UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 2009
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-25594
PROTOSOURCE CORPORATION
(Exact name of registrant as specified in its charter)
California 77-0190772
---------- ----------
(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
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2345 Main St., Suite C, Hellertown, PA 18055
(Address of Principal Executive Offices, Zip code)
610-332-2893
(Issuers' Telephone Number)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
definitions of "large accelerated filer", "accelerated filer," and "smaller"
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer? [ ]
Non-accelerated filer [ ] Smaller reporting company? [ X ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
There were 9,927,329 shares of the registrant's common stock, no par value,
outstanding as of March 31, 2009.
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). [ ] Yes [ ] No.
PROTOSOURCE CORPORATION
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
March 31, 2009
----------------------------------------------------------------------------------------------------
INDEX
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Part I - Financial Information:
Item 1. Financial Statements:
Consolidated balance sheet as of
March 31, 2009 (unaudited) and December 31, 2008 3
Consolidated statement of operations for the
three-month periods ended March 31, 2009 and 2008 (unaudited) 4
Consolidated statement of stockholders'
deficiency for the three-month period ended
March 31, 2009 (unaudited) 5
Consolidated statement of cash flows for the
three-month periods ended March 31, 2009 and 2008 (unaudited) 6 & 7
Notes to consolidated financial statements (unaudited) 8 to 19
Item 2. Management's discussion and analysis of financial condition
and results of operations 20 to 24
Item 3. Quantitative and qualitative disclosures about market risk 24
Item 4T. Controls and procedures 24
Part II - Other Information
Other Information 25
Signature and certifications 26
When used in this report, the words "estimate," "project," "intend," "believe"
and "expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risk and uncertainties that could
cause actual results to differ materially, including competitive pressures and
new product or service introductions by the Company and its competitors. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release updates or revisions to these statements.
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PROTOSOURCE CORPORATION
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CONSOLIDATED BALANCE SHEET
---------------------------------------------------------------------------------------------------------
March 31, 2009 December 31,
(unaudited) 2008
-------------- -------------
ASSETS
Current assets:
Cash $ 5,678 $ 12,826
Accounts receivable, net of allowance of $80,000 409,237 380,040
Advance to employee 255 765
Advances to officer 120,984 95,167
------------ ------------
Total current assets 536,154 488,798
------------ ------------
Property and equipment, at cost, net of
accumulated depreciation and amortization of
$670,240 and $655,383, respectively 63,910 78,767
------------ ------------
Other assets:
Goodwill - Acquisition of P2i Newspaper 375,067 375,067
Deposits 14,074 14,074
------------ ------------
Total other assets 389,141 389,141
------------ ------------
Total assets $ 989,205 $ 956,706
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Bank overdraft $ 18,602 $ --
Notes payable 2,425,000 2,425,000
Current portion of obligations under capital leases 39,700 49,524
Accounts payable 325,453 299,865
Accrued interest 2,027,846 1,918,354
Amounts due to related party - P2i, Inc., net 109,482 135,275
Accrued expenses - other 578,560 534,073
Advance from officer 12,000 12,000
------------ ------------
Total current liabilities 5,536,643 5,374,091
------------ ------------
Obligations under capital leases, non-current portion 18,397 19,046
Stock subscriptions payable 661,844 661,844
------------ ------------
Total non-current liabilities 680,241 680,890
------------ ------------
Stockholders' deficiency:
Preferred stock, Series B, no par value; 5,000,000 shares
authorized, 193,836 shares issued and outstanding 416,179 416,179
Common stock, no par value; 500,000,000 shares
authorized, 9,927,329 shares issued and outstanding 26,143,461 26,143,461
Additional paid-in capital 2,291,607 2,291,607
Accumulated other comprehensive income 110,018 110,707
Accumulated deficit (34,188,944) (34,060,229)
------------ ------------
Net stockholders' deficiency (5,227,679) (5,098,275)
------------ ------------
Total liabilities and stockholders' deficiency $ 989,205 $ 956,706
============ ============
See accompanying notes.
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PROTOSOURCE CORPORATION
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CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
----------------------------------------------------------------------------------------------------
THREE-MONTH
PERIOD ENDED
MARCH 31,
2009 2008
------------- ------------
Net revenues $ 818,159 $ 880,545
------------ ------------
Operating costs and expenses:
Cost of revenues 627,088 699,684
Selling, general and administrative 178,758 300,754
Depreciation and amortization 14,857 18,464
------------ ------------
Total operating costs and expenses 820,703 1,018,902
------------ ------------
Operating loss (2,544) (138,357)
------------ ------------
Other expenses:
Interest expense (116,055) (103,940)
Other expense (10,116) (22)
------------ ------------
Net expenses (126,171) (103,962)
------------ ------------
Net loss ($ 128,715) ($ 242,319)
============ ============
Net loss per basic and diluted
share of common stock ($ 0.01) ($ 0.01)
============ ============
Weighted average number of basic and diluted
common shares outstanding 32,874,548 32,874,548
============ ============
See accompanying notes.
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PROTOSOURCE CORPORATION
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2009
(unaudited)
------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Preferred Stock Common Stock Additional Other
----------------- ----------------- Paid-In Comprehensive Accumulated Comprehensive
Shares Amount Shares Amount Capital Income Deficit Total (Loss)
------ ------ ------ ------ ------- ------ ------- ----- ----
Balance,
December 31,
2008 193,836 $416,179 9,927,329 $26,143,461 $2,291,607 $ 110,707 ($34,060,229) ($5,098,275)
Net loss -- -- -- -- -- -- (128,715) (128,715) ($128,715)
Other comprehensive
loss, net of tax:
Foreign currency
translation
adjustments -- -- -- -- -- (689) -- (689) (689)
-------- -------- --------- ----------- ---------- --------- ----------- ---------- ---------
Total
comprehensive
loss ($129,404)
=========
Balance,
March 31, 2009 193,836 $416,179 9,927,329 $26,143,461 $2,291,607 $ 110,018 ($34,188,944) ($5,227,679)
========= ======== ========= =========== ========== ========= =========== ==========
See accompanying notes.
