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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 March 31, 2016

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.)

390 E. Parkcenter Blvd., Suite 250 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 [   ]

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 [   ]

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

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 May 4, 2016
Common stock, par value	111,529,742
$ 0.001 per share

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U.S. Geothermal Inc.
Form 10-Q
For the First Quarter Ended March 31, 2016

INDEX

PART I – Financial Information
Item 1 – Consolidated Financial Statements
	Consolidated Balance Sheet at March 31, 2016 (unaudited) and Consolidated Balance Sheet at December 31, 2015			4
	Unaudited Consolidated Statements of Income – Three Months Ended March 31, 2016 and 2015			5
	Unaudited Consolidated Statements of Cash Flows – Three Months Ended March 31, 2016 and 2015			6
	Consolidated Statement of Stockholders’ Equity – Three Months Ended March 31, 2016 (unaudited) and Year Ended December 31, 2016			7
	Notes to Consolidated Financial Statements			8
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations				23
	-	General Background and Discussion		24
		•	Projects in Operation	25
		•	Mergers and Acquisitions	27
		•	Projects Under Development/Exploration	28
	-	Operating Results		31
	-	Off Balance Sheet Arrangements		37
	-	Liquidity and Capital Resources		37
	-	Potential Acquisitions		39
	-	Critical Accounting Policies		39
Item 3 – Quantitative and Qualitative Disclosures about Market Risk				39
Item 4 - Controls and Procedures				39
PART II – Other Information
Item 1 - Legal Proceedings				40
Item 1A - Risk Factors				40
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds				40
Item 3 - Defaults upon Senior Securities				40
Item 4 – Mine Safety Disclosures				40
Item 5 - Other Information				40
Item 6 - Exhibits				40

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PART I – FINANCIAL INFORMATION

Item 1 – Consolidated Financial Statements

U.S. GEOTHERMAL INC.
CONSOLIDATED BALANCE SHEETS

		(Unaudited)
		March 31, 2016			December 31, 2015
ASSETS
Current:
Cash and cash equivalents	$	7,431,602		$	8,654,375
Restricted cash and security bonds		4,134,737			4,696,007
Trade accounts receivable		2,359,146			3,766,517
Other current assets		1,731,628			1,680,819
Total current assets		15,657,113			18,797,718
Restricted cash and security bond reserves		18,168,014			17,495,789
Property, plant and equipment, net of depreciation		166,866,650			167,736,792
Intangible assets, net of amortization		15,220,407			15,265,828
Net deferred income tax asset		8,831,000			8,921,000
Total assets	$	224,743,184		$	228,217,127
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	2,371,271		$	2,703,226
Related party accounts payable		7,318			-
Convertible promissory note		-			1,597,000
Current portion of notes payable		4,225,588			4,412,012
Total current liabilities		6,604,177			8,712,238
Long-term Liabilities:
Asset retirement obligations		1,204,930			1,204,930
Notes payable, less current portion		88,249,159			89,887,052
Total long-term liabilities		89,454,089			91,091,982
Total liabilities		96,058,266			99,804,220
Commitments and Contingencies (note 9)
STOCKHOLDERS’ EQUITY
Capital stock (authorized: 250,000,000 common shares with a $0.001 par     value; issued and outstanding shares at March 31, 2016 and December     31, 2015 were: 110,290,235 and 107,601,425; respectively)		110,290			107,601
Additional paid-in capital		119,664,024			118,131,013
Accumulated deficit		(17,286,239	)		(17,437,631	)
		102,488,075			100,800,983
Non-controlling interests		26,196,843			27,611,924
Total stockholders’ equity		128,684,918			128,412,907
Total liabilities and stockholders’ equity	$	224,743,184		$	228,217,127

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

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U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF INCOME

		(Unaudited)
		For the Three Months Ended March 31,
		2016			2015
Plant Revenues:
Energy sales	$	8,410,822		$	8,375,746
Energy credit sales		92,454			98,115
Total plant operating revenues		8,503,276			8,473,861
Plant Expenses:
Plant production expenses		2,398,716			2,290,212
Depreciation and amortization		1,580,863			1,568,012
Total plant operating expenses		3,979,579			3,858,224
Gross Profit		4,523,697			4,615,637
Operating Expenses:
Corporate administration		354,046			295,380
Professional and management fees		1,056,509			383,123
Employee compensation		806,669			747,443
Travel and promotion		83,412			30,428
Exploration costs		21,266			43,041
Operating Income		2,201,795			3,116,222
Other (income) expenses:
Interest expense		933,692			949,351
Other income		(9,692	)		(40,510	)
Income Before Income Tax Expense		1,277,795			2,207,381
Income Tax Expense		(90,000	)		(444,000	)
Net Income		1,187,795			1,763,381
Net income attributable to the non-controlling interests		(1,036,403	)		(1,029,246	)
Net Income Attributable to U.S. Geothermal Inc.	$	151,392		$	734,135
Basic Net Earnings Per Share Attributable to U.S. Geothermal Inc.	$	0.00		$	0.01
Diluted Net Earnings Per Share Attributable to U.S. Geothermal Inc.	$	0.00		$	0.01
Shares used in the calculation of income per share:
Basic		109,402,667			107,039,029
Diluted		111,282,209			108,417,352

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

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U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

		(Unaudited)
		For the Three Months Ended March 31,
		2016			2015
Operating Activities:
Net Income	$	1,187,795		$	1,763,381
Adjustments to reconcile net income to total cash provided by operating activities:
Depreciation and amortization		1,613,521			1,595,421
Stock based compensation		277,315			365,455
Change in deferred income taxes		90,000			444,000
Net changes in:
Trade accounts receivable		1,407,371			1,214,332
Accounts payable and accrued liabilities		478,507			(567,674	)
Prepaid expenses and other assets		(50,810	)		119,206
Total cash provided by operating activities		5,003,699			4,934,121
Investing Activities:
Purchases of property, plant and equipment		(1,501,101	)		(1,496,717	)
Net (funding of) receipts from restricted cash reserves and security bonds		(110,955	)		774,478
Total cash used by investing activities		(1,612,056	)		(722,239	)
Financing Activities:
Issuance of common stock		1,258,385			13,951
Distributions to non-controlling interest		(2,451,484	)		(2,102,658	)
Principal payments on notes payable and other obligations		(1,824,317	)		(1,815,267	)
Principal payment on note for subsidiary acquisition		(1,597,000	)		-
Principal payments on capital leases		-			(12,494	)
Total cash used by financing activities		(4,614,416	)		(3,916,468	)
(Decrease) Increase in Cash and Cash Equivalents		(1,222,773	)		295,414
Cash and Cash Equivalents, Beginning of Period		8,654,375			12,994,975
Cash and Cash Equivalents, End of Period	$	7,431,602		$	13,290,389
Supplemental Disclosures:
Non-cash investing and financing activities:
Accrual for purchases of property and equipment	$	803,144		$	86,579
Other Items:
Interest paid		1,361,349			1,399,457

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

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U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - Unaudited
For the Three Months Ended March 31, 2016 and Year Ended December 31, 2015

														Non-
		Number of			Common			Additional Paid-			Accumulated			controlling
		Shares			Shares			In Capital			Deficit			Interest			Totals
Balance at January 1, 2015		107,018,029		$	107,018		$	103,669,371		$	(19,284,860	)	$	46,397,092		$	130,888,621
Distributions to non-controlling interest entities		-			-			-			-			(3,486,589	)		(3,486,589	)
Acquisition of additional interest in subsidiary		-			-			13,304,848			-			(18,401,848	)		(5,097,000	)
Stock issued by the exercise of employee stock options		155,000			155			49,395			-			-			49,550
Stock compensation		428,396			428			1,107,399			-			-			1,107,827
Net income		-			-			-			1,847,229			3,103,269			4,950,498
Balance at December 31, 2015		107,601,425			107,601			118,131,013			(17,437,631	)		27,611,924			128,412,907
Distributions to non-controlling interest entities		-			-			-			-			(2,451,484	)		(2,451,484	)
Stock issued under At Market Issuance Purchase
Agreement net of commitment shares valued at $225,000		2,463,810			2,464			1,186,171			-			-			1,188,635
Stock issued by the exercise of employee stock options		225,000			225			69,525			-			-			69,750
Stock compensation		-			-			277,315			-			-			277,315
Net income		-			-			-			151,392			1,036,403			1,187,795
Balance at March 31, 2016		110,290,235		$	110,290		$	119,664,024		$	(17,286,239	)	$	26,196,843		$	128,684,918

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

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U.S. GEOTHERMAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited
March 31, 2016

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

U.S. Geothermal Inc. (“the Company”) was incorporated on March 10, 2000 in the State of Delaware. U.S. Geothermal Inc. – Idaho was formed in February 2002, and is the primary subsidiary through which the Company conducts its operations. The Company constructs, manages and operates power plants that utilize geothermal resources to produce energy. The Company’s operations have been, primarily, focused in the Western United States of America.

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”) for interim financial reporting. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In our opinion, the unaudited consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly our financial position as of March 31, 2016 and our operating results and cash flows for the three months ended March 31, 2016 and 2015. The accompanying financial information as of December 31, 2015, is derived from audited financial statements. Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2015.

