UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark one)
              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended June 30, 1997

                                       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

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


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


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


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

                                 Not Applicable
              -----------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

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

    At August 12, 1997 there were 5,981,206  shares of Class A Common Stock, par
value $0.01 per share,  and 130,869  shares of Class B Common  Stock,  par value
$0.01 per share, outstanding.





                                      INDEX

<TABLE>
<CAPTION>

                                                                                                 PAGE
                                                                                                NUMBERS
                                                                                                -------
<S>                                                                                              <C>
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

        CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND
          JUNE 30, 1997......................................................................      3

        CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
          AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997........................................      4

        CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
          JUNE 30, 1996 AND 1997.............................................................      5

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS................................................................      7

PART II. OTHER INFORMATION

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

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

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

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

ITEM 5. OTHER INFORMATION....................................................................      12

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................................      12

        SIGNATURES...........................................................................      13

</TABLE>






                         PART I -- FINANCIAL STATEMENTS

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

                         BITSTREAM INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                          DECEMBER 31,           JUNE 30,
                                                                             1996                  1997
                                                                       ------------------  ------------------
                                                                                               (UNAUDITED)
                                ASSETS
<S>                                                                  <C>                   <C>
Current assets:
   Cash and cash equivalents                                            $       11,718,000  $        8,238,000
   Accounts receivable, net of allowance for doubtful accounts                   1,552,000           1,891,000
   Current portion of long-term accounts receivable and extended
      plan accounts receivable, net of allowance for doubtful accounts           1,667,000           1,827,000
   Deferred income taxes                                                           868,000             868,000
   Other current assets                                                            434,000             368,000
                                                                        ------------------  ------------------
       Total current assets:                                                    16,239,000          13,192,000
                                                                        ------------------  ------------------
Property and equipment, net:                                                       924,000           1,074,000
                                                                        ------------------  ------------------
Other assets:
   Long-term accounts receivable, net of current portion                           123,000              18,000
   Intangible assets                                                                    --           2,183,000
   Other assets                                                                    191,000             170,000
                                                                        ------------------  ------------------
        Total other assets                                                         314,000           2,371,000
                                                                        ------------------  ------------------
        Total assets:                                                   $       17,477,000  $       16,637,000
                                                                        ==================  ==================

            LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Current maturities of capital lease obligations                      $           36,000  $           31,000
   Accounts payable                                                                513,000             456,000
   Accrued expenses                                                              1,470,000           3,719,000
                                                                        ------------------  ------------------
       Total current liabilities:                                                2,019,000           4,206,000
                                                                        ------------------  ------------------
Capital lease obligations, less current maturities:                                 79,000              66,000
                                                                        ------------------  ------------------
Other long-term liabilities:                                                        20,000              33,000
                                                                        ------------------  ------------------
Stockholders' equity:
   Common stock                                                                     59,000              65,000
   Additional paid-in capital                                                   26,637,000          29,755,000
   Accumulated deficit                                                         (11,293,000)        (17,447,000)
   Cumulative translation adjustment                                               (44,000)            (41,000)
                                                                        ------------------  ------------------
       Total stockholders' equity:                                              15,359,000          12,332,000
                                                                        ------------------  ------------------
       Total liabilities and stockholders' equity:                      $       17,477,000  $       16,637,000
                                                                        ==================  ==================

</TABLE>


        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
                              FINANCIAL STATEMENTS.













                         BITSTREAM INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                    THREE MONTHS ENDED                          SIX MONTHS ENDED
                                                       JUNE 30, 1997                                 JUNE 30,
                                         ---------------------------------------- -------------------------------------------
                                                   1996                1997                 1996                1997
                                           ---------------       ----------------   ------------------   -----------------

<S>                                             <C>                 <C>                    <C>               <C>
REVENUES:
   Revenues                                      $2,705,000           $3,163,000           $5,411,000         $5,685,000
   Cost of revenues                                 452,000              485,000              808,000            774,000
                                                  ---------            ---------            ---------          ---------

       Gross Profit                               2,253,000            2,678,000            4,603,000          4,911,000
                                                  ---------            ---------            ---------          ---------

