8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 27, 2006

BITSTREAM INC.

(Exact name of registrant as specified in its charter)

Delaware	0-21541	04-2744890
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

245 First Street, 17th Floor, Cambridge, Massachusetts	02142
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code (617) 497-6222

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

Today, February 27, 2006, Bitstream, Inc. announced its financial results for the quarter and annual periods ended December 31, 2005. The full text of the press release issued in connection with the announcement is attached as Exhibit 99.1 to this Current Report on Form 8-K.

The information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Number	Title
99.1	February 27, 2006 press release

SIGNATURES

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

BITSTREAM INC.

(Registrant)

Date : February 27, 2006

By:	/s/ James P. Dore
	James P. Dore
	Vice President and Chief Financial Officer

EX-99.1

EXHIBIT 99.1

Bitstream Inc. Reports Fourth Quarter and Annual

Financial Results for 2005

As a result of an increase in quarterly revenue for the quarter ended December 31, 2005 of $1,295,000 or 39% to $4,618,000, we attained our highest quarterly revenue level since going public in 1996, contributing to our attainment of a $788,000 net income or $0.08 diluted net income per share for the fourth quarter and a $1,034,000 net income or $0.11 diluted net income per share for the year.

CAMBRIDGE, MA—(Business Wire)—February 27, 2006—Bitstream Inc. (Nasdaq: BITS) today reported that its total revenue increased $1,295,000 or 39% to $4,618,000 for the three months ended December 31, 2005 as compared to $3,323,000 for the three months ended December 31, 2004. Total revenue for the twelve months ended December 31, 2005 increased $4,021,000 or 34.6% to $15,653,000 as compared to $11,632,000 for the twelve months ended December 31, 2004. We generated a profit from operations of $799,000 for the three months ended December 31, 2005, an increase of $777,000 as compared to $22,000 for the three months ended December 31, 2004. Our operating income for the year ended December 31, 2005 was $1,038,000 an improvement of $1,773,000 as compared to a loss of $(735,000) for the year ended December 31, 2004. Our net income for the three months ended December 31, 2005 increased $748,000 to $788,000 or $0.08 per diluted share as compared to $40,000 for the three months ended December 31, 2004. Our net income for the year ended December 31, 2005 improved $1,649,000 to $1,034,000 or $0.11 per diluted share as compared to a loss of $(615,000) for the year ended December 31, 2004. The Company’s cash and cash equivalents at December 31, 2005 totaled $5,464,000, an increase of $665,000 from $4,799,000 at September 30, 2005 and an increase of $1,059,000 from $4,405,000 at December 31, 2004.

“Strong sales during the fourth quarter across all of our product lines allowed us to achieve our highest quarterly and annual sales, and highest overall revenue growth rates since we went public in 1996. All of our products demonstrated enhanced market penetration in markets that we expect to continue to develop and grow in the year ahead. Our revenue for the year and the quarter allowed us to exceed our prediction of breakeven performance in 2005 and to achieve a very profitable year as evidenced by our net profit for the quarter and year ended December 31, 2005 of $788,000 and $1,034,000.” said Anna M. Chagnon, President and Chief Executive Officer. “We believe that we are well positioned to extend this momentum in 2006 by focusing on increasing revenue across all of our product lines and managing costs to enhance our profitability in the year ahead.”

FOURTH QUARTER 2005 HIGHLIGHTS AND OTHER RECENT DEVELOPMENTS

November 3, 2005 — Bitstream announced the release of Font Fusion^® 3.1, company’s smallest, most advanced font rasterizing engine and the fastest font engine on the market today.

December 5, 2005 — A research study released by The Center for Women’s Leadership at Babson College and The Commonwealth Institute named Bitstream as one of the Top 100 Women Led Businesses in Massachusetts.

December 7, 2005 — Bitstream announced the release of Pageflex Persona Cross Media Suite, a completely new desktop software application suite that enables customers to create targeted, personalized content in both print and email.

December 14, 2005 — Bitstream announced the release of ThunderHawk Symbian Series60 (S60) Edition. The new version gives users of select Symbian platform devices access to award-winning ThunderHawk technology, including the browser’s unique split screen view for effortless navigation on small screen phones.

January 11, 2006 — Bitstream announced the December release Pageflex Storefront 3.0. This is a major new software release that includes several new features that enable users to expand their e-commerce capabilities to include online ordering and campaign management services.

February 1, 2006 — Bitstream and Canon U.S.A., Inc. announced that Pageflex Persona™ Cross Media Suite has been designated by Canon U.S.A. as “Canon Compatible” under the Canon U.S.A. Alliance program after successful completion of testing by VeriTest, a service of Lionbridge and a leading provider of independent outsourced testing services.

