Michael AndersonDavid BeamishS. Raj RajagopalShang Yen SeeJuan Velandia

Fundamentally overvalued

Positioning of business lines limits growth potential

Operational concerns

SELL BITSTREAM

2

3

Source: Proprietary research

Font TechnologyRevenue: $6.1MMGross Margin: 86%

MyFontsRevenue: $9.6MMGross Margin: 26%

PageFlexRevenue: $6.7MMGross Margin: 83%

BOLT BrowserRevenue: $0.1MMGross Margin: 20-60%

‘08 Revenue Disclosures

‘09E Revenue Breakdown

Font Tech27%

MyFonts43%

Pageflex30%

BOLT<1%

Software Licenses

79%

Services21%

0

2

4

6

8

10

12

14

Jun Jul Aug Sep Oct Nov Dec Jan Feb

Da

ily

Vo

lum

e (

100

00

)

High Volume Buying

4

3

4

5

6

7

8

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10

BITS Nasdaq

BITS stock price ‘08 to present

2 year mean daily volume

Source: Capital IQ

Allocation of resources

R&D ramp up

Insufficient focus on sales/marketing

Conservative corporate culture

Historic strategy has limited exposure to growing international markets

Excess cash not deployed Showing lack of growth opportunities

5

Weaknesses

0

20

40

60

80

100

97 98 99 00 01 02 03 04 05 06 07 08 09

Employees per division

R&D Sales & Marketing Admin

Source: Bitstream website

6

2.9%

5.5%

19.0%

16.2%

13.5%

9.2%

7.4%

Asia Pacific

Middle East and Africa

Latin America

Australasia

Eastern Europe

Western Europe

North America

Industry Display Device Sales, 2008-2013 CAGR

Source: Euromoniter

0%20%40%60%80%

100%

North America Europe Rest of world

Minority duopolist with Monotype Less than 15% market share Highly dependent on one customer

FreeType has over 80% share Free open-source software Comparable performance to BITS Google funding FreeType R&D

Inferior product offering to Monotype in Asian markets

Not exposed to fastest growing e-reader products (e.g., Kindle, Nook and iPad)

Source: Company reports and proprietary research

BITS Geographical Revenue Mix

Display Devices

Printers

-

.5MM

1.MM

1.5MM

2.MM

2.5MM

0%

5%

10%

15%

20%

200

9

2010

2011

2012

2013

2014

Revenue growth rate flat

7

MyFonts operates in a highly competitive niche online market

Management has historically only revealed user growth numbers, not revenue growth

Revenue per user has actually been falling due to: Increased use by non professional

casual users The resale of lower margin third-party

fonts have increased ahead of proprietary fonts

Source: Company reports and proprietary research

-

.5MM

1.MM

1.5MM

2.MM

2.5MM

$0.0

$5.0

$10.0

$15.0

$20.0

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

Revenue per user

Users

Users

Revenue growth rate

-15%

-10%

-5%

0%

5%

10%

15%

2009 2010 2011 2012 2013

Yo

YG

row

th r

ate

s

8

Pageflex operates in the highly fragmented data publishing market

Revenue driven by advertising spend in old and new media

Limited growth opportunities Historic connection to old media

Product characteristics Product is not the low cost solution

nor user friendly

Source: Mintel, Advertising Age and proprietary research

New Media

Pageflex

30%

70%

Old Media (e.g. Print) New Media (e.g. Email)

Pageflex Media Exposure

Old Media

Old media exposure limits growth

User behavior in flux AdMob Google, Quattro Apple

Monetization doubtful Mobile advertising in infancy

Highly competitive industry Opera, Mozilla Firefox

No bargaining power Wireless carriers control sales channel

Handset makers control platform

Better substitutes iPhone apps, Nokia Ovi, Google Android

No barrier to entry BOLT based on free ‘WebKit’ open source

9

License Revenue

Advertising Revenue

Mill

ion

s

BOLT User Growth Forecast

BITS Revenue Mix Forecast 2013

Other Business

Lines, 86%

BOLT, 14%

0

10

20

30

40

50

2009E 2010E 2011E 2012E 2013E 2014E

Source: Proprietary research

Source: Proprietary research

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

Sto

ck P

rice

(U

S $

) Current Price

Target Price

Bullish

Bearish

Valuation Results by Methodology

DCF P/E Residual Income

Take Out Analysis

10

(8.4 - 13.4% WACC) (15 – 20x)

(2 – 3x Sales)(2 - 4% T. Growth)

(25%)

Only 6% Upside

(20 – 60% EPS CAGR)

Potential takeover Low Blackberry recently bought a mobile browser

Adobe and Monotype have superior technology

Major deal with handset maker / wireless carrier

Very Low BITS lacks the infrastructure and organization

No prior experience with global carriers

11

MitigantsRisks Probability

Fundamentally overvalued

Positioning of business lines limits growth potential

Operational concerns

SELL BITSTREAM

12