U.S. SECURITIES and EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

  {X} Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
                                   Act of 1934

                   For the fiscal year ended December 31, 2003

     { } Transition report pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934

       For the transition period from                to
                                      ---------------   ---------------

                          Commission File No. 33-86242

                             PROTOSOURCE CORPORATION
                  --------------------------------------------
                 (Name of Small Business Issuer in its Charter)



                California                              77-0190772
      ------------------------------               --------------------
     (State or other jurisdiction of              (I .R. S. Employer
      incorporation or organization)              Identification Number)

     One Bethlehem Plaza, 4th Floor
        Bethlehem, Pennsylvania                            18018
 --------------------------------------                   --------
(Address of principal executive offices)                 (Zip Code)

                    Issuer's telephone number: (610) 332-2893

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                            No Par Value Common Stock
                    Redeemable Common Stock Purchase Warrants
                               Class A and Class B

Check whether the Registrant (1) 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
   -----    -----

As of December 31, 2003, 8,114,829 shares of the Registrant's no par value
Common Stock were outstanding. As of December 31, 2003, the market value of the
Registrant's no par value Common Stock, excluding shares held by affiliates, was
$612,270 based upon a closing bid price of $0.08 per share of Common Stock on
the OTC Bulletin Board.

Check if there is no disclosure contained herein of delinquent filers in
response to Item 405 of Regulation S-B, and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. { }

The Registrant's revenues for its most recent fiscal year were $0.

The following documents are incorporated by reference into Part III, Items 9
through 12 hereof: None.

<PAGE>

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

The following is a summary of certain information contained in this Report and
is qualified in its entirety by the detailed information and financial
statements that appear elsewhere herein. Except for the historical information
contained herein, the matters set forth in this Report include forward-looking
statements within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
subject to risks and uncertainties that may cause actual results to differ
materially. These risks and uncertainties are detailed throughout the Report and
will be further discussed from time to time in the periodic reports filed by
ProtoSource Corporation, a California corporation (the "Company"), with the
Commission. The forward-looking statements included in the Report speak only as
of the date hereof.

Introduction

Through April 2002, the Company operated psnw.com, a full-service Internet
service provider with primary offices in Fresno, California. psnw.com provides
three types of services to business customers:

1. reselling high-speed Internet access via ADSL/SDSL;
2. Web design, development and hosting services; and
3. outsourced technical support for other ISPs.

On May 1, 2002, the Company entered into a conditional agreement to sell the
assets of the psnw.com business to Brand X Networks, Inc. ("Brand X"). Brand X
is a privately-held California-based company whose principal shareholders were
former employees of the Company. The Company agreed to lay off the remaining
employees based in Fresno on April 30th, 2002. Most terminated employees were
hired by Brand X. Additionally, Brand X assumed financial and operational
responsibility for the ISP business. On April 14, 2003, the Company completed a
fifth amendment to the purchase agreement with Brand X pursuant to which the
Company has agreed to accept an aggregate payment of $632,000 for the ISP
Division, less credits to Brand X of $112,686. Of such amount, $200,000 shall be
paid through the provision of services to the Company from Brand X. The balance
shall be paid at the rate of approximately $5,171 per month, until completely
paid.

On January 1, 2004, the sale of the ISP business to Brand X closed. Under the
terms of that agreement a promissory note of $284,455 was executed by Brand X to
be paid in 55 equal, monthly installments. This note is secured by a pledge of
shares in Brand X. In addition ProtoSource is entitled to appoint one person to
the board of Brand X for the duration of the agreement.


New Business Strategy

A key part of this strategy is the acquisition of P2i Newspaper, Inc. On
February 13, 2003, the Company announced an agreement and plan of merger to
acquire all of the outstanding capital stock of P2i Newspaper, Inc., a Delaware
corporation headquartered in Bethlehem, Pennsylvania ("P2i Newspaper") and a
wholly owned subsidiary of P2i, Inc., a Pennsylvania corporation ("P2i"), in
exchange for the issuance of up to 19,383,531 shares of ProtoSource common stock
(the "Agreement").

On January 1, 2004, the acquisition of P2i's newspaper business closed with the
issuance of 193,836 preferred shares of ProtoSource. Each share of preferred
stock is convertible into the right to receive 100 shares of ProtoSource common
stock at any time after the authorized number of shares of common stock is
increased to 100,000,000 shares.

The 193,836 shares of preferred stock will be reduced by the number of shares
equal to the total fees incurred to audit the financial statements of P2i, or
P2i Newspaper, divided by $50 (the "Adjusted Shares"). The Adjusted Shares shall
be subject to a three-year lock-up, which may be released upon the stock price
and volume reaching established thresholds. Upon closing of the transaction,
ProtoSource appointed Thomas Butera, President of P2i, as a director of
ProtoSource. Mr. Butera, together with Peter Wardle, President of ProtoSource,
shall have the right to appoint three members to the board of directors of
ProtoSource.

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P2i Newspaper became a wholly owned subsidiary of the Company on January 1,
2004. P2i Newspaper is a leader in the conversion of print content into Web
content, and its clients include newspapers from the Tribune, McClatchy Copley
and Gannett newspaper groups in the US, Northcliffe and Tindle newspaper groups
in the UK, as well as many others. In addition to its headquarters in
Pennsylvania, P2i Newspaper has a West Coast Sales office and its data
conversion center is located in the Multimedia Super Corridor in Kuala Lumpur,
Malaysia.


Business of ProtoSource

The merger with P2i Newspaper at the start of 2004 is indicative of
ProtoSource's long-term business strategy: to focus on the delivery of
technologically sophisticated, database-driven, business-to-business services
and solutions.

Executing this strategy starts with the state-of-the-art facility operated by
ProtoSource subsidiary P2i Online Sdn Bhd, located south of Kuala Lumpur,
Malaysia. This 3,000 square business unit employs almost 60 staff utilizing
proprietary applications and processes. Major clients include Newspapers from
the Tribune, McClatchy and Gannett publishing organizations, as well as
retailers and government in North America and the UK.

The primary business is the mining, management and databasing of print content
for the publishing industry, and its distribution via the Internet. Every day of
the week, 52 weeks a year, we receive electronic files from clients. These are
processed overnight for delivery the following morning. Data is delivered not
only to the Company's web servers for seamless integration into our clients'
existing, hosted web sites, but also distributed back to clients and their
business partners in a wide range of formats to fit their ever evolving needs.
The combination of low labor costs, a well-educated labor pool fluent in
English, and sophisticated technologies make the Company highly competitive.
ProtoSource intends leveraging these competitive advantages in other markets.

Of the 1,600 daily newspapers in the US, almost all are putting content online
to some degree as are many of the 4,500 weekly papers that are available online.
By the close of 2003 many newspapers recognized that if ads were to be put
online, there was direct correlation between the volume of ads and the volume of
traffic: more ads, more traffic. Utilizing proprietary technologies the Company
converts print-ads and pages into interactive, online content that is seamlessly
incorporated into existing newspaper web sites. All newspaper print ads are
first created electronically at the newspaper, merged with electronically
created editorial, paginated using sophisticated software, edited on a local or
wide area network and transmitted electronically to the printing presses. At the
end of every business day Newspaper customers send to the Company's processing
facility in Malaysia, via FTP, the same electronic versions of ads and pages
that they send to their printing presses. These files are processed,
quality-checked and delivered to the hosting servers by the start of the
following business morning.

The production process uses highly sophisticated, proprietary tools to segment
and database text and graphics that comprise the elements of P2i's dynamic web
page solution. As users click their way through the finished web content, pages
are built dynamically from the databased content. This facilitates a range of
features including search, sort and browse functionality, and can be viewed
using the links located at the end of this presentation. The business model is
quite straightforward. Clients pay per ad/page processed, and are billed
monthly.

Through 2004 and 2005 the Company will focus on increasing market share in the
newspaper vertical and targeting government, retail and manufacturing verticals.
The Company believes it can grow its business over the next five years from
these vertical markets.


Industry and Competition
------------------------

E-commerce overview

For most businesses, the Internet has created a new communication and sales
channel that enables companies to interact with large numbers of geographically
dispersed consumers and businesses. Traditional businesses are implementing
sophisticated web sites to drive customers to brick-and-mortar stores, effect

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<PAGE>

electronic commerce initiatives that offer competitive advantages and mine
customer data. These businesses are deploying an expanding variety of
Internet-enabled applications, ranging from web site marketing and recruiting
programs to on-line customer interaction systems and integrated purchase order
and just-in-time inventory solutions for key customers and suppliers. These
capabilities require increasingly complex web sites and support operations. In
addition, advances in on-line security and payment mechanisms are alleviating
concerns associated with conducting transactions in an open-platform
environment, thus prompting more consumers and businesses to use the Internet in
conjunction with purchases and more businesses to offer a greater breadth of
electronic commerce services.

More importantly, companies today recognize that the Internet is not going to
replace other media, nor is it going to replace traditional shopping and
purchasing habits. Rather, today, companies are implementing integrated
marketing strategies that tie print, TV, Radio and Internet together to generate
revenues either via mail order, traditional shopping or e-commerce.


Newspapers

In 2002, just over $44 billion was spent on newspaper advertising across the
1,500 daily and 6,000 weekly newspapers published in the U.S. (Source: Market
and Business Analysis, Newspaper Association of America). Newspapers have been
putting virtually all their classified liner advertising online for several
years, using primarily, software solutions that generate the online content from
the newspaper's own print content.

The online publishing of display advertising, run-of-print advertising ("ROP"),
special sections and free-standing-inserts ("FSIs") has evolved into an
application-service-provider ("ASP") business model whereby newspapers want a
technology driven solution with a high level of service and support from their
vendor. Much of this content is printed in color, has a high profile within the
print publication and is very costly to the advertiser.

The key driver of demand for these services is the statistical data that now
confirms the online readership of newspaper content over and above print
circulation. In addition, traditional newspaper revenues from advertising are
under assault from the new online giants such as monster.com, ebay and others.
Implementing effective online solutions is perceived as critical by most
newspapers.

Customers demand a high level of interactivity and enhanced features from online
versions of this print advertising. Developing and enabling these solutions
requires a substantial financial investment in both R&D and servers,
connectivity and processes that is best justified when amortized across many
newspapers. Indications are that these costs are deemed prohibitive to
individual newspapers, and even newspaper groups, but that they are keen to use
an outside resource to deliver these solutions. P2i Newspaper has proprietary
processes and a patent on format and functionality that position us well to
acquire a significant share of this market.

These solutions have become increasingly more sophisticated, evolving into
online shopping centers or channels where newspaper site visitors can search and
browse across many ads from multiple sources: display classified, ROP, FSIs and
special sections. Additionally, newspapers are developing their own platforms,
licensing solutions and looking at partners who provide more than one solution.

Recognizing this, P2i Newspaper has positioned itself to deliver processed
content in a variety of formats so that it can be incorporated into many
solutions, web sites and platforms at the same time.


Competition

Infosis, a company P2i acquired in September 2000, was the first company to
establish a presence in this business space. As the revenue models have proved
to be viable, competitors have emerged. Some, such as Harvest and Print2Web,
adopted very similar strategies to that of P2i pre 2004: sell directly to the
newspapers and deliver ever increasingly sophisticated solutions. Others, such
as WSN and Adexpedia, are approaching the retailers directly to convert their
FSI content and then act as the distributor of this content to newspapers.

Companies such as Daily Shopper and Saleshound (now combined as one entity,
CrossMedia Services) are also moving into this space. Their original strategy
was to aggregate sales content from newspaper inserts and stores, publish it
online within a destination site and attract visitors. Their original business
models proved uneconomic and many of their competitors closed or merged. They
are developing ASP solutions that are retailer focused and view the newspaper as
the means to distribute this online content.

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<PAGE>

Secondary competition comes from the software companies that have developed ad
management systems for newspapers, such as Mactive and PowerOne. Newspapers use
their solutions to manage their ad content and they could include modules that
would publish the content online. There are certainly many applications that can
publish classified liner ads online automatically from the ad management
function, but none that can provide the level of sophistication that P2i
Newspaper solutions feature.

