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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-K

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

For the fiscal year ended March 31, 2008

Or

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

For the transition period from ______ to ______

Commission File Number **333-117287**

U.S. 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.)
|                                         |                    
|1505 Tyrell Lane                         |                    
|Boise, Idaho                             | 83706              
|(Address of Principal Executive Offices) | (Zip Code)         

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

Securities registered under Section 12(b) of the Exchange Act:

|Title of Each Class            | Name of Each Exchange on Which Registered
|------------------------------ | -----------------------------------------
|Common Stock, $0.001 par value | American Stock Exchange                  

Securities registered pursuant to Section 12(g) of the Act:
NONE

Indicate by check mark if the registrant is well-known seasoned
issuer, as defined in Rule 405 of the Securities Act [   ]
Yes   [X] No

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. [   ]
Yes   [X] No

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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed bySection 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.[X]
Yes  [   ] No

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not 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-K or any amendment to this Form 10-K.
[X]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

|Large accelerated filer [   ] |                                                     | Accelerated
      filer                  
      [X]
|----------------------------- | --------------------------------------------------- | ---------------------------------------------------
|Non-accelerated filer   [   ] | (Do not check if a smaller reporting
      company) | Smaller reporting company [   ]                    

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).  [   ] Yes  
[X] No

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 27, 2008: $156,028,366

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 27, 2008
|----------------------- | -------------------------------------
|Common stock, par value | 62,011,753                           
|$ 0.001 per share       |                                      

Documents Incorporated by Reference:

Portions of the definitive proxy statement to be delivered to stockholders in connection with our 2008 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.”

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U.S. Geothermal Inc. and Subsidiaries

Form 10-K

INDEX

For the Year Ended March 31, 2008

|              |                                                                                                                          | Page
|------------- | ------------------------------------------------------------------------------------------------------------------------ | ----
|PART
      I  |                                                                                                                          |     
|              |                                                                                                                          |     
|Item
      1  | Description
      of Business                                                                                            | 5   
|              | General                                                                                                                  | 5   
|              | Development
      of Business                                                                                            | 5   
|              | History                                                                                                                  | 5   
|              | Plan
      of Operations                                                                                                 | 6   
|              | Cash
      Requirements                                                                                                  | 8   
|              | Material
      Acquisitions/Development                                                                                  | 8   
|              | Material
      Changes in Employees                                                                                      | 11  
|              | Principal
      Products                                                                                                 | 11  
|              | Sources
      and Availability of Raw Materials                                                                          | 11  
|              | Significant
      Patents, Licenses, Permits, Etc.                                                                       | 12  
|              | Seasonality
      of Business                                                                                            | 13  
|              | Industry
      Practices/Needs for Working Capital                                                                       | 13  
|              | Dependence
      on a Single Customer                                                                                    | 13  
|              | Competitive
      Conditions                                                                                             | 13  
|              | Environmental
      Compliance                                                                                           | 14  
|              | Financial
      Information about Geographic Areas                                                                       | 15  
|              | Available
      Information                                                                                              | 15  
|              | Governmental
      Approvals and Regulations                                                                             | 15  
|              | Environmental
      Credits                                                                                              | 17  
|Item
      1A | Risk
      Factors                                                                                                       |     
|              | General
      Business Risks                                                                                             | 18  
|              | Risks
      Relating to the Market for Our Securities                                                                    | 26  
|Item
      2  | Description
      of Property                                                                                            | 28  
|              | Raft
      River  Idaho                                                                                                 | 28  
|              | Raft
      River Unit I                                                                                                  | 30  
|              | Neal
      Hot Springs  Oregon                                                                                          | 34  
|              | San
      Emidio  Nevada                                                                                                | 36  
|              | Gerlach
       Nevada                                                                                                   | 38  
|              | Granite
      Creek  Nevada                                                                                             | 39  
|              | Boise
      Administration Office - Idaho                                                                                | 39  
|Item
      3  | Legal
      Proceedings                                                                                                  | 39  
|Item
      4  | Submission
      of Matters to a Vote of Security Holders                                                                | 39  
|              |                                                                                                                          |     
|              |                                                                                                                          |     
|PART
      II |                                                                                                                          |     
|              |                                                                                                                          |     
|Item
      5  | Market
      for Registrants Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities | 40  
|Item
      6  | Selected
      Financial Data                                                                                            | 42  

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U.S. Geothermal Inc. and Subsidiaries

Form 10-K

INDEX

For the Year Ended March 31, 2008

|               |                                                                                                            | Page
|-------------- | ---------------------------------------------------------------------------------------------------------- | ----
|Item
      7   | Managements
      Discussion and Analysis of Financial Condition and Results of Operations                | 42  
|Item
      7A  | Quantitative
      and Qualitative Disclosures About Market Risk                                           | 51  
|Item
      8   | Financial
      Statements and Supplementary Data                                                          | 52  
|Item
      9   | Changes
      in and Disagreements With Accountants on Accounting And Financial
      Disclosure           | 52  
|Item
      9A  | Controls
      & Procedures                                                                                | 52  
|Item
      9B  | Other
      Information                                                                                    | 54  
|               |                                                                                                            |     
|               |                                                                                                            |     
|PART
      III |                                                                                                            |     
|               |                                                                                                            |     
|Item
      10  | Directors,
      Executive Officers, and Corporate Governance                                              | 55  
|Item
      11  | Executive
      Compensation                                                                               | 58  
|Item
      12  | Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters | 64  
|Item
      13  | Certain
      Relationships and Related Transactions, and Director Independence                            | 65  
|Item
      14  | Principal
      Accountant Fees and Services                                                               | 65  
|               |                                                                                                            |     
|               |                                                                                                            |     
|PART
      IV  |                                                                                                            |     
|               |                                                                                                            |     
|Item
      15  | Exhibits,
      Financial Statement Schedules                                                              | 67  
|               | Independent Audit Opinion                                                                                  |     
|               | Balance Sheet                                                                                              |     
|               | Statement of Operations and
      Comprehensive Income                                                     |     
|               | Statement of Cash Flows                                                                                    |     
|               | Footnote Disclosures                                                                                       |     

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

This report contains forward-looking statements, 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.

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

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 engaged in the acquisition, development and
utilization of geothermal resources in the Western Region of the United States
of America. Geothermal energy is the natural heat energy stored within the
earths crust. In some areas of the earth, economic concentrations of heat
energy result from a combination of geological conditions that allow water to
penetrate into hot rocks at depth, become heated, and then circulate to a near
surface environment. In these settings, commercially viable extraction of the
geothermal energy and its conversion to electricity become possible and a
geothermal resource is present.

Development of Business

History

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.

-5-

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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 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.

We currently operate two power plants, Raft River Unit I in
Idaho, through our joint venture with Raft River I Holdings, LLC, a subsidiary
of Goldman Sachs, and a plant located in the San Emidio Desert in Nevada. We
also have several other properties under development or exploration. Raft River
Unit I commenced commercial operations in January 2008. Raft River Unit I is
currently selling between 9.6 and 11.7 megawatts of power to Idaho Power Company
under a net 13 megawatt power purchase agreement (PPA) which expires in 2032.
Management is currently evaluating alternatives to bring the Raft River Unit I
plant operations to its nameplate capacity of 13 megawatts.

In May 2008, we acquired the geothermal assets, including a 3.6
net megawatt nameplate generating capacity power plant, from Empire Geothermal
Power LLC and Michael B. Stewart, located in Washoe County, Nevada for
approximately $16.6 million. The plant currently generates an approximate
average net output of 3.1 megawatts, which is sold to Sierra Pacific Power
Corporation. We intend to begin development drilling and planning related to the
construction of a 27 megawatt facility utilizing twin 13.5 megawatt plants,
similar to the 13 megawatt plant at Raft River Unit I, near the existing San
Emidio geothermal plant in the third calendar quarter of 2008. When construction
is complete, the existing 3.6 megawatt plant may be decommissioned.

Plan of Operations

Our management examines different factors when assessing
potential acquisitions or projects at different stages of development, such as
the internal rate of return of the investment, technical and geological matters
and other relevant business considerations. We evaluate our operating projects
based on revenues and expenses, and our projects under development, based on
costs attributable to each project.

We have additional exploration and development properties, Raft
River Units II and III in Idaho, Neal Hot Springs in Oregon, potential
additional development at San Emidio and energy rights within the Gerlach Known
Geothermal Resource Area in Nevada, which we recently entered.

Our business strategy is to identify, evaluate, acquire,
develop and operate geothermal assets and resources economically, safely and
efficiently. We intend to execute this strategy in several steps outlined below:

-6-

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- Leverage Management Team Capabilities and Experience Our strategy
  is focused on the identification and acquisition of resources that can be
  developed in a cost-effective manner to produce attractive returns. In
  particular, we seek to acquire projects that have already undergone geothermal
  resource discovery. In addition, we intend to operate and manage construction
  of the projects, while using internal personnel and third-party contractors to
  efficiently and cost-effectively develop those resources. We believe that we
  have the strategic personnel in place to determine which resources provide the
  greatest opportunity for efficient development and operation. We have
  developed relationships and employed personnel that will allow us to develop
  and utilize geothermal resources as efficiently as possible.
- Develop Our Pipeline of Quality Projects Our project pipeline
  currently consists of several projects that we believe are aligned with our
  growth strategy. These projects have consulting reports from various industry
  experts supporting our belief in those projects potential, and we have
  started PPA negotiations for power off-take with counterparties for some of
  these growth opportunities. If realized, our identified project pipeline will
  greatly expand our renewable power generation capacity.
- Utilize Production Tax Credits and Other Incentives Although
  geothermal power production can be cost competitive with fossil fuel power
  generating facilities without government subsidies in some cases, production
  tax credits available to geothermal power producers enhance the project
  economics and attract capital investment. For the Raft River Unit I project,
  we partnered with Goldman Sachs in order to fully utilize production tax
  credits available to the joint venture. Our strategy going forward is to
  structure project ownership to be the primary beneficiary of project
  economics.
- Pursue Acquisition Strategy The geothermal market, particularly in
  the United States, is fragmented and characterized by a few large players and
  a number of smaller ones. Geothermal exploration and development is costly,
  technically challenging and requires long lead times before a project will
  produce revenue. We believe that geothermal technical and managerial talent is
  limited in the industry and that access to capital to develop projects will
  not be equally available to all participants. As a result, we believe that
  there will be opportunities in the future to pursue acquisitions of geothermal
  projects and/or geothermal development companies with attractive project
  pipelines.
- Evaluate Other Potential Revenue Streams from Geothermal Resources
  In addition to electricity generation, we will evaluate additional
  applications for our geothermal resources including industrial, agriculture,
  and aquaculture purposes. These uses generally constitute lower temperature
  applications where, after driving a turbine generator, residual hot water can
  be cycled for secondary processes before being returned to the geothermal
  reservoir by injection wells, which can provide incremental revenue streams.
  We will evaluate the optimal use for each geothermal resource and determine
  whether selling heat for industrial purposes or generating and subsequently
  selling power to a grid will generate the highest return on the asset.

-7-

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Cash Requirements

We believe our cash and liquid investments at March 31, 2008,
plus the $10.2 million in cash generated from the private placement completed
April 28, 2008, is adequate to fund our general operating and development
activities through March 31, 2009. In the ordinary course of constructing and
developing activities, cost overruns, variances in geothermal reservoir
conditions and contract delays can significantly affect the economics of our
projects. Management believes that sufficient funding will be available to meet
its current business objectives, including anticipated cash needs for working
capital. If additional funds are needed, we anticipate that 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.

On April 9, 2008, the Company entered into an agreement with a
Canadian investment dealer (the Underwriter), pursuant to which the
Underwriter purchased 6,382,500 units of the Company (each, a "Unit"), each Unit
comprising one common share of the Company (each, a "Common Share") and one half
of one common share purchase warrant (each whole common share purchase warrant,
a "Warrant"), on an underwritten private placement basis at a price of $2.35 CDN
per Unit to raise gross proceeds of $14,998,875 CDN. Each Warrant entitles the
holder thereof to acquire one additional common share of the Company for a
period of 24 months following the closing of the offering for $3.00 US per
common share. The net proceeds of the offering is being used by the Company to
complete the San Emidio geothermal project acquisition recently announced and
for general working capital purposes.

Material Acquisitions/Development

San Emidio and Granite Creek  (Nevada) We have
acquired the geothermal assets of Empire Geothermal Power, LLC and Michael B.
Stewart (Empire Acquisition) for approximately $16.6 million. This purchase
was completed on May 1, 2008. The transaction included an operational geothermal
power plant, ground water rights, and geothermal energy rights to properties in
two locations: the San Emidio and the Granite Creek assets. The San Emidio
assets are located in the San Emidio Desert, Washoe County, Nevada and include
the geothermal power plant project, approximately 22,944 acres (35.9 square
miles) of geothermal leases, and ground water rights used for cooling water. The
Granite Creek assets are comprised of approximately 5,414 acres (8.5 square
miles) of BLM geothermal leases located approximately 6 miles north of Gerlach,
Nevada along a geologic structure known to host geothermal features including
the Great Boiling Spring and the Fly Ranch Geyser. This plant is our second
operating geothermal power plant and is owned by a subsidiary of U.S.
Geothermal. The power plant sells an annual average of approximately 3.1
megawatts. The plant is approximately 21 years old and employs four binary cycle
units. We have conducted a review of the information regarding the project, and
we believe that the existing production wells can provide 4,500 to 5,000 gallons
per minute of 290 to 300°F fluid to the current power plant. We believe this
flow rate and temperature has the potential to generate 10+ megawatts using a
modern binary cycle power plant.

An independent resource assessment report prepared by Black
Mountain Technology in 2008 shows a potential for 44 megawatts of power
generation per year for over 30 years. Based on the

-8-

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known 21 year historical production data from this reservoir we
believe that the resource can be significantly expanded with the addition of a
number of new production and injection wells. The resource is shallow relative
to other properties under development by us, which we believe will allow us to
utilize this property economically.

The San Emidio plant sells its output to Sierra Pacific Power
Corporation pursuant to a power purchase agreement (PPA). We have prepared a
development plan for the San Emidio geothermal resource area for the production
of 27 megawatts of power generation. The current plan calls for the construction
of twin 13.5 megawatt plants, similar to the 13 megawatt plant at Raft River
Unit I. We expect the existing well field will be able to provide approximately
75% of one of the twin plants, fuel requirements, and the new production well
field will be able to provide the balance of the first plants fuel requirements
and will support the development of the second 13.5 megawatt power plant. We
plan to begin drilling in 2008, with commercial operations of the twin plants
currently expected in late 2010.

Management is currently reviewing alternatives and believes
project financing will be available for the development and construction. The
method of financing the construction of the new power plant has not yet been
determined. We believe the construction cost of the project will be
approximately $75 to $85 million.

Neal Hot Springs  (Oregon) Neal Hot Springs is a
promising geothermal resource located in Eastern Oregon. We acquired the Neal
Hot Springs geothermal energy and surface rights in September 2006. The Neal Hot
Springs resource is currently under development and no construction decision has
been made at this time. Drilling of the first well has been completed. We are
currently seeking permits to drill two additional production wells and one
injection well. Drilling on the first production well began in April 2008 and
was completed in June 2008. The productivity status of the well is currently
being tested and evaluated. Upon confirmation of positive flow test results on
the well, we expect to drill the three additional wells before being able to
confirm the initial project megawatt capacity.

To date, a total of approximately $2 million has been expended
on the Neal Hot Springs project. We expect additional expenditures of
approximately $5 to $6 million to complete drilling of the planned three
additional wells and associated flow testing.

While a geothermal resource discovery has been verified, a
commercial geothermal reservoir has not yet been proven to exist at Neal Hot
Springs. Teplow Geologic performed a preliminary assessment of Neal Hot Springs
based on data prepared by Chevron Minerals from drill records from the late
1970s. Teplow concluded that a potential commercially viable geothermal resource
exists and recommended a geophysical and geological mapping program. The mapping
and geophysical program was completed by Teplow and MWH Geo-Surveys Inc. in
February 2007. The geophysical program included use of gravimetric and magnetic
mapping to produce a subsurface map of the areas faults and irregularities.
Additionally, water samples from the surface hot springs were analyzed by
Thermochem, Inc., and a geothermometer (a chemical based estimate of resource
temperature) was calculated which estimated the potential production temperature
at 311oF to 347oF.

