Two Small Cap Stocks Innovate, Partner and Produce

Today, I thought I would point out two Small Cap companies embedded in the monolithic industry of Software Applications.

DJ US Software Index

In the software applications industry, there are a myriad of companies that have seemingly come out of nowhere as of late. I'm not talking the large scale, server applications companies or companies that provide vast networking applications, but little guys, if you'll pardon my euphemism, that have designing specific applications for consumer use and then reselling them to a manufacturer for a bundle.

You've seen them on iPhones; stretching out a photographs and creating e-cards and the like. Looking into these entrepreneurs, I came across two companies I really like that are somewhat lost in the software applications matrix. These two companies have proven and unique platforms that are in high demand from the Big Caps in the sector because of their innovations with fonts, letters and texts in various alphabets and languages.

Sure, the Big Caps on Nasdaq like Microsoft (MFST) and Adobe (ADBE), Apple (AAPL) and Oracle (ORCL) would seem to have this indispensable niche 'owned' for lack of a better word, but they don't.

Monotype Imaging Holdings (TYPE) http://www.monotypeimaging.com/ trading on the Nasdaq in the $5 range is a fascinating company and an investment gem in my thinking. Definitely on the buyside of a portfolio.      

The first thing that caught my eye about Monotype was its financials: the Company had cash equivalents of $37.3 million as of March 31, 2009, an increase from $31.9 million from the prior quarter. Monotype's outstanding debt was $103.8 million as of March 31, 2009, a decrease from $113.6 million at the end of the prior quarter and during the first quarter of 2009, Monotype Imaging generated $16.4 million of cash from operations, which enabled the company to grow its cash balance by $5.3 million while at the same time reduce its outstanding debt by $9.8 million. That's impressive.

Here's what they do and how they do it. Monotype develops, markets, and licenses technologies and fonts for displaying and printing digital text. It offers various products and services, including font scaling, compression, and rasterizing technologies; text layout engines that enable consumer electronic (CE) devices to display multilingual text, including text composed in languages, such as Arabic and Hebrew scripts; and the Company manufactures printer drivers and imaging tools for font products.

Through Monotype's Web sites, such as fonts.com, itcfonts.com, linotype.com, faces.co.uk, and fontexplorerx.com the Company serves mobile phone makers, laser printer manufacturers, digital television and set-top box manufacturers and other multinational corporations, automotive and financial corporations.

Even today, Monotype is in its last day of exposition at the ESEC expo in Tokyo. They are partnered there with TAKUMI Corp., a Tokyo-based supplier of graphics accelerator IP cores. The two have been demonstrating TAKUMI's graphics accelerator technology integrated with Monotype Imaging's iType font engine. This is cutting edge stuff.

Monotype's latest quarter had some declining numbers, but they've certainly held their own and then some in the global recession. The Company has a market cap of $181M and at $5 is closer to its 52-week low $1.90 than 52-week high of $15.05. At $5, the stock is above both its 50-day and 200-day moving average with trailing twelve month revenues of $107M and trailing twelve month revenues per share of $3.15. Monotype's shares out and float ratio is close enough for a thumbs up on stability.

And then there is Bitstream (BITS) http://www.bitstream.com/ trading on the Nasdaq in the $4 range.

Here is the iPhone Partner.

Bitstream's fonts division recently announced that its WhatTheFont iPhone application has surpassed 100,000 downloads since it was first posted to Apple's App Store in February this year. WhatTheFont is a web-based service that lets people upload an image of text and instantly identify the font being used. The WhatTheFont iPhone application connects directly to MyFonts' acclaimed font identification service, which has been helping customer's pinpoint mystery fonts for nearly a decade.

Bitstream products include: Font Fusion, a font rendering subsystem that enables developers of embedded systems to render characters in various languages and formats; Bitstream Panorama, a text composition engine, which enables developers to draw strings of characters and lay out complex lines of text; and btX3 that allows Linux developers to access worldwide fonts.

On the industrial end, Bitstream font technology products include: TrueDoc, which distributes text with fidelity; and TrueDoc Imaging System for developers of operating systems, servers, applications, printers, and printer controllers to provide scaleable resident fonts.

And with all things considered in the world of economics, the Bitstream numbers are not disparaging. Revenue decreased by $1,368,000 or 22% to $5,001,000 for the three months ended March 31, 2009 as compared to total revenue of $6,369,000 for the three months ended March 31, 2008. But, the good news is that Bitstream's cash and cash equivalents at March 31, 2009 totaled $17,057,000, an increase of $895,000 from a Balance of $16,162,000 at December 31, 2008. That's comforting for an investor.

Bitstream has a market cap of $43M and at $4 a share is mid-way between its 52-week high and low. It is right in line with both its 50-day and 200-day moving average. Bitstream's trailing twelve month revenue is $24M and its trailing twelve month revenues per share are $2.50. Its shares outstanding and float are close enough for investor comfort.