10-Q

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, 2012

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: 000-54620

Marlborough Software Development Holdings Inc.

(Exact name of registrant as specified in its charter)

Delaware	45-3751691
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

500 Nickerson Road, Marlborough, MA 01752-4695

(Address of principal executive offices)

Registrant’s telephone number, including area code: (617) 520-8400

(Registrant’s telephone number, including area code)

Indicate by checkmark 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 (the “Exchange Act”) 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 checkmark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x

On August 8, 2012, there were 10,751,609 shares of Common Stock, par value $0.01 per share issued and outstanding.

INDEX

		PAGE NUMBERS
PART I. FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011		2
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011 (UNAUDITED)		3
	CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2012 (UNAUDITED)		4
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011 (UNAUDITED)		5
	NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		16
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		24
ITEM 4.	CONTROLS AND PROCEDURES		24
PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS		24
ITEM 1A.	RISK FACTORS		25
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		25
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		25
ITEM 4.	MINE SAFETY DISCLOSURES		25
ITEM 5.	OTHER INFORMATION		25
ITEM 6.	EXHIBITS		25
SIGNATURES			26

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MARLBOROUGH SOFTWARE DEVELOPMENT HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

	June 30,			December 31,
	2012			2011
	(Unaudited)
ASSETS
Current assets:
Cash	$	2,912		$	551
Accounts receivable, net of allowance of $20 and $24 at June 30, 2012 and December 31, 2011, respectively		438			628
Prepaid expenses and other current assets		784			394
Total current assets		4,134			1,573
Property and equipment, net		1,699			1,355
Other		437			238
Goodwill		3,297			3,297
Intangible assets, net		2,869			3,070
Total assets	$	12,436		$	9,533
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	399		$	169
Accrued payroll and other compensation		796			775
Other accrued expenses		734			388
Short-term deferred revenue		2,101			2,200
Total current liabilities		4,030			3,532
Long-term deferred revenue		583			526
Long-term deferred rent		489			506
Total liabilities		5,102			4,564
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.01 par value: 10,000 shares authorized; no shares issued or outstanding		—			—
Common stock, $0.01 par value: 30,500 shares authorized; 10,752 and no shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively		108			—
Additional paid-in capital		12,946			1,305
Accumulated deficit		(5,720	)		(44,880	)
Owner’s net investment, prior to separation		—			48,544
Total stockholders’ equity		7,334			4,969
Total liabilities and stockholders’ equity	$	12,436		$	9,533

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

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MARLBOROUGH SOFTWARE DEVELOPMENT HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenue:
Software licenses	$	628		$	604		$	1,044		$	1,367
Services		1,337			1,478			2,689			2,977
Total revenue		1,965			2,082			3,733			4,344
Cost of revenue:
Software licenses		261			405			463			581
Services		688			520			1,212			980
Total cost of revenue		949			925			1,675			1,561
Gross profit		1,016			1,157			2,058			2,783
Operating expenses:
Marketing and selling		1,169			821			2,236			1,698
Research and development		1,486			1,650			3,371			3,451
General and administrative		785			1,037			2,017			1,788
Total operating expenses		3,440			3,508			7,624			6,937
Operating loss		(2,424	)		(2,351	)		(5,566	)		(4,154	)
Interest and other (expense) income, net		(17	)		26			(43	)		32
Loss before provision for income taxes		(2,441	)		(2,325	)		(5,609	)		(4,122	)
Provision for income taxes		(59	)		(68	)		(111	)		(91	)
Net loss	$	(2,500	)	$	(2,393	)	$	(5,720	)	$	(4,213	)
Basic and diluted net loss per share	$	(0.23	)	$	(0.22	)	$	(0.53	)	$	(0.39	)
Basic and diluted weighted average shares outstanding		10,752			10,752			10,752			10,752

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

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MARLBOROUGH SOFTWARE DEVELOPMENT HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(IN THOUSANDS)

	Common stock				Additional paid-in capital			Accumulated deficit			Owner’s  net investment, prior to separation			Total stockholders’ equity
	Number of shares		$ Amount
December 31, 2011, balance		—	$	—	$	1,305		$	(44,880	)	$	48,544		$	4,969
Capital contributions from former Parent		—		—		—			—			9,005			9,005
Separation-related adjustments		—		—		(1,305	)		(3,043	)		3,428			(920	)
Reclassification of owner’s net investment to common stock and additional paid-in capital in connection with the Separation		10,752		108		12,946			47,923			(60,977	)		—
Net loss		—		—		—			(5,720	)		—			(5,720	)
June 30, 2012, balance (Unaudited)		10,752	$	108	$	12,946		$	(5,720	)	$	—		$	7,334

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

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MARLBOROUGH SOFTWARE DEVELOPMENT HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(IN THOUSANDS)

(Unaudited)

	Six Months Ended June 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,720	)	$	(4,213	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		—			137
Depreciation and amortization		149			108
Net loss on disposal of property and equipment		2			2
Amortization of intangible assets		201			204
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable		178			305
Prepaid expenses and other current assets		(184	)		(344	)
Accounts payable		(306	)		149
Accrued payroll and other compensation		(126	)		94
Other accrued expenses		(123	)		117
Deferred revenue (long and short-term)		(42	)		338
Deferred rent (long and short-term)		(17	)		(11	)
Net cash used in operating activities		(5,988	)		(3,114	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, including costs capitalized for development of internal-use software		(586	)		(103	)
Increase in restricted cash		(70	)		(54	)
Additions to intangible assets		—			(12	)
Net cash used in investing activities		(656	)		(169	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions from former Parent		9,005			3,280
Net cash provided by financing activities		9,005			3,280
Net increase (decrease) in Cash		2,361			(3	)
Cash, beginning of period		551			601
Cash, end of period	$	2,912		$	598

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

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MARLBOROUGH SOFTWARE DEVELOPMENT HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per-share amounts)

All references to “MSDH,” “we,” “us,” “our,” or “Company” refer to Marlborough Software Development Holdings Inc., a Delaware corporation. All references to “Bitstream” or “Parent” refer to Bitstream Inc., our former parent. Except as otherwise noted, all reported dollar amounts are in thousands.

(1) Background and Nature of Operations

MSDH was formed on July 18, 2011 in conjunction with our former Parent’s planned merger (the “Bitstream Merger”) with and acquisition by Monotype Imaging Holdings Inc., a Delaware corporation (“Monotype”), pursuant to an agreement and plan of merger (the “Bitstream Merger Agreement”) entered into by and between Bitstream and Monotype on November 10, 2011. On January 1, 2012, Bitstream transferred and assigned to MSDH all of the assets and liabilities relating to, arising from, or in connection with Bitstream’s Pageflex and BOLT product lines (the “Separation”) pursuant to the terms and conditions of a Contribution Agreement dated November 10, 2011 by and between Bitstream and MSDH (the “Contribution Agreement”). On March 14, 2012, Bitstream distributed all of the shares of MSDH common stock to the stockholders of Bitstream on a pro rata basis (the “Distribution”) pursuant to the terms and conditions of the Distribution Agreement dated November 10, 2011 between Bitstream and MSDH (the “Distribution Agreement”). On March 19, 2012, Bitstream completed the Bitstream Merger with Monotype. MSDH and Bitstream have entered into certain ancillary agreements in connection with the Separation and Distribution that provide for indemnification of Bitstream with respect to certain liabilities of the Pageflex and BOLT products contributed to MSDH.

MSDH is a software development company focused on bringing innovative and proprietary software products to a wide variety of markets. Our core software products include mobile browsing technologies and variable data publishing, Web-to-print, and multi-channel communications technologies.

MSDH is subject to risks common to technology-based companies, including dependence on key personnel, rapid technological change, competition from alternative product offerings and larger companies, and challenges to the development and marketing of commercial products and services. MSDH has also experienced net losses and negative operating cash flows in the past and in the current year, and as of June 30, 2012 has an accumulated deficit of approximately $5,720. MSDH’s historical carved out financial statements included an accumulated deficit of $47,923 at December 31, 2011, which was reset as of the Separation.

The unaudited condensed consolidated financial statements have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. MSDH’s long-term viability is dependent on its ability to generate sufficient product revenue, net income and cash flows from operations to support its business as well as its ability to obtain additional financing. Management’s plans also include reducing operating costs and delaying certain expenditures, if necessary, to maintain the Company’s liquidity. The Separation from Bitstream Inc. has disrupted and may continue to disrupt our business and management, negatively affecting our business, operating results or financial condition and may cause other risks to the Company. MSDH has suffered recurring losses from operations and, for its liquidity, has relied on contributions from Bitstream. As of March 19, 2012, MSDH had accumulated contributions of approximately $60,977 from its former Parent.

MSDH had a cash balance of $2,912 as of June 30, 2012. Management believes that with this cash and our current operating plan, our cash will be sufficient to meet the Company’s working capital and capital expenditure requirements through at least the next twelve months.

(2) Basis of Presentation and Allocation Methodologies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of MSDH and its wholly-owned Israeli subsidiary. All material intercompany transactions and balances have been eliminated in consolidation. The financial statements prior to January 1, 2012 represent the assets, liabilities and operations relating to the two product lines of Bitstream that were contributed to MSDH. Our unaudited condensed consolidated financial statements presented herein 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 in the United States of America (“GAAP”). The balance sheet information as of December 31, 2011 has been derived from our audited consolidated financial statements but does not include all disclosures required by GAAP. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2011 included in our Annual Report on Form 10-K, which was filed with the SEC on March 30, 2012. The condensed consolidated balance sheet as of June 30, 2012, the condensed consolidated statements of operations for the three and six months ended June 30, 2012 and 2011, the

6

condensed consolidated statements of stockholders’ equity for the six months ended June 30, 2012, and the condensed consolidated statements of cash flows for the six months ended June 30, 2012 and 2011, and the notes to each are unaudited, but in the opinion of management include all adjustments necessary for a fair presentation of the condensed consolidated financial position, results of operations, and cash flows of the Company as of and for these interim periods. The results of operations for the three and six months ended June 30, 2012 may not necessarily be indicative of the results to be expected for other interim periods and the year ending December 31, 2012. The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates in these financial statements include MSDH allocation methodologies, revenue recognition, the valuation of acquired intangible assets and goodwill, share-based compensation, income taxes and the valuation of deferred tax assets, and the allowance for doubtful accounts receivable. Actual results could differ from those estimates.

The Company evaluated subsequent events through August 14, 2012 to determine whether or not any such events required disclosure in this Form 10-Q, and determined that there was no such event.

On March 14, 2012, as a wholly-owned subsidiary of the Parent, the Company completed its Separation from the Parent whereby each owner of Bitstream Class A Common Stock received a distribution of one share of MSDH Common Stock for each share of Bitstream Class A Common Stock that they owned as of the close of trading on March 8, 2012. On January 1, 2012, MSDH recorded a contribution adjustment of $(920) for the contribution of non-cash accounts comprised of various asset classifications of $231, various liability classifications of $(1,222) and equity related accounts of $71. The Company also recorded a cash contribution adjustment of $6,346 on January 1, 2012. Total capital contributions from the Parent during the first quarter of 2012 totaled $9,005, inclusive of the contribution adjustment of $6,346. There were no capital contributions from the Parent during the three months ended June 30, 2012 as the Separation and Merger were completed during the first quarter of 2012.

Retained Earnings as of the Distribution

During the quarter ended June 30, 2012, management determined that retained earnings as of the Distribution date should have been reset to $0. The Company has decreased accumulated deficit and additional paid-in capital by approximately $48 million to correct the presentation on the condensed consolidated balance sheet as of June 30, 2012, and in the statement of changes in stockholders’ equity for the six months then ended contained in this quarterly report on Form 10-Q. The Company will revise its balance sheet and statement of changes in stockholders’ equity for the three months ended March 31, 2012, to reflect this correction in all future filings that contain such condensed consolidated financial statements. The adjustment eliminates the previously reported accumulated deficit and decreases the previously reported additional paid in capital for the three months ended March 31, 2012 by approximately $48 million. The adjustment does not affect total stockholders’ equity. Management does not consider this correction to be qualitatively material to the Company’s prior period condensed consolidated financial statements.

Allocation Methodologies

The financial statements of MSDH have been partially derived from the financial statements of Bitstream Inc. utilizing the following methodologies:

The December 31, 2011 MSDH balance sheet reflects the financial position of MSDH as if it had been a separate entity. Only those assets and liabilities, which were specifically identifiable to the MSDH business or those assets and liabilities that were used primarily by the MSDH business, such as our leased facilities in the United States, have been attributed and included in the balance sheet of MSDH. The June 30, 2012 MSDH condensed consolidated balance sheet reflects the actual assets, liabilities, and equity of MSDH after the completion of the Separation and Distribution.

The historical MSDH statements of operations for the three and six months ended June 30, 2011 reflect revenue directly attributed to the MSDH business. Cost of revenue, research and development, and sales and marketing departments have historically been product specific and thus have been primarily attributed to MSDH based on product line information. Certain general and administrative (“G&A”) items that could be specifically identified and allocated, including amortization of intangibles, were allocated. Other general expenses that could not be specifically identified to a product line were allocated based on the most relevant measure, such as headcount and product revenue. Bitstream charged MSDH a fee for assets used by both companies, approximating fair value based upon relative usage of these assets, for the three and six months ended June 30, 2011. The fee is netted with the expenses of MSDH in the consolidated statements of operations and was not material for the period prior to the Distribution.

Effective with the Separation on January 1, 2012 a management fee agreement between MSDH and Bitstream was executed, providing for the chargeback of certain costs incurred from January 1, 2012 through March 19, 2012, the effective date of the Bitstream Merger. These costs included all Separation, Distribution, and Merger costs directly associated with the transactions which amounted to $2,254, as well as a percentage ranging from 30% to 50% of general and administrative and manufacturing costs. The costs invoiced to Bitstream per this agreement are consistent with the allocation methodologies utilized for the 2011 consolidated financial statements.

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The following table presents the allocable expense amounts allocated to the Company’s former Parent:

	Three months ended June  30,					Six months ended June  30,
Category	2012		2011			2012		2011
Cost of revenue	$	—	$	27		$	11	$	56
Marketing and selling		—		16			—		28
General and administrative		—		1,026			807		1,514
Interest and other (income) expense, net		—		(155	)		—		(173	)
Income taxes		—		9			—		40
Total	$	—	$	923		$	818	$	1,465

There is significant judgment in determining the allocation of income, expense, and attribution of assets and liabilities. Management believes that the methodologies used in the allocation are reasonable.

(3) Relationship with our Former Parent

In connection with the Separation, we entered into a series of agreements, in addition to the Contribution and Distribution Agreements, with our former Parent. These agreements include a tax indemnification agreement and intellectual property assignment and license agreements with our former Parent, as well as a transition services agreement with Monotype. The net expense to MSDH related to these agreements was not material for the three and six months ended June 30, 2012.

(4) Disclosures about Segments of an Enterprise

We conduct our operations in one business segment with two major product lines: mobile browsing and messaging technology, and automated marketing communication and print production technology.

