The following discussion and analysis related to our financial condition and results of operations for the three months ended June 30, 2009 and 2008 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, 2009, filed with the SEC on June 5, 2009. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions and 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 the "Risk Factors" section of our Form 10-K for the fiscal year ended March 31, 2009. We caution readers not to place undue reliance on any such forward-looking statements, which are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this 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 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 three months ended June 30, 2009 and 2008, perpetual licenses represented approximately 94% and 86%, respectively 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 focus is 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.

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

During the three months ended June 30, 2009, or Q1 fiscal 2010, as compared to the three months ended March 31, 2009, or Q4 fiscal 2009, we experienced a decrease in total revenue, gross profit, income from operations, net income, and cash flow from operations. The decrease was primarily the result of a decline in new software license revenue of $1.8 million. We believe the decline was driven by the impact that the challenging economy had on our customers' ability to execute new software licenses during the quarter, especially licenses of our network planning, engineering and operations.

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

                                              Three Months Ended
                                         June 30,           March 31,           Amount         Percentage
                                           2009               2009              Change           Change
                                                  (dollars in thousands, except per share data)
Operations Data:
Total revenue                            $  27,727         $    28,912         $ (1,185 )            (4.1 )%
Total cost of revenue                    $   7,800         $     7,712         $     88               1.1 %
Gross profit                             $  19,927         $    21,200         $ (1,273 )            (6.0 )%
Gross profit as a percentage of
total revenue (gross margin)                  71.9 %              73.3 %
Total operating expenses                 $  20,551         $    21,684         $ (1,133 )            (5.2 )%
Loss from operations                     $    (624 )       $      (484 )       $   (140 )            28.9 %
Loss from operations as a percentage
of total revenue (operating margin)           (2.3 )%             (1.7 )%
Net loss                                 $    (359 )       $       (72 )       $   (287 )           398.6 %
Diluted net loss per common share        $   (0.02 )       $     (0.00 )       $  (0.02 )           427.7 %
Total employees (period end)                   580                 593              (13 )            (2.2 )%
Total average employees                        582                 585               (3 )            (0.5 )%
Total consultants (period end)                 104                 118              (14 )           (11.9 )%
Total quota-carrying sales persons
(excluding directors and inside
sales representatives) (period end)             71                  70                1               1.4 %

Financial Condition and Liquidity
Data:
Cash, cash equivalents and
marketable securities (period end)       $  91,456         $    91,989         $   (533 )            (0.6 )%
Cash flows provided by operating
activities                               $   1,263         $     3,872         $ (2,609 )           (67.4 )%
Total deferred revenue (period end)      $  33,195         $    33,133         $     62               0.2 %

Our decrease in total revenue in Q1 fiscal 2010 from Q4 fiscal 2009 was primarily due to a decline in new software license revenue of $1.8 million, which was partially offset by a $320,000 increase in professional services revenue and a $267,000 increase in software license updates, technical support and services revenue. The sequential decline in revenue from new software licenses was largely the result of a decline in revenue from corporate enterprise customers, partially offset by growth in revenue from United States government customers. The sequential increase in revenue from professional services was largely the result of an increase in revenue from corporate enterprise customers. The sequential increase in software license updates, technical support and services revenue was largely due to growth in our installed customer base. Total revenue generated from sales to United States government customers increased by $953,000 during Q1 fiscal 2010 as compared to Q4 fiscal 2009. The percentage of total revenue from United States government customers increased to 42.6% in Q1 fiscal 2010 from 37.6% in Q4 fiscal 2009.