-9-

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We have prepared a development plan for the Neal Hot Springs
geothermal resource area for the target production of 26 megawatts of power
generation. The plan calls for the construction of twin 13-megawatt plants,
similar to the 13-megawatt plant at Raft River Energy Unit I. Drilling of the
first well has been completed. This new well is located adjacent to the
discovery well drilled by Chevron Resources in l979. Based on flow test results
currently underway, if this new well successfully produces from the hydrothermal
fluid system we anticipate, we will seek permits for three more locations for
the drilling of two more production wells and one injection well. The permitting
is expected to take about three months. Based on our current understanding of
the energy potential at the Neal Hot Springs discovery, we expect to drill a
total of 8 production and 7 injection wells with an average depth of about 2,500
to 4,000 feet. The total drill program for all 15 wells is expected to take 17
months. Our current plan shows that assuming successful drilling, signing of EPC
contracts, signing of a PPA and closing of project finance activities it is
possible to start construction by the forth quarter of 2009 and be online in
late 2011. We believe the construction cost of the project will be approximately
$95 million.

We plan to seek additional PPAs for future phases, which may
involve drilling new wells and determining the production capacity of those
wells for additional plant construction. At this time it is not possible to
estimate if or when future wells will be drilled. Future phases may involve
additional PPAs with Idaho Power Company or other utilities in the service area
and may or may not include terms similar to other PPA.

Gerlach  (Nevada) The Company purchased the right
to a 1,252 acre Bureau of Land Management (BLM) geothermal lease for $300,000
in October of 2007. In May of 2008, the Company entered into a joint venture
agreement with Gerlach Green Energy LLC of Nevada (GGE). The target of the
joint venture is the exploration of the Gerlach geothermal system, which is
located in northwestern Nevada, near the town of Gerlach. The joint venture is
located near the Companys Granite Creek leases that were recently acquired as
part of the San Emidio geothermal power plant arrangement.

The joint venture agreement establishes a limited liability
company named Gerlach Geothermal LLC. The agreement provides the Company with a
60 percent ownership interest in the joint venture through a subsidiary of the
Company and provides GGE a 40 percent ownership interest in the joint venture.
The Company is required to expend $2,000,000 toward the joint venture, of which
$300,000 has already been made by a property contribution of the 1,252 acre BLM
geothermal lease. GGE has contributed to the joint venture one BLM geothermal
lease and one private geothermal lease. These leases have all had previous
geologic work performed including geophysical studies and drilling. The joint
venture agreement provides GGE an option to maintain its 40 percent ownership
interest by making additional capital contributions as required. If GGE elects
to dilute to below a 10 percent interest, their ownership position in the joint
venture will be converted to a 10 percent net profits interest. The Company
serves as the joint venture manager and will receive a reasonable fee for the
services.

The combined joint venture property totals 3,615 acres (5.6
square miles) with 3,415 acres of BLM leases and 200 acres in a private property
lease that contains the Great Boiling Springs thermal feature. The geothermal
system near Gerlach is well known, with an extensive database from previous
studies and exploration drilling and the Company believes the area has
significant

-10-

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exploration potential. Gerlach was ranked as the No. 3 top
resource in Nevada by the United States Geological Survey in Circular 726,
Assessment of Geothermal Resources of the United States; 1975, and has
estimated potential resource temperatures from geochemical analysis of 338o F to
352o F (USGS Circulars 726 and 790).

Material Changes in Employees

At March 31, 2008, the Company had 19 full-time and one part
time employee (10 administrative and project development, and 9 field and plant
operations). As a result of the Empire Acquisition, effective May 1, 2008, an
additional 6 full-time field and plant operations employees were added. The
Company continuously considers acquisition opportunities, and if the Company is
successful in making acquisitions, additional management and administrative
staff may be added.

The Company did not experience any labor disputes or labor
stoppages during the current fiscal year.

Principal Products

The principal product is based upon activities related to the
production of electrical power from the utilization of the Companys geothermal
resources. The primary product will be the direct sale of power generated by our
interests in our geothermal power plants. Currently our principal revenues are
earned through consulting and management fees obtained for our services. All
power plants currently being considered and currently under construction are for
sites in the Western Region of the United States of America.

Sources and Availability of Raw Materials

Geothermal energy is natural heat energy stored within the
Earths crust at economically accessible depth. In some areas of the Earth,
economic concentrations of heat energy result from a combination of geological
conditions that allow water to penetrate into hot rocks at depth, become heated,
and then circulate to a near surface environment. In these settings,
commercially viable extraction of the geothermal energy and its conversion to
electricity become possible and a geothermal resource is present.

There are four major components (or factors) to a geothermal
resource:

| | 1. | Heat source and temperature The economic
      viability of a geothermal resource is related to the amount of heat
      generated. The higher the temperature, the more valuable the geothermal
      resource.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                  
| | 2. | Fluid A geothermal resource is commercially
      viable only when the system contains water and/or steam as a medium to
      transfer the heat energy to the surface.                                         

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| | 3. | Permeability The fluid present underground must
      be able to move. In general, significant porosity and permeability within
      the rock formation are needed to create a viable reservoir.                             
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                
| | 4. | Depth The cost of development increases with
      depth, as do resource temperatures. The proximity of the reservoir to the
      surface is therefore a key factor in the economic valuation of a
      geothermal resource.

Electrical power is directly produced through the utilization
of geothermal resources; however, these resources are not a direct component of
the final product.

Raft River Unit I, Idaho is a proven geothermal resource, and
has a 13 megawatt geothermal power plant in operation. San Emidio, Nevada is a
proven geothermal resource, and has a 3.6 megawatt geothermal plant in
operation. Unless major geological changes occur that impact the geothermal
reservoirs, the condition of the existing resources is expected to remain
consistent over time. Each power plant constructed will have an impact on the
temperature and pressure of the tapped reservoir. The extent of this impact and
the results of future drilling exploration to determine the actual extent of the
reservoir will be a limiting factor on the number of plants that can be
constructed at a particular reservoir.

Significant Patents, Licenses, Permits, Etc.

Raft River.Five significant permits are in place for
the Raft River project and are necessary for continued operations:

| | 1. | Geothermal well permits for production and injection
      wells issued by the Idaho Department of Water Resources.                                  
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | A Conditional Use Permit for the first two power plants
      was issued by the Cassia County Planning and Zoning Commission on April
      21, 2005.
| | 3. | The Idaho Department of Environmental Quality issued the
      Air Quality Permit to Construct on May 26, 2006.                                      
| | 4. | A Wastewater Reuse Permit issued by the Idaho Department
      of Environmental Quality on February 23, 2007.                                        

San Emidio.The San Emidio project has five significant
permits in place necessary for continued operations:

| | 1. | Geothermal well permits for production and injection
      wells issued by the Nevada Division of Minerals.      
| | -- | -----------------------------------------------------------------------------------------------------------------
| | 2. | A Special Use Permit issued by the Washoe County Board of
      Commissioners on July 1, 1987.                   
| | 3. | An Air Quality Permit to Operate from Washoe County
      renewed on January 1, 2008.                            
| | 4. | A Surface Discharge Permit from Nevada Division of
      Environmental Protection issued on June 11, 2001.       
| | 5. | An Underground Injection Permit from Nevada Division of
      Environmental Protection issued on August 18,
2000.

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Seasonality of Business

Generally, the Companys operations and construction activities
are not significantly impacted by seasonality factors. The Companys binary
geothermal plants can operate more efficiently in cooler temperatures. Cooler
temperatures facilitate the cooling process of the secondary fluid that is used
to power the turbines. However, plant drilling and construction activities could
be negatively impacted by inclement weather that can occur, primarily, during
the winter months.

Industry Practices/Needs for Working Capital

The Company is heavily involved in development operations;
therefore high levels of working capital are committed, either directly or
indirectly to the construction efforts. After a plant becomes commercially
operational, the needs of working capital are expected to be low. This
assumption is primarily based upon the projected revenues and relatively low
levels of expected operational expenses. The Company is expecting to be
significantly involved in development activities for the next 5 to 10 years.

Dependence on Few Customers

Ultimately, the market for electrical power is vast; however,
the number of entities that can physically, logistically and economically
purchase the commodity in large quantities in our area of operations are
limited. The Company currently collects revenues from two major sources that
include the Idaho Power Company (through the Companys major subsidiary Raft
River Energy Unit I) and Sierra Pacific Power Company. Even at planned levels of
operation, it is expected that the Company and its interests will have a small
number of direct customers that may amount to less than 4 or 5.

Competitive Conditions

Although the market for different forms of energy is large and
dominated by very powerful 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 increasing or committing to
increase their investments. Accordingly, the conventional energy producers do
not provide direct competition.

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In the Pacific Northwest there is currently only one geothermal
facility (Raft River Energy Unit I). There are a number of wind farms, as well
as biomass and run-of-the river hydroelectric facilities. However, the Company
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.

Factors that can influence the overall market for our product
include some of the following:

- number of market participants buying and selling;
- availability and cost of transmission;
- amount of electricity normally available in the market;
- fluctuations in electricity supply due to planned and unplanned outages of
  competitors generators;
- fluctuations in electricity demand due to weather and other factors;
- cost of fuel used by generators, which could be impacted by efficiency of
  generation technology and fluctuations in fuel supply;
- environmental regulations that impact us and our competitors;
- extension of the production tax credits past December 31, 2008;
- relative ease or difficulty of developing and constructing new facilities;
  and
- credit worthiness and risk associated with buyers.

Environmental Compliance

As the Company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. 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.

In preparation for project financing, Raft River Unit I
Environmental Site Assessment was completed by Kleinfelder on October 21, 2005.
The Unit I assessment identified two underground storage tanks, which have since
been removed.

The Raft River project is currently in compliance with all
environmental permits and water quality monitoring requirements. The most
significant investment in environmental compliance has been associated with
water quality monitoring which is currently being conducted on a weekly basis.
The Company previously petitioned the Idaho Department of Water Resources (IDWR)
to reduce the monitoring obligations. IDWR believed that additional monitoring
data was warranted. Based on additional ground water monitoring data, the
Company is again requesting a reduced ground water monitoring frequency. We
anticipate a favorable response from the IDWR.

Since operations have been initiated, key environmental reports
include:

| | 1) | Monthly production and injection reports which are filed
      with the IDWR;
| | -- | -----------------------------------------------------------------------------

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| | 2) | Quarterly ground water monitoring reports which are filed
      with IDWR;                                                                               
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3) | Annual land application and blowdown water quality
      reports filed with the Idaho Department of Environmental
Quality.                               
| | 4) | Annual Tier II reporting filed with the Idaho Bureau of
      Homeland Security, Local Emergency Planning Committee, and the local fire
      department.

The Raft River project is ideally suited in a rural
agricultural area. The nearest full time resident is located over one mile south
of the plant. The nearest part time resident is located approximately one half
mile north of the plant. Additionally, there are no unique plant or animal
communities in the area and no unique cultural or environmental constraints.

Financial Information about Geographic Areas

As described in detail in the Property section, the Companys
interest in the Raft River Unit I power plant, located in the southeastern part
of the State of Idaho, became operational on January 3, 2008. Similar plants are
in the planning stages at the same location as well as locations in Nevada and
Oregon. The Company has recently acquired a 3.6 megawatt geothermal plant and
geothermal rights in San Emidio, Nevada. Land acquisitions and rights have been
obtained to explore the development and construction of power plants in the
southeastern part of the State of Oregon.

Available Information

We make available, free of charge through our Internet website
at http://www.usgeothermal.com, our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as soon as reasonably practicable after such material is
electronically filed with or furnished to the SEC. Information on our website is
not incorporated into this report and is not a part of this report.

Governmental Approvals and Regulation

U.S. Geothermal Inc. (GTH) is subject to federal
  and state regulation in respect of the production, sale and distribution of
  electricity. Federal legislation includes the Energy Policy Act of 2005, the
  Federal Power Act, and the Energy Policy Act of 1992. GTH is defined as an independent
  power producer under the rules and regulations of the Federal Energy Regulatory
  Commission ("FERC"). As an independent power producer, GTHs operations
  are supported by the Public Utility Regulatory Policies Act (PURPA)
  which encourages alternative energy sources such as geothermal, wind, biomass,
  solar and cogeneration. 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, has the authority to establish 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
  renewable energy facilities, or they may acquire purchased power through bids
  or negotiated procedures.

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On May 8, 2006, GTH submitted proposals to Idaho Power in
response to their Request for Proposal for Geothermal Power. GTH was the
preferred respondent and entered power purchase contract negotiations with Idaho
Power. The Raft River Unit I Geothermal Power Plant started up under a contract
based on avoided costs which limited the output of the plant to 10 average mega
watts per month. Through subsequent contract negotiations, GTH reduced the
long-term cost of power to Idaho Power, and is now allowed to deliver as much
power in any month as the plant is capable of producing, up to a maximum hourly
output of approximately 16 mega watts. The annual average output is expected to
be on the order of 13 mega watts. This 30 percent increase in plant output would
be achieved without major additional power plant capital investment and is
expected to decrease the operating cost per kilowatt-hour. Some additional
production and injection capacity will have to be developed in order to meet the
output targets.

Because carbon regulation is anticipated to increase the cost
of power sourced from coal and because there are limited opportunities to
purchase baseload geothermal power, GTH has found that utilities across the
Western United States are eager to discuss PPAs with GTH.

On February 28, 2008, U.S. Geothermal Inc. and Eugene Water and
Electric Board (EWEB), from Eugene, Oregon signed a power purchase agreement
(PPA) for the planned Unit II power plant at Raft River. The PPA allows for
variable electrical output up to a maximum of 16 megawatts with a term of 25
years. The PPA is subject to successful drilling and resource development at
Raft River. The power will be delivered to BPAs customer load in Idaho.

The combined sales from the Idaho Power Raft River Unit I
contract and the EWEB Unit II contract will be 26 megawatts from two plants.
Before the burgeoning interest in geothermal power, the Company had originally
planned 30 megawatts from three plants. The construction of only two larger
plants will result in substantial capital and operating cost savings through
improved economy of scale.

In addition to the EWEB agreement, the strong regional interest
in geothermal power has resulted in numerous utilities inquiring with GTH to
purchase the electrical power output of Unit III at Raft River, for the output
of the Neal Hot Springs power plants, and for any expanded output at the
companys San Emidio, NV project. All future plants will be developed under PPAs
that do not restrict the output of the project.

GTH will be required to obtain various federal, state and
county approvals for construction of future geothermal facilities. These
approvals are issued by entities such as the U.S. Fish and Wildlife Service,
U.S. Environmental Protection Agency, State (NV, OR, ID) Departments of
Environmental Quality, Water Resources, State Historic Preservation Offices, the
applicable land management agency, and County Commissioners.

For project development in Idaho and Oregon, David Evans &
  Associates of Boise, Idaho is providing consulting and engineering services
  for transmission and interconnection issues. Centra Consulting, Inc. of Boise,
  Idaho has been retained to assist with State of Idaho air quality and cooling
  water reuse permitting, and we have retained various environmental engineering
  firms and regulatory consultants to advise and assist GTH with regard to siting,
  design and regulatory compliance.

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For project development in Nevada, U.S. Geothermal is retaining
similar consulting firms to supplement in-house staff.

Environmental Credits

In the past several years, there has been increased demand for
energy generated from geothermal resources in the United States as production
costs for electricity generated from geothermal resources have become
competitive relative to fossil fuel generation. This is partly due to newly
enacted legislative and regulatory incentives, such as production tax credits
and state renewable portfolio standards. State renewable portfolio standards
laws require that an increasing percentage of the electricity supplied by
electric utility companies operating in states with such standards will be
derived from renewable energy resources until certain pre-established goals are
met. We expect increasing demand for energy generated from geothermal and other
renewable resources in the United States as additional states adopt or extend
renewable portfolio standards.

As a green power producer, environmental-related credits,
such as renewable energy credits or carbon credits, may become available for
sale to power companies (to allow them to meet their green power requirements)
or to businesses which produce carbon based pollution. If available, these
credits will belong exclusively to us, and may provide an additional source of
revenue.

We expect the following key incentives to influence our results
of operation are:

Production Tax Credits.Production tax credits provide
project owners with a federal tax credit for the first ten years of plant
operation. At present, unless extended, facilities constructed after December
31, 2008 will not be eligible to use this production tax credit. The federal
production tax credit available for geothermal energy in 2007 was 2 cents per
kilowatt-hour.

Renewable Energy Credits. Renewable Energy Certificates,
or RECs, are tradable environmental commodities that represent proof that 1
megawatt-hour of electricity was generated from an eligible renewable energy
resource. In states that have a REC program, a renewable energy provider is
credited with one REC for every 1,000 kilowatt-hours or 1 megawatt-hour of
electricity it produces. The renewable energy is then fed into the electrical
grid and the accompanying REC can then be sold on the open market providing the
renewable energy producer with an additional source of income.

