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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended December 31, 2010

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

(Commission file number: 000-30931)

OPNET TECHNOLOGIES, INC.

(Exact name of registrant as specified in its
charter)



|                                                               |  |                                                          |  |                                     
|-------------------------------------------------------------- |  | -------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 7372                                                     |  | 52-1483235                          
|(State or other jurisdiction of incorporation or organization) |  | (Primary Standard Industrial Classification Code Number) |  | (I.R.S. Employer Identification No.)

7255 Woodmont Avenue

Bethesda, MD 20814

(Address of principal executive office)

(240) 497-3000

(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     YES  
x    NO   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes    ̈
    No    ̈

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, or smaller reporting company in Rule
12b-2 of the Exchange Act (check one).

Large accelerated
filer   ̈    Accelerated filer  x     Non-accelerated filer   ̈    Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
YES   ̈    NO  x

The number of shares of the registrants common stock outstanding on February 1, 2011 was 22,112,942.









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##### Table of Contents

TABLE OF CONTENTS



|     |  |                                                                                                                |  |      |    | 
|---- |  | -------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|     |  | PART I                                                                                                         |  |      |    | 
|     |  | FINANCIAL INFORMATION                                                                                          |  |      |    | 
|ITEM |  |                                                                                                                |  | Page |   
|1.   |  | Condensed Consolidated Financial Statements (unaudited)                                                        |  |      | 3  | 
|     |  |                                                                                                               
|     |  | Condensed Consolidated Balance Sheets as of December 31, 2010 and March 31, 2010                               |  |      | 3  | 
|     |  |                                                                                                               
|     |  | Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2010 and 2009 |  |      | 4  | 
|     |  |                                                                                                               
|     |  | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2010 and
2009           |  |      | 5  | 
|     |  |                                                                                                               
|     |  | Notes to Condensed Consolidated Financial Statements                                                           |  |      | 6  | 
|     |  |                                                                                                               
|2.   |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                          |  |      | 19 | 
|     |  |                                                                                                               
|3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                     |  |      | 30 | 
|     |  |                                                                                                               
|4.   |  | Controls and Procedures                                                                                        |  |      | 31 | 
|     |  |                                                                                                               
|     |  | PART II                                                                                                        |  |      |    | 
|     |  | OTHER INFORMATION                                                                                              |  |      |    | 
|     |  |                                                                                                               
|1.   |  | Legal Proceedings                                                                                              |  |      | 32 | 
|     |  |                                                                                                               
|1A.  |  | Risk Factors                                                                                                   |  |      | 32 | 
|     |  |                                                                                                               
|2.   |  | Unregistered Sales of Securities and Use of Proceeds                                                           |  |      | 33 | 
|     |  |                                                                                                               
|3.   |  | Defaults Upon Senior Securities.                                                                               |  |      | 33 | 
|     |  |                                                                                                               
|4.   |  | Removed and Reserved                                                                                           |  |      | 33 | 
|     |  |                                                                                                               
|5.   |  | Other Information                                                                                              |  |      | 33 | 
|     |  |                                                                                                               
|6.   |  | Exhibits                                                                                                       |  |      | 33 | 
|     |  |                                                                                                               
|     |  | Signature                                                                                                      |  |      | 34 | 
|     |  |                                                                                                               
|     |  | Exhibit Index                                                                                                  |  |      | 35 | 



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|ITEM 1. | Condensed Consolidated Financial Statements
|------- | -------------------------------------------

OPNET TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)



