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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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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 June 30, 2003



OR



| ̈ |  | 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



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BITSTREAM INC.

(Exact name of registrant as specified in its charter)



|Delaware                                                       |  | 04-2744890                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



215 First Street,
Cambridge, Massachusetts 02142-1270

(Address of principal executive offices)



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



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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  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12B-2 of the Exchange
Act).    Yes ̈No  x



On August 11, 2003, there were 8,510,125 shares of Class A Common Stock, par
value $0.01 per share issued, including 125,809 issued and designated as treasury shares, and no shares of Class B Common Stock, par value $0.01 per share, issued or outstanding.



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INDEX



|                                                                                                |  |                               |  |                                                                                       |  | PAGENUMBERS
|----------------------------------------------------------------------------------------------- |  | ----------------------------- |  | ------------------------------------------------------------------------------------- |  | -----------
|                                                                                                |  | PART I. FINANCIAL INFORAMTION |  |                                                                                      
|                                                                                                |  |                               | 
|ITEM 1.                                                                                         |  |                               |  | CONSOLIDATED FINANCIAL STATEMENTS                                                     |  |            
|                                                                                                | 
|CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2003 AND DECEMBER 31, 2002                           |  | 2                            
|                                                                                                | 
|CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 and 2002 |  | 3                            
|                                                                                                | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002           |  | 4                            
|                                                                                                | 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                      |  | 5-13                         
|                                                                                                |  |                               | 
|ITEM 2.                                                                                         |  |                               |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 14-25      
|                                                                                                |  |                               | 
|ITEM 3.                                                                                         |  |                               |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 26         
|                                                                                                |  |                               | 
|ITEM 4.                                                                                         |  |                               |  | CONTROLS AND PROCEDURES                                                               |  | 26         
|                                                                                                |  |                              
|                                                                                                |  | PART II. OTHER INFORMATION    |  |                                                                                      
|                                                                                                |  |                               | 
|ITEM 1.                                                                                         |  |                               |  | LEGAL PROCEEDINGS                                                                     |  | 27         
|                                                                                                |  |                               | 
|ITEM 2.                                                                                         |  |                               |  | CHANGES IN SECURITIES AND USE OF PROCEEDS                                             |  | 27         
|                                                                                                |  |                               | 
|ITEM 3.                                                                                         |  |                               |  | DEFAULTS UPON SENIOR SECURITIES                                                       |  | 27         
|                                                                                                |  |                               | 
|ITEM 4.                                                                                         |  |                               |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 27         
|                                                                                                |  |                               | 
|ITEM 5.                                                                                         |  |                               |  | OTHER INFORMATION                                                                     |  | 28         
|                                                                                                |  |                               | 
|ITEM 6.                                                                                         |  |                               |  | EXHIBITS AND REPORTS ON FORM 8-K                                                      |  | 28         
|                                                                                                | 
|SIGNATURES                                                                                      |  | 28                           



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##### Table of Contents

BITSTREAM INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)



|                                                                                                                           |  | June 30, 2003 |         |   | December 31, 2002 |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | -
|ASSETS                                                                                                                     |  |               |         |   |                   |  
|Current assets:                                                                                                            |  |               |         |   |                   |  
|Cash and cash equivalents                                                                                                  |  | $             | 3,647   |   |                   | $
|Accounts receivable, net of allowance of $43 at June 30, 2003 and $15 at December 31, 2002                                 |  |               | 1,229   |   |                   |  
|Income tax receivable                                                                                                      |  |               |        |   |                   |  
|Prepaid expenses and other current assets                                                                                  |  |               | 135     |   |                   |  
|                                                                                                                           |  |               |         |   |                   |  
|Total current assets                                                                                                       |  |               | 5,011   |   |                   |  
|                                                                                                                           |  |               |         |   |                   |  
|Property and equipment, net                                                                                                |  |               | 220     |   |                   |  
|                                                                                                                           |  |               |         |   |                   |  
|Other assets:                                                                                                              |  |               |         |   |                   |  
|Restricted cash                                                                                                            |  |               |        |   |                   |  
|Goodwill                                                                                                                   |  |               | 727     |   |                   |  
|Investment in DiamondSoft, Inc.                                                                                            |  |               | 940     |   |                   |  
|Intangible assets                                                                                                          |  |               | 218     |   |                   |  
|Other assets                                                                                                               |  |               | 1       |   |                   |  
|                                                                                                                           |  |               |         |   |                   |  
|Total other assets                                                                                                         |  |               | 1,886   |   |                   |  
|                                                                                                                           |  |               |         |   |                   |  
|Total assets                                                                                                               |  | $             | 7,117   |   |                   | $
|                                                                                                                           |  |               |         |   |                   |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                       |  |               |         |   |                   |  
|Current liabilities:                                                                                                       |  |               |         |   |                   |  
|Accounts payable                                                                                                           |  | $             | 363     |   |                   | $
|Accrued expenses                                                                                                           |  |               | 934     |   |                   |  
|Current portion of deferred revenue                                                                                        |  |               | 605     |   |                   |  
|                                                                                                                           |  |               |         |   |                   |  
|Total current liabilities                                                                                                  |  |               | 1,902   |   |                   |  
|                                                                                                                           |  |               |         |   |                   |  
|Long-term deferred revenue                                                                                                 |  |               |        |   |                   |  
|                                                                                                                           |  |               |         |   |                   |  
|Total liabilities                                                                                                          |  |               | 1,902   |   |                   |  
|                                                                                                                           |  |               |         |   |                   |  
|Stockholders equity:                                                                                                      |  |               |         |   |                   |  
|Preferred stock, $0.01 par value Authorized6,000 shares Issued and outstanding0 at June 30, 2003 and December 31,
2002   |  |               |        |   |                   |  
|Common stock, $0.01 par value Authorized30,500 shares Issued and outstanding8,475 at June 30, 2003 and December 31,
2002 |  |               | 85      |   |                   |  
|Additional paid-in capital                                                                                                 |  |               | 32,408  |   |                   |  
|Accumulated deficit                                                                                                        |  |               | (26,918 | ) |                   |  
|Treasury stock, at cost; 126 shares as of June 30, 2003 and December 31, 2002                                              |  |               | (360    | ) |                   |  
|                                                                                                                           |  |               |         |   |                   |  
|Total stockholders equity                                                                                                 |  |               | 5,215   |   |                   |  
|                                                                                                                           |  |               |         |   |                   |  
|Total liabilities and stockholders equity                                                                                 |  | $             | 7,117   |   |                   | $
|                                                                                                                           |  |               |         |   |                   |  



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



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BITSTREAM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)



