UNITED STATESSECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number
1-33350
 
 SOURCEFIRE, INC.
 (Exact name of Registrant as Specified in its Charter)
 Delaware
    
    52-2289365(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)9770 Patuxent Woods DriveColumbia, Maryland
    
    21046(Address of Principal Executive Offices)
    
    (Zip Code)
 (410) 290-1616
  þ o
  o o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
    
    Smaller reporting Company o(Do not check if smaller reporting company)
  o þ




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##### 



SOURCEFIRE, INC.
Form 10-Q
TABLE OF CONTENTS
 Part IItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008
    
    
    4Consolidated Statement of Changes in Stockholders Equity for the nine months ended September 30, 2009
    
    
    5Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008
    
    
    6Notes To Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30Part II.Item 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 3. Defaults Upon Senior Securities
    
    
    46Item 4. Submission of Matters to a Vote of Security Holders
    
    
    46Item 5. Other Information
    
    
    46Item 6. Exhibits
    
    
    46Signatures
    
    
    47
  2




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##### 



Part I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 SOURCEFIRE, INC.
 
 CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share amounts)
 September 30,
    
    
    December 31,2009
    
    
    2008(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    44,433
    
    
    $
    39,768Short-term investments
    
    
    54,204
    
    
    
    59,343Accounts receivable, net of allowances of
$1,020 as of September 30, 2009 and $538 as of
December 31, 2008
    
    
    25,872
    
    
    
    27,864Inventory
    
    
    5,615
    
    
    
    4,521Prepaid expenses and other current assets
    
    
    3,329
    
    
    
    2,115Total current assets
    
    
    133,453
    
    
    
    133,611Property and equipment, net
    
    
    7,530
    
    
    
    8,341Intangible assets, net of accumulated amortization
    
    
    370
    
    
    
    465Investments
    
    
    13,811
    
    
    
    2,457Other assets
    
    
    773
    
    
    
    1,431Total assets
    
    $
    155,937
    
    
    $
    146,305Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    1,965
    
    
    $
    4,505Accrued compensation and related expenses
    
    
    4,240
    
    
    
    4,229Other accrued expenses
    
    
    3,002
    
    
    
    3,558Current portion of deferred revenue
    
    
    24,040
    
    
    
    21,513Other current liabilities
    
    
    493
    
    
    
    789Total current liabilities
    
    
    33,740
    
    
    
    34,594Deferred revenue, less current portion
    
    
    3,306
    
    
    
    2,595Other long-term liabilities
    
    
    89
    
    
    
    75Total liabilities
    
    
    37,135
    
    
    
    37,264Commitments and ContingenciesStockholders equity:Preferred stock, $0.001 par value; 19,700,000
shares authorized; no shares issued or
outstanding at September 30, 2009 and December
31, 2008
    
    
    
    
    
    
    Series A junior participating preferred stock,
$0.001 par value; 300,000 shares authorized; no
shares issued or outstanding at September 30,
2009 and December 31, 2008
    
    
    
    
    
    
    Common stock, $0.001 par value; 240,000,000
shares authorized; 26,857,636 and 25,917,519
shares issued and outstanding as of September 30,
2009 and December 31, 2008, respectively
    
    
    26
    
    
    
    25Additional paid-in capital
    
    
    167,044
    
    
    
    159,306Accumulated deficit
    
    
    (48,381
    )
    
    
    (50,594
    )Accumulated other comprehensive income
    
    
    113
    
    
    
    304Total stockholders equity
    
    
    118,802
    
    
    
    109,041Total liabilities and stockholders equity
    
    $
    155,937
    
    
    $
    146,305
  3




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##### 



SOURCEFIRE, INC.
  CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)(in thousands, except share and per share amounts)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue:Products
    
    $
    16,650
    
    
    $
    12,661
    
    
    $
    38,798
    
    
    $
    28,189Technical support and
professional services
    
    
    10,773
    
    
    
    7,628
    
    
    
    29,396
    
    
    
    21,769Total revenue
    
    
    27,423
    
    
    
    20,289
    
    
    
    68,194
    
    
    
    49,958Cost of revenue:Products
    
    
    4,281
    
    
    
    3,585
    
    
    
    10,730
    
    
    
    8,061Technical support and
professional services
    
    
    1,786
    
    
    
    1,345
    
    
    
    4,561
    
    
    
    3,583Total cost of revenue
    
    
    6,067
    
    
    
    4,930
    
    
    
    15,291
    
    
    
    11,644Gross profit
    
    
    21,356
    
    
    
    15,359
    
    
    
    52,903
    
    
    
    38,314Operating expenses:Research and development
    
    
    4,227
    
    
    
    3,267
    
    
    
    10,943
    
    
    
    9,525Sales and marketing
    
    
    9,164
    
    
    
    8,655
    
    
    
    25,462
    
    
    
    23,834General and administrative
    
    
    4,604
    
    
    
    4,984
    
    
    
    12,439
    
    
    
    13,929Depreciation
and amortization
    
    
    815
    
    
    
    775
    
    
    
    2,466
    
    
    
    1,852Total operating expenses
    
    
    18,810
    
    
    
    17,681
    
    
    
    51,310
    
    
    
    49,140Income (loss) from operations
    
    
    2,546
    
    
    
    (2,322
    )
    
    
    1,593
    
    
    
    (10,826
    )Other income, net:Interest and investment income
    
    
    190
    
    
    
    683
    
    
    
    868
    
    
    
    2,666Interest expense
    
    
    
    
    
    
    (2
    )
    
    
    (16
    )
    
    
    (38
    )Other expense
    
    
    (45
    )
    
    
    (39
    )
    
    
    (94
    )
    
    
    (1
    )Total other income, net
    
    
    145
    
    
    
    642
    
    
    
    758
    
    
    
    2,627Income (loss) before income taxes
    
    
    2,691
    
    
    
    (1,680
    )
    
    
    2,351
    
    
    
    (8,199
    )Income tax (benefit) expense
    
    
    (6
    )
    