|                                                                                                                                                                                                                                                    |  |                  |         |   |               |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------- | - | ------- | -
|                                                                                                                                                                                                                                                    |  | December 31,2010 |         |   | March 31,2010 |  
|ASSETS                                                                                                                                                                                                                                              |  |                  |         |   |               |   |         |  
|Current assets:                                                                                                                                                                                                                                     |  |                  |         |   |               |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                                           |  | $                | 66,026  |   |               | $ | 104,681 |  
|Marketable securities                                                                                                                                                                                                                               |  |                  | 34,951  |   |               |   |        |  
|Accounts receivable, net of $470 and $336 in allowance for doubtful accounts at December 31 and March 31, 2010,
respectively                                                                                                                        |  |                  | 32,084  |   |               |   | 28,015  |  
|Unbilled accounts receivable                                                                                                                                                                                                                        |  |                  | 1,902   |   |               |   | 4,765   |  
|Inventory                                                                                                                                                                                                                                           |  |                  | 336     |   |               |   | 872     |  
|Deferred income taxes, prepaid expenses and other current assets                                                                                                                                                                                    |  |                  | 5,729   |   |               |   | 2,816   |  
|                                                                                                                                                                                                                                                    |  |                  |         |   |               |   |         |  
|                                                                                                                                                                                                                                                    |  |                  | 141,028 |   |               |   | 141,149 |  
|                                                                                                                                                                                                                                                    |  |                  |         |   |               |   |         |  
|Property and equipment, net                                                                                                                                                                                                                         |  |                  | 13,017  |   |               |   | 13,245  |  
|Intangible assets, net                                                                                                                                                                                                                              |  |                  | 5,071   |   |               |   | 5,109   |  
|Goodwill                                                                                                                                                                                                                                            |  |                  | 15,406  |   |               |   | 14,639  |  
|Deferred income taxes and other assets                                                                                                                                                                                                              |  |                  | 4,402   |   |               |   | 4,210   |  
|                                                                                                                                                                                                                                                    |  |                  |         |   |               |   |         |  
|Total assets                                                                                                                                                                                                                                        |  | $                | 178,924 |   |               | $ | 178,352 |  
|                                                                                                                                                                                                                                                    |  |                  |         |   |               |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                |  |                  |         |   |               |   |         |  
|Current liabilities:                                                                                                                                                                                                                                |  |                  |         |   |               |   |         |  
|Accounts payable                                                                                                                                                                                                                                    |  | $                | 1,680   |   |               | $ | 1,405   |  
|Accrued liabilities                                                                                                                                                                                                                                 |  |                  | 11,781  |   |               |   | 10,932  |  
|Other income taxes                                                                                                                                                                                                                                  |  |                  | 312     |   |               |   | 498     |  
|Deferred rent                                                                                                                                                                                                                                       |  |                  | 200     |   |               |   | 432     |  
|Deferred revenue                                                                                                                                                                                                                                    |  |                  | 38,533  |   |               |   | 38,425  |  
|                                                                                                                                                                                                                                                    |  |                  |         |   |               |   |         |  
|Total current liabilities                                                                                                                                                                                                                           |  |                  | 52,506  |   |               |   | 51,692  |  
|                                                                                                                                                                                                                                                    |  |                  |         |   |               |   |         |  
|Accrued liabilities                                                                                                                                                                                                                                 |  |                  | 84      |   |               |   | 145     |  
|Deferred rent                                                                                                                                                                                                                                       |  |                  | 2,025   |   |               |   | 2,138   |  
|Deferred revenue                                                                                                                                                                                                                                    |  |                  | 4,364   |   |               |   | 4,946   |  
|Other income taxes                                                                                                                                                                                                                                  |  |                  | 594     |   |               |   | 755     |  
|                                                                                                                                                                                                                                                    |  |                  |         |   |               |   |         |  
|Total liabilities                                                                                                                                                                                                                                   |  |                  | 59,573  |   |               |   | 59,676  |  
|                                                                                                                                                                                                                                                    |  |                  |         |   |               |   |         |  
|Commitments and contingencies (Note 12)                                                                                                                                                                                                             |  |                  |         |   |               |   |         |  
|Stockholders equity:                                                                                                                                                                                                                               |  |                  |         |   |               |   |         |  
|Common stock-par value $0.001; 100,000,000 shares authorized; 29,678,465 and 28,386,958 shares issued at December 31 and
March 31, 2010, respectively; 22,033,084 and 20,955,452 shares outstanding at December 31 and March 31, 2010, respectively |  |                  | 30      |   |               |   | 28      |  
|Additional paid-in capital                                                                                                                                                                                                                          |  |                  | 117,304 |   |               |   | 99,229  |  
|Retained earnings                                                                                                                                                                                                                                   |  |                  | 23,745  |   |               |   | 37,920  |  
|Accumulated other comprehensive loss                                                                                                                                                                                                                |  |                  | (882    | ) |               |   | (999    | )
|Treasury stock, at cost7,645,381 and 7,431,506 shares at December 31 and March 31, 2010,
respectively                                                                                                                                              |  |                  | (20,846 | ) |               |   | (17,502 | )
|                                                                                                                                                                                                                                                    |  |                  |         |   |               |   |         |  
|Total stockholders equity                                                                                                                                                                                                                          |  |                  | 119,351 |   |               |   | 118,676 |  
|                                                                                                                                                                                                                                                    |  |                  |         |   |               |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                                                          |  | $                | 178,924 |   |               | $ | 178,352 |  
|                                                                                                                                                                                                                                                    |  |                  |         |   |               |   |         |  



See accompanying notes to
condensed consolidated financial statements.