There are many obstacles to newspapers adopting pure software solutions to
compete with P2i Newspaper services. Firstly, ads are created in many different
ways, even within a single newspaper. Some are submitted electronically from
advertising agencies and design firms. Others are created by the newspaper's own
creative departments. Some are in color, some in black and white. FSI's are
usually created by agencies or print companies specializing in that field, and
the newspaper only receives the printed versions, rarely the electronic
versions. The "normalization" of incoming data is a key component of the
proprietary processes P2i Newspaper has developed. Once the content has been
processed, the functionality requires the various applications that power those
features to be running on the host server. Finally there is a human element to
the publishing of this content: every individual ad and page needs to be viewed
by an operator to ensure that the multiple images and text boxes that are
incorporated in a single newspaper page are matched.

As difficult as it would be for a newspaper to take the services and solutions
that P2i Newspaper has available in-house using a software solution only, in the
years ahead, as the volume of online advertising content increases, more and
more newspapers and newspaper groups will look for such a solution. P2i
Newspaper recognizes that it may need to modify its services to meet the
newspaper's evolving needs.

Finally, as volumes have increased and more competitors seek to move into this
space, prices have fallen. P2i Newspaper has been able to remain competitive by
virtue of the reduced costs of operations in Malaysia and the development of its
new technology platform.

As of December 31, 2003, P2i Newspaper had a combination of 60 full-time and
part time employees. Of such employees, 3 were engaged in marketing and sales, 8
were devoted to research, development and technical support, 43 to production
services and 6 were responsible for management, finance and administration. None
of the Company's employees are covered by a collective bargaining agreement. The
Company considers its relations with its employees to be good.


ITEM 2. DESCRIPTION OF PROPERTY

The Company has vacated its 4,000 sq. ft. of office space at 2300 Tulare Street,
Suite 210, Fresno, CA, 93721.

The Company occupies 1,500 square feet of office space at One Bethlehem Plaza,
Bethlehem, PA 18018, 3,000 square feet of office space in an office park south
of Kuala Lumpur, Malaysia.


ITEM 3. LEGAL PROCEEDINGS

Not applicable.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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<PAGE>

                                     PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock and Class A Warrants traded on The Nasdaq SmallCap Market from
May 15, 1998 until March 2002 under the symbols PSCO and PSCOW. Our class B
common stock purchase warrants traded on The Nasdaq SmallCap Market from
February 14, 2001 until March 2002. Since March 2002, all of our securities have
traded on the OTC Bulletin Board. The following table sets forth for the periods
indicated the high and low sales price per share of our common stock and our
common stock purchase warrants.

For the quarter ended:  Common Stock       Class A Warrants     Class B Warrants
----------------------  ------------       ----------------     ----------------
                        High      Low        High      Low         High    Low
                        ----      ---        ----      ---         ----    ---

March 31, 2000          $7.18    $5.75       $1.68    $1.12        N/A     N/A
June 30, 2000           $6.12    $4.25       $2.25    $0.87        N/A     N/A
September 30, 2000      $6.31    $5.37       $2.12    $1.37        N/A     N/A
December 31, 2000       $5.50    $1.56       $1.75    $0.38        N/A     N/A

March 31, 2001          $3.75    $0.94       $0.81    $0.13        $0.63   $0.22
June 30, 2001           $2.29    $1.20       $0.35    $0.02        $0.26   $0.04
September 30, 2001      $1.74    $1.20       $0.23    $0.06        $0.18   $0.03
December 31, 2001       $1.15    $0.40       $0.11    $0.02        $0.09   $0.02

March 31, 2002          $1.05    $0.80
June 30, 2002           $0.95    $0.65
September 30, 2002      $0.75    $0.35
December 31, 2002       $0.43    $0.35

March 31, 2003          $0.35    $0.30
June 30, 2003           $0.32    $0.20
September 30, 2003      $0.21    $0.11
December 31, 2003       $0.15    $0.06


As of April 10, 2004, there were approximately 1,500 record and beneficial
owners.


DIVIDEND POLICY

We have not paid any cash dividends on our common stock and we currently intend
to retain any future earnings to fund the development and growth of our
business. Any future determination to pay dividends on our common stock will
depend upon our results of operations, financial condition and capital
requirements, applicable restrictions under any credit facilities or other
contractual arrangements and such other factors deemed relevant by our Board of
Directors.


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<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The statements contained in this Form 10-KSB are not purely historical
statements, but rather include what we believe are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These include
statements about our expectations, beliefs, intentions or strategies for the
future, which are indicated by words or phrases such as anticipate, expect,
intend, plan, will, we believe, the Company believes, management believes and
similar words or phrases. The forward-looking statements are based on our
current expectations and are subject to certain risks, uncertainties and
assumptions, including factors set forth in the following discussion and in the
discussions under Risk Factors and Business. Our actual results could differ
materially from results anticipated in these forward-looking statements. All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements.


RESULTS OF OPERATIONS

Year Ended December 31, 2003 vs. Year Ended December 31, 2002


Net Revenues

For the year ended December 31, 2003, net revenues were $0 versus $453,177 for
the year ended December 31, 2002. Net revenues for 2002 were attributable to the
Company's ISP division. Under the terms of a conditional agreement entered on
May 1, 2002, the ISP and web development assets of the Company were operated by
Brand X Networks and were classified as discontinued operations for 2002.


Operating Expenses

For the year ended December 31, 2003, operating expenses totaled $442,243 versus
$833,646 in 2002. The Company's selling, general and administrative expenses
decreased by $391,403, principally due to 2002 including approximately $255,000
of severance costs to a former officer and decreased professional fees in 2003
of approximately $98,000. Administrative fees principally consist of
professional fees associated with the restructuring and maintenance of the
Company and officers' and directors' liability insurance. In addition, the
Company had impairment charges of $81,000 and $121,000 in 2003 and 2002,
respectively, in connection with the Company's investment in P2i, Inc. The
operations of the ISP have been classified as discontinued operations and the
related operating expenses of the ISP have not been included in the
aforementioned discussion.


Interest Expense

Interest expense totaled $2,099,303 for the year ended December 31, 2003 versus
interest expense of $1,734,346 in 2002. The increase in interest expense is a
result of the convertible notes obtained during 2003 to fund the operations of
the Company and P2i pending the merger. A significant component of interest
expense includes amortization of debt issuance costs in each year.


Other (Charges)

Other charges included losses on the sale of marketable securities (Dauphin
Technology, Inc. common stock) of $65,942 and $272,944 in 2003 and 2002,
respectively.


Discontinued Operations

Operations of the ISP division were discontinued under the terms of the Brand X
agreement. Although the ISP and web development assets are operated by Brand X
Networks, they continue to be carried on the Company's balance sheet since the
sale of those assets had not yet been completed as of December 31, 2003.

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Liquidity and Capital Resources


For the year ended December 31, 2003, we used cash of $238,263 for operating
activities, used net cash of $603,175 in investing activities and were provided
net cash of $886,225 from financing activities. We had negative working capital
of $824,928 at December 31, 2003. As of December 31, 2003, we had $47,458 in
cash and $2,886,608 of total liabilities.

On April 30, 1999, we entered into a strategic alliance with Infosis Corp., a
privately held corporation and purchased 12.7%, on a non-diluted basis, of its
outstanding common stock. We paid an aggregate of $1.8 million for 600,000
shares of Infosis Corp. common stock. At the time of the purchase, the $1.8
million payment represented 51.1% of our available cash. 30,000 of the purchased
shares were paid to Andrew, Alexander, Wise & Co., Inc. ("AAWC"), as a finder's
fee. After payment of the 30,000 shares of Infosis common stock to AAWC, we
owned 570,000 shares of Infosis Corp. common stock. There was no affiliate or
related party relationships with Infosis prior to this investment. The strategic
alliance pertained to joint marketing and development activities whereby
ProtoSource would become the web design and development arm of Infosis Corp. As
part of the investment, William Conis, then a Director of ProtoSource, was
appointed to the Board of Directors of Infosis Corp. in June 1999. In June 1999,
the Board of Directors of Infosis Corp. replaced its CEO and CFO. The new
management team changed the direction of Infosis Corp. and did not follow
through on the alliance with ProtoSource.

In January, 2000, Infosis Corp. issued ProtoSource 120,000 shares of its common
stock as an adjustment to reflect a lower offering price per share in a
concluded private placement of its common stock, which brought ProtoSource's
holdings of Infosis Corp. to 690,000 shares. The additional shares issued were
the result of the anti-dilution provision, which was part of the original
investment in Infosis Corp. The receipt of the additional shares from the
anti-dilution provision did not result in a change in the cost basis of
ProtoSource's original investment in Infosis Corp.

In July, 2000, we purchased an $84,177 convertible promissory note from Infosis
Corp. in connection with a bridge financing.

In September, 2000, ProtoSource acquired an aggregate of $329,686 principal
amount of Infosis Corp. convertible promissory notes at $0.05 on the dollar for
a total acquisition price of $16,484. These convertible promissory notes were
then converted into 329,686 shares of preferred stock of Infosis Corp.
Concurrent with the acquisition of the Infosis Corp. promissory notes by
ProtoSource, Infosis Corp. merged into P21, Inc., a privately held corporation.
ProtoSource's investment in Infosis Corp. was increased by the amount that it
paid for the promissory notes, which were then converted into preferred stock of
Infosis Corp. As a result of this merger, ProtoSource owned 506,225 shares of
common stock or approximately 4% of P2i, Inc. As a result of a lack of interest
in the strategic alliance by Infosis and the merger between Infosis and P2i,
Inc., our original investment into Infosis, which merged into P2i, Inc., has
turned into a passive investment. P2i, Inc. is a privately-held company and
there can be no assurances that we will realize the full value of this
investment if we need to dispose of these assets. In addition, after further
review of this investment, although no formal appraisal or valuation report was
prepared, as of December 31, 2000, we recorded an impairment expense of
$1,271,484 to write down this investment to its estimated market value. The
impairment expense was recorded as the difference between $630,000 and the total
amount of our investment in Infosis.


On July 17, 2001, P2i acquired all the assets of Twenty Twenty Design &
Marketing, Inc. of New York City. As a result of this acquisition, our holdings
in P2i were diluted to approximately 2.6% of the resulting entity. Additionally,
the post-merger valuation of P2i was set at approximately $8.7 million. Based on
this new information, we recorded an additional impairment charge of $404,000 as
of June 30, 2001, to write down this investment to fair value. The impairment
charge was recorded as the difference between the previous value of this
investment $(630,000) and the newly established value $(226,000). Further
impairment charges of $81,000 and $121,000 were recorded in 2003 and 2002
respectively.

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<PAGE>

AAWC acted as placement agent for $1,500,000 of bridge financing completed in
May, 2000. The short-term financing was in the form of units containing
promissory notes with interest at 10%. In addition, each $25,000 unit consisted
of 4,000 shares of common stock. The promissory notes were due and paid at the
closing of our February 2001 public offering. AAWC was paid a 10% commission and
a 3% non-accountable expense allowance. In connection with this bridge
financing, we incurred debt issuance costs of approximately $1,722,500. The
unamortized debt issuance costs were expensed as interest when the loans were
repaid in February, 2001.

On August 22, 2000, we acquired all the outstanding common stock of Suncoast
Automation, Inc. in exchange for 1,303,072 shares of our common stock. Although
we did not obtain an independent appraisal of the fair market value of Suncoast,
we based our valuation on the cable television industry standard at that time of
$5,000 per subscriber. On May 17, 2001, we entered into a Term Sheet to sell the
assets of Suncoast Automation to Dauphin Technology, Inc. (DNTK.OB), an Illinois
corporation. The sale was concluded effective July 1, 2001. As a result of the
sale, we received 766,058 shares of Dauphin common stock of which 38,303 shares
were paid to our investment banker, AAWC. Dauphin also agreed to assume $140,269
in Suncoast liabilities. In conjunction with the sale, we negotiated
approximately $362,498 of Suncoast-related liabilities for 268,466 shares of our
common stock and approximately $3,300 in cash. The write-down in connection with
this sale was recorded in the second quarter of 2001. The Dauphin Technology
stock we received was registered effective September 22, 2001. The Company began
liquidation of a portion of the securities in October 2001. Proceeds from the
sale of securities will be used to fund the Company's operations.