    
    39
    
    
    
    138
    
    
    
    140Net income (loss)
    
    $
    2,697
    
    
    $
    (1,719
    )
    
    $
    2,213
    
    
    $
    (8,339
    )Net income (loss) per share:Basic
    
    $
    0.10
    
    
    $
    (0.07
    )
    
    $
    0.08
    
    
    $
    (0.33
    )Diluted
    
    $
    0.09
    
    
    $
    (0.07
    )
    
    $
    0.08
    
    
    $
    (0.33
    )Weighted average shares
outstanding used in computing
per share amounts:Basic
    
    
    26,662,046
    
    
    
    25,698,879
    
    
    
    26,284,576
    
    
    
    25,208,404Diluted
    
    
    28,487,916
    
    
    
    25,698,879
    
    
    
    27,686,847
    
    
    
    25,208,404
  4




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##### 



SOURCEFIRE, INC.
  CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED)

(in thousands, except share amounts)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid In
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    TotalBalance as of January 1, 2009
    
    
    25,917,519
    
    
    $
    25
    
    
    $
    159,306
    
    
    $
    (50,594
    )
    
    $
    304
    
    
    $
    109,041Exercise of common stock options
    
    
    858,044
    
    
    
    1
    
    
    
    3,047
    
    
    
    
    
    
    
    
    
    
    
    3,048Issuance of common stock under
employee stock purchase plan
    
    
    40,826
    
    
    
    
    
    
    
    176
    
    
    
    
    
    
    
    
    
    
    
    176Issuance of restricted common
stock
    
    
    56,538
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancellation of restricted
common stock
    
    
    (15,291
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    4,426
    
    
    
    
    
    
    
    
    
    
    
    4,426Excess tax benefits relating to
share-based payments
    
    
    
    
    
    
    
    
    
    
    89
    
    
    
    
    
    
    
    
    
    
    
    89Comprehensive income:Net income for the nine
months ended September 30,
2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,213
    
    
    
    
    
    
    
    2,213Change in net unrealized
gains and losses on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (191
    )
    
    
    (191
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,022Balance as of September 30, 2009
    
    
    26,857,636
    
    
    $
    26
    
    
    $
    167,044
    
    
    $
    (48,381
    )
    
    $
    113
    
    
    $
    118,802
  5




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##### 



SOURCEFIRE, INC.
  CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(in thousands)
 Nine Months EndedSeptember 30,2009
    
    
    2008Operating activitiesNet income (loss)
    
    $
    2,213
    
    
    $
    (8,339
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    2,547
    
    
    
    1,874Provision for doubtful accounts
    
    
    223
    
    
    
    27Non-cash stock-based compensation
    
    
    4,426
    
    
    
    3,370Excess tax benefits related to share-based payments
    
    
    (89
    )
    
    
    (24
    )Amortization of premium on investments
    
    
    112
    
    
    
    (871
    )Loss on disposal of assets
    
    
    
    
    
    
    7Realized gain from sales of investments
    
    
    
    
    
    
    (23
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    1,769
    
    
    
    (3,749
    )Inventory
    
    
    140
    
    
    
    672Prepaid expenses and other assets
    
    
    (1,790
    )
    
    
    (891
    )Accounts payable
    
    
    (2,540
    )
    
    
    (3,062
    )Accrued expenses
    
    
    (456
    )
    
    
    2,046Deferred revenue
    
    
    3,238
    
    
    
    1,442Other liabilities
    
    
    (250
    )
    
    
    (113
    )Net cash provided by (used in) operating activities
    
    
    9,543
    
    
    
    (7,634
    )Investing activitiesPurchase of property and equipment
    
    
    (1,641
    )
    
    
    (5,566
    )Purchase of investments
    
    
    (66,743
    )
    
    
    (73,137
    )Proceeds from maturities of investments
    
    
    60,225
    
    
    
    77,663Proceeds from sales of investments
    
    
    
    
    
    
    3,230Net cash (used in) provided by investing activities
    
    
    (8,159
    )
    
    
    2,190Financing activitiesRepayments of capital lease obligations
    
    
    (32
    )
    
    
    (17
    )Proceeds from employee stock-based plans
    
    
    3,224
    
    
    
    1,105Repurchase of common stock
    
    
    
    
    
    
    (140
    )Excess tax benefits related to share-based payments
    
    
    89
    
    
    
    24Net cash provided by financing activities
    
    
    3,281
    
    
    
    972Net increase (decrease) in cash and cash equivalents
    
    
    4,665
    
    
    
    (4,472
    )Cash and cash equivalents at beginning of period
    
    
    39,768
    
    
    
    33,071Cash and cash equivalents at end of period
    
    $
    44,433
    
    
    $
    28,599
  6




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##### 



SOURCEFIRE, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. Description of Business
 ®
 ® ®
  2. Summary of Significant Accounting Policies
 Basis of Presentation
  Use of Estimates
   Investments
  7




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##### 



Fair Value of Financial Instruments
  Allowance for Doubtful Accounts and Sales Returns
   Inventories
  8




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##### 



As ofSeptember 30,
    
    
    December 31,2009
    
    
    2008Finished goods
    
    $
    3,301
    
    
    $
    3,436Evaluation units
    
    
    972
    
    
    
    1,085Advance replacement units
    
    
    1,342
    
    
    
    Total inventory
    
    $
    5,615
    
    
    $
    4,521
  Revenue Recognition
        9




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##### 



Warranty
  Income Taxes
  Stock-Based Compensation
  Recent Accounting Pronouncements
    10




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##### 



Reclassifications
  11




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##### 



3. Investments
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueMoney market funds
    
    $
    20,967
    
    
    $
    
    
    
    $
    
    
    
    $
    20,967Corporate debt investments
    
    
    14,769
    
    
    
    25
    
    
    
    (7
    )
    
    
    14,787Commercial paper
    
    
    12,232
    
    
    
    12
    
    
    
    
    
    
    
