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, 2001

     [ ] 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)

     2300 Tulare Street, Suite 210
         Fresno, California                                93721
 --------------------------------------                   --------
(Address of principal executive offices)                 (Zip Code)

                    Issuer's telephone number: (559) 490-8600

        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, 2001, 5,671,103 shares of the Registrant's no par value
Common Stock were outstanding. As of December 31, 2001, the market value of the
Registrant's no par value Common Stock, excluding shares held by affiliates, was
$4,253,327 based upon a closing bid price of $0.75 per share of Common Stock on
the Nasdaq SmallCap Market.

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 $1,527,795.

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

During 2001, the Company operated two divisions:

o psnw.com, a full-service Internet service provider with primary offices in
Fresno, California. psnw.com has refocused its strategy to concentrate on
providing 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.

o Suncoast Automation, a provider of cable TV and high-speed Internet access to
the timeshare industry, with primary offices in Oldsmar, Florida. The Company
sold substantially all of the assets of Suncoast effective July 1, 2001.


Recent Developments


In February 2001, the Company sold 800,000 units of securities at $4.50 per unit
(the February 2001 Public Offering). Each unit consisted of two shares of Common
Stock and one redeemable Common Stock purchase warrant exercisable at $2.92 per
share until February 14, 2006.

In June 2001, the Company settled approximately $362,498 of Suncoast Automation
liabilities by issuing approximately 268,466 shares of common stock and cash
payments of $3,300.

Effective July 1, 2001, the Company sold substantially all the assets of
Suncoast Automation to Dauphin Technology, Inc., of Palatine, Illinois, for
766,058 shares of Dauphin Technology common stock and the assumption of
approximately $140,269 in liabilities.

In December 2001, the Company signed a term sheet to acquire P2i, Inc. P2i is a
leader in the conversion of previously created print advertising into
interactive web products for newspaper, magazine and mail order/retail catalog
advertising (visit www.p2ionline.com to learn more about the group). Clients
include newspapers from the Gannett, Tribune and McClatchy Newspaper groups, and
the retailers Avon, Nordstram and Neiman Marcus. The company is headquartered in
Bethlehem, PA, has offices in New York and the UK and a production facility in
Malaysia. Upon execution of a definitive agreement and shareholder approval, we
will issue 22,768,412 shares of our common stock to acquire P2i.

psnw.com

Accessing The Internet.

Internet access services are the means by which ISPs interconnect business and
consumer users to the Internet's resources. Access services vary from dial-up
modem access for individuals and small businesses to high speed dedicated
transmission lines for broadband access by large organizations. An ISP provides
Internet access either by developing a proprietary network infrastructure or by
purchasing access service from a wholesale access vendor, or through a
combination of both. The rapid development and growth of the Internet have
resulted in a highly competitive and fragmented industry consisting of a few
large national and regional ISPs and a substantial number of local ISPs with
small subscriber bases. The industry has experienced pricing pressure of late
due to the number of free access companies that have emerged. Using a revenue
model based on advertising, these companies have lost tens of millions of
dollars but have siphoned customers away from traditional ISPs. Coupled with the
growing demand for high-speed access, the ISP industry is undergoing substantial
consolidation. Thus for most ISPs, future success depends on their ability to
refocus their business model.

<PAGE>


Growth In Electronic Commerce

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. In the last several years, many companies
have emerged that focus solely on the Internet as the preferred medium for
selling products or delivering services directly to purchasers, bypassing
traditional wholesale and retail channels. Furthermore, traditional businesses
are implementing sophisticated web sites to effect electronic commerce
initiatives that offer competitive advantages. 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. According to the Gartner Group,
the North American Internet retailing market is on pace to surpass $29.3 billion
in 2000, an increase of 75 percent over 1999 revenue.

Outsourcing Of Internet Operations

As the Web increasingly becomes synonymous with electronic commerce, businesses
are placing greater emphasis on their Internet transaction and communication
operations. Internet-based companies, and to a growing extent, traditional
businesses, require non-congested and scalable Internet operations to allow them
to perform digital communication and commerce transactions globally over the
Internet. Due to constraints posed by the lack of technical personnel with
Internet skills or experience, the high cost of advanced networking equipment
and the complexity of innovative web solutions, many businesses are unable
internally to develop, maintain and continually enhance their facilities and
systems to conduct desired levels of Internet-based activities. As a result of
these constraints and other factors, many businesses are seeking to outsource
their facilities and systems requirements as the preferred means for providing
electronic commerce solutions. To this end, an increasing demand is developing
for:

- dedicated and broadband Internet access services to support reliable, high
speed and/or constantly connected Internet access and communication;

- web hosting and co-location services which enable businesses to obtain
equipment, technical expertise and infrastructure for their Internet needs on an
outsourced basis; and

- end-to-end electronic commerce solutions to sell goods and services on the web
in a secure transaction environment.

- By outsourcing their facilities and systems needs, businesses are able to
focus on their core competencies rather than expending vital resources to
support their Internet operations.

The Opportunity For psnw.com

Management believes that the future of psnw.com is to be found in business
rather than residential customers. To this end, this division will focus on
three offerings to business customers:

(1) Web design, development and hosting. A small but highly skilled team of
developers has been part of our company for several years. This team previously
focused on activities related to maintaining our web portal. Early in 2000, a
concerted effort was made to solicit businesses that needed assistance with
designing and developing e-commerce solutions. To date, over $100,000 in such
contracts have been either completed or in process.

(2) High-speed Internet access. In January 2000, we entered into a contract to
resell ADSL and SDSL services provided by New Edge Networks, Inc. This service
is currently available throughout the San Joaquin Valley of central California.
Our focus will remain in this geographic area since competition is limited and
our reputation for quality service is well known.

(3) Outsourced technical support. We provide technical support 24 hours a day, 7
days a week for our 6,000 existing dial-up customers. In mid 2000, we decided to
offer this resource to other ISPs on a charge per customer basis. To date, we
support an additional 10,000 customers of other ISPs. A potentially lucrative
niche that we have found is for bilingual (Spanish/English) support. Now managed
as a profit-center, we believe this unit can achieve short-term profitability.

At present, the major cost, other than personnel expense, associated with this
division is the network infrastructure required to provide dial-up access to
over 6,000 residential customers. Because we have decided not to make further
marketing expenditures for the residential dial-up segment of the business, it
is not expected to achieve profitability. Thus, a number of options are being
explored for this segment, including selling the customer base. Because of our
reputation for quality service, our customer base continues to grow slowly
despite the lack of marketing. Therefore, we believe there is inherent value in
our customer base, which we expect to exploit.

<PAGE>


Competition

The Internet services business is highly competitive and highly fragmented. With
the exception of the demand for highly skilled personnel, there are few
significant barriers to market entry. Coupled with the rapid growth of the
Internet, this has resulted in the emergence of thousands of ISPs and Internet
consulting companies of various sizes across the country. The market can be
segmented into four categories:

1. Large national access providers (AOL, Earthlink, Microsoft Network) spending
large sums on marketing to acquire customers;

2. Cable and telephone companies providing primarily high-speed/high-priced
access through their existing infrastructure;

3. Thousands of small and medium size companies providing services in a given,
local geography, with limited resources to expand; and

4. Large consulting companies offering customized high-end e-commerce solutions
for large businesses.

psnw.com's first level of competition is Pacific Bell for ADSL/SDSL in central
California. Because of the telephone company's poor image in the marketplace,
demand for our service exceeds our ability to provide it. Our current installed
DSL customer base is profitable and we have a backlog of orders. Our objective
for this business is to build it to a critical mass that either generates
significant profits, or becomes attractive to a potential acquirer.

The second level of competition is the small and medium sized Internet services
companies. The central California valley contains few large businesses and thus
has not attracted any major consulting companies. Our Web design and development
business will be limited by the size of the clients that are available to us in
our geographical area. Although this unit is not currently profitable, we
believe that the addition of one or two significant clients will make the unit
profitable. Additionally, this unit will provide support for Suncoast's
software, making it a critical component of our future growth plans.

The outsourcing of technical support for other ISPs was driven by our desire to
cover the cost of providing technical support 24 hours a day, 7 days a week to
our existing customer base. Although the results in a short period of time are
modest - approximately 10,000 new customers - several new large-scale
opportunities for our bilingual services could potentially make this business
very profitable. The competition for this business is other ISPs providing
technical support with their own resources. We have thus focused our sales
effort on those companies that have already made the decision to outsource
technical support.