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

Financial instruments that potentially expose us to concentrations of credit risk consist primarily of cash and trade accounts receivable. We place a majority of our cash investments in one highly-rated financial institution. We have 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 us to be inherent in our accounts receivable. As of June 30, 2012 and December 31, 2011, we did not have any off-balance sheet arrangements or unconsolidated special-purpose entities within the meaning of Item 303(a)(4) of Regulation S-K and therefore did not have any off-balance sheet risks as of such dates. At June 30, 2012, four customers accounted for 22%, 15%, 11%, and 11% of our accounts receivable, respectively. At December 31, 2011, two customers accounted for 23% and 19% of our accounts receivable, respectively. For the three and six months ended June 30, 2012, one customer accounted for 16% and 17% of our revenue, respectively. For each of the three and six month periods ended June 30, 2011, one customer accounted for 25% of our revenue.

(6) Foreign Currency Remeasurement and Transactions

The functional currency for the Company’s foreign subsidiary is the U.S. Dollar. For financial reporting purposes, assets and liabilities of subsidiaries outside the United States of America denominated in other currencies are remeasured into U.S. dollars using period-end and historical exchange rates. Revenue and expense accounts are remeasured at the monthly average rates in effect during the period. The effects of the remeasurement of the balances of our Israeli subsidiary are included as gains (losses) and reported as Interest and other income, net in the condensed consolidated statements of operations.

Transaction losses for the three months ended June 30, 2012 and 2011 amounted to $13 and $9, respectively. Transaction losses for the six months ended June 30, 2012 and 2011 amounted to $40 and $18, respectively.

(7) Recently Issued Accounting Standards

There have been no new accounting pronouncements during the three months ended June 30, 2012, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, that are of significance, or potential significance, to us.

(8) Property and Equipment

Property and equipment are stated at historical cost, less accumulated depreciation and amortization. Property and equipment consists of the following:

8

	June 30, 2012		December 31, 2011
Computer equipment	$	1,668	$	1,878
Software		1,474		1,110
Furniture and fixtures		458		560
Leasehold improvements		156		161
		3,756		3,709
Less — Accumulated depreciation and amortization		2,057		2,354
Property and equipment, net	$	1,699	$	1,355

Depreciation and amortization is provided on a straight-line basis over the estimated useful lives of the related assets as follows:

Asset Classification	Estimated Useful Life
Computer equipment	3 Years
Software	3 Years
Furniture and fixtures	5 Years
Leasehold improvements	Estimated useful life, or the lease term, whichever is shorter

Depreciation expense for the three months ended June 30, 2012 and 2011 was $78 and $58, respectively. Depreciation expense for the six months ended June 30, 2012 and 2011 was $148 and $108, respectively.

During the three and six months ended June 30, 2012, we disposed of $4 and $551 of property and equipment with accumulated depreciation of $4 and $549, respectively, resulting in a loss on disposal of $0 and $2, respectively. During the three and six months ended June 30, 2011, we disposed of $5 and $26 of property and equipment with accumulated depreciation of $3 and $24, respectively, resulting in a loss on disposal of $2 for each period. The assets were no longer in service.

During the six months ended June 30, 2012 and 2011, we capitalized software of $407 and $0, respectively (included in Software above). As of June 30, 2012, we have not yet recorded amortization for developed software because it is not ready for its intended use. The net book value of internally developed software at June 30, 2012 and December 31, 2011 was $1,095 and $688, respectively.

(9) Loss Per Share

MSDH had 5 authorized shares of common stock, par value $0.01 per share, at the date of incorporation. On November 10, 2011, the Company amended its authorized shares to be 30,500 shares of common stock, par value of $0.01 common per share and 10,000 shares of preferred stock, par value $0.01 per share. On March 14, 2012, MSDH issued 10,752 shares of MSDH stock in a pro rata dividend distribution by Bitstream to its stockholders on a one for one basis.

The computation of basic loss per share for all periods through December 31, 2011, is calculated using the number of shares of MSDH common stock outstanding on March 14, 2012, the Distribution date. No measure of diluted loss per common share is presented for those periods since there were no actual shares outstanding prior to Distribution.

Basic net loss per share is determined by dividing the net loss by the weighted average number of shares of common stock outstanding during the periods. Basic loss per common share for all periods through the March 14, 2012 distribution date is calculated using the number of shares of MSDH common stock outstanding on March 14, 2012, following the Distribution. Diluted earnings per share do not include the effect of common stock equivalents as MSDH has incurred a net loss for the periods presented, and therefore common stock equivalents are considered antidilutive. As a result, there is no difference between MSDH’s basic and diluted loss per share for the three and six months ended June 30, 2012 and 2011.

If MSDH had reported a profit for the periods, the potential common shares would have increased the weighted average shares outstanding by 56 and 0 for the three months ended June 30, 2012 and 2011, respectively, and 62 and 0 for the six months ended June 30, 2012 and 2011, respectively, based on the weighted average number of common stock equivalents outstanding. Additionally, there were unvested restricted share awards and options outstanding to purchase 264 and 0 shares for the three and six month periods ended June 30, 2012 and 2011, respectively, that were not included in the potential common share computations because their exercise prices were greater than the average market price of MSDH’s common stock. These common stock equivalents are antidilutive even when a profit is reported in the numerator.

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(10) Income Taxes

Presentation

The Company accounts for income taxes in accordance with GAAP which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of the temporary differences between the book and tax basis of recorded assets and liabilities. The Company makes estimates and judgments with regard to the calculation of certain income tax assets and liabilities. This FASB guidance requires that deferred tax assets be reduced by valuation allowances if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be objectively verified.

For purposes of the Company’s historical financial statements prior to the completion of the Separation, income tax expense and deferred income tax balances were recorded as if the Company had filed tax returns on a separate return basis (“hypothetical carve-out basis”) from the former Parent. Post Bitstream Merger income tax expense and deferred income tax balances are recorded in accordance with the Company’s stand-alone income tax positions.

MSDH’s operating results have been included in Bitstream’s consolidated U.S. federal and state income tax returns, as well as included in Bitstream’s tax filings for non-U.S. jurisdictions. The Company’s non-U.S. operations have primarily been conducted within Bitstream’s non-U.S. subsidiaries which shared operations with Bitstream’s other businesses. For purposes of the Company’s unaudited condensed consolidated financial statements, income tax expense and deferred tax balances have been recorded as if the Company had filed tax returns on a separate return basis from Bitstream. The Company’s contribution to Bitstream’s tax losses and tax credits on a separate return basis has been included in these condensed consolidated financial statements. The Company’s separate return basis tax loss will not reflect the tax positions taken or to be taken by Bitstream. In many cases tax losses and tax credits generated by the Company have been available for use by Bitstream and remained with Bitstream at the date of the Separation.

As the Company continues to incur cumulative taxable losses in the United States, the Company recorded a full valuation allowance against the Company’s U.S. deferred tax assets, net of reversing taxable temporary differences.

Components of earnings (loss) before income taxes are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Foreign income (loss)	$	81		$	34		$	183		$	(20	)
Domestic loss		(2,522	)		(2,359	)		(5,792	)		(4,102	)
Loss before provision for income taxes	$	(2,441	)	$	(2,325	)	$	(5,609	)	$	(4,122	)

We have made an indefinite reinvestment of earnings in our foreign Israeli subsidiary and, therefore, we do not provide for U.S. income taxes applicable to its undistributed earnings.

We have recorded a deferred tax liability and related income tax expense for the “naked credit” resulting from the amortization of goodwill for tax purposes. The total deferred liability at June 30, 2012 and December 31, 2011 was $155 and $115, respectively.

(11) Goodwill and Other Intangible Assets

Goodwill

Goodwill resulted from the acquisition of Alaras Corporation in 1998, as well as the purchase of certain assets from Press-Sense Ltd. on June 3, 2010. Goodwill was $3,297 at June 30, 2012 and December 31, 2011.

Goodwill is not amortized, but is required to be reviewed annually for impairment, or more frequently if impairment indicators arise. MSDH performs its annual impairment test during its fourth quarter. MSDH has determined that it has one reporting unit for purposes of goodwill assessment and thus goodwill is tested for impairment based upon an enterprise-wide valuation. The Separation event was considered a triggering event, and therefore goodwill was also assessed at December 31, 2011. MSDH has not recorded any impairment charges related to goodwill to date.

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Effective January 1, 2012, the Company adopted new guidance surrounding the goodwill impairment test. The amendment permits the Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in goodwill accounting standard. Adoption of the new guidance did not and is not anticipated to affect the Company’s condensed consolidated financial statements.

Other Intangible Assets

The carrying amounts of other intangible assets were $2,869 and $3,070 as of June 30, 2012 and December 31, 2011, respectively. Intangible assets acquired in a business combination are recorded under the purchase method of accounting at their estimated fair values at the date of acquisition. MSDH amortizes other intangible assets over their estimated useful lives on a straight-line basis. Marketing-related intangibles have useful lives of four to eight years. Technology-based intangible assets have useful lives of five to twelve years. The weighted average useful life is nine years.

We review our long-lived assets (which include finite lived intangible assets and property and equipment) for impairment as events and circumstances indicate the carrying amount of an asset may not be recoverable. We evaluate the realizability of our long-lived assets based on profitability and cash flow expectations for the related asset or subsidiary. We believe that, as of June 30, 2012, none of our long-lived assets were impaired.

The components of MSDH’s other intangible assets are as follows:

	June 30, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Marketing-related	$	2,221	$	(412	)	$	1,809
Technology-based		1,780		(720	)		1,060
Total	$	4,001	$	(1,132	)	$	2,869
	December 31, 2011
	Gross  Carrying Amount		Accumulated Amortization			Net Carrying Amount
Marketing-related	$	2,221	$	(315	)	$	1,906
Technology-based		1,780		(616	)		1,164
Total	$	4,001	$	(931	)	$	3,070

Amortization expenses for marketing-related intangible assets included in marketing and selling expense were $48 for each of the three month periods ended June 30, 2012 and 2011, and $96 for each of the six month periods ended June 30, 2012 and 2011. Amortization expenses for technology-related intangible assets included as cost of revenue was $47 for each of the three month periods ended June 30, 2012 and 2011, and $94 for each of the six month periods ended June 30, 2012 and 2011. Amortization expenses for intangible assets included as general and administrative expense was $6 and $7 for the three months ended June 30, 2012 and 2011, respectively and $12 and $14 for the six month periods ended June 30, 2012 and 2011, respectively. Estimated amortization as of June 30, 2012 for succeeding years is as follows:

Estimated Amortization Expense:
2012, remaining	$	201
2013		397
2014		394
2015		384
2016		379
Thereafter		1,114
Total	$	2,869

(12) Fair Value Measurements

The fair value measurement rules establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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Under authoritative guidance, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

This guidance describes three levels of inputs that may be used to measure fair value:

Level 1	Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company holds a certificate of deposit of which $320 and $136 was classified as other long term assets on the condensed consolidated balance sheets as of June 30, 2012 and December 31, 2011, respectively, relating primarily to the Marlborough, MA office lease. Certificates of Deposit are carried at cost which approximates fair value and are classified within Level 2 of the fair value hierarchy.

(13) Commitments and Contingencies

Lease commitments of MSDH

We conduct our operations in leased facilities. In June 2009, our former Parent entered into a ten-year lease agreement for 27,000 square feet of office space in a building located in Marlborough, Massachusetts. Effective with the Separation, this lease was assigned from our former Parent to us. This lease agreement commenced September 1, 2009 and obligates us to make minimum lease payments plus our pro-rata share of future real estate tax increases and certain operating expense increases above the base year. The lease payments increase approximately 2% per annum. The total commitment under the lease was approximately $5,390, net of a tenant allowance of $411. We record rent expense on a straight-line basis, taking into consideration the free rent period, the tenant allowance received at the outset of the lease, and annual incremental increases to the lease payments. Our current lease agreement also required us to obtain a Letter of Credit in the amount of $136, which was increased to $260 in conjunction with its assignment to MSDH in March 2012, to be in place through October 31, 2019, which we collateralized with a certificate of deposit classified as a long-term restricted asset included in other assets on our condensed consolidated balance sheets.

In January 2011 our wholly-owned Israeli subsidiary entered into a thirty-six (36) month lease agreement in Caesarea, Israel. This lease agreement commenced April 15, 2011 and obligates us to make semi-annual payments including service taxes. Our total financial commitment during the thirty-six (36) month lease period is approximately $360 U.S. dollars based on historical and current foreign exchange rates. This lease agreement also required us to obtain a bank guarantee in the amount of approximately $56 U.S. dollars to be in place through May 14, 2014. The bank guarantee is classified as a long-term restricted asset included in other assets on our condensed consolidated balance sheets.

The future minimum annual lease payments under our leased facilities and equipment as of June 30, 2012, excluding any anticipated rent income of MSDH, are as follows:

Operating leases:
2012, remaining	$	323
2013		659
2014		556
2015		570
2016		578
Thereafter		1,604
Total	$	4,290

The net rent expense charged to operations for the three months ended June 30, 2012 and 2011 was approximately $151 and $145, respectively. The net rent expense charged to operations for the six months ended June 30, 2012 and 2011 was approximately $305 and $270, respectively.

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Royalties

We have certain royalty commitments associated with the shipment and licensing of certain products. Royalty expense is primarily based on a dollar amount per unit shipped or a percentage of the underlying revenue. Royalty expense, which was recorded under our cost of software license revenue on our condensed consolidated statements of operations, was approximately $98 and $20 for the three months ended June 30, 2012 and 2011, respectively, and $114 and $46 for the six months ended June 30, 2012 and 2011, respectively.

Guarantees

We enter into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, we indemnify, hold harmless, and agree 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 our products. The term of these indemnification agreements is generally perpetual after execution of the agreement. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated liquidity of these agreements is minimal.

Legal Actions

From time to time we are subject to legal proceedings and claims in the ordinary course of business, including claims of commercial, employment and other matters. In accordance with GAAP, we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. This provision is reviewed at least quarterly. As of the condensed consolidated balance sheet date presented, no liability was recorded. Litigation is inherently unpredictable and it is possible that our financial position, cash flows, or results of operations could be materially affected in any particular period by the resolution of any such contingencies or the costs involved in seeking the resolution of any such contingencies.

Tax Indemnity Agreement

The Company and Bitstream have entered into a tax indemnity agreement (the “Tax Indemnity Agreement”) pursuant to which MSDH will indemnify Bitstream against taxes incurred by Bitstream as a result of the Distribution. Management believes that MSDH will not incur any liability to Bitstream under the Tax Indemnity Agreement because management believes that the income and franchise taxes incurred by Bitstream as a result of the Distribution will be fully offset by net operating loss and business tax credit carry forwards of Bitstream and that no taxes other than income and franchise taxes will be incurred by reason of the Distribution. Such belief is based in part upon an appraisal of MSDH that we obtained for tax purposes of approximately $19,800, as well as, our determinations with respect to the expected value of the stock of MSDH, the tax basis of Bitstream in the stock of MSDH, and the availability of net operating loss and business credit carry forwards.