OPERATING EXPENSES:
   Marketing and selling                          1,039,000            1,603,000            2,145,000          2,819,000
   Research and development                         347,000              649,000              680,000          1,157,000
   General and administrative                       377,000              564,000              776,000            989,000
   In-process research and development                   --            4,930,000                   --          4,930,000
   Severance and other non-recurring compensation        --            1,371,000                   --          1,371,000
                                                  ---------            ---------            ---------          ---------
       Total operating expenses                   1,763,000            9,117,000            3,601,000         11,266,000
                                                  ---------            ---------            ---------          ---------

       Operating income (loss)                      490,000           (6,439,000)           1,002,000         (6,355,000)
                                                  ---------            ---------            ---------          ---------

Other income (expense), net                         (35,000)             171,000              (44,000)           342,000
                                                  ---------            ---------            ---------          ---------

   Income (loss) before provision for (benefit from)
       income taxes                                 455,000           (6,268,000)             958,000         (6,013,000)
                                                  ---------            ---------            ---------          ---------

Provision for (benefit from) income taxes           (49,000)             118,000              (86,000)           141,000
                                                  ---------            ---------            ---------          ---------

       Net income (loss)                           $504,000          $(6,386,000)          $1,044,000       $ (6,154,000)
                                                   ========         ============           ==========       =============
Net income (loss) per common and
  common equivalent share                             $0.12              $(1.01)                $0.24             $(1.01)
                                                   ========         ============           ==========       =============
Weighted average common and
  common equivalent shares outstanding            4,745,292            6,303,487            4,745,292          6,112,453
                                                   ========         ============           ==========       =============
</TABLE>


        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
                              FINANCIAL STATEMENTS.








                         BITSTREAM INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                        SIX MONTHS ENDED
                                                                                            JUNE 30,
                                                                                     --------------------
                                                                                     1996            1997
                                                                                     ----            ----
<S>                                                                           <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income (loss)                                                             $  1,044,000    $ (6,154,000)
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities-
     In-process research and development                                                   0       4,930,000
     Depreciation and amortization                                                   108,000         201,000
     Deferred income tax benefit                                                    (158,000)              0
     Changes in assets and liabilities-
       Accounts receivable                                                          (299,000)       (180,000)
       Long-term and extended plan accounts receivable                              (416,000)        104,000
       Other current assets                                                         (139,000)        278,000
       Accounts payable                                                              (63,000)       (297,000)
       Accrued expenses                                                               82,000       1,852,000
                                                                                ------------    ------------
       Net cash provided by operating activities                                $    159,000    $    734,000

                                                                                ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment, net                                          (453,000)       (130,000)
   Proceeds from sale of property and equipment                                       23,000               0
  Acquisition of businesses                                                                0      (4,141,000)
  Change in other assets                                                                   0          81,000
  Change in other long term liabilities                                               (5,000)        (18,000)
                                                                                ------------    ------------
       Net cash provided by (used in) investing activities                      $   (435,000)   $ (4,172,000)
                                                                                ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from capital lease obligations                                           191,000               0
  Proceeds from debt to stockholders                                                 600,000               0
  Payments on capital lease obligations                                              (74,000)        (23,000)
  Payments on line of credit                                                        (150,000)              0
  Payments on IPO offering expenses                                                        0         (68,000)
  Proceeds from the exercise of stock options and warrants                             5,000          49,000
                                                                                ------------    ------------
        Net cash provided by (used in) financing activities                     $    572,000    $    (42,000)
                                                                                ------------    ------------
Net Increase (Decrease) in Cash and Cash Equivalents                                 296,000      (3,480,000)
Cash and Cash Equivalents, beginning of period                                       390,000      11,718,000
                                                                                ------------    ------------
Cash and Cash Equivalents, end of period                                        $    686,000    $  8,238,000
                                                                                ============    ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest                                                        $     29,000    $      2,000
  Cash paid for income taxes                                                    $     91,000    $    118,000

In connection  with the  acquisition  of businesses  (see Note 5), the  following
   non-cash transactions occurred:
   Fair value of assets acquired                                                          --    $  7,959,000
   Liabilities assumed                                                                    --        (914,000)
   Issuance of common stock                                                               --      (1,608,000)
   Issuance of options to purchase common stock                                           --      (1,296,000)
                                                                                                ------------
   Cash paid for acquisition and acquisition costs                                        --       4,141,000
                                                                                                ============




</TABLE>



        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
                              FINANCIAL STATEMENTS.








