UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(Mark one) |
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) |
For the fiscal year ended December 31, 2001
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) |
For the transition period from to
COMMISSION FILE NUMBER: 0-21541
BITSTREAM INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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04-2744890 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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215 First Street Cambridge, Massachusetts |
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02142 |
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(617) 497-6222 |
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(Registrant’s telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $0.01 per share
Indicate by check mark 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 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 ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
The aggregate market value of voting stock held by non-affiliates of the Registrant as of March 15, 2002 was approximately $29.2 million.
On March 15, 2002, there were 8,305,150 shares of Class A Common Stock, par value $0.01 per share, and no shares of Class B Common Stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for the 2002 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission, are incorporated by reference into Part III of this Annual Report on Form 10-K.
INDEX
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GENERAL
Bitstream Inc. (“Bitstream” or the “Company”), headquartered in Cambridge, Massachusetts, is composed of three separate and distinct businesses: (1) type and technology, in which Bitstream develops and licenses font technology and custom font designs to manufacturers of information appliances, wireless devices, set-top boxes, embedded systems, printers, and personal digital assistants; (2) MyFonts.com, a showcase of the world’s fonts in one easy-to-use e-commerce Web site operated by Bitstream’s wholly-owned subsidiary, MyFonts.com, Inc. (“MyFonts.com”); and (3) Pageflex, in which the Company’s wholly-owned subsidiary Pageflex, Inc. (“Pageflex”) develops, markets and supports on-demand document composition solutions that automatically produce customized one-to-one marketing collateral such as data sheets and brochures directly from XML text and graphics data stored in Web servers and/or databases.
Bitstream was founded in 1981 as the first digital typeface supplier to computer hardware and software developers. The Company was also an early developer of typographic enabling software for hardware and software developers. Its font display technologies are used to provide font-scaling functionality to operating systems, applications, network servers, computer printers, set-top boxes, personal digital assistants (PDAs), and other embedded systems and information appliances. More recently, the Company has focused its product development and marketing efforts on technology solutions that address the font-related browsing issues of small, embedded systems and information appliances, and Linux operating systems and applications. These include the development of extremely compact fonts for large Asian language character sets, including Traditional Chinese, Simplified Chinese, Japanese, and Korean. The Company’s library of typeface products are also used by original equipment manufacturers (“OEMs”), independent software vendors (“ISVs”), and end users around the world in the creation of electronic documents. The Company’s ThunderHawk™ Web browser for handheld devices gives users complete wireless access to real Web pages that maintain full text legibility.
In January 1999, the Company established Pageflex as a wholly owned subsidiary for the purpose of developing, marketing and supporting on-demand marketing and composition solutions based on its NuDoc XML-based composition engine and related technology. Pageflex has developed MpowerÔ, an enterprise solution that allows companies to dynamically create customized business documents, and PersonaÔ, a variable data desktop publishing application designed to produce personalized documents. Both products are based on the NuDoc™ XML-based composition engine, which uses flexible design templates incorporating “spring-loaded” text and image containers that dynamically adjust page layouts based on the sizes and shapes of the variable text and images that flow into them. Text and image containers resize and reposition to automatically maintain the design integrity of each document. Built on open standards, Pageflex products import data from any ODBC-compliant database and use XML as the data format between databases and page composition.
In December 1999, MyFonts.com was founded as a wholly-owned subsidiary of Bitstream to provide the world’s most complete source of digital fonts in a single comprehensive Web site. The MyFonts.com Web site provides one of the largest collections of fonts ever assembled for on-line delivery, and offers easy ways to find and purchase fonts on-line, unique typographic resources, and a forum for interacting with type experts. By hosting fonts from a wide variety of font foundries and designers, MyFonts.com aims to be the single choice for finding and purchasing fonts on the Web.
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The markets in which the Company participates are intensely competitive, evolving and subject to rapid technological change. The Company expects competition to persist and to increase in the future. The Company believes that while it competes with no single organization across its entire product line, a variety of companies offer products that compete with some of its products. Certain of the Company’s competitors, including Adobe Systems Incorporated (“Adobe”) and Agfa Monotype Corporation (“Agfa”), have greater name recognition, a larger customer base and significantly greater financial, technical, and marketing resources than the Company.
Future sales of the Company’s products will depend upon the Company’s ability to develop or acquire, on a timely basis, new products or enhanced versions of its existing products that compete successfully with products offered by developers of competing technologies. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures faced by the Company will not materially adversely affect its business, financial condition and results of operations.
