other sums for
causes which include failure to perform in a competent and professional manner,
appropriation of corporate opportunities or failure to disclose a conflict of
interest, conviction which has become final for an indictable offense, fraud,
dishonesty, refusal to follow reasonable and lawful direction of the company,
breach of fiduciary duty, and a declaration of bankruptcy by or against Mr.
Kunz. Otherwise the company upon one month written notice may terminate the
agreement. The agreement includes covenants by Mr. Kunz of confidentiality and
non-competition, and provides for equitable relief in the event of breach. A
copy of Mr. Kunzs employment agreement is included as Exhibit 10.12 in Part II
of the SB-2 registration statement dated April 7, 2005.

Effective April 1, 2006, Mr. Kunz has signed a new employment
agreement similar in form and content to the previous agreement that increases
the amount of time devoted to the business of the company to 140 hours per month
at a compensation of $132,000 annually. A copy of the new employment agreement
is included as Exhibit 10.12 in Part II of this report.

Name and Principal position(s)
    Year Ended March 31,
      2006
    Annual Compensation
    Long-term Compensation
      AwardsSalary ($)
    Securities underlying
      options/SARs (#)Daniel J. Kunz
    2006
    $50,000
    NILChief Executive Officer
    2005
    $60,500
    NILand President


On April 12, 2006, GTH granted 1,763,000 stock options to
officers, employees and consultants. The number of stock options granted to
executive officers is identified below. The options vest in quarterly
increments, starting with the date of grant and every six months thereafter. The
exercise price on the date of grant was the fair market value of the companys
stock on the date of grant.

Number of Shares
    Percentage of TotalUnderlying Options
    Options Granted toOptionee
    Granted
    Employees
    Exercise Price
    Expiration DateDouglas J. Glaspey
    380,000
    21.55
    CDN$0.85
    April 12, 2011Kerry D. Hawkley
    135,000
    7.66
    CDN$0.85
    April 12, 2011Daniel J. Kunz
    530,000
    30.06
    CDN$0.85
    April 12, 2011


Daniel J. Kunz (January 10, 2006) and Douglas J. Glaspey
(December 29, 2005) exercised options granted in a previous year.

Shares
    CDN
    Number of Shares
    Value of in-the-moneyAcquired on
    $Value
    Underlying
    UnexercisedName
    Exercise
    Realized
    Unexercised Options
    Stock OptionsDaniel J. Kunz
    100,000
    $18,500
    13,494/0
    CDN$ 6,949/$0Douglas J. Glaspey
    100,000
    $25,000
    22,134/0
    CDN$11,399/$0


-61-

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GTH did not award any shares, units or rights to any executive
  officer under a Long-Term Incentive Plan during the fiscal year ended March
  31, 2006.

Directors who are not otherwise remunerated per an employment
agreement are paid $2,000 per quarter and $500 per board meeting attended in
person. Directors who are also officers do not receive any cash compensation for
serving in that capacity. However, all directors are reimbursed for their
out-of-pocket expenses in attending meetings.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
  ANDMANAGEMENT AND RELATED STOCKHOLDERS

The following table sets forth the common stock owned by (1)
our directors and "named executive officers," (2) persons known by us to
beneficially own, individually, or as a group, more than 5% of our outstanding
common stock as of May 31, 2006 and (3) all of our current directors and
executive officers as a group.

TotalShares Outstanding
    
    
    Beneficially
    Percentage ofName and Address (2)
    (3)
    Options (1)
    Warrants (1)
    Owned (1)
    SharesDaniel J. Kunz
    2,624,885
    543,494
    0
    3,168,379
    6.11%Douglas J. Glaspey
    1,154,425
    402,134
    0
    1,556,559
    3.00%Paul A. Larkin
    874,138
    180,000
    0
    1,054,138
    2.03%Kerry D. Hawkley
    40,000
    235,000
    0
    275,000
    0.53%John H. Walker
    95,667
    195,000
    0
    290,667
    0.56%Jon Wellinghoff
    0
    180,000
    0
    180,000
    0.35%All Directors and
      Officers as a group
    4,789,115
    1,735,628
    0
    6,815,410
    13.13%Goldman, Sachs & Co,
      295 Chipeta Way, Salt Lake City, UT 84108
    4,200,000
    0
    0
    4,200,000
    8.09%SPCP Group LLC, 2
      Greenwhich Plaza, Greenwhich, CT 06830
    8,300,000
    0
    0
    8,300,000
    15.99%S.A.C. Capital Associates
      LLC, PO Box 58, Victoria House, The Valley, Anguilla
    3,000,000
    0
    0
    3,000,000
    5.78%Winslow Green Growth
      Fund, PO Box 7247- 7057, Philadelphia, PA 19170-7057
    2,700,000
    0
    0
    2,700,000
    5.20%Wexford Capital, Walker
      House, Mary Street, Georgetown,
    3,000,000
    0
    0
    3,000,000
    5.78% -62-