The future of psnw.com will clearly depend on our ability to make this division
profitable. The leaders of the three business units in this division clearly
understand and are committed to achieving this objective.

Suncoast Automation

Overview

Suncoast Automation, was the division of ProtoSource that operated as a private
cable operator. Suncoast built, upgraded and maintained cable TV systems as well
as managing 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 segment.

The Company sold substantially all of the assets of Suncoast Automation, Inc
effective July 1, 2001.


Employees

As of December 31, 2001, the Company employed 24 full-time employees. The
Company believes it maintains good relations with its employees. None of the
Company's employees are represented by a labor union or covered by a collective
bargaining agreement.

<PAGE>


ITEM 2. DESCRIPTION OF PROPERTY

The Company leases 4,000 square feet of space for our offices and operating
facilities at 2300 Tulare Street, Suite 210, Fresno, California 93721. The lease
term is 5 years, ending May 2002, and requires minimum annual payments of
$40,250, increasing each year to a maximum of $55,375 in 2002

ITEM 3. LEGAL PROCEEDINGS

Not applicable.

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

Not applicable.

<PAGE>



                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock has traded on The Nasdaq SmallCap Market from February 9, 1995
until July 10, 1996 and May 15, 1998 until present and under the symbol PSCO. In
addition, our common stock is also listed on the Boston Stock Exchange under the
symbols PTS. For the period from July 11, 1996 until May 14, 1998, our common
stock traded on the Bulletin Board under the symbol PSCO. Our class A common
stock purchase warrants have traded on The Nasdaq SmallCap Market under the
symbol PSCOW since May 15, 1998. Our class B common stock purchase warrants have
traded on The Nasdaq SmallCap Market and the Boston Stock Exchange since
February 14, 2001 under the symbol PSCOZ and PTS&Z, respectively. 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 as reported on
The Nasdaq SmallCap Market.



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

March 31, 1999          $8.31    $6.25       $3.00    $1.53        N/A     N/A
June 30, 1999           $9.25    $6.63       $3.75    $1.25        N/A     N/A
September 30, 1999      $7.63    $6.25       $2.19    $1.13        N/A     N/A
December 31, 1999       $7.44    $5.75       $2.00    $1.13        N/A     N/A

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
 (through March 12)     $1.00    $0.80       $0.11    $0.02        $0.08   $0.02




As of March 8, 2002, there were approximately 1,438 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.

<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, 2001 vs. Year Ended December 31, 2000

Net Sales

For the fiscal year ended December 31, 2001 net sales were $1,527,795 versus
$1,522,501 for the fiscal year ended December 31, 2000. The increase of $5,294
in revenues is attributed to an increase in outsourced tech support business
offset by losses in our dial-up Internet access business. We believe that
revenues will slowly decrease as all marketing activities have currently been
eliminated.

Operating Expenses

For the fiscal year ended December 31, 2001 operating expenses totaled
$3,495,940 versus $4,497,098 in 2000. This decrease of $1,001,158 is attributed
to a general reduction of all our expenses in particular, the difference
($867,484) in the impairment of our investment in P2i, Inc. and a reduction of
our SG&A costs of $419,649, offset by the impairment expense of $328,543 from a
write down of our goodwill from the acquisition of Micronet in 1999. We believe
that operating expenses will continue to decrease as further cost-cutting
measures have been put into effect.

Operating Loss

Our operating loss for 2001 from continuing operations, totaled $1,968,145
versus $2,974,597 in 2000. This decrease of $1,006,452 is due to a decrease in
total operating expenses. We believe that our operating results will improve as
revenues decrease slightly but operating costs decrease markedly.

Interest Income (Expense)

Net interest expense totaled $884,534 for fiscal year ended December 31, 2001
versus net interest expense of $1,353,044 in 2000. The decrease in interest
expense is a result of the repayment of all bridge loans obtained in 2000 and
2001 in February 2001.

Other Income

Net other income for fiscal year ended December 31, 2001 was $0 versus $6,672 in
2000. We also had a loss on the sale of marketable securities of $128,494 in
2001.

Discontinued Operations

 We sold the assets of our Suncoast Automation subsidiary effective July 1,
2001. In connection with this sale, we incurred a loss from discontinued
operations of $982,306 and $885,229 for the -years ended December 31, 2001 and
2000, respectively. The loss on disposal of Suncoast was $6,786,621 incurred in
fiscal year 2001.

<PAGE>


Liquidity And Capital Resources

For the year ended December 31, 2001, we used cash of $1,368,789 for operating
activities and were provided net cash of $246,231 from investing activities and
$1,142,840 from financing activities. We had working capital of $392,373 at
December 31, 2001. As of December 31, 2001, we had $118,265 in cash and cash
equivalents and $354,860 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., 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 were 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 the CEO and CFO of the company.
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 their 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 P2i, 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 the company was set at approximately $8.7 million.
Based on this new information, we recorded an additional impairment expense of
$404,000 as of June 30, 2001, to write down this investment to fair value. The
impairment expense was recorded as the difference between the previous value of
this investment ($630,000) and the newly established value ($226,000).

Andrew, Alexander, Wise & Co., Inc. 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 our common stock. The promissory notes
were due and paid at the closing of our February 2001 public offering. Andrew,
Alexander, Wise & Co., Inc. 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.

<PAGE>


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, 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, Andrew, Alexander, Wise and Company. 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. 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.

In December 2000, Andrew, Alexander, Wise & Co., Inc. acted as placement agent
for a $175,000 bridge financing. The short-term financing was in the form of a
unit containing promissory notes with interest at 10%. In addition, the unit
consisted of 50,050 shares of our common stock. The promissory notes were due
and paid at the closing of the February 2001 public offering. Andrew, Alexander,
Wise & Co., Inc. 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 $197,750. The debt issuance costs were expensed as
interest when the loan was repaid in February 2001.

In January 2001, Andrew, Alexander, Wise & Co., Inc. acted as placement agent
for a $175,000 bridge financing. The short-term financing was in the form of a
unit containing promissory notes with interest at 10%. In addition, the unit
consisted of 50,050 shares of our common stock. The promissory notes were due
and paid at the closing of the February 2001 public offering. Andrew, Alexander,
Wise & Co., Inc. was paid a 10% commission and a 3% non-accountable expense. In
connection with this bridge financing, we incurred debt issuance costs of
approximately $197,750. The debt issuance costs were expensed as interest when
the loan was repaid in February 2001.

In February 2001, the Company sold 800,000 units of securities at $4.50 per unit
(the "February 2001 public offering"). Each unit consisted of two shares of
Common Stock and one redeemable Common Stock purchase warrant exercisable at
$2.92 per share until February 14, 2006. The proceeds of this offering were
significantly lower than had been expected. As a result, the bulk of the funds
from the offering were used to repay the bridge loans incurred in 2000 and early
2001 as well as past due trade payables. The remaining capital was used to fund
the operations of the Company. Thus, the Company was unable to fund the
build-out of the cable TV contracts of the Suncoast division. Thus, the sale of
Suncoast was actively sought and concluded effective July 1, 2001.

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.
Under the obligations of this term sheet, the Company loaned P2i $50,000 in
December, $100,000 in January and $50,000 in February and is to loan P2i an
additional $100,000. The loans are in the form of a demand note and which will
be due on demand if the merger is not completed. Completion of the merger is
subject to the approval of the shareholders of both companies.

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 exception
until April 22, 2002 is conditioned on the Company filing a proxy statement with
the SEC by March 15, 2002, which provides our shareholders the opportunity to
approve the acquisition of P2i, as well as certain other conditions. In the
event the Company's securities are delisted from Nasdaq, they will continue to
trade on the OTC Bulletin Board.

In March 2002, we entered into an agreement with Andrew, Alexander, Wise and
Company to act as a placement agent for a bridge loan of at least $300,000. The
loan would be secured by certain assets of the Company and would pay interest at
10% per annum. P2i has agreed to incur all the costs and obligations incurred
with this financing. Upon completion of the funding, Andrew, Alexander, Wise &
Co., Inc. will be paid a 10% commission and a 3% non-accountable expense.



Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standard Board ("FASB") issued SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting. It also

<PAGE>


specifies the types of acquired intangible assets that are to be recognized and
reported separately from goodwill. SFAS No. 142 will require that goodwill and
certain intangibles no longer be amortized, but instead tested for impairment at
least annually. SFAS No. 142 is required to be applied starting with the fiscal
years after December 15, 2001, with early application permitted in certain
circumstances. The Company will adopt No. 142 on January 1, 2002 and does not
expect any impairment of goodwill or other intangible assets upon adoption.
Amortization of intangible assets with an indefinite life was approximately
$731,827 and $637,338 for the years ended December 31, 2001 and 2000,
respectively.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 establishes accounting standards for recognition and
measurement of a liability for the costs of asset retirement obligations. Under
SFAS No. 143, the costs of retiring an asset will be recorded as a liability
when the retirement obligation arises, and will be amortized to expense over the
life of the asset. The Company will adopt SFAS No. 143 on January 1, 2002 and
does not currently expect any impact on the Company's financial statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and discontinued
operations. The Company will adopt SFAS No. 144 on January 1, 2002 and does not
currently expect any impact on the Company's financial statements.

<PAGE>


ITEM 7. FINANCIAL STATEMENTS


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Financial Statements                                                        Page
--------------------                                                        ----

 Independent Auditors' Report                                                F-2

 Consolidated Balance Sheet as of December 31, 2001                          F-3

 Consolidated Statements of Operations for the years ended
  December 31, 2001 and 2000                                                 F-5

 Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 2001 and 2000                             F-6

 Consolidated Statements of Cash Flows for the years ended
  December 31, 2001 and 2000                                                 F-7

 Notes To Consolidated Financial Statements                                  F-9

                                       F-1

<PAGE>


                          INDEPENDENT AUDITORS' 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, 2001 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years ended December 31, 2001 and 2000. 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, 2001 and the results of their operations and their
cash flows for the years ended December 31, 2001 and 2000 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 financial statements,
the Company incurred a net loss of $10,750,100 and $5,206,198 during the years
ended December 31, 2001 and 2000, 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/  Angell & Deering
                                            -----------------------------------
                                                 Angell & Deering
                                                 Certified Public Accountants

Denver, Colorado
February 21, 2002

                                      F-2

<PAGE>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2001




                                     ASSETS
                                     ------

Current Assets:
  Cash and cash equivalents                                         $   118,265
  Accounts receivable - trade, net of allowance for
   doubtful accounts of $20,000                                          40,729
  Prepaid expenses                                                       41,214
  Marketable securities                                                 447,611
  Note receivable                                                        50,000
                                                                    -----------

         Total Current Assets                                           697,819
                                                                    -----------

Property and Equipment, at cost:
  Equipment                                                           1,096,790
  Furniture                                                             101,234
  Leasehold improvements                                                  6,463
                                                                    -----------
                                                                      1,204,487
  Less accumulated depreciation and amortization                     (1,087,538)
                                                                    -----------

         Net Property and Equipment                                     116,949
                                                                    -----------

Other Assets:
  Goodwill, net of accumulated amortization
   of $650,877                                                           77,857
  Investment in corporation                                             226,000
  Deposits                                                                8,564
                                                                    -----------

         Total Other Assets                                             312,421
                                                                    -----------

         Total Assets                                               $ 1,127,189
                                                                    ===========


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

                                       F-3

<PAGE>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2001




                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

Current Liabilities:
  Accounts payable                                                 $    205,424
  Accrued expenses                                                       53,275
  Deferred revenue                                                        9,845
  Notes payable                                                          12,236
  Current portion of long-term debt                                      24,666
                                                                   ------------

         Total Current Liabilities                                      305,446
                                                                   ------------

Long-Term Debt, net of current portion above:
  Obligations under capital leases                                       74,080
  Less current portion above                                            (24,666)
                                                                   ------------

         Total Long-Term Debt                                            49,414
                                                                   ------------

Commitments and contingencies                                              --

Stockholders' Equity:
  Preferred stock, no par value; 5,000,000 shares
   authorized, none issued and outstanding                                 --
  Common stock, no par value; 10,000,000 shares
   authorized, 5,671,103 shares issued and outstanding               24,554,293
  Additional paid in capital                                            392,745
  Accumulated other comprehensive income (loss)                        (161,637)
  Accumulated deficit                                               (24,013,072)
                                                                   ------------

         Total Stockholders' Equity                                     772,329
                                                                   ------------

         Total Liabilities and Stockholders' Equity                $  1,127,189
                                                                   ============


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

                                       F-4

<PAGE>
<TABLE>
<CAPTION>


                        PROTOSOURCE CORPORATION AND SUBSIDIARY
                         CONSOLIDATED STATEMENTS OF OPERATIONS
                    FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000


                                                            2001            2000
                                                            ----            ----
<S>                                                     <C>             <C>
Net Revenues:
  Internet service fees and other                       $  1,527,795    $  1,522,501
                                                        ------------    ------------

Operating Expenses:
  Selling, general and administrative                      1,617,903       2,037,551
  Cost of revenues                                           630,457         668,180
  Depreciation and amortization                              231,155         299,178
  Stock compensation expense                                 283,882         220,705
  Impairment of investment                                   404,000       1,271,484
  Impairment of goodwill                                     328,543            --
                                                        ------------    ------------

       Total Operating Expenses                            3,495,940       4,497,098
                                                        ------------    ------------

       Operating Loss                                     (1,968,145)     (2,974,597)
                                                        ------------    ------------

Other Income (Expense):
  Interest income                                              4,055          39,821
  Other income                                                  --             6,672
  Loss on sale of marketable securities                     (128,494)           --
  Interest expense                                          (888,589)     (1,392,865)
                                                        ------------    ------------

       Total Other Income (Expense)                       (1,013,028)     (1,346,372)
                                                        ------------    ------------

Income (Loss) Before
  Provision For Income Taxes                              (2,981,173)     (4,320,969)

Provision for income taxes                                      --              --
                                                        ------------    ------------

Net Loss From Continuing Operations                       (2,981,173)     (4,320,969)
                                                        ------------    ------------

Discontinued Operations:
  Loss from discontinued operations                         (982,306)       (885,229)
  Loss on disposal                                        (6,786,621)           --
                                                        ------------    ------------

       Total Loss From Discontinued Operations            (7,768,927)       (885,229)
                                                        ------------    ------------

Net Loss                                                $(10,750,100)   $ (5,206,198)
                                                        ============    ============

Net Loss Per Basic and Diluted Share of Common Stock:
  Continuing operations                                 $       (.61)   $      (1.68)
  Discontinued operations                                      (1.58)           (.35)
                                                        ------------    ------------

Net Loss                                                $      (2.19)   $      (2.03)
                                                        ============    ============

Weighted Average Number of Basic and Diluted Common
  Shares Outstanding                                       4,912,026       2,569,133


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

                                          F-5
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                  PROTOSOURCE CORPORATION AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                              FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



                                                                      Common Stock            Additional
                                                                  --------------------          Paid In
                                                                Shares           Amount         Capital
                                                             ------------    ------------    ------------
<S>                                                             <C>          <C>             <C>
Balance at December 31, 1999                                    1,879,332    $ 11,428,924    $     28,158

Issuance of common stock upon exercise of stock options            62,122         232,958            --

Issuance of common stock in connection with financing             290,050       1,675,000            --

Return of common stock from adjustment of acquisition cost         (3,940)        (26,497)           --

Issuance of common stock for services                              21,000         120,750            --

Issuance of common stock in connection with acquisition         1,303,072       7,736,990            --

Issuance of stock options for services                               --              --           193,167

Other comprehensive income (loss), net of tax:
Net loss                                                             --              --              --

     Total Comprehensive Income (Loss)                               --              --              --
                                                             ------------    ------------    ------------

Balance at December 31, 2000                                    3,551,636      21,168,125         221,325

Issuance of common stock in connection with financing              50,050         175,000            --

Issuance of  common stock in public offering (net of
 offering costs of $800,255)                                    1,600,000       2,799,745            --

Issuance of common stock for payment of liabilities               393,915         308,740            --

Issuance of common stock for payment of notes payable              75,502         102,683            --

Issuance of stock options for settlement of liabilities              --              --           171,420

Other comprehensive income (loss), net of tax:
 Unrealized (loss) on marketable securities                          --              --              --