|                                                |  | For theThree Months Ended June 30, |       |      | For theSix Months Ended June 30, |      
|----------------------------------------------- |  | ---------------------------------- | ----- | ---- | -------------------------------- | -----
|                                                |  | 2003                               |       | 2002 |                                  |      
|Revenue:                                        |  |                                    |       |      |                                  |      
|Software licenses                               |  | $                                  | 2,486 |      | $                                | 1,949
|Services                                        |  |                                    | 267   |      |                                  | 264  
|                                                |  |                                    |       |      |                                  |      
|Total revenue                                   |  |                                    | 2,753 |      |                                  | 2,213
|                                                |  |                                    |       |     
|Cost of revenue:                                |  |                                    |       |      |                                  |      
|Software licenses                               |  |                                    | 609   |      |                                  | 496  
|Services                                        |  |                                    | 114   |      |                                  | 91   
|                                                |  |                                    |       |      |                                  |      
|Total cost of revenue                           |  |                                    | 723   |      |                                  | 587  
|                                                |  |                                    |       |      |                                  |      
|Gross profit                                    |  |                                    | 2,030 |      |                                  | 1,626
|                                                |  |                                    |       |      |                                  |      
|Operating expenses:                             |  |                                    |       |      |                                  |      
|Marketing and selling                           |  |                                    | 605   |      |                                  | 532  
|Research and development                        |  |                                    | 959   |      |                                  | 991  
|General and administrative                      |  |                                    | 426   |      |                                  | 419  
|                                                |  |                                    |       |      |                                  |      
|Total operating expenses                        |  |                                    | 1,990 |      |                                  | 1,942
|                                                |  |                                    |       |      |                                  |      
|Income (loss) from operations                   |  |                                    | 40    |      |                                  | (316 
|                                                |  |                                    |       |      |                                  |      
|Other income:                                   |  |                                    |       |      |                                  |      
|Gain on investment in DiamondSoft, Inc          |  |                                    | 99    |      |                                  | 43   
|Other income, net                               |  |                                    | 21    |      |                                  | 19   
|                                                |  |                                    |       |      |                                  |      
|Income (loss) before provision for income taxes |  |                                    | 160   |      |                                  | (254 
|Provision for income taxes                      |  |                                    | 28    |      |                                  | 39   
|                                                |  |                                    |       |      |                                  |      
|Net income (loss)                               |  | $                                  | 132   |      | $                                | (293 
|                                                |  |                                    |       |      |                                  |      
|Basic net income (loss) per share               |  | $                                  | 0.02  |      | $                                | (0.04
|                                                |  |                                    |       |      |                                  |      
|Diluted net income (loss) per share             |  | $                                  | 0.01  |      | $                                | (0.04
|                                                |  |                                    |       |      |                                  |      
|Basic weighted average shares outstanding       |  |                                    | 8,349 |      |                                  | 8,313
|                                                |  |                                    |       |      |                                  |      
|Diluted weighted average shares outstanding     |  |                                    | 8,901 |      |                                  | 8,313
|                                                |  |                                    |       |      |                                  |      



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



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BITSTREAM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)



|                                                                            |  | For the Six Months Ended June 30, |       
|--------------------------------------------------------------------------- |  | --------------------------------- | ------
|                                                                            |  | 2003                              |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |  |                                   |       
|Net loss                                                                    |  | $                                 | (785  
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                   |       
|Depreciation                                                                |  |                                   | 99    
|Amortization                                                                |  |                                   | 39    
|Loss on disposal of property and equipment                                  |  |                                   | 20    
|Stock based compensation                                                    |  |                                   |      
|Gain on investment in DiamondSoft, Inc.                                     |  |                                   | (192  
|Changes in operating assets and liabilities:                                |  |                                   |       
|Accounts receivable                                                         |  |                                   | (627  
|Income tax receivable                                                       |  |                                   | 134   
|Prepaid expenses and other assets                                           |  |                                   | (18   
|Accounts payable                                                            |  |                                   | 118   
|Accrued expenses                                                            |  |                                   | (112  
|Deferred revenue                                                            |  |                                   | (68   
|                                                                            |  |                                   |       
|Net cash used in operating activities                                       |  |                                   | (1,392
|                                                                            |  |                                   |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |  |                                   |       
|Restricted cash                                                             |  |                                   | 300   
|Purchases of property and equipment                                         |  |                                   | (68   
|Additions to intangible assets                                              |  |                                   | (21   
|                                                                            |  |                                   |       
|Net cash provided by (used in) investing activities                         |  |                                   | 211   
|                                                                            |  |                                   |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |  |                                   |       
|Proceeds from exercise of stock options/warrants                            |  |                                   |      
|                                                                            |  |                                   |       
|Net cash provided by financing activities                                   |  |                                   |      
|                                                                            |  |                                   |       
|Net Decrease in Cash and Cash Equivalents                                   |  |                                   | (1,181
|Cash and Cash Equivalents, beginning of period                              |  |                                   | 4,828 
|                                                                            |  |                                   |       
|Cash and Cash Equivalents, end of period                                    |  | $                                 | 3,647 
|                                                                            |  |                                   |       
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                           |  |                                   |       
|Cash paid for interest                                                      |  | $                                 | 1     
|Cash paid (received) for income taxes                                       |  | $                                 | (97   



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



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BITSTREAM INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2003



(1) Significant Accounting Policies



Bitstream is composed of three different businesses: (1) its type and type technology business, which currently generates revenue primarily from the
licensing of font rendering software and fonts to the embedded, set-top box, wireless device and information appliance markets, but has more recently focused its product development efforts on a leading-edge browser for handheld devices named
ThunderHawk (Type); (2) its
MyFonts.com business, which generates revenue from its Web site, Myfonts.com, as well as from providing its database technology for other sites including Bitstream.com. Myfonts.com was the first e-commerce site to aggregate fonts from multiple
vendors on one easy-to-use Web site (MyFonts); and (3) its Pageflex business, which generates revenue from on-demand marketing and composition solutions such as Mpower, an enterprise solution that allows companies to dynamically create customized and personalized business documents
driven from the web and marketing databases, Persona, a variable data desktop publishing application designed to produce personalized documents, and .EDIT, a java-browser-based interactive WYSIWYG composition software that presents the user with templates that can be customized (Pageflex).



(a) Basis of Presentation



The consolidated financial statements of the Company presented herein,
without audit, have been prepared pursuant to the rules of the Securities and Exchange Commission (the SEC) 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, 2002 has been derived from the Companys audited consolidated financial statements. These statements should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 2002 included in the Companys Annual Report on Form 10-K, which was filed by the Company with the SEC on March 31, 2003.



The balance sheet as of June 30, 2003, the statements of operations for the
three months and six months ended June 30, 2003 and 2002, the statements of cash flows for the six months ended June 30, 2003 and 2002, and the notes to each are unaudited, but in the opinion of management include all adjustments necessary for a
fair presentation of the consolidated financial position, results of operations, and cash flows of the Company for these interim periods.



The results of operations for the six months ended June 30, 2003 may not necessarily be indicative of the results to be expected for the year ending
December 31, 2003.



(b) Off-Balance Sheet Risk and Concentration of Credit
Risk



Financial instruments that potentially expose the
Company to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company places a majority of its cash investments in one highly-rated financial institution. The Company has not experienced
significant losses related to receivables from any individual customers or groups of customers in any specific industry or by geographic area. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed
by management to be inherent in the Companys accounts receivable. At June 30, 2003, four customers accounted for 16%, 12%, 11% and 10%, respectively, of the Companys accounts receivable. At December 31, 2002, two customers accounted for
16% and 10%, respectively, of the Companys accounts receivable.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued



For the three and six months ended June 30, 2003 and 2002, no single customer accounted for 10% or
more of the Companys consolidated revenue. For the three months ended June 30, 2003, three customers of the Companys Type segment accounted for 13%, 12%, and 12%, respectively, of the revenue for that segment, two customers of the
Pageflex segment accounted for 23% and 14%, respectively, of the revenue for that segment and no customers accounted for 10% or more of the MyFonts segments revenue. For the three months ended June 30, 2002, two customers of the Companys
Type segment accounted for 13% and 10%, respectively, of the revenue for that segment, three customers of the Pageflex segment accounted for 18%, 11% and 10%, respectively, of the revenue for that segment, and no customers accounted for 10% or more
of the revenue of the MyFonts segment. For the six months ended June 30, 2003, one customer of the Companys Type segment accounted for 10% of the revenue for that segment, one customer of the Pageflex segment accounted for 15% of the revenue
for that segment and no customers accounted for 10% or more of the MyFonts segments revenue. For the six months ended June 30, 2002, one customer of the Companys Type segment accounted for 10% of the revenue for that segment, one
customer of the Pageflex segment accounted for 11% of the revenue for that segment, and no customers accounted for 10% or more of the revenue of the MyFonts segment.



