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, 2015

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 8, 2015
Common stock, par value 107,063,029
     $ 0.001 per share  

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U.S. Geothermal Inc.
Form 10-Q
For the First Quarter Ended March 31, 2015
 
INDEX

PART I – Financial Information  
       
Item 1 – Consolidated Financial Statements  
Consolidated Balance Sheet at March 31, 2015 (unaudited) and Consolidated Balance Sheet at December 31, 2014 4
Unaudited Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2015 and 2014 (unaudited) 5
Unaudited Consolidated Statements of Cash Flow – Three Months Ended March 31, 2015 and 2014 (unaudited) 6
Consolidated Statement of Stockholders’ Equity – Year Ended December 31, 2014 and Three Months Ended March 31, 2015 (unaudited) 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
   - Operating Results 33
   - Off Balance Sheet Arrangements 40
   - Liquidity and Capital Resources 40
   - Potential Acquisitions 41
   - Critical Accounting Policies 41
Item 3 – Quantitative and Qualitative Disclosures about Market Risk 41
Item 4 - Controls and Procedures 42
       
       
PART II – Other Information  
       
Item 1 - Legal Proceedings 43
       
Item 1A - Risk Factors 43
       
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 43
       
Item 3 - Defaults Upon Senior Securities 43
       
Item 4 – Mine Safety Disclosures 43
       
Item 5 - Other Information 43
       
Item 6 - Exhibits 43

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U.S. GEOTHERMAL INC.
CONSOLIDATED BALANCE SHEETS

    (Unaudited)        
    March 31, 2015     December 31, 2014  
             
ASSETS            
             
Current:            
     Cash and cash equivalents $  13,290,389   $  12,994,975  
     Restricted cash and bonds   4,070,611     3,320,781  
     Trade accounts receivable   2,559,801     3,774,133  
     Deferred income tax asset   1,803,000     1,803,000  
     Other current assets   1,431,153     1,550,359  
             Total current assets   23,154,954     23,443,248  
             
Restricted cash and bond reserves   17,165,788     18,690,096  
Property, plant and equipment, net of depreciation   166,689,585     166,859,446  
Intangible assets, net of amortization   15,402,092     15,417,514  
Net deferred income tax asset   8,060,000     8,504,000  
                     Total assets $  230,472,419   $  232,914,304  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
             
Current Liabilities:            
     Accounts payable and accrued liabilities $  1,261,889   $  1,886,947  
     Related party accounts payable   -     5,195  
     Current portion of capital lease obligations   8,426     20,919  
     Current portion of notes payable   4,355,902     4,336,271  
               Total current liabilities   5,626,217     6,249,332  
             
Long-term Liabilities:            
     Asset retirement obligations   1,400,000     1,400,000  
     Notes payable, less current portion   92,541,453     94,376,351  
         Total long-term liabilities   93,941,453     95,776,351  
             
              Total liabilities   99,567,670     102,025,683  
             
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, 2015 and December
     31, 2014 were: 107,063,029 and 107,018,029; respectively)
 

107,063
   

107,018
 
Additional paid-in capital   104,048,731     103,669,371  
Accumulated deficit   (18,550,725 )   (19,284,860 )
    85,605,069     84,491,529  
             
Non-controlling interests   45,299,680     46,397,092  
Total stockholders’ equity   130,904,749     130,888,621  
             
                             Total liabilities and stockholders’ equity $  230,472,419   $  232,914,304  

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

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U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

    (Unaudited)  
    For the Three Months Ended March 31,  
    2015     2014  
             
Plant Revenues:            
       Energy sales $  8,375,746   $  8,401,097  
       Energy credit sales   98,115     100,868  
             Total plant operating revenues   8,473,861     8,501,965  
             
Plant Expenses:            
       Plant production expenses   2,290,212     2,159,706  
       Depreciation and amortization   1,568,012     1,558,318  
             Total plant operating expenses   3,858,224     3,718,024  
             
Gross Profit   4,615,637     4,783,941  
Operating Expenses (Income):            
       Corporate administration   295,380     292,306  
       Professional and management fees   383,123     369,983  
       Salaries and wages   381,988     394,713  
       Stock based compensation   365,455     147,312  
       Travel and promotion   30,428     34,723  
       Exploration costs   43,041     24,086  
Operating Income   3,116,222     3,520,818  
             
         Interest Expense   949,351     980,992  
       Other (income) expense   (40,510 )   (7,265 )
             
Income Before Income Tax Expense   2,207,381     2,547,091  
       Income Tax Expense   (444,000 )   -  
             
Net Income   1,763,381     2,547,091  
         Net income attributable to the non-controlling interests   (1,029,246 )   (1,207,671 )
             
Net Income Attributable to U.S. Geothermal Inc.   734,135     1,339,420  
Other Comprehensive Income:            
         Unrealized income on investment in equity securities   -     27,321  
             
Comprehensive Income Attributable to U.S. Geothermal Inc. $  734,135   $  1,366,741  
             
Basic Net Earnings Per Share Attributable to U.S. Geothermal Inc. $  0.01   $  0.01  
Diluted Net Earnings Per Share Attributable to U.S. Geothermal Inc. $  0.01   $  0.01  
             
Shares used in the calculation of income per share:            
     Basic   107,039,029     102,300,440  
     Diluted   108,417,352     105,202,422  

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,  
    2015     2014  
             
Operating Activities:            
Net Income $  1,763,381   $  2,547,091  
Adjustments to reconcile net income to total cash provided by operating activities:        
           Depreciation and amortization   1,595,421     1,590,029  
           Stock based compensation   365,455     147,312  
           Loss on sale of securities   -     27,967  
           Change in deferred income taxes   444,000     -  
 Net changes in:            
           Trade accounts receivable   1,214,332     1,191,915  
           Accounts payable and accrued liabilities   (567,674 )   (391,438 )
           Prepaid expenses and other   119,206     (83,811 )
               Total cash provided by operating activities   4,934,121     5,029,065  
             
Investing Activities:            
     Purchases of property, plant and equipment   (1,496,717 )   (595,230 )
     Company acquisitions   -     (324,436 )
     Net funding of restricted cash reserves and bonds   774,478     824,990  
           Total cash used by investing activities   (722,239 )   (94,676 )
             
Financing Activities:            
     Issuance of common stock   13,951     295,913  
     Distributions to non-controlling interest   (2,102,658 )   (13,304,947 )
     Principal payments on notes payable and other obligations   (1,815,267 )   (2,285,574 )
     Principal payments on capital leases   (12,494 )   (11,768 )
           Total cash used by financing activities   (3,916,468 )   (15,306,376 )
             
Increase (Decrease) in Cash and Cash Equivalents   295,414     (10,371,987 )
             
Cash and Cash Equivalents, Beginning of Period   12,994,975     28,736,934  
             
Cash and Cash Equivalents, End of Period $  13,290,389   $  18,364,947  
             
Supplemental Disclosures:            
Non-cash investing and financing activities:            
     Accrual for purchases of property and equipment $  86,579   $  53,096  
     Receivable from sale of equity securities   -     41,528  
             
Other Items:            
     Interest paid   1,399,457     1,438,977  

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, 2015 and Year Ended December 31, 2014

                Additional           Accumulated     Non-        
    Number of     Common     Paid-In     Accumulated     Comprehensive     controlling        
    Shares     Shares     Capital     Deficit     Income (Loss)     Interest     Totals  
                                           
                                           
Balance at December 31, 2013   102,094,542   $  102,094   $  100,381,207   $  (30,898,571 ) $  (27,321 ) $  58,155,480   $  127,712,889  
                                           
