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, 2010o

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 Select 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. þ
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o

Smaller reporting
    company o(Do not check if a smaller reporting company)   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


12Item 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


46Item 8.

Financial Statements and Supplementary Data


46Item 9.

Changes In and Disagreements With Accountants and
    Financial Disclosure


47Item 9A.

Controls and Procedures


47Item 9B.

Other Information


50PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


50Item 11.

Executive Compensation


50Item 12.

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


50Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


50Item 14.

Principal Accountant Fees and Services


50PART IVItem 15.

Exhibits and Financial Statement Schedules


50Signatures




51   2




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##### 



Form 10-K
  FORWARD-LOOKING
    STATEMENTS
    
    expected growth in the markets for cybersecurity products;
    our plans to continue to invest in and develop innovative
    technology and products for our existing markets and other
    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 additional relationships
    with resellers, distributors, managed security service
    providers, government integrators and other partners;
    our plans to grow international sales;
    our ability to successfully integrate Immunet Corporation, which
    we acquired in December 2010;
    our plans to acquire and integrate new businesses and
    technologies;
    our plans to hire more 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 tm ® tm
 3




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##### 



PART I  Item 1.
    BUSINESS  Overview
    ® ® tm
    
    seed the market with high-quality, low-cost 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 our
    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
    Greater Sophistication, Severity and Frequency of
    Attacks.
 4




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Diverse Demands on Security
    Administrators. start-up
  Heightened Government and Industry
    Regulation.
  Our
    Products
    Our
    Network Protection Products
  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
    NGIPS®(Next Generation Intrusion Prevention System)  Sourcefires NGIPS adds additional network
    intelligence to our standard IPS protection. At the heart of our
    NGIPS is real-time persistent visibility into the composition,
    behavior, topology (the relationship of network components), and
    risk profile of the network, as well as the correlation of
    security and network events with specific users. Network
    intelligence feeds the Sourcefire Defense Center automated
    decision-making and network policy enforcement to resolve
    security and compliance events more quickly and easily. The
    ability to continuously discover characteristics and
    vulnerabilities of practically any computing device
    communicating on a network enables Sourcefire NGIPS to more
    precisely identify and block threatening traffic and to more
    efficiently classify threatening
    and/or
    suspicious behavior. In addition, Sourcefire NGIPS can aggregate
    NetFlow data from Cisco routers and switches, extending the
    reach of Sourcefires network behavior analysis.
    Sourcefire NGFW (Next Generation Firewall) Announced in October 2010 and targeted for release in the
    fourth quarter of 2011, Sourcefires NGFW will add
    application control and traditional firewall functionality to
    our NGIPS capabilities. 5




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Sourcefire SSL Appliance
  Sourcefire Defense
    Center ® 
  Immunet
    Acquisition  Endpoint Protection
    Products
    Immunet TM tm
  Immunet Protect
  Our
    Open Source Projects
  Snort
  ClamAV
  Razorback
 6




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Our
    Services
    Sourcefire Customer Support over-the-phone
  Sourcefire Professional Services
  Sourcefire Education &
    Certification
  Our
    Competitive Strengths
    Advanced Protection.
  Comprehensive Network and User
    Intelligence.
  Real-Time Approach to Security.
  Leading-Edge Performance.
  The Open Source Community.
 7




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##### 



Security Industry Intelligence. http://vrt-sourcefire.blogspot.com/.
  Our
    Growth Strategy
    
    Expanding the breadth of, and our leadership in, security
    solutions.  Sourcefire is expanding our product
    and service portfolio by creating purpose-built solutions to
    address specific market and user problems. In 2010 we announced
    our entry into two adjacent markets  next generation
    firewalls and endpoint anti-malware protection. This is expected
    to increase our addressable market from approximately
    $1.5 billion to more than $10 billion over the next
    4 years. Over time we expect to penetrate these and
    additional 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.
    Growing our international
    presence.  International expansion is a key
    initiative and we continue to increase our international head
    count to support our expansion into new territories, to manage
    our growing network of channel partners and to meet the growing
    demand for our solutions.
    Expanding relationships with partners, resellers,
    distributors, MSSPs and government
    integrators.  We intend to expand our indirect
    sales channel, both internationally and domestically, to create
    a more leveraged sales model. We have established our Global
    Security Alliance Channel program to strengthen channel reseller
    relationships and support them through meaningful programs,
    including higher margin participation, training, and marketing
    activities. We are making investments in our partners and our
    objective is to continue to increase the percentage of
    channel-influenced revenue.
    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,
    endpoint, and cloud-based security. We will continue to invest
    significantly in internal development and product enhancements
    and to recruit, train, develop and retain experienced security
    professionals to broaden our proprietary knowledge base.  Awards
    and Certifications
    
    Gartner Magic Quadrant.  Sourcefire was
    recognized by Gartner, Inc. as being a Leader in the
    December 2010 Magic Quadrant for Network Intrusion Prevention
    System Appliances report.
    Best IDS/IPS Productby SC Magazine,
    February 2011.  Sourcefire was honored with the
    Reader Trust Award for
    best-in-class
    intrusion detection and prevention.
    Best Secure Virtualization Solutionby SC
    Magazine Europe, April 2010.  Snort was honored
    with the Reader Trust Award for
    best-in-class
    intrusion detection and prevention. 8