There can be no assurance that the Internal Revenue Service or another taxing authority will concur that no taxes will be incurred by Bitstream as a result of the Distribution, either because the value of MSDH as of the date of the Distribution differs from the expected value of the MSDH stock at that time as currently projected or for other reasons. Any liabilities that MSDH may incur under the Tax Indemnity Agreement will adversely affect MSDH’s financial condition and results of operations.

(14) Stock-based Compensation Plans and Stock-based Compensation Expense

(a) General

On January 25, 2012, the Board of Directors of MSDH, and the Board of Directors of Bitstream acting in its capacity as sole stockholder of MSDH, adopted the MSDH Incentive Compensation Plan (the “Plan”) under which 1,724 shares of MSDH common stock were authorized for issuance under the Plan. The Plan provides for the grant of awards in the form of options (which may be incentive stock options or non-qualified options), stock appreciation rights, restricted stock and restricted stock units, stock granted as a bonus or in lieu of another award, other stock-based awards, performance awards or annual incentive awards. The maximum number of shares of stock with respect to which awards can be granted will be 1,073 shares, plus the number of shares subject to the New MSDH Options, subject to adjustment as provided in the Plan to reflect the effect of mergers, recapitalizations, stock splits and reverse splits, extraordinary dividends, and similar transactions. On March 8, 2012, in connection with the Bitstream Merger Agreement, all outstanding former Parent stock options awards for the Company’s employees were replaced with awards in the Company using a formula designed to preserve the intrinsic value and fair value of the award immediately prior to Separation. There was no incremental compensation expense to the Company related to the replacement of the former Parent stock-based compensation awards. The vesting of all outstanding options was accelerated and restrictions from restricted stock awards were removed as part of the Separation and Merger of the former Parent and thus no unrecognized compensation expense existed for the replaced awards. Accordingly, on March 8, 2012, 651 fully vested new MSDH options with a weighted average exercise price of $1.493 were granted to holders of the Bitstream options. During the six months ended June 30, 2012, the Company did not grant any stock-based compensation awards to employees or non-employee directors under the Company’s incentive plan. Each stock option granted will have an exercise price of no less than 100% of the fair market value of the common stock on the date of grant. The awards will generally have a contractual life of ten years and will generally vest over four to ten years.

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We account for stock-based compensation in accordance with authoritative guidance. Under the fair value recognition provisions of this guidance, stock-based compensation expense is measured at the grant date based on the fair value of the award, net of an estimated forfeiture rate, and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

(b) Stock-based Compensation Expense

We currently estimate the fair value of MSDH stock options using the Black-Scholes valuation model. Key input assumptions to be used to estimate the fair value of stock options will include the exercise price of the award, the expected option term, the expected volatility of our stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and our expected annual dividend yield, which will all be based on the historical information of Bitstream. The expected term of options granted will be estimated by calculating the average term from our historical stock option exercise experience. Estimated volatility of our common stock will be based on Bitstream’s historical volatility. The risk-free interest rate used in the option pricing model will be based on zero-coupon yields implied from U.S. Treasury issues with remaining terms similar to the expected term of the options. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Historical data for Bitstream will be used to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. We believe that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of our stock options. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards. These amounts, and the amounts applicable to future quarters, are also subject to future quarterly adjustments based upon a variety of factors, which include but are not limited to, the issuance of new options. No options were granted during either of the three months ended June 30, 2011 or 2012.

The stock-based compensation expense of $1,420 for the period of January 1, 2012 through March 14, 2012 was recorded through an intercompany transaction with our former Parent and is includable as Bitstream’s stockholders’ equity, as it relates exclusively to Bitstream stock. Therefore, this stock-based compensation is not included in the Company’s condensed consolidated statements of stockholders’ equity for 2012. A portion of the adjustments for the Separation from the Parent was directly related to the $1,420 of stock-based compensation and the amount was therefore netted against stock-based compensation for presentation purposes on the condensed consolidated statements of cash flow for the three months ended March 31, 2012 resulting in no stock-based compensation reflected for the period. There has been no stock-based compensation expense associated with MSDH stock from March 15, 2012 through June 30, 2012.

Our results for the three months ended June 30, 2012 and 2011 include $0 and $85, respectively, and for the six months ended June 30, 2012 and 2011 include $1,420 and $221, respectively, of stock-based compensation within the applicable expense classification where we report the option holders’ compensation cost. The expense includes stock option expense for Bitstream options granted to those employees specifically assigned to MSDH as well as an allocation of the stock option expense for options granted to executives and other general shared personnel.

The following table presents stock-based compensation expense for the three and six months ended June 30, 2012 and 2011 by category:

	Three Months Ended June  30,				Six Months Ended June  30,
	2012		2011		2012			2011
Cost of revenue—software licenses	$	—	$	—	$	—		$	—
Cost of revenue—services		—		4		2			10
Marketing and selling		—		6		(5	)		16
Research and development		—		56		324			113
General and administrative		—		19		1,099			82
Stock-based compensation expense prior to Parent allocation	$	—	$	85	$	1,420		$	221

(15) Geographical Reporting

We attribute revenues to different geographical areas on the basis of the location of the customer. All of our product sales for the three and six months ended June 30, 2012 and 2011 were shipped from our headquarters located in the United States. Revenues by geographic area are as follows:

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	Three Months Ended June  30,				Six Months Ended June 30,
	2012		2011		2012		2011
*Revenue:
United States	$	1,224	$	1,597	$	2,528	$	3,433
Germany		97		83		174		231
United Kingdom (UK)		157		103		208		192
Other (Countries less than 5% individually, by Region)
Europe, excluding Germany and UK		270		135		399		224
Asia		117		19		193		27
Other, including Canada		100		145		231		237
Total revenue	$	1,965	$	2,082	$	3,733	$	4,344
Total foreign revenue	$	741	$	485	$	1,205	$	911

* If revenue attributable to a specific country is greater than 5% in any period, revenue attributable to that country is disclosed for all periods.

Long-lived tangible assets (including internally developed Capitalized Software), net of accumulated depreciation and amortization, by geographic area are as follows:

	June 30, 2012		December 31, 2011
United States	$	1,585	$	1,193
Israel		114		108
India		—		54
Total	$	1,699	$	1,355

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

All statements, trend analysis and other information contained in the following discussion relative to markets for our products and trends in revenue, gross margin and anticipated expense levels, as well as other statements, including words such as “may,” “anticipate,” “believe,” “plan,” “estimate,” “expect,” and “intend” and other similar expressions constitute forward-looking statements. These forward-looking statements are subject to business and economic risks and uncertainties and our actual results of operations may differ materially from those contained in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under Item 1A Risk Factors in our Annual Report on Form 10-K, as may be supplemented from time to time in our quarterly reports on Form 10-Q, as well as other risks and uncertainties referenced in this report.

EXECUTIVE OVERVIEW

Marlborough Software Development Holdings Inc. (“MSDH” or “We” or the “Company”) was formed on July 18, 2011 in conjunction with our former parent company’s, Bitstream Inc. (“Bitstream”), planned merger (the “Bitstream Merger”) with and acquisition by Monotype Imaging Holdings Inc., a Delaware corporation (“Monotype”) pursuant to an agreement and plan of merger (the “Bitstream Merger Agreement”) entered into by and between Bitstream and Monotype on November 10, 2011 (the “Separation Date”). On the Separation Date, Bitstream transferred and assigned to MSDH all of the assets and liabilities relating to, arising from or in connection with Bitstream’s Pageflex and BOLT product lines (the “Separation”) pursuant to the terms and conditions of a Contribution Agreement dated November 10, 2011 by and between Bitstream and MSDH (the “Contribution Agreement”). On March 14, 2012, Bitstream distributed all of the shares of MSDH common stock to the stockholders of Bitstream on a pro rata basis (the “Distribution”) pursuant to the terms and conditions of the Distribution Agreement dated November 10, 2011 between Bitstream and MSDH (the “Distribution Agreement”). On March 19, 2012, Bitstream completed the Bitstream Merger with Monotype.

MSDH is a software development company focused on bringing innovative and proprietary software products to a wide variety of markets. Our core software products include mobile browsing technologies and variable data publishing, Web-to-print, and multi-channel communications technologies.

Automated Marketing Communication and Print Production Variable Technologies. The Pageflex product line enables companies across the globe to communicate their marketing messages more easily and effectively. It is the advanced technology for brand management, web-to-print applications, and sophisticated personalized communications based on customer information. We pioneered flexible variable data software in 1997 and have been a technology innovator in the document customization arena ever since. The platform produces rich, creative, award-winning document designs that look like they were given the individual attention of a graphic designer but were, in reality, created on-the-fly with Pageflex variable publishing technology. Print service providers, marketing service providers, corporate marketers, and publishers use Pageflex products to ensure design integrity and brand control while empowering local users to customize and personalize print collateral, email campaigns, and 1-to-1 marketing Web sites. Pageflex Persona is desktop software that produces personalized print and email documents using data from a database. Pageflex Studio ID is a plug-in to Adobe InDesign for producing personalized print pieces. Pageflex Storefront is a turnkey solution for producing web portals for document customization and online purchasing of print documents. Pageflex Server provides an enterprise solution for high-volume document customization driven by a database or requests from a web site. Pageflex iWay provides business flow automation for printing companies. Pageflex Campaign Manager lets companies develop personal conversations with their customers in print, email, and online. And finally, Pageflex Chart works with these Pageflex products to add dynamic charts and graphs to print documents. Pageflex products enable companies worldwide to manage, streamline, and automate their document production processes, communicate more personally with their customers, and control their brand and market messaging while enabling their remote employees, franchises, and consumers to use a self-serve model to order customized communications. Pageflex products are purchased by both corporations and the printing companies that support them, who also use the software to control and track production processes in order to improve their business ROI.

We market our products and acquire our customers through a variety of sources including participation in industry trade shows, trade association sponsorships, online marketing, including search engines and advertising on online networks and other websites, and other marketing efforts, relationships with our partners, referrals from our growing customer base, general brand awareness and the inclusion of a link to our website in the footer of the emails sent by our customers. Our business strategy focuses on expanding both our direct sales effort as well as expanding our relationships with our OEM and reseller channels. We are also focused on improving our product offerings and expanding our market share.

Mobile Browsing Technologies. BOLT provides a consistent, full desktop-style browsing experience on almost any handset. The BOLT mobile browser offers faithful rendering of Web pages and it is the only browser for mobile phones of all types to support streaming video from popular media sharing sites such as YouTube and MySpace. Compatible with most handsets that support the

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J2ME or BREW/BMP operating systems, BOLT’s advanced features include W3C based widget support, direct Twitter integration, six levels of magnification, international localization, copy/paste, FOTA updates, and additional usability features such as auto-complete url, save page, secure browsing, patented split-screen minimap, password manager, rss subscriptions, automatic socket support, history and keypad shortcuts. BOLT is a WebKit based cloud computing mobile browser. This cloud computing architecture is the key to BOLT’s capabilities. Web pages are first loaded by the BOLT servers, then transcoded and sent to the BOLT mobile browser client on handsets. This client/server approach maintains the integrity of Web page layouts, reduces packet consumption on data networks, dramatically improves page load speeds, and enables advanced features such as video streaming. Currently, we are concentrating our resources and efforts on our automated marketing communications and print production variable technologies, and we do not expect sales of our mobile browsing products to contribute significant revenues in the short term.

Certain Financial and Operating Metrics

In connection with the ongoing operation of our business, our management regularly reviews key financial and operating metrics, such as revenue, gross margin, expenses, and capital expenditures, among others. Management considers these financial and operating metrics critical to understanding and improving our business, reviewing our historical performance, comparing our performance versus other companies and identifying current and future trends, and for planning purposes.

Certain Trends and Uncertainties

The following represents a summary of known trends and uncertainties which could have a significant impact on our financial condition and results of operations. This summary should be considered along with the factors discussed under the headings “Risk Factors” and “Forward-Looking Statements” elsewhere in our Form 10-K filed with the SEC on March 30, 2012.

• Effective January 1, 2012 we completed the Separation from Bitstream and on March 14, 2012 Bitstream completed the Distribution, thereby resulting in MSDH becoming a separate, stand-alone public company. On March 19, 2012, Bitstream completed the Bitstream Merger with Monotype. We continue to experience disruption in our business related to the Separation and the Bitstream Merger, including, but not limited to, attention and time spent on the Separation, Distribution and transition services pursuant to the Bitstream Merger and the assignment of material contracts to us for which some of the parties may not consent to the assignment. If we experience significant disruption as a result of these or any other factors related to the Separation, Distribution and Bitstream Merger, our financial results could be adversely impacted.

• The Pageflex and Bolt product activities were conducted by Bitstream as a whole and integrated with the Fonts products activities. Our historical financial information may not be representative of our results as a separate company.

• We continue to closely monitor current economic conditions, particularly as they impact our customers. We believe that our customers continue to experience some amount of economic hardship. If this economic hardship continues or worsens, our financial results could be adversely impacted.

• We continue to develop new products and new versions of our existing product offerings. Failure to develop and launch new products and versions could negatively impact our financial results.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America consistently applied. The preparation of these unaudited condensed consolidated financial statements requires us to make significant estimates and judgments that affect the amounts reported in our unaudited condensed consolidated financial statements and the accompanying notes. These items are regularly monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates.

While all of our accounting policies impact the unaudited condensed consolidated financial statements, certain policies are viewed to be critical. Critical accounting policies are those that are both most important to the portrayal of our financial condition and results of operations and that require management’s most subjective or complex judgments and estimates. We consider the following accounting policies to be critical in fully understanding and evaluating our financial results:

• Allocation Methodologies

• Revenue Recognition

• Stock-based Compensation

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• Impairment of Goodwill and Other Long-Lived Assets

• Accounts Receivable

• Software Development Costs

• Income Taxes

Please refer to the critical accounting policies set forth in our Annual Report on Form 10-K as of and for the fiscal year ended December 31, 2011, filed with the Securities and Exchange Commission, or the SEC, on March 30, 2012, for a description of all critical accounting policies.

The critical accounting policies included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 have not materially changed.

OVERVIEW

RESULTS OF OPERATIONS (in thousands, except percentages and per share amounts)

Revenue and Gross Profit:

	Three Months Ended June 30,										Change
	2012		%  of Revenue			2011		%  of Revenue
											Dollars			Percent
Revenue
Software licenses	$	628		32.0	%	$	604		29.0	%	$	24			4.0	%
Services		1,337		68.0			1,478		71.0			(141	)		(9.5	)
Total revenue		1,965		100.0			2,082		100.0			(117	)		(5.6	)
Cost of Revenue
Software licenses		261		41.6			405		67.1			(144	)		(35.6	)
Services		688		51.5			520		35.2			168			32.3
Total cost of revenue		949		48.3			925		44.4			24			2.6
Gross Profit	$	1,016		51.7	%	$	1,157		55.6	%	$	(141	)		(12.2	)%

	Six Months Ended June 30,										Change
	2012		%  of Revenue			2011		%  of Revenue
											Dollars			Percent
Revenue
Software licenses	$	1,044		28.0	%	$	1,367		31.5	%	$	(323	)		(23.6	)%
Services		2,689		72.0			2,977		68.5			(288	)		(9.7	)
Total revenue		3,733		100.0			4,344		100.0			(611	)		(14.1	)
Cost of Revenue
Software licenses		463		44.4			581		42.5			(118	)		(20.3	)
Services		1,212		45.1			980		32.9			232			23.7
Total cost of revenue		1,675		44.9			1,561		35.9			114			7.3
Gross Profit	$	2,058		55.1	%	$	2,783		64.1	%	$	(725	)		(26.1	)%

License Revenue

We recognize license revenue from direct sales and licensing agreements of our products and products from third parties, licensing agreements with OEMs, and from the resale of our products through various resellers. We recognize reseller revenue on a sell-in basis and bear no obligation after the license has been delivered to the reseller.