Distributions to non-controlling interest entities   -     -     -     -     -     (15,048,334 )   (15,048,334 )
Non-controlling equity contribution from Gerlach Green Energy, LLC   -     -     -     -     -     7,360     7,360  
Stock issued to shareholders of acquired company   692,769     693     317,981     -     -     -     318,674  
Stock issued by the exercise of employee stock options   1,077,000     1,077     336,544     -     -     -     337,621  
Stock issued by the exercise of stock purchase warrants   2,594,596     2,595     1,294,703     -     -     -     1,297,298  
Stock compensation   559,122     559     1,338,936     -     -     -     1,339,495  
Unrealized loss and reclassification to net income   -     -     -     -     27,321     -     27,321  
Net income   -     -     -     11,613,711     -     3,282,586     14,896,297  
                                           
Balance at December 31, 2014   107,018,029     107,018     103,669,371     (19,284,860 )   -     46,397,092     130,888,621  
                                           
Distributions to non-controlling interest entities   -     -     -     -     -     (2,126,658 )   (2,126,658 )
Stock issued by the exercise of employee stock options   45,000     45     13,905     -     -     -     13,950  
Stock compensation   -     -     365,455     -     -     -     365,455  
Net income   -     -     -     734,135     -     1,029,246     1,763,381  
Balance at March 31, 2015   107,063,029   $  107,063   $  104,048,731   $  (18,550,725 ) $  -   $  45,299,680   $  130,904,749  

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, 2015

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, 2015 and our operating results and cash flows for the three months ended March 31, 2015 and 2014. The accompanying financial information as of December 31, 2014 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, 2014.

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); and

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  xx)

Earth Power Resources Inc. (incorporated in 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 comprehensive 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, 2015 and December 31, 2014, 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, 2015, the Company’s total cash balance, excluding money market funds, was $3,869,559, and bank deposits amounted to $3,967,574. The primary difference was due to outstanding checks and deposits. Of the bank deposits, $2,480,347 was not covered by or was in excess of FDIC insurance guaranteed limits. At March 31, 2015, the Company’s money market funds invested, primarily, in government backed securities totaled $30,653,529 and were not subject to deposit insurance.

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:

  Estimated Useful
                                 Asset Categories Lives in Years
   
Furniture, vehicle and other equipment 3 to 5
Power plant, buildings and improvements 3 to 30
Wells 30
Well pumps and components 5 to 15
Pipelines 30
Transmission lines 30

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 we are 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 an inventory item held for sale, and 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 statement of operations.

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:

Consolidation

In February 2015, FASB issued Accounting Standards Update No. 2015-02 (“Update 2015-02”), Amendments to the Consolidation Analysis, Consolidation (Topic 810). Update 2015-02 provides modifications to the evaluation of variable interest entities that may impact consolidation of reporting entities. Update 2015-02 is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The Company currently consolidates variable interest entities and may create or acquire variable interest entities for future endeavors. Management is still evaluating the possible impact this Update may have on the financial presentation of the Company’s consolidated financial statements.

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Presentation of Debt Issuance Costs

In April 2015, FASB issued Accounting Standards Update No. 2015-03 (“Update 2015-03”), Simplifying the Presentation of Debt Issuance Costs, Interest-Imputation of Interest (Subtopic 835-30). Update 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. For public business entities, Update 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. Management is still evaluating the impact and the timing of adoption of this Update.

NOTE 3 – RESTRICTED CASH AND 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   2015     2014  
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   645,719     188,930  
Prudential Capital Group, Debt Service Reserves   1,594,754     -  
Bureau of Land Management , Geothermal Rights Lease Bond   10,000     10,000  
U.S. Department of Energy, Debt Service Reserve   850,138     2,151,851  
State of California Division of Oil, Gas and Geothermal Resources, Well Cash Bond   100,000     100,000  
             
  $  4,070,611   $  3,320,781  

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Long-term restricted cash and bond reserves:

    March 31,     December 31,  
Restricting Entities/Purpose   2015     2014  
Nevada Energy, PPA Security Bond $  1,468,898   $  1,468,898  
Prudential Capital Group, Debt Service Reserves   -     1,594,605  
Prudential Capital Group, Maintenance Reserves   608,689     604,529  
Prudential Capital Group, Well Reserves   77,692     212,298  
U.S. Department of Energy, Operations Reserves   270,000     270,000  
U.S. Department of Energy, Debt Service Reserves   2,550,522     2,582,606  
U.S. Department of Energy, Short Term Well Field Reserves   4,505,705     4,505,150  
U.S. Department of Energy, Long-Term Well Field Reserves   4,862,517     4,761,927  
U.S. Department of Energy, Capital Expenditure Reserves   2,821,765     2,690,083  
             
  $  17,165,788   $  18,690,096  

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. See note 2 for details. The PPA Security Bond is held by the power purchaser. All of the reserve accounts were considered to be fully funded at March 31, 2015 and December 31, 2014.

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NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

During the first quarter ended March 31, 2015, the Company focused development activities the Crescent Valley and WGP Geysers projects. Drilling costs of approximately $662,000 were incurred on a production well at Crescent Valley. Costs were incurred at WGP Geysers for site preparation, an interconnection study and a well field study that totaled approximately $428,000. A down payment of $104,960 was made on a variable pump control module for a pump at Raft River Energy I, LLC.

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

          December 31,  
    March 31, 2015     2014  
Land $  3,210,496   $  3,211,010  
Power production plant   162,076,367     162,076,367  
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   1,835,931     1,796,807  
    178,314,170     178,275,560  
             
           Less: accumulated depreciation   (28,618,835 )   (27,068,836 )
    149,695,335     151,206,724  
Construction in progress   16,994,250     15,652,722  
             
  $  166,689,585   $  166,859,446  

Depreciation expense charged to plant operations and administrative costs for the three months ended March 31, 2015 and 2014, was $1,595,999 and $1,448,867; respectively.

Changes in construction in progress are summarized as follows:

    For the Three        
    Months Ended     For the Year  
    March 31,     Ended December  
    2015     31, 2014  
Beginning balances $  15,652,722   $  6,354,503  
     Development/construction   1,341,528     3,730,371  
     Grant reimbursements and rebates   -     (632,210 )
     Acquisitions   -     6,200,058  
     Transfers into production   -     -  
Ending balances $  16,994,250   $  15,652,722  

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

    March 31,     December 31,  
    2015     2014  
Raft River, Idaho:            
       Unit I, well improvements $  104,960   $  -  
       Unit II, power plant, substation and transmission lines   750,493     750,493  
       Unit II, well construction   2,130,287     2,127,547  
    2,985,740     2,878,040  
San Emidio, Nevada:            
         Unit II, power plant, substation and transmission lines   423,536     383,536  
         Unit II, well construction *   3,170,235     3,133,873  
    3,593,771     3,517,409  
Neal Hot Springs, Oregon:            
           Power plant and facilities   8,778     6,477  
             
WGP Geysers, California:            
       Power plant and facilities   319,989     319,988  
       Well construction   6,567,146     6,139,421  
    6,887,135     6,459,409  
Crescent Valley, Nevada:            
       Well construction   795,261     133,058  
El Ceibillo, Republic of Guatemala:            
       Well Construction   2,715,065     2,649,829  
       Plant and facilities   8,500     8,500  
    2,723,565     2,658,329  
             
  $  16,994,250   $  15,652,722  

  *

- Consists of four wells at March 31, 2015. The wells represent efforts to develop a well field to be utilized for Phase II. As of the date of these financial statements, the results of the wells are not sufficient to confirm a well field that would support another power plant. Two wells are being utilized to target a potential resource area. One well is currently being utilized/flow tested by the Phase I power plant. Management is still actively pursuing the Phase II project. If the project is abandoned, the cost of the wells that have no future economic value will be removed.

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NOTE 5 – INCOME TAXES

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

    For the Three Months Ended  
    March 31,  
    2015     2014  
U.S. Federal statutory rate   34.0%     34.0%  
Average State and foreign income tax, net of federal tax effect   3.7     3.7  
Production tax credits   -     -  
Valuation allowance   -     (37.7 )
        Consolidated tax rate before non-controlling interest   37.7     -  
Tax effect of non-controlling interests   (17.6 )   -  
         Net effective tax rate   20.1%     -%  

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, 2015, reflects a reported effective tax rate of 20.1% which differs from the statutory federal income tax rate of 35% 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 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 $1,626,251 on February 10, 2017 and continue through February 12, 2035. The loan balance at March 31, 2015 totaled $65,256,686 (current portion $3,419,927).