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 three controlling interests. 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)	U.S. Geothermal Services, LLC (organized in the State of Delaware);
	iv)	Nevada USG Holdings, LLC (organized in the State of Delaware);
	v)	USG Nevada LLC (organized in the State of Delaware);
	vi)	Nevada North USG Holdings, LLC (organized in the State of Delaware);
	vii)	USG Nevada North, LLC (organized in the State of Delaware);
	viii)	Oregon USG Holdings, LLC (organized in the State of Delaware);
	ix)	USG Oregon LLC (organized in the State of Delaware);
	x)	Raft River Energy I LLC (organized in the State of Delaware);
	xi)	Gerlach Geothermal LLC (organized in the State of Delaware);
	xii)	USG Gerlach LLC (organized in the State of Delaware);
	xiii)	U.S. Geothermal Guatemala, S.A. (organized in Guatemala);
	xiv)	Geysers USG Holdings Inc. (incorporated in the State of Delaware);
	xv)	Western GeoPower, Inc. (incorporated in the State of California);
	xvi)	Etoile Holdings Inc. (incorporated in the Bahamas);
	xvii)	Mayacamas Energy LLC (organized in the State of California);
	xviii)	Skyline Geothermal LLC (organized in the State of Delaware);
	xix)	Skyline Geothermal Holding, Inc. (incorporated in the State of Delaware);
	xx)	Earth Power Resources Inc. (incorporated in Delaware); and

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xxi)

Idaho USG Holdings LLC (organized in the State of Delaware).

All intercompany transactions are eliminated upon consolidation.

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 attributed to the interest controlled by outside third parties. The Company will recognize 100% of the assets and liabilities of the entity, and disclose the non-controlling interest. The statements of income 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

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.

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. The allowance is an estimate based upon aging of receivable balances, historical collection experience, and the periodic credit evaluations of our customers’ financial condition. Receivable balances are written off when we determine that the balance is uncollectible. As of March 31, 2016 and December 31, 2015, 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. At March 31, 2016, the Company’s total cash balance, excluding money market funds, was $836,604 and bank deposits amounted to $1,131,537. The primary difference was due to outstanding checks and deposits. Of the bank deposits, $159,201 was not covered by or was in excess of FDIC insurance guaranteed limits. At March 31, 2016, the Company’s money market funds invested, primarily, in government backed securities totaled $27,425,156 and were not subject to deposit insurance. A contracted power purchaser held a security bond for the Company that totaled $1,468,898 at March 31, 2016.

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 in the period of acquisition. Major improvements that significantly increase the useful lives and/or capabilities of the assets are capitalized. A primary factor in determining whether to capitalize construction type costs is the stage of the potential project’s development. Once a project is determined to be commercially viable, all costs directly associated with the development and construction of the project are capitalized. Until that time, all development costs are expensed. A commercially viable project will have, among other factors, a reservoir discovery well or other significant geothermal surface anomaly, a power transmission path that is identified and available, and an electricity off-taker identified. A valid reservoir discovery is generally defined when a test well has been substantially completed that indicates the presence of a geothermal reservoir that has a high probability of possessing the necessary temperatures, permeability, and flow rates. After a valid discovery has been made, the project enters the development stage. Generally, all costs incurred during the development stage are capitalized and tracked on an individual project basis. If a geothermal project is abandoned, the associated costs that have been capitalized are charged to expense in the year of abandonment. 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. Funds received from grants associated with capital projects reduce the cost of the asset directly associated with the individual grants. The offset of the cost of the asset associated with grant proceeds is recorded in the period when the requirements of the grant are substantially complete and the amount can be reasonably estimated.

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Direct labor costs, incurred for specific major projects expected to have long-term benefits will be capitalized. Direct labor costs subject to capitalization include employee salaries, as well as, related payroll taxes and benefits. With respect to the allocation of salaries to projects, salaries are allocated based on the percentage of hours that our key managers, engineers and scientists work on each project and are invoiced to the project each month. These individuals track their time worked at each project. Major projects are, generally, defined as projects expected to exceed $500,000. Direct labor includes all of the time incurred by employees directly involved with construction and development activities. General and/or indirect management time and time spent evaluating the feasibility of potential projects is expensed when incurred. Employee training time is expensed when incurred.

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 in years by major asset categories are summarized as follows:

Stock Compensation

The Company accounts for stock based compensation by recording the estimated fair value of stock-based awards granted as compensation expense over the vesting period, net of estimated forfeitures. The fair value of restricted stock awards is determined based on the number of shares granted and the quoted price of the Company’s common stock on the date of grant. The fair value of stock option awards is estimated at the grant date as calculated by the Black-Scholes-Merton option pricing model. Stock-based compensation expense is attributed to earnings for stock options and restricted stock on the straight-line method. The Company estimates forfeitures of stock-based awards based on historical experience and expected future activity.

Earnings Per Share

Basic income or loss per share is computed using the weighted average number of common shares outstanding during the period, and excludes any dilutive effects of common stock equivalent shares, such as options and restricted stock awards. Restricted stock awards (“RSAs”) are considered outstanding and included in the computation of basic income or loss per share when underlying restrictions expire and the awards are no longer forfeitable. Diluted income per share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive. In a period where the Company is in a net loss position, the diluted loss per share is computed using the basic share count.

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Foreign Currency Translation

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.

Revenue

Revenue Recognition

Energy Sales

The energy sales revenue is recognized when the electrical power generated by the Company’s power plants is delivered to the customer who is reasonably assured to be able to pay under the terms defined by the Power Purchase Agreements (“PPAs”).

Renewable Energy Credits (“RECs”)

Currently, the Company operates three plants that produce renewable energy that creates a right to a REC. The Company earns one REC for each megawatt hour produced from the geothermal power plant. The Company considers the RECs to be outputs that are an economic benefit obtained directly through the operation of the plants. The Company does not currently hold any RECs for our own use. Revenues from RECs sales are recognized when the Company has met the terms and conditions of certain energy sales agreements with a financially capable buyer. At Raft River Energy I LLC, each REC is certified by the Western Electric Coordinating Council and sold under a REC Purchase and Sales Agreement to Holy Cross Energy. At San Emidio and Neal Hot Springs, the RECs are owned by our customer and are bundled with energy sales. At all three plants, title for the RECs pass during the same month as energy sales. As a result, costs associated with the sale of RECs are not segregated on the consolidated statement of income.

Revenue Source

All of the Company’s operating revenues (energy sales and energy credit sales) originate from energy production from its interests in geothermal power plants located in the states of Idaho, Oregon and Nevada.

Recent Accounting Pronouncements

Management has considered all recent accounting pronouncements. The following pronouncements were deemed applicable to our financial statements:

Revenue Recognition
In May 2014, FASB issued Accounting Standards Update No. 2014-09 (“Update 2014-09”), Revenue from Contracts with Customers (Topic 606). Update 2014-09 amends the revenue recognition guidance and requires more detailed disclosures to enable financial statement users to understand the nature, amount, timing and uncertainties of revenue and cash flows arising from contracts with customers. In April 2016, FASB issued Accounting Standards Update No. 2016-10 (“Update 2016-10”), Revenue from Contracts with Customers (Topic 606), Identify Performance Obligations and Licensing. In March 2016, FASB issued Accounting Standards Update No. 2016-08 (“Update 2016-08”), Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net). Both Update 2016-10 and 2016-08 provide additional guidance on how an entity should recognize revenue when depicting the transfer of promised goods or services. These Updates provide more guidance on identifying performance obligations and licensing. The guidance, as amended, is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted for public companies effective from annual and interim reporting periods beginning after December 31, 2016. Management will continue to evaluate the possible impact that the guidance defined by these Updates may have on future consolidated financial statements.

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Stock Compensation
In March 2016, FASB issued Accounting Standards Update No. 2016-09 (“Update 2016-09”), Compensation- Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. Update 2016-09 provides guidance designed to simplify of the accounting treatment of certain matters surrounding share-based compensation. Update 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Changes related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. It is likely that some of the guidance in this Update, related to public entities, will apply to our Company. Management is currently evaluating the possible impact this Update may have on the financial presentation of the Company’s consolidated financial statements.

Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02 (“Update 2016-02”), Leases (Topic 842). Update 2016-02 recognizes lease assets and lease liabilities on the balance sheet and requires disclosing key information about leasing arrangements. Under previous standards, assets and liabilities were only recognized for leases that met the definition of a capital lease. Our preliminary review indicates that many of the Company’s lease contracts would be subject to the reporting requirements defined by this Update. The Update is effective for public companies with fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. In transition, the Company would be required to recognize and measure leases at the beginning of the earliest period being presented using a modified retrospective approach. Management is still evaluating the possible impact this Update may have on the financial presentation of the Company’s consolidated financial statements.

Business Combinations
In September 2015, FASB issued Accounting Standards Update No. 2015-16 (“Update 2015-16”), Business Combinations (Topic 805), Simplifying the Accounting Measurement-Period Adjustments. Update 2015-16 provides additional guidance on how to account for provisional costs of business combinations that are incomplete at the end of a reporting period. The amendment to this Update is effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The specific circumstances addressed in this Update do not currently apply to the Company. However, the Company may engage in transactions subject to the guidance of this Update in future periods. Management will continue to evaluate the possible impact that this guidance may have on future consolidated financial statements.