                         BITSTREAM INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1997
                                   (UNAUDITED)

(1) BASIS OF PRESENTATION

    The  consolidated  financial  statements of Bitstream  Inc. (the  "Company")
presented herein, without audit, have been prepared pursuant to the rules of the
Securities  and Exchange  Commission  (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, 1996 has been  derived  from the  Company's  audited  consolidated
financial  statements.  These statements  should be read in conjunction with the
financial  statements  and notes thereto for the period ended  December 31, 1996
included  in the  Company's  Report on Form 10-K which was filed by the  Company
with the SEC on March 31, 1997.

    The balance sheet as of June 30, 1997,  the statements of income for the six
months ended June 30, 1996 and 1997,  the  statements  of cash flows for the six
months ended June 30, 1996 and 1997 and the notes to each thereof are  unaudited
but, in the opinion of management,  include all adjustments necessary for a fair
presentation of the consolidated financial position,  results of operations, and
cash flows of the Company and its subsidiaries for these interim periods.

    The  results of  operations  for the six months  ended June 30, 1997 are not
necessarily  indicative  of the  results to be expected  for any future  interim
period or for the year ending December 31, 1997.

(2) NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

    Net income per  common  and  common  equivalent  share for the three and six
months ended June 30, 1996 have been  determined in accordance with the modified
treasury  stock  method by dividing  (i) net income  increased  by the effect of
reduced  interest  expense  associated  with the  assumed  repayment  of certain
indebtedness  as of the  beginning  of the period and by the effect of increased
interest  income  associated  with the  assumed  investment  in U.S.  Government
securities as of the beginning of the period with the assumed  proceeds from the
exercise of outstanding options and warrants by (ii) the weighted average number
of common and common  equivalent  shares  outstanding,  including  the  dilutive
effect of options and warrants.

    Net loss per common and common equivalent share for the three and six months
ended June 30, 1997 have been calculated using weighted average number of common
and common equivilent shares outstanding.

(3) CONCENTRATION OF CREDIT RISK

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

    For the three months ended June 30, 1997,  two customers  represented  11.8%
and 13.5% of revenues,  respectively.  For the three months ended June 30, 1996,
three customers represented 12.9%, 15.7% and 16.7% of revenues, respectively.

    For the six months ended June 30, 1997 and June 30, 1996, the Company had no
customers which represented 10% or more of revenues.

(4) RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  No.  128,  Earnings  Per  Share.  SFAS No. 128
establishes  standards  for  computing  and  presenting  earnings  per share and
applies to entities with  publicly held common stock or potential  common stock.
This  statement is effective for the fiscal years ending after December 15, 1997
and early  adoption is not permitted.  When adopted,  the statement will require
restatement  of prior  years'  earnings 









per share.  The  Company  will adopt this  statement  for its fiscal  year ended
December  31,  1997.  The  adoption of this  statement  will not have a material
impact on earnings  per share for the three and six months  ended June 30, 1997.
Pro forma  calculations  of basic  and  diluted  earnings  per share for the six
months ended June 30, 1996 as required by SFAS No. 128 are as follows:


<TABLE>
<CAPTION>

                                                                 THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                   JUNE 30, 1996                JUNE 30, 1996
                                                                   -------------                -------------


<S>                                                                 <C>                        <C>        
 Basic EPS Net Income                                               $ 504,000                  $ 1,044,000
 Weighted average common shares outstanding                         3,487,683                    3,487,663
 Basic EPS                                                               0.14                         0.30

 Diluted EPS Net Income                                             $ 504,000                  $ 1,044,000
 Weighted average common and common equivalent
    shares outstanding                                              4,745,292                    4,745,292
 Diluted EPS                                                             0.12                         0.24

</TABLE>

(5)  RECENT ACQUISITIONS

     MAINSTREAM ACQUISITION

    In January  1997,  Bitstream  purchased  substantially  all of the assets of
Mainstream Software Solutions, a corporation organized under the laws of England
primarily  engaged in the  business  of  marketing,  selling,  distributing  and
supporting  Bitstream  type products in the United  Kingdom,  for  approximately
$505,000.  As a result,  Bitstream directly  distributes its own products in the
United Kingdom.  The acquisition was accounted for as a purchase and resulted in
approximately $500,000 of goodwill.