The increase in revenue from software licenses for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 resulted primarily from increases in direct and reseller sales of $87 and $115, respectively, partially offset by a decrease in OEM royalties of $178. The increase in direct and reseller revenue is attributable to increased sales personnel and distributors and an increase in our sales pipeline. The decrease in OEM royalties is attributable to delayed introductions of new versions of our solutions which are scheduled to be released during our third quarter, as well as by what we believe to be a temporary slowdown related to reorganizations of sales resources within certain of our OEMs.

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The decrease in revenue from software licenses for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 resulted primarily from decreased OEM royalties of $160 and direct sales of $163 during the first quarter. The decrease in direct sales during the first quarter was attributable to the Separation of MSDH from Bitstream and activities related to the merger of Bitstream with Monotype Imaging. These activities began in 2011 and were completed during the first quarter of 2012. We continue to be affected by the global economic downturn, as are our customers. However, with the completion of the Separation during the first quarter of 2012, stabilization of the iWay product, the localization of the Pageflex Storefront product and our increase in sales and marketing resources, we expect our revenue to increase during the remainder of the year as compared to levels achieved during the same periods in 2011, though there can be no assurance that such revenue levels can be achieved.

Service Revenue

Service revenue decreased $141 and $288 for the three and six month periods ended June 30, 2012 compared with the same periods ended June 30, 2011 primarily due to an end-of-life support contract which resulted in non-recurring support revenue for the three and six month periods ended June 30, 2011 of $150 and $389, respectively. The decrease for the six month period June 30, 2012 as compared to the six months ended June 30, 2011 was partially offset by the completion of a $85 consulting engagement and resulting revenue. Other product services revenue for customer support, consulting, custom design and training services were generally flat period over period. We expect the revenue from support contracts to continue to increase for the remainder of 2012, however there can be no assurance that this upward trend will be sustained. Consulting, design and training services vary with specific requirements of customers and may be affected more by economic concerns as customers may delay design changes, custom development and training.

Cost of Revenue

Cost of revenue includes hosting costs, royalties and fees paid to third parties for the license of rights to technology, 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 products. Cost of revenue also includes amortization of acquired-technology from the acquisition of assets from Press-Sense Ltd.

Cost of License Revenue

The decrease in cost of license revenue for the three and six month periods ended June 30, 2012 as compared to the same periods ended June 30, 2011 was primarily related to a decision to suspend the hosting of the browser free user base resulting in a savings of approximately $232 and $205, respectively in hosting costs. These decreases were partially offset by increased sales of third party products resulting in increased royalties of $78 and $68 for the three and six month periods ended June 30, 2012, respectively, as compared to the same periods ended June 30, 2011.

Cost of Service Revenue

The increase in cost of services revenue for the three months ended June 30, 2012, as compared to the same period in 2011 was primarily due to an increase of $93 related to salary and related expenses for additional resources, $51 in contractor costs, including $22 related to support infrastructure, and $13 in expendable equipment purchases. The increase in cost of services revenue for the six months ended June 30, 2012, as compared to the same period in 2011 was primarily due to an increase of $155 related to salary and related expenses for additional resources, $55 in contractor costs, including $16 related to support infrastructure, and $28 in expendable equipment purchases. Our cost of services infrastructure remained relatively constant during the first six months of 2012 and we expect our variable costs to increase as the demand for these services increases and also with the addition of support and consulting services for the iWay product.

Operating Expenses:

	Three Months Ended June 30,										Change
			% of					% of
	2012		Revenue			2011		Revenue			Dollars			Percent
Marketing and selling	$	1,169		59.5	%	$	821		39.4	%	$	348			42.4	%
Research and development		1,486		75.6			1,650		79.2			(164	)		(9.9	)
General and administrative		785		40.0			1,037		49.8			(252	)		(24.3	)
Total operating expenses	$	3,440		175.1	%	$	3,508		168.4	%	$	(68	)		(1.9	)%

19

	Six Months Ended June 30,										Change
			% of					% of
	2012		Revenue			2011		Revenue			Dollars			Percent
Marketing and selling	$	2,236		59.9	%	$	1,698		39.1	%	$	538			31.7	%
Research and development		3,371		90.3			3,451		79.4			(80	)		(2.3	)
General and administrative		2,017		54.0			1,788		41.2			229			12.8
Total operating expenses	$	7,624		204.2	%	$	6,937		159.7	%	$	687			9.9	%

Marketing and Selling (“M&S”) Expense

Marketing and selling (“M&S”) expense consists primarily of salaries and benefits, commissions, travel expense and facilities costs related to sales and marketing personnel, as well as marketing program-related costs. The increase in M&S for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 related primarily to an increase in marketing and tradeshow costs of $152, an increase in professional marketing services and consulting of $88, salary and benefit costs of $43, and travel of $22. The increase in M&S for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 related primarily to an increase in salary and benefit costs of $214, an increase in professional marketing services and consulting of $159, travel of $49 and marketing and tradeshow costs of $46. Salary-related and consulting costs increased due to the addition of sales and marketing personnel and exclusive sales consultants. The increase in marketing and tradeshow costs were primarily due to participation in Drupa, which is held every four years. We expect that our M&S expense will increase in both absolute dollars and as a percentage of revenue during 2012, due to increased participation in marketing and tradeshow activities, commissionable sales and as we invest in new sales and marketing resources.

Research and Development (“R&D”) Expense

Research and development (“R&D”) expense consists primarily of salary and benefit costs, contracted third-party development costs, and facility costs related to software developers and management. R&D expense decreased for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011 primarily due to the reduction in R&D resources related to BOLT browser product development of $270. This decrease was partially offset by increases in the use of contractors on publishing related product development of $124. The decrease in R&D costs for the three months ended June 30, 2012 and compared to the three months ended June 30, 2011 discussed here more than offset the increase reported for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 resulting in a decrease for the six month period comparisons. The increase reported for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 was primarily due to an increase in stock compensation expense of $324 from the acceleration of Bitstream options and restricted stock awards caused by the merger of Bitstream on March 19, 2012. This increase was partially offset by decreases including a reduction in salaries expenses of $65 and reductions in browser-related hosting costs of $140. The hosting costs were included as R&D expense in the first quarter of 2011, as MSDH had yet to monetize its free user base and provide hosting services to carrier and device manufacturers and was included in cost of revenue for the same period in 2012. We expect our development efforts and related R&D expense to increase as compared to 2011 in absolute dollars.

General and Administrative (“G&A”) Expense

G&A expense consists primarily of salaries, benefits, and other related costs including travel and facility expenses for finance, human resource, legal and executive personnel, legal and accounting professional services, provision for bad debts, directors fees and director and officer insurance. G&A expense decreased $252 for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011, consisting primarily of salary and wages of $180 and facilities costs in Israel of $63. Salaries and wages for 2011 included approximately $253 in costs related to the severance agreement with Bitstream’s former CEO partially offset by approximately $73 in increased G&A salaries as MSDH bears the full burden of G&A salaries. Facilities costs in Israel for 2011 included costs associated with the termination of their former lease and the new leased facilities. G&A expense increased for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 due to the increases from the three months ended March 31, 2012 as compared to March 31, 2011 partially offset by the decrease from the three months ended June 30, 2012 as compared to June 30, 2011 discussed above. The increase in March 2012 was primarily due to $1,100 of Bitstream stock compensation expense recorded and $107 of G&A bonus and related tax expense, both related to the Bitstream merger with Monotype. These increases were partially offset by a management fee allocation to Bitstream of $807 in accordance with the management fee agreement between MSDH and Bitstream (see Note (2) Basis of Presentation and Allocation methodologies for details). In addition, the first quarter of 2012 included $2,250 of transaction costs related to the spinout of MSDH from Bitstream Inc. and the merger of Bitstream into Monotype Imaging Inc., which were fully allocated to Bitstream during the first quarter, resulting in a net effect of zero. We expect MSDH G&A expense to increase during the remainder of the year ended December 31, 2012 when compared to the “carve-out” expenses reported for 2011 as MSDH will bear the full costs of the previously shared expenditures and we expect the overall decrease in those costs to be less than the amount to be absorbed by MSDH.

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Other Income, Net:

	Three Months Ended June 30,
	2012			% of Revenue			2011		% of Revenue			Change
												Dollars			Percent
Interest and other (expense) income, net	$	(17	)		(0.9	)%	$	26		1.2	%	$	(43	)		(165.4	)%

	Six Months Ended June 30,
	2012			% of Revenue			2011		% of Revenue			Change
												Dollars			Percent
Interest and other (expense) income, net	$	(43	)		(1.1	)%	$	32		0.7	%	$	(75	)		(234.4	)%

Other income consists primarily of foreign currency transactions gains or losses.

Provision for Income Taxes:

	Three Months Ended June 30,
	2012		% of Revenue			2011		% of Revenue			Change
											Dollars		Percent
Provision for income taxes	$	59		3.0	%	$	68		3.3	%	$	9		13.2	%
	Six Months Ended June 30,
	2012		% of Revenue			2011		% of Revenue			Change
											Dollars		Percent
Provision for income taxes	$	111		3.0	%	$	91		2.1	%	$	20		22.0	%

The provision for income taxes consists of foreign taxes in Israel and U.S. federal tax expense related to the deferred tax liability created by the taxable amortization of Goodwill.

The Company accounts for income taxes in accordance with GAAP, which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of the temporary differences between the book and tax basis of recorded assets and liabilities. The Company makes estimates and judgments with regard to the calculation of certain income tax assets and liabilities. GAAP requires that deferred tax assets be reduced by valuation allowances if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be objectively verified.

For purposes of the Company’s historical financial statements prior to the Separation, income tax expense and deferred income tax balances were recorded as if the Company had filed tax returns on a separate return basis (“hypothetical carve-out basis”) from Bitstream. After the completion of the Separation, income tax expense and deferred income tax balances are recorded in accordance with the Company’s stand-alone income tax positions.

MSDH’s operating results have been included in Bitstream’s consolidated U.S. federal and state income tax returns, as well as included in Bitstream’s tax filings for non-U.S. jurisdictions. The Company’s non-U.S. operations have primarily been conducted within Bitstream’s non-U.S. subsidiaries which share operations with Bitstream’s other businesses. For purposes of the Company’s condensed consolidated financial statements, income tax expense and deferred tax balances have been recorded as if the Company had filed tax returns on a separate return basis from Bitstream. The Company’s contribution to Bitstream’s tax losses and tax credits on a separate return basis has been included in these condensed consolidated financial statements. The Company’s separate return basis tax loss will not reflect the tax positions taken or to be taken by Bitstream. In many cases tax losses and tax credits generated by the Company have been available for use by Bitstream and will largely remain with Bitstream after the completion of the Separation.

As the Company continues to incur cumulative taxable losses in the United States, the Company recorded a full valuation allowance against the Company’s U.S. deferred tax assets, net of reversing taxable temporary differences.

We have made an indefinite reinvestment of earnings in our Israeli subsidiary and, therefore, we do not provide for U.S. income taxes applicable to its undistributed earnings.

21

We have recorded a deferred tax liability and related income tax expense for the “naked credit” resulting from the amortization of goodwill for tax purposes. The total deferred liability at June 30, 2012 and December 31, 2011 was $155 and 115, respectively.

LIQUIDITY AND CAPITAL RESOURCES (dollar amounts in thousands)

At June 30, 2012, our primary source of liquidity comes from our cash of $2,912. The Pageflex and BOLT products historically have been funded directly through the conduct of our operations as a component of Bitstream. For the six months ended June 30, 2012 and 2011, we incurred net losses of $5,720 and $4,213, respectively. Bitstream contributed capital of $9,005 and $3,280 for the six months ended June 30, 2012 and 2011, respectively. As of June 30, 2012, we had working capital of $104.

Our operating activities used cash during the six months ended June 30, 2012 and 2011 of $5,988 and $3,114, respectively. The increased usage of cash during the six months ended June 30, 2012 as compared to the same period in the prior year resulted primarily from an increased net loss of $1,507, a decrease in contributions from working capital accounts of $1,268, and a decrease in the add-backs of non-cash expense items of $99. Cash used in operating activities has historically been affected by the amount of net loss, changes in working capital accounts and add-backs of non-cash expense items such as depreciation and amortization and the expense associated with stock-based awards.

Cash used in investing activities during the six months ended June 30, 2012 and 2011 was $656 and $169, respectively. Cash used in investing activities during the six months ended June 30, 2012 consisted of an increase in restricted cash of $70, the capitalization of internally developed software of $407, and the purchase of property and equipment of $179. Cash used in investing activities in the six months ended June 30, 2011 consisted of an increase in restricted cash of $54, cash paid for the purchase of property and equipment of $103, and the additions of intangible assets of $12.

Our financing activities for the six months ended June 30, 2012 and 2011 provided cash of $9,005 and $3,280, respectively. Cash provided by financing activities consists entirely of contributions from Bitstream.

We conduct our operations in leased facilities. In June 2009, Bitstream entered into a ten-year lease agreement for 27,000 square feet of office space in a building located in Marlborough, Massachusetts, which was assigned to MSDH in March 2012. This lease agreement commenced September 1, 2009 and obligates us to make minimum lease payments plus our pro-rata share of future real estate tax increases and certain operating expense increases above the base year. The lease payments increase approximately 2% per annum. The total commitment under the lease was approximately $5,390, net of a tenant allowance of $411. We record rent expense on a straight-line basis, taking into consideration the free rent period, the tenant allowance received at the outset of the lease, and annual incremental increases to the lease payments. This lease agreement also required us to obtain a Letter of Credit in the amount of $136, which was increased to $260 in conjunction with the assignment to MSDH, to be in place through October 31, 2019, which we collateralized with a certificate of deposit classified as a long-term restricted asset included in other assets on our condensed consolidated balance sheets.

In January 2011, our Israeli subsidiary entered into a thirty-six (36) month lease agreement in Caesarea, Israel. This lease agreement commenced April 15, 2011 and obligates us to make semi-annual payments including service taxes. Our total financial commitment during the thirty-six (36) month lease period is approximately $360 U.S. dollars based on historical and current foreign exchange rates. This lease agreement also required us to obtain a bank guarantee backed by our cash deposits in the amount of approximately $56 U.S. dollars to be in place through May 14, 2014. The bank guarantee is classified as a long-term restricted asset included in other assets on our condensed consolidated balance sheets.