On July 29, 2006, U.S. Geothermal, Inc. signed a $4.6 million
renewable energy credits purchase and sales agreement with Holy Cross Energy, a
Colorado cooperative electric association. Holy Cross Energy will purchase the
renewable energy credits associated with the Raft River Unit I power production
from 2008 to 2017. We retain the renewable energy credits associated with power
production from Raft River Unit I after 2017. We expect to receive a majority of
the annual revenue from the ten-year renewable energy credits sales arrangement
with Holy Cross Energy. Raft River Unit 1 started accruing renewable energy
credit revenues in January 2008.

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ITEM 1A. Risk Factors

General Business Risks

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. Expansion of the production of power from our interests is
not certain and depends on successful drilling and discovery of additional
geothermal hydrothermal resources in quantities and containing sufficient heat
necessary to economically fuel future plants.

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.The Company requires substantial additional financing
to fund the cost of continued development of the Neal Hot Springs (Oregon) and
San Emidio (Nevada) projects and other operating activities, and to finance the
growth of our business, including the construction and commissioning of power
generation facilities. 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 joint venture partners to fund further
development work, which would result in reducing our interests in the projects.

We may be unable to obtain the financing we need to pursue
our growth strategy in the geothermal power production segment, which may
adversely affect our ability to expand our operations.When we identify a
geothermal property that we may seek to acquire or to develop, a substantial
capital investment will be required. Our continued access to capital, through
project financing or through a partnership or other arrangements with acceptable
terms is necessary for the success of our growth strategy. Our attempts to
secure the necessary capital may not be successful on favorable terms, or at
all.

Market conditions and other factors may not permit future
project and acquisition financings on terms favorable to us. Our ability to
arrange for financing on favorable terms, and the costs of such financing, are
dependent on numerous factors, including general economic and capital market
conditions, investor confidence, the continued success of current projects, the
credit quality of the projects being financed, the political situation in the
state in which the project is located and the continued existence of tax laws
which are conducive to raising capital. If we are unable to secure capital
through partnership or other arrangements, we may have to finance the projects
using equity financing which will have a dilutive effect on our common stock.
Also, in the absence of favorable financing or other capital options, we may
decide not to build new plants or acquire facilities from third parties. Any of
these alternatives could have a material adverse effect on our growth prospects
and financial condition.

We may not be able to fully develop the geothermal resource
within the Raft River Unit I joint venture boundaries which would increase
development costs for Raft River Unit II and result in delays. Raft River
Unit II is currently anticipated to be located within the Raft

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River Unit I joint venture boundaries. Without the agreement
and consent of our Raft River Unit I joint-venture partner, Raft River Holdings,
we cannot fully develop the geothermal resource within the Raft River Unit I
joint venture boundaries without incurring increased development costs and
delays.

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. For Raft River Energy Unit I,
capital contributions of approximately $51 million were needed. Future expansion
of power production at Raft River, Idaho and San Emidio, Nevada and development
of new power production capability at Neal Hot Springs may result in
significantly increased capital costs related to increased production and
injection well drilling and higher costs for labor and materials. To fund
expenditures of this 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 us having to
substantially reduce our interest in the project.

We may be unable to realize our strategy of utilizing the
tax and other incentives available for developing geothermal power projects to
attract strategic alliance partners, which may adversely affect our ability to
complete these projects.Part of our business strategy is to utilize the tax
and other incentives available to developers of geothermal power generating
plants to attract strategic alliance partners with the capital sufficient to
complete these projects. Many of the incentives available for these projects are
new and highly complex. There can be no assurance that we will be successful in
structuring agreements that are attractive to potential strategic alliance
partners. If we are unable to do so, we may be unable to complete the
development of our geothermal power projects and our business could be
harmed.

Our participation in the joint venture is subject to risks
relating to working with a co-venturer. Raft River Energy I LLC is the Unit
I project joint venture company with Raft River I Holdings, LLC, a subsidiary of
The Goldman Sachs Group Inc. Raft River I Holdings, LLC has contributed a total
of $34.2 million in cash and we have contributed over $15.6 million in cash and
approximately $1.5 million in production and injection wells and geothermal
leases to Raft River Energy I LLC. We are subject to risks in working with a
co-venturer that could adversely impact Unit I of the Raft River project as well
as anticipated development of Raft River Unit II. We anticipate that the Raft
River Unit II power plant may utilize the geothermal resource within the Raft
River Unit I joint venture boundaries. Further, our contribution to the joint
venture may exceed returns from the joint venture, if any.

We are a holding company and our revenues depend
substantially on the performance of our subsidiaries and the projects they
operate.We are a holding company whose primary assets are our ownership of
the equity interests in our subsidiaries. We conduct no other business and, as a
result, we depend entirely upon our subsidiaries earnings and cash flow. Our
subsidiaries and projects may berestricted in their ability to pay
dividends, make distributions or otherwise transfer funds to us prior to the
satisfaction of other obligations, including the payment of operating expenses
or debt service.

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We may not be able to manage our growth due to the
commencement of operations of the Raft River and San Emidio power plants and
exploration activities in Neal Hot Springs which could negatively impact our
operations and financial condition. 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 San Emidio 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 manage
the increased scope of operations, 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.

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
our power plants in order to generate and sell electricity. If this financing
includes the issuance of material amounts of debt, this would expose the Company
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
  could 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.

We may not be able to successfully integrate companies that
we may acquire in the future, which could materially and adversely affect our
business, financial condition, future results and cash flow.Our strategy is
to continue to expand in the future, including through acquisitions. Integrating
acquisitions is often costly, and we may not be able to successfully integrate
our acquired companies with our existing operations without substantial costs,
delays or

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other adverse operational or financial consequences.
Integrating our acquired companies involves a number of risks that could
materially and adversely affect our business, including:

- failure of the acquired companies to achieve the results we expect;
- inability to retain key personnel of the acquired companies;
- risks associated with unanticipated events or liabilities; and
- the difficulty of establishing and maintaining uniform standards,
  controls, procedures and policies, including accounting controls and
  procedures.

If any of our acquired companies suffers performance problems,
the same could adversely affect the reputation of our group of companies and
could materially and adversely affect our business, financial condition, future
results and cash flow.

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 Financial Officer, Kerry D.
Hawkley, 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. The Company 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 high risks involved in the development of a geothermal resource cannot be
over-stated. The development of geothermal resources at our Raft River and Neal
Hot Springs projects are such that there cannot be any assurance of success.
Exploration costs are high and are not fixed. The geothermal resource cannot be
relied upon until substantial development, including drilling, has taken place.
The costs of development drilling are subject to numerous variables such as
unforeseen geologic conditions underground which could result in substantial
cost overruns. Drilling for geothermal resource at Raft River is relatively deep
with the average depth of wells some 6,000 feet. Drilling at Neal Hot Springs
and at planned future phases of expansion at Raft River 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.

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 could 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
conditions, 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.

The impact of governmental regulation could adversely affect
our business by increasing costs for financing or development of power
plants. Our business is subject to certain federal, state and local laws and
regulations, including laws and regulations on taxation, the exploration

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for and development, production and distribution of
electricity, and environmental and safety matters. On a Federal level, the most
important tax rule that affects our business is the Production Tax Credit
(PTC), which is currently set to expire on December 31, 2008. If the PTC is
not extended, financing of planned additional geothermal power plants will be
much more difficult because the PTC enhances the annual revenue of the project
by about 25 percent per year for the first 10 years. Without this revenue
enhancement the expected internal rates of returns on investments would be
significantly lower and therefore they would be less desirable for investors who
then may choose to invest elsewhere for greater returns. The loss of the PTC is
a risk that could result in making future expansions at Raft River, San Emidio
and at Neal Hot Springs uneconomic. New rules recently adopted by the Bureau of
Land Management, as directed by the Energy Policy Act of 2005, require
competitive auction of all geothermal leases on Federal lands. Competitive
leasing is significantly increasing the cost of obtaining leases on Federal
land, is adding to the capital costs needed to develop geothermal projects, is
increasing the total electrical power prices needed to make a geothermal project
viable and is making it more difficult to acquire additional adjacent lands for
reservoir protection and exploration.

If Federal lands or any Federal involvement are included in any
geothermal development, requirements of the National Environmental Policy Act
("NEPA") will be triggered. Most of the geothermal resource in the United States
is located in the western states, where the Federal Government often is the
largest landowner. If a NEPA action is triggered, such as an Environmental
Impact Statement or Environmental Assessment, a project delay of one to two
years and a cost of $1,000,000 to $2,000,000 or more may be incurred while the
environmental permitting process is completed. NEPA not only can impact the
property where the geothermal resource is located, but includes the siting and
construction of transmission lines. Environmental legislation is evolving in a
manner that 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
directors, officers and employees. The cost of compliance with changes in
governmental regulations has a potential to reduce the profitability of
operations.

In the states of Idaho, Nevada and Oregon, drilling for
geothermal resources is governed by specific rules. In Nevada drilling
operations are governed by the Division of Minerals (Nevada Administrative Code
Chapter 534A); in Idaho by the Idaho Department of Water Resources (IDAPA 37
Title 03 Chapter 04); and in Oregon by the Division of Oil, Gas and Mineral
Industries (Division 20 Geothermal Regulation). These rules require drilling
permits and govern the spacing of wells, rates of production, prevention of
waste and other matters, and, may not allow or may restrict drilling activity,
or may require that a geothermal resource be unitized (shared) with adjoining
land owners. 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. State environmental requirements and
permits, such as the Idaho Department of Environmental Quality, Air Quality
Permit to Construct, include public disclosure and comment. It is possible that
a legal protest could be triggered through one of the permitting processes that
would delay construction and increase cost for one of our projects. The state of
Oregon has an Energy Facility Siting Council that must issue a site certificate
for any geothermal energy facilities of 35 megawatts or higher which could
affect the Neal Hot Spring project by adding additional cost and delay
construction.

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Because of these state and federal regulations, we could incur
liability to governments or third parties for any unlawful discharge of
pollutants into the air, soil or water, including responsibility for remediation
costs. We could potentially discharge such materials into the environment:

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

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 by increasing cost and the time required to
explore and develop geothermal projects. In addition, because the Vulcan
Property at Raft River was previously operated by others, we may be liable for
environmental damage caused by such former operators.

Industry competition may impede our growth and ability to
enter into power purchase agreements on terms favorable to us, or at all, which
would negatively impact our revenue. 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 Western United
States, in which our the Raft River and San Emidio projects are 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. If we cannot enter into power purchase agreements on terms
favorable to us, or at all, it would negatively impact our revenue and our
decisions regarding development of additional properties.

Some of our leases will terminate if we do not achieve
commercial production during the primary term of the lease, thus requiring us to
enter into new leases or secure rights to alternate geothermal resources, none
of which may be available on terms as favorable to us as any such terminated
lease, if at all.Most of our geothermal resource leases are for a fixed
primary term, and then continue for so long as we achieve commercial production
or pursuant to other terms of extension. The land covered by some of our leases
is undeveloped and has not yet achieved commercial production of the geothermal
resources. Leases that cover land which remains undeveloped and does not achieve
commercial production and leases that we allow to expire, will terminate. In the
event that a lease is terminated and we determine that we will need that lease
once the applicable project is operating, we would need to enter into one or
more new leases with the owner(s) of the premises that are the subject of the
terminated lease(s) in order to develop geothermal resources from, or inject
geothermal resources into, such premises or secure rights to alternate
geothermal resources or lands suitable for injection, all of which may not be
possible or could result in increased cost to us, which could materially and
adversely affect our business, financial condition, future results and cash
flow.

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

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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. While we do not
believe the areas of the Raft River, Idaho, San Emidio, Nevada and Neal Hot
Springs, Oregon will present the same geological or seismic risks, there can be
no assurance that we would not be subject to similar claims and litigation,
which may adversely impact our operations and financial condition.

Actual costs of construction or operation of a power plant
may exceed estimates used in negotiation of power purchase and power financing
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 power plants. If the
actual costs of construction or operations exceed the model costs, the Company
may not be able to build the contemplated power plants, or if constructed, may
not be able to operate profitably. The Companys financing agreements provide
for a priority payback to our partner. If the actual costs of construction or
operations exceed the model costs, we may not be able to operate profitably or
receive the planned share of cash flow and proceeds from the project.

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, and starting with the third year
of operation, if we do not deliver electricity output within 90% to 110% of our
forecasted amount, which requires us to submit a forecast every three months,
payments for the amount delivered will be reduced, possibly significantly. For
example if the plant produces more than 110% of the power as forecasted then we
would not receive any revenue for the amount over the forecast figure. If the
plant produces less than 90% of the forecast amount for unexcused reasons, such
as normal plant breakdowns and maintenance, then we may be subject to a reduced
power price, depending the prevailing power market conditions. The agreement
moves the power price to the market price instead of contracted price. We
currently expect to forecast 9 megawatts of delivery for a 10-megawatt plant and
the damages would then result if the actual delivery was only 8.1 megawatts or
less. All 8.1 megawatts would be subject to a reduced price that is not possible
to predict at this time. The total average revenue per megawatt hour is
approximately $62.40 and the reduction in revenue could be perhaps 30 percent of
that amount. As a risk mitigation element we are not subject to this adjustment
until year three of the contract and then we are able to submit a new forecast
every three months thereby limiting this exposure.

There are some risks for which we do not or cannot carry
insurance.Because our current operations are limited in scope, the Company
carries public liability insurance and directors and officers liability
coverage, but does not currently insure against any other risks. As its
operations progress, the Company will acquire additional coverage consistent
with its operational needs, but the Company 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.

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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 the
Company may participate, the directors may have a conflict of interest in
negotiating and concluding terms respecting the extent of such participation.
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.

Failure to comply with regulatory requirements may adversely
affect our stock price and business.As a public company, we are subject to
numerous governmental and stock exchange requirements, with which we believe we
are in compliance. The Sarbanes-Oxley Act of 2002 and the Securities and
Exchange Commission (SEC) have requirements that we may fail to meet by the
required deadlines or we may fall out of compliance with, such as the internal
controls assessment, reporting and auditor attestation required under Section
404 of the Sarbanes-Oxley Act of 2002. The Company has documented and tested its
internal control procedures in order to satisfy the requirements of Section 404
of the Sarbanes-Oxley Act of 2002 (SOX). Commencing March 31, 2008, the end of
the Companys most recent fiscal year, SOX required an annual assessment by
management of the effectiveness of the Companys internal control over financial
reporting and an attestation report by the Companys independent auditors on
internal controls over financial reporting. Management concluded that the
Companys internal control over financial reporting was ineffective as of March
31, 2008 due to a material weakness identified by its external auditors in
connection with the calculation of the stock option valuations. The remediation
efforts designed by the Company may not be adequate to address the material
weakness. Due to the existence of the material weakness, the Company has also
determined that its disclosure controls and procedures, as defined under the
Securities Exchange Act of 1934, were not effective. We may also incur
additional costs in order to comply with Section 404. In addition, if we fail to
achieve and maintain the adequacy of our internal controls, as such standards
are modified, supplemented or amended from time to time, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002. Moreover, effective internal controls, are necessary
for us to produce reliable financial reports and are important to help prevent
financial fraud. If we cannot provide reliable financial reports or prevent
fraud, our business and operating results could be harmed, investors could lose
confidence in our reported financial information, and the trading price of our
stock could drop significantly. Our failure to meet regulatory requirements and
exchange listing standards may result in actions such as the delisting of our
stock impacting our stocks liquidity; SEC enforcement actions; and securities
claims and litigation.

We may be subject to liquidated damages in the event that a
resale registration statement is not declared effective by September 29, 2008.On April 28, 2008 (the Closing Date), we completed a private placement of
6,382,500 units (each a Unit) at a price of $2.35 CDN per Unit. Each unit
consisting of one common share (Common Share) of the Company and one half of
one warrant. Each whole Common Share purchase warrant (a Warrant) entitles the

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holder thereof to acquire one Common Share in the capital of
the Company for a period of 24 months following the Closing Date. Upon
completion of the placement and the issuance of 290,000 shares of common stock
in connection with the Empire transaction, the company had 62,011,753 shares
issued and outstanding. In connection with the offering, we agreed to file a
registration statement with the Securities and Exchange Commission as soon as
practicable after closing and to use commercially reasonable efforts to cause it
to become effective and remain effective for two years. In the event the
registration statement is not effective by September 29, 2008, the purchasers in
the private placement are entitled to receive, as liquidated damages, 0.1 common
shares for each common share purchased.