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PROTOSOURCE CORPORATION
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CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
---------------------------------------------------------------------------------------------------------------
THREE-MONTH PERIOD
ENDED
MARCH 31,
2009 2008
------------- ------------
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net loss ($128,715) ($242,319)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 14,857 18,464
Provision for bad debts -- 2,000
Accrued interest 109,492 99,113
Changes in operating assets and liabilities:
Accounts receivable (29,197) 50,861
Accounts payable 25,588 53,548
Amounts due to related party - P2i, Inc., net (25,793) (27,025)
Accrued expenses 44,487 137,472
--------- ---------
Net cash provided by operating activities 10,719 92,114
--------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment -- (2,391)
(Increase) in due from related parties -- 400
Decrease in advance to employee 510 14,264
(Increase) in advances to officer (25,817) --
--------- ---------
Net cash provided by (used in) investing activities (25,307) 12,273
--------- ---------
Cash flows from financing activities:
Bank overdraft 18,602 --
Payments on obligations under capital leases (10,473) (8,393)
--------- ---------
Net cash (used in) financing activities 8,129 (8,393)
--------- ---------
Net increase (decrease) in cash before effect of
exchange rate changes on cash (6,459) 95,994
Effect of exchange rate changes on cash (689) 153
--------- ---------
Net increase (decrease) in cash (7,148) 96,147
Cash at beginning of period 12,826 72,381
--------- ---------
Cash at end of period $ 5,678 $ 168,528
========= =========
CONTINUED ON NEXT PAGE
See accompanying notes.
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PROTOSOURCE CORPORATION
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CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
THREE-MONTH PERIOD
ENDED
MARCH 31,
2009 2008
---- ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $6,563 $4,828
------ ------
Income taxes $ -- $ --
------ ------
See accompanying notes.
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PROTOSOURCE CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
--------------------------------------------------------------------------------
1. Nature of Operations and Summary of Significant Accounting Policies
-------------------------------------------------------------------
Nature of operations - ProtoSource Corporation, formerly SHR
Corporation doing business as Software Solutions Company (the Company),
was incorporated on July 1, 1988, under the laws of the state of
California. Until May 1, 2002, the Company was an Internet service
provider (ISP). The Company provided dial-up Internet access, web
hosting services and web development services. On May 1, 2002, the
Company entered into an agreement to sell substantially all of the
assets pertaining to the ISP to Brand X Networks, Inc. On August 16,
2007, the Company exercised its security interests and entered into a
foreclosure acquisition agreement with Brand X Networks, Inc., taking
possession of its business assets as collateral due to its inability to
pay its debt to the Company. These assets were transferred to
ProtoSource Acquisition II, Inc., a Nevada corporation (incorporated
August 15, 2007) and a wholly owned subsidiary of the Company, on
September 1, 2007. Effective September 1, 2007, the Company provides
bilingual technical support services, web-hosting, and Internet
connectivity (see Note 3).
Effective January 1, 2004, the Company acquired P2i Newspaper, LLC (see
Note 4). P2i Newspaper is principally engaged in the conversion of text
and graphics from print to interactive Web content. Its clients include
newspaper groups located in the United States and the United Kingdom.
P2i Newspaper is headquartered in Bethlehem, Pennsylvania and has a
data conversion center located in Kuala Lumpur, Malaysia.
Interim Financial Statements - The accompanying financial statements
for the three months ended March 31, 2009 and 2008 are unaudited, and
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain information and
note disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles of
the United States of America have been condensed or omitted pursuant to
those rules and regulations. Accordingly, these interim financial
statements should be read in conjunction with the audited financial
statements and notes thereto contained in ProtoSource Corporation (the
"Company") Annual Report on Form 10-K for the year ended December 31,
2008, filed with the SEC on April 15, 2009. The results of operations
for the interim periods shown in this report are not necessarily
indicative of results to be expected for other interim periods or for
the full fiscal year. In the opinion of management, the information
contained herein reflects all adjustments necessary for a fair
statement of the interim results of operations. All such adjustments
are of a normal, recurring nature. Certain reclassifications have been
made to the prior year amounts to conform to the current year
presentation.
The year-end condensed balance sheet data was derived from audited
financial statements in accordance with the rules and regulations of
the SEC, but does not include all disclosures required for financial
statements prepared in accordance with generally accepted accounting
principles of the United States of America.
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries. All of the Company's subsidiaries
are wholly owned for the periods presented. All intercompany
transactions have been eliminated.
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PROTOSOURCE CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
1. Nature of Operations and Summary of Significant Accounting Policies -
Continued
-----------------------------------------------------------------------
Basis of presentation - The accompanying unaudited consolidated
financial statements of the Company are prepared in conformity with
generally accepted accounting principles. The disclosures presented are
sufficient, in management's opinion, to make the interim information
presented not misleading. All adjustments consisting of normal
recurring adjustments, which are necessary so as to make the interim
information not misleading, have been made. Results of operations for
the three months ended March 31, 2009 are not necessarily indicative of
the results expected for the full fiscal year or for any future period.
It is recommended that this financial information be read with the
complete financial statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2008 previously filed with
the Securities and Exchange Commission. The accompanying condensed
consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the
amount and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to
generate sufficient cash flows to meet its obligations on a timely
basis, to obtain additional financing as may be required, and to
generate revenues to a level where the Company becomes profitable.