We are utilizing approximately 50% of the square footage of the Marlborough, Massachusetts headquarters after the decrease in personnel associated with the Bitstream Merger. Management anticipates a reduction in operating costs through the elimination of certain fixed costs, including, without limitation, the possible sub-letting or returning to the landlord of the unutilized space that currently exists. However, there can be no assurance that management will be successful in implementing these cost-cutting plans or that such plans will be successful or, if successful, how long they will take.

22

The future minimum annual lease payments under our leased facilities and equipment as of June 30, 2012, excluding any anticipated rent income of MSDH, are as follows:

Operating leases:
2012, remaining	$	323
2013		659
2014		556
2015		570
2016		578
Thereafter		1,604
Total	$	4,290

The unaudited condensed consolidated financial statements have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. MSDH’s long-term viability is dependent on its ability to generate sufficient product revenue, net income and cash flows from operations to support its business as well as its ability to obtain additional financing. Management’s plans also include reducing operating costs and delaying certain expenditures if necessary to maintain the Company’s liquidity. The Separation from Bitstream disrupted and may continue to disrupt our business and management, negatively affecting our business, operating results or financial condition and may cause other risks to the Company. MSDH has suffered recurring losses from operations and, for its liquidity through March 19, 2012, had relied on contributions from Bitstream. As of March 31 and June 30, 2012, MSDH had accumulated contributions of approximately $60,977 from its former Parent.

MSDH had a cash balance of $2,912 as of June 30, 2012. Management believes that, with this cash and our current operating plan, this cash will be sufficient to meet the Company’s working capital and capital expenditure requirements through at least the next twelve months. There can be no assurance, however, that MSDH will not require additional financing in the future if funds from future operations or estimated expenses differ materially from those amounts estimated by management. We anticipate that we may require additional sources of capital in the future. If we are required to obtain additional financing in the future, there can be no assurance that debt or equity financing will be available on terms favorable to us, if at all. In addition, MSDH and Bitstream have entered into certain ancillary agreements in connection with the Separation and Distribution that provide for indemnification of Bitstream with respect to certain liabilities of the Pageflex and BOLT products contributed to MSDH.

Potential Indemnification Obligations

We enter into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, we indemnify, hold harmless, and agree 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 our products. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is minimal, but we can provide no assurance that payments will not be required under these agreements in the future.

In connection with the Separation of MSDH from Bitstream and the Merger of Bitstream with Monotype, the Company entered into certain indemnification agreements with Monotype. A detailed discussion of these agreements is included in our Form 10-K filed with the SEC on March 30, 2012.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements or unconsolidated special-purpose entities within the meaning of Item 303(a)(4) of Regulation S-K.

23

RECENT ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements Not Yet Adopted

There have been no new accounting pronouncements during the three months ended June 30, 2012, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, that are of significance, or potential significance, to us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments. As of June 30, 2012, we did not participate in any derivative financial instruments or other financial and commodity instruments for which fair value disclosure would be required under authoritative guidance. All of our investments consist of bank deposits that are carried on our books at fair market value. Accordingly, we have no quantitative information concerning the market risk of participating in such investments.

Primary Market Risk Exposures. Our primary market risk exposures are in the areas of interest rate risk and foreign currency exchange rate risk. Our investment portfolio of cash equivalent and short-term investments is subject to interest rate fluctuations, but we believe this risk is immaterial due to the short-term nature of these investments.

Foreign Currency Exchange Risk. Our exposure to currency exchange rate fluctuations has been, and is expected to continue to be, modest due to the fact that the operations of our Israeli subsidiary are conducted partially in Israel’s local currency. Currently, we do not engage in foreign currency hedging activities.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2012. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2012, these disclosure controls and procedures were effective to provide reasonable assurance that material information required to be disclosed by us, including our consolidated subsidiaries, in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Evaluation of Changes in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we are subject to legal proceedings and claims in the ordinary course of business, including claims of infringement of third-party patents and other intellectual property rights, and claims involving commercial, employment and other matters. In accordance with generally accepted accounting principles, we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. This provision is reviewed at least quarterly. As of June 30, 2012, there are no material pending legal proceedings to which we are a party, and no liability was recorded. Litigation is inherently unpredictable and it is possible that our financial position, cash flows, or results of operations could be materially affected in any particular period by the resolution of any such contingencies or the costs involved in seeking the resolution of any such contingencies.

24

ITEM 1A. RISK FACTORS

We incorporate herein by reference the risk factors contained in Part I, Item 1A of our Annual Report on Form 10-K as of and for the fiscal year ended December 31, 2011. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) None.

(b) Not applicable.

(c) None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a) None.

(b) None.

PART IV

ITEM 6. EXHIBITS

(a) Exhibits.

Certain of the exhibits listed hereunder have been previously filed with the SEC as exhibits to certain registration statements and periodic reports as indicated in the footnotes below and are incorporated herein by reference pursuant to Rule 411 promulgated under the Securities Act and Rule 24 of the SEC’s Rules of Practice. The location of each document so incorporated by reference is indicated in parentheses.

EXHIBIT NO.	DESCRIPTION
31.1*	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1***	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance Document

25

EXHIBIT NO.	DESCRIPTION
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Calculation Linkbase Document
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**	XBRL Label Linkbase Document
101.PRE**	XBRL Taxonomy Presentation Linkbase Document

* Filed herewith.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

*** Furnished herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in Marlborough, Commonwealth of Massachusetts on this 14th day of August, 2012.

SIGNATURE	TITLE	DATE
/s/ PINHAS ROMIK	President and Chief Executive Officer	August 14, 2012
Pinhas Romik
/s/ JAMES P. DORE	Executive Vice President and Chief Financial Officer	August 14, 2012
James P. Dore

26

EX-31.1

Exhibit 31.1

MARLBOROUGH SOFTWARE DEVELOPMENT HOLDINGS INC.

Certification

I, Pinhas Romik, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Marlborough Software Development Holdings Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2012	By:	/S/    PINHAS ROMIK
		Pinhas Romik
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

MARLBOROUGH SOFTWARE DEVELOPMENT HOLDINGS INC.

Certification

I, James P. Dore, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Marlborough Software Development Holdings Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2012	By:	/S/    JAMES P. DORE
		James P. Dore
		Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Marlborough Software Development Holdings Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2012 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Signature	Title	Date
/s/ PINHAS ROMIK	President and Chief Executive Officer	August 14, 2012
Pinhas Romik	(Principal Executive Officer)
/s/ JAMES P. DORE	Executive Vice President and Chief Financial Officer	August 14, 2012
James P. Dore	(Principal Financial Officer)

This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Exchange Act, or otherwise subject to liability under that section. This certification shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form with the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

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Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Components of earnings (loss) before income taxes
Foreign income (loss)	$ 81	$ 34	$ 183	$ (20)
Domestic loss	(2,522)	(2,359)	(5,792)	(4,102)
Loss before provision for income taxes	$ (2,441)	$ (2,325)	$ (5,609)	$ (4,122)

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Stock-based Compensation Plans and Stock-based Compensation Expense (Details Textual) (USD $)	3 Months Ended		6 Months Ended				3 Months Ended			6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Mar. 08, 2012	Jan. 25, 2012	Jun. 30, 2012 MSDH [Member]	Jun. 30, 2012 Bitstream [Member]	Mar. 31, 2012 Bitstream [Member]	Jun. 30, 2012 Additional paid-in capital [Member]	Jun. 30, 2012 Maximum [Member]	Jun. 30, 2012 Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Contractual term of awards											10 years	4 years
Stock-based compensation expense		$ 85,000	$ 1,420,000	$ 221,000			$ 0	$ 0	$ 1,420,000
Stock-based Compensation Plans and Stock-based Compensation Expense (Textual) [Abstract]
Fully vested MSDH options					651,000
No option were granted		0	0
Weighted average exercise price of MSDH options					$ 1.493
Percentage of fair market value of the common stock			100.00%
Separation-related adjustments			(920,000)							(1,305,000)
Stock-based compensation expense		$ 85,000	$ 1,420,000	$ 221,000			$ 0	$ 0	$ 1,420,000
Authorized common stock issuance under plan						1,724
Maximum number of shares available for grant awards					1,073

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Commitments and Contingencies (Details Textual) (USD $) In Thousands, unless otherwise specified	1 Months Ended		3 Months Ended			6 Months Ended		1 Months Ended	6 Months Ended
	Mar. 31, 2012	Jun. 30, 2009 sqft	Jun. 30, 2012	Mar. 31, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jan. 31, 2009 Israeli subsidiary [Member]	Jun. 30, 2012 Israeli subsidiary [Member]
Commitments and Contingencies (Textual) [Abstract]
Lease agreement period		10 years						36 months
Total lease commitment			$ 5,390			$ 5,390			$ 360
Financial commitment related to lease agreement						136			56
Increased letter of credit	260
Area of office space		27,000
Percentage of increase in lease rental payment						2.00%
Allowance of lease						411
Increase in letter of credit guarantee				124
Rent expenses			151		145	305	270
Royalty expenses			98		20	114	46
Indemnity agreement appraisal for tax purpose						$ 19,800

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Off-Balance Sheet Risk and Concentration of Credit Risk (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Customer One [Member]
Off-Balance Sheet Risk and Concentration of Credit Risk (Textual) [Abstract]
Percentage of accounts receivable	22.00%		22.00%		23.00%
Percentage of revenue earned	16.00%	25.00%	17.00%	25.00%
Customer Two [Member]
Off-Balance Sheet Risk and Concentration of Credit Risk (Textual) [Abstract]
Percentage of accounts receivable	15.00%		15.00%		19.00%
Customer Three [Member]
Off-Balance Sheet Risk and Concentration of Credit Risk (Textual) [Abstract]
Percentage of accounts receivable	11.00%		11.00%
Customer Four [Member]
Off-Balance Sheet Risk and Concentration of Credit Risk (Textual) [Abstract]
Percentage of accounts receivable	11.00%		11.00%

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Goodwill and Other Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2012

Goodwill and Other Intangible Assets [Abstract]

Components of intangible assets

	June 30, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Marketing-related	$	2,221	$	(412	)	$	1,809
Technology-based		1,780		(720	)		1,060
Total	$	4,001	$	(1,132	)	$	2,869
	December 31, 2011
	Gross  Carrying Amount		Accumulated Amortization			Net Carrying Amount
Marketing-related	$	2,221	$	(315	)	$	1,906
Technology-based		1,780		(616	)		1,164
Total	$	4,001	$	(931	)	$	3,070

Estimated Amortization Expense:

Estimated Amortization Expense:
2012, remaining	$	201
2013		397
2014		394
2015		384
2016		379
Thereafter		1,114
Total	$	2,869

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Geographical Reporting (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of long-lived tangible assets, net of depreciation by geographic area
Total	$ 1,699	$ 1,355
United States [Member]
Summary of long-lived tangible assets, net of depreciation by geographic area
Total	1,585	1,193
Israel [Member]
Summary of long-lived tangible assets, net of depreciation by geographic area
Total	114	108
India [Member]
Summary of long-lived tangible assets, net of depreciation by geographic area
Total		$ 54

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Goodwill and Other Intangible Assets (Details1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Estimated amortization for future years
2012, remaining	$ 201
2013	397
2014	394
2015	384
2016	379
Thereafter	1,114
Net Carrying Amount	$ 2,869	$ 3,070

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Property and Equipment (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Property and Equipment (Textual) [Abstract]
Depreciation expense	$ 78	$ 58	$ 149	$ 108
Property and equipment disposed off	4	5	551	26
Accumulated depreciation	4	3	549	24
Net loss on disposition	0	2	2	2
Capitalized expenses on software			407	0
Book value of internally developed software	$ 1,095		$ 1,095		$ 688

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Stock-based Compensation Plans and Stock-based Compensation Expense (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Summary of stock-based compensation expense by category
Stock-based compensation expense prior to Parent allocation		$ 85,000	$ 1,420,000	$ 221,000
Bitstream [Member]
Summary of stock-based compensation expense by category
Stock-based compensation expense prior to Parent allocation	0
Cost of revenue software licenses [Member] | Bitstream [Member]
Summary of stock-based compensation expense by category
Stock-based compensation expense prior to Parent allocation
Cost of revenue - services [Member] | Bitstream [Member]
Summary of stock-based compensation expense by category
Stock-based compensation expense prior to Parent allocation		4,000	2,000	10,000
Marketing and selling [Member] | Bitstream [Member]
Summary of stock-based compensation expense by category
Stock-based compensation expense prior to Parent allocation		6,000	(5,000)	16,000
Research and development [Member] | Bitstream [Member]
Summary of stock-based compensation expense by category
Stock-based compensation expense prior to Parent allocation		56,000	324,000	113,000
General and administrative [Member] | Bitstream [Member]
Summary of stock-based compensation expense by category
Stock-based compensation expense prior to Parent allocation		$ 19,000	$ 1,099,000	$ 82,000

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Relationship with our Former Parent

6 Months Ended

Jun. 30, 2012

Relationship with our Former Parent [Abstract]

Relationship with our Former Parent

(3) Relationship with our Former Parent

In connection with the Separation, we entered into a series of agreements, in addition to the Contribution and Distribution Agreements, with our former Parent. These agreements include a tax indemnification agreement and intellectual property assignment and license agreements with our former Parent, as well as a transition services agreement with Monotype. The net expense to MSDH related to these agreements was not material for the three and six months ended June 30, 2012.

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Goodwill and Other Intangible Assets (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life			9 years
Cost of revenue	$ 949	$ 925	$ 1,675	$ 1,561
Goodwill and Other Intangible Assets (Textual) [Abstract]
Goodwill	3,297		3,297		3,297
Carrying amount of other intangible assets	2,869		2,869		3,070
General and administrative	6	7	12	14
Marketing-related [Member]
Finite-Lived Intangible Assets [Line Items]
Marketing and selling	48	48	96	96
Technology-based [Member]
Finite-Lived Intangible Assets [Line Items]
Cost of revenue	$ 47	$ 47	$ 94	$ 94
Maximum [Member] | Marketing-related [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life			8 years
Maximum [Member] | Technology-based [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life			12 years
Minimum [Member] | Marketing-related [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life			4 years
Minimum [Member] | Technology-based [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life			5 years

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Background and Nature of Operations (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Dec. 31, 2010
Background and Nature of Operations (Textual) [Abstract]
Accumulated deficit	$ (5,720)		$ (44,880)
Accumulated contributions from Parent	9,005	3,280
Cash	$ 2,912	$ 598	$ 551	$ 601

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Geographical Reporting (Tables)

6 Months Ended

Jun. 30, 2012

Geographical Reporting [Abstract]

Summary of revenues by geographic area

	Three Months Ended June  30,				Six Months Ended June 30,
	2012		2011		2012		2011
*Revenue:
United States	$	1,224	$	1,597	$	2,528	$	3,433
Germany		97		83		174		231
United Kingdom (UK)		157		103		208		192
Other (Countries less than 5% individually, by Region)
Europe, excluding Germany and UK		270		135		399		224
Asia		117		19		193		27
Other, including Canada		100		145		231		237
Total revenue	$	1,965	$	2,082	$	3,733	$	4,344
Total foreign revenue	$	741	$	485	$	1,205	$	911

* If revenue attributable to a specific country is greater than 5% in any period, revenue attributable to that country is disclosed for all periods.

