<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q



(Mark one)

          [x]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934
                      For the quarterly period ended September 30, 1996

          [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934
                      For the transition period from ______ to ________




                         COMMISSION FILE NUMBER 0-21541



                                 BITSTREAM INC.
             (Exact name of registrant as specified in its charter)


<TABLE>
 <S>                                                       <C>
                  DELAWARE                                            04-2744890
 (State or other jurisdiction of incorporation or          (I.R.S. Employer Identification
                 organization)                                             No.)
</TABLE>

  215 FIRST STREET CAMBRIDGE, MASSACHUSETTS                             02142
  (Address of principal executive offices)                            (Zip Code)

                                 (617) 497-6222
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
      (Former name, former address and former fiscal year, if changed since
                                  last report)


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]

     At December 1, 1996, there were 5,486,221 shares of Class A Common Stock,
par value $0.01 per share, and 422,026 shares of Class B Common Stock, par value
$0.01 per share, outstanding.


<PAGE>   2


                                      INDEX
                                                                         PAGE
                                                                        NUMBERS
                                                                        -------


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
         CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 
           SEPTEMBER 30, 1996. ..........................................  3

         CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE 
           MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 .....  4

         CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS 
           ENDED SEPTEMBER 30, 1995 AND 1996 ............................  5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ..............................  6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
        AND RESULTS OF OPERATIONS. ......................................  8

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS .............................................. 11

ITEM 2.  CHANGES IN SECURITIES .......................................... 11

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES ................................ 11

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS ............. 11

ITEM 5.  OTHER INFORMATION .............................................. 11

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K ............................... 11

         SIGNATURES ..................................................... 12


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<PAGE>   3


                        PART I -- FINANCIAL STATEMENTS

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

                       BITSTREAM INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,    SEPTEMBER 30,
                                                                          1995            1996
                                                                      ------------    -------------
                                                                                        (Unaudited)
                                                                                    
<S>                                                                   <C>             <C>         
                                 ASSETS                                             
Current assets:                                                                     
  Cash and cash equivalents                                           $    390,000    $    777,000
  Accounts receivable, net of allowance for doubtful accounts            1,846,000       2,099,000
  Current portion of long-term accounts receivable and extended                     
  plan accounts receivable, net of allowance for doubtful accounts         536,000       1,210,000
  Deferred income taxes                                                    600,000         838,000
  Other current assets                                                     194,000         523,000
                                                                      ------------    ------------
        Total current assets:                                            3,566,000       5,447,000
                                                                      ------------    ------------
Property and equipment, net:                                               530,000         930,000
                                                                      ------------    ------------
Other assets:                                                                       
  Long-term accounts receivable, net of current portion                    228,000         337,000
  Other assets                                                               4,000          62,000
                                                                      ------------    ------------
                                                                           232,000         399,000
                                                                      ------------    ------------
        Total assets:                                                 $  4,328,000    $  6,776,000
                                                                      ============    ============
                                                                                    
                                                                                    
           LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                           
                                                                                    
Current liabilities:                                                                
  Notes payable                                                       $    300,000    $    250,000
  Current maturities of capital lease obligations                          134,000              --
  Subordinated notes payable to stockholders                                    --         600,000
  Accounts payable                                                         466,000         487,000
  Accrued expenses                                                       1,412,000       2,097,000
                                                                      ------------    ------------
        Total current liabilities:                                       2,312,000       3,434,000
                                                                      ------------    ------------
Capital lease obligations, less current maturities:                        184,000         333,000
                                                                      ------------    ------------
Other long-term liabilities:                                                26,000          15,000
                                                                      ------------    ------------
Stockholders' equity (deficit):                                                     
  Convertible preferred stock                                               32,000          32,000
  Common stock                                                               3,000           3,000
  Additional paid-in capital                                            14,449,000      14,455,000
  Accumulated deficit                                                  (12,630,000)    (11,450,000)
  Cumulative translation adjustment                                        (48,000)        (46,000)
                                                                      ------------    ------------
        Total stockholders' equity (deficit):                            1,806,000       2,994,000
                                                                      ------------    ------------
        Total liabilities and stockholders' equity (deficit):         $  4,328,000    $  6,776,000
                                                                      ============    ============