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
    Top Recommendrating and best overall
    detection in Network Intrusion Prevention System Comparative
    Test Report, NSS Labs Inc. December 2010.
    Immunet achieved 100% detectionin Malware Research Group
    PUA Analysis & Infection Prevention Report, January
    2011. Immunet was the only anti-malware product to achieve a
    perfect test result.
    Five-Star Ratingby Everything Channel
    Partner Program Guide, April 2010.  The sole
    winner in the security category, the Sourcefire Channel Program
    was recognized for its Global Security Alliance Program.
    Common Criteria Certificationby the National
    Information Assurance Partnership, November
    2010.  Sourcefires full IPS product line was
    evaluated and certified using the Common Methodology for
    IT Security Evaluation for conformance to the Common
    Criteria.
    Network IPS testing 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.
    Innovators Hall of Fame, by SC Magazine,
    December 2010.  Customers
      Sales and
    Marketing
    Sales.
  follow-up
   9




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Marketing.
  Research
    and Development
    Research & Development Team.
  Cloud Technology Group.
  Vulnerability Research Team.
      Manufacturing
    and Suppliers
  just-in-time
  Intellectual
    Property
   10




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Seasonality
    Competition
    Network Security.
  
    large companies, including Cisco Systems, Inc., IBM Corporation,
    HP Corporation, Check Point Software Technologies, Ltd. and
    Intel Corporation as a result of its acquisition of McAfee,
    Inc., that sell competitive products and offerings;
    software or hardware network infrastructure companies 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.  Next Generation Firewall.
  Anti-malware and Endpoint Protection.
       11




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##### 



Employees
    Corporate
    Information
  (410) 290-1616.
  Available
    Information
  Form 10-K, Form 10-Q, Form 8-K
  Item 1A.
    RISK
    FACTORS  Form 10-K Form 10-K.
  Risks
    Relating to Our Business, Operations and Industry
  Adverse
    economic, market and political conditions may negatively affect
    our revenue and results of operations.
    
    general economic and business conditions;
    the overall demand for network security products and services
    and other security products and services; and
    constraints on budgets and changes in spending priorities of
    corporations and government agencies.   12




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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. Reduced spending levels by
    U.S. Government Agencies have had a negative effect on our
    revenue and results of operations and may continue to have a
    negative effect in the future.
    
    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 the failure to
    pass a budget, continuing resolutions or other temporary funding
    arrangements, could adversely impact public sector demand for
    our products. As of the date of this Annual Report, the
    U.S. federal government has not adopted a budget for its
    fiscal year ending September 30, 2011 and is operating
    under a continuing budget resolution, which has resulted in
    reduced spending levels by U.S. government agencies. These
    reduced spending levels negatively affected our revenue and
    results of operations in the fourth quarter of 2010, are
    expected to negatively affect our revenue and results of
    operations in the first quarter of 2011 and may negatively
    affect our revenue and results of operations in the future;
    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;
    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;
    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
    face intense competition in our markets, 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,
    anti-malware and endpoint protection products, or next
    generation firewall products;
    established companies that develop their own network intrusion
    detection and prevention products, anti-malware and endpoint
    protection products, or next generation firewall products;
    established companies that 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.  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; 14




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
    reductions or delays in funding for projects by
    U.S. federal and state government agencies, for example the
    reductions and delays in spending that have resulted, and may
    continue to result, from the failure of the U.S. federal
    government to adopt a budget for its fiscal year ending
    September 30, 2011,
    the timing, size and contract terms of orders received, which
    have historically been highest in the third and fourth quarters,
    but may fluctuate seasonally in different ways;
    the effect of one or more large orders on our operating results
    for a particular quarter and the effect of such large order or
    orders on comparisons of operating results for subsequent
    quarters;
    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.      We
    achieved profitability on an annual basis for the first time in
    2009, which we may not be able to maintain.
   15




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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.    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.
   16




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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.    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.
   17




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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.
    We
    have acquired, and in the future 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.
   18




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
    the Immunet acquisition is expected to be dilutive to our
    earnings per share for the year ending December 31, 2011
    and any acquisitions we complete in the future may also be
    dilutive to our earnings;
    in connection with our acquisition of Immunet Corporation, we
    expect to recognize expenses for the amortization of intangible
    assets, employee retention payments and stock-based compensation
    expense and other 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;
    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;
    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,
    Razorback 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 as a result of our introduction of new
    products, 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, 2009:First Quarter

$
7.94


$
5.12Second Quarter

$
13.53


$
7.13Third Quarter

$
22.74


$
11.18Fourth Quarter

$
27.80


$
18.38Year ended December 31, 2010:First Quarter

$
28.00


$
20.51Second Quarter

$
26.68


$
17.28Third Quarter

$
30.80


$
16.80Fourth Quarter

$
32.79


$
21.48     Dividend
    Policy
   26




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##### 



Stock
    Performance Graph
    COMPARISON
    OF 45 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 2010
        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


Programs10/1/10-10/31/10


937
(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 31,2010


2009


2008


2007


2006(In thousands, except share and per share data)Consolidated statement of operations data:Revenue:Products

$
78,436


$
62,585


$
45,245


$
34,332


$
30,219Services


52,136



40,880



30,428



21,527



14,707Total revenue


130,572



103,465



75,673



55,859



44,926Cost of revenue:Products


20,000



15,641



12,408



9,523



8,440Services


6,828



6,379



4,952



3,360



2,632Total cost of revenue


26,828



22,020



17,360



12,883



11,072Gross profit


103,744



81,445



58,313



42,976



33,854Operating expenses:Research and development


18,789



16,256



12,620



11,902



8,612Sales and marketing


48,735



36,498



33,169



25,860



20,652General and administrative


18,814



16,761



18,713



10,599



5,017Depreciation and amortization


3,375



3,647



2,627



1,649



1,230In-process research and development














2,947



Total operating expenses


89,713



73,162



67,129



52,957



35,511Income (loss) from operations


14,031



8,283



(8,816
)


