Document:

U.S. Geothermal Inc.: Exhibit 10.37 - Prepared by TNT Filings Inc.

Exhibit 10.37

 

U.S. GEOTHERMAL INC.

____________

Consolidated Financial Statements 

March 31, 2009  

 

Certified Public Accountants & Business Consultants

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and 

Stockholders of U.S. Geothermal Inc. 

We have audited the accompanying consolidated balance sheets
of U.S. Geothermal Inc. as of March 31, 2009 and 2008, and the related
statements of operations and comprehensive loss, changes in stockholders' equity
and cash flows for the years ended March 31, 2009, 2008 and 2007. We also have
audited U.S. Geothermal Inc.'s internal control over financial reporting as of
March 31, 2009, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). U.S. Geothermal Inc.'s management is responsible
for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management's
Annual Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on these financial statements and an opinion on the
company's internal control over financial reporting based on our audits. 

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions. 

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

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of U.S.
Geothermal Inc. as of March 31, 2009 and 2008 and the results of its operations
and its cash flows for the years ended March 31, 2009, 2008 and 2007, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, U.S. Geothermal Inc. maintained, in all material
respects, effective internal control over financial reporting as of March 31,
2009, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). 

/s/ Williams & Webster, P.S.      

Williams & Webster, P.S. 

Certified Public Accountants 

Spokane, Washington June 10, 2009 

	 
	U.S. GEOTHERMAL INC. 
CONSOLIDATED
      BALANCE SHEETS  
(Stated in U.S. Dollars) 
	  	 	  	 	 	  	 
	  	 	March 31, 	 	 	March 31, 	 
	  	 	2009 	 	 	2008
    	 
	  	 	  	 	 	  	 
	ASSETS 	 	  	 	 	  	 
	  	 	  	 	 	  	 
	Current: 	 	  	 	 	  	 
	         Cash and
      cash equivalents 	$	 3,452,091 	 	$	 4,877,252 	 
	         Restricted cash (note 4)
    	 	485,000 	 	 	285,000 	 
	       
       Receivable from subsidiary 	 	271,475 	 	 	205,033 	 
	         Accounts receivable,
      trade 	 	114,424 	 	 	- 	 
	         Other
      current assets 	 	135,805 	 	 	85,466 	 
	                
     Total current assets 	 	4,458,795 	 	 	5,452,751 	 
	Deposit on property acquisition (note
      3) 	 	- 	 	 	11,310,686 	 
	Investment in equity securities 	 	150,169 	 	 	- 	 
	Investment in subsidiary (note 2)
	 	17,588,888 	 	 	16,745,481 	 
	Property, plant and equipment, net of accumulated
      depreciation (note 5) 		13,156,700 			3,808,786 	
	Intangible assets, net of accumulated
      amortization (note 6) 	 	16,184,146 	 	 	3,049,229 	 
	       
              Total assets 	$	 51,538,698 	 	$	 40,366,933 	 
	  	 	  	 	 	  	 
	LIABILITIES AND STOCKHOLDERS’ EQUITY 	 	  	 	 	  	 
	Current Liabilities: 	 	  	 	 	  	 
	         Accounts payable and
      accrued liabilities 	$	 449,559 	 	$	 485,783 	 
	         Related
      party accounts payable 	 	2,491 	 	 	9,218 	 
	         Current portion of
      capital lease obligation 	 	10,998 	 	 	- 	 
	Total current liabilities 	 	463,048 	 	 	495,001 	 
	Long-term Liabilities: 	 	  	 	 	  	 
	         Capital
      lease obligation, less current portion 	 	38,945 	 	 	- 	 
	         Stock compensation
      payable 	 	1,933,255 	 	 	1,975,672 	 
	Total liabilities 	 	2,435,248 	 	 	2,470,673 	 
	  	 	  	 	 	  	 
	Commitments and Contingencies 	 	- 	 	 	- 	 
	  	 	  	 	 	  	 
	MINORITY INTEREST (note 14) 	 	678,232 	 	 	- 	 
	STOCKHOLDERS’ EQUITY 	 	  	 	 	  	 
	Capital stock: 	 	  	 	 	  	 
	         Authorized: 	 	  	 	 	  	 
	           
       250,000,000 common shares with a $0.001 par value 	 	  	 	 	  	 
	         Issued and outstanding:
    	 	  	 	 	  	 
	         55,339,253
      shares at March 31, 2008 and 62,033,882 shares at March 31, 2009 		62,034 			55,339 	
	Additional paid-in capital 	 	64,694,849 	 	 	48,532,730 	 
	Accumulated other comprehensive income 	 	95,891 	 	 	- 	 
	Accumulated deficit 	 	(16,427,556	) 	 	(10,691,809	) 
	                
     Total stockholders’ equity 	 	48,425,218 	 	 	37,896,260 	 
	       
                     
     Total liabilities and stockholders’
      equity 	$	 51,538,698 	 	$	 40,366,933 	 

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

-1- 

	U.S. GEOTHERMAL INC.
      
CONSOLIDATED STATEMENTS OF OPERATIONS AND 
COMPREHENSIVE
      LOSS  
(Stated in U.S. Dollars) 
	  	 	  	 	 	  	 	 	  	 
	  	 	Years Ended March 31, 	 
	  	 	2009 	 	 	2008
    	 	 	2007
    	 
	Operating Revenues: 	 	  	 	 	  	 	 	  	 
	     San Emidio plant energy sales 	$	 1,416,852 	 	$	 - 	 	$	 - 	 
	     San Emidio plant energy
      credit sales 	 	32,437 	 	 	- 	 	 	- 	 
	     Land, water, and mineral rights lease
    	 	97,098 	 	 	121,742 	 	 	90,206 	 
	     Management fees 	 	250,000 	 	 	62,500 	 	 	- 	 
	Total operating revenues 	 	1,796,387 	 	 	184,242 	 	 	90,206 	 
	Operating Expenses: 	 	  	 	 	  	 	 	  	 
	     Loss from investment in subsidiary 	 	8,178 	 	 	228,234 	 	 	102,336 	 
	     Consulting fees 	 	121,599 	 	 	112,269 	 	 	67,913 	 
	     Corporate administration and
      development 	 	753,045 	 	 	580,035 	 	 	215,914 	 
	     Professional and
      management fees 	 	997,452 	 	 	845,908 	 	 	708,524 	 
	     Salaries and wages 	 	1,180,647 	 	 	617,323 	 	 	506,354 	 
	     Stock based
      compensation 	 	1,614,789 	 	 	1,903,635 	 	 	1,129,072 	 
	     Travel and promotion 	 	511,568 	 	 	440,196 	 	 	408,056 	 
	     San Emidio plant
      operations 	 	2,265,277 	 	 	- 	 	 	- 	 
	     Land lease and reservation fees 	 	216,491 	 	 	69,505 	 	 	- 	 
	Total operating expenses 	 	7,669,046 	 	 	4,797,105 	 	 	3,138,169 	 
	Loss from Operations 	 	(5,872,659	) 	 	(4,612,863	) 	 	(3,047,963	)

	  	 	  	 	 	  	 	 	  	 
	Other Income (Loss): 	 	  	 	 	  	 	 	  	 
	     Foreign exchange gain
      (loss) 	 	(41,507	) 	 	116,547 	 	 	411,341 	 
	     Other income (loss) 	 	880 	 	 	- 	 	 	- 	 
	     Interest income 	 	158,771 	 	 	947,130 	 	 	693,738 	 
	Total other income 	 	118,144 	 	 	1,063,677 	 	 	1,105,079 	 
	Net Loss Prior to the Allocation of
      Minority Interest 	 	(5,754,515	) 	 	(3,549,186	) 	 	(1,942,884	) 
	Minority interest in Gerlach Geothermal, LLC 	 	18,768 	 	 	- 	 	 	- 	 
	Net Loss 	 	(5,735,747	) 	 	(3,549,186	) 	 	(1,942,884	) 
	Other Comprehensive Income: 	 	  	 	 	  	 	 	  	 
	     Unrealized gain on
      investment in equity securities 	 	95,891 	 	 	- 	 	 	- 	 
	Comprehensive
      Loss 	$	 (5,639,856	) 	$	 (3,549,186	) 	$	 (1,942,884	)