</TABLE>




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


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<PAGE>   4

        
                        BITSTREAM INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                           THREE MONTHS ENDED          NINE MONTHS ENDED
                                                               SEPTEMBER 30,              SEPTEMBER 30,
                                                        -----------------------     -------------------------
                                                           1995          1996          1995           1996
                                                        ----------    ----------    ----------     ----------
                                                                                                
<S>                                                     <C>           <C>           <C>            <C>       
REVENUES:                                                                                       
  Revenues                                              $    1,920    $    2,628    $    6,693     $    8,039
  Cost of revenues                                             512           644         1,306          1,452
                                                        ----------    ----------    ----------     ----------
      Gross Profit                                           1,408         1,984         5,387          6,587
                                                        ----------    ----------    ----------     ----------
                                                                                                
OPERATING EXPENSES:                                                                             
  Marketing and selling                                        833         1,117         2,524          3,262
  Research and development                                     269           334           814          1,014
  General and administrative                                   222           388           995          1,164
                                                        ----------    ----------    ----------     ----------
      Total operating expenses                               1,324         1,840         4,333          5,440
                                                        ----------    ----------    ----------     ----------
      Operating income (loss)                                   84           145         1,054          1,147
                                                        ----------    ----------    ----------     ----------
                                                                                                
Other income (expense), net                                     50           (18)           11            (63)
                                                        ----------    ----------    ----------     ----------
  Income (loss) before provision for (benefit from)                                             
    income taxes                                               134           127         1,065          1,084
Provision for (benefit from) income taxes                       18           (11)          100            (96)
                                                        ----------    ----------    ----------     ----------
      Net income (loss)                                 $      116    $      138    $      965     $    1,180
                                                        ==========    ==========    ==========     ==========
                                                                                                
Pro forma net income per common and                                                             
  common equivalent share                               $     0.03    $     0.03    $     0.22     $     0.26
                                                        ==========    ==========    ==========     ==========
                                                                                                
Pro forma weighted average common and                                                           
  common equivalent shares outstanding                   4,702,320     4,734,455     4,702,320      4,731,721
                                                        ==========    ==========    ==========     ==========

</TABLE>


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

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<PAGE>   5

<TABLE>

                         BITSTREAM INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<CAPTION>

                                                                 NINE MONTHS ENDED
                                                                    SEPTEMBER 30,
                                                                -------------------
                                                                 1995         1996
                                                                ------       ------

<S>                                                             <C>          <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income (loss)                                             $ 965        $1,180
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities-
    Depreciation and amortization                                 170           199
    Deferred income tax benefit                                    --          (238)
    Net loss (gain) on disposal of property and equipment          (1)           (5)
    Issuance of common stock for services rendered                108            --
    Changes in assets and liabilities-
      Accounts receivable                                        (674)         (927)
      Long-term and extended plan accounts receivable            (371)         (109)
      Other assets                                                 46          (387)
      Accounts payable                                           (234)           21
      Accrued expenses                                            163           485
                                                                -----        ------
      Net cash provided by (used in) operating activities       $ 171        $  219
                                                                -----        ------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment, net
                                                                 (264)         (592)
                                                                -----        ------
      Net cash used in investing activities                     $(264)       $ (592)
                                                                -----        ------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from capital lease obligations                         100           324
  Proceeds from line of credit                                     --           100
  Proceeds from debt to stockholders                               --           600
  Payments on capital lease obligations                          (139)         (109)
  Payments on line of credit                                       --          (150)
  Change in other long term liabilities                             3           (11)
  Proceeds from the exercise of stock options and warrants         --             6
                                                                -----        ------
      Net cash provided by (used in) financing activities       $ (36)       $  760
                                                                -----        ------
Net Increase (Decrease) in Cash and Cash Equivalents             (129)          387
Cash and Cash Equivalents, beginning of period                    652           390
                                                                -----        ------
Cash and Cash Equivalents, end of period                        $ 523        $  777
                                                                =====        ======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest                                        $  14        $   90
  Cash paid for income taxes                                    $ 101        $  142

