UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal
    year ended December 31, 2009o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For 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
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)9770 Patuxent Woods Drive
    Columbia, Maryland(Address of Principal
    Executive Offices)

21046(Zip
    Code)    Registrants telephone number, including area code:
 (410) 290-1616
  Securities registered pursuant to Section 12(b) of the
    Act:
   Title of Each Class

Name of Exchange on Which RegisteredCommon Stock, $0.001 par value, including associated
    Series A Junior Participating Preferred Stock Purchase
    Rights

Nasdaq Global Market    Securities registered pursuant to Section 12(g) of the
    Act: none
      o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE
  Form 10-K




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##### 





SOURCEFIRE,
    INC.Form 10-K
    TABLE OF CONTENTS
  PART IItem 1.

Business


4Item 1A.

Risk Factors


13Item 1B.

Unresolved Staff Comments


25Item 2.

Properties


25Item 3.

Legal Proceedings


25Item 4.

Reserved


26PART IIItem 5.

Market for Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities


26Item 6.

Selected Financial Data


29Item 7.

Managements Discussion and Analysis of Financial Condition
    and Results of Operations


30Item 7A.

Quantitative and Qualitative Disclosures About Market Risk


45Item 8.

Financial Statements and Supplementary Data


45Item 9.

Changes In and Disagreements With Accountants and Financial
    Disclosures


45Item 9A.

Controls and Procedures


45Item 9B.

Other Information


48PART IIIItem 10.

Directors, Executive Officers and Corporate Governance


48Item 11.

Executive Compensation


48Item 12.

Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters


48Item 13.

Certain Relationships and Related Transactions, and Director
    Independence


48Item 14.

Principal Accountant Fees and Services


48PART IVItem 15.

Exhibits and Financial Statement Schedules


48Signatures




49  2




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Form 10-K
  FORWARD-LOOKING
    STATEMENTS
    
    expected growth in the markets for network security products;
    our plans to continue to invest in and develop innovative
    technology and products for our existing markets and other
    network security markets;
    the timing of expected introductions of new or enhanced products;
    our expectation of growth in our customer base and increasing
    sales to existing customers;
    our plans to increase revenue through more relationships with
    resellers, distributors, managed security service providers,
    government integrators and other partners;
    our plans to grow international sales;
    our plans to acquire and integrate new businesses and
    technologies;
    our plans to hire more network security professionals and
    broaden our knowledge base; and
    our plans to hire additional sales personnel and the additional
    revenue we expect them to generate.              ® ® tm ® ® ® tm tm ® tm
 3




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##### 



PART I  Item 1.
    BUSINESS  Overview
    ® ®
    
    seed the market with high-quality, low-cost network security
    solutions while providing a migration path for customers that
    require enterprise-class features, manageability, scalability
    and performance;
    ensure product quality with the help of the open source
    community as well as Sourcefires internal developers to
    inspect the open code base that forms the foundation for
    Sourcefire commercial product offerings;
    maximize protection, as Snort rules are provided by Sourcefire
    and a variety of third-party sources, allowing customers to
    create their own custom rules and signatures; and
    embrace a community of open source evangelists
    willing to contribute time and effort in inspecting, evaluating,
    and ultimately using Sourcefires open source security
    solutions.    Our
    Industry
   4




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Greater Sophistication, Severity and Frequency of Network
    Attacks.
  Increasing Risks from Unknown
    Vulnerabilities.
  Diverse Demands on Security
    Administrators. start-up
  Heightened Government and Industry
    Regulation.
  Increasing Visibility of Negligence
    Lawsuits.
  Our
    Products
    Sourcefire Defense
    Center ®
 5




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##### 



Sourcefire Intrusion Detection and Prevention
    Sensors
  
    Sourcefire
    IPS®(Intrusion Prevention System)  Built on the
    foundation of Snort, Sourcefire IPS uses a rules-based
    language  a powerful combination of signature-,
    protocol-, and vulnerability-based inspection
    methods  to examine network packets for threats.
    Sourcefire IPS allows users to create, edit, and view detection
    rules, and full packet payloads are logged for every event so
    users can see exactly what threatening traffic has been
    detected. Sourcefire Sensors equipped with Sourcefire IPS
    software can be placed in passive intrusion detection, or IDS,
    mode to notify users of network traffic or in inline IPS mode to
    block threats.
    Sourcefire
    RNAtm(Real-time Network Awareness) At the heart of
    Sourcefires IPS is our network intelligence capability
    that provides persistent visibility into the composition,
    behavior, topology (the relationship of network components) and
    risk profile of the network. Network intelligence feeds the
    Defense Centers automated decision-making and network
    policy enforcement. The ability to continuously discover
    characteristics and vulnerabilities of virtually any computing
    device communicating on a network enables Sourcefire IPS to more
    precisely identify and block threatening traffic and to more
    efficiently classify threatening
    and/or
    suspicious behavior.
    Sourcefire
    RUAtm(Real-time User Awareness)  Sourcefire user
    awareness enables customers to link user identity to security
    and network violation events. It leverages Active Directory or
    Lightweight Directory Access Protocol systems by pairing
    usernames with host IP addresses involved in security and
    compliance events. This enables Sourcefire customers to resolve
    security and compliance events more quickly and easily.
    Sourcefire NetFlow Analysis Sourcefire
    NetFlow Analysis aggregates data from Cisco routers and
    switches, thus extending the reach of Sourcefires network
    behavior analysis, or NBA, solution to corners of the network
    where Sourcefire technology has not yet been employed. The
    combination of network awareness and NetFlow functionality
    provides customers with the ability to baseline
    normal network traffic across the enterprise,
    enabling security analysts to detect suspicious deviations, such
    as worm propagation, from established baselines. Further, the
    ability to analyze NetFlow also provides network managers with
    the network usage intelligence required to identify performance
    bottlenecks
    and/or areas
    of the network where too much bandwidth has been allocated.  Sourcefire Intrusion Agent for Snort
  Sourcefire VRT (Vulnerability Research Team)
    Subscriptions zero-day 30-day
 6




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##### 



Our Open
    Source Projects
    Snort ®
  ClamAV ®
  Our
    Services
    Sourcefire Customer Support
  Sourcefire Professional Services
  Sourcefire Education &
    Certification
 7




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##### 



Our
    Competitive Strengths
     Comprehensive Network and User
    Intelligence.
  Real-Time Approach to Network Security.
  The Open Source Community.
  Leading-Edge Performance.
  Security Industry Intelligence. http://vrt-sourcefire.blogspot.com/.
 8