Net loss                                                             --              --              --


     Total Comprehensive Income (Loss)                               --              --              --
                                                             ------------    ------------    ------------

Balance at December 31, 2001                                    5,671,103    $ 24,554,293    $    392,745
                                                             ============    ============    ============


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

                                                    F-6
</TABLE>

<PAGE>
<TABLE>
<CAPTION>



                                  PROTOSOURCE CORPORATION AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                              FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



                                                                                              Accumulated
                                                             Current Years                       Other
                                                             Comprehensive     Accumulated   Comprehensive
                                                             Income (Loss)       Deficit      Income(Loss)
                                                             ------------    ------------    ------------
<S>                                                           <C>            <C>              <C>
Balance at December 31, 1999                                         --      $ (8,056,774)           --

Issuance of common stock upon exercise of stock options              --              --              --

Issuance of common stock in connection with financing                --              --              --

Return of common stock from adjustment of acquisition cost           --              --              --

Issuance of common stock for services                                --              --              --

Issuance of common stock in connection with acquisition              --              --              --

Issuance of stock options for services                               --              --              --

Other comprehensive income (loss), net of tax:
Net loss                                                     $ (5,206,198)     (5,206,198)           --
                                                             ------------

     Total Comprehensive Income (Loss)                       $ (5,206,198)           --              --
                                                             ============    ------------    ------------

Balance at December 31, 2000                                         --       (13,262,972)           --

Issuance of common stock in connection with financing                --              --              --

Issuance of  common stock in public offering (net of
 offering costs of $800,255)                                         --              --              --

Issuance of common stock for payment of liabilities                  --              --              --

Issuance of common stock for payment of notes payable                --              --              --

Issuance of stock options for settlement of liabilities              --              --              --

Other comprehensive income (loss), net of tax:
 Unrealized (loss) on marketable securities                      (161,637)           --          (161,637)

Net loss                                                      (10,750,100)    (10,750,100)           --
                                                             ------------

     Total Comprehensive Income (Loss)                       $(10,911,737)           --              --
                                                             ============    ------------    ------------

Balance at December 31, 2001                                                 $(24,013,072)   $   (161,637)
                                                                             ============    ============


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

                                                F-6(Con't)
</TABLE>

<PAGE>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000


                                                        2001            2000
                                                        ----            ----
Cash Flows From Operating Activities:
  Net loss                                         $(10,750,100)   $ (5,206,198)
  Adjustments to reconcile net loss to net cash
   (used) by operating activities:
    Depreciation and amortization                     1,725,959       2,092,913
    Impairment of investment                            404,000       1,271,484
    Provision for bad debts                              56,708             302
    Compensation from issuance of stock options         171,420         175,424
    Issuance of common stock for services                  --            45,281
    Loss on sale of marketable securities               128,494            --
    Impairment of goodwill                              328,543            --
    Loss on disposal of Suncoast assets               6,786,621            --
    Changes in operating assets and liabilities,
     net effects of acquisition:
      Accounts receivable                                54,525           7,695
      Inventories                                       216,150         (80,700)
      Prepaid expenses and other assets                 136,625          12,889
      Accounts payable                                 (431,565)        420,416
      Accrued liabilities                              (173,204)        (62,797)
      Deferred revenue                                  (22,965)         10,695
                                                   ------------    ------------

Net Cash (Used) By Operating Activities              (1,368,789)     (1,312,596)
                                                   ------------    ------------

Cash Flows From Investing Activities:
  Cash received from acquisition                           --            35,290
  Purchase of property and equipment                    (18,340)        (45,147)
  Increase in note receivable                           (50,000)       (500,000)
  Increase in employee receivables                      (12,000)        (13,815)
  Deposits                                                4,550           3,077
  Investment in corporation                                --          (101,484)
  Cash paid for acquisition                                --          (141,020)
  Payment of costs for sale of Suncoast assets          (10,037)           --
  Proceeds from sale of marketable securities           332,058            --
                                                   ------------    ------------

Net Cash Provided (Used) By Investing Activities        246,231        (763,099)
                                                   ------------    ------------

Cash Flows From Financing Activities:
  Proceeds from borrowing                               175,000       1,716,028
  Payments on notes payable                          (1,942,756)        (73,776)
  Issuance of common stock                            3,600,000         232,958
  Offering costs incurred                              (666,654)       (133,601)
  Debt issuance costs incurred                          (22,750)       (245,250)
                                                   ------------    ------------

Net Cash Provided By Financing Activities             1,142,840       1,496,359
                                                   ------------    ------------


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

                                       F-7

<PAGE>
<TABLE>
<CAPTION>


                          PROTOSOURCE CORPORATION AND SUBSIDIARY
                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                      FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000


                                                                    2001          2000
                                                                    ----          ----
<S>                                                             <C>           <C>
Net Increase (Decrease) in Cash and Cash Equivalents            $    20,282   $  (579,336)

Cash and Cash Equivalents at Beginning of Year                       97,983       677,319
                                                                -----------   -----------

Cash and Cash Equivalents at End of Year                        $   118,265   $    97,983
                                                                ===========   ===========

Supplemental Disclosure of Cash Flow Information:
   Cash paid during the year for:
    Interest                                                    $   147,146   $    17,984
    Income taxes                                                       --            --

 Supplemental Disclosure of Noncash
  Investing and Financing Activities:
   Issuance of common stock in connection with acquisition      $      --     $ 7,736,990
   Issuance of common stock in connection with financing            175,000     1,675,000
   Return of common stock from adjustment of acquisition cost          --          26,497
   Sale of Suncoast assets for marketable securities              1,126,105          --
   Obligation under capital lease incurred for equipment             61,095          --
   Issuance of common stock for payment of liabilities              308,740          --
   Issuance of common stock for payment of notes payable            102,683          --
   Unrealized loss on marketable securities                         161,637          --
   Notes payable incurred for financing of insurance                 58,765          --


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

                                            F-8
</TABLE>

<PAGE>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       Summary of Significant Accounting Policies
         ------------------------------------------
          Description of Business
          -----------------------
             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. The
             Company is an Internet service provider. The Company provides
             dial-up Internet access, web hosting services and web development
             services.

             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
             managing programming for the timeshare industry. Suncoast has
             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 (Note 2).

          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
             flow to meet its obligations on a timely basis, to obtain
             additional financing as may be required, and to increase sales 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 plan consists of the
             following:

             1.   In December 2001, the Company signed a term sheet with p2i,
                  Inc. ("P2i") to acquire all of the outstanding stock of P2i in
                  exchange for common stock of the Company (Note 11).

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

             3.   Reduce operating expenses and restructuring of its operations
                  through the potential sale of the Internet service provider
                  operations.

             If management cannot achieve its operating plan because of sales
             shortfalls or other unfavorable events, the Company may find it
             necessary to dispose of assets, or undertake other actions as may
             be appropriate.

          Revenue Recognition
          -------------------
             The Company charges customers monthly access fees to the Internet
             and recognizes the revenue in the month the access is provided. The
             Company charges customers monthly web hosting fees for maintaining
             the customers web site on its server and recognizes the revenue in
             the month the service is provided. For certain customers billed in
             advance, the Company recognizes the revenue over the period the
             billing covers. The Company recognizes revenue from cable TV
             service contracts in the period in which the service is provided.
             Revenue for other services provided, including web development
             services, are recognized as the service is performed.

          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.

                                      F-9

<PAGE>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       Summary of Significant Accounting Policies (Continued)
         ------------------------------------------------------
          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.

          Inventories
          -----------
             Inventories consist of parts for replacement of existing cable
             systems and are stated at the lower of cost or market. Cost is
             determined using the first-in, first-out pricing method.

          Property and Equipment
          ----------------------
             Depreciation and amortization of equipment, furniture, leasehold
             improvements and on-site equipment are computed using the
             straight-line method over their estimated useful lives. 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.

                   Classification                Useful Life in Years
                   --------------                --------------------
             Equipment                                   3-5
             Furniture                                   5-7
             Leasehold improvements                      5-7
             On-site equipment                           5-7

             Depreciation of property and equipment charged to operations was
             $144,862 and $186,845 for the years ended December 31, 2001 and
             2000, respectively.