Risks Relating To the Market for Our
Securities

A significant number of shares of our common stock are
eligible for public resale. If a significant number of shares are resold on the
public market, the share price could be reduced and could adversely affect our
ability to raise needed capital. The market price for our common stock could
decrease significantly and our ability to raise capital through the issuance of
additional equity could be adversely affected by the availability and resale of
such a large number of shares in a short period of time. If we cannot raise
additional capital on terms favorable to us, or at all, it may delay our
exploration or development of existing properties or limit our ability to
acquire new properties, which would be detrimental to our business.

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
Toronto Stock Exchange in Canada and on the American Stock Exchange 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. 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 fiscal year ended March 31, 2008,
from a low of $1.59 CDN to a high of $4.75 CDN on the TSX Exchanges and from a
low of $1.37 US to a high of $4.78 US on the Over-the-Counter Bulletin Board.
The trading price of our common stock on the TSX Exchange and on the American
Stock Exchange 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.

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We do not intend to pay any cash dividends in the
foreseeable future.We intend to reinvest any earnings in the development of
our projects. Payments of future dividends, if any, will be at the discretion of
our board of directors after taking into account various factors, including our
business, operating results and financial condition, current and anticipated
cash needs, plans for expansion and any legal or contractual limitations on our
ability to pay dividends.

Provisions in our bylaws and under Delaware law could
discourage a takeover that stockholders may consider favorable.Our bylaws
contain provisions that could depress the trading price of our common stock by
acting to discourage, delay or prevent a change of control of our company or
changes in our management that the stockholders of our company may deem
advantageous. These provisions prohibit stockholders from calling special
meetings, which may deter a takeover attempt. Additionally, we are subject to
Section 203 of the Delaware General Corporation Law, which generally prohibits a
Delaware corporation from engaging in any of a broad range of business
combinations with any holder of 15% or more of our capital stock for a period of
three years following the date on which the stockholder acquired such ownership
percentage, unless, among other things, our Board of Directors has approved the
transaction. This statute likewise may discourage, delay or prevent a change of
control.

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Item 2. Description of Property

The Company has interests in three areas in the Western United
States. These interests include the Raft River area located in southeastern
Idaho, the Neal Hot Springs area located in eastern Oregon (near the
Idaho/Oregon boarder), and our interests located in northwestern Nevada. The
properties in northwestern Nevada include San Emidio, Gerlach and Granite Creek.
The company currently has two commercially operational power plants. Unit I at
Raft River became commercially operational on January 3, 2008. The San Emidio
plant was acquired in the Empire Acquisition.



REGIONAL LOCATION MAP

Raft River - (Idaho)

The Raft River project, where the companys geothermal
operations are located, is in southeastern 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
approximately 180, is 12 miles north of the project site where basic services,
fuel,

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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.

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 - Idaho.The U.S.
Geothermal Property is comprised of three separate properties 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 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 and
Stewart leases. 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.

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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.

BLM Lease.The geothermal resources lease agreement with
the United States Department of Interior Bureau of Land Management (BLM) was
entered into on August 1, 2007. The lease is for approximately 1,685 acres of
land located contiguous to the Raft River Property in southeastern Idaho.



Raft River Unit I

Unit I at Raft River became commercially operational on January
3, 2008. As a result of the project financing for Unit I of the Raft River
project, the Company has contributed over $17

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million in cash and property to Raft River Energy I LLC, the
Unit I project joint venture company. Raft River Holdings, an affiliate of
Goldman Sachs Group, has contributed approximately $34 million to the project.
Property assigned to Raft River Energy by the Company includes seven production
and injection wells, seven monitoring wells, the Stewart lease, the Crank lease,
the Newbold lease, the Doman lease, and the Glover lease. All appropriate
permits and contracts have also been assigned to Raft River Energy for Unit I.

Although significant detail has been provided about each
specific lease area, the economics of the project is based on the total
resource. The reservoir supporting the project encompasses the entire Known
Geothermal Resource Area (KGRA), which includes all the property owned or leased
by the company at Raft River. All discussions of the economics of the project,
including future phases, will be based at the project level rather than at the
lease level.

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:

|(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 (RRGE-2) located on
lessors property was not owned by the lessor (but instead was included in the
Vulcan Property), a new lease was entered into on June 28, 2003, which excluded

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the ownership of RRGE-2, 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): $5,000
- Year 2 (Paid June 2003 under original lease): $10,000
- Year 3 (Paid June 2004 under renegotiated lease): $10,000
- Year 4: (Paid June 2005): $10,000
- Year 5: (Paid June 2006): $10,000

Payments for years 2002 through 2006 have been recorded as
lease expense. When commercial production is attained, these lease payments can
be deducted from future production royalties. For later years, during commercial
production, there is a minimum annual production royalty of $18,000. If the
initial commercial production from the well is delayed past the primary lease
term, we 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.
Minimum lease payments are as follows:

- 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 royalties 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. Minimum lease payments (on a July to July basis) are as
follows:

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

The minimum amount that will be payable over the course of the
  lease is $81,256. 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. Minimum lease payments
  (on a July to July basis) are as follows:

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

The minimum amount that will be payable over the course of the
lease is $1,224. Maximum amounts payable will depend on royalties 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. Minimum
lease payments are as follows:

- Year 1: $8,000

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- Year 2: $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. Maximum amounts payable will depend upon royalties on
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. Minimum lease payments are as follows:

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

The minimum amount that will be payable over the course of the
lease is $17,500. Maximum amounts payable will depend upon royalties on
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. Minimum lease
payments are as follows:

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

The minimum amount that will be payable over the course of the
lease is $24,000. Maximum amounts payable will depend upon royalties on
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. Minimum lease payments
are as follows:

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

The minimum amount that will be payable over the course of the
lease is $10,800. Maximum amounts payable will depend upon royalties on
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. Minimum lease
payments are as follows:

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

The minimum amount that will be payable over the course of the
lease is $20,500. Maximum amounts payable will depend upon royalties on
production from the property.

The total minimum amount payable under all of the leases during
their primary terms is $522,393. The above listed lease payments are payable
annually in advance, and are current through lease years beginning in 2005. The
leases can be renewed for extended periods as long as the power plant continues
to produce power.

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With the construction of the power plant included in Unit I 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.

BLM Lease.The lease has a primary term of 10 years.
After the primary term, the Company has the right to extend the contract in
accordance with regulation 43 CFR subpart 3207. The lease calls for annual
payments of $3,502 including processing fees. BLM has the right to terminate the
contract upon written notice if the Company does not comply with the terms of
the agreement. The royalty rate is based upon 10% of the value of the resource
at the well head. The amounts are calculated according to a formula established
by Minerals Management Service (MMS).

Neal Hot Springs  (Oregon)

Neal Hot Springs is a promising geothermal resource located in
Eastern Oregon. We acquired certain of the Neal Hot Springs geothermal energy
and surface rights in September 2006. It is currently under development and no
construction decision has been made at this time.

Planning is complete and the permit has been received for
drilling the first production well at Neal Hot Springs. We are currently seeking
permits for drilling two additional production wells and one injection well.
Drilling on the first production well began in the second calendar quarter of
2008. Upon confirmation of positive flow test results on the first well, we
expect to drill the three additional wells. The additional drilling work is
expected to continue for approximately three months. Following the completion of
the drilling, flow tests will be conducted on all of the wells and a
construction decision will be made.

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Lease/Royalty Terms

Cyprus Gold Exploration Corporation.The lease is for
mineral rights for 4,960 acres located in Malheur County, Oregon is dated
January 24, 2007, and has a primary term of 10 years, and expires January 24,
2017. Minimum lease payments are as follows:

Year 2007
    $6,000Year 2008-2011
    $4,000Year 2012-2016
    $8,000


The agreement defines a royalty rate is based upon 2% of the
  actual revenue for the first 10 years of commercial production and 3% thereafter.

JR Land and Livestock.The lease is for mineral rights
for 4,960 acres located in Malheur County, Oregon is dated January 24, 2007, and
has a primary term of 10 years, and expires January 24, 2017. Minimum lease
payments are as follows:

Year 1
    $15,000Year 2
    $25,000Year 3
    $30,000


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The agreement defines a royalty rate is based upon 3% of the
gross proceeds for the first 5 years of commercial production, 4% of gross
proceeds for the next 10 years, and 5% of the gross proceeds thereafter. .

San Emidio  (Nevada)

The Company acquired a 3.6 megawatt operating geothermal power
plant and approximately 28,358 acres (44.3 square miles) of geothermal energy
leases and certain ground water rights all located north of Reno, Nevada.

The asset purchase transaction was structured with an initial
closing on April 1, 2008 and the final closing on May 1, 2008. The total
purchase price was $16.6 million. The assets are comprised of two locations: the
San Emidio assets and the Granite Creek assets. The San Emidio assets are
located in the San Emidio Desert, Washoe County, Nevada and include the
geothermal power project, approximately 22,944 acres (35.9 square miles) of
geothermal leases, and ground water rights used for cooling water. The Granite
Creek assets are comprised of approximately 5,414 acres (8.5 square miles) of
BLM geothermal leases located about 6 miles north of Gerlach, Nevada along a
geologic structure known to host geothermal features including the Great Boiling
Spring and the Fly Ranch Geyser.

The 3.6 -megawatt geothermal power plant has been producing
power since 1987 and sells electricity to Sierra Pacific Power Corporation under
an existing power purchase agreement that extends through 2017. A March 2008
resource assessment of the San Emidio geothermal leases by independent experts
Susan Petty and Dennis Trexler of Black Mountain Technology shows a total
resource potential of 44 megawatts with a 90% probability factor.

The power plant was constructed in 1986 with commercial power
generation beginning in 1987. Deeper wells with higher temperatures were drilled
in 1994 to supply the plant after output declined due to cooling of the
original, shallow production wells. The current configuration of the plant
consists of four 1.2 megawatt Ormat Energy Converters, three injection wells and
four production wells. A three cell cooling tower was added in 1998 to improve
summer power generation. The plant is connected to the transmission grid via a
60 kilovolt intertie.

San Emidio is our second operating geothermal power plant and
is owned by a wholly owned subsidiary of the Company (USG Nevada LLC). The
project is a small-scale geothermal power plant selling approximately three
megawatts. The plant is approximately 21 years old and employs four binary cycle
units. We have conducted a review of the information regarding the project, and
we believe that the existing production wells can provide 4,500 to 5,000 gallons
per minute of 290 to 300 °F fluid to the current power plant.

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Lease/Royalty Terms

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

The terms of the BLM contracts are detailed as follows:

Contract No.
    Current Contract Expiration
      Date
    Acres
    Annual RateN63004
    1/1/2009
    1,280
    $          1,280N63005
    1/1/2009
    1,279
    1,279N63006
    1/1/2009
    1,920
    1,920N63007
    1/1/2009
    1,920
    1,920N75233
    11/1/2011
    1,868
    3,738N75552
    11/1/2012
    2,560
    2,560


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N75553
    11/1/2012
    1,480
    1,480N75554
    11/1/2012
    2,118
    2,119N75555
    11/1/2012
    960
    960N75556
    11/1/2012
    1,480
    1,480N75557
    11/1/2012
    1,280
    1,280N75558
    11/1/2012
    680
    680N42707
    Indefinite
    1,797
    0N47169
    12/1/2017
    3
    0N74196
    4/30/2012
    640
    640N57437
    9/30/2008
    640
    2,560


The BLM lease contracts require royalty payments for the use of
geothermal resources. The rate is based upon 10% of the value of the resource at
the well head. The amounts are calculated according to a formula established by
Minerals Management Service (MMS).

Kosmos Lease.This is a geothermal resource lease
agreement for 1,040 acres with The Kosmos Company (Kosmos). The lease has been
in effect since October l987 and continues so long as the lessee is drilling
for, producing geothermal power, or conducting remedial operations. Under the
terms of the first amendment to the lease which became effective upon our
acquisition of the San Emidio Geothermal assets, Kosmos will be paid the greater
of $8,000 per month or 3.5% of the gross sales price of electric power from
fluids produced and injected until the proposed new power plant achieves
commercial operation. When a new power plant is installed and producing
commercial power, the royalty will change to 1.75% of the gross sales price of
electric power sold by the lessee for 120 months and 3.5% thereafter.

Gerlach  (Nevada)

May 2008, the Company entered into a joint venture agreement
with Gerlach Green Energy LLC of Nevada to form a limited liability company
named Gerlach Geothermal LLC. The joint venture owns geothermal rights for 3,615
acres (5.6 square miles) located in northwestern Nevada near the town of
Gerlach. The target of the joint venture is the exploration of the regional
Gerlach geothermal system. The joint venture is located near the Companys
Granite Creek leases that were recently acquired as part of the San Emidio
geothermal power plant acquisition.

Lease/Royalty Terms

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

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Granite Creek  (Nevada)

The Granite Creek assets are comprised of approximately 5,414
acres (8.5 square miles) of BLM geothermal leases located about 6 miles north of
Gerlach, Nevada along a geologic structure known to host geothermal features
including the Great Boiling Spring and the Fly Ranch Geyser.

Lease/Royalty Terms

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

Boise Administration Office  (Idaho)

The Company entered into a 3 year lease contract effective
January 1, 2008 through January 31, 2011, for general office space for an
executive office located in Boise, Idaho. The lease payments are due in monthly
installments that start at $5,637 per month and increase annually to $5,981 per
month.

Item 3. Legal Proceedings

As of May 31, 2008, 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 Registrants Common Equity, Related
Stockholder Matters and IssuerPurchases of Equity
Securities

Over-The-Counter Bulletin Board

From June 3, 2005 to April 15, 2008, the common stock of U.S.
  Geothermal Inc. was quoted on the Over-The-Counter Bulletin Board (the Bulletin
  Board) under the trading symbol UGTH. EffectiveApril
  14, 2008, thecommon stock of U.S. Geothermal Inc. began trading on the
  American Stock Exchange (AMEX) under the trade symbol HTM.
  Future trading prices of our common shares will depend on many factors, including,
  among others, our operating results and the market for similar securities.

The following sets forth information relating to the trading of
our common stock on the Over-The-Counter Bulletin Board, from the date our
common stock began trading on the Over-The-Counter Bulletin Board on June 8,
2005.

Bid
      Prices on the Over-The-Counter BulletinFiscal Year Ended March 31, 2007
    High
    LowFirst
      Quarter
    1.02
    0.70Second
      Quarter
    1.49
    0.70Third
      Quarter
    1.23
    0.80Fourth Quarter
    1.65
    1.10Fiscal Year Ended March 31, 2008First
      Quarter
    2.70
    1.37Second
      Quarter
    3.10
    1.85Third
      Quarter
    4.78
    2.56Fourth Quarter
    4.09
    2.07


TSX and TSX Venture Exchange

The Companys common shares began trading on the Toronto Stock
Exchange (TSX) on October 1, 2007 and ceased trading on the TSX Venture Exchange
on September 28, 2007. Our Companys common shares trade symbol was GTH on
both exchanges. The TSX is the senior equity market in Canada. TSX Venture
Exchange is a segment of the Toronto Stock Exchange Group that provides the
global financial community with access to Canada's equity capital and energy
markets. The TSX Venture Exchange provides access to capital for companies at
the early stages of their growth while offering investors a well-regulated
market for making venture investments. The following sets forth information
relating to the trading on the Exchanges:

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Sales Prices on the TSX and TSX Venture
      Exchanges (CDN$)Fiscal Year Ended March 31, 2006
    High
    LowFirst
      Quarter
    1.10
    0.80Second
      Quarter
    0.90
    0.61Third
      Quarter
    0.90
    0.67Fourth Quarter
    0.86
    0.66Fiscal Year Ended March 31, 2007First
      Quarter
    1.45
    0.75Second
      Quarter
    1.60
    0.80Third
      Quarter
    1.33
    0.95Fourth Quarter
    1.79
    1.20Fiscal Year Ended March 31, 2008First
      Quarter
    2.80
    1.59Second
      Quarter
    3.19
    1.99Third
      Quarter *
    4.75
    2.56Fourth Quarter
    4.05
    2.00


*
    - The Companys common shares began trading on the TSX on
      October 1, 2007, and the Companys common shares ceased trading on the TSX
      Venture Exchange on September 28, 2007.


As of May 31, 2008, we had approximately 4,500 stockholders of
record.

The Company has never paid and does not intend to pay dividends
on our common stock in the foreseeable future. Although the Companys articles
of incorporation and by-laws do not preclude payment of dividends, 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.

