Red Hat / Mandrake doomed?

James Leone linuxcpa at netscape.net
Mon Dec 23 18:20:20 CST 2002






Mcleod, Ian wrote:

>So is either RH or Mandrake doomed?  I sincerely hope not.
>


I have hope, Debian seems to be doing fine as a not for profit. However, 
there must be a fundamental change both comanys business models, or they 
will eventually go away.  


So, I am trying to come up with ideas, but the chance of them ever being 
used are slim, but, I have to try...

Perhaps Red Hat has made that fundamental change....(Note 6 below). 
However, if the small profit was just a fluke for this quarter, and they 
are really loosing moneyat the same rate they were before this last 
quarter....
then they will use up the huge amount of cash and assets that they hold 
in reserve. These funds were built up at the initial public offering (IPO).

I have no idea about Mandrake's future because they don't issue 
financial statements in accord with generally accepted accounting 
principles (GAAP), AFAIK.  At least I can't find them.
A fundamental change in the business model could turn things around.

So, I keep coming back to this not_for_profit idea. Hacking, tweaking it.  

(In the U.S.) Not for profits can sell items, if they account for them 
properly and pay income tax on the profits, if any.
However, a not for profit has no owners or investors and can collect 
donations.

Furthermore, if a not for profit ceases to operate, its net worth must 
be donated to another similar not for profit.

These donations would come into the organization, and they would not 
have to pay tax on them. Furthermore, individuals would be able to 
deduct these donations from their personal income tax.  If there are 
profits on the distribution sales, they must go to the benefit of the 
not for profit, to support its public service AKA "program service." All 
of the funds in the not for profit bucket must be spent on software 
distribution developement and the administration of it.

The goal of the organization is to provide software to the public,  not 
make money.

So, if I was the only owner of Mandrake, I guess I would realize that I 
was better at making software that I was at making money. I would try to 
preserve the status quo, and keep the software both free and gratis. To 
do so, I would first organize the not for profit and collect donations 
as soon as possible to build up enough contributed funds to last a 
while. I would keep the operations of the business completely separate 
and then form the not for profit when the time was right.

However, there is no guarantee that there will be enough donors to cover 
the necessary costs to distribute Mandrake the way it is today. There 
are many Linux distributions out there, and this could cause their to 
not be enough contributions to go around.

The contributions would be used to pay full time wages to distribution 
creators, or to work on other open source projects.


Ok, back to finishing up the upgrades here....


James Leone



>
>It would just be another rallying cry for Uncle Bill to the security of
>closed source (financial security - not network!)
>
>-----Original Message-----
>From: James Leone [mailto:linuxcpa at netscape.net]
>Sent: Saturday, December 21, 2002 5:59 AM
>To: James Leone
>Cc: linuxsa
>Subject: Re: Mandrake in critical condition ----> Continued
>
>
>
>
>James Leone wrote:
>
>  
>
>>Despite being ranked the favorite distribution in the Linux Journal 
>>Reader's choice awards...
>>
>>    
>>
>>>http://www.linuxjournal.com/article.php?sid=6245
>>>      
>>>
>>
>>I received this in my email today directly from Mandrakesoft:
>>
>>    
>>
>>>Despite the many financial challenges of maintaining a fully open source
>>>business model, MandrakeSoft has always followed the Free Software 
>>>approach,
>>>but in this normally joyful holiday season we are experiencing a serious
>>>short-term cash crisis.
>>>
>>>      
>>>
>>This troubles me.
>>
>>Right now Mandrake is asking for financial help, and I hope that they 
>>receive it.
>>
>>I am concerned that their request for help might leave the general 
>>public with some general confusion that may dampen their effort to 
>>raise funds.
>>
>>Some people will hold that because Mandrakesoft is legally organized 
>>as a business, and not a public charity, that this is a bad 
>>investment, and not see it for what it is: a request for donations.
>>
>>That being said, I feel very stronly that Mandrake should follow 
>>Debian's lead and organize as a not-for-profit public charity.
>>
>>
>>    
>>
>****************************************************************************
>************************ 
>  
>
>>I have also read recent reports that Red Hat has turned a profit this 
>>quarter.
>>
>>But I have also noticed that a Robert Young has been selling his Red 
>>Hat shares in a spurt that started on 8-29
>>
>>
>>    
>>
>http://www.sec.gov/cgi-bin/browse-edgar?company=Red+Hat&CIK=&State=&SIC=&act
>ion=getcompany 
>  
>
>>
>>I will continue, I have to go to a clients...
>>
>>    
>>
>
>Ok, I am back.
>
>Now the suprt of stock sales may be just a coincidence.
>
>
>Anyway, here are the results from last quarter...
>
>http://www.sec.gov/Archives/edgar/data/1087423/000095016802002954/d10q.htm
>
>It appears that they lost 1,951,000, last quarter, so this report looks 
>doable:
>
>http://news.com.com/2100-1001-978248.html?tag=fd_top
>
>
>One nore of Red Hat's financial statement notes was interesting:
>
>  
>
>>NOTE 6—Discontinued Operations
>>During January 2002, the Company adopted a formal plan to discontinue 
>>its network consulting operations. Accordingly, the network consulting 
>>operations were accounted for as a discontinued operation beginning 
>>with the fiscal year 2000 consolidated financial statements. The 
>>Company completed the disposal of the network consulting operations in 
>>February 2002 through termination of associated employees. Loss on 
>>disposal of discontinued operations of $10.3 million in fiscal year 
>>2002 included the write-off of goodwill recorded in the acquisition of 
>>ENS of $9.6 million, severance and related costs of $0.4 million, and 
>>a provision against accounts receivable of $0.3 million. An additional 
>>provision against accounts receivable of $261,000 was recorded during 
>>the three months ended May 31, 2002. Network consulting revenues were 
>>$2.2 million and $6.4 million during the three and six months ended 
>>August 31, 2001, respectively.
>>    
>>
>
>
>
>
>  
>
>>James Leone
>>
>>    
>>
>Ditto
>
>
>  
>

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