     ARCHETYPE ACQUISITION

    In April  1997,  the  Company  acquired  Archetype,  Inc.  ("Archetype"),  a
Delaware  corporation  primarily  engaged  in the  business  of  developing  and
marketing server-based  information management computer software for the graphic
arts industry, pursuant to an Agreement and Plan of Merger, dated March 27, 1997
among the Company,  Archetype,  and Archetype Acquisition  Corporation,  a newly
organized wholly owned subsidiary of the Company.  Archetype's products include:
MediaBank,  a digital asset  management  product that allows for the cataloging,
archiving, and management of electronic images, text and documents; InterSep OPI
and  InterSep  Output  Manager,  advanced  open  prepress  interface  and  print
management  products for raster image  processors  and  servers;  and NuDoc,  an
advanced document composition technology.

     In connection with the Merger, Archetype stockholders received an aggregate
of approximately  $1.3 million in cash and 510,000 shares of the Company's Class
A Common  Stock in exchange  for their shares of  Archetype  capital  stock.  In
addition,  the Company satisfied  approximately  $1.6 million of obligations and
indebtedness owed by Archetype,  and issued options and warrants (the "Options")
to purchase  approximately 605,000 shares of the Company's Class A Common Stock,
in order to induce the former  Archetype  employees and other persons  receiving
such Options to become employees of, or perform certain services for the Company
and/or to replace certain  outstanding options and warrants issued by Archetype.
Of these  Options,  405,000  have an  exercise  price of $.90 per share and were
issued under the  Company's  1996 Stock Plan and the  remaining  200,000 have an
exercise price of $3.94 per share and were issued under the Company's 1997 Stock
Plan.

      The Merger was accounted for as a purchase,  and accordingly,  the initial
purchase price and acquisition costs aggregating  approximately $7.5 million has
been allocated to the assets  acquired  as described below.

        The aggregate purchase price of $6,762,000 consisted of the following:


Description                                            Amount
-----------                                            ------
Common stock                                        $ 2,904,000
Cash paid                                             2,544,000
Assumed liabilities                                   1,606,000
Acquisition costs                                       400,000
                                                    -----------
Total purchase price                                $ 7,454,000

       The purchase price allocations represent the fair values determined by an
independent  appraisal.   The  appraisal   incorporated   established  valuation
procedures  and  techniques in  determining  the fair value of each assets.  The
purchase price has been allocated as follows:

Description                                            Amount
------------                                           ------
Current assets                                      $   431,000
Property, plant and equipment                           207,000
Other assets                                             54,000
In-process research and development                   4,930,000
Other acquired intangible assets                      1,832,000
                                                    -----------
Total assets acquired:                              $ 7,454,000

       The amount  allocated to in-process  research and development  related to
projects  that had not yet reached  technological  feasibility  and that,  until
completion of the  development,  had no  alternative  future use. These projects
will require  substantial high risk development and testing by the Company prior
to reaching technological feasibility.

(6)   SEVERANCE AND OTHER NON-RECURRING EXPENSES

       Operating  expenses  for the three and six  months  ended  June 30,  1997
reflect $1.4 million for severance and other non-recurring compensation expenses
incurred in connection with the  acquisition of Archetype and certain  severance
arrangements between the Company and certain former high-level executives.




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


OVERVIEW

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

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

    The Company acquired Archetype,  Inc. ("Archetype"),  a Delaware corporation
primarily  engaged in the  business of  developing  and  marketing  server-based
information management computer software for the graphic arts industry, pursuant
to an  Agreement  and  Plan  of  Merger,  dated  March  27,  1997  (the  "Merger
Agreement") among the Company,  Archetype, and Archetype Acquisition Corporation
("A-Sub"), a newly organized wholly owned subsidiary of the Company. Archetype's
products include:  MediaBank, a digital asset management product that allows for
the  cataloging,  archiving,  and  management  of  electronic  images,  text and
documents;  InterSep OPI and InterSep  Output  Manager,










advanced open prepress interface and print management  products for raster image
processors and servers; and NuDoc, an advanced document composition technology.

