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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2011

or

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

For the transition period from ____________ to ___________

Commission File Number: 001-34023

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)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [   ]

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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [   ]

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. (Check one):

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Shares Outstanding as of February 9, 2012
Common stock, par value	84,989,853
$ 0.001 per share

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U.S. Geothermal Inc.
Form 10-Q
For the Third Quarter Ended December 31, 2011

INDEX

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Part I- Financial Information

Item 1 - Financial Statements

The financial statements included herein have been prepared by U.S. Geothermal Inc. (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles may have been condensed or omitted. However, in the opinion of management, all adjustments (which include only normal recurring accruals) necessary to present fairly the financial position and results of operations for the periods presented have been made. These financial statements should be read in conjunction with the accompanying notes, and with the audited financial statements and notes to the financial statements included in the Company’s annual report on Form 10-K for the year ended March 31, 2011. The results of operations for the nine months ended December 31, 2011 are not necessarily indicative of the results to be expected for the fiscal year ending March 31, 2012.

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U.S. GEOTHERMAL INC.

________

Consolidated Financial Statements
December 31, 2011

 

 

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

		(Unaudited)
		December 31, 2011			March 31, 2011
ASSETS
Current:
Cash and cash equivalents	$	6,269,459		$	8,098,905
Restricted cash (note 3)		2,920,000			645,000
Receivable from subsidiary		542,311			282,257
Trade accounts receivable		395,987			532,605
Other current assets		119,819			164,239
Total current assets		10,247,576			9,723,006
Deposit on mineral rights purchase		200,000			200,000
Note receivable from subsidiary (note 4)		1,878,010			-
Investment in equity securities (note 5)		60,946			178,486
Investment in subsidiary (note 6)		17,933,454			17,968,651
Property, plant and equipment, net of           accumulated depreciation (note 7)		109,209,382			40,295,117
Intangible assets, net of accumulated amortization (note 8)		16,776,064			16,957,708
Total assets	$	156,305,432		$	85,322,968
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	10,881,134		$	940,563
Related party accounts payable		3,529			2,338
Current portion of capital lease obligation		13,389			12,736
Note payable, bridge loan (note 9)		7,500,000			-
Promissory note payable, current		-			230,000
Total current liabilities		18,398,052			1,185,637
Long-term Liabilities:
Capital lease obligation, less current portion		4,072			14,372
Stock compensation payable		190,319			1,527,829
Convertible loan payable (note 13)		2,125,000			5,132,740
Retention payable (note 18)		4,282,416			-
Construction loans payable (note 12)		48,710,789			11,651,861
Total liabilities		73,710,648			19,512,439
Commitments and Contingencies (note 18)		-			-
STOCKHOLDERS’ EQUITY
Capital stock (authorized: 250,000,000 common shares with a $0.001           par value; issued and outstanding shares at December 31, 2011 and           March 31, 2011 were: 84,989,853 and 84,761,956; respectively)		84,990			84,762
Additional paid-in capital		92,921,978			90,283,987
Accumulated other comprehensive income (loss)		(8,549	)		108,990
Accumulated deficit		(29,886,584	)		(25,308,177	)
		63,111,835			65,169,562
Non-controlling interest (note 19)		19,482,949			640,967
Total stockholders’ equity		82,594,784			65,810,529
Total liabilities and stockholders’ equity	$	156,305,432		$	85,322,968

The accompanying notes are an integral part of these consolidated interim financial statements.
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U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in U.S. Dollars)

		(Unaudited)						(Unaudited)
		Three Months Ended						Nine Months Ended
		December 31,						December 31,
		2011			2010			2011			2010
Operating Revenues:
Energy sales, San Emidio	$	361,876		$	629,867		$	1,615,189		$	1,837,769
Energy credit sales, San Emidio		22,099			37,243			90,922			61,128
Land, water, and mineral rights lease		45,012			45,012			135,036			135,036
Management fees		268,601			62,500			393,602			187,500
Gain from investment in subsidiary		62,258			77,893			156,365			222,018
Total operating revenues		759,846			852,515			2,391,114			2,443,451
Operating Expenses:
Consulting fees		-			8,000			2,845			19,678
Corporate administration		256,579			114,834			720,615			541,204
Professional and management fees		247,818			196,336			1,774,136			935,442
Salaries and wages		182,924			187,005			1,031,712			907,305
Stock based compensation		298,201			299,815			1,150,244			874,297
Travel and promotion		60,073			92,991			170,087			313,653
Plant operations, San Emidio		822,634			771,265			2,115,712			2,080,083
Other operating expenses		460,399			25,853			534,047			111,247
Total operating expenses		2,328,628			1,696,099			7,499,398			5,782,909
Loss from Operations		(1,568,782	)		(843,584	)		(5,108,284	)		(3,339,458	)
Other Income (Loss):
Foreign exchange gain (loss)		-			123			2			(4,922	)
Other income		3,326			9,450			3,326			29,844
Interest income		58,670			7,077			67,583			37,566
Total other income		61,996			16,650			70,911			62,488
Net Loss Before Accumulated Change		(1,506,786	)		(826,934	)		(5,037,373	)		(3,276,970	)
Accumulated effect on prior period         application of capitalization policy		-			-			262,305			-
Net Loss		(1,506,786	)		(826,934	)		(4,775,068	)		(3,276,970	)
Net loss attributable to the non-               controlling interest		191,447			1,740			196,661			10,254
Net Loss Attributable to U.S. Geothermal Inc.		(1,315,339	)		(825,194	)		(4,578,407	)		(3,266,716	)
Other Comprehensive Income:
Unrealized loss on investment in                equity securities		(13,964	)		50,251			(117,539	)		14,312
Comprehensive Loss Attributable to         U.S. Geothermal Inc.	$	(1,329,303	)	$	(774,943	)	$	(4,695,946	)	$	(3,252,404	)
Basic And Diluted Net Loss Per Share	$	(0.02	)	$	(0.01	)	$	(0.05	)	$	(0.04	)
Weighted Average Number of Shares         Outstanding for Basic and Diluted		84,929,561			78,668,428			84,867,822			78,654,685

The accompanying notes are an integral part of these consolidated interim financial statements.
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U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)

		(Unaudited)
		For the Nine Months Ended December 31,
		2011			2010
Operating Activities:
Net loss	$	(4,775,068	)	$	(3,276,970	)
Add non-cash items:
Depreciation and amortization		749,955			960,274
Gain on operations of subsidiary		(156,365	)		(222,018	)
Foreign exchange loss		-			4,787
Loss on equity investment		-			4,964
Loss on test well construction		260,641			-
Stock based compensation		1,150,244			874,297
Change in non-cash working capital items:
Accounts receivable		(366,192	)		11,420
Accounts payable and accrued liabilities		1,409,972			(56,969	)
Prepaid expenses & other		44,520			(21,807	)
Total cash used by operating activities		(1,682,293	)		(1,722,022	)
Investing Activities:
Purchases of property, plant and equipment		(20,696,634	)		(10,609,713	)
Deposit on mineral rights purchase		-			(200,000	)
Issuance of note receivable from subsidiary		(1,878,010	)		-
Distributions received from subsidiary		191,562			339,074
Cash restricted by regulating entities		(2,275,000	)		(60,000	)
Total cash used by investing activities		(24,658,082	)		(10,530,639	)
Financing Activities:
Issuance of common stock, net of issuance costs		150,466			75,439
Proceeds from notes payable		9,625,000			5,000,000
Principal payment on promissory note		(230,000	)		-
Proceeds from non-controlling interest in subsidiary		14,975,110			1,000
Principal payments on capital lease		(9,647	)		(8,788	)
Total cash provided by financing activities		24,510,929			5,067,651
Decrease in Cash and Cash Equivalents		(1,829,446	)		(7,185,010	)
Cash and Cash Equivalents, Beginning of Period		8,098,905			12,970,612
Cash and Cash Equivalents, End of Period	$	6,269,459		$	5,785,602
Supplemental Disclosures:
Non-cash investing and financing activities:
Purchase of property and equipment on account	$	8,533,266		$	181,814
Construction and development costs from construction loans		41,341,344			8,8154,618
Debt converted to non-controlling interest		5,109,315			-
Capitalized accrued interest		1,297,996			171,119
Other Items:
Interest paid		3,799			7,555

The accompanying notes are an integral part of these consolidated interim financial statements.
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U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Nine Months Ended December 31, 2011 and the Year Ended March 31, 2011
(Stated in U.S. Dollars)

								Additional						Accumulated			Non-
		Number of			Common			Paid-In			Accumulated			Comprehensive			controlling
		Shares			Shares			Capital			Deficit			Income			Interest			Totals
Balance at March 31, 2010		78,647,776		$	78,648		$	83,667,011		$	(21,353,761	)	$	136,693		$	657,887		$	63,186,478
Capital stock issued as result of a direct placement closed March 4, 2011, net of issuance costs		5,112,000			5,112			4,926,877			-			-			-			4,931,989
Stock issued from the exercise of stock options		297,180			297			328,318			-			-			-			328,615
Stock issued for the stock compensation plan (restricted shares)		235,000			235			232,415			-			-			-			232,650
Stock issued, restricted until vesting period complete (note 14)		470,000			470			28,252			-			-			-			28,722
Initial formation contribution by non-controlling interest in Oregon USG Holdings, LLC		-			-			-			-			-			1,000			1,000
Stock compensation liability		-			-			1,101,114			-			-			-			1,101,114
Unrealized loss on investment		-			-			-			-			(27,703	)		-			(27,703	)
Net loss		-			-			-			(3,954,416	)		-			(17,920	)		(3,972,336	)
Balance at March 31, 2011		84,761,956			84,762			90,283,987			(25,308,177	)		108,990			640,967			65,810,529
Contribution of equity and note conversion by non-controlling interest (note 19)		-			-			-			-			-			18,109,315			18,109,315
Equity contribution by non-controlling interest (note 19)		-			-			-			-			-			929,328			929,328
Stock issued from the exercise of stock options		76,500			76			83,215												83,291
Stock issued under At Market Issuance Sales Agreement (note 14)		151,397			152			72,036			-			-			-			72,188
Broker fees from capital stock issued on March 4, 2011		-			-			(5,015	)		-			-			-			(5,015	)
Stock compensation liability		-			-			2,318,033			-			-			-			2,318,033
Stock issued for the stock compensation plan (restricted shares)		-			-			169,722			-			-			-			169,722
Unrealized loss on investment - unaudited		-			-			-						(117,539	)		-			(117,539	)
Net loss - unaudited		-			-			-			(4,578,407	)		-			(196,661	)		(4,775,068	)
Balance at December 31, 2011 - unaudited		84,989,853		$	84,990		$	92,921,978		$	(29,886,584	)	$	(8,549	)	$	19,482,949		$	82,594,784

The accompanying notes are an integral part of these consolidated interim financial statements.
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U.S. GEOTHERMAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited
December 31, 2011
(Stated in U.S. Dollars)

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

When U.S. Cobalt Inc. (“GTH” or the “Company”) completed a reverse take-over on December 19, 2003, the former stockholders of U.S. Geothermal Inc. (“GEO – Idaho”) a company incorporated on February 26, 2002 in the State of Idaho, U.S.A. acquired control of GTH. In connection with the transaction, U.S. Cobalt Inc. changed its name to U.S. Geothermal Inc. and consolidated its common stock on a one new to five old basis. All references to common shares in these financial statements have been restated to reflect the rollback of common stock. The Company constructs and manages power plants that utilize geothermal resources to produce energy. The Company’s operations have been, primarily, focused in the Western United States of America.