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##### 



Broad Industry Recognition.
  Our
    Growth Strategy
    
    Accelerating our leadership in network security
    solutions; Continuing to develop innovative network
    security technology; Evaluating selective adjacent market
    technologies for partnering or potential
    acquisition.We intend to maintain and enhance
    our technological leadership position in network security. We
    will continue to invest significantly in internal development
    and product enhancements and to recruit, train, develop and
    retain experienced network security professionals to broaden our
    proprietary knowledge base. We believe that our platform is
    capable of expanding into new markets such as security for
    virtualized environments, data leakage prevention, or DLP, log
    and security management, network security monitoring, or NSM,
    next generation firewalls, network behavior analysis and
    compliance management and, over time, we expect to penetrate
    these markets with innovative products and technologies. By
    leveraging the intelligence from the open source community we
    believe that we have more visibility into threats worldwide, and
    that we will be able to continue our leadership position in
    providing users access to the latest information on current
    threats and ways to protect their organizations against them.
    Evolving our go-to-market strategy into a more leveraged
    model by expanding relationships with resellers, distributors,
    MSSPs and government integrators.We intend to
    expand our indirect sales channel, both internationally and
    domestically. We also intend to utilize our relationships with
    managed security service providers, or MSSPs, such as Symantec,
    BT Counterpane, SecureWorks and VeriSign, to derive incremental
    revenue. In 2009, we generated approximately 29% of our revenue
    from governmental organizations and, in the future, we believe
    we will generate an increasing amount of revenue from government
    integrators who resell our products to government agencies.  Awards
    and Certifications
    
    Gartner Magic Quadrant.  Sourcefire announced
    it was recognized by Gartner, Inc. as being a Leader
    in the April 2009 Magic Quadrant for Network Intrusion
    Prevention System Appliances report.
    SC Award for Best Intrusion Detection/Prevention
    Solution by SC Magazine.  Snort was honored
    with the Reader Trust Award for
    best-in-class
    intrusion detection and prevention.
    Top Recommend  rating in Network
    Intrusion Prevention System Comparative Test Report, NSS Labs
    Inc. December 2009
    2009 Best of Tests Winner by Network
    World.  The sole winner in the security category,
    the Sourcefire 3D System was recognized for its ability to make
    network protection easier and more effective.
    Open Source Hall of Fame by
    InfoWorld.  Snort was recognized as one of the
    greatest open source software projects of all time and for
    propelling the open source movement into the spotlight.
    Network Intrusion Prevention System Certification
    by ICSA Labs.  Sourcefires full IPS product
    line was certified by ICSA Labs, reaffirming Sourcefires
    commitment to providing
    best-in-class
    protection against todays most menacing threats. 9




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Customers
      Sales and
    Marketing
    Sales.
  follow-up
    Strategic Relationships.
  Marketing.
  Research
    and Development
    Research & Development Team.
 10




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Vulnerability Research Team.
      Manufacturing
    and Suppliers
  just-in-time
  Intellectual
    Property
      Seasonality
   11




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##### 



Competition
    
    large companies, including Cisco Systems, Inc., IBM Corporation,
    Juniper Networks, Inc., 3Com Corporation, Check Point Software
    Technologies, Ltd. and McAfee, Inc., that sell competitive
    products and offerings, as well as other large software
    companies that have the technical capability and resources to
    develop competitive products;
    software or hardware network infrastructure companies, including
    Cisco Systems, Inc., 3Com Corporation and Juniper Networks,
    Inc., that could integrate features that are similar to our
    products into their own products;
    smaller software companies offering applications for network and
    Internet security monitoring, detection, prevention or
    response; and
    small and large companies offering point solutions that compete
    with components of our product offerings.        Employees
    Corporate
    Information
  (410) 290-1616.
  Available
    Information
  Form 10-K, Form 10-Q, Form 8-K
 12




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Item 1A.
    RISK
    FACTORS  Form 10-K Form 10-K.
  Risks
    Relating to Our Business, Operations and Industry
  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
    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.
       13




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##### 



and/or
  New
    competitors could emerge and could impair our
    sales.
    
    emerging companies as well as larger companies who have not
    previously entered the market for network security products;
    established companies that develop their own network intrusion
    detection and prevention products, or acquire or establish
    product integration, distribution or other cooperative
    relationships with our current competitors; and
    new competitors or alliances among competitors that emerge and
    rapidly acquire significant market share due to factors such as
    greater brand name recognition, a larger installed customer base
    and significantly greater financial, technical, marketing and
    other resources and experience.  We
    achieved profitability on an annual basis for the first time in
    2009, which we may not be able to maintain.
    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; 14




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
    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.      Federal
    and state governmental agencies have contributed to our revenue
    growth and have become important customers 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. Reductions or
    delays in funding, including delays caused by continuing
    resolutions or other temporary funding arrangements, could
    adversely impact public sector demand for our products;
    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 our default, we may only be able to collect
    for products and alternative products and services delivered to
    the customer; 15




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
    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.  If we
    do not continue to establish and effectively manage our indirect
    distribution channels, or if our resellers, distributors and
    other partners fail to perform as expected, our revenue could
    suffer.
    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;
    compliance with tax laws in multiple jurisdictions; and
    foreign currency exchange rate fluctuations. 16




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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 could be harmed.
    If our
    new products and product enhancements do not achieve sufficient
    market acceptance, our results of operations and competitive
    position could 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
    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, including products from our contract manufacturers.   17




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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.
      Defects,
    errors or vulnerabilities in our products could harm our
    reputation and business and divert our resources.
    
    expenditure of significant financial and product development
    resources in efforts to analyze, correct and eliminate defects,
    to address and eliminate vulnerabilities or to create
    alternative solutions;
    loss of existing or potential customers;
    delayed or lost revenue;
    failure to timely attain or maintain market acceptance;
    increased service, warranty, product replacement and product
    liability insurance costs; and
    negative publicity, which could harm our reputation.    Our
    networks, products and services may be targeted by
    hackers.
   18




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We may
    acquire additional businesses, products or technologies as part
    of our long-term growth strategy, and such acquisitions may not
    ultimately be successful or may not result in expected strategic
    benefits.
      
    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 into our existing 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-U.S. companies,
    may have internal controls, policies and procedures that do not
    meet the requirements of the Sarbanes-Oxley Act of 2002 and
    public company 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.  In the
    future, we may not be able to secure financing necessary to make
    acquisitions or to operate and grow our business as
    planned.
    If
    other parties claim commercial ownership rights to Snort or
    ClamAV, our reputation, customer relations and results of
    operations could be harmed.
   19




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We
    rely on software licensed from other parties, the loss of which
    could increase our costs and delay delivery of our
    products.
      Our
    inability to hire or retain key personnel, or to effectively
    manage headcount increases, could impair our intended
    growth.
      Our
    business is subject to corporate governance, public disclosure,
    accounting and tax requirements that have increased both our
    costs and the risk of noncompliance.
     20




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Any
    material disruption or problem with the operation of our
    information systems may adversely impact our business, operating
    processes and internal controls.
      Potential
    uncertainty resulting from unsolicited acquisition proposals and
    related matters may adversely affect our business.
    Risks
    Relating to Our Intellectual Property and Litigation
  Our
    products contain 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.
     21




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Our
    intellectual property rights may be difficult to enforce, which
    could enable others to compete with us or 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.
   22