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Loan advances/tranches and effective annual interest rates are details 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, 2015   (17,801,279 )      
             
Loan balance at March 31, 2015 $  65,256,686        

* - Individual tranches have been fully extinguished.

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, 2015 totaled $1,392,347 (current portion $395,673).

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. All amounts owing under the notes and the note purchase agreement or any related financing document are 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, 2015, the balance of the loan was $30,182,333 (current portion $530,200).

Auto Loans
On August 21, 2014, the Company’s wholly owned subsidiaries (U.S. Geothermal Services, LLC, USG Nevada LLC and Raft River Energy I, Inc.) purchased three trucks with down payments that totaled $47,000 and three separate loan agreements with Chrysler Capital. The loans require total monthly payments of $1,257, including interest at an average rate of 7.9% per annum until September 2020. The notes are secured by the vehicles. At March 31, 2015, the loan balances totaled $65,989 (current portion $10,102).

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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:

For the Year Ended   Principal  
March 31,   Payments  
2016 $  4,355,902  
2017   4,335,588  
2018   4,349,847  
2019   3,978,007  
2020   4,026,338  
Thereafter   75,851,673  
       
  $  96,897,355  

NOTE 7 - 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, 2015, the Company can issue stock option grants totaling up to 16,059,454 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 December 31, 2014 and changes for the three months ended March 31, 2014:

          Weighted              
          Average     Weighted        
    Number of     Exercise     Average     Aggregate  
    shares under     Price Per     Fair     Intrinsic  
    options     Share     Value     Value  
                         
Balance outstanding, December 31, 2014   11,808,500   $  0.62   $  0.36   $  4,264,270  
     Forfeited/Expired   (450,000 )   0.84     0.53     (240,180 )
     Exercised   (45,000 )   0.31     0.17     (7,533 )
     Granted   -     -     -     -  
                         
Balance outstanding, March 31, 2015   11,313,500   $  0.61   $  0.36   $  4,016,557  

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

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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.

As of March 31, 2015, there was $288,721 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1.5 years.

Stock Compensation Plan (Restricted Shares)

On April 19, 2013, the Company granted an officer and director 300,000 common shares valued at $0.35 per share, which were distributed at the end of a one-year vesting period. The recipient meets the vesting requirements by maintaining employment and good standing with the Company through the vesting period. After vesting, there are no restrictions on the shares. These shares were issued in July 2013 to the recipient and held by the Company until vested. The total fair value of options at the grant date was $105,000.

On April 2, 2014, the Company issued 559,122 shares of Company stock at a price of $0.74 that fully vest on April 2, 2015 to its employees and directors. The total fair value is $413,750 and the recognized cost through March 31, 2015.

Stock Purchase Warrants

At March 31, 2015, 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  
September 16, 2015   246,285   $  1.25     4,104,757   $  1.25  
May 23, 2017   255,721     0.44     -     -  
December 21, 2017   -     -     3,310,812     0.50  

NOTE 8 – 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.

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

At March 31, 2015:

    Total     Level 1     Level 2     Level 3  
Assets:                        
Money market accounts * $  30,653,529   $  30,653,529   $  -   $  -  

At December 31, 2014:

    Total     Level 1     Level 2     Level 3  
Assets:                        
Money market accounts * $  30,515,067   $  30,515,067   $  -   $  -  

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

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Operating Lease Agreements

The Company has entered into several lease agreements with terms expiring up to December 1, 2034 for geothermal properties in Neal Hot Springs, Oregon; Washoe County, Nevada; Eureka County, Nevada; The Geysers, California; Raft River, Idaho and the Republic of Guatemala. The Company incurred total lease expenses for the three months ended March 31, 2015 and 2014, of $109,653 and $117,904; respectively.

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

Years Ending      
December 31,   Amount  
       
2015 $  674,684  
2016   930,463  
2017   900,124  
2018   865,753  
2019   742,547  
Thereafter   13,273,471  

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NOTE 10 – 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,  
    2015     2014  
             
Gerlach Geothermal LLC interest held by Gerlach Green Energy, LLC $  219,340   $  230,539  
Oregon USG Holdings LLC interest held by Enbridge Inc.   23,919,891     24,818,443  
Raft River Energy I LLC interest held by Raft River I Holdings, LLC   21,160,449     21,348,110  
  $  45,299,680   $  46,397,092  

Gerlach Geothermal LLC
On April 28, 2008, the Company formed Gerlach Geothermal, LLC (“Gerlach”) with our partner, Gerlach Green Energy, LLC (“GGE”). The purpose of the joint venture is the exploration of the Gerlach geothermal system, which is located in northwestern Nevada, near the town of Gerlach. Based upon the terms of the members’ agreement, the Company owns a 60% interest and GGE owns a 40% interest in Gerlach Geothermal, LLC. The agreement gives GGE an option to maintain its 40% ownership interest as additional capital contributions are required. If GGE dilutes to below a 10% interest, their ownership position in the joint venture would be converted to a 10% net profits interest. The Company has contributed $757,190 in cash and $300,000 for a geothermal lease and mineral rights; and the GGE has contributed $704,460 of geothermal lease, mineral rights and exploration data. During the first three quarters of the current year, contributions were made to Gerlach by the Company and GGE that totaled $11,040 and $7,360; respectively. These contributions maintained the existing ownership interests of the two partners in Gerlach. During the fourth quarter of the year ended December 31, 2014, the Company contributed $400,000 for the project’s drilling costs that were not proportionally matched by GGE. These contributions effectively reduced GGE’s ownership interest to 32.65%, and increased the Company’s interest to 67.35% as of December 31, 2014.

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 operations with the elimination of the non-controlling interest identified.

Oregon USG Holdings LLC
In September 2010, the Company’s subsidiary, Oregon USG Holdings LLC (“Oregon Holdings”), signed an Operating Agreement with Enbridge Inc. (“Enbridge”) for the right to participate in the Company’s 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, 2015, distributions were made to the Company and Enbridge that totaled $3,153,986 and $2,102,657; 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.

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Raft River Energy I LLC (“RREI”)
Raft River Energy I is a joint venture between the Company and Raft River I Holdings, LLC a subsidiary of the Goldman Sachs Group, Inc. An Operating Agreement governs the rights and responsibilities of both parties. At fiscal year end, the Company had contributed approximately $17.9 million in cash and property, and RREI has contributed approximately $34.1 million in cash. Profits and losses are allocated to the members based upon contractual terms. For income tax purposes, Raft River I Holdings, LLC receives a greater proportion of the share of losses and other income tax benefits. This includes the allocation of production tax credits, which will be distributed 99% to Raft River I Holdings, LLC and 1% to the Company during the first 10 years of production. During the initial years of operations, Raft River I Holdings, LLC will receive a larger allocation of cash distributions.

The consolidated financial statements reflect 100% of the assets and liabilities of RREI, and report the current non-controlling interest of Raft River I Holdings LLC. The full results of Raft River Energy I LLC’s operations are reflected in the statement of operations with the elimination of the non-controlling interest identified.

Effective May 17, 2011, a repair services agreement (“RSA”) was executed between RREI and U.S. Geothermal Services, LLC for the purpose of funding repairs of two underperforming wells. The agreement defined terms of the RSA repair costs and RSA repair management fees that would be funded by the loan. The outstanding loan balance will accrue interest at 12.0% per annum. The RSA payments will be made preferentially from project cash flow at a rate of 90% of increased cash created by the repairs and cash availability on a quarterly basis. The repairs were completed in January 2012. During the three months ended March 31, 2015 and the year ended December 31, 2014, RREI made principal payments on the loan of $0 and $1,012,613; respectively. The balance of the loan at March 31, 2015 and December 31, 2014 was $368,249. The loan balance and related interest effects are fully eliminated during the consolidation process.