Summary of long-lived tangible assets, net of depreciation by geographic area

	June 30, 2012		December 31, 2011
United States	$	1,585	$	1,193
Israel		114		108
India		—		54
Total	$	1,699	$	1,355

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Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Measurements (Textual) [Abstract]
Fair value of certificate of deposits held	$ 320	$ 136

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Basis of Presentation (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Summary of expenses allocated to Parent Company
General and administrative	$ 6	$ 7	$ 12	$ 14
Income taxes	59	68	111	91
Total operating expenses	3,440	3,508	7,624	6,937
Bitstream [Member]
Summary of expenses allocated to Parent Company
Cost of revenue		27	11	56
Marketing and selling		16		28
General and administrative		1,026	807	1,514
Interest and other (income) expense, net		(155)		(173)
Income taxes		9		40
Total operating expenses		$ 923	$ 818	$ 1,465

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Basis of Presentation (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Mar. 31, 2012	Jun. 30, 2012 Product	Dec. 31, 2011
Schedule of Basis of Presentation and Allocation Methodologies [Line Items]
Number of product lines			2
Basis of Presentation and Allocation Methodologies (Textual) [Abstract]
Contribution adjustments of non-cash accounts				$ (920)
Contribution adjustments for assets				231
Contribution adjustments for liabilities				(1,222)
Contribution adjustments for equity				71
Contribution adjustments for cash accounts				6,346
Capital contributions	0	9,005
Distribution and merger costs			2,254
Retained earnings on distribution date			0
Decreased additional paid in capital	48	48	48
Decreased accumulated deficit	$ 48	$ 48	$ 48
Bitstream [Member]
Schedule of Basis of Presentation and Allocation Methodologies [Line Items]
Number of product lines			2
Maximum [Member]
Schedule of Basis of Presentation and Allocation Methodologies [Line Items]
Percentage of general, administrative and manufacturing costs			50.00%
Minimum [Member]
Schedule of Basis of Presentation and Allocation Methodologies [Line Items]
Percentage of general, administrative and manufacturing costs			30.00%

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Basis of Presentation

6 Months Ended

Jun. 30, 2012

Basis of Presentation and Allocation Methodologies [Abstract]

Basis of Presentation and Allocation Methodologies

(2) Basis of Presentation and Allocation Methodologies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of MSDH and its wholly-owned Israeli subsidiary. All material intercompany transactions and balances have been eliminated in consolidation. The financial statements prior to January 1, 2012 represent the assets, liabilities and operations relating to the two product lines of Bitstream that were contributed to MSDH. Our unaudited condensed consolidated financial statements presented herein 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 in the United States of America (“GAAP”). The balance sheet information as of December 31, 2011 has been derived from our audited consolidated financial statements but does not include all disclosures required by GAAP. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2011 included in our Annual Report on Form 10-K, which was filed with the SEC on March 30, 2012. The condensed consolidated balance sheet as of June 30, 2012, the condensed consolidated statements of operations for the three and six months ended June 30, 2012 and 2011, the condensed consolidated statements of stockholders’ equity for the six months ended June 30, 2012, and the condensed consolidated statements of cash flows for the six months ended June 30, 2012 and 2011, and the notes to each are unaudited, but in the opinion of management include all adjustments necessary for a fair presentation of the condensed consolidated financial position, results of operations, and cash flows of the Company as of and for these interim periods. The results of operations for the three and six months ended June 30, 2012 may not necessarily be indicative of the results to be expected for other interim periods and the year ending December 31, 2012. The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates in these financial statements include MSDH allocation methodologies, revenue recognition, the valuation of acquired intangible assets and goodwill, share-based compensation, income taxes and the valuation of deferred tax assets, and the allowance for doubtful accounts receivable. Actual results could differ from those estimates.

The Company evaluated subsequent events through August 14, 2012 to determine whether or not any such events required disclosure in this Form 10-Q, and determined that there was no such event.

On March 14, 2012, as a wholly-owned subsidiary of the Parent, the Company completed its Separation from the Parent whereby each owner of Bitstream Class A Common Stock received a distribution of one share of MSDH Common Stock for each share of Bitstream Class A Common Stock that they owned as of the close of trading on March 8, 2012. On January 1, 2012, MSDH recorded a contribution adjustment of $(920) for the contribution of non-cash accounts comprised of various asset classifications of $231, various liability classifications of $(1,222) and equity related accounts of $71. The Company also recorded a cash contribution adjustment of $6,346 on January 1, 2012. Total capital contributions from the Parent during the first quarter of 2012 totaled $9,005, inclusive of the contribution adjustment of $6,346. There were no capital contributions from the Parent during the three months ended June 30, 2012 as the Separation and Merger were completed during the first quarter of 2012.

Retained Earnings as of the Distribution

During the quarter ended June 30, 2012, management determined that retained earnings as of the Distribution date should have been reset to $0. The Company has decreased accumulated deficit and additional paid-in capital by approximately $48 million to correct the presentation on the condensed consolidated balance sheet as of June 30, 2012, and in the statement of changes in stockholders’ equity for the six months then ended contained in this quarterly report on Form 10-Q. The Company will revise its balance sheet and statement of changes in stockholders’ equity for the three months ended March 31, 2012, to reflect this correction in all future filings that contain such condensed consolidated financial statements. The adjustment eliminates the previously reported accumulated deficit and decreases the previously reported additional paid in capital for the three months ended March 31, 2012 by approximately $48 million. The adjustment does not affect total stockholders’ equity. Management does not consider this correction to be qualitatively material to the Company’s prior period condensed consolidated financial statements.

Allocation Methodologies

The financial statements of MSDH have been partially derived from the financial statements of Bitstream Inc. utilizing the following methodologies:

The December 31, 2011 MSDH balance sheet reflects the financial position of MSDH as if it had been a separate entity. Only those assets and liabilities, which were specifically identifiable to the MSDH business or those assets and liabilities that were used primarily by the MSDH business, such as our leased facilities in the United States, have been attributed and included in the balance sheet of MSDH. The June 30, 2012 MSDH condensed consolidated balance sheet reflects the actual assets, liabilities, and equity of MSDH after the completion of the Separation and Distribution.

The historical MSDH statements of operations for the three and six months ended June 30, 2011 reflect revenue directly attributed to the MSDH business. Cost of revenue, research and development, and sales and marketing departments have historically been product specific and thus have been primarily attributed to MSDH based on product line information. Certain general and administrative (“G&A”) items that could be specifically identified and allocated, including amortization of intangibles, were allocated. Other general expenses that could not be specifically identified to a product line were allocated based on the most relevant measure, such as headcount and product revenue. Bitstream charged MSDH a fee for assets used by both companies, approximating fair value based upon relative usage of these assets, for the three and six months ended June 30, 2011. The fee is netted with the expenses of MSDH in the consolidated statements of operations and was not material for the period prior to the Distribution.

Effective with the Separation on January 1, 2012 a management fee agreement between MSDH and Bitstream was executed, providing for the chargeback of certain costs incurred from January 1, 2012 through March 19, 2012, the effective date of the Bitstream Merger. These costs included all Separation, Distribution, and Merger costs directly associated with the transactions which amounted to $2,254, as well as a percentage ranging from 30% to 50% of general and administrative and manufacturing costs. The costs invoiced to Bitstream per this agreement are consistent with the allocation methodologies utilized for the 2011 consolidated financial statements.

The following table presents the allocable expense amounts allocated to the Company’s former Parent:

	Three months ended June  30,					Six months ended June  30,
Category	2012		2011			2012		2011
Cost of revenue	$	—	$	27		$	11	$	56
Marketing and selling		—		16			—		28
General and administrative		—		1,026			807		1,514
Interest and other (income) expense, net		—		(155	)		—		(173	)
Income taxes		—		9			—		40
Total	$	—	$	923		$	818	$	1,465

There is significant judgment in determining the allocation of income, expense, and attribution of assets and liabilities. Management believes that the methodologies used in the allocation are reasonable.

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Disclosures about Segments of an Enterprise (Details)	6 Months Ended
	Jun. 30, 2012 Product Segment
Disclosures about Segments of an Enterprise (Textual) [Abstract]
Number of operating segment	1
Number of product lines	2

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Income Taxes (Details Textual) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Income Taxes (Textual) [Abstract]
Deferred tax liability	$ 155	$ 115

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Current assets:
Cash	$ 2,912	$ 551
Accounts receivable, net of allowance of $20 and $24 at June 30, 2012 and December 31, 2011, respectively	438	628
Prepaid expenses and other current assets	784	394
Total current assets	4,134	1,573
Property and equipment, net	1,699	1,355
Other	437	238
Goodwill	3,297	3,297
Intangible assets, net	2,869	3,070
Total assets	12,436	9,533
Current liabilities:
Accounts payable	399	169
Accrued payroll and other compensation	796	775
Other accrued expenses	734	388
Short-term deferred revenue	2,101	2,200
Total current liabilities	4,030	3,532
Long-term deferred revenue	583	526
Long-term deferred rent	489	506
Total liabilities	5,102	4,564
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock, $0.01 par value:10,000 shares authorized; no shares issued or outstanding
Common stock, $0.01 par value: 30,500 shares authorized; 10,752 and no shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively	108
Additional paid-in capital	12,946	1,305
Accumulated deficit	(5,720)	(44,880)
Owner's net investment, prior to separation		48,544
Total stockholders' equity	7,334	4,969
Total liabilities and stockholders' equity	$ 12,436	$ 9,533

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Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Summary of future minimum annual lease payments
2012, remaining	$ 323
2013	659
2014	556
2015	570
2016	578
Thereafter	1,604
Total	$ 4,290

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Condensed Consolidated Statements of Cash Flow (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (5,720)	$ (4,213)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		137
Depreciation and amortization	149	108
Net loss on disposal of property and equipment	2	2
Amortization of intangible assets	201	204
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable	178	305
Prepaid expenses and other current assets	(184)	(344)
Accounts payable	(306)	149
Accrued payroll and other compensation	(126)	94
Other accrued expenses	(123)	117
Deferred revenue (long and short-term)	(42)	338
Deferred rent (long and short-term)	(17)	(11)
Net cash used in operating activities	(5,988)	(3,114)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, including costs capitalized for development of internal-use software	(586)	(103)
Increase in restricted cash	(70)	(54)
Additions to intangible assets		(12)
Net cash used in investing activities	(656)	(169)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions from former Parent	9,005	3,280
Net cash provided by financing activities	9,005	3,280
Net increase (decrease) in Cash	2,361	(3)
Cash, beginning of period	551	601
Cash, end of period	$ 2,912	$ 598

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Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of Property and Equipment
Property and equipment, Gross	$ 3,756	$ 3,709
Less - Accumulated depreciation and amortization	2,057	2,354
Property and equipment, net	1,699	1,355
Computer equipment [Member]
Summary of Property and Equipment
Property and equipment, Gross	1,668	1,878
Software [Member]
Summary of Property and Equipment
Property and equipment, Gross	1,474	1,110
Furniture and fixtures [Member]
Summary of Property and Equipment
Property and equipment, Gross	458	560
Leasehold improvements [Member]
Summary of Property and Equipment
Property and equipment, Gross	$ 156	$ 161

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Basis of Presentation (Tables)

6 Months Ended

Jun. 30, 2012

Basis of Presentation and Allocation Methodologies [Abstract]

Summary of expenses allocated to Parent Company

	Three months ended June  30,					Six months ended June  30,
Category	2012		2011			2012		2011
Cost of revenue	$	—	$	27		$	11	$	56
Marketing and selling		—		16			—		28
General and administrative		—		1,026			807		1,514
Interest and other (income) expense, net		—		(155	)		—		(173	)
Income taxes		—		9			—		40
Total	$	—	$	923		$	818	$	1,465

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Property and Equipment (Details 1)	6 Months Ended
	Jun. 30, 2012
Computer equipment [Member]
Estimated useful lives of assets
Estimated Useful Life	3 Years
Software [Member]
Estimated useful lives of assets
Estimated Useful Life	3 Years
Furniture and fixtures [Member]
Estimated useful lives of assets
Estimated Useful Life	5 Years
Leasehold improvements [Member]
Estimated useful lives of assets
Estimated Useful Life	Estimated useful life, or the lease term, whichever is shorter

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Income Taxes (Tables)

6 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Abstract]

Components of earnings (loss) before income taxes

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Foreign income (loss)	$	81		$	34		$	183		$	(20	)
Domestic loss		(2,522	)		(2,359	)		(5,792	)		(4,102	)
Loss before provision for income taxes	$	(2,441	)	$	(2,325	)	$	(5,609	)	$	(4,122	)

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Background and Nature of Operations

6 Months Ended

Jun. 30, 2012

Background and Nature of Operations [Abstract]

Background and Nature of Operations

(1) Background and Nature of Operations

MSDH was formed on July 18, 2011 in conjunction with our former Parent’s planned merger (the “Bitstream Merger”) with and acquisition by Monotype Imaging Holdings Inc., a Delaware corporation (“Monotype”), pursuant to an agreement and plan of merger (the “Bitstream Merger Agreement”) entered into by and between Bitstream and Monotype on November 10, 2011. On January 1, 2012, Bitstream transferred and assigned to MSDH all of the assets and liabilities relating to, arising from, or in connection with Bitstream’s Pageflex and BOLT product lines (the “Separation”) pursuant to the terms and conditions of a Contribution Agreement dated November 10, 2011 by and between Bitstream and MSDH (the “Contribution Agreement”). On March 14, 2012, Bitstream distributed all of the shares of MSDH common stock to the stockholders of Bitstream on a pro rata basis (the “Distribution”) pursuant to the terms and conditions of the Distribution Agreement dated November 10, 2011 between Bitstream and MSDH (the “Distribution Agreement”). On March 19, 2012, Bitstream completed the Bitstream Merger with Monotype. MSDH and Bitstream have entered into certain ancillary agreements in connection with the Separation and Distribution that provide for indemnification of Bitstream with respect to certain liabilities of the Pageflex and BOLT products contributed to MSDH.

MSDH is a software development company focused on bringing innovative and proprietary software products to a wide variety of markets. Our core software products include mobile browsing technologies and variable data publishing, Web-to-print, and multi-channel communications technologies.

MSDH is subject to risks common to technology-based companies, including dependence on key personnel, rapid technological change, competition from alternative product offerings and larger companies, and challenges to the development and marketing of commercial products and services. MSDH has also experienced net losses and negative operating cash flows in the past and in the current year, and as of June 30, 2012 has an accumulated deficit of approximately $5,720. MSDH’s historical carved out financial statements included an accumulated deficit of $47,923 at December 31, 2011, which was reset as of the Separation.