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Claims
    that our products infringe the proprietary rights of others
    could harm our business and cause us to incur significant
    costs.
      Future
    litigation could have a material adverse impact on our results
    of operations, financial condition and liquidity.
    Risks
    Relating to Manufacturing
  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.
  just-in-time
   23




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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 could adversely affect our results
    of operations.
  just-in-time
  Risks
    Relating to Our Common Stock
  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 or of our
    competitors;
    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.
   24




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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 our company, which may be beneficial to our
    stockholders, more difficult and may prevent attempts by our
    stockholders to replace or remove our current
    management.
    Item 1B.
    UNRESOLVED
    STAFF COMMENTS    Item 2.
    PROPERTIES    Item 3.
    LEGAL
    PROCEEDINGS   25




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##### 



Item 4.
    RESERVED PART II  Item 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Market
    Information
    High

LowYear ended December 31, 2008:First Quarter

$
7.47


$
3.89Second Quarter

$
8.15


$
6.51Third Quarter

$
8.37


$
5.81Fourth Quarter

$
8.49


$
4.96Year ended December 31, 2009:First Quarter

$
7.94


$
5.12Second Quarter

$
13.53


$
7.13Third Quarter

$
22.74


$
11.18Fourth Quarter

$
27.80


$
18.38     Dividend
    Policy
   26




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##### 



Stock
    Performance Graph
    COMPARISON
    OF 33 MONTH CUMULATIVE TOTAL RETURN*
    Among Sourcefire, Inc., The Russell 2000 Index
    And The RDG Software Composite Index
  
  3/9/07 2/28/07
 27




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##### 



Use of
    Proceeds
      Repurchases
    of Equity Securities During 2009
        TotalNumber of

MaximumShares

Number ofPurchased

Shares thatas Part of

May Yet BeTotal



Publicly

PurchasedNumber of

Average

Announced

Under theShares

Price Paid

Plans or

Plans orPeriod

Purchased

per Share

Programs

Programs12/1/09 - 12/31/09


3,902
(1)

$
0.001







     (1)
    
    Reflects the repurchase of restricted stock from employees and
    directors that was unvested at the time of termination of
    employment or service on our board of directors. The purchase
    price represents the original price paid for the shares by the
    employee or director, which is equal to the par value of our
    common stock. 28




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##### 



Item 6.
    SELECTED
    FINANCIAL DATA    Year Ended December 31,2009


2008


2007


2006


2005(In thousands, except share and per share data)Consolidated statement of operations data:Revenue:Products

$
62,585


$
45,245


$
34,332


$
30,219


$
23,589Services


40,880



30,428



21,527



14,707



9,290Total revenue


103,465



75,673



55,859



44,926



32,879Cost of revenue:Products


15,641



12,408



9,523



8,440



6,610Services


6,379



4,952



3,360



2,632



1,453Total cost of revenue


22,020



17,360



12,883



11,072



8,063Gross profit


81,445



58,313



42,976



33,854



24,816Operating expenses:Research and development


16,256



12,620



11,902



8,612



6,831Sales and marketing


36,498



33,169



25,860



20,652



17,135General and administrative


16,761



18,713



10,599



5,017



5,120Depreciation and amortization


3,647



2,627



1,649



1,230



1,103In-process research and development










2,947







Total operating expenses


73,162



67,129



52,957



35,511



30,189Income (loss) from operations


8,283



(8,816
)


(9,981
)


(1,657
)


(5,373
)Other income (expense), net


926



3,064



4,604



792



(85
)Income (loss) before income taxes


9,209



(5,752
)


(5,377
)


(865
)


(5,458
)Provision for income taxes


331



319



244



67



Net income (loss)


8,878



(6,071
)


(5,621
)


(932
)


(5,458
)Accretion of preferred stock










(870
)


(3,819
)


(2,668
)Net income (loss) attributable to common stockholders

$
8,878


$
(6,071
)

$
(6,491
)

$
(4,751
)

$
(8,126
)Net income (loss) attributable to common stockholders per common
    share:Basic

$
0.34


$
(0.24
)

$
(0.32
)

$
(1.40
)

$
(2.54
)Diluted


0.32



(0.24
)


(0.32
)


(1.40
)


(2.54
)Shares used in per common share calculations:Basic


26,458,273



25,379,791



20,434,792



3,389,527



3,200,318Diluted


27,987,115



25,379,791



20,434,792



3,389,527



3,200,318  29




---



##### 



Consolidated
    Balance Sheet Data
  As of December 31,2009

2008

2007

2006

2005(In thousands)Cash and cash equivalents

$
53,071


$
39,768


$
33,071


$
13,029


$
1,106Investments


70,149



61,800



73,956



13,293



2,005Working capital


103,055



99,017



101,302



25,852



4,135Total assets


174,167



146,305



141,678



49,952



21,250Deferred revenue


34,177



24,108



21,027



14,115



10,595Long-term debt














1,312



990Total liabilities


45,678



37,264



32,484



22,104



16,340Total convertible preferred stock














66,747



40,007Total stockholders equity (deficit)


128,489



109,041



109,194



(38,899
)


(35,097
)   Item 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Introduction
    
    Overview.  This section provides a general
    description of our business, the key financial metrics that we
    use in assessing our performance, 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 years in
    the period ended December 31, 2009.
    Non-GAAP Financial Measures.  This section
    discusses non-GAAP financial results that we use in evaluating
    the operating performance of our business. These measures should
    be considered in addition to results prepared in accordance with
    United States generally accepted accounting principles, or GAAP,
    but should not be considered a substitute for, or superior to,
    GAAP results. The non-GAAP measures discussed have been
    reconciled to the nearest GAAP measure in a table included in
    this section.
    Liquidity and Capital Resources.  This section
    provides an analysis of our cash flows for the year ended
    December 31, 2009 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
   30




---



##### 



® ®
  Key
    Financial Metrics and Trends
        Revenue
  on-site
    U.S.-based
 31




---



##### 



Cost of
    Revenue
      Gross
    Profit
   32




---



##### 



Operating
    Expenses
  Research and Development.
    Sales and Marketing.
    General and Administrative.
  Stock-Based Compensation.
    Results
    of Operations
  Revenue.
  Year Ended