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

Basis of Presentation

These unaudited interim consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America, so long as such omissions do not render the financial statements misleading. Certain prior period amounts have been reclassified to conform to the current period presentation.

In the opinion of management, these financial statements reflect all adjustments that are necessary for a fair statement of the results for the periods presented. All adjustments were of a normal recurring nature. These interim financial statements should be read in conjunction with the annual financial statements of the Company included in its Annual Report on Form 10-K.

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

	i)	U.S. Geothermal Inc. (incorporated in the State of Delaware);
	ii)	U.S. Geothermal Inc. (incorporated in the State of Idaho);
	iii)	Gerlach Geothermal LLC (organized in the State of Delaware);
	iv)	U.S. Geothermal Services, LLC (organized in the State of Delaware);
	v)	USG Nevada LLC (organized in the State of Delaware);
	vi)	USG Gerlach LLC (organized in the State of Delaware);
	vii)	USG Oregon LLC (organized in the State of Delaware)
	viii)	Oregon USG Holdings, LLC (organized in the State of Delaware);
	ix)	Nevada USG Holdings, LLC (organized in the State of Delaware); and
	x)	U.S. Geothermal Guatemala, S.A.

All intercompany transactions are eliminated upon consolidation.

Raft River Energy I LLC (“RREI”), previously a 100% owned subsidiary, was consolidated through July 2006, after which the entity is recorded under the equity method after the addition of a controlling partner for additional project financing.

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Accounting Method

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

Use of Estimates

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

Cash and Cash Equivalents

The Company considers all unrestricted cash, short-term deposits, and other investments with original maturities of no more than ninety days when acquired to be cash and cash equivalents for the purposes of the statement of cash flows. Discussion regarding restricted cash is included in Note 3.

Trade Accounts Receivable Allowance for Doubtful Accounts

Management estimates the amount of trade accounts receivable that may not be collectible and records an allowance for doubtful accounts, accordingly. The allowance is an estimate based upon aging of receivable balances, historical collection experience, and the periodic credit evaluations of our customers’ financial condition. Receivable balances are written off when we determine that the balance is uncollectible. As of December 31, 2011 and March 31, 2011, there were no balances that were over 90 days past due and no balance in allowance for doubtful accounts was recognized.

Concentration of Credit Risk

The Company’s cash and cash equivalents, including restricted cash, consisted of commercial bank deposits, money market accounts, and petty cash. Cash deposits are held in commercial banks in Boise, Idaho and Portland, Oregon. Deposits are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per legal entity through December 31, 2013. At December 31, 2011, the Company’s total cash balance, excluding money market funds, was $3,369,581, and bank deposits amounted to $3,427,981. The difference was due to outstanding checks and deposits. Of the bank deposits, $2,336,962 was not covered by or was in excess of FDIC insurance guaranteed limits. At fiscal year end, the Company’s money market funds invested in government backed securities totaled $5,819,877 and were not subject to deposit insurance.

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Equity Securities

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

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

Allocation of Profits and Losses from Subsidiaries with Complex Ownership Structures

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

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

According to the operating agreement, the allocation of losses, tax deductions and cash distributions to our partner cannot create a negative tax capital balance. In cases where the allocation would create a negative tax capital balance, the “excess” allocation would be recorded against U.S. Geothermal Inc. The impact of this “safe harbor” provision of the operating agreement could impair a portion of our valuation of the investment in RREI as of March 31, 2012.

For the Company’s investment in RREI, the investment will change based upon actual capital contributions, actual cash distributions, 70% of revenue from renewable energy credits, and 1% of all other profit and loss items. See Note 6.

Property, Plant and Equipment

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

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

Intangible Assets

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

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

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

Impairment of Long-Lived Assets

The Company evaluates its long-term assets annually for impairment or when circumstances or events occur that may impact the fair value of the assets. An impairment loss would be recognized if the carrying amount of a capitalized asset is not recoverable and exceeds its fair value. Management believes that there have not been any circumstances that have warranted the recognition of losses due to the impairment of long-lived assets as of December 31, 2011.

Stock Options Granted to Employees and Non-employees

The Company follows financial accounting standards that require the measurement of the value of employee services received in exchange for an award of equity instrument based on the grant-date fair value of the award. For employees, directors and officers, the fair value of the awards are expensed over the vesting period. The current vesting period for all options is eighteen months.

Non-employee stock-based compensation is granted at the Board of Director’s discretion to reward select consultants for exceptional performance. Prior to issuance of the awards, the Company was not under any obligation to issue the stock options. Subsequent to the award, the recipient was not obligated to perform any services. Therefore, the fair value of these options was expensed on the grant date, which was also the measurement date.

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

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

Stock Based Compensation Granted to Employees

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

Earnings Per Share

The Company follows financial accounting standards, which provides for calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. Although there were common stock equivalents outstanding at December 31, 2011 and March 31, 2011, they were not included in the calculation of earnings per share because their inclusion would have been considered anti-dilutive. Total common stock equivalents at December 31, 2011 and March 31, 2011 were 100,529,520 and 102,665,193; respectively.

Financial Instruments

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

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

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

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Revenue

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

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

Recent Accounting Pronouncements

Presentation of Comprehensive Income
In June 2011, FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income (“Update 2011-05”). Update 2011-05 improves the comparability and consistency of financial reporting of items reported in other comprehensive income between U.S. GAAP and IFRS. Update 2011-05 is effective for fiscal years and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively. In December 2011, FASB issued Accounting Standards Update No. 2011-12, Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, (“Update 2011-12”). Update 2011-12 defers the effective date of certain reclassification adjustments out of accumulated other comprehensive income required by Update 2011-05. Update 2011-12 is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. Management is still evaluating the impact of these updates, and expects that they may impact the presentation of the statements of financial position, statements of operations, and statements of changes in shareholders equity.

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NOTE 3 – RESTRICTED CASH

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

			December			March 31,
State Agency			31, 2011			2011
Idaho Department of Water Resources, Geothermal Well Bond		$	260,000		$	260,000
Bureau of Land Management, Geothermal Lease Bond – Gerlach Geothermal			10,000			10,000
State of Nevada Division of Minerals, Statewide Drilling Bond			50,000			50,000
Bureau of Land Management, Geothermal Lease Bonds			150,000			150,000
Oregon Department of Geology and Mineral Industries, Mineral Land and Reclamation Program			325,000			175,000
U.S. Department of Energy – Construction Loan Bond			2,125,000			-
		$	2,920,000		$	645,000

The well bonding requirements ensure that the Company has sufficient financial resources to construct, operate and maintain geothermal wells while safeguarding subsurface, surface and atmospheric resources from unreasonable degradation, and to protect ground water aquifers and surface water sources from contamination. Other future costs of environmental remediation cannot be reasonably estimated and have not been recorded. The construction bond is required by the Loan Guarantee Agreement with the Department of Energy at Neal Hot Springs and will convert to a plant reserve fund upon completion of the plant facility.

NOTE 4 – LONG TERM NOTE RECEIVABLE FROM SUBSIDIARY

On May 17, 2011, Raft River I Holdings, LLC consented to a repair plan for two under performing wells utilized by Raft River Energy I, LLC (wells RRG-2 and RRG-7). A Repair Services Agreement (“RSA”), dated April 27, 2011, was executed between U.S. Geothermal Services, LLC (“USG Services”) and Raft River Energy I LLC, whereby USG Services will provide up to $1.65 million in funding and manage the well repairs. The cost of the repairs will be repaid preferentially from project cash flow at a rate of 90% of increased cash created by the repairs. A management fee of 12.75% of the actual repair costs, subject to the RSA, will be paid to USG Services. Interest, at a rate of 12.0% per annum, was charged to the outstanding balance of the repair costs and repair services management fees. The principal of the loan is expected to be completely retired over the next two years; however, since the payment amounts cannot be reliably estimated, the entire balance was classified as long-term. At December 31, 2011, the total loan balance was $1,878,010 ($1,616,480 unreimbursed RSA repair costs, $206,101 RSA management fees, and $55,429 accrued interest).

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NOTE 5 – INVESTMENT IN EQUITY SECURITIES

Investments in equity securities (150,000 shares of a publicly traded geothermal corporation) activities consisted of the following:

NOTE 6 – INVESTMENT IN SUBSIDIARY

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

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

As of December 31, 2011, the Company has contributed $17,953,640 in cash and property to the project, while Raft River Holdings, LLC has contributed $34,170,100.

RREI’s latest financial information is summarized as follows:

		(Unaudited)
		December 31,			December 31,			December 31,
		2011			2010			2009
Total current assets	$	970,105		$	908,866		$	808,084
Property and equipment		43,907,655			45,939,087			47,993,261
	$	44,877,760		$	46,847,953		$	48,801,345
Total liabilities	$	2,614,980		$	434,925		$	791,116
Total members’ equity		42,262,780			46,413,028			48,010,229
	$	44,877,760		$	46,847,953		$	48,801,345

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		(Unaudited)
		Year Ended			Year Ended			Year Ended
		December 31, 2011			December 31, 2010			December 31, 2009
Operating revenues	$	4,006,575		$	4,542,477		$	4,718,949
Operating loss		(3,778,746	)		(747,544	)		(2,278,806	)
Net loss		(3,777,945	)		(747,396	)		(2,270,718	)
U.S. Geothermal Inc., portion of net earnings	$	222,959		$	375,053		$	279,072

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

See Note 18 for additional subsidiary information.

The Company’s investment in the RREI has changed since March 31, 2009 as follows:

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT

During the quarter ended December 31, 2011, the Company continued the development of the Neal Hot Springs, Oregon and San Emidio, Nevada projects. At Neal Hot Springs, construction activities of the buildings, power plant equipment and transmission lines continued that amounted to approximately $13.9 million. Drilling and construction activities amounted to over $7 million on wells NHS #4, #9, #11 and #13. At San Emidio, costs of approximately $5.4 million were incurred for the construction of the new power plant. The new plant is expected to be completed in February 2012. Exploration drilling was conducted that amounted to over $397,000.