(9,981
)


(1,657
)Other income, net


125



926



3,064



4,604



792Income (loss) before income taxes


14,156



9,209



(5,752
)


(5,377
)


(865
)(Benefit from) provision for income taxes


(5,821
)


331



319



244



67Net income (loss)


19,977



8,878



(6,071
)


(5,621
)


(932
)Accretion of preferred stock














(870
)


(3,819
)Net income (loss) attributable to common stockholders

$
19,977


$
8,878


$
(6,071
)

$
(6,491
)

$
(4,751
)Net income (loss) attributable to common stockholders per common
    share:Basic

$
0.72


$
0.34


$
(0.24
)

$
(0.32
)

$
(1.40
)Diluted


0.69



0.32



(0.24
)


(0.32
)


(1.40
)Shares used in per common share calculations:Basic


27,670,356



26,458,273



25,379,791



20,434,792



3,389,527Diluted


28,896,246



27,987,115



25,379,791



20,434,792



3,389,527  29




---



##### 



Consolidated
    Balance Sheet Data
  As of December 31,2010

2009

2008

2007

2006(In thousands)Cash and cash equivalents

$
54,410


$
53,071


$
39,768


$
33,071


$
13,029Investments


99,309



70,149



61,800



73,956



13,293Working capital


122,760



103,055



99,017



101,302



25,852Total assets


241,074



174,167



146,305



141,678



49,952Deferred revenue


46,422



34,177



24,108



21,027



14,115Long-term debt


















1,312Total liabilities


74,990



45,678



37,264



32,484



22,104Total convertible preferred stock


















66,747Total stockholders equity (deficit)


166,084



128,489



109,041



109,194



(38,899
)   Item 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Introduction
  Form 10-K
  
    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 years ended
    December 31, 2010, 2009 and 2008.
    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 years ended
    December 31, 2010, 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
   30




---



##### 



® ® tm
  Recent
    Developments  Immunet Acquisition
      Key
    Financial Metrics and Trends
        Revenue
   31




---



##### 



on-site
    U.S.-based
      Cost of
    Revenue
     32




---



##### 



Gross
    Profit
    Operating
    Expenses
  Research and Development.
    Sales and Marketing.
    General and Administrative.
  Stock-Based Compensation.
   33




---



##### 



Results
    of Operations
  Revenue.
  Year Ended





Year EndedDecember 31,


Variance


December 31,


Variance2010


2009


$


%


2009


2008


$


%Products

$
78,436


$
62,585


$
15,851



25
%

$
62,585


$
45,245


$
17,340



38
%Percentage of total revenue


60
%


60
%










60
%


60
%Technical support and professional services


52,136



40,880



11,256



28
%


40,880



30,428



10,452



34
%Percentage of total revenue


40
%


40
%










40
%


40
%Total revenue

$
130,572


$
103,465


$
27,107



26
%

$
103,465


$
75,673


$
27,792



37
%       Cost of revenue.
  Year Ended





Year EndedDecember 31,


Variance


December 31,


Variance2010


2009


$


%


2009


2008


$


%Products

$
20,000


$
15,641


$
4,359



28
%

$
15,641


$
12,408


$
3,233



26
%Percentage of total revenue


15
%


15
%










15
%


16
%Technical support and professional services


6,828



6,379



449



7
%


6,379



4,952



1,427



29
%Percentage of total revenue


5
%


6
%










6
%


7
%Total cost of revenue

$
26,828


$
22,020


$
4,808



22
%

$
22,020


$
17,360


$
4,660



27
%Percentage of total revenue


21
%


21
%










21
%


23
%    34




---



##### 



Gross profit.
  Year Ended





Year EndedDecember 31,


Variance


December 31,


Variance2010


2009


$


%


2009


2008


$


%Products

$
58,436


$
46,944


$
11,492



24
%

$
46,944


$
32,837


$
14,107



43
%Product gross margin


75
%


75
%










75
%


73
%Technical support and professional services


45,308



34,501



10,807



31
%


34,501



25,476



9,025



35
%Technical support and professional services gross margin


87
%


84
%










84
%


84
%Total gross profit

$
103,744


$
81,445


$
22,299



27
%

$
81,445


$
58,313


$
23,132



40
%Total gross margin


79
%


79
%










79
%


77
%      35




---



##### 



Operating expenses.
  Year Ended





Year EndedDecember 31,


Variance


December 31,


Variance2010


2009


$


%


2009


2008


$


%Research and development

$
18,789


$
16,256


$
2,533



16
%

$
16,256


$
12,620


$
3,636



29
%Percentage of total revenue


14
%


16
%










16
%


17
%Sales and marketing


48,735



36,498



12,237



34
%


36,498



33,169



3,329



10
%Percentage of total revenue


37
%


35
%










35
%


44
%General and administrative


18,814



16,761



2,053



12
%


16,761



18,713



(1,952
)


(10
)%Percentage of total revenue


14
%


16
%










16
%


25
%Depreciation and amortization


3,375



3,647



(272
)


(7
)%


3,647



2,627



1,020



39
%Percentage of total revenue


3
%


4
%










4
%


3
%Total operating expenses

$
89,713


$
73,162


$
16,551



23
%

$
73,162


$
67,129


$
6,033



9
%Percentage of total revenue


69
%


71
%










71
%


89
%              36




---



##### 



Other income, net.
  Year Ended





Year EndedDecember 31,


Variance


December 31,


Variance2010


2009


$


%


2009


2008


$


%Other income, net

$
125


$
926


$
(801
)