Year EndedDecember 31,


Variance


December 31,


Variance2009


2008


$


%


2008


2007


$


%Products

$
62,585


$
45,245


$
17,340



38
%

$
45,245


$
34,332


$
10,913



32
%Percentage of total revenue


60
%


60
%










60
%


61
%Technical support and professional services


40,880



30,428



10,452



34
%


30,428



21,527



8,901



41
%Percentage of total revenue


40
%


40
%










40
%


39
%Total revenue

$
103,465


$
75,673


$
27,792



37
%

$
75,673


$
55,859


$
19,814



35
%  33




---



##### 



Cost of revenue.
  Year Ended





Year EndedDecember 31,


Variance


December 31,


Variance2009


2008


$


%


2008


2007


$


%Products

$
15,641


$
12,408


$
3,233



26
%

$
12,408


$
9,523


$
2,885



30
%Percentage of total revenue


15
%


16
%










16
%


17
%Technical support and professional services


6,379



4,952



1,427



29
%


4,952



3,360



1,592



47
%Percentage of total revenue


6
%


7
%










7
%


6
%Total cost of revenue

$
22,020


$
17,360


$
4,660



27
%

$
17,360


$
12,883


$
4,477



35
%Percentage of total revenue


21
%


23
%










23
%


23
%        34




---



##### 



Gross profit.
  Year Ended





Year EndedDecember 31,


Variance


December 31,


Variance2009


2008


$


%


2008


2007


$


%Products

$
46,944


$
32,837


$
14,107



43
%

$
32,837


$
24,809


$
8,028



32
%Product gross margin


75
%


73
%










73
%


72
%Technical support and professional services


34,501



25,476



9,025



35
%


25,476



18,167



7,309



40
%Technical support and professional services gross margin


84
%


84
%










84
%


84
%Total gross profit

$
81,445


$
58,313


$
23,132



40
%

$
58,313


$
42,976


$
15,337



36
%Total gross margin


79
%


77
%










77
%


77
%       Operating expenses.
  Year Ended





Year EndedDecember 31,


Variance


December 31,


Variance2009


2008


$


%


2008


2007


$


%Research and development

$
16,256


$
12,620


$
3,636



29
%

$
12,620


$
11,902


$
718



6
%Percentage of total revenue


16
%


17
%










17
%


22
%Sales and marketing


36,498



33,169



3,329



10
%


33,169



25,860



7,309



28
%Percentage of total revenue


35
%


44
%










44
%


46
%General and administrative


16,761



18,713



(1,952
)


(10
)%


18,713



10,599



8,114



77
%Percentage of total revenue


16
%


25
%










25
%


19
%Depreciation and amortization


3,647



2,627



1,020



39
%


2,627



1,649



978



59
%Percentage of total revenue


4
%


3
%










3
%


3
%In-process research and development














0
%






2,947



(2,947
)


(100
)%Percentage of total revenue


0
%


0
%










0
%


5
%Total operating expenses

$
73,162


$
67,129


$
6,033



9
%

$
67,129


$
52,957


$
14,172



27
%Percentage of total revenue


71
%


89
%










89
%


95
%      35




---



##### 



36




---



##### 



Other income, net and provision for income
    taxes.
  Year Ended



Year EndedDecember 31,

Variance

December 31,

Variance2009

2008

$

%

2008

2007

$

%Other income, net

$
926


$
3,064


$
(2,138
)


(70
)%

$
3,064


$
4,604


$
(1,540
)


(33
)%Percentage of total revenue


1
%


4
%










4
%


8
%Provision for income taxes

$
331



319


$
12



4
%

$
319


$
244


$
75



31
%Percentage of total revenue


0
%


0
%










0
%


0
%           Seasonality
    Quarterly
    Timing
   37




---



##### 



Non-GAAP Financial
    Measures
      Year Ended December 31,2009


2008


2007Reconciliation to adjusted net income (loss):GAAP Net income (loss)

$
8,878


$
(6,071
)

$
(5,621
)Stock-based compensation expense


6,171



4,037



2,646Stock-based compensation expense related to CEO transition






449



CEO transition costs






742



Expenses related to ClamAV acquisition










1,042In-process research and development










2,947Adjusted net income (loss)

$
15,049


$
(843
)

$
1,014Adjusted net income (loss) per share  basic

$
0.57


$
(0.03
)

$
0.05Adjusted net income (loss) per share  diluted


0.54



(0.03
)


0.04Weighted average number of shares  basic


26,458,273



25,379,791



20,434,792Weighted average number of shares  diluted


27,987,115



25,379,791



22,553,430   Liquidity
    and Capital Resources
  Cash
    Flows
    Year Ended December 31,2009


2008


2007Cash and cash equivalents:Provided by (used in) operating activities

$
20,159


$
(1,140
)

$
2,928(Used in) provided by investing activities


(11,504
)


6,855



(66,934
)Provided by financing activities


4,648



982



84,048Increase


13,303



6,697



20,042Net cash at beginning of period


39,768



33,071



13,029Net cash at end of period


53,071



39,768



33,071Investments


70,149



61,800



73,956Total cash, cash equivalents and investments

$
123,220


$
101,568


$
107,027  38




---



##### 



Operating Activities.
  Investing Activities.
  Financing Activities.
  Liquidity
    Requirements
           39




---



##### 



Contractual
    Obligations
    Payments Due by PeriodLess thanTotal

One Year

1-3 Years

3-5 YearsCapital lease obligations

$
4


$
3


$
1


$
Operating lease obligations


5,329



1,472



2,702



1,155Purchase
    commitments(1)


4,842



4,842







     (1)
    
    We purchase components from a variety of suppliers and use
    contract manufacturers to provide manufacturing services for our
    products. During the normal course of business, in order to
    manage manufacturing lead times and help ensure adequate
    component supply, we enter into agreements with contract
    manufacturers and suppliers that allow them to procure inventory
    based upon information provided by us. In certain instances,
    these agreements allow us the option to cancel, reschedule, and
    adjust our requirements based on our business needs prior to
    firm orders being placed. Consequently, a portion of our
    reported purchase commitments arising from these agreements are
    firm, non-cancelable and unconditional commitments. As of
    December 31, 2009, we had total purchase commitments for
    inventory of approximately $4.8 million.  Critical
    Accounting Policies and Estimates
      Revenue Recognition. when-and-if-available
     40




---



##### 



Accounting for Stock-Based
    Compensation.
    Average risk-free interest rate
  Expected dividend yield
  Expected life
     41




---



##### 



Expected volatility
            Accounting for Income Taxes.
     42




---



##### 



paid-in-capital
      Allowance for Doubtful Accounts and Sales Return
    Allowance.
    Inventories. first-in,
    Investments.
 43




---



##### 



Recent
    Accounting Pronouncements
              Off-Balance
    Sheet Arrangements
   44




---



##### 



Item 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Foreign
    Currency Risk
    Interest
    Rate Sensitivity
    Credit
    Market Risk
    Item 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA    Item 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURES    Item 9A.
    CONTROLS
    AND PROCEDURES  Evaluation of Disclosure Controls and
    Procedures. Rules 13a-15(e) 15d-15(e)
 45




---



##### 



Changes in Internal Control Over Financial
    Reporting. Rules 13a-15(f) 15d-15(f)
  Managements
    Report on Internal Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
       46




---



##### 



Report of
    Independent Registered Public Accounting Firm on
    Internal Control Over Financial Reporting
                
    47




---



##### 



Item 9B.
    OTHER
    INFORMATION     PART III  Item 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    Item 11.
    EXECUTIVE
    COMPENSATION    Item 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    Item 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    Item 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   PART IV  Item 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES      page F-1
    Exhibits 10.2-10.19
 48




---



##### 



SIGNATURES    SOURCEFIRE, INC.
  