</TABLE>




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


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<PAGE>   6



                         BITSTREAM INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996
                                   (UNAUDITED)

(1)  BASIS OF PRESENTATION

     The consolidated financial statements of Bitstream Inc. (the "Company")
presented herein, without audit, have been prepared pursuant to the rules of the
Securities and Exchange Commission for quarterly reports on Form 10-Q and do not
include all of the information and footnote disclosures required by generally
accepted accounting principles, the balance sheet information at December 31,
1995, has been derived from the Company's audited consolidated financial
statements. These statements should be read in conjunction with the financial
statements and notes thereto for the period ended December 31, 1995 included in
the Company's Registration Statement on Form S-I (333-11519) which was declared
effective by the Securities and Exchange Commission on October 30, 1996.

     The balance sheet as of September 30, 1996, the statements of income for
the three and nine month periods ended September 30, 1996, and 1995, and the
statements of cash flows for the nine month periods ended September 30, 1996 and
1995 and the notes to each thereof are unaudited but, in the opinion of
management, include all adjustments necessary for a fair presentation of the
consolidated financial position results of a operations and cash flows of the
Company and its subsidiaries for these interim periods.

     The results of operations for the three and nine months ended September 30,
1996 are not necessarily indicative of the results to be expected for any future
interim period or for the year ending December 31, 1996.

(2)  PRO FORMA NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

     Pro forma net income per common and common equivalent share for the three
and nine month periods ended September 30, 1996, and 1995, have been determined
in accordance with the modified treasury stock method by dividing (i) net income
increased by the effect of reduced interest expense associated with the assumed
repayment of certain indebtedness as of the beginning of the period and by the
effect of increased interest income associated with the assumed investment in
U.S. Government securities as of the beginning of the period with the assumed
proceeds from the exercise of outstanding options and warrants by (ii) the pro
forma weighted average number of common and common equivalent shares
outstanding, including the dilutive effect of options and warrants and the
number of shares of common stock issuable upon conversion of Class A and Class B
preferred stock and Class B common stock. As required by the rules promulgated
by the Securities and Exchange Commission, shares, options or warrants issued at
prices below the offering price in the year before the Company's initial public
offering have been included in the calculation as if outstanding for all periods
presented using the treasury stock method.


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<PAGE>   7


(3)  CONCENTRATION OF CREDIT RISK

     The Company has no significant off-balance-sheet concentration of credit
risk such as foreign exchange contracts, option contracts or other foreign
hedging arrangements.

     For the three months ended September 30, 1995, one customer represented
approximately 12% of revenues. For the three-month period ended September 30,
1996, three customers represented 38%, 14% and 11% of revenues respectively. For
the nine-month periods ended September 30, 1995 and 1996, one customer accounted
for 12% of the Company's revenues.

(4)  SUBSEQUENT EVENT

     On October 30, 1996, the Company's Registration Statement on Form S-1 (the
"Registration Statement") and the Company's Registration Statement on Form 8A
(the "8A Registration Statement" and, collectively with Registration Statement,
the "Registration Statements") were simultaneously declared effective by the
Securities and Exchange Commission. The Registration statement related to the
initial public offering (the "IPO") of 2,100,000 shares of the Company's Class A
Common Stock at the public offering price of $6.00 per share, less underwriting
discounts and expenses. The net proceeds to the Company upon completion of the
IPO, including proceeds received in connection with purchases by the
underwriters in the IPO of an additional 315,000 shares upon exercise of an
over-allotment option, amounted to approximately $12.5 million, after deducting
underwriting discounts and commissions and offering expenses. Upon completion of
the IPO, the Company used a portion of the net proceeds for the repayment of
outstanding indebtedness in an aggregate amount of approximately $1.4 million.


