Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Words such as "may," "could," "anticipate," "potential," "intend," "expect," "believe," "in our view," and variations of such words and similar expressions, are intended to identify such forward-looking statements, which include, but are not limited to, statements regarding our expectations and beliefs regarding future revenue growth; key metrics; gross margins; financial performance and results of operations; technological trends in, and demand for online advertising; management's strategy, plans and objectives for future operations; employee relations and our ability to attract and retain highly qualified personnel; our ability to integrate Ohloh Corporation's technology and employees; our intent to continue to invest significant resources in web site development; competition, competitors and our ability to compete; liquidity and capital resources; the outcome of any litigation to which we are a party; our accounting policies; and sufficiency of our cash resources and investments to meet our operating and working capital requirements and any share repurchases. Actual results may differ materially from those expressed or implied in such forward-looking statements due to various factors, including those set forth in the Risk Factors contained in the section of this Quarterly Report on Form 10-Q entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." We undertake no obligation to update the forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Critical Accounting Estimates

The following are the significant changes in our critical accounting estimates during the three months ended March 31, 2009 as compared to what was previously disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended July 31, 2008.

Effective August 1, 2008, we adopted the provisions of Statement of Financial Accounting Standards (FAS) No. 157, "Fair Value Measurements" ("FAS 157") and FAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115" ("FAS 159"). As permitted by FAS 159, we have elected the fair value option for our Auction Rate Securities, also classified as Municipal Bonds, as of August 1, 2008. In conjunction with the adoption of FAS 159, we reduced our Accumulated Other Comprehensive Loss by $0.6 million and accounted for this as a cumulative effect of a change in accounting principle which was recorded as an increase in our Accumulated Deficit.

Overview

We own and operate a network of media web sites, serving the IT professional, software development and open source communities. Through our ThinkGeek, Inc. subsidiary, we also provide online sales of a variety of retail products of interest to these communities. Our network of web sites include:
SourceForge.net, Slashdot.org, ThinkGeek.com, fossfor.us and freshmeat.net. Combining user-developed content and e-commerce, we are the global technology community's nexus for information exchange, goods for geeks, and open source software distribution and services.

We were incorporated in California in January 1995 and reincorporated in Delaware in December 1999. From the date of our incorporation through October 2001, we sold Linux-based hardware systems and services under the name VA Linux Systems, Inc. In December 2001, we changed our name to VA Software Corporation to reflect our decision to pursue our Online Media, E-commerce, Software and Online Images businesses. In December 2005, we sold our Online Images business to Jupitermedia Corporation ("Jupitermedia") and in April 2007, we sold our Software business to CollabNet, Inc. ("CollabNet"). On May 24, 2007, reflecting our strategic decision to focus on our network of media and e-commerce web sites, we changed our name to SourceForge, Inc. and merged with our wholly-owned subsidiary, OSTG, Inc.

Our business consists of two operating segments: Online Media and E-commerce. Our Online Media segment provides web properties that serve as platforms for the creation, review and distribution of online peer produced content. Our audience of technology professionals and enthusiasts relies on our web properties SourceForge.net, Slashdot.org, fossfor.us and freshmeat.net to create, improve, compare and distribute Open Source software and to debate and discuss current issues facing, and innovation in, the technology marketplace. Our E-commerce segment sells technology themed retail products for technology enthusiasts through our ThinkGeek.com web site.

Our strategy for our Online Media business is to increase our awareness, improve our sites and capture, analyze and draw insights from our data. We currently serve four communities: developers, consumers, advertisers and investors. We believe that our brand recognition in the marketing and advertising communities lags behind our recognition in the Open Source and technology communities. This gap is a challenge and also an opportunity to better monetize our traffic. We expect to invest in establishing our brand identity among all four communities to increase awareness. Our data strategy is designed to enable better targeting for advertisers, allowing for strategic insights to clients and partners, and ultimately to consumers. We have recently announced our acquisition of Ohloh Corporation, which will further enhance this strategy by providing insights into the entire open source ecosystem. We are also investing in our sites, primarily SourceForge.net where we are developing a more modern web site which will be released later in 2009.

We currently use the following key metrics which are derived from data provided by Google Analytics to measure our Online Media business:

                                                              Three Months Ended
                                                      March 31, 2009       March 31, 2008

Unique Visitors per Month (in thousands) (1)(2)                36,985               34,137
Visits per Month (in thousands) (2)                            64,511               65,218
Pages per Visit                                                   2.4                  2.4
Page Views per Month (in thousands) (2)                       155,715              154,532

Revenue per Thousand Pages (RPM)                     $           8.09     $           9.96
Revenue per User (RPU) (3)                           $           0.41     $           0.54

(2) - Per month amounts are the average calculated as the total amount for the period divided by the months in the period.