On December 5, 2001, the Company received notification from Nasdaq that the
Company no longer satisfied the minimum requirements for continued listing on
the Nasdaq Small Cap Market. The Company applied for an exception to the Nasdaq
listing requirements, which was granted on March 12, 2002. A temporary exemption
was given until April 22, 2002. It was conditioned on the Company filing a proxy
statement with the Securities and Exchange Commission by March 15, 2002, which
provides our shareholders the opportunity to approve the acquisition of P2i, as
well as certain other conditions. Due to a delay in the receipt of audited
financials for P2i, the Company was unable to meet the deadline. Subsequently,
the Company's securities were delisted from Nasdaq. The Company's securities now
trade on the OTC Bulletin Board.

On December 14, 2001, after exploring numerous alternatives, the Company entered
into a term sheet to acquire P2i for 22,768,412 shares of our common stock.

In March 2002, the Company entered into an agreement with AAWC to act as
placement agent for the sale of convertible notes aggregating at least $300,000.
The notes are secured by certain assets of the Company and accrue interest at
10% per annum. P2i has agreed to pay all the costs and obligations incurred with
this financing. The funding was completed during March 2002 and AAWC was paid a
10% commission and a 3% non-accountable expense allowance.

On May 1, 2002, the Company entered into a conditional agreement to sell the
assets of the Fresno-based ISP business to Brand X Networks. Brand X Networks is
a privately held California-based company whose principal shareholders were
former employees of the Company. The Company agreed to lay off the remaining
employees based in Fresno on April 30th. Most terminated employees were hired by
Brand X. Additionally, Brand X has assumed financial and operational
responsibility for the ISP business. On April 14, 2003, the Company completed a
fifth amendment to the purchase agreement with Brand X pursuant to which the
Company has agreed to accept an aggregate payment of $632,000 for the ISP
Division, less credits to Brand X of $112,686. Of such amount, $200,000 shall be
paid through the provision of services to the Company from Brand X. The balance
shall be paid at the rate of approximately $5,171 per month, until completely
paid.

In July 2002, the Company executed its merger agreement with P2i. Concurrently,
the Company's CEO, Mr. William Conis, resigned his position as both CEO and
Director. Mr. Peter Wardle, CEO of P2i and a ProtoSource Director, became CEO of
the Company. Mr. Wardle is currently both CEO of ProtoSource and P2i even though
the closing on the P2i acquisition has not yet occurred. This inherent conflict
of interest will remain until the closing of the P2i acquisition takes place.

                                       9
<PAGE>

On September 17, 2002, the Board of Directors approved a revised term sheet
restructuring the P2i acquisition. Under the new terms, ProtoSource will acquire
the Newspaper portion of P2i, Inc.'s business through the acquisition of
specific assets which include the entire newspaper related customer base,
technology, intellectual property and P2i's production company located just
south of Kuala Lumpur, Malaysia. In addition, key P2i employees will transition
with the business. These assets and the key employees have been transferred to
P2i Newspaper, Inc. a wholly-owned subsidiary of P2i formed specifically for
this purpose. The acquisition of P2i Newspaper, Inc. by ProtoSource will be
accounted for by the purchase method of accounting as a reverse acquisition. For
accounting purposes, P2i Newspaper, Inc. is considered to be the acquirer and
ProtoSource is the acquiree.

The number of shares of restricted common stock to be issued to P2i has
subsequently been revised to 19,383,531 shares (after conversion of the
preferred stock issued as merger consideration) which will result in an
ownership of approximately 37% by the stockholders of P2i, on a fully diluted
basis assuming conversion of certain bridge loans into common stock, the balance
being held by the current stockholders of ProtoSource. After the acquisition of
P2i Newspaper is completed, the Board of Directors of ProtoSource will consist
of seven members. One member shall be appointed by the investment banker, AAWC.
(This appointment must be approved by P2i but can't be unreasonably withheld.)
One member shall be appointed by Suncoast under the terms of the Suncoast sale
agreement and will expire in accordance with that agreement to be replaced by a
Wardle/Butera appointment. Messrs. Wardle and Butera will be on the Board and
they shall appoint the two independent members plus one other as long as they
hold 25% or more of P2i New Media, Inc. (see below), collectively, and P2i New
Media, Inc. owns 25% or more of ProtoSource. In the event that P2i's ownership
drops below 25% but is not less than 10%, P2i shall appoint one board member. In
the event that P2i's ownership drops below 10%, P2i shall not have the right to
appoint any board member. ProtoSource and P2i both used the same investment
banker to represent them in the transaction and each will pay the investment
banker a fee based on the value of the transaction using a pre-set formula. The
investment banking fees to be paid are $406,844 by ProtoSource and $413,422 by
P2i. The amounts paid to the investment banker will be paid through the issuance
of common stock, which is restricted for a three-year period, based on an
agreed-upon value of $.50 per share at the time of signing the term sheet, or
813,688 shares for ProtoSource and 826,844 shares for P2i. The shares to be
issued for P2i's investment banking fees will be subtracted from the shares to
be issued to the P2i stockholders for the acquisition. P2i's remaining catalog
and new media business will stay with P2i. However, ProtoSource will increase
its ownership in P2i from the current 2.18% (506,225 shares) to 19.8%. The
consideration to be paid is the forgiveness of P2i debt to ProtoSource.

During 2002, the Company entered into an agreement with AAWC to act as a
placement agent for the sale of convertible notes aggregating $1,300,000. The
notes are secured by stock in P2i Newspaper, Inc. and accrue interest at 10% per
annum. The Company pays the cost and obligations of the first $200,000 incurred
with this financing and P2i Newspaper, Inc. has agreed to pay all remaining
costs and obligations. Through December 31, 2003, $1,225,000 in funding had been
completed. AAWC was paid a 10% commission and a 3% non-accountable expense.
Substantially all of the proceeds from these notes have been loaned to P2i
Newspaper, Inc. The loans are in the form of demand notes which accrue interest
at 8% per annum.

During the twelve-month period ended December 31, 2003, the Company entered into
certain agreements with AAWC to act as a placement agent for the sale of
convertible notes aggregating $700,000. The notes are secured by stock in P2i
and accrue interest at 10% per annum. P2i has agreed to pay the related costs
and obligations. Through December 31, 2003, $600,000 in funding had been
completed; an additional $100,000 was completed during January 2004. AAWC was
paid a 10% commission and a 3% non-accountable expense. Substantially all of the
proceeds from these notes have been loaned to P2i. The loans are in the form of
demand notes which accrue interest at 8% per annum.

                                       10
<PAGE>

During May 2003, the Company entered into an agreement with Carl R. Butera for
the sale of a convertible note aggregating $200,000. The note is secured by
stock in P2i Newspaper, Inc. and accrues interest at 10% per annum.
Substantially all of the proceeds from this note have been loaned to P2i
Newspaper, Inc. The loan is in the form of a demand note which accrues interest
at 8% per annum.

On July 1, 2001 an agreement was entered into with Dauphin Technology, Inc.
where Dauphin Technoloy, Inc. is to pay the two leases guaranteed by ProtoSource
for leased equipment located at Suncoast Automation's locations. Payments are
currently in default.


Recently Issued Accounting Standards

In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 or FIN 46, "Consolidation of Variable Interest Entities",
an interpretation of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements". In October 2003, the FASB issued FASB Staff Position FIN
46-6, "Effective Date of FASB Interpretation No. 46, Consolidation of Variable
Interest Entities," deferring the effective date for applying the provisions of
FIN 46 for public entities' interests in variable interest entities or potential
variable interest entities created before February 1, 2003 for financial
statements of interim or annual periods that end after December 15, 2003. FIN 46
establishes accounting guidance for consolidation of variable interest entities
that function to support the activities of the primary beneficiary. In December
2003, the FASB issued FIN 46 (revised December 2003), "Consolidation of Variable
Interest Entities." This revised interpretation is effective for all entities no
later than the end of the first reporting period that ends after March 15, 2004.
The Company has no investment in or contractual relationship or other business
relationship with a variable interest entity and therefore the adoption of this
interpretation did not have any impact on its consolidated financial position or
results of operations. However, if the Company enters into any such arrangement
with a variable interest entity in the future or any entity with which we have a
relationship is reconsidered, based on guidance in FIN 46, to be a variable
interest entity, the Company's consolidated financial position or results of
operations might be materially impacted.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003 and pre-existing instruments as of the beginning of the first
interim period that commences after June 15, 2003, except for mandatorily
redeemable financial instruments. Mandatorily redeemable financial instruments
are subject to the provisions of this statement beginning on January 1, 2004.
The Company has not entered into or modified any financial instruments
subsequent to May 31, 2003 affected by this statement. The Company does not
expect the adoption of this statement to have a material impact on financial
condition or results of operations.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". This statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. This statement is effective for contracts entered into or modified
after June 30, 2003, hedging relationships designated after June 30, 2003, and
to certain pre-existing contracts. The Company has not entered into or modified
any financial instruments subsequent to June 30, 2003 affected by this
statement. The Company does not expect the adoption of this statement to have a
material impact on financial condition or results of operations.

In December, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which provides alternative methods of
transition for a voluntary change to a fair value based method of accounting for
stock-based employee compensation as prescribed in SFAS No. 123. Additionally,
SFAS No. 148 requires more prominent and more frequent disclosures in financial
statements about the effects of stock-based compensation. The provisions of this
statement are effective for fiscal years ending after December 15, 2002.
Management does not expect the adoption of this statement to have a material
impact on the Company's financial condition or results of operations.


Critical Accounting Policies and Estimates

Management's discussion and analysis of its financial position and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses and related disclosure of contingent
assets and liabilities. The significant accounting policies which we believe are
the most critical to aid in fully understanding and evaluating our reported
financial results include the following:

                                       11
<PAGE>

In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (and superceded in 2001 by
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"),
the Company recorded impairment charges in 2001 of $328,543 to write-down
goodwill to zero and $81,000 and $121,000 to reduce the carrying value of its
investment in P2i in 2003 and 2002, respectively.

In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
maintains a valuation allowance of $6,270,000 as of December 31, 2002 on
deferred tax assets relating to its net operating losses which the Company has
not determined to be more likely than not realizable.

Through December 31, 2003, the Company has advanced $1,642,303 to P2i, a company
whose Chief Executive Officer serves in the same capacity at ProtoSource
Corporation. This was used to help fund P2i Newspaper, Inc.'s operations from
the date the first term sheet was executed on December 17, 2001 to the closing
of the transaction on January 1, 2004. Effective December 31, 2003, amounts due
from P2i, Inc. have been written off.






                                       12
<PAGE>


ITEM 7. FINANCIAL STATEMENTS





















                                       13
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                     Page
                                                                     ----

Financial Statements                                                 F-1

Independent Auditor's Report                                         F-2

Consolidated Balance Sheet as of December 31, 2003                   F-3

Consolidated Statement of Operations
  for the years ended December 31, 2003 and 2002                     F-4

Consolidated Statement of Stockholders' Equity (Deficiency)          F-5
  for the years ended December 31, 2003 and 2002

Consolidated Statement of Cash Flows
  for the years ended December 31, 2003 and 2002                     F-6 & 7

Notes to Consolidated Financial Statements                           F-8 to F-19








                                      F-1
<PAGE>





                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
ProtoSource Corporation

We have audited the accompanying consolidated balance sheet of ProtoSource
Corporation and Subsidiary as of December 31, 2003, and the related consolidated
statements of operations, stockholders' equity (deficiency), and cash flows for
the years ended December 31, 2003 and 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ProtoSource Corporation and
Subsidiary as of December 31, 2003, and the results of their operations and
their cash flows for the years ended December 31, 2003 and 2002 in conformity
with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying financial
statements, the Company incurred a net loss of $4,291,884 and $2,798,497 during
the years ended December 31, 2003 and 2002, respectively. As discussed in Note 1
to the financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.