     Form 10-K
  Signature

Title

Date/s/  John
    C. BurrisJohn
    C. Burris

Chief Executive Officer and Director (principal executive
    officer)

March 12, 2010/s/  Todd
    P. HeadleyTodd
    P. Headley

Chief Financial Officer and Treasurer (principal financial and
    accounting officer)

March 12, 2010/s/  Martin
    F. RoeschMartin
    F. Roesch

Chief Technology Officer and Director

March 12, 2010/s/  John
    C. BeckerJohn
    C. Becker

Director

March 12, 2010/s/  Michael
    CristinzianoMichael
    Cristinziano

Director

March 12, 2010/s/  Tim
    A. GuleriTim
    A. Guleri

Director

March 12, 2010/s/  Steven
    R. PolkSteven
    R. Polk

Director

March 12, 2010  49




---



##### 



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of Independent Registered Public Accounting Firm


F-2Consolidated Balance Sheets at December 31, 2009 and 2008


F-3Consolidated Statements of Operations for the years ended
    December 31, 2009, 2008 and 2007


F-4Consolidated Statements of Changes in Convertible Preferred
    Stock and Stockholders Equity for the years ended
    December 31, 2009, 2008 and 2007


F-5Consolidated Statements of Cash Flows for the years ended
    December 31, 2009, 2008 and 2007


F-6Notes to Consolidated Financial Statements


F-7  F-1




---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            
    F-2




---



##### 



SOURCEFIRE,
    INC.
 CONSOLIDATED
    BALANCE SHEETS  December 31,


December 31,2009


2008(In thousands, except par value and share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
53,071


$
39,768Short-term investments


49,074



59,343Accounts receivable, net of allowances of $1,157 as of
    December 31, 2009 and $538 as of December 31, 2008


32,771



27,864Inventory


4,414



4,521Prepaid expenses and other current assets


4,428



2,115Total current assets


143,758



133,611Property and equipment, net


7,447



8,341Investments


21,075



2,457Other assets


1,887



1,896Total assets

$
174,167


$
146,305LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
2,846


$
4,505Accrued compensation and related expenses


5,074



4,229Other accrued expenses


3,025



3,558Current portion of deferred revenue


29,294



21,513Other current liabilities


464



789Total current liabilities


40,703



34,594Deferred revenue, less current portion


4,883



2,595Other long-term liabilities


92



75Total liabilities

$
45,678


$
37,264Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value; 19,700,000 shares
    authorized; no shares issued or outstanding






Series A junior participating preferred stock,
    $0.001 par value; 300,000 shares authorized; no shares
    issued or outstanding






Common stock, $0.001 par value; 240,000,000 shares
    authorized; 27,117,051 and 25,917,519 shares issued and
    outstanding as of December 31, 2009 and December 31,
    2008, respectively


26



25Additional paid-in capital


170,157



159,306Accumulated deficit


(41,716
)


(50,594
)Accumulated other comprehensive income


22



304Total stockholders equity


128,489



109,041Total liabilities and stockholders equity

$
174,167


$
146,305    F-3




---



##### 



SOURCEFIRE,
    INC.
 CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended December 31,2009


2008


2007(In thousands, except share and per share amounts)Revenue:Products

$
62,585


$
45,245


$
34,332Technical support and professional services


40,880



30,428



21,527Total revenue


103,465



75,673



55,859Cost of revenue:Products


15,641



12,408



9,523Technical support and professional services


6,379



4,952



3,360Total cost of revenue


22,020



17,360



12,883Gross profit


81,445



58,313



42,976Operating expenses:Research and development


16,256



12,620



11,902Sales and marketing


36,498



33,169



25,860General and administrative


16,761



18,713



10,599Depreciation and amortization


3,647



2,627



1,649In-process research and development










2,947Total operating expenses


73,162



67,129



52,957Income (loss) from operations


8,283



(8,816
)


(9,981
)Other income, net:Interest and investment income


1,033



3,139



4,665Interest expense


(16
)


(51
)


(35
)Other expense, net


(91
)


(24
)


(26
)Total other income, net


926



3,064



4,604Income (loss) before income taxes


9,209



(5,752
)


(5,377
)Provision for income taxes


331



319



244Net income (loss)


8,878



(6,071
)


(5,621
)Accretion of preferred stock










870Net income (loss) attributable to common stockholders

$
8,878


$
(6,071
)

$
(6,491
)Net income (loss) attributable to common stockholders per share:Basic

$
0.34


$
(0.24
)

$
(0.32
)Diluted


0.32



(0.24
)


(0.32
)Weighted average shares outstanding used in computing per share
    amounts:Basic


26,458,273



25,379,791



20,434,792Diluted


27,987,115



25,379,791



20,434,792    F-4




---



##### 



SOURCEFIRE,
    INC.
 CONSOLIDATED
    STATEMENT OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND
    STOCKHOLDERS EQUITY  Warrants toPurchaseSeries A
































AccumulatedSeries A Convertible


Convertible


Series B Convertible


Series C Convertible


Series D Convertible








Additional





OtherPreferred Stock


Preferred


Preferred Stock


Preferred Stock


Preferred Stock


Common Stock


Paid-in


Accumulated


ComprehensiveShares


Amount


Stock


Shares


Amount


Shares


Amount


Shares


Amount


Shares


Amount


Capital


Deficit


Income


Total(In thousands, except share amounts)Balance at January 1, 2007


2,475,410


$
10,308


$
25



7,132,205


$
14,265



5,404,043


$
18,270



3,264,449


$
23,879



3,491,764


$
3


$



$
(38,902
)

$



$
(38,899
)Exercise of common stock options






































305,077



1



332











333Exercise of common stock warrant






































30,543



















Issuance of restricted common stock






































329,882



















Cancellation of restricted common stock






































(2,389
)


















Stock-based compensation expense














































2,646











2,646Excess tax benefits relating to share-based payments














































106











106Issuance of common stock in IPO, net of issuance costs of $8,901






































6,185,500



6



83,876











83,882Accretion of convertible preferred stock to redemption value






140











186







237







307











(870
)










(870
)Conversion of preferred stock to common stock


(2,475,410
)


(10,448
)


(25
)


(7,132,205
)


(14,451
)


(5,404,043
)


(18,507
)


(3,264,449
)


(24,186
)


14,302,056



14



67,603











67,617Net loss for 2007


















































(5,621
)






(5,621
)Balance at December 31, 2007






































24,642,433



24



153,693



(44,523
)





$
109,194Exercise of common stock options






































704,824



1



858











859Issuance of common stock under employee stock purchase plan






































80,201







391











391Issuance of restricted common stock






































524,550



















Repurchase of common stock






































(34,489
)






(140
)










(140
)Stock-based compensation expense














































4,486











4,486Excess tax benefit relating to share-based payments














































18











18Comprehensive loss:Net loss for 2008


















































(6,071
)