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

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

     Except for the  historical  information  contained  herein,  this quarterly
Report on Form 10-Q may contain forward-looking statements within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities  Exchange  Act of 1934,  as amended.  Investors  are  cautioned  that
forward-looking  statements are inherently  uncertain.  Actual  performance  and
results of operations may differ materially from those projected or suggested in
the   forward-looking   statements  due  to  certain  risks  and  uncertainties,
including,  without  limitation,  market  acceptance of the Company's  products,
including  its  TrueDoc   enabling   technology,   competition  and  the  timely
introduction of new products.  Additional  information  concerning certain risks
and  uncertainties  that would cause actual  results to differ  materially  from
those projected or suggested in the  forward-looking  statements is contained in
the Company's  filings with the  Securities and Exchange  Commission,  including
those risks and uncertainties discussed in the Company's final Prospectus, dated
October 30, 1996,  included as part of the Company's  Registration  Statement on
Form  S-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.

















RESULTS OF OPERATIONS

     REVENUES.  Revenues for the three  months ended June 30, 1997  increased by
$458,000,  or 16.9%, to approximately $3.2 million, as compared to approximately
$2.7 million for the three months ended June 30, 1996. Revenues from OEM and ISV
customers  for the three months ended June 30, 1997 as compared to June 30, 1996
were  relatively  unchanged.  Revenues from end users and  distributors  for the
three  months  ended  June  30,  1997  increased  by  $453,000,   or  84.5%,  to
approximately  $989,000 from  approximately  $536,000 for the three months ended
June 30, 1996 reflecting inclusion of Archetype revenues since April 28, 1997.

     Revenues for the six months ended June 30, 1997  increased by $274,000,  or
5.1%, to approximately  $5.7 million,  as compared to approximately $5.4 million
for the six months ended June 30, 1996.  Revenues from OEM and ISV customers for
the  six  months  ended  June  30,  1997  declined  by  $267,000,  or  6.1%,  to
approximately  $4.1 million from  approximately  $4.3 million for the six months
ended June 30, 1996. Revenues from end users and distributors for the six months
ended June 30, 1997 increased  $540,000,  or 52.7%, to approximately  $1,564,000
from approximately  $1,024,000 for the six months ended June 30, 1996 reflecting
inclusion of Archetype revenues since April 28, 1997.

     GROSS  PROFIT.  Gross  profit  for the three  months  ended  June 30,  1997
increased by  $425,000,  or 18.9%,  to  approximately  $2.7 million  compared to
approximately  $2.3  million for the three  months  ended June 30,  1996.  Gross
profit as a  percentage  of revenues  for the three  months  ended June 30, 1997
increased to 84.67% compared to 83.29% for the three months ended June 30, 1996.
The increase in gross profit as a percentage of revenues reflects higher margins
earned  on  Archetype  sales  and a  decrease  in  costs of  licensing  fees and
royalties.

     Gross profit for the six months ended June 30, 1997  increased by $308,000,
or 6.7%, to approximately  $4.9 million  compared to approximately  $4.6 million
for the three  months  ended June 30,  1996.  Gross  profit as a  percentage  of
revenues for the six months ended June 30, 1997 increased to 86.39%  compared to
85.07% for the six months ended June 30, 1996. The increase in gross profit as a
percentage of revenues  reflects  higher margins earned on Archetype sales and a
decrease in costs of licensing fees and royalties. Gross profit and gross profit
as a  percentage  of  revenues  in the  future may be  affected  by a variety of
factors  including  third party  licensing  fees and  royalties,  pricing of the
Company's products and changes in the product mix of the Company's revenues.

      MARKETING AND SELLING. Marketing and selling expenses for the three months
ended June 30, 1997  increased  by $564,000,  or 54.3%,  to  approximately  $1.6
million compared to  approximately  $1.0 million for the three months ended June
30, 1996. This increase primarily reflects the inclusion of Archetype operations
since April 28, 1997.