During the quarter ended September 30, 2011, the Company was focused on the development of the Neal Hot Springs, Oregon and San Emidio, Nevada projects. At Neal Hot Springs, well NHS #9 was started and substantially completed at a cost of approximately $2.67 million. Construction costs that exceeded $580,000 were incurred for well NHS #13. This well was started during the current quarter and is expected to be completed next quarter. Construction activities of the buildings and power plant equipment/components continued that amounted to approximately $10.5 million. At San Emidio, costs of approximately $4.6 million were incurred for the construction of the new power plant. Exploration drilling was conducted that amounted to over $702,000.

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During the quarter ended June 30, 2011, the Company continued the development of the Neal Hot Springs, Oregon and San Emidio, Nevada projects. At Neal Hot Springs, well NHS #12 was substantially completed at a cost of approximately $3.4 million. Construction costs that amounted to over $9.6 million were incurred on the transmission line, office building, shop building, power plant and site preparation. The office and shop buildings are substantially complete. Costs incurred for power plant construction are primarily related to engineering and design. Power plant construction costs, at San Emidio amounted to approximately $8.1 million during the quarter. The foundations and chemical buildings were substantially completed. Construction activities are primarily focused on the cooling tower and transmission line.

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

For the nine months ended December 31, 2011, the Company incurred interest costs of $1,301,795 of which $1,297,996 was capitalized as a component of the Neal Hot Springs and San Emidio projects. Interest costs incurred during the nine months ended December 31, 2010 were not significant and no interest was capitalized.

Depreciation expense was charged to operations for the following periods:

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Changes in Construction in Progress for the periods ended December 31, 2011 and March 31, 2011, are summarized as follows:

Construction in Progress, at cost, consisted of the following projects/assets by location at December 31, 2011 and March 31, 2011, are as follows:

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NOTE 8 – INTANGIBLE ASSETS

Intangible assets, at cost, are summarized as follows:

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

Amortization expense was charged to operations for the following periods:

NOTE 9 – BRIDGE LOAN NOTE PAYABLE

On November 9, 2011, USG Nevada LLC, a wholly owned subsidiary of the Company, signed a bridge loan agreement with Ares Capital Corporation. The bridge loan provides for the funding necessary for the retirement of the San Emidio plant construction loan held by Benham Constructors LLC. The loan principal cannot exceed $9 million. Interest rate is equal to the LIBO rate for three month interest periods plus applicable margin. The loan has monetized the Section 1603 ITC cash grant associated with planned commercial operation of the San Emidio power plant. Once the placed in service date has been achieved, an application will be submitted to the United States Department of Treasury for an estimated $10 million ITC cash grant. The cash grant proceeds will be used to repay the bridge loan. At December 31, 2011, the loan balance totaled $7,500,000, and the entire balance was considered to be short term.

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NOTE 10 – PROVISION FOR INCOME TAXES

Income taxes are provided based upon the liability method. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by accounting standards to allow recognition of such an asset.

At December 31, 2011, the Company had net deferred tax assets calculated at an expected rate, noted in the table below, of approximately $8,727,000 (March 31, 2011 - $6,743,000). As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset was recorded at December 31, 2011 and March 31, 2011.

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

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

At December 31, 2011, the Company had net income tax operating loss carry forwards of approximately $22,196,000 ($13,678,000 in March 31, 2011), which expire in the years 2023 through 2031. The change in the allowance account from March 31, 2011 to December 31, 2011 was $1,984,000.

Although Management believes that its 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.

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Accounting for Income Tax Uncertainties and Related Matters
The Company 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 the financial statements. For the years ended March 31, 2011, 2010 and 2009, no income tax expense has been realized as a result of operations and no income tax penalties and interest have been accrued related to uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and in the States of Idaho and Oregon. These filings are subject to a three year statute of limitations. The Company’s evaluation of income tax positions included the fiscal years ended March 31, 2011, 2010, and 2009, could be subject to agency examinations as of December 31, 2011. No filings are currently under examination. No adjustments have been made to reduce the estimated income tax benefit at fiscal year end. Any valuations relating to these income tax provisions will comply with U.S. generally accepted accounting principles.

NOTE 11 - CAPITAL LEASE OBLIGATION

Effective November 10, 2008, the Company entered into a capital lease obligation for the purchase of a forklift that is payable in monthly payments of $1,193 including interest to Wells Fargo Equipment, Inc. The contract includes a purchase option of $5,345 at the end of the lease term scheduled for November 2012. At December 31, 2011, equipment under capital lease amounted to $53,450 ($32,961 accumulated amortization). The lease is scheduled to be paid in full during the year ended December 31, 2012, with payments that total $18,270 ($17,461 principal and $809 interest).

NOTE 12 – CONSTRUCTION NOTES PAYABLE

U.S. Department of Energy
On August 31, 2011, USG Oregon LLC (“USG Oregon”), a subsidiary of the Company, completed the first funding drawdown associated with the U.S. Department of Energy (“DOE”) $96.8 million loan guarantee (the “Loan Guarantee”) to construct its planned 23-megawatt-net power plant at Neal Hot Springs in Eastern Oregon (the “Project”). The U.S. Treasury’s Federal Financing Bank, as lender for the Project, issues payments direct to vendors. Future advances covered by the Loan Guarantee will carry interest at a rate of 0.375% per annum over the U.S. Treasury bill rate of comparable maturities as of the date of each advance. All advances will be made under the Future Advance Promissory Note (“the Note”) dated February 23, 2011. The maximum principal amount of the Note is approximately $93.8 million. No advances may be made under the Note after April 10, 2013. Upon the occurrence and continuation of an event of default under the transaction documents, all amounts payable under the Note may be accelerated. In connection with the Loan Guarantee, the DOE has been granted a security interest in all of the equity interests of USG Oregon, as well as in the assets of USG Oregon, including a mortgage on real property interests relating to the Project site. Loan advances and effective interest rates are details as follows:

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SAIC Constructors LLC
Effective August 27, 2010, the Company’s wholly owned subsidiary (USG Nevada LLC) signed a construction loan agreement with SAIC Constructors LLC (“SAIC”), formerly Benham Constructors LLC. SAIC will be the primary contractor in the relocation and replacement of the existing power plant. The new 8.6 net megawatt power plant is expected to cost approximately $25 million, and is expected to be completed during the 4^th quarter 2011. Upon completion, the USG Nevada LLC will pay the debt in full within 30 days of receipt of the final statement prepared by SAIC. Interest will accrue on outstanding balance at 9.5% per annum. When due, the Company expects to obtain funds to repay the loan balance with a long-term project loan. The loan is non-recourse and is secured by the Project’s assets. Title of all work and materials shall pass to the Company the later of delivery to the Site or upon payment in full. At December 31, 2011, the loan balance totaled $25,923,808, including accrued interest, and the entire balance was considered to be long-term.

NOTE 13 – CONVERTIBLE NOTE PAYABLE

August 2011 Convertible Note
On August 5, 2011, the Oregon USG Holdings, LLC (“Oregon Holdings”), a subsidiary of the Company, signed a convertible note agreement with the other equity partner (Enbridge Inc.). The principal of the loan totaled $2,125,000, and will accrue interest at a rate of 4.75% per annum. The loan balance plus accrued interest will convert to an equity interest in Oregon Holdings upon the earliest of a conversion event or April 1, 2014. Conversion events include the loss of federal funding to the Project. The converted balance would increase Enbridge Inc.’s ownership at a ratio of 1.5% for each $1 million contributed. At December 31, 2011, the loan balance totaled $2,125,000. The entire balance was considered to be long-term.

September 2010 Convertible Note
In September 2010, Oregon Holdings entered into a convertible loan agreement with Enbridge Inc. In April 2011, the U.S. Department of Energy guaranteed project loan was closed which triggered the terms of the conversion agreement. The unsecured convertible promissory note in the amount of $5,000,000 was converted to an equity interest in Oregon Holdings. With the note conversion and the additional capital contribution of $13.8 million, Enbridge, Inc. received a 20% ownership interest in Oregon Holdings.

NOTE 14 - CAPITAL STOCK

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

On September 30, 2011, the Company entered into an At Market Issuance Sales Agreement. Under the agreement, the Company’s board of directors authorized the issuance and sale of shares of the Company’s common stock for aggregate gross sales proceeds of up to $10 million for one year from the date of execution of the agreement. During the quarter ended December 31, 2011, the Company issued 151,397 common shares.

During the six months ended September 30, 2011, the Company issued 76,500 common shares to employees of the Company upon exercise of stock options at a strike price of $1.00 CDN.

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

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

NOTE 15 - STOCK BASED COMPENSATION

The Company has a stock incentive plan (the “Stock Incentive Plan”) for the purpose of attracting and motivating directors, officers, employees and consultants of the Corporation and advancing the interests of the Corporation. The Stock Incentive Plan is a 15% rolling plan approved by shareholders in December 2009, whereby the Company can grant options to the extent of 15% of the current outstanding common shares. Under the plan, all forfeited and exercised options can be replaced with new offerings. As of December 31, 2011, the Company can issue stock option grants totaling up to 12,748,478 shares. Options are granted for a term of up to five years from the date of grant. Stock options granted generally vest over a period of eighteen months, with 25% vesting on the date of grant and 25% vesting every six months thereafter. Effective April 1, 2007, all grants are stated in U.S. dollars. The Company recognizes compensation expense using the straight-line method of amortization. Historically, the Company has issued new shares to satisfy exercises of stock options and the Company expects to issue new shares to satisfy any future exercises of stock options. At December 31, 2011, the Company had 8,132,625 options granted and outstanding.

On September 12, 2011, the Company granted 100,000 stock options to a director exercisable at a price of $0.60 until September 12, 2016.

On June 3, 2011, the Company granted 2,590,000 stock options to employees exercisable at a price of $0.83 until June 3, 2016.

On April 12, 2011, 1,094,320 of the total 1,763,000 options issued and outstanding on April 12, 2006 at prices ranging from $0.85 CDN to $1.00 CDN, were forfeited due to expiration.