    12,244Government-sponsored enterprises
    
    
    34,107
    
    
    
    73
    
    
    
    (2
    )
    
    
    34,178Government securities
    
    
    1,994
    
    
    
    12
    
    
    
    
    
    
    
    2,006Certificate of deposit
    
    
    4,800
    
    
    
    
    
    
    
    
    
    
    
    4,800Total investments
    
    
    88,869
    
    
    
    122
    
    
    
    (9
    )
    
    
    88,982Amounts classified as cash equivalents
    
    
    (20,967
    )
    
    
    
    
    
    
    
    
    
    
    (20,967
    )Total available-for-sale investments
    
    $
    67,902
    
    
    $
    122
    
    
    $
    (9
    )
    
    $
    68,015
  Less Than 12 Months
    
    12 Months or More
    
    TotalGross
    
    
    
    
    
    Gross
    
    
    
    
    
    GrossFair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    UnrealizedValue
    
    Losses
    
    Value
    
    Losses
    
    Value
    
    LossesCorporate debt investments
    
    $
    7,068
    
    
    $
    7
    
    
    $
    
    
    
    $
    
    
    
    $
    7,068
    
    
    $
    7Government-sponsored enterprises
    
    
    3,522
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    3,522
    
    
    
    2
   Amortized Cost
    
    
    Estimated Fair ValueDue in one year or less
    
    $
    54,125
    
    
    $
    54,204Due after one year through five years
    
    
    13,777
    
    
    
    13,811Total
    
    $
    67,902
    
    
    $
    68,015
 4. Stock-Based Compensation
   12




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##### 



Valuation of Stock-Based Compensation
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Stock options:Average risk-free interest rate
    
    
    2.9
    %
    
    
    3.4
    %
    
    
    2.6
    %
    
    
    3.2
    %Expected dividend yield
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %Expected useful life (years)
    
    
    6.25
    
    
    
    6.25
    
    
    
    6.25
    
    
    
    6.25Expected volatility
    
    
    64.3
    %
    
    
    62.7
    %
    
    
    64.5
    %
    
    
    64.0
    %Weighted-average fair value per grant
    
    $
    8.91
    
    
    $
    4.20
    
    
    $
    6.90
    
    
    $
    4.22Employee stock purchase plan:Average risk-free interest rate
    
    
    
    %
    
    
    1.9
    %
    
    
    0.3
    %
    
    
    2.3
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected useful life (years)
    
    
    
    
    
    
    0.25
    
    
    
    0.50
    
    
    
    0.34Expected volatility
    
    
    
    %
    
    
    52.6
    %
    
    
    77.5
    %
    
    
    56.1
    %Weighted-average fair value per purchase
    
    $
    
    
    
    $
    1.91
    
    
    $
    3.52
    
    
    $
    1.71
 Average risk-free interest rate
 Expected dividend yield
 Expected useful life
   Expected volatility
 13




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##### 



Three Months Ended
    
    
    Nine Months Ended,September 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Product cost of revenue
    
    $
    29
    
    
    $
    11
    
    
    $
    54
    
    
    $
    27Services cost of revenue
    
    
    60
    
    
    
    34
    
    
    
    114
    
    
    
    66Stock-based compensation expense included in cost of revenue
    
    
    89
    
    
    
    45
    
    
    
    168
    
    
    
    93Research and development
    
    
    286
    
    
    
    202
    
    
    
    702
    
    
    
    543Sales and marketing
    
    
    535
    
    
    
    375
    
    
    
    1,315
    
    
    
    1,017General and administrative
    
    
    959
    
    
    
    945
    
    
    
    2,241
    
    
    
    1,717Stock-based compensation expense included in operating
expenses
    
    
    1,780
    
    
    
    1,522
    
    
    
    4,258
    
    
    
    3,277Total stock-based compensation expense
    
    $
    1,869
    
    
    $
    1,567
    
    
    $
    4,426
    
    
    $
    3,370
 Stock Options
  Weighted-
    
    
    AggregateNumber of
    
    
    Range of
    
    
    Average
    
    
    IntrinsicShares
    
    
    Exercise Prices
    
    
    Exercise Price
    
    
    ValueOutstanding at December 31, 2008
    
    
    3,296,322
    
    
    $0.24  to 15.49
    
    $
    5.26
    
    
    $
    5,878Granted
    
    
    267,200
    
    
    
    5.58 to 19.11
    
    
    
    11.23Exercised
    
    
    (858,044
    )
    
    
    0.24 to 13.10
    
    
    
    3.55Forfeited
    
    
    (120,780
    )
    
    
    5.26 to 15.49
    
    
    
    8.85Outstanding at September 30, 2009
    
    
    2,584,698
    
    
    $
    0.24 to 19.11
    
    
    $
    6.27
    
    
    $
    39,285Vested and exercisable at September 30, 2009
    
    
    1,449,869
    
    
    $
    0.24 to 15.49
    
    
    $
    4.62
    
    
    $
    24,435Vested and expected to vest at September 30, 2009
    
    
    2,200,338
    
    
    
    
    
    
    $
    5.91
    
    
    $
    34,244
 14




---



##### 



Options Outstanding
    
    
    Options ExercisableWeighted-Weighted-
    
    
    Average
    
    
    
    
    
    
    Weighted-Range of
    
    Number of
    
    
    Average
    
    
    Contractual
    
    
    Number of
    
    
    AverageExercise Prices
    
    Shares
    
    
    Exercise Prices
    
    
    Life (Years)
    
    
    Shares
    
    
    Exercise Prices$0.24 to 2.03
    
    
    714,811
    
    
    $
    1.17
    
    
    
    4.56
    
    
    
    714,811
    
    
    $
    1.17$5.26 to 6.77
    
    
    1,093,853
    
    
    
    6.44
    
    
    
    8.52
    
    
    
    425,872
    
    
    
    6.33$7.10 to 12.34
    
    
    671,156
    
    
    
    9.93
    
    
    
    8.02
    
    
    
    279,052
    
    
    