(87
)%

$
926


$
3,064


$
(2,138
)


(70
)%Percentage of total revenue


0
%


1
%










1
%


4
%     (Benefit from) provision for income taxes.
  Year Ended





Year EndedDecember 31,


Variance


December 31,


Variance2010


2009


$


%


2009


2008


$


%(Benefit from) provision for income taxes

$
(5,821
)


331


$
(6,152
)


NM


$
331



319


$
12



4
%Percentage of total revenue


(4
)%


0
%










0
%


0
%          37




---



##### 



quarter-to-quarter,
  Seasonality
    Quarterly
    Timing
    Non-GAAP Financial
    Measures
  Adjusted Net Income, Adjusted Net Income per Share, Adjusted
    Income from Operations and Adjusted Income from Operations as a
    Percentage of Revenue:
 38




---



##### 



Free Cash Flow:
      Year Ended December 31,2010


2009


2008Reconciliation to adjusted income from operations:GAAP income from operations

$
14,031


$
8,283


$
(8,816
)Stock-based compensation expense


9,349



6,171



4,037Stock-based compensation expense related to CEO transition










449CEO transition costs










742Acquisition-related costs


235







Adjusted income (loss) from operations

$
23,615


$
14,454


$
(3,588
)Adjusted income (loss) from operations as a % of revenue


18.1
%


14.0
%


(4.7
)%Reconciliation to adjusted net income (loss):GAAP Net income (loss)

$
19,977


$
8,878


$
(6,071
)Stock-based compensation expense


9,349



6,171



4,037Stock-based compensation expense related to CEO transition










449CEO transition costs










742Acquisition-related costs


235







Release of the valuation allowance


(7,613
)






Income tax adjustment*


(6,516
)


(5,052
)


502Adjusted net income (loss)

$
15,432


$
9,997


$
(341
)Adjusted net income (loss) per share  basic

$
0.56


$
0.38


$
(0.03
)Adjusted net income (loss) per share  diluted


0.53



0.36



(0.03
)Weighted average number of shares  basic


27,670,356



26,458,273



25,379,791Weighted average number of shares  diluted


28,896,246



27,987,115



25,379,791Reconciliation to free cash flow:GAAP net cash provided by (used in) operating activities

$
36,425


$
20,159


$
(1,140
)Purchase of property and equipment


(5,403
)


(2,500
)


(6,661
)Free cash flow

$
31,022


$
17,659


$
(7,801
)     *
    
    Income tax adjustment is used to adjust the GAAP provision for
    income taxes to a non-GAAP provision for income taxes utilizing
    an assumed tax rate of 35%. 39




---



##### 



Liquidity
    and Capital Resources
  Cash
    Flows
    Year Ended December 31,2010


2009


2008Cash and cash equivalents:Provided by (used in) operating activities

$
36,425


$
20,159


$
(1,140
)(Used in) provided by investing activities


(43,353
)


(11,504
)


6,855Provided by financing activities


8,267



4,648



982Increase


1,339



13,303



6,697Net cash at beginning of period


53,071



39,768



33,071Net cash at end of period


54,410



53,071



39,768Investments


99,309



70,149



61,800Total cash, cash equivalents and investments

$
153,719


$
123,220


$
101,568   Operating Activities.
  Investing Activities.
  Financing Activities.
  Liquidity
    Requirements
   40




---



##### 



Contractual
    Obligations
    Payments Due by PeriodLess thanTotal


One Year


1-3 Years


3-5 YearsCapital lease obligations

$
52


$
24


$
28


$
Operating lease obligations


5,140



1,628



2,251



1,261Purchase
    commitments(1)


13,640



13,640







Due to Immunet
    shareholders(2)


9,109



9,109







     (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, 2010, we had total purchase commitments for
    inventory of approximately $13.6 million.(2)
    
    Due to Immunet shareholders does not include $4 million of
    the acquisition price payable within the next 24 months to
    Immunet common shareholders upon achievement of product delivery
    milestones related to the enterprise version of Immunets
    product as this amount is not contractually certain to be paid
    at this time.  Critical
    Accounting Policies and Estimates
      Revenue Recognition.
 41




---



##### 



when-and-if-available
              Accounting for Stock-Based
    Compensation.
   42




---



##### 



Average risk-free interest rate 
  Expected dividend yield 
  Expected life 
    Expected volatility 
           43




---



##### 



quarter-to-quarter,
  Accounting for Income Taxes.
      paid-in-capital
        Allowance for Doubtful Accounts and Sales Return
    Allowance.
   44




---



##### 



Inventories. first-in,
  Investments. available-for-sale. Available-for-sale available-for-sale
  other-than-temporary other-than-temporary other-than-temporary other-than-temporary
  Intangible Assets.
  Recent
    Accounting Pronouncements
   45




---



##### 



Off-Balance
    Sheet Arrangements
    Item 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Foreign
    Currency Risk
    Interest
    Rate Sensitivity
    Credit
    Market Risk
  other-than-temporary
  Item 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA   46




---



##### 



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)
    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)
   47




---



##### 



48




---



##### 



Report of
    Independent Registered Public Accounting Firm on
    Internal Control Over Financial Reporting
                
    49




---



##### 



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
 50




---



##### 



SIGNATURES    SOURCEFIRE, INC.
  
