The following discussion and analysis related to our financial condition and results of operations for the three and six months ended September 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 six months ended September 30, 2009 and 2008, perpetual licenses represented approximately 92% and 87%, 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 September 30, 2009, or Q2 fiscal 2010, as compared to the three months ended June 30, 2009, or Q1 fiscal 2010, we experienced an increase in total revenue, gross profit, income from operations and net income. The increase was primarily the result of an increase in new software license revenue of $2.8 million driven by growth in revenue from our application performance management products and our network planning, engineering and operations products. We believe these increases were the result of loosening customer budgets and more normal purchasing patterns as compared to Q1.

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

                                               Three Months Ended
                                         September 30,          June 30,           Amount         Percentage
                                             2009                 2009             Change           Change
                                                   (dollars in thousands, except per share data)
Operations Data:
Total revenue                          $          30,628        $  27,727         $  2,901              10.5 %
Total cost of revenue                  $           7,752        $   7,800         $    (48 )            (0.6 )%
Gross profit                           $          22,876        $  19,927         $  2,949              14.8 %
Gross profit as a percentage of
total revenue (gross margin)                        74.7 %           71.9 %
Total operating expenses               $          20,673        $  20,551         $    122               0.6 %
Income (loss) from operations          $           2,203        $    (624 )       $  2,827             453.0 %
Income (loss) from operations as a
percentage of total revenue
(operating margin)                                   7.2 %           (2.3 )%
Net income (loss)                      $           1,533        $    (359 )       $  1,892             527.0 %
Diluted net income (loss) per
common share                           $            0.07        $   (0.02 )       $   0.09             450.0 %
Total employees (period end)                         580              580               -                0.0 %
Total average employees                              579              582               (3 )            (0.5 )%
Total consultants (period end)                       103              104               (1 )            (1.0 )%
Total quota-carrying sales persons
(excluding directors and inside
sales representatives) (period
end)                                                  70               71               (1 )            (1.4 )%

Financial Condition and Liquidity
Data:
Cash, cash equivalents and
marketable securities (period end)     $          89,492        $  91,456         $ (1,964 )            (2.1 )%
Cash flows provided by operating
activities                             $             135        $   1,263         $ (1,128 )           (89.3 )%
Total deferred revenue (period
end)                                   $          34,893        $  33,195         $  1,698               5.1 %

Our increase in total revenue in Q2 fiscal 2010 from Q1 fiscal 2010 was primarily due to an increase in new software license revenue of $2.8 million and, to a lesser extent, an increase of $353,000 in software license updates, technical support and services, which was partially offset by a $210,000 decrease in professional services revenue. The sequential increase in revenue from new software licenses was largely the result of an increase in revenue from United States government customers, and to a lesser extent, 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. The sequential decrease in revenue from professional services was largely the result of a decrease in revenue from corporate enterprise customers, which was partially offset by an increase in revenue from service providers. Total revenue generated from sales to United States government customers increased by $1.7 million during Q2 fiscal 2010 as compared to Q1 fiscal 2010. The percentage of total revenue from United States government customers increased to 44.3% in Q2 fiscal 2010 from 42.6% in Q1 fiscal 2010.

Our international revenue was $5.9 million and $6.0 million for Q2 fiscal 2010 and Q1 fiscal 2010, respectively. As a percentage of total revenue, international revenue decreased from 21.5% to 19.2% during Q2 fiscal 2010. 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 and service providers accounted for the largest portion of our international revenue during Q2 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 increased $2.9 million, or 14.8%, to $22.9 million for Q2 fiscal 2010 from $19.9 million for Q1 fiscal 2010. The increase in gross profit and gross margin was the result of a $2.8 million increase in new software license revenue and a $353,000 increase in software license updates, technical support and services revenue, partially offset by a $210,000 decrease in professional services revenue. Gross margin on new software license revenue, software license updates, technical support and services revenue and professional services revenue for Q2 fiscal 2010 was 89.4%, 89.9%, and 33.5%, respectively. Changes in revenue from new software licenses and software license updates, technical support and services revenue have more impact on gross profit than changes in revenue from professional services due to their higher gross margins.