          Marketable Securities
          ---------------------
             Marketable securities consist of common stock. Marketable
             securities are stated at market value as determined by the most
             recently traded price of each security at the balance sheet date.
             All marketable securities are defined as trading securities or
             available-for-sale securities under the provisions of Statement of
             Financial Accounting Standards ("SFAS") No. 115, "Accounting for
             Certain Investments in Debt and Equity Securities."

             Management determines the appropriate classification of its
             investments in marketable securities at the time of each purchase
             and re-evaluates such determination at each balance sheet date.
             Securities that are bought and held principally for the purpose of
             selling them in the near term are classified as trading securities
             and unrealized holding gains and losses are included in earnings.
             Debt securities for which the Company does not have the intent or
             ability to hold to maturity and equity securities are classified as
             available-for-sale. Available-for-sale securities are carried at
             fair value, with the unrealized gains and losses, net of tax,
             reported as a separate component of stockholders' equity. The cost
             of investments sold is determined on the specific identification or
             the first-in, first-out method.

          Amortization
          ------------
             Goodwill is being amortized using the straight-line method over an
             estimated useful life of five to fifteen years.

             Debt issuance costs are being amortized using the straight-line
             method over the one year term of the loans.

                                      F-10

<PAGE>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       Summary of Significant Accounting Policies (Continued)
         ------------------------------------------------------
          Investment
          ----------
             The Company's investment is in a privately-held corporation, P2i,
             which represents less than a ten percent ownership interest in the
             corporation. The Company's investment in the corporation 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 expense 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 expense of $404,000 and $1,271,484 was recognized for
             the years ended December 31, 2001 and 2000, 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. In December 2001, the Company entered into an agreement
             to acquire P2i (Note 11).

          Deferred Offering Costs
          -----------------------
             In connection with the Company's public offering (Note 7), costs
             incurred to complete the offering were deferred and were offset
             against the proceeds of the offering when it was completed.

          Stock-Based Compensation
          ------------------------
             The Company adopted SFAS No. 123, "Accounting for Stock-Based
             Compensation". 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. See Note 12 for pro forma disclosures of net
             income and earnings per share as if the fair value-based method
             prescribed by SFAS No. 123 had been applied in measuring
             compensation expense.

          Long-Lived Assets
          -----------------
             When facts and circumstances indicate that the cost of long-lived
             assets may be impaired, an evaluation of the recoverability is
             performed by comparing the carrying value of the assets to the
             projected future cash flows. Upon indication that the carrying
             value of such assets may not be recoverable, the Company recognizes
             an impairment loss by a charge against current operations.

             A forecast showing lack of long-term profitability, a current
             period operating or cash flow loss combined with a history of
             operating or cash flow losses are conditions, among others, that
             would trigger an impairment assessment of the carrying amount of
             enterprise goodwill. The impairment would be determined using
             discounted cash flows or market appraisals.

             In 2001, the Company recognized an impairment expense of $328,543
             from a write down of its goodwill from its acquisition of Micronet
             in 1999. The expense is a result of a decline in the number of
             subscribers. The valuation was based on a per subscriber value of
             the business and the difference between the carrying value of the
             business and the fair value at December 31, 2001 was recognized as
             a charge to operations.

          Advertising
          -----------
             The Company advertises primarily through radio, television and
             print media. The Company's policy is to expense advertising costs,
             including productions costs, as incurred. Advertising expense was
             $5,292 and $62,697 for the years ended December 31, 2001 and 2000,
             respectively.

                                      F-11

<PAGE>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       Summary of Significant Accounting Policies (Continued)
         ------------------------------------------------------
          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.

          Net Income (Loss) Per Basic and Diluted Share of Common Stock
          -------------------------------------------------------------
             Basic earnings per share is calculated using the average number of
             common shares outstanding. Diluted earnings per share is computed
             on the basis of the 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 earnings per share are the same since the
             Company had a net loss for 2001 and 2000 and the inclusion of stock
             options and other incremental shares would be antidilutive. Options
             and warrants to purchase 3,588,500 and 2,008,378 shares of common
             stock at December 2001 and 2000, respectively were not included in
             the computation of diluted earnings per share because the Company
             had a net loss and their effect would be antidilutive.

          Estimates
          ---------
             The preparation of the Company's financial statements in conformity
             with accounting principles generally accepted in the United States
             of America 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.

          Recently Issued Accounting Standards
          ------------------------------------
             In June 2001, the Financial Accounting Standard Board ("FASB")
             issued SFAS No. 141, "Business Combinations", and SFAS No. 142,
             "Goodwill and Other Intangible Assets". SFAS No. 141 requires
             business combinations initiated after June 30, 2001 to be accounted
             for using the purchase method of accounting. It also specifies the
             types of acquired intangible assets that are required to be
             recognized and reported separately from goodwill. SFAS No. 142 will
             require that goodwill and certain intangibles no longer be
             amortized, but instead tested for impairment at least annually.
             SFAS No. 142 is required to be applied starting with fiscal years
             beginning after December 15, 2001, with early application permitted
             in certain circumstances. The Company will adopt SFAS No. 142 on
             January 1, 2002 and does not expect any impairment of goodwill or
             other intangible assets upon adoption. Amortization of intangible
             assets with an indefinite life was approximately $731,827 and
             $637,338 for the years ended December 31, 2001 and 2000,
             respectively.

             In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
             Retirement Obligations". SFAS No. 143 establishes accounting
             standards for recognition and measurement of a liability for the
             costs of asset retirement obligations. Under SFAS No. 143, the
             costs of retiring an asset will be recorded as a liability when the
             retirement obligation arises, and will be amortized to expense over
             the life of the asset. The Company will adopt SFAS No. 143 on
             January 1, 2002 and does not currently expect any impact on the
             Company's financial statements.

             In October 2001, the FASB issued SFAS No. 144, "Accounting for the
             Impairment or Disposal of Long-Lived Assets". SFAS No. 144
             addresses financial accounting and reporting for the impairment or
             disposal of long-lived assets and discontinued operations. The
             Company will adopt SFAS No. 144 on January 1, 2002 and does not
             currently expect any impact on the Company's financial statements.

                                      F-12

<PAGE>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       Summary of Significant Accounting Policies (Continued)
         ------------------------------------------------------
          Reclassifications
          -----------------
             Certain reclassifications have been made to the 2000 financial
             statement presentation for comparability with the 2001 financial
             statements. The results of the Company's operations for all periods
             presented have been restated for the discontinued operations of
             Suncoast.

2.       Acquisition
         -----------
          Suncoast Automation, Inc.
          -------------------------
             On August 22, 2000, the Company acquired all of the outstanding
             common stock of Suncoast, effective as of August 1, 2000, in
             exchange for 1,303,072 shares of the Company's common stock, which
             was valued at approximately $7,736,990. The Company also paid a
             finder's fee of $315,234 in connection with the acquisition and
             legal expenses and other direct costs of the acquisition of
             approximately $77,701. The acquisition was accounted for as a
             purchase. In addition, the Company was to deposit 1,000,000 shares
             of its common stock (the "Earnout Shares") with an Escrow Agent.
             The shares were to be held for a maximum of twenty seven months
             following the effective date of the Company's public offering (Note
             7). The Earnout Shares could be earned by Suncoast's shareholders
             upon meeting certain subscriber and cash flow provisions over a
             twenty seven month period.

             Results of operations of Suncoast are included in the Company's
             operations commencing on the acquisition date. Acquired goodwill is
             being amortized over seven years using the straight-line method.

             In January 2001, Nasdaq informed the Company that as a result of
             the Suncoast transaction, it violated a Nasdaq marketplace rule,
             which requires shareholder approval for the issuance of 20% or more
             of an issuer's securities in connection with an acquisition of
             assets or securities of another company. In order to remain in
             compliance with Nasdaq continued listing requirements, Suncoast's
             shareholders agreed to return to the Company 866,988 shares out of
             the 1,303,072 shares of common stock issued to them in order to
             reduce the issuance of the Company's common stock in this
             acquisition to under 20% and maintain the Company's listing on the
             Nasdaq Small Cap Market.