Recent Sales of Unregistered SecuritiesThe Company has recently engaged in the following significant equity
transaction:

|1. | On April 9, 2008, the Company entered into an agreement
      with a Canadian investment dealer (the Underwriter), pursuant to which
      the Underwriter has agreed to purchase 6,382,500 units of the Company
      (each, a "Unit"), each Unit comprising one common share of the Company
      (each, a "Common Share") and one half of one common share purchase warrant
      (each whole common share purchase warrant, a "Warrant"), on an
      underwritten private placement basis at a price of $2.35 CDN per Unit to
      raise gross proceeds of $14,998,875 CDN. Each Warrant entitles the holder
      thereof to acquire one additional common share of the Company for a period
      of 24 months following the closing of the offering for $3.00 US per common
      share. The net proceeds of the offering is being used by the Company to
      complete the San Emidio geothermal project acquisition recently announced
      and for general working capital purposes.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Item 6. Selected Financial Data

For
        the Fiscal Year Ended March 31,2008
      2007
      2006
      2005
      2004Operating Revenues
      $ 184,242
      $ 90,206
      $0
      $0
      $ 0Operating Expenses
      4,797,105
      3,138,169
      1,663,069
      1,751,530
      679,821Loss from Continuing
        Operations
      (3,549,186)
      (1,942,884)
      (1,490,593)
      (1,830,421)
      (676,398)Loss per share from Continuing Operations
      (0.06)
      (0.04)
      (0.08)
      (0.12)
      (0.11)Cash dividends declared and paid per common share
      0
      0
      0
      0
      0


As
        of March 31,2008
      2007
      2006
      2005
      2004Total Assets
      $ 40,366,933
      $ 22,673,340
      $ 21,895,933
        $
      2,584,970
      $ 1,373,831Total Long-term Obligations (1)
      1,975,672
      2,533,858
      1,707,548
      0
      0


|(1) | Long-term obligations represent the fair value of stock
      options to be exercised by officers, directors, employees and consultants
      of the Company. These obligations were recorded as a liability since the
      option exercise price was stated in Canadian dollars, subjecting the
      Company and the employee to foreign currency exchange risk in addition to
      the normal market price fluctuation risk.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Loss per share from
      Continuing Operations
    Operating Revenues
    Gross Profit
    Loss from Operations
    Net Loss from Continued
      OperationsFiscal Year Ended March 31,
      20071stQuarter
    $
      (0.01)
    $ 0
    $ 0
    $
      (961,777)
    $
      (372,486)2ndQuarter
    (0.02)
    206
    206
    (746,292)
    (680,021)3rdQuarter
    (0.01)
    90,000
    90,000
    (610,310)
    (338,278)4thQuarter
    (0.01)
    0
    0
    (729,584)
    (552,099)Fiscal Year Ended March 31,
      20081stQuarter
    (0.01)
    0
    0
    (694,622)
    (410,536)2ndQuarter
    (0.02)
    0
    0
    (1,374,285)
    (1,042,678)3rdQuarter
    (0.01)
    0
    0
    (1,103,192)
    (806,494)4thQuarter
    (0.02)
    184,242
    184,242
    (1,440,764)
    (1,289,478)


Item 7. Managements Discussion and Analysis of Financial
Condition and Results ofOperations

U.S. Geothermal Inc. is a Delaware corporation. The Companys
shares of common stock trade on the TSX Exchange under the symbol GTH and on
the American Stock Exchange under the trade symbol HTM. 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

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the surviving subsidiary of the Company, and Evergreen Power,
Inc. ceased to exist. GTH is still, primarily, a development stage company and
has just started receiving revenues from operating activities.

The Company was focused on (1) completing construction and
starting up the Unit I power plant at the Raft River, Idaho geothermal project
(Raft River Unit I), (2) permitting a drilling program for the Neal Hot
Springs project in Oregon, (3) negotiating the Raft River Unit II contract with
Eugene Water and Electric Board (EWEB), (4) the Empire Acquisition and (5) the
evaluation of potential new geothermal project acquisitions.

The construction of the Unit I, 13 megawatt power plant was
under the direction of Ormat Nevada Inc., a subsidiary of Ormat Technologies
Inc. (Ormat) and is substantially complete. The plant commenced a test phase
of power production and was operating over a six-day period, from October 18th
to 23rd 2007, during which time it ran for 108 hours and generated a total of
1,022 megawatt-hours of electrical power. On October 21st the plant ran for 24
hours and produced a peak of 13.2 megawatts. The plant was then shut down for
evaluation. Two mechanical problems were identified and are in the process of
being corrected by Ormat, the power plant contractor. To improve the attachment
of the pump impellor to the drive shaft, the manufacturer is reconfiguring each
of two large injection pumps. In addition, a turbine inlet screen used to
protect the high-pressure turbine from possible ingestion of construction debris
came loose and was swept into the turbine.

The repairs were completed on November 22, 2007. A start-up and
testing phase was completed during which time all generated electricity was
sold. Ormat has agreed to replace certain of the repaired turbine parts with new
parts that will be installed during a scheduled shutdown in the upcoming year.
Plant operations began to allow for operator training, equipment testing and for
Ormat to achieve final completion of the plant.

The Company has assembled a team of seven qualified technicians
for the ongoing operation and maintenance of the Unit I power plant and planned
future power plant units at Raft River. The team underwent operator training
from Ormat and is currently operating the plant unassisted.

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, U.S. Geothermal elected to
withdraw its Raft River Unit II and Unit III Idaho Power PPAs without submitting
them to the Idaho Public Utility Commission (IPUC) for approval in order to
pursue larger capacity PPAs with other utilities. With the concurrence of Idaho
Power, the Unit II and Unit III 10 megawatt contracts were voided without
further obligation on either party.

On September 26 2007, Idaho Power Company and the Company
announced the signing of a new, 13-megawatt, full output power purchase
agreement. Idaho Power submitted the new PPA to the IPUC for their final
approval, which was granted on January 16, 2008. The new PPA replaces the
existing 10 megawatt, 20 year PPA and is part of Idaho Powers 2006 formal
request for geothermal electricity under which the Company was named the sole
successful bidder in March 2007.

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The new PPA is for electricity sales of an annual average of
13-megawatts and has a 25-year term. It is the first contract signed as part of
ongoing negotiations with Idaho Power for a total of 45.5 megawatts. Idaho Power
and the Company expect to be able to use this first contract as a template for
advancing negotiations for the output from the planned Unit Three at Raft River
and 26 megawatts of planned production from the Companys Neal Hot Springs
project located in southeast Oregon.

Eugene Water and Electric Board (EWEB), from Eugene, Oregon
and U.S. Geothermal have signed a PPA with EWEB to purchase the full 13 megawatt
annual electrical output of Raft River Unit II. With the execution of the EWEB
PPA, and the increase of Unit I under the new Idaho Power PPA, the total planned
output from the Unit I and Unit II Raft River power plants is expected to be 26
megawatts from two plants, instead of the originally planned 30 megawatts from
three plants, resulting in substantial capital and operating cost savings
through improved economy of scale. The ongoing negotiations with Idaho Power
relating to Raft River Unit III and Neal Hot Springs and the signed EWEB PPA
recognize that the PPAs are contingent upon extension of the federal Production
Tax Credit, successful resource drilling and an economically feasible resource
discovery at Raft River and Neal Hot Springs.

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

In May 2008, we acquired the geothermal assets, including a 3.6
net megawatt nameplate generating capacity power plant, from Empire Geothermal
Power LLC and Michael B. Stewart, located in Washoe County, Nevada for
approximately $16.6 million. The plant currently generates an approximate
average net output of 3.1 megawatts, which is sold to Sierra Pacific Power
Corporation. Subject to the receipt of all required permits, we intend to begin
development drilling and planning related to the construction of a 27 megawatt
facility utilizing twin 13.5 megawatt plants, similar to the 13 megawatt plant
at Raft River Unit I, near the existing San Emidio geothermal plant in the third
calendar quarter of 2008. When construction is complete, the existing 3.6
megawatt plant is may be decommissioned. We believe the construction cost of the
project will be approximately $75 to $85 million. Management is currently
reviewing alternatives and believes project finance will be available for the
development and construction. The method of financing the construction of the
new power plant has not yet been determined.

Factors Affecting Our Results of Operations

Although other factors may impact our operations and financial
condition, including many that we do not or cannot foresee, we believe that our
results of operations and financial condition for the foreseeable future will be
affected by the following factors.

-44-

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Raft River LLC

We hold a 50% interest in Raft River LLC, which owns Raft River
Unit I. Construction of Raft River Unit I required substantial capital, and
partnering with a co-venturer allowed us to share the risks and rewards of
ownership. The joint venture has also allowed us to take advantage of production
tax credits which would not otherwise have been available to us. We estimate we
will receive cash payments totaling approximately $1.6 million per year from the
Raft River Unit I project for the first four years of its operations from the
sources discussed below.

We managed the construction of the Raft River Unit I plant
pursuant to our operating agreement with Raft River LLC. Raft Holdings has
contributed to Raft River LLC a total of approximately $34.2 million in cash and
we have contributed $15.6 million in cash and approximately $1.5 million in
production and injection wells and geothermal leases through March 31, 2008.

Under the terms of the Operating Agreement, Raft River LLC is
required to distribute the cash it holds that is not otherwise allocated to its
liabilities or reserves to Raft Holding and us at the end of each fiscal
quarter. Raft Holdings is entitled to specific quarterly cash distributions in
amounts outlined in the Operating Agreement. For the first four years after Raft
River Unit I was placed into service, and once Raft Holdings has received cash
distributions specified in the Operating Agreement, we are entitled to receive
available cash distributions up to a certain specified limit. Following this
period and continuing until Raft Holdings has achieved a specified rate of
return, we will receive a de minimis percentage of the available cash
distributions. At such time, we will receive less than half of all available
cash distributions until the later of 20 years or the date we have achieve more
than 30 megawatts of total net electrical generation capacity from geothermal
resources in the United States under our ownership or control or the economic
equivalent thereof. However, at this time, we will be receiving a majority of
the cash flow due to payments made us as fees and royalties under separate
energy and water rights agreements. Thereafter, we will receive a significant
majority of the available cash distributions for the remaining life of the
project.

Raft River Unit I is currently selling between 8.5 and 9.5
megawatts of power to Idaho Power Company. Although Raft River Unit I is
currently in commercial operations, we continue to conduct tests on the plant as
we work to further understand the reservoir and increase production of the power
plant to full capacity. Raft River LLC has also entered into an agreement with
Holy Cross Energy of Colorado for the sale of the RECs associated with the Raft
River Unit I power plant. Holy Cross Energy has agreed to pay a price of $7.50
per megawatt hour for the first 10 megawatts of generation on an annual basis.
The price for these RECs will decrease annually by $0.50 per megawatt until the
contract terminates in 2017. We also receive revenue from Raft River LLC from
water and energy leases.

We use the equity method of accounting to account for the
operating results of Raft River LLC over which we have significant influence due
to our management of the operations and our participation on the management
committee. Under the equity method, we recognize our proportionate share of the
net income (loss) of Raft River LLC in the line item Loss from investment in
subsidiary.Once we begin to receive the significant majority of the
available cash distributions from Raft River LLC, we expect that Raft River Unit
I will be accounted for as a consolidated entity.

-45-

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Pursuant to a Management Services Agreement which continues
until 2028, we provide operating and management services to Raft River LLC. We
will receive approximately $250,000 per year for the next four year pursuant to
this agreement. Thereafter, modest adjustments to this amount will occur
according to an escalator clause in the agreement.

Power Purchase Agreements Prior to the construction
of a geothermal project, we typically enter into a power purchase agreement with
a public utility, which fixes the price of energy produced at a project for a 20
to 25 year period. Such PPAs are negotiated with a public utility company and
approved by a state energy commission.

Power purchase agreements generally provide for the payment of
energy payments, capacity payments, or both. Energy payments are calculated
based on the amount of electrical energy delivered to the relevant power
purchaser at a designated delivery point. The rates applicable to such payments
are either fixed, subject to adjustments in certain cases, or are based on the
relevant power purchasers short-run avoided costs calculated as the incremental
costs that the power purchaser avoids by not having to generate such electrical
energy itself or purchase it from others. Capacity payments, on the other hand,
are generally calculated based on the amount of time that our power plants are
available to generate electricity. Some power purchase agreements provide for
bonus payments in the event that the producer is able to exceed certain target
levels and forfeiture of payments if minimum target levels are not met.

Raft River LLC currently earns revenue from a full-output PPA
with Idaho Power, which is expected to be 13-megawatts annual average. The PPA
expires in 2032. This PPA was signed as part of ongoing negotiations with Idaho
Power for PPAs covering an expected total output of 45.5 megawatts and may be
used as the template for additional PPAs. The price of energy sold under the
Idaho Power PPA is split into three seasons: power produced during the peak
periods of July, August, November and December will be purchased at 120% of the
set price; power produced in the three month low demand season will be purchased
at 73.50% of the set price; and power produced in the remaining five months of
the year will be purchased at 100% of the set price. The PPA sets a first year
average purchase price of $53.60 per megawatt hour. The $53.60 purchase price is
escalated each year at a compound annual rate of 2.1% until year 15. From years
16 to 25 of the contract the escalation rate will drop to 0.6% per year.

Power generated by Empire is sold to Sierra Pacific Power Corp.
pursuant to a PPA.

Results of Operations

Fiscal Year Ended March 31, 2008 to March 31, 2007

For the years ended March 31, 2008 and 2007, we incurred net losses of
$3,549,186 and $1,942,884 which represented ($0.06) and ($0.04) per share;
respectively. The increase from 2007 to 2008 was $1,606,302 (82.7%) . These
figures are indicative of high levels of activities related to our efforts to
develop, study and establish financing for our geothermal interests.

Operating Revenues.On January 3, 2008, the Companys
first plant became commercially operational. As a result, the Company began
receiving operating revenues for management fees and lease and royalty
payments.

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Loss on Operations of Subsidiary.The Companys share of
the operating loss from the Companys major subsidiary increased $125,898
(123.0% increase) from the prior year. The subsidiary began commercial
operations in January 2008 and costs are being incurred to optimize production
levels. The Raft River Unit I plant is currently operating at between 9.6 to
11.7 megawatts output which is still below the design capacity. The plant has
not yet been able to drop the purchases of third party power to run the
production pumps as originally planned. The pump power purchases have increased
the plant operating costs. Management continues to study the production issues
related to this plant and believes that the plant will be profitable after
initial start up costs have been incurred.

Corporate Administration and Development Activities.Administrative and development costs increased by $364,121 (168.6%) from the
prior year. The primary component of the increase was the filing fee and other
related costs for listing on the Toronto Stock Exchange ($269,273). Also, there
were modest increases in insurance and depreciation costs.

Professional and Management.Professional costs remained
at a high level to support the legal and other consulting efforts to needed to
comply with the Sarbanes-Oxley Act, issue private placement offerings, complete
the AMEX and the TSX listing applications, filing of a resale registration
statement, negotiate the terms of the Raft River Energy operating agreement and
acquire additional geothermal properties. Professional and management costs of
$845,908 represent 17.6% of total operating expenses for the fiscal year ended
March 31, 2008. These costs increased $137,384 (19.4%) and $423,218 (100.1%)
from 2006.

Stock-Based Compensation Costs. Stock-based compensation
represents 39.7% of the Companys operating expenses for the fiscal year ended
March 31, 2008. These costs increased $774,563 (68.6%) from the prior year. The
main reason for the increase is number of options granted to directors, officers
and employees in fiscal years ending March 31, 2007 and 2008. The stock options
are a part of our annual executive compensation plan, and are issued to obtain,
retain and motivate our directors, executives and employees. During the fiscal
year ended March 31, 2008, we attained several significant milestones (moving to
Toronto Stock Exchange, moving to American Stock Exchange, completion of Raft
River Unit I, etc.) which necessitated recognition of the significant work
effort of our directors, executives and employees for current and prior years.

Fiscal Year Ended March 31, 2007 to March 31, 2006
For the year ended March 31, 2007, we incurred a loss of $1,942,884 or
($0.04) per share. This compares to a loss for the year ended March 31, 2006 of
$1,490,593 or ($0.08) per share. The main reason for this increased loss is that
non-cash stock-based compensation granted to directors, officers and employees
increased by $948,000 in a year to year comparison. Stock options granted during
the year were 2,168,000 options in 2007 as compared to 50,000 options in 2006.