(3) - Revenue per User ("RPU") is an annualized amount based on revenue and unique users during the period presented.

Based on our review and analysis of metrics surrounding peer sites and our competitors, we believe that growth in engagement is a significant element of our strategy. As such, a key element of our growth plan is to increase engagement. Our metrics around engagement per user are an important measure, and we are focused on both growing the number of unique visitors and deepening the average levels of engagement.

Media companies have historically reported page views as a metric seeking to measure users' level of engagement. Since the introduction of a new web technology, known as asynchronous JavaScript and XML ("AJAX") which allows users to browse web sites without loading a new page, page views have generally declined for the same, or even higher, level of activity. We have begun to implement this technology and as we increase our adoption and change our sites to continue to make them easier to use and more accessible, we may experience associated fluctuations in page views. As the measures of engagement utilized by media companies evolve to include elements such as time spent per visit or number of visits per month in addition to or in lieu or page views, we expect that our reported metrics may also evolve.

Our E-commerce business strategy is to increase revenue and gross margins by expanding the range of new and innovative products we sell, including products developed by us, and by attracting increased traffic to our site. We attract traffic to our sites using a variety of traditional online and direct retail marketing channels, direct mail and email to our customers and followers. We also publish and communicate with our customers and followers using Twitter (http://twitter.com/thinkgeek) and a ThinkGeek fan page on Facebook. In addition, we are investing in a site redesign which is expected to be released coinciding with ThinkGeek's 10 year anniversary in August 2009.

Our E-commerce sales continue to be primarily attributable to customers located in the United States of America.

Results of Operations

The application of accounting standards is central to a company's reported financial position, results of operations and cash flows. We review our annual and quarterly results, along with key accounting policies, with our audit committee prior to the release of financial results. We do not use off-balance-sheet arrangements with unconsolidated related parties, nor do we use other forms of off-balance-sheet arrangements such as research and development arrangements.

The following table sets forth our operating results for the periods indicated as a percentage of revenue, represented by selected items from the unaudited condensed consolidated statements of operations. This table should be read in conjunction with the condensed consolidated financial statements and the accompanying notes included in this Quarterly Report on Form 10-Q.

                                                 Three Months Ended March 31,
                                                  2009                  2008
Consolidated Statements of Operations Data:
Online Media revenue                                   36.4 %                40.3 %
E-commerce revenue                                     63.6                  59.7
Revenue                                               100.0 %               100.0 %
Online Media cost of revenue                           18.4                  17.2
E-commerce cost of revenue                             54.1                  50.7
Cost of revenue                                        72.5                  67.9
Gross margin                                           27.5                  32.1
Operating expenses:
Sales and marketing                                    22.3                  16.5
Research and development                               15.4                   9.9
General and administrative                             20.3                  17.2
Total operating expenses                               58.0                  43.6
Loss from operations                                  (30.5 )               (11.5 )
Interest and other income (expense), net              (41.7 )                 4.0
Loss before income taxes                              (72.2 )                (7.5 )
Provision (benefit) for income taxes                   (0.6 )                 0.5
Net loss                                              (71.6 %)               (8.0 %)

Revenue

The following table summarizes our revenue by business segment:

                                Three Months Ended                 % Change
                        March 31, 2009      March 31, 2008       Three Months
($ in thousands)
Online Media revenue   $          3,777     $         4,585           (18%)
E-commerce revenue                6,594               6,803            (3%)
Revenue                $         10,371     $        11,388            (9%)

Sales for the three months ended March 31, 2009 and March 31, 2008 were primarily to customers located in the United States of America.

For the three months ended March 31, 2009, Google Inc. ("Google") represented 12.5% of our revenue, and for the three months ended March 31, 2008 no one customer represented 10% or more of revenue. We expect that, in the future, revenue from Google may continue to account for more than 10% of our revenue.

Revenue by Segment

Online Media Revenue

                                 Three Months Ended                  % Change
                        March 31, 2009        March 31, 2008       Three Months
($ in thousands)
Direct sales           $          2,225      $          3,452           (36%)
Ad Networks                       1,359                   910            49%
Other                               193                   223           (13%)
Online Media revenue   $          3,777      $          4,585           (18%)

Our Online Media revenue is derived primarily from advertising products delivered on our web sites. Direct sales revenue is generated from orders received by our United States based sales team, which may also include advertisements to be delivered globally. Ad Networks revenue represents revenue from our Ad Network partners who sell our inventory globally to customers through automated systems and includes revenue from international resellers who use automated systems. Other represents orders received from our international resellers as well as referral fees and revenue earned from subscriptions to our web sites.

