The following discussion and analysis related to our financial condition and results of operations for the three and nine months ended December 31, 2008 and 2007, should be read in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this report. You should also read the following discussion and analysis in conjunction with the consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Annual Report on Form 10-K for the fiscal year ended March 31, 2008, filed with the SEC. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under Part II, Item 1A - "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q.

Overview

OPNET Technologies, Inc. is a provider of software products and related services for managing networks and applications. Our software products address application performance management, network planning, engineering and operations, and network research and development. Our customers include corporate enterprises, government and defense agencies, network service providers, and network equipment manufacturers. Our software products and related services are designed to help our customers make better use of resources, reduce operational problems and improve competitiveness.

We operate in one reportable industry segment, the development and sale of computer software programs and related services. Our operations are principally in the United States, and we have subsidiaries in Australia, Belgium, France, Germany, the United Kingdom and Singapore. We primarily depend upon our direct sales force to generate revenue in the United States. Sales outside the United States are made through our international sales team as well as third-party distributors and value-added resellers, who generally are responsible for providing technical support and service to customers within their territory.

Our revenue is derived from three primary sources: (1) new software licenses,
(2) software license updates, technical support and services, and
(3) professional services, which include consulting and training services for customers without current maintenance agreements. New software license revenue represents all fees earned from granting customers licenses to use our software and the purchase price for hardware platforms associated with the delivery of some software, and excludes revenue derived from software license updates, which are included in software license updates, technical support, and services revenue. Our software master license agreement provides our customers with the right to use our software either perpetually, which we refer to as perpetual licenses, or during a defined term, generally for one to four years, which we refer to as term licenses. For the nine months ended December 31, 2008, perpetual licenses represented approximately 90% of our software license revenue. Substantially all of our software license arrangements include both perpetual and/or term licenses and software license updates, technical support, and services. Software license updates, technical support, and services revenue represent fees associated with the sale of unspecified license updates, technical support and when-and-if available training under our maintenance agreements. We offer professional services, under both time-and-material and fixed-price agreements, primarily to facilitate the adoption of our software products.

We consider our consulting services to be an integral part of our business model as they are centered on our software product offerings. Because our consulting services facilitate the adoption of our software product offerings, we believe that they ultimately generate additional sales of software licenses.

The key strategies of our business plan include increasing sales to existing customers, increasing deal size by selling modules and introducing new software products, improving our sales and marketing execution, establishing alliances to extend our market reach, increasing our international presence and increasing profitability. We have focused our sales, marketing, and other efforts on corporate enterprise and United States

government opportunities and, to a much lesser extent, service provider and network equipment manufacturer opportunities. Our focus and strategies are designed to increase revenue and profitability. Because of the uncertainty surrounding the amount and timing of revenue growth, especially during the current economic conditions, we expect to need to closely control the increases in our total expenses as we implement these strategies.

In March 2008, we launched an initiative to extend our market reach by establishing sales alliances with third parties called the Synergy program. The Synergy program is designed to increase the penetration of our software products into mid-sized organizations. The Synergy program's initial focus will be on selling our application performance management software products, including ACE Live that provides end-user experience monitoring and real-time application performance analytics, as we believe these software products are particularly well-suited for channel distribution.

In March 2008, we also restructured our worldwide distribution agreement with Cisco Systems, or Cisco. Under the terms of the restructured agreement, Cisco will distribute our software products as OPNET-branded software products.

Summary of Our Financial Performance and Trends That May Affect Business and Future Results

During the three months ended December 31, 2008, or Q3 fiscal 2009, as compared to the three months ended September 30, 2008, or Q2 fiscal 2009, we experienced a decrease in total revenue, gross profit, income from operations, net income, and cash flow from operations. We generated an increase in cash, cash equivalents, and deferred revenue.

The following table summarizes information derived from our unaudited condensed consolidated financial statements and other key metrics:

                                              Three Months Ended
                                      December 31,          September 30,         Amount        Percentage
                                          2008                  2008              Change          Change
                                                 (dollars in thousands, except per share data)
Operations Data:
Total revenue                        $        31,515       $        32,358       $   (843 )           (2.6 )%
Total cost of revenue                $         7,885       $         7,831       $     54              0.6 %
Gross profit                         $        23,630       $        24,527       $   (897 )           (3.7 )%
Gross profit as a percentage of
total revenue
(gross margin)                                  75.0 %                75.8 %
Total operating expenses             $        20,798       $        21,406       $   (608 )           (2.8 )%
Income from operations               $         2,832       $         3,121       $   (289 )           (9.3 )%
Income from operations as a
percentage of total revenue
(operating margin)                               9.0 %                 9.6 %
Net income                           $         1,962       $         2,034       $    (72 )           (3.5 )%
Diluted net income per common
share                                $          0.10       $          0.10       $     -               0.0 %
Total employees (period end)                     576                   556             20              3.6 %
Total average employees                          567                   556             11              2.0 %
Total consultants (period end)                   120                   118              2              1.7 %
Total quota-carrying sales
persons (excluding directors and
inside sales representatives)
(period end)                                      71                    71             -               0.0 %