                                                 /s/ Margolis & Company P.C.
                                                 Certified Public Accountants

Bala Cynwyd, Pennsylvania
March 15, 2004


                                       F-2
<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2003



                                     ASSETS


Current assets:
   Cash                                                            $     47,458
   Assets held for sale                                                 178,115
   Prepaid expenses and other                                               626
                                                                   ------------

       Total current assets                                             226,199
                                                                   ------------

Property and equipment under capital lease, at cost, net of
   accumulated amortization of $21,816                                   39,278
                                                                   ------------

Other assets:
   Debt issuance costs, net of accumulated amortization
     of $1,567,034                                                      493,745
   Investment in corporation                                             24,000
                                                                   ------------

       Total other assets                                               517,745
                                                                   ------------

       Total assets                                                $    783,222
                                                                   ============



                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
   Notes payable                                                   $  2,025,000
   Current portion of obligations under capital leases                   13,119
   Accounts payable                                                     109,704
   Accrued expenses                                                     512,872
   Deferred revenue                                                      48,062
   Liabilities to be assumed upon sale                                  155,332
                                                                   ------------

       Total current liabilities                                      2,864,089
                                                                   ------------

Obligations under capital leases, non-current portion                    22,519
                                                                   ------------


Commitments and contingencies

Stockholders' deficiency:
   Preferred stock, no par value; 5,000,000 shares
     authorized, none issued and outstanding                               --
   Common stock, no par value; 10,000,000 shares
     authorized, 8,114,829 shares issued and outstanding             25,835,960
   Common stock, to be issued, no par value, 2,737,500 shares           700,000
   Additional paid-in capital                                         2,464,107
   Accumulated deficit                                              (31,103,453)
                                                                   ------------

       Net  stockholders' deficiency                                 (2,103,386)
                                                                   ------------

       Total liabilities and stockholders' deficiency              $    783,222
                                                                   ============



              The notes to consolidated financial statements are an
                      integral part of the above statement.

                                       F-3
<PAGE>
<TABLE>
<CAPTION>

                       PROTOSOURCE CORPORATION AND SUBSIDIARY

                        CONSOLIDATED STATEMENT OF OPERATIONS


                                                                   YEAR ENDED
                                                                   DECEMBER 31,
                                                               2003           2002
                                                           -----------    -----------
<S>                                                        <C>            <C>
Operating expenses:
   Selling, general and administrative                     $   352,517    $   703,920
   Depreciation and amortization                                 8,726          8,726
   Impairment of investment                                     81,000        121,000
                                                           -----------    -----------

         Total operating expenses                              442,243        833,646
                                                           -----------    -----------

         Operating loss                                       (442,243)      (833,646)
                                                           -----------    -----------

Other income (charges):
   Interest expense                                         (2,099,303)    (1,734,346)
   Write-off of notes and interest receivable, P2i, Inc.    (1,705,062)          --
   Loss on sale of marketable securities                       (65,942)      (272,944)
   Interest income                                                --           49,615
   Other income                                                 20,666         20,157
                                                           -----------    -----------

          Net other (charges)                               (3,849,641)    (1,937,518)
                                                           -----------    -----------


Net loss from continuing operations                         (4,291,884)    (2,771,164)
                                                           -----------    -----------

Discontinued operations:
   Loss from discontinued operations - ISP                        --          (27,333)
                                                           -----------    -----------

          Total loss from discontinued operations                 --          (27,333)
                                                           -----------    -----------

Net loss                                                   $(4,291,884)   $(2,798,497)
                                                           ===========    ===========


Net loss per basic and diluted share of common stock:
   Continuing operations                                   $      (.52)   $      (.44)
   Discontinued operations                                        --             (.01)
                                                           -----------    -----------

Net loss                                                   $      (.52)   $      (.45)
                                                           ===========    ===========

Weighted average number of basic and
  diluted common shares outstanding                          8,202,405      6,268,183
                                                           ===========    ===========



                The notes to consolidated financial statements are an
                        integral part of the above statement.

                                         F-4
<PAGE>

                                  PROTOSOURCE CORPORATION AND SUBSIDIARY

                        CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                              FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


                                                                                         Common Stock
                                                             Common Stock                to be Issued
                                                      ---------------------------   -----------------------
                                                         Shares         Amount       Shares        Amount
                                                      ------------   ------------   ---------   -----------

Balance at December 31, 2001                             5,671,103   $ 24,554,293        --            --

Issuance of common stock in connection with
  financing                                              1,818,726      1,081,667        --            --
Warrants issued in connection with financing                  --             --          --            --
Beneficial conversion feature of convertible notes            --             --          --            --
Other comprehensive (loss), net of tax:
   Unrealized (loss) on marketable securities                 --             --          --            --
    Reclassification adjustment for losses included
      in net loss                                             --             --          --            --
Net loss                                                      --             --          --            --
                                                      ------------   ------------   ---------   -----------

          Total comprehensive (loss)


Balance at December 31, 2002                             7,489,829     25,635,960        --            --


Issuance of common stock in connection with
  financing                                                625,000        200,000        --            --
Common stock to be issued in connection with
  financing                                                   --             --     2,737,500   $   700,000
Beneficial conversion feature of convertible notes            --             --          --            --
Other comprehensive (loss), net of tax:
  Unrealized (loss) on marketable securities                  --             --          --            --
  Reclassification adjustment for losses included
    in net loss                                               --             --          --            --
Net loss                                                      --             --          --            --
                                                      ------------   ------------   ---------   -----------

              Total comprehensive (loss)


Balance at December 31, 2003                             8,114,829   $ 25,835,960   2,737,500   $   700,000
                                                      ============   ============   =========   ===========

Table continues on following page.

                                                   F-5
<PAGE>

                                         PROTOSOURCE CORPORATION AND SUBSIDIARY

                               CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 (CONTINUED)


                                                                     Accumulated
                                                       Additional       Other                                       Current Year's
                                                        Paid-In     Comprehensive     Accumulated                    Comprehensive
                                                        Capital        (Loss)           Deficit         Total           (Loss)
                                                      ------------   ------------    ------------    ------------    ------------

Balance at December 31, 2001                          $    392,745   $   (161,637)   $(24,013,072)   $    772,329            --

Issuance of common stock in connection with
  financing                                                   --             --              --         1,081,667            --
Warrants issued in connection with financing                46,362           --              --            46,362            --
Beneficial conversion feature of convertible notes       1,048,784           --              --         1,048,784            --
Other comprehensive (loss), net of tax:
   Unrealized (loss) on marketable securities                 --         (173,376)           --          (173,376)   $   (173,376)
    Reclassification adjustment for losses included
      in net loss                                             --          272,944            --           272,944         272,944
Net loss                                                      --       (2,798,497)           --        (2,798,497)     (2,798,497)
                                                      ------------   ------------    ------------    ------------    ------------

          Total comprehensive (loss)                                                                                 $ (2,698,929)
                                                                                                                     ============

Balance at December 31, 2002                             1,487,891        (62,069)    (26,811,569)        250,213            --


Issuance of common stock in connection with
  financing                                                   --             --              --           200,000            --
Common stock to be issued in connection with
  financing                                                   --             --              --           700,000            --
Beneficial conversion feature of convertible notes         976,216           --              --           976,216            --
Other comprehensive (loss), net of tax:
  Unrealized (loss) on marketable securities                  --           (3,873)         (3,873)           --      $     (3,873)
  Reclassification adjustment for losses included
    in net loss                                               --           65,942          65,942            --            65,942
Net loss                                                      --             --        (4,291,884)     (4,291,884)     (4,291,884)
                                                      ------------   ------------    ------------    ------------    ------------

              Total comprehensive (loss)                                                                             $ (4,229,815)
                                                                                                                     ============

Balance at December 31, 2003                          $  2,464,107   $       --      $(31,103,453)   $ (2,103,386)           --
                                                      ============   ============    ============    ============    ============


                The notes to consolidated financial statements are an integral part of the above statement.

                                                     F-5 (continued)
<PAGE>

                        PROTOSOURCE CORPORATION AND SUBSIDIARY

                         CONSOLIDATED STATEMENT OF CASH FLOWS


                                                                     YEAR ENDED
                                                                     DECEMBER 31,
                                                                 2003           2002
                                                             -----------    -----------

                              INCREASE (DECREASE) IN CASH

Cash flows from operating activities:
  Net loss                                                   ($4,291,884)   ($2,798,497)
  Adjustments to reconcile net loss to net cash
       (used in) operating activities:
     Depreciation and amortization                                 8,726         22,968
     Impairment of investment                                     81,000        121,000
     Provision for bad debts                                        --            2,950
     Loss on sale of marketable securities                        65,942        272,944
     Amortization of debt issuance costs                         949,798        617,236
     Amortization of beneficial conversion
       of notes payable                                          976,216      1,048,784
     Write-off of notes and interest receivable, P2i, Inc.     1,705,062           --
     Changes in operating assets and liabilities:
       Interest receivable                                          --          (55,252)
       Prepaid expenses and other assets                           2,025         39,063
       Assets and liabilities held for sale                         --           (2,243)
       Accounts payable                                           28,870          7,811
       Accrued expenses                                          196,920        279,763
       Deferred revenue                                           39,062         (4,000)
                                                             -----------    -----------

              Net cash (used in) operating activities           (238,263)      (447,473)
                                                             -----------    -----------

Cash flows from investing activities:
  Increase in notes receivable, P2i, Inc.                       (610,226)      (986,280)
  Deposits                                                          --             (500)
  Proceeds from sale of marketable securities                      7,051        263,312
                                                             -----------    -----------

              Net cash (used in) investing activities           (603,175)      (723,468)
                                                             -----------    -----------



                                CONTINUED ON NEXT PAGE



                 The notes to consolidated financial statements are an
                         integral part of the above statement.

                                          F-6
<PAGE>

                       PROTOSOURCE CORPORATION AND SUBSIDIARY

                  CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED


                                                                   YEAR ENDED
                                                                   DECEMBER 31,
                                                               2003           2002
                                                           -----------    -----------

Cash flows from financing activities:
  Proceeds from borrowings                                 $   900,000    $ 1,125,000
  Payments on obligations under capital leases                 (13,775)       (36,903)
  Debt issuance costs incurred                                    --          (32,750)
                                                           -----------    -----------

           Net cash provided by financing activities           886,225      1,055,347
                                                           -----------    -----------

Net increase (decrease) in cash                                 44,787       (115,594)

Cash at beginning of year                                        2,671        118,265
                                                           -----------    -----------

Cash at end of year                                        $    47,458    $     2,671
                                                           ===========    ===========




                  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the year for:
  Interest                                                 $   173,289    $    69,494
                                                           -----------    -----------
  Income taxes                                             $      --      $      --
                                                           -----------    -----------




       SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Issuance of common stock in connection with financing      $   900,000    $ 1,081,667
Warrants issued in connection with financing                      --           46,362
Unrealized loss on marketable securities                       (62,069)       (99,569)

Write-off of interest receivable from P2i, Inc. recorded
  during the nine-month period ended September 30, 2003
  deemed uncollectible and written-off during the
  quarter ended December 31, 2003                              (75,658)          --




                The notes to consolidated financial statements are an
                        integral part of the above statement.

                                         F-7
</TABLE>
<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


1.   Nature of Operations and Summary of Significant Accounting Policies

     Nature of operations - ProtoSource Corporation, formerly SHR Corporation
     doing business as Software Solutions Company (the "Company'), was
     incorporated on July 1, 1988, under the laws of the state of California.
     Until May 1, 2002, the Company was an Internet service provider (ISP). The
     Company provided dial-up Internet access, web hosting services and web
     development services. The Company entered into an agreement on May 1, 2002
     to sell substantially all of the assets pertaining to the ISP to Brand X
     Networks, Inc. (see Note 2).

     The Company also operated as a private cable operator through its
     wholly-owned subsidiary, Suncoast Automation, Inc. ("Suncoast"). Suncoast
     builds, upgrades and maintains cable TV systems as well as manages
     programming for the timeshare industry. Suncoast developed an interactive
     system that delivers basic cable TV, premium channel packages and
     high-speed Internet access to this market. The Company sold substantially
     all of the assets of Suncoast on July 1, 2001.