	  	 	  	 	 	  	 	 	  	 
	Basic and Diluted Net Loss per Share 	$	 (0.09	) 	$	 (0.06	) 	$	 (0.04	) 
	  	 	  	 	 	  	 	 	  	 
	Weighted Average Number of Shares Outstanding for
      Basic and Diluted Calculations 	 	62,020,474 	 	 	52,407,704 	 	 	43,640,303 	 

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

-2- 

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

	 	 	 	 
	 	 	For the Years Ended March 31,	 
	 	 	
    2009	 	 	
    2008	 	 	
    2007	 
	 	 	 	 	 	 	 	 	 	 
	Operating Activities: 	 	  	 	 	  	 	 	  	 
	Net loss 	$	 (5,735,747	) 	$	 (3,549,186	) 	$	 (1,942,884	) 
	Add non-cash items: 	 	  	 	 	  	 	 	  	 
	       
       Depreciation and amortization 	 	865,057 	 	 	56,769 	 	 	16,511 	 
	         Loss of operations of
      subsidiary 	 	8,178 	 	 	228,234 	 	 	133,304 	 
	         Gain on
      disposal of equipment 	 	- 	 	 	(2,154	) 	 	- 	 
	         Minority interest 	 	(18,768	) 	 	- 	 	 	- 	 
	       
       Unrealized foreign exchange loss 	 	34,237 	 	 	- 	 	 	- 	 
	         Shares issued for other
      than cash 	 	- 	 	 	- 	 	 	65,384 	 
	         Stock
      based compensation 	 	1,614,789 	 	 	1,903,635 	 	 	1,129,072 	 
	Change in non-cash working capital items: 	 	  	 	 	  	 	 	  	 
	         Accounts
      receivable 	 	(180,866	) 	 	(50,756	) 	 	(154,277	) 
	         Accounts payable and
      accrued liabilities 	 	102,707 	 	 	210,790 	 	 	(160,166	) 
	         Prepaid
      expenses and other assets 	 	(50,339	) 	 	(57,760	) 	 	(16,277	) 
	                
     Total cash used by operating activities 	 	(3,360,752	) 	 	(1,260,428	) 	 	(929,333	) 
	  	 	  	 	 	  	 	 	  	 
	Investing Activities: 	 	  	 	 	  	 	 	  	 
	       Purchases of
      property, equipment and intangible assets 	 	(21,960,096	) 	 	(3,961,024	) 	 	(2,456,782	) 
	         Cash released from
      (restricted by) external restrictions 	 	(200,000	) 	 	5,078,400 	 	 	(5,363,400	) 
	         Cash
      released from escrow for property acquisition 	 	11,310,686 	 	 	(11,310,686	) 	 	- 	 
	         Investment in
      subsidiaries and equity securities 	 	(851,585	) 	 	(10,743,305	) 	 	(9,917,100	) 
	         Proceeds
      from equipment disposal 	 	- 	 	 	14,529 	 	 	- 	 
	         Investment in
      subsidiaries and equity securities 	 	(88,515	) 	 	- 	 	 	4,917,100 	 
	                
     Total cash used by investing activities 	 	(11,789,510	) 	 	(20,922,086	) 	 	(12,820,182	) 
	  	 	  	 	 	  	 	 	  	 
	Financing Activities: 	 	  	 	 	  	 	 	  	 
	       Principal payments on capital
      lease obligation 	 	(3,507	) 	 	- 	 	 	- 	 
	       Issuance of
      share capital, net of share issue cost 	 	13,728,608 	 	 	20,300,605 	 	 	20,325,177 	 
	                
     Total cash provided by financing activities 	 	13,725,101 	 	 	20,300,605 	 	 	20,325,177 	 
	  	 	  	 	 	  	 	 	  	 
	Increase (Decrease) in Cash and Cash Equivalents 	 	(1,425,161	) 	 	(1,881,909	) 	 	6,575,662 	 
	  	 	  	 	 	  	 	 	  	 
	Cash and Cash Equivalents, Beginning of Period 	 	4,877,252 	 	 	6,759,161 	 	 	196,499 	 
	  	 	  	 	 	  	 	 	  	 
	Cash and Cash
      Equivalents, End of Period 	$	 3,452,091 	 	$	 4,877,252 	 	$	 6,759,161 	 
	  	 	  	 	 	  	 	 	  	 
	  	 	  	 	 	  	 	 	  	 
	Supplemental Disclosure: 	 	  	 	 	  	 	 	  	 
	Non-cash investing and financing activities: 	 	  	 	 	  	 	 	  	 
	         Amendment
      to geothermal lease with common stock 	$	 783,000 	 	$	 - 	 	$	 - 	 
	         Transfer of property and
      equipment to subsidiary 	 	- 	 	 	- 	 	 	1,363,714 	 
	         Shares
      issued with employment agreements 	 	- 	 	 	- 	 	 	65,384 	 
	         Purchase of equipment
      with capital lease obligation 	 	53,450 	 	 	- 	 	 	- 	 
	       
       Contribution of geothermal rights by minority interest 	 	697,000 	 	 	- 	 	 	- 	 
	         Purchase of property and
      equipment on account 	 	145,658 	 	 	1,172,251 	 	 	(1,335,714	) 

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

-3- 

	U.S. GEOTHERMAL
      INC. 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
      EQUITY 
For the Year Ended March 31, 2007  
(Stated in
      U.S. Dollars) 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
     
	 	NUMBER 	 	 	  	 	 	ADDITIONAL 	 	 	CAPITAL 	 	 	STOCK 	 	 	 	 	 	 	 
	
     
	 	OF 	 	 	COMMON 	 	 	PAID-IN 	 	 	STOCK 	 	 	PURCHASE 	 	 	ACCUMULATED 	 	 	 	 
	
      
	 	SHARES 	 	 	SHARES 	 	 	CAPITAL 	 	 	ISSUABLE 	 	 	WARRANTS 	 	 	DEFICIT 	 	 	TOTAL 	 
	
    Balance at April 1, 2006 
	 	18,263,844 	 	$	 18,264 	 	$	 4,954,690 	 	$	 20,134,260 	 	$	 - 	 	$	 (5,199,743	) 	$	 19,907,471 	 
	
    Stock issued as result of employment agreements 
	 	49,168 	 	 	49 	 	 	65,331 	 	 	- 	 	 	- 	 	 	4 	 	 	65,384 	 
	
    Stock options granted 
	 	- 	 	 	- 	 	 	978,772 	 	 	- 	 	 	- 	 	 	- 	 	 	978,772 	 
	
    Shares issued for stock options and warrants exercised 
	 	497,500 	 	 	498 	 	 	487,595 	 	 	- 	 	 	(137,806	) 	 	- 	 	 	350,287 	 
	
    Capital stock issued as result of a private
      placement closed April 3, 2006, net of issuance costs 
	 	25,000,000 	 	 	25,000 	 	 	20,109,260 	 	 	(20,134,260	) 	 	- 	 	 	- 	 	 	- 	 
	
    Stock purchase warrants expired 
	 	- 	 	 	- 	 	 	1,186,232 	 	 	- 	 	 	(1,186,232	) 	 	- 	 	 	- 	 
	
    Stock compensation liability 
	 	- 	 	 	- 	 	 	(2,000,048	) 	 	- 	 	 	1,324,038 	 	 	- 	 	 	(676,010	) 
	