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|Cayman Islands                                                            |           |           |   |           |      
|------------------------------------------------------------------------- | --------- | --------- | - | --------- | -----
|                                                                          |           |           |   |           |      
|Dundee Resources Ltd, 40
      King St W, Suite 5500, Toronto, ON M5H 4A9 | 1,176,500 | 1,522,500 | 0 | 2,699,000 | 5.20%

| | 1) | This tabular information is intended to conform with Rule
      13d-3 promulgated under the Securities Exchange Act of 1934 relating to
      the determination of beneficial ownership of securities.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2) | Unless otherwise indicated, the address for each of the
      above is c/o US Geothermal Inc, 1509 Tyrell Lane, Suite B, Boise, ID
      83706.                                                       
| | 3) | A portion of the shares of Messrs. Kunz, Glaspey, Walker,
      Larkin and Hawkley included in this column are subject to an escrow
      agreement until December 19, 2006.                          

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

1.          
In September, 2004, the company agreed to pay past due compensation for services
rendered in calendar year 2004 to Messrs. Kunz, Glaspey, Bourgeois (who was then
the Chief Financial Officer and Secretary of the company) and Larkin, which, on
October 19, 2004, each used to exercise options as follows:

OPTIONEE
    Amount exercised
      (USD)
    Amount exercised
      (CDN)
    Exercise price (CDN)
    Number of common
      sharesDaniel Kunz
    $ 40,550.00
    $51,903.60
    $ 0.60
    86,506Doug Glaspey
    $ 36,500.00
    $46,719.60
    $ 0.60
    77,866Ron Bourgeois
    $ 13,000.00
    $16,639.80
    $ 0.60
    27,733Paul Larkin
    $ 40,607.42
    $51,978.00
    $ 0.60
    86,630Totals
    $130,657.42
    
    
    278,735


2.          
On April 12, 2006, GTH granted 1,763,000 stock options to officers, employees
and consultants. The number of stock options granted to executive officers and
directors is identified below. The options vest in quarterly increments,
starting with the date of grant and every six months thereafter. The exercise
price on the date of grant was the fair market value of the companys stock on
the date of grant.

Number of Shares
    Percentage of TotalUnderlying Options
    Options Granted toOptionee
    Granted
    Employees
    Exercise Price
    Expiration DateDouglas J. Glaspey
    380,000
    21.55
    CDN$0.85
    April 12, 2011Kerry D. Hawkley
    135,000
    7.66
    CDN$0.85
    April 12, 2011Daniel J. Kunz
    530,000
    30.06
    CDN$0.85
    April 12, 2011John H. Walker
    115,000
    6.52
    CDN$1.00
    April 12, 2011Paul Larkin
    180,000
    10.21
    CDN$1.00
    April 12, 2011Jon Wellinghoff
    120,000
    6.81
    CDN$0.85
    April 12, 2011


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ITEM 13. EXHIBITS

See the exhibits index to this Form 10-KSB.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES

The aggregate fees billed by the Companys principal accountant
for the fiscal years ended March 31, 2005 and 2006 are as follows:

Year ended
    Audit Fees
    Audit-Related
    Tax Fees
    All OtherMarch 31
    
    Fees (2)
    (3)
    Fees (4)2006
    $31,116
    $0
    $0
    $02005
    $38,300 (1)
    $0
    $0
    $0


|(1) | Includes services for the annual audit of the Companys
      financial statements and services associated with SB-2 registration
      statements filed with the SEC.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                       
|(2) | Fees charged for assurance and related services
      reasonably related to the performance of an audit, and not included under
      Audit Fees.                   
|    |                                                                                                                                                                       
|(3) | Fees charged for tax compliance, tax advice and tax
      planning services.                                                                                          
|    |                                                                                                                                                                       
|(4) | Fees for services other than disclosed in any other
      column.                                                                                                     

The Audit Committee reviews the Companys financial statements,
MD&A and any annual and interim earnings press releases before the Company
publicly discloses this information and any reports or other financial
information (including quarterly financial statements) which are submitted to
any governmental body, or to the public, including any certification, report,
opinion, or review rendered by the principal accountant performing the external
audit of the Companys records. The Audit Committee also confirms that adequate
procedures are in place for the review of the Companys public disclosure of
financial information extracted or derived from the Companys financial
statements.