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NOTE 3 – RESTRICTED CASH AND SECURITY BOND RESERVES

Under the terms of the loan agreements with the Department of Energy and Prudential Capital Group, various bond and cash reserves are required to provide assurances that the power plants will have the necessary funds to maintain expected operations and meet loan payment obligations. Restricted cash balances and bond reserves are summarized as follows:

Current restricted cash and bond reserves:

			March 31,			December 31,
Restricting Entities/Purpose			2016			2015
Idaho Department of Water Resources, Geothermal Well Bond		$	260,000		$	260,000
Bureau of Land Management, Geothermal Lease Bond- Gerlach			10,000			10,000
State of Nevada Division of Minerals, Statewide Drilling Bond			50,000			50,000
Bureau of Land Management, Geothermal Lease Bonds- USG Nevada			150,000			150,000
Oregon Department of Geology and Mineral Industries, Mineral Land and Reclamation Program			400,000			400,000
Prudential Capital Group, Cash Reserves			146,902			2,259
Prudential Capital Group, Debt Service Reserves			1,596,552			1,595,555
Bureau of Land Management , Geothermal Rights Lease Bond			10,000			10,000
U.S. Department of Energy, Debt Service Reserve			411,214			2,118,193
State of California Division of Oil, Gas and Geothermal Resources, Well Cash Bond			100,000			100,000
CAISO, Transmission Interconnection Escrow Deposits			1,000,069			-
		$	4,134,737		$	4,696,007

Long-term restricted cash and bond reserves:

			March 31,			December 31,
Restricting Entities/Purpose			2016			2015
Nevada Energy, PPA Security Bond		$	1,468,898		$	1,468,898
Prudential Capital Group, Maintenance Reserves			1,144,501			708,300
Prudential Capital Group, Well Reserves			473,736			314,590
U.S. Department of Energy, Operations Reserves			270,000			270,000
U.S. Department of Energy, Debt Service Reserves			2,466,022			2,542,058
U.S. Department of Energy, Short Term Well Field Reserves			4,507,516			4,507,110
U.S. Department of Energy, Long-Term Well Field Reserves			5,069,492			4,966,543
U.S. Department of Energy, Capital Expenditure Reserves			2,767,849			2,718,290
		$	18,168,014		$	17,495,789

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 debt service reserves are required to provide assurance that the Company will have sufficient funds to meet its debt payment obligations for the terms specified by the loan agreements. The maintenance and capital expenditure reserves are required by the lending entities to ensure that funds are available to acquire and maintain critical components of power plants and related supporting structures to enable the plants to operate according to expectations. Except for the PPA Security Bond, all of the restricted funds consisted of cash deposits or money market accounts held in commercial banks. Portions of the cash deposits are subject to FDIC insurance. During the current quarter, the Company entered into an interconnection agreement with CAISO that required escrow deposits of $1,000,069 for funding costs at our WGP Geysers Project. The PPA Security Bond is held by the power purchaser. All of the reserve accounts were considered to be fully funded at March 31, 2016 and December 31, 2015.

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NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

During the first quarter ended March 31, 2016, the Company incurred costs that exceeded $495,000 for the design and engineering costs of the WGP Geysers Project power plant. Costs related to the study of the drilling results at Guatemala totaled approximately $108,000.

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

			March 31,			December 31,
			2016			2015
	Land	$	3,074,052		$	3,074,052
	Power production plant		159,800,893			159,800,893
	Grant proceeds for power plants		(52,965,236	)		(52,965,236	)
	Wells		67,621,167			67,621,167
	Grant proceeds for wells		(3,464,555	)		(3,464,555	)
	Furniture and equipment		3,695,896			3,668,984
			177,762,217			177,735,305
	Less: accumulated depreciation		(32,589,594	)		(31,021,494	)
			145,172,623			146,713,811
	Construction in progress		21,694,027			21,022,981
		$	166,866,650		$	167,736,792

Depreciation expense charged to plant operations and administrative costs for the three months ended March 31, 2016 and 2015, was $1,568,100 and $1,595,999; respectively.

Changes in construction in progress are summarized as follows:

			For the Three
			Months Ended			For the Year
			March 31,			Ended December
			2016			31, 2015
	Beginning balances	$	21,022,981		$	15,652,722
	Development/construction		671,046			5,370,259
	Transfers into production		-			-
	Ending balances	$	21,694,027		$	21,022,981

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Construction in Progress, at cost, consisting of the following projects/assets by location are as follows:

			March 31,			December 31,
			2016			2015
	Raft River, Idaho:
	Unit I, well improvements	$	107,551		$	105,160
	Unit II, power plant, substation and transmission lines		752,201			750,493
	Unit II, well construction		2,160,727			2,146,531
			3,020,479			3,002,184
	San Emidio, Nevada:
	Unit II, power plant, substation and transmission lines		439,898			426,942
	Unit II, well construction		3,802,362			3,798,563
			4,242,260			4,225,505
	Neal Hot Springs, Oregon:
	Power plant and facilities		53,551			50,297
	Well construction		335,696			314,360
			389,247			364,657
	WGP Geysers, California:
	Power plant and facilities		325,989			325,989
	Well construction		8,186,510			7,690,748
			8,512,499			8,016,737
	Crescent Valley, Nevada:
	Well construction		1,236,135			1,228,888
	El Ceibillo, Republic of Guatemala:
	Well Construction		4,284,907			4,176,510
	Plant and facilities		8,500			8,500
			4,293,407			4,185,010
		$	21,694,027		$	21,022,981

NOTE 5 – INCOME TAXES

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

		For the Three Months Ended
		March 31,
		2016			2015
U.S. Federal statutory rate		34.0%			34.0%
Average State and foreign income tax, net of federal tax effect		3.5			3.7
Consolidated tax rate before non-controlling interest		37.5			37.7
Tax effect of non-controlling interests		(30.5	)		(17.6	)
Net effective tax rate		7.0%			20.1%

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The provision for income taxes reflects an estimated effective income tax rate attributable to U.S. Geothermal Inc.’s share of income. Our provision for income taxes for the three months ended March 31, 2016, reflects a reported effective tax rate of 7.0% which differs from the statutory federal income tax rate of 34% primarily due to the impact of the non-controlling interest and state income taxes.

NOTE 6 – 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 (“Loan Guarantee”) to construct its power plant at Neal Hot Springs in Eastern Oregon (the “Project”). All loan advances covered by the Loan Guarantee have been made under the Future Advance Promissory Note (the “Note”) dated February 23, 2011. 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. No additional advances are allowed under the terms of the loan. A total of 13 draws were taken and each individual draw or tranche is considered to be a separate loan. The loan principal is scheduled to be paid over 21.5 years from the first scheduled payment date with semi-annual installments including interest calculated at an aggregate fixed interest rate of 2.598% . The principal payment amounts are calculated on a straight-line basis according to the life of the loans and the original loan principal amounts. The principal portion of the aggregate loan payment is adjusted as individual tranches are extinguished. The principal payments started at $1,709,963 on February 10, 2014 and are scheduled to be reduced to $1,499,259 on February 10, 2017 and continue through February 12, 2035. The loan balance at March 31, 2016 totaled $61,836,759 (current portion $3,192,688).

Loan advances/tranches and effective annual interest rates are detailed as follows:

						Annual Interest
Description			Amount			Rate %
Advances by date:
August 31, 2011*		$	2,328,422			2.997
September 28, 2011			10,043,467			2.755
October 27, 2011			3,600,026			2.918
December 2, 2011			4,377,079			2.795
December 21, 2011			2,313,322			2.608
January 25, 2012			8,968,019			2.772
April 26, 2012			13,029,325			2.695
May 30, 2012			19,497,204			2.408
August 27, 2012			7,709,454			2.360
December 28, 2012			2,567,121			2.396
June 10, 2013			2,355,316			2.830
July 3, 2013*			2,242,628			3.073
July 31, 2013*			4,026,582			3.214
			83,057,965
Principal paid through March 31, 2016			(21,221,206	)
Loan balance at March 31, 2016		$	61,836,759

* - Individual tranches have been fully extinguished.

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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”). The new 10.0 net megawatt power plant was considered complete and operational for financial reporting purposes on September 1, 2012. On February 15, 2013, USG Nevada LLC signed a settlement agreement with SAIC that defined the terms of three separate debt components to settle the obligations incurred under the construction loan agreement. As of December 31, 2013, two components of the settlement agreement were paid in full. On April 30, 2013, SAIC signed a loan agreement with Nevada USG Holdings LLC (parent company of USG Nevada LLC and wholly owned subsidiary of the Company), that further defined the terms of the remaining debt component of $2 million. This remaining obligation will be repaid in quarterly installments of $119,382, including interest at 7.0% per annum that began on July 31, 2013 and is scheduled to be repaid by September 2018. The loan balance at March 31, 2016 totaled $985,855 (current portion $419,347).

Prudential Capital Group
On September 26, 2013, the Company’s wholly owned subsidiary (USG Nevada LLC) entered into a note purchase agreement with the Prudential Capital Group’s related entities (“Prudential”) to finance the Phase I San Emidio geothermal project located in northwest Nevada. The term of the note is approximately 24 years, and bears interest at fixed rate of 6.75% per annum. Interest payments are due quarterly. Principal payments are due quarterly based upon minimum debt service coverage ratios established according to projected operating results made at the loan origination date and available cash balances. The loan agreement is secured by USG Nevada LLC’s right, title and interest in and to its real and personal property, including the San Emidio project and the equity interests in USG Nevada LLC. At March 31, 2016, the balance of the loan was $29,652,133 (current portion $613,553).

Based upon the terms of the notes payable and expected conditions that may impact some of those terms, the total estimated annual principal payments were calculated as follows:

NOTE 7 – COMMON STOCK

On January 25, 2016, the Company entered into a Purchase Agreement with Lincoln Park Capital (“LPC”). Under the Purchase Agreement, the Company has the right to sell and LPC has the obligation to purchase up to $10 million of equity capital over a 30-month period.

During the quarter ended March 31, 2016, the Company issued 2,463,810 shares of common stock at prices between $0.58 and $0.61 per share under the At the Market (“ATM”) Issuance Purchase Agreement with LPC.

During the quarter ended March 31, 2016, the Company issued 225,000 shares of common stock as a result of employees and former employees exercising stock options priced at $0.31per share.

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NOTE 8 - 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 Company and advancing the interests of the Company. The Stock Incentive Plan is a 15% rolling plan approved by shareholders in September 2013, whereby the Company can grant options to the extent of 15% of the current outstanding common shares. Under the plan, all forfeited and exercised options can be replaced with new offerings. As of March 31, 2016, the Company can issue stock option grants totaling up to 16,543,535 shares. Options are typically 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. 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.

