The following discussion and analysis related to our financial condition and results of operations for the three and six months ended September 30, 2012 and 2011 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, 2012, filed with the Securities and Exchange Commission, or SEC, on June 8, 2012. 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, 2012 and in subsequent SEC filings. 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, as amended, 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 application performance management, or APM, and network performance management solutions. Our software products address application performance management, network operations, capacity management, 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 products and related services. While our operations are principally in the United States, we also have subsidiaries in Belgium, France, Germany, the United Kingdom, Singapore, and Australia, registered offices in China and the United Arab Emirates, and an office in Japan. 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) products, (2) product updates, technical support and services, and (3) professional services, which include consulting and training services for customers without current maintenance agreements. Product revenue represents all fees earned from granting customers licenses to use our software and fees associated with hardware platforms used to deliver some software products, but excludes revenue derived from product updates, which are included in product 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, 2012 and 2011, perpetual licenses represented approximately 96% and 93%, respectively, of product revenue. Product updates, technical support, and services revenue represents fees associated with the sale of unspecified product updates, technical support and when-and-if available training under our maintenance agreements. Substantially all of our product arrangements generate both product revenue and product updates, technical support, and services revenue. 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 product licenses.

The key strategies of our business plan include increasing sales both to new customers and 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, we expect to need to closely control the increases in our total expenses as we implement these strategies.

On October 28, 2012, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Riverbed Technology, Inc., a Delaware corporation ("Riverbed") and Octagon Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Riverbed ("Acquisition Sub"). Under the terms of the Merger Agreement, Acquisition Sub will commence an exchange offer (the "Offer") to acquire all of the outstanding shares of the Company's common stock in exchange for consideration, per share of the Company's common stock, comprised of (i) $36.55, net to the seller in cash and (ii) 0.2774 of a share of Riverbed common stock ((i) and (ii) together, the "Offer Price"), without interest. Following the consummation of the Offer, Acquisition Sub will merge with and into the Company with the Company surviving as a wholly owned subsidiary of Riverbed (the "Transaction"). Upon the Merger being effective, shares of the Company's common stock not tendered and accepted pursuant to the Offer (other than shares of the Company's common stock owned directly or indirectly by the Company, Riverbed or Acquisition Sub, or any of their respective subsidiaries, or shares of the Company's common stock as to which appraisal rights have been perfected in accordance with applicable law), will be cancelled and converted into the right to receive the Offer Price. Upon consummation of the Merger: (i) the Company's outstanding options will be converted into equity awards of Riverbed on substantially equivalent terms; and (ii) the Company's outstanding restricted stock and restricted stock units will be assumed by Riverbed and converted into the right to receive the Offer Price on substantially equivalent terms. Consummation of the Offer is subject to various conditions set forth in the Merger Agreement, including, among others: (i) at least a majority of shares of OPNET Common Stock then outstanding (calculated on a fully-diluted basis) being tendered in the Offer; (ii) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iii) the absence of any Company Material Adverse Effect (as defined in the Merger Agreement); (iv) the registration statement for Riverbed's common stock issuable in connection with the Offer and the Merger being declared effective by the SEC; and (v) the receipt by Riverbed of sufficient proceeds to consummate the Offer.

Summary of Our Sequential Quarter-Over-Quarter Financial Performance

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
                                            2012                 2012            Change             Change
                                                   (dollars in thousands, except per share data)
Statement of Operations Data:
Total revenue                          $        47,060        $   44,031        $   3,029                 6.9 %
Total cost of revenue                  $        11,047        $    9,776        $   1,271                13.0 %
Gross profit                           $        36,013        $   34,255        $   1,758                 5.1 %
Gross profit as a percentage of
total revenue (gross margin)                      76.5 %            77.8 %
Total operating expenses               $        29,917        $   28,066        $   1,851                 6.6 %
Income from operations                 $         6,096        $    6,189        $     (93 )              (1.5 )%
Income from operations as a
percentage of total revenue
(operating margin)                                13.0 %            14.1 %
Net income                             $         3,855        $    3,794        $      61                 1.6 %
Diluted net income per common
share                                  $          0.17        $     0.16        $    0.01                 6.3 %
Other Operations Data:
Total employees (period end)                       669               654               15                 2.3 %
Total average employees                            657               623               34                 5.5 %
Total consultants (period end)                     104                96                8                 8.3 %
Total quota-carrying sales persons
(excluding directors and inside
sales representatives) (period
end)                                                94                90                4                 4.4 %

Financial Condition and Liquidity
Data:
Cash, cash equivalents, and
marketable securities (period end)     $        94,598        $  102,372        $  (7,774 )              (7.6 )%
Cash flows (used)/provided by
operating activities                   $        (4,887 )      $    7,125        $ (12,012 )            (168.6 )%
Total deferred revenue (period
end)                                   $        53,100        $   53,193        $     (93 )              (0.2 )%

