Bitstream Inc. Reports Third Quarter Results for 2010

Bitstream Inc. (Nasdaq: BITS) today reported that total revenue increased by $322,000 or 6% to $5,982,000 for the three months ended September 30, 2010 as compared to total revenue of $5,660,000 for the three months ended September 30, 2009 and by $547,000 or 10% sequentially as compared to $5,435,000 for the three months ended June 30, 2010. The Company’s aggregate cash, cash equivalents, and investments at September 30, 2010 totaled $12,609,000, an increase of $476,000 from a balance of $12,133,000 at June 30, 2010 and a decrease of $5,420,000, as compared to a balance of $18,029,000 at December 31, 2009, reflecting the use of $6,528,000 of cash in the second quarter of 2010 to purchase certain assets of Press-sense Ltd.

"We are excited to see our revenues grow to $5,982,000 for the third quarter, our highest quarterly revenue since the second quarter of 2008," said Anna Magliocco-Chagnon, President and Chief Executive Officer. "This growth was the result of increased sales for our e-commerce and Pageflex businesses as compared to the quarter ended June 30, 2010, a large order for our OEM font business and the addition of our first OEM revenue related to our new iWay product during the third quarter. We also made significant progress in building our relationships with our publishing OEM partners and look forward to growing this business as these partners relaunch the iWay product through their sales channels. We are also excited about the team we are building for our BOLT browser product line and the level of experience that they bring to us as we continue to focus on signing deals to monetize our BOLT offering."

Our e-commerce sales increase for the three months ended September 30, 2010 contributed to an increase in direct third party cost of revenue, consisting primarily of royalty expenses, of $503,000 or approximately 30%, as compared to the three months ended September 30, 2009. Operating expenses increased $1,364,000 to $4,209,000 for the three months ended September 30, 2010 from $2,845,000 for the three months ended September 30, 2009. The increase was primarily due to increases in research and development ("R&D”) and general and administrative ("G&A”) expenses of $823,000 and $467,000, respectively. The increase in R&D expense consisted primarily of $571,000 due to the addition of R&D resources related to the iWay product line, as well as, an increase of $194,000 of increased publishing and browsing personnel related costs including salaries, benefits, and facilities. The increase of G&A expense was primarily the result of $109,000 in acquisition costs associated with the purchase of assets from Press-sense Ltd., $191,000 in director fees and expenses due to increases in the number of board members during 2010 (including $63,000 from the acceleration of stock award vesting for Mr. Ying upon his retirement), as well as a $203,000 increase in professional services including services from accounting, auditing, tax, legal and investor relations firm.

GAAP Results

Our loss from operations was $(1,091,000) for the three-months ended September 30, 2010, as compared to operating income for the three-months ended September 30, 2009 was $536,000. Our net loss for the three months ended September 30, 2010 was ($1,174,000) or ($.12) per share as compared to net income for the three months ended September 30, 2009 of $519,000 or $.05 per fully diluted share.

Non-GAAP Results

Our Non-GAAP results for the three months ended September 30, 2010 exclude stock-based compensation expense, the amortization of intangible assets primarily acquired from Press-sense Ltd. and acquisition costs for certain assets of Press-sense Ltd. Our Non-GAAP loss from operations was $(587,000) for the three months ended September 30, 2010, as compared to operating income for the three months ended September 30, 2009 of $759,000. Our Non-GAAP net loss was $(670,000) or $(0.07) per share for the three months ended September 30, 2010, as compared to net income for the three months ended September 30, 2009 of $742,000 or $0.07 per fully diluted share. A reconciliation between GAAP and non-GAAP results is provided at the end of this press release.

CONFERENCE CALL REMINDER

Today, November 15, 2010 at 4:30 p.m. EST, Bitstream will host a conference call with the financial community to discuss its results for the quarter ended September 30, 2010:

• Domestic Dial-in number: 1-866-244-4526
• International Dial-in number: 1-703-639-1172

Call into the conference number 5-10 minutes prior to the start time. An operator will request that you provide your name and organization and ask you to wait until the call begins. If you have any difficulty connecting with the conference call number, please contact Bitstream at (617) 497-6222.

A replay of the conference call will be available through November 25, 2010 (access code): 1496665

• Domestic Replay number: 1-888-266-2081
• International Replay number: 1-703-925-2533

The replay will also be available via the Company’s website at www.bitstream.com/corporate/investor

Forward Looking Statements Disclosure

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current expectations. 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 Bitstream’s Annual Report on Form 10-K for the year ended December 31, 2009, as supplemented by Bitstream’s subsequent quarterly reports on Form 10Q in 2010.

Use of Non-GAAP Financial Information

To supplement the financial measures presented in the Company's press release in accordance with accounting principles generally accepted in the United States ("GAAP"), the Company also presents non-GAAP measures relating to income or loss from operations, net income or loss and net income or loss per diluted share which were adjusted from amounts determined based on GAAP to exclude share-based compensation expenses, as well as expenses from the amortization of intangible assets primarily acquired from Press-sense Ltd. and the acquisition costs for acquiring certain assets of Press-sense Ltd.

The Company believes these non-GAAP financial measures will enhance the reader’s overall understanding of Bitstream’s current financial performance and the Company's prospects for the future by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps investors understand how the Company plans and measures its own business. These financial measures are not in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP, and may have limitations in that they do not reflect all of Bitstream’s results of operations as determined in accordance with GAAP.

These non-GAAP measures should only be used to evaluate Bitstream’s results of operations in conjunction with the corresponding GAAP measures. The presentation of non-GAAP information is not meant to be considered superior to, in isolation from or as a substitute for results prepared in accordance with GAAP.

About Bitstream

Bitstream Inc. develops software technologies and applications for the graphic art and mobile communications industries. Bitstream’s award-winning fonts and font technologies enable device manufacturers and application developers to render the highest quality text in any language, on any device, at any resolution. The company’s MyFonts brand is the world’s leading provider of fonts to consumers. Bitstream’s Pageflex brand enables marketers to easily produce customized communications in print, email and online. The company’s latest offering is the BOLT mobile browser, which has been installed by millions of users worldwide since its release in February 2009. For more information visit www.bitstream.com.

For the three and nine months ended September 30, 2010, diluted net loss per share is based on 9,921 and 9,878 diluted weighted average shares outstanding, respectively. Diluted net income per share is based on 10,248 and 10,179 diluted weighted average shares outstanding for the three and nine months ended September 30, 2009, respectively.