(6,071
)Net unrealized gain on investments






















































304



304Total comprehensive loss


























































(5,767
)Balance at December 31, 2008






































25,917,519



25



159,306



(50,594
)


304



109,041Exercise of common stock options






































1,079,232



1



3,909











3,910Issuance of common stock under employee stock purchase plan






































82,955







554











554Issuance of restricted common stock






































56,538



















Cancellation of restricted common stock






































(19,193
)


















Stock-based compensation expense














































6,171











6,171Excess tax benefit relating to share-based payments














































217











217Comprehensive income:Net income for 2009


















































8,878







8,878Net unrealized loss on investments






















































(282
)


(282
)Total comprehensive income


























































8,596Balance at December 31, 2009





$



$







$







$







$




27,117,051


$
26


$
170,157


$
(41,716
)

$
22


$
128,489    F-5




---



##### 





SOURCEFIRE,
    INC.
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2009


2008


2007(In thousands)Operating activitiesNet income (loss)

$
8,878


$
(6,071
)

$
(5,621
)Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Depreciation and amortization


3,423



2,663



1,678Non-cash stock-based compensation


6,171



4,486



2,646Excess tax benefits related to share-based payments


(217
)


(18
)


(106
)Amortization of premium (discount) on investments


374



(1,033
)


(1,441
)Loss on disposal of assets






7



Realized gain from sales of investments






(23
)


Write-off of acquired in-process research and development costs










2,947Changes in operating assets and liabilities:Accounts receivable, net


(4,907
)


(7,175
)


(4,182
)Inventory


746



343



(2,764
)Prepaid expenses and other assets


(2,973
)


(80
)


(2,027
)Accounts payable


(1,659
)


(1,425
)


2,849Accrued expenses


529



4,196



1,620Deferred revenue


10,069



3,081



6,912Other liabilities


(275
)


(91
)


417Net cash provided by (used in) operating activities


20,159



(1,140
)


2,928Investing activitiesPurchase of property and equipment


(2,500
)


(6,661
)


(3,131
)Purchase of investments


(87,929
)


(94,477
)


(125,154
)Proceeds from maturities of investments


78,925



104,763



65,932Proceeds from sales of investments






3,230



Cash paid for acquisition of ClamAV, including direct
    acquisition costs of $81










(3,581
)Cash held in escrow related to acquisition of ClamAV










(1,000
)Net cash (used in) provided by investing activities


(11,504
)


6,855



(66,934
)Financing activitiesBorrowings of long-term debt










113Repayments of long-term debt and capital lease obligations


(33
)


(146
)


(1,425
)Proceeds from issuance of common stock, net of
    underwriters discount of $6,495










86,288Proceeds from employee stock-based plans


4,464



1,250



333Repurchase of common stock






(140
)


Excess tax benefits related to share-based payments


217



18



106Payment of equity offering costs










(1,367
)Net cash provided by financing activities


4,648



982



84,048Net increase in cash and cash equivalents


13,303



6,697



20,042Cash and cash equivalents at beginning of period


39,768



33,071



13,029Cash and cash equivalents at end of period

$
53,071


$
39,768


$
33,071Supplemental cash flow informationCash paid for interest

$
16


$
16


$
35Cash paid for income taxes


209



143



106Assets acquired through capital leases






183



    F-6




---



##### 



SOURCEFIRE,
    INC.
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  1.
    Description
    of Business and Basis of Presentation  Organization
    and Description of Business
    ® ®
    Basis
    of Presentation
    2.
    Summary
    of Significant Accounting Policies  Use of
    Estimates
      Cash
    and Cash Equivalents
    Investments
   F-7




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Fair
    Value of Financial Instruments
    Allowance
    for Doubtful Accounts and Sales Return Allowance
      Inventories
  first-in,
 F-8




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      As of December 31,2009


2008Finished goods

$
2,850


$
3,436Evaluation units


733



1,085Advance replacement units


831



Total

$
4,414


$
4,521     Property
    and Equipment
      As of December 31,2009


2008Computer equipment

$
9,201


$
7,973Software


5,483



4,510Furniture, fixtures and office equipment


1,388



1,368Leasehold improvements


2,145



2,04118,217



15,892Less accumulated depreciation and amortization


(10,770
)


(7,551
)Total

$
7,447


$
8,341     Accrued
    Compensation and Related Expenses
    As of December 31,2009


2008Accrued incentive compensation

$
3,975


$
3,430Accrued leave


618



530Other related expenses


481



269Total

$
5,074


$
4,229  F-9




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Revenue
    Recognition
  when-and-if-available
               F-10




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Warranty
    Commissions
    Shipping
    and Handling Costs
    Research
    and Development Costs
    Advertising
    Costs
    Foreign
    Currency Translation
   F-11




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Income
    Taxes
      paid-in-capital
      Intangible
    Assets
     F-12




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock-Based
    Compensation
      Net
    Income (Loss) Attributable to Common Stockholders Per
    Share
    Recent
    Accounting Pronouncements
           F-13




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Reclassifications
    3.
    Investments    Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueMoney market funds

$
17,617


$



$



$
17,617Corporate debt investments


17,715



15



(17
)


17,713Commercial paper


7,543



2







7,545Government-sponsored enterprises


39,218



41



(27
)


39,232Government securities


1,995



8







2,003Certificate of deposit


4,905











4,905Total investments


88,993


$
66


$
(44
)


89,015Amounts classified as cash equivalents*


(18,866
)










(18,866
)Total available-for-sale investments

$
70,127










$
70,149Due in one year or less

$
49,030


$
48


$
(4
)

$
49,074Due after one year through five years


21,097



18



(40
)


21,075$
70,127


$
66


$
(44
)

$
70,149     *
    
    Does not include cash held in our bank accounts F-14




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueMoney market funds

$
26,686


$



$



$
26,686Corporate debt investments


12,137



23



(26
)


12,134Asset-backed securities


801







(4
)


797Commercial paper


18,875



93







18,968Government-sponsored enterprises


26,178



218







26,396Government securities


1,500











1,500Certificate of deposit


2,005











2,005Total investments


88,182


$
334


$
(30
)


88,486Amounts classified as cash equivalents*


(26,686
)










(26,686
)Total available-for-sale investments

$
61,496










$
61,800Due in one year or less

$
59,076


$
295


$
(28
)

$
59,343Due after one year through five years


2,420



39



(2
)


2,457$
61,496


$
334


$
(30
)

$
61,800     *
    
    Does not include cash held in our bank accounts    Less Than 12 Months

12 Months or More

TotalGross



Gross



GrossFair

Unrealized

Fair

Unrealized

Fair

UnrealizedValue

Losses

Value

Losses

Value

LossesCorporate debt investments

$
9,578


$
17


$



$



$
9,578


$
17Government-sponsored enterprises


13,029



27











13,029



27    F-15




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   4.
    Income
    Taxes    Year Ended December 31,2009


2008


2007Current:Federal

$



$



$
State


204



46



63Foreign


118



315



209Deferred:Federal


3,404



(1,627
)


