- Quarterly Report (10-Q)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2010

OR

o	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 – 333-92445

PERNIX GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		36-4025775
(State or other jurisdiction of		(IRS employer identification no.)
Incorporation or organization)

860 Parkview Boulevard, Lombard, Illinois		60148
(Address of principal executive offices)		(Zip code)

(630) 620-4787

(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 þ No o

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 o No þ

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 file,” and “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ
(Do not check if a smaller reporting company)

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS

DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act subsequent to the distribution of securities under a plan confirmed by a court. Yes o No þ

On May 14, 2010, 140,881,235 shares of our common stock were outstanding.

PERNIX GROUP, INC.

TABLE OF CONTENTS

		Page No.



Item 1.	Financial Statements:		3
	Condensed Consolidated Balance Sheets (unaudited) — March 31, 2010 and December 31, 2009		3
	Condensed Consolidated Statements of Operations (unaudited) — three months ended March 31, 2010 and 2009		4
	Condensed Consolidated Statements of Comprehensive Loss (unaudited) — three months ended March 31, 2010 and 2009		5
	Co ndensed Consolidated Statements of changes in Stockholders’ Equity and Comprehensive Income (Loss) (unaudited) — March 31, 2010 and December 31, 2009		6
	Condensed Consolidated Statements of Cash Flows (unaudited) — three months ended March 31, 2010 and 2009		7
	Notes to Condensed Consolidated Financial Statements (unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 4T.	Controls and Procedures		23

	PART II. Other Information

Item 1.	Legal Proceedings		24
Item 1A.	Risk Factors		24
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds		24
Item 3.	Defaults Upon Senior Securities		24
Item 5.	Other Information		24
Item 6.	Exhibits		25

	Signatures		26

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

PERNIX GROUP, INC.

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

as of March 31, 2010 and December 31, 2009


	Unaudited March 31, 2010
Assets	Unaudited March 31, 2010			December 31, 2009
Current assets:
Cash and cash equivalents	$	2,166,570		$	2,994,989
Marketable Securities		52,255			193,788
Accounts receivable less allowance for doubtful accounts of
$172,142 at March 31, 2010 and December 31, 2009		4,568,339			3,242,666
Related Party Receivables		—			180,888
Work in process		2,974,799			4,036,546
Inventories		4,429,646			4,873,458
Restricted cash		291,120			310,117
Customer backlog		146,090			292,178
Prepaid expenses and other current assets		718,514			466,131
Total current assets		15,347,333			16,590,761
Property, plant, and equipment, net		605,352			639,728
Restricted Cash greater than one year		384,803			652,573
Other assets		179,477			399,901

Intangible assets:
Customer Relationships		1,524,002			1,563,080
Trademark		936,984			936,984
Total assets	$	18,977,951		$	20,783,027
Liabilities and Stockholders’ Equity
Current liabilities:
Outstanding credit lines	$	73,705		$	276,343
Accounts payable		1,996,249			2,121,518
Accounts payable – related party		5,088			7,195
Accrued expenses		2,359,169			1,902,825
Interest payable – related party		232,941			214,064
Other current liabilities		676,227			638,619
Short term debt		1,359,497			1,448,210
Prepayments received on orders		1,445,877			1,616,612
Billings in excess of costs and estimated earnings		328,255			529,995
Total current liabilities		8,477,008			8,755,381

Non current liabilities		65,930			72,197
Deferred tax liability		517,729			575,130
Total liabilities		9,060,667			9,402,708



Commitments and Contingencies

Equity:
Pernix Group, Inc. and Subsidiaries Stockholders' Equity
Convertible Preferred Stock, $0.01 par value, authorized 50,000,000 shares,
none issued and outstanding at March 31, 2010 and December 31, 2009.		—			—
Common stock, $0.01 par value, authorized 200,000,000 shares,
140,881,235 issued at March 31, 2010 and 139,574,567 at
December 31, 2009.		1,408,812			1,395,746
Additional paid-in capital		74,664,699			73,692,529
Accumulated deficit		(66,920,534	)		(66,031,010	)
Accumulated other comprehensive loss		(1,069,448	)		(604,440	)

Total Pernix Group, Inc. and Subsidiaries stockholders equity		8,083,529			8,452,825
Noncontrolling Interest		1,833,755			2,927,494
Total equity		9,917,284			11,380,319
Total liabilities and equity	$	18,977,951		$	20,783,027

See accompanying notes to condensed consolidated financial statements.

PERNIX GROUP, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (unaudited)

Three Months Ended March 31, 2010 and 2009

	2010			2009
Revenues:
Construction revenues	$	824,986		$	3,191,434
Transmitter design and installation		4,141,233			—
Service fees – power generation plant		1,425,805			1,090,968
Service fees – related party		—			5,250
Finance lease revenue		—			5,349
Gross revenues		6,392,024			4,293,001
Costs and expenses:
Construction costs		503,528			3,121,617
Construction costs - related party		—			28,000
Transmitter design and installation cost		2,544,631			—
Operation and maintenance costs - power generation plant		585,468			575,395
Cost of revenues		3,633,627			3,725,012
Gross profit		2,758,397			567,989
Operating expenses:
Salaries and employee benefits		1,859,637			425,078
Occupancy and equipment		136,826			10,650
Occupancy - related party		25,372			24,287
General and administrative		1,354,569			307,495
Total operating expenses		3,376,404			767,510
Operating loss		(618,007	)		(199,521	)

Other income (expense):
Interest income/(expense), net		(64,016	)		2,440
Interest expense - related party		(18,877	)		(18,461	)
Foreign currency exchange loss		(150,482	)		(67,297	)
Other income, net		(104,866	)		—
Total other expense		(338,241	)		(83,318	)

Loss before income taxes		(956,248	)		(282,839	)
Income tax expense		73,502			91,566
Consolidated net loss		(1,029,750	)		(374,405	)

Less: Net loss attributable to noncontrolling interest		(140,226	)		(531	)

Net loss attributable to the stockholders of Pernix Group, Inc. and Subsidiaries	$	(889,524	)	$	(373,874	)
Basic and diluted net loss attributable to the stockholders of Pernix Group, Inc. and Subsidiaries	$	(0.01	)	$	(0.00	)
Weighted average shares outstanding		139,690,715			136,640,567

See accompanying notes to condensed consolidated financial statements

PERNIX GROUP, INC.

AND SUB SI DIARIES

Condensed Consolidated Statements of Comprehensive Loss (unaudited)

Periods ended March 31, 2010 and December 31, 2009

	Three Months
	Ended March 31,
	2010			2009

Net income loss	$	(1,029,750	)	$	(374,405	)
Other comprehensive loss, net of tax:
Foreign currency translation adjustment		(465,008	)		(43,547	)
Total other comprehensive loss, net of tax:		(465,008	)		(43,547	)

Comprehensive loss	$	(1,494,758	)	$	(417,952	)

Comprehensive loss attributable to Noncontrolling interests	$	(140,226	)	$	(531	)

Comprehensive loss attributable to the stockholders of Pernix Group, Inc	$	(1,354,532	)	$	(418,483	)

See accompanying notes to condensed consolidated financial statements.

PERNIX GROUP, INC.