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

INFORMATION REGARDING FORWARD LOOKING STATEMENTS

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

  • our business and growth strategies;

  • our future results of operations;

  • anticipated trends in our business;

  • the capacity and utilization of our geothermal resources;

  • our ability to successfully and economically explore for and develop geothermal resources;

  • our exploration and development prospects, projects and programs, including timing and cost of construction of new projects and expansion of existing projects;

  • availability and costs of drilling rigs and field services;

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

  • our working capital requirements and availability;

  • our illustrative plant economics;

  • market conditions in the geothermal energy industry; and

  • the impact of environmental and other governmental regulation.

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

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

  • unsuccessful construction and expansion activities, including delays or cancellations;

  • incorrect estimates of required capital expenditures;

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

  • the enforceability of the power purchase agreements for our projects;

  • impact of environmental and other governmental regulation, including delays in obtaining permits or ongoing impacts of the sequester;

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

  • our ability to successfully identify and integrate acquisitions;

-23-


  • 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, 2015 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 NYSE MKT LLC under the trade symbol “HTM” and on the Toronto Stock Exchange under the symbol “GTH”.

For the quarter ended March 31, 2015, the Company was focused on:

  • operating and optimizing the Neal Hot Springs, San Emidio and Raft River power plants;

  • pursuing PPA and steam sale opportunities, preparing for flow testing and optimizing power plant design at the WGP Geysers project;

  • drilling a well at the Crescent Valley project;

  • finalizing permits and approvals for drilling a water supply well at Neal Hot Springs;

  • working with the Guatemalan Ministry of Energy and Mines to adopt a modified construction schedule;

  • permitting temperature gradient wells at San Emidio; 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 of property development costs may be low.

-24-



  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)

As part of the financing package for Unit I of the Raft River project, the Company contributed $16.5 million in cash and approximately $1.4 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.

  (3)

Based on the designed annual average net output. The output of the Raft River Unit I plant currently is approximately 9.4 megawatts annual average.


  Projects Under Development  
          Estimated  
      Target Projected Capital  
      Development Commercial Required Power
Project Location Ownership (Megawatts) Operation Date ($million) Purchaser
El Ceibillo Phase I Guatemala 100% 25 2nd Quarter 2018 138 TBD
San Emidio Phase II Nevada 100% 11 3rd Quarter 2017 65 TBD
WGP Geysers California 100% 30 2nd Quarter 2017 160 TBD
Crescent Valley Phase I Nevada 100% 25 1st Quarter 2018 141 TBD

Properties Under Exploration
      Target Development
                           Project Location Ownership *(Megawatts)
Gerlach Nevada 60% 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

Granite Creek – During the year ended December 31, 2014, the Company elected to not continue exploration and development activities due to more attractive projects in its portfolio. The Company is in the process of releasing its interests in the area.
Neal Hot Springs Phase III, Raft River Phase III, and San Emidio Phase III – These projects were removed from the list of properties under exploration during the prior year ended December 31, 2014.
Unfavorable market conditions and development time frames did not warrant the allocation of exploration or development resources.
* Target development sizes are predevelopment estimates of resource potential of unproven resources.

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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
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

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.

Generation from the facility during the first quarter of 2015 totaled 53,500 megawatt-hours with an average of 25.56 net megawatts per hour of operation. Plant availability was 96.9% during the quarter.

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 2015 is $106.79 per megawatt-hour.

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.

Generation from the facility during the first quarter 2015 totaled 21,754 megawatt-hours, with an average of 10.1 net megawatts per hour of operation. Plant availability was 99.9% during the quarter.

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 2015 is $92.08 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.

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Generation from the facility during the first quarter 2015 totaled 20,672 megawatt-hours, with an average of 9.60 net megawatts per hour of operation. Plant availability was 99.7% during the quarter.

The PPA for the project was signed on September 24, 2007 with the Idaho Power Company. 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 2015 is $62.00 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 70% of the REC income during the term of the Holy Cross contract and will receive 50% of the REC income due to Raft River during the term of the Clallam County contract.

Projects Under Development/Exploration

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. As a result of the delays experienced in permitting wells on BLM administered leases, it was determined that it is not possible to complete the development of the Phase II project within the development time frame required in the existing 19.9 megawatt NV Energy PPA.

A Small Generator Interconnection Agreement for 16 megawatts of transmission capacity was executed with Sierra Pacific Power Company on December 28, 2010. An application to increase the interconnection agreement to the full 19.9 megawatts allowed under the PPA was submitted to NV Energy on January 9, 2014. A System Impact Study (“SIS”) agreement, which is the next step in the interconnection process mandated by the Federal Energy Regulatory Commission, was signed on August 28, 2014. Results from the SIS were received on December 24, 2014. A second phase interconnection study, called the Facilities Study, was started in January of 2015.

On October 30, 2009, the Company was awarded $3.77 million in Recovery Act funding from the Department of Energy (“DOE”) 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 first stage of the DOE project applied innovative, seismic and satellite imagery techniques along with state-of-the-art structural modeling, to locate large aperture fractures that represent high-productivity geothermal drilling targets and was completed in 2011. Two zones along the 4.5 mile long San Emidio fault structure were identified as high quality targets for drilling during the first phase of the DOE program, a South Zone and a North Zone.

The second stage of the DOE program was a 50-50 cost shared drilling plan that was intended to follow up on targets identified in the first stage. Drilling started in the South Zone, and two wells were completed by the Company. After approval of the drilling program by the DOE in November 2011, one of the first two wells was deepened and three additional wells were completed in the South Zone with the costs being shared on a 50-50 basis.

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As part of the continuing DOE program, permitting was initiated early in the 2013 with the Bureau of Land Management (“BLM”) for four new observation wells to be drilled in the South Zone to follow up on the high temperatures found in wells 61-21 (302°F) and 45-21 (316°F). As part of the permitting process, cultural and biological surveys were performed, and the well design and drilling program were submitted during the first quarter. Permits for three wells were issued by the BLM on April 29th and a drill rig was mobilized to the site on June 26th. Two additional wells were completed on the BLM administered land during the third quarter. Well OW-14 was drilled to a depth of 3,501 feet and had a bottomhole temperature of 265°F. Well OW-15 was drilled to a depth of 3,716 feet and had a maximum downhole temperature of 300°F. While the wells extended the high temperature outline of the South Zone, neither well encountered the commercial permeability seen in well 61-21 (formerly OW-10).

Well 61-21 (formerly OW-10) in the South Zone, was reworked beginning on October 25, 2013 and was completed on November 2, 2013. Flow testing of 61-21 was completed during the second quarter of 2014. To allow for early, long term testing of the South Zone resource area, a cross tie pipeline was constructed between the Phase I and Phase II project areas and a production pump was installed in well 61-21 during the third quarter. Well 61-21 is currently producing 600 gallons per minute of 296°F fluid to the San Emidio Phase I power plant. San Emidio Phase I plant generation has increased approximately a half of megawatt. Hooking up and flow testing well 61-21 was the last work under the DOE Innovative Exploration and Drilling Project grant. The grant program was completed at the end of September 2014, with the DOE Geothermal Technologies Program having expended $3,772,560 and the Company $4,156,741.

Permitting for an expanded temperature gradient drilling program is underway for an area south west of the current resource. Results from the recent OW drilling program combined with 1970s era, shallow temperature gradient data, indicate a high temperature trend into this south-west zone. Geophysical surveys have also identified structural trends in this area. Several 1,000 foot deep temperature gradient wells are being permitted to investigate this portion of the resource.

NV Energy issued a Request for Proposal (“RFP”) for 100 megawatts of renewable energy on October 1st. We submitted a bid for an air cooled power plant to be developed on the Phase II project site. In early December, NV Energy submitted a request to the Nevada Public Utilities Commission (“NPUC”) to combine the 2014 solicitation with the 2015 solicitation for a total of 200 megawatts to be procured in 2014. An alternative option for Phase II that incorporated a water cooled plant was submitted to NV Energy on February 16, 2015 and on March 3, 2015 we were notified that our bid was advanced to the initial short list of projects. On May 12, 2015, our bid was not included on the final short list.