(c) Goodwill and other intangible assets (in thousands, except per share amounts)



Goodwill consists of the following:



|                                                                       |  | June 30, 2003 |       | December 31, 2002
|---------------------------------------------------------------------- |  | ------------- | ----- | -----------------
|Acquisition of Type Solutions, Inc                                     |  | $             | 228   |                  
|Acquisition of Alaras Corporation                                      |  |               | 499   |                  
|                                                                       |  |               |       |                  
|Goodwill                                                               |  |               | 727   |                  
|Embedded goodwill from equity investment in DiamondSoft, Inc. (Note 3) |  |               | 557   |                  
|                                                                       |  |               |       |                  
|Total Goodwill                                                         |  | $             | 1,284 |                  
|                                                                       |  |               |       |                  



The Company follows
the accounting and reporting requirements for goodwill and other intangible assets as required by SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill and indefinite-lived intangible assets are not amortized, but
are required to be reviewed annually for impairment, or more frequently if impairment indicators arise. Separable intangible assets that have finite lives are amortized over their useful lives. The Company has established and allocated goodwill to
each of the following reporting units: Type, MyFonts, and Pageflex. The Company has recorded goodwill embedded in its equity investment in DiamondSoft, Inc. of $557 as of June 30, 2003 and December 31, 2002, which is not attributable to a reporting
unit. See Note 3 for additional disclosure on DiamondSoft, Inc.



The carrying amounts of goodwill attributable to each reporting unit are as follows:



|         |  | June 30, 2003 |     | December 31, 2002
|-------- |  | ------------- | --- | -----------------
|Type     |  | $             | 228 |                  
|MyFonts  |  |               |    |                  
|Pageflex |  |               | 499 |                  
|         |  |               |     |                  
|         |  | $             | 727 |                  
|         |  |               |     |                  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued



Amortization expense for intangible assets for the three and six months ended June 30, 2003 was $20
and $39, respectively. Amortization expense for intangible assets for the three and six months ended June 30, 2002 was $18 and $35, respectively. Estimated amortization for the remainder of 2003 and the five succeeding years follows:



|2003 (remainder) |  | $ | 40 
|---------------- |  | - | ---
|2004             |  |   | 74 
|2005             |  |   | 57 
|2006             |  |   | 34 
|2007             |  |   | 12 
|2008             |  |   | 1  
|                 |  |   |    
|                 |  | $ | 218
|                 |  |   |    



(d) Accounting For Stock-Based
Compensation



The Company accounts for its employee stock
plans using the intrinsic value method. The SFAS 123,Accounting for Stock-Based Compensation, disclosures include pro forma net income and earnings per share as if the fair value-based method of accounting had been used. Stock
issued to non-employees is accounted for in accordance with SFAS 123 and related interpretations. The following table sets forth the pro forma amounts of net loss and net loss per share for the three and six months ended June 30, 2003 and 2002 that
would have resulted if the Company accounted for its employee stock plans under the fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation (in thousands, except per share amounts):



|                                                                                           |  | For theThree Months Ended June 30, |       |   | For theSix Months Ended June 30, |  
|------------------------------------------------------------------------------------------ |  | ---------------------------------- | ----- | - | -------------------------------- | -
|                                                                                           |  | 2003                               |       |   | 2002                             |  
|Net income (loss):                                                                         |  |                                    |       |   |                                  |  
|As reported                                                                                |  | $                                  | 132   |   |                                  | $
|Less: stock compensation costs, net of tax, had option expense been measured at fair value |  |                                    | 265   |   |                                  |  
|                                                                                           |  |                                    |       |   |                                  |  
|Pro forma                                                                                  |  | $                                  | (133  | ) |                                  | $
|                                                                                           |  |                                    |       |   |                                  |  
|Basic net income (loss) per share:                                                         |  |                                    |       |   |                                  |  
|As reported                                                                                |  | $                                  | 0.02  |   |                                  | $
|Pro forma                                                                                  |  | $                                  | (0.02 | ) |                                  | $
|Diluted net income (loss) per share:                                                       |  |                                    |       |   |                                  |  
|As reported                                                                                |  | $                                  | 0.01  |   |                                  | $
|Pro forma                                                                                  |  | $                                  | (0.02 | ) |                                  | $



For purposes of
computing pro forma net loss, the Company estimates the fair value of all option or warrant grants granted to employees as of June 30, 2003 and June 30, 2002 using the Black Scholes option pricing model prescribed by SFAS No. 123. Additional awards
in future years are anticipated. Assumptions used are as follows:



|                         |  | For theThree Months Ended June 30, |   |  | For theSix Months Ended June 30, |  
|------------------------ |  | ---------------------------------- | - |  | -------------------------------- | -
|                         |  | 2003                               |   |  | 2002                             |  
|Risk-free interest rates |  | 2.50                               | % |  | 4.92                             | %
|Expected dividend yield  |  |                                   |   |  |                                 |  
|Expected lives           |  | 5 Years                            |   |  | 5 Years                          |  
|Expected volatility      |  | 120.2                              | % |  | 99.6                             | %



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued



(e) Recently Issued Accounting Standards



In November 2002, the FASB issued Interpretation No. 45,Guarantors Accounting and Disclosure Requirements for
Guarantees, including Indirect Guarantees of Indebtedness of Other (FIN No.45). FIN No. 45 requires that a guarantor is required to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken by
issuing the guarantee. The interpretation also requires additional disclosure to be made by a guarantor in its financial statements about its obligations under certain guarantees it has issued. The accounting requirements for the initial recognition
of guarantees are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for all guarantees outstanding, regardless of when they were issued or modified, for financial
statement periods that end after December 15, 2002. The adoption of FIN 45 did not have a material effect on the Companys consolidated financial statements. The following is a summary of agreements that are within the scope of FIN No. 45.



As permitted under Delaware law, the Company has agreements
whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was serving, at the Companys request in such capacity. The term of the indemnification period runs until the expiration of
the applicable statute of limitations with respect to any claims against such directors or officers arising out of such acts or omissions. The maximum potential amount of future payments the Company could be required to make under these
indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. As a result of insurance policy coverage, the Company
believes the estimated fair value of these indemnification agreements is minimal.



The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for
losses suffered or incurred by the indemnified party, generally business partners or customers, in connection with any U.S. patent, or any copyright or other intellectual property infringement claim by any third party with respect to the
Companys products. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification
agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment of FAS 123. This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported net income of an entitys accounting policy
decisions with respect to stock-based employee compensation. This Statement also amends Accounting Principles Board Opinion No. 28, Interim Financial Reporting (APB No. 28), to require disclosure about those effects in interim financial
statements. The amendments to SFAS No. 123 are generally effective for financial statements for fiscal years ending after December 15, 2002. The amendment to APB No. 28 is effective for financial reports containing condensed financial statements for
interim periods beginning after December 15, 2002. The Companys adoption of SFAS No. 148 has not had, and is not expected to have, a significant effect on its financial position or its results of operations.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued



In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities, an
Interpretation of ARB 51. The primary objectives of FIN No. 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights (variable interest entities or
VIEs) and how to determine when and which business enterprise should consolidate the VIE. This new model for consolidation applies to an entity for which either: (a) the equity investors (if any) do not have a controlling financial
interest; or (b) the equity investment at risk is insufficient to finance that entitys activities without receiving additional subordinated financial support from other parties. In addition, FIN No. 46 requires that both the primary
beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. The Company is required to apply FIN No. 46 to all new variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the Company is required to apply FIN No. 46 on July 1, 2003. The Companys adoption of FIN No. 46 has not had and is not expected to have, a significant effect on the
Companys financial position or its results of operations.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies the accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003 and
for hedging relationships designated after June 30, 2003. The Company does not expect the adoption of SFAS 149 to have a material impact on its consolidated financial position, results of operations or cash flows.



In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial
instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares
of stock. SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect the
adoption of SFAS 150 to have a material impact on its consolidated financial position, results of operations or cash flows.