AND SUBSIDIARIES

Co ndensed Consolidated Statements of changes in Stockholders’ Equity and Comprehensive Income (Loss) (unaudited)

Periods ended March 31, 2010 and December 31, 2009

										Accumulated
										Other					Additional
				Comprehensive			Accumulated			Comprehensive			Common		paid-in		Noncontrolling
	Total			Income (Loss)			deficit			(loss)			Stock		capital		Interest

Total Balance at December 31, 2008	$	3,055,660					$	(70,663,993	)	$	(259,992	)	$	1,366,406	$	71,521,369	$	1,091,870

Sale of common stock -
2,934,000 shares at $0.75 per share		2,200,500		$	—			—			—			29,340		2,171,160		—
Comprehensive income (loss):
Net income (loss)		4,617,350			4,632,983			4,632,983			—			—		—		(15,633	)
Foreign currency translation adjustment		(344,448	)		(344,448	)		—			(344,448	)		—		—		—
Comprehensive income		4,272,902		$	4,288,535
Fair value of noncontrolling interest in connection with business combination		1,851,257						—			—			—		—		1,851,257
Balance at December 31, 2009	$	11,380,319					$	(66,031,010	)	$	(604,440	)	$	1,395,746	$	73,692,529	$	2,927,494

Sale of common stock -
1,306,668 shares at $0.75 per share	$	980,001		$	—		$	—		$	—		$	13,066	$	966,935	$	—
Comprehensive loss:
Net loss		(1,029,750	)		(889,524	)		(889,524	)		—			—		—		(140,226	)
Foreign currency translation adjustment		(465,008	)		(465,008	)		—			(465,008	)		—		—
Comprehensive loss:		(1,494,758	)	$	(1,354,532	)
Purchase of subsidiary shares from noncontrolling interest		(948,278	)					—			—			—		5,235		(953,513	)

Balance at March 31, 2010	$	9,917,284					$	(66,920,534	)	$	(1,069,448	)	$	1,408,812	$	74,664,699	$	1,833,755

See accompanying notes to condensed consolidated financial statements.

PERNIX GROUP, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

Three Months Ended March 31, 2010 and March 31, 2009

	2010			2009
Cash flows from operating activities:
Net loss including noncontrolling interest	$	(1,029,750	)	$	(374,405	)
Noncontrolling Interest		140,226			(531	)
Net loss		(889,524	)		(373,874	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		52,337			49,108
Amortization of intangibles		185,166			—
Noncontrolling Interest		(140,226	)		(531	)

Changes in assets and liabilities:
Short term investments		133,892			—
Accounts receivable		(1,499,522	)		1,655,960
Accounts receivable - related party		180,888			(5,693	)
Prepaid expenses and other current assets		1,247,544			21,954
Net investment in sales-type lease		—			454,651
Other assets		(47,307	)		3,074
Accounts payable		(72,975	)		(196,819	)
Accounts payable - related party		(2,107	)		(2,550	)
Accrued expenses		481,959			9,375
Interest payable - related party		18,877			18,461
Billings in excess of cost and estimated earnings		(274,099	)		(612,190	)
Other liabilities		79,279			(484,551	)
Deferred tax liability		(57,401	)		—
Net cash (used in)/provided by operating activities		(603,219	)		536,375
Acquisition of additional subsidiary stock		(950,154	)		—
Investment in Pernix/UEI Joint Venture		1,875			—
Capital expenditures		(40,113	)		(11,619	)
Net cash used in investing activities		(988,392	)		(11,619	)
Cash flows from financing activities:
Repayment of in indebtedness		(191,769	)		—
Proceeds from sale of common stock		980,001			—
Net cash provided by financing activities		788,232			—

Effect of exchange rate changes on cash and cash equivalents		(25,035	)		(31,417	)
Net increase/(decrease) in cash and cash equivalents		(828,419	)		493,339
Cash and cash equivalents at beginning of period		2,994,989			6,313,886
Cash and cash equivalents at end of period	$	2,166,570		$	6,807,225
Supplemental disclosure:
Cash paid during the period for interest	$	34,640		$	—
Cash paid during the period for income taxes	$	91,870		$	112,995

See accompanying notes to condensed consolidated financial statements.

PERNIX GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business

Pernix Group Inc., (formerly Telesource International, Inc.) and its subsidiaries ("Pernix Group" or the "Company") is an international company engaged in three business segments: General Construction, Power Generation Services and Design, Installation and Service of Transmitter Systems including high power radio transmitters and receivers.

The Company is a leading construction and power infrastructure company, offering diversified general contracting, design/build and construction management services to public agencies and private clients. We have provided power and construction services since 1995 and have established a strong reputation within our markets by executing complex projects on time and within budget while adhering to strict quality control measures.

We offer general contracting, pre-construction planning and comprehensive project management services, including the planning and scheduling of the manpower, equipment, materials and subcontractors required for a project. In our international markets, we also offer select self-performed construction services including construction fit-out, electrical and mechanical services, plumbing and heating, ventilation and air conditioning (“HVAC”). As a general contractor, Pernix Group pursues U.S. government contracts worldwide.

Pernix Group is also a global provider of power plant engineering, design, procurement, construction, operations and maintenance services. Together with our affiliates and specialty service providers, we employ industry-leading processes, technologies and business practices. Our team includes a trained staff of mechanics, engineers and technicians capable of managing multiple power plants. We have the capabilities to address a variety of power generating requirements from initial conceptual design to construction and through operating and maintaining power facilities. Our Operation and Maintenance (“O&M”) services are designed to improve the operating performance of a particular facility and to reduce overall power generation costs to our customers. The Company also invests in energy projects as an independent power producer (“IPP”) if the projects are for credit worthy customers and are bankable without recourse to Pernix Group.

The Company implements state of the art project management tools and systems. We have extensive references from projects executed during the past 10 years and are leveraging these credentials and experiences for future growth. Our past experience includes an airport runway expansion; to an adult prison; government buildings; a shortwave radio relay station; a US embassy building; diesel power plants and operations and maintenance of power facilities.

Pernix Group utilizes longstanding relationships with world-class design firms to ensure that our projects and customers have the benefit of the best design services available in the United States. The Company has experience as an IPP and with Build Own Operate Transfer (“BOOT”) projects. Our energy projects to date have been in the North and South Pacific and we seek and review opportunities throughout the world including North America.

Pernix Group acquired a 54.4% controlling interest in TransRadio SenderSysteme, Berlin, AG (“TransRadio”) on December 28, 2009 and another 23.6% on March 25, 2010. Through this new German subsidiary we engage in the design, distribution and installation of transmitter systems and provide related services at customer sites world-wide.

The Company conducts its operations through four subsidiaries from its headquarters in Lombard, Illinois, U.S.A. In addition to the aforementioned and recently acquired German subsidiary, TransRadio, the company’s joint venture with SHBC (“Pernix/SHBC JV” or the “JV”) bids construction projects. The Company’s Mariana subsidiary, Telesource CNMI, Inc. (“TCNMI”), handles the management of the Company’s energy conversion facilities in the Commonwealth of the Northern Mariana Islands (“CNMI”). The Company’s other wholly-owned subsidiary, Telesource (Fiji), Ltd. (“TFL”), handles the Company’s power generation activities in Fiji.

General Construction Segment

In 2006, the Company entered into a joint venture with SHBC, called Pernix-SHBC JV, formerly Telesource International, Inc/Sayed Behbehani & Sons Company, Joint Venture, L.P. This JV operates out of the Company’s Lombard, Illinois office and is a limited partnership with an equity split of 51% for Pernix Group and 49% for SHBC. Pernix Group, Inc. is the general partner of the Pernix/SHBC JV. Pernix/SHBC JV was formed for the purpose of bidding U.S. government construction and infrastructure development projects. In January 2007 the JV received a final award and notice to proceed with a $42.6 million contract to design and build a new embassy compound for the United States Department of State in Suva, Fiji. The joint venture also has a wholly- owned subsidiary in Fiji named Telesource SHBC (Fiji) Ltd. (“TSF”). In addition, the Company received a second contract for the same Embassy in April of 2010 in the amount of approximately $8.1 million for a second phase of this project. The Company consolidated Pernix/SHBC JV under the guidance related to accounting for business combinations and related disclosures.

