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 construction of new projects and expansion of existing projects;

availability and costs of drilling rigs and field services;

our liquidity and ability to finance our exploration and development activities;

our working capital requirements and availability;

our illustrative plant economics;

market conditions in the geothermal energy industry; and

the impact of environmental and other governmental regulation.

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

the failure to obtain sufficient capital resources to fund our operations;

unsuccessful construction and expansion activities, including delays or cancellations;

incorrect estimates of required capital expenditures;

increases in the cost of drilling and completion, or other costs of production and operations;

the enforceability of the power purchase agreements for our projects;

impact of environmental and other governmental regulation, including delays in obtaining permits;

hazardous and risky operations relating to the development of geothermal energy;

our ability to successfully identify and integrate acquisitions;

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.

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

General Background and Discussion

The following discussion should be read in conjunction with our unaudited consolidated financial statements for the period ended June 30, 2010 and notes thereto included in this report.

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

For the quarter year ended June 30, 2010, the Company was focused on:

1) Completing the temperature gradient drilling program at the Neal Hot Spring project;
2) planning drilling and field development activities at Neal Hot Springs;
3) planning and permitting for drilling at the Gerlach Joint Venture;
4) negotiating a fully financed EPC and a PPA for the San Emidio Project;
5) optimizing the operation of the San Emidio power plant in Nevada, and planning for start of construction on the Phase I repower of the existing well field;
6) optimizing the operation of the well field at the Raft River project in Idaho ("Raft River Unit I"; and
7) the evaluation of potential new geothermal project acquisitions.

Project Overview

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

                                  Projects in Operation
                                                Generating                      Contract
   Project        Location      Ownership    Capacity (MW)(1)      Power       Expiration
                                                                 Purchaser
  Raft River                                                    Idaho Power
   (Unit I)         Idaho         JV(2)            13.0           Company         2032
  San Emidio                                                       Sierra
  (Existing)                                                      Pacific
                   Nevada         100%             3.6          Power Corp.       2017
 

(1) Based on the designed annual average net output. The actual output of the Raft River Unit I plant currently varies between 7.1 and 10.0 megawatts and output of the Empire plant is approximately 2.6 megawatts.
(2) As part of the financing package for Unit I of the Raft River project, we have contributed $16.5 million in cash and approximately $1.5 million in property to Raft River Energy I LLC, the Unit I project joint venture company. Raft River I Holdings, LLC, a subsidiary of The Goldman Sachs Group, contributed $34 million to finance the construction of the project. Additional investment may be required for Unit I to operate at design capacity.

                               Projects Under Development
                                                                  Estimated
                                      Target       Projected       Capital
                                    Development    Commercial     Required   Anticipated
  Project    Location    Ownership     (MW)      Operation Date  ($million)     Power
                                                                              Purchaser
San Emidio
Phase I
(Repower)     Nevada       100%         5.4     1st Quarter 2012     $30      NV Energy
San Emidio
Phase II
(Expansion)   Nevada       100%         26      3rd Quarter 2012    $127         TBD
Neal Hot
Springs 1     Oregon       100%         22      2ndQuarter 2012     $119     Idaho Power
Neal Hot
Springs II    Oregon       100%         28      3rd Quarter 2013    $154         TBD
Raft River
I (Repower)    Idaho        JV           3      3rd Quarter 2010     $7      Idaho Power
Raft River
(Unit II)                                                                    Eugene Water
               Idaho       100%         26      4th Quarter 2013    $134     and Electric
Raft River                                                                      Board
(Unit III)     Idaho       100%         32      2nd Quarter 2015    $166         TBD
 

Additional Properties

   Project         Location       Ownership   Target Development (MW)
Gerlach             Nevada           60%         To be determined
Granite Creek       Nevada          100%         To be determined
El Ceibillo     Guatemala, S.A.     100%         To be determined
 
 
 
                                   Resource Details
                                                  Resource
                   Property Size    Temperature   Potential
    Property       (square miles)      (F)         (MW)      Depth (Ft)    Technology
Raft River            10.8(1)       275-302 (2)   127.0(1)    4,500-6,000     Binary
San Emidio              35.8        289-305 (2)    68.0(4)    1,500-2,000     Binary
Neal Hot Springs        9.6         311-347 (3)    50.0(5)    2,500-3,000     Binary
Gerlach                 5.6         338-352 (3)     18.0          TBD         Binary
Granite Creek           8.5             TBD        25.0(6)        TBD         Binary
El Ciebillo             38.6        410-446 (3)      TBD          TBD         Steam
 

(1) Geothermex Inc.'s assessment of 94 MW was based on 6.0 square miles. The Company acquired additional acreage. The resource estimate of 127.0 MW is an internal estimate.
(2) Actual production temperatures for existing wells.
(3) Probable reservoir temperature as measured with a geothermometer.
(4) Black Mountain Technology Resource estimate with respect to 49.0 MW, remainder is an internal estimate.
(5) Geothermal Science, Inc. resource estimate with respect to 22.0 MW, remainder is an internal estimate.
(6) Internal estimate.