(2) Income (Loss) Per Share (in thousands)



Basic earnings or loss per share is determined by dividing the net income (loss) by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share reflect the effect of the conversion of potentially dilutive securities, such as stock options and warrants, based on the treasury stock method. In computing diluted earnings per share, common stock
equivalents are not considered in periods in which a net loss is reported, as the inclusion of the common stock equivalents would be antidilutive. A reconciliation of basic and diluted weighted average shares outstanding for basic and diluted
earnings per share is as follows:



|                                                           |  | For the Three Months Ended June 30, |  | For the Six Months Ended June 30,
|---------------------------------------------------------- |  | ----------------------------------- |  | ---------------------------------
|                                                           |  | 2003                                |  | 2002                             
|Weighted average shares outstanding                        |  | 8,349                               |  | 8,313                            
|Dilutive effect of options                                 |  | 528                                 |  |                                 
|Dilutive effect of warrants                                |  | 24                                  |  |                                 
|                                                           |  |                                     |  |                                  
|Shares used to compute diluted net income (loss) per share |  | 8,901                               |  | 8,313                            
|                                                           |  |                                     |  |                                  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued



If the Company had reported a profit for the six months ended June 30, 2003, potential common shares
would have increased the weighted average shares outstanding by 395, and if the Company had reported a profit for the three and six months ended June 30, 2002, potential common shares would have increased 1,171 and 1,296, respectively. In addition,
there were warrants and options outstanding to purchase 771 shares for the three months and six months ended June 30, 2003 and 940 and 556 shares for the three months and six months ended June 30, 2002, respectively, that were not included in the
potential common share computations because their exercise prices were greater than the market price of the Companys common stock. These common stock equivalents are antidilutive even when a profit is reported in the numerator.



(3) Investment (in thousands, except percentages)



On March 13, 1998, the Company made a $500 or 25% equity investment,
accounted for under the equity method, in DiamondSoft, Inc. (DiamondSoft), a California corporation primarily engaged in the business of developing, marketing and distributing software tools to a variety of professional markets. During
the year ended December 31, 2001 the Company made additional investments totaling $410 in DiamondSoft, resulting in an increase in Bitstreams ownership percentage to 31.7% at December 31, 2001, which remained unchanged as of June 30, 2003.
Gains for the three months and six months ended June 30, 2003, and 2002 related to the Companys investment in DiamondSoft totaled approximately $99 and $192, and $43 and $42, respectively, and are included in the accompanying consolidated
statements of operations. The Company has recorded goodwill related to this investment equal to the difference between the amount paid for the investment and the Companys share of DiamondSofts underlying net assets at the time of each
investment. This goodwill amortization ceased in accordance with the Companys adoption of SFAS No. 142 on January 1, 2002. (See Note 1(c))



On June 19, 2000, the Company deposited $300 into a money market account at Wells Fargo Bank to secure a $300 line of credit granted DiamondSoft by that
bank. At December 31, 2002 this cash was presented on the Companys consolidated balance sheet as restricted cash. On June 30, 2003 this line of credit was terminated and all restrictions on the cash were released.



On July 1, 2003 the Company sold its investment in DiamondSoft. See additional disclosure in
Note 7.



(4) Accrued Expenses, (in thousands)



Accrued expenses consist of the following:



|                                             |  | June 30, 2003 |     | December 31, 2002
|-------------------------------------------- |  | ------------- | --- | -----------------
|Accrued royalties                            |  |               | 281 |                  
|Payroll and other compensation               |  |               | 412 |                  
|Accrued professional and consulting services |  |               | 165 |                  
|Other                                        |  |               | 76  |                  
|                                             |  |               |     |                  
|Total                                        |  | $             | 934 |                  
|                                             |  |               |     |                  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued



(5) Segment Reporting (in thousands):



The Companys reportable segments are strategic business units that sell the Companys products through distinct
distribution channels. They are managed separately as each business requires different marketing strategies. The Companys approach is based on the way that management organizes the segments within the enterprise for making operating decisions
and assessing performance. The e-commerce segments revenues include revenue from products it purchases from the Type segment. The inter-segment revenues created by these transactions have been eliminated from the e-commerce segmented revenue
below, as well as from the Companys consolidated financial statements. The Company evaluates performance based on profit or loss from operations before income taxes, not including non-recurring gains and losses.



The following table sets forth the Companys revenue and income (loss)
from operations by segment:



|                                         |  | For the Three Months Ended June 30, |       |   | For the Six Months Ended June 30, |  
|---------------------------------------- |  | ----------------------------------- | ----- | - | --------------------------------- | -
|                                         |  | 2003                                |       |   | 2002                              |  
|Revenue:                                 |  |                                     |       |   |                                   |  
|Type                                     |  | $                                   | 1,151 |   |                                   | $
|MyFonts                                  |  |                                     | 607   |   |                                   |  
|Pageflex                                 |  |                                     | 995   |   |                                   |  
|                                         |  |                                     |       |   |                                   |  
|Consolidated revenue                     |  | $                                   | 2,753 |   |                                   | $
|                                         |  |                                     |       |   |                                   |  
|Segment (loss) income from operations:   |  |                                     |       |   |                                   |  
|Type                                     |  | $                                   | 22    |   |                                   | $
|MyFonts                                  |  |                                     | (43   | ) |                                   |  
|Pageflex                                 |  |                                     | 61    |   |                                   |  
|                                         |  |                                     |       |   |                                   |  
|Consolidated gain (loss) from operations |  | $                                   | 40    |   |                                   | $
|                                         |  |                                     |       |   |                                   |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued



(6) Geographical Reporting (in thousands):



The Company attributes revenues to different geographical areas on the basis
of the location of the customer. All of the Companys product sales for the three and six month periods ended June 30, 2003 and 2002 were shipped from its headquarters located in the United States or its office located in Cheltenham, England.
The Cheltenham sales office was closed on March 31, 2003.



Revenue by geographic area is as follows:



|                                                        |  | For the Three Months Ended June 30, |       | For the Six Months Ended June 30,,
|------------------------------------------------------- |  | ----------------------------------- | ----- | ----------------------------------
|                                                        |  | 2003                                |       | 2002                              
|*Revenue:                                               |  |                                     |       |                                   
|United States                                           |  | $                                   | 2,204 |                                   
|Japan                                                   |  |                                     | 181   |                                   
|Canada                                                  |  |                                     | 50    |                                   
|United Kingdom                                          |  |                                     | 205   |                                   
|Korea                                                   |  |                                     |      |                                   
|Other (Countries less than 5% individually, by Region): |  |                                     |       |                                   
|Europe, excluding specific countries listed above       |  |                                     | 104   |                                   
|Asia, excluding specific countries listed above         |  |                                     |      |                                   
|Other                                                   |  |                                     | 9     |                                   
|                                                        |  |                                     |       |                                   
|Total revenue                                           |  | $                                   | 2,753 |                                   
|                                                        |  |                                     |       |                                   

---

|* |  | If revenue attributable to a specific country is greater than 5% in any period, revenue attributable to that country is disclosed for all periods. E-commerce revenue for MyFonts.com
is all included as attributable to the United States.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Long-lived
tangible assets by geographic area are as follows (Note: The Cheltenham sales office was closed on March 31, 2003.):



|              |  | June 30, 2003 |     | December 31, 2002
|------------- |  | ------------- | --- | -----------------
|United States |  | $             | 220 |                  
|England       |  |               |    |                  
|              |  |               |     |                  
|Total         |  | $             | 220 |                  
|              |  |               |     |                  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued



(7) Subsequent Events (in thousands):



On July 1, 2003, in connection with the acquisition of DiamondSoft by Extensis, a wholly owned subsidiary of Celartem
Technology USA, Inc., the Company sold its shares in DiamondSoft to Extensis in a cash transaction resulting in a gain on its investment in an amount to be determined in the third quarter of 2003. The Companys investment in DiamondSoft as of
the June 30, 2003 Balance Sheet was $940,000 and the Company received $1,339,000 in cash from this transaction on July 1, 2003.