Professional Fees.In addition to stock-based compensation,
  professional fees totaled $708,524 in 2007 as compared to $285,834 in 2006.
  Legal and accounting fees increased $277,000 in 2007 due to legal fees associated
  with an SB-2 registration statement and the negotiation of the Raft River Energy
  operating agreement, and an increase in accounting fees associated with amendments
  to prior year federal tax returns.

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Interest Income & Foreign Currency Gain.Increases
in interest income of $670,462 and foreign currency gain of $262,141 helped to
offset partially the increased costs. The foreign currency resulted from timing
on transferring funds from the April 2006 private placement from our Canadian
accounts into the U.S. The interest income resulted from money market fund
interest on the balance of the Companys cash balances.

Liquidity and Capital Resources

At fiscal year end, all contractual obligations were met with
the major vendor responsible for the construction Raft River Unit I; therefore,
no restricted cash was reported related to this obligation. The Company
committed funds of approximately $11.3 million at fiscal year end for the
acquisition of geothermal rights and a small geothermal power plant located in
the San Emidio Desert, Nevada. This transaction was completed in May 2008. The
funds held in escrow related to the acquisition were reported as a separate line
item in non-current assets on the balance sheet at March 31, 2008.

The Company obtained project capital to construct Raft River
Unit I power plant through a partnership arrangement. Through the arrangement,
equity funds of approximately $34 million were made available for the
construction of the project. Total capital expenditures for the Raft River Unit
I to date are approximately $51 million. The majority of the funds needed for
the project to date have been provided by existing funds and through the joint
venture arrangement. We believe the construction cost of the new power plant at
San Emidio will be approximately $75 to $85 million. Management is currently
reviewing alternatives and believes project finance will be available for the
development and construction. The method of financing the construction of the
new power plant has not yet been determined. If additional funds are needed for
the Raft River, Neal Hot Springs or San Emidio projects, we anticipate that 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.

The Company entered into an agreement with a Canadian
investment dealer (the Underwriter), pursuant to which the Underwriter has
agreed to purchase 6,382,500 units of the Company (each, a "Unit"), each Unit
comprising one common share of the Company (each, a "Common Share") and one half
of one common share purchase warrant (each whole common share purchase warrant,
a "Warrant"), on an underwritten private placement basis at a price of $2.35 CDN
per Unit to raise gross proceeds of $14,998,875 CDN. Each Warrant entitles the
holder thereof to acquire one additional common share of the Company for a
period of 24 months following the closing of the offering for $3.00 US per
common share. The net proceeds of the offering are being used by the Company to
complete the San Emidio geothermal project acquisition recently announced and
for general working capital purposes.

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Potential Acquisitions

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

Critical Accounting Policies

The discussion and analysis of our financial condition and
results of operations are based upon the consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. Certain accounting policies
involve judgments and uncertainties to such an extent that there is reasonable
likelihood that materially different amounts could have been reported under
different conditions, or if different assumptions had been made. We evaluate our
estimates and assumptions on a regular basis. We base our estimates on
historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for the
financial statements.

Cash and Cash Equivalents The Company considers cash
deposits and highly liquid investments to be cash and cash equivalents for
financial reporting presentation on the consolidated balance sheet and statement
of cash flows. The Company subscribes to the accounting standards that define
cash equivalents as highly liquid, short-term instruments that are readily
convertible to known amounts of cash, which are generally defined investments
that have original maturity dates of less than three months. With the large
value of funds invested in short-term deposits, small variations in short term
interest rates may materially affect the value of cash equivalents. Investments
in government obligations accumulate higher interest, but the principal balance
is not insured by the FDIC.

Property, Plant and Equipment 
  During the development stage of operations, the Company has purchased and otherwise
  acquired geothermal properties for the production of power. The geothermal properties
  include: drilled wells, power plant components, power plant support components,
  land, land rights, surface water rights, and mineral rights. Since the costs
  of land and the rights surrounding the access geothermal and surface water reservoirs
  are relatively small, these items have been included, but have not been reported
  separately in our financial statements. The Companys first power plant
  became operational in January 2008. When the plant became operational, plant
  property and equipment costs were charged to operations in a systematic manner
  based upon the estimated useful lives of the individual assets. The factors
  and assumptions that comprise this allocation process will be based upon the
  best information available to us, and will be evaluated, at least, annually
  for viability. If it is determined that our cost allocations have produced results
  that vary significantly from the conditions surrounding the value of the Companys
  geothermal properties, a gain or loss adjustment will be made in the period
  in which this determination is made. The cost allocation or amortization process
  is not intended to present the fair market value of our geothermal properties;
  rather to allocate the actual historical costs of those properties over their
  service lives.

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Income Taxes According to generally accepted
accounting practices, entities must recognize assets and/or liabilities that
originate with the differences in revenues and expenses presented for financial
reporting purposes and those revenues and expenses that are utilized to comply
with federal and state income tax law. Often deductions can be accelerated for
income tax purposes, thus creating temporary or timing differences. Other items
(generally non-allowable expenses) do not reverse over time, and are considered
to be permanent differences. These types of costs are, typically, not factored
into the deferred income tax asset or liability calculation. The Companys
primary element that impacts the liability or asset calculation relates to the
operating losses generated in its early stages of operation that will be allowed
to offset future earnings. Stock-based compensation is another significant area
that impacts that recognition of deferred income taxes. Compensation that has
been provided to employees and contractors based upon the value of the issuance
of stock options is reported as an operating cost. However, this compensation is
not an allowable deduction for income tax purposes. At the end of the fiscal
year, the Companys significant tax differences would ultimately result in the
recognition of an asset; however, due to the uncertainly surrounding future
earnings, an allowance has been calculated that effectively removes the asset.
The Company continues to track the financial elements that comprise the deferred
income tax calculation and will remove or reduce the asset allowance if the
Company is determined to be in position where it is likely to produce
earnings.

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

The Company awards stock options for compensation to
non-employees for services performed and/or services performed above and beyond
expectations. After the services have been completed, the awards are made at the
discretion of the Board of Directors. The fair value of the options are
determined on the date the options are awarded according to several factors that
include the exercise price of the option, the current price of the underlying
share, the expected life of the options and the expected volatility of the
stock. Generally speaking, a longer life and higher expected volatility yields a
higher value of the option. In accordance with appropriate accounting guidance,
the Company amortizes the value of these options as operating expense during the
period in which they vest. Stock options awarded to Company employees are also
valued on the date they are awarded. However, the value of these options are
capitalized and

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expensed over the vesting period. The current vesting period
for all options is eighteen months. The nature of the services provided
determines whether the value will be expensed or added to the value of a Company
asset. To date, no services have been provided directly related to the
construction of property and equipment, thus, all services have been charged to
operations.

Contractual Obligations

The following table denotes contractual obligation by payments
due for each period:

Total
    <
      1 year
    1-3
      years
    3-5
      years
    >
      5 yearsLeases
    $623,937
    $39,887
    $104,600
    $100,350
    $379,100Stock Compensation Payable
    $1,975,672
    $61,490
    $109,504
    $1,804,678
    $0RRE Construction Obligations (1)
    $469,550
    $469,550
    $0
    $0
    $0


| | (1) | Raft River Energy I LLC is the joint venture partnership
      constructing the power plant at Raft River, Idaho. This subsidiary is not
      consolidated into the financial statements. However, the obligations of
      Raft River Energy are reflected in this table in order to provide greater
      information on the Raft River Project.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For further information regarding lease terms and conditions,
please note Item 2, Description of Property, Lease/Royalty Terms beginning on
page 28 of this document.

The obligations reflected for Stock Compensation Payable are
reflected as due on the option expiration date. The obligation will be relieved
upon exercise of the options, which may be at any time between vesting and
expiration.

Off Balance Sheet Arrangements

As of March 31, 2008, the Company does not have any off balance
sheet arrangements.

Item 7A. Quantitative and Qualitative Disclosures About
Market Risk

Interest Risk on InvestmentsAt March 31, 2008, the
Company held investments of $4,896,040 in money market accounts. These are
highly liquid investments that are subject to risks associated with changes in
interest rates. The money market funds are invested in governmental obligations
with minimal fluctuations in interest rates and fixed terms.

Foreign Currency RiskThe Company is subject to
limited amount of foreign currency risks associated with cash deposits
maintained in Canadian currency. The Company has utilized and it is continuing
to utilize the Canadian markets for raising capital. By proper timing of the
transactions and then maintenance of adequate operating funds in other financial
resources, the Company has been able to mitigate some of the risks surrounding
foreign currency exchanges. At fiscal year end, the company held deposits that
amounted to less than $35,000 in U.S. dollar equivalents. Also, the Canadian
currency exchange rate has been reasonably consistent over the past fiscal year.
As a matter of standard operating practice, the Company does not maintain large
balances of Canadian currency; and, substantially, all operating transactions
are conducted in U.S. dollars.

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The strike price for the Companys stock option plan has been
stated in Canadian dollars as the plan has been administered through our
Vancouver office and Pacific Corporate Trust Company. This subjects the Company
to foreign currency risk in addition to the normal market risks associated with
the stock price fluctuations. A long-term liability has been established to
reflect the fair value of the stock options payable. The strike price on future
option grants will be stated in US dollars.

Commodity Price RiskThe Company is exposed to risks
surrounding the volatility of energy prices. These risks are impacted by various
circumstances surrounding the energy production from natural gas, nuclear,
hydro, solar, coal and oil. The Company has been able to mitigate, to a certain
extent, this risk by signing a power purchase contract for a 20 year period for
the first power plant scheduled to go into production. This type of arrangement
will be the model for power purchase contracts planned for future power
plants.

Item 8. Financial Statements and Supplementary
Data

The information required hereunder is set forth under Report
of Independent Registered Public Accounting Firm, Consolidated Balance
Sheets, Consolidated Statements of Operations, Consolidated Statements of
Comprehensive Income (Loss) and Stockholders Equity (Deficit), Consolidated
Statements of Cash Flows, and Notes to Consolidated Financial Statements
included in the consolidated financial statements that are a part of this Report
(See Part IV, Item 15, exhibit 10.37) . Other financial information and
schedules are included in the consolidated financial statements that are a part
of this Report.

Item 9. Changes in and Disagreements With Accountants on
Accounting and FinancialDisclosure

None.

Item 9A. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

In connection with the preparation of this annual report on
Form 10-K, an evaluation was carried out by the Companys management, with the
participation of the Chief Executive Officer and the Chief Financial Officer, of
the effectiveness of the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934 (Exchange Act)) as of March 31, 2008. Disclosure controls and procedures
are designed to ensure that information required to be disclosed in reports
filed or submitted under the Exchange Act is recorded, processed, summarized,
and reported within the time periods specified in the SEC rules and forms and
that such information is accumulated and

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communicated to management, including the Chief Executive
Officer and the Chief Financial Officer, to allow timely decisions regarding
required disclosures.

During the evaluation of disclosure controls and procedures as
of March 31, 2008, management identified a material weakness in internal control
over financial reporting related to the valuation of stock options, which
management considers an integral component of disclosure controls and
procedures. As a result of the material weakness identified, management
concluded that the Companys disclosure controls and procedures were
ineffective.

Notwithstanding the existence of this material weakness, the
Company believes that the consolidated financial statements in this annual
report on Form 10-K fairly present, in all material respects, the Companys
financial condition as of March 31, 2008 and 2007, and results of its operations
and cash flows for the years ended March 31, 2008 and 2007, in conformity with
United States generally accepted accounting principles (GAAP).

MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING

Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting. The Companys
internal control over financial reporting is a process, under the supervision of
the Chief Executive Officer and the Chief Financial Officer, designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the Companys financial statements for external purposes in
accordance with GAAP. Internal control over financial reporting includes those
policies and procedures that:

- Pertain to the maintenance of records that in reasonable detail accurately
  and fairly reflect the transactions and dispositions of the Companys assets;
- Provide reasonable assurance that transactions are recorded as necessary
  to permit preparation of the financial statements in accordance with generally
  accepted accounting principles, and that receipts and expenditures are being
  made only in accordance with authorizations of management and the Board of
  Directors; and
- Provide reasonable assurance regarding prevention or timely detection of
  unauthorized acquisition, use, or disposition of the Companys assets that
  could have a material effect on the financial statements.

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

Company management conducted an assessment of the effectiveness
of the Companys internal control over financial reporting as of March 31, 2008,
based on criteria established in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). As a result of this assessment, management identified a material
weakness in internal control over financial reporting.

A material weakness is a control deficiency, or a combination
  of deficiencies, in internal control over financial reporting such that there
  is a reasonable possibility that a material misstatement of the Companys
  annual or interim financial statements will not be prevented or detected on
  a timely basis.

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The material weakness identified is disclosed below.

Stock Option Valuation.Controls over the stock option
valuation process have not been appropriately designed. Controls within the
process rely heavily on both the expertise of a single individual, and a
third-party-administered option valuation tool. Management has not implemented
appropriate internal procedures to ensure that the data provided by the system
is reliable, including appropriate monitoring and review procedures for data
being entered into and utilized by the system in the valuation of stock options.
Documentation of the verification of model assumptions and data utilized by the
model, such as stock price, did not exist. As a result, errors in the valuation
of stock options were not detected by the Companys controls and an adjustment
was identified by the auditors.

As a result of the material weakness in internal control over
financial reporting described above, the Company management has concluded that,
as of March 31, 2008, the Companys internal control over financial reporting
was not effective based on the criteria in Internal Control  Integrated
Framework issued by the COSO.

The effectiveness of the Companys internal control over
financial reporting as of March 31, 2008, has been audited by Williams &
Webster, P.S., an independent registered public accounting firm, as stated in
their report appearing on page XX, which expressed an adverse opinion on the
effectiveness of the Companys internal control over financial reporting as of
March 31, 2008.

REMEDIATION OF MATERIAL WEAKNESSES IN INTERNAL CONTROL OVER
FINANCIAL REPORTING

As a result of the material weakness identified above, we will
develop and implement appropriate procedures to strengthen controls around stock
option valuation.

Subsequent to March 31, 2008, we plan to finalize remediation
of the material weakness by taking the following actions: (i) review and approve
all quarterly historical stock prices and interest rates reported by our stock
option plan administration software to validate that correct parameters were
entered into the software, and (ii) obtain further training in using our stock
option plan administration software as appropriate.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

As of the end of the period covered by this report, there have
been no changes in internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) during the quarter ended March 31, 2008, that
materially affected, or are reasonably likely to materially affect, the Company
internal control over financial reporting.

Item 9B. Other Information

No items noted for disclosure in this section.

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PART III

Item 10. Directors, Executive Officers, and Corporate
Governance

Identification of Directors, Executive Officers and
Significant Employees

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, and each has been elected for a 1 year term.

|NAME                       | AGE | POSITION                                             
|-------------------------- | --- | -----------------------------------------------------
|                           |     |                                                      
|Daniel J. Kunz             | 56  | Chief Executive Officer, President
      and Director
|Douglas J. Glaspey         | 55  | Chief Operating Officer and Director                 
|John H. Walker (1) (3)     | 59  | Chairman of the Board and Director                   
|Paul A. Larkin (1) (2) (3) | 57  | Director                                             
|Leland R. Mink (1) (3)     | 68  | Director                                             
|Kerry D. Hawkley           | 54  | Chief Financial Officer and Corporate Secretary      
|Kevin Kitz                 | 47  | Vice President, Development, Geo-Idaho               
|Robert Cline               | 51  | Vice President, Engineering, Geo-Idaho               
|Christopher S. Harriman    | 50  | President, U.S. Geothermal Services
      LLC        

| | (1) | Member of the Audit, Compensation and Governance
      Committees.
| | --- | ------------------------------------------------------------------
| | (2) | Audit Committee Financial Expert.                                 
| | (3) | Independent Director.                                             

Background and Business Experience

Daniel J. Kunzis the co-founder, 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, Chief Executive Officer and
Director from November 1, 2000 until March 1, 2003. From March 2, 2003 until
March 8, 2004, Mr. Kunz served as President of Jinshan Gold Mines Inc. Mr. Kunz
has more than 30 years of experience in international mining, engineering and
construction, including, marketing, business development, management,
accounting, finance and operations. Mr. Kunz was a founder of and directed the
initial public offering of the NASDAQ listed MK Gold Company (President,
Director & CEO) and held executive positions with 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 Toronto Stock Exchange and the TSX Venture Exchange, including
Jinshan Gold Mines Inc., Kenai Resources Ltd., and Chesapeake Gold Corp.

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Douglas J. Glaspey is the co-founder, 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 29 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 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.