The following table reflects the summary of stock options outstanding at January 1, 2016 and changes for the three months ended March 31, 2016:

					Weighted
					Average
		Number of			Exercise			Aggregate
		shares under			Price Per			Intrinsic
		options			Share			Value
Balance outstanding, January 1, 2016		12,613,500		$	0.57		$	3,940,061
Forfeited/Expired		-			-
Exercised`		(225,000	)		0.31
Granted		1,810,000			0.65
Balance outstanding, March 31, 2016		14,198,500		$	0.58		$	4,381,986

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. 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.

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.

On March 23, 2016, the Company awarded 910,000 stock options at an exercise price of $0.63 expiring on March 23, 2021 to its employees. On March 31, 2016, the Company awarded 900,000 stock options at an exercise price of $0.67 expiring on March 31, 2021 to its employees and directors.

During the quarter ended March 31, 2016, 225,000 stock options exercisable at the price of $0.31 were exercised by employees and former employees.

As of March 31, 2016, there was $522,390 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1.5 years.

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Stock Compensation Plan (Restricted Shares)

On March 23, 2016, the Company granted 111,667 shares of Company stock at a price of $0.63 that fully vest on March 23, 2017 to its employees. On March 31, 2016, the Company granted 68,333 shares of Company stock at a price of $0.67 that fully vest on March 31, 2017 to its executive employees and directors. Through March 31, 2016, the total recognized fair value of these shares was $61,472. As of March 31, 2016, there was $133,900 of total unrecognized compensation cost related to non-vested restricted share grants.

Stock Purchase Warrants

At March 31, 2016, the outstanding broker warrants and share purchase warrants consisted of the following:

						Broker
						Warrant			Share			Warrant
			Broker			Exercise			Purchase			Exercise
	Expiration Date		Warrants			Price			Warrants			Price
	May 23, 2017		255,721		$	0.44			-		$	-
	December 21, 2017		-			-			3,310,812			0.50

NOTE 9 – 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.
Level 2 – Directly or indirectly market based inputs or observable inputs used in models or other valuation methodologies.
Level 3 – Unobservable inputs that are no corroborated by market data. The inputs require significant management judgement or estimation.

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 at fair value on a recurring basis:

At March 31, 2016:

		Total			Level 1			Level 2			Level 3
Assets:
Money market accounts *	$	27,425,156		$	27,425,156		$	-		$	-
At December 31, 2015:

		Total			Level 1			Level 2			Level 3
Assets:
Money market accounts *	$	27,921,666		$	27,921,666		$	-		$	-

* - Money market accounts include both restricted and unrestricted funds.

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NOTE 10 - COMMITMENTS AND CONTINGENCIES

The Company’s total lease costs are summarized as follows:

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

NOTE 11 – JOINT VENTURES/NON-CONTROLLING INTERESTS

Non-controlling interests included on the consolidated balance sheets of the Company are detailed as follows:

		March 31,			December 31,
		2016			2015
Gerlach Geothermal LLC interest held by Gerlach Green Energy, LLC	$	210,018		$	213,882
Oregon USG Holdings LLC interest held by Enbridge Inc.		24,208,132			25,353,058
Raft River Energy I LLC interest held by Goldman Sachs		1,778,693			2,044,984
	$	26,196,843		$	27,611,924

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 owned a 60% interest and GGE owned 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. Initially, the Company contributed $757,190 in cash and $300,000 for a geothermal lease and mineral rights; and GGE has contributed $704,460 of geothermal lease, mineral rights and exploration data. From November 18, 2014 through December 31, 2015, the Company made additional contributions that totaled $411,000 to Gerlach that were not proportionally matched by GGE. These contributions effectively reduced GGE’s ownership interest to 32.49%, and increased the Company’s interest to 67.51% as of December 31, 2015. During the quarter ended March 31, 2016, the Company made an unmatched contribution of $10,000, which effectively increased the Company’s ownership interest to 67.66% .

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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 are reflected in the statement of income 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 Neal Hot Springs project located in Malheur County, Oregon. On February 20, 2014, a new determination under the existing agreement was reached with Enbridge that established their ownership interest percentage at 40% and the Company’s at 60%, effective January 1, 2013. Oregon Holdings has a 100% ownership interest in USG Oregon LLC. Enbridge has contributed a total of $32,801,000, including the debt conversion, to Oregon Holdings in exchange for a direct ownership interest. During the three months ended March 31, 2016 and the year ended December 31, 2015, distributions were made to the Company that totaled $3,643,517 and $5,193,883; respectively. During the three months ended March 31, 2016 and the year ended December 31, 2015, distributions were made to Enbridge that totaled $2,429,012 and $3,462,588; respectively.

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 are reflected in the statement of operations with the elimination of the non-controlling interest identified.

Raft River Energy I LLC (“RREI”)
Raft River Energy I is a joint venture between the Company and Goldman Sachs. An Operating Agreement governs the rights and responsibilities of both parties. At December 31, 2015, the Company had contributed approximately $17.9 million in cash and property, and Goldman Sachs has contributed approximately $34.1 million in cash. Profits and losses are allocated to the members based upon contractual terms. The initial contracted terms stated that the Company would be allocated 70% of energy credit sales and 1% of the residual income/loss excluding energy credit sales. Under the terms of the amended agreement that became effective December 16, 2015, the Company will receive a 95% interest in RREI’s cash flows. Under the terms of both agreements, Goldman Sachs receives a greater proportion of the share of profit or losses for income tax purposes/benefits. This includes the allocation of profits and losses as well as production tax credits, which will be distributed 99% to Goldman Sachs and 1% to the Company during the first 10 years of production, which ends December 31, 2017.

The consolidated financial statements reflect 100% of the assets and liabilities of RREI, and report the current non-controlling interest of Goldman Sachs. The full results of RREI’s operations are reflected in the statement of income with the elimination of the non-controlling interest identified.

NOTE 12 – ASSET RETIRMENT OBLIGATIONS

The Geysers, California
On April 22, 2014, the Company completed the acquisition of a group of companies owned by Ram Power Corp.’s (“Ram”) Geysers Project located in Northern California. Two of the acquired companies (Western GeoPower, Inc. and Etoile Holdings, Inc.) contained asset retirement obligations that, primarily, originate with the environmental regulations defined by the laws of the State of California. The liabilities related to the removal and disposal of arsenic impacted soil and existing steam conveyance pipelines are estimated to total $598,930. Obligations related to decommissioning four existing wells were estimated at $606,000. These obligations are initially estimated based upon discounted cash flows estimates and are accreted to full value over time. At March 31, 2016, the Company has not considered it necessary to specifically fund these obligations. Since the Company is still evaluating the development plan for this project that could eliminate or significantly reduce the remaining obligations, no charges directly associated the asset retirement obligations have been charged to operations. The obligation balances at March 31, 2016 and 2015 totaled $1,204,930 and 1,400,000; respectively. All of the obligations were considered to be long-term at December 31, 2015.

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Raft River Energy I LLC, USG Nevada LLC, and USG Oregon LLC
These Companies operate in Idaho, Nevada and Oregon and are subject to environmental laws and regulations of these states. The plants, wells, pipelines and transmission lines are expected to have long useful lives. Generally, these assets will require funds for retirement or reclamation. However, these estimated obligations are believed to be less than or not significantly more than the assets’ estimated salvage values. Therefore, as of March 31, 2016 and 2015, no retirement obligations have been recognized.

NOTE 13 – BUSINESS SEGMENTS

The Company has two reportable segments: Operating Plants and Corporate and Development. These segments are managed and reported separately due to dissimilar economic characteristics. Operating plants are engaged in the sale of electricity from the power plants pursuant to long-tern PPAs. Corporate and development costs are intended to produce additional revenue generating projects. A summary of financial information concerning the Company’s reportable segments is shown in the following table:

						Corporate &
			Operating Plants			Development			Consolidated
For the Three Months Ended March 31, 2016:
Operating Revenues		$	8,503,276		$	-		$	8,503,276
Net Income (Loss)			3,493,691			(2,305,896	)		1,187,795
Total Assets			164,048,691			60,694,493			224,743,184
For the Three Months Ended March 31, 2015:
Operating Revenues		$	8,473,861		$	-		$	8,473,861
Net Income (Loss)			3,469,634			(1,706,253	)		1,763,381
Total Assets			157,210,852			71,006,275			228,217,127

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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;
	•	our illustrative growth goals and development and acquisition projections;
	•	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;
	•	ability to obtain a power purchase agreement for a new project;
	•	the enforceability of the power purchase agreements for our projects;
	•	impact of environmental and other governmental regulation, including delays in obtaining permits or ongoing impacts of the sequester;

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	•	hazardous and risky operations relating to the development of geothermal energy;
	•	our ability to successfully identify and integrate acquisitions;
	•	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. All references to “dollars” or “$” are to United States dollars.

General Background and Discussion

The following discussion should be read in conjunction with our unaudited consolidated financial statements for the quarter ended March 31, 2016 and notes thereto included in this quarterly report and our filed Annual Report for the year ended December 31, 2015 filed with the SEC on March 10, 2016.

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

For the quarter ended March 31, 2016, the Company was focused on:

	•	operating and optimizing the Neal Hot Springs, San Emidio and Raft River power plants;
	•	permitting the deepening of temperature gradient wells at San Emidio;
	•	executing the Large Generator Interconnection Agreement, continuing the optimizing and engineering of the power plant design, working on obtaining the Conditional Use Permit, and pursuing PPA opportunities for the WGP Geysers project;
	•	flow testing resource wells and planning future drilling at El Ceibillo;
	•	supporting the Special Committee of the Board in their process to evaluate strategic alternatives to increase shareholder value;
	•	finalizing the acquisition of three binary power plant equipment packages;
	•	finalizing the payment for the acquisition of approximately 6 additional megawatts of ownership interest in Raft River Energy I LLC; and
	•	evaluating potential new geothermal projects and acquisition opportunities.

