MOZILLA FOUNDATION AND SUBSIDIARIES DECEMBER 31, 2010 AND 2009 INDEPENDENT AUDITORS' REPORT AND CONSOLIDATED FINANCIAL STATEMENTS Mozilla Foundation and Subsidiaries Independent Auditors' Report and Consolidated Financial Statements Independent Auditors' Report 1 Consolidated Financial Statements Consolidated Statement of Financial Position 2 Consolidated Statement of Activities and Change in Net Assets 3 Consolidated Statement of Cash Flows 4 Notes to Consolidated Financial Statements 5 - 21 Independent Auditors’ Report Consultants and Business Advisors THE BOARD OF DIRECTORS MOZILLA FOUNDATION Mountain View, California 10 Almaden Boulevard We have audited the accompanying consolidated statement of financial position of MOZILLA FOUNDATION AND SUBSIDIARIES (Mozilla) as of December 31, 2010 Suite 250 and 2009 and the related consolidated statements of activities and change in net assets and cash flows for the years then ended. These financial statements are the responsibility of Mozilla's management. Our responsibility is to express an opinion on these financial San Jose statements based on our audits. CA 95113 We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material 408.998.8400 misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting fax 408.998.8485 principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mozilla Foundation and Subsidiaries as of December 31, 2010 and 2009, and the change in their net assets and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United San Francisco States of America. San Jose August 1, 2011 1 Mozilla Foundation and Subsidiaries Consolidated Statement of Financial Position (In thousands) December 31, 2010 2009 Assets Cash and cash equivalents $ 34,890 $ 31,734 Receivables 15,956 12,211 Prepaid expenses 939 810 Prepaid income taxes 3,985 56 Investments 105,680 91,296 Deferred taxes 1,679 Furniture and equipment, net 6,894 4,912 Deposits 459 423 Total assets $ 168,803 $ 143,121 Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $ 8,446 $ 5,196 Income taxes payable 321 Deferred taxes 808 Deferred revenue 300 Unrecognized income tax benefits 12,467 16,695 Total liabilities 21,721 22,512 Net Assets: Unrestricted 145,968 120,436 Temporarily restricted 1,114 173 Total net assets 147,082 120,609 Total liabilities and net assets $ 168,803 $ 143,121 The accompanying notes are an integral part of this statement. 2 Mozilla Foundation and Subsidiaries Consolidated Statement of Activities and Change in Net Assets (In thousands) Years Ended December 31, 2010 2009 Unrestricted Net Assets: Revenues and other support: Royalties $ 121,109 $ 101,537 Interest and dividend income 934 1,034 Net realized and unrealized loss from investments 1,200 (104) Foreign currency exchange gain (loss) (449) 1,814 Loss on sale of assets (1) (81) Contributions 150 50 Net assets released from restrictions 263 55 Total unrestricted revenue and support 123,206 104,305 Expenses: Program: Program services 2,493 1,007 Software development 62,842 40,206 Support: Branding and marketing 9,843 7,336 General and administrative 12,170 12,609 Total expenses 87,348 61,158 Change in Unrestricted Net Assets before Provision for Income Taxes 35,858 43,147 Provision for income taxes 10,326 17,091 Change in Unrestricted Net Assets 25,532 26,056 Change in Temporarily Restricted Net Assets: Contributions 1,204 173 Net assets released from restriction (263) (55) Change in Temporarily Restricted Net Assets 941 118 Change in Net Assets 26,473 26,174 Net Assets - beginning of year 120,609 94,435 Net Assets - end of year $ 147,082 $ 120,609 The accompanying notes are an integral part of this statement. 3 Mozilla Foundation and Subsidiaries Consolidated Statement of Cash Flows (In thousands) Years Ended December 31, 2010 2009 Cash Flows from Operating Activities: Change in net assets $ 26,473 $ 26,174 Adjustments to reconcile change in net assets to net cash provided by operations: Depreciation 2,932 1,780 Net realized and unrealized loss on investments (1,200) 104 Foreign currency exchange (gain) loss 449 (1,814) Unrecognized income tax benefits (4,228) (478) Change in deferred taxes 2,487 79 Loss on sale of assets 1 81 Changes in assets and liabilities: Receivables (3,745) (3,026) Prepaids (129) 1,566 Deposits (36) 118 Accounts payable and accrued expenses 3,250 1,302 Income taxes payable / prepaid income taxes (4,250) 299 Deferred revenue (300) 300 Net cash provided by operating activities 21,704 26,485 Cash Flows from Investing Activities: Purchases of furniture and equipment (4,909) (4,861) Purchases of investments (65,509) (115,160) Proceeds from sale of investments 51,812 102,422 Net cash used by investing activities (18,606) (17,599) Effect of Exchange Rate Changes on Cash 58 1,853 Net Increase in Cash and Cash Equivalents 3,156 10,739 Cash and Cash Equivalents - Beginning of year 31,734 20,995 Cash and Cash Equivalents - End of year $ 34,890 $ 31,734 Supplemental Disclosure: Cash paid for income taxes $ 15,964 $ 16,218 The accompanying notes are an integral part of this statement. 