The unaudited condensed consolidated financial statements have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. MSDH’s long-term viability is dependent on its ability to generate sufficient product revenue, net income and cash flows from operations to support its business as well as its ability to obtain additional financing. Management’s plans also include reducing operating costs and delaying certain expenditures, if necessary, to maintain the Company’s liquidity. The Separation from Bitstream Inc. has disrupted and may continue to disrupt our business and management, negatively affecting our business, operating results or financial condition and may cause other risks to the Company. MSDH has suffered recurring losses from operations and, for its liquidity, has relied on contributions from Bitstream. As of March 19, 2012, MSDH had accumulated contributions of approximately $60,977 from its former Parent.

MSDH had a cash balance of $2,912 as of June 30, 2012. Management believes that with this cash and our current operating plan, our cash will be sufficient to meet the Company’s working capital and capital expenditure requirements through at least the next twelve months.

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Current assets:
Accounts receivable, net of allowance	$ 20	$ 24
Stockholders' equity:
Preferred stock, par or stated value per share	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par or stated value per share	$ 0.01	$ 0.01
Common stock, shares authorized	30,500,000	30,500,000
Common stock, shares issued	10,752,000	0
Common stock, shares outstanding	10,752,000	0

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Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2012

Goodwill and Other Intangible Assets [Abstract]

Goodwill and Other Intangible Assets

(11) Goodwill and Other Intangible Assets

Goodwill

Goodwill resulted from the acquisition of Alaras Corporation in 1998, as well as the purchase of certain assets from Press-Sense Ltd. on June 3, 2010. Goodwill was $3,297 at June 30, 2012 and December 31, 2011.

Goodwill is not amortized, but is required to be reviewed annually for impairment, or more frequently if impairment indicators arise. MSDH performs its annual impairment test during its fourth quarter. MSDH has determined that it has one reporting unit for purposes of goodwill assessment and thus goodwill is tested for impairment based upon an enterprise-wide valuation. The Separation event was considered a triggering event, and therefore goodwill was also assessed at December 31, 2011. MSDH has not recorded any impairment charges related to goodwill to date.

Effective January 1, 2012, the Company adopted new guidance surrounding the goodwill impairment test. The amendment permits the Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in goodwill accounting standard. Adoption of the new guidance did not and is not anticipated to affect the Company’s condensed consolidated financial statements.

Other Intangible Assets

The carrying amounts of other intangible assets were $2,869 and $3,070 as of June 30, 2012 and December 31, 2011, respectively. Intangible assets acquired in a business combination are recorded under the purchase method of accounting at their estimated fair values at the date of acquisition. MSDH amortizes other intangible assets over their estimated useful lives on a straight-line basis. Marketing-related intangibles have useful lives of four to eight years. Technology-based intangible assets have useful lives of five to twelve years. The weighted average useful life is nine years.

We review our long-lived assets (which include finite lived intangible assets and property and equipment) for impairment as events and circumstances indicate the carrying amount of an asset may not be recoverable. We evaluate the realizability of our long-lived assets based on profitability and cash flow expectations for the related asset or subsidiary. We believe that, as of June 30, 2012, none of our long-lived assets were impaired.

The components of MSDH’s other intangible assets are as follows:

	June 30, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Marketing-related	$	2,221	$	(412	)	$	1,809
Technology-based		1,780		(720	)		1,060
Total	$	4,001	$	(1,132	)	$	2,869
	December 31, 2011
	Gross  Carrying Amount		Accumulated Amortization			Net Carrying Amount
Marketing-related	$	2,221	$	(315	)	$	1,906
Technology-based		1,780		(616	)		1,164
Total	$	4,001	$	(931	)	$	3,070

Amortization expenses for marketing-related intangible assets included in marketing and selling expense were $48 for each of the three month periods ended June 30, 2012 and 2011, and $96 for each of the six month periods ended June 30, 2012 and 2011. Amortization expenses for technology-related intangible assets included as cost of revenue was $47 for each of the three month periods ended June 30, 2012 and 2011, and $94 for each of the six month periods ended June 30, 2012 and 2011. Amortization expenses for intangible assets included as general and administrative expense was $6 and $7 for the three months ended June 30, 2012 and 2011, respectively and $12 and $14 for the six month periods ended June 30, 2012 and 2011, respectively. Estimated amortization as of June 30, 2012 for succeeding years is as follows:

Estimated Amortization Expense:
2012, remaining	$	201
2013		397
2014		394
2015		384
2016		379
Thereafter		1,114
Total	$	2,869

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 08, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	Marlborough Software Development Holdings Inc.
Entity Central Index Key	0001534463
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		10,751,609

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Fair Value Measurements

6 Months Ended

Jun. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

(12) Fair Value Measurements

The fair value measurement rules establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Under authoritative guidance, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

This guidance describes three levels of inputs that may be used to measure fair value:

Level 1	Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company holds a certificate of deposit of which $320 and $136 was classified as other long term assets on the condensed consolidated balance sheets as of June 30, 2012 and December 31, 2011, respectively, relating primarily to the Marlborough, MA office lease. Certificates of Deposit are carried at cost which approximates fair value and are classified within Level 2 of the fair value hierarchy.

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Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Revenue:
Software licenses	$ 628	$ 604	$ 1,044	$ 1,367
Services	1,337	1,478	2,689	2,977
Total revenue	1,965	2,082	3,733	4,344
Cost of revenue:
Software licenses	261	405	463	581
Services	688	520	1,212	980
Total cost of revenue	949	925	1,675	1,561
Gross profit	1,016	1,157	2,058	2,783
Operating expenses:
Marketing and selling	1,169	821	2,236	1,698
Research and development	1,486	1,650	3,371	3,451
General and administrative	785	1,037	2,017	1,788
Total operating expenses	3,440	3,508	7,624	6,937
Operating loss	(2,424)	(2,351)	(5,566)	(4,154)
Interest and other (expense) income, net	(17)	26	(43)	32
Loss before provision for income taxes	(2,441)	(2,325)	(5,609)	(4,122)
Provision for income taxes	(59)	(68)	(111)	(91)
Net loss	$ (2,500)	$ (2,393)	$ (5,720)	$ (4,213)
Basic and diluted net loss per share	$ (0.23)	$ (0.22)	$ (0.53)	$ (0.39)
Basic and diluted weighted average shares outstanding	10,752	10,752	10,752	10,752

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Foreign Currency Remeasurement and Transactions

6 Months Ended

Jun. 30, 2012

Foreign Currency Remeasurement and Transactions [Abstract]

Foreign Currency Remeasurement and Transactions

(6) Foreign Currency Remeasurement and Transactions

The functional currency for the Company’s foreign subsidiary is the U.S. Dollar. For financial reporting purposes, assets and liabilities of subsidiaries outside the United States of America denominated in other currencies are remeasured into U.S. dollars using period-end and historical exchange rates. Revenue and expense accounts are remeasured at the monthly average rates in effect during the period. The effects of the remeasurement of the balances of our Israeli subsidiary are included as gains (losses) and reported as Interest and other income, net in the condensed consolidated statements of operations.

Transaction losses for the three months ended June 30, 2012 and 2011 amounted to $13 and $9, respectively. Transaction losses for the six months ended June 30, 2012 and 2011 amounted to $40 and $18, respectively.

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Off-Balance Sheet Risk and Concentration of Credit Risk

6 Months Ended

Jun. 30, 2012

Off-Balance Sheet Risk and Concentration of Credit Risk [Abstract]

Off-Balance Sheet Risk and Concentration of Credit Risk

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

Financial instruments that potentially expose us to concentrations of credit risk consist primarily of cash and trade accounts receivable. We place a majority of our cash investments in one highly-rated financial institution. We have 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 us to be inherent in our accounts receivable. As of June 30, 2012 and December 31, 2011, we did not have any off-balance sheet arrangements or unconsolidated special-purpose entities within the meaning of Item 303(a)(4) of Regulation S-K and therefore did not have any off-balance sheet risks as of such dates. At June 30, 2012, four customers accounted for 22%, 15%, 11%, and 11% of our accounts receivable, respectively. At December 31, 2011, two customers accounted for 23% and 19% of our accounts receivable, respectively. For the three and six months ended June 30, 2012, one customer accounted for 16% and 17% of our revenue, respectively. For each of the three and six month periods ended June 30, 2011, one customer accounted for 25% of our revenue.

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2012

Property and Equipment [Abstract]

Summary of property and equipment

	June 30, 2012		December 31, 2011
Computer equipment	$	1,668	$	1,878
Software		1,474		1,110
Furniture and fixtures		458		560
Leasehold improvements		156		161
		3,756		3,709
Less — Accumulated depreciation and amortization		2,057		2,354
Property and equipment, net	$	1,699	$	1,355

Estimated useful lives of assets

Asset Classification	Estimated Useful Life
Computer equipment	3 Years
Software	3 Years
Furniture and fixtures	5 Years
Leasehold improvements	Estimated useful life, or the lease term, whichever is shorter

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

(13) Commitments and Contingencies

Lease commitments of MSDH

We conduct our operations in leased facilities. In June 2009, our former Parent entered into a ten-year lease agreement for 27,000 square feet of office space in a building located in Marlborough, Massachusetts. Effective with the Separation, this lease was assigned from our former Parent to us. This lease agreement commenced September 1, 2009 and obligates us to make minimum lease payments plus our pro-rata share of future real estate tax increases and certain operating expense increases above the base year. The lease payments increase approximately 2% per annum. The total commitment under the lease was approximately $5,390, net of a tenant allowance of $411. We record rent expense on a straight-line basis, taking into consideration the free rent period, the tenant allowance received at the outset of the lease, and annual incremental increases to the lease payments. Our current lease agreement also required us to obtain a Letter of Credit in the amount of $136, which was increased to $260 in conjunction with its assignment to MSDH in March 2012, to be in place through October 31, 2019, which we collateralized with a certificate of deposit classified as a long-term restricted asset included in other assets on our condensed consolidated balance sheets.

In January 2011 our wholly-owned Israeli subsidiary entered into a thirty-six (36) month lease agreement in Caesarea, Israel. This lease agreement commenced April 15, 2011 and obligates us to make semi-annual payments including service taxes. Our total financial commitment during the thirty-six (36) month lease period is approximately $360 U.S. dollars based on historical and current foreign exchange rates. This lease agreement also required us to obtain a bank guarantee in the amount of approximately $56 U.S. dollars to be in place through May 14, 2014. The bank guarantee is classified as a long-term restricted asset included in other assets on our condensed consolidated balance sheets.

The future minimum annual lease payments under our leased facilities and equipment as of June 30, 2012, excluding any anticipated rent income of MSDH, are as follows:

Operating leases:
2012, remaining	$	323
2013		659
2014		556
2015		570
2016		578
Thereafter		1,604
Total	$	4,290

The net rent expense charged to operations for the three months ended June 30, 2012 and 2011 was approximately $151 and $145, respectively. The net rent expense charged to operations for the six months ended June 30, 2012 and 2011 was approximately $305 and $270, respectively.

Royalties

We have certain royalty commitments associated with the shipment and licensing of certain products. Royalty expense is primarily based on a dollar amount per unit shipped or a percentage of the underlying revenue. Royalty expense, which was recorded under our cost of software license revenue on our condensed consolidated statements of operations, was approximately $98 and $20 for the three months ended June 30, 2012 and 2011, respectively, and $114 and $46 for the six months ended June 30, 2012 and 2011, respectively.

Guarantees

We enter into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, we indemnify, hold harmless, and agree 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 our products. The term of these indemnification agreements is generally perpetual after execution of the agreement. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated liquidity of these agreements is minimal.

Legal Actions

From time to time we are subject to legal proceedings and claims in the ordinary course of business, including claims of commercial, employment and other matters. In accordance with GAAP, we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. This provision is reviewed at least quarterly. As of the condensed consolidated balance sheet date presented, no liability was recorded. Litigation is inherently unpredictable and it is possible that our financial position, cash flows, or results of operations could be materially affected in any particular period by the resolution of any such contingencies or the costs involved in seeking the resolution of any such contingencies.

Tax Indemnity Agreement

The Company and Bitstream have entered into a tax indemnity agreement (the “Tax Indemnity Agreement”) pursuant to which MSDH will indemnify Bitstream against taxes incurred by Bitstream as a result of the Distribution. Management believes that MSDH will not incur any liability to Bitstream under the Tax Indemnity Agreement because management believes that the income and franchise taxes incurred by Bitstream as a result of the Distribution will be fully offset by net operating loss and business tax credit carry forwards of Bitstream and that no taxes other than income and franchise taxes will be incurred by reason of the Distribution. Such belief is based in part upon an appraisal of MSDH that we obtained for tax purposes of approximately $19,800, as well as, our determinations with respect to the expected value of the stock of MSDH, the tax basis of Bitstream in the stock of MSDH, and the availability of net operating loss and business credit carry forwards.

There can be no assurance that the Internal Revenue Service or another taxing authority will concur that no taxes will be incurred by Bitstream as a result of the Distribution, either because the value of MSDH as of the date of the Distribution differs from the expected value of the MSDH stock at that time as currently projected or for other reasons. Any liabilities that MSDH may incur under the Tax Indemnity Agreement will adversely affect MSDH’s financial condition and results of operations.

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Loss Per Share

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Loss Per Share

(9) Loss Per Share

MSDH had 5 authorized shares of common stock, par value $0.01 per share, at the date of incorporation. On November 10, 2011, the Company amended its authorized shares to be 30,500 shares of common stock, par value of $0.01 common per share and 10,000 shares of preferred stock, par value $0.01 per share. On March 14, 2012, MSDH issued 10,752 shares of MSDH stock in a pro rata dividend distribution by Bitstream to its stockholders on a one for one basis.

The computation of basic loss per share for all periods through December 31, 2011, is calculated using the number of shares of MSDH common stock outstanding on March 14, 2012, the Distribution date. No measure of diluted loss per common share is presented for those periods since there were no actual shares outstanding prior to Distribution.

Basic net loss per share is determined by dividing the net loss by the weighted average number of shares of common stock outstanding during the periods. Basic loss per common share for all periods through the March 14, 2012 distribution date is calculated using the number of shares of MSDH common stock outstanding on March 14, 2012, following the Distribution. Diluted earnings per share do not include the effect of common stock equivalents as MSDH has incurred a net loss for the periods presented, and therefore common stock equivalents are considered antidilutive. As a result, there is no difference between MSDH’s basic and diluted loss per share for the three and six months ended June 30, 2012 and 2011.

If MSDH had reported a profit for the periods, the potential common shares would have increased the weighted average shares outstanding by 56 and 0 for the three months ended June 30, 2012 and 2011, respectively, and 62 and 0 for the six months ended June 30, 2012 and 2011, respectively, based on the weighted average number of common stock equivalents outstanding. Additionally, there were unvested restricted share awards and options outstanding to purchase 264 and 0 shares for the three and six month periods ended June 30, 2012 and 2011, respectively, that were not included in the potential common share computations because their exercise prices were greater than the average market price of MSDH’s common stock. These common stock equivalents are antidilutive even when a profit is reported in the numerator.