3



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OPNET TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)



|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|-------------------------------------------------------------- |  | ------------------------------ | ------ | - | ----------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                               |  | Three Months EndedDecember 31, |        |   | Nine Months EndedDecember 31, |  
|                                                               |  | 2010                           |        |   | 2009                          |   |        | 2010 |  |   | 2009    |  
|Revenue:                                                       |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Product                                                        |  | $                              | 20,177 |   |                               | $ | 15,485 |      |  | $ | 50,822  |   |  | $ | 36,071 |  
|Product updates, technical support and services                |  |                                | 13,908 |   |                               |   | 11,960 |      |  |   | 39,280  |   |  |   | 34,913 |  
|Professional services                                          |  |                                | 5,593  |   |                               |   | 6,110  |      |  |   | 16,779  |   |  |   | 20,926 |  
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Total revenue                                                  |  |                                | 39,678 |   |                               |   | 33,555 |      |  |   | 106,881 |   |  |   | 91,910 |  
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Cost of revenue:                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Product                                                        |  |                                | 2,893  |   |                               |   | 1,762  |      |  |   | 6,672   |   |  |   | 4,106  |  
|Product updates, technical support and services                |  |                                | 1,269  |   |                               |   | 1,172  |      |  |   | 3,827   |   |  |   | 3,575  |  
|Professional services                                          |  |                                | 3,689  |   |                               |   | 4,680  |      |  |   | 12,186  |   |  |   | 14,568 |  
|Amortization of acquired technology and customer relationships |  |                                | 553    |   |                               |   | 459    |      |  |   | 1,511   |   |  |   | 1,376  |  
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Total cost of revenue                                          |  |                                | 8,404  |   |                               |   | 8,073  |      |  |   | 24,196  |   |  |   | 23,625 |  
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Gross profit                                                   |  |                                | 31,274 |   |                               |   | 25,482 |      |  |   | 82,685  |   |  |   | 68,285 |  
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Operating expenses:                                            |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Research and development                                       |  |                                | 8,757  |   |                               |   | 7,996  |      |  |   | 25,398  |   |  |   | 23,563 |  
|Sales and marketing                                            |  |                                | 13,265 |   |                               |   | 11,360 |      |  |   | 35,117  |   |  |   | 31,701 |  
|General and administrative                                     |  |                                | 3,649  |   |                               |   | 2,696  |      |  |   | 9,607   |   |  |   | 8,012  |  
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Total operating expenses                                       |  |                                | 25,671 |   |                               |   | 22,052 |      |  |   | 70,122  |   |  |   | 63,276 |  
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Income from operations                                         |  |                                | 5,603  |   |                               |   | 3,430  |      |  |   | 12,563  |   |  |   | 5,009  |  
|Interest and other expense, net                                |  |                                | (54    | ) |                               |   | (16    | )    |  |   | (85     | ) |  |   | (4     | )
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Income before provision for income taxes                       |  |                                | 5,549  |   |                               |   | 3,414  |      |  |   | 12,478  |   |  |   | 5,005  |  
|Provision for income taxes                                     |  |                                | 1,225  |   |                               |   | 1,074  |      |  |   | 3,900   |   |  |   | 1,491  |  
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Net income                                                     |  | $                              | 4,324  |   |                               | $ | 2,340  |      |  | $ | 8,578   |   |  | $ | 3,514  |  
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Basic net income per common share                              |  | $                              | 0.19   |   |                               | $ | 0.11   |      |  | $ | 0.40    |   |  | $ | 0.17   |  
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Diluted net income per common share                            |  | $                              | 0.19   |   |                               | $ | 0.11   |      |  | $ | 0.38    |   |  | $ | 0.17   |  
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Basic weighted average common shares outstanding               |  |                                | 21,608 |   |                               |   | 20,540 |      |  |   | 21,263  |   |  |   | 20,572 |  
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Diluted weighted average common shares outstanding             |  |                                | 22,230 |   |                               |   | 20,823 |      |  |   | 21,921  |   |  |   | 20,786 |  
|                                                               |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  



See accompanying notes to
condensed consolidated financial statements.