(1,804
)State


(139
)


(256
)


(526
)Foreign


9



(42
)


(29
)Total provision for (benefit from) income taxes before valuation
    allowance


3,596



(1,564
)


(2,087
)Change in valuation allowance


(3,265
)


1,883



2,331Total provision for income taxes

$
331


$
319


$
244     As of December 31,2009


2008Deferred tax assets:Net operating loss carry-forward

$
4,053


$
9,782Accrued expenses


215



168Deferred rent


82



139Deferred revenue


1,869



969Allowance for doubtful accounts


298



126Stock-based compensation


3,181



2,407In-process research and development


982



1,002Property and equipment


303



249Other


1,406



495Total deferred tax assets


12,389



15,337Deferred tax liabilities:Prepaid expenses


(661
)


(337
)Total deferred tax liabilities


(661
)


(337
)Net future income tax benefit


11,728



15,000Valuation allowance for deferred tax assets


(11,665
)


(14,929
)Net deferred tax asset

$
63


$
71    F-16




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        paid-in-capital
      Year Ended December 31,2009


2008


2007Tax benefit at U.S. statutory rate of 34%

$
3,151


$
(1,883
)

$
(1,828
)Effect of permanent differences


66



138



64State income taxes, net of federal benefit


43



(157
)


42Foreign taxes and rate differentials


96



45



20Other


240



293



Effect of change in valuation allowance for deferred tax assets


(3,265
)


1,883



1,946Total

$
331


$
319


$
244     Years Subject toTax Jurisdiction

Income Tax ExaminationU.S. federal


2002  PresentMaryland


2002  PresentUnited Kingdom


2007  Present  F-17




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   5.
    Stock-Based
    Compensation      Valuation
    of Stock-Based Compensation
      Year Ended December 31,2009

2008

2007Stock Options:Average risk-free interest rate


2.6
%


3.2
%


4.6
%Expected dividend yield


0.0
%


0.0
%


0.0
%Expected life (years)


6.25



6.25



6.25Expected volatility


63.5
%


63.7
%


74.8
%Weighted-average fair value per grant

$
9.69


$
4.14


$
8.63Employee stock purchase plan:Average risk-free interest rate


0.2
%


1.8
%


Expected dividend yield


0.0
%


0.0
%


Expected life (years)


0.5



0.38



Expected volatility


67.1
%


62.1
%


Weighted-average fair value per purchase

$
4.71


$
1.71



  F-18




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Average risk-free interest rate
  Expected dividend yield
  Expected life
      Expected volatility
         F-19




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2009


2008


2007Product cost of revenue

$
84


$
39


$
22Services cost of revenue


171



104



69Stock-based compensation expense included in cost of revenue


255



143



91Research and development


995



735



408Sales and marketing


1,921



1,390



1,011General and administrative


3,000



2,218



1,136Stock-based compensation expense included in operating expenses


5,916



4,343



2,555Total stock-based compensation expense

$
6,171


$
4,486


$
2,646   Stock
    Options
    WeightedAverageWeighted-


Remaining


AggregateNumber of


Range of


Average


Contractual


IntrinsicShares


Exercise Prices


Exercise Price


Term


ValueOutstanding at December 31, 2008


3,296,322


$
0.24 to 15.49


$
5.26






$
5,878Granted


475,200



5.58 to 23.31



16.03Exercised


(1,079,232
)


0.24 to 15.49



3.62Forfeited


(150,252
)


2.03 to 19.11



8.82Outstanding at December 31, 2009


2,542,038


$
0.24 to 23.31


$
7.75



7.40


$
48,269Vested and exercisable at December 31, 2009


1,341,464


$
0.24 to 15.49


$
5.02



6.26


$
29,138Vested and expected to vest at December 31, 2009


2,208,045






$
7.36



7.22


$
42,784     Options OutstandingWeighted-


Options ExercisableWeighted-


Average





Weighted-Number of


Average


Contractual


Number of


AverageRange of Exercise Prices

Shares


Exercise Prices


Life (Years)


Shares


Exercise Prices$0.24 to 5.26


676,097


$
1.80



4.71



670,823


$
1.78$5.32 to 6.77


939,556



6.60



8.54



361,995



6.66$7.10 to 13.10


656,119



10.05



7.62



292,106



9.83$15.49 to 23.31


270,266



21.05



9.58



16,540



15.492,542,038


$
7.75



7.40



1,341,464


$
5.02  F-20




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Restricted
    Stock Awards
    Weighted-AverageGrant DateNumber of Shares


Fair ValueUnvested at December 31, 2008


656,361


$
7.77Granted


56,538



9.21Vested


(258,484
)


7.93Forfeited


(19,193
)


7.70Unvested at December 31, 2009


435,222


$
7.85          F-21




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Restricted
    Stock Units
    Weighted-AverageGrant DateNumber of Shares


Fair ValueUnvested at December 31, 2008





$
Granted


633,000



10.82Vested






Forfeited


(28,600
)


8.91Unvested at December 31, 2009


604,400


$
10.91         Employee
    Stock Purchase Plan
    6.
    Shares
    Reserved for Future Issuance    Options to purchase common stock


2,542,038Employee stock purchase plan


836,844Equity-based awards available for grant under the 2007 Plan


1,988,2725,367,154  F-22




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   7.
    Net
    Income (Loss) Attributable to Common Stockholders Per
    Share    Year Ended December 31,2009


2008


2007Numerator:Net income (loss) attributable to common stockholders

$
8,878


$
(6,071
)

$
(6,491
)Denominator:Weighted-average shares of common stock outstanding 
    basic


26,458,273



25,379,791



20,434,792Dilutive effect of employee stock plans


1,528,842







Weighted-average shares of common stock outstanding 
    diluted


27,987,115



25,379,791



20,434,792Net income (loss) attributable to common stockholders per share:Basic

$
0.34


$
(0.24
)

$
(0.32
)Diluted


0.32



(0.24
)


(0.32
)     Year Ended December 31,2009


2008


2007Options to purchase common stock


726,593



3,220,227



3,268,197Restricted stock units


38,146







Total


764,739



3,220,227



3,268,197   8.
    Leases    2010

$
1,4722011


1,1482012


7782013


7762014


811Thereafter


344$
5,329    F-23




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   9.
    Comprehensive
    Income (Loss)    Year Ended December 31,2009


2008


2007Net income (loss)

$
8,878



(6,071
)


(5,621
)Comprehensive income (loss):Change in net unrealized gain (loss) on investments


(282
)


304



Total comprehensive income (loss)

$
8,596


$
(5,767
)

$
(5,621
)   10.
    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.      Assets at


Fair Value Measurement UsingFair Value


Level 1


Level 2


Level 3Money market funds

$
17,617


$
17,617


$



$
Corporate debt investments


17,713







17,713



Commercial paper


7,545







7,545



Government-sponsored enterprises


39,233







39,233



Government securities


2,003



2,003







Certificate of deposit


4,904







4,904



Total

$
89,015


$
19,620


$
69,395


$
  F-24




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   11.
    Business
    and Geographic Segment Information    Year Ended December 31,2009