     Form 10-K
  Signature

Title

Date/s/  John
    C. BurrisJohn
    C. Burris

Chief Executive Officer and Director (principal executive
    officer)

March 11, 2011/s/  Todd
    P. HeadleyTodd
    P. Headley

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

March 11, 2011/s/  Martin
    F. RoeschMartin
    F. Roesch

Chief Technology Officer and Director

March 11, 2011/s/  John
    C. BeckerJohn
    C. Becker

Director

March 11, 2011/s/  Michael
    CristinzianoMichael
    Cristinziano

Director

March 11, 2011/s/  Tim
    A. GuleriTim
    A. Guleri

Director

March 11, 2011/s/  Steven
    R. PolkSteven
    R. Polk

Director

March 11, 2011/s/  Arnold
    L. PunaroArnold
    L. Punaro

Director

March 11, 2011  51




---



##### 



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


F-2Consolidated Balance Sheets at December 31,
    2010 and 2009


F-3Consolidated Statements of Operations for the
    years ended December 31, 2010, 2009 and 2008


F-4Consolidated Statements of Stockholders
    Equity and Comprehensive Income (Loss) for the years ended
    December 31, 2010, 2009 and 2008


F-5Consolidated Statements of Cash Flows for the
    years ended December 31, 2010, 2009 and 2008


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 31,2010


2009(In thousands, except par value and share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
54,410


$
53,071Short-term investments


85,062



49,074Accounts receivable, net of allowances of $1,091 as of
    December 31, 2010 and $1,157 as of December 31, 2009


37,250



32,771Inventory


5,235



4,414Deferred tax assets


4,161



63Prepaid expenses and other current assets


3,793



4,365Total current assets


189,911



143,758Property and equipment, net


9,235



7,447Goodwill


15,135



Intangible assets, net


6,830



Investments


14,247



21,075Deferred tax assets, non-current


3,556



Other assets


2,160



1,887Total assets

$
241,074


$
174,167LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
3,893


$
2,846Accrued compensation and related expenses


6,209



5,074Other accrued expenses


4,823



3,025Current portion of deferred revenue


38,708



29,294Other current liabilities


13,518



464Total current liabilities


67,151



40,703Deferred revenue, less current portion


7,714



4,883Other long-term liabilities


125



92Total liabilities

$
74,990


$
45,678Commitments 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; 28,136,058 and 27,117,051 shares issued and
    outstanding as of December 31, 2010 and December 31,
    2009, respectively


27



26Additional paid-in capital


187,789



170,157Accumulated deficit


(21,739
)


(41,716
)Accumulated other comprehensive income


7



22Total stockholders equity


166,084



128,489Total liabilities and stockholders equity

$
241,074


$
174,167    F-3




---



##### 



SOURCEFIRE,
    INC.
  CONSOLIDATED STATEMENTS OF
    OPERATIONS
  Year Ended December 31,2010


2009


2008(In thousands, except share and per share amounts)Revenue:Products

$
78,436


$
62,585


$
45,245Technical support and professional services


52,136



40,880



30,428Total revenue


130,572



103,465



75,673Cost of revenue:Products


20,000



15,641



12,408Technical support and professional services


6,828



6,379



4,952Total cost of revenue


26,828



22,020



17,360Gross profit


103,744



81,445



58,313Operating expenses:Research and development


18,789



16,256



12,620Sales and marketing


48,735



36,498



33,169General and administrative


18,814



16,761



18,713Depreciation and amortization


3,375



3,647



2,627Total operating expenses


89,713



73,162



67,129Income (loss) from operations


14,031



8,283



(8,816
)Other income, net:Interest and investment income


415



1,033



3,139Interest expense


(17
)


(16
)


(51
)Other expense, net


(273
)


(91
)


(24
)Total other income, net


125



926



3,064Income (loss) before income taxes


14,156



9,209



(5,752
)(Benefit from) provision for income taxes


(5,821
)


331



319Net income (loss)

$
19,977


$
8,878


$
(6,071
)Net income (loss) per share:Basic

$
0.72


$
0.34


$
(0.24
)Diluted

$
0.69


$
0.32


$
(0.24
)Weighted average shares outstanding used in computing per share
    amounts:Basic


27,670,356



26,458,273



25,379,791Diluted


28,896,246



27,987,115



25,379,791    F-4




---



##### 



SOURCEFIRE,
    INC.
  CONSOLIDATED STATEMENT OF STOCKHOLDERS
    EQUITY AND COMPREHENSIVE INCOME (LOSS)
  AccumulatedAdditional





OtherCommon Stock


Paid-in


Accumulated


ComprehensiveShares


Amount


Capital


Deficit


Income


Total(In thousands, except share amounts)Balance at January 1, 2008


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







8,878Change in unrealized gain on investments


















(282
)


(282
)Total comprehensive income






















8,596Balance at December 31, 2009


27,117,051


$
26


$
170,157


$
(41,716
)

$
22


$
128,489Exercise of common stock options


768,619



1



4,139











4,140Issuance of common stock under employee stock purchase plan


75,103







1,237











1,237Issuance of restricted common stock


182,781



















Cancellation of restricted common stock


(7,496
)


















Stock-based compensation expense










9,349











9,349Excess tax benefit relating to share-based payments










2,907











2,907Comprehensive income:Net income for 2010














19,977







19,977Change in unrealized gain on investments


















(15
)


(15
)Total comprehensive income






















19,962Balance at December 31, 2010


28,136,058


$
27


$
187,789


$
(21,739
)

$
7


$
166,084    F-5




---



##### 



SOURCEFIRE,
    INC.
  CONSOLIDATED STATEMENTS OF CASH
    FLOWS
  Year Ended December 31,2010


2009


2008(In thousands)Operating activitiesNet income (loss)

$
19,977


$
8,878


$
(6,071
)Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Depreciation and amortization