4



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OPNET TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                                  |  |                               |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Nine Months EndedDecember 31, |        
|                                                                                  |  | 2010                          |         |   | 2009 |  
|Cash flows from operating activities:                                             |  |                               |         |   |      |   |         |  
|Net income                                                                        |  | $                             | 8,578   |   |      | $ | 3,514   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                               |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |                               | 4,284   |   |      |   | 3,992   |  
|Provision for losses on accounts receivable                                       |  |                               | 473     |   |      |   | 124     |  
|Deferred income taxes                                                             |  |                               | (526    | ) |      |   | 242     |  
|Non-cash stock-based compensation expense                                         |  |                               | 1,456   |   |      |   | 1,131   |  
|Non-cash accretion of market discount on marketable securities                    |  |                               | 35      |   |      |   | (1      | )
|Loss on disposition of fixed assets                                               |  |                               | 18      |   |      |   | 7       |  
|Changes in assets and liabilities, net of assets acquired:                        |  |                               |         |   |      |   |         |  
|Accounts receivable                                                               |  |                               | (1,684  | ) |      |   | 418     |  
|Inventory                                                                         |  |                               | 628     |   |      |   | (36     | )
|Prepaid expenses and other current assets                                         |  |                               | (175    | ) |      |   | (692    | )
|Other assets                                                                      |  |                               | (597    | ) |      |   | (43     | )
|Accounts payable                                                                  |  |                               | 337     |   |      |   | 297     |  
|Accrued liabilities                                                               |  |                               | 949     |   |      |   | 679     |  
|Accrued income taxes                                                              |  |                               | 939     |   |      |   | 1,479   |  
|Deferred revenue                                                                  |  |                               | (554    | ) |      |   | 5,930   |  
|Deferred rent                                                                     |  |                               | (345    | ) |      |   | (257    | )
|Excess tax benefit from exercise of stock options                                 |  |                               | (967    | ) |      |   | (5      | )
|                                                                                  |  |                               |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                               | 12,849  |   |      |   | 16,779  |  
|                                                                                  |  |                               |         |   |      |   |         |  
|Cash flows from investing activities:                                             |  |                               |         |   |      |   |         |  
|Acquisition of business                                                           |  |                               | (2,225  | ) |      |   |        |  
|Acquired technology                                                               |  |                               |        |   |      |   | (433    | )
|Purchase of property and equipment                                                |  |                               | (2,799  | ) |      |   | (2,238  | )
|Purchase of investments                                                           |  |                               | (43,047 | ) |      |   |        |  
|Proceeds from sale/maturity of investments                                        |  |                               | 8,066   |   |      |   | 1,000   |  
|                                                                                  |  |                               |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                               | (40,005 | ) |      |   | (1,671  | )
|                                                                                  |  |                               |         |   |      |   |         |  
|Cash flows from financing activities:                                             |  |                               |         |   |      |   |         |  
|Acquisition of treasury stock                                                     |  |                               | (3,344  | ) |      |   | (1,061  | )
|Proceeds from exercise of common stock options                                    |  |                               | 12,776  |   |      |   | 273     |  
|Excess tax benefit from exercise of stock options                                 |  |                               | 967     |   |      |   | 5       |  
|Issuance of common stock under employee stock purchase plan                       |  |                               | 727     |   |      |   | 625     |  
|Payment of dividends to stockholders                                              |  |                               | (22,753 | ) |      |   | (5,597  | )
|                                                                                  |  |                               |         |   |      |   |         |  
|Net cash used in financing activities                                             |  |                               | (11,627 | ) |      |   | (5,755  | )
|                                                                                  |  |                               |         |   |      |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                      |  |                               | 128     |   |      |   | 440     |  
|                                                                                  |  |                               |         |   |      |   |         |  
|Net (decrease) increase in cash and cash equivalents                              |  |                               | (38,655 | ) |      |   | 9,793   |  
|Cash and cash equivalents, beginning of period                                    |  |                               | 104,681 |   |      |   | 90,990  |  
|                                                                                  |  |                               |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                          |  | $                             | 66,026  |   |      | $ | 100,783 |  
|                                                                                  |  |                               |         |   |      |   |         |  



See accompanying notes to
condensed consolidated financial statements.