4 Mozilla Foundation and Subsidiaries Notes to Consolidated Financial Statements Note 1 - Nature of the Organization: Established in July 2003, the Mozilla Foundation (the Foundation) is a California not-for- profit corporation that exists to provide organizational, legal, and financial support for the Mozilla open-source software project. The Foundation’s purpose is to develop open source, standards compliant, free Internet applications that will be useable free of charge to tens of millions of users. In addition, its purpose is to develop foundational technologies that will be used by content and software developers to develop standards compliant online content and open source internet software. The Foundation has two wholly-owned for-profit subsidiaries, Mozilla Corporation (the Corporation) and Mozilla Messaging. The Corporation serves the non-profit, public benefit goals of its parent and is responsible for product development, marketing and distribution of Mozilla products. The Corporation has wholly-owned subsidiaries in China, Denmark, Canada and New Zealand to further its mission in those locations. Mozilla Messaging (Messaging) furthers the goals of its parent by organizing the development and marketing of free, open source email and messaging products and technologies. Mozilla Messaging operates out of Canada. Mozilla Japan is an independent organization contracted by the Corporation to provide marketing and development services and promote the use of Mozilla products in its geographic regions. Mozilla Japan has been granted the right to use the Mozilla name by the Foundation. Neither the Foundation nor the Corporation has any controlling interest in Mozilla Japan. Note 2 - Summary of Significant Accounting Policies: a. Basis of Accounting The financial statements have been prepared on the accrual basis of accounting which recognizes revenue and support when earned and expenses when incurred and, accordingly, reflect all significant receivables, payables, and other liabilities. b. Principles of Consolidation The consolidated financial statements include the accounts of the Foundation, the Corporation and Messaging (collectively Mozilla). All significant intercompany accounts and transactions have been eliminated. 5 Mozilla Foundation and Subsidiaries Notes to Consolidated Financial Statements c. Basis of Presentation Net assets, revenues, expenses, gains and losses are classified based on the existence or absence of donor imposed restrictions. Unrestricted net assets represent unrestricted resources available to support the operations and temporarily restricted resources which become available for use by Mozilla in accordance with the intentions of donors. Temporarily restricted net assets represent contributions that are limited in use by the Foundation in accordance with temporary donor imposed stipulations. These stipulations may expire with time or may be satisfied and removed by the actions of the Foundation according to the terms of the contribution. Upon satisfaction of such stipulations, the associated net assets are released from temporarily restricted net assets and recognized as unrestricted net assets. Permanently restricted net assets represent contributions to be held in perpetuity as directed by the donor. The Foundation does not have any permanently restricted net assets. d. Cash and Cash Equivalents For purposes of the statement of cash flows, Mozilla considers its operating checking and sweep accounts to be cash and cash equivalents. e. Receivables Receivables consist primarily of amounts due from contracts with multiple search engine and information providers, and are carried at original invoice amount. An allowance for uncollectible receivables is appropriately considered depending upon prior history and management’s assessment of collectability.