Our increase in total revenue in the three months ended September 30, 2012, or Q2 fiscal 2013, from the three months ended June 30, 2012, or Q1 fiscal 2013, was principally due to an increase in product revenue of $1.9 million and a $902,000 increase in product updates, technical support and services revenue. The increase in product revenue was principally due to an increase in product sales to corporate enterprise customers and, to a lesser extent, an increase in sales to network equipment manufacturers. The increases were partially offset by a decrease in product sales to United States government customers. Total revenue generated from sales to United States government customers decreased by $3.2 million during Q2 fiscal 2013 as compared to Q1 fiscal 2013. The percentage of total revenue from United States government customers decreased to 26.1% in Q2 fiscal 2013 from 35.1% in Q1 fiscal 2013.

Our international revenue was $9.6 million and $8.8 million for Q2 fiscal 2013 and Q1 fiscal 2013, respectively. The increase in international revenue was primarily the result of an increase in product sales to corporate enterprise customers. As a percentage of total revenue, international revenue increased slightly from 20.0% to 20.4% during Q2 fiscal 2013. We expect international revenue 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 Q2 fiscal 2013. 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 to $36.0 million for Q2 fiscal 2013 from $34.3 million for Q1 fiscal 2013. The increase in gross profit was primarily due to the $1.9 million increase in product revenue. Our gross margin decreased to 76.5% in Q2 fiscal 2013 from 77.8% in Q1 fiscal 2013. The decrease in our gross margin was principally due to an increase in hardware costs associated with increased sales of our AppResponse Xpert products. The following table summarizes the gross margins on revenue for Q2 fiscal 2013 and Q1 fiscal 2013:

Gross Margin                                       Q2 Fiscal 2013              Q1 Fiscal 2013
Product                                                       82.8 %                      85.4 %
Product updates, technical support and
services                                                      90.7 %                      90.4 %
Professional services                                         32.7 %                      33.3 %

During Q2 fiscal 2013, as compared to Q1 fiscal 2013, we experienced a decrease in cash, cash equivalents, and marketable securities of $7.8 million. The decline was principally related to cash used in operating activities of $4.9 million and, to a lesser extent, cash dividends paid of $3.5 million. Cash used in operating activities was largely due to an increase in accounts receivable resulting from 55% of our revenue during the quarter being generated in the third month.

Seasonality

Our product revenue tends to be seasonal. Product revenue from corporate enterprise customers, which represents the largest portion of our product revenue, has historically been the highest in the quarter ending December 31, our third fiscal quarter. Corporate enterprise customers typically operate on a calendar year end. As a result, it has been our experience that they often spend the remaining portion of their budgets in the December quarter.

In addition, European buying patterns have historically resulted in a decline in product sales in the summer months followed by increased product sales in our third fiscal quarter, reflecting European vacation practices and the resulting delay in product purchase activities until the conclusion of the summer vacation season. Corporate enterprise customers represent the largest portion of our sales to customers in Europe.

The increase in product revenue from corporate enterprise customers and European customers in the quarter ended December 31 has historically more than offset the sequential decline in product sales to the United States government during the same quarter. Product revenue from United States government customers has historically been highest in the quarter ending September 30, which coincides with the United States government fiscal year-end, and reflects higher demand for product purchases prior to the end of their fiscal year. United States government product purchases then typically decline sequentially in the quarter ending December 31. Despite this trend during Fiscal 2013, we expect that the quarter ended June 30 will be the highest quarter for United States government customer revenue primarily due to strong United States government sales during that quarter and weaker sales during the quarter ended September 30. We believe the weaker sales during the quarter ended September 30 was the result of federal budget constraints.

While we expect these historical trends to continue, they could be affected by a number of factors, including the relative proportions of our business conducted with government compared to commercial customers and domestic compared to European customers, a decline in general economic conditions, changes in the timing or amounts of United States government spending resulting from budget constraints or other factors, and our continued expansion into international markets.

Trends That May Affect Business and Future Results

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

Total Revenue. We believe the current overall economic environment is showing signs of improvement but parts of the world economy, including countries comprising the European Union, appear to be declining. Our ability to generate increased revenue domestically and internationally will depend largely upon continued improvement in overall economic conditions. We expect future growth opportunities in product revenue and product updates, technical support and services 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. Our ability to generate increased revenue from United States government customers will be impacted by the length and severity of budget constraints. We expect product revenue and product updates, technical support and services revenue from sales to service providers and network equipment manufacturers to fluctuate from quarter to quarter with the potential for periods of declining revenue. Our ability to increase professional services revenue will depend in part on our ability to attract and retain additional qualified consultants, including those with security clearances. We believe that continued increases in the proportion of sales of our APM products, as compared to our other products, could cause the percentage of our total revenue attributable to professional services revenue to decline and might also cause an absolute decline in professional services revenue because our APM products generally require less consulting time to implement. As a result of these factors, we believe that we will likely experience fluctuations in quarterly revenue.