5



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##### Table of Contents

OPNET TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

(unaudited)



|1. | Organization and Significant Accounting Policies
|-- | ------------------------------------------------

Organization.OPNET Technologies, Inc. (hereafter, the Company or OPNET), is a provider of application and network performance management solutions. The Companys software products
address application performance management, network planning, engineering and operations, and network research and development. The Company sells products to corporate enterprises, government and defense agencies, network service providers, and
network equipment manufacturers. The Company markets software products and related services in North America primarily through a direct sales force and, to a lesser extent, through a sales program to extend its market reach called the Synergy
Program. Internationally, the Company conducts research and development through a wholly-controlled subsidiary in Ghent, Belgium and markets software products and related services through (1) wholly-owned subsidiaries with offices in Paris,
France; Frankfurt, Germany; Slough, United Kingdom; and Singapore; (2) an office in Beijing, China; (3) third-party distributors; and (4) value-added resellers. The Company is headquartered in Bethesda, Maryland and has offices in
Cary, North Carolina; Dallas, Texas; Santa Clara, California; Nashua, New Hampshire; and Colorado Springs, Colorado.

The
accompanying condensed consolidated financial statements include the Companys results and the results of the Companys wholly-owned and wholly-controlled subsidiaries. All intercompany accounts and transactions have been eliminated in
consolidation. The interim condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and applicable rules
and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or
omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the
Companys Annual Report on Form 10-K for the fiscal year ended March 31, 2010 filed with the SEC on June 4, 2010. The March 31, 2010 condensed consolidated balance sheet included herein was derived from the audited financial
statements as of that date, but does not include all disclosures, including notes, required by GAAP. In the opinion of management, these interim condensed consolidated financial statements reflect all adjustments of a normal and recurring nature
necessary to present fairly the Companys results for the interim periods. The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amount of revenue and expenses during the reporting periods. Actual results could differ from those estimates. In addition, the
Companys operating results for the three and nine months ended December 31, 2010 may not be indicative of the operating results for the full fiscal year or any other future period.

Supplemental Cash Flow Information



|                                                             |  |                               |       |  |                              |   |     |      |  |   |       |  |  |   |      |  
|------------------------------------------------------------ |  | ----------------------------- | ----- |  | ---------------------------- | - | --- | ---- |  | - | ----- |  |  | - | ---- | -
|                                                             |  | Three MonthsEndedDecember 31, |       |  | Nine MonthsEndedDecember 31, |  
|                                                             |  | 2010                          |       |  | 2009                         |   |     | 2010 |  |   | 2009  | 
|                                                             |  | (in thousands)                |      
|Cash paid during the period:                                 |  |                               |       |  |                              |   |     |      |  |   |       |  |  |   |      |  
|Income tax payments (refunds)                                |  | $                             | 1,357 |  |                              | $ | 380 |      |  | $ | 3,326 |  |  | $ | (311 | )
|Non-cash financing and investing activities:                 |  |                               |       |  |                              |   |     |      |  |   |       |  |  |   |      |  
|Restricted stock issued                                      |  | $                             | 1,465 |  |                              | $ | 16  |      |  | $ | 2,071 |  |  | $ | 220  |  
|Accrued liability for the purchase of property and equipment |  | $                             | 73    |  |                              | $ | 244 |      |  | $ | 73    |  |  | $ | 244  |  



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|2. | Significant Accounting Policies
|-- | -------------------------------

See the Companys Annual Report on Form 10-K for the fiscal year ended March 31, 2010 filed with the SEC on June 4, 2010 for an overview of the significant accounting policies.



|3. | Recently Issued Accounting Pronouncements
|-- | -----------------------------------------