     Basis of presentation - The accompanying consolidated financial statements
     have been prepared on a going concern basis, which contemplates the
     realization of assets and the satisfaction of liabilities in the normal
     course of business. The financial statements do not include any adjustments
     relating to the recoverability and classification of recorded asset amounts
     or the amount and classification of liabilities that might be necessary
     should the Company be unable to continue as a going concern. The Company's
     continuation as a going concern is dependent upon its ability to generate
     sufficient cash flows to meet its obligations on a timely basis, to obtain
     additional financing as may be required, and to generate revenues to a
     level where the Company becomes profitable. Additionally, the Company has
     experienced extreme cash liquidity shortfalls from operations.

     The Company's continued existence is dependent upon its ability to achieve
     its operating plan. Management's plans include the following:

     o    Obtaining additional working capital through the sale of common stock
          or debt securities.

     o    The acquisition of P2i Newspaper, Inc. which became effective on
          January 1, 2004 at which time P2i Newspaper became a wholly-owned
          subsidiary of the Company (see Note 8), and the ability of P2i
          Newspaper to successfully implement its strategic plan as follows:

          P2i Newspaper's long-term business strategy is to focus on the
          processing of print content into web content using technologically
          sophisticated, database-driven, services and solutions across multiple
          business-to-business verticals. The combination of on-target sales
          strategies, low labor costs, a well-educated labor pool fluent in
          English, and sophisticated technologies make P2i Newspaper highly
          competitive. The Company intends leveraging these competitive
          advantages in other markets over the next five years.

          Through 2004 and 2005, P2i Newspaper will focus on the following:
          increase market share in the newspaper vertical and target government,
          retail and manufacturing verticals.

                                       F-8
<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


1.   Nature of Operations and Summary of Significant Accounting Policies -
     Continued

     Newspaper

     o    In November, 2003, P2i Newspaper made the strategic decision to
          withdraw from marketing directly to new newspaper accounts in the
          United States, but instead to focus on building partnerships to build
          sales. The Company recognized that the conversion of print content
          into Internet was viewed by newspapers as an essential commodity, and
          as such they were motivated by price as much as product functionality
          and features.
     o    Through its partners and residual direct accounts, P2i Newspaper is
          supplying or has access to over 1,600 U.S. newspapers: over 24% of the
          U.S. market.

     Government

     o    The UK government has mandated that all government publications must
          also be available online within the near future. P2i Newspaper is
          working closely to maximize this opportunity.
     o    P2i Newspaper's solution has just been evaluated by the city of
          Stockport in the UK and has passed the established Bobby AA standards.

     Retail

     o    P2i Newspaper currently processes inserts for several retailers.
     o    In addition, the Company is in talks with retailer groups to provide
          the ad and special section processing that will be incorporated into a
          platform featuring newspaper content and retail inserts.
     o    The pricing for converting catalog and retail insert pages has fallen
          dramatically over the past 18 months. P2i Newspaper believes it will
          continue to fall and that the Company is perfectly positioned to
          re-enter this market using a similar strategy to that used in the
          newspaper space: partnerships.

     Manufacturing

     o    P2i Newspaper solutions are applicable for any business with large
          volumes of frequently updated print content that is appropriate for
          Internet distributions.
     o    Manufacturing companies are generally putting all technical manuals
          online in crude PDF format.
     o    The potential revenue opportunity is being quantified, but is believed
          to be substantial.

     If management cannot achieve the above objectives, the Company may find it
     necessary to dispose of assets, or undertake other actions as may be
     appropriate.

                                       F-9
<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


1.   Nature of Operations and Summary of Significant Accounting Policies -
     Continued

     Revenue recognition - In connection with its ISP business, the Company
     charged customers monthly access fees to the Internet and recognized the
     revenue in the month the access was provided. The Company charged customers
     monthly web hosting fees for maintaining the customers' web sites on its
     server and recognized the revenue in the month the service was provided.
     For certain customers billed in advance, the Company recognized the revenue
     over the period the billing covered.

     Principles of consolidation - The consolidated financial statements include
     the accounts of the Company and its wholly-owned subsidiary. All
     significant intercompany accounts and transactions have been eliminated.

     Cash and cash equivalents - For purposes of the statements of cash flows,
     the Company considers all highly liquid investments with a maturity of
     three months or less at the date of purchase to be cash equivalents.

     Property and equipment - Assets held under capital lease obligations are
     amortized using the straight-line method over the shorter of the useful
     lives of the assets or the term of the lease.

     Depreciation and amortization of property and equipment charged to
     operations was $8,726 and $22,968 for the years ended December 31, 2003 and
     2002, respectively.

     Amortization - Debt issuance costs are being amortized using the
     straight-line method over the one-year term of the notes (see Note 3).

     Investment in corporation - The Company's investment is in P2i, a
     privately-held corporation, which represents less than a ten percent
     ownership interest in that corporation. The Company's investment in P2i is
     recorded using the cost method of accounting. The Company reviews its
     investment for impairment whenever events or changes in circumstances
     indicate that the fair value of its investment is less than its cost or
     carrying value. An impairment charge is recognized if there is a decline in
     value below the Company's cost of the investment, if the decline is other
     than temporary. The Company utilizes publicly available market information
     or other appropriate estimates determined by management to evaluate
     impairment.

     An impairment charge of $81,000 and $121,000 was recognized for the years
     ended December 31, 2003 and 2002, respectively, as there was a decline in
     the fair value of the investment below its cost, which was considered other
     than temporary. The fair value was based on financial projections,
     consultation with the Company's investment banker and an outside
     consultant, and management's estimates. Effective January 1, 2004, the
     Company acquired P2i's Print-to-Internet business (see Note 8).



                                      F-10
<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


1.   Summary of Significant Accounting Policies - Continued

     Stock-based compensation - The Company adopted Statement of Financial
     Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
     Compensation," for its stock-based compensation plans. The Company will
     continue to measure compensation expense for its stock-based employee
     compensation plans using the intrinsic value method prescribed by APB
     Opinion No. 25, "Accounting for Stock Issued to Employees," and related
     interpretations.

     If the Company had elected to recognize compensation expense based upon the
     fair value at the grant date for awards under these plans consistent with
     the methodology prescribed by SFAS No. 123, the Company's net loss and loss
     per share would be increased to the following pro forma amounts for the
     years ended December 31, 2003 and 2002:

                                                      2003           2002
                                                  -----------    -----------
   Net loss:
     As reported                                  $(4,291,884)   $(2,798,497)
     Deduct:
       Total stock-based compensation
         determined under Black-Scholes
         option valuation model for all awards,
         net of income taxes                          (35,000)       (35,000)
                                                  -----------    -----------

   Pro forma                                      $(4,326,884)   $(2,833,497)
                                                  ===========    ===========

   Net loss per share of common stock:
     As reported                                  $      (.52)   $      (.45)
     Pro forma                                    $      (.53)   $      (.46)


     These pro forma amounts may not be representative of future disclosures
     since the estimated fair value of stock options is amortized to expense
     over the vesting period and additional options may be granted in future
     years. The fair value for these options was estimated at the date of grant
     using the Black-Scholes option-pricing model with the following
     assumptions:

     Risk free interest rate                                 4.95%
     Expected life                                           5 years
     Expected volatility                                     76.5%
     Expected dividend yield                                 None


     Income taxes - Deferred income taxes are provided for temporary differences
     between the financial reporting and tax basis of assets and liabilities
     using enacted tax laws and rates for the years when the differences are
     expected to reverse.

                                      F-11
<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


1.   Summary of Significant Accounting Policies - Continued

     Net (loss) per basic and diluted share of common stock - Basic loss per
     share is calculated using the weighted average number of common shares
     outstanding. Diluted loss per share is computed on the basis of the
     weighted average number of common shares outstanding during the period
     increased by the dilutive effect of outstanding stock options using the
     "treasury stock" method.

     The basic and diluted loss per share are the same since the Company had a
     net loss for 2003 and 2002 and the inclusion of stock options and other
     incremental shares would be anti-dilutive. Options and warrants to purchase
     1,697,500 and 3,532,000 shares of common stock at December, 2003 and 2002,
     respectively, were not included in the computation of diluted earnings per
     share.

     Estimates - The preparation of the Company's financial statements in
     conformity with generally accepted accounting principles requires the
     Company's management to make estimates and assumptions that affect the
     reported amounts of assets and liabilities and disclosure of contingent
     assets and liabilities at the date of the financial statements and the
     reported amount of revenues and expenses during the reporting period.
     Actual results could differ from those estimates.

     Reclassifications - Certain reclassifications have been made to the 2002
     financial statement presentation for comparability with the 2003 financial
     statements.


     Recently Issued Accounting Standards
     ------------------------------------

     In January 2003, the Financial Accounting Standards Board ("FASB") issued
     Interpretation No. 46 or FIN 46, "Consolidation of Variable Interest
     Entities", an interpretation of Accounting Research Bulletin No. 51,
     "Consolidated Financial Statements". In October 2003, the FASB issued FASB
     Staff Position FIN 46-6, "Effective Date of FASB Interpretation No. 46,
     Consolidation of Variable Interest Entities," deferring the effective date
     for applying the provisions of FIN 46 for public entities' interests in
     variable interest entities or potential variable interest entities created
     before February 1, 2003 for financial statements of interim or annual
     periods that end after December 15, 2003. FIN 46 establishes accounting
     guidance for consolidation of variable interest entities that function to
     support the activities of the primary beneficiary. In December 2003, the
     FASB issued FIN 46 (revised December 2003), "Consolidation of Variable
     Interest Entities." This revised interpretation is effective for all
     entities no later than the end of the first reporting period that ends
     after March 15, 2004. The Company has no investment in or contractual
     relationship or other business relationship with a variable interest entity
     and therefore the adoption of this interpretation did not have any impact
     on its consolidated financial position or results of operations. However,
     if the Company enters into any such arrangement with a variable interest
     entity in the future or any entity with which we have a relationship is
     reconsidered, based on guidance in FIN 46, to be a variable interest
     entity, the Company's consolidated financial position or results of
     operations might be materially impacted.

                                      F-12
<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


1.   Summary of Significant Accounting Policies - Continued

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
     Financial Instruments with Characteristics of Both Liabilities and Equity".
     This statement establishes standards for how an issuer classifies and
     measures certain financial instruments with characteristics of both
     liabilities and equity. This statement is effective for financial
     instruments entered into or modified after May 31, 2003 and pre-existing
     instruments as of the beginning of the first interim period that commences
     after June 15, 2003, except for mandatorily redeemable financial
     instruments. Mandatorily redeemable financial instruments are subject to
     the provisions of this statement beginning on January 1, 2004. The Company
     has not entered into or modified any financial instruments subsequent to
     May 31, 2003 affected by this statement. The Company does not expect the
     adoption of this statement to have a material impact on financial condition
     or results of operations.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
     Derivative Instruments and Hedging Activities". This statement amends and
     clarifies accounting for derivative instruments, including certain
     derivative instruments embedded in other contracts, and for hedging
     activities under SFAS No. 133. This statement is effective for contracts
     entered into or modified after June 30, 2003, hedging relationships
     designated after June 30, 2003, and to certain pre-existing contracts. The
     Company has not entered into or modified any financial instruments
     subsequent to June 30, 2003 affected by this statement. The Company does
     not expect the adoption of this statement to have a material impact on
     financial condition or results of operations.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
     Compensation - Transition and Disclosure - an Amendment of FASB No. 123",
     which provides alternative methods of transition for a voluntary change to
     a fair value based method of accounting for stock-based employee
     compensation as prescribed in SFAS No. 123. Additionally, SFAS No. 148
     requires more prominent and more frequent disclosures in financial
     statements about the effects of stock-based compensation. The provisions of
     this Statement are effective for fiscal years ending after December 15,
     2002. Management does not expect the adoption of this statement to have a
     material impact on the Company's financial condition or results of
     operations.