Financial Condition and
Liquidity Data:
Cash, cash equivalents and
marketable securities (period
end)                                 $        88,798       $        87,736       $  1,062              1.2 %
Cash flows provided by operating
activities                           $         3,218       $         5,121       $ (1,903 )          (37.2 )%
Total deferred revenue (period
end)                                 $        30,965       $        29,657       $  1,308              4.4 %

Our decline in total revenue in Q3 fiscal 2009 from Q2 fiscal 2009 was due to a decrease in revenue from new software licenses of $433,000, a decrease in revenue from professional services of $273,000 and a decrease in revenue from license updates, technical support and services revenue of $137,000. The decline in revenue from new software licenses was the result of a decline in revenue from United States government customers, mostly offset by an increase in revenue from corporate enterprise customers. The decline in revenue from professional services was the result of a decline in revenue from service provider customers, partially offset by an increase in revenue from corporate enterprise customers. The decline in revenue from license updates, technical support and services was primarily the result of the British Pound weakening against the United States Dollar during Q3 fiscal 2009 as compared to Q2 fiscal 2009, which resulted in a decline in revenue recognized from British Pound-denominated maintenance contracts. Total revenue generated from sales to United States government customers decreased by $3.9 million during Q3 fiscal 2009 as compared to Q2 fiscal 2009. The percentage of total revenue from United States government customers decreased to 30.6% in Q3 fiscal 2009 from 41.7% in Q2 fiscal 2009. The decrease in revenue from United States government customers was expected, as Q2 fiscal 2009 is a seasonally strong quarter for United States government customers due to their September 30 fiscal year-end.

Our international revenue increased 8.3% to $6.9 million for Q3 fiscal 2009 as compared to Q2 fiscal 2009. As a percentage of total revenue, international revenue grew from 19.8% to 22.1%. The growth in international revenue was primarily generated by growth in revenue from corporate enterprise customers, partially offset by a decline in revenue from service provider customers. We expect revenue from sales outside the United States to continue to account for a significant portion of our total revenue in the future. Sales to corporate enterprises accounted for the largest portion of our international revenue during Q3 fiscal 2009. We believe that continued growth and profitability will require further expansion of our sales, marketing and customer service functions in international markets.

Our gross profit decreased $897,000, or 3.7%, to $23.6 million for Q3 fiscal 2009 from $24.5 million for Q2 fiscal 2009, and our gross margin for Q3 fiscal 2009 decreased to 75.0% from 75.8% for Q2 fiscal 2009. The decrease in gross profit and gross margin was largely the result of a $661,000 increase in the costs of new software licenses driven by a $757,000 increase in the costs of hardware platforms used to deliver certain software solutions and, to a lesser extent, a $433,000 decrease in revenue from new software licenses, partially offset by a $643,000 decrease in the cost of professional services. In December 2008, we released a new version of our ACE Live solution that has a significantly higher sales price and cost of sale than our other ACE Live solutions, as the hardware platform associated with the solution is more costly for the manufacturer to produce. Gross margin on new software license revenue, software license updates, technical support and services revenue and professional services revenue for Q3 fiscal 2009 was 91.1%, 89.0%, and 28.4%, respectively. Changes in revenue from software license updates, technical support and services revenue and revenue from new software license have more impact on gross profit than changes in revenue from professional services, as a result of their higher gross margins.

Our operating margin decreased to 9.0% during Q3 fiscal 2009 from 9.6% during Q2 fiscal 2009. The decrease in operating margin during Q3 fiscal 2009 as compared to Q2 fiscal 2009 was largely the result of an $843,000 decrease in total revenue, partially offset by a $608,000 decrease in operating expenses.

We anticipate the following trends and patterns over the next several quarters:

Total Revenue. We believe the current economic environment and the tightening of the credit market could make it more difficult to generate revenue domestically and internationally. We expect future growth opportunities in revenue to come from sales to corporate enterprise customers and the United States government, as we believe our products offer competitive advantages in these markets. We expect revenue from sales to service providers and network equipment manufacturers to fluctuate from quarter to quarter with the potential for periods of declining license revenue. Our ability to increase professional services revenue will depend upon our ability to maintain several large consulting contracts with the United States government and to attract and retain additional qualified consultants, including those with security clearances. We also believe the increase in the

proportion of sales of our application performance management solutions as compared to our other solutions may decrease demand for our consulting implementation services, as our application performance management solutions generally require less time to implement. As a result of these factors, we believe that we may experience fluctuations in quarterly revenue.