In August 2003, the Company entered into a six-year lease agreement and will move its corporate offices prior to the expiration of its current lease,
which is expiring on October 1, 2003. The new lease agreement has a projected commencement date of September 1, 2003 and obligates the Company to make minimum lease payments listed below plus its pro-rata share of future real estate tax increases
and certain operating expense increases above the base year. This lease agreement will also require the Company to obtain a Letter of Credit in for the amount of $250,000, which will result in $250,000 in cash being classified as restricted on the
Companys Balance Sheet at that time. The amount will be reduced to $200,000 on the second anniversary and further to $150,000 on the fourth anniversary of the lease.



|For the year ended, December 31, |  | Minimum lease Amount
|-------------------------------- |  | --------------------
|2003                             |  | $                   
|2004                             |  |                     
|2005                             |  |                     
|2006                             |  |                     
|2007                             |  |                     
|2008                             |  |                     
|2009                             |  |                     
|                                 |  |                     
|                                 |  |                     
|                                 |  |                     



The agreement
qualifies for operating lease accounting treatment under SFAS 13 and neither the value of the premises nor the related rental obligation will be included on the Companys balance sheet.



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PART 1, ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS



The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.



OVERVIEW



Bitstream Inc. (Bitstream
or the Company), headquartered in Cambridge, Massachusetts, is composed of three separate and distinct businesses: (1) its type and type technology business, which currently generates revenue primarily from the licensing of font
rendering software and fonts to the embedded, set-top box, wireless device and information appliance markets, but has more recently focused its product development efforts on a leading-edge browser for handheld devices named ThunderHawk (Type); (2) its MyFonts.com business,
which generates revenue from its Web site, Myfonts.com, as well as from providing its database technology for other sites including Bitstream.com. Myfonts.com was the first e-commerce site to aggregate fonts from multiple vendors on one easy-to-use
Web site (MyFonts); and (3) its Pageflex business, which generates revenue from on-demand marketing and composition solutions such as Mpower, an enterprise solution that allows companies to dynamically create customized and personalized business documents driven from the web and
marketing databases, Persona, a variable data
desktop publishing application designed to produce personalized documents, and .EDIT, a java-browser-based interactive WYSIWYG composition software that presents the user with templates that can be customized (Pageflex). The performance of each business segment is discussed in
greater detail below.



FORWARD LOOKING STATEMENTS



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, market acceptance of the Companys products, 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-1 (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. Management undertakes no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the
date of this document.



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PART I, ITEM 2, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS, continued



RESULTS OF OPERATIONS (in thousands, except percentages)



Consolidated Gross Profit:



|                      |  | For the Three Months Ended JUNE 30, |      
|--------------------- |  | ----------------------------------- | -----
|                      |  | 2003                                |      
|                      |  |                                     |      
|Revenue               |  |                                     |      
|Software licenses     |  | $                                   | 2,486
|Services              |  |                                     | 267  
|                      |  |                                     |      
|Total revenue         |  |                                     | 2,753
|                      |  |                                     |      
|Cost of Revenue       |  |                                     |      
|Software licenses     |  |                                     | 609  
|Services              |  |                                     | 114  
|                      |  |                                     |      
|Total cost of revenue |  |                                     | 723  
|                      |  |                                     |      
|Gross Profit          |  | $                                   | 2,030
|                      |  |                                     |      



|                      |  | For the Six Months Ended JUNE 30, |      
|--------------------- |  | --------------------------------- | -----
|                      |  | 2003                              |      
|                      |  |                                   |      
|Revenue               |  |                                   |      
|Software licenses     |  | $                                 | 4,230
|Services              |  |                                   | 555  
|                      |  |                                   |      
|Total revenue         |  |                                   | 4,785
|                      |  |                                   |      
|Cost of Revenue       |  |                                   |      
|Software licenses     |  |                                   | 1,148
|Services              |  |                                   | 251  
|                      |  |                                   |      
|Total cost of revenue |  |                                   | 1,399
|                      |  |                                   |      
|Gross Profit          |  | $                                 | 3,386
|                      |  |                                   |      



The increase in
revenue for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002 was attributable to an increase in revenue in the MyFonts and Pageflex segments of $276 and $302, respectively, partially offset by a decrease in
revenue in the Companys Type segment of $38. The increase in revenue for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002 was attributable to an increase in revenue in the MyFonts and Pageflex segments of
$532 and $302, respectively, partially offset by a decrease in revenue in the Companys Type segment of $395. The increase in cost of license revenue for the three and six month periods ended June 30, 2003 was due to increased royalty expense
for the Companys MyFonts segment resulting from increased sales. The increase in cost of service revenue for the same periods was primarily the result of costs incurred during the quarter for support of the Companys new ThunderHawk
product. Cost of revenue for the Company includes royalties and fees paid to third parties for the development or license of rights to technology and/or unique typeface designs, costs incurred in the fulfillment of custom orders, costs incurred in
providing customer support, maintenance, and training, and costs associated with the duplication, packaging and shipping of product. Gross profit generated by each segment is discussed in more detail below.



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PART I, ITEM 2, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS, continued



Type Gross Profit:



|                            |  | For the Three Months Ended JUNE 30, |      
|--------------------------- |  | ----------------------------------- | -----
|                            |  | 2003                                |      
|                            |  |                                     |      
|Revenue                     |  |                                     |      
|Software licenses           |  | $                                   | 1,080
|Services                    |  |                                     | 71   
|                            |  |                                     |      
|Total revenue               |  |                                     | 1,151
|                            |  |                                     |      
|Percentage of total revenue |  |                                     | 41.8 
|                            |  |                                     |      
|Cost of Revenue             |  |                                     |      
|Software licenses           |  |                                     | 108  
|Services                    |  |                                     | 59   
|                            |  |                                     |      
|Total cost of revenue       |  |                                     | 167  
|                            |  |                                     |      
|Gross Profit                |  | $                                   | 984  
|                            |  |                                     |      



|                            |  | For the Six Months Ended JUNE 30, |      
|--------------------------- |  | --------------------------------- | -----
|                            |  | 2003                              |      
|                            |  |                                   |      
|Revenue                     |  |                                   |      
|Software licenses           |  | $                                 | 1,837
|Services                    |  |                                   | 170  
|                            |  |                                   |      
|Total revenue               |  |                                   | 2,007
|                            |  |                                   |      
|Percentage of total revenue |  |                                   | 41.9 
|                            |  |                                   |      
|Cost of Revenue             |  |                                   |      
|Software licenses           |  |                                   | 202  
|Services                    |  |                                   | 139  
|                            |  |                                   |      
|Total cost of revenue       |  |                                   | 341  
|                            |  |                                   |      
|Gross Profit                |  | $                                 | 1,666
|                            |  |                                   |      



The decrease in Type
revenue for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002 was the result of decreases in OEM license revenue related to the printer industry, direct retail product sales and revenue from custom design
services of $128, $85, and $15, respectively. These decrease were partially offset by increases other non-printer OEM revenue and retail reseller revenue of $162 and $28, respectively. The decrease in revenue for the six months ended June 30, 2003
as compared to the six months ended June 30, 2002 was the result of decreases in OEM license revenue, direct retail product sales and revenue from custom design services of $266, $91, and $45, respectively. These decreases were partially offset by
an increase in retail reseller revenue of $7. Sales of the Companys Type products and custom design work decreased during the first three months of 2003 due to consumer concerns about the economy and decreases in spending on development
efforts by high-technology customers, this was followed by an increase in spending in the latter three months of the six month period. Cost of license revenue for the three and six month periods ended June 30, 2003 as compared to the three and six
month periods ended June 30, 2002 decreased primarily because of a lower proportion of sales of third party typeface products in relation to sales of the Companys internally developed typeface and technology products. Cost of services
increased primarily due to costs incurred upon the establishment of a service and support structure for the Companys ThunderHawk product during 2003. This increase was partially offset by decreases in type design and consulting service
expenses during the same period due to decreased sales of those services.