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

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The following table reflects the summary of stock options outstanding at March 31, 2010 and changes during for the year ended March 31, 2011 and the nine months ended December 31, 2011:

					Weighted
					Average			Weighted
		Number of			Exercise			Average			Aggregate
		shares under			Price Per			Fair			Intrinsic
		options			Share			Value			Value
Balance outstanding, March 31, 2010		5,729,875		$	1.49		$	0.92		$	5,296,029
Forfeited		(29,500	)		2.00			0.66			(19,597	)
Exercised		(297,180	)		0.99			0.99			(294,066	)
Granted		1,300,000			0.86			0.58			752,206
Balance outstanding, March 31, 2011		6,703,195			1.38			0.86			5,734,572
Forfeited		(1,105,320	)		1.00			1.02			(1,122,467	)
Exercised		(76,500	)		1.00			1.02			(77,868	)
Granted		2,590,000			0.83			0.49			1,269,100
Balance outstanding, June 30, 2011		8,111,375			1.26			0.72			5,803,337
Forfeited		(78,750	)		1.15			1.10			(86,626	)
Exercised		-			-			-			-
Granted		100,000			0.60			0.36			36,070
Balance outstanding, September 30, 2011		8,132,625			1.26			0.71			5,752,781
Forfeited		-			-			-			-
Exercised		-			-			-			-
Granted		-			-			-			-
Balance outstanding, December 31, 2011		8,132,625		$	1.26		$	0.71		$	5,752,781

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:

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.

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

OPTIONS OUTSTANDING
					REMAINING			NUMBER OF
EXERCISE		NUMBER OF			CONTRACTUAL			OPTIONS
PRICE		OPTIONS			LIFE (YEARS)			EXERCISABLE			INTRINSIC VALUE
$ 1.40 CDN		157,500			0.06			157,500			139,271
2.41		652,500			0.56			652,500			460,975
2.22		1,465,000			1.38			1,465,000			1,786,417
1.78		95,000			1.74			95,000			81,172
0.92		1,704,625			2.40			1,704,625			1,204,713
1.58		68,000			2.73			68,000			26,435
0.86		1,300,000			3.70			975,000			564,155
0.83		2,590,000			4.43			1,295,000			634,550
0.60		100,000			4.70			25,000			9,018
$ 1.26		8,132,625			2.90			6,437,625		$	4,906,706

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

OPTIONS OUTSTANDING
					REMAINING			NUMBER OF
EXERCISE		NUMBER OF			CONTRACTUAL			OPTIONS
PRICE		OPTIONS			LIFE (YEARS)			EXERCISABLE			INTRINSIC VALUE
$ 1.00 CDN		1,170,820			0.03			1,170,820		$	1,188,983
1.15 CDN		78,750			0.33			78,750			86,626
1.40 CDN		157,500			0.81			157,500			139,271
2.41		652,500			1.31			652,500			460,975
2.22		1,465,000			2.13			1,465,000			1,786,417
1.78		95,000			2.49			95,000			81,172
0.92		1,715,625			3.15			1,715,625			1,212,487
1.58		68,000			3.48			68,000			26,435
0.86		1,300,000			4.45			650,000			376,103
$ 1.38		6,703,195			2.36			6,053,195		$	5,358,469

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A summary of the status of the Company’s nonvested stock options outstanding at March 31, 2010 and changes during the year ended March 31, 2011 and the nine months ended December 31, 2011 are presented as follows:

As of December 31, 2011, there was $324,595 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1.5 years. The total fair value of options vested at December 31, 2011 and March 31, 2011 was $980,522 and $167,014; respectively.

Stock Compensation Plan (Restricted Shares)

On September 10, 2010, the Company granted officers, directors and select employees 705,000 common shares that will be distributed in three six-month vesting periods. The recipients meet the vesting requirements by maintaining employment and good standing with the Company through the vesting periods. After vesting, there are no restrictions on the shares. On March 10, 2011, the 705,000 common shares were issued to the recipients and held by the Company. All of these shares were considered to be issued and outstanding. On March 11, 2011, 235,000 common shares vested valued at $0.99 per share, and the shares were released to the qualified recipients. On September 11, 2011, 235,000 common shares vested valued at $0.60 per share and the shares were released to the qualified recipients. The current outstanding 235,000 shares are scheduled to vest on March 11, 2012.

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Stock Purchase Warrants

At December 31, 2011, the outstanding broker warrants and share purchase warrants consisted of the following:

NOTE 16 – FAIR VALUE MEASUREMENT

Current U.S. generally accepted accounting principles establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

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

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

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

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

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

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The following table discloses by level within the fair value hierarchy the Company’s assets and liabilities measured and reported on its Consolidated Balance Sheet as of December 31, 2011 at fair value on a recurring basis:

		Total			Level 1			Level 2			Level 3
Assets:
Money market accounts	$	5,819,877		$	5,819,877		$	-		$	-
Investment in equity securities		60,946			-			60,946			-
	$	5,880,823		$	5,819,877		$	60,946		$	-

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

There were no changes in Level 3 assets measured for the nine months ended December 31, 2011 and the year ended March 31, 2011.

NOTE 17 - RELATED PARTY TRANSACTIONS

At December 31, 2011 and March 31, 2011 the amounts of $3,529 and $2,338; respectively, were payable to directors and officers of the Company for routine expense reimbursement. These amounts are unsecured and due on demand.

The Company’s subsidiary Raft River Energy I, LLC (“RREI”) owed the Company $2,420,321 and $282,257 at December 31, 2011 and March 31, 2011; respectively, for operating and maintenance expenses. The current receivable balance is comprised of unsecured demand obligations due within twelve months. See Note 4 for the terms of the long term liability. The Company received the following revenues from RREI:

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

The Company paid directors fees in the amounts of $116,250 and $101,250 for the nine months ended December 31, 2011 and 2010; respectively.

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NOTE 18 - COMMITMENTS AND CONTINGENCIES

Operating Lease Agreements
The Company has entered into several lease agreements with terms expiring up to December 1, 2034 for geothermal properties in Washoe County Nevada; Republic of Guatemala; Neal Hot Springs, Oregon and adjoining the Raft River properties in Raft River, Idaho. The Company incurred total lease expenses for nine months ended December 31, 2011 and 2010, totaling $146,858 and $121,079; 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. The Company believes that it is in compliance with all of the lease terms.

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

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

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

Office Lease
The Company renewed a one year lease contract January 2012 for general office space for the executive office located in Boise, Idaho. The contract includes a one-year renewal option for the Company. The lease payments are due in monthly installments of $6,160. The Company incurred total office lease expenses under the current contract and the prior contract for nine months ended December 31, 2011 and 2010, totaling $55,441 and $53,826; respectively.

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

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

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

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

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

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

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

Retention Liability on USG Oregon LLC Construction Contracts
The Company signed contracts with several major contractors involved in construction activities for USG Oregon LLC. Contracts for two of these major contractors allow for the Company to retain a portion of incurred costs to guarantee certain performance specifications. The retention levels generally amount to 10% of incurred costs. At December 31, 2011, the retention payable balance was $1,778,855. Currently, management does not have any performance concerns on these contracts.

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Retention Liability on USG Nevada LLC Construction Contract
The USG Nevada LLC signed a contract with the primary contractor involved in the power plant construction at San Emidio, Nevada. The contract allows for the Company to retain a portion of incurred costs to guarantee certain performance specifications. The retention levels generally amount to 10% of incurred costs. At December 31, 2011, the retention payable balance was $2,503,561. Currently, management does not have any performance concerns on these contracts.

HLBV Valuation-Raft River Energy I LLC
For subsidiaries that have contractually complex ownership rights, benefits and obligations, the Company utilizes the hypothetical liquidation at book value method (“HLBV”) for allocating profits and losses. This method utilizes the specific terms outlined in the subsidiary’s operating agreement or other authoritative documents. For the Company’s investment in RREI, the investment will change based upon actual capital contributions, actual cash distributions, 70% of revenue from renewable energy credits, and 1% of all other profit and loss items. According to the operating agreement, upon liquidation and after payment of all outstanding debts, any remaining funds would be distributed to the Members in accordance to their positive tax capital account balance ratio. The operating agreement precludes the allocation of losses, tax deductions and cash distributions to our partner from creating a negative tax capital balance. In cases where the allocation would create a negative tax capital balance, the “excess” loss allocation would be recorded against the U.S. Geothermal Inc. capital account.

The allocation of losses, tax deductions and cash distributions has depleted the tax capital account of our partner, Raft River I Holdings. In our HLBV calculation at year end, the impact of this “safe harbor” provision of the operating agreement could significantly impair the valuation of our investment in RREI as of March 31, 2012.

NOTE 19 – JOINT VENTURES/NON-CONTROLLING INTEREST

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

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. The Company has contributed $746,000 in cash and $300,000 for a geothermal lease and mineral rights; and the GGE has contributed $697,000 of geothermal lease, mineral rights and exploration data.

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

Oregon USG Holdings LLC
In September 2010, the Company’s subsidiary, Oregon USG Holdings LLC (“Oregon Holdings”), signed an Operating Agreement with Enbridge Inc. (“Enbridge”) for the right to participate in the Company’s project in the Neal Hot Springs project located in Malheur County, Oregon. Enbridge has contributed a total of $18,924,000, including the debt conversion, to Oregon Holdings in exchange for a 20% direct ownership interest. At the Company’s election, the agreement allows for additional contributions of up to $5 million that would increase Enbridge’s ownership by 1.5 percentage points for each $1 million contributed. Added to their base 20% ownership, additional payments could increase Enbridge’s ownership to a maximum of 27.5%. The Company has contributed $13,492,000 to Oregon Holdings and has an 80% ownership interest. Oregon Holdings has a 100% ownership interest in USG Oregon LLC. On November 25, 2011, the Company and Enbridge made additional capital contributions of $462,616 and $115,654; respectively. The additional contributions did not impact the profit and loss allocation percentages.

The consolidated financial statements reflect 100% of the assets and liabilities of Oregon Holdings and USG Oregon LLC, and report the current non-controlling interest of Enbridge. The full results of Oregon Holdings and USG Oregon LLC’s operations will be reflected in the statement of operations with the elimination of the non-controlling interest identified.

NOTE 20 – CUMULATIVE CHANGE IN ACCOUNTING ESTIMATE CAPITALIZATION POLICY

During the quarter ended June 30, 2011, it was noted by Company management that certain costs related to development activities incurred for USG Oregon LLC had been expensed in the prior period according to the capitalization policies instituted at that time that have been amended to match policies recommended by the external federal agency that is providing assistance for the Neal Hot Springs, Oregon project. The change in estimate adjustment capitalizes $262,305, which was previously reported as corporate administration, professional fees, and lease and equipment repairs that amounted to $2,498, $162,886, and $96,920; respectively.