Direct sales revenue for the three months ended March 31, 2009 decreased $1.2 million as compared with the three months ended March 31, 2008. The decrease was primarily due to a $2.1 million decrease in revenue from advertisers whose campaigns were not renewed or who chose to advertise at lower levels during the three months ended March 31, 2009, offset in part by increases in revenue of $0.6 million from customers who did not advertise in the three months ended March 31, 2008 and $0.3 million from customers who increased their advertising levels during the three months ended March 31, 2009 as compared with the three months ended March 31, 2008. The increase in Ad Networks revenue for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008 was due to increased revenue from Google as we continue to optimize our web sites to increase yields from Google and other Ad Networks. Since we obtain higher prices for direct sales revenue, we allocate our available ad units first to direct sales campaigns and then to ad networks. To the extent that direct sales campaigns decline, we would allocate additional ad units to ad networks, which would increase revenue from ad networks. The decrease in Other for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008 was primarily due to the termination of an agreement with an advertising business partner which provided employment advertisements.

Traditional online advertising, which are those advertising units defined by The Interactive Advertising Bureau, has historically constituted a majority of our direct sales revenue. Pricing pressures combined with decrease in demand for traditional online advertising has resulted in a change in our revenue mix. In anticipation of this change, we began to introduce higher-priced premium advertising products in the first quarter of calendar 2008. Although revenue from these premium advertising products accounted for more than 20% of our revenue in the three months ended March 31, 2009, this revenue has not grown sufficiently to offset the declines in traditional online advertising. We believe that traditional online advertising will continue to decline and in order to grow revenue, we will continue to focus on creating new and innovative advertising products.

E-commerce Revenue

                                                Three Months Ended                   % Change
                                        March 31, 2009       March 31, 2008        Three Months

E-commerce revenue (in thousands)      $          6,594     $          6,803             (3%)
Percentage of total revenue                          64 %                 60 %
Number of shipments                             115,786              100,066             16%
Avg. amount of order received          $             61     $             71            (14%)

E-commerce revenue is derived from the online sale of consumer goods, including shipping, net of any returns and allowances. The decline in E-commerce revenue during the three months ended March 31, 2009, as compared to the three months ended March 31, 2008, was primarily due to a 16% decrease in the average value per shipment, offset in part by a 16% increase in the number of shipments year-over-year. The decrease in average shipment value was due to lower mix of price points of products purchased due to a customer preference for lower priced products. The increase in the number of shipments was primarily driven by increased demand for ThinkGeek's innovative products.

Cost of Revenue/Gross Margin

                             Three Months Ended                  % Change
($ in thousands)    March 31, 2009        March 31, 2008       Three Months
Cost of revenue    $          7,517      $          7,727            (3%)
Gross margin                  2,854                 3,661           (22%)
Gross margin %                   28 %                  32 %

Cost of revenue consists of personnel costs and related overhead associated with developing and delivering external content for our media sites, cost of equipment and co-location costs to deliver external media content and product and operating costs associated with our E-commerce business.

Gross margins decreased for the three months ended March 31, 2009 as compared with the three months ended March 31, 2008, due primarily to decreases in our Online Media and E-commerce revenue.

Cost of Revenue/Gross Margin by Segment

Online Media Cost of Revenue/Gross Margin

                                         Three Months Ended                  % Change
($ in thousands)                March 31, 2009        March 31, 2008       Three Months
Online Media cost of revenue   $          1,907      $          1,954            (2%)
Online Media gross margin                 1,870                 2,631           (29%)
Online Media gross margin %                  50 %                  57 %
Headcount                                    19                    22

Online Media cost of revenue consists of personnel costs and related overhead associated with maintaining and supporting the sites, delivering advertising campaigns and developing the editorial content of the sites, co-location and depreciation costs for delivering site content, and the costs of serving and running advertising campaigns. The decrease in Online Media gross margin percentages for the three months ended March 31, 2009, as compared to the three months ended March 31, 2008, was primarily driven by decreased Online Media revenue.

Our Online Media cost of revenue may increase in absolute dollars as we incur costs to deliver advertising campaigns and to operate our sites. To the extent that Online Media revenue continues to decline, our Online Media gross margins will also decline.