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PART I, ITEM 2, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS, continued



MyFonts Gross Profit:



|                            |  | For the Three Months Ended JUNE 30, |     
|--------------------------- |  | ----------------------------------- | ----
|                            |  | 2003                                |     
|                            |  |                                     |     
|Revenue                     |  |                                     |     
|Software licenses           |  | $                                   | 607 
|                            |  |                                     |     
|Total revenue               |  |                                     | 607 
|                            |  |                                     |     
|Percentage of total revenue |  |                                     | 22.0
|                            |  |                                     |     
|Cost of Revenue             |  |                                     |     
|Software licenses           |  |                                     | 475 
|                            |  |                                     |     
|Total cost of revenue       |  |                                     | 475 
|                            |  |                                     |     
|Gross Profit                |  | $                                   | 132 
|                            |  |                                     |     



|                            |  | For the Six Months Ended JUNE 30, |      
|--------------------------- |  | --------------------------------- | -----
|                            |  | 2003                              |      
|                            |  |                                   |      
|Revenue                     |  |                                   |      
|Software licenses           |  | $                                 | 1,125
|                            |  |                                   |      
|Total revenue               |  |                                   | 1,125
|                            |  |                                   |      
|Percentage of total revenue |  |                                   | 23.5 
|                            |  |                                   |      
|Cost of Revenue             |  |                                   |      
|Software licenses           |  |                                   | 890  
|                            |  |                                   |      
|Total cost of revenue       |  |                                   | 890  
|                            |  |                                   |      
|Gross Profit                |  | $                                 | 235  
|                            |  |                                   |      



MyFonts continued to
be successful in increasing the number of fonts available on its Web site, the number of foundries participating, and the number of consumer accounts. Inter-company sales, which MyFonts generated from the resale of Bitstream fonts, have been
excluded. Cost of revenue increased primarily due to an increase in royalties and referrer fees due to increased revenue, and an increase in shipping, packaging and handling costs due to the increase in products sold that must be physically shipped.
Cost of revenue as a percentage of sales, however has decreased as the Company makes an effort to decrease the royalty percentage paid to third party foundries and because of a lower royalty paid on sales of CD products.



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PART I, ITEM 2, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS, continued



Pageflex Gross Profit:



|                            |  | For the Three Months Ended JUNE 30, |     
|--------------------------- |  | ----------------------------------- | ----
|                            |  | 2003                                |     
|                            |  |                                     |     
|Revenue                     |  |                                     |     
|Software licenses           |  | $                                   | 799 
|Services                    |  |                                     | 196 
|                            |  |                                     |     
|Total revenue               |  |                                     | 995 
|                            |  |                                     |     
|Percentage of total revenue |  |                                     | 36.2
|Cost of Revenue             |  |                                     |     
|Software licenses           |  |                                     | 26  
|Services                    |  |                                     | 55  
|                            |  |                                     |     
|Total cost of revenue       |  |                                     | 81  
|                            |  |                                     |     
|Gross Profit                |  | $                                   | 914 
|                            |  |                                     |     



|                            |  | For the Six Months Ended JUNE 30, |      
|--------------------------- |  | --------------------------------- | -----
|                            |  | 2003                              |      
|                            |  |                                   |      
|Revenue                     |  |                                   |      
|Software licenses           |  | $                                 | 1,268
|Services                    |  |                                   | 385  
|                            |  |                                   |      
|Total revenue               |  |                                   | 1,653
|                            |  |                                   |      
|Percentage of total revenue |  |                                   | 34.6 
|Cost of Revenue             |  |                                   |      
|Software licenses           |  |                                   | 56   
|Services                    |  |                                   | 112  
|                            |  |                                   |      
|Total cost of revenue       |  |                                   | 168  
|                            |  |                                   |      
|Gross Profit                |  | $                                 | 1,485
|                            |  |                                   |      



The increase in
Pageflex license revenue for the three and six month periods ended June 30, 2003 as compared to the three and six month periods ended June 30, 2002 was primarily the result of an increase in direct sales of $340 and $403, respectively. partially
offset by decreases in reseller sales of $48 and $133, over the same three and six month periods, respectively. Service revenue for the three months and six months ended June 30, 2003 increased as compared to the three months and six months ended
June 2002, because of increases in support maintenance and training revenue due to Pageflexs increasing customer base. Cost of revenue decreased slightly in absolute dollars, and has decreased as a percentage of sales revenue as its existing
infrastructure has been able to satisfy the demands of the increased customer base.



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PART I, ITEM 2, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS, continued



Marketing and Selling:



|                                   |  | For the Three Months Ended JUNE 30, |    
|---------------------------------- |  | ----------------------------------- | ---
|                                   |  | 2003                                |    
|                                   |  |                                     |    
|Type                               |  | $                                   | 319
|MyFonts                            |  |                                     | 14 
|Pageflex                           |  |                                     | 272
|                                   |  |                                     |    
|Consolidated marketing and selling |  | $                                   | 605
|                                   |  |                                     |    



|                                   |  | For the Six Months Ended JUNE 30, |      
|---------------------------------- |  | --------------------------------- | -----
|                                   |  | 2003                              |      
|                                   |  |                                   |      
|Type                               |  | $                                 | 754  
|MyFonts                            |  |                                   | 25   
|Pageflex                           |  |                                   | 546  
|                                   |  |                                   |      
|Consolidated marketing and selling |  | $                                 | 1,325
|                                   |  |                                   |      



Type marketing and
selling expenses increased for the three and six month periods ended June 30, 2003 as compared to the three and six months periods ended June 30, 2002 due to the hiring of a salesperson dedicated to selling ThunderHawk, participation in wireless
tradeshows and print advertising for ThunderHawk totaling $40 and $82, respectively. Type expenses for the six months ended June 30, 2003 also include $56 of increased expenses for the three months ended March 31, 2003 related to closing the UK
sales office, payment of bonuses, trade show expenses, and facility-related costs. MyFonts marketing and selling expenses for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002 decreased primarily due to a decrease
in its use of marketing personnel from the Type segment and related charges during the first quarter of 2003. Pageflex marketing and selling expenses increased for the three and six month periods ended June 30, 2003 as compared to the three and six
month periods ended June 30, 2002 primarily due to costs associated with three independent sales representatives engaged at the end of 2002, an increase in trade show participation, and an increase in travel related expenses of $37 and $69,
respectively. These increases were partially offset by a temporary decrease in employee head-count which reduced salary and benefit costs during the first quarter of 2003.



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PART I, ITEM 2, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS, continued



Research and Development (R&D):



|                                      |  | For the Three Months Ended JUNE 30, |    
|------------------------------------- |  | ----------------------------------- | ---
|                                      |  | 2003                                |    
|                                      |  |                                     |    
|Type                                  |  | $                                   | 406
|MyFonts                               |  |                                     | 133
|Pageflex                              |  |                                     | 420
|                                      |  |                                     |    
|Consolidated research and development |  | $                                   | 959
|                                      |  |                                     |    



|                                      |  | For the Six Months Ended JUNE 30, |      
|------------------------------------- |  | --------------------------------- | -----
|                                      |  | 2003                              |      
|                                      |  |                                   |      
|Type                                  |  | $                                 | 849  
|MyFonts                               |  |                                   | 274  
|Pageflex                              |  |                                   | 879  
|                                      |  |                                   |      
|Consolidated research and development |  | $                                 | 2,002
|                                      |  |                                   |      



Type R&D expenses
decreased for the three and six months periods ended June 30, 2003 as compared to the three and six month periods ended June 30, 2002 primarily because of decreases in both internal personnel and outside contractor development on the Companys
Type products totaling $79 and $117, respectively. These decreases were partially offset by an increase in development costs for ThunderHawk of $26 and $64, respectively. The increase in MyFonts R&D expense for the three and six month periods
ended June 30, 2003 as compared to the three and six month periods ended June 30, 2002 was primarily due to an increase in employee related costs resulting from a higher utilization of Type personnel of $12 and $24, respectively, combined with the
non-recurrence of credits of $3 and $18 realized in the three and six month periods ended June 30, 2002, respectively, for variable accounting treatment of stock options granted to non-employee consultants. The increase in Pageflex R&D expense
for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002 was primarily attributable to personnel related costs and the increase for the six months ended June 30, 2003 as compared to the six months ended June 30,
2002 includes $23 in outside consulting fees for Mpower development incurred during the first quarter of 2003.