             Effective January 16, 2001, the Company entered into an amendment
             to the stock exchange agreement with the former Suncoast
             shareholders which provides the following:

               o    The former Suncoast shareholders agreed to return an
                    aggregate 866,988 shares of the Company's common stock.

               o    The Suncoast acquisition agreement was further modified to
                    provide that no additional shares of common stock will be
                    issued to the former Suncoast shareholders, unless and until
                    the Company's shareholders approve the issuance. The
                    agreement also states that no other compensation of any kind
                    or nature will be issued to the former Suncoast shareholders
                    at any time in the event the Company fails to receive
                    shareholder approval for the issuance. The agreement
                    specifically states that even if the Company is eventually
                    delisted from Nasdaq, no further compensation will be issued
                    to the former Suncoast shareholders.

               o    The 866,988 shares of common stock were reissued to the
                    former shareholders of Suncoast after approval by the
                    Company's shareholders was obtained on May 1, 2001.

                                      F-13



<PAGE>
<TABLE>
<CAPTION>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.       Acquisition (Continued)
         -----------------------
          Sale of Suncoast Division
          -------------------------

             Effective July 1, 2001, the Company sold substantially all of the
             assets of Suncoast to Dauphin Technology, Inc. through Suncoast
             Acquisition Corp., an Illinois corporation, for 766,058 shares of
             Dauphin Technology common stock valued at approximately $1,126,105
             based on the closing bid price of $1.47 per share on June 29, 2001.

             The Company recorded a loss of approximately $6,786,621 on the sale
             of the Suncoast assets. The results of the Company's operations for
             all periods presented have been restated for the discontinued
             operations of Suncoast.

             Summary of operating results of discontinued operation:


                                                                      Year Ended
                                                                      December 31,
                                                                 2001             2000
                                                                 ----             ----

             <S>                                             <C>              <C>
             Net Revenues                                     $  120,625       $   87,290

             Operating expenses                                1,101,255          972,774
                                                              ----------       ----------

             Operating Loss                                     (980,630)        (885,484)
             Other income (expense)                               (1,676)             255
                                                              ----------       ----------

             Loss before provision for income taxes             (982,306)        (885,229)
             Provision for income taxes                             --               --
                                                              ----------       ----------

             Net Loss                                         $ (982,306)      $ (885,229)
                                                              ==========       ==========

3.       Marketable Securities
         ---------------------
             Marketable securities are carried on the balance sheet at their
             market value.

                                                              Unrealized        Market
                                              Cost            Gain (Loss)        Value
             As of December 31, 2001:
              Available-for-sale securities:
               Equity securities              $609,248        $(161,637)       $  447,611
                                              --------        ---------        ----------

               Total                          $609,248        $(161,637)       $  447,611
                                              ========        =========        ==========

4.       Current Notes Payable
         ---------------------
             6.2% to 11.0 % unsecured installment notes due in 2002 with monthly
             principal and interest payments of $6,166.
                                                                               $   12,236
                                                                               ==========

                                           F-14
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.       Long-Term Debt
         --------------
             Long-term debt consists of the following:

             Obligations Under Capital Leases
             --------------------------------

            <S>                                                                <C>
             8.8% to 16.6% installment notes due in 2003 to 2006 with monthly
             principal and interest payments of $2,789, collateralized by
             equipment and guaranteed by the President of the Company.         $ 74,080

                 Less current portion of long-term debt                         (24,666)
                                                                               --------

                 Long-Term Debt                                                $ 49,414
                                                                               ========

             Installments due on debt principal, including the capital leases,
             at December 31, 2001 are as follows:

             Year Ending
             December 31,
             ------------
                2002                                                $24,666
                2003                                                 13,776
                2004                                                 13,119
                2005                                                 15,365
                2006                                                  7,154
                                                                    -------

                  Total                                             $74,080
                                                                    =======

6.       Income Taxes
         ------------
             The components of the provision for income taxes are as follows:


                                                    2001              2000
                                                    ----              ----
             Current:
                 Federal                          $   --            $   --
                 State                                --                --
                                                  --------          --------
                   Total                              --                --
                                                  --------          --------

             Deferred:
                 Federal                              --                --
                 State                                --                --
                                                  --------          --------
                   Total                              --                --
                                                  --------          --------

             Total Provision For Income Taxes     $   --            $   --
                                                  ========          ========

             The provision for income taxes reconciles to the amount computed by
             applying the federal statutory rate to income before the provision
             for income taxes as follows:

                                                    2001              2000
                                                    ----              ----
             Federal statutory rate                 (25)%             (25)%
             State franchise taxes,
              net of federal benefits                (4)               (4)
             Valuation allowance                     29                29
                                                    ---               ---

                 Total                                --%               --%
                                                    ====              ====

                                      F-15
</TABLE>

<PAGE>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.       Income Taxes (Continued)
         ------------------------
             Significant components of deferred income taxes as of December 31,
             2001 are as follows:

             Net operating loss carryforward                    $ 3,729,000
             Vacation accrual                                        13,000
             Allowance for bad debts                                  7,000
             Amortization of goodwill                               184,000
             Stock option compensation                               84,000
             Impairment of investment                               575,000
             Depreciation                                             3,000
                                                                -----------

             Total Deferred Tax Asset                             4,595,000
                                                                -----------

             Total Deferred Tax Liability                              --
             Less valuation allowance                            (4,595,000)
                                                                -----------

             Net Deferred Tax Asset                             $      --
                                                                ===========

             The Company has assessed its past earnings history and trends,
             budgeted sales, 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 $4,595,000 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 $826,000 The Company will continue to review this
             valuation on a quarterly basis and make adjustments as appropriate.

             At December 31, 2001, the Company had federal and state net
             operating loss carryforwards of approximately $13,200,000 and
             $4,700,000 respectively. Such carryforwards expire in the years
             2007 through 2021 and 2002 through 2006 for federal and state
             purposes, respectively.

7.       Stockholders' Equity
         --------------------
          Public Stock Offering
          ---------------------
             The closing for the Company's secondary offering occurred on
             February 21, 2001. The Company sold 800,000 units of the Company's
             securities at $4.50 per unit and paid the Underwriter a 10%
             commission and a 3% non-accountable expense allowance. Each unit
             consisted of two shares of the Company's common stock and one
             redeemable common stock purchase warrant. Each warrant is
             exercisable to purchase one share of common stock at $2.93 per
             share until February 14, 2006 and may be redeemed by the Company
             anytime after February 14, 2002 if the closing price of the
             Company's common stock is at least $4.39 per share for 20
             consecutive trading days.

             In connection with the offering, the Company issued the Underwriter
             a warrant, for $100, to purchase up to 80,000 units which are
             exercisable at $7.43 per unit. The Underwriter's warrant is
             exercisable through February 14, 2007. The units subject to the
             Underwriter's warrant consists of two shares of the Company's
             common stock and one common stock purchase warrant, which entitles
             the holder to purchase one share of the Company's common stock at
             $12.26 per share. The Company has also retained the Underwriter as
             a financial consultant for a period of one year at a monthly fee of
             $5,883.33 (a total of $70,000) which was paid in full upon
             completion of the Offering.

                                      F-16



<PAGE>
<TABLE>
<CAPTION>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.       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.

9.       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.

             The following table contains information on the stock options under
             the Company's plan for the years ended December 31, 2000 and 2001.
             The outstanding agreements expire from May 2004 to June 2006.

                                                               Number of         Weighted Average
                                                                Shares            Exercise Price
                                                                ------            --------------
             <S>                                               <C>                    <C>
             Options outstanding at December 31, 1999           116,000                $6.67
              Granted                                           115,500                 5.43
              Exercised                                            --                    --
              Cancelled                                         (90,500)                6.51
                                                               --------                -----

              Options outstanding at December 31, 2000          141,000                 5.48
               Granted                                             --                    --
               Exercised                                           --                    --
               Cancelled                                       (104,500)                5.30
                                                               --------                -----

              Options outstanding at December 31, 2001           36,500                $6.19
                                                               ========                =====

          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.

             The following table contains information on the stock options under
             the Company's plan for the years ended December 31, 2000 and 2001.
             The outstanding options expire from November 2005 to May 2006.

                                      F-17
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.       Stock Options and Warrants (Continued)
         --------------------------------------
          1999 Executive Officers Stock Option Plan (Continued)
          -----------------------------------------------------

                                                           Number of         Weighted Average
                                                            Shares            Exercise Price
                                                            ------            --------------
             <S>                                           <C>                    <C>
             Options outstanding at December 31, 1999       136,667                $6.04
               Granted                                         --                    --
               Exercised                                    (36,667)                3.75
               Cancelled                                       --                    --
                                                           --------                -----

             Options outstanding at December 31, 2000       100,000                 6.88
               Granted                                       50,000                 1.36
               Exercised                                       --                    --
               Cancelled                                       --                    --
                                                           --------                -----

             Options outstanding at December 31, 2001       150,000                $5.04
                                                           ========                =====

          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, 2001.