These measures are essential, as the Company has experienced cash
liquidity shortfalls from operations.
The Company's continued existence is dependent upon its ability to
achieve its operating plan. Management's plans include the following:
o Obtaining additional working capital through the sale of common
stock or debt securities.
o The ability of ProtoSource to successfully implement its
strategic plan as follows:
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PROTOSOURCE CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
1. Nature of Operations and Summary of Significant Accounting Policies -
Continued
----------------------------------------------------------------------
ProtoSource's primary focus is the delivery of ePublishing Solutions
and related services, to newspapers, retailers, and magazines,
utilizing internally-developed, proprietary applications bridging the
divide between traditional print revenue and the opportunities online
via a coordinated sales and marketing strategy in the United States and
Europe. Secondarily, but of strategic importance, the Company operates
a technical support facility in Fresno, CA. These two distinct suites
of services and solutions are offered by the Company's two principle
operating units: P2i Newspapers and ProtoSource Acquisition II dba
BX-Solutions.:
P2i Newspaper delivers products and services tailored specifically to
create online versions of print content, primarily for the print and
publishing industries.
The Company's proprietary system allows for the normalization of
diverse forms of data, including text and graphics, which can be
integrated by a seamless, dynamic, and highly customizable
front-end interface. This allows customers to have their data
re-purposed for new revenue generation. It also serves to
enhance the customer's own productivity by enabling more
effective information management and exchange between themselves
and their end customers, who both gain greater satisfaction
through the enhanced interactivity.
Every day of the week, 52 weeks a year, P2i receives electronic
files from customers at its facility in Cyberjaya, just south of
Kuala Lumpur, Malaysia. P2i employs approximately 100 staff in
this 6,000 square foot office. Incoming data files are processed
overnight for delivery the following morning. Data is delivered
not only to P2i's web servers for seamless integration into our
clients' existing, hosted web sites, but also distributed back
to clients and their business partners in a wide range of
formats. The combination of low labor costs, a well-educated
labor pool fluent in English, and sophisticated technologies
makes P2i effective and competitive.
The online presentation and Web enablement of the Company's
clients' content is the key to efficient, effective Web
presence, and the ensuing revenues and profits such a presence
will yield. The Company takes either the same electronic files
that generate print output, or existing online content in the
public domain and uses that content to deliver a vastly
enhanced, user friendly, online presence, adding a myriad of
user-friendly features that are unique to Web-based
presentations. This cost-effective solution perfectly transfers
the client's known brand identity to the Internet, and
integrates into the delivery all the inherent E-commerce,
interactive and database features needed to maximize its impact
and benefits.
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PROTOSOURCE CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
1. Nature of Operations and Summary of Significant Accounting Policies -
Continued
-----------------------------------------------------------------------
Services of P2i Newspaper comprise the following:
Hosted Solutions - Publishers large and small may use the
Company's array of customizable, turnkey, hosted products for
entire publications, sections and vertical-specific solutions.
Utilizing proprietary technology, the Company converts print
content comprising editorial and media ads into interactive,
online content that is seamlessly incorporated into existing
newspaper/publisher web sites. At the end of every business
day, publishing clients transmit to the Company the same
electronic versions of ads and pages that go to press. These
files are received by the Company's production group,
processed, quality checked, and delivered to the hosting
servers by the start of the following business day.
Data Extraction - Customers utilizing in-house or third party
solutions may rely upon the Company's ability to database
incoming content down to the minutest subset. The Company has
solutions that will convert multiple forms of disparate
electronic content and process them into one constant data
flow as one of its specialties. Extracting relevant data
points, merging consistencies and fielding content to produce
a data feed, per the client's or third party's specifications,
is at the core of the Company's technology. The ensuing data
enables tight search functions and powers retail advertising
web sites.
Content Review - Because online content needs to reflect the
values, relevance and accuracy that print institutions have
embodied for centuries, the Company's Content Review team
functions to examine thousands of items a day for retailers
and newspapers, editing, proofing and determining relevancy.
The staff reviews pricing, language, brand names, and scores
of other specifics, delivering a critical component in the
online publishing of user-generated content.
Technical Support - The Company has also launched a
poly-lingual Technical Support team. Unlike a traditional call
center that scripts its responses, this functional group
separates itself from the competition by providing a highly
trained, technically skilled support person that is trained to
understand the idiosyncrasies of customers' products and
services to ensure each caller gets the best possible service.
ProtoSource Acquisition II, Inc. dba BX Solutions delivers technical
support, hosting and Internet access to telephone and Internet companies.
The Company's second facility in Fresno, CA, operated by, and branded as,
BX-Solutions, is a wholly-owned subsidiary of the Company, which employs
approximately 30 staff providing 24/7 English and Spanish technical
support via incoming telephone calls to the customers of technology
companies. These comprise small and mid-size Internet service and
telecommunications providers in the United States. This facility also
houses and manages servers for its own customers.
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PROTOSOURCE CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
1. Nature of Operations and Summary of Significant Accounting Policies -
Continued
-----------------------------------------------------------------------
Services of ProtoSource Acquisition II, Inc. dba BX Solutions comprise
the following:
Technical Support - Customers of BX offer their subscribers
either Internet access and other related communications
services. These include local and regional Internet access for
consumers and businesses using dial-up, broadband and wireless
connectivity. BX provides Bilingual technical support services
on an outsource basis to these subscribers, 24/7/52.
Dial-up Internet Services - BX has a very small local consumer
network to which it provides Internet Services including
connectivity, email and web hosting. Additionally BX
provisions the same services under different brand names for
other companies: these would be designated virtual Internet
Service Providers as BX provides the entire infrastructure.