International Revenue. Our international sales are affected by the mix of direct and indirect sales channels and our ability to increase sales to corporate enterprises. We believe that these factors will affect the timing of sales orders as well as our ability to forecast future revenue. As a result, we expect our international revenue in absolute dollars and as a percentage of total revenue to fluctuate from quarter to quarter.

Gross Profit Margin. Our overall gross profit margin will continue to be affected by the percentage of total revenue generated from new software licenses, as revenue from new software licenses and revenue from software license updates, technical support and services have substantially higher gross margins than the gross margin on revenue from professional services. We anticipate an increase in the cost of new software license revenue related to the cost of hardware necessary to deliver our ACE Live software products. Our overall gross profit margin will also be affected by the profitability of individual consulting engagements. Amortization of technology associated with the purchase and/or acquisition of technology we may make in future periods could also affect our gross profit margin.

Research and Development Expenses. We believe that investments in research and development will be necessary to maintain our competitive position, broaden our product lines and support channel initiatives, enhance the features and functionality of our current products, and win market share from our competitors. We anticipate hiring additional engineers, and we expect to incur additional research and development expenses in connection with such new hires. We expect that the absolute dollar amount of research and development expenditures will continue to grow but could generally decrease as a percentage of total revenue in future periods. Our ability to decrease these expenses, as a percentage of revenue, will depend upon increases in revenue, among other factors.

Sales and Marketing Expenses. We depend upon our direct sales model to generate revenue and believe that increasing the size of our quota-carrying sales team is essential for long-term growth. We plan to modestly increase quota-carrying sales persons in the near term to pursue our business plan. We anticipate that we will continue to commit substantial resources to sales and marketing in the future and that sales and marketing expenses may increase both in absolute dollars and as a percentage of total revenue in future periods.

General and Administrative Expense. We expect the dollar amount of general and administrative expenses to increase as we continue to expand our operations but generally decrease as a percentage of total revenue in future periods. Our ability to decrease these expenses as a percentage of revenue will depend upon increases in our revenue, among other factors.

Operating Margin. Because a significant portion of our software license arrangements close in the latter part of each quarter, we may not be able to adjust our cost structure in the short-term to respond to lower than expected revenue, which would hurt our operating margin and earnings.

Critical Accounting Policies and Use of Estimates

The accompanying discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are

not readily apparent from other sources. Actual results could differ from the estimates we make with respect to these and other items that require our estimates.

We have identified the accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amounts of revenue and the more significant areas involving management's judgments and estimates. These critical accounting policies relate to revenue recognition and deferred revenue, stock based compensation, allowance for doubtful accounts, valuation of long-lived assets, including intangible assets and impairment review of goodwill, software development costs, and income taxes. These policies, and our procedures related to these policies, are described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2008.

Results of Operations

The following table sets forth items from the condensed consolidated statements
of operations data expressed as a percentage of total revenue for the periods
indicated:



                                              Three Months Ended              Nine Months Ended
                                                 December 31,                   December 31,
                                              2008           2007            2008           2007
Revenue:
New software licenses                           43.1 %         39.3 %          43.1 %         38.4 %
Software license updates, technical
support and services                            35.1           34.2            34.1           34.4
Professional services                           21.8           26.5            22.8           27.2

Total revenue                                  100.0          100.0           100.0         100.00

Cost of revenue:
New software licenses                            3.8            1.4             2.6            1.0
Software license updates, technical
support and services                             3.9            4.1             3.7            4.4
Professional services                           15.6           18.8            17.0           18.5
Amortization of acquired technology and
customer relationships                           1.7            2.3             1.8            1.3

Total cost of revenue                           25.0           26.6            25.1           25.2


Gross profit                                    75.0           73.4            74.9           74.8

Operating expenses:
Research and development                        23.3           27.6            24.5           27.0
Sales and marketing                             33.9           41.3            33.7           38.8
General and administrative                       8.8           13.5             9.4           12.0

Total operating expenses                        66.0           82.4            67.6           77.8

Income (loss) from operations                    9.0           (9.0 )           7.3           (3.0 )
Interest and other income, net                   0.8            3.5             1.2            4.0

Income (loss) before provision
(benefit) for income taxes                       9.8           (5.5 )           8.5            1.0
Provision (benefit) for income taxes             3.6           (0.5 )           3.4            0.1