    Net loss for the period 
	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	(1,942,884	) 	 	(1,942,884	)

	
    Balance at March 31, 2007 
	 	43,810,512 	 	$	 43,811 	 	$	 25,781,832 	 	$	 - 	 	$	 - 	 	$	 (7,142,623	) 	$	 18,683,020 	 

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

-4- 

	U.S. GEOTHERMAL
      INC. 
CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY 
For the Years Ended March 31, 2008 and
      2009 
(Stated in U.S.
      Dollars) 
	
     
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
     
	 	NUMBER 	 	 	  	 	 	ADDITIONAL 	 	 	  	 	 	ACCUMULATED 	 	 	 	 
	
     
	 	OF 	 	 	COMMON 	 	 	PAID-IN 	 	 	ACCUMULATED 	 	 	COMPREHENSIVE 	 	 	 	 
	
      
	 	SHARES 	 	 	SHARES 	 	 	CAPITAL 	 	 	DEFICIT 	 	 	INCOME 	 	 	TOTAL 	 
	
    Balance at April 1, 2007 
	 	43,810,512 	 	$	 43,811 	 	$	 25,781,832 	 	$	 (7,142,623	) 	$	 - 	 	$	 18,683,020 	 
	
      
	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 
	
    Capital stock issued as result of a private
      placement closed June 5, 2007, net of issuance costs 
	 	9,090,900 	 	 	9,091 	 	 	17,757,681 	 	 	- 	 	 	- 	 	 	17,766,772 	 
	
    Shares issued for stock options and warrants exercised 
	 	2,437,841 	 	 	2,437 	 	 	4,255,203 	 	 	- 	 	 	- 	 	 	4,257,640 	 
	
    Stock compensation liability 
	 	- 	 	 	- 	 	 	738,014 	 	 	- 	 	 	- 	 	 	738,014 	 
	
    Net loss for the year 
	 	- 	 	 	- 	 	 	- 	 	 	(3,549,186	) 	 	- 	 	 	(3,549,186	) 
	
    Balance, March 31, 2008 
	 	55,339,253 	 	 	55,339 	 	 	48,532,730 	 	 	(10,691,809	) 	 	- 	 	 	37,896,260 	 
	
    Capital stock issued as result of a private placement
      closed April 28, 2008, net of issuance costs 
	 	6,382,500 	 	 	6,383 	 	 	13,711,784 	 	 	- 	 	 	- 	 	 	13,718,167 	 
	
    Capital stock issued for amendment to
      royalty agreement with the Kosmos Company 
	 	290,000 	 	 	290 	 	 	782,710 	 	 	- 	 	 	- 	 	 	783,000 	 
	
    Shares issued for stock options and warrants exercised 
	 	22,134 	 	 	22 	 	 	10,418 	 	 	- 	 	 	- 	 	 	10,440 	 
	
    Adjustment to entitlement shares from
      Consolidated Mango and US Cobalt stock consolidations 
	 	(5	) 	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	- 	 
	
    Stock compensation liability 
	 	- 	 	 	- 	 	 	1,657,207 	 	 	- 	 	 	- 	 	 	1,657,207 	 
	
    Unrealized gain on investment 
	 	- 	 	 	- 	 	 	- 	 	 	- 	 	 	95,891 	 	 	95,891 	 
	
    Net loss for the year 
	 	- 	 	 	- 	 	 	- 	 	 	(5,735,747	) 	 	- 	 	 	(5,735,747	) 
	
      
	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	  	 
	
    Balance at March 31, 2009 
	 	62,033,882 	 	$	 62,034 	 	$	 64,694,849 	 	$	 (16,427,556	) 	$	 95,891 	 	$	 48,425,218 	 

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

-5- 

U.S. GEOTHERMAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2009

(Stated in U.S. Dollars) 

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS 

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

The Company was created to acquire property, construct power plants, and manage the operations of those plants that utilize geothermal resources to produce energy. The Company’s operations have been, primarily, focused in the Western United
States of America. 

All references to “dollars” or “$” are to United States dollars and all references to $ CDN are to Canadian dollars. 

Basis of Presentation

The Company consolidates subsidiaries that it controls (more-than-50% owned) and entities over which control is achieved through means other than voting rights. These consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. The accounts of the following companies are consolidated in these financial statements: 

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

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

	
	 	 	 
	
 	
iii) 		
Gerlach Geothermal LLC (organized in the State of Delaware);

	
	 	 	 
	
 	
iv) 		
U.S. Geothermal Services, LLC (organized in the State of Delaware);

	
	 	 	 
	
 	
v) 		
USG Nevada LLC (organized in the State of Delaware);

	
	 	 	 
	
 	
vi) 		
USG Gerlach LLC (organized in the State of Delaware); and

	
	 	 	 
	
 	
vii) 		
U.S. Geothermal Guatemala, S.A.

	

All intercompany transactions are eliminated upon consolidation. 

Raft River Energy I LLC, previously a 100% owned subsidiary, was consolidated through July 2006, after which the entity is recorded under the equity method. See Consolidation of Variable Interest Entities in Note 2 for further discussion.

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

-6-

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

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

Accounting Method

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

Use of Estimates

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

Cash and Cash Equivalents

The Company considers all unrestricted cash, short-term deposits, and other investments with original maturities of no more than ninety days when acquired to be cash and cash equivalents for the purposes of the statement of cash flows. Discussion
regarding restricted cash is included in Note 4. All investments held by the Company are highly liquid and available on demand. 

Trade Accounts Receivable Allowance for Doubtful Accounts 

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

Concentration of Credit Risk

The Company’s cash and cash equivalents, including restricted cash, consisted of commercial bank deposits, money market accounts, and petty cash. Cash deposits are held in a commercial bank in Boise, Idaho.  The accounts are guaranteed by the
Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per legal entity (after December 31, 2009, deposits will be insured up to $100,000 per account). At March 31, 2009, the Company held deposits of $19,620 that were
not subject to FDIC insurance. The money market funds totaled $3,464,906, and are not subject to deposit insurance. 

-7-

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Marketable Securities

We determine the appropriate classification of marketable securities at the time of purchase and reevaluate this designation as of each balance sheet date. We classify these securities as either held-to-maturity, trading, or available-for-sale in
accordance with Statement of Financial Accounting Standards No. 115 (“SFAS No. 115”), “Accounting for Certain Investments in Debt and Equity Securities.” As of March 31, 2009, all marketable securities and restricted
investments were classified as available-for-sale securities. The Company classifies its investments as “available for sale” because it expects to possibly sell some securities prior to maturity. The Company's investments are subject to
market risk, primarily interest rate and credit risk. The fair value of investments is determined using observable or quoted market prices for those securities.

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

Consolidation of Variable Interest Entities

The Company has a significant interest in Raft River Energy I, LLC (“RREI”), which has been determined to be a variable interest entity as defined by FASB Interpretation No. 46(R) (“FIN 46(R)”). RREI’s purpose is to hold the
financial interests of the first phase of the Raft River project for the construction of a geothermal power plant. 

RREI resulted from an August 9, 2006 agreement between the Company and Raft River Holdings, LLC, a subsidiary of the Goldman Sachs Group, for construction financing of Phase I of the Raft River project. To accommodate the construction financing, the
Company sold 50% of its ownership in Raft River Energy to Raft River Holdings, LLC. As a result of the agreements, the Company was required to contribute cash and property sufficient to complete a 10 megawatt power plant, and Raft River Holdings was
required to contribute $34,170,100.

As of March 31, 2009, the Company has contributed $17,953,640 in cash and property to the project, while Raft River Holdings, LLC has contributed $34,170,100. As a result, Raft River Holdings, LLC has been designated the primary
beneficiary.

For periods prior to August 2006, the Company was the 100% owner of RREI and consolidated the loss. For the period August 2006 to September 2008, U.S. Geothermal Inc. recorded RREI under the equity method of accounting for investments in
subsidiaries based on the monthly capital contribution ratio, which averaged 34.46% for the year ended March 31, 2009. 