      Marketing  and  selling  expenses  for the six months  ended June 30, 1997
increased by  $674,000,  or 31.4%,  to  approximately  $2.8 million  compared to
approximately $2.1 million for the six months ended June 30, 1996. This increase
primarily  reflects the inclusion of Archetype  operations since April 28, 1997.
In future  periods,  the Company  believes  marketing  and selling  expenses may
increase  in  absolute  dollars due to higher  levels of sales  commissions  and
higher levels of promotional activities in support of new product introductions.

          RESEARCH AND  DEVELOPMENT.  Research and development  expenses for the
three months ended June 30, 1997  increased by $302,000,  or 87.0%,  to $649,000
compared to $347,000 for the three months  ended June 30, 1996,  reflecting  the
addition of personnel to support expanded  development of the Company's enabling
technologies,  as well as Archetype expenses since April 28, 1997.  Research and
development









expenses consist primarily of personnel costs and fees paid for outside software
development and consulting fees.

       Research and development  expenses for the six months ended June 30, 1997
increased by  $477,000,  or 70.1%,  to  approximately  $1.2 million  compared to
$680,000  for the six months  ended June 30,  1996,  reflecting  the addition of
personnel  to  support   expanded   development   of  the   Company's   enabling
technologies,  as well as Archetype expenses since April 28, 1997.  Research and
development  expenses  consist  primarily of  personnel  costs and fees paid for
outside  software  development  and  consulting  fees.  The  Company  expects to
increase  research and development  expenditures  in absolute  dollars in future
periods to support development of current and future products and technologies.

          GENERAL AND  ADMINISTRATIVE.  General and administrative  expenses for
the three  months  ended June 30,  1997  increased  by  $187,000,  or 49.6%,  to
$564,000  compared to $377,000 for the three  months  ended June 30, 1996.  As a
percentage of revenues,  general and administrative  expenses represented 17.83%
for the three months ended June 30, 1997 compared to 13.94% for the three months
ended June 30, 1996  reflecting  an increase in  professional  fees in the three
months ended June 30, 1997.

       General and  administrative  expenses  for the six months  ended June 30,
1997 increased by $213,000,  or 27.4%, to $989,000  compared to $776,000 for the
six months  ended June 30,  1996.  As a  percentage  of  revenues,  general  and
administrative  expenses  represented  17.83% for the six months  ended June 30,
1997  compared to 14.34% for the six months  ended June 30, 1996  reflecting  an
increase in professional fees in the six months ended June 30, 1997. The Company
expects to increase general and  administrative  expenses in absolute dollars in
the future to support the Company's growth and infrastructure.

       Operating  expenses  for the three  months  ended June 30,  1997  reflect
non-recurring  expenses of $6.3 million,  including  $4.9 million for in process
research and development expenses incurred in conjunction with the merger of the
Company and Archetype  and $1.4 million for  severance  and other  non-recurring
compensation expenses.  See Note 6 to the financial statements.

          The  Company  recorded a tax  provision  for the three  months and six
months  ended  June 30,  1997 of  $118,000  and  $141,000,  respectively.  These
provisions  consisted  of  foreign  withholding  taxes of $85,000  and  $90,000,
respectively, and current tax provision of $33,000 and $52,000, respectively, in
the three months and six months ended June 30, 1997.

LIQUIDITY AND CAPITAL RESOURCES

    The Company has funded its operations  primarily  through the public sale of
equity securities and cash flow from operations.

    At June 30, 1997, the Company had cash and cash equivalents of $8.2 million,
a decrease of $3.4  million from $11.7  million at December  31,  1996.  Working
capital  was $8.9  million  at June 30,  1997 as  compared  to $14.2  million at
December 31, 1996. The Company's operating  activities provided cash of $734,000
for the six months  ended June 30,  1997 as  compared  to  $159,000  for the six
months ended June 30, 1996. The Company's investing activities used cash of $4.2
million for the six months  ended June 30, 1997 as compared to $435,000  for the
six months ended June 30, 1996.  Investing activities consisted primarily of the
purchase  of  Archetype,  as well as the  purchase of  substantially  all of the
assets of Mainstream Software Solutions. The Company's financing activities used
cash of $42,000  for the six months  ended June 30,  1997 and  provided  cash of
$562,000 for the six months ended June 30, 1996.