PERNIX GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Pernix Group’s strategy for the construction market is to independently seek out and bid on projects under the Pernix/SHBC and /or other joint ventures. SHBC’s experienced personnel and success in the construction industry benefit the Company in the bidding process. The Company will employ its new systems for project management and controls that are designed to increase the likelihood of success and profitability on our projects. Pernix Group has augmented its management team by hiring prominent construction industry professionals who have a proven track record of strong operational and financial management on construction projects. Our future growth will be built on four pillars of success: transparency, customer satisfaction, state of the art technology and a fair profit.

As stated above, the Pernix/SHBC JV has been awarded the contract to build a United States Embassy in Suva, Fiji. The Company will leverage its extensive experience in Fiji, primarily from building and operating power plants in the country, combined with the successful execution and completion of the United States Embassy project, to bid on and obtain additional embassy and / or U.S. government projects. Through its Fiji experience the Company has developed a strong understanding of the economic, business and cultural challenges in operating and constructing in international environments. The Department of State intends to build approximately 60 new embassies in the next 7 years and Pernix/SHBC JV will continue to bid embassy work.

Pernix Group has worked extensively with the United States Information Agency (previously known as Voice of America). Along with our recent experience on the U.S. Embassy project in Suva with the State Department’s Overseas Buildings Office (“OBO”), the Company is now poised to leverage our ability to work with, understand and respond to complex U.S. government contractual and regulatory requirements. These experiences have tremendously improved our identification of potential projects and the technical proposal responses. The ability to competently and competitively respond to government-issued requests for proposals and to execute projects when awarded to the satisfaction of government contracting officers is a skill set that Pernix Group has now demonstrated on numerous projects.

The Company is employing custom management tools and technology to ensure that all risks inherent with the construction of complex buildings and structures is controlled and mitigated. It is the Company’s intention to continue to employ state-of-the art management practices and to employ the best project managers and superintendents resulting in producing the most value possible on our customers’ projects.

Pernix Group may pursue opportunities at the municipal and state levels. We may consider international projects but we will be extremely selective and only do so when the customer is very creditworthy and meets certain Company-established criteria. The Company may also bid on U.S. based non-government projects if the customers are creditworthy and the projects meet the Company’s financial pre-requisites and conditions.

Although our focus historically has been on the international markets, the Company intends to pursue U.S. government projects located in the continental United States wherever possible. In furtherance of this effort the Company is developing a strategy to secure and expand its bonding capacity and to identify well situated business partners.

Power Generation Services Segment

The Company seeks to conduct its construction and power business independently and through strategic joint ventures and other alliances. Pernix Group is committed to pursuing clean and renewable energy projects in addition to its historical energy business that has been focused on building and operating fossil fuel power generation plants. All marketing and business development activities in the North Pacific and the Oceania regions are directed through TCNMI’s Saipan office.

The Company is uniquely situated to bring state of the art construction and design capabilities to its power generation/utility customers. As a potential stake holder in BOOT or IPP power contracts, Pernix Group would be involved not only on the operations and financial side of projects, but also in constructing the power plants thereby giving us a vested interest to ensure that the power facilities are built under the most stringent and highest international standards. We believe that this approach will be very appealing to our customers and will give Pernix Group a competitive advantage.

Pernix Group also has longstanding financial relationships with many international banks and equity investors. We feel confident in our ability to raise the required equity and project financing necessary to pursue financially sound and bankable energy projects that meet our investment criteria. Operation of Existing Power Generation Plants - Pernix Group has designed, built and currently operates and maintains, on a 20 year contract, a 20 MW diesel fired power plant on the Island of Tinian in the CNMI. We also built power plants in Fiji and currently operate and maintain, on a 20 year contract basis, two separate plants with a total output of 78 MW.

PERNIX GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company maintains a wholly-owned subsidiary in the CNMI. This Mariana subsidiary, Telesource CNMI, Inc. (TCNMI) is located on the Island of Saipan with operations on the Island of Tinian, both islands being part of the CNMI which is a U.S. Commonwealth. Since its incorporation in 1997 TCNMI has executed over $80 million worth of construction work in the CNMI. TCNMI, financed, designed and built a 20 MWh power plant on the Island of Tinian on a 20 year BOOT basis. Our agreement with the Commonwealth Utility Corporation (“CUC”) stipulates that we sell power into the grid based on contractually determined rates and without risk of fuel cost fluctuation. The contract for this project will expire in 2020; however, a 2001 change order provides the customer with an early termination option beginning on March 31, 2010 and available annually thereafter; however, the customer is required to give a six-month notice and to pay an early termination fee of $6,000,000 if they choose to exercise the early termination option. No notice of early termination has been received by TCNMI or the Company. The change order also prohibits the customer from purchasing power from any source other than Pernix Group for the first 30 MW. The expanded agreement does not require additional performance by Pernix Group with respect to building additional power generation capacity. The construction loan for the project was repaid in full during 2008 and the Company’s recorded remaining exposure to CUC is approximately $290,000 consisting of accounts receivable (net of allowance) and it is secured by the plant title that is held by the Company / TCNMI. The plant title will be transferred from TCNMI to CUC upon CUC’s satisfaction of all contractual obligations to TCNMI.

TFL has a 20-year contract with the Fiji Electricity Authority to operate and maintain two separate diesel-fired power generation plants, with a total output of 78 MWh. The power produced at the power plants is connected directly into the main power grid of Fiji. In addition, our contract is to sell power on a wholesale level at a contractually determined rate without assuming the risk of fuel price fluctuation. The Company has been operating in Fiji for over eight years and is attempting to develop and expand its services in the country and the South Pacific region.

With respect to future power segment opportunities, based on previous experience, extensive research and basic knowledge of the energy markets, management believes there will be a growing demand for power around the world while competition, deregulation and current economic conditions could limit the market potential and opportunities. However, future demand for these services is expected to grow due to the need to supplement or replace aging equipment coupled with the need for expansion and applications that operate at a lower cost. In the U.S., two-thirds of the country’s installed plants are 25 or more years old and need to be replaced and re-powered, principally with new combustion turbines. The world’s use of electricity is projected to increase by two-thirds over the forecast horizon, from 13 trillion kilowatt hours in 1999 to 22 trillion kilowatt-hours in 2020. The strongest growth rates in electricity consumption are projected for the developing world. Our focus will be on small power plants with generating capacity of less than 75 MW given the Company’s experience in managing the related regulatory and environmental demands of plants of this size.

Transmitter System Design, Installation and Service Segment

The name TransRadio dates back to 1918 when it was founded as a subsidiary of TELEFUNKEN. A year later in 1919, TransRadio made history by introducing duplex transmission. Paying tribute to the famous name TransRadio, the new name symbolized the transition from the analogue into the digital world of radio. Today TransRadio develops, produces and distributes transmitting and receiving equipment for broadcast and news transmission, and provides services for transmitter systems. TransRadio provides high power radio transmitters to a host of customers through contracts for projects located primarily in Europe, Africa and Asia and delivers customer-tailored solutions. The core products include VHF/FM and AM transmitters and digital radio mondiale (“DRM”) transmitter systems. The professional service of TransRadio ranges from the delivery of the transmitters, antennas, power supplies and air-conditioning systems to the management of turnkey projects, including all facilities to operate a broadcasting station.