Our international revenue decreased 7.2% to $6.0 million for Q1 fiscal 2010 as compared to Q4 fiscal 2009. As a percentage of total revenue, international revenue decreased from 22.2% to 21.5%. The decline in international revenue was primarily the result of a decline in revenue from international government customers and, to a lesser extent, network equipment manufacturer 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 Q1 fiscal 2010. 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 $1.3 million, or 6.0%, to $19.9 million for Q1 fiscal 2010 from $21.2 million for Q4 fiscal 2009. The decrease in gross profit and gross margin was the result of a $1.8 million decrease in new software license revenue, partially offset by a $320,000 increase in professional services revenue and a $267,000 increase in software license updates, technical support and services revenue. Gross margin on new software license revenue, software license updates, technical support and services revenue and professional services revenue for Q1 fiscal 2010 was 87.6%, 89.1%, and 33.0%, 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 income decreased to negative $624,000, or negative 2.3% of total revenue, during Q1 fiscal 2010 from negative $484,000, or negative 1.7%, of total revenue, during Q4 fiscal 2009. The decrease in operating income during Q1 fiscal 2010 as compared to Q4 fiscal 2009 was largely the result of a $1.8 million decrease in new software license revenue, partially offset by a $1.1 million decrease in operating expenses. The decrease in operating expenses was primarily the result of a $660,000 decrease in the cost of trade shows resulting from marketing cost control initiatives and a $433,000 decrease in bad debt expense resulting from payments received for a large aged receivable.

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

Total Revenue. We believe the current economic environment could continue to 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, in addition to the current economic environment, will affect the timing of sales orders as well as our ability to forecast future revenue. As a result, our international quarterly revenue in absolute dollars and as a percentage of total revenue may decrease.

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. 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 may also affect our gross profit margin.

Research and Development Expenses. We believe that continued investment in research and development will be required to maintain our competitive position and broaden our software product lines, as well as enhance the features and functionality of our current software products, especially in the application performance management market. We made significant personnel investments in research and development during fiscal 2009; however, given current economic conditions, we plan to invest more modestly in additional personnel during the next several quarters. We expect that the absolute dollar amount of these expenses will continue to grow 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.

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 made significant personnel investments in sales and marketing during fiscal 2009. Given the current economic environment, we plan to invest modestly in additional quota-carrying sales personnel during the coming quarters. Additionally, we have taken specific steps to significantly reduce the dollar amount of marketing expenditures we intend to make during the remainder of fiscal 2010 as compared to fiscal 2009. Consequently, we expect the absolute dollar amount of sales and marketing expenses to remain relatively flat over the next several quarters but generally decrease as a percentage of total revenue in future periods. Our ability to lower these expenses as a percentage of revenue will depend upon increases in our revenue, among other factors.

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. Since 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 adversely impact our operating margin and earnings. Our operating margin decreased to negative 2.3% during Q1 fiscal 2010 from negative 1.7% during Q4 fiscal 2009. We remain committed to increasing profitability and generating long-term growth. As a result of the challenging economic environment, we have taken a number of steps to control our operating expenses and maximize our operating margin at a given revenue level. We do not believe that additional changes to our cost structure are necessary at this time, but we intend to closely monitor and control expenses in order to maximize our operating margin.

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, fair value measurement of cash equivalents and marketable securities, 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, 2009.

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
                                                                     June 30,
                                                               2009             2008
Revenue:
New software licenses                                            32.1 %           43.0 %
Software license updates, technical support and services         40.8             32.4
Professional services                                            27.1             24.6

Total revenue                                                   100.0            100.0

Cost of revenue:
New software licenses                                             4.0              2.1
Software license updates, technical support and services          4.4              3.7
Professional services                                            18.1             18.4
Amortization of acquired technology and customer
relationships                                                     1.6              1.9

Total cost of revenue                                            28.1             26.1

Gross profit                                                     71.9             73.9

Operating expenses:
Research and development                                         28.4             25.0
Sales and marketing                                              37.2             36.3
General and administrative                                        8.6              9.5

Total operating expenses                                         74.2             70.8

(Loss) income from operations                                    (2.3 )            3.1
Interest and other income, net                                    0.2              1.5

(Loss) income before (benefit) provision for income
taxes                                                            (2.1 )            4.6
(Benefit) provision for income taxes                             (0.8 )            1.9

Net (loss) income                                                (1.3 )%           2.7 %

Revenue

New Software License Revenue. New software license revenue was $8.9 million and $12.9 million for the three months ended June 30, 2009 and 2008, respectively, representing a decrease of 31.1%. The decrease was largely due to a decrease in revenue generated from corporate enterprise customers, partially offset by an increase in revenue generated from U.S. government customers.