TYPE & TECHNOLOGY
INDUSTRY BACKGROUND
The rapid growth in the use of personal computers, advanced software applications and laser printers has dramatically transformed the document creation, production, and distribution process, giving rise to the widespread use of word processing and desktop publishing applications. Underlying the growth in word processing and desktop publishing were enabling technologies such as page description languages, printer control languages, and outline font technologies. Adobe’s PostScript Type 1 format (“Type 1”), the original outline font technology, gained acceptance among graphic artists and the high-end electronic publishing market due to the technology’s close links to high-resolution output devices used in service bureaus and publishing houses. TrueType was developed by Apple Computer, Inc. (“Apple”), as an alternative outline font technology to Type 1 and is integrated into the Windows and Macintosh operating systems.
The increased use of distributed client/server network architectures in the 1990s resulted in complex computing environments composed of mixed operating systems and multiple networking protocols. To create, transport, view, and print text-based digital information in such an environment, while preserving the appearance intended by the document’s author, each individual computer must have specific font software and hardware drivers to display or print the document as the author intended. If a user’s system did not have a particular font used by the author or attempted to output a document to a device that differs from the device on which the document was originally created, the user’s end-product often lacked the font fidelity and appearance intended by the creator. For example, if an output device prints a document with a font substituted in place of the author’s original font, a complete loss of original pagination or formatting within the document can often result. Such a result would make it difficult, if not impossible, for multiple users to review and comment collaboratively on the same document. Difficulties in retaining text integrity can be further complicated when users try to incorporate non-Latin fonts, such as Japanese, Chinese, Korean, Greek, or Hebrew, because font substitution for non-Latin fonts is typically not available in most operating systems and output devices.
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Currently, techniques used to present text and graphics are based on existing desktop publishing technologies and, when used in new distribution media, often result in a loss of visual integrity, degraded system performance, or both. To efficiently deliver digital information that retains the author’s intended visual impression, computer systems must use enabling technologies that reduce file size, minimize bandwidth consumption, and operate reliably across heterogeneous computing environments. The evolution of real time operating systems, cellular telephone operating systems, wireless Internet devices, personal digital assistants, set-top boxes, embedded systems in general, and information appliances will require the transition from text being displayed on these devices as bitmaps, as is currently done today, to text that can be scaled to fit the content being viewed on the device. Clear text that is easy to read on any device, at any size, and at any resolution is immeasurably important.
THE BITSTREAM SOLUTION
Since its founding over 20 years ago, Bitstream has played a leading role in the development of industry-standard font products and enabling technologies (e.g., font rendering and display software). Bitstream has also been actively developing font portability and compaction technology. The Company has built substantial expertise in digital type design and production, technical font formats, and font portability and compaction software. Bitstream intends to continue to develop or acquire technology to support its leadership position in these areas.
The Company believes that certain features of its products such as their small file and application size, high typographic quality, performance, system scalability, and cross-platform portability will facilitate their adaptation to new and emerging markets. These markets include the Internet, information appliances, corporate intranets, embedded systems, set-top boxes, high definition televisions, multi-function devices (e.g. combined printer/fax/copiers), and handheld and wireless devices. Bitstream is currently developing, adapting and marketing its enabling technologies and font products to third parties whose products address these new and developing markets.
Bitstream’s products and technologies have been designed to support existing technological and typographic standards, such as Unicode, TrueType, and Type 1, and to be embedded within full-featured products produced by OEMs and ISVs. The Company’s products have also been designed to function in multi-platform computing environments, including Windows, UNIX, Linux, Macintosh, OS/9, and Java. The Company plans to continue to promote the use of its products in multi-vendor configurations.
PRODUCTS AND TECHNOLOGIES
The Company’s products can be separated into two major groups: (1) technology products, and (2) typeface products. Each of the product groups is described in greater detail below.
(1) Technology Products
Technology products consist of the following: (a) Font Fusion™, font engine software that allows developers of operating systems, software applications, Web applications, low-resolution screen devices, multimedia servers, high-definition television screens (HDTVs), set-top boxes, continuous tone printers, personal digital assistants (PDAs), and other embedded systems and information appliances to render high-quality characters in any format, at any resolution, on any device; (b) btXÔ, font engine software that allows Linux developers to render high-quality characters in industry-standard and highly compact formats; (c) TrueDocÒ, portable font technology that provides for the efficient distribution of text, with fidelity, in a highly compact format; (d) TrueDoc Imaging System (TDIS), formerly Bitstream’s 4-in-1 TrueDoc Imaging System, font engine software for developers of operating systems, servers, applications, and printer
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controllers where a complete font solution is needed to provide scaleable resident fonts and support for downloaded, industry-standard fonts; and (e) ThunderHawkÔ, a Web browsing technology for handheld devices, wireless devices, personal digital assistants, and other embedded systems. Each of these products is described in greater detail below:
(a) Font Fusion
Font Fusion is Bitstream’s latest, most advanced font engine. The Font Fusion software developers’ kits (SDKs) provides developers with full font fidelity and high-quality typographic output at any resolution, on any device, while maintaining the integrity of the original character shape. It is designed to support operating systems, software applications, Web applications, low-resolution screen devices, multimedia servers, high-definition television screens (HDTVs), set-top boxes, continuous tone printers, personal digital assistants (PDAs), and other embedded systems and information appliances. Font Fusion is independent of processor and operating system and compatible with all industry-standard font formats. It is a full-featured, next generation, small footprint, multilingual, outline font technology. Font Fusion is designed for color, grayscale and black-and-white ROM-based and non-ROM-based devices in a system where the fonts may reside locally or remotely.