Dr. Leland Roy Mink is the former Program Director for
the Geothermal Technologies Program, U.S. Department of Energy (DOE). Prior to
working for the DOE Dr. Mink was the Vice President of Exploration for U.S.
Geothermal Inc. He has also worked for Morrison-Knudsen Corporation, Idaho
Bureau of Mines and Geology and Idaho Water Resources Research Institute.

Kerry D. Hawkley serves as the companys Chief Financial
Officer and Corporate Secretary. 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

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LB Industries. Mr. Hawkley has over 30 years experience in all
areas of accounting, finance and administration. 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 75 megawatt 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 megawatts.

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.

Christopher S. Harrimanis the President
of US Geothermal Services LLC.He has over ten years of power management
experience and has eighteen years of industry experience. He worked for Black
Hills Generation as plant manager of two 10 megawatt cogeneration facilities in
southern Idaho. He also spent eight years with Exxon Shipping, and served in the
U.S. Coast Guard. He joined us in July 2006.

Family RelationshipsThere are no
family relationships between directors and the executive officer or any persons
nominated to be a director.

Code of EthicsManagement 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.

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Item 11. Executive Compensation

The Compensation and Benefits Committee is appointed annually
by the Board of Directors to discharge the Board's responsibilities relating to
compensation and benefits of the executive officers of the Company. The goals of
the committee is to attract, retain and motivate our executive officers by
providing appropriate levels of compensation and benefits while taking into
consideration, among such other factors as it may deem relevant, the Company's
performance, shareholder returns, the value of similar incentive awards to
executive officers at comparable companies and the awards given to the executive
officers in past years. The main categories of compensation available to the
committee are base salary, discretionary annual performance bonuses, stock
option grants, stock awards, and insurance reimbursements.

We compete with a variety of companies for our executive-level
employees. The Compensation and Benefits Committee uses base salary to
compensate the executive officers for services rendered as well as for
motivation and retention purposes. Base salaries are intended to be competitive
for companies of similar size and purpose, also taking into consideration
individual factors such as experience, tenure, institutional knowledge and
qualifications. Base salaries are reviewed annually to determine whether they
are consistent with our overall compensation objectives. In considering
increases in base salary, the Compensation and Benefits Committee reviews
individual and corporate performance, market and industry conditions, and our
overall financial health.

The Compensation and Benefits Committee may grant annual
performance bonuses as a reward for achievement of individual and corporate
short-term goals. Any grant of an annual performance bonus is discretionary and
the amount is determined after recommendation from the chief executive officer.
Bonus amounts should be dependent upon our financial and operational performance
as well as the performance of the individual executive officer.

Generally, the Compensation and Benefits Committee grants stock
options to all employees, including executive officers, annually after
completion of our annual financial reports. Stock options are granted with an
exercise price equal to the market value of our common stock on the date of the
grant, and with a term of five years. The timing of the stock option grant is
not coordinated with the release of material non-public information and is
typically in the first or second fiscal quarter. The options vest 25% on date of
grant, and another 25% each six months thereafter. In 2007, stock option grants
to executive officers represented approximately 15% of the total stock option
grants to all employees.

Our executive officers do not receive any material incremental
benefits that are not otherwise available to all of our employees. Our health
and dental insurance plans are the same for all employees.

Effective January 1, 2008, Daniel J. Kunz signed an employment
agreement that sets the amount of time devoted to the business of the Company to
140 hours per month at a compensation of $170,400 annually. Mr. Kunz is entitled
to receive performance bonuses and incentive stock options as determined by the
Companys board of directors, benefits (including for immediate family) as are
or may become available to other employees, and vacation. The Company will also
provide reasonable life insurance and accidental death coverage with the
proceeds payable to Mr. Kunzs estate or specified family member. The employment
agreement may be

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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 may terminate the
agreement upon one month written notice. The agreement includes covenants by Mr.
Kunz of confidentiality and non-competition, and provides for equitable relief
in the event of breach. In the case of a change of control, Mr. Kunz can elect
to receive compensation equal to 24 monthly installments of his normal
compensation no later than five working days after the effective date of the
change of control (currently $340,800). A copy of the employment agreement is
included as Exhibit 10.15 in Part IV of this report.

Douglas J. Glaspey, Chief Operating Officer, signed an
employment agreement on January 1, 2008, which provides for an annual salary of
$144,000. Mr. Glaspey is entitled to receive performance bonuses and incentive
stock options as determined by the Companys board of directors, benefits
(including for 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.
Glaspey. In the event of early termination due to failure to comply with the
agreement, the employee would be entitled to compensation earned through the
date of termination. In the case of termination of the employment agreement due
to a change control, Mr. Glaspey will receive a lump sum payment in the amount
equal to 18 monthly installments of the employees normal compensation
(currently $216,000). A copy of the employment agreement is included as Exhibit
10.17 in Part IV of this report.

Kerry D. Hawkley, Chief Financial Officer, signed an employment
agreement on January 1, 2008, which provides for an annual salary of $127,800.
Mr. Hawkley is entitled to receive performance bonuses and incentive stock
options as determined by the Companys board of directors, benefits (including
for 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. Hawkley. In
the event of early termination due to failure comply with the agreement; the
employee would be entitled to compensation earned through the date of
termination. In the case of termination of the employment agreement due to a
change control, Mr. Hawkley will receive a lump sum payment in the amount equal
to 18 monthly installments of the employees normal compensation (currently
$191,700). A copy of the employment agreement is included as Exhibit 10.16 in
Part IV of this report.

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Executive CompensationName and Principal position(s) 
        (a)
      Year Ended 
        March 31, 
        (b)
      Salary 
        ($) 
        (c)
      Bonus ($) 
        (d)
      Option 
        Awards 
        ($) 
        (f)
      All Other 
        Comp 
        ($) 
        (i)
      Totals 
        ($) 
        (j)Daniel J. Kunz, Chief Executive 
        Officer and President
      2006
      50,000
      0
      0
      0
      50,0002007
      132,000
      30,000
      532,257
      37,960
      732,2172008
      141,600
      11,000
      61,756
      0
      214,356Douglas J. Glaspey, Chief 
        Operating Officer
      2006
      90,000
      0
      0
      0
      90,0002007
      108,000
      22,500
      381,619
      0
      512,1192008
      117,000
      9,000
      61,756
      0
      187,756Kerry D. Hawkley, ChiefFinancial Officer
      2006
      48,000
      0
      0
      0
      48,0002007
      96,000
      25,000
      135,575
      0
      256,5752008
      103,950
      8,000
      61,756
      0
      173,706Total Executive Officers
      2006
      188,000
      0
      0
      0
      188,0002007
      336,000
      77,500
      1,049,451
      37,960
      1,500,9112008
      362,550
      28,000
      185,268
      0
      575,818


| | (c) |  Annual compensation that includes the dollar value of
      base salary (cash and non-cash).                                                            
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) |  Dollar value of bonuses (cash and non-cash) are
        eligible to all employees. Bonus plans are submitted and approved by the
        Board annually.
| | (f) |  Stock options are valued at the grant date using the
      SFAS 123R value.                                                                             
| | (i) |  Other compensation consists of all other compensation
      not disclosed in another category.                                                          

All employees of the Company are eligible to receive a
performance bonus based upon goals submitted and approved annually by the Board
of Directors. Performance goals were earned and paid for the fiscal year ended
March 31, 2008.

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GRANTS OF PLAN-BASED AWARDS

Name 
        (a)
      Grant 
        Date 
        (b)
      Estimated Future Payouts Under
        
        Non-Equity Incentive Plan 
        Awards
      Estimated Future Payouts 
        Under Equity Incentive Plan 
        Awards
      All Other 
        Stock 
        Awards: 
        Number of 
        Shares of 
        Stock or 
        Units 
        (#) 
        (i)
      All Other 
        Option 
        Awards: 
        Number of 
        Securities 
        Under- 
        lying 
        Options 
        (#) 
        (j)
      Exercise or 
        Base Price 
        of Option 
        Awards 
        ($/Sh) 
        (k)
      Fair Value 
        of Stock 
        and Option 
        Awards18
        (l)Threshold 
        ($) 
        (c)
      Target 
        ($) 
        (d)
      Maximum 
        ($) 
        (e)
      Threshold 
        (#) 
        (f)
      Target 
        (#) 
        (g)
      Maximum
        (#) 
        (h)Daniel J. 
        Kunz, Chief 
        Executive 
        Officer
      7/23/07
      
      
      
      
      
      
      
      40,000
      US 2.41
      61,756Douglas J 
        Glaspey, Chief 
        Operating 
        Officer
      7/23/07
      
      
      
      
      
      
      
      40,000
      US 2.41
      61,756Kerry D 
        Hawkley, 
        Chief Financial 
        Officer
      7/23/07
      
      
      
      
      
      
      
      40,000
      US 2.41
      61,756


Outstanding Equity Awards at Fiscal Year EndExecutive Name 
        (a)
      Option Awards
      Stock AwardsNumber of 
        securities 
        underlying 
        unexercised 
        options (#) 
        exercisable 
        (b)
      Number of 
        securities 
        underlying 
        unexercised 
        options (#) 
        unexer- 
        cisable 
        (c)
      Equity 
        incentive 
        plan awards; 
        number of 
        securities 
        underlying 
        unexcersised 
        unearned 
        options (#) 
        (d)
      Option 
        exercise 
        price 
        ($) 
        (e)
      Option 
        expiration 
        date 
        (f)
      Number of 
        shares not 
        vested (#) 
        (g)
      Market 
        value of 
        shares not 
        vested (#) 
        (h)
      Equity 
        incentive 
        plan awards:
        number of 
        unearned 
        shares or 
        other rights 
        that have not 
        vested (#) 
        (i)
      Equity 
        incentive 
        plan awards: 
        market or 
        payout value 
        of unearned 
        shares or 
        other rights 
        that have not 
        vested ($) 
        (j)Daniel J. Kunz
      13,494
      
      
      0.60
      1/3/09
      0
      0Douglas J. Glaspey
      22,134
      
      
      0.60
      1/3/09
      0
      0Daniel J. Kunz
      530,000
      
      
      1.00
      4/12/11
      0
      0Douglas J. Glaspey
      380,000
      
      
      1.00
      4/12/11
      0
      0Daniel J. Kunz
      40,000
      
      
      2.41
      7/23/12
      20,000
      30,878Douglas J. Glaspey
      40,000
      
      
      2.41
      7/23/12
      20,000
      30,878Kerry D. Hawkley
      40,000
      
      
      2.41
      7/23/12
      20,000
      30,878


Kerry D. Hawkley (May 4, July 23 and October 15, 2007)
exercised options granted in a previous year.

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Option Exercises and Stock VestedOption Awards
      
      Stock AwardsName 
        (a)
      Number of 
        shares acquired 
        on exercise 
        (#) 
        (b)
      Value 
        realized on 
        exercise 
        ($CDN) 
        (c)
      Number of 
        shares acquired 
        on vesting 
        (#) 
        (d)
      Value 
        realized on 
        vesting 
        ($) 
        (e)Kerry D. Hawkley
      235,000
      268,500
      0/0
      0/$0


U.S. Geothermal and their Board of Directors have previously
provided additional incentive to our United States (U.S.A.) officers,
directors, employees and consultants by offering stock options at a discount off
market price as allowed by the TSX Venture exchange. The U.S.A. legislature and
the Internal Revenue Service (IRS) have issued regulations to dissuade
companies from granting these discounted stock options. Through the American
Jobs Creation Act of 2004 and the Internal Revenue Code Section 409A, discounted
stock options have now been classified as deferred compensation in which the
discount is taxable at the date of vesting, instead of upon the date of
exercise. They have also dictated that a 20% penalty on all discounts is to be
paid at date of vesting. These new rules have been retroactively applied to all
options vesting after January 1, 2005.

Since U.S. Geothermal stock options vest 25% on date of grant
and 25% every six months thereafter, option holders would be subject to amending
tax returns for prior years and paying tax and penalty on the value of the
discount. These amendments and payments would be required whether or not the
option holder exercises the options. The IRS is allowing option holders until
December 31, 2007 to rectify the situation by allowing them to reprice the
existing options to the market price on the date of option grant. As of March
31, 2008, all of our U.S.A. option holders have repriced their options to the
market price on the date of grant. An adjustment to the fair market value of the
repriced options was included in the stock compensation accrual for March 2007.

GTH did not award any shares, units or rights to any executive
officer under a Long-Term Incentive Plan during the fiscal years ended March 31,
2006, 2007, and 2008.

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Director
        CompensationName 
        (a)
      Fees earned or 
        paid in cash 
        ($) 
        (b)
      Stock 
        awards 
        ($) 
        (c)
      * Option 
        awards 
        ($) 
        (d)
      Non-equity 
        incentive 
        plan 
        compens- 
        ation 
        ($) 
        (e)
      Change in 
        pension value 
        and 
        nonqualified 
        deferred 
        compensa- 
        tion earnings 
        ($) 
        (f)
      All other 
        compensa- 
        tion 
        ($) 
        (g)
      Totals 
        ($) 
        (h)John H. Walker
      16,250
      
      46,317
      
      
      
      62,567Daniel J. Kunz
      
      
      
      
      
      
      0Paul A. Larkin
      20,750
      
      46,317
      
      
      
      67,067Douglas J. Glaspey
      
      
      
      
      
      
      0Leland L. Mink
      16,250
      
      46,317
      
      
      
      62,567Total
      53,250
      
      138,951
      
      
      
      192,201


*  Stock options are valued at the
grant date using the SFAS 123R value.

Effective January 1, 2008, Directors who are not otherwise
remunerated per an employment agreement are paid $5,000 per quarter and $500 per
board meeting attended in person. Directors who are also officers do not receive
any cash compensation for serving in the capacity of director. However, all
directors are reimbursed for their out-of-pocket expenses in attending meetings.

Compensation Committee Interlocks and Insider
Participation

During the year ended March 31, 2008:

- Mr. Daniel J. Kunz, our Chief Executive Officer, was a member of the
  Compensation and Benefits Committee (Mr. Kunz resigned from the Compensation
  Committee on April 1, 2008);
- none of the members of the Compensation Committee entered into (or agreed
  to enter into) any transaction or series of transactions with us or any of our
  subsidiaries in which the amount involved exceeded $120,000 in which he had or
  will have a direct or indirect material interest, which were required to be
  reported under Item 13 of this report;
- none of our executive officers was a director or Compensation Committee
  member of another entity an executive officer of which served on our
  Compensation Committee; and
- none of our executive officers served on the Compensation Committee (or
  another board committee with similar functions) of another entity an executive
  officer of which served as a director on our board of directors.

Compensation Committee Report

The Compensation and Benefits Committee has reviewed and
discussed with management the Compensation Discussion and Analysis contained in
this Annual Report. Based on this review and discussion, the Compensation and
Benefits Committee recommended to the Board of Directors that the Compensation
Discussion and Analysis be included in the Companys Annual Report.

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Compensation and Benefits Committee

John H. Walker. Paul A. Larkin & Leland L. Mink

Item 12. Security Ownership of Certain Beneficial Owners
and Management and RelatedStockholder Matters

The following table details the number of securities authorized
for issuance under the Companys equity compensation plans for the fiscal year
ended March 31, 2008:

Equity Compensation Plan InformationPlan 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
    2,899,878
    CDN $1.35
    2,152,750Equity compensation plans not approved by security
      holders
    Nil
    Nil
    NilTotal
    2,899,878
    CDN
      $1.35
    2,152,750


The following table sets forth certain information known to the
Company regarding the beneficial ownership of common stock as of March 31, 2008,
or as of such later date as is listed below, of each person known to be the
holder of more than 5% of our issued and outstanding stock.

Significant
        OwnersTitle of Class 
        (1)
      Name and Address of Beneficial
         Owner 
        (2)
      Amount and Nature of  Beneficial
        Owner 
        (3)
      Percent of Class 
        (4)Common Stock
      Goldman, Sachs & Co, 295
        Chipeta Way, Salt Lake City, UT 84108
      4,200,000
      7.59Common Stock
      SPCP Group LLC, 2 Greenwhich
        Plaza, Greenwhich, CT 06830
      8,300,000
      15.00Common Stock
      S.A.C. Capital Associates LLC,
        PO Box 58, Victoria House, The Valley, Anguilla
      2,939,400
      5.31Common Stock
      Winslow Green Growth Fund, PO
        Box 7247- 7057, Philadelphia, PA 19170-7057
      3,290,000
      5.95Common Stock
      Wexford Capital, Walker House,
        Mary Street, Georgetown, Cayman Islands
      3,000,000
      5.42


The following table sets forth certain information known to the
Company regarding the beneficial ownership of the common stock as of March 31,
2008, or as of such later date as indicated below, by (i) each of our directors,
(ii) each of our named executive officers, and (iii) all of our executive
officers and directors, serving at the time of the filing of this Report, as a
group.