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<PAGE>   8


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

OVERVIEW

          Bitstream Inc. (the "Company") develops and markets software products
and technologies to enhance the creation, transport, viewing and printing of
electronic documents. The Company primarily licenses its products and
technologies to original equipment manufacturers ("OEMs") and independent
software vendors ("ISVs") for inclusion in their output devices, embedded
systems, applications, Internet authoring tools, World Wide Web browsers and
other products.

          The Company derives revenues principally from the following sources:
(i) licensing fees and royalty payments paid by OEM and ISV customers; (ii)
direct sales of custom and other type products to end users such as graphic
artists, desktop publishers and corporations; and (iii) sales of type products
to foreign customers primarily through distributors. Royalty payments due from
OEM and ISV customers, who generally pay specified minimums or fixed fees for
the right to include the Company's products as a component of a larger product
for a specified time period or volume limit, are generally recognized as revenue
at the time the software is delivered to the OEM or ISV customer. If the royalty
payments are to be received over a period of time greater than one year, the
amount recognized is discounted to the present value of the future minimum
payments. Certain OEM and ISV customers pay royalties only upon the sublicensing
of the Company's products to end users. Royalties due from these OEM and ISV
customers are recognized when such sublicenses are reported to the Company by
the OEM or ISV customer. Revenues from sales to end users and foreign
distributors are generally recognized at the time the software products are
delivered to the customer.

          Cost of revenues is comprised of direct costs of licenses and
royalties, as well as direct costs of product sales to end uses. Included in
cost of licenses and royalties are fees paid to third parties for the
development or license of rights to technology and/or unique typeface designs
and the costs incurred in the fulfillment of custom orders from OEM and ISV
customers. Included in cost of product sales to end users and distributors are
the direct costs associated with the duplication, packaging and shipping of
products.

          Operating expenses consist primarily of sales and marketing expenses
(principally sales compensation and commissions), research and development
expense and general and administrative expenses.

          Except for the historical information contained herein, this quarterly
Report on Form 10-Q may contain 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. Investors are cautioned that
forward-looking statements are inherently uncertain. Actual performance and
results of operations may differ materially from those projected or suggested in
the forward-looking statements due to certain risks and uncertainties,
including, without limitation, changes in the Company's relationship with
Novell, Inc., from which the Company has obtained a license to use Novell,
Inc.'s portable document technology, market acceptance of the Company's
products, including its True Doc enabling technology, competition and the timely
introduction of new products. Additional information concerning certain risks
and uncertainties that would cause actual results to differ materially from
those projected or suggested in the forward-looking statements is contained in
the Company's filings with the Securities and Exchange Commission, including
those risks and uncertainties discussed in the Company's final Prospectus, dated
October 30, 1996, included as part of the Company's Registration Statement on
Form S-I (333-11519), in the section entitled "Risk Factors." The
forward-looking statements contained herein represent the Company's judgment as
of the date of this report, and the Company cautions readers not to place undue
reliance on such statements.


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<PAGE>   9


RESULTS OF OPERATIONS

          Revenues. Revenues for the three months and the nine months ended
September 30, 1996 increased by $708,000, or 37%, and $1.3 million, or 20%,
respectively, to approximately $2.6 million, and $8.0 million, respectively, as
compared to approximately $1.9 million and $6.7 million, respectively, for the
three months and the nine months ended September 30, 1995. Revenues from OEM and
ISV customers for the three months and the nine months ended September 30, 1996
increased by $1.1 million, or 88%, and $1.9 million, or 39%, respectively, to
approximately $2.3 million and $6.7 million, respectively, from approximately
$1.2 million and $4.8 million, respectively, for the three months and the nine
months ended September 30, 1995, reflecting the continued strengthening of the
Company's OEM and ISV business. Revenues from end users and distributors for the
three months and the nine months ended September 30, 1996 declined by $356,000,
or 50%, and $524,000, or 28%, respectively, to approximately $349,000 and $1.4
million respectively, from approximately $705,000 and $2.0 million,
respectively, for the three months ended and the nine months ended September 30,
1995.