Project Overview

The following is a list of projects that are in operation, under development or under exploration. Projects in operation currently have producing geothermal power plants. Projects under development have 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, estimates provided for project development costs could understate actual costs.

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Projects in Operation

Projects in Operation

Generating

Contract

Project

Location

Ownership

Capacity (megawatts)

Power Purchaser

Expiration

Neal Hot Springs

Oregon

JV(1)

22.0

Idaho Power

2036

San Emidio (Unit I)

Nevada

100%

10.0

Sierra Pacific

2038

Raft River (Unit I)

Idaho

JV(2)

13.0(3)

Idaho Power

2032

	(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”). Enbridge contributed approximately $32.8 million to the Neal Hot Springs geothermal project. The Company’s equity interest in the project is 60% and Enbridge’s equity interest is 40%.
	(2)	In December 2015, the Company purchased 45% of the Raft River Energy I LLC membership interest from Goldman Sachs Group, bringing the Company’s membership interest in the project to 95%. Goldman retains a 5% membership interest.
	(3)	The annual average net output design for the plant is 13 megawatts. The output of the Raft River Unit I plant currently is approximately 9.4 megawatts annual average.

Neal Hot Springs, Oregon
Neal Hot Springs is located in Eastern Oregon near the town of Vale, the county seat of Malheur County, and achieved commercial operation on November 16, 2012. The Neal Hot Springs facility is designed as a 22 megawatt net annual average power plant, consisting of three separate 12.2 megawatt (gross) modules, with each module having a design output of 7.33 megawatts (net) annual average based on a specific flow and temperature of geothermal brine.

For the first quarter of 2016, generation was 53,671 megawatt-hours with an average of 25.4 net megawatts per hour of operation and plant availability was 96.7% . The plant generated 53,500 megawatt-hours in the first quarter of 2015. A 2.3 day maintenance outage was taken on Unit 1 and a 1.8 day outage was taken on Unit 2 during the quarter to replace the high pressure feed pumps under the terms of the TAS Settlement Agreement.

Work is ongoing to advance a hybrid cooling system that would increase summer power generation at the project. Two new fresh water drilling targets have been identified, with drilling expected to start in the second quarter. The minimum amount of water needed for a hybrid cooling system is approximately 200 gallons per minute (“gpm”) per module. A purchase or long term lease of existing surface water or groundwater rights is also being studied. An initial study of various hybrid cooling methods was completed by Power Engineers which confirms a strong economic return for hybrid cooling if enough water can be found.

The PPA for the project was signed on December 11, 2009 with the Idaho Power Company. It has a 25 year term, and a variable percentage annual price escalation. The PPA has a seasonal pricing structure that pays 120% of the average price for four months (July, August, November, December), 100% of the average price for five months (January, February, June, September, October) and 73.3% of the average price for three months (March, April, May). The average price paid under the PPA for 2016 is $109.27 ($106.79 for 2015) per megawatt-hour.

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San Emidio Unit I, Nevada
The Unit I power plant at San Emidio is located approximately 100 miles north-east of Reno, Nevada near the town of Gerlach, and achieved commercial operation on May 25, 2012. The San Emidio facility is a single 14.7 megawatt (gross) module, with a design output of 9 megawatts (net) annual average based on a specific flow and temperature of geothermal brine.

For the first quarter of 2016, generation was 20,433 megawatt-hours with an average of 9.4 net megawatts per hour of operation and plant availability was 99.4% . The plant generated 21,754 megawatt-hours in the first quarter of 2015.

On June 1, 2011, an amended and restated PPA was signed with Sierra Pacific Power Company d/b/a NV Energy for the sale of up to 19.9 megawatts of electricity on an annual average basis. The PPA has a 25-year term with a base price of $89.75 per megawatt-hour, and an annual escalation rate of 1 percent. The average price paid under the PPA for 2016 is $93.01 ($92.08 for 2015) per megawatt-hour.

Raft River, Idaho
Raft River Unit I is located in Southern Idaho, near the town of Malta, and achieved commercial operation on January 3, 2008. The Raft River facility is a single 18 megawatt (gross) module, with a design output of 13 megawatts (net) annual average based on a specific flow and temperature of geothermal brine.

For the first quarter of 2016, generation was 19,684 megawatt-hours with an average of 9.4 net megawatts per hour of operation and plant availability was 100%. The plant generated 20,672 megawatt-hours in the first quarter of 2015.

Production well RRG-2 was taken off line on February 9, 2016 when the production pump failed. The pump was pulled in March 2016, and the well remains off line in preparation for drilling a second production leg on the well. Drilling is planned for the second quarter after the selection of a drilling contractor.

The PPA for the project was signed on September 24, 2007 with the Idaho Power Company and allows for the sale of up to 13 megawatts of electricity on an annual average basis. The PPA has a 25 year term with a starting average price for the year 2007 of $52.50 that escalates at 2.1% per year through 2020 and then at 0.6% per year until the end of the contract in 2034. The Idaho Power PPA has a seasonal pricing structure that pays 120% of the average price for four months (July, August, November, December), 100% of the average price for five months (January, February, June, September, October) and 73.5% of the average price for three months (March, April, May). The average price paid under the PPA for 2016 is $63.30 ($62.00 for 2015) per megawatt-hour.

In addition to the price paid for energy by Idaho Power, Raft River Unit I currently receives $4.75 per megawatt-hour under a separate contract for the sale of Renewable Energy Credits (“RECs”) to Holy Cross Energy, a Colorado electric cooperative. Starting in calendar year 2018, 51% of the RECs produced by the project will be owned by the Idaho Power Company and 49% by the project. For the 49% of RECs owned by the Raft River project, a new, 10 year REC contract with the Public Utility District No. 1 of Clallam County, Washington will replace the current contract. The Company currently receives 95% of the REC income during the remaining term of the Holy Cross contract and will receive 95% of the REC income due to Raft River during the term of the Clallam County contract.

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Mergers and Acquisitions

Raft River, Idaho
In March 2016, we completed the purchase of a majority of Goldman Sachs ownership and cash flow interest in the Raft River geothermal project. Effective on December 14, 2015 we acquired 95% of the project and will receive 95% of the cash flow instead of the previous 1% that we were contracted to receive until or if the previously existing 50-50 ownership position changed under the tax equity structure.

The total purchase price under the agreement was $5.1 million for the 95% interest, with an option to purchase the balance of Goldman’s interest for Fair Market Value at the end of 2017. The first payment of $3.5 million was made to Goldman in December and the final payment of $1.635 million, which includes interest on the note, was made on March 31, 2016 to complete the transaction.

The purchase unlocks our ability to consider capital upgrades that may increase output from the facility and potentially reach its design capacity of 13 megawatts. Under the agreement, we will also receive 100% of any increased cash flow and tax benefits from any project improvements. Plans are currently underway to drill a second production leg on well RRG-2 during the second quarter of 2016.

Power Plant Equipment
In December, all of the major and long lead equipment for the construction of three binary geothermal power plants was acquired for a total purchase price of $1.5 million (approximately 5% of the equipment’s estimated original cost of $28 million). A first payment of $750,000 was made upon signing the agreement, and the final payment of $750,000 was made in January 2016. The equipment was part of an order for six power plant units by another geothermal developer, but was not installed. The components for the three units being purchased are all new and unused, and are being held in storage.

The equipment is from the same manufacturers, and is of a similar size and design, to that installed at the Company’s Neal Hot Springs and San Emidio power plants. The design output of the acquired units totals approximately 35 megawatts (MW). Actual output of each unit will be determined by resource conditions found at the sites at which the equipment is ultimately installed.

The three equipment packages represent approximately 70% of the components needed for the complete plants, and will meet the major and long lead equipment requirements for the Company’s proposed Crescent Valley I power plant (25 MW) and San Emidio II power plant (10 MW). This equipment gives us the ability to expand our megawatt output at our existing portfolio of advanced stage development projects at significantly lower cost, and in much shorter construction timeframes

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Projects Under Development/Exploration

Projects Under Development

Estimated

Target

Projected

Capital

Development

Commercial

Required

Power

Project

Location

Ownership

(Megawatts)

Operation Date

($million)

Purchaser

Raft River

Idaho

100%

3

3rd Quarter 2016

3

IDPC

Neal Hot Springs

Oregon

60%

3

3rd Quarter 2017

10

IDPC

San Emidio Phase II

Nevada

100%

10

4th Quarter 2017*

60

TBD

WGP Geysers

California

100%

30

2nd Quarter 2018*

150

TBD

El Ceibillo Phase I

Guatemala

100%

25

2nd Quarter 2018*

140

TBD

Crescent Valley Phase I

Nevada

100%

25

4th Quarter 2018*

130

TBD

*

- Commercial operation dates are projections only. Actual dates can only be provided after power purchase agreements have been obtained.

Properties Under Exploration
									Target Development
Project			Location			Ownership			*(Megawatts)
Gerlach			Nevada			67.7%			10
Vale			Oregon			100%			15
El Ceibillo Phase II			Guatemala			100%			25
Neal Hot Springs II			Oregon			100%			10
Raft River Unit II			Idaho			100%			13
Crescent Valley Phase II			Nevada			100%			25
Crescent Valley Phase III			Nevada			100%			25
Lee Hot Springs			Nevada			100%			20
Ruby Hot Springs Phase I			Nevada			100%			20

*

Target development sizes are predevelopment estimates of resource potential of unproven resources. The estimates are based on our evaluation of available information regarding temperature, and where available, flow.