(b) btX
First released in 2001, btX brings sophisticated font capabilities to the Linux environment. The btX SDK contains all the tools that Linux software developers need to enhance the font capabilities of their applications. It satisfies the requirements of software developers who need to provide capabilities such as the ability to use fonts in highly compact formats, the ability to display specialty fonts, the ability to display industry-standard fonts, and the ability of end users to install off-the-shelf, commercially-available fonts. On the front end, btX uses the X font server protocol for X11 Windows, Release 6 (X11R6). On the back end, btX relies on Bitstream’s Font Fusion. With btX, developers can render hinted, anti-aliased, and kerned characters. btX renders not only high-quality characters in industry-standard TrueType and Type 1 formats, but also high-quality text in compact PFR (portable font resource, an industry-standard format), T2K, and stroke-based Asian font formats. Bitstream btX supports Unicode encoding and can render international fonts.
(c) TrueDoc
TrueDoc is a portable type compaction technology designed for the distribution of electronic text-based information. OEMs and ISVs license and incorporate TrueDoc into their document creating and viewing products to achieve reliable, compact, and efficient recording, transporting, viewing, and printing of typographic information, whether or not the fonts used for the original creation of the document are resident on the recipient’s system. TrueDoc has been engineered to be small in file and application size, to comply with all industry font standards, and to be cross-platform compatible.
TrueDoc is composed of two main software components. The TrueDoc Character Shape Recorder, approximately 75 kilobytes in size, captures character shapes from a font processor, such as TrueType or Type 1, and creates a portable font resource (“PFR”) that is transportable across networks or the Internet. TrueDoc’s Character Shape Player, approximately 65 kilobytes in size, recreates the character shapes stored in the PFR and displays the text in a manner that maintains the integrity of the original shapes. The Company believes that TrueDoc’s small file size and efficient playback capabilities present advantages in applications where limitations on bandwidth and memory are significant factors.
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(d) TDIS
The modular architecture of the Company’s “5-in-1” enabling technology, TDIS, provides software hooks to allow OEMs and ISVs to incorporate font scaling technologies into their products. The font scaling technologies included in TDIS are two industry standard font formats (TrueType and Type 1), the resident fonts used in Hewlett-Packard Company LaserJet laser printers, and a Bitstream TrueDoc-based font rasterizer that processes Bitstream-supplied resident font sets. In addition, this 5-in-1 architecture includes software that routes incoming font data to the appropriate processor and prepares the final rasterized characters for imaging by an output device or computer screen.
(e) ThunderHawk
Scheduled for release in April 2002, ThunderHawk is Bitstream’s first Web browser for handheld devices, which gives users complete wireless access to real Web pages while maintaining full text legibility and image integrity. Bitstream has filed 13 preliminary patent applications for this wireless Internet technology.
ThunderHawk relies on a server infrastructure combined with a small piece of thin-client code on the handheld device. The server infrastructure transmits Web content in a more compact format to the device, making fast and full-featured wireless Web browsing possible. In addition, ThunderHawk gives customers the same browsing experience on a handheld device as they are used to on the desktop. This includes viewing the full text and images of any Web page without excessive scrolling. By not relying on WAP or cHTML, ThunderHawk does not require Web content providers to repurpose their content or build separate Web sites – one for the desktop, and one for the wireless world. Instead, ThunderHawk enables end users to see a Web page just as it appears on the desktop.
(2) Typeface Products
Bitstream has developed a library of over 900 digital typefaces deliverable in industry-standard font formats (such as TrueType and Type 1). Most of these typefaces are for use with English or other Western European language-based computer systems. A large number of typefaces are necessary to support OEMs and ISVs focused on the graphic arts market, who are accustomed to having a wide variety of typeface designs from which to choose. The remainder of the Company’s typeface designs are non-Western language typefaces such as Japanese, Greek, Cyrillic, Chinese, Korean, Russian, Hebrew and Arabic. Bitstream is committed to increasing the number and variety of typeface designs it offers to its customers.