Raft River Energy Unit I is located in Idaho and has a 13 megawatt geothermal power plant in operation.

Raft River Unit I operated through the first fiscal quarter at 94.5% availability which includes 4.2 days for the annual scheduled outage. Raft River generated an average of 8.7 net megawatts during the three month period ended June 30, 2010. The reduction in output for the period compared to planned generation was due to the loss of temperature from production well RRG-7 and the shutdown of production well RRG-2.

In early January 2009, production well RRG-7 underwent a temperature decline that has reduced the inlet fluid temperature to the power plant by approximately 4 degrees Fahrenheit. At the same time of the temperature change, fluid flow increased. Power generation has been reduced by an estimated 1 megawatt due to the lower temperature fluid. It was determined that the cement in a lap joint had failed and a mechanical packer was installed to reduce the cold water inflow, but was unsuccessful. A remediation program has been planned for a cost of $813,300 that will "squeeze" cement into the lap joint and plug off the cold water flow to return the well temperature and increase power plant generation.

Production well RRG-2 was shut down on June 10, 2010 due to a reduction in flow and increased motor load which indicates an impending pump failure. A repair program, which includes a well stimulation procedure, has been planned for a cost of $512,750.

Until the repairs are completed, the plant output will continue at about 7.8 megawatts. Plans for repair of both RRG-7 and RRG-2 are under discussion with Raft River I Holdings, the joint venture partner for Raft River Unit I.

Raft River Operating Agreement

We hold a 50% interest in Raft River Energy I LLC, which owns Raft River Unit I ("Unit I"). Construction of Unit I required substantial capital, and partnering with a co-venturer allowed us to share the risks of ownership. The joint venture has also allowed the project to take advantage of production tax credits which would not otherwise have been available to us. When Unit I operates at full capacity of 13 megawatts, we estimate we will receive cash payments totaling approximately $1.6 million for the first four years of its operations. While Unit I generates at less than full capacity, our annual cash payments from the Raft River I project will be lower. If insufficient cash is generated to satisfy all joint venture obligations, the management fees will be deferred. See Note 5 "Investment in Subsidiaries" in the financial statements for detail of cash payments from RREI.

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

                                Years 1 - 4  Years 5 - 10 Years 11 - 20 Years 20 - 25
           RECs                                        70% (1)
           GAAP Income                   1% (2)                49%           80%
Cash Flow  Lease Payments, O&M                          100%
           Services & Royalties
           Distributions         Guaranteed     1% (3)         49%           80%
                                min. payment
Tax Benefits                             1% (2)                49%           80%
 

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

On February 26, 2009 U.S. Geothermal submitted an application for the Neal Hot Springs project to the DOE's Energy Efficiency, Renewable Energy and Advanced Transmission and Distribution Solicitation loan guarantee program under Title XVII of the Energy Policy Act of 2005. The Company was notified that its project application is complete, the power plant technology choice qualifies as new or improved under the program, and the project has been selected to proceed in the project loan process. Although we have not yet received approval, the DOE guaranteed loan is expected to provide up to 75% of the $120 million estimated capital cost of Stage I up to a maximum loan amount of $102.2 million. The capital cost has increased to $120 million from prior estimates of $106 million due to costs of labor, updated vendor pricing and construction materials, project loan costs and contingencies. Detailed design of a binary cycle power plant utilizing significantly improved technology is currently in progress with construction expected to begin in mid 2010. The new plant, designed to deliver approximately 22 MW of power net to the grid is scheduled to begin commercial operations in early 2012. The DOE guaranteed loan is anticipated to be a combined construction and term loan and provide the project with a low cost annual interest rate. We expect that we will be required to drill up to 8 additional wells as a condition precedent to drawing on the DOE guaranteed loan, if it is approved.

The new plant, designed to deliver approximately 22 MWs of power net to the grid is scheduled to begin commercial operations in early 2012. The DOE loan is anticipated to be a combined construction and term loan and provide the project with a low cost annual interest rate. We expect that we will be required to drill up to 8 wells as a condition precedent to drawing on the DOE loan, if it is approved.

An infill geophysical program was carried out to increase the density of data to highlight suspected geologic targets and structures. Applications for four additional exploration wells to further delineate the geothermal resource with production and injection targets were approved by the state of Oregon on September 11, 2009 and drilling of the second production well, NHS-5, began on September 18, 2009. October 15, 2009, the Company successfully completed well NHS-5, the second full size production well at the Neal Hot Springs project located in eastern Oregon. NHS-5 encountered several lost circulation zones within the targeted horizon and intercepted a large aperture fracture at 2,796 feet resulting in a total loss of circulation. The well was completed to a depth of 2,896 feet. An initial 16 hour flow test completed using air lift produced fluid at a rate of 1,500 gallons per minute and resulted in a down hole flowing temperature of 286 F (141 C).

The reservoir-hosting fracture zone intersected in NHS-5 is 509 feet deeper in the geologic system than the large producing fracture intersected by NHS-1 which is located approximately 600 feet to the southeast. Both wells were instrumented with pressure and temperature equipment during the flow test. Geologic information and flow data from the drilling and flow test has been incorporated into the ongoing development of a reservoir model of the Neal Hot Springs geothermal system.