-8-

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Consolidation of Variable Interest Entities (Continued)

RREI’s latest audited financial information is summarized as
follows: 

	  	 	As of November 	 	 	As of November 	 
	  	 	28,
      2008 	 	 	30,
      2007 	 
	  	 	  	 	 	  	 
	Total current assets 	$	 1,994,238 	 	$	 234,382 	 
	Property and equipment 	 	50,016,779 	 	 	50,055,675 	 
	  	$	 52,011,017 	 	$	 50,290,057 	 
	  	 	  	 	 	  	 
	Total liabilities 	$	 1,434,413 	 	$	 4,252,786 	 
	Total members’ equity 	 	50,576,604 	 	 	46,037,271 	 
	  	$	 52,011,017 	 	$	 50,290,057 	 

	  	 	Fiscal Year 	 	 	Fiscal Year 	 
	  	 	Ended 	 	 	Ended 	 
	  	 	November 28, 	 	 	November 30, 	 
	  	 	2008
    	 	 	2007
    	 
	  	 	  	 	 	  	 
	Operating revenues 	$	 4,880,303 	 	$	 96,743 	 
	Operating loss 	 	(380,958	) 	 	(929,615	) 
	Net loss 	 	(448,593	) 	 	(834,234	) 
	  	 	  	 	 	  	 
	U.S. Geothermal Inc., portion of net loss
    	$	 (156,060	) 	$	 (161,092	)

RREI began commercial operations on January 3, 2008. Due to
start up issues, RREI experienced an operating loss for the fiscal year ended
November 28, 2008. RREI reported net income of $412,169 for the last six months
ended March 27, 2009. 

Property, Plant and Equipment 

Property, plant and equipment are recorded at historical cost.
Depreciation is calculated on a straight-line basis over the estimated useful
life of the asset. Where appropriate, terms of property rights and revenue
contracts can influence the determination of estimated useful lives.

The Company expenses all costs related to the development of
geothermal reserves prior to the establishment of proven and probable reserves.
Once a resource is considered to be proven, then costs of acquisition and
development are capitalized on an area-of-interest basis. If an area of interest
is subsequently abandoned, those costs are charged to income in the year of
abandonment.

Impairment of Long-Lived Assets 

The Company evaluates its long-term assets annually for
impairment or when circumstances or events occur that may impact the fair value
of the assets. The fair value of geothermal property is primarily evaluated
based upon the present value of expected revenues directly associated with those
assets. An impairment loss would be recognized if the carrying amount of a
capitalized asset is not recoverable and exceeds its fair value. Management
believes that there have not been any circumstances that have warranted the
recognition of losses due to the impairment of long-lived assets as of March 31,
2009. 

Stock Options Granted to Employees and
Non-employees 

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

-9- 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock Options Granted to Employees and
Non-employees (Continued)

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

The Company accounts for stock-based compensation in accordance with SFAS 123(R). Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the value of the award and is
recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment. In addition, judgment is also required in estimating the amount of share-based awards that are expected to be
forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted. 

Earnings Per Share

The Company has adopted Statement of Financial Accounting Standard No. 128 “Earnings per Share” (“SFAS 128”), which provides for calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no
dilution and is computed by dividing net income available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the
earnings of an entity similar to fully diluted earnings per share. Although there were common stock equivalents outstanding at March 31, 2009 and 2008, they were not included in the calculation of earnings per share because their inclusion would
have been considered anti-dilutive. 

Financial Instruments

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

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

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

Foreign Operations

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

-10-

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Provision for Taxes

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

At March 31, 2009, the Company had net deferred tax assets
calculated at an expected rate of 34% of approximately $3,774,000 (March 31,
2008 - $2,354,160) principally arising from net operating loss carry forwards
and stock compensation. As management of the Company cannot determine that it is
more likely than not that the Company will realize the benefit of the net
deferred tax asset, a valuation allowance equal to the net deferred tax asset
was recorded at March 31, 2009. 

The significant components of the deferred tax asset at March
31, 2009 and 2008 were as follows: 

	  	 	March 31, 	 	 	March 31, 	 
	  	 	2009
    	 	 	2008
    	 
	Estimated net operating loss carry forward
    	$	 11,100,000 	 	$	 6,924,000 	 
	  	 	  	 	 	  	 
	Deferred tax asset 	$	 3,774,000 	 	$	 2,354,160 	 
	Deferred tax asset valuation allowance 	 	(3,774,000	) 	 	(2,354,160	) 
	Net deferred tax asset 	$	 - 	 	$	 - 	 

At March 31, 2009, the Company has net operating loss carry
forwards of approximately $11,100,000 ($6,924,000 in March 31, 2008), which
expire in the years 2023 through 2027. The change in the allowance account from
March 31, 2008 to March 31, 2009 was $1,419,840. 

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

Accounting for Income Tax Uncertainties and Related
Matters 

We may be assessed penalties and interest related to the
underpayment of income taxes. Such assessments would be treated as a provision
of income tax expense on our financial statements. For the year ended March 31,
2009, no income tax expense has been realized as a result of our operations and
no income tax penalties and interest have been accrued related to uncertain tax
positions. The Company files income tax returns in the U.S. federal jurisdiction
and in the State of Idaho. The Company will be required to file state income tax
returns in the State of Oregon in future years. These filings are subject to a
three year statute of limitations. Our evaluation of income tax positions
included the fiscal years ended March 31, 2009, 2008, 2007 and 2006 which could
be subject to agency examinations as of March 31, 2009. No filings are currently
under examination. No adjustments have been made to reduce our estimated income
tax benefit at fiscal year end. Any valuations relating to these income tax
provisions will comply with the principles defined in Financial Accounting
Standards No. 157, Fair Value Measurements. 

-11-

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue

Revenue Recognition 

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

Revenue Source 

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

Reclassifications

Certain amounts reported in operating revenues in the fiscal year ended March 31, 2007, were reclassified from other revenues to conform with the current presentation. These reclassifications have resulted in no changes to the Company’s
accumulated deficit and net losses presented. 

Recent Accounting Pronouncements

Hierarchy of Generally Accepted Accounting Principles 

During May 2008, the FASB issued Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles No. 162 (“SFAS 162”).  SFAS 162 is intended to improve financial reporting by identifying a
consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities. The Company does
not expect the adoption of this standard to have a direct material impact on its consolidated financial position or consolidated results of operations. 

Guaranteed Insurance Contracts 

In May 2008, the FASB issued SFAS 163, Accounting for Financial Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60 (“SFAS 163”). SFAS 163 is generally effective for financial statements issued for fiscal
years beginning after December 15, 2008. The Company does not expect that SFAS 163 will have an impact on its financial position or results of operations.

Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock 

During June 2008, the FASB issued EITF Issue No. 07-5, “Determining Whether and Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock.” EITF 07-5 provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency
denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. The Company has not yet determined whether this update will have a
material impact on its financial statements.

NOTE 3 – ESCROW DEPOSIT ON ACQUISITION 

On April 1, 2008, the Company transferred $11,310,686 to the seller from an escrow account related to the acquisition of the geothermal assets located in North Western Nevada. 