3,577



3,423



2,663Non-cash stock-based compensation


9,349



6,171



4,486Excess tax benefits related to share-based payments


(2,907
)


(217
)


(18
)Amortization of premium (discount) on investments


1,151



374



(1,033
)Loss on disposal of assets


37







7Realized gain from sales of investments










(23
)Deferred taxes


(9,291
)


63



Changes in operating assets and liabilities:Accounts receivable, net


(4,330
)


(4,907
)


(7,175
)Inventory


(767
)


746



343Prepaid expenses and other assets


337



(3,036
)


(80
)Accounts payable


898



(1,659
)


(1,425
)Accrued expenses


5,754



529



4,196Deferred revenue


12,245



10,069



3,081Other liabilities


395



(275
)


(91
)Net cash provided by (used in) operating activities


36,425



20,159



(1,140
)Investing activitiesPurchase of property and equipment


(5,403
)


(2,500
)


(6,661
)Acquisition, net of cash acquired


(7,633
)






Purchase of investments


(129,462
)


(87,929
)


(94,477
)Proceeds from maturities of investments


99,145



78,925



104,763Proceeds from sales of investments










3,230Net cash (used in) provided by investing activities


(43,353
)


(11,504
)


6,855Financing activitiesRepayments of capital lease obligations


(17
)


(33
)


(146
)Proceeds from employee stock-based plans


5,377



4,464



1,250Repurchase of common stock










(140
)Excess tax benefits related to share-based payments


2,907



217



18Net cash provided by financing activities


8,267



4,648



982Net increase in cash and cash equivalents


1,339



13,303



6,697Cash and cash equivalents at beginning of period


53,071



39,768



33,071Cash and cash equivalents at end of period

$
54,410


$
53,071


$
39,768Supplemental cash flow informationCash paid for interest

$
15


$
16


$
16Cash paid for income taxes


82



209



143Assets acquired through capital leases


54







183    F-6




---



##### 



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




---



##### 



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




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    As of December 31,2010


2009Finished goods

$
3,151


$
2,850Evaluation units


828



733Advance replacement units


1,256



831Total

$
5,235


$
4,414     Property
    and Equipment
    Computer equipment and software

3 yearsLab equipment

3 to 5 yearsFurniture, fixtures and office equipment

3 to 7 yearsEnterprise resource planning system

5 yearsLeasehold improvements

Shorter of lease term or useful life     As of December 31,2010


2009Computer equipment

$
7,724


$
6,292Lab equipment


5,154



2,909Software


5,735



5,483Furniture, fixtures and office equipment


1,893



1,388Leasehold improvements


2,929



2,14523,435



18,217Less accumulated depreciation and amortization


(14,200
)


(10,770
)Total

$
9,235


$
7,447     Business
    Combinations
   F-9




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Goodwill
    and Intangible Assets
      Accrued
    Compensation and Related Expenses
    As of December 31,2010


2009Accrued incentive compensation

$
4,850


$
3,975Accrued leave


790



618Other related expenses


569



481Total

$
6,209


$
5,074   Other
    Current Liabilities
    As of December 31,2010


2009Deferred rent

$
774


$
215Due to Immunet Corporation shareholders


9,109



Acquisition-related contingent consideration


3,546



Other current liabilities


89



249Total

$
13,518


$
464   Revenue
    Recognition
   F-10




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  when-and-if-available
                 F-11




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Warranty
    Commissions
    Shipping
    and Handling Costs
    Research
    and Development Costs
    Advertising
    Costs
    Foreign
    Currency Translation
   F-12




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Income
    Taxes
      paid-in-capital
      Stock-Based
    Compensation
      Net
    Income (Loss) Per Share
   F-13




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Recent
    Accounting Pronouncements
      Reclassifications
    3.
    Acquisition  end-point
   F-14




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             F-15




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  4.
    Investments  available-for-sale
  Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueMoney market funds

$
12,385


$



$



$
12,385Corporate debt investments


47,178



38



(23
)


47,193Commercial paper


18,241



2







18,243Government-sponsored enterprise securities


33,032



4



(11
)


33,025Government securities


8,024



5



(3
)


8,026Total investments


118,860


$
49


$
(37
)


118,872Amounts classified as cash equivalents*


(19,567
)










(19,563
)Total
    available-for-sale
    investments

$
99,293










$
99,309Due in one year or less

$
85,048


$
44


$
(30
)

$
85,062Due after one year through five years


14,245



5



(3
)


14,247$
99,293


$
49


$
(33
)

$
99,309     *
    
    Does not include cash held in our bank accounts  available-for-sale
  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 enterprise securities


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  other-than-temporarily
 F-16




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Less Than 12 Months


12 Months or More


TotalGross





Gross





GrossFair


Unrealized


Fair


Unrealized


Fair


UnrealizedValue


Losses


Value


Losses


Value


LossesCorporate debt investments

$
28,136


$
23


$



$



$
28,136


$
23Government-sponsored enterprise securities


22,709



11











22,709



11Government securities


3,524



3











3,524



3$
54,369


$
37


$



$



$
54,369


$
37   available-for-sale other-than-temporary
  5.
    Goodwill
    and Intangible Assets        As of December 31, 2010AccumulatedUseful Life


Gross


Amortization


NetAcquired technology


5 years


$
5,039


$



$
5,039In-process research and development


Indefinite



1,791







1,791Total intangible assets





$
6,830


$



$
6,830    F-17




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  6.
    Income
    Taxes    Year Ended December 31,2010