In parallel, we are continuing to investigate a power purchase agreement with California off-takers, where power prices are typically higher.

Raft River, Idaho
The Raft River project was awarded an $11.4 million cost-shared, thermal fracturing program grant from the Department of Energy. 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 foot 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. Injection of power plant injectate has continued through the quarter, with flow into the well seeing a continuing, increase to now over 550 gpm, indicating that significant additional permeability has developed. The encouraging EGS stimulation is expected to continue through 2015.

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If the fracturing program success continues, and permeability is improved to a commercial level, well RRG-9 may be utilized as a production or injection well for the existing Raft River power plant. The Company’s contributions for the thermal fracturing program are made in-kind by the use of the RRG-9 well, well field data, and monitoring support.

Gerlach, Nevada
The Gerlach Joint Venture, located adjacent to the town of Gerlach in Washoe County, Nevada is made up of both private and BLM geothermal leases. Ownership of the joint venture was initially set by contributions at 60% for the Company, and 40% for GGE Development Company, LLC. The Peregrine well, a historic exploration slim hole that encountered a lost circulation zone at a depth of 975 feet, was redrilled in 2010 and the hole was opened from a 6.5 inch diameter well to a 12.5 inch diameter well. Lost circulation was confirmed within three zones through the 900 to 1,024 foot interval. The well was stopped at 1,070 feet total depth. Temperature surveys and a short clean out flow test were conducted on the well. The well flowed at an estimated 300-400 gallons per minute and the flowing temperature was 208°F. Geochemistry indicates an average potential source temperature of 374°F for the Gerlach site.

Drilling commenced on observation well 18-10a on October 30, 2014. 18-10a is a twin well to a well originally drilled in 1994 (the 18-10 well). The upper section of 18-10a well was drilled to 826 feet deep and an 8 inch liner was cemented in place. Temperature measurements in the well have provided the highest measured temperature in the field to date at 268°F within 160 feet of surface and a temperature gradient of 6.4°F per 100’ in the bottom section of the hole. There are two previously identified lost circulation targets from the original well at 1,600 and 2,800 feet deep that will be targeted when drilling is resumed.

Drilling resumed on well 18-10a on April 14, 2012 and was stopped on April 18, 2012 at 1,943 feet deep. Circulation was lost in minor zones at 1,530 and 1,595 feet deep. Drilling resumed again on well 18-10a on August 14, 2014, and was completed in late November. The well was drilled to a total depth of 2,889 feet and encountered a maximum temperature of 275°F. The last round of drilling on well 10-10a was funded by the Company, resulting in a change of ownership for the joint venture to 67.4% for the Company and 32.6% for GGE. Further work is dependent upon additional funding from the partners.

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 5 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.

An office and staff are located in Guatemala City and a 17 acre plant site is under lease on land adjacent to the existing wells. A second surface lease for use of an additional 80 acre parcel was signed on October 15, bringing the total surface leasehold interest to 97 acres. Construction of a drill pad, pond and cellar for well EC-2, the new planned well, was completed during the fourth quarter of 2014. EC-2 is located on the new surface leasehold.

The modified development schedule has received approval from the legal, technical, environmental, and mining departments of the Guatemalan Ministry of Energy and Mines (“MEM”), and the Vice-Minister of MEM has approved the new schedule as well. Final paperwork is being prepared for the Minister’s signature and his approval is expected in the near term. Once the modified development schedule has received final approval, we intend to commence drilling well EC-2, which is targeted at the high temperature anomaly defined by the 2014 temperature gradient drilling program.

El Ceibillo, the first development target on the concession, is located near the town of Amatitlan, in an industrial zone immediately adjacent to the highway that connects Guatemala City to the Port of San Jose on the Pacific coast. An initial development of a 25 megawatt (Phase I) power plant is planned in the El Ceibillo area of the concession, but the final size of the facility will be determined after drilling and resource delineation has advanced. Initial transmission studies have been completed, and identified the grid interconnection point approximately 1.2 miles (2 kilometers) from the site.

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A temperature gradient (“TG”) drilling program was initiated during the first quarter of 2014 with a series of 656 foot (200 meter) deep wells planned. Nine TG wells have been completed with depths ranging from 656 to 1,312 feet (200 to 400 meters). Bottom-hole temperatures found in this shallow drilling program range from 176 to 413°F (80 to 211°C) with two of the wells encountering permeability and flowing brine. The data from these wells provided a more accurate temperature gradient map of the underlying geothermal resource which has assisted in identifying future drilling targets.

A first phase of drilling took place during the third quarter of 2013 when well EC-1 was drilled to a depth of 4,829 feet (1,472 meters) and encountered a bottom hole temperature of 491°F (255°C), with the temperature gradient at the bottom of the hole rising at a rate of 7.1°F/100 Feet (129.1°C/km). High temperatures in excess of 392°F (>200°C) were encountered in the well beginning at a depth of 2,625 feet (800 meters), which represents a potential high temperature reservoir interval in excess of 2,204 feet (672 meters) thick. Due to the high temperature gradient found in the lower section of the well, the decision was made to deepen the well. The final depth of the well is 5,650 feet (1,722 meters) with a measured bottom-hole temperature of 526°F (274°C). Clean out and short term flow tests were conducted along with temperature surveys and have been incorporated in the geologic model of the reservoir. Well EC-1 did not encounter commercial permeability.

In early September 2013, the Guatemalan Ministry of the Environment and Natural Resources (“MARN”) issued the Environmental License for the construction and operation of the planned, first phase, 25 megawatt power plant at the El Ceibillo site. The license is based on the Environmental Impact Assessment Study that was submitted in December 2012, describing the initial design of the 25 megawatt facility, and requires the submittal of final design specifications for review by MARN prior to starting physical construction of the plant. Additionally, the license requires compliance with all legal and regulatory requirements under Guatemalan law, submittal of an air quality monitoring plan, and that final design comply with the strict guidelines for noise, dust and hydrogen sulfide emissions. Prior to issuance of the license, an environmental bond was posted with the Ministry of Environment and Natural Resources.

A binding Memorandum of Understanding (“MOU”) was signed on October 18, 2012 with one of the largest power brokers in Central America. The MOU established the framework for a PPA that included a 15-year term for an initial, estimated 25 megawatts of power generation up to a maximum of 50 megawatts of power generation to be developed in two phases. As a result of the delays in approval of the modified development schedule from MEM, we requested an extension of our MOU, which was allowed under the terms of the agreement, but our request was declined and the MOU is now terminated. We are continuing discussions with the broker to re-instate or renegotiate the agreement, and are approaching other power consumers in Guatemala and Central America.

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.

WGP Geysers is an advanced stage project that encompasses the former Pacific Gas and Electric Unit 15, which once had a 62 megawatt (gross) capacity geothermal power plant that was shut down in l989. The project includes 3,809 acres (6 square miles) of geothermal leases and property, development design plans, and permits for an up to 38.5(gross) megawatt power plant. There are four existing wells drilled in 2008-2009 which are immediately available for production or injection, with a fifth, historic well that has temporary plugs installed but can be reworked. The four new wells have been tested with an initial steam flow totaling 462,000 pounds per hour. A report prepared in 2012 by a third party reservoir engineering firm, states that the total initial power capacity from these four wells is estimated at about 30 megawatts (gross).

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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% of the water that is removed during power generation, while a hybrid design may re-inject up to 65% 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.

An updated steam reserve estimate, which incorporated the past five years of wellfield pressure data and the increased injection rate from the hybrid plant design, was completed in March by an independent geothermal reservoir consulting firm. The report supports past analysis that the project has 30 megawatts gross steam capacity already behind pipe and that a 28.8 net megawatt plant can be supported for its full 20-30 year project life. A full, bankable reservoir analysis will be prepared upon completion of the flow test planned for this spring. Upon completion of the reservoir analysis and power plant optimization, the size of the new plant will be finalized.