PERNIX PERNIX GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Summary of Significant Accounting Policies

Basis of Presentation

The interim condensed consolidated financial statements and notes thereto of Pernix Group have been prepared by management without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, the Company believes that the disclosures are adequate to make the information presented not misleading. The statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods presented. All such adjustments are of a normal and recurring nature. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s 2009 Annual Report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results for any subsequent quarter or the entire fiscal year ending December 31, 2010.

Revenue Recognition

Power Production Revenue

The Company receives variable monthly payments as compensation for its production of power. The variable payments are recognized based upon power produced and billed to the customer as earned during each accounting period.

Revenue associated with the sale of the Tinian power plant constructed and sold under a sales-type lease, measured as the present value of noncancelable rents, was recognized in connection with recording the loss on sale in 1997 and 1998. The Company recognizes finance lease revenue on the resulting sales-type lease receivable at a constant rate using the interest method. Service revenues received from operating and maintaining the Tinian power plant for the duration of the lease are recognized as earned based on actual kilowatt hours of electricity produced and delivered to the lessee’s customers. To the extent that variable payments based on kilowatt-hours of production exceed the fair value of operation and maintenance services provided, the Company recognizes such contingent payments as additional finance lease revenue as they are earned. The sales- type lease ended in February of 2009 and as such, all related lease activity related to the Tinian power plant was terminated in 2009.

Transmitter Revenue

Contracts for TransRadio products and services generally contain customer-specified acceptance provisions. The Company evaluates customer acceptance by demonstrating objectively that the criteria specified in the contract acceptance provisions are satisfied and recognizes revenue on these contracts when the objective evidence and customer acceptance are demonstrated. Certain contracts include prepayments, which are recorded as a liability until the customer acceptance is received, at which time the prepayments are recorded as revenue.

Certain TransRadio contracts require training services separate from acceptance of provisions and are generally provided after the delivery of product to the customer. These services are a separate element of the contract that is accounted for as revenue is earned. The amount attributable to services is based on the fair value of the services in the marketplace and is typically stipulated separately with the customer.

Construction Revenue

Revenue from construction contracts are recognized using the percentage-of-completion method of accounting based upon costs incurred and estimated total projected costs. Our current project with the United States Government is a design/build contract with a fixed contract price and includes provisions of termination for convenience by the party contracting with us. Such provisions also allow payment to us for the work performed through the date of termination.

PERNIX GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company only uses approved contract changes in its revenue recognition calculation. This method of revenue recognition requires that we estimate future costs to complete a project. Estimating future costs requires judgment of the value and timing of material, labor, scheduling, product deliveries, contractual performance standards, liability claims, impact of change orders, contract disputes as well as productivity. In addition, sometimes clients, vendors and subcontractors will present claims against us for recovery of costs they incurred in excess of what they expected to incur, or for which they believe they are not contractually responsible. In turn, we may also present claims to our clients, vendors and subcontractors for costs that we believe were not our responsibility or may be beyond our scope of work. The company will include costs associated with these claims in their financial information when such costs can be reliably identified and estimated. Similarly, the company will include in revenue amounts equal to costs for claims, where the outcome is probable that the claim will be found in the favor of the company. The Company will record a provision for losses when estimated costs exceed estimated revenues. Cost of revenue consists of direct costs on contracts, including labor and materials, amounts payable to subcontractors, direct overhead costs, equipment expense (primarily depreciation, maintenance, and repairs), and interest associated with construction projects, and insurance costs. The Company records a portion of depreciation in cost of revenue. Contracts frequently extend over a period of more than one year and revisions in cost and profit estimates during construction are recognized in the accounting period in which the facts that require the revision become known. Losses on contracts are provided for in total when determined, regardless of the degree of project completion. Claims for additional contract revenue are recognized in the period when it is probable that the claim will result in additional revenue and the amount can be reasonably estimated.

Recently Issued Accounting Pronouncements

In April 2009, the FASB issued new accounting guidance on fair value measurements. The new guidance impacts certain aspects of fair value measurement and related disclosures. The new guidance was effective beginning in the second quarter of 2009. The impact of adopting this new guidance did not have a material effect on the Company’s consolidated results of operations or financial position.

In June 2009, the FASB issued new accounting guidance related to the accounting and disclosures for transfers of financial assets. This guidance will require entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk with respect to the assets. This guidance is effective for fiscal years beginning after November 15, 2009. The Company adopted the guidance on January 1, 2010 and it did not have a material impact on the consolidated financial statements.

In June 2009, the FASB issued new accounting guidance to improve financial reporting by companies involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. This guidance is effective for fiscal years beginning after November 15, 2009. The Company adopted the guidance on January 1, 2010 and it did not have a material impact on the consolidated financial statements.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance entitled, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (“ASC”), which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. This new guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009 and was adopted by the Company during the third quarter of 2009. The adoption of this guidance has changed how we reference various elements of GAAP when preparing our financial statement disclosures, but did not have an impact on the Company’s consolidated financial statements.

In September 2009, the accounting standard regarding arrangements that include software elements was updated to require tangible products that contain software and non-software elements that work together to deliver the products essential functionality to be evaluated under the accounting standard regarding multiple deliverable arrangements. This standard update must be adopted no later than January 1, 2011 and may be adopted prospectively for revenue arrangements entered into or materially modified after the date of adoption or retrospectively for all revenue arrangements for all periods presented. We are currently evaluating the impact this new standard update will have on our consolidated financial statements.

In October 2009, the accounting standard regarding multiple deliverable arrangements was updated to require the use of the relative selling price method when allocating revenue in these types of arrangements. This method allows a vendor to use its best estimate of selling price if neither vendor specific objective evidence nor third party evidence of selling price exists when evaluating multiple deliverable arrangements. This standard update must be adopted no later than January 1, 2011 and may be adopted prospectively for revenue arrangements entered into or materially modified after the date of adoption or retrospectively for all revenue arrangements for all periods presented. We are currently evaluating the impact this standard update will have on our consolidated financial statements.

PERNIX GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Effective January 1, 2010, the Company adopted changes issued by the FASB on January 6, 2010, for a scope clarification to the FASB’s previously-issued guidance on accounting for noncontrolling interests in consolidated financial statements. These changes clarify the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a consolidated subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. The adoption of these changes had no impact on the Consolidated Financial Statements.

Effective January 1, 2010, the Company adopted changes issued by the FASB on February 24, 2010, to accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued, otherwise known as “subsequent events.” Specifically, these changes clarified that an entity that is required to file or furnish its financial statements with the SEC is not required to disclose the date through which subsequent events have been evaluated. Other than the elimination of disclosing the date through which management has performed its evaluation for subsequent events, the adoption of these changes had no impact on the Consolidated Financial Statements.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation.

3. Liquidity

As of March 31, 2010, the Company’s total assets exceeded total liabilities by $10.0 million. This was a $1.5 million decline from December 31, 2009. In the future, the Company expects to rely on capital contributions from its primary shareholders, Ernil Continental, Halbarad Group Ltd and SHBC as well as bank financing to support its operations. As of March 31, 2010, the Company had outstanding short term debt of $1.4 million. As of March 31, 2010, the Company had an accumulated deficit of $67.0 million and total stockholders’ equity of $8.1 million.