2.   Discontinued Operations

     Pending Sale of ISP Division
     ----------------------------

     Effective May 1, 2002, the Company entered into an agreement to sell
     substantially all of the assets of the ISP division to Brand X Networks,
     Inc., a California Corporation, for $632,000. The assets have been held and
     operated by Brand X Networks, Inc. for its purposes since May 1, 2002, at
     which time the Company discontinued its ISP operations. On April 14, 2003,
     the Company completed a fifth amendment to the purchase agreement with
     Brand X pursuant to which the Company has agreed to accept an aggregate
     payment of $632,000 for the ISP Division, less credits to Brand X of
     $112,686. Of such amount, $200,000 shall be paid through the provision of
     services to the Company from Brand X. The balance shall be paid at the rate
     of approximately $5,171 per month, until completely paid.

                                      F-13
<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


2.   Discontinued Operations - Continued

     Pending Sale of ISP Division - Continued
     ----------------------------------------

     On January 1, 2004, the sale of the ISP business to Brand X closed. Under
     the terms of that agreement a promissory note of $284,455 was executed by
     Brand X to be paid in 55 equal monthly installments. This note is
     collateralized by a pledge of shares in Brand X. In addition, ProtoSource
     is entitled to appoint one person to the board of directors of Brand X for
     the duration of the agreement.

     A summary of operating results of this discontinued operation follows for
     the year ended December 31, 2002:

     Net revenues                                                $ 453,177
     Operating expenses                                            479,342
                                                                 ---------

     Operating loss                                                (26,165)
     Other (expense)                                                (1,168)
                                                                 ---------

     Net loss                                                    $ (27,333)
                                                                 =========


3.   Notes Payable

     During the years ended December 31, 2003 and 2002, the Company issued
     $900,000 and $1,125,000, respectively, of promissory notes in exchange for
     amounts borrowed from individuals. The notes mature in one year from date
     of issuance with interest payable at 10% per annum and each with a
     conversion feature which permits the Holder to convert the principal and
     accrued interest into the Company's common stock at any time prior to the
     due date of the repayment of the note by the Company. The conversion rate
     is generally the amount to be converted divided by 50% of the average
     closing bid price of the common stock for the five trading days prior to
     the date of the note. An amount of approximately $976,000 and $1,049,000
     has been recognized in 2003 and 2003, respectively, as interest expense and
     additional paid-in capital as the result of the beneficial conversion
     feature of these notes.

     Also in connection with the issuance of these notes, the Company issued
     3,362,500 during 2003 and 1,818,726 during 2002 in shares of common stock
     valued at approximately $1,082,000 and $900,000 respectively. In addition,
     the Company issued 407,500 warrants in 2003 and 112,500 warrants in 2002.
     The value of the warrants were considered deminimus in 2003 and were valued
     at approximately $46,000 in 2002. These amounts are being amortized to
     interest expense on a monthly basis over the one-year term of the notes.

                                      F-14
<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


4.   Income Taxes

     Significant components of deferred income taxes as of December 31, 2003 are
     as follows:

                 Net operating loss carryforward   $ 5,665,000
                 Impairment of investment              605,000
                                                   -----------
                 Total deferred tax asset            6,270,000
                 Less valuation allowance           (6,270,000)
                                                   -----------
                 Net deferred tax asset            $      --
                                                   ===========


     The Company has assessed its past earnings history and trends and
     expiration dates of carryforwards and has determined that it is more likely
     than not that no deferred tax assets will be realized. The valuation
     allowance of $6,270,000 is maintained on deferred tax assets which the
     Company has not determined to be more likely than not realizable at this
     time. The net change in the valuation allowance for deferred tax assets was
     an increase of $765,000. The Company will continue to review this valuation
     on a quarterly basis and make adjustments as appropriate.

     At December 31, 2003, the Company had federal and state net operating loss
     carryforwards of approximately $18,884,000 and $6,800,000, respectively.
     Such carryforwards expire in the years 2007 through 2023 and 2004 through
     2008 for federal and state purposes, respectively.

5.   Preferred Stock

     The authorized preferred stock of the Company consists of 5,000,000 shares,
     no par value. The preferred stock may be issued in series from time to time
     with such designation, rights, preferences and limitations as the Board of
     Directors of the Company may determine by resolution. The rights,
     preferences and limitations of separate series of preferred stock may
     differ with respect to such matters as may be determined by the Board of
     Directors, including without limitation, the rate of dividends, method and
     nature of payment of dividends, terms of redemption, amounts payable on
     liquidation, sinking fund provisions (if any), conversion rights (if any),
     and voting rights. Unless the nature of a particular transaction and
     applicable statutes require approval, the Board of Directors has the
     authority to issue these shares without shareholder approval.

6.   Stock Options and Warrants

     Incentive stock option plan - In November, 1994, the Company's Board of
     Directors authorized, and the shareholders approved, a stock option plan
     which provides for the grant of incentive and nonqualified options to
     eligible officers and key employees of the Company to purchase up to
     150,000 shares of the Company's common stock. The purchase price of such
     shares shall be at least equal to the fair market value at the date of
     grant. Such options vest at the discretion of the Board of Directors. The
     stock option plan expires in 2004. Under the Company's stock option plan,
     outstanding options vest over three years from the grant date and are
     generally for a six-year term. There are currently no outstanding options
     under this plan.

                                      F-15
<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


6.   Stock Options and Warrants - Continued

     1999 Executive Officers Stock Option Plan
     -----------------------------------------

     In May, 1999, the Company's Board of Directors authorized a stock option
     plan which provides for the grant of incentive and nonqualified options to
     eligible officers and directors of the Company to purchase up to 150,000
     shares of the Company's common stock. The purchase price of such shares
     shall be at least equal to the fair market value at the date of grant. Such
     options vest at the discretion of the Board of Directors. The stock option
     plan expires in 2009. There are currently no outstanding options under this
     plan.


     2000 Stock Option Plans
     -----------------------

     In May, 2001, the Company's shareholders approved the Company's 2000
     Employee Stock Option Plan and the 2000 Executive Stock Option Plan. Each
     Plan has 350,000 shares reserved for issuance and no stock options have
     been granted under either plan as of December 31, 2003


     Severance Warrants
     ------------------

     During 2001, the Company issued 22,500 warrants to a former officer in
     connection with termination of his employment. The warrants are exercisable
     at $6.00 per share until November, 2004.


     Board of Directors Options
     --------------------------

     The Company issued 115,000 stock options to its Non-Employee Directors from
     October, 1998 to December 31, 2001. The options vest immediately, or over a
     three-year period and are exercisable at $1.36 to $6.00 per share and the
     options are for a five-year term. As of December 31, 2003, 92,500 options
     are outstanding.


     Warrants from Secondary Offering
     --------------------------------

     The Company issued 1,137,000 redeemable common stock purchase warrants in
     connection with a secondary offering of its common stock in May 1998. Each
     warrant is exercisable to purchase one share of common stock at $6.33 per
     share until May 13, 2003 and may be redeemed by the Company if the closing
     price of the Company's common stock is at least $8.63 per share for twenty
     consecutive trading days. All warrants were cancelled May 13, 2003. As of
     December 31, 2003, there were no warrants are outstanding.

     In connection with the offering, the Company issued the underwriter a
     warrant to purchase 105,000 units of the Company's securities at $9.49 per
     unit until May 13, 2003. Each unit consists of one share of the Company's
     common stock and one redeemable common stock purchase warrant. All warrants
     were cancelled May 12, 2003. As of December 31, 2003, there were no
     warrants are outstanding.

                                      F-16
<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


7.   Commitments and Contingencies

     Leases
     ------

     The Company leases certain computer equipment under noncancellable capital
     leases.

     The following is a schedule of future minimum lease payments at December
     31, 2003 under the Company's capital leases (together with the present
     value of minimum lease payments).

                        2004                              $ 17,859
                        2005                                17,859
                        2006                                 7,442
                        2007                                  --
                                                          --------
            Total minimum lease payments                    43,160
            Less amount representing interest               (7,522)
                                                          --------
            Present value of net minimum lease payments   $ 35,638
                                                          ========


     In 2003, the Company paid administrative fees to P2i of approximately
     $50,000 for office space and other administrative charges. In 2002, rent
     expense was approximately $22,000 which related to its discontinued
     operation. As of December 31, 2003, the Company had no future operating
     lease commitments.


8.   Acquisition

     On February 13, 2003, the Company announced an agreement and Plan of Merger
     to acquire all of the outstanding capital stock of P2i Newspaper, Inc., a
     Delaware corporation ("P2i Newspaper") and a wholly-owned subsidiary of
     P2i, Inc., a Pennsylvania corporation ("P2i"), in exchange for the issuance
     of up to 19,383,531 shares of ProtoSource common stock and satisfaction of
     the existing P2i debt to the Company (the "Agreement").

     The 19,383,531 shares will be reduced by the number of shares equal to the
     total fees incurred to audit the financial statements of P2i or P2i
     Newspaper, divided by $0.50 (the "Adjusted Shares"). The Adjusted Shares
     shall be subject to a three-year lock-up, which may be released upon the
     stock price and volume reaching established thresholds.

     On January 1, 2004, the Company, P2i Newspaper and P2i amended the terms of
     the Agreement (the "Amendment"). Pursuant to the terms of the Amendment, in
     exchange for all of the issued and outstanding shares of P2i Newspaper, the
     Company issued 198,836 shares of series B preferred stock (the "Preferred
     Stock"), which shares shall be reduced by the total fees incurred to audit
     the financial statements of P2i or P2i Newspaper, divided by $50. Each
     share of Preferred Stock is exchangeable for 100 shares of the Company's
     common stock at any time after the Company increases its authorized number
     of shares of common stock to 100,000,000 shares.

     As part of this transaction, the Company will also acquire an additional
     interest in P2i's new media business which will bring its total ownership
     in P2i to 19.8%.

                                      F-17
<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


8.   Acquisition - Continued

     The acquisition of P2i Newspaper became effective on January 1, 2004, at
     which time P2i Newspaper became a wholly-owned subsidiary of the Company.
     P2i Newspaper is a leader in the conversion of previously created print
     advertising into interactive web products for newspaper, magazine and mail
     order/retail catalog advertising. Clients include newspapers from the
     Gannett, Tribune and McClatchy Newspaper groups. The Company is
     headquartered in Bethlehem, PA, has offices in New York and London, and a
     data conversion facility in Kuala Lumpur, Malaysia.

     The Company loaned P2i $50,000 in 2001, $995,280 in 2002, and $597,023 in
     2003. The loans to P2i are in the form of demand notes. The notes accrue
     interest at the rate of 8% per annum. The notes receivable, together with
     the related accrued interest, have been written-off during 2003 as
     collection on these notes was deemed to be doubtful.

     Upon completion of the audit of the financial statements of P2i Newspaper,
     these financial statements will be amended to include pro forma financial
     statements of ProtoSource Corporation as if the acquisition occurred on
     January 1, 2003.


9.   Concentrations of Credit Risk

     Financial instruments which potentially subject the Company to
     concentrations of credit risk consist principally of cash and notes
     receivable. The Company places its cash and short-term investments with
     high credit quality financial institutions and limits its credit exposure
     with any one financial institution. See previous note for effect of pending
     merger regarding notes receivable.


10.  Employee Benefit Plan

     Effective May 29, 1997, the Company adopted a 401(k) savings plan for
     employees who are not covered by any collective bargaining agreement, have
     attained age 21 and have completed one year of service. Employee and
     Company matching contributions are discretionary. The Company made no
     contributions for the years ended December 31, 2003 and 2002. Company
     contributions vest as follows:

                  Years of Service                Percent Vested
                  ----------------                --------------

                         1                              33%
                         2                              66%
                         3                             100%


11.  Fair Value of Financial Instruments

     Disclosures about the fair value of financial instruments for the Company's
     financial instruments are presented in the table below. These calculations
     are subjective in nature and involve uncertainties and significant matters
     of judgment and do not include income tax considerations.