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Recently Issued Accounting Standards

6 Months Ended

Jun. 30, 2012

Recently Issued Accounting Standards [Abstract]

Recently Issued Accounting Standards

(7) Recently Issued Accounting Standards

There have been no new accounting pronouncements during the three months ended June 30, 2012, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, that are of significance, or potential significance, to us.

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Property and Equipment

6 Months Ended

Jun. 30, 2012

Property and Equipment [Abstract]

Property and Equipment

(8) Property and Equipment

Property and equipment are stated at historical cost, less accumulated depreciation and amortization. Property and equipment consists of the following:

	June 30, 2012		December 31, 2011
Computer equipment	$	1,668	$	1,878
Software		1,474		1,110
Furniture and fixtures		458		560
Leasehold improvements		156		161
		3,756		3,709
Less — Accumulated depreciation and amortization		2,057		2,354
Property and equipment, net	$	1,699	$	1,355

Depreciation and amortization is provided on a straight-line basis over the estimated useful lives of the related assets as follows:

Asset Classification	Estimated Useful Life
Computer equipment	3 Years
Software	3 Years
Furniture and fixtures	5 Years
Leasehold improvements	Estimated useful life, or the lease term, whichever is shorter

Depreciation expense for the three months ended June 30, 2012 and 2011 was $78 and $58, respectively. Depreciation expense for the six months ended June 30, 2012 and 2011 was $148 and $108, respectively.

During the three and six months ended June 30, 2012, we disposed of $4 and $551 of property and equipment with accumulated depreciation of $4 and $549, respectively, resulting in a loss on disposal of $0 and $2, respectively. During the three and six months ended June 30, 2011, we disposed of $5 and $26 of property and equipment with accumulated depreciation of $3 and $24, respectively, resulting in a loss on disposal of $2 for each period. The assets were no longer in service.

During the six months ended June 30, 2012 and 2011, we capitalized software of $407 and $0, respectively (included in Software above). As of June 30, 2012, we have not yet recorded amortization for developed software because it is not ready for its intended use. The net book value of internally developed software at June 30, 2012 and December 31, 2011 was $1,095 and $688, respectively.

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Income Taxes

6 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Abstract]

Income Taxes

(10) Income Taxes

Presentation

The Company accounts for income taxes in accordance with GAAP which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of the temporary differences between the book and tax basis of recorded assets and liabilities. The Company makes estimates and judgments with regard to the calculation of certain income tax assets and liabilities. This FASB guidance requires that deferred tax assets be reduced by valuation allowances if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be objectively verified.

For purposes of the Company’s historical financial statements prior to the completion of the Separation, income tax expense and deferred income tax balances were recorded as if the Company had filed tax returns on a separate return basis (“hypothetical carve-out basis”) from the former Parent. Post Bitstream Merger income tax expense and deferred income tax balances are recorded in accordance with the Company’s stand-alone income tax positions.

MSDH’s operating results have been included in Bitstream’s consolidated U.S. federal and state income tax returns, as well as included in Bitstream’s tax filings for non-U.S. jurisdictions. The Company’s non-U.S. operations have primarily been conducted within Bitstream’s non-U.S. subsidiaries which shared operations with Bitstream’s other businesses. For purposes of the Company’s unaudited condensed consolidated financial statements, income tax expense and deferred tax balances have been recorded as if the Company had filed tax returns on a separate return basis from Bitstream. The Company’s contribution to Bitstream’s tax losses and tax credits on a separate return basis has been included in these condensed consolidated financial statements. The Company’s separate return basis tax loss will not reflect the tax positions taken or to be taken by Bitstream. In many cases tax losses and tax credits generated by the Company have been available for use by Bitstream and remained with Bitstream at the date of the Separation.

As the Company continues to incur cumulative taxable losses in the United States, the Company recorded a full valuation allowance against the Company’s U.S. deferred tax assets, net of reversing taxable temporary differences.

Components of earnings (loss) before income taxes are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Foreign income (loss)	$	81		$	34		$	183		$	(20	)
Domestic loss		(2,522	)		(2,359	)		(5,792	)		(4,102	)
Loss before provision for income taxes	$	(2,441	)	$	(2,325	)	$	(5,609	)	$	(4,122	)

We have made an indefinite reinvestment of earnings in our foreign Israeli subsidiary and, therefore, we do not provide for U.S. income taxes applicable to its undistributed earnings.

We have recorded a deferred tax liability and related income tax expense for the “naked credit” resulting from the amortization of goodwill for tax purposes. The total deferred liability at June 30, 2012 and December 31, 2011 was $155 and $115, respectively.

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Foreign Currency Remeasurement and Transactions (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Foreign Currency Remeasurement and Transactions (Textual) [Abstract]
Foreign currency transaction losses	$ 13	$ 9	$ 40	$ 18

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Geographical Reporting

6 Months Ended

Jun. 30, 2012

Geographical Reporting [Abstract]

Geographical Reporting

(15) Geographical Reporting

We attribute revenues to different geographical areas on the basis of the location of the customer. All of our product sales for the three and six months ended June 30, 2012 and 2011 were shipped from our headquarters located in the United States. Revenues by geographic area are as follows:

	Three Months Ended June  30,				Six Months Ended June 30,
	2012		2011		2012		2011
*Revenue:
United States	$	1,224	$	1,597	$	2,528	$	3,433
Germany		97		83		174		231
United Kingdom (UK)		157		103		208		192
Other (Countries less than 5% individually, by Region)
Europe, excluding Germany and UK		270		135		399		224
Asia		117		19		193		27
Other, including Canada		100		145		231		237
Total revenue	$	1,965	$	2,082	$	3,733	$	4,344
Total foreign revenue	$	741	$	485	$	1,205	$	911

* If revenue attributable to a specific country is greater than 5% in any period, revenue attributable to that country is disclosed for all periods.

Long-lived tangible assets (including internally developed Capitalized Software), net of accumulated depreciation and amortization, by geographic area are as follows:

	June 30, 2012		December 31, 2011
United States	$	1,585	$	1,193
Israel		114		108
India		—		54
Total	$	1,699	$	1,355

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies [Abstract]

Summary of future minimum annual lease payments

Operating leases:
2012, remaining	$	323
2013		659
2014		556
2015		570
2016		578
Thereafter		1,604
Total	$	4,290

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Geographical Reporting (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Revenue:
Total revenue	$ 1,965	$ 2,082	$ 3,733	$ 4,344
Total foreign revenue	741	485	1,205	911
United States [Member]
Revenue:
Total revenue	1,224	1,597	2,528	3,433
Germany [Member]
Revenue:
Total revenue	97	83	174	231
United Kingdom (UK) [Member]
Revenue:
Total revenue	157	103	208	192
Europe, excluding Germany and UK [Member]
Revenue:
Total revenue	270	135	399	224
Other (includes Canada) [Member]
Revenue:
Total revenue	100	145	231	237
Asia [Member]
Revenue:
Total revenue	$ 117	$ 19	$ 193	$ 27

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Goodwill and Other Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Components of intangible assets
Gross Carrying Amount	$ 4,001	$ 4,001
Accumulated Amortization	(1,132)	(931)
Net Carrying Amount	2,869	3,070
Marketing-related [Member]
Components of intangible assets
Gross Carrying Amount	2,221	2,221
Accumulated Amortization	(412)	(315)
Net Carrying Amount	1,809	1,906
Technology-based [Member]
Components of intangible assets
Gross Carrying Amount	1,780	1,780
Accumulated Amortization	(720)	(616)
Net Carrying Amount	$ 1,060	$ 1,164

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Condensed Consolidated Statements of Stockholders' Equity (USD $) In Thousands	Total	Common stock	Additional paid-in capital	Accumulated deficit	Owner's net investment, prior to separation
Beginning balance at Dec. 31, 2011	$ 4,969		$ 1,305	$ (44,880)	$ 48,544
Beginning balance, shares at Dec. 31, 2011
Capital contributions from former Parent	9,005				9,005
Separation-related adjustments	(920)		(1,305)	(3,043)	3,428
Reclassification of owner's net investment to common stock and additional paid-in capital in connection with the Separation		108	12,946	47,923	(60,977)
Reclassification of owner's net investment to common stock and additional paid-in capital in connection with the Separation, shares		10,752
Net loss	(5,720)			(5,720)
Ending balance at Jun. 30, 2012	$ 7,334	$ 108	$ 12,946	$ (5,720)
Ending balance, shares at Jun. 30, 2012		10,752

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Disclosures about Segments of an Enterprise

6 Months Ended

Jun. 30, 2012

Disclosures about Segments of an Enterprise [Abstract]

Disclosures about Segments of an Enterprise

(4) Disclosures about Segments of an Enterprise

We conduct our operations in one business segment with two major product lines: mobile browsing and messaging technology, and automated marketing communication and print production technology.

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Stock-based Compensation Plans and Stock-based Compensation Expense (Tables)

6 Months Ended

Jun. 30, 2012

Stock-based Compensation Plans and Stock-based Compensation Expense [Abstract]

Summary of stock-based compensation expense by category

	Three Months Ended June  30,				Six Months Ended June  30,
	2012		2011		2012			2011
Cost of revenue—software licenses	$	—	$	—	$	—		$	—
Cost of revenue—services		—		4		2			10
Marketing and selling		—		6		(5	)		16
Research and development		—		56		324			113
General and administrative		—		19		1,099			82
Stock-based compensation expense prior to Parent allocation	$	—	$	85	$	1,420		$	221

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Loss Per Share (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Mar. 14, 2012	Dec. 31, 2011	Nov. 10, 2011	Jul. 18, 2011
Loss Per Share (Textual) [Abstract]
Common Stock, Shares Authorized	30,500,000		30,500,000			30,500,000	30,500,000	5,000
Common Stock, Par or Stated Value Per Share	$ 0.01		$ 0.01			$ 0.01	$ 0.01	$ 0.01
Preferred Stock, Shares Authorized	10,000,000		10,000,000			10,000,000	10,000
Preferred Stock, Par or Stated Value Per Share	$ 0.01		$ 0.01			$ 0.01	$ 0.01
Preferred Stock, Shares Issued	0		0			0
Common stock, shares issued	10,752,000		10,752,000		10,752,000	0
Potential Increase in Weighted Average Shares Outstanding	56,000	0	62,000	0
Unvested Restricted Stock Awards and Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share awards and options outstanding	264,000	0	264,000	0

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Stock-based Compensation Plans and Stock-based Compensation Expense

6 Months Ended

Jun. 30, 2012

Stock-based Compensation Plans and Stock-based Compensation Expense [Abstract]

Stock-Based Compensation Plans and Stock-Based Compensation Expense

(14) Stock-based Compensation Plans and Stock-based Compensation Expense

(a) General

On January 25, 2012, the Board of Directors of MSDH, and the Board of Directors of Bitstream acting in its capacity as sole stockholder of MSDH, adopted the MSDH Incentive Compensation Plan (the “Plan”) under which 1,724 shares of MSDH common stock were authorized for issuance under the Plan. The Plan provides for the grant of awards in the form of options (which may be incentive stock options or non-qualified options), stock appreciation rights, restricted stock and restricted stock units, stock granted as a bonus or in lieu of another award, other stock-based awards, performance awards or annual incentive awards. The maximum number of shares of stock with respect to which awards can be granted will be 1,073 shares, plus the number of shares subject to the New MSDH Options, subject to adjustment as provided in the Plan to reflect the effect of mergers, recapitalizations, stock splits and reverse splits, extraordinary dividends, and similar transactions. On March 8, 2012, in connection with the Bitstream Merger Agreement, all outstanding former Parent stock options awards for the Company’s employees were replaced with awards in the Company using a formula designed to preserve the intrinsic value and fair value of the award immediately prior to Separation. There was no incremental compensation expense to the Company related to the replacement of the former Parent stock-based compensation awards. The vesting of all outstanding options was accelerated and restrictions from restricted stock awards were removed as part of the Separation and Merger of the former Parent and thus no unrecognized compensation expense existed for the replaced awards. Accordingly, on March 8, 2012, 651 fully vested new MSDH options with a weighted average exercise price of $1.493 were granted to holders of the Bitstream options. During the six months ended June 30, 2012, the Company did not grant any stock-based compensation awards to employees or non-employee directors under the Company’s incentive plan. Each stock option granted will have an exercise price of no less than 100% of the fair market value of the common stock on the date of grant. The awards will generally have a contractual life of ten years and will generally vest over four to ten years.

We account for stock-based compensation in accordance with authoritative guidance. Under the fair value recognition provisions of this guidance, stock-based compensation expense is measured at the grant date based on the fair value of the award, net of an estimated forfeiture rate, and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

(b) Stock-based Compensation Expense

We currently estimate the fair value of MSDH stock options using the Black-Scholes valuation model. Key input assumptions to be used to estimate the fair value of stock options will include the exercise price of the award, the expected option term, the expected volatility of our stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and our expected annual dividend yield, which will all be based on the historical information of Bitstream. The expected term of options granted will be estimated by calculating the average term from our historical stock option exercise experience. Estimated volatility of our common stock will be based on Bitstream’s historical volatility. The risk-free interest rate used in the option pricing model will be based on zero-coupon yields implied from U.S. Treasury issues with remaining terms similar to the expected term of the options. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Historical data for Bitstream will be used to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. We believe that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of our stock options. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards. These amounts, and the amounts applicable to future quarters, are also subject to future quarterly adjustments based upon a variety of factors, which include but are not limited to, the issuance of new options. No options were granted during either of the three months ended June 30, 2011 or 2012.

The stock-based compensation expense of $1,420 for the period of January 1, 2012 through March 14, 2012 was recorded through an intercompany transaction with our former Parent and is includable as Bitstream’s stockholders’ equity, as it relates exclusively to Bitstream stock. Therefore, this stock-based compensation is not included in the Company’s condensed consolidated statements of stockholders’ equity for 2012. A portion of the adjustments for the Separation from the Parent was directly related to the $1,420 of stock-based compensation and the amount was therefore netted against stock-based compensation for presentation purposes on the condensed consolidated statements of cash flow for the three months ended March 31, 2012 resulting in no stock-based compensation reflected for the period. There has been no stock-based compensation expense associated with MSDH stock from March 15, 2012 through June 30, 2012.

Our results for the three months ended June 30, 2012 and 2011 include $0 and $85, respectively, and for the six months ended June 30, 2012 and 2011 include $1,420 and $221, respectively, of stock-based compensation within the applicable expense classification where we report the option holders’ compensation cost. The expense includes stock option expense for Bitstream options granted to those employees specifically assigned to MSDH as well as an allocation of the stock option expense for options granted to executives and other general shared personnel.

The following table presents stock-based compensation expense for the three and six months ended June 30, 2012 and 2011 by category:

	Three Months Ended June  30,				Six Months Ended June  30,
	2012		2011		2012			2011
Cost of revenue—software licenses	$	—	$	—	$	—		$	—
Cost of revenue—services		—		4		2			10
Marketing and selling		—		6		(5	)		16
Research and development		—		56		324			113
General and administrative		—		19		1,099			82
Stock-based compensation expense prior to Parent allocation	$	—	$	85	$	1,420		$	221