The Company incurred operating losses of $0.6 million and $0.2 million for the three month periods ended March 31, 2010 and March 31, 2009, respectively. The Company incurred net losses to common shareholders of $0.9 million and $0.4 million, respectively, during the three months ended March 31, 2010 and March 31, 2009, respectively.

Cash used in operating activities was $0.6 million compared to cash provided of $0.5 million for the three month periods ended March 31, 2010 and March 31, 2009, respectively. Funds used in investing activities for the three month periods ended March 31, 2010 and March 31, 2009 were $1.0 million and $11K, respectively. Funds provided by financing activities and representing either common stock issuances or capital contributions amounted to $0.8 million and $0 for the three month periods ended March 31, 2010 and March 31, 2009, respectively.

4. Acquisitions of a Business

On December 28, 2009, Pernix Group, Inc. purchased 54.4% of the outstanding common voting shares (or 815,650 shares) of TransRadio SenderSysteme, Berlin AG (“TransRadio”) from two shareholders of TransRadio. The Company purchased 650,000 shares at $2.70 per share from Lorna Continental, S.A. and 165,650 shares at $2.70 per share from Senna Finanz Holding, A.G. The total consideration paid for both transactions was $2,202,255. The acquisition was financed through the sale of 2,934,000 shares of the Company’s common stock yielding $2,200,500. The sale of these shares was to Ernil Continental, SA, BVI and Halbarad Group, Ltd., BVI who currently own approximately 85.3% of Pernix Group’s outstanding shares.

On March 25, 2010 the Company acquired an additional 23.6% of TransRadio common voting shares for $950,154, bringing the Company’s ownership to a total of 78%. The additional acquisition was financed through the sale of 1,306,668 shares of the Company’s common stock yielding $980,001, again to Ernil Continental, SA, BVI and Halbarad Group, Ltd., BVI, respectively. Prior to the March 25, 2010 transaction, the Company retained control of TransRadio and as such recorded the March 25, 2010 acquisition as a transaction resulting in no gain or loss.

PERNIX GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	2010
TransRadio loss attributable to Pernix Group, Inc.	$	(481,863	)
Transfers from the noncontrolling interest:
Increase in Pernix Group Inc.'s paid-in capital for purchase of 354,350
TransRadio common shares		5,235
Net transfers from noncontrolling interest		5,235
Change from net loss attributable to the stockholders of Pernix Group, Inc. and transfers to noncontrolling interest	$	(476,628	)

TransRadio is engaged in the development, production and distribution of transmitting and receiving equipment for broadcast and news transmission, including related services. TransRadio specializes in research, development and design of modern AM, VHF/FM and DRM transmitter systems and delivers customer tailored solutions. The professional services of TransRadio range from the delivery of transmitters, antennas, power supplies and air-conditioning systems to the management of turnkey projects, including all facilities to operate a broadcasting station. The purpose of the TransRadio acquisition is to grow the Company’s operations globally in a manner that utilizes our strong international project management, engineering strengths and experience in performing construction type projects for government entities.

In connection with the acquisition, the fair value of net assets acquired less the fair value of the noncontrolling interest in TransRadio exceeded the purchase price the Company paid for its interest in TransRadio, resulting in a bargain purchase gain of $5.2 million, net of $0.6 million of deferred tax impact related to the intangible assets.

In connection with the initial recording of the acquisition, a $1.8 million fair value of the noncontrolling interest was determined based on the recent transactions for noncontrolling shares based on the stock trading price. In addition, Intangible assets identified in connection with the TransRadio acquisition by major classes are presented below along with the anticipated amortization period and amortization expense for the next five years. No significant amortization expense was incurred during 2009 related to these assets.

Description of identifiable intangible assets	Amortization period	Annual Amortization Amount 2010		Annual Amortization amount 2010 - 2014		Accumulated Amoritzation as of March 31, 2010
Customer relationship	10 years	$	156,308	$	156,308	$	39,078
Order backlog	1 year	$	292,178		N/A	$	146,088
Total Amortization for the period		$	448,486	$156,308 per year		$	185,166

The unaudited actual (2010) and pro forma (2009) financial information in the table below summarizes the combined results of operations of the Company and TransRadio as though TransRadio had been combined as of the beginning of each of the periods presented. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the period, or that may result in the future.

PERNIX GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	For the months ended March 31,

	2010			2009
Net income loss	$	(1,029,750	)	$	49,352
Pro forma basic earnings loss per share:	$	(0.01	)	$	0.00
Pro forma diluted earnings loss per share:	$	(0.01	)	$	0.00
Net income loss attributable to controlling interests	$	(889,524	)	$	(43,093	)
Pro forma basic earnings loss attributable to controlling interests per share:	$	(0.01	)	$	(0.00	)
Pro forma diluted earnings loss attributable to controlling interests per share:	$	(0.01	)	$	(0.00	)

5. Short-Term borrowings:

The Company’s subsidiary, TransRadio, has a €500,000 (approximately $672,750 at March 31, 2010) bank credit agreement with a German bank, which renews annually. Borrowings under the credit agreement are unsecured. Interest is charged at the rate of 8.5% per annum. As of March 31, 2010, $73,705 under the credit line has been drawn.

TransRadio has outstanding short term debt at March 31, 2010 with Bent Marketing Ltd amounting to $403,650 and Fedor Commercial Corporate Loans amounting to $955,847. These loans are due in full at June 30, 2010 and have an interest rate of 5%. Both loans are secured through the assignment of the Qatar contract payments.

6. Equity

Preferred Stock

The Company has 50 million shares of Series A Cumulative Convertible Preferred Stock (“Preferred Shares”) authorized. . Holders of the Preferred Shares are entitled to receive cumulative cash dividends at the annual rate of 6.5%. The Preferred Shares have no voting rights and rank senior as to dividends and upon liquidation to the common stock. None of these Preferred Shares are issued or outstanding as of March 31, 2010

Common Stock

As of March 31, 2010 and December 31, 2009, 140,881,235 and 139,574,567 shares of the Company’s common stock were issued and outstanding, respectively.

7. Computation of Net Loss Per Share

Basic and diluted net loss per common share are presented in accordance with the Statement of Financial Accounting Standards Earnings Per Share disclosure, for all periods presented. In accordance with the pronouncement, basic and diluted net loss per common share has been computed using the weighted-average number of shares of common stock outstanding during the period. Shares associated with stock options, stock warrants and convertible debt are not included because the inclusion would be anti-dilutive (i.e., reduce the net loss per share). The total numbers of such shares excluded from diluted net loss per common share were 0 and 680,000 for the three months ended March 31, 2010 and March 31, 2009, respectively.

8. Commitments and Contingent Liabilities

The Company is involved in various lawsuits arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

PERNIX GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In 1999, Telesource CNMI, Inc. was awarded a contract to build 45 housing units for the Northern Mariana Housing Agency, a government unit of the CNMI. The houses were built and subsequently occupied. The Northern Marianas Housing Corporation has filed a lawsuit against Telesource CNMI, Inc. and two other parties for approximately $3.0 million in damages related to this project. These claims involve allegations of various construction, design and other defects. Subsequently, homeowners in the project filed their own and/or joined into this action. The consolidated matter is Case No. 06-0123, pending in the Superior Court for the Commonwealth of the Northern Mariana Islands. The Company and other defendants also have filed counter- and cross-claims. The Company estimates that, if the claims against it are successful, the Company may have an estimated liability in the range of $500,000 to $1,200,000. The Company recorded a $300,000 estimated loss during 2004, $200,000 during 2006, and an additional $609,000 during 2007 with respect to these claims. In 2007, the Company paid $139,000 to claimants resulting in a remaining accrual of $970,000 at December 31, 2007. In 2008 the Company paid an additional $92,817 to claimants reducing the accrual to $877,183 at December 31, 2008. No incremental accruals or payments were made during 2009 or the first quarter of 2010. The Company has denied any liability and will aggressively defend itself to mitigate and/or dismiss the claims against it.