2009


2008Current:Federal

$
2,286


$



$
State


594



204



46Foreign


589



118



315Deferred:Federal


2,114



3,404



(1,627
)State


345



(139
)


(256
)Foreign


(84
)


9



(42
)Total provision for (benefit from) income taxes before valuation
    allowance


5,844



3,596



(1,564
)Change in valuation allowance


(11,665
)


(3,265
)


1,883Total (benefit from) provision for income taxes

$
(5,821
)

$
331


$
319     As of December 31,2010


2009Deferred tax assets:Net operating loss carry-forward

$
1,234


$
4,053Accrued expenses


267



215Deferred rent


300



82Deferred revenue


2,986



1,869Allowance for doubtful accounts


166



298Stock-based compensation


3,684



3,181In-process research and development


925



982Property and equipment


133



303Other


1,570



1,406Total deferred tax assets


11,265



12,389Deferred tax liabilities:Prepaid expenses


(760
)


(661
)Intangible assets


(2,783
)


Other


(5
)


Total deferred tax liabilities


(3,548
)


(661
)Net future income tax benefit


7,717



11,728Valuation allowance for deferred tax assets






(11,665
)Net deferred tax assets

$
7,717


$
63    F-18




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            paid-in-capital
   F-19




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2010


2009


2008Tax benefit at U.S. statutory rate of 34%

$
4,827


$
3,151


$
(1,883
)Effect of permanent differences


27



66



138State income taxes, net of federal benefit


737



43



(157
)Foreign taxes and rate differentials


541



96



45Other


(288
)


240



293Effect of change in valuation allowance for deferred tax assets


(11,665
)


(3,265
)


1,883Total

$
(5,821
)

$
331


$
319     Years Subject toTax Jurisdiction

Income Tax ExaminationU.S. federal

2002  PresentMaryland

2002  PresentUnited Kingdom

2007  Present   7.
    Stock-Based
    Compensation      Valuation
    of Stock-Based Compensation
   F-20




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended December 31,2010

2009

2008Stock Options:Average risk-free interest rate


2.2
%


2.6
%


3.2
%Expected dividend yield


0.0
%


0.0
%


0.0
%Expected life (years)


5.28



6.25



6.25Expected volatility


61.5
%


63.5
%


63.7
%Weighted-average fair value per grant

$
12.94


$
9.69


$
4.14Employee stock purchase plan:Average risk-free interest rate


0.2
%


0.2
%


1.8
%Expected dividend yield


0.0
%


0.0
%


0.0
%Expected life (years)


0.5



0.5



0.38Expected volatility


56.3
%


67.1
%


62.1
%Weighted-average fair value per purchase

$
6.13


$
4.71


$
1.71   Average risk-free interest rate 
  Expected dividend yield 
  Expected life 
    Expected volatility 
     F-21




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended December 31,2010


2009


2008Product cost of revenue

$
186


$
84


$
39Services cost of revenue


366



171



104Stock-based compensation expense included in cost of revenue


552



255



143Research and development


1,418



995



735Sales and marketing


3,589



1,921



1,390General and administrative


3,790



3,000



2,218Stock-based compensation expense included in operating expenses


8,797



5,916



4,343Total stock-based compensation expense

$
9,349


$
6,171


$
4,486   Stock
    Options
    WeightedAverageWeighted-


Remaining


AggregateNumber of


Range of


Average


Contractual


IntrinsicShares


Exercise Prices


Exercise Price


Term


ValueOutstanding at December 31, 2009


2,542,038


$
0.24 to 23.31


$
7.75






$
5,878Granted


550,025



18.48 to 28.90



23.69Exercised


(768,619
)


0.24 to 22.00



5.39Forfeited


(97,995
)


5.26 to 27.09



16.77Outstanding at December 31, 2010


2,225,449


$
0.24 to 28.90


$
12.11



7.01


$
31,042Vested and exercisable at December 31, 2010


1,072,364


$
0.24 to 27.09


$
7.15



6.29


$
20,147Vested and expected to vest at December 31, 2010


2,098,392






$
11.58



6.98


$
30,337     Options Outstanding


Options ExercisableWeighted-Weighted-


Average





Weighted-Number of


Average


Contractual


Number of


AverageRange of Exercise Prices

Shares


Exercise Prices


Life (Years)


Shares


Exercise Prices$0.24 to 6.77


1,084,518


$
5.35



6.53



748,697


$
4.80$7.10 to 22.27


808,106



15.52



7.33



302,641



11.76$23.31 to 28.90


332,825



25.87



7.59



21,026



24.222,225,449


$
12.11



6.98



1,072,364


$
7.15  F-22




---



##### 



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


Fair ValueUnvested at December 31, 2009


435,222


$
7.85Granted


30,109



18.27Vested


(203,137
)


8.46Forfeited


(7,496
)


8.07Unvested at December 31, 2010


254,698


$
8.59        F-23




---



##### 



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


Fair ValueUnvested at December 31, 2009


604,400


$
10.91Granted


449,650



23.58Vested


(152,672
)


10.93Forfeited


(18,375
)


16.85Unvested at December 31, 2010


883,003


$
17.23         Employee
    Stock Purchase Plan
    8.
    Shares Reserved
    for Future Issuance    Options to purchase common stock


2,225,449Employee stock purchase plan


761,741Equity-based awards available for grant under the 2007 Plan


2,163,6035,150,793  F-24




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  9.
    Net
    Income (Loss) Per Share    Year Ended December 31,2010


2009


2008Numerator:Net income (loss)