E-commerce Cost of Revenue/Gross Margin

                                       Three Months Ended                  % Change
                              March 31, 2009        March 31, 2008       Three Months
($ in thousands)
E-commerce cost of revenue   $          5,610      $          5,773            (3%)
E-commerce gross margin                   984                 1,030            (4%)
E-commerce gross margin %                  15 %                  15 %
Headcount                                  21                    17

E-commerce cost of revenue consists of product costs, shipping and fulfillment costs and operating costs, and includes personnel costs associated with the E-commerce operations and merchandising functions. The decrease in E-commerce cost of revenue during the three months ended March 31, 2009, as compared to the three months ended March 31, 2008, was primarily due to decreased shipping costs of $0.3 million and decreased product costs of $0.1 million, offset in part by an increase in operating costs of $0.3 million. The decrease in shipping costs is a result of favorable shipping rates negotiated with third party shippers and the decrease in product costs is due to the mix of products ordered by customers. The increase in operating expenses was primarily due to additional headcount and related costs to provide customer service and to identify and source new products.

We expect E-commerce cost of revenue in absolute dollars to grow as E-commerce operating costs increase in the future, while E-commerce gross margin percentages may fluctuate depending on the sales promotions offered and mix of products sold.

Operating Expenses

Sales and Marketing Expenses

Sales and marketing ("S&M") expenses consist primarily of personnel and related
overhead expenses, including sales commission, for personnel engaged in sales,
marketing and sales support functions, and includes costs associated with market
research, promotional activities and trade shows.

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                                        Three Months Ended                 % Change
($ in thousands)               March 31, 2009        March 31, 2008      Three Months
Sales and Marketing           $          2,315      $          1,887            23%
Percentage of total revenue                 22 %                  17 %
Headcount                                   24                    28

The increase in S&M expenses in the three months ended March 31, 2009, as compared to the three months ended March 31, 2008, was primarily due to increases in headcount and related expenses of $0.4 million. The increase in headcount was primarily due to an increase in sales and marketing personnel of $0.3 million and $0.1 million of severance expense related to the March 2009 reduction in sales heads. During the three months ended March 31, 2009, we increased sales heads as compared to the three months ended March 31, 2008; however, in March 2009, we reduced our sales headcount by 7 heads.

We expect future S&M expenses to decrease in absolute dollars due to decreased headcount in our sales force.

Research and Development Expenses

Research and development ("R&D") expenses consist primarily of personnel and
related overhead expenses for software engineers involved in our Online Media
segment. We expense all of our R&D costs as they are incurred; however, certain
costs, including personnel related expenses incurred in the development of
internal-use software, were capitalized.

                                        Three Months Ended                 % Change
($ in thousands)               March 31, 2009        March 31, 2008      Three Months
Online Media                  $          1,468      $          1,051            40%
E-commerce                                 126                    80            58%
Research and Development      $          1,594      $          1,131            41%
Percentage of total revenue                 15 %                  10 %
Headcount                                   37                    27

R&D expense increased by $0.5 million in absolute dollars in the three months ended March 31, 2009, as compared to the three months ended March 31, 2008. The increase in R&D expenses was due to increased headcount and related costs. We expect R&D expenses to increase in absolute dollars and may also increase as a percentage of revenue in the future as we incur expenses to redesign our Online Media and E-commerce web sites.

General and Administrative Expenses

General and administrative expenses consist of salaries and related expenses for
finance and accounting, human resources and legal personnel, professional fees
for accounting and legal services as well as insurance and other public company
related costs.

                                        Three Months Ended                 % Change
                               March 31, 2009        March 31, 2008      Three Months
General and Administrative    $          2,105      $          1,956             8%
Percentage of total revenue                 20 %                  17 %
Headcount                                   20                    18

General and administrative expenses increased slightly during the three months ended March 31, 2009 as compared to the three months ended March 31, 2008. The increase is due to an increase in headcount and related expenses of $0.2 million, offset in part by lower bad debt expense and lower overhead expense allocations.

General and administrative expenses are expected to increase in the future due to costs to support our recently announced acquisition and other strategic initiatives.

Restructuring Costs

In October 2007, we relocated our corporate headquarters to Mountain View, California. During fiscal year 2008, which ended on July 31, 2008 under our prior fiscal calendar, we recorded a restructuring charge of $2.2 million for the remaining facility space and leasehold improvements at our former corporate headquarters located in Fremont, California. In conjunction with the sale of our Software business in April 2007, we accrued a restructuring charge of $0.6 million for the excess facility space used in the operation of our Software business, which was included in the gain on disposal of discontinued operations. In fiscal 2001 and 2002, we adopted plans to exit our hardware systems and hardware-related software engineering and professional services businesses, as well as exit a sublease agreement and to reduce our general and administrative overhead costs. The restructuring liability of $3.4 million as of March 31, 2009 represents the remaining accrual from non-cancelable lease payments, which continue through May 2010, less estimated sublease rent. This accrual is subject to change should actual circumstances change. We will continue to evaluate and update, if applicable, these accruals on an annual basis.

All charges as a result of restructuring activities have been recorded in accordance with FAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" and Emerging Issues Task Force ("EITF") 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an . . .