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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

INFORMATION REGARDING FORWARD LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of risks and uncertainties. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. You can find many of these statements by looking for words like “believes,” “expects,” “anticipates,” “intend,” “estimates,” “may,” “should,” “will,” “could,” “plan,” “predict,” “potential,” or similar expressions in this document or in documents incorporated by reference in this document. Examples of these forward-looking statements include, but are not limited to:

• our business and growth strategies;
• our future results of operations;
• anticipated trends in our business;
• the capacity and utilization of our geothermal resources;
• our ability to successfully and economically explore for and develop geothermal resources;
• our exploration and development prospects, projects and programs, including timing and cost of construction of new projects and expansion of existing projects;
• availability and costs of drilling rigs and field services;
• our liquidity and ability to finance our exploration and development activities;
• our working capital requirements and availability;
• our illustrative plant economics;
• market conditions in the geothermal energy industry; and
• the impact of environmental and other governmental regulation.

These forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements:

• the failure to obtain sufficient capital resources to fund our operations;
• unsuccessful construction and expansion activities, including delays or cancellations;
• incorrect estimates of required capital expenditures;
• increases in the cost of drilling and completion, or other costs of production and operations;
• the enforceability of the power purchase agreements for our projects;
• impact of environmental and other governmental regulation, including delays in obtaining permits;
• hazardous and risky operations relating to the development of geothermal energy;
• our ability to successfully identify and integrate acquisitions;

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• the failure of the geothermal resource to support the anticipated power capacity;
• our dependence on key personnel;
• the potential for claims arising from geothermal plant operations;
• general competitive conditions within the geothermal energy industry; and
• financial market conditions.

All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

The U.S. dollar is the Company’s functional currency; however some transactions involved the Canadian dollar. All references to “dollars” or “$” are to United States dollars and all references to $ CDN are to Canadian dollars.

General Background and Discussion

The following discussion should be read in conjunction with our unaudited consolidated financial statements for the quarter ended December 31, 2011 and notes thereto included in this report.

U.S. Geothermal Inc. (“the Company”) is a Delaware corporation. The Company’s common stock trades on the Toronto Stock Exchange under the symbol “GTH” and on the NYSE Amex LLC under the trade symbol “HTM.”

For the quarter ended December 31, 2011, the Company was focused on:

	1)	Construction and start up commissioning of the new San Emidio Unit 1 power plant in Nevada;
	2)	Drilling injection wells and construction for the Neal Hot Springs project in Oregon;
	3)	Completing the repair of well RRG-2 at Raft River Unit I;
	4)	Started the drilling of observation and production wells for the San Emidio Phase II project in conjunction with the DOE Innovative Exploration program;
	5)	Negotiating long term financing for San Emidio Phases I and II and discussing development funding for Phase III;
	6)	Conducting negotiations with potential equity partners for the El Ciebillo project in Guatemala; and
	7)	The evaluation of potential new geothermal projects acquisitions.

Project Overview

The following is a list of projects that are in operation, under development or under exploration. Projects in operation have producing geothermal power plants. Projects under development have at least a geothermal resource discovery or may have wells in place, but require the drilling of new or additional production and injection wells in order to supply enough geothermal fluid sufficient to operate a commercial power plant. Projects under exploration do not have a geothermal resource discovery occurrence yet, but have significant thermal and other physical evidence that warrants the expenditure of capital in search of the discovery of a geothermal resource. Due to inflation and marketplace increases in the costs of labor and construction materials, previous estimates of property development costs may be low.

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(1)

Based on the designed annual average net output. The actual output of the Raft River Unit I plant currently varies between 7.1 and 10.0 megawatts and output of the recently decommissioned San Emidio plant was approximately 2.6 megawatts.

(2)

As part of the financing package for Unit I of the Raft River project, we have contributed $16.5 million in cash and approximately $1.5 million in property to Raft River Energy I LLC, the Unit I project joint venture company. Raft River I Holdings, LLC, a subsidiary of The Goldman Sachs Group, contributed $34 million to finance the construction of the project. Additional investment may be required for Unit I to operate at design capacity.

(1)

In September 2010, the Company’s wholly owned subsidiary (Oregon USG Holdings LLC) entered into agreements that formulated a strategic partnership with Enbridge (U.S.) Inc. (“Enbridge”) may provide up to $23.8 million in funds for the Neal Hot Springs geothermal project. After the planned debt conversion and additional contribution in April and August of 2011, Enbridge has contributed $18.8 million which they have received a 20% ownership interest in the project.

(2)

As part of the financing package for Unit I of the Raft River project, we have contributed $16.5 million in cash and approximately $1.5 million in property to Raft River Energy I LLC, the Unit I project joint venture company. Raft River I Holdings, LLC, a subsidiary of The Goldman Sachs Group, contributed $34 million to finance the construction of the project.

Additional Properties
Project		Location			Ownership			Target Development (Megawatts)
Gerlach		Nevada			60%			To be determined
Granite Creek		Nevada			100%			To be determined
El Ceibillo		Guatemala, S.A.			100%			To be determined

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(1)	A third party’s assessment of 94 megawatts was based on 6.0 square miles. The Company acquired additional acreage. The resource estimate of 127.0 megawatts was provided by Geothermex.
(2)	Actual production temperatures for existing wells.
(3)	Probable reservoir temperature as measured with a geothermometer.
(4)	An estimate by Black Mountain Technology of 44.0 megawatts.
(5)	A third party resource estimate with respect to 23.0 megawatts, remainder is an internal estimate.
(6)	Internal estimate.

Raft River Update
Raft River Energy Unit I, located in southern Idaho, is a binary cycle geothermal power plant with 13 net megawatts of installed capacity. The power plant achieved commercial operation in January 2008.

Raft River Unit I operated at 99.2% availability and generated an average of 8.2 net megawatts during the third fiscal quarter. For the 2011 calendar year, the plant averaged 7.6 net megawatts of generation with 97.3% availability. The plant operated at reduced output during the quarter due to the continued shutdown of production well RRG-2.

In early January 2009, production well RRG-7 underwent a temperature decline that had reduced the inlet fluid temperature to the power plant by approximately 11.8 degrees Fahrenheit. Power generation had been reduced by an estimated 1.5 megawatts due to the lower fluid temperature entering the plant. It was determined that the cement in a lap joint (an overlap of well casing) had failed and washed out, thereby allowing lower temperature fluid to enter the wellbore. Production well RRG-2 was shut down on June 10, 2010 due to a reduction in flow and increased motor load which indicated an impending pump failure.

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

Well repairs on RRG-2 and RRG-7 were started in mid-May. At well RRG-7, the pump was pulled, reconditioned and has been reinstalled. A slough of formation material was identified in the open wellbore, and the drill ran a drill bit to the bottom of the well to clean it out and installed a perforated liner to insure that no more material would block the well. The primary focus of the RRG-7 repair was the injection of cement (a “squeeze job”) into a leaking lap joint to stop the inflow of cooler brine and restore the operating temperature of the well. The squeeze job was completed successfully and the well was put back on line July 2nd. The production temperature of RRG-7 has fully recovered to its original production temperature of 299°F.

During the initial repair operations, RRG-2 was found to have a casing separation approximately 540’ from the surface that prevented installation of the production pump. Additionally, the wellbore was found to have several partial obstructions in the production zone, so it was cleaned out and a perforated liner was installed. Subsequent to the end of the quarter, the production casing repair was completed on well RRG-2, the rebuilt pump installed, and the well was placed back in service on January 5, 2012. After balancing the well field, the power plant has been producing in excess of 10 net megawatts daily under current winter conditions.

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The $10.2 million DOE cost-shared thermal fracturing program has been delayed while a NEPA evaluation was being done to address any potential seismic issues that may result from the program. The Company’s contributions are made in-kind by the use of the RRG-9 well, well field data and monitoring support totaling $228,089. Eight solar powered seismic stations were installed in June 2010 to provide a base line of seismic data and will be used to monitor potential impacts from the test. Construction is complete on the injection pipeline that extends from the Unit 1 power plant to well RRG-9. A detailed, 3-D magnetotelluric survey was completed during the 3^rd fiscal quarter of 2010.

A drill rig for the DOE program was mobilized to the Raft River site in late December and began operations on December 30. Subsequent to the end of the quarter, a 9 7/8” liner was installed and cemented in place in preparation for the first phase of stimulation. The well was side-tracked during operations to remove a packer in the wellbore, and it is planned to complete a new leg through the geothermal target formation prior to stimulation.

Raft River Operating Agreement
We hold a 50% interest in Raft River Energy I LLC, which owns Raft River Unit I (“Unit I”). Construction of Unit I required substantial capital, and partnering with a co-venture tax partner allowed us to share the risks of ownership and monetize valuable tax credits and benefits. The joint venture partner structure allowed the project to monetize production tax credits which would not otherwise have been available to us. When Unit I generates full capacity of 13 megawatts, we estimate we will receive cash payments totaling approximately $1.6 million for each of the first four years of its operations. While Unit I generates at less than full capacity, our annual cash payments from the Raft River I project will be lower. If insufficient cash is generated to satisfy all joint venture obligations, the management fees will be deferred. See Note 6 “Investment in Subsidiaries” in the financial statements for detail of cash payments from RREI.

According to the operating agreement, the allocation of losses, tax deductions and cash distributions to our partner cannot create a negative tax capital balance. In cases where the allocation would create a negative tax capital balance, the “excess” allocation would be recorded against U.S. Geothermal Inc. The impact of this “safe harbor” provision of the operating agreement could impair a portion of our valuation of the investment in RREI as of March 31, 2012.

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The Company’s interests in the RREI as defined in the partnership agreements are summarized as follows:

	(1)	U.S. Geothermal allocates 70% of income and receives 70% of available cash from RECs sold to third- parties. After year 10, REC income is shared with Idaho Power Co. For additional details, see U.S. Geothermal’s Form 10-Q filed on August 10, 2009 (Exhibit 10.36).
	(2)	Flip to next tier occurs after the later of 10 years or Raft River I Holdings’ target IRR is achieved.
	(3)	Flip to next tier occurs after Raft River I Holdings’ target IRR is achieved.

Neal Hot Springs Update
Neal Hot Springs is a commercial geothermal resource located in Eastern Oregon that has a planned 23 megawatt power plant under construction.

On February 26, 2009 U.S. Geothermal submitted a loan application for the Neal Hot Springs project to the DOE’s Energy Efficiency, Renewable Energy and Advanced Transmission and Distribution Solicitation loan guarantee program under Title XVII of the Energy Policy Act of 2005. The financial closing for the DOE loan guarantee took place on February 23, 2011 which secured a $96.8 million loan guarantee from the Department of Energy and a direct loan from the U.S. Treasury’s Federal Financing Bank. The $96.8 million loan represents 75% of the total project cost which is now estimated to be $129 million for the project. The DOE loan is a combined construction and 22 year term loan. The interest rate on the loan is set at 37.5 basis points over the current average yield on outstanding marketable obligations of the United States of comparable maturity as determined on each date that a draw is made on the loan. With the $18.8 million equity investment made by Enbridge Inc., the project is 100 percent financed.