Hosting - BX provides some hosting for its own customers.
P2i's hosting has been relocated to different facility.
The combination of on-target sales strategies, low labor costs, a
well-educated labor pool fluent in English, and sophisticated
technologies are key to the Company's competitive strategy. If
management cannot sufficiently execute and achieve the above stated
objectives, the Company may find it necessary to dispose of assets, or
undertake other actions as may be appropriate.
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PROTOSOURCE CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
1. Nature of Operations and Summary of Significant Accounting Policies -
Continued
-----------------------------------------------------------------------
Net loss per basic and diluted share of common stock - Basic loss per
share is calculated using the weighted average number of common shares
outstanding. Diluted loss per share is computed on the basis of the
weighted average number of common shares outstanding during the period
increased by the dilutive effect of outstanding stock options using the
"treasury stock" method. The weighted average number of basic and
diluted common shares outstanding includes:
Actual shares issued and outstanding at March 31, 2009 9,927,329
Stock subscriptions payable - note holders 2,750,000
Stock subscriptions payable - investment banker 813,688
Series B convertible preferred stock issued to P2i, Inc. (see Note 4) 19,383,531
----------
32,874,548
==========
The basic and diluted loss per share are the same since the Company had
a net loss for 2009 and 2008 and the inclusion of stock options and
other incremental shares would be anti-dilutive. Options and warrants
to purchase 1,070,000 shares of common stock at March 31, 2009 and 2008
were not included in the computation of diluted loss per share.
Reclassifications - Certain reclassifications have been made to the
2008 financial statement presentation for comparability with the 2009
financial statements.
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PROTOSOURCE CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
2. Recently Issued Accounting Standards
------------------------------------
In May 2008, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 162, "The
Hierarchy of Generally Accepted Accounting Principles". This Statement
identifies the sources of accounting principles and the framework for
selecting the principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in conformity
with generally accepted accounting principles (GAAP) in the United
States (the GAAP hierarchy). This Statement shall be effective 60 days
following the SEC's approval of the Public Company Accounting Oversight
Board (PCAOB) amendments to AU Section 411, "The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles". The
Company believes that the adoption of SFAS No. 162 will not have an
effect on the Company's financial position, results of operations and
cash flows.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about
Derivative Instruments and Hedging Activities - an amendment of FASB
Statement No. 133". This Statement requires additional disclosures about
the objectives of the derivative instruments and hedging activities, the
method of accounting for such instruments under SFAS No. 133 and its
related interpretations, and a tabular disclosure of the effects of such
instruments and related hedged items on our financial position, results
of operations and cash flows. SFAS No. 161 was effective for the Company
beginning January 1, 2009. The adoption of SFAS No. 161 has had no
material effect on the Company's financial position, results of
operation, or cash flows.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business
Combinations" ("SFAS 141R"). SFAS 141R will significantly change the
accounting for business combinations in a number of areas including the
treatment of contingent consideration, contingencies, acquisition cost,
research and development assets and restructuring costs. In addition,
under SFAS 141R, changes in deferred tax asset valuation allowances and
acquired income tax uncertainties in a business combination after the
measurement period will impact income taxes. SFAS 141R was effective for
the Company beginning January 1, 2009. The adoption of SFAS 141R has had
no material effect on the Company's financial position, results of
operation, or cash flows.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling
Interests in Consolidated Financial Statements, An Amendment of ARB No.
51." SFAS 160 amends ARB 51 to establish accounting and reporting
standards for the noncontrolling interests in a subsidiary and for the
deconsolidation of a subsidiary. It also amends certain of ARB 51's
consolidation procedures for consistency with the requirements of SFAS
141R. SFAS 160 is effective for the Company beginning January 1, 2009.
The statement shall be applied prospectively as of the beginning of the
fiscal year in which the statement is initially adopted. The adoption of
SFAS 160 has had no material effect on the Company's financial position,
results of operations, or cash flows.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements". SFAS No. 157 provides guidance for using fair value to
measure assets and liabilities. It also responds to investors' requests
for expanded information about the extent to which companies measure
assets and liabilities at fair value, the information used to measure
fair value, and the effect of fair value measurements on earnings. SFAS
No. 157 applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value, and does not expand the use of
fair value in any new circumstances. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November
15, 2007 and was required to be adopted by the Company in the first
quarter of 2008. The adoption SFAS No. 157 did not have a material
impact on our financial position, results of operations, or cash flows.
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PROTOSOURCE CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
3. Sale of ISP Division
--------------------
Effective May 1, 2002, the Company entered into an agreement to sell
substantially all of the assets of the ISP division to Brand X
Networks, Inc., a California Corporation, for $632,000. The assets have
been held and operated by Brand X Networks, Inc. for its purposes since
May 1, 2002, at which time the Company discontinued its ISP operations.
On April 14, 2003, the Company completed a fifth amendment to the
purchase agreement with Brand X pursuant to which the Company agreed to
accept an aggregate payment of $632,000 for the ISP Division, less
credits to Brand X of $112,686. Of such amount, $200,000 was to be paid
through the provision of services to the Company from Brand X, and the
balance was to be paid at the rate of approximately $5,172 per month,
until completely paid.
On January 1, 2004, the sale of the ISP business to Brand X closed.
Under the terms of that agreement a promissory note of $284,455 was
executed by Brand X to be paid in 55 equal monthly installments. This
note is collateralized by a pledge of shares in Brand X. In addition,
ProtoSource was entitled to appoint one person to the board of
directors of Brand X for the duration of the agreement.