          Severance Warrants
          ------------------
             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, 2001, 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. As of December 31, 2001, 1,137,000 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. As of December 31, 2001, 105,000 warrants are
             outstanding.

10.      Accumulated Other Comprehensive Income (Loss)
         ---------------------------------------------
             The Company has adopted SFAS No. 130, "Reporting Comprehensive
             Income". This statement requires that all components of
             comprehensive income be reported in the financial statements in the
             period in which they are recognized. The components of
             comprehensive income for the Company include net income and
             unrealized gain (loss) on marketable securities. Components of
             other comprehensive income consist of the following:

                                      F-18

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.      Accumulated Other Comprehensive Income (Loss) (Continued)
         ---------------------------------------------------------

                                                 Unrealized        Accumulated
                                                 Gain (loss)          Other
                                                on Marketable     Comprehensive
                                                 Securities       Income (Loss)
                                                 ----------       -------------
             Balance at December 31, 2000        $    --            $    --
             2001 Change                          (161,637)          (161,637)
                                                 ---------          ---------

             Balance at December 31, 2001        $(161,637)         $(161,637)
                                                 =========          =========

11.      Commitments and Contingencies
         -----------------------------
          Leases
          ------
             The Company leases certain computer equipment under noncancellable
             capital leases. The Company leases its facilities under a
             noncancellable operating lease. The Company's facilities lease
             contains a five year renewal option.

             The following is a schedule of future minimum lease payments at
             December 31, 2001 under the Company's capital leases (together with
             the present value of minimum lease payments) and operating leases
             that have initial or remaining noncancellable lease terms in excess
             of one year:

                 Year Ending                        Capital      Operating
                 December 31,                       Leases        Leases          Total
                 ------------                       -------       -------         -----
                    <S>                             <C>           <C>           <C>
                    2002                            $33,284       $23,340       $  56,624
                    2003                             20,462            --          20,462
                    2004                             17,859            --          17,859
                    2005                             17,859            --          17,859
                    2006                              7,442            --           7,442
                                                   --------       -------        --------

            Total Minimum Lease Payments             96,906       $23,340        $120,246
                                                                  =======        ========

            Less amount representing interest       (22,826)
                                                   --------

            Present Value of Net Minimum
             Lease Payments                        $ 74,080
                                                   ========

             Rent expense was approximately $72,777 and $74,866 for the years
             ended December 31, 2001 and 2000, respectively.

             Leased equipment under capital leases as of December 31, 2001 is as
             follows:

             Equipment                                                           $102,123
             Less accumulated amortization                                        (29,525)
                                                                                 --------

             Net Property and Equipment Under Capital Leases                     $ 72,598
                                                                                 ========

          Proposed Acquisition
          --------------------
             In December 2001, the Company signed a term sheet with P2i to
             acquire P2i for 22,768,412 shares of the Company's common stock in
             a tax-free exchange. In connection with the term sheet, the Company
             loaned P2i $50,000 in 2001, $100,000 in January 2002 and is to loan
             an additional $150,000 in February 2002. The loans to P2i are in
             the form of a demand note, which in the event the merger does not
             get completed will be due on demand.

                                      F-19
</TABLE>

<PAGE>

                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.      Stock-Based Compensation Plans
         ------------------------------
             In accordance with the provisions of SFAS No. 123, the Company
             applies APB Opinion No. 25, "Accounting for Stock Issued to
             Employees", and related interpretations in accounting for its plans
             and does not recognize compensation expense for its stock-based
             compensation plans other than for options granted to non-employees.
             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 income and earnings per share would be reduced to the
             following pro forma amounts:

                                                        2001           2000
                                                        ----           ----
             Net Loss:
               As reported                          $(10,750,100)   $(5,206,198)
               Pro forma                            $(10,902,551)   $(5,405,613)

             Net Loss Per Share of Common Stock:
               As reported                          $      (2.19)   $     (2.03)
               Pro forma                            $      (2.22)   $     (2.10)

             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 for the years ended
             December 31, 2001 and 2000:

                                                        2001           2000
                                                        ----           ----
             Risk free interest rate                    4.95%          6.00%
             Expected life                            5.0 years      5.0 years
             Expected volatility                       76.50%         46.54%
             Expected dividend yield                       0%             0%

             The Black-Scholes option valuation model was developed for use in
             estimating the fair value of traded options which have no vesting
             restrictions and are fully transferable. In addition, option
             valuation models require the input of highly subjective assumptions
             including the expected stock price volatility. Because the
             Company's employee stock options have characteristics significantly
             different from those of traded options, and because changes in
             subjective input assumptions can materially affect the fair value
             estimates, in management's opinion, the existing models do not
             necessarily provide a reliable single measure of the fair value of
             its employee stock-based compensation plans.

             The weighted average fair value price of options granted in 2001
             and 2000 was $.84 and $2.62, respectively.

             The following table summarizes information about the Company's
             stock-based compensation plans outstanding at December 31, 2001:

                                          F-20

<PAGE>
<TABLE>
<CAPTION>


                                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.      Stock-Based Compensation Plans (Continued)
         ------------------------------------------

                                  Options Outstanding                                   Options Exercisable
                   ---------------------------------------------------                -----------------------
                                                   Weighted
                                                    Average         Weighted                           Weighted
                Range of                           Remaining         Average                            Average
                Exercise           Number         Contractual       Exercise          Number           Exercise
                 Prices          Outstanding     Life In Years        Price         Exercisable          Price
                 ------          -----------     -------------        -----         -----------          -----
             <S>                  <C>                <C>              <C>              <C>               <C>
             $1.36                  50,000           4.33             $1.36            50,000            $1.36
             $5.25 - $6.88         136,500           3.86              6.69           101,499             6.76
             -------------         -------           ----            ------           -------           ------

             $1.36 - $6.88         186,500           3.98             $5.26           151,499            $4.98
             =============         =======           ====             =====           =======            =====

          Non-Plan Compensation Expense
          -----------------------------
             The Company recorded compensation expense of $189,164 for the year
             ended December 31, 2001 for the value of certain options granted
             for settlement of liabilities of the Company and to consultants.
             The Company recorded compensation expense of $175,424 for the year
             ended December 31, 2000 for the value of certain options granted to
             consultants. The valuation of the options and warrants granted to
             employees is based on the difference between the exercise price and
             the market value of the stock on the measurement date. The
             valuation of the options granted to non-employees is estimated
             using the Black-Scholes option pricing model.

13.      Concentration of Credit Risk
         ----------------------------
             Financial instruments which potentially subject the Company to
             concentrations of credit risk consist principally of temporary cash
             investments, marketable securities and accounts receivable. The
             Company places its cash equivalents and short term investments with
             high credit quality financial institutions and limits its credit
             exposure with any one financial institution. The Company provides
             credit, in the normal course of business, to a large number of
             companies in the Internet services industry. The Company's accounts
             receivable are due from customers located in California and
             throughout the United States. The Company performs periodic credit
             evaluations of its customers' financial condition and generally
             requires no collateral. The Company maintains reserves for
             potential credit losses, and such losses have not exceeded
             management's expectations.