As of January 31, 2012, six monthly draws totaling $31.63 million have been taken on the DOE loan, which have a combined interest rate of 2.791% .

Notice to proceed was issued to both the EPC contractor (Industrial Builders Inc.) and equipment supplier (TAS Energy) on February 24, 2011. Detailed design and construction of the supercritical cycle power plant utilizing significantly improved technology is currently in progress. The new plant, which will consist of three separate power modules, is designed to deliver approximately 23 megawatts of power net to the grid. The first module is scheduled to begin commercial operations during the second calendar quarter of 2012 and the full plant is scheduled to be complete during the 3^rd quarter 2012.

The EPC contractor has continued site work; the concrete foundations for all three modules are complete, erection of the air cooled condensers (“ACC”) is approximately 40% complete, refrigerant storage tanks are set, Unit 1 vaporizers have been delivered and placed, the transformer, switches and breakers are installed in the substation, 35% of the production pipelines have been installed, the fan motor variable frequency drive units for the ACC fans have been installed, and production well head equipment has been installed.

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Idaho Power has completed the transmission line and substation, with the exception of the final connection remaining into the substation. For Unit 1, TAS Energy has completed the Module A skid, the frame of the electrical skid is complete and electrical switchgear is installed, and the auxiliary skid is complete and being prepared for shipment. Vapor and liquid components for the ACC refrigerant pipelines have been delivered and the generators for all three Units are constructed and scheduled to ship in to site in February.

After the long term flow test that was completed in January 2011, a reservoir model was completed on March 24, 2011 by the Company’s consulting reservoir engineer, and after review, the DOE independent reservoir engineer issued a reservoir certificate on March 31, 2011. The final reservoir report and certificate confirmed that the reservoir was able to sustain the production necessary for the planned 23 megawatt project from the existing four production wells. An injection plan was developed as part of the plan, and drilling operations resumed in April 2011 to complete the injection well field for the project. Four large diameter injection wells (NHS-3, NHS-9, NHS-12, and NHS-13) and three slim hole injectors (NHS-10, T/G 16b and T/G 3) have been completed. Drilling is underway on NHS-4 and NHS-11, both deep injectors, which are targeted to 4,600 feet and 7,000 feet deep respectively. These may be the last two injection wells required prior to startup for the project. Upon completion of the drilling phase, the injection wells will undergo testing to determine the overall injection capacity of the well field. This test data will be incorporated in to the numerical reservoir model for the project.

The Company received the Conditional Use Permit from the Malheur County Planning Commission for construction of its proposed 23 net megawatt power plant at Neal Hot Springs in eastern Oregon. The Conditional Use Permit received unanimous approval at a September 24, 2009 Planning Commission meeting and was issued on October 28, 2009. All of the Federal Energy Regulatory Commission (“FERC”) mandated transmission studies have been completed by Idaho Power Company. An interconnection agreement was signed with the Idaho Power Company in February 2009. Idaho Power Company is responsible for the construction of the transmission line with the cost paid for by the project. A notice to proceed was issued to Idaho Power Company to commence procurement and construction of the transmission line on April 8, 2011. As of the end of the quarter, Idaho Power has completed the transmission line and constructing the substation.

The PPA for the project was signed on December 11, 2009 with the Idaho Power Company. The PPA has a 25 year term with a starting price of $96.00 per megawatt-hour and escalates at a variable percentage annually. On May 20, 2010, the Idaho Public Utilities Commission approved the PPA with no changes to the terms and conditions.

San Emidio, Nevada
The San Emidio geothermal power plant has been producing power since 1987 and sells electricity to Sierra Pacific Power Corporation under a power purchase agreement that extends through 2017. 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. During the third fiscal quarter ended September 30, 2011, the San Emidio plant operated at 98.6% availability and generated an average of 2.3 net megawatts during the period. The old San Emidio plant was shut down on December 12 and placed on operational standby in preparation for start up of the new Phase I power plant.

The San Emidio expansion is planned to take place in three phases. Phase I is a repower, and Phases II and III will be the expansion. Phase I will utilize the existing production and injection wells with installation of a new, more efficient 8.6 MW net power plant which is now being commissioned, and is expected to be online in the first quarter of 2012. Phase III is a further expansion planned for 17.2 MW net utilizing two additional power modules similar to Phases I and II.

For Phases I and II, the Company made an application for the DOE’s 1705 loan guarantee program anticipating that 75% of the total project capital may be funded by a Department of Energy loan guarantee, with the remainder funded through equity financing. The Company was notified on May 10 that the loan guarantee application had been put on hold by the DOE due to budgetary constraints. A second letter was received on June 13 that confirmed that our application is still on hold, pending clarification of the possible availability of funds under the 2011 Continuing Resolution. We no longer expect that the DOE 1705 loan guarantee program will continue. Discussions with several senior lenders for a long term loan to take out the SAIC construction loan are ongoing.

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On November 14, 2011, U.S. Geothermal Inc. entered into a bridge loan agreement between its wholly owned subsidiary USG Nevada LLC and Ares Capital Corporation. The bridge loan has monetized the Section 1603 ITC cash grant associated with the planned commercial operation of the new Phase I power plant at the San Emidio Geothermal Project, located in Washoe County, Nevada. The loan agreement provides for payment to the Company of approximately 90% of the total expected cash grant and consists of an initial funding of $7.5 million which has been received by the Company, and a subsequent funding of $1.5 million when the Phase I plant is placed in service. The funds are drawn from a loan facility that includes commercial terms for the payment of interest and associated fees. Once the placed in service date has been achieved, an application will be submitted to the United States Department of the Treasury for an estimated $10 million ITC cash grant. The cash grant proceeds will be used to repay the Ares Capital bridge loan facility with the remaining balance payable to USG Nevada LLC.

The Phase I repower began construction in the third calendar quarter of 2010. The Phase II expansion is anticipated to begin construction in the second calendar quarter of 2011 with commercial operations commencing in the second calendar quarter of 2013. The Company expects to utilize the cash grant in lieu of the Investment Tax Credit in connection with both the repower and the Phase II expansion. Phase II is subject to successful development of additional production wells through exploration and drilling activities.

The existing, historic power plant will be placed on operational standby when the Phase I plant comes on line, as shown in the Project Development table above; the Phase I repower is anticipated to cost approximately $32 million, with Phase II at approximately $50 million and Phase III approximately $100 million. We expect that 75% of the Phase I and Phase II development may be funded by project loans, with the remainder funded through equity financing.

Phase I began construction in August of 2010, and achieved mechanical completion in December. Commercial operation is now scheduled to occur during the 1^st quarter 2012. Commissioning has been extended due to winter conditions, which have caused numerous delays including a delay in charging the R134a motive fluid into the power plant system. During start up commissioning, two capacitors in the variable frequency drive which controls the 2500 horsepower motive fluid pump were found to be defective and had to be replaced.

Phase II began development in the second calendar quarter of 2010 with commercial operations anticipated to commence in the second calendar quarter of 2013. The Company expects that the project will be granted about $28 million in ITC cash grant in lieu of PTC in connection with approximately $82 million Phase I and Phase II megawatt development.

On June 1, 2011, an amended and restated PPA was signed with Sierra Pacific Power Company d/b/a NV Energy for 19.9 megawatts of electricity. The PPA has a 25 year term with a base price of $89.75 per megawatt-hour, and a 1 percent annual escalation rate. The electrical output from both Phase I and Phase II will be sold under the terms of the amended and restated PPA. The PPA was approved by the Public Utility Commission of Nevada on December 27, 2011.

The Company entered into agreements with Science Applications International Corporation (“SAIC”) for a project loan and an engineering procurement and construction contract for the San Emidio Phase I power plant. SAIC’s design-build subsidiary, SAIC Energy, Environment & Infrastructure LLC, is executing the construction of an 8.6 net megawatt power plant at San Emidio, Nevada. TAS Energy of Houston, Texas will supply a modular power plant to the project. The financing agreement calls for the contractor to provide a non-recourse project loan for the estimated $32 million dollar project. The construction loan is expected to be repaid with a long term project loan.

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Two System Feasibility Studies were initiated in July 2008 with Sierra Pacific Power Company to begin the FERC mandated transmission study process for the development of the San Emidio resource. The studies examined two levels of power generation; 15 megawatts and 45 megawatts, several transmission routes and the cost associated with each level of generation. The 15 megawatt study, which was directed toward Phase I and Phase II, completed the study process and resulted in an increase of available transmission to 16 megawatts. A Small Generator Interconnection Agreement for 16 megawatts of transmission capacity was executed with Sierra Pacific Power Company on December 28, 2010. An additional System Impact Study was initiated on September 8, 2011 for an additional 3.9 megawatts of transmission to increase the transmission capacity to match the maximum limit of the new PPA.

The 45 megawatt study, which was directed toward the full build out of San Emidio with the addition of the 17.2 megawatt Phase III project, completed the second phase System Impact Study in April. A draft Interconnection Facilities Study, the third and final study, was received on November 22, 2010. The remainder of the 45 megawatt study has been put on hold pending further exploration of the project.

On October 30, 2009, the Company was awarded $3.77 million in Recovery Act funding for the exploration and development of its San Emidio geothermal power project using advanced geophysical exploration techniques. This award was categorized under the “Innovative Exploration and Drilling Projects” section of the American Recovery and Reinvestment Act. The project at San Emidio has applied innovative, seismic and satellite imagery techniques along with state-of-the-art structural modeling, to locate large aperture fractures that represent high-productivity geothermal drilling targets. Two zones along the 4.5 mile long San Emidio fault structure were identified as high quality targets for drilling during the first phase of the DOE program.

The second phase of the DOE program is a cost shared drilling plan that follows up on the targets identified in the first phase. In order to meet construction targets for Phase II plant construction, the drilling phase of the program commenced prior to DOE approval, and two observation/temperature gradient wells were completed by the Company. The proposed drilling program was approved by the DOE in early November. One of the first two wells was deepened and a third well has been completed under the 50-50 cost share grant. Two more observation/temperature gradient wells are included in the program for the South Resource Area, in addition to a production size well. The North Resource Area has an additional five observation/temperature gradient wells and one production well planned.

Guatemala
A geothermal energy rights concession located 14 kilometers southwest of Guatemala City was awarded to U.S. Geothermal Guatemala S.A., a wholly owned subsidiary of the Company in April. The concession contains 24,710 acres (100 square kilometers) in the center of the Aqua and Pacaya twin volcano complex.