In an agreement dated March 2006, ProtoSource sold, assigned and
transferred the promissory note it held in respect of the January 2004
sale of its ISP business to Brand X Networks, Inc. to P2i, Inc., a
related party. As set forth in this transaction, a new promissory note,
secured by all the assets of Brand X Networks, Inc., was issued to P2i,
Inc. in the net amount of $162,582. The principal with interest was to
be paid in 33 equal monthly installments of $5,172, until completely
paid. Because regular payments have not been made, this successor note
was in default status and was fully reserved. During 2006, ProtoSource
recovered $13,800 from the P2i, Inc. / Brand X Networks, Inc.
promissory note arrangement. As the value of this note was written down
to $0 at December 31, 2005, these payments were classified as "other
income" in 2006.
Foreclosure acquisition:
On August 16, 2007 the Company exercised its security interests and
entered into a foreclosure acquisition agreement with Brand X Networks,
Inc., taking possession of its business assets as collateral due to its
inability to pay its debt to the Company. These assets were transferred
to ProtoSource Acquisition II, Inc., a Nevada corporation (incorporated
August 15, 2007) and a wholly owned subsidiary of the Company, on
September 1, 2007. Effective September 1, 2007, the Company provides
bilingual technical support services, web-hosting, and Internet
connectivity.
In respect to the foreclosure acquisition agreement, ProtoSource
Acquisition II, Inc. acquired computer equipment and software, office
equipment, furniture and fixtures and prepaid expenditures valued at
approximately $57,000. Furthermore, it assumed specific service
provider and miscellaneous third party liabilities, and agreed to honor
accrued vacation pay and unpaid expenses of former Brand X Networks,
Inc. employees, most of whom were hired on September 1, 2007 by
ProtoSource Acquisition II. These liabilities approximated $56,000. As
a consequence of this action, a net recovery of approximately $1,000,
classified as "other income", was recorded during 2007.
- 15 -
|
PROTOSOURCE CORPORATION
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
3. Sale of ISP Division - Continued
The following is a summary of the assets recovered and liabilities
assumed upon foreclosure:
Assets recovered:
Prepaid expenses $10,000
Computer equipment and software 35,309
Office furniture and equipment 11,329
-------
Total assets recovered 56,638
-------
Liabilities assumed:
Accrued service providers 34,597
Accrued vacation payable 7,814
Employee expense claims 8,796
Miscellaneous other claims 4,335
-------
Total liabilities assumed 55,542
-------
Net assets recovered $ 1,096
=======
Consideration given in respect to foreclosure acquisition:
As a further component to the reacquisition of the collateralized
assets of Brand X Networks, Inc., the Company gave consideration to
P2i, Inc. (a related party) which became a controlling owner of Brand X
Networks, Inc. through its March 2006 purchase of the original note
held by the Company in respect to the sale of the Company's ISP assets
to Brand X. In consideration for P2i, Inc.'s management and controlling
interest in Brand X Networks, Inc., and such that P2i, Inc. would not
act to oppose the matter of foreclosure on the assets of Brand X
Networks, the Company forgave P2i, Inc.'s existing liabilities to the
Company through August 28, 2007 and will continue to support P2i, Inc.
in the discharge of liabilities (arising prior to the January 1, 2004
P2i Newspaper merger with the Company) out of the Company's cash flow
until such obligations are fully discharged. The value of this
consideration is estimated to be $566,186, which has all been
characterized as goodwill. This includes the net amount of $294,186
outstanding to the Company as at August 28, 2007, plus an additional
$272,000 in future obligations. As a consequence of this action, during
2007, the Company recorded a $294,186 write-off of amounts due to the
Company and recorded an obligation in accrued expenses of $272,000.
Because of the related party nature of this goodwill, management has
deemed it to be impaired and recorded the charge of $566,186 in other
charges in the consolidated statement of operations in 2007.
A summary of the components of goodwill related to this transaction are
as follows:
Forgiveness of amounts due from related party P2i, Inc. $ 294,186
Obligation to related party P2i, Inc. assumed 272,000
---------
Goodwill arising from foreclosure acquisition 566,186
Less: Impairment of goodwill re: related party P2i, Inc. (566,186)
---------
Net goodwill resulting from this transaction $ --
=========
- 16 -
|
PROTOSOURCE CORPORATION
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
4. P2i Newspaper
-------------
On February 13, 2003, the Company announced an agreement and Plan of
Merger to acquire all of the outstanding capital stock of P2i
Newspaper, Inc., a Delaware corporation ("P2i Newspaper") and a
wholly-owned subsidiary of P2i, Inc., a Pennsylvania corporation
("P2i"), in exchange for the issuance of up to 19,383,531 shares of
ProtoSource common stock and satisfaction of the existing P2i debt to
the Company (the "Agreement").
On January 1, 2004, the Company, P2i Newspaper and P2i amended the
terms of the Agreement (the "Amendment"). Pursuant to the terms of the
Amendment, in exchange for all of the issued and outstanding shares of
P2i Newspaper, the Company issued 193,836 shares of series B preferred
stock (the "Preferred Stock").
Upon authorization of sufficient shares of common stock, holders of the
Series B Convertible Preferred Stock ("Series B Stock") are entitled to
convert each share of Series B Stock into 100 shares of common stock.
Series B stockholders are not entitled to receive dividends. In a
liquidation, the holders would be treated as if they were owners of the
number of shares of common stock into which the Series B Stock is
convertible.