    9.75$12.51 to 19.11
    
    
    104,878
    
    
    
    15.80
    
    
    
    8.51
    
    
    
    30,134
    
    
    
    14.492,584,698
    
    
    $
    6.27
    
    
    
    7.30
    
    
    
    1,449,869
    
    
    $
    4.62
   Restricted Stock Awards
  Weighted-AverageNumber of
    
    
    Grant DateShares
    
    
    Fair ValueUnvested at December 31, 2008
    
    
    656,361
    
    
    $
    7.77Granted
    
    
    56,538
    
    
    
    9.21Vested
    
    
    (245,607
    )
    
    
    7.70Forfeited
    
    
    (15,291
    )
    
    
    7.05Unvested at September 30, 2009
    
    
    452,001
    
    
    $
    7.93
    15




---



##### 



Restricted Stock Units
  Weighted-AverageNumber of
    
    
    Grant DateShares
    
    
    Fair ValueUnvested at December 31, 2008
    
    
    
    
    
    $
    Granted
    
    
    580,500
    
    
    
    9.85Vested
    
    
    
    
    
    
    Forfeited
    
    
    (27,000
    )
    
    
    8.70Unvested at September 30, 2009
    
    
    553,500
    
    
    $
    9.90
    Employee Stock Purchase Plan
  5. Earnings per Share
  16




---



##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    2,697
    
    
    $
    (1,719
    )
    
    $
    2,213
    
    
    $
    (8,339
    )Weighted-average shares of common stock outstanding  basic
    
    
    26,662,046
    
    
    
    25,698,879
    
    
    
    26,284,576
    
    
    
    25,208,404Dilutive effect of employee stock plans
    
    
    1,825,870
    
    
    
    
    
    
    
    1,402,271
    
    
    
    Weighted-average shares of common stock outstanding  diluted
    
    
    28,487,916
    
    
    
    25,698,879
    
    
    
    27,686,847
    
    
    
    25,208,404Net income (loss) per share:Basic
    
    $
    0.10
    
    
    $
    (0.07
    )
    
    $
    0.08
    
    
    $
    (0.33
    )Diluted
    
    $
    0.09
    
    
    $
    (0.07
    )
    
    $
    0.08
    
    
    $
    (0.33
    )
  Three Months Ended
    
    
    Nine Months Ended,September 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Options to purchase common stock
    
    
    182,162
    
    
    
    3,364,496
    
    
    
    913,802
    
    
    
    3,196,277Restricted stock units
    
    
    1,500
    
    
    
    
    
    
    
    38,146
    
    
    
    183,662
    
    
    
    3,364,496
    
    
    
    951,948
    
    
    
    3,196,277
 6. Comprehensive Income (Loss)
  Three Months Ended
    
    
    Nine Months Ended,September 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    2,697
    
    
    $
    (1,719
    )
    
    $
    2,213
    
    
    $
    (8,339
    )Change in net unrealized gains
(losses) on investments
    
    
    (51
    )
    
    
    (260
    )
    
    
    (191
    )
    
    
    (220
    )Total comprehensive income (loss)
    
    $
    2,646
    
    
    $
    (1,979
    )
    
    $
    2,022
    
    
    $
    (8,559
    )
 7. Fair Value Measurement
  
    
    Level 1  Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical unrestricted assets or liabilities.
 
    
    Level 2  Quoted prices in markets that are not active or financial instruments for
which all significant inputs are observable, either directly or indirectly.
 
    
    Level 3  Prices or valuations that require inputs that are both significant to the
fair value measurement and unobservable.
  17




---



##### 



Assets at
    
    
    Fair Value Measurement UsingFair Value
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Money market funds
    
    $
    20,967
    
    
    $
    20,967
    
    
    $
    
    
    
    $
    Corporate debt investments
    
    
    14,787
    
    
    
    
    
    
    
    14,787
    
    
    
    Commercial paper
    
    
    12,244
    
    
    
    
    
    
    
    12,244
    
    
    
    Government-sponsored enterprises
    
    
    34,178
    
    
    
    
    
    
    
    34,178
    
    
    
    Government securities
    
    
    2,006
    
    
    
    2,006
    
    
    
    
    
    
    
    Certificate of deposit
    
    
    4,800
    
    
    
    
    
    
    
    4,800
    
    
    
    Total cash equivalents and investments
    
    
    88,982
    
    
    $
    22,973
    
    
    $
    66,009
    
    
    $
    Cash
    
    
    23,466Total cash, cash equivalents and investments
    
    $
    112,448
  8. Business and Geographic Segment Information
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008United States
    
    $
    21,367
    
    
    $
    16,433
    
    
    $
    51,526
    
    
    $
    37,456All foreign countries
    
    
    6,056
    
    
    
    3,856
    
    
    
    16,668
    
    
    
    12,502Consolidated total
    
    $
    27,423
    
    
    $
    20,289
    
    
    $
    68,194
    
    
    $
    49,958
 9. Commitments and Contingencies
   18




---



##### 



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Certain statements contained in this Quarterly Report on Form 10-Q may constitute
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases
would be, will allow, intends to, will likely result, are expected to, will continue,
is anticipated, estimate, project, or similar expressions, or the negative of such words or
phrases, are intended to identify forward-looking statements. We have based these forward-looking
statements on our current expectations and projections about future events. Because such statements
include risks and uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause or contribute to these
differences include those below and elsewhere in this Quarterly Report on Form 10-Q , particularly
in Risk Factors, and our other filings with the Securities and Exchange Commission. Statements
made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange
Commission and should not be relied upon as of any subsequent date. Unless otherwise required by
applicable law, we do not undertake, and we specifically disclaim, any obligation to update any
forward-looking statements to reflect occurrences, developments, unanticipated events or
circumstances after the date of such statement.
 The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and related notes that
appear elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for
the fiscal year ended December 31, 2008.
 Introduction
  
    
    Overview. This section provides a general description of our business, the
performance indicators that we use in assessing our financial condition and results of
operations, and anticipated trends that we expect to affect our financial condition and
results of operations.
    