-12-

NOTE 4 – RESTRICTED CASH

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

	  	 	March 31, 	 
	State Agency 	 	2009
    	 	 	2008
    	 
	  	 	  	 	 	  	 
	Idaho Department of Water Resources,
      Geothermal Well Bond 	$	 260,000 	 	$	 260,000 	 
	State of Nevada Division of Minerals, Statewide Drilling
      Bond 	 	50,000 	 	 	- 	 
	Bureau of Land Management, Geothermal Lease
      Bonds 	 	150,000 	 	 	- 	 
	Oregon Department of Geology and Mineral Industries,
      Mineral Land and Reclamation Program 	 	25,000 	 	 	25,000 	 
		$	 485,000 	 	$	 285,000 	 

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

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT 

Effective May 1, 2008, the Company acquired a production plant
and wells located in the San Emidio Desert area north of Reno, Nevada for
approximately $4.5 million from Empire Geothermal Power LLC and Michael B.
Stewart. The power plant is comprised of four binary cycle units, a wet cooling
tower and nine geothermal wells developed in a proven geothermal reservoir. The
Company began the expansion of the San Emidio well field with drilling
activities that totaled over $1.9 million. The San Emidio well project was still
under construction at March 31, 2009. 

Construction costs at our project located near Neal Hot
Springs, Oregon totaled approximately $2.2 million. 

Significant purchases of vehicle furniture and equipment
included 3 light trucks, a flow rate separator tank and a rough terrain forklift
that amounted to $72,676, $65,415 and $53,450; respectively. 

As described in note 14, the Company contributed $300,000 in
geothermal and mineral rights to a newly formed company, and the other partner
contributed $697,000 in geothermal leases and mineral rights. 

-13-

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT (Continued)

Property, plant and equipment categories are summarized as
follows:

	  	 	March 31, 	 
	  	 	2009
    	 	 	2008
    	 
	  	 	  	 	 	  	 
	Land 	$	 384,000 	 	$	 384,000 	 
	Power production plant and improvements 	 	1,329,527 	 	 	- 	 
	Wells 	 	3,617,312 	 	 	- 	 
	Vehicles, furniture and equipment 	 	704,887 	 	 	402,660 	 
	  	 	6,035,726 	 	 	786,660 	 
	             
       Less: accumulated depreciation 	 	(686,471	) 	 	(73,980	) 
	  	 	5,349,255 	 	 	712,680 	 
	Construction in progress 	 	7,807,445 	 	 	3,096,106 	 
	  	 	  	 	 	  	 
	  	$	 13,156,700 	 	$	 3,808,786 	 

The construction in progress consists of development activities
at Raft River Unit II, Idaho, Neal Hot Springs, Oregon and San Emidio, Nevada.

Depreciation expense was charged to operations for the years
ended March 31, 2009, 2008 and 2007 amounted to $865,057, $56,769 and $16,511;
respectively.

NOTE 6 – INTANGIBLE ASSETS

During the year ended March 31, 2009, the Company acquired
28,358 acres of geothermal energy leases and certain ground water rights from
Empire Geothermal Power LLC and Michael B. Stewart for approximately $12.1
million. These geothermal energy leases and ground water rights are all located
north of Reno, Nevada. Intangible assets are summarized as follows: 

	  	 	March 31, 	 
	  	 	2009
    	 	 	2008
    	 
	  	 	  	 	 	  	 
	Surface water rights 	$	 4,766,341 	 	$	 1,146,003 	 
	Geothermal water rights 	 	11,670,371 	 	 	1,903,226 	 
	  	 	16,436,712 	 	 	3,049,229 	 
	             
       Less: accumulated amortization 	 	(252,566	) 	 	- 	 
	  	$	 16,184,146 	 	$	 3,049,229 	 

Amortization expense was charged to operations for the years
ended March 31, 2009, 2008 and 2007 amounted to $252,566, $0 and $0;
respectively.

-14-

NOTE 7 - CAPITAL LEASE OBLIGATION

Effective November 10, 2008, the Company entered into a capital
lease obligation for the purchase of a forklift that is payable in monthly
payments of $1,193 including interest to Wells Fargo Equipment, Inc. The
contract includes a purchase option of $5,345 at the end of the lease term
scheduled for November 2012. The calculated interest rate was 7.37% per annum.
The schedule of minimum lease payments is as follows:

	Period Ended
      March 31, 	 	Principal 	 	 	Interest 	 	 	Totals 	 
	  	 	  	 	 	  	 	 	  	 
	2010 	$	 10,998 	 	$	 3,318 	 	$	 14,316 	 
	2011 	 	11,837 	 	 	2,479 	 	 	14,316 	 
	2012 	 	12,736 	 	 	1,580 	 	 	14,316 	 
	2013 	 	14,372 	 	 	517
    	 	 	14,889 	 
	  	$	 49,943 	 	$	 7,894 	 	$	 57,837 	 

NOTE 8 - CAPITAL STOCK

The Company is authorized to issue 250,000,000 shares of common
stock. All shares have equal voting rights, are non-assessable and have one vote
per share. Voting rights are not cumulative and, therefore, the holders of more
than 50% of the common stock could, if they choose to do so, elect all of the
directors of the Company. 

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

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

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

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

During the quarter ended March 31, 2008, the Company issued
56,667 common shares to officers, employees and consultants upon exercise of
stock options at strike prices ranging from $0.72 CDN to $0.90 CDN (average
$0.92) . 

During the quarter ended December 31, 2007, the Company issued
1,854,141 common shares upon the exercise of 222,550 stock options and 1,631,591
broker compensation options in both U.S. and Canadian dollars. Shares of 15,000
were issued at an exercise price of $2.41. Shares of 1,680,050 were issued
at
exercise prices that ranged between $0.61 to $1.02 ($0.60 to $1.00 CDN).  Shares issued from stock purchase warrants, amounted to 159,091 shares at an exercise price of $2.08. 

-15-

NOTE 8 - CAPITAL STOCK (Continued)

During the quarter ended December 31, 2007, the Company issued 235,833 common shares to officers, employees and consultants upon exercise of stock options at strike prices ranging from $0.60 CDN to $1.40 CDN (average $1.03) . 

NOTE 9 - STOCK BASED COMPENSATION

The Company has a stock option plan (the “Stock Option Plan”) for the purpose of attracting and motivating directors, officers, employees and consultants of the Corporation and advancing the interests of the Corporation. The Stock Option
Plan is a 10% rolling plan approved by shareholders in September 2006, whereby the Company can grant options to the extent of 10% of the current outstanding common shares. Under the plan, all forfeited and exercised options can be replaced with new
offerings. As of March 31, 2009, the Company can issue stock option grants totaling up to 6,203,388 shares. Options are granted for a term of up to five years from the date of grant. Stock options granted generally vest over a period of eighteen
months, with 25% vesting on the date of grant and 25% vesting every six months thereafter. Effective April 1, 2007, all grants will be stated in U.S. dollars. The Company recognizes compensation expense using the straight-line method of
amortization.  Historically, the Company has issued new shares to satisfy exercises of stock options and the Company expects to issue new shares to satisfy any future exercises of stock options. At March 31, 2009, the Company had 4,239,250 options
granted and outstanding. 

During the quarter ended March 31, 2009, Company stock options of 188,494 granted to employees and consultants exercisable at a price of $0.60 CDN expired without exercise. 

During the quarter ended September 30, 2008, the Company granted 95,000 stock options to employees exercisable at a price of $1.78 until August 9, 2013. 

During the quarter ended June 30, 2008, the Company granted 1,505,000 stock options to consultants and employees exercisable at a price of $2.22 until May 19, 2013. 

During the quarter ended September 30, 2007, the Company granted 775,000 stock options to consultants and employees exercisable at a price of $2.41 until January 22, 2012. 