In October 2009, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU 2009-14, Certain Revenue Arrangement That Include Software Elements, (included in
Accounting Standards Codification, or ASC, 985 Software) and Accounting Standards Update, or ASU, 2009-13, Multiple Deliverable Revenue Arrangements, which amends EITF Issue No. 08-1, Revenue Arrangements With
Multiple Deliverables (as codified in ASC 605 Revenue Recognition). ASU 2009-14 amends the scoping guidance for software arrangements to exclude tangible products that contain software elements and nonsoftware elements that
function together to interdependently deliver the products essential functionality. ASU 2009-13 amends the current guidance on arrangements with multiple elements to (1) eliminate the separation criterion that requires entities to
establish objective and reliable evidence of fair value for undelivered elements, (2) establish a selling price hierarchy to help entities allocate arrangement consideration to the separate units of account, (3) require the relative
selling price allocation method for all arrangements (i.e., eliminate the residual method), and (4) significantly expand required disclosures. ASU 2009-14 and ASU 2009-13 will be effective for the first annual reporting period beginning on or
after June 15, 2010, which the Company will adopt on April 1, 2011. Early adoption is permitted. The Company has determined that ASU 2009-14 and ASU 2009-13 will not have a material impact on its results of operations or financial
condition.

In December 2010, FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business
Combinations (as codified in ASC 805 Business Combinations). The objective of ASU 2010-29 is to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business
combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the
year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures under Topic 805 Business Combinations to include a description of the nature
and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 will be effective prospectively for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period after December 15, 2010. Early adoption is permitted. The Company will adopt ASU 2010-29 if it makes an acquisition that is accounted for as a business
combination.



|4. | Stock-Based Compensation
|-- | ------------------------

In September 2009, the Companys stockholders approved the adoption of the 2010 Stock Incentive Plan, or the 2010 Plan, in response
to the pending expiration of the Companys Amended and Restated 2000 Stock Incentive Plan, or the 2000 Plan. The 2010 Plan provides for the granting of stock options, restricted stock and other stock-based awards to employees, officers,
directors, consultants and advisors. Subject to specified adjustments, the number of shares initially set aside and reserved for issuance under the 2010 Plan is 2,150,000 shares, which approximated the number of shares available for issuance under
the 2000 Plan as of January 1, 2010, the effective date of the 2010 Plan. The Companys Board of Directors, or the Board, approved a resolution to make no further grants for options or stock awards under the 2000 Plan upon approval of the
2010 Plan.

The number of shares available for issuance under the 2010 Plan will automatically increase from time to time by a
number equal to (i) in the event any outstanding stock option granted under the 2000 Plan should for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the number



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of shares that are not acquired under such stock option and (ii) in the event stock that has been issued to a participant under the 2000 Plan pursuant to restricted or unrestricted stock
awards is subsequently forfeited or acquired by the Company as a result of a failure to vest or satisfy any other contingency, the number of such shares. The maximum aggregate number of additional shares that may become available for issuance in
these situations is 2,000,000 shares, subject to specified adjustments.

The number of shares available for issuance under the
2010 Plan will automatically increase on the first trading day of each calendar year, beginning with 2011 and continuing through the term of the 2010 Plan, by an amount equal to the lesser of (i) three percent (3%) of the shares of the
Companys common stock outstanding on the last trading day of the preceding calendar year, or (ii) an amount determined by the Board; provided, however, that in no event shall any such annual increase exceed 1,000,000 shares. The Board
voted not to increase the number of shares for issuance on the first trading day of calendar year 2011. This provision, commonly referred to as an evergreen provision, is similar to the provision in the 2000 Plan.

Options granted pursuant to the 2010 Plan will be exercisable at such times and subject to such terms and conditions as the Board may
specify in the applicable option agreement, but no option may be granted for a term in excess of 10 years. The terms and conditions of any restricted stock awards granted under the 2010 Plan, including the conditions for repurchase or forfeiture and
the issue price, if any, will be determined by the Board. The Board also has the right to grant other stock awards pursuant to the 2010 Plan having such terms and conditions as the Board may determine, including the grant of fully vested shares, the
grant of securities convertible into shares of the Companys common stock and the grant of stock appreciation rights.

ASC 718, Stock Compensation, requires an entity to recognize an expense within its statement of operations for all
share-based payment arrangements, which include employee stock option plans, restricted stock grants, and employee stock purchase plans. The Company has elected to use straight-line amortization of stock-based compensation expense for the entire
award over the service period since the awards have only service conditions and graded vesting.