The flow test program was designed by the same independent consulting firm, and preparations are underway to run the test during the second quarter. The three wells with the best steam production will be tested at three different flow rates to determine the reservoir pressure and deliverability characteristics. Steam samples will be taken to determine the various components of the steam for plant design purposes.

Our new transmission interconnection application was accepted by the California Independent System Operator and has now entered the evaluation process. The new conditional use permit application is being prepared for submittal to local regulatory agencies to replace the current conditional use permit that expires in July.

In addition to pursuing a PPA, with associated construction of a power plant, we continue to pursue a steam sale agreement.

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.

Multiple geothermal and mineral exploration drilling programs performed over the years in this area have identified high temperatures and high temperature gradients in the shallow subsurface over an area greater than 30 square miles. Historic drill holes defining this area have anomalous temperature gradients of up to 40°F/100 feet of depth, and a recorded high temperature of 285°F at 395 feet below the surface. These drill holes define large areas of hydrothermal alteration that correspond to positive gravity anomalies that extend into undrilled areas of the valley.

A mineral exploration hole drilled in the mid-l990s near the Crescent Valley fault encountered geothermal fluid under pressure. The driller was not able to control the flow of geothermal fluid from the well and a geyser erupted. An oil field service company had to be brought in to stop the uncontrolled flow and to abandon the well. This well demonstrates that prospective permeability and commercial temperature are known from past minerals exploration.

Hot springs located on the property have surface discharge temperatures of up to 198°F. Broad areas of hydrothermal alteration occur at both Hot Springs Point and along the Crescent Valley fault 8 miles to the southeast. Chemistry of the hot springs and the occurrence of silica deposits at surface, and in the shallow subsurface, suggest reservoir temperatures at depth of 350°F to 400°F.

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Temperature gradients based on wide spaced drilling, that are above normal background values, extend up to 7 miles northwest from the Crescent Valley fault into Crescent Valley proper. Additional fracture controlled permeability may be present under the valley floor as potential fault systems that bound buried, down-dropped blocks have been identified from historic seismic studies.

An independent geothermal consulting firm evaluated all of the available data for the Crescent Valley Prospect in late 2009. After evaluating the data, a recoverable, heat-in-place Monte Carlo method was used to estimate the generation potential of the prospect. The resulting estimate for the field was 71 megawatt with 90% probability and 186 megawatt with 50% probability over a 20 year period. The actual, producible power generation may be significantly different than the recoverable heat-in-place calculations, and will depend upon the discovery of commercial temperatures and permeability.

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 27th 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.

Lee Hot Springs, Nevada
Lee Hot Springs is in Churchill County, 18 miles south of Fallon. The area was originally explored by Occidental Geothermal Company, a subsidiary of the oil company Occidental Petroleum Corporation. The project is comprised of 2,560 acres (four square miles) of BLM leases. ENEL Green Energy, a subsidiary of ENEL Group, the Italian based, multi-national power company, has completed a 15 megawatt binary plant at Salt Wells, 6 miles to the east of Lee. The project was acquired as part of the Earth Power Resources merger which was completed in November 2014.

Dating back to 1930, the area has had numerous water wells, temperature gradient holes, and small diameter test holes. From 1977-1982 Occidental Geothermal, Inc. drilled four temperature gradient holes to depths of 500 feet, two stratigraphic test wells’ to 2,000-3,000 feet, and one large-diameter production test to 3,000 feet (well 72-33). The 3,000 foot test well flowed 280°F hot water from a zone at 1,200 ft. The A33-4 well, 1,000 feet southwest of well 72-33, was drilled to 2,400 feet and reportedly had temperatures in excess of 300°F and a steadily increasing temperature gradient.

The Great Basin Research Institute has had the leasehold mapped in detail, showing several large silica deposits. The reservoir temperature has been estimated using geochemistry as ranging from 320°F to 340°F by the US Geological Survey and other sources in the 1970s. No exploration work is scheduled for Lee Hot Springs in 2015.

Ruby Hot Springs, Nevada
The property is located 30 miles southwest of Elko. EPR filed a BLM lease application for 2,140 acres in February 2001 and the lease application was rejected by the BLM in December 2005 due to cultural issues. The decision was appealed to the Interior Board of Land Appeals (“IBLA”) and the IBLA remanded the application back to the BLM for further action. No further action has been taken by BLM on issuance of the lease pending the completion of cultural and ethnographic studies that are required for further review. The project was acquired as part of the Earth Power Resources merger which was completed in November 2014.

The area around Ruby was first leased by Union Oil Company (now Chevron) in the late 1970s. A 3,149 foot test well was drilled and reportedly flowed at over 300°F. A second well in the area, Ruby Valley 65-10, was drilled to 1,075 feet deep and encountered lost circulation zones, but no temperature data is available. In the early 1980s, Aminoil drilled twelve 500 foot deep temperature gradient wells and two 1,000 foot stratigraphic test wells. Data from these wells have been incorporated into generalized heat-flow contour maps of the area.

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Vale, Oregon
The property consists of 368 acres of geothermal energy and surface rights in Malheur County, located approximately one-half mile east of the town of Vale, Oregon. The property is within the Vale Butte geothermal resource area and provides the opportunity to evaluate development of a known resource. A prolific, shallow reservoir located along the north edge of the leasehold area has been used for many years in an agricultural drying facility and a mushroom growing operation.

An extensive database of geophysical and geological information from previous geothermal exploration in the Vale Butte area was used in the evaluation of the prospect. Geochemical analysis of samples taken from shallow hot wells results in a calculated geothermometer that indicates a potential reservoir temperature of 311°F to 320°F. Past exploration drilling near the site by Trans Pacific Geothermal and Sandia National Laboratory encountered temperatures in excess of 300°F in the basement rocks. The leases for this project were acquired in January and February 2014. A gravity survey, 2-3 temperature gradient wells, and a small diameter exploration well may be initiated in 2015.

Operating Results

For the three months ended March 31, 2015, the Company reported net income attributable to the Company of $734,135 ($0.01 income per share) which represented a $605,285 (45.2% decrease) decrease from net income of $1,339,420 reported in the same period ended 2014 ($0.01 income per share). Both favorable and unfavorable variances were reported related to the operations of the Company’s three power plants. Notable unfavorable variances were reported in stock compensation, income taxes and net income attributable to the non-controlling interests.

Plant Operations
A summary of energy sales by plant location for the two reporting periods are as follows:

    For the Three Months Ended March 31,  
    2015     2014  
      %       %  
Energy sales by plant:                        
       Neal Hot Springs, Oregon   5,207,350     62.2     5,266,455     62.7  
       San Emidio, Nevada   2,003,346     23.9     1,935,091     23.0  
       Raft River, Idaho   1,165,050     13.9     1,199,551     14.3  
    8,375,746     100.0     8,401,097     100.0  

% - represents the percentage of total Company energy sales.

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,  
    2014     2014     2014     2014     2015  
Neal Hot Spring, Oregon   56,047     40,629     32,246     54,472     53,500  
San Emidio, Nevada   21,223     15,686     18,240     21,745     21,754  
Raft River, Idaho   21,614     18,069     18,501     20,614     20,672  
    98,884     74,384     68,987     96,831     95,926  

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

For the three months ended March 31, 2015, subsidiary net income was $3,010,263 which was a slight decrease of $60,086 (2.0% decrease) from subsidiary net income from the same period ended 2014. For the three months ended March 31, 2015, plant energy revenues were consistent (1.1% decrease) with the same three month period ended 2014. Energy production decreased 4.5% (2,547 megawatt hours) from the prior quarter ended March 31, 2014. In current quarter, the plant’s three units experienced a total of 192 hours of lost production. The two primary causes for the outages were plugged vaporizers and an exciter re-alignment needed at Unit 3. Plant operating costs were consistent (1.6% increase) with the three months ended March 31, 2014. Increases in salaries and related costs were partially offset by decreases in chemical costs. On March 31, 2015, the plant employees were awarded a bonus that totaled $60,900 for the favorable performance of the plant reported in the prior calendar year. Additional operating and maintenance costs were incurred in the current quarter that were partially covered under the warranty agreement in the quarter ended 2014. The additional time and increases in workers’ compensation costs resulted in increases of approximately $47,000. In March of 2014, the plant made a large refrigerant purchase of $95,200 to take advantage of a volume price discount.