-16-

NOTE 9 - STOCK BASED COMPENSATION (Continued)

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

	  	 	  	 	 	Weighted 	 	 	Weighted 	 	 	  	 
	  	 	  	 	 	Average 	 	 	Average 	 	 	Aggregate 	 
	  	 	Number of 	 	 	Exercise 	 	 	Fair 	 	 	Intrinsic 	 
	  	 	shares under 	 	 	Price Per 	 	 	Value 	 	 	Value 	 
	  	 	options 	 	 	Share
    	 	 	(US)
    	 	 	(US)
    	 
	  	 	  	 	 	  	 	 	  	 	 	  	 
	Balance outstanding, March 31, 2006 	 	1,065,628 	 	$	 0.69 CDN 	 	$	 0.37 	 	$	 399,146 	 
	     Forfeited 	 	(145,000	) 	 	0.86 CDN 	 	 	0.62 	 	 	(90,487	) 
	     Exercised 	 	(152,500	) 	 	0.63 CDN 	 	 	0.30 	 	 	(46,427	) 
	     Granted 	 	2,168,000 	 	 	1.05
      CDN 	 	 	0.99
    	 	 	2,140,719 	 
	Balance outstanding, March 31, 2007 	 	2,936,128 	 	$	 0.96 CDN 	 	$	 0.82 	 	$	 2,402,951 	 
	  	 	  	 	 	  	 	 	  	 	 	  	 
	     Forfeited 	 	(5,000	) 	 	1.00 CDN 	 	 	0.80 	 	 	(4,000	) 
	     Exercised 	 	(806,250	) 	 	0.83 CDN 	 	 	0.63 	 	 	(511,494	) 
	     Granted 	 	775,000 	 	 	2.41 	 	 	1.95 	 	 	1,513,964 	 
	Balance outstanding, March 31, 2008 	 	2,899,878 	 	 	1.35 CDN 	 	 	1.17 	 	 	3,401,421 	 
	     Forfeited 	 	(238,494	) 	 	0.98 	 	 	0.63 	 	 	(151,013	) 
	     Exercised 	 	(22,134	) 	 	0.60 CDN 	 	 	0.28 	 	 	(6,093	) 
	     Granted 	 	1,600,000 	 	 	2.19 	 	 	1.22 	 	 	1,952,000 	 
	Balance outstanding, March 31, 2009 	 	4,239,250 	 	$	 1.62 	 	$	 1.23 	 	$	 5,196,315 	 

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

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

	  	 	Year Ended March 31, 	 
	  	 	2009
    	 	 	2008
    	 	 	2007
    	 
	  	 	  	 	 	  	 	 	  	 
	Dividend yield 	 	0 	 	 	0 	 	 	0 	 
	Expected volatility 	 	71-82% 	 	 	77-140% 	 	 	82-149% 	 
	Risk free interest rate 	 	1.74-2.23% 	 	 	1.74-5.10% 	 	 	3.94-4.2% 	 
	Expected life (years) 	 	3.25 	 	 	3.18 	 	 	3.36 	 

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

-17-

NOTE 9 - STOCK BASED COMPENSATION (Continued)

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

	 
     	 	OPTIONS OUTSTANDING
     	 	 	
      
    	 	 	
       	 	 	   	 
	   	 	   	 	 	   	 	 	
    REMAINING  	 	 	
    NUMBER OF  	 	 	   	 
	EXERCISE	 	 	NUMBER OF
     	 	 	
    CONTRACTUAL  	 	 	
    OPTIONS  	 	 	INTRINSIC
     	 
	PRICE	 	 	OPTIONS  	 	 	LIFE (YEARS)
     	 	 	EXERCISABLE  	 	 	VALUE  	 
	   	 	   	 	 	   	 	 	
       	 	 	
       	 	 	   	 
	$ 0.72  	 	CDN  	 	 	12,500  	 	 	
    0.58  	 	 	
    12,500  	 	
    $	 5,325  	 
	0.90  	 	CDN  	 	 	237,500  	 	 	
    0.58  	 	 	
    237,500  	 	 	118,332  	 
	1.00  	 	CDN  	 	 	1,443,000  	 	 	
    2.00  	 	 	
    1,443,000  	 	 	1,465,385  	 
	1.15  	 	CDN  	 	 	78,750  	 	 	
    2.33  	 	 	
    78,750  	 	 	86,626  	 
	1.40  	 	CDN  	 	 	157,500  	 	 	
    2.83  	 	 	
    157,500  	 	 	139,271  	 
	1.78  	 	   	 	 	95,000  	 	 	
    4.48  	 	 	
    47,500  	 	 	40,586  	 
	2.22  	 	   	 	 	1,505,000  	 	 	
    4.12  	 	 	
    752,500  	 	 	917,596  	 
	2.41  	 	   	 	 	710,000  	 	 	
    3.33  	 	 	710,000  	 	 	501,598  	 
	   	 	   	 	 	   	 	 	
       	 	 	
       	 	 	   	 
	$ 1.62
     	 	
      
    	 	 	4,239,250  	 	 	
    2.98 
    	 	 	3,439,250  	 	$	 3,274,719  	 

The weighted average exercise price and remaining contractual
term of options currently exercisable as of March 31, 2009 are $1.48 and 2.72
years; respectively. 

The following table summarizes information about the stock
options outstanding at March 31, 2008: 

	 
     	 	OPTIONS OUTSTANDING
     	 	 	
      
    	 	 	
       	 	 	   	 
	   	 	   	 	 	   	 	 	
    REMAINING  	 	 	
    NUMBER OF  	 	 	   	 
	EXERCISE
     	 	 	NUMBER OF
     	 	 	
    CONTRACTUAL  	 	 	
    OPTIONS  	 	 	INTRINSIC
     	 
	PRICE  	 	 	OPTIONS  	 	 	LIFE (YEARS)
     	 	 	EXERCISABLE  	 	 	VALUE  	 
	   	 	   	 	 	   	 	 	
       	 	 	
       	 	 	   	 
	$ 0.60  	 	CDN  	 	 	210,628  	 	 	
    0.83  	 	 	
    210,628  	 	
    $	 59,807  	 
	0.72  	 	CDN  	 	 	67,500  	 	 	
    1.58  	 	 	
    67,500  	 	 	28,756  	 
	0.85  	 	CDN  	 	 	20,000  	 	 	
    3.00  	 	 	
    20,000  	 	 	10,716  	 
	0.90  	 	CDN  	 	 	182,500  	 	 	
    1.58  	 	 	
    182,500  	 	 	90,929  	 
	1.00  	 	CDN  	 	 	1,423,000  	 	 	
    3.00  	 	 	
    1,423,000  	 	 	1,445,075  	 
	1.15  	 	CDN  	 	 	78,750  	 	 	
    3.33  	 	 	
    78,750  	 	 	86,626  	 
	1.40  	 	CDN  	 	 	157,500  	 	 	
    3.83  	 	 	
    118,125  	 	 	139,271  	 
	2.41  	 	   	 	 	760,000  	 	 	
    4.33  	 	 	380,000  	 	 	536,922  	 
	   	 	   	 	 	   	 	 	
       	 	 	
       	 	 	   	 
	$ 1.35
     	 	
    CDN 
    	 	 	2,899,878  	 	 	
    3.12 
    	 	 	2,480,503  	 	$	 2,398,102  	 

-18-

NOTE 9 - STOCK BASED COMPENSATION (Continued)

The weighted average exercise price and remaining contractual
term of options currently exercisable as of March 31, 2008 are $1.19CDN and 2.93
years; respectively. 