Software License Updates, Technical Support and Services Revenue. Software license updates, technical support and services revenue was $11.3 million and $9.7 million for the three months ended June 30, 2009 and 2008, respectively, representing an increase of 16.0%. 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 months ended June 30, 2009, as compared to the same period in fiscal 2009, reflects increases in the overall customer-installed base.

Professional Services Revenue. The components of professional services revenue for the three months ended June 30, 2009 and 2008 are as follows:

                                                  Three Months Ended
                                                       June 30,
                                                   2009         2008
                                                    (in thousands)
                Consulting services revenue     $    7,382    $  7,234
                Training revenue                       131         183

                Professional services revenue   $    7,513    $  7,417

Professional services revenue was $7.5 million and $7.4 million for the three months ended June 30, 2009 and 2008, respectively, representing an increase of 1.3%. Consulting services revenue accounted for 98.3% and 97.5% for the three months ended June 30, 2009 and 2008, respectively. The slight increase in professional services revenue was largely due to an increase in revenue generated from international government customers.

International Revenue.

Our international revenue was $6.0 million and $6.2 million for the three months ended June 30, 2009 and 2008, respectively, representing a decrease of 4.3%. Our international revenue increased as a percentage of total revenue to 21.5% for the three months ended June 30, 2009 from 20.7% for the same period in fiscal 2009. The absolute dollar decrease was largely the result of a decrease in revenue from service provider customers, partially offset by an increase in revenue from corporate enterprise customers. Revenue from corporate enterprise customers accounted for the largest percentage of international revenue for the three months ended June 30, 2009 and 2008. Our international revenue is primarily generated in Europe and Japan. We have focused efforts on increasing international revenue from enterprise customers.

Cost of Revenue.

The following table sets forth, for each component of revenue, the cost of such
component of revenue as a percentage of the related revenue for the periods
indicated:



                                                             Three Months Ended
                                                                  June 30,
Cost of Revenue:                                            2009            2008
New software licenses                                         12.4 %           4.9 %
Software license updates, technical support and services      10.9 %          11.5 %
Professional services                                         67.0 %          74.5 %

Cost of new software license revenue consists primarily of the cost of hardware platforms associated with the delivery of some software products, royalties, and, to a lesser extent, media, manuals, and distribution costs. Cost of license updates, technical support and services revenue consists of personnel-related costs necessary to provide technical support and training to customers with active maintenance contracts on a when-and-if-available basis, royalties, media, and distribution costs. Cost of professional services revenue consists primarily of

personnel-related costs necessary to provide consulting and training to customers without active maintenance contracts. Gross margins on new software license revenue and software license updates, technical support and services revenue are substantially higher than gross margin on professional services revenue, due to the low cost of delivering new software licenses and providing technical support and maintenance compared with the relatively high personnel costs associated with providing consulting services and customer training.

Cost of New Software License Revenue. Cost of software license revenue was $1.1 million and $629,000 for the three months ended June 30, 2009 and 2008, respectively. The increase in costs was primarily the result of a $567,000 increase in costs related to hardware platforms used to deliver our ACE Live software products. The increase in ACE Live hardware platform cost was the result of selling a larger proportion of ACE Live solutions during the three months ended June 30, 2009, as compared to the same period in fiscal 2009. Gross margin on software license revenue decreased to 87.6% for the three months ended June 30, 2009, compared to 95.1% for the same period in fiscal 2009, as a result of increases in related hardware costs.

. . .