    Results of Operations. This section provides an analysis of our results of
operations for the three months and nine months ended September 30, 2009 as compared to
the three months and nine months ended September 30, 2008.
    
    Liquidity and Capital Resources. This section provides an analysis of our cash
flows for the nine months ended September 30, 2009 and 2008 and a discussion
of our capital requirements and the resources available to us to meet those requirements.
    
    Critical Accounting Policies and Estimates. This section discusses accounting
policies that are considered important to our financial condition and results of
operations, require significant judgment or require estimates on our part in applying
them. Our significant accounting policies, including those considered to be critical
accounting policies, are summarized in Note 2 to the accompanying consolidated financial
statements.
 Overview
 ®
 ® ®
 19




---



##### 



Key Financial Metrics and Trends
    Pricing and Discounts
  Credit and Collections
  Revenue
  20




---



##### 



Cost of Revenue
   21




---



##### 



Gross Profit
  Operating Expenses
 Research and Development.
  Sales and Marketing.
  General and Administrative.
 Stock-Based Compensation.
  22




---



##### 



Results of Operations
 Revenue
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Variance
    
    
    September 30,
    
    
    Variance2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Products
    
    $
    16,650
    
    
    $
    12,661
    
    
    $
    3,989
    
    
    
    32
    %
    
    $
    38,798
    
    
    $
    28,189
    
    
    $
    10,609
    
    
    
    38
    %Percentage of total revenue
    
    
    61
    %
    
    
    62
    %
    
    
    
    
    
    
    
    
    
    
    57
    %
    
    
    56
    %Technical support and
professional services
    
    
    10,773
    
    
    
    7,628
    
    
    
    3,145
    
    
    
    41
    %
    
    
    29,396
    
    
    
    21,769
    
    
    
    7,627
    
    
    
    35
    %Percentage of total revenue
    
    
    39
    %
    
    
    38
    %
    
    
    
    
    
    
    
    
    
    
    43
    %
    
    
    44
    %Total revenue
    
    $
    27,423
    
    
    $
    20,289
    
    
    $
    7,134
    
    
    
    35
    %
    
    $
    68,194
    
    
    $
    49,958
    
    
    $
    18,236
    
    
    
    37
    %
   Cost of revenue
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Variance
    
    
    September 30,
    
    
    Variance2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Products
    
    $
    4,281
    
    
    $
    3,585
    
    
    $
    696
    
    
    
    19
    %
    
    $
    10,730
    
    
    $
    8,061
    
    
    $
    2,669
    
    
    
    33
    %Percentage of total revenue
    
    
    16
    %
    
    
    18
    %
    
    
    
    
    
    
    
    
    
    
    16
    %
    
    
    16
    %Technical support and
professional services
    
    
    1,786
    
    
    
    1,345
    
    
    
    441
    
    
    
    33
    %
    
    
    4,561
    
    
    
    3,583
    
    
    
    978
    
    
    
    27
    %Percentage of total revenue.
    
    
    7
    %
    
    
    7
    %
    
    
    
    
    
    
    
    
    
    
    7
    %
    
    
    7
    %Total cost of revenue
    
    $
    6,067
    
    
    $
    4,930
    
    
    $
    1,137
    
    
    
    23
    %
    
    $
    15,291
    
    
    $
    11,644
    
    
    $
    3,647
    
    
    
    31
    %Percentage of total revenue
    
    
    22
    %
    
    
    24
    %
    
    
    
    
    
    
    
    
    
    
    22
    %
    
    
    23
    %
   Gross profit
 Three Months Ended
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Variance
    
    
    September 30,
    
    
    Variance2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Products
    
    $
    12,369
    
    
    $
    9,076
    
    
    $
    3,293
    
    
    
    36
    %
    
    $
    28,068
    
    
    $
    20,128
    
    
    $
    7,940
    
    
    
    39
    %Product gross margin
    
    
    74
    %
    
    
    72
    %
    
    
    
    
    
    
    
    
    
    
    72
    %
    
    
    71
    %Technical support and
professional services
    
    
    8,987
    
    
    
    6,283
    
    
    
    2,704
    
    
    
    43
    %
    
    
    24,835
    
    
    
    18,186
    
    
    
    6,649
    
    
    
    37
    %Technical support and
professional services
gross margin
    
    
    83
    %
    
    
    82
    %
    
    
    
    
    
    
    
    
    
    
    84
    %
    
    
    84
    %Total gross profit
    
    $
    21,356
    
    
    $
    15,359
    
    
    $
    5,997
    
    
    
    39
    %
    
    $
    52,903
    
    
    $
    38,314
    
    
    $
    14,589
    
    
    
    38
    %Total gross margin
    
    
    78
    %
    
    
    76
    %
    
    
    
    
    
    
    
    
    
    
    78
    %
    
    
    77
    %
 23




---



##### 



Operating expenses
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Variance
    
    
    September 30,
    
    
    Variance2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %Research and development
    
    $
    4,227
    
    
    $
    3,267
    
    
    $
    960
    
    
    
    29
    %
    
    $
    10,943
    
    
    $
    9,525
    
    
    $
    1,418
    
    
    
    15
    %Percentage of total
revenue
    
    
    15
    %
    
    
    16
    %
    
    
    
    
    
    
    
    
    
    
    16
    %
    
    
    19
    %Sales and marketing
    
    
    9,164
    
    
    
    8,655
    
    
    
    509
    
    
    
    6
    %
    
    
    25,462
    
    
    
    23,834
    
    
    
    1,628
    
    
    
    7
    %Percentage of total
revenue
    
    
    33
    %
    
    
    43
    %
    
    
    
    
    
    
    
    
    
    
    37
    %
    
    
    48
    %General and administrative
    
    
    4,604
    
    
    
    4,984
    
    
    
    (380
    )
    
    
    (8)
    %
    
    
    12,439
    
    
    
    13,929
    
    
    
