August 21, 2002

MandrakeSoft to warrant holders: Show us the money

- by Tina Gasperson -
MandrakeSoft is giving investors a little more time to participate in its
initiative to increase capital, mostly because those who have committed to buy
outstanding warrants haven't paid up yet.
MandrakeSoft CEO Jacques Le Marois says it is hard to raise money these days.
"The biggest challenge we face is the current depressed state of the financial
markets." In fact, since MandrakeSoft introduced the increase of capital
initiative in May, the Nasdaq has dropped from around 1700 to 1395, a decrease
of about 18%. "Even with MandrakeSoft's recent positive financial results and an
attractive valuation, most people are difficult to convince. Just two years ago,
we could have raised all the necessary funds in only four days with a similar
operation."

The company is attempting to raise capital by calling in outstanding warrants.
Warrants are like stock options in that they give the holder the right to
purchase a certain number of shares of stock in a particular company, for a
pre-determined price. When the shares are purchased and paid for, this is
called a "subscribed warrant." Warrant holders are also authorized to transfer
their rights in the warrant to another party.

On May 28, MandrakeSoft gave each
of its shareholders one warrant for every two shares of stock they held, with
the stipulation that the warrant had to be exercised before July 10. The board of directors extended the original deadline to August 15.
The company says it has received commitments for most of the available warrants,
but the funds haven't made their way in yet. Without payment, the warrants are
not officially subscribed, and would still become invalid after the expiration
date. So once again, the board voted to extend the deadline, this time to October 31. Le Marois says he hopes this is the last time such an action will be necessary.

Even with the difficulty in raising funds, Le Marois is optimistic about
MandrakeSoft's future. "We are blessed with a strong community of users who
fully understand our company, our spirit, and our products. Many of these
community members are also committed to investing in the company -- some of our
larger investors are active community participants."

But Le Marois says that all the attention being given to raising capital is
taking the focus off of where it should be. "We would much prefer to focus on
our business instead of fundraising." The most recent Mandrake Newsletter hints at this, too, saying "the earlier we can close the increase of
capital, the sooner we can focus our energy in the development of Mandrake
Linux."

Le Marois says that MandrakeSoft's main source of revenue no longer comes from
retail box sales, but from services, e-commerce, OEM deals and online support
and community. "Our strategy has always been to first acquire a large base of
users, then fulfill the needs of this user base to generate revenue," says Le
Marois. But interest is so strong, "we don't currently have the resources to
answer all business inquiries."

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