In August 2000, Bitstream announced the New Font Collection (NFC) program to add fonts to the library and seek out designs from “new school” and established designers alike. The NFC program releases new fonts on a quarterly basis. In 2001, Bitstream released sixteen new NFC fonts from nine designers. In February 2002, Bitstream released nine new NFC fonts, including seven Bitstream exclusives, from international, award-winning designers. In addition, in January 2002, Bitstream released four Hebrew typefaces and thirty-five WGL4 (Windows Glyph Language 4) fonts. Each WGL4 font includes 652 characters and includes characters that Western, Central, and Eastern European writing systems rely on. It also includes Baltic, Cyrillic, Greek, and Turkish characters.
In addition to typefaces, the Company also offers custom design services. Depending on the needs of the client, the Company can digitize corporate logos, modify existing typeface designs, add special characters to typefaces, and create new typefaces. The Company’s custom design services are marketed to its OEM, ISV and large corporate customers.
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Bitstream has developed its own, proprietary, font design software tools. These tools enable the Company’s typeface product engineers to develop and expand the Company’s library of typeface products and to generate custom typeface products in an efficient and cost-effective manner. By using its own tools, Bitstream largely can avoid licensing or paying royalties for the use of third party development tools. In addition, the Company believes that its design tools improve its competitive position in the marketplace by helping the Company rapidly adapt its products to the specific requirements of its customers.
In 2001, Bitstream discontinued its Font Navigator for Windows product for end users, and partnered with DiamondSoft, in which Bitstream holds a minority interest, to resell Font Reserve for Windows and Font Reserve for the Macintosh. Also in 2001, Bitstream discontinued its WebFont Wizard, WebFont Maker, and WebFont Player product line.
SALES & MARKETING
The type and technology sales organization, as of March 15, 2002, consisted of three people focused on OEM and ISV sales, and one person focused on corporate direct sales. The Company’s sales efforts are managed from its corporate headquarters in Cambridge, Massachusetts. In addition, the Company maintains a European sales headquarters in Cheltenham, England. The Company also has a sales agent based in Tokyo to facilitate OEM sales to Japanese hardware manufacturers. Sales personnel receive a base salary plus commissions based on meeting sales targets, with additional commissions for sales in excess of annual targets.
In April 2001, Bitstream launched a new online store for finding, trying, and buying fonts online. MyFonts.com, a wholly-owned subsidiary of Bitstream, has provided the back-end programming necessary for graphic design professionals and casual users alike to try and buy fonts, including a streamlined search engine for finding fonts; a variety of search criteria, including such font categories as “Decorative and Display” and “Weddings and Invitations”; unique ways to try before you buy, including test drives and character maps; order histories, allowing customers to review fonts they have already purchased and re-download them; secure log-in and credit card encryption; comprehensive help for finding, buying, downloading, unpacking, and installing fonts; and technical support. All of the fonts in the Bitstream Typeface Library are available for online purchase. Bitstream fonts have always been available for online purchase, but end users had to know the name of the font they desired. The new online store allows end users to find, try, and buy fonts without this restriction.
Marketing activities are carried out by a cross-functional team of four people drawn from all Bitstream divisions located at the Company’s headquarters in Cambridge, Massachusetts. In addition, the Company promotes its products through attendance and exhibition at major industry trade shows and through its Web site, http//www.bitstream.com. The principal objective of the Company’s marketing strategy is to continue to expand the sale of the Company’s type technologies to OEMs and ISVs, who integrate the Company’s software into their own products, and to end users. OEM and ISV relationships range from the licensing of a small group of typefaces to agreements whereby an entire range of font products and/or technologies are incorporated into the customer’s hardware or software products. As new opportunities arise, particularly in the newly emerging areas of embedded systems, wireless and handheld devices, information appliances, set-top boxes, interactive television, corporate intranets and portable document software, the Company intends to evaluate other marketing approaches.
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CUSTOMERS
The Company licenses typeface products and font subsystems to a wide variety of OEM and ISV customers. The Company also sells custom and other typeface products directly to corporate customers and individual end users. No single type and technology segment customer accounted for 10% or more of the Company’s revenue for any of the years ended December 31, 2001, 2000 or 1999. No single type and technology segment customer accounted for 10% or more of the segment’s revenue for the years ended December 31, 2001 or 2000. However, during the year ended December 31, 1999 one type and technology ISV customer accounted for 11% of this segment’s revenue. From time to time, product sales to large customers during a single fiscal quarter may constitute more than 10% of Company revenue for such quarter. The Company has broadened and intends to continue to broaden, its customer base through expanded product offerings and increased marketing efforts. Revenue by geographic area is included in Footnote 10 in the Notes to the financial statements enclosed herewith.
RESEARCH AND DEVELOPMENT
Bitstream is committed to developing innovative software to enhance text imaging for wireless devices, operating systems, software applications, information appliances, Web applications, low-resolution screen devices, multimedia servers, high-definition television screens (HDTVs), set-top boxes, personal digital assistants (PDAs), and other embedded systems. To accomplish this goal, the Company has invested, and expects to continue to invest, significant resources in research and development. The Company’s research and development activities are centered around advancing the Company’s software products for its OEM, ISV, and corporate customers. The Company maintains specific expertise in the areas of font formats, multilingual fonts, font portability, font compaction, and font processing technology. The Company emphasizes cross-platform portability, small file and application size, and extensibility to new technologies in its software development. To support these design objectives, the Company utilizes advanced software development techniques.