The Audit Committee engaged Williams & Webster to perform
the annual audit of the financial statements of the company. Audit fees and
scope of work are monitored and approved by the Audit Committee.

SUPPLEMENTAL INFORMATION PURSUANT TO SECTION 15(d) BY NON-REPORTING
  ISSUERS

The company is not required to send an annual report or any
proxy material to its security holders. However, as preparation for the
Companys Annual General Meeting, an annual report and proxy material will be
sent to security holders.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

|                    | U.S. GEOTHERMAL INC.
|------------------- | --------------------
|                    | (Registrant)        
|                    |                     
|Date: June 28, 2006 | By:                 
|                    |                     
|                    |                     
|                    |                     
|                    |                     
|Date: June 28, 2006 | By:                 
|                    |                     
|                    |                     

In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

/s/ Daniel J. Kunz
    Director
    June 28, 2006Daniel J. Kunz/s/ Douglas J.
      Glaspey
    Director
    June 28, 2006Douglas J. Glaspey/s/ John Walker
    Director and Chairman
    June 28, 2006John Walker/s/ Paul Larkin
    Director
    June 28, 2006Paul Larkin/s/ Jon
      Wellinghoff
    Director
    June 28, 2006Jon Wellinghoff


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EXHIBIT LIST

|EXHIBIT |            
|------- | -----------
|NUMBER  | DESCRIPTION

3.1
      Certificate of Incorporation of U.S. Cobalt Inc. (now
          known as U.S. Geothermal Inc.) (1)3.2
      Certificate of Domestication of Non-U.S. Corporation
          (1)3.3
      Certificate of Amendment of Certificate of Incorporation
          (changing name of U.S. Cobalt Inc. toU.S. Geothermal Inc.) (1)3.4
      Bylaws of U.S. Cobalt Inc. (now known as U.S. Geothermal
          Inc.) (1)3.5
      Plan of Merger of U.S. Geothermal Inc., an Idaho corporation
          and EverGreen Power Inc., an Idaho corporation (1)3.6
      Amendment to Plan of Merger (1)4.1
      Form of Stock Certificate (1)4.2
      Form of Warrant Certificate (1)4.3
      Provisions Regarding Rights of Stockholders (1)10.12
      Employment Agreement for
          Daniel J. Kunz (4)10.18
      Agreement with Dundee Securities Corporation dated
          June 28, 2004 (1)10.20
      Geothermal Lease and Agreement dated December 1, 2004,
          by and between Reid S. Stewart and RuthO. Stewart and U.S. Geothermal Inc., an
          Idaho corporation (2)10.22
      Employment Agreement for
          Kerry D. Hawkley (4)10.23
      Employment Agreement for
          Douglas J. Glaspey (4)10.24
      Power Purchase Agreement dated December 29, 2004 with
          Idaho Power Company (2)10.27
      Service Agreement for Point-to-Point
          Transmission Service dated June 24, 2005 with Bonneville Power Administration
          (4)10.28
      Interconnection and Wheeling
          Agreement dated March 9, 2006 with Raft River Rural Electric Cooperative
          (4)10.29
      Drilling Bid Proposal and
          Daywork Drilling Contract dated May 25, 2006 with Union Drilling Inc.
          (4)10.30
      Geothermal Lease and Agreement
          dated May 24, 2006, by and between JR Land and Livestock Inc and U.S.
          Geothermal Inc., a Delaware corporation (4)10.31
      Construction Contract dated
          May 22, 2006 with Industrial Builders (4)21
      List of Subsidiaries (4)23
      Consent of Williams and Webster
          (4)31.1
      Certification of Chief Executive
          Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (4)31.2
      Certification of Chief Financial
          Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (4)32.1
      Certification of Chief Executive
          Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (4)32.2
      Certification of Chief Financial
          Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (4)


(1) Filed as part of Form SB-2 filed with the SEC on July 8,
  2004, and incorporated herein by this reference.

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(2) Filed as part of Amendment No. 2 to Form SB-2 filed with
the SEC on January 10, 2005, and incorporated herein by this reference.

(3) Filed as part of Form 8-K filed with the SEC on May 10,
2005, and incorporated herein by this reference.

(4) Filed herewith.

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