The concession contains the El Ceibillo geothermal project which has nine existing geothermal wells that were drilled in the l990s and have depths ranging from 560 to 2,000 feet (170 to 610 meters). Six of the wells have measured reservoir temperatures in the range of 365°F to 400°F and have high conductive gradients that indicate rapidly increasing temperature with depth. Fluid samples and mineralization from the wells indicate the existence of a high permeability reservoir below the existing well field.

An office and staff are located in Guatemala City and planning is underway to advance the project with initial work focused on negotiating necessary surface and access rights, a power sales agreement with the local utility company, strategic investors, and potential project lenders. Follow up work will include a detailed geophysical program, geologic mapping, sampling of hot springs, and to redrill one or two of the existing wells to test for deep, high temperature permeability. Discussions and planning are underway for the development of a power purchase agreement. Also, discussions are taking place with several interested parties for the potential sale of a minority equity interest in the El Ceibillo project to a qualified local partner.

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Gerlach Joint Venture
The Gerlach Joint Venture, located adjacent to the town of Gerlach in Washoe County, Nevada is made up of both private and BLM geothermal leases. The Peregrine well, a historic exploration slim hole that encountered a lost circulation zone at a depth of 975 feet, was redrilled and the hole was opened from a 6.5 inch diameter well to a 12.5 inch diameter well. Lost circulation was confirmed with three zones through the 900 to 1,024 foot interval. The well was stopped at 1,070 feet total depth. Temperature surveys and a short clean out flow test were conducted on the well. The well flowed at an estimated 300-400 gallons per minute, and the flowing temperature was 208°F. Geochemistry indicates an average potential source temperature of 374°F for the Gerlach site.

Drilling commenced on observation well 18-10a on October 30. The upper section of the well was drilled to 826 feet deep and an 8 inch liner was cemented in place. The well was secured and the drill rig was moved back to San Emidio. It is anticipated that the well will be completed in the first half of 2012 once the drilling schedule at San Emidio allows time for the drill to move back up to Gerlach. Temperature measurements in the well have provided the highest measured temperature in the field to date at 268°F within 160’ of surface and a temperature gradient of 6.4°F per 100’ in the bottom section of the hole. There are two previously identified lost circulation targets at 1,600’ and 2,800’ deep that will be targeted when drilling is resumed.

Granite Creek
The Granite Creek assets are 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. A first stage gravity geophysical program was completed in the third quarter of 2008 and will be used to evaluate the resource potential, and help determine where to drill temperature-gradient exploration wells.

After a detailed review of the geologic setting, the lease position at Granite Creek was reduced to 2,443.7 acres (3.8 square miles). One full lease and portions of the two remaining leases were relinquished to the Bureau of Land Management.

Operating Results

For the nine months ended December 31, 2011, the Company reported a net loss of $4.7 million ($0.05 loss per share) which represented a 45.7% increase from the same period in 2010. For the three months ended December 31, 2011, the Company reported a net loss of $1.5 million ($0.02 loss per share) which represented an 82.2% increase from the same period in 2010. A notable favorable variance was reported in earned management fees. Notable unfavorable variances were reported for the San Emidio operations, professional and management fees, corporate administration, salaries and related costs, stock based compensation, and the subsidiary’s operations.

San Emidio, Nevada Plant Energy Sales and Plant Operating Expenses
For the nine months ended December 31, 2011, the San Emidio plant reported net loss of $404,803 which was a higher loss from the $179,625 net loss from the same period in 2010. For the nine months and three months ended December 31, 2011, the net loss increased $228,415 (127.2%) and $334,504 (321.2%); respectively, from the same periods in 2010. On December 12, 2011, the power plant was shut down to facilitate the change to the new power plant. Due to the shut down, energy production decreased 44.6% in the quarter ended December 31, 2011 from the same quarter in 2010. During the current quarter, the local annual property taxes were paid that amounted to $292,711, which was a significant increase (188.0%) from the prior year’s tax liability. The increase in taxes was primarily based upon the assessed value of the new power plant. Property taxes were included in the general and administrative line item of the summarized financial information presented below.

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Summarized statements of operations for the San Emidio, Nevada plant are as follows:

%* - represents the percentage of total operating revenues.
%** - represents the percentage of change from 2010 to 2011.

%* - represents the percentage of total operating revenues.
%** - represents the percentage of change from 2010 to 2011.

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Key quarterly production data for the San Emidio, Nevada plant is summarized as follows:

Gain on Investment in Subsidiary (Raft River Energy I, LLC)
The Company uses the hypothetical liquidation at book value method (“HLBV”) for allocating of Raft River Energy I, LLC’s (“RREI”) profits and losses. This method utilizes the specific terms outlined in RREI’s operating agreement and other authoritative documents. These terms include cash disbursement terms, associated financial instruments, debt arrangements, and rights to specific revenue streams. The primary element of the profit and loss allocation from inception has been the amount of renewable energy credits earned.

The Company’s gain from RREI of $156,365 for the nine months ended December 31, 2011, decreased $65,653 (29.6%) from the same period in 2010. Under the current effective terms of the operating agreement, the Company receives 70% of energy credit sales generated by RREI. In May 2011, the repairs of wells RRG-2 and RRG-7 began under the Repair Service Agreement between the two partners. The repair activities resulted in production decreases. Energy production decreased 9.7% in the nine months ended December 31, 2011, from the same period in 2010. The production decrease directly affected the renewable energy credit revenue which was down $55,717 (16.8%) for the same nine month period. Repairs on RRG-7 were completed in July 2011 and the well has returned to its original temperature and flow rate. The RRG-2 repairs were completed in January 2012.

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The summarized statements of operations for RREI are as follows:

%* - represents the percentage of total operating revenues.
%** - represents the percentage of change from 2010 to 2011.

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%* - represents the percentage of total operating revenues.
%** - represents the percentage of change from 2010 to 2011.
# - represents percentages that exceed 1000% of change from 2010 to 2011.

Key quarterly production data for RREI is summarized as follows:

Management Fees Earned
For the nine months ended December 31, 2011, the Company earned management fees of $393,602, which was an increase of $206,102 (109.9%) from the same period in 2010. The entire variance was related to the management fees earned for directing the well repairs needed at the Company’s subsidiary (RREI). The fees were based upon a percentage of the well repair costs that were subject to the repair services contract that was approved in May of 2011. The repairs began in May of 2011 and were completed in January of 2012.

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Corporate Administration
For the nine months ended December 31, 2011, the Company incurred administrative costs of $720,615, which was an increase of $179,411 (33.2%) from the same period in 2010. The primary factors were increases in insurance costs and filing fees. Insurance costs increased $64,397 (90.4%) for the nine months ended December 31, 2011 from the same period in 2010. Insurance premiums were increased for additional builders’ risk coverage needed for the Company’s two large construction projects. Listing/filing fees increased $64,383 (47.4%) for the nine months ended December 31, 2011 from the same period in 2010. During the current quarter, the Company incurred additional fees when it began issuing shares of common stock under the “At-the-Market” registration. Additional filing fees, associated with the private placement offering, were incurred in the first fiscal quarter.

Professional and Management Fees
For the nine months ended December 31, 2011, the Company incurred professional and management fees of $1,774,136, which was an increase of $838,694 (89.7%) from the same period in 2010. During the three months ended December 31, 2011, legal fees amounted to $104,257 that were primarily incurred for SEC filing/reporting and preparing a prospectus for an At-the-Market offering. For the three months ended June 30, 2011, additional fees of $1,088,091 were paid in the quarter ended June 30, 2011 to a placement agent for obtaining the equity partner in the Neal Hot Springs, Oregon project.

Salaries and Wages
For the nine months ended December 31, 2011, the Company reported $1,031,712 in salaries and related costs, which was an increase of $124,407 (13.7%) from the same period in 2010. During the quarter ended June 30, 2011, the Company added an additional management and development employee and paid bonuses which totaled $450,000. A significant portion of the overall compensation increases were offset by a higher percentage of salaries and related costs that were allocated to capital projects. Allocations have been made for the Neal Hot Springs project for engineering, design, permitting and project management efforts needed for well drilling and reservoir evaluation. At San Emidio, salary cost allocations have been made for efforts primarily related to the transmission line studies, the new power plant design, and on site construction for Phase I of the project. One additional management/development employee was added in the quarter ended September 30, 2011. Salaries and related costs for the quarter ended December 31, 2011, were consistent with the amounts incurred in the same quarter in 2010.

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Significant management and development employee salaries and related costs allocated to major U.S. Geothermal projects are summarized as follows:

			For the Nine Months Ended December 31,
			2011			2010			Variance
Company/Project			$			$			$			%
USG Nevada LLC, San Emidio Phase I			432,751			254,487			178,264			70.1
USG Oregon LLC, Neal Hot Springs Project			611,626			497,616			114,010			22.9
			1,044,377			752,103			292,274			38.9
			For the Three Months Ended December 31,
			2011			2010			Variance
Company/Project			$			$			$			%
USG Nevada LLC, San Emidio Phase I			193,540			123,249			70,291			57.0
USG Oregon LLC, Neal Hot Springs Project			210,688			262,657			(51,969	)		(19.8	)
			404,228			385,906			18,322			4.8

% - represents the percentage of change from 2010 to 2011.

Stock Based Compensation
For the nine months ended December 31, 2011, the Company reported $1,150,244 in stock based compensation, which was an increase of $275,947 (31.6%) from the same period in 2010. The change was a product of an increase of $367,884 in the first fiscal quarter and a decrease of $90,322 in the second fiscal quarter. The variances are primarily a function of the timing of the issuance of the stock option grants. On June 3, 2011, the Board of Directors approved a grant of 2,590,000 stock options to employees. In the prior year, the stock option grant was not approved until September 10, 2010. For the three months ended December 31, 2011, the Company reported $298,201 in stock based compensation which was consistent with the same period in 2010.

Other Operating Expenses and Non-Controlling Activities
For the nine months ended December 31, 2011, the Company reported $534,047 in other operating expenses, which was an increase of $422,800 (380.1%) from the same period in 2010. During the three months ended December 31, 2011, the Company expensed $463,391 in costs associated with the development of test wells held by USG Gerlach LLC. Some of the costs were incurred in the current quarter and $260,641 was removed from construction in progress. Since these costs by were shared by our partner who holds a 40% non-controlling interest in USG Gerlach LLC; $185,356 was added back to net income attributable to the Company’s operations.

Off Balance Sheet Arrangements

As of December 31, 2011, the Company does not have any off balance sheet arrangements.

Liquidity and Capital Resources

We believe our cash and liquid investments at December 31, 2011 are adequate to fund our general operating activities through September 30, 2012 including drilling at Neal Hot Springs, general development support activities at San Emidio and repair activities at Raft River. Other project development, such as Guatemala, may require additional funding. In addition to government loans and grants discussed below, we anticipate that additional funding may be raised through financial and strategic partnerships, the issuance of equity and/or through the sale of ownership interest in tax credits and benefits.