Pernix Group’s power generation activities involve significant risks of environmental damage, equipment damage and failures, personal injury, and fines and costs imposed by regulatory agencies. Though management believes its insurance programs are adequate, if a liability claim is made against it, or if there is an extended outage or equipment failure or damage at one of the Company’s power plants for which it is inadequately insured or subject to a coverage exclusion, and the Company is unable to defend against these claims successfully or obtain indemnification or warranty recoveries, the Company may be required to pay substantial amounts which could have a materially adverse effect on its financial condition. In Fiji, the Company is liable for a deductible of FJD $1,250,000 (approximately USD $651,875 at March 31, 2010) in accordance with its agreement with the Fiji Electric Authority.

The Company offers warranties on its construction services and power generating plants. The Company does not maintain any material warranty reserves because these warranties are usually backed by warranties from its vendors. Should the Company be required to cover the cost of repairs not covered by the warranties of the Company’s vendors or should one of the Company’s major vendors be unable to cover future warranty claims, the Company could be required to outlay substantial funds, which could harm its financial condition.

The Company assumed the warranty obligations of TransRadio in connection with the acquisition in December, 2009. As of March 31, 2010, the accrued warranty obligation of TransRadio amounts to $167,390. The warranty accruals each period approximate 0.06% of TransRadio sales based on historical experience.

The Company has an agreement with the Commonwealth of the Northern Mariana Islands to manage one of their power plants. In accordance with Change Order No. 3 of this agreement, the Company is required to upgrade the power distribution system in certain areas of Tinian Island. The Company is responsible for the costs of the upgrade which include labor and material. The Company has incurred approximately $1,250,176 in costs associated with this upgrade through March 31, 2010. The Company will be seeking certification of the upgrade by the client. Such certification includes certain issues to be negotiated that may affect the remaining costs to complete the upgrade. Generally, TCNMI has been diligent in completing work outlined in the specifications on a line-by-line basis and has received acceptance from CUC for ongoing work in the same manner. Although the Company believes it sufficiently completed the upgrade in 2007, some minor additional costs may still be incurred.

The Company operates a power plant on the island of Tinian. The power plant requires a permit with the local Department of Environmental Quality. The Company currently has a temporary permit and expects to receive a permanent permit. However, substantial consequences could occur if the Company does not receive a permanent permit.

Minimum rental commitments under all noncancelable-operating leases, primarily related to property, vehicles, and construction equipment, in effect at March 31, 2010 are:

Year	Total Lease payments
2010	$	469,510
2011	248,770
2012	129,354
2013	4,414
2014	1,104

On April 1, 2007 the Company entered into a sublease with Computhink, a related party, for a term of four years from May 1, 2007 through April 30, 2011. The sublease calls for a base rental payment of $6,791 per month in the first year with a 3.0% escalation in the monthly rate in each of the three subsequent years. Future minimum lease payments at March 31, 2010, for those leases having an initial or remaining non-cancelable lease term in excess of one year, are included in the table above.

We lease certain buildings, cars and equipment in Germany under non-cancelable operating leases. The building and car leases expire in 2012 and equipment leases expire in 2010. The leases include provisions for rent escalation to recognize increased operating costs or require us to pay certain maintenance and utility costs.

PERNIX GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. Work in Process and Inventories

As of March 31, the components of inventories are as follows:

	2010		2009
Work in process	$	2,974,799	$	—
Raw materials	$	3,073,070	$	—
Supplies		1,356,576		1,345,924

Inventories	$	4,429,646	$	1,345,924

Work in Process inventory represent the costs associated with manufacturing the TransRadio transmitter equipment for signed contracts with customers and potential customers. Included in these costs are material, labor and charges associated with certain subassemblies manufactured by third parties. Raw materials consist of various components that are sold as spare parts or are incorporated in the manufacture of transmitter equipment. The supplies inventory represents the value of spare parts maintained by the company for use in the diesel power generators.

10. Financial Instruments With Off-Balance Sheet Risk and Concentrations of Credit Risk

We enter into various arrangements not recognized in our consolidated balance sheets that have or could have an effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. The principal off-balance sheet arrangements that we enter into are non-cancelable operating leases. Minimum rental commitments under all noncancelable-operating leases with a remaining term of more than one year are primarily related to property, vehicles, and construction equipment.

11. Fair Value Disclosures

The Company’s financial instruments include marketable securities, receivables related to sales-type lease, and foreign currency contracts. The gross carrying amount of the notes receivable related to the sales-type lease approximates fair value as the notes were discounted at a rate approximating the Company’s borrowing rate. Foreign currency contracts are recorded based on the applicable foreign currency spot rate as of the balance sheet date.

12. Related Party Transactions — Not described Elsewhere

The Company’s shareholders include SHBC, which holds less than 6% of Pernix Group’s stock at March 31, 2010. SHBC is a civil, electrical and mechanical engineering firm and construction contractor with 1,750 employees and over 50 years’ experience.

Furthermore, as noted earlier, SHBC and Pernix Group have formed a joint venture (the Pernix/SHBC JV). This joint venture currently has a contract to construct the new U.S. Embassy in Fiji. The joint venture limited partnership agreement between SHBC and Pernix Group also requires a payment to SHBC of 6.5% per annum of the unreturned capital.

The following table provides a summary of financial information related to all services provided by SHBC to the Company:

PERNIX GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Three Months Ended March 31, 2010		Three Months Ended March 31, 2009
Consulting Fees	$	—	$	25,000
Interest (on unreturned capital)		18,877		18,461
Fees on standby letters of credit		—		3,000
Total	$	18,877	$	46,461

The Company shares office space with a related company named Computhink, which is owned by a company related to SHBC. The Computhink charges include rent and utilities for office space the Company occupies, computer hardware and software services that Computhink provides, and other outside services. Computhink charges to the Company were $28,260 and $27,700 for the three months ended March 31, 2010 and March 31, 2009, respectively.

The Company also utilizes office space and land from Retsa in Saipan and Tinian. Retsa is an affiliated company of SHBC. The Company was invoiced $407 for the three months ended March 31, 2010 and invoiced in the amount of $582 for the same period in 2009.

Total related party accounts payable are summarized as follows:

	March 31, 2010		December 31, 2009
Accounts payable to SHBC	$	—	$	—
Accounts payable to Computhink		3,704		6,218
Accounts payable to Retsa		1,384		977
Total	$	5,088	$	7,195

13. Bank Deposits in Excess of FDIC

The Company maintains its cash accounts at numerous financial institutions. Certain of these financial institutions are located in foreign countries which do not have Federal Deposit Insurance Corporation (“FDIC”) insurance. Those accounts covered by the FDIC are insured up to $250,000 per institution through December 31, 2013. As of March 31, 2010, the amount of bank deposits that exceeded or are not covered by the FDIC insurance was approximately $2,159,395, of which $675,923 is restricted cash in Germany.