Property Details
			Property Size
			(square
Property			miles)			Temperature (ºF)			Depth (Ft)			Technology
Neal Hot Springs			9.6			286-311			2,500-3,000			Binary
San Emidio			27.9			289-316			1,500-3,000			Binary
Raft River			10.8			275-302			4,500-6,000			Binary
Gerlach			4.7			338-352			2,000-3,000			Binary
El Ceibillo			38.6			410-526			1,800-TBD			Steam/Flash
WGP Geysers			6.0			380-598			6,000-10,000			Steam
Crescent Valley			33.3			326-351			2,000-3,000			Binary
Lee Hot Springs			4.0			280-320			1,250-5,000			Binary
Ruby Hot Springs			3.3			315-340			1,670-4,500			Binary
Vale			0.6			290-300			2,450-5,000			Binary

WGP Geysers, California
The WGP Geysers project is located in the broader Geysers geothermal field located approximately 75 miles north of San Francisco, California. The broader Geysers geothermal field is the largest producing geothermal field in the world generating more than 850 megawatts of power for more than 30 years. Acquisition of the WGP Geysers Project from Ram Power was completed on April 22, 2014 for $6.4 million.

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We received the signed Large Generator Interconnection Agreement for the project on March 6, 2016 with the California Independent System Operator and Pacific Gas & Electric. This agreement allows the project to connect to the transmission grid and deliver up to 35 megawatts of energy. The interconnection cost remains at $1.9 million for the grid operator’s portion of the work in the substation and an initial payment on this cost of $1.0 million was made on February 5, 2016. An additional 1.7 mile long transmission line will be required to connect from the plant to the substation.

Engineering optimization of the power plant design is continuing with a focus on the new hybrid plant design that includes both water and air cooling. This design will dramatically increase the volume of water available for injection back into the reservoir. Traditional water cooled steam plants re-inject approximately 20 to 25% of the water that is removed during power generation, while a hybrid design may re-inject 65% or more of the water. This higher injection rate will provide longer term, stable steam production, and will result in increased power generation over the life of the project. Approval of the new conditional use permit from Sonoma County is expected during the second quarter of 2016.

Based on flow test data generated in mid-2015, GeothermEx reported in September 2015 that the four production wells are capable of delivering an initial capacity of 28.1 MW (gross) or 25.4 MW (net) based on current power plant steam conversion rates from a detailed design for a 28.8 MW (net) power plant. These longer term tests show the wells would initially produce a combined total of 458,000 pounds per hour of steam compared to 462,000 pounds per hour of steam from short term tests performed when the wells were first drilled, demonstrating that the capacity of the wells is virtually unchanged. Using the average steam production rate from these wells and an assumed interference factor of 30%, GeothermEx estimates that an additional two to three production wells would be needed to support the long term operation of a 28.8 MW (net) plant.

Two methods were used to estimate the long term capacity of the WGP project, and both support a high probability that a 28.8 MW (net) plant can be operated for 25 years, given the modern plant design and the available productive area. The first method is an established natural gas reservoir engineering calculation that is routinely used at The Geysers, which estimated that the reservoir could support the 28.8 MW (net) plant for up to 54 years using hybrid cooling as the basis. The second method is an empirical approach based on GeothermEx’s extensive experience at The Geysers, and uses the estimated steam production capacity per acre within the productive area of a geothermal leasehold. On this basis, the productive acreage within the WGP leasehold has steam reserves sufficient to supply up to 44 MW (net) with a conventional injection level of 25%, and potentially more at the higher injection levels associated with the planned hybrid cooling system.

Discussions with numerous potential off-takers for the power from our power plant continue, with high interest expressed by a number of them for base load, renewable power to replace fossil fuel based power generation that is being phased out of their portfolios. We responded to one Request For Proposal (RFP) early in the year, but did not make the initial short list. Additional information has been provided to the issuer. Other RFP’s are anticipated in both the second and third quarters of 2016.

El Ceibillo, Republic of 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 2010. The concession has a five year term for the development and construction of a power plant. There are 24,710 acres (100 square kilometers) in the concession which is at the center of the Aqua and Pacaya twin volcano complex.

With the concession agreement modified in 2015 to reflect the updated development schedule, discussions are being reestablished with potential buyers for the output from the plant. Additionally, the Guatemalan government, through the National Electrical Energy Commission (COMISIÓN NACIONAL DE ENERGÍA ELÉCTRICA–“CNEE”), has announced that it is preparing to issue a 40MW RFP exclusively for geothermal power. CNEE has retained Tetra Tech Inc., a large U.S. based consulting firm, to prepare the RFP, and it is expected to be released during the second quarter of 2016.

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Four wells have intersected commercial temperature and permeability; TG-6, EC-2A, EC-3 and EC-4, indicating a reservoir with a temperature of 383-392°F (195-200°C) at an approximate depth of 1,300 feet (400 meters). Mannvit Engineering has been retained to advise the company on development of the field and to construct a reservoir model for the project. Wells EC-2A, EC-3 and EC-4 have undergone flow and injection testing. Due to the small diameter of the wells, a larger diameter well must be drilled and flow tested in order to obtain needed reservoir pressure data than can be used to estimate the size and production characteristics of the El Ceibillo reservoir.

Plans are under way to drill a large diameter well to intersect the EC-2A production zone. Drilling is expected to begin during the second quarter, with flow testing to be completed by the end of the quarter.

San Emidio, Nevada
The Phase II expansion is dependent on successful development of additional production and injection well capacity. We expect that approximately 75% of the Phase II development may be funded by project loans, with the remainder funded through equity financing. We anticipate the project qualifying for the 30% Federal Investment Tax Credit, which when monetized can meet most of the equity financing requirements.

During 2015, five, 1,000 ft. deep temperature gradient wells were completed in the southwest zone, with all of the wells encountering high bottom hole temperatures and anomalously high temperature gradients. Bottom-hole temperatures ranged from 224°F to 274°F, and temperature gradients in four of the wells ranged from 12.4°F per 100 feet to 14.9°F per 100 feet. These results are considered to be indicative of a nearby, active geothermal system at depth.

A second phase drilling program to deepen the two most prospective wells is being permitted with the Bureau of Land Management. Delays with the permitting requirements have been worked through, and we expect to be able to conduct drilling operations on the two wells this summer. Additional temperature gradient wells or development wells to further expand the anomaly are also under consideration depending upon the outcome of the deepening of first two wells. Further drilling will have to be permitted separately, after additional cultural and endangered species surveys are conducted.

The final stage study of the interconnection process, the Facilities Study, was started by NV Energy in February, and is anticipated to be completed during the second quarter of 2016. We currently have 16 megawatts of transmission capacity and are asking for an additional 3.9 megawatts to cover the Phase II plant requirements for transmission.

Raft River, Idaho
In 2011, the Raft River Phase II project was awarded an $11.4 million cost-shared, thermal stimulation program grant from the Department of Energy with the University of Utah Energy And Geoscience Institute as the project lead. The goal of the project is to create an Enhanced Geothermal System (“EGS”) by creating thermal fractures and developing a corresponding increase in permeability in the low permeability rock. Well RRG-9 was made available, and after installing four, 300 ft. deep monitoring wells with seismic geophones to allow for seismic monitoring, the first stage of injection into the well began in June 2013.

Initially the well was only capable of receiving 20 gallons per minute (“gpm”) of water due to the low permeability of the rock. After several moderate pressure stimulations, injection of cold injectate has continued through the quarter which causes thermal fracturing within the host rock. The flow into the well continues to increase from its initial 20 gpm to a current flow rate of 977 gpm indicating a significant success.

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Well RRG-9 continues to be used temporarily as an injection well as an extension of the DOE EGS program, which is expected at this time to continue through 2016. The Company’s contributions for the thermal stimulation program are made in-kind by the use of the RRG-9 well, well field data provided by the Company, and through ongoing monitoring support.

Crescent Valley, Nevada
The Crescent Valley prospect consists of approximately 21,300 acres (33.3 square miles) of private and Federal geothermal leases. It is located in Eureka County, Nevada, approximately 15 miles south of the Beowawe geothermal power plant and about 33 miles southeast of Battle Mountain. The project was acquired as part of the Earth Power Resources merger which was completed in November 2014.

In light of federal legislation that extended the qualification for the 30% Investment Tax Credit to projects that began construction prior to December 31, 2014, drilling of the first production/injection well CVP-001 (67-3) was initiated in December of 2014, following completion of gravity surveys, and analysis of prior temperature gradient drilling data. Well CVP-001 was completed on March 27, 2015 to a depth of 2,746 feet. The well exhibited modest permeability with a flowing temperature of 213°F, which makes the well suited for duty as an injection well. The next phase of development work is in the planning stages and is currently on hold due to market conditions.

Operating Results

For the three months ended March 31, 2016, the Company reported net income attributable to the Company of $151,392 ($0.00 income per share) which represented a decrease of $582,743 (79.4% decrease) from net income attributable to the Company of $734,135 reported in the same period ended 2015 ($0.01 income per share). Both favorable and unfavorable variances were reported in areas related to the operations of the Company’s three power plants. A notable favorable variance was reported for income tax expense. Notable unfavorable variances were noted for corporate and administrative costs, professional and management fees, and travel and promotional costs. The combined variance for these three line items totaled $785,036, which was an increase of 110.7% from the same period in the prior year. The variance is, in a large part, the result of a one-time expense for financial advising and associated costs.

Plant Operations
A summary of energy sales by plant location is as follows:

		For the Three Months Ended March 31,
		2016						2015
		$			%			$			%
Energy sales by plant:
Neal Hot Springs, Oregon		5,366,004			63.8			5,207,350			62.2
San Emidio, Nevada		1,900,467			22.6			2,003,346			23.9
Raft River, Idaho		1,144,351			13.6			1,165,050			13.9
		8,410,822			100.0			8,375,746			100.0

%

- represents the percentage of total Company energy sales.

