ProtoSource Corporation (OTC Bulletin Board: PSCO; PSCOW; PSCOZ), a California-based Internet solutions provider, announced today that it has executed its merger agreement with P2i, Inc, the Bethlehem, PA, based Print-to-Internet company. The transaction is subject to the approval of ProtoSource shareholders, as well as other customary terms and conditions. Under the terms of the merger agreement, ProtoSource will acquire P2i's Print-to-Internet Newspaper business in exchange for controlling interest in ProtoSource. P2i will continue to operate its existing New Media business comprising a design group in New York City and its Internet Catalog production group in Bethlehem, PA. Through a second agreement, expected to close later this quarter, ProtoSource will purchase an additional stake in that business (PSCO currently owns just under 2%), by way of a $1.1 Million investment. Further terms of the transaction were not disclosed.

ProtoSource CEO, Peter Wardle, stated today, "We are all very pleased that this agreement is now inked. We are now working diligently on preparing the documents required to file the proxy with the SEC and get shareholder approval."

About P2i, Inc.

P2i is the 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, Nordstrom and Neiman Marcus. The company is headquartered in Bethlehem, PA, has offices in New York and London, and a data conversion facility in Kuala Lumpur, Malaysia.

About ProtoSource Corporation

ProtoSource Corporation is committed to delivering outstanding service and support to its customers, community, employees and shareholders. ProtoSource Corporation offers complete Internet solutions to consumers, public agencies and businesses. Services include Internet access, Web hosting, Web site development and electronic commerce. (www.psnw.com)