14. Business Segment Information

Pernix Group, Inc. (formerly known as Telesource International, Inc.) and its subsidiaries (“Pernix Group” or the “Company”), was incorporated in Delaware in 1994. Pernix Group consists of Pernix Group, Inc., Telesource (Fiji) Limited (TFL), Telesource CNMI (TCNMI), Pernix/Sayed Hamid Behbehani & Sons, Co. Joint Venture (Pernix/SBHC JV), Telesource SHBC (Fiji) Limited (TSF), Pernix Universal Energy, JV and TransRadio SenderSysteme Berlin AG (TransRadio).

Pernix Group specializes in commercial construction mainly under government contracts, the delivery of power production and transmitter design and installation.

The Company is headquartered in Lombard, Illinois and operates predominantly outside of United States (U.S.). The Company operates primarily outside of the U.S. and manages these operations from its U.S. based headquarters. TFL is located in Fiji and its primary focus is producing power. TCNMI is located in the Commonwealth of Northern Mariana Islands and its primary focus is producing power. The Pernix/SHBC JV is based out of the U.S. and its primary focus is construction. TSF is located in Fiji and its primary focus is construction. Pernix Universal Energy, JV is located in the U.S. and its primary focus is energy and power. TransRadio is based out of Germany and the primary focus is transmitter design and installation throughout the world.

Pernix Group Inc. has selected to organize its segment information around its products and services. Pernix Group Inc. has three operating segments: construction services, transmitter design and installation and power generation and construction of power plants. The power generation and construction of power plants segment includes sales-type lease revenues in 2009. There were no material amounts of transfers between segments. Any inter segment revenues have been eliminated. The following table sets forth certain segment information for the periods indicated:

PERNIX GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the Three Months Ended March 31, 2010

	Power Generation and Construction of Power Plants			Construction		Transmitter design and installation			Total
Revenue	$	1,425,805		$	824,986	$	4,141,233		$	6,392,024
Interest expense, net		(7,016	)		18,599		71,310			82,893
Depreciation and amortization		21,728			—		30,609			52,337
Net loss attributable to the stockholders of Pernix Group, Inc. and Subsidiaries		(693,600	)		285,939		(481,863	)		(889,524	)
Total capital expenditures		20,054			—		20,059			40,113
Total assets		3,804,654			1,655,991		13,517,306			18,977,951

For the Three Months ended March 31, 2009

	Power Generation and Construction of Power Plants			Construction			Transmitter design and installation		Total
Revenue	$	1,101,567		$	3,191,434		$	—	$	4,293,001
Interest expense, net		—			18,461			—		18,461
Depreciation and amortization		25,255			23,853			—		49,108
Net loss attributable to the stockholders of Pernix Group, Inc. and Subsidiaries		(321,387	)		(52,487	)		—		(373,874	)
Total capital expenditures		11,619			—			—		11,619
Total assets		4,673,139			6,027,357			—		10,700,496

Geographical Information

	Total Revenue				Fixed Assets - Net
Location	Mar 31, 2010		Mar 31, 2009		Mar 31, 2010		Mar 31, 2009
United States	$	824,986	$	3,196,685	$	8,589	$	26,958
Commonwealth of Northern Mariana Islands		446,700		310,549		8,071		14,651
Fiji		979,105		785,767		216,679		236,720
Germany		66,799				372,013
Qatar		2,850,379
Switzerland		721,034
Spain		277,354
Russia		152,415
Taiwan/Asia		66,601
Europe		6,652

Total	$	6,392,024	$	4,293,001	$	605,352	$	278,329

The basis used to attribute revenues to individual countries is based upon the country associated with the contract. (e.g., if contract is with a U.S. entity, then the revenues are attributed to the U.S.)

The existing construction project is related to the joint venture with SHBC to build a U.S. Embassy in Fiji.

PERNIX GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

15. Change in Estimate

During the second quarter of 2009, the Company concluded negotiations with the primary subcontractor on the Embassy project which converted the subcontract to a lump sum agreement. During the third quarter the Company received a contract amendment increasing the contract value by $1.2 million. As a result of the revised agreement, the new contract amendment and improved cost control measures, the Company revised its estimated cost to complete for the Project.

In accordance with the FASB guidance pertaining to accounting for a change in an accounting estimate, the Company accounted for the change in estimated cost by applying the cumulative catch-up method.

16. Billings in Excess of Cost on Uncompleted Contracts

Long-term construction contracts in progress are accounted for using the percentage-of-completion method. As of March 31, 2010 and March 31, 2009, respectively, balances for billings in excess of cost and estimated earnings were $328,255 and $4,017,750, respectively. Total billings for the project in the first three months of 2010 and 2009 totaled $623,246 and $2,579,244 respectively.

17. Prepayments Related to Sales Contracts

Revenue on TransRadio contracts is generally recorded when the customer acceptance provisions of the agreements are met. Certain contracts require the customer to make advance payments to TransRadio to cover costs related to the design and / or procurement of the equipment. As of March 31, 2010, the amount recorded as advanced payments received on account of orders is $1,445,877.

18. Subsequent Events

During April 2010, the Company received a notice to proceed on a new contract for approximately $8.1 million with the U.S. Department of State with regard to the second phase of the construction of the new U.S. Embassy in Fiji.

The subsequent events have been evaluated through the date of this report.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANLAYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q and, in particular, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in Part I, contains forward-looking statements concerning future operations and performance of the Company. Forward-looking statements are subject to market, operating and economic risks and uncertainties that may cause the Company’s actual results in future periods to be materially different from any future performance suggested herein. Factors that may cause such differences include, among others: increased competition, increased costs, changes in general market conditions, changes in the regulatory environment, changes in anticipated levels of government spending on infrastructure, and changes in loan relationships or sources of financing. Such forward-looking statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this report and the 2009 annual consolidated financial statements and notes thereto included in the Company’s Form 10-K Annual Report filed with the Securities and Exchange Commission.

The financial information discussed in the MD&A includes amounts that may be derived from utilizing certain accounting estimates and assumptions. The following highlights accounting estimates and assumptions which the Company considers to be critical to the preparation of our financial statements because they inherently involve significant judgments and uncertainties. The Company cautions that these estimates are developed based upon available information at the time that the estimate was developed. However, future events rarely develop exactly as forecast, and the best estimates routinely require adjustment as more current information becomes known.

Construction revenues are determined by applying the Percentage of Completion method, which requires the use of estimates on the future revenues and costs of a construction project. Our current project is a design/build contract with a fixed contract price. This contract is with the United States Government and includes provisions of termination for convenience by the party contracting with us, such provisions also allow payment to us for the work performed through the date of termination. Revenues recognized under the Percentage of Completion method, require applying a percentage (actual costs incurred through the reporting date divided by the total estimated costs to complete the project) to the fixed contract price. The resultant amount is recorded as revenue for the applicable period. This method of revenue recognition requires us to estimate future costs to complete a project. Estimating future costs requires judgment of the value and timing of material, labor, scheduling, product deliveries, contractual performance standards, liability claims, impact of change orders, contract disputes as well as productivity. In addition, sometimes clients, vendors and subcontractors will present claims against us for recovery of costs they incurred in excess of what they expected to incur, or for which they believe they are not contractually responsible. In turn, we may present claims to our clients, vendors and subcontractors for costs that we believe were not our responsibility or may be beyond our scope of work. The Company will include costs associated with these claims in their financial information when such costs can be reliably identified and estimated. Similarly, the Company will include in revenue amounts equal to costs for claims, where the outcome is probable that the claim will be found in the favor of the Company. The Company will record a provision for losses when estimated costs exceed estimated revenues.