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 provided economic conditions do not improve. 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 and software license updates, technical support and services revenue, as revenue from these sources 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 increase modestly 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 increased to 7.2% during Q2 fiscal 2010 from negative 2.3% during Q1 fiscal 2010. 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 during fiscal 2010 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 condensed 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. 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               Six Months Ended
                                                September 30,                   September 30,
                                             2009            2008            2009            2008
Revenue:
New software licenses                          38.1 %          43.3 %          35.3 %          43.1 %
Software license updates, technical
support and services                           38.0            34.7            39.3            33.6
Professional services                          23.9            22.0            25.4            23.3

Total revenue                                 100.0           100.0           100.0           100.0

Cost of revenue:
New software licenses                           4.0             1.7             4.0             1.9
Software license updates, technical
support and services                            3.8             3.5             4.1             3.6
Professional services                          15.9            17.2            17.0            17.7
Amortization of acquired technology
and customer relationships                      1.6             1.8             1.6             1.9

Total cost of revenue                          25.3            24.2            26.7            25.1

Gross profit                                   74.7            75.8            73.3            74.9

Operating expenses:
Research and development                       25.1            25.3            26.6            25.1
Sales and marketing                            32.8            30.9            34.9            33.6
General and administrative                      9.6            10.0             9.1             9.7

Total operating expenses                       67.5            66.2            70.6            68.4

Income from operations                          7.2             9.6             2.7             6.5
Interest and other (expense) income,
net                                            (0.2 )           1.2             0.0             1.3

Income before provision for income
taxes                                           7.0            10.8             2.7             7.8
Provision for income taxes                      2.0             4.5             0.7             3.3

Net income                                      5.0 %           6.3 %           2.0 %           4.5 %

Revenue

New Software License Revenue. New software license revenue was $11.7 million and $14.0 million for the three months ended September 30, 2009 and 2008, respectively, representing a decrease of 16.7%. The decrease was largely due to a decrease in revenue generated from service providers, partially offset by an increase in revenue generated from corporate enterprise customers. New software license revenue was $20.6 million and $26.9 million for the six months ended September 30, 2009 and 2008, respectively, representing a decrease of 23.6%. The decrease in license revenue for the six months ended September 30, 2009, as compared to the same period in fiscal 2009, was due largely to a decrease in revenue generated from service providers and, to a lesser extent, corporate enterprise customers, partially offset by an increase in U.S. government customers.

Software License Updates, Technical Support and Services Revenue. Software license updates, technical support and services revenue was $11.7 million and $11.2 million for the three months ended September 30, 2009 and 2008, respectively, representing an increase of 3.9%. Software license updates, technical support and services revenue was $23.0 million and $21.0 million for the six months ended September 30, 2009 and 2008, respectively, representing an increase of 9.5%. 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 six months ended September 30, 2009, as compared to the same periods in fiscal 2009, reflects increases in the overall customer -installed base.

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

                                         Three Months Ended       Six Months Ended
                                           September 30,           September 30,
                                          2009         2008       2009        2008
                                                      (in thousands)
       Consulting services revenue     $    7,220    $  6,992   $  14,602   $ 14,226
       Training revenue                        83         140         214        323

       Professional services revenue   $    7,303    $  7,132   $  14,816   $ 14,549

Professional services revenue was $7.3 million and $7.1 million for the three months ended September 30, 2009 and 2008, respectively, representing an increase of 2.4%. Consulting services revenue accounted for 98.9% and 98.0% of professional services revenue for the three months ended September 30, 2009 and 2008, respectively. The slight increase in professional services revenue was largely due to an increase in revenue generated from U.S. government customers, which was offset by a decrease in revenue generated from service providers and corporate enterprise customers. Professional services revenue was $14.8 million and $14.5 million for the six months ended September 30, 2009 and 2008, respectively, representing an increase of 1.8%. Consulting services revenue accounted for 98.6% and 97.8% of professional services revenue for the six months ended September 30, 2009 and 2008, respectively. The increase in professional services revenue for the six months ended September 30, 2009, as compared to the same period in fiscal 2009, was largely due to an increase in revenue generated from U.S. government customers, and to a lesser extent, revenue generated from international government customers, which was offset by a decrease in revenue generated from service providers and corporate enterprise customers.

International Revenue.

Our international revenue was $5.9 million and $6.4 million for the three months ended September 30, 2009 and 2008, respectively, representing a decrease of 8.2%. Our international revenue decreased as a percentage of total revenue to 19.2% for the three months ended September 30, 2009 from 19.8% for the same period in fiscal 2009. The absolute dollar decrease was largely the result of a decrease in revenue from service providers and, to a lesser extent, a decrease in revenue from network equipment manufacturers and corporate enterprise customers. The decreases were partially offset by an increase in revenue from international government customers. Revenue from corporate enterprise customers accounted for the largest percentage of international revenue for the three months ended September 30, 2009 and 2008. Our international revenue was $11.9 million and $12.6 million for the six months ended September 30, 2009 and 2008, respectively, representing a decrease of 6.3%. Our international revenue remained consistent as a percentage of total revenue at 20.3% for the six months ended September 30, 2009 and for the same period in fiscal 2009. Revenue from corporate enterprise customers accounted for the largest percentage of international revenue for the six months ended September 30, 2009 and 2008. Our international revenue is primarily generated in Europe and Japan. We have focused our efforts on increasing international revenue from corporate 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             Six Months Ended
                                                   September 30,                  September 30,
. . .