          Gross Profit. Gross profit for the three months and the nine months
ended September 30, 1996 increased by $576,000, or 41%, and $1.2 million, or
22%, respectively, to approximately $1.9 million and $6.6 million, respectively,
compared to approximately $1.4 million and $5.4 million, respectively, for the
three months and nine months ended September 30, 1995. Gross profit as a
percentage of revenues for the three months and the nine months ended September
30, 1996 increased to 75% and 82%, respectively, compared to 73% and 80%,
respectively, for the three months and the nine months ended September 30, 1995.
The increase in gross profit as a percentage of revenues reflects the increase
in the percentage of revenues from OEM and ISV sales and a decrease in costs of
licensing fees and royalties. Gross profit and gross profit as a percentage of
revenues in the future may be affected by a variety of factors including third
party licensing fees and royalties, pricing of the Company's products and
changes in the product mix of the Company's revenues.

          Marketing and Selling. Marketing and selling expenses for the three
months and the nine months ended September 30, 1996 increased by $284,000, or
34%, and $738,000, or 29%, respectively, to approximately $1.1 million, and $3.3
million, respectively, compared to approximately $833,000 and $2.5 million, for
the three months and the nine months ended September 30, 1995. In future
periods, the Company believes marketing and selling expenses may increase in
absolute dollars due to higher levels of sales commissions and higher levels of
promotional activities in support of new product introductions.

          Research and Development. Research and development expenses for the
three months and the nine months ended September 30, 1996 increased by $65,000,
or 24%, and $200,000, or 25%, respectively, to $334,000 and $1.0 million,
respectively, compared to $269,000 and $814,000, respectively, for the three
months and the nine months ended September 30, 1995, reflecting the addition of
personnel to support expanded development of the Company's enabling
technologies. Research and development expenses consist primarily of personnel
costs and fees paid for outside software development and consulting fees. The
Company expects to increase research and development expenditures in absolute
dollars in future periods to support development of current and future products
and technologies.

          General and Administrative. General and administrative expenses for
the three months and the nine months ended September 30, 1996 increased by
$166,000, or 75%, and $169,000, or 17%, respectively, compared to $222,000 and
$995,000, respectively, for the three months and the nine months ended September
30, 1995. As a percentage of revenues, general and administrative expenses
represented 15% and 14%, respectively, for the three months and the nine months
ended September 30, 1996 compared to 12% and 15%, respectively, for the three
months and the nine months ended September 30, 1995. The Company expects to
increase general and administrative expenses in absolute dollars in the future
to support the Company's growth and infrastructure.


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<PAGE>   10


          The Company recorded a tax benefit for the three months and nine
months ended September 30, 1996 of $11,000 and $96,000, respectively. These
benefits consisted of a reduction of the valuation allowance for deferred tax
assets in the three months and the nine months ended September 30, 1996 by
$80,000 and $238,000, respectively, partially offset by current tax provisions
of $69,000 and $142,000, respectively. The reduction to the valuation allowance
is primarily based upon estimated future utilization of net operating loss
carryforwards and federal tax credits. For the three months and the nine months
ended September 30, 1995 the Company recorded tax provisions of $18,000 and
$100,000, respectively, reflecting an effective tax rate of 13.4% and 9.4%,
respectively, in the three months and the nine months ended September 30, 1996.

LIQUIDITY AND CAPITAL RESOURCES

          At September 30, the Company had cash and cash equivalents of
$777,000, an increase of $387,000 from $390,000 at December 31, 1995. Working
capital was $2.0 million at September 30, 1996 as compared to $1.3 million at
December 31, 1995.

          On October 30, 1996, the Company's Registration Statements were
simultaneously declared effective by the Securities and Exchange Commission. The
Registration Statement related to an IPO of 2,100,000 shares of the Company's
Class A Common Stock at the public offering price of $6.00 per share, less
underwriting discounts and expenses. The net proceeds to the Company upon
completion of the IPO, including proceeds received in connection with purchases
by the underwriters in the IPO of an additional 315,000 shares upon exercise of
an over-allotment option, amounted to approximately $12.5 million, after
deducting underwriting discounts and commissions and offering expenses. Upon
completion of the IPO, the Company used a portion of the net proceeds for the
repayment of outstanding indebtedness in an aggregate amount of approximately
$1.4 million. The Company currently plans to use the remaining net proceeds for
working capital and other corporate purposes.