Our estimates, assumptions and judgments are continually evaluated based on known information and experience. However, the actual amounts could be significantly different from our estimates.

“K” represents $1,000 when used below.

Results of Operations for the three months ended March 31, 2010 compared to the three months ended March 31, 2009

Revenues

Construction Revenues. Construction revenues decreased to $825 K from $3.2 million for the three months ended March 31, 2010 compared to March 31, 2009. The decrease is solely attributed to the U.S. Embassy Project in Fiji, which began in January 2007. The Company has received two contracts with regard to the Embassy project. The first contract, awarded in November 2006, was for approximately $42.6 million, while the second contract, (notice to proceed given on April 6, 2010) is for an estimated $8.1 million. As the new contract for $8.1 was signed after March 31, 2010, all financial references to the Embassy project in this Form 10-Q are related to the original contract. Approximately 1.3% of the total project revenue was recognized during the first quarter of 2010 versus approximately 6.7% of total project revenue during the same period of 2009. For the three months ended March 31, 2010 the revenue was driven by several factors all associated with the degree of completion of the project. During the first quarter of 2010, these factors were primarily related to exterior finishes. The construction activities during the first quarter of 2009 were primarily related to the completion of window installation, finishing of testing of installed mechanical and electrical work and other processes related to completing the project. The estimated $46.8 million revenue from this project is recorded on the Percentage of Completion method. The first contract relating to the project was 98.9% complete at March 31, 2010 and 87% complete as of March 31, 2009, respectively.

Transmitter design and installation – These revenues relate to the TransRadio subsidiary which was purchased in December 2009. Revenues of $4.1 million for the first quarter represent those contracts that were completed during the first quarter which received customer approval and release. For the same three month period ended on March 31, 2009, revenues of $3.4 million were recognized. Revenues vary depending upon the size and number of contracts completed during a period.

Service Fees — Power Generation Plant. Service fees — power generation plant increased $335K (or 30.1%) to $1.4 million, from $1.1 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. The increase was due to the combination of increased revenues in CNMI and Fijian operations. Revenue from the CNMI power plant increased by $141K due to a combination of contractually higher rates that went into effect in March of 2009 as well as increased power production due to higher demand. Fiji’s increased revenue in the amount of $193K was due to higher demand to produce diesel power by the Fiji Electric Authority.

Costs and Expenses

Construction Costs - including Construction Costs — Related Party. Total construction costs, including construction costs — related party, decreased to $503K from $3.1 million for the three months ended March 31, 2010 compared to March 31, 2009. As the Embassy project nears completion, the Company experienced a decrease primarily in subcontractor costs during the first three months of 2010 compared to the same period in 2009. The project was 98.9% complete at March 31, 2010 and 87.3% complete as of March 31, 2009, respectively.

Transmitter design and installation cost – These costs are associated with TransRadio, which was acquired during December 31, 2009. The $2.6 million in cost of revenues for the period ended March 31, 2010 compare to pre-acquisition costs of approximately $1.4 million for the same period in 2009. The $1.2 million increase was due to the product mix of sales combined with a higher Euro exchange rate in 2010 (1.38599) vs. 2009 (1.30799).

Operations and Maintenance Costs — Power Generation Plant. Operations and maintenance costs — power generation plant increased 1.8% to $585K for the three months ended March 31, 2010 compared to $575K for the three months ended March 31, 2009. The slight increase in these costs were associated with normal maintenance costs that can vary due to the amount and type of spare parts required.

Gross Profit

Gross profit increased by $2.2 million for the three months ended March 31, 2010 to $2.8 million as compared to $568K in 2009. The increase was due primarily to the acquisition of TransRadio, which represented $1.6 million of the increase. In addition, power generation activities contributed $516K with the construction segment contributing another $321K due to change orders on the embassy project. Power generating activities contribution of $516K was due to increased production that increased the variable fees without a related increase in cost of revenues.

Operating Expenses

Salaries and Employee Benefits. Salaries and employee benefits increased 347% to $1.9 million for the three months ended March 31, 2010 from $425K for the three months ended March 31, 2009. This increase was due primarily to the acquisition of TransRadio, which has a large engineering and support staff, the costs of which are included in this category.

General and Administrative Expenses. General and administrative expenses were $1.4 million during the three months ended March 31, 2010 or $1.0 million higher than the same period ended March 31, 2009. The increase was entirely due to the acquisition of TransRadio and represents primarily accounting, facility and related costs.

Other Income (Expense)

Other expense increased by $255K during the first three months of 2010 compared to the same period ended March 31, 2009. This increase was due to the acquisition of TransRadio and is driven by foreign exchange currency losses and other miscellaneous costs of $105K.

Consolidated Net Loss

Consolidated net losses were $889K for the three months ended March 31, 2010 and $374K for the three months ended March 31, 2009. The increase in the net loss was due to operating costs of TransRadio which incurred larger expenses due to accounting related costs associated with the acquisition.

Liquidity

As of March 31, 2010, the Company’s total assets exceeded total liabilities by $10.0 million. This was a $1.5 million decrease from December 31, 2009. The decrease was a result of lower assets, primarily work in process inventories.

The Company incurred operating losses of $0.6 million and $.2 million for the three months ended March 31, 2010 and March 31, 2009, respectively. In addition, during the same respective periods, the Company incurred net losses to common stockholders of $0.9 million in 2010 and $0.4 million in 2009.

Cash used in operating activities was ($0.6 million) compared to cash provided of $0.5 million for the three month periods ended March 31, 2010 and March 31, 2009, respectively. Funds used in investing activities for the three month periods ended March 31, 2010 and March 31, 2009 were $1.0 million and $11K, respectively. Funds provided by financing activities and representing either common stock issuances or capital contributions amounted to $0.8 million and $0, respectively, for the three month periods ended March 31, 2010 and March 31, 2009.

Beyond the cash expected to be generated by the U.S. Embassy project in Fiji, the Company expects to seek support from its principal stockholder, Ernil Continental and Halbarad Group Ltd., on an as-needed basis only.

ITEM 4T. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the Company conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of March 31, 2010. Based on this evaluation, its CEO and CFO concluded the Company’s disclosure controls and procedures are effective to ensure that information we are required to disclose in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures and that such information is recorded, processed, summarized and reported within the time periods required by the Exchange Act.

(b) Changes in internal controls.

The following represent either changes to internal controls or other factors that could materially affect internal controls during the quarter ended March 31, 2010:

There were no changes in our internal control in the first quarter.

Inherent Limitations on Effectiveness of Controls.

Because of the inherent limitations in all control systems, no control system can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of a person, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. Notwithstanding these limitations, with the changes referenced above, we believe that our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not Applicable.

ITEM 1A. RISK FACTORS

Not Applicable

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 23, 2010 we issued 1,306,668 shares of common stock pursuant to an exemption under regulation S of the Securities Act for $980,001. The capital raised from this transaction was used to purchase an additional 23.6% of the common voting shares of TransRadio on March 25, 2010.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

(a) Exhibits.

Exhibit 3.1		Restated Certificate of Incorporation

Exhibit 31.1		Certificate of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act of 1934

Exhibit 31.2		Certificate of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act of 1934

Exhibit 32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2004.

Exhibit 32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2004.

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.

	Pernix Group, Inc.
	(Registrant)


Dated: May 14, 2010	/s/ Nidal Zayed
	Nidal Z. Zayed
	President and Chief Executive Officer


	/s/ Greg Grosvenor
	Greg Grosvenor
	Vice President and Chief Financial Officer