The acquisition of P2i Newspaper became effective on January 1, 2004,
at which time P2i Newspaper became a wholly-owned subsidiary of the
Company. The cost was as follows:
Market value of preferred stock to be issued $416,179
Fair market value of net assets of P2i Newspaper 41,112
--------
Goodwill $375,067
========
The acquisition of P2i Newspaper was the central component of the
transaction between the Company and P2i; however, in further accordance
to the agreement, as a consideration for the satisfaction of P2i's
existing debt to the Company (i.e., $1,705,062 in notes receivable plus
accrued interest), the Company acquired an additional interest in P2i's
new media business, bringing the Company's total ownership in P2i to
19.8%. However, despite the increased ownership of P2i, the ownership
in P2i is considered to be of deminimus value and therefore has no
classification within the Company's financial statements.
- 17 -
|
PROTOSOURCE CORPORATION
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
5. Business Segment Data
---------------------
The Company has two reportable business segments. The following is a
description of each operating segment:
Media & Data Conversion Technologies - These operations are principally
engaged in the mining and database management of print, graphic and
data content for the publishing industry, and its distribution via the
Internet. Data is deliverable to the Company's web servers for seamless
integration into the clients' hosted web sites, but also is distributed
back to the client, and their business partners, in a wide range of
formats to fit continually evolving, highly-diversified applications.
Technical Support & Hosting Services - These operations are principally
engaged in providing bilingual technical support services, web-hosting,
and Internet connectivity.
Financial information for the two reporting segments for the three
months ended March 31, 2009 and 2008 is shown below:
THREE-MONTH
PERIOD ENDED
MARCH 30,
2009 2008
----------- -----------
Net revenues
Media & Data Conversion Technologies $ 481,416 $ 534,631
Technical Support & Hosting Services 336,743 345,914
----------- -----------
$ 818,159 $ 880,545
=========== ===========
Cost of revenue
Media & Data Conversion Technologies $ 326,193 $ 414,700
Technical Support & Hosting Services 300,895 284,984
----------- -----------
$ 627,088 $ 699,684
=========== ===========
Gross margin
Media & Data Conversion Technologies $ 155,223 $ 119,931
Technical Support & Hosting Services 35,848 60,930
----------- -----------
$ 191,071 $ 180,861
=========== ===========
Total operating costs and expenses
Media & Data Conversion Technologies $ 473,696 $ 690,618
Technical Support & Hosting Services 347,007 328,284
----------- -----------
$ 820,703 $ 1,018,902
=========== ===========
Operating Income (loss)
Media & Data Conversion Technologies $ 7,720 ($ 155,987)
Technical Support & Hosting Services (10,264) 17,630
----------- -----------
($ 2,544) ($ 138,357)
=========== ===========
Interest and other income/(charges), net
Media & Data Conversion Technologies ($ 71,183) ($ 65,026)
Technical Support & Hosting Services (54,988) (38,936)
----------- -----------
($ 126,171) ($ 103,962)
=========== ===========
Total income (loss)
Media & Data Conversion Technologies ($ 63,463) ($ 221,013)
Technical Support & Hosting Services (65,252) (21,306)
----------- -----------
($ 128,715) ($ 242,319)
=========== ===========
- 18 -
|
PROTOSOURCE CORPORATION
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
------------------------------------------------------------------------------------------------------
5. Business Segment Data - Continued
MARCH 31, DECEMBER 31,
2009 2008
------------- -------------
Identifiable assets
Media & Data Conversion Technologies $ 849,360 $ 787,701
Technical Support & Hosting Services 139,845 169,005
-------------- --------------
$ 989,205 $ 956,706
============== ==============
|
- 19 -
PROTOSOURCE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
Certain statements in this section and elsewhere in this quarterly report on
Form 10-Q are forward-looking in nature and relate to the Company's plans,
objectives, estimates and goals. Words such as "expects," "anticipates,"
"intends," "plans," "projects," "forecasts," "believes," and "estimates," and
variations of such words and similar expressions, identify such forward-looking
statements. Such statements are made pursuant to the safe harbor provisions of
the private securities litigation reform act of 1995 and speak only as of the
date of this report. The statements are based on current expectations, are
inherently uncertain, are subject to risks and uncertainties and should be
viewed with caution. Actual results and experience may differ materially from
those expressed or implied by the forward-looking statements as a result of many
factors, including, without limitation, those set forth under "Description of
Business" in the Company's most recent Annual Report on Form 10-K. The Company
makes no commitment to update any forward-looking statement or to disclose any
facts, events, or circumstances after the date hereof that may affect the
accuracy of any forward-looking statement.
Results of Operations - Three Months Ended March 31, 2009 vs. Three Months
Ended March 31, 2008
Net Revenues - For the three months ended March 31, 2009 and 2008, net revenues
were $818,159 and $880,545 respectively. In the current year, $481,416 of these
revenues are attributed to the operations of P2i Newspaper (acquired January 1,
2004) and $336,743 are attributed to the operations of ProtoSource Acquisition
II (established August 15, 2007, d.b.a. "BX-Solutions" with operations
commencing September 1, 2007). This represents a combined decrease of $62,386 in
revenues compared to the previous year.
{P2i Newspaper's net revenues are attributable to Media and Data Conversion
Technologies and BX-Solutions' (ProtoSource Acquisition II) net revenues are
attributable to Technical Support and Hosting Services operations.}
BX-Solutions contributed $336,743 of revenues for the first three months of 2009
versus $345,914 for 2008. P2i Newspaper recorded $534,631 during the same period
in 2008; its current year revenues of $481,416 represent a decrease over last
year of $53,215. This is attributable to multiple factors: the rapid decline in
print advertising resulting in fewer ads to be processed for online publishing;
the deteriorating newspaper industry and in particular the bankruptcies of
Tribune Group and Minneapolis Star Tribune, both of which are customers of P2i.
Additionally the state of the economy is driving down both unit pricing and
volume.