                                      F-18
<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


11.  Fair Value of Financial Instruments - Continued

     Therefore, the results cannot be determined with precision and cannot be
     substantiated by comparison to independent market values and may not be
     realized in actual sale or settlement of the instruments. There may be
     inherent weaknesses in any calculation technique, and changes in the
     underlying assumptions used could significantly affect the results. The
     following table presents a summary of the Company's financial instruments
     as of December 31, 2003:

                                            Carrying    Estimated
                                             Amount     Fair Value
                                             ------     ----------

              Financial liabilities:
                Notes payable               2,025,000   2,025,000
                Capital lease obligations      35,638      35,638


     The carrying amounts for cash, accounts payable and accrued expenses
     approximate fair value because of the short maturities of these
     instruments. The fair value of notes payable and the capital lease
     obligations, including the current portion, approximates fair value because
     of the market rate of interest on the notes payable and the interest rate
     implicit in the obligations under capital leases.















                                      F-19
<PAGE>

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

     The Company does not have any material market risk sensitive financial
instruments.


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.


ITEM 8a. CONTROLS AND PROCEDURES.

As of December 31, 2003, an evaluation was performed under the supervision and
with the participation of the Company's management, including the Chief
Executive Officer and the Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on that evaluation, the Company's management, including the Chief Executive
Officer and the Chief Financial Officer, concluded that the Company's disclosure
controls and procedures were effective as of December 31, 2003. There have been
no significant changes in the Company's internal controls or in other factors
that could significantly affect internal controls subsequent to December 31,
2003.














                                       14
<PAGE>

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

Executive Officers, Directors, Director Nominees And Key Employees

Our executive officers, directors and key employees and their ages and positions
with us are as follows:

NAME                               POSITION
----                               --------
Peter Wardle,49                    Chief Executive Officer, President,
                                   Chief Financial Officer and Director
Thomas Butera,37                   Chief Operating Officer and Director
Joseph DiMarino,61                 Director
Mark Blanchard,51                  Director
Stewart Kalter,33                  Director

Peter Wardle became a director in December 2001 and was appointed as Chief
Executive Officer, Chief Financial Officer and President in May 2002. Mr. Wardle
was Chief Executive Officer of P2i, Inc. from May 2000 through December 2003.
Mr. Wardle served as Chief Executive Officer of 2020 Marketing and Design from
1993 when he co-founded the company until December 2003. Prior to that, Mr.
Wardle served as a database marketing consultant form 1990 to 1993. From 1987 to
1990, he was Chief Executive Officer of Autoroos, Inc. Mr. Wardle received a
degree in accounting from Stockport College in the UK in 1978.

Thomas C. Butera was appointed as Chief Operating Officer and a director of the
Company in January 2004. From 1993 until December 2003, Mr. Butera was creative
director of 2020 Marketing and Design. From December 2001 through December 2003,
Mr. Butera served as an executive of P2i, Inc. Since May 2003, Mr. Butera has
served as Chief Operating Officer of P2i Newspaper, Inc. Mr. Butera is a
graduate of Parsons School of Design in New York City.

Joseph DiMarino was appointed as a director of the Company in August 2003. Mr.
DiMarino began his newspaper career in 1970 with the Philadelphia Inquirer,
which is a Knight Ridder newspaper. Mr. DiMarino held various executive
positions with Knight Ridder, Inc. from 1970 until June 2002. From August 2002
until May 2003, Mr. DiMarino was Chief Operating Officer of P2i Newspaper, Inc.
Since May 2003, Mr. DiMarino has provided consulting services to the newspaper
industry. Mr. DiMarino is a graduate of Villanova University.

Mark Blanchard has been a member of the Company's Board since May 2002. Mr.
Blanchard was a co-founder and has been President of Resort TV Services since
July 2003. Prior to that he was Vice President and General Manager of
ProtoSource's former Suncoast division, a business he helped founding 1998. From
1995 to 1998 he was founder and President of Internet Stock Market Inc., which
facilitated the promotion of public companies. From 1992 to 1995, Mr. Blanchard
was founder and President of Pension Specialists Management Group, a company
that advised pension funds on investments. From 1979 to 1992, Mr. Blanchard held
several positions with Raymond James and Associates, and Smith Barney, full
service brokerage firms. His final position with Smith Barney was Senior Vice
President of Municipals. He graduated from Rutgers University with a degree in
business in 1976.

Stewart Kalter became a director in October 2001. Since May 2003, Mr. Kalter has
served as President of Vision Securities. From May 2001 through May 2003, Mr.
Kalter served as Director of Corporate Finance and Research of Andrew,
Alexander, Wise & Company, Inc. Prior to that, he was Director of Research at
Global Capital Securities from February 2000 to March 2001. Mr. Kalter was a
Research Analyst with Spencer Clarke from November 1997 to January 2000. From
1995 until 1997, he served as a Research Associate with Bishop Allen. Mr. Kalter
has a BS in Accounting from Widener College and an MBA in Finance and Banking
from Hofstra University.

                                       15
<PAGE>

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company's executive officers and
directors and persons who own more than 10% of a registered class of the
Company's equity securities to file reports of their ownership thereof and
changes in that ownership with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc. Executive officers, directors
and greater than 10% stockholders are required by SEC regulations to furnish the
Company with copies of all such reports they file.

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Company pursuant to Rule 16a-3(e) under the Exchange Act during fiscal 2003
and Forms 5 and amendments thereto furnished to the Company with respect to
fiscal 2002, no persons during the last fiscal year failed to file on a timely
basis.


Code of Ethics

     The Company has adopted its Code of Ethics and Business Conduct for
Officers, Directors and Employees, that applies to all of the officers,
directors and employees of the Company. The Code of Ethics is filed as an
exhibit to this Report on Form 10-KSB.


ITEM 10. EXECUTIVE COMPENSATION

At January 1, 2004 Peter Wardle and Thomas Butera receive compensation in excess
of $100,000 per year.

The following table discloses certain compensation paid to the Company's Chief
Executive Officer for the last three fiscal years.
<TABLE>
<CAPTION>

                                                                                       Long Term
Name and                                                                              Compensation
Principal                                    Other        Annual    All Other       Awards/Securities
Position               Year   Salary $()  Compensation    Bonus    Compensation   Underlying Options(#)
--------               ----   ----------  ------------    -----    ------------   ---------------------
<S>                    <C>     <C>          <C>           <C>      <C>              <C>
Peter Wardle, CEO      2003    -0-              -           -            -                  -

Thomas Butera, COO     2003    -0-              -           -            -                  -

William Conis, Former  2002    $ 89,519
Chief Executive        2001    $182,291         -           -            -                50,000
 Officer               2000    $163,333     $12,000(1)      -            -                  -
----------
</TABLE>

     (1)  As per Mr. Conis's 1999 Consulting Agreement.


Option Grants in Last Year and Stock Option Grant

No options were granted during the year ended December 31, 2003.


Aggregate Option Exercise of Last Fiscal year and Fiscal Year-End Option Values

The following table provides information on the value of the named executive
officers' unexercised options at December 31, 2003. No shares of Common Stock
were acquired upon exercise of options during the fiscal year ended December 31,
2003.

                                                         Value of
                  Number of Unexercised          Unexercised In-The-Money
                  Options at Year End              Options at Year End
               ---------------------------     ---------------------------
Name           Exercisable   Unexercisable     Exercisable   Unexercisable
----           -----------   -------------     -----------   -------------

None.

                                       16
<PAGE>

1995 Stock Option Plan

In November 1994, the Company adopted a stock option plan (the Plan) which
provides for the grant of options intended to qualify as incentive stock options
and nonqualified stock options within the meaning of Section 422 of the United
States Internal Revenue Code of 1986 (the Code). Incentive stock options are
issuable only to eligible officers, directors, key employees and consultants of
the Company.

The Plan is administered by the Board of Directors and terminates in November
2004. At December 31, 2003, the Company had reserved 150,000 shares of Common
Stock for issuance under the Plan. Under the Plan, the Board of Directors
determines which individuals shall receive options, the time period during which
the options may be partially or fully exercised, the number of shares of Common
Stock that may be purchased under each option and the option price.

The per share exercise price of the Common Stock may not be less than the fair
market value of the Common Stock on the date the option is granted. No person
who owns, directly or indirectly, at the time of the granting of an incentive
stock option, more than 10% of the total combined voting power of all classes of
stock of the Company is eligible to receive incentive stock options under the
Plan unless the option price is at least 110% of the fair market value of the
Common Stock subject to the option on the date of grant.

No options may be transferred by an optionee, other than by will or the laws of
descent and distribution, and during the lifetime of an optionee, the option may
only be exercisable by the optionee. Options may be exercised only if the option
holder remains continuously associated with the Company from the date of grant
to the date of exercise. Options under the Plan must be granted within five
years from the effective date of the Plan and the exercise date of an option
cannot be later than ten years from the date of grant. Any options that expire
unexercised or that terminate upon an optionee's ceasing to be employed by the
Company become available once again for issuance. Shares issued upon exercise of
an option will rank equally with other shares then outstanding.

As of December 31, 2003, no options are outstanding under this Plan.

2000 Employee Stock Option Plan

On May 1, 2001, the Company received shareholder approval to adopt an additional
employee stock option plan (the Plan). This Plan provides for the grant of
options intended to qualify as incentive stock options and nonqualified stock
options within the meaning of Section 422 of the United States Internal Revenue
Code of 1986 (the Code). Incentive stock options are issuable only to eligible
officers, directors, key employees and consultants of the Company.

The Plan is administered by the Board of Directors and terminates in May 2006.
At December 31, 2002, the Company had reserved 350,000 shares of Common Stock
for issuance under the Plan. Under the Plan, the Board of Directors determines
which individuals shall receive options, the time period during which the
options may be partially or fully exercised, the number of shares of Common
Stock that may be purchased under each option and the option price.

The per share exercise price of the Common Stock may not be less than the fair
market value of the Common Stock on the date the option is granted. No person
who owns, directly or indirectly, at the time of the granting of an incentive
stock option, more than 10% of the total combined voting power of all classes of
stock of the Company is eligible to receive incentive stock options under the
Plan unless the option price is at least 110% of the fair market value of the
Common Stock subject to the option on the date of grant.

No options may be transferred by an optionee, other than by will or the laws of
descent and distribution, and during the lifetime of an optionee, the option may
only be exercisable by the optionee. Options may be exercised only if the option
holder remains continuously associated with the Company from the date of grant
to the date of exercise. Options under the Plan must be granted within five
years from the effective date of the Plan and the exercise date of an option
cannot be later than ten years from the date of grant. Any options that expire
unexercised or that terminate upon an optionee's ceasing to be employed by the
Company become available once again for issuance. Shares issued upon exercise of
an option will rank equally with other shares then outstanding.

                                       17
<PAGE>

As of December 31, 2003, no options are outstanding under this Plan.

1999 Executive Officer Stock Option Plan

In May 1999, the Board of Directors approved the 1999 Executive Officer Stock
Option Plan (the 1999 Plan) for the benefit of the executive officers. The 1999
Plan is intended to provide an incentive to individuals to act as executive
officers and to maintain a continued interest in the Company's operations. All
options under the 1999 Plan will be issued under Section 422A of the Internal
Revenue Code, and include qualified and non-qualified stock options.

The terms of the 1999 Plan provide that the Company is authorized to grant
options to purchase shares of common stock to executive officers upon the
majority consent of the Board of Directors. The option price to be paid by
optionees for shares under qualified stock options must not be less than the
fair market value of the shares as reported by the Nasdaq SmallCap Market on the
date of the grant. The option price for nonqualified stock options must not be
less than 85% of such fair market value. Options must be exercised within six
years following the date of grant and the optionee must exercise options during
service to the Company or within three months of termination of such service (12
months in the event of death or disability). The Board of Directors may extend
the termination date of an option granted under the Plan.

A total of 150,000 shares of authorized but unissued common stock have been
reserved for issuance pursuant to the 1999 Plan. As of December 31, 2003, no
options are outstanding under this Plan.

Options under the 1999 Plan may not be transferred, except by will or by the
laws of intestate succession. The number of shares and price per share of the
options under the Plan will be proportionately adjusted to reflect forward and
reverse stock splits. The holder of an option under the 1999 Plan has none of
the rights of a shareholder until shares are issued.