2008


2007United States

$
79,719


$
57,547


$
41,882All foreign countries


23,746



18,126



13,977Consolidated total

$
103,465


$
75,673


$
55,859     As ofDecember 31,2009


2008United States

$
7,171


$
8,460All foreign countries


276



346Consolidated total

$
7,447


$
8,806   12.
    Defined
    Contribution Retirement Plan    13.
    Commitments
    and Contingencies     F-25




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   14.
    Allowance
    for Doubtful Accounts and Sales Return Allowance    Balance at

Charged to

Write-Offs

BalanceBeginning

Revenue

Net of

at End ofof Year

and Expenses

Recoveries

YearYear ended December 31, 2007

$
166


$
126


$
(132
)

$
160Year ended December 31, 2008


160



379



(1
)


538Year ended December 31, 2009


538



709



(90
)


1,157   15.
    Summarized
    Quarterly Consolidated Financial Information    Three Months EndedDec. 31,

Sep. 30,

Jun. 30,

Mar. 31,

Dec. 31,

Sep. 30,

Jun. 30,

Mar. 31,2009

2009

2009

2009

2008

2008

2008

2008(Unaudited)(In thousands, except share data)Total revenue

$
35,271


$
27,423


$
22,171


$
18,600


$
25,715


$
20,289


$
16,018


$
13,651Gross profit


28,542



21,356



17,096



14,451



19,999



15,359



12,342



10,613Income (loss) from operations


6,665



2,546



450



(1,403
)


2,010



(2,322
)


(3,866
)


(4,638
)Net income (loss)


6,665



2,697



633



(1,117
)


2,268



(1,719
)


(3,124
)


(3,496
)Net income (loss) per share  basic

$
0.25


$
0.10


$
0.02


$
(0.04
)

$
0.09


$
(0.07
)

$
(0.12
)

$
(0.14
)Net income (loss) per share  diluted

$
0.23


$
0.09


$
0.02


$
(0.04
)

$
0.08


$
(0.07
)

$
(0.12
)

$
(0.14
)  F-26




---



##### 



Exhibit Index
  Incorporation by ReferenceExhibit





File





Filed withNumber

Exhibit Description

Form

Number

Exhibit

File Date

this 10-K3
.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 Sourcefire, Inc. and Continental Stock
    Transfer & Trust Co., as rights agent

8-A

1-33350


4
.1

10/30/200810
.1

Fourth Amended and Restated Investor Rights Agreement

S-1

333-138199


10
.1

10/25/200610
.2

2002 Stock Incentive Plan

S-1

333-138199


4
.2

10/25/200610
.3

2007 Stock Incentive Plan

S-1/A

333-138199


4
.3

3/1/200710
.4

Form of Nonstatutory Stock Option Grant Agreement under the 2002
    Stock Incentive Plan

S-1/A

333-138199


4
.4

10/25/200610
.5

Form of Notice and Stock Option Award Agreement under the 2007
    Stock Incentive Plan

S-1/A

333-138199


4
.5

3/1/200710
.6

Form of Notice and Restricted Stock Purchase Award Agreement
    under the 2007 Stock Incentive Plan

S-1/A

333-138199


4
.6

3/1/200710
.7

Form of Notice and Restricted Stock Purchase Award Agreement for
    Non-Employee Directors under the 2007 Stock Incentive Plan

S-1/A

333-138199


4
.7

3/1/200710
.8

Form of Notice and Restricted Stock Unit Award Agreement under
    the 2007 Stock Incentive Plan

10-K

1-33350


10
.8

3/16/200910
.9

Amended and Restated 2007 Employee Stock Purchase Plan

10-Q

1-33350


10
.1

11/5/200910
.10

Executive Annual Incentive Plan

10-Q

1-33350


10
.2

5/5/200810
.11

Executive Retention Plan

10-Q

1-33350


10
.3

5/5/200810
.12

Amendment No. 1 to Executive Retention Plan











X10
.13

Executive Change in Control Severance Plan

10-Q

1-33350


10
.4

5/5/200810
.14

Employment Agreement with John C. Burris

10-Q

1-33350


10
.1

8/5/200810
.15

Participation Agreement with Thomas M. McDonough under the
    Executive Retention Plan

10-Q

1-33350


10
.1

11/10/200810
.16

Participation Agreement with Thomas M. McDonough under Executive
    Change in Control Severance Plan

10-Q

1-33350


10
.2

11/10/200810
.17

Employment Agreement with Douglas W. McNitt

10-Q

1-33350


10
.1

11/7/200710
.18

Form of Indemnification Agreement with Officers and Directors

S-1/A

333-138199


10
.18

3/1/200710
.19

Non-Employee Director Compensation Policy

10-Q

1-33350


10
.2

8/5/200810
.20*

Manufacturing Services and Supply Agreement by and between
    Patriot Technologies, Inc. and Sourcefire, Inc., dated
    December 12, 2005, as amended on August 4, 2006

S-1/A

333-138199


10
.12

2/23/2007




---



##### 



Incorporation by ReferenceExhibit





File





Filed withNumber

Exhibit Description

Form

Number

Exhibit

File Date

this 10-K10
.21

Addendum No. 2 to Manufacturing Services and Supply
    Agreement by and between Patriot Technologies, Inc. and
    Sourcefire, Inc., dated December 7, 2009











X10
.22

Manufacturing and Supply Agreement by and between Sourcefire,
    Inc. and Premio, Inc. dated March 10, 2010.











X10
.23

Original Equipment Manufacturer Agreement entered into as of
    November 25, 2008 between Netronome Systems Inc. and
    Sourcefire, Inc.

10-Q

1-33350


10
.4

11/5/200910
.24*

License Agreement for Commercial Use of MySQL Software by and
    between MySQL Inc. and Sourcefire, Inc., dated June 13,
    2005, as amended on December 29, 2006

S-1/A

333-138199


10
.15

3/6/200710
.25**

Amendment No. 2 to License Agreement for Commercial Use of
    MySQL Software by and between MySQL Americas, Inc. and
    Sourcefire, Inc.

10-Q

1-33350


10
.2

11/5/200910
.26**

Amendment No. 3 to License Agreement for Commercial Use of
    MySQL Software by and between MySQL Americas, Inc. and
    Sourcefire, Inc.

10-Q

1-33350


10
.3

11/5/200921
.1

List of Subsidiaries











X23
.1

Consent of Ernst & Young LLP











X24
.1

Power of Attorney (included on the signature page hereof)











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     *
    
    Confidential treatment has been granted with respect to portions
    of this exhibit, indicated by asterisks, which have been filed
    separately with the Securities and Exchange Commission.**
    
    Portions of this exhibit, indicated by asterisks, have been
    omitted pursuant to a request for confidential treatment and
    have been filed separately with the Securities and Exchange
    Commission.