As of March 15, 2002, the Company employed 15 individuals who engage in type and technology research and development activities. Of these, seven focus on font product development, two on developing enabling technology, four on TrueDoc, Font Fusion, btX, and ThunderHawk, and two on all of these areas.
COMPETITION
The Company’s typeface and technology products compete with the solutions offered by a variety of companies, including other suppliers of enabling technologies, software application developers, and vendors of computer operating systems. Moreover, the market for the Company’s enabling technologies and products may be adversely affected to the extent that computer hardware, operating system, and application software vendors incorporate similar functionality or bundle competitive offerings with their products and thereby reduce the market for the Company’s technology or products. The Company’s markets are the subject of intense industry activity, and it is likely that a number of software developers are devoting significant resources to developing and marketing technology and products that may compete with the Company’s technology and products. The competition for the Company’s sales of typefaces generally comes from a number of comparably sized or smaller companies offering their own typeface libraries and custom typeface services. Competition with the Company’s enabling technologies principally comes from Agfa with its iType and Universal Font Scaling Technology (“UFST”). UFST has a similar architecture to the Company’s TDIS enabling technology product.
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The competition for Font Fusion and the TrueDoc Imaging System consists primarily of software from Agfa, which includes a font compression technology known as MicroType Express. Other competition for Font Fusion comes from software from Slangsoft, which includes intelligent text input and display known as iTID. Competition for btX comes from FreeType, an open source collaborative organization that provides its Linux font rendering code for free.
The Company believes that the principal competitive factors affecting its market include product features and functionalities, such as scalability, ease of integration, ease of implementation, ease of use, quality, performance, price, customer service and support, and effectiveness of sales and marketing efforts. Although the Company believes that it currently competes effectively with respect to such factors, there can be no assurance that the Company will be able to maintain its competitive position against current and potential competitors.
MYFONTS.COM
INDUSTRY BACKGROUND
Traditionally, individual digital fonts and font packages consisting of a variety of fonts have been sold through many different channels including: (1) catalog sales; (2) sales through resellers who typically handle fonts from multiple foundries together with other graphic arts supplies; and (3) CD ROMs containing many fonts which can be unlocked by means of a purchased key code.
While these approaches to selling fonts are generally satisfactory for professionals, they represent a very large barrier for the non-professional, casual user who is simply looking for a particular font. For example, if someone sees a font used in a magazine, traditional sales channels offer no quick and easy way of finding out what it is. Even when the name of the font can be determined, it is not obvious where to buy it from among the hundreds, if not thousands, of font foundries offering their fonts through numerous channels. As a result of such obstacles, font sales to non-professionals have historically been almost non-existent. Bitstream believes that this represents a large untapped market for fonts and established MyFonts.com in 1999 to capitalize on this market.
THE MYFONTS.COM SOLUTION
In 1999, MyFonts.com developed a prototype Web site. This Web site included a few thousand fonts together with powerful search facilities to help users find a particular font. Some of these search facilities, such as the ability to browse fonts of a selected style, are commonly found on other Web sites featuring fonts. A keyword search engine, more powerful than commonly found on such sites, was developed to make it easier to pick fonts suitable for a given project. For example, if a consumer needs fonts for a wedding invitation, he or she may type the word “wedding” to find a variety of fonts from a large number of competing vendors who would be suitable for a wedding invitation. In addition, novel capabilities allowing the user to ask to see fonts similar to a particular font are also included on the site.
The most powerful search technology included on the MyFonts.com site allows any user to upload an image scanned from a magazine or newspaper, and get a list of the closest fonts matching the scanned image. This technology, called WhatTheFontÔ, is believed to be one of the keys to making MyFonts.com easy and accessible to casual users. During 2000, Bitstream filed for a U.S. Patent relating to the use of automatic font recognition in conjunction with e-commerce.
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MyFonts.com is designed to handle virtually all fonts available irrespective of their source. The Company’s strategy for the MyFonts.com Web site is to become the universal and complete source for fonts from all font vendors and designers. To implement its strategy, the Company approached a number of key font foundries and invited them to participate in the MyFonts.com web site. Three levels of participation are currently available:
1. Level 1 - A participating font foundry provides copies of its fonts for addition to the MyFonts.com database. This makes its fonts available to all searching and browsing facilities. In addition, it allows users to see images of the fonts for evaluation and comparison. If a user wishes to purchase a font from a participating foundry, he follows a link to the foundry’s Web site where the purchase actually takes place. MyFonts.com collects no revenue from these sales. In many cases, however, MyFonts.com earns referral fees when such purchases are made.