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

    Three Months Ended March 31,  
    2015     2014     Variance  
      %       %       %*  
Plant revenues:                                    
       Energy sales   5,207,350     100.0     5,266,454     100.0     (59,104 )   (1.1 )
                                     
Plant expenses:                                    
       General operations   965,105     18.6     939,995     17.9     (25,110 )   (2.7 )
       Depreciation and amortization   819,708     15.7     817,503     15.5     (2,205 )   (0.3 )
    1,784,813     34.3     1,757,498     33.4     (27,315 )   (1.6 )
                                     
                   Gross Profit   3,422,537     65.7     3,508,956     66.6     (86,419 )   (2.5 )
                                     
Other income (expense):                                    
       Interest expense   (414,274 )   (8.0 )   (445,332 )   (8.5 )   30,499     6.8  
       Other and interest income   2,559     0.1     6,725     0.2     (4,166 )   (61.9 )
    (412,274 )   (7.9 )   (438,607 )   (8.3 )   26,333     6.0  
                                     
                   Subsidiary Net Income   3,010,263     57.8     3,070,349     58.3     (60,086 )   (2.0 )

  % - represents the percentage of total plant operating revenues.
  %* - represents the percentage of change from 2014 to 2015. 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.

-34-


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     ($)     Hour ($)     ($)     ($)  
March 31, 2013   46,137     4,197,252     90.6     2,424,648     779,299  
June 30, 2013   30,016     2,435,304     80.2     518,754     814,434  
September 30, 2013   25,832     2,875,686     110.9     829,374     810,573  
December 31, 2013   53,445     6,058,169     113.3     3,644,359     812,766  
March 31, 2014   56,047     5,266,454     93.8     3,070,349     817,503  
June 30, 2014   40,629     3,403,812     83.7     1,196,404     820,526  
September 30, 2014   32,246     3,717,609     115.0     1,412,124     805,497  
December 31, 2014   54,472     6,378,488     117.1     4,147,356     819,924  
March 31, 2015   53,500     5,207,350     97.3     3,010,263     819,708  

  *

- 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, 2015, the San Emidio plant reported subsidiary net income of $566,301 which was an increase of $132,952 (31.4% increase) from the $423,349 in subsidiary net income reported in the same period ended 2014. During the current three months, the plant produced 21,754 megawatt hours, which was consistent (2.5% increase) with the same quarter ended 2014.

For the three months ended March 31, 2015, total operating costs, excluding depreciation, decreased $60,167 (8.8% decrease) from the same three months ended 2014. Two significant cost component variances of salaries and taxes, partially, offset each other. In March 2015, the plant employees were awarded a bonus that totaled $40,100 for the favorable performance of the plant reported in the prior calendar year. The minerals proceeds tax for the State of Nevada decreased approximately $78,000 from the prior quarter ended March 31, 2014, due to changes in tax calculation methods and the higher operating costs reported in the prior year.

-35-


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

    Three Months Ended March 31,  
    2015     2014     Variance  
   $     %       %       %*  
Plant revenues:                                    
       Energy sales   2,003,346     100.0     1,935,091     100.0     68,255     3.5  
                                     
Plant expenses:                                    
       Operations   621,262     31.0     681,429     35.2     60,167     8.8  
       Depreciation and amortization   316,346     15.8     312,908     16.2     (3,438 )   (1.1 )
    937,608     46.8     994,337     51.4     56,729     5.7  
                                     
                   Gross Profit   1,065,738     53.2     940,754     48.6     124,984     13.3  
                                     
Other income (expense):                                    
       Interest expense   (509,718 )   (25.4 )   (517,406 )   26.7     7,688     1.5  
       Other income   281     0.0     1     0.0     280     #  
    (509,437 )   (25.4 )   (517,405 )   26.7     7,968     1.5  
                                     
                   Subsidiary Net Income   556,301     27.8     423,349     21.9     132,952     31.4  

 

% - represents the percentage of total plant operating revenues.

 

%* - represents the percentage of change from 2014 to 2015. 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     ($)     Hour ($)     ($)     ($)  
March 31, 2013   19,228     1,726,927     90.3     834,266     407,060  
June 30, 2013   18,039     1,628,382     90.3     (212,058 )   365,314  
September 30, 2013   18,317     1,531,260     83.6     355,498     307,854  
December 31, 2013   21,112     1,905,813     90.3     180,931     312,273  
March 31, 2014   21,223     1,935,091     91.2     423,350     312,908  
June 30, 2014   15,686     1,450,526     92.5     (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  

  *

- 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
The net loss from Raft River Energy I LLC (“RREI”) operations of $96,930 for the three months ended March 31, 2015, decreased by $158,679 (257.0% decrease) from the net profit for the same period ended in 2014. For the current quarter, both energy revenues ($1,165,050) and hours produced (20,672 megawatt hours) were consistent with the same quarter in ended 2014. The operating expenses, excluding depreciation, in the current period increased $160,799 (20.7% increase) from the prior three months ended March 31, 2014. The largest increase was incurred for salaries and wages which increased $78,924 from the same period ended 2014. In March 2015, the plant employees were awarded a bonus that totaled $40,000 for the favorable performance of the plant reported in the prior calendar year. For the current three months ended March 31, 2015, the plant incurred additional chemical costs that exceeded $43,000 (76.9% increase) from the same period ended 2014. During the current quarter, a purchase of approximately $21,000 for motive fluid was needed to replenish the plant’s reserves. Also, replacement membranes were needed for the circulation system that totaled approximately $16,000. Additional field maintenance costs were incurred during the current quarter for the reverse osmosis systems that exceeded $24,000. During the current quarter, the plant implemented a safety and skills training program which resulted in an increase in training costs of approximately $17,000 from the quarter ended March 31, 2014.

-36-


The summarized statements of operations for RREI are as follows:

    Three Months Ended March,  
    2015     2014     Variance  
      %       %       %*  
Plant revenues:                                    
       Energy sales   1,165,050     92.2     1,199,551     92.2     (34,501 )   (2.9 )
       Energy credit sales   98,115     7.8     100,868     7.8     (2,753 )   (2.7 )
    1,263,165     100.0     1,300,419     100.0     (37,254 )   (2.9 )
                                     
Plant expenses:                                    
       General operations   938,106     74.3     777,307     59.8     (160,799 )   (20.7 )
       Depreciation and amortization   431,959     34.2     427,907     32.9     (4,052 )   (0.9 )
    1,370,065     108.5     1,205,214     92.7     (164,851 )   (13.7 )
                                     
                   Gross Profit(loss)   (106,900 )   (8.5 )   95,205     7.3     (202,105 )   (212.3 )
                                     
Other income (expense):                                    
       Interest expense   (11,602 )   (0.9 )   (33,719 )   (2.6 )   22,117     65.6  
       Other and interest income   21,572     1.7     263     0.0     21,309     #  
    9,970     0.8     (33,456 )   (2.6 )   43,426     129.8  
                                     
                   Subsidiary Net Loss   (96,930 )   (7.7 )   61,749     4.7     (158,679 )   (257.0 )

  % - represents the percentage of total plant operating revenues.
  %* - represents the percentage of change from 2014 to 2015. 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 interest expense, management fees and lease costs are not incorporated into the presentation of the subsidiary’s operations.