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The current financial credit crisis is not anticipated to impact the ability of our customers, Idaho Power Company and Sierra Pacific Power, to pay for their power. This power is sold under long-term contracts at fixed prices to large utilities. Projections for 2012 indicate that both projects, Raft River and San Emidio, will generate positive cash flows to the Company. However, the current status of the credit and equity markets could delay our project development activities while the Company seeks to obtain economic credit terms or a favorable equity market price to further the drilling and construction activities. The Company continues discussions with potential investors to evaluate alternatives for funding at the corporate and project levels.

For projects under construction before the end of 2010 and online before the end of 2013, a project can elect to take a 30% investment tax credit (“ITC”) in lieu of the production tax credit (“PTC”). The ITC may be converted into a cash grant within the first 60 days of operation of the plant. Phase I at San Emidio will be completed and in operation in February 2012. An application will be submitted in February 2012 electing to take the ITC cash grant in lieu of the PTC, which will result in a check from the U.S. Treasury for approximately $10 million by April 2012.

On November 14, 2011, U.S. Geothermal Inc. entered into a bridge loan agreement between its wholly owned subsidiary USG Nevada LLC and Ares Capital Corporation. The bridge loan has monetized the Section 1603 ITC cash grant associated with the planned commercial operation of the new Phase I power plant at the San Emidio Geothermal Project, located in Washoe County, Nevada. The loan agreement provides for payment to the Company of approximately 90% of the total expected cash grant and consists of an initial funding of $7.5 million which has been received by the Company, and a subsequent funding of $1.5 million when the Phase I plant is placed in service. The funds are drawn from a loan facility that includes commercial terms for the payment of interest and associated fees. Once the placed in service date has been achieved, an application will be submitted to the United States Department of the Treasury for an estimated $10 million ITC cash grant. The cash grant proceeds will be used to repay the Ares Capital bridge loan facility with the remaining balance payable to USG Nevada LLC.

On September 30, 2011, U.S. Geothermal Inc., a Delaware corporation (the “Company”), entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with McNicoll, Lewis & Vlak LLC (“MLV”), pursuant to which the Company, from time to time, may issue and sell through MLV, acting as the Company’s sales agent, shares of the Company’s common stock. The Company’s board of directors has authorized the issuance and sale of shares of the Company’s common stock under the Sales Agreement for aggregate gross sales proceeds of up to $10,000,000, subject to certain limitations based on the sales price per share, for a period of one year from the date of execution of the Sales Agreement. Pursuant to the Sales Agreement, MLV will be entitled to compensation at a fixed commission rate of the greater of (i) 3% of the gross sales price per share sold or (ii)(1) $0.03 per share sold if the sale price per share is $0.80 or greater or (2) $0.0225 per share sold if the sale price per share is less than $0.80 (but in no event shall compensation exceed 8% of gross proceeds). The Company has agreed to reimburse a portion of MLV’s expenses in connection with the offering of the Company’s common stock under the Sales Agreement.

As of January 31, 2012, the Company has sold 151,397 shares of common stock pursuant to the Sales Agreement for net proceeds of approximately $72,188. Sales of shares of our common stock by our sales agent have been made in privately negotiated transactions or in any method permitted by law deemed to be an “At The Market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, at negotiated prices, at prices prevailing at the time of sale or at prices related to such prevailing market prices, including sales made directly on the NYSE Amex LLC or sales made through a market maker other than on an exchange. Our sales agent has made all sales using commercially reasonable efforts consistent with its normal sales and trading practices on mutually agreed upon terms between our sales agent and us.

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On March 7, 2011, the Company closed a direct registered placement of 5,000,000 shares of Common Stock at a price of $1.00 per share for gross proceeds of $5 million. Each investor also received a Common Stock Purchase Warrant exercisable for 50% of number of shares of Common Stock purchased. Each Warrant will entitle the holder to purchase one additional share of Common Stock for $1.075 per share. The Warrants expire March 3, 2012. The issue included a placement agent fee of 112,000 Common Shares and 56,000 Warrants plus expenses of approximately $15,000. The securities were offered by the Company pursuant to a registration statement filed with the Securities and Exchange Commission (“SEC”), which became effective on December 31, 2010. A prospectus supplement relating to the offering was filed with the SEC on February 28, 2010. After deducting for fees and expenses, the net proceeds were approximately $4.95 million. The net proceeds of the offering will be used for general working capital, including exploration, development and expansion of its geothermal properties

On February 24, 2011, the Company completed the financial closing with the U.S. Department of Energy (“DOE”) of a $96.8 -million loan guarantee to construct its planned 23-megawatt-net power plant at Neal Hot Springs in Eastern Oregon. Neal Hot Springs is the first geothermal project to complete a loan guarantee under DOE’s Title XVII loan guarantee program, which was created by the Energy Policy Act of 2005 to support the deployment of innovative clean energy technologies. The DOE loan guarantee will guarantee a loan from the U.S. Treasury’s Federal Financing Bank. The $96.8 -million Federal Financing Bank loan represents 75% of total project cost. When combined with the previously announced equity investment by Enbridge Inc., the loan provides 100% of the anticipated capital remaining to fully construct the project.

In September 2010, USG Oregon LLC (a wholly owned subsidiary) entered into agreements with Enbridge (U.S.) Inc. that formed a strategic and financial partnership to finance the Neal Hot Springs project located in eastern Oregon. A component of these agreements included a $5 million convertible promissory note. Upon conversion, the note shall be considered to be an equity contribution to the Company’s subsidiary. The conversion occurs automatically upon the closing of the Department of Energy (“DOE”) guaranteed project loan. The agreements also provide for additional equity contributions of $13.8 million from Enbridge that when combined with the $5 million convertible promissory note, will earn Enbridge a 20% direct ownership in the subsidiary. In the event of cost overruns for the project, and at the election of the Company, an additional payment obligation of up to $5 million would be contributed by Enbridge that would increase their direct ownership by 1.5 percentage points for each $1 million contributed. Added to their base 20% ownership, additional payments could increase Enbridge’s ownership to a maximum of 27.5% .

In August 2010, USG Nevada LLC (a wholly owned subsidiary) entered into agreements with Benham Companies, LLC (subsidiary of Science Applications International Corporation) for a project loan. The project loan is expected to provide substantially all of the funding needed to construct an 8.6 net megawatt power plant for Phase I of the San Emidio project in northwest Nevada. Construction costs are estimated to be approximately $32 million and expected to be completed in October 2011. The construction loan is planned to be repaid with long term financing from available sources such as the Section 1705 loan guarantee program from the U.S. Department of Energy.

On March 16, 2010, the Company closed a private placement of securities issued pursuant to a securities purchase agreement (the "Purchase Agreement") entered into with several institutional investors, pursuant to which the Company issued 8,209,519 shares of common stock at a price of $1.05 per share for gross proceeds of approximately $8.6 million (the "Private Placement"). Pursuant to the terms of the Private Placement, each investor was also issued a common share purchase warrant (a "Warrant") exercisable for 50% of the number of shares of common stock purchased by the investor. The Company paid commissions to agents in connection with the Private Placement in the amount of approximately $516,000 and issued warrants to purchase up to 246,285 shares of common stock. The net proceeds of the offering (approximately $8.0 million) will be used by the Company to further develop its Neal Hot Springs geothermal project and for general working capital purposes.

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On October 30, 2009, the Company was awarded $3.77 million in Recovery Act funding for the exploration and development of its San Emidio geothermal power project using advanced geophysical exploration techniques. This award was categorized under the “Innovative Exploration and Drilling Projects” section of the American Recovery and Reinvestment Act. The project at San Emidio will apply innovative, seismic and satellite imagery techniques along with state-of-the-art structural modeling, to locate large aperture fractures that represent high-productivity geothermal drilling targets.

On August 17, 2009, the Company completed a private placement of 8,100,000 Subscription Receipts (“Receipt”) at $1.35 CDN per Receipt for aggregate gross proceeds of CDN $10,935,000. Each Receipt was exchanged on December 17, 2009 for one share of common stock of the Company and one half of one common stock purchase warrant (a "Warrant"). Each Warrant entitles the holder thereof to acquire one additional share of common stock of the Company for $1.75 for 24 months from closing. The placement agents have been paid an aggregate cash fee of CDN $656,100, representing 6% of the aggregate gross proceeds of the offering, and have been issued compensation options, exercisable for 24 months, entitling the placement agents to purchase up to 243,000 shares of common stock of the Company at $1.22. The proceeds provided funds to drill production size wells at Neal Hot Springs to increase production capacity to 22 MW and allow a 30-day flow test to verify the well reservoir capacity. Completion of drilling is a condition precedent to the funding from the DOE loan program, if our application is approved.

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.

See Management’s Discussion and Analysis and the financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended March 31, 2011, for a description of our critical accounting policies.

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Item 3 – Quantitative and Qualitative Disclosures about Market Risk

Interest Risk on Investments
At December 31, 2011, the Company held investments of $2,199,223 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 Risk
The Company is subject to a 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 quarterly period ended December 31, 2011, the Company held deposits that amounted to less than $10,000 in U.S. dollar equivalents. 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.

Prior to April 1, 2007, the strike price for the Company’s stock option plan had been stated in Canadian dollars as the plan had been administered through our Vancouver office and Pacific Corporate Trust Company. This subjected 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 subsequent option grants is stated in U.S. dollars.

Commodity Price Risk
The 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 25 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 4 - Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective at the end of this period covered by this report to ensure that information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms relating to us, including our consolidated subsidiaries, and was accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change to our internal control over financial reporting during the quarter ended December 31, 2011 that has materially affected, or is likely to materially affect, our internal control over financial reporting.

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PART II- OTHER INFORMATION

Item 1 - Legal Proceedings

None.

Item 1A - Risk Factors

See “Risk Factors” in our annual report on Form 10-K for the year ended March 31, 2010 and in our quarterly report on Form 10-Q for the quarter ended December 31, 2011. There have been no material changes in the risk factors during the quarter ended December 31, 2011.

Item 2 - Unregistered Sales Of Equity Securities And Use Of Proceeds

None.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – [Removed and Reserved]

Item 5 - Other Information

None.

Item 6 - Exhibits

See the exhibit index to this quarterly report on Form 10-Q.

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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)
Date: February 9, 2012	By: /s/ Daniel J. Kunz
	Daniel J. Kunz
	Chief Executive Officer and
	Director
Date: February 9, 2012
	By: /s/ Kerry D. Hawkley
	Kerry D. Hawkley
	Chief Financial Officer and Corporate Secretary

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EXHIBIT LIST

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