Gross Profit Margin. Our overall gross profit margin will continue to be affected by the proportion of total revenue generated from products and product updates, technical support and services, as revenue from these sources has substantially higher gross margins than the gross margin on revenue from professional services. Our overall gross profit margin will also be affected by the proportion of our product revenue that is derived from products delivered on hardware platforms, the amount of fees paid to indirect channel partners and the profitability of individual consulting engagements. Amortization of technology associated with acquisitions of technology that 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 our APM products. We believe there is more competition in the markets served by our APM products as compared to the markets for our other products. We made personnel investments in research and development during fiscal 2012, and we plan to continue making investments in additional personnel during fiscal 2013. 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, although our ability to decrease these expenses as a percentage of revenue will depend upon our ability to increase 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. During fiscal 2012, we focused on improving the productivity of our sales force and only made modest investments in additional direct sales personnel. We have begun to accelerate our hiring of quota-carrying salespeople as compared to fiscal 2012 in order to address what we believe is a large and growing market for our products. We also plan to increase expenditures in areas we believe will enhance the visibility of our products in the marketplace, especially our APM products. While we expect that the absolute dollar amount of sales and marketing expenses will increase in fiscal 2013 as compared to fiscal 2012, our ability to lower these expenses as a percentage of revenue will depend upon increases in our revenue.

General and Administrative Expenses. 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 product 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. We remain committed to increasing profitability and generating long-term growth. As the economy improves, we plan to strategically increase research and development and marketing expenditures in order to maintain our products' competitive advantages and increase market share. While we intend to strategically increase expenditures in certain areas, we intend to closely monitor and control overall operating 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, valuation of 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, 2012, filed with the SEC on June 8, 2012.

Results of Operations

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



                                                     Three Months Ended             Six Months Ended
                                                       September 30,                 September 30,
                                                    2012            2011           2012          2011
Revenue:
Product                                                46.8 %         49.1 %         46.3 %        48.8 %
Product updates, technical support and
services                                               38.1           36.8           38.4          36.6
Professional services                                  15.1           14.1           15.3          14.6

Total revenue                                         100.0          100.0          100.0         100.0

Cost of revenue:
Product                                                 8.1            9.4            7.4           7.8
Product updates, technical support and
services                                                3.5            3.3            3.6           3.4
Professional services                                  10.2            8.9           10.3           9.3
Amortization of acquired technology and
customer relationships                                  1.7            1.3            1.6           1.3

Total cost of revenue                                  23.5           22.9           22.9          21.8

Gross profit                                           76.5           77.1           77.1          78.2

Operating expenses:
Research and development                               23.3           21.7           23.4          22.3
Sales and marketing                                    32.3           32.1           32.3          31.7
General and administrative                              7.9            6.0            7.9           7.7

Total operating expenses                               63.5           59.8           63.6          61.7

Income from operations                                 13.0           17.3           13.5          16.5
Interest and other expense, net                         0.0           (0.0 )          0.0          (0.1 )

Income before provision for income taxes               13.0           17.3           13.5          16.4
Provision for income taxes                              4.8            5.9            5.1           5.5

Net income                                              8.2 %         11.4 %          8.4 %        10.9 %

Revenue

Product Revenue. Product revenue was $22.0 million and $20.6 million for the three months ended September 30, 2012 and 2011, respectively, representing an increase of 6.8%. The increase was primarily due to growth in sales to corporate enterprise customers and, to a lesser extent, network manufacturing customers which was partially offset by a decrease in sales to United States government customers. Product revenue was $42.1 million and $40.0 million for the six months ended September 30, 2012 and 2011, respectively, representing an increase of 5.2%. The increase was primarily due to growth in sales to corporate enterprise customers and, to a lesser extent, network manufacturing customers which was partially offset by a decrease in sales to United States government customers. The increase in product revenue for the three and six month periods ended September 30, 2012 was principally due to growth in sales of our APM products. We believe the decrease in product revenue from United States government customers for the three and six month periods ended September 30, 2012 reflects heightened federal budget constraints.

Product Updates, Technical Support and Services Revenue. Product updates, technical support and services revenue was $18.0 million and $15.4 million for the three months ended September 30, 2012 and 2011, respectively, representing an increase of 16.5%. Product updates, technical support and services revenue was $35.0 million and $30.1 million for the six months ended September 30, 2012 and 2011, respectively, representing an increase of 16.3%. Product updates, technical support and services revenue growth rates are affected by the overall product revenue growth rates, as well as the annual renewal of maintenance contracts by existing customers. The increase in product updates, technical support and services revenue for both periods reflect increases in the overall customer installed base. Growth in the overall customer installed base generally increases the demand for annual renewals of maintenance contracts.

. . .