Operating Costs and Expenses - For the three months ended March 31, 2009,
combined total operating costs and expenses totaled $820,703 versus $1,018,902
in 2008, a $198,199 reduction from the previous year. $18,723 of additional
costs were directly attributable to the operations of ProtoSource Acquisition
II, Inc. (d.b.a. BX-Solutions) which commenced operations September 1, 2007.
However, there was a $216,922 reduction of total operating costs and expenses
over the prior year for P2i Newspaper.
Total operating costs and expenses in the amount of $473,696 were related to the
operations of P2i Newspaper: For P2i Newspaper, this is a reduction of
approximately $217,000 over the preceding year and breaks down as follows:
Approximately $87,000 in less domestic production expenditures, approximately
$47,000 less in selling expenses, and approximately $83,000 less in general and
administrative costs. In respect to production expenditures, much of the
decrease in cost is attributable to a rebounding U.S. dollar against the
Malaysian Ringgit. The decrease in selling and general & administrative costs is
the result of a restructuring of the US management team in the latter part of
2008. This included the elimination of the Group Financial Manager's position,
those responsibilities being assumed in part by the CEO and in part by a
consultant. This has yielded savings in excess of $100,000 and resulted in
greater efficiencies. Additionally the US-based position of Chief Technology
Officer was eliminated and those duties are now shared between the SVP of
Product Development and the Lead Developer at P2i in Malaysia.
- 20 -
PROTOSOURCE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS - CONTINUED
Total operating costs and expenses in the amount of $347,007 are related to the
operations of ProtoSource Acquisition II, Inc. (d.b.a. BX-Solutions): These
costs break down as follows: Approximately $301,000 in production expenditures,
approximately $45,000 in general and administrative costs, and an approximate
$1,000 write down of receivables.
For the three months ended March 31, 2009, combined cost of revenues -- as a
percentage of combined revenues -- were 76.6% versus 79.5% for the same period
in 2008.
P2i Newspaper's cost of revenues as a percentage of revenues were 67.8% and
77.6% in 2009 and 2008, respectively.
BX-Solutions cost of revenues as a percentage of revenues for the three months
ended March 31 were 89.4% for 2009 and 82.4% for 2008. This increase in cost of
revenues is largely attributable to a shift in the mix of products and services
sold: revenues from dial-up Internet services declined and was replaced by the
more labor-intensive Technical Support revenues. BX-Solutions will not see a
decline in the cost of revenues as a percentage of revenues until revenues
increase and the Company can enjoy economies of scale within BX-Solutions.
For the three months ended March 31, 2009, combined selling, general and
administrative expenses posted a decrease of approximately $122,000 over the
previous year due to the following significant components: In respect to
BX-Solutions, a $10,000 increase is attributable to general and administrative
costs (for the facility in Fresno, CA). In respect to P2i Newspaper,
approximately $47,000 less in selling expenses is entirely attributable to
decrease in expense. And for P2i Newspaper, approximately $85,000 less in
general and administrative expenses, largely attributable to reductions in the
Company's liability insurance, salaries and local taxes was realized this year
over last for the three months ended March 31, 2009.
Administrative costs principally consist of the Company's management office and
personnel, professional fees associated with maintenance of the Company, and
officers' and directors' liability insurance costs.
Interest expense - Interest expense totaled $116,055 for the three-month period
ended March 31, 2009 versus $103,940 in the same period in 2008. The interest
expense is predominantly due to the convertible notes obtained during 2002,
2003, and 2004 to fund the operations of the Company and P2i Newspaper --
pending and post merger -- with approximately $4,000 and $5,000 attributable to
equipment lease financing in 2009 and 2008, respectively.
- 21 -
PROTOSOURCE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS - CONTINUED
Liquidity and Capital Resources
We assess liquidity by our ability to generate cash to fund our operations.
Significant factors that affect the management of our liquidity include: current
balances of cash, expected cash flows provided by operations, current levels of
our accounts receivable and accounts payable balances, access to financing
sources and our expected investment in equipment.
For the three-month period ended March 31, 2009, the Company generated from the
Company's working capital resources, approximately $6,500 less cash than was
used.
Even though the Company's net loss for the three-month period ended March 31,
2009 was approximately $128,700, cash flows provided by operations approximated
$11,000. In part, this was due to non-cash charges of approximately $14,900 of
depreciation and accrued interest of approximately $109,000, arising from the
Company's convertible debt obligations. Additionally, cash flows from operations
were enhanced approximately $15,000 by net positive changes in the Company's
working capital components. Significant components enhancing working capital and
available cash - because they were accrued but unpaid during the period -- were
as follows: Approximately $26,000 of accrued supplier and service provider
obligations together with office and facilities maintenance expenses,
approximately $44,000 of accrued payroll expenses, offset by an approximately
$29,000 increase in outstanding accounts receivable levels over that at the
beginning of the year and an approximately $26,000 decrease in amounts due to a
related party.
During the three-month period ended March 31, 2009, the Company had net negative
cash flows from investing activities of approximately $25,000. This was
primarily due to an approximately $26,000 increase in advances to officer.
And during the three-month period ended March 31, 2009, the Company had net
positive cash flows from financing activities of approximately $8,000. The
Company used approximately $10,000 for payments on its capital lease obligations
offset by a bank overdraft.
As of March 31, 2009, the Company had a $5,678 balance in cash and $530,476 in
accounts receivable and other current assets. Taken together with $5,536,643 of
total current liabilities, this resulted in a negative working capital position
of $5,000,489 at March 31, 2009 of which $4,452,846 of this amount pertains to
the Company's obligations to its convertible debt holders.