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Name (1)
    Common Shares Beneficially
      Owned (2)
    Shares Individuals have the
      right to acquire within 60 days (3)
    Total Number of Shares
      Beneficially Owned (4)
    Percent of Class
      (5)Daniel J. Kunz
    2,226,026
    563,494
    2,789,520
    4.80Douglas J. Glaspey
    493,490
    422,134
    915,624
    1.63Kerry D. Hawkley
    130,000
    20,000
    150,000
    0.27John H. Walker
    64,734
    90,000
    154,734
    0.28Paul A. Larkin
    418,068
    195,000
    613,068
    1.10Leland R. Mink
    20,000
    105,000
    125,000
    0.23


Item 13. Certain Relationships and Related Transactions,
and Director Independence

Transactions with Management and Others

No material business transactions exist between the Company and
management, or family or affiliates of management as at March 31, 2008. The
Board of Directors must be notified in advance, and authorize, any transaction
with the Company that may involve a member of management, or family or
affiliates of management.

Certain Business Relationships

No material business relationships exist between the Company
and directors, or family or affiliates of directors as at March 31, 2008.

Indebtedness of ManagementThroughout the
fiscal year and at fiscal year end, management was not indebted to the Company
or any of its subsidiaries.

Item 14. Principal Accountant Fees and Services

The aggregate fees billed by the Companys principal accountant
for the fiscal years ended March 31, 2006, 2007 and 2008 are as follows:

Year Ended March 31,
    Audit Fees (1)
    Audit Related (2)
    Tax Preparation (3)
    Other Fees (4)2008
    $
      32,018
    $ -
    $ -
    $
      74,4002007
    35,333
    -
    -
    -2006
    31,116
    -
    -
    -


|(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.                                                                                                     

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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 as part of the
engagement process. Items not included in the engagement process are reviewed
and authorized by senior management, after consulting with the Audit Committee
members.

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PART IV

Item 15. Exhibits, Financial Statement
Schedules

EXHIBIT LIST

EXHIBITNUMBER
    
    DESCRIPTION3.1
    
    Certificate of Incorporation of U.S. Cobalt Inc. (now
      known as U.S. Geothermal Inc.) (Incorporated by reference to exhibit 3.1
      to the registrants Form SB-2 registration statement as filed on July 8,
      2004)3.2
    
    Certificate of Domestication of Non-U.S. Corporation
      (Incorporated by reference to exhibit 3.2 to the registrants Form SB-2
      registration statement as filed on July 8, 2004)3.3
    
    Certificate of Amendment of Certificate of Incorporation
      (changing name of U.S. Cobalt Inc. to U.S. Geothermal Inc.) (Incorporated
      by reference to exhibit 3.3 to the registrants Form SB-2 registration
      statement as filed on July 8, 2004)3.4
    
    Bylaws of U.S. Cobalt Inc. (now known as U.S. Geothermal
      Inc.) (Incorporated by reference to exhibit 3.4 to the registrants Form
      SB-2 registration statement as filed on July 8, 2004)3.5
    
    Plan of Merger of U.S. Geothermal, Inc. and EverGreen
      Power Inc. (Incorporated by reference to exhibit 3.5 to the registrants
      Form SB-2 registration statement as filed on July 8, 2004)3.6
    
    Amendment to Plan of Merger (Incorporated by reference to
      exhibit 3.6 to the registrants Form SB-2 registration statement as filed
      on July 8, 2004)4.1
    
    Form of Stock Certificate (Incorporated by reference to
      exhibit 4.1 to the registrants Form SB-2 registration statement as filed
      on July 8, 2004)4.2
    
    Form of Warrant Certificate (Incorporated by reference to
      exhibit 4.2 to the registrants Form SB-2 registration statement as filed
      on July 8, 2004)4.3
    
    Provisions Regarding Rights of Stockholders (Incorporated
      by reference to exhibit 4.3 to the registrants Form SB-2 registration
      statement as filed on July 8, 2004)4.4
    
    Form of Subscription Agreement (Incorporated by reference
      as exhibit 10.2 to the registrants Form 8-K current report as filed on
      May 2, 2008)4.5
    
    Form of Warrant (Incorporated by reference as exhibit
      10.3 to the registrants Form 8-K current report as filed on May 2, 2008)4.6
    
    Form of Broker Warrant (Incorporated by reference as
      exhibit 10.4 to the registrants Form 8-K current report as filed on May
      2, 2008)10.1
    
    Agreement between U.S. Geothermal Inc. and Vulcan Power
      Company dated December 3, 2002 regarding the acquisition of the Vulcan
      interest (Incorporated by reference to exhibit 10.1 to the registrants
      Form SB-2 registration statement as filed on July 8, 2004)10.2
    
    Amendment No. 1 dated November 15, 2003 to Agreement
      between U.S. Geothermal Inc. and Vulcan Power Company (Incorporated by
      reference to exhibit 10.2 to the registrants Form SB-2 registration
      statement as filed on July 8, 2004)10.3
    
    Amendment No. 2 to Agreement by and between U.S.
      Geothermal Inc. and Vulcan


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Power Company dated December 30, 2003 (Incorporated
          by reference to exhibit 10.3 to the registrants Form SB-2 registration
          statement as filed on July 8, 2004) Geothermal Lease and Agreement dated
          July 11, 2002, between Sergene Jensen, Personal Representative of the
          Estate of Harlan B. Jensen, and U.S. Geothermal Inc.10.4
      
      (Incorporated by reference to exhibit 10.5 to the
          registrants Form SB-2 registration statement as filed on July
          8, 2004) Geothermal Lease and Agreement dated June 14, 2002, between
          Jensen Investments10.5
      
      Inc. and U.S. Geothermal Inc. (Incorporated by
        reference to exhibit 10.6 to the registrants Form SB-2 registration
        statement as filed on July 8, 2004) Geothermal Lease and Agreement dated
        March 1, 2004, between Jay Newbold and U.S.10.6
      
      Geothermal Inc. (Incorporated by reference to exhibit
          10.7 to the registrants Form SB-2 registration statement as filed
          on July 8, 2004) Geothermal Lease and Agreement dated June 28, 2003,
          between Janice Crank and the10.7
      
      children of Paul Crank and U.S. Geothermal Inc. (Incorporated
          by reference to exhibit 10.8 to the registrants Form SB-2 registration
          statement as filed on July 8, 2004) Geothermal Lease and Agreement dated
          December 1, 2004, between Reid S. Stewart and Ruth O. Stewart and US
          Geothermal Inc. (Incorporated by reference to exhibit 10.910.8
      
      to the registrants Amendment No. 2 to Form SB-2
          registration statement as filed on January 10, 2005) Geothermal Lease
          and Agreement, dated July 5, 2005, between Bighorn Mortgage10.9
      
      Corporation and US Geothermal Inc. (Incorporated by
          reference to exhibit 10.11 to the registrants Form 10-QSB quarterly
          report as filed on February 17, 2006) Geothermal Lease and Agreement,
          dated June 23, 2005, among Dale and Ronda10.10
      
      Doman, and US Geothermal Inc. (Incorporated by reference
          to exhibit 10.13 to the registrants Form 10-QSB quarterly report
          as filed on February 17, 2006) Geothermal Lease and Agreement, dated
          June 23, 2005, among Michael and Cleo Griffin, Harlow and Pauline Griffin,
          Douglas and Margaret Griffin, Terry and Sue10.11
      
      Griffin, Vincent and Phyllis Jorgensen, and Alice
          Mae Griffin Shorts, and US Geothermal Inc. (Incorporated by reference
          to exhibit 10.14 to the registrants Form 10- QSB quarterly report
          as filed on February 17, 2006) Geothermal Lease and Agreement dated
          January 25, 2006, between Philip Glover and10.12
      
      US Geothermal Inc. (Incorporated by reference to exhibit
          10.9 to the registrants Form 10-QSB quarterly report as filed
          on February 17, 2006) Geothermal Lease and Agreement, dated May 24,
          2006, between JR Land and10.13
      
      Livestock Inc. and US Geothermal Inc. (Incorporated
          by reference to exhibit 10.30 to the registrants Form 10-KSB annual
          report as filed on June 29, 2006)10.15
      
      Employment Agreement dated
          January 1, 2008, with Daniel J. Kunz10.16
      
      Employment Agreement dated
          January 1, 2008, with Kerry D. Hawkley10.17
      
      Employment Agreement dated
          January 1, 2008, with Douglas J. Glaspey10.18
      
      Escrow Agreement made December 19, 2003,
          among U.S. Geothermal Inc., Pacific Corporate Trust Company, as escrow
          agent, and certain security holders (Incorporated by reference to exhibit
          10.15 to the registrants Form SB-2 registration statement as filed
          on July 8, 2004) Escrow Agreement made December 19, 2003, among U. S.
          Geothermal Inc., Pacific10.19
      
      Corporate Trust Company, as escrow agent,
          and certain security holders (Incorporated by reference to exhibit 10.16
          to the registrants Form SB-2 registration statement as filed on
          July 8, 2004)


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10.21
      
      First Amended and Restated
          Merger Agreement dated November 30, 2003 among U.S. Cobalt Inc., EverGreen
          Power Inc., U.S. Geothermal Inc., and the stockholders of U.S. Geothermal
          Inc. (Incorporated by reference to exhibit 10.17 to the registrants
          Form SB- 2 registration statement as filed on July 8, 2004)10.22
      
      Agreement with Dundee Securities
          Corporation dated June 28, 2004 (Incorporated by reference to exhibit
          10.18 to the registrants Form SB-2 registration statement as filed
          on July 8, 2004)10.23
      
      Amended and Restated Stock
          Option Plan of U.S. Geothermal Inc. dated September 29, 2006.(Incorporated
          by reference to exhibit 10.23 to the registrants Form SB-2 registration
          statement as filed on October 2, 2006.)10.24
      
      Power Purchase Agreement dated
          December 29, 2004 between U.S. Geothermal Inc. and Idaho Power Company
          (Incorporated by reference to exhibit 10.19 to the registrants
          Amendment No. 2 to Form SB-2 registration statement as filed on January
          10, 2005)10.25
      
      Engineering, Procurement and
          Construction Agreement dated December 5, 2005 between U.S. Geothermal
          Inc. and Ormat Nevada Inc. (Incorporated by reference to exhibit 10.28
          to the registrants Form 10-QSB quarterly report as filed on February
          17, 2006) *10.26
      
      Amendment to the Engineering,
          Procurement and Construction Agreement dated April 26, 2006 between
          U.S. Geothermal Inc. and Ormat Nevada Inc. (Incorporated by reference
          to exhibit 99.1 to the registrants Form 8-K as filed on May 2,
          2006)10.27
      
      Letter of Intent from Eugene
          Water and Electric Board to U.S. Geothermal Inc. dated February 22,
          2006 (Incorporated by reference to exhibit 10.27 to the registrants
          Form SB-2 as filed on September 29, 2006).10.28
      
      Renewable Energy Credits Purchase
          and Sales Agreement dated July 29, 2006 between Holy Cross Energy and
          U.S. Geothermal Inc. (Incorporated by reference to exhibit 10.28 to
          the registrants Form SB-2 as filed on September 29, 2006).10.29
      
      Transmission Agreement dated
          June 24, 2005 between Department of Energys Bonneville Power Administration
          - Transmission Business Line and U.S. Geothermal Inc. (Incorporated
          by reference to exhibit 10.27 to the registrants Form 10-QSB quarterly
          report as filed on August 12, 2005)10.30
      
      Interconnection and Wheeling
          Agreement dated March 9, 2006 between Raft River Rural Electric Co-op
          and U.S. Geothermal Inc. (Incorporated by reference to exhibit 10.28
          to the registrants Form 10-KSB annual report as filed on June
          29, 2006)10.31
      
      Construction Contract dated
          May 16, 2006 between Raft River Rural Electric Co-op and U.S. Geothermal
          Inc. (Incorporated by reference to exhibit 10.31 to the registrants
          Form SB-2 as filed on September 29, 2006).10.32
      
      Membership Admission Agreement,
          dated August 9, 2006, among Raft River Energy I LLC, U.S. Geothermal
          Inc., and Raft River I Holdings, LLC (Incorporated by reference to exhibit
          10.1 to the registrants Form 8-K as filed on August 23, 2006)
          *10.33
      
      Amended and Restated Operating
          Agreement of Raft River Energy I LLC, dated as of August 9, 2006, among
          Raft River Energy I LLC, Raft River I Holdings, LLC and U.S. Geothermal
          Inc (Incorporated by reference to exhibit 10.2 to the registrants
          Form 8-K as filed on August 23, 2006).*10.34
      
      Management Services Agreement, dated as of August 9, 2006,
          between Raft River


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Energy I LLC and U.S. Geothermal Services, LLC
        (Incorporated by reference to exhibit 10.3 to the registrants Form
        8-K as filed on August 23, 2006) *10.35
      
      Construction contract dated
          May 22, 2006 between Industrial Builders and U.S. Geothermal Inc. (Incorporated
          by reference to exhibit 10.31 to the registrants Form 10- KSB
          annual report as filed on June 29, 2006)10.36
      
      First Amendment to the Amended
          and Restated Operating Agreement of Raft River Energy I LLC, dated as
          of November 7, 2006, among Raft River Energy I LLC, Raft River I Holdings,
          LLC and U.S. Geothermal Inc. (Incorporated by reference to exhibit 10.36
          to the registrants Form 10-QSB as filed on February 20, 2007).
          *10.37
      
      Consolidated Financial Statements
          of U.S. Geothermal Inc. as of March 31, 2008.10.38
      
      Geothermal Lease and Agreement
          dated August 1, 2007, between Bureau of Land Management and U.S. Geothermal
          Inc.10.39
      
      Asset Purchase Agreement dated
          as of March 31, 2008, between U.S. Geothermal Inc., and Empire Geothermal
          Power LLC and Michael B. Stewart (Incorporated by reference as exhibit
          99.1 to the registrants Form 8-K current report as filed on April
          7, 2008)10.40
      
      Underwriting Agreement dated
          April 28, 2008 between U.S. Geothermal, Inc. and Clarus Securities Inc.,
          Toll Cross Securities Inc. and Loewen Ondaatje McCutcheon Limited (Incorporated
          by reference as exhibit 10.1 to the registrants Form 8-K current
          report as filed on May 2, 2008)10.41
      
      Report of Independent Registered
          Public Accounting Firm23.1
      
      Consent of Williams & Webster,
          P.S.31.1
      
      Certification
          of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
          Act of 200231.2
      
      Certification
          of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
          Act of 200232.1
      
      Certification
          of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
          Act of 200232.2
      
      Certification
          of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002


* - Agreements are the subject of a confidential treatment
request filed with the Commission on August 23, 2006.

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SIGNATURES

Pursuant to the requirements 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)                         
|              |  |                                      
|              |  |                                      
|              |  |                                      
|June 16, 2008 |  | /s/
      Daniel J. Kunz             
|Date          |  | Daniel J. Kunz                       
|              |  | Chief Executive Officer and President
|              |  | (Principal Executive Officer)        

Pursuant to the requirements of the Securities Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
in the capacities and on the date indicated:

|Name                         | Title                                                  | Date         
|---------------------------- | ------------------------------------------------------ | -------------
|                             |                                                        |              
|                             |                                                        |              
|                             | Chief Executive Officer, President and
      Director  |              
|/s/ Daniel J. Kunz           | (Principal Executive Officer)                          | June 16, 2008
|Daniel J. Kunz               |                                                        |              
|                             |                                                        |              
|                             | Chief Financial Officer (Principal Financial
      and |              
|/s/ Kerry Hawkley            | Accounting Officer)                                    | June 16, 2008
|Kerry Hawkley                |                                                        |              
|                             |                                                        |              
|/s/ Douglas J.
      Glaspey | Chief Operating Officer and Director                   | June 16, 2008
|Douglas J. Glaspey           |                                                        |              
|                             |                                                        |              
|                             |                                                        |              
|/s/ John H. Walker           | Chairman and Director                                  | June 16, 2008
|John H. Walker               |                                                        |              
|                             |                                                        |              
|                             |                                                        |              
|/s/ Paul A. Larkin           | Director                                               | June 16, 2008
|Paul A. Larkin               |                                                        |              
|                             |                                                        |              
|                             |                                                        |              
|/s/ Leland L. Mink           | Director                                               | June 16, 2008
|Leland R. Mink               |                                                        |              

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