    (1,490
    )
    
    
    (11)
    %Percentage of total
revenue
    
    
    17
    %
    
    
    24
    %
    
    
    
    
    
    
    
    
    
    
    18
    %
    
    
    28
    %Depreciation and
amortization
    
    
    815
    
    
    
    775
    
    
    
    40
    
    
    
    5
    %
    
    
    2,466
    
    
    
    1,852
    
    
    
    614
    
    
    
    33
    %Percentage of total
revenue
    
    
    3
    %
    
    
    4
    %
    
    
    
    
    
    
    
    
    
    
    4
    %
    
    
    4
    %Total operating expenses
    
    $
    18,810
    
    
    $
    17,681
    
    
    $
    1,129
    
    
    
    6
    %
    
    $
    51,310
    
    
    $
    49,140
    
    
    $
    2,170
    
    
    
    4
    %Percentage of total
revenue
    
    
    69
    %
    
    
    87
    %
    
    
    
    
    
    
    
    
    
    
    75
    %
    
    
    99
    %
    24




---



##### 



Other income, net and income tax expense
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    Variance
    
    September 30,
    
    Variance2009
    
    2008
    
    $
    
    %
    
    2009
    
    2008
    
    $
    
    %Other income, net
    
    $
    145
    
    
    $
    642
    
    
    $
    (497
    )
    
    
    (77)
    %
    
    $
    758
    
    
    $
    2,627
    
    
    $
    (1,869
    )
    
    
    (71)
    %Percentage of
total revenue
    
    
    1
    %
    
    
    3
    %
    
    
    
    
    
    
    
    
    
    
    1
    %
    
    
    5
    %Income tax expense
    
    $
    (6
    )
    
    $
    39
    
    
    $
    (45
    )
    
    
    (115)
    %
    
    $
    138
    
    
    $
    140
    
    
    $
    (2
    )
    
    
    (1)
    %Percentage of
total revenue
    
    
    0
    %
    
    
    0
    %
    
    
    
    
    
    
    
    
    
    
    0
    %
    
    
    0
    %
   Seasonality
  Quarterly Timing of Revenue
  25




---



##### 



Liquidity and Capital Resources
 Cash Flows
 Nine Months EndedSeptember 30,2009
    
    
    2008(in thousands)Cash and cash equivalents:Provided by (used in) operating activities
    
    $
    9,543
    
    
    $
    (7,634
    )(Used in) provided by investing activities
    
    
    (8,159
    )
    
    
    2,190Provided by financing activities
    
    
    3,281
    
    
    
    972Increase (decrease) in cash and cash equivalents
    
    
    4,665
    
    
    
    (4,472
    )Net cash and cash equivalents at beginning of period
    
    
    39,768
    
    
    
    33,071Net cash and cash equivalents at end of period
    
    
    44,433
    
    
    
    28,599Investments
    
    
    68,015
    
    
    
    66,867Total cash, cash equivalents and investments
    
    $
    112,448
    
    
    $
    95,466
 Operating Activities
 Investing Activities
 Financing Activities
 Liquidity Requirements
     26




---



##### 



Critical Accounting Policies and Estimates
   Revenue Recognition.
   Accounting for Stock-Based Compensation.
  Average risk-free interest rate
 27




---



##### 



Expected dividend yield
 Expected useful life
   Expected volatility
      Accounting for Income Taxes.
 Allowance for Doubtful Accounts and Sales Returns.
 28




---



##### 



Inventories.
 Investments.
  Recent Accounting Pronouncements
   29




---



##### 



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of Sourcefires Disclosure Controls and Internal Controls.
 30




---



##### 



Limitations.
 Changes in Internal Control Over Financial Reporting.
 31




---



##### 



PART II. OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
  
 Item 1A. RISK FACTORS
  Economic, market and political conditions, including the global recession, may adversely
affect our revenue and results of operations.
  
    
    general economic and business conditions;
    
    the overall demand for network security products and services; and
    
    constraints on budgets and changes in spending priorities of corporations and government
agencies.
  We have had operating losses each year since our inception, our operating expenses may continue to
increase and we may not maintain profitability.
  32




---



##### 



We face intense competition in our market, especially from larger, better-known companies, and we
may lack sufficient financial or other resources to maintain or improve our competitive position.
     New competitors could emerge and could impair our sales.
  33




---



##### 



Our quarterly operating results are likely to vary significantly and be unpredictable, in
part because of the purchasing and budget practices of our customers, which could cause the
trading price of our stock to decline.
  
    
    the budgeting cycles, internal approval requirements and funding available to our
existing and prospective customers for the purchase of network security products;
    
    the timing, size and contract terms of orders received, which have historically been
highest in the fourth quarter, but may fluctuate seasonally in different ways;
    
    the level of perceived threats to network security, which may fluctuate from period to
period;
    
    the level of demand for products sold by resellers, distributors, MSSPs, government
integrators and other partners;
    
    the market acceptance of open-source software solutions;
    
    the announcement or introduction of new product offerings by us or our competitors, and
the levels of anticipation and market acceptance of those products;
    
    price competition;
    
    general economic conditions, both domestically and in our foreign markets;
    
    the product mix of our sales; and
    
    the timing of revenue recognition for our sales.
   The market for network security products is rapidly evolving, and the complex technology
incorporated in our products makes them difficult to develop. If we do not accurately predict,
prepare for and respond promptly to technological and market developments and changing customer
needs, our competitive position and prospects will be harmed.
  34




---



##### 



If our new products and product enhancements do not achieve sufficient market acceptance, our
results of operations and competitive position will suffer.
   
    
    delays in introducing new, enhanced or modified products;
    
    defects, errors or failures in any of our products;
    
    inability to operate effectively with the networks of our prospective customers;
    
    inability to protect against new types of attacks or techniques used by hackers;
    
    negative publicity about the performance or effectiveness of our intrusion prevention or
other network security products;
    
    reluctance of customers to purchase products based on open source software; and
    
    disruptions or delays in the availability and delivery of our products, which problems
are more likely due to our just-in-time manufacturing and inventory practices.
  If existing customers do not make subsequent purchases from us or renew their support arrangements
with us, or if our relationships with our largest customers are impaired, our revenue could
decline.
   35




---



##### 



The U.S. government has contributed to our revenue growth and has become an important customer for
us. If we cannot attract sufficient government agency customers, our revenue and competitive
position will suffer.
  