- 22 -
PROTOSOURCE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS - CONTINUED
Liquidity and Capital Resources - Continued
In July 2007, the Company entered into an investment banking agreement with
Colebrooke Capital, Inc. The fees under this arrangement were $7,500 down and
$3,500 for the first 90 days of the agreement. Under this arrangement the
Company will be required to a pay a 7% financing fee on any funds raised by
Colebrooke Capital. Furthermore, in respect to capital transactions introduced
by Colebrooke Capital, there will be a 5% transaction fee requirement, but no
fees on any Company generated deals. On December 10, 2007 the board ratified a
Company proposal to compensate Colebrook Capital in full with 250,000 common
shares. This is in respect of an investment banking relationship entered into by
the Company in 2007. The goal was to raise funds to make an acquisition but the
deterioration of the equities markets has made this untenable and the
relationship has been terminated. The Company anticipates issuing these shares
in Q2 of 2009.
On August 15, 2007, the Company entered into a 24-month term capital lease
agreement with Bankers Capital for the purchase of computer and computer related
items valued at $20,123 with monthly lease payments of $1,163. The lease term
expires July 14, 2009 and the residual maturity date is July 15, 2009 with a $1
purchase option. $2,720 was paid to Bankers Capital at the start of the lease to
cover the first payment, one payment held for a security deposit, and for UCC
filing and documentation fees. Company officers, Peter A. Wardle and Thomas C.
Butera, are personal guarantors of this agreement.
On October 15, 2007, the Company entered into a 24-month term capital lease
agreement with Bankers Capital for the purchase of computer and computer related
items valued at $24,380 with monthly lease payments of $1,408. The lease term
expires September 14, 2009 and the residual maturity date is September 15, 2009
with a $1 purchase option. $3,212 was paid to Bankers Capital at the start of
the lease to cover the first payment, one payment held for a security deposit,
and for UCC filing and documentation fees. Company officers, Peter A. Wardle and
Thomas C. Butera, are personal guarantors of this agreement.
At a meeting held on December 11, 2007, the Company's shareholders approved an
increase in authorized shares of common stock to 500,000,000. At March 31, 2009,
9,927,329 of common shares were issued and outstanding and the Company had
obligations to issue an additional 22,947,219 shares of common with a further
33,945,000 shares committed for issuance.
On May 15, 2008, the Company entered into two 24-month term capital lease
agreements with Bankers Capital for the purchase of computer and computer
related items valued at $25,579 and $37,571, respectively, with monthly lease
payments of $1,478 and $2,048, respectively. The lease terms expire April 07,
2010 and the residual maturity date is April 15, 2010 with a $1 purchase option
for each agreement. Amounts of $3,450 and $4,590 were paid to Bankers Capital at
the start of the respective leases to cover the first payment, one payment held
for a security deposit, and for UCC filing and documentation fees. Company
officers, Peter A. Wardle and Thomas C. Butera, are personal guarantors of both
of these agreements.
- 23 -
PROTOSOURCE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS - CONTINUED
Critical Accounting Policies and Estimates
Management's discussion and analysis of its financial position and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses and related disclosure of contingent
assets and liabilities. The significant accounting policies which we believe are
the most critical to aid in fully understanding and evaluating our reported
financial results include the following:
In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
maintains a valuation allowance of $5,600,000 as of March 31, 2009 and December
31, 2008 on deferred tax assets relating to its net operating losses which the
Company has not determined to be more likely than not realizable.
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets",
goodwill is not amortized, rather, management tests goodwill annually for
impairment in the fourth quarter. In August 2007 in connection with a
foreclosure acquisition agreement with Brand X Networks, Inc., the Company
recognized $566,186 of goodwill related to the transaction but deemed it fully
impaired, as this matter involved P2i, Inc., a related party.
The Company considers certain trade accounts receivable to be of doubtful
collection; accordingly, the Company has an $80,000 allowance for doubtful
accounts.
In consideration of SEC Proposed Rule Release 33-8098, the Company does not
maintain estimates for sales returns or credits, cancellations and warranties.
Due to the peculiar nature of the type of services provided and the underlying
processes employed by the Company to create and deliver completed product
(without defect) to its customers, there is no material exposure to what would
be classified as sales returns or credits. Likewise, cancellations and or
warranties are not significantly measurable in respect to the type of electronic
product (Internet Website content) deliverable to the Company's customers; and
historically, there has been no basis or need for such.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
N/A
Item 4T. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures.
As of March 31, 2009, an evaluation was performed under the supervision and with
the participation of our management, including the chief executive officer, or
CEO, who is also the acting chief financial officer, or CFO, of the
effectiveness of the design and operation of our disclosure procedures. Based on
management's evaluation as of the end of the period covered by this Report, our
principal executive officer and chief financial officer has concluded that our
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") were
sufficiently effective to ensure that the information required to be disclosed
by us in the reports that we file under the Exchange Act is gathered, analyzed
and disclosed with adequate timeliness, accuracy and completeness.
Changes in internal controls.
There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation referred to above, nor were there any significant deficiencies or
material weaknesses in our internal controls. Accordingly, no corrective actions
were required or undertaken except as disclosed.
- 24 -
PROTOSOURCE CORPORATION
OTHER INFORMATION
(unaudited)
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
From time to time the Company is subject to litigation incidental to its
business. The Company is not currently a party to any material legal proceedings
Item 1A. RISK FACTORS.
None.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS.
Exhibits.
The following exhibits are filed with this report:
Exhibit 31.1 - Certification of CEO and CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.1 - Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350
- 25 -
PROTOSOURCE CORPORATION
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
PROTOSOURCE CORPORATION
/s/ Peter Wardle
-----------------
Peter Wardle,
Chief Executive Officer/
Chief Financial Officer
Date: May 15, 2009
|
- 26 -
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