February 6, 2006 — Bitstream announced the addition of The New Lincoln Gothic font set to its New Font Collection program. This set includes 24 OpenType fonts in one extended family.

February 13, 2006 — Bitstream announced the release of ThunderHawk Windows Mobile 5.0 Pocket PC Edition, which offers users a fast, secure desktop browsing experience along with new Windows Mobile 5.0 technology.

CONFERENCE CALL REMINDER

Today, February 27, 2006, at 4:30 p.m. EST, Bitstream will host a conference call with the financial community to discuss its fourth quarter and annual results for the periods ended December 31, 2005:

• International Dial-in number: 703-639-1212

• Domestic Dial-in number: 866-256-3815

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

A replay of the conference call will be available through March 10, 2006 (access code): 861584

• International Replay number: 703-925-2533

• Domestic Replay number: 888-266-2081

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current expectations. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, including, without limitation, market acceptance of the Company’s products, competition and the timely introduction of new products. Additional information concerning certain risks and uncertainties that would cause actual results to differ materially from those projected or suggested in the forward-looking statements is contained in the Company’s filings with the Securities and Exchange Commission, including Bitstream’s Annual Report on Form 10-K for the year ended December 31, 2004.

About Bitstream

Bitstream Inc. (NASDAQ: BITS) is a software development company that makes communications compelling. Bitstream enables customers worldwide to render high-quality text, browse the Web on wireless devices, select from the largest collection of fonts online, and customize documents over the Internet. Its core competencies include fonts and font technology, browsing technology, and publishing technology. For more information about Bitstream please visit www.bitstream.com.

Bitstream and MyFonts.com are registered trademarks, and Pageflex, the Bitstream logo and ThunderHawk are trademarks, of the Company. Other technologies and brand names are used for information only and remain trademarks or registered trademarks of their respective companies.

Bitstream Inc.

Consolidated Statements of Operations

(In Thousands, Except Per Share Data)

(unaudited)

	Three Months Ended December 31,					Twelve Months Ended December 31,
	2005		2004			2005		2004
Revenue:
Software license	$	3,947	$	2,839		$	13,156	$	9,805
Services		671		484			2,497		1,827
Total revenue		4,618		3,323			15,653		11,632
Cost of revenue:
Software license		1,182		911			4,321		3,196
Services		352		232			1,223		829
Total cost of revenue		1,534		1,143			5,544		4,025
Gross profit		3,084		2,180			10,109		7,607
Operating expenses:
Marketing and selling		753		679			2,936		2,644
Research and development		1,005		980			3,929		3,914
General and administrative		527		499			2,206		1,784
Total operating expenses		2,285		2,158			9,071		8,342
Operating profit (loss)		799		22			1,038		(735	)
Other income:
Gain on investment in DiamondSoft, Inc.		—		—			—		91
Other income, net		12		13			52		71
Income (loss) before provision for income taxes		811		35			1,090		(573	)
Provision for (benefit from) income taxes		23		(5	)		56		42
Net income (loss)	$	788	$	40		$	1,034	$	(615	)
Basic net earnings (loss) per share	$	0.09	$	0.00		$	0.12	$	(0.07	)
Diluted net earnings (loss) per share	$	0.08	$	0.00		$	0.11	$	(0.07	)
Basic weighted average shares outstanding		8,663		8,611			8,685		8,524
Diluted weighted average shares outstanding		9,514		9,073			9,620		8,524

Bitstream Inc.

Consolidated Balance Sheets

(In Thousands)

(unaudited)

	December 31,
	2005		2004
ASSETS
Current assets:
Cash and cash equivalents	$	5,464	$	4,405
Accounts receivable, net		1,663		962
Prepaid expenses and other current assets		341		233
Total current assets		7,468		5,600
Property and equipment, net		315		282
Other assets:
Restricted cash		200		250
Goodwill		727		727
Intangible assets		125		174
Total other assets		1,052		1,151
Total assets	$	8,835	$	7,033
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	664	$	278
Accrued expenses		1,191		1,199
Deferred revenue		1,085		792
Total current liabilities		2,940		2,269
Long-term liabilities		194		200
Total liabilities		3,134		2,469
Total stockholders’ equity		5,701		4,564
Total liabilities and stockholders’ equity	$	8,835	$	7,033

Contact:

Anna M. Chagnon, President and Chief Executive Officer

Bitstream Inc.

(617) 520-8619

achagnon@bitstream.com

or

James P. Dore, Vice President and Chief Financial Officer

Bitstream Inc.

(617) 520-8377

jdore@bitstream.com