2. Level 2 - Similar to level 1 but the participating foundry allows its fonts to be sold directly by MyFonts.com. With each sale, MyFonts.com collects a commission of 20% of the purchase price.
3. Level 3 - Similar to level 2 but the participating foundry shares in the ownership and control of MyFonts.com. As of the date of this filing, no participants have elected to participate at this level.
Since launching the e-commerce portion of its Web site in April 2000, the Company has monitored sales and feedback from its users and used this information to make ongoing improvements to the Web site. As a result, the Company believes that the current Web site presents substantially fewer obstacles to finding and buying fonts than any other Web site offering fonts for sale.
PRODUCTS AND TECHNOLOGIES
In early 2000, Bitstream officially launched MyFonts.com, a showcase of the world’s fonts from one easy-to-use Web site. Created by Bitstream and joined by some of the industry’s most influential font foundries, MyFonts.com provides one of the largest collections of fonts ever assembled. It features new ways to find and purchase fonts on-line, and offers unique typographic resources and a forum for interacting with font experts.
As of the date of this filing, over 70 foundries, both large and small, participate as partners with MyFonts.com to offer their fonts for sale. This represents an aggregate collection of over 15,000 fonts.
Some of the key features of MyFonts.com include: (1) MyFonts Valet™ which enables users to browse and locate fonts using keywords a novice or expert can understand; (2) WhatTheFont™ which allows users to scan images of typefaces and upload them to MyFonts.com for identification; (3) TypeXplorer™ which allows users to adjust typographic measurements to find similar fonts based on user-defined criteria; (4) the ability to find fonts similar to a particular typeface design using the “Show me more like this…” feature; (5) test driving a font in your own text; (6) exploring the world of fonts with links to typographic resources available on the Web; and (7) the ability to interact with type experts and fellow-users on-line, ask questions, or join the on-line MyFonts Forum.
The mission of MyFonts.com is to make fonts accessible to everyone, which benefits both users and the font foundries. Fonts have been an anomaly to the general computer user - difficult to find, purchase, and install, and often an unknown aspect of their desktop environment. MyFonts.com hopes to endear fonts to all users, not just graphic arts professionals.
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SALES & MARKETING
Marketing activities are carried out by a cross-functional team of four people drawn from all Bitstream divisions located at the Company’s headquarters in Cambridge, Massachusetts. Since its inception, marketing of MyFonts.com has been focused on recruiting participation from font foundries, making Web users aware of MyFonts.com and bringing them to the Web site. During 2002, the Company intends to focus marketing efforts for MyFonts.com on increasing awareness of, and sales on, the site. Marketing activities to increase awareness on the part of potential font buyers consists of a tradeshow presence in combination with efforts aimed at building Web links from search engines and other Internet sites. To complement this presence, the Company strives to further increase awareness by encouraging editorial coverage in relevant publications, through print and Internet advertising and also by seeking awards by submitting the site as a candidate.
Analysis of sales results suggests that most of MyFonts.com’s customers find the site by means of search engine queries. The Company has worked and continues to work vigorously to develop and improve its ranking on search engines. In addition, the Company enters into referrer agreements with selected Internet sites that share a portion of revenue in return for referring new customers.
One of the most promising and innovative means of making access to MyFonts.com as easy as possible is by building in a connection to MyFonts.com from font managers. By automating the often-troublesome font installation process, one significant barrier to new users is removed. The first implementation of this approach was developed jointly between the Company and Corel Corporation in the form of an enhanced Bitstream Font Navigator released in November 2000. This technology has subsequently been incorporated into Diamondsoft’s Font Reserve font manager. The Company plans to work with other developers of other font managers to implement this powerful technology more broadly.
Using the same technology that enables font managers to handle the purchasing and addition of fonts, MyFonts.com also provides back-end font searching and e-commerce facilities to other Web sites including www.bitstream.com. In 2002, the Company intends to further expand its participation in support of additional font-related Web sites.
CUSTOMERS
MyFonts.com licenses typefaces to end users worldwide through its e-commerce Web site. No single MyFonts.com segment customer accounted for 10% or more of the Company’s revenue or that segment’s revenue for the years ended December 31, 2001 or 2000. This segment began generating revenue during 2000 and thus had no customers during the year ended December 31, 1999.
RESEARCH AND DEVELOPMENT
The Company is committed to developing leading-edge technology for its MyFonts.com Web site to ensure that the site is the primary site to purchase fonts on the Web. As of March 15, 2002, the Company employed two individuals and two consultants who focus on research and development activities relating to the technology incorporated into the MyFonts.com Web site. Additional Bitstream personnel also assist in the research and development effort for the site including Bitstream’s Chief Technology Officer and internal font experts.