$
19,977


$
8,878


$
(6,071
)Denominator:Weighted-average shares outstanding  basic


27,670,356



26,458,273



25,379,791Dilutive effect of employee stock plans


1,225,890



1,528,842



Weighted-average shares outstanding  diluted


28,896,246



27,987,115



25,379,791Net income (loss) per share:Basic

$
0.72


$
0.34


$
(0.24
)Diluted


0.69



0.32



(0.24
)     Year Ended December 31,2010


2009


2008Options to purchase common stock


558,285



726,593



3,220,227Restricted stock units


45,954



38,146



Total


604,239



764,739



3,220,227   10.
    Leases    2011

$
1,6522012


1,1692013


1,1102014


8982015


363$
5,192    F-25




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  11.
    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.      Fair Value Measurement UsingFair Value


Level 1


Level 2


Level 3Assets:Money market funds

$
12,385


$
12,385


$



$
Corporate debt investments


47,193







47,193



Commercial paper


18,243







18,243



Government-sponsored enterprise securities


33,025







33,025



Government securities


8,026



4,012



4,014



Total

$
118,872


$
16,397


$
102,475


$
Liabilities:Acquisition-related contingent consideration

$
3,546


$



$



$
3,546      F-26




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  12.
    Business
    and Geographic Segment Information    Year Ended December 31,2010


2009


2008United States

$
97,815


$
79,719


$
57,547All foreign countries


32,757



23,746



18,126Consolidated total

$
130,572


$
103,465


$
75,673     As ofDecember 31,2010


2009United States

$
8,998


$
7,171All foreign countries


237



276Consolidated total

$
9,235


$
7,447   13.
    Defined
    Contribution Retirement Plan    14.
    Commitments
    and Contingencies     F-27




---



##### 



SOURCEFIRE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  15.
    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, 2008

$
160


$
379


$
(1
)

$
538Year ended December 31, 2009


538



709



(90
)


1,157Year ended December 31, 2010


1,157



741



(807
)


1,091   16.
    Summarized
    Quarterly Consolidated Financial Information    Three Months EndedDec. 31,


Sep. 30,


Jun. 30,


Mar. 31,


Dec. 31,


Sep. 30,


Jun. 30,


Mar. 31,2010


2010


2010 *


2010


2009


2009


2009


2009(Unaudited)(In thousands, except share data)Total revenue

$
37,969


$
36,164


$
30,608


$
25,831


$
35,271


$
27,423


$
22,171


$
18,600Gross profit


30,109



28,701



24,304



20,630



28,542



21,356



17,096



14,451Income (loss) from operations


4,963



5,002



2,983



1,083



6,665



2,546



450



(1,403
)Net income (loss)


4,404



4,215



10,548



810



6,665



2,697



633



(1,117
)Net income (loss) per share  basic

$
0.16


$
0.15


$
0.38


$
0.03


$
0.25


$
0.10


$
0.02


$
(0.04
)Net income (loss) per share  diluted

$
0.15


$
0.15


$
0.37


$
0.03


$
0.23


$
0.09


$
0.02


$
(0.04
)     *
    
    Net income for the three months ended June 30, 2010
    includes a $7.6 million tax benefit related the release of
    the valuation allowance recorded against our deferred tax assets
    in the U.S. F-28




---



##### 



Exhibit Index
  Incorporation by ReferenceExhibit





File





Filed withNumber

Exhibit Description

Form

Number

Exhibit

File Date

this 10-K2
.1

Agreement and Plan of Merger, dated December 29, 2010, by
    and among Sourcefire, Inc., Cloud Acquisition Corporation,
    Immunet Corporation and certain Shareholders of Immunet
    Corporation. Schedules and similar attachments have been omitted
    pursuant to Item 601(b)(2) of
    Regulation S-K.
    The Company undertakes to furnish supplementally copies of any
    of the omitted schedules and exhibits upon request by the U.S.
    Securities and Exchange Commission.











X3
.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

2002 Stock Incentive Plan

S-1

333-138199


4
.2

10/25/200610
.2

2007 Stock Incentive Plan

S-1/A

333-138199


4
.3

3/1/200710
.3

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

S-1/A

333-138199


4
.4

10/25/200610
.4

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

S-1/A

333-138199


4
.5

3/1/200710
.5

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
.6

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
.7

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

10-K

1-33350


10
.8

3/16/200910
.8

Amended Form of Notice and Restricted Stock Unit Award Agreement
    under the 2007 Stock Incentive Plan, effective March 7, 2011











X10
.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

10-K

1-33350


10
.12

3/12/201010
.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

11/7/2007




---



##### 



Incorporation by ReferenceExhibit





File





Filed withNumber

Exhibit Description

Form

Number

Exhibit

File Date

this 10-K10
.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, as amended effective
    May 20, 2010

10-Q

1-33350


10
.1

8/5/201010
.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

2/23/200710
.21

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

10-K

1-33350


10
.21

3/12/201010
.22

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

10-K

1-33350


10
.22

3/12/201010
.23

Amended and Restated Original Equipment Manufacturer Agreement
    entered into as of May 10, 2010 between Netronome Systems
    Inc. and Sourcefire, Inc.

10-Q

1-33350


10
.2

8/5/201010
.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

11/5/200910
.27

Government Reseller Agreement, dated October 8, 2002, by
    and between immixTechnology and Sourcefire, Inc., as amended

10-Q

1-33350


10
.1

11/4/201010
.28*

Channel Representation Services Addendum, dated October 7,
    2009, to Government Reseller Agreement, dated October 8,
    2002, as amended, by and between immixTechnology and Sourcefire,
    Inc.

10-Q

1-33350


10
.2

11/4/201021
.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.