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

	  	 	  	 	 	Weighted 	 	 	Weighted 	 
	  	 	  	 	 	Average Grant 	 	 	Average 	 
	  	 	Number of 	 	 	Date Fair Value 	 	 	Grant Date 	 
	  	 	Options 	 	 	Per Share 	 	 	Fair
      Value 	 
	  	 	  	 	 	  	 	  	 	 	  	 
	Nonvested, March 31, 2006 	 	142,500 	 	$	 0.69 	 	CDN 	 	$	 0.37 	 
	     Granted 	 	2,168,000 	 	 	1.05 	 	CDN 	 	 	0.54 	 
	     Vested 	 	(1,094,000	) 	 	0.63 	 	CDN 	 	 	0.29 	 
	     Forfeited 	 	(145,000	) 	 	0.86
    	 	CDN
    	 	 	0.62
    	 
	Nonvested, March 31, 2007 	 	1,071,500 	 	 	0.96 	 	CDN 	 	 	0.82 	 
	  	 	  	 	 	  	 	  	 	 	  	 
	     Granted 	 	775,000 	 	 	2.41 	 	  	 	 	1.54 	 
	     Vested 	 	(1,422,125	) 	 	2.15 	 	  	 	 	1.37 	 
	     Forfeited 	 	(5,000	) 	 	1.00 	 	CDN 	 	 	0.80 	 
	Nonvested, March 31, 2008 	 	419,375 	 	 	1.12 	 	CDN 	 	 	1.43 	 
	     Granted 	 	1,600,000 	 	 	2.19 	 	  	 	 	1.22 	 
	     Vested 	 	(980,881	) 	 	2.25 	 	  	 	 	1.26 	 
	     Forfeited 	 	(238,494	) 	 	0.98 	 	  	 	 	0.63 	 
	Nonvested, March 31, 2009 	 	800,000 	 	$	 2.19 	 	 
    	 	$	 1.20 	 

As of March 31, 2009, there was $546,134 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements
granted under the Plan. That cost is expected to be recognized over a
weighted-average period of 1.5 years. The total fair value of shares vested at
March 31, 2009 and 2008 was $1,614,789 and $1,903,635; respectively. 

Stock Purchase Warrants

At March 31, 2009, broker warrants at an exercise price of
$2.34 totalled 191,475 and share purchase warrants at an exercise price of $3.00
remained outstanding. These warrants expire April 28, 2010. 

During the quarter ended December 31, 2008, 295,454 broker
warrants at an exercise price of $2.08 expired without exercise. 

During the quarter ended June 30, 2008, the Company issued
191,475 broker warrants at an exercise price of $2.34 and 3,191,250 share
purchase warrants at an exercise price of $3.00 as part of the private placement
of 6,382,500 common shares completed April 28, 2008. 

At June 30, 2007, 454,545 share purchase warrants at an
exercise price of $2.08 were issued to compensate brokers resulting from the
private placement of 9,090,900 common shares issued June 5, 2007. During the
quarter ended December 31, 2007, stock purchase warrants representing 159,091
common shares at an exercise price of $2.08 were exercised. 

NOTE 10 – FAIR VALUE MEASUREMENT

On April 1, 2008, the Company adopted the provisions of SFAS
No. 157 related to its financial assets and liabilities measured at fair value
on a recurring basis. SFAS No. 157 establishes a fair value hierarchy that
prioritizes the inputs used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurement) and the lowest priority to unobservable
inputs (Level 3 measurement).

-19-

NOTE 10 – FAIR VALUE MEASUREMENT (Continued)

The three levels of the fair value hierarchy defined by SFAS
No. 157 are as follows:

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

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

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

As required by SFAS No. 157, financial assets and liabilities
are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. The Company’s assessment of the
significance of a particular input to the fair value measurement requires
judgment, and may affect the valuation of fair value assets and liabilities and
their placement within the fair value hierarchy levels.

The following table discloses by level within the fair value
hierarchy the Company’s assets and liabilities measured and reported on the
Consolidated Balance Sheet as of March 31, 2009 at fair value on a recurring
basis: 

	  	 	Total
    	 	 	Level
      1 	 	 	Level
      2 	 	 	Level
      3 	 
	Assets: 	 	  	 	 	  	 	 	  	 	 	  	 
	Money market accounts 	$	 3,464,906 	 	$	 3,464,906 	 	$	 - 	 	$	 - 	 
	Investment in equity securities 	 	150,169 	 	 	- 	 	 	- 	 	 	150,169 	 
	  	$	 3,615,075 	 	$	 3,464,906 	 	$	 - 	 	$	 150,169 	 

On December 14, 2007 the FASB issued a proposed FASB staff
position ("FSP") that would amend SFAS 157 to delay its effective date for all
non-financial assets and non-financial liabilities, except for those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, that is, at least annually. For items within the scope of the proposed
FSP the effective date of SFAS 157 would be delayed to fiscal years beginning
after November 15, 2008 (fiscal 2010 for the Company) and interim periods within
those fiscal years. During February 2008, the FASB confirmed and made effective
the FSP. The Company has chosen not to implement SFAS 157 for non-financial
assets and non-financial liabilities at this time. 

-20-

NOTE 10 – FAIR VALUE MEASUREMENT (Continued)

Changes in level 3 assets measured at fair value on a recurring
basis for the year ended March 31, 2009:

	  	 	Amounts 	 
	Investment in equity securities: 	 	  	 
	Balance at March 31, 2008 	$	 - 	 
	     Purchases 	 	88,515 	 
	     Realized gains/losses
    	 	- 	 
	     Foreign exchange loss 	 	(34,237	) 
	     Unrealized gain
      included in other comprehensive income 	 	95,891 	 
	Balance at March 31, 2009 	$	 150,169 	 

The equity securities purchased in June 2008 are not actively
traded on a stock exchange. The change in value was calculated based on a
subsequent private placement of the securities in January 2009 which reflected
an increased market price for the securities. 

NOTE 11 - RELATED PARTY TRANSACTIONS 

At March 31, 2009 and 2008, the amounts of $2,491 and $9,218;
respectively, are payable to directors and officers of the Company. These
amounts are unsecured and due on demand. 

The Company’s subsidiary Raft River Energy I, LLC owed the
Company $271,475 and $205,033 at March 31, 2009 and 2008; respectively, for
operating and maintenance expenses. The receivable balance is comprised of
unsecured demand obligations due within twelve months. During the year ended
March 31, 2009 and 2008, the Company received the following fees from RREI: 

	  	 	Years Ended March 31, 	 
	  	 	2009 	 	 	2008
    	 	 	2007
    	 
	Management fees 	$	 250,000 	 	$	 62,500 	 	$	 - 	 
	Lease and royalties 	 	97,098 	 	 	121,742 	 	 	90,206 	 
	  	$	 347,098 	 	$	 184,242 	 	$	 90,206 	 

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

	  	 	Years Ended March 31, 	 
	  	 	2009 	 	 	2008
    	 	 	2007
    	 
	Administrative services 	$	 - 	 	$	 22,321 	 	$	 20,563 	 
	Director fees 	 	60,000 	 	 	41,250 	 	 	23,250 	 
	Consulting fees 	 	- 	 	 	16,000 	 	 	24,000 	 
	  	$	 60,000 	 	$	 79,571 	 	$	 67,813 	 

NOTE 12 - DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP

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

-21-

NOTE 12 - DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP
(Continued)

As a result of the above, under Canadian GAAP the following
line items in the consolidated balance sheets and income statements would have
been presented as follows: 

	
    Consolidated Balance Sheets 
	 	U.S. GAAP 
    

    March 31, 2009
    	 	 	Canadian GAAP

    March 31,
      2009 	 	 	U.S. GAAP 
    

    March 31, 2008
    	 	 	Canadian GAAP

    March 31,
      2008 	 
	
    Plant, Property and Equipment 
	$	 29,340,846 	 	$	 29,781,457 	 	$	 6,858,015 	 	$	 7,298,626 	 
	
    Total Assets 
	 	51,631,870 	 	 	52,072,481 	 	 	40,366,933 	 	 	40,807,544 	 
	
    Stockholders’ Equity 
	 	48,425,218 	 	 	48,865,829 	 	 	37,896,260 	 	 	38,515,831 	 
	
    Total Liabilities and Stockholders’ Equity 
	$	 51,631,870 	 	$	 52,072,481 	 	$	 40,366,933 	 	$	 40,807,544 	 
	
      
	 	  	 	 	  	 	 	  	 	 	  	 
	
    Consolidated Statements of Operations and
      Comprehensive Loss 
	 	U.S. GAAP 
    

    Year Ended 

    March
      31, 2009 	 	 	Canadian GAAP
    

    Year Ended
      

    March 31, 2009 	 	 	U.S. GAAP 
    

    Year ended 

    March
      31, 2008 	 	 	Canadian GAAP
    

    Year ended
      

    March 31, 2008 	 
	
    Loss from Operations 
	$	 (5,872,659	) 	$	 (5,872,659	) 	$	 (4,612,863	) 	$	 (4,612,863	) 
	
    Net Loss 
	$	 (5,735,747	) 	$	 (5,735,747	) 	$	 (3,549,186	) 	$	 (3,549,186	) 

NOTE 13 - COMMITMENTS AND CONTINGENCIES 

Operating Lease Agreements 

The Company has entered into several lease agreements with
terms expiring up to December 1, 2034 for geothermal properties adjoining the
Raft River Geothermal Property and for Neal Hot Springs. The Company incurred
total lease expenses for year ended March 31, 2009, 2008, and 2007 totaled
$108,185, $100,128 and $28,698; respectively. 