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A quarterly summary of megawatt hours generated by plant are as follows:

		For the Quarter Ended,
		March 31,			June 30,			September 30, December 31,						March 31,
		2015			2015			2015			2015			2016
Neal Hot Spring, Oregon		53,500			37,232			33,498			52,642			53,671
San Emidio, Nevada		21,754			18,492			18,924			20,369			20,433
Raft River, Idaho		20,672			17,223			15,950			21,751			19,684
		95,926			72,947			68,372			94,762			93,788

Neal Hot Springs, Oregon (USG Oregon LLC) Plant Operations

For the three months ended March 31, 2016, subsidiary net income was $3,226,740 which was an increase of $216,477 (7.2% increase) from subsidiary net income of $3,010,263 reported in the same period ended 2015.

Energy sales for the three months ended March 31, 2016, increased 3.0% from the same period ended 2015. The sales increase is primarily due to the effective contracted rate increase of 2.7% . The plant produced 53,671 megawatt hours, which was consistent with the same quarter in the prior year. In the current quarter, the plant’s three units experienced a total of 166 hours of lost production. In the quarter ended March 31, 2015, the plant’s three units experienced a total of 192 hours of lost production. In both periods, the main outages were caused by plugged vaporizers.

Plant operating costs, excluding depreciation and amortization, for the three months ended March 31, 2016 decreased $47,257, (4.9% decrease) from the same period ended 2015. For the current quarter, field maintenance costs were 56.4% lower than the same quarter in the prior year. In the three months ended March 31, 2015, repair costs that exceeded $53,000 were incurred to repair the vaporizers. Also, training costs that totaled approximately $24,000 were incurred in the prior year.

Summarized statements of operations for the Neal Hot Springs, Oregon plant are as follows:

		Three Months Ended March 31,
		2016						2015						Variance
		$			%			$			%			$			%*
Plant revenues:
Energy sales		5,366,004			100.0			5,207,350			100.0			158,654			3.0
Plant expenses:
General operations		917,848			17.2			965,105			18.6			47,257			4.9
Depreciation and amortization		818,062			15.2			819,708			15.7			1,646			0.2
		1,735,910			32.4			1,784,813			34.3			48,903			2.7
Gross Profit		3,630,094			67.6			3,422,537			65.7			207,557			6.1
Other income (expense):
Interest expense		(405,315	)		(7.5	)		(414,833	)		(8.0	)		9,518			2.3
Other and interest income		1,961			0.0			2,559			0.1			(598	)		(23.4	)
		(403,354	)		(7.5	)		(412,274	)		(7.9	)		8,920			2.2
Subsidiary Net Income		3,226,740			60.1			3,010,263			57.8			216,477			7.2

	%	- represents the percentage of total plant operating revenues.
	%*	- represents the percentage of change from 2015 to 2016. Increases in revenues and decreases in expenses from the prior period to the current period are considered to be favorable and are presented as positive figures.

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The intercompany elimination adjustments for interest expense, management fees and lease costs are not incorporated into the presentation of the subsidiary’s operations.

Key quarterly production data for the Neal Hot Springs, Oregon plant is summarized as follows:

			Mega-						Ave. Rate						Depreciation
			watt			Energy			per			Subsidiary			&
			Hours			Sales			Megawatt			Net Income*			Amortization
Quarter Ended:			Produced			($)			Hour ($)			($)			($)
June 30, 2014			40,629			3,402,318			83.7			1,196,404			820,526
September 30, 2014			32,246			3,712,988			115.0			1,412,124			805,497
December 31, 2014			54,472			6,377,488			117.1			4,147,356			819,924
March 31, 2015			53,500			5,207,350			97.3			3,010,263			819,708
June 30, 2015			37,232			3,188,091			85.6			1,027,928			819,785
September 30, 2015			33,498			4,004,715			119.3			1,651,029			819,450
December 31, 2015			52,642			6,423,643			122.0			4,311,789			819,171
March 31, 2016			53,671			5,365,129			100.0			3,226,740			818,062

*

- The intercompany elimination adjustments for management fees and corporate support are not incorporated into the presentation of the subsidiary’s net income.

San Emidio, Nevada Plant Energy Sales and Plant Operating Expenses (USG Nevada LLC)

For the three months ended March 31, 2016, the San Emidio plant reported subsidiary net income of $425,447 which was a decrease of $130,854 (23.5% decrease) from the $556,301 in subsidiary net income reported in the same period ended 2015.

Energy sales for the three months ended March 31, 2016, decreased 5.1% from the same period ended 2015. During the current quarter, the plant produced 20,433 megawatt hours, which was a 6.1% decrease from the same period ended 2015. In the current quarter, the decrease in production was primarily due to the loss of a production pump motor. Also, the plant lost production due to a cooling water pressure transmitter freezing and a stoppage needed for programing changes made to the plant’s operating software.

For the three months ended March 31, 2016, the total operating costs, excluding depreciation, increased $36,786, which was a 5.9% increase from the same period ended 2015. Increases in field maintenance costs and taxes were partially offset by decreases in corporate and administrative costs. Field maintenance costs increased $37,667 (48.1% increase) from the same period ended in 2015. During the current quarter, costs that exceeded $71,000 were needed for repairs to a production pump motor and a cooling water pump.

Taxes increased $55,441 (301.3% increase) from the same period ended in 2015. The mineral proceeds tax for the State of Nevada were significantly lower in 2015 due to an overpayment in 2014 and lower budgeted allowable expenses for 2015.

Effective November 2015, the Company discontinued the management fees charged to the plant. Management fees of $68,799 were charged to the plant for the three months ended March 31, 2015.

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

	Three Months Ended March 31,
		2016						2015						Variance
		$			%			$			%			$			%*
Plant revenues:
Energy sales		1,900,467			100.0			2,003,346			100.0			(102,879	)		(5.1	)
Plant expenses:
Operations		658,048			34.7			621,262			31.0			(36,786	)		(5.9	)
Depreciation and amortization		318,214			16.7			316,346			15.8			(1,868	)		(0.6	)
		976,262			51.4			937,608			46.8			(38,654	)		(4.1	)
Gross Profit		924,205			48.6			1,065,738			53.2			(141,553	)		(13.3	)
Other income (expense):
Interest expense		(500,613	)		(26.3	)		(509,718	)		(25.4	)		9,105			1.8
Other income		1,855			0.1			281			0.0			1,574			560.1
		(498,758	)		(26.2	)		(509,437	)		(25.4	)		10,679			2.1
Subsidiary Net Income		425,447			22.4			556,301			27.8			(130,854	)		(23.5	)

	%	- represents the percentage of total plant operating revenues.
	%*	- represents the percentage of change from 2015 to 2016. Increases in revenues and decreases in expenses from the prior period to the current period are considered to be favorable and are presented as positive figures.
	#	- Variance percentage was extremely high or undefined.

The intercompany elimination adjustments for management fees are not incorporated into the presentation of the subsidiary’s net operating income/loss.

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

			Mega-						Ave. Rate			Subsidiary			Depreciation
			watt			Energy			per			Net Income			&
			Hours			Sales			Megawatt			(Loss)*			Amortization
Quarter Ended:			Produced			($)			Hour ($)			($)			($)
June 30, 2014			15,686			1,450,526			91.2			(203,424)			316,283
September 30, 2014			18,240			1,663,119			91.2			109,515			316,638
December 31, 2014			21,745			1,982,709			91.2			158,352			315,609
March 31, 2015			21,754			2,003,346			92.1			556,301			316,346
June 30, 2015			18,492			1,702,633			92.1			264,410			315,846
September 30, 2015			18,924			1,742,750			92.1			386,033			314,940
December 31, 2015			20,369			1,875,755			92.1			278,453			316,269
March 31, 2016			20,433			1,900,467			93.0			425,447			318,214

*

- The intercompany elimination adjustments for management fees and corporate support charges are not incorporated into the presentation of the subsidiary’s net income/loss.

Raft River, Idaho Unit I (Raft River Energy I LLC) Plant Operations

For the three months ended March 31, 2016, the Raft River plant reported subsidiary net loss of $158,497 which was an unfavorable increase of $61,567 (63.5% loss increase) from the $96,930 in subsidiary net loss reported in the same period ended 2015.

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During the current three months, the plant produced 19,684 megawatts, which was a 4.8% decrease from the same period ended 2015. The decrease in production was partially offset by the contracted rate increase, which effectively increased 3.2% from the same period in the prior year. During the current quarter the plant lost production hours due to an outage caused by a disturbance on the grid due to a heavy snow storm.

Plant operating costs were consistent with the prior year. Increases in field maintenance costs were offset by decreases in chemicals and lubricants. In the current quarter the plant’s field maintenance costs increased $74,109 (64.8% increase) from the same quarter in 2015. Costs that exceeded $95,000 were incurred in the current quarter to pull a production pump for repairs. Also in the current quarter, a cooling pump was repaired for approximately $17,700 and the membranes used by the reverse osmosis system were replaced for approximately $13,000.

In the quarter ended March 31, 2015, the plant was required to replace the motive fluid at a total of $21,409. The motive fluid purchases/replacements were not needed in the current quarter.

The summarized statements of operations for RREI are as follows:

		Three Months Ended March 31,
		2016						2015						Variance
		$			%			$			%			$			%*
Plant revenues:
Energy sales		1,144,351			92.5			1,165,050			92.2			(20,699	)		(1.8	)
Energy credit sales		92,454			7.5			98,115			7.8			(5,661	)		(5.8	)
		1,236,805			100.0			1,263,165			100.0			(26,360	)		(2.1	)
Plant expenses:
General operations		951,104			76.9			938,106			74.3			(12,998	)		(1.4	)
Depreciation and amortization		444,587			35.9			431,959			34.2			(12,628	)		(2.9	)
		1,395,691			112.8			1,370,065			108.5			(25,626	)		(1.9	)
Gross Profit (Loss)		(158,886	)		(12.8	)		(106,900	)		(8.5	)		(51,986	)		(48.6	)
Other income (expense)		389			0.0			9,970			0.8			(9,581	)		(96.1	)
Subsidiary Net Loss		(158,497	)		(12.8	)		(96,930	)		(7.7	)		(61,567	)		(63.5	)

	%	- represents the percentage of total plant operating revenues.
	%*	- represents the percentage of change from 2015 to 2016. Increases in revenues and decreases in expenses from the prior period to the current period are considered to be favorable and are presented as positive figures.