20



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##### Table of Contents

PART I, ITEM 2, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS, continued



General and Administrative (G&A):



|                                        |  | For the Three Months Ended JUNE 30, |    
|--------------------------------------- |  | ----------------------------------- | ---
|                                        |  | 2003                                |    
|                                        |  |                                     |    
|Type                                    |  | $                                   | 237
|MyFonts                                 |  |                                     | 28 
|Pageflex                                |  |                                     | 161
|                                        |  |                                     |    
|Consolidated general and administrative |  | $                                   | 426
|                                        |  |                                     |    
|                                        | 
|                                        |  | For the Six Months Ended JUNE 30,   |    
|                                        |  | 2003                                |    
|                                        |  |                                     |    
|Type                                    |  | $                                   | 549
|MyFonts                                 |  |                                     | 61 
|Pageflex                                |  |                                     | 388
|                                        |  |                                     |    
|Consolidated general and administrative |  | $                                   | 998
|                                        |  |                                     |    



The increase in
G&A expenses for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002 is primarily due to an increase in fees for various outside professional services and insurance costs, which were partially offset by bad
debt recoveries of approximately $27 during the three months ended June 30, 2003. The increase in G&A expenses for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002 is primarily attributable to increased costs
for the first quarter of 2003 including bonuses expensed and paid, fees associated with the transfer of the Companys stock from the NASDAQ/NM to the NASDAQ SmallCap Market, costs related to the closing of the Companys UK sales office,
and legal fees. These expenses are allocated to the business segments based on headcount.



Gain (loss) on Investment in DiamondSoft, Inc.:



|                                        |  | For the Three Months Ended JUNE 30, |    
|--------------------------------------- |  | ----------------------------------- | ---
|                                        |  | 2003                                |    
|                                        |  |                                     |    
|Gain on investment in DiamondSoft, Inc. |  | $                                   | 99 
|                                        |  |                                     |    
|                                        | 
|                                        |  | For the Six Months Ended JUNE 30,   |    
|                                        |  | 2003                                |    
|                                        |  |                                     |    
|Gain on investment in DiamondSoft, Inc. |  | $                                   | 192
|                                        |  |                                     |    



21



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##### Table of Contents

PART I, ITEM 2, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS, continued



In March 1998, the Company made a $500 equity investment in DiamondSoft, Inc. (DiamondSoft) representing a 25% ownership interest. During the
year ended December 31, 2001, the Company made additional investments totaling $410 in DiamondSoft, resulting in an increase in Bitstreams ownership percentage to 31.7%. This ownership percentage has remained at 31.7% through June 30, 2003.
The gain above represents the Companys pro rata share of DiamondSofts net income. On July 1, 2003, the Company sold its investment in DiamondSoft in a cash transaction that will result in a gain for the three months ended September 30,
2003. Further discussion can be found in Note 3 in the Notes to the Consolidated Financial Statements included herewith.



Other income (expense), net:



|                  |  | For the Three Months Ended JUNE 30, |   
|----------------- |  | ----------------------------------- | --
|                  |  | 2003                                |   
|                  |  |                                     |   
|Other income, net |  | $                                   | 21
|                  |  |                                     |   
|                  | 
|                  |  | For the Six Months Ended JUNE 30,   |   
|                  |  | 2003                                |   
|                  |  |                                     |   
|Other income, net |  | $                                   | 11
|                  |  |                                     |   



Other income for the
three months ended June 30, 2003 and June 30, 2002 includes interest income earned on cash and money market instruments net of interest expense. In addition, other income for the six months ended June 2003 consists of a loss on the disposition of
assets related to the closure of the UK sales office of $(20) during the first quarter of 2003. Interest income has decreased over the six-month periods due to a combination of a lower investment balance and lower interest rates.



Provision for income taxes:



|                           |  | For the Three Months Ended JUNE 30, |   
|-------------------------- |  | ----------------------------------- | --
|                           |  | 2003                                |   
|                           |  |                                     |   
|Provision for Income Taxes |  | $                                   | 28
|                           |  |                                     |   
|                           | 
|                           |  | For the Six Months Ended JUNE 30,   |   
|                           |  | 2003                                |   
|                           |  |                                     |   
|Provision for Income Taxes |  | $                                   | 49
|                           |  |                                     |   



The provision for
income taxes consists primarily of foreign income taxes. Foreign taxes vary with Type OEM license royalties from customers in countries who have signed tax conventions with the United States including Japan, Korea, and Poland, and also with the
results of operations from the Companys location in the United Kingdom, prior to its closure on March 31, 2003.



22



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##### Table of Contents

PART I, ITEM 2, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS, continued



LIQUIDITY AND CAPITAL RESOURCES (in thousands, except share amounts)



The Company has funded its operations primarily through the public sale of equity securities, cash flows from operations and
cash received from the sale of the Companys MediaBank and InterSep OPI product lines to Inso Providence Corporation in August of 1998. As of June 30, 2003, the Company had net working capital of $3,109 versus $3,718 at December 31, 2002.



The Company used cash of approximately $1,392 and $196 to fund
its operations during the six months ended June 30, 2003 and 2002, respectively. The net losses after adjustment for non-cash expenses resulted in the use of $819 and $337 in cash during the six months ended June 30, 2003 and 2002, respectively.
Changes in operating assets and liabilities resulted in cash used of $573 for the six months ended June 30, 2003, and savings of $141 for the six months ended June 30, 2002. The Companys investing activities for the six months ended June 30,
2003 provided cash of $300 from the removal of restrictions on cash related to a line of credit for DiamondSoft, which was terminated on June 30, 2003. This cash was partially offset by cash used to acquire additional property and equipment, and
intangible assets of $68 and $21, respectively. The Companys investing activities for the six months ended June 30, 2002 used cash to acquire property and equipment, and intangible assets of $62 and $67, respectively. The Companys
financing activities provided cash of $0 and $21 for the six months ended June 30, 2003 and 2002, respectively, from the exercise of stock options.



The Company believes its current cash and cash equivalent balances will be sufficient to meet the Companys operating and capital requirements for at
least the next 12 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.



As of June 30, 2003, the Company had no material commitments for capital expenditures. 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. As of June 30, 2003, the Company had future minimum annual lease payments under the Companys
facilities lease of $101 for the year ending December 31, 2003. In August 2003, the Company entered into a six-year lease agreement and will move its corporate offices prior to the expiration of its current lease, which is expiring on October 1,
2003. The new lease agreement has a projected commencement date of September 1, 2003 and obligates the Company to make minimum lease payments plus its pro-rata share of future real estate tax increases and certain operating expense increases above
the base year. This lease agreement will also require the Company to obtain a Letter of Credit in the amount of $250, which will result in $250 in cash being classified as restricted on the Companys Balance Sheet at that time. The amount will
be reduced to $200 on the second anniversary and further to $150 on the fourth anniversary of the lease. Minimum future lease payments total $2,332 through the six-year term. Further discussion can be found in Note 7 in the Notes to the Consolidated
Financial Statements included herewith.



On July 1, 2003, in
connection with the acquisition of DiamondSoft by Extensis, a wholly owned subsidiary of Celartem Technology USA, Inc., the Company sold its shares in DiamondSoft to Extensis in a cash transaction resulting in a gain on its investment in an amount
to be determined in the third quarter of 2003. The Companys investment in DiamondSoft as of the June 30, 2003 Balance Sheet was $940 and the Company received $1,339 in cash from this transaction on July 1, 2003.