-37-


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     ($)     Hour ($)     ($)     ($)  
March 31, 2013   19,675     1,064,481     56.1     67,620     472,040  
June 30, 2013   17,248     823,154     49.9     (715,605 )   472,094  
September 30, 2013   18,687     1,260,124     69.5     (1,166 )   450,222  
December 31, 2013   21,951     1,479,499     69.0     254,302     450,222  
March 31, 2014   21,614     1,199,550     57.9     61,749     427,907  
June 30, 2014   18,069     907,194     52.6     (579,569 )   428,180  
September 30, 2014   18,501     1,273,013     71.2     117,281     429,164  
December 31, 2014   20,614     1,425,811     71.3     203,414     431,214  
March 31, 2015   20,672     1,165,050     58.5     (96,930 )   431,959  

  *

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

Stock Based Compensation
For the three months ended March 31, 2015, the Company reported $365,455 in stock based compensation, which was an increase of $218,142 (148.1% increase) from the same period ended 2014. The primary factor for the increase was due to the increase in the stock compensation (restricted shares) costs with more restricted shares outstanding and a $0.74 market price at date of grant.

The stock based compensation components are summarized as follows:

    For the Three Months Ended              
    March 31,              
    2015     2014     Variances  
          %  
Total Stock Based Compensation:                        
       Stock option compensation   144,602     121,062     23,540     19.4  
       Stock compensation (restricted shares)   220,853     26,250     194,603     741.3  
    365,455     147,312     218,143     148.1  

% - represents the percentage of change from 2014 to 2015.

Net Income Tax Expense
For the three months ended March 31, 2015, the Company reported net income taxes of $444,000. No income tax expense was recognized in the same period ended 2014. As of December 31, 2014, management believed that the more likely than not standard had been met to enable the Company to fully recognize the net deferred tax asset. In the prior periods, including the three months ended March 31, 2014, the net deferred tax asset was recognized to the extent of current period earnings. The current income tax expense represents the estimated consolidated income tax expense, less the impact of the estimated portion that belongs to the non-controlling interest entities.

-38-


Net Income Attributable to the Non-Controlling Interests
The net income attributable to the non-controlling interest entities is the line item that removes the portion of the total consolidated operations that are owned by the Company’s subsidiaries. For the three months ended March 31, 2015, the Company reported $1,029,246 in net income attributable to non-controlling interests, which was a decrease of $178,425 (14.8% decrease) from the $1,207,671 net income reported in the same period ended 2014. The primary component of the decrease was the operations of Raft River Energy I LLC (“RREI”) which reported a subsidiary net loss of $96,930, which was a decrease of $158,679 from net income $61,749 reported for the three months ended March 31, 2015 from the same period ended 2014. The profits and losses are allocated based upon this method and the terms of the partnership agreement. RREI’s net loss allocated to non-controlling interest entity was $163,660, which consisted of $29,435 of energy credit sales and $193,095 of loss from the total company loss after removing energy credit sales. The largest component of income from non-controlling interests originated from USG Oregon LLC. The income of $1,204,105 for the three months ended March 31, 2015, was consistent (1.0% decrease) with the same period ended 2014.

The net income or (loss) attributable to the non-controlling interest entities is detailed as follows:

    For the Three Months Ended              
    March 31,              
Subsidiaries and Non-Controlling   2015     2014     Variance  
Interest Entities         %  
Oregon USG Holdings LLC interest held by Enbridge Inc.   1,204,105     1,216,146     (12,041 )   (1.0 )
Raft River Energy I LLC interest held by Raft River I Holdings, LLC   (163,660 )   (8,467 )   (155,193 )   #  
Gerlach Geothermal LLC interest held by Gerlach Green Energy, LLC   (11,199 )   (8 )   (11,191 )   #  
    1,029,246     1,207,671     (178,425 )   (14.8 )

% - represents the percentage of change from 2014 to 2015.
# - Variance percentage was extremely high or undefined.

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, 2015:

                      Exploration        
    Neal Hot     San           Activities and     Consolid-  
Statement of Operations   Springs     Emidio     Raft River     Corporate     ated  
   Element        $    
                               
                               
Gross Profit(Loss)   3,422,537     1,065,739     (106,901 )   234,262     4,615,637  
Expenses/Income   412,274     509,438     9,971     (4)1,496,515     2,408,256  
Net Income(Loss) before tax expense   3,010,263     556,301     (96,930 )   (1,262,253 )   2,207,381  
Income taxes – USG Portion   (681,000 )   (210,000 )   (25,000 )   472,000     (444,000 )
                               
Non-controlling interests   (1)(1,204,105)   -     (2)163,660   (3)11,199     (1,029,246 )
Net income attributable to U.S. Geothermal   1,125,158     346,301     41,730     (779,054 )   734,135  

-39-



  (1)

The non-controlling interests for Neal Hot Springs represents a 40% interest for our joint venture partner, Enbridge.

  (2)

The non-controlling interests for Raft River represents 30% of REC income and 99% of all other income/expenses for Raft River I Holdings, a subsidiary of Goldman Sachs Group.

  (3)

The non-controlling interests 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 quarter ended March 31, 2015 include:


º   Salaries and wages   $  381,988  
º   Stock based compensation     365,455  
º   Corporate administration     295,380  
º   Professional fees     383,123  

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, 2015, the Company does not have any off balance sheet arrangements.

Liquidity and Capital Resources

We believe our cash and liquid investments at March 31, 2015 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. 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.

Our power is sold under long-term contracts at fixed prices to large utilities. 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 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 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. 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.

-40-


Potential Acquisitions and Acquisitions Completed Subsequent to Period End

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 on Form 10-K for the year ended December 31, 2014.

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

-41-


Item 4 - Controls and Procedures

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

There has been no change to our internal control over financial reporting during the three months ended March 31, 2015 that has materially affected, or is likely to materially affect, our internal control over financial reporting.

-42-


PART II- OTHER INFORMATION

Item 1 - Legal Proceedings

None.

Item 1A - Risk Factors

See “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2014. There have been no material changes in the risk factors during the three months ended March 31, 2015.

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.

-43-


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 15, 2015 By: /s/ Dennis J. Gilles
  Dennis J. Gilles
  Chief Executive Officer
   
Date: May 15, 2015  
  By: /s/ Kerry D. Hawkley
  Kerry D. Hawkley
  Chief Financial Officer and Corporate Secretary

-44-


EXHIBIT INDEX

-45-





Exhibit 31.1

CERTIFICATION

I, Dennis J. Gilles, certify that:

1.

I have reviewed this report on Form 10-Q of U.S. Geothermal Inc.;

     
2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     
3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

     
4.

The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

     
a.

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     
b.

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     
c.

evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     
d.

disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

     
5.

The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

     
a.

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and




  b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.


Date: May 15, 2015
 
/s/ Dennis J. Gilles
Dennis J. Gilles
Chief Executive Officer





Exhibit 31.2

CERTIFICATION

I, Kerry D. Hawkley, certify that:

1.

I have reviewed this report on Form 10-Q of U.S. Geothermal Inc.;

     
2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     
3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

     
4.

The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

     
a.

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     
b.

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     
c.

evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     
d.

disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

     
5.

The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

     
a.

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and




  b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.


Date: May 15, 2015
 
 
/s/ Kerry D. Hawkley
Kerry D. Hawkley
Chief Financial Officer





Exhibit 32.1

CERTIFICATION

In connection with the quarterly report of U.S. Geothermal Inc. (the “Registrant”) on Form 10-Q for the period ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis J. Gilles, Chief Executive Officer of the Registrant, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

  1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

     
  2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


Date: May 15, 2015
 
 
/s/ Dennis J. Gilles
Dennis J. Gilles
Chief Executive Officer





Exhibit 32.2

CERTIFICATION

In connection with the quarterly report of U.S. Geothermal Inc. (the “Registrant”) on Form 10-Q for the period ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kerry D. Hawkley, Chief Financial Officer of the Registrant certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

  1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

     
  2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


Date: May 15, 2015
 
 
/s/ Kerry D. Hawkley
Kerry D. Hawkley
Chief Financial Officer


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