The 1999 Plan is administered by the Board of Directors, which has the power to
interpret the 1999 Plan, determine which persons are to be granted options and
the amount of such options. The provisions of the Federal Employee Retirement
Income Security Act of 1974 do not apply to the 1999 Plan. Shares issuable upon
exercise of options will not be purchased in open market transactions but will
be issued by us from authorized shares. Payment for shares must be made by
optionees in cash from their own funds. No payroll deductions or other
installment plans have been established.

Shares issuable under the 1999 Plan may be sold in the open market, without
restrictions, as free trading securities. No options may be assigned,
transferred, hypothecated or pledged by the option holder. No person may create
a lien on any securities under the 1999 Plan, except by operation of law.
However, there are no restrictions on the resale of the shares underlying the
options. The 1999 Plan will remain in effect until May 2009 but may be
terminated or extended by the Board of Directors.


2000 Executive Officer Stock Option Plan

On May 1, 2001, the Company received shareholder approval for an additional
Executive Officer Stock Option Plan (the 2000 Plan) for the benefit of the
executive officers. The 2000 Plan is intended to provide an incentive to
individuals to act as executive officers and to maintain a continued interest in
the Company's operations. All options under the 2000 Plan will be issued under
Section 422A of the Internal Revenue Code, and include qualified and
non-qualified stock options.

The terms of the 2000 Plan provide that the Company is authorized to grant
options to purchase shares of common stock to executive officers upon the
majority consent of the Board of Directors. The option price to be paid by
optionees for shares under qualified stock options must not be less than the
fair market value of the shares as reported by the OTC Bulletin Board on the
date of the grant. The option price for nonqualified stock options must not be
less than 85% of such fair market value. Options must be exercised within six
years following the date of grant and the optionee must exercise options during
service to the Company or within three months of termination of such service (12
months in the event of death or disability). The Board of Directors may extend
the termination date of an option granted under the Plan.

                                       18
<PAGE>

A total of 350,000 shares of authorized but unissued common stock have been
reserved for issuance pursuant to the 2000 Plan. As of December 31, 2003, no
options are outstanding under this Plan.

Options under the 2000 Plan may not be transferred, except by will or by the
laws of interstate succession. The number of shares and price per share of the
options under the Plan will be proportionately adjusted to reflect forward and
reverse stock splits. The holder of an option under the 2000 Plan has none of
the rights of a shareholder until shares are issued.

The 2000 Plan is administered by the Board of Directors, which has the power to
interpret the 2000 Plan, determine which persons are to be granted options and
the amount of such options. The provisions of the Federal Employee Retirement
Income Security Act of 1974 do not apply to the 2000 Plan. Shares issuable upon
exercise of options will not be purchased in open market transactions but will
be issued by us from authorized shares. Payment for shares must be made by
optionees in cash from their own funds. No payroll deductions or other
installment plans have been established.

Shares issuable under the 2000 Plan may be sold in the open market, without
restrictions, as free trading securities. No options may be assigned,
transferred, hypothecated or pledged by the option holder. No person may create
a lien on any securities under the 2000 Plan, except by operation of law.
However, there are no restrictions on the resale of the shares underlying the
options. The 2000 Plan will remain in effect until May 2010 but may be
terminated or extended by the Board of Directors.



                                       19
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information concerning the holdings of Common
Stock by each person who, as of March 31, 2004, holds of record or is known by
the Company to hold beneficially or of record, more than 5% of the Company's
Common Stock, by each director, and by all directors and executive officers as a
group. All shares are owned beneficially and of record and all share amounts
include stock options and Common Stock purchase warrants exercisable within 60
days from the date hereof.

                                         Amount and Nature
                                           of Beneficial        Percent of Class
Name of Beneficial Owner (1)               Ownership (2)               (%)
----------------------------             -----------------      ----------------

Peter Wardle                                        -                   -
Thomas Butera                                       -                   -
Joseph DiMarino                                     -                   -
Mark Blanchard (3)                            461,454                 6.2%
Stewart Kalter                                      -                   -
Kent Spears                                   367,173                 4.9%
Peter J. Pappas (4)                         1,319,748                16.2%
All officers and directors as a group
(5 persons)                                   461,454                 6.2%
--------------------

* Less than 1%

(1) Except as otherwise indicated, the address of each beneficial owner is c/o
ProtoSource Corporation, One Bethlehem Plaza, 4th Floor, Bethlehem, PA 18018.

(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to the
shares shown. Except where indicated by footnote and subject to community
property laws where applicable, the persons named in the table have sole voting
and investment power with respect to all shares of voting securities shown as
beneficially owned by them.

(3) Includes 43,310 shares owned by his wife, Virginia M. Blanchard.

(4) Includes 612,986 shares issuable upon exercise of warrants or conversion of
convertible promissory notes.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In February 2003, the Company signed an agreement and Plan of Merger with P2i to
acquire P2i's Print-to-Internet business in exchange for a controlling interest
in the Company and satisfaction of the existing P2i debt to the Company. The
Company loaned P2i $50,000 in 2001, $995,280 in 2002 and $597,023 in 2003.
Additional loans of $58,500 in 2004 were made through March 19, 2004. The loans
to P2i were in the form of demand notes, which in the event that the merger did
not get completed, would have been due on demand.

In May 2002 Peter Wardle, CEO and a principal stockholder of P2i, Inc. and a
director of the Company, assumed the duties and responsibilities of CEO of the
Company. As of January 2004, Mr. Wardle draws a salary from the Company and his
expenses are being reimbursed.

P2i, through its staff and infrastructure, provides the administrative and
accounting functions of the Company, as well as office space. Through December
31, 2002, P2i was not paid for such services. P2i and the Company entered into a
services agreement for periods commencing after January 1, 2003.

                                       20
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBIT
NUMBER                           DESCRIPTION
------                           -----------

3.01        Restated Articles of Incorporation of the Registrant (1)

3.02        By-laws of the Registrant (1)

3.03        Class A warrant agreement

3.04        Class B warrant agreement (6)

10.01       1995 Incentive Stock Option Plan (2)

10.02       2001 Employee Stock Option Plan

10.03       1999 Executive Officer Option Plan (5)

10.04       2001 Executive Officer Option Plan

10.05       Employment Agreement with William Conis (3)

10.06       Stock Exchange Agreement, dated as of August 22, 2000 and effective
            as of August 1, 2000, by and among ProtoSource Corporation, Suncoast
            Automation, Inc. and the shareholders of Suncoast Automation, Inc.
            (4)

10.7        Form of Master Agreement for Construction between Suncoast
            Automation, Inc. and Walt Disney World (6)

10.8        Exclusive Cable Development and Programming Services Agreement
            between Suncoast Automation, Inc. and Sunterra Communications
            Corporation for Scottsdale Village Mirage (6)

10.9        Exclusive Cable Development and Programming Services Agreement
            between Suncoast Automation, Inc. and Sunterra Communications
            Corporation for Greenspring Plantation and Powhatan Plantation (6)

10.10       Exclusive Cable Development and Programming Services Agreement
            between Suncoast Automation, Inc. and Sunterra Communications
            Corporation for Carambola Beach Estate, Flamingo Beach, and Royal
            Palm Beach (6)

10.11       Exclusive Cable Development and Programming Services Agreement
            between Suncoast Automation, Inc. and Bluegreen Resorts Management,
            Inc for Laurel Crest, Mountainloft, Shenandoah Crossing and
            Christmas Mountain Resorts (6)

10.12       Exclusive Cable Development and Programming Services Agreement
            between Suncoast Automation, Inc. and Sunterra Communications
            Corporation for Cypress Point Resort located in Lake Buena Vista,
            Florida (6)

10.13       Amendment No. 1 to the Stock Exchange Agreement, dated as of
            August22, 2000 and effective as of August 1, 2000, by and among
            ProtoSource Corporation, Suncoast Automation, Inc. and the
            Shareholders of Suncoast Automation, Inc., dated January 15, 2001
            (6)

10.14       Agreement between ProtoSource Corporation, Suncoast Acquisition
            Corp. and Suncoast Automation, Inc., dated as of July 1, 2001 (7)

10.15       Agreement and Plan of Merger, dated as of February 13, 2003, by and
            among Protosouce Corporation, Protosource Acquisition LLC, P2i, Inc.
            and P2i Newspaper, Inc. (8)

                                       21
<PAGE>

31.1        Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
            Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.1        Certification Of Principal Executive Officer and Principal Financial
            Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

99.1        Code of Ethics and Business Conduct of Officers, Directors and
            Employees (9)

----------

(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2/A, as filed with the Securities and Exchange Commission on May 5, 1998.

(2) Incorporated by reference to the Company's Registration Statement on Form
SB-2, declared effective by the Securities and Exchange Commission on February
9, 1995, file number 333-56242.

(3) Incorporated by reference to the Company's Form 8-K, as filed with the
Securities and Exchange Commission on November 9, 1999.

(4) Incorporated by reference to the Company's Form 8-K, as filed with the
Securities and Exchange Commission on August 31, 2000.

(5) Incorporated by reference to the Company's Registration Statement on Form
S-8, as filed with the Securities and Exchange Commission on May 14, 1999, file
number 333-78497.

(6) Incorporated by reference to the Company's Registration Statement on Form
SB-2, declared effective by the Securities and Exchange Commission on February
14, 2001, file number 333-45778.

(7) Incorporated by reference from the Company's Form 8-K, as filed with the
Securities and Exchange Commission on July 16, 2001.

(8) Incorporated by reference from the Company Form 8-K, as filed with the
Securities and Exchange Commission on February 19, 2003

(9) Incorporated by reference from the Company's Form 10-KSB for the year ended
December 31, 2002.

(b) Reports on Form 8-K.

     During the three-month period ending December 31, 2003, the Company filed
no reports on Form 8-K.


                                       22
<PAGE>

Item 14. PRINCIPLE ACCOUNTANT FEES AND SERVICES.

Audit Fees. The aggregate fees billed by our auditors to date, for professional
services rendered for the audit of the Company's annual financial statements for
the years ended December 31, 2003 and December 31, 2002, and for review of the
financial statements included in the Company's quarterly reports on Form 10-QSB
during such fiscal years, were $42,520 $(25,000 from Margolis & Company and
$17,520 from the Company's predecessor auditors) and $44,530 $(15,000 from
Margolis & Company and $29,530 from the Company's predecessor auditors),
respectively.

Audit-Related Fees. The aggregate fees billed for assurance and related services
by our auditors that are reasonably related to the performance of the audit or
review of our financial statements were $0 and $7,130 (billed by our predecessor
auditors) for the years ended December 31, 2003 and 2002, respectively.

Tax Fees. The aggregate fees billed for tax preparation and related services by
our auditors were $6,000 (billed by Margolis & Company) and $10,355 (billed by
our predecessor auditors) for the years ended December 31, 2003 and 2002,
respectively.

All Other Fees. For the fiscal year ended December 31, 2003, the Company
incurred fees to auditors of $20,000 for services rendered to the Company, other
than the services covered in "Audit Fees", "Audit-Related Fees" or "Tax Fees".
The nature of such services rendered was the audit of P2i Newspaper, Inc.'s
annual financial statements for fiscal 2001 & 2002 as a preparatory step to
merger with Company. This included a review of P2i Newspaper's accounts through
September 30, 2003.








                                       23
<PAGE>


                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized, in Bethlehem, Pennsylvania, on April 30, 2004.

                                            PROTOSOURCE CORPORATION





                                            By: /s/ Peter Wardle
                                            --------------------------------
                                                    Peter Wardle
                                                    Chief Executive Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Report has been signed below by the following persons on the dates
indicated.


Signature                         Title                           Date
---------                         -----                           ----


/s/  Peter Wardle                 Chief Executive Officer        April 30, 2004
----------------------------      Chief Financial Officer
     Peter Wardle                (Principal Accounting
                                  Officer), and Director

/s/  Thomas Butera                Chief Operating Officer        April 30, 2004
----------------------------      Director
     Thomas Butera

/s/  Joseph DiMarino              Director                       April 30, 2004
----------------------------
     Thomas Butera

/s/  Mark Blanchard               Director                       April 30, 2004
----------------------------
     Mark Blanchard

/s/  Stewart Kalter               Director                       April 30, 2004
----------------------------
     Stewart Kalter



                                       24