    
    Procurement.Contracting with public sector customers is highly competitive and can be
expensive and time-consuming, often requiring that we incur significant upfront time and
expense without any assurance that we will win a contract;
    
    Budgetary Constraints and Cycles.Demand and payment for our products and services are
impacted by public sector budgetary cycles and funding availability, with funding reductions
or delays adversely impacting public sector demand for our products, including delays caused
by continuing resolutions or other temporary funding arrangements;
    
    Modification or Cancellation of Contracts.Public sector customers often have
contractual or other legal rights to terminate current contracts for convenience or due to a
default. If a contract is cancelled for convenience, which can occur if the customers
product needs change, we may only be able to collect for products and services delivered
prior to termination. If a contract is cancelled because of default, we may only be able to
collect for products and alternative products and services delivered to the customer;
    
    Governmental Audits.National governments and state and local agencies routinely
investigate and audit government contractors administrative processes. They may audit our
performance and pricing and review our compliance with applicable rules and regulations. If
they find that we improperly allocated costs, they may require us to refund those costs or
may refuse to pay us for outstanding balances related to the improper allocation. An
unfavorable audit could result in a reduction of revenue, and may result in civil or
criminal liability if the audit uncovers improper or illegal activities; and
    
    Replacing Existing Products.Many government agencies already have installed network
security products of our competitors. It can be very difficult to convince government
agencies or other prospective customers to replace their existing network security solutions
with our products, even if we can demonstrate the superiority of our products.
 We are subject to risks of operating internationally that could impair our ability to grow our
revenue abroad.
  
    
    economic or political instability in foreign markets;
    
    greater difficulty in accounts receivable collection and longer collection periods;
    
    unexpected changes in regulatory requirements;
    
    difficulties and costs of staffing and managing foreign operations;
    
    import and export controls;
    
    the uncertainty of protection for intellectual property rights in some countries;
    
    costs of compliance with foreign laws and laws applicable to companies doing business in
foreign jurisdictions;
    
    management communication and integration problems resulting from cultural differences and
geographic dispersion;
    
    multiple and possibly overlapping tax structures; and
 36




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
    
    foreign currency exchange rate fluctuations.
  In the future, we may not be able to secure financing necessary to operate and grow our business as planned, or to make acquisitions.
  If we are not able to acquire additional businesses, products or technologies, our long-term
growth strategy could be harmed; acquisitions could also negatively affect our results of
operations and financial condition.
  
    
    we may not effectively integrate an acquired business, product or technology into our
existing business and operations;
    
    completing a potential acquisition and integrating an acquired business could
significantly divert managements time and resources from the operation of our business;
    
    a completed acquisition may not be accretive to earnings;
    
    acquisitions may result in substantial accounting charges for restructuring and other
expenses, write-offs of in-process research and development, amortization of intangible
assets and stock-based compensation expense;
    
    acquired companies, particularly privately held and non-US companies, may have internal
controls, policies and procedures that do not meet the requirements of the Sarbanes-Oxley
Act and public accounting standards;
    
    we may use a significant portion of our cash resources to fund acquisitions; and
    
    we may issue stock to fund acquisitions, which could dilute the interests of our existing
stockholders.
 If other parties claim commercial ownership rights to Snort or ClamAV, our reputation, customer
relations and results of operations could be harmed.
  37




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Our products contain third party open source software, and failure to comply with the terms of the
underlying open source software licenses could restrict our ability to sell our products.
   
    
    the terms of open source license agreements may be unclear and subject to varying
interpretations, which could result in unforeseen obligations regarding our proprietary
products;
    
    it may be difficult to determine the developers of open source software and whether such
licensed software infringes another partys intellectual property rights (including patent
rights);
    
    competitors will have greater access to information by obtaining these open source
products, which may help them develop competitive products;
    
    open source software potentially increases customer support costs because licensees can
modify the software and potentially introduce errors; and
    
    the open source software licenses generally do not include a license to any patents.
 We could be prevented from selling or developing our products if the GNU General Public License
and similar licenses under which our products are developed and licensed are not enforceable or
are modified so as to become incompatible with other open source licenses.
    38




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Our proprietary rights may be difficult to enforce, which could enable others to copy or use
aspects of our products without compensating us.
   Efforts to assert intellectual property ownership rights in our products could impact our standing
in the open source community, which could limit our product innovation capabilities.
  Claims that our products infringe the proprietary rights of others could harm our business and
cause us to incur significant costs.
  
    
    be very expensive and time consuming to defend;
    
    require us to indemnify our customers or others for losses resulting from such claims;
    
    cause us to cease making, licensing or using software or products that incorporate the
challenged intellectual property;
 39




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
    
    cause product shipment and installation delays;
    
    require us to redesign our products, which may not be feasible;
    
    require us to enter into royalty or licensing agreements, which may not be available on
acceptable terms, or at all, in order to obtain the right to use a necessary product or
component;
    
    divert the attention of management and technical personnel and other resources; or
    
    result in our paying significant amounts to settle such claims.
   We rely on software licensed from other parties, the loss of which could increase our costs and
delay software shipments.
    40




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Defects, errors or vulnerabilities in our products would harm our reputation and business and
divert resources.
  
    
    expenditure of significant financial and product development resources in efforts to
analyze, correct, eliminate or work-around errors or defects or to address and eliminate
vulnerabilities;
    
    loss of existing or potential customers;
    
    delayed or lost revenue;
    
    delay or failure to attain market acceptance;
    
    increased service, warranty, product replacement and product liability insurance costs;
and
    
    negative publicity, which would harm our reputation.
  Future litigation could have a material adverse impact on our results of operation, financial
condition and liquidity.
  Our networks, products and services are vulnerable to, and may be targeted by, hackers.
  41