14.      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 matching contributions of $949 and
             $2,105 for the years ended December 31, 2001 and 2000,
             respectively. Company contributions vest as follows:

                         Years of Service              Percent Vested
                         ----------------              --------------
                                 1                           33%
                                 2                           66%
                                 3                          100%

15.      Fair Value of Financial Instruments
         -----------------------------------
             Disclosures about 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-21
</TABLE>

<PAGE>


                     PROTOSOURCE CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.      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,
             2001:

                                                Carrying         Estimated
                                                 Amount          Fair Value
                                               ----------        ----------
            Financial Assets:
             Cash and cash equivalents         $  118,265        $  118,265
             Marketable securities                447,611           447,611
             Note receivable                       50,000            50,000

            Financial Liabilities:
             Notes payable                         12,236            12,236
             Long-term debt                        74,080            74,080

            The carrying amounts for cash and cash equivalents, receivables,
            accounts payable and accrued expenses approximate fair value because
            of the short maturities of these instruments. The fair value of
            marketable securities is determined by the most recently traded
            price of each security at the balance sheet date. The fair value of
            the note receivable approximates market value as it is a
            non-interest bearing note and is due upon demand only if the P2i
            acquisition does not occur (Note 11). The fair value of notes
            payable and long-term debt, 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-22

<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
----                               --------
William Conis,54                   Chief Executive Officer, President,
                                   Chief Financial Officer and Director
Theodore Triantafilu,54            Director
Peter Wardle,46                    Director
Stewart Kalter,30                  Director



William Conis became a director in 1998 and became ProtoSource Corporation's
Chief Executive Officer and Chief Financial Officer in November 1999. Mr. Conis
was Vice President, Eastern Region for Hitachi Data Systems from July 1997
through July 1999, and was Hitachi's New York-based District Manager from July
1995 to July 1997. From March 1984 to July 1995, Mr. Conis was a senior
consultant for the Kappa Group, a management consulting firm located in New
Jersey. Mr. Conis earned a Bachelor's degree and Master's degree in Electrical
Engineering from New York University in 1968 and 1971, respectively.

Theodore Triantafilu is Executive Vice President of USA Cable, Inc. Mr.
Triantafilu was the Chief Operating Officer of Suncoast Automation, Inc. from
July 1999 to August 2000. He was the Chief Operating Officer of the Suncoast
division from August 2000 to March 2001 and a director May 1, 2001. Mr.
Triantfilu has over 29 years experience in telephone operations, digital cable
television operations, and marketing as well as establishing new businesses.
From 1995 through June 1999, he was the area operations manager for GTE Media
Ventures, Pinellas County, Florida, the first overbuild and launch of digital
CATV and high-speed cable modem service for GTE Corporation. Prior to that
assignment, he served in successive positions of increasing responsibilities
both in Florida and World Headquarters in Irving, Texas for GTE during his
28-year career. While serving Corporate Headquarters, he attended GTE Telops
Management Development Program for executives.

Stewart Kalter became a director in October 2001. Mr. Kalter has served as
Director of Corporate Finance and Research of Andrew, Alexander, Wise & Company,
Inc., since June 2001. Prior to that, he was Director of Research at Global
Capital Markets, having served in that capacity since 1999. Mr. Kalter was a
Research Analyst with Spencer Clarke during 1998 and 1999. From 1995 till 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.

Peter Wardle became a director in December 2001. Mr. Wardle is Chief Executive
Officer of P2i, Inc. Mr. Wardle co-founded P2i in May 2000. Mr. Wardle served as
Chief Executive Officer of 2020, Inc. from 1993 when he co-founded the company
until it was acquired by P2i in July 2001. Prior to that, Mr. Wardle served as a
database marketing consultant from 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.


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 2001
and Forms 5 and amendments thereto furnished to the Company with respect to
fiscal 2001, the following persons during the last fiscal year failed to file on
a timely basis, as disclosed in the following table, reports required by such
section:

<PAGE>
<TABLE>
<CAPTION>


                                                    NUMBER OF NUMBER
 NAME                             REPORTS           OF TRANSACTIONS


          William  Conis             1                     2

          Mark Blanchard             1                     1

          Theodore Triantafilu       1                     1


ITEM 10. EXECUTIVE COMPENSATION

None of the Company's executive officers or directors currently receive
compensation in excess of $100,000 per year except Mr. Conis, the Company's
Chief Executive Officer, who receives a base salary of $175,000 per year
pursuant to an Employment Agreement which expires on October 31, 2003. Mr.
Conis' base salary increases to $200,000 per year once the Company's gross
revenues run at the rate of $3,500,000 annually and operating profitability
exceeds on an annual basis $600,000 for at least three consecutive months and
further increases to $250,000 if the Company's gross revenues run at the rate of
$5,000,000 annually and operating profitability on an annual basis exceeds
$1,200,000 for at least three consecutive months. The Employment Agreement also
provides for the issuance of 100,000 stock options exercisable at $6.875 per
share, subject to a vesting schedule. Compensation for all officers and
directors as a group for the calendar years ended December 31, 2001 and 2000
aggregated $280,291 and $302,761, respectively.

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



                                                                                           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>
William Conis, Chief
Executive Officer      2001     $182,291          -            -           -                50,000
                       2000     $163,333      $12,000(1)       -           -                  -
                       1999      $27,259          -            -           -               100,000
----------

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






Option Grants in Last Year and Stock Option Grant

The following table provides information on option grants during the year ended
December 31, 2001, to the named executive officers:



                  Number of       Percent of Total
                 Common Stock    Options Granted to
                  Underlying        Employees in     Exercise Price   Expiration
Name           Options Granted       Fiscal Year       ($/Share)         Date
----              -------            -----------       ---------         ----
William Conis      50,000                100%            $1.36         5/02/06




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, 2001. No shares of Common Stock
were acquired upon exercise of options during the fiscal year ended December 31,
2001.

</TABLE>

<PAGE>


                                                         Value of
                  Number of Unexercised          Unexercised In-The-Money
                  Options at Year End              Options at Year End
               ---------------------------     ---------------------------
Name           Exercisable   Unexercisable     Exercisable   Unexercisable
----           -----------   -------------     -----------   -------------
William Conis    125,000        40,000             $0            $0



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, 2001, 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, 2001, 36,500 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, 2001, 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.

As of December 31, 2001, no options are outstanding under this Plan.

<PAGE>


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, 2001,
100,000 options are outstanding at $6.875 per share and 50,000 options are
outstanding at $1.36 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 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 350,000 shares of authorized but unissued common stock have been
reserved for issuance pursuant to the 2000 Plan. As of December 31, 2001, no
options are outstanding under this Plan.

Options under the 2000 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 2000 Plan has none of
the rights of a shareholder until shares are issued.

<PAGE>


The 2001 Plan is administered by the Board of Directors, which has the power to
interpret the 2001 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 2001 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 2001 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 2001 Plan, except by operation of law.
However, there are no restrictions on the resale of the shares underlying the
options. The 2001 Plan will remain in effect until May 2011 but may be
terminated or extended by the Board of Directors.


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 December 31, 2001, 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. The address of all persons is in care of the Company
at 2300 Tulare Street, Suite 210, Fresno, California 93721.



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

William Conis(3)                              125,300                 2.2%
Stewart Kalter                                      -                   -
Peter Wardle                                        -                   -
Theodore Triantafilu(4)                       126,610                 2.2%
Mark Blanchard (5)                            461,454                 8.1%
Kent Spears                                   367,173                 6.5%
Peter J. Pappas (6)                           483,210                 8.3%

All officers and directors as a group
(4 persons)                                   251,910                 4.3%
--------------------


* Less than 1%

(1)  Except as otherwise indicated, the address of each beneficial owner is c/o
     ProtoSource Corporation, 2300 Tulare Street, Suite 210, Fresno, CA 93721.

(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 presently exercisable options to purchase (i) 15,000 shares at
     $6.00 per share at any time until October 2003, (ii) 60,000 shares at
     $6.875 per share anytime until November 2004 and (iii) 50,000 shares at
     $1.36 per share anytime until May 2006. Does not include shares issuable
     upon exercise of 40,000 options that are not presently exercisable.

(4)  Includes presently exercisable options to purchase 10,000 shares at $1.36
     per share at any time until May 2006.

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

(6)  Includes 149,070 shares issuable upon exercise of Class B warrants.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

<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)

<PAGE>


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

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)

23.01       Consent of Angell & Deering

----------


(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.

<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 Santa Monica, California, on March 14, 2002.

                                            PROTOSOURCE CORPORATION





                                            By:   /s/  William Conis
                                              --------------------------------
                                                       William Conis
                                                       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/  William Conis                Chief  Executive Officer       March 15, 2002
----------------------------      Chief Financial Officer
     William Conis                (Principal Accounting
                                  Officer), and Director


/s/  Stewart Kalter               Director                       March 15, 2002
----------------------------
     Stewart Kalter


/s/  Theodore Triantafilu         Director                       March 15, 2002
----------------------------
     Theodore Triantafilu


/s/  Peter Wardle                  Director                      March 15, 2002
----------------------------
     Peter Wardle