    The Company has  received a  commitment  from a  commercial  lender for a $2
million  unsecured  working  capital  line of credit.  This line of credit bears
interest at the bank's base lending rate, and will expire in August 1998.












    The  Company  believes  that the cash  generated  from the  proceeds  of its
initial  public  offering  of its Class A Common  Stock,  cash from  operations,
current cash balances and the availability of its working capital line of credit
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.

    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.


                          PART II -- OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

    Not applicable.

ITEM 2. CHANGES IN SECURITIES

      During the quarter ended June 30, 1997, the Company issued an aggregate of
318,007  shares of Class A Common Stock  including  (i) 26,850 shares of Class A
Common Stock issued in  connection  with the exercise of 26,850  vested  options
issued under the Company's  1994 Stock Plan,  and (ii) 291,157 shares of Class A
Common Stock issued in connection  with the  conversion of 291,157 shares of the
Company's Class B Common Stock at the request of the holder thereof  pursuant to
the terms of the Company's Certificate of Incorporation.

     The sales and issuances of securities  under the 1994 Stock Plan are deemed
to be exempt from registration under the Securities Act of 1933, as amended (the
"Securities  Act"),  under Rule 701  promulgated  thereunder,  in that they were
issued pursuant to a written  compensatory benefit plan or pursuant to a written
contract  relating to  compensation  as provided by Rule 701.  The  issuances of
securities  upon  conversion  of the Class B Common Stock is deemed to be exempt
from registration under the Securities Act under Section 4(2) thereof.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

    Not applicable.

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

     a) On June 3, 1997, the Annual Meeting of  Stockholders  of the Company was
held at the Royal Sonesta Hotel, 5 Cambridge Parkway,  Cambridge,  Massachusetts
02142.

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

     c) At the Annual Meeting, the Stockholders also voted to approve and ratify
the adoption of the Company's 1997 Stock Plan.

    The following votes were tabulated on the aforementioned proposals:












1.  To elect a board of four  (4)  directors  to  serve  until  the next  Annual
    Meeting of Stockholders or until their respective successors are elected and
    qualified.

           Nominee                  For               Withheld Authority
           -------                  ---               ------------------

      George B. Beitzel           3,829,894                  31,850
      Amos Kaminski               3,829,894                  31,850
      David G. Lubrano            3,830,194                  31,550
      Charles Ying                3,829,894                  31,850

2.    To approve and ratify the adoption of the Company's 1997 Stock Plan.

            For         Against        Abstain        Broker Non-Vote
            ---         -------        -------        ---------------

         2,924,388      474,597         4,700             458,059

           d)  Not applicable

ITEM 5. OTHER INFORMATION

    Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    (a)  Exhibits

         10.4.5   Fifth Amendment to Lease between Athenaeum Property LLC and 
                  the Company dated April 15, 1997

         10.4.6   Sixth Amendment to Lease between Athenaeum Property LLC and 
                  the Company dated June 6, 1997

         27.1 Financial Data Schedule

    (b) Reports on form 8-K

         The Company filed a Current Report on Form 8-K on May 9, 1997 and filed
    an  amendment  to such  Current  Report  on July 14,  1997 to  announce  the
    Company's  acquisition of Archetype,  Inc, a Delaware corporation  primarily
    engaged in the business of developing and marketing server-based information
    management  computer  software for the graphic arts industry  pursuant to an
    Agreement  and Plan of Merger dated March 27, 1997.  The Form 8-K/A filed on
    July 14, 1997 included  financial  statements  for  Archetype,  Inc. for the
    fiscal  year  ended  December  31,  1996 and pro  forma  combined  financial
    statements for the Company and Archetype,  Inc.  giving effect to the merger
    of the two companies.








                                   SIGNATURES

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

                                                         BITSTREAM INC.
                                                         --------------
                                                         (Registrant)

<TABLE>
<CAPTION>
            SIGNATURE                                TITLE                         DATE
            ---------                                -----                         ----

<S>                                <C>                                       <C> 
 /s/ Charles Ying                   Chairman of the Board of Directors and    August 14, 1997
-----------------------------       Chief Executive Officer (Principal    
                                    Executive Officer, Principal Financial
Charles Ying                        Officer and Principal Accounting      
                                    Officer)                              
                                    

</TABLE>