The intercompany elimination adjustments for interest expense, management fees and lease costs are not incorporated into the presentation of the subsidiary’s operations.

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Key quarterly production data for RREI is summarized as follows:

			Mega-						Ave. Rate			Subsidiary			Depreciation
			watt			Energy			per			Net Income			&
			Hours			Sales			Megawatt			(Loss)*			Amortization
Quarter Ended:			Produced			($)			Hour ($)			($)			($)
June 30, 2014			18,069			907,194			50.2			(579,569)			428,180
September 30, 2014			18,501			1,273,013			68.8			117,281			429,164
December 31, 2014			20,614			1,425,811			69.9			203,414			431,214
March 31, 2015			20,672			1,165,050			56.4			(96,930)			431,959
June 30, 2015			17,223			888,599			51.6			(668,764)			438,955
September 30, 2015			15,950			1,106,643			69.4			(296,743)			443,233
December 31, 2015			21,751			1,533,621			70.5			425,745			443,744
March 31, 2016			19,684			1,144,351			58.2			(158,497)			444,587

*

- Subsidiary net income (loss) does not include intercompany elimination adjustments for interest expense, management fees and lease costs.

Corporate Administrative
For the three months ended March 31, 2016, the Company reported $354,046 in corporate and administrative costs which was an increase of $58,666 (19.9% increase) from the same period ended 2015. Additional filing fees that exceeded $23,000 were incurred related to the registration of shares for the option of extinguishing the obligation related to the acquisition of additional ownership interest in Raft River Energy I LLC. Also, additional filing fees were incurred related to the current quarter stock offerings. Rent/lease costs of $18,331 were incurred for the storage of plant equipment acquired in the fourth quarter of 2015. The majority of these storage costs will be eliminated when the equipment is moved to Company owned facilities. Interest and other fees of approximately $38,300 were incurred in the current quarter related to the convertible debt obligation for the additional ownership interest of Raft River Energy I LLC.

Professional and Management Fees
For the three months ended March 31, 2016, the Company reported $1,056,509 in professional and management fees which was an increase of $673,386 (175.8% increase) from the same period ended 2015. In August of 2015, the Company formed a Special Committee of the Board of Directors to thoroughly explore strategic options to maximize shareholder value. The Company ended this process and ended the contract with the primary consultant that was engaged in the examination in March 2016. For the current quarter, the consultant’s fees associated with this examination were approximately $544,000. The Company incurred fees of $100,000 for services provided by a new financial advisor hired during the current quarter. Legal costs of approximately $109,000 ($64,000 increase from the three months ended March 31, 2015) were incurred for services related to the stock offerings under the At the Market (“ATM”) facility and the strategic option examination.

Travel and Promotion
For the three months ended March 31, 2016, the Company reported $83,412 in travel and promotional costs which were an increase of $52,985 (174.1% increase) from the same period ended 2015. During current quarter, the Company incurred additional travel costs related to the process of exploring strategic options to maximize shareholder value and to attend investment conferences.

Net Income Tax Expense
For the three months ended March 31, 2016, the Company reported net income taxes of $90,000, which was a decrease of $354,000 (79.7% decrease) from the same period ended 2015. The variance was a function of lower income attributed to the Company primarily due to higher professional fees and administrative costs noted above.

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Non-Controlling Interests
The following is a summarized presentation of select financial line items from the statement of operations by project and the impact of the related non-controlling interests for the three months ended March 31, 2016:

			Neal Hot									Activities and			Consolid-
Statement of			Springs			San Emidio			Raft River			Corporate			ated
Operations Element			$			$			$			$			$
Gross Profit (Loss)			3,630,094			924,205			(158,886	)		128,284			4,523,697
Expenses/(Income)			419,879			498,758			(389	)		(4)2,327,654			3,245,902
Net Income(Loss) before tax expense			3,210,215			425,447			(158,497	)		(2,199,370	)		1,277,795
Income taxes – USG Portion			(722,000	)		(160,000	)		(32,000	)		824,000			(90,000	)
Non-controlling interests			(1)(1,284,086)			-			(2)243,820			(3)3,863			(1,036,403	)
Net income attributable to U.S. Geothermal			1,204,129			265,447			53,323			(1,371,507	)		151,392

	(1)	The non-controlling interest for Neal Hot Springs represent a 40% interest for our joint venture partner, Enbridge.
	(2)	The non-controlling interest for Raft River represents 5% of REC income and cash flows, and 99% of all remaining profits and losses allocated to the Goldman Sachs Group.
	(3)	The non-controlling interest for our exploration activities represents an approximately 33% interest for our joint venture partner at Gerlach, GGE Development.
	(4)	Major costs included in Exploration Activities and Corporate for the three months ended March 31, 2016 included:

	•		Employee compensation		$	806,669
	•		Corporate administration			354,046
	•		Professional fees			1,056,509

These costs are the responsibility of U.S. Geothermal Inc. (the Parent Company) and cannot be allocated to projects. Once a project has been classified as developmental, the costs associated with a project will be capitalized.

Off Balance Sheet Arrangements

As of March 31, 2016, the Company does not have any off balance sheet arrangements.

Liquidity and Capital Resources

During the quarter ended March 31, 2016, the operating projects of U.S. Geothermal continued to generate significant available cash (after debt service and reserves) to fund our development activities and corporate costs. In addition, exercise of options generated $71,000 during the quarter. Excess available cash of $1.2 million at Raft River Energy I, LLC was distributed to the partners subsequent to quarter-end (USG portion 95%). We believe our cash and liquid investments at March 31, 2016 are adequate to fund our general operating activities through December 31, 2016.

Development of our projects under development and under exploration 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, market loans, issuance of debt or equity, and/or through the sale of ownership interest in tax credits and benefits. The Company continues discussions with potential investors to evaluate alternatives for funding at the corporate and project levels.

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Idaho Power Company and Sierra Pacific Power (NV Energy), continue to pay for their power in a timely manner. This power is sold under long-term contracts at fixed prices. The status of the credit and equity markets could delay our project development activities while we seek to obtain economic credit terms or a favorable equity market price to further the drilling and construction activities.

On January 25, 2016, management determined it would be prudent to enter into a new Lincoln Park Capital (“LPC”) facility. The Company’s first Purchase Agreement with LPC, was entered into on May 21, 2012 and expired in 2015. Under the new Purchase Agreement, at the company’s sole discretion, the Company has the right to sell and LPC has the obligation to purchase up to $10 million of equity capital over a 30-month period subject to the conditions in the Purchase Agreement. The agreement provides for an initial sale of $650,000 of shares of common stock upon closing. Net proceeds from LPC’s investments will be used to cover a portion of the cost of the recent acquisition of the Goldman Sachs ownership interest of the Raft River project, development of our geothermal projects and for general corporate purposes. An additional $571,650 has been raised under the At the Market (“ATM”) subsequent to the initial sale.

On December 14, 2015, the Company acquired from Goldman Sachs the majority of their cash flow interest in and ownership of the Raft River geothermal project. The Company will receive 95% of the cash flow from the project on a going forward basis, along with all increased cash flow from any project improvements. The purchase price was $5.1 million for the 95% interest, with an option to purchase the balance of Goldman’s interest for Fair Market Value at the end of 2017. The purchase price consisted of a $3.5 million cash payment plus a promissory note of $1.6 million that bears interest at 8%. Under the promissory note agreement, $1 million of the note could be satisfied with shares of U.S. Geothermal common stock priced at the 10 day weighted average closing price of the common stock at time of conversion if not otherwise paid in cash by March 31, 2016. Since the Company paid off this note in cash on March 31, 2016, the Company has now withdrawn its resale registration statement covering the shares to be issued in satisfaction of the promissory note.

On August 10, 2015, the Company announced that its Board of Directors had approved a stock repurchase program, pursuant to which the Company is authorized to repurchase, from time to time, up to $2 million of its outstanding common stock through the end of July 2016. The extent to which the Company repurchases its common stock and the timing of the repurchases will depend upon market conditions and other corporate considerations. The Company intends to pay for any stock repurchased with existing cash balances. To date, the Company has not purchased any shares under this program.

On February 4, 2014, a replacement shelf registration statement filed on Form S-3 with the SEC became effective. The replacement shelf registration statement was filed as a routine course of business due to the impending expiration of the Company’s existing shelf registration statement that, under SEC rules, would have expired on December 1, 2013. The Company may use the replacement shelf registration statement to offer and sell from time to time for a period of three years in one or more public offerings up to $50 million of common stock, warrants, or units consisting of any combination thereof. The terms of any securities offered under the replacement shelf registration statement, and the intended use of the resulting net proceeds, will be established at the times of any future offerings and will be described in prospectus supplements filed at such times with the SEC. Other than with respect to the LPC facility described above, the Company has no immediate plans to sell any additional stock under the replacement shelf registration statement at this time, but wishes to preserve the option in support of its future growth and development of its projects as well as strategic acquisition opportunities.

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Potential Acquisitions

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

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that we believe to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

There have been no significant changes to our critical accounting estimates as discussed in our Annual Report.

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

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 quarterly 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 quarterly 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 three months ended March 31, 2016 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

Not applicable.

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

None.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Disclosures

Not applicable.

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: May 10, 2016	By: /s/ Dennis J. Gilles
	Dennis J. Gilles
	Chief Executive Officer
Date: May 10, 2016
	By: /s/ Kerry D. Hawkley
	Kerry D. Hawkley
	Chief Financial Officer and Corporate Secretary

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EXHIBIT INDEX

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