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COMPETITION AND OTHER RISKS
MyFonts.com believes that it has no direct competitors who offer such a wide variety of fonts on one easy-to-use Web site aimed at people who have never previously purchased a font. However, there can be no assurance that consumers will prefer to use MyFonts.com over Web sites hosted by individual font foundries. There also can be no assurances that MyFonts.com will succeed in hosting virtually all of the available digital fonts in the world. If there are critical omissions due to non-participation by key foundries, the value of the site as a one-stop shop will be reduced. Even with the powerful search tools and the ability to find any font in one place, there is no assurance that additional sales of fonts will occur in sufficient numbers to justify the cost of operating MyFonts.com.
PAGEFLEX
INDUSTRY BACKGROUND
Corporate marketing departments in the United States spend approximately $20 billion on commercial printing each year. It is estimated that for every dollar spent on printed product, ten dollars is spent in the process of creation, revision control, ordering, warehousing, distribution, and discarding obsolete inventory (Source: CAPV 1999 Market Research). Marketing documents are created using an expensive, labor intensive process. After all of the content (text and imagery) has been created, the process of laying this content out on a page and preparing it for the printing press involves handoffs between two or three separate departments and/or firms, plus manual intervention and rework. The desktop publishing revolution has made the process of developing the individual text, images, tables, charts, and illustrations very efficient. However, the task of page layout is, for the most part, not automated.
In the past few years, corporate marketing departments have quickly learned to take advantage of the Web as a new marketing medium. These departments are becoming familiar with the Web’s qualities and new opportunities, such as how easy the Web is to update, the ability to generate web pages dynamically directly from corporate databases, and the potential for personalization. The Web is becoming the first place that a potential customer goes to search for information and learn about a company and its offerings. Web sites are, or will soon be, the primary information source for customers and potential customers. Compared to the Web, traditionally produced print is slow, cumbersome, and expensive. In addition, the speed in which the Web is updated has made printed materials far more likely to be out dated and thrown away.
With today’s manual page layout and slow, expensive prepress stages, it is impossible to personalize printed pages the way one can with the Web. It is also not economically feasible with today’s offset presses to print less than 1,000 copies of any document, let alone a run of one, as would be required for personalization. Today, companies have separate teams dedicated to print and Web publishing. The only time that these teams interact is when they copy content by manually cutting and pasting between Web and print authoring tools and databases. Each team publishes from its own database and each database must be independently updated.
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Companies are realizing the increased customer loyalty and profits that result from treating customers as individuals. Companies also are realizing that it is important to identify their most valuable customers and lavish attention on them in a personalized manner. The heart of these systems is the maintenance of a unique profile of each customer. Companies must leverage these profiles to drive the creation of personalized communications. Credit card companies, airlines, auto manufacturers, and computer manufacturers all have databases of their customers and their unique purchase profiles. Customer relationship management (“CRM”) software, working as a front-end to Pageflex’s software to create personalized marketing communications for customers, can enhance both customer loyalty and future revenues.
Marketing industry consultants Don Peppers and Martha Rogers have popularized the notion of marketing to an audience of one. To implement one-to-one communications, all marketing communications must be moved from a one-size-fits-all approach to a custom manufacturing model, where thousands of variations may be produced at low cost. The market needs solutions to implement the one-to-one concept.
Pageflex software, together with high-speed color printers and digital presses, brings the concept of one-to-one marketing to fruition. With or without the added complexity of one-to-one marketing, companies must create thousands of unique marketing documents to meet the needs of their distribution partners and to present all of their products and services. The number of variations required can be computed by considering combinations of the following factors:
• The number of revisions of the document in a year,
• The number of basic document templates,
• The number of product/service variations of content that need to go through the template,
• The number of distributors of the product in each tier who each want the document customized,
• The number of languages needed for each country, and
• The combinations of variations from one-to-one marketing.
Pageflex also has actively pursued the Web-to-print market since the release of Mpower™ 2.0 in early 2000. Much of Pageflex’s current customer base uses Mpower in a transactional mode as part of an e-commerce solution. These customers provide customized marketing materials on-demand to corporations. Marketing managers, sales people, and franchise owners are just some of the types of users who choose marketing templates online, select images, type custom content into a Web form, review a PDF proof generated by Mpower and displayed in their Web browser, and then order the digital or offset printing of a customized marketing document. Web-to-print custom publishing systems streamline production processes, save money since marketing collateral can be designed once and then repurposed numerous times, and enable those who need marketing collateral to received printed documents in a matter of days instead of weeks. Fortune 1000 marketing departments are the target market for these Web-to-print services.