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We primarily utilize a just-in-time contract manufacturing and inventory process and depend on a
limited number of manufacturers of our hardware products, which increases our vulnerability to
supply disruption.
   In some cases, we purchase products from contract manufacturers and hold them in inventory pending
sale to our customers. If demand for these products does not meet our expectations, or if these
products become obsolete, we could be required to write down the value of our inventory, which
would adversely affect our results of operations.
  We depend on resellers, distributors and other partners for our sales; if they fail to perform as
expected, our revenue will suffer.
  If we do not continue to establish and effectively manage our indirect distribution channels, our
revenue could decline.
  Our inability to hire or retain key personnel would slow our growth.
  42




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Our inability to effectively manage our expected headcount growth and expansion and our additional
obligations as a public company could seriously harm our ability to effectively run our business.
   The price of our common stock may be subject to wide fluctuations.
  
    
    quarterly variations in our operating results compared to market expectations;
    
    changes in expectations as to our future financial performance, including financial
estimates or reports by securities analysts;
    
    changes in market valuations of similar companies;
    
    liquidity and activity in the market for our common stock;
    
    actual or expected sales of our common stock by our stockholders;
    
    strategic moves by us or our competitors, such as acquisitions or restructurings;
    
    general market conditions; and
    
    domestic and international economic, legal and regulatory factors unrelated to our
performance.
  Sales of substantial amounts of our common stock in the public markets, or the perception that
they might occur, could reduce the price that our common stock might otherwise attain.
  43




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Our business is subject to complex corporate governance, public disclosure, accounting and tax
requirements that have increased both our costs and the risk of noncompliance.
    Any material disruption or problem with the operation of our enterprise resource planning system
may result in disruption to our business, operating processes and internal controls.
   Potential uncertainty resulting from unsolicited acquisition proposals and related matters may
adversely affect our business.
  44




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Anti-takeover provisions in our charter documents and under Delaware law and our adoption of a
stockholder rights plan could make an acquisition of us, which may be beneficial to our
stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our
current management.
   
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Use of Proceeds
  Repurchase of Equity Securities During Three Months Ended September 30, 2009
   45




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TotalNumber of
    
    MaximumShares
    
    Number ofPurchased as
    
    Shares thatPart of
    
    May Yet BeTotal
    
    
    
    
    
    Publicly
    
    PurchasedNumber of
    
    Average
    
    Announced
    
    Under theShares
    
    Price Paid
    
    Plans or
    
    Plans orPeriod
    
    Purchased
    
    per Share
    
    Programs
    
    Programs9/1/09  9/30/09
    
    
    15,291
    (1)
    
    $
    0.001
    
    
    
    
    
    
    
    
 
 (1)
    
    Reflects the repurchase of restricted stock from employees that was unvested at the time
of termination of employment. The purchase price represents the original price paid for the shares
by the employee, which is equal to the par value of our common stock. 
 Item 3. DEFAULTS UPON SENIOR SECURITIES
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Item 5. OTHER INFORMATION
  
 Item 6. EXHIBITS
  46




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##### 



SIGNATURES
  SOURCEFIRE, INC.By:
    /s/ John C. BurrisJohn C. BurrisChief Executive Officer
(duly authorized officer)By:
    /s/ Todd P. HeadleyTodd P. HeadleyChief Financial Officer
and Treasurer
(principal financial and accounting officer) 47




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##### 



Exhibit Index
 Incorporation by ReferenceExhibit
    
    
    
    
    
    File
    
    
    
    
    
    
    
    Filed withNumber
    
    Exhibit Description
    
    Form
    
    Number
    
    Exhibit
    
    File Date
    
    this 10-Q3.1
    
    Sixth Amended and Restated Certificate
of Incorporation
    
    10-Q
    
    1-33350
    
    
    3.1
    
    
    5/4/20073.2
    
    Fifth Amended and Restated Bylaws
    
    10-K
    
    1-33350
    
    
    3.2
    
    
    3/16/20093.3
    
    Certificate of Designation of the Series
A Junior Participating Preferred Stock
    
    8-A
    
    1-33350
    
    
    3.1
    
    
    10/30/20084.1
    
    Form of stock certificate of common stock
    
    S-1/A
    
    333-138199
    
    
    4.1
    
    
    3/6/20074.2
    
    Rights Agreement, dated as of October
30, 2008, by and between the Company and
Continental Stock Transfer & Trust Co.,
as rights agent
    
    8-A
    
    1-33350
    
    
    4.1
    
    
    10/30/200810.1
    
    Sourcefire, Inc. Amended and Restated 2007 Employee Stock Purchase Plan
    
    
    
    
    
    
    
    
    
    
    
    X10.2*
    
    Amendment No. 2 to License
Agreement for Commercial Use of MySQL
Software by and between MySQL Americas, Inc. and
Sourcefire, Inc.
    
    
    
    
    
    
    
    
    
    
    
    X10.3*
    
    Amendment No. 3 to License
Agreement for Commercial Use of MySQL Software by and between MySQL
Americas, Inc. and Sourcefire, Inc.
    
    
    
    
    
    
    
    
    
    
    
    X10.4
    
    Original Equipment Manufacturer Agreement entered into as
of November 25, 2008 between Netronome Systems Inc. and the Company
    
    
    
    
    
    
    
    
    
    
    
    X31.1
    
    Certification of Chief Executive Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    
    
    
    
    
    
    
    
    
    X31.2
    
    Certification of Chief Financial Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    
    
    
    
    
    
    
    
    
    X32.1
    
    Certification of Chief Executive Officer
and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
    
    
    
    
    
    
    
    
    
    
    
    X
 
 *
    
    Portions of the exhibit have been omitted and were filed separately with the Securities and Exchange Commission pursuant to the
Registrants application requesting confidential treatment under Rule 406 of the Securities Act. 48