23



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##### Table of Contents

PART I, ITEM 2, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS, continued



RECENT ACCOUNTING PRONOUNCEMENTS



In November 2002, the FASB issued Interpretation No. 45,Guarantors Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Other (FIN No.45). FIN No. 45 requires that a guarantor is required to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The
interpretation also requires additional disclosure to be made by a guarantor in its financial statements about its obligations under certain guarantees it has issued. The accounting requirements for the initial recognition of guarantees are
applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for all guarantees outstanding, regardless of when they were issued or modified, for financial statement periods
that end after December 15, 2002. The adoption of FIN 45 did not have a material effect on the Companys consolidated financial statements. The following is a summary of agreements that are within the scope of FIN No. 45.



As permitted under Delaware law, the Company has agreements whereby it
indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was serving, at the Companys request in such capacity. The term of the indemnification period runs until the expiration of the
applicable statute of limitations with respect to any claims against such directors or officers arising out of such acts or omissions. The maximum potential amount of future payments the Company could be required to make under these indemnification
agreements is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. As a result of insurance policy coverage, the Company believes the
estimated fair value of these indemnification agreements is minimal.



The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or
incurred by the indemnified party, generally business partners or customers, in connection with any U.S. patent, or any copyright or other intellectual property infringement claim by any third party with respect to the Companys products. The
term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The
Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment of FAS 123. This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported net income of an entitys accounting policy
decisions with respect to stock-based employee compensation. This Statement also amends Accounting Principles Board Opinion No. 28, Interim Financial Reporting (APB No. 28), to require disclosure about those effects in interim financial
statements. The amendments to SFAS No. 123 are generally effective for financial statements for fiscal years ending after December 15, 2002. The amendment to APB No. 28 is effective for financial reports containing condensed financial statements for
interim periods beginning after December 15, 2002. The Companys adoption of SFAS No. 148 has not had, and is not expected to have, a significant effect on its financial position or its results of operations.



24



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##### Table of Contents

PART I, ITEM 2, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS, continued



In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB 51. The primary objectives of
FIN No. 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights (variable interest entities or VIEs) and how to determine when and which
business enterprise should consolidate the VIE. This new model for consolidation applies to an entity for which either: (a) the equity investors (if any) do not have a controlling financial interest; or (b) the equity investment at risk is
insufficient to finance that entitys activities without receiving additional subordinated financial support from other parties. In addition, FIN No. 46 requires that both the primary beneficiary and all other enterprises with a significant
variable interest in a VIE make additional disclosures. The Company is required to apply FIN No. 46 to all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the Company is required to apply FIN No. 46 on July 1, 2003. The Companys adoption of FIN No. 46 has not had and is not expected to have a significant effect on the Companys financial position or its results of
operations.



In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging
activities under SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003.
The Company does not expect the adoption of SFAS 149 to have a material impact on its consolidated financial position, results of operations or cash flows.



In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150
requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatory redeemable stock, certain financial instruments
that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS 150 is effective for all financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect the adoption of SFAS 150 to have a material impact on its consolidated financial position, results
of operations or cash flows.



25



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##### Table of Contents

PART I, ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments.



As of June 30, 2003, the Company did not participate in any derivative financial instruments or other financial and commodity instruments for which fair
value disclosure would be required under SFAS No. 107. All of the Companys investments are short-term, investment-grade commercial paper, and money market accounts that are carried on the Companys books at amortized cost, which
approximates fair market value. Accordingly, the Company has no quantitative information concerning the market risk of participating in such investments.



Primary Market Risk Exposures



The Companys primary market risk exposures are in the areas of interest rate risk and foreign currency exchange rate risk. The Companys
investment portfolio of cash equivalent and short-term investments is subject to interest rate fluctuations, but the Company believes this risk is immaterial due to the short-term nature of these investments. The Companys exposure to currency
exchange rate fluctuations has been, and is expected to continue to be, modest due to the fact that the operations of its international subsidiaries are almost exclusively conducted in their respective local currencies. International subsidiary
operating results are translated into U.S. dollars and consolidated for reporting purposes. The impact of currency exchange rate movements on inter-company transactions was immaterial for the six months ended June 30, 2003. Currently the Company
does not engage in foreign currency hedging activities.



PART 1, ITEM 4. CONTROLS AND PROCEDURES



Based on the evaluation of the Companys disclosure controls and procedures as of a date within 90 days of the filing date of this quarterly report, each of Charles Ying, the Chief Executive Officer of the Company, Anna Chagnon,
President and Chief Operating Officer, and James Dore, the Chief Financial Officer of the Company as of March 2003, have concluded that the Companys disclosure controls and procedures are effective in ensuring that information required to be
disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time period specified by the Securities and Exchange
Commissions rules and forms.



There were no significant
changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.



26



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##### Table of Contents

PART IIOTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



On June
24, 2003, Agfa Monotype Corporation and International Typeface Corporation filed a complaint in the U.S. District Court for the Northern District of Illinois Eastern Division claiming that the Company, through its TrueDoc software, infringes
trademarks and copyrights and violates the Digital Millennium Copyright Act. The complaint fails to identify any of the plaintiffs trademarks or copyrights that have been allegedly infringed and does not specify any amount of monetary damages.
The plaintiffs do seek injunctive relief, but do not make any statement that any of the alleged acts have actually taken place. The Company is contesting these claims.



ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



|(a) |  | Instruments defining the rights of the holders of any class of registered securities of the Company have not been materially modified during the three months ended June 30, 2003.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | Rights evidenced by any class of registered securities of the Company have not been materially limited or qualified by the issuance or modification of any other class of securities
during the three months ended June 30, 2003.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) |  | There were no unregistered securities sold by the Company during the three months ended June 30, 2003.
|--- |  | ------------------------------------------------------------------------------------------------------



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



Not applicable.



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



(a) On May 20, 2003, the Annual Meeting of Stockholders of the Company was held at the Corporate Offices of Bitstream Inc. located at 215 First Street, Cambridge, Massachusetts 02142.



(b) Charles Ying, George B. Beitzel, Amos Kaminski, Michael Lang and David
G. Lubrano were elected at the Annual Meeting to serve as directors of the Company.



(c) The following votes were tabulated on the aforementioned proposal:



1. To elect a board of five (5) directors to serve until the next Annual Meeting of Stockholders or until their respective successors are elected and
qualified.



|Nominee        |  | For       |  | Withheld Authority
|-------------- |  | --------- |  | ------------------
|George Beitzel |  | 6,018,753 |  | 27,350            
|Amos Kaminski  |  | 6,018,753 |  | 27,350            
|Michael Lang   |  | 6,020,253 |  | 25,850            
|David Lubrano  |  | 6,018,753 |  | 27,350            
|Charles Ying   |  | 6,003,753 |  | 42,350            



(d) Not applicable.



27



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##### Table of Contents

ITEM 5. OTHER INFORMATION



On May
20, 2003, the Companys Board of Directors unanimously voted to increase the numbers of Directors of the Company to six (6) and to appoint Anna M. Chagnon, the Companys President, Chief Operating Officer, and General Counsel, to fill the
newly created position. She will serve until the next annual meeting of stockholders of the Company or until the election and qualification of her successor.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



(a) Exhibits



|      | 
|----- | 
|10    | 
|      | 
|10.12 | 
|      | 
|10.13 | 
|      | 
|31.1  | 
|      | 
|31.2  | 
|      | 
|31.3  | 
|      | 
|32.1  | 



(b) Reports on Form
8-K



None



PART IISIGNATURES



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)




|SIGNATURE                          |  | TITLE                                                                     |  | DATE           
|---------------------------------- |  | ------------------------------------------------------------------------- |  | ---------------
|                                   |  |                                                                          
|/s/ Anna M. ChagnonAnna M. Chagnon |  | President and Chief Operating Officer (Principal Executive Officer)       |  | August 12, 2003
|                                   |  |                                                                          
|/s/ James P. DoreJames P. Dore     |  | Vice President and Chief Financial Officer (Principal Accounting Officer) |  | August 12, 2003



28