In addition to the drilling program for production-sized wells, the company has continued a temperature gradient ("TG") drilling program utilizing a small diameter drill hole. Eleven TG holes ranging in depth from 500 to 1,060 feet have been completed, and are providing valuable temperature gradient data for the overall area that hosts the Neal Hot Springs reservoir. Currently, several TG holes are being deepened and another three to five new TG holes will be drilled with a number of the holes planned to reach a depth of 2,000 feet as the size of the geothermal anomaly is defined.

The Company received the Conditional Use Permit from the Malheur County Planning Commission for construction of its proposed 22 net MW power plant at Neal Hot Springs in eastern Oregon. The Conditional Use Permit received unanimous approval at a September 24, 2009 Planning Commission meeting and was issued on October 28, 2009. All of the Federal Energy Regulatory Commission ("FERC") mandated transmission studies have been completed by Idaho Power Company. An interconnection agreement was signed with the Idaho Power Company in February 2009. Private right-of-ways for the transmission line have been acquired, the line route is surveyed and the final engineering design has reached approximately 99% completion.

Two mineral ownership interests in the Neal Hot Spring project were acquired during the quarter. A 25 % mineral interest for 600 acres of property was acquired from a private estate. An option to purchase a separate 25% mineral interest in 2,110 acres of the project was executed with GCO Minerals Company, a subsidiary of International Paper.

San Emidio Update
The San Emidio geothermal power plant has been producing power since 1987 and sells electricity to Sierra Pacific Power Corporation under an existing power purchase agreement that extends through 2017. Deeper wells with higher temperatures were drilled in 1994 to supply the plant after output declined due to cooling of the original, shallow production wells. The current configuration of the plant consists of four 1.2 gross MW Ormat Energy Converters ("OEC"), five production wells (two wells in use and three on stand by), and four injection wells (three wells in use and one on standby). A cooling tower was added in 1998 to improve summer peak power generation. A cooling tower was added in 1998 to improve summer peak power generation. During the first fiscal quarter ended June 30, 2010, the San Emidio plant operated at 99.4% availability and generated an average of 2.5 net megawatts during the period.

Two System Feasibility Studies were initiated in July 2008 with Sierra Pacific Power Corporation to begin the FERC mandated transmission study process for the development of the San Emidio resource. The studies are examining two levels of power generation, 15 MWs and 45 MWs, several transmission routes and the costs associated with each level of generation. The System Impact Study for the 15 MW Phase I repower, the second phase of interconnection study process, was completed in July and confirmed that the existing transmission system was able to handle up to 15 MWs. The third phase study, the Interconnection Facilities Study for the 15 MW option, was completed in October. A draft interconnection agreement is expected from Sierra Pacific Power before the end of the third calendar quarter of 2010.

Subsequent to the end of the year, the System Impact Study for the 45 MW option was received in April. The third phase study for the 45 MW option, the Interconnection Facilities Study, will be contracted during the second calendar quarter and is expected to be completed before year end.

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

On July 14, 2010, the Company entered into a memorandum of understanding regarding a construction loan agreement with an engineering, procurement and the construction company ("Contractor") to construct an 8.6 net megawatt power plant at San Emidio, Nevada. The agreement calls for the Contractor to provide a non-recourse project loan for $30 million. The construction loan is expected to be repaid with long term financing from available sources such as the Section 1705 loan guarantee program from the U.S. Department of Energy. Final documents are currently being compiled.

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

The concession contains the El Ceibillo geothermal project which has nine existing geothermal wells that were drilled in the l990s and have depths ranging from 560 to 2000 feet (170 to 610 meters). Six of the wells have measured reservoir temperatures in the range of 365F to 400F and have high conductive gradients that indicate rapidly increasing temperature with depth. Fluid samples and mineralization from the wells indicate the existence of a high permeability reservoir below the existing well field.

An office and staff have been established and planning is underway to advance the project with a detailed geophysical program, geologic mapping, sampling of hot springs, and to redrill one or two of the existing wells to test for deep, high temperature permeability.

Gerlach Update
Permitting has been completed and bonding submitted for a drill site on the Gerlach joint venture property located adjacent to the town of Gerlach in Washoe County, Nevada. A 2,000 foot deep temperature gradient well is planned that will test an identified fault zone.

Granite Creek
The Granite Creek assets are comprised of three BLM geothermal leases totaling approximately 5,414 acres (8.5 square miles) located about 6 miles north of Gerlach, Nevada along a geologic structure known to host geothermal features including the Great Boiling Spring and the Fly Ranch Geyser. A first stage gravity geophysical program was completed in the third quarter of 2008 and will be used to evaluate the resource potential, and help determine where to drill temperature-gradient exploration wells.

Operating Results

For the three months ended June 30, 2010, the Company reported a net loss of $1.4 million dollars ($0.02 loss per share) which represented an 18.2% decrease over the same period in 2009. Notable favorable variances were noted for San Emidio operations and stock based compensation. Unfavorable variances were noted in corporate administration; professional and management fees; salaries and wages; and travel and promotion costs.