          Cash used in investing activities was $592,000 during the nine months
ended September 30, 1996. Investing activities consisted principally of the
purchase of property and equipment to support the growing employee base and
corporate infrastructure.

          From time to time, the Company evaluates potential acquisitions of
products, businesses and technologies that may complement or expand the
Company's business. Any such transactions consummated may use a portion of the
Company's working capital or require the issuance of equity or debt.

          The Company believes that cash generated from the proceeds of the IPO,
cash from operations and current cash balances will be sufficient to meet, the
Company's operating capital requirements for at least the next twelve months.
There can be no assurance, however, that the Company will not require additional
financing in the future. If the Company were required to obtain additional
financing in the future, there can be no assurance that sources of capital will
be available on terms favorable to the Company, if at all.



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<PAGE>   11


                          PART II -- OTHER INFORMATION



ITEM 1.  LEGAL PROCEEDINGS

      On November 22, 1996, Mr. Robert S. Friedman, a former director and
officer of the Company, and Mr. Gordon Greer and Ms. Faith G. Friedman, as
trustees of the Robert S. Friedman Family Trust, filed a lawsuit in the
Middlesex County Superior Court of Massachusetts against the Company, asserting
that the Company has breached certain obligations the plaintiffs allege are due
to them under a separation agreement dated May 22, 1991 (the "Separation
Agreement") between Mr. Friedman and the Company. The plaintiffs are seeking
monetary damages from the Company based on their claim that, in connection with
the 1994 recapitalization of the Company, the Company allegedly made adjustments
to the stock and options of the Company held by officers of the Company and that
a provision in the Separation Agreement entitled the plaintiffs to equivalent 
adjustments with respect to the stock and options of the Company held by
them. The plaintiffs further allege that the breach by the Company resulted in a
loss to them of stock and options valued at $2.2 million. The Company believes 
that these claims are without merit and intends vigorously to contest their 
validity.

ITEM 2.  CHANGES IN SECURITIES

      Not applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

      Not applicable.

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

      Not applicable.

ITEM 5.  OTHER INFORMATION

      On October 30, 1996, the Securities and Exchange Commission simultaneously
declared effective the Company's Registration Statement, filed under the
Securities Act of 1933, as amended, and its 8A Registration Statement, filed
under the Securities Exchange Act of 1934, as amended. The Registration
Statement related an IPO of 2,100,000 shares of the Company's Class A Common
Stock at the public offering price of $6.00 per share, less underwriting
discounts and commissions. Upon completion of the IPO, the Company received net
proceeds of approximately $10.8 million, after deducting underwriting discounts
and commissions and offering expenses. On November 8, 1996, the underwriters in
the IPO the exercised an option, to purchase 315,000 additional shares from the
Company solely to cover over-allotment shares. The Company received additional
net proceeds of $1.7 million in that transaction.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      (a)  Exhibits

           11 - Computation of Earnings per Share

           27 - Financial Data Schedule

      (b)  Reports on form 8-K

           No reports on form 8-K were filed by the Company during the quarter
ended September 30, 1996.



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<PAGE>   12





                                   SIGNATURES



      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                                      BITSTREAM INC.

                                                      (Registrant)



<TABLE>
<CAPTION>

SIGNATURE                                             TITLE                                       DATE
---------                                             -----                                       ----

<S>                                          <C>                                            <C>
        /s/ C. Raymond Boelig                President, Chief Executive Officer             December 13, 1996
---------------------------------------      and Director
            C. Raymond Boelig                


          /s/ James D. Hart                  Vice President, Finance and                    December 13, 1996
---------------------------------------      Administration, Treasurer and Chief
              James D. Hart                  Financial Officer                  
                                             
</TABLE>


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