THE PAGEFLEX SOLUTION
The Company develops leading-edge technologies that it believes will revolutionize the publishing world and cause major corporations to rethink their marketing strategies. They are as follows:
• Mpower is an enterprise solution that allows companies to dynamically create customized business documents. Driven by customer profile information entered into a Web form or database, Mpower selects custom text and graphics elements and assembles them into sophisticated business documents using flexible design templates. Mpower creates GIF, JPEG, and PDF document previews
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and generates PostScript, PDF, and Personalized Print Markup Language (“PPML”) output. Mpower also includes output drivers for select vendor-specific formats.
• Persona™ is a desktop application designed to produce personalized documents. It is an easy to use product for getting started in variable printing, while offering powerful features not found in existing variable data solutions. Persona projects easily migrate to Mpower. Persona includes drivers for PPML and PostScript output. Select vendor-specific drivers are available separately.
• .EDIT™ is an innovative new technology currently in development at Pageflex, which enables non-designers to create typographically-rich, layout-rich print documents from within a Web browser. Pageflex has developed this technology in response to Web-to-print service providers that need the ability to offer more creative freedom to their customers than typical template-driven custom publishing workflows allow, but without incurring extra labor and longer production cycles. Within an automated publishing workflow, .EDIT makes a print document available for remote hands-on editing, styling, and content positioning changes. This rich desktop publishing feature set is presented in an easy-to-use interface right within the customer’s Web browser.
Variable data printing (“VDP”) changes the focus from marketing one product to thousands of customers to marketing many products to a selected group of customers or to an individual customer. A merging of database information and digital imaging technology, VDP makes it possible for each printed page to be different from all the others. Pageflex combines VDP capabilities with print-on-demand marketing, the ability to print flexible run lengths “just in time” for delivery, to create a complete on-demand marketing solution. Companies have the ability to create customized materials for their customers and print them on an as-needed basis. Not only does this improve the response rates of customers, but it also allows a company to maintain up-to-date, accurate information in its materials. Writers, editors and graphic designers can customize their documents to contain interesting material for each reader while making sure that the latest product descriptions and updates are included with each new distribution.
As acceptance for one-to-one marketing and targeted audiences grows, the Company believes that its software products will become widely-used, necessary tools in the publishing industry. Pageflex has the potential to become a de facto standard in VDP. As this revolution in the way we view publishing evolves, Pageflex continues to develop its products’ print on demand capabilities in the marketplace.
Pageflex’s products and technologies have been designed to support existing technological standards. Pageflex is a founding member of Print On Demand Initiative (PODi), an alliance of key vendors and service providers working in the digital color printing market. PODi promotes a greater awareness about the applications and benefits of digital color printing through the publication of articles, independent research, industry seminars and special events. Membership in PODi is open to leading vendors and service providers involved in digital printing, database marketing and mail products. PODi’s focus and activities are set by its Board of Directors, which includes Adobe, CreoScitex, Electronics for Imaging (EFI), Hewlett-Packard, and Xerox. Pageflex also participates in PODi’s Personal Printing Initiative (PPI). The PPI is an industry initiative focused on understanding and quantifying the value of variable color digital printing as a means of improving customer acceptance and application. The goal of the PPI is to eliminate some of the obstacles facing variable data users, thus accelerating market acceptance.
The PPI has completed and released the PPML standard. This standard harmonizes the ten vendor-specific proprietary protocols currently used to drive digital presses at high speed. All can be driven by PostScript, but only at low performance. To drive the Indigo press at the high rated speed, for example, the front-end software must output Indigo’s proprietary “JLYT” format. Whereas, to drive a Xerox
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DocuColor 70 that uses a Scitex RIP, you must output Scitex’s VPS format. The PPML standard is designed to eliminate these competing alternatives. Many variable data providers initially developed applications that could drive only one specific proprietary format. Pageflex’s software is unique in that since its inception it has sought to drive all brands of digital printers. Pageflex’s neutral position has enabled it to play a central role within the PPI working group. Currently most of the major digital press companies are adopting PPML as a preferred format. Once PPML is implemented across the industry, front-end software (like Pageflex’s Mpower) will be able to send the same PPML file to any vendor’s output device.
Pageflex also is actively involved in the Extensible Stylesheet Language (XSL) working group of the World Wide Web Consortium (W3C). The Company was invited onto the committee by the chair of that group based on years of experience developing style sheet languages. XSL is one of the components of the W3C’s XML standards effort. Dr. Jeffrey Caruso represents Pageflex and serves along with representatives from Adobe, Sun, IBM, Microsoft, and about 20 other prominent firms. Dr. Caruso worked with Adobe to co-edit the print-oriented formatting part of the standard. In October 2001 the World Wide Web Consortium released XSL 1.0 as a W3C Recommendation.
The XSL standard is of great strategic importance to Pageflex. Pageflex’s underlying composition engine, NuDoc™, currently uses its own proprietary TSL style language. The Company is working towards the goal of having NuDoc use XSL. This will make Pageflex