CAMBRIDGE, Mass.--Feb. 24, 2003--Bitstream Inc. today reported that revenue for the three months ended Dec. 31, 2002, was $2,274,000, compared with $2,355,000 for the three months ended Dec. 31, 2001, a decrease of $81,000 or 3.4%. During the same periods, cost of revenue increased $207,000 or 66.6% primarily due to an increase of $188,000 in costs including royalties to third-party foundries incurred by the company's MyFonts.com business segment. Operating expenses for all three of the company's segments during the same periods decreased $581,000 or 23.2% and the company's loss from operations decreased $293,000 or 64.4%. The company's net profit for the three months ended Dec. 31, 2002, was $74,000, representing an increase of $563,000, from a $(489,000) loss for the three months ended Dec. 31, 2001. The company's cash and cash equivalent balance at Dec. 31, 2002, was $4,828,000, a decrease of $151,000 from the Sept. 30, 2002, balance of $4,979,000. "We are extremely pleased that despite the tough economy we were able to achieve our first quarterly net profit since 1996, excluding the profit generated by our sale of MediaBank and InterSep in the third quarter of 1998," said Charles Ying, chief executive officer. "Not only did we increase our net income as compared to the fourth quarter of last year, we also increased it by $690,000 as compared to a loss of $(616,000) for the three months ended Sept. 30, 2002. We also released two new products during 2002, ThunderHawk and .EDIT, which we believe will position the company well for future growth." Bitstream is composed of three different businesses: (1) its type and technology ("Type") business, which generates revenue primarily from the licensing of font rendering software and fonts to the embedded, set-top box, wireless device and information appliance markets; (2) MyFonts.com, a wholly owned subsidiary that was formed in late 1999 as the first e-commerce site to aggregate fonts from multiple vendors on one easy-to-use Web site ("MyFonts.com"); and (3) Pageflex, a wholly owned subsidiary that was formed in early 1999 to establish the company as a leader in dynamic page composition technologies ("Pageflex"). The performance of each business segment is discussed in greater detail below. Type Results Type revenue for the three months ended Dec. 31, 2002, decreased $417,000 or 26.4% to $1,164,000 from $1,581,000 for the three months ended Dec. 31, 2001. Cost of revenue increased $26,000 or 22% to $144,000 for the three months ended Dec. 31, 2002, from $118,000 for the three months ended Dec. 31, 2001. Cost of revenue increased as the revenue generated from royalty bearing type products increased in comparison to non-royalty bearing technology. Consequently, Type gross profit decreased by $443,000 from $1,463,000 for the three months ended Dec. 31, 2001, to $1,020,000 for the three months ended Dec. 31, 2002. Operating expenses for the three months ended Dec. 31, 2002, decreased $176,000 or 15.1% to $986,000, compared with $1,162,000 for the three months ended Dec. 31, 2001. This decrease was primarily due to decreased sales and marketing and general administrative expenses of $93,000 and $74,000, respectively. Income from operations for the company's Type business segment was $34,000 for the three months ended Dec. 31, 2002, compared with $301,000 for the three months ended Dec. 31, 2001, a decrease of $267,000. "Despite the difficult economy, our Type business returned to profitability in the fourth quarter of 2002, as we increased income from operations $110,000 from an operating loss of $(76,000) for the three months ended Sept. 30, 2002, while using a significant amount of resources for the development and initial launch of ThunderHawk," said Anna M. Chagnon, president and chief operating officer. "During the fourth quarter, we added two new set-top box placements and licensed our font technology to over 28 customers. During the quarter we had 2,025 users download and set up accounts for our end-user version bringing the total to date to 6,355. We also had 207 new subscribers during the fourth quarter bringing the total to date to 435. "We also entered into discussions with over 25 new ThunderHawk corporate accounts, bringing the total number of accounts evaluating ThunderHawk as a potential corporate solution to 43. We have learned that many of these accounts have budgets in place for pilot programs in mid to late 2003. We are optimistic that our first sale of the Enterprise Edition of ThunderHawk is forthcoming. "To improve the appeal of ThunderHawk to the corporate market, we focused our development efforts on increased device support, a new Enterprise Edition and increased functionality. We also have plans to bring ThunderHawk to Palm-based devices and cell phones during the coming year. "Additionally, we are also participating in two new 3G trials with wireless carriers and we have begun discussions with three new wireless carriers to try to achieve our goal of providing the killer application for the world of 3G wireless technology." MyFonts.com Results MyFonts.com revenue for the three months ended Dec. 31, 2002, increased $218,000 or 126% to $391,000 from $173,000 for the three months ended Dec. 31, 2001. Revenue attributable to this segment, before elimination of intercompany royalties due on the resale of Bitstream products, for the three months ended Dec. 31, 2002, increased $230,000 or 98.7% to $463,000 from $233,000 for the three months ended Dec. 31, 2001. Cost of revenue, which primarily represents royalties paid to non-related foundries whose products MyFonts.com resells, for the three months ended Dec. 31, 2002, increased $188,000 or 142.4% to $320,000 from $132,000 for the three months ended Dec. 31, 2001. Operating expenses for the three months ended Dec. 31, 2002, decreased $8,000 or 4.4% to $173,000 from $181,000 for the three months ended Dec. 31, 2001. Loss from operations for the MyFonts.com business decreased $38,000, or 27.1% to $(102,000) for the three months ended Dec. 31, 2002, compared with $(140,000) for the three months ended Dec. 31, 2001. "MyFonts.com continues to show growth as revenues for the year increased $868,000 or 170%," said John Collins, vice president and chief technology officer. "During the fourth quarter, MyFonts.com acquired over 14,000 new users bringing the total at year end to 80,000 registered users. "During the quarter 32% of orders were placed by users who had previously purchased fonts from MyFonts.com. We regard this as a very strong vote of confidence in MyFonts.com. As of the end of the year, MyFonts.com has over 105 foundries, large and small, participating as partners with MyFonts.com to offer their fonts for sale. "This represents an aggregate collection of over 26,000 fonts allowing us to serve the needs of a wide variety of customers, including those who have never purchased a font before." Pageflex Results Revenue from the company's Pageflex business for the three months ended Dec. 31, 2002, increased $118,000 or 19.6% to $719,000 from $601,000 for the three months ended Dec. 31, 2001. Cost of revenue for the three months ended Dec. 31, 2002, decreased $7,000 or 11.5% to $54,000 from $61,000 for the three months ended Dec. 31, 2001. Operating expenses for the three months ended Dec. 31, 2002, decreased $397,000 or 34.3% to $759,000 from $1,156,000 for the three months ended Dec. 31, 2001. The combination of increased revenues and decreased operating expenses resulted in a decrease in the operating loss of $522,000 or 84.7% to $(94,000) for the three months ended Dec. 31, 2002, from $(616,000) for the three months ended Dec. 31, 2001. "Pageflex's strong customer base has allowed this business segment to continue its focus on increasing revenue and improving profitability while completing exciting new product development that positions Pageflex to be the leader in the growing area of Web-top publishing," said David Frenkel, general manager of Pageflex. "During the fourth quarter our sales pipeline for Mpower and .EDIT increased significantly resulting in two new placements of .EDIT and Mpower to large corporations bringing the total number of Pageflex customers to over 75. Thus far in 2003 we have made an additional three sales of .EDIT and Mpower as a direct result of the growing sales pipeline. "To further expand our sales reach, we signed agreements with three new resellers who are committed to creating a business around sales of our products. Our increasing customer base, new sales channels and the release of .EDIT 2.0 give us significant advantage in the emerging Web-top publishing market."