Net income (loss)                                6.2 %         (5.0 )%          5.1 %          0.9 %

Revenue

New Software License Revenue. New software license revenue was $13.6 million and $10.2 million for the three months ended December 31, 2008 and 2007, respectively, representing an increase of 32.8%. The increase in new software license revenue for the three months ended December 31, 2008, as compared to the same period in fiscal 2008, was due largely to an increase in revenue from service provider customers and, to a lesser extent,

corporate enterprise customers. The increase was primarily due to an increase in revenue from our ACE Live software, which was first released in December of 2007. New software license revenue was $40.5 million and $28.6 million for the nine months ended December 31, 2008 and 2007, respectively, representing an increase of 41.9%. The increase in new software license revenue for the nine months ended December 31, 2008, as compared to the same period in fiscal 2008, was due largely to an increase in revenue from corporate enterprise and service provider customers.

Software License Updates, Technical Support and Services Revenue. Software license updates, technical support and services revenue was $11.1 million and $8.9 million for the three months ended December 31, 2008 and 2007, respectively, representing an increase of 24.6%. Software license updates, technical support and services revenue was $32.0 million and $25.6 million for the nine months ended December 31, 2008 and 2007, respectively, representing an increase of 25.3%. Software license updates, technical support and services revenue growth rates are affected by the overall new software license revenue growth rates, as well as the renewal rate of annual maintenance contracts by existing customers. The increase in software license updates, technical support and services revenue for the three and nine months ended December 31, 2008, as compared to the same periods in fiscal 2008, reflected increases in our overall customer base.

Professional Services Revenue. The components of professional services revenue for the three and nine months ended December 31, 2008 and 2007 are as follows:

                                         Three Months Ended       Nine Months Ended
                                            December 31,            December 31,
                                          2008         2007        2008        2007
                                                       (in thousands)
       Consulting services revenue     $    6,614    $  6,655   $   20,840   $ 19,679
       Training revenue                       245         249          568        538

       Professional services revenue   $    6,859    $  6,904   $   21,408   $ 20,217

Professional services revenue was $6.9 million for the three months ended December 31, 2008 and 2007. Consulting services revenue accounted for 96.4% of professional services revenue for the three months ended December 31, 2008 and 2007. Professional services revenue was $21.4 million and $20.2 million for the nine months ended December 31, 2008 and 2007, respectively, representing an increase of 5.9%. Consulting services revenue accounted for 97.3% of professional services revenue for the nine months ended December 31, 2008 and 2007. The slight decrease in professional services revenue for the three months ended December 31, 2008, as compared to the same period in fiscal 2008, was largely due to a decrease in revenue from network equipment manufacturers, partially offset by an increase in revenue from service provider customers. We also believe the increase in the proportion of sales of our application performance management solutions as compared to our other solutions have decreased demand for our consulting implementation services, as our application performance management solutions generally require less time to implement. The increase in professional services revenue for the nine months ended December 31, 2008, as compared to the same period in fiscal 2008, was largely due to an increase in revenue from service provider customers and, to a lesser extent, corporate enterprise customers.

International Revenue.

Our international revenue was $6.9 million and $6.0 million for the three months ended December 31, 2008 and 2007, respectively, representing an increase of 16.0%. Our international revenue decreased as a percentage of total revenue to 22.1% for the three months ended December 31, 2008 from 23.0% for the same period in fiscal 2008. The absolute dollar increase in our international revenue for the three months ended December 31, 2008, as compared to the same period in fiscal 2008, was largely the result of an increase in revenue from service provider customers and network equipment manufacturers, partially offset by a decrease in revenue from corporate enterprise customers. Revenue from corporate enterprise customers accounted for the largest percentage of

international revenue for the three months ended December 31, 2008 and 2007. Our international revenue was $19.6 million and $14.6 million for the nine months ended December 31, 2008 and 2007, respectively, representing an increase of 33.9%. Our international revenue increased as a percentage of total revenue to 20.9% for the nine months ended December 31, 2008 from 19.7% for the same period in fiscal 2008. The increase in our international revenue for the nine months ended December 31, 2008, as compared to the same period in fiscal 2008, was primarily the result of an increase in revenue from service provider customers, and to a lesser extent, revenue from international government customers, partially offset by a decrease in revenue from corporate enterprise customers. Revenue from corporate enterprise customers accounted for the largest percentage of international revenue for the nine months ended December 31, 2008 and 2007. Our international revenue is primarily generated in Europe and Japan. We have focused our efforts on increasing international revenue from enterprise customers.

Cost of Revenue.
. . .