BLM Lease Agreements

Idaho 

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

San Emidio

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

Gerlach 

The Gerlach Geothermal LLC assets are comprised of two BLM
geothermal leases and one private lease totaling 3,615 acres. Both BLM leases
have a royalty rate 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. 

-22-

NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)

Granite Creek 

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

Office Lease 

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

The following is the total contracted lease obligations for the
next five fiscal years: 

  
	Years Ending 	  
	March 31, 	
    Amount 

	  	  
	2010 	$ 143,377 
	2011 	134,258 
	2012 	74,713 
	2013 	49,103 
	2014 	46,599 
	Thereafter 	98,791 

  

Power Purchase Agreements 

The Company has signed a power purchase agreement with Idaho
Power Company for sale of power generated from its subsidiary Raft River Energy
I, LLC. The Company has also signed a transmission agreement with Bonneville
Power Administration for transmission of the electricity from this plant to
Idaho Power, and from the phase two plants to other purchasers. These agreements
will govern the operational revenues for the initial phases of the Company’s
operating activities. 

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

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

Construction Contract 

On December 5, 2005, the Company signed a contract (the “Ormat
EPC Agreement”) with Ormat Nevada, Inc. (“Ormat”) for Ormat to construct a 13
megawatt geothermal power plant at Raft River, Idaho. As part of the Agreement,
Ormat has guaranteed certain performance specifications and plant components. As
of March 31, 2009, the Company retains $75,000 for release to
Ormat upon Ormat’s completion of certain punch list items, namely, the repairs
to the grounding grid and the reduction of the oversplash of water in the
cooling tower. As a result of negotiations, Ormat issued a credit of $200,000
against an outstanding invoice. The Company paid the net amount due less the
$200,000 and $75,000 retainage to secure release of a lien on the project filed
by Ormat. 

-23-

NOTE 14 – JOINT VENTURES

Raft River Energy I LLC

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

Gerlach Geothermal LLC 

On April 28, 2008, the Company formed Gerlach
Geothermal, LLC (“Gerlach”) with our partner, Gerlach Green Energy, LLC
(“GGE”). The purpose of the joint venture is the exploration of the Gerlach
geothermal system, which is located in northwestern Nevada, near the town of
Gerlach. Based upon the terms of the members’ agreement, the company owns a 60%
interest and GGE owns a 40% interest in Gerlach Geothermal, LLC. The agreement
gives GGE an option to maintain its 40% ownership interest as additional capital
contributions are required. If GGE dilutes to below a 10% interest, their
ownership position in the joint venture would be converted to a 10% net profits
interest. During the quarter end March 31, 2009, the Company contributed
$746,000 in cash and $300,000 for a geothermal lease and mineral rights; and the
GGE contributed $697,000 of geothermal lease, mineral rights and exploration
data.

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

NOTE 15 – PRO FORMA FINANCIAL INFORMATION 

With the acquisition of the assets at San Emidio effective May
1, 2008, we are required to report selected information for our consolidated
statements of operations on a pro forma basis as if the San Emidio acquisition
had been completed at the beginning of the periods being reported on. Selected
line item information is as follows: 

	  	 	For the Three Months Ended, 	 	 	For the Year Ended, 	 
	  	 	March 31, 	 	 	March 31, 	 
	  	 	2009
    	 	 	2008
    	 	 	2009
    	 	 	2008
    	 
	Energy Sales 	$	 425,056 	 	$	 380,790 	 	$	 1,700,222 	 	$	 1,523,158 	 
	Plant Operations 	$	 679,583 	 	$	 581,386 	 	$	 2,718,332 	 	$	 2,325,544 	 
	Net Loss 	$	 (244,674	) 	$	 (166,117	) 	$	 (978,696	) 	$	 (664,469	) 
	Loss per share 	$	 (0.00	) 	$	 (0.00	) 	$	 (0.02	) 	$	 (0.01	) 
	Weighted average shares 	 	62,033,884 	 	 	53,469,527 	 	 	62,020,474 	 	 	52,407,704 	 

-24-

NOTE 16 – SUBSEQUENT EVENTS

Department of Energy Loan Guarantee 

On February 26, 2009, the Company submitted an application for the Neal Hot Springs project to the Department of Energy (“DOE”) Energy Efficiency, Renewable Energy and Advanced Transmission and Distribution Solicitation loan guarantee
program under Title XVII of the Energy Policy Act of 2005. The Company was notified that its project application is complete, the power plant technology choice qualifies as new or improved under the program, and the project has been selected to
proceed in the project loan process. The Company announced on May 26, 2009, that it has been selected by the DOE to enter into due diligence review on an $85 million project loan for the Neal Hot Springs project located in eastern Oregon. If
awarded, the loan is expected to provide 80% of the $106 million estimated total capital cost. The new plant, designed to deliver 22 megawatts of power net to the grid, is scheduled to begin commercial operations in late 2011.

Employee Stock Options 

On May 26, 2009, the Company announced the regular annual grant of employee stock options pursuant to its Stock Option Plan to directors, employees and consultants to acquire 1,795,000 shares exercisable at a price of $0.92 per share for a term
of 5 years expiring May 26, 2014.

Production Pump at Raft River Energy I, LLC

On June 1, 2009, the production pipe column on a well at Raft River Energy I, LLC failed. This is the pipe that carries the geothermal fluid to the surface and supports the pump weight. The repair process has started and the pipe column and pump
have been removed from the well. While the final repair costs have not been determined, initial estimates indicate that repair costs could exceed $600,000. Plant energy production has been reduced due to the failure. If the repair process goes
according to plan, the repairs will be completed by June 19, 2009. 

-25-US Geothermal Inc.: Exhibit 10.41 - Prepared by TNT Filings Inc.

  

Exhibit 10.41

Certified Public Accountants & Business Consultants

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and 

Stockholders of U.S. Geothermal Inc. 

We have audited the accompanying consolidated balance sheets
of U.S. Geothermal Inc. as of March 31, 2009 and 2008, and the related
statements of operations and comprehensive loss, changes in stockholders' equity
and cash flows for the years ended March 31, 2009, 2008 and 2007. We also have
audited U.S. Geothermal Inc.'s internal control over financial reporting as of
March 31, 2009, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). U.S. Geothermal Inc.'s management is responsible
for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management's
Annual Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on these financial statements and an opinion on the
company's internal control over financial reporting based on our audits. 

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions. 

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

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of U.S.
Geothermal Inc. as of March 31, 2009 and 2008 and the results of its operations
and its cash flows for the years ended March 31, 2009, 2008 and 2007, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, U.S. Geothermal Inc. maintained, in all material
respects, effective internal control over financial reporting as of March 31,
2009, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). 

/s/ Williams & Webster, P.S.      

Williams & Webster, P.S. 

Certified Public Accountants 

Spokane, Washington June 10, 2009

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