Compensation cost for option
grants is recognized on a straight-line basis over the requisite service period for the entire award (from the date of grant through the period of the last separately vesting portion of the grant). Compensation cost is recognized within the
statement of operations in the same expense line as the cash compensation paid to the respective employees. ASC 718 also requires the Company to estimate forfeitures in calculating the expense related to stock-based compensation. The impact on
compensation cost due to changes in the expected forfeiture rate will be recognized in the period that they become known. The Company has concluded that its historical forfeiture rate is the best measure to estimate future forfeitures of granted
stock options. The impact on compensation cost due to changes in the expected forfeiture rate of 10% will be recognized in the period that they become known. The Company does not apply a forfeiture rate to the options granted to certain key
executives or directors. The Company has concluded that historically certain key executives and directors will perform the requisite service to vest in the award.

Excess tax benefits from the exercise of stock options are presented as a cash flow from financing activity. For the three months ended December 31, 2010 and 2009, excess tax benefits from the
exercise of stock options were $752,000 and $5,000, respectively. For the nine months ended December 31, 2010 and 2009, excess tax benefits from the exercise of stock options were $967,000 and $5,000, respectively.



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A summary of the total stock-based compensation expense for the three and nine months ended
December 31, 2010 and 2009 is as follows:



|                                    |  |                    |     |  |                   |   |     |                  |  |   |                  |  |  |   |       | 
|----------------------------------- |  | ------------------ | --- |  | ----------------- | - | --- | ---------------- |  | - | ---------------- |  |  | - | ----- | 
|                                    |  | Three Months Ended |     |  | Nine Months Ended |  
|                                    |  | December 31,2010   |     |  | December 31,2009  |   |     | December 31,2010 |  |   | December 31,2009 | 
|                                    |  | (in thousands)     |    
|Restricted stock                    |  | $                  | 497 |  |                   | $ | 248 |                  |  | $ | 975              |  |  | $ | 688   | 
|Employee Stock Purchase Plan shares |  |                    | 115 |  |                   |   | 124 |                  |  |   | 326              |  |  |   | 379   | 
|Stock options                       |  |                    | 52  |  |                   |   | 52  |                  |  |   | 155              |  |  |   | 64    | 
|                                    |  |                    |     |  |                   |   |     |                  |  |   |                  |  |  |   |       | 
|Total stock-based compensation      |  | $                  | 664 |  |                   | $ | 424 |                  |  | $ | 1,456            |  |  | $ | 1,131 | 
|                                    |  |                    |     |  |                   |   |     |                  |  |   |                  |  |  |   |       | 

A summary of the total nonvested stock-based deferred compensation at December 31, 2010 and 2009 is as
follows:



|                                         |  |                  |       |  |                  |   |       | 
|---------------------------------------- |  | ---------------- | ----- |  | ---------------- | - | ----- | 
|                                         |  | December 31,2010 |       |  | December 31,2009 |  
|                                         |  | (in thousands)   |      
|Restricted stock                         |  | $                | 2,301 |  |                  | $ | 1,024 | 
|Stock options                            |  |                  | 761   |  |                  |   | 967   | 
|Employee Stock Purchase Plan shares      |  |                  | 38    |  |                  |   | 41    | 
|                                         |  |                  |       |  |                  |   |       | 
|Total nonvested stock-based compensation |  | $                | 3,100 |  |                  | $ | 2,032 | 
|                                         |  |                  |       |  |                  |   |       | 

The deferred compensation related to nonvested restricted stock, stock options, and the Companys 2000
Employee Stock Purchase Plan, or ESPP, shares at December 31, 2010 is expected to be recognized over a weighted average period of one year, two years, and one month, respectively.

Stock Options

The Companys stock option programs are accounted for as equity awards. The expense is based on the grant-date fair value of the options granted and is recognized over the requisite service period.

A summary of the option transactions for the three and nine months ended December 31, 2010 and 2009 is as follows:



|                                   |  |                                                  |           |   |                                              |   |       |                                              |  |  |                         |  |  |                                                    |        |  |  |   |       | 
|---------------------------------- |  | ------------------------------------------------ | --------- | - | -------------------------------------------- | - | ----- | -------------------------------------------- |  |  | ----------------------- |  |  | -------------------------------------------------- | ------ |  |  | - | ----- | 
|                                   |  | Three Months Ended December 31, 2010             |          
|                                   |  | Options                                          |           |   | WeightedAverageExercise PricePer OptionShare |   |       | WeightedAverageRemainingContract Life(Years) |  |  | AggregateIntrinsicValue |  |  | WeightedAverageGrant DateFair ValuePer OptionShare |       
|                                   |  | (dollars in thousands, except per share amounts) |          
|Outstanding at beginning of period |  |                                                  | 1,814,182 |   |                                              | $ | 10.64 |                                              |  |  |                        |  |  | $                                                  | 28,889 |  |  | $ | 6.91  | 
|Granted                            |  |                                                  |          |   |                                              | $ |      |                                              |  |  |                        |  |  | $                                                  |       |  |  | $ |      | 
|Exercised                          |  |                                                  | (447,950  | ) |                                              | $ | 11.56 |                                              |  |  |                        |  |  | $                                                  | 4,409  |  |  | $ | 8.19  | 
|Forfeited or expired               |  |                                                  | (102,000  | ) |                                              | $ | 19.50 |                                              |  |  |                        |  |  | $                                                  |       |  |  | $ | 13.30 | 
|                                   |  |                                                  |           |   |                                              |   |       |                                              |  |  |                         |  |  |                                                    |        |  |  |   |       | 
|Outstanding at end of period       |  |                                                  | 1,264,232 |   |                                              | $ | 9.59  |                                              |  |  | 3.34                    |  |  | $                                                  | 21,449 |  |  | $ | 5.94  | 
|                                   |  |                                                  |           |   |                                              |   |       |                                              |  |  |                         |  |  |                                                    |        |  |  |   |       | 
|Exercisable at end of period       |  |                                                  | 989,232   |   |                                              | $ | 9.54  |                                              |  |  | 1.85                    |  |  | $                                                  | 16,837 |  |  | $ | 6.43  | 
|Nonvested at end of period         |  |                                                  | 275,000   |   |                                              | $ | 9.79  |                                              |  |  | 8.69                    |  |  | $                                                  | 4,612  |  |  | $ | 4.17  | 
|Nonvested expected to be exercised |  |                                                  | 247,500   |   |                                              | $ | 9.79  |                                              |  |  | 8.69                    |  |  | $                                                  | 4,203  |  |  | $ | 4.17  | 



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|                                   |  |                                                  |           |   |                                              |   |       |                                              |  |  |                         |  |  |                                                    |       |  |  |   |      | 
|---------------------------------- |  | ------------------------------------------------ | --------- | - | -------------------------------------------- | - | ----- | -------------------------------------------- |  |  | ----------------------- |  |  | -------------------------------------------------- | ----- |  |  | - | ---- | 
|                                   |  | Three Months Ended December 31, 2009             |          
|                                   |  | Options                                          |           |   | WeightedAverageExercise PricePer OptionShare |   |       | WeightedAverageRemainingContract Life(Years) |  |  | AggregateIntrinsicValue |  |  | WeightedAverageGrant DateFair ValuePer OptionShare |      
|                                   |  | (dollars in thousands, except per share amounts) |          
|Outstanding at beginning of period |  |                                                  | 2,767,904 |   |                                              | $ | 10.80 |                                              |  |  |                        |  |  | $                                                  | 5,887 |  |  | $ | 7.30 | 
|Granted                            |  |                                                  |          |   |                                              | $ |      |                                              |  |  |                        |  |  | $                                                  |      |  |  | $ |     | 
|Exercised                          |  |                                                  | (25,924   | ) |                                              | $ | 6.14  |                                              |  |  |                        |  |  | $                                                  | 136   |  |  | $ | 4.15 | 
|Forfeited or expired               |  |                                                  | (6,250    | ) |                                              | $ | 12.35 |                                              |  |  |                        |  |  | $                                                  | 1     |  |  | $ | 8.47 | 
|                                   |  |                                                  |           |   |                                              |   |       |                                              |  |  |                         |  |  |                                                    |       |  |  |   |      | 
|Outstanding at end of period       |  |                                                  | 2,735,730 |   |                                              | $ | 10.84 |                                              |  |  | 2.95                    |  |  | $                                                  | 5,726 |  |  | $ | 7.32 | 
|                                   |  |                                                  |           |   |                                              |   |       |                                              |  |  |                         |  |  |                                                    |       |  |  |   |      | 
|Exercisable at end of period       |  |                                                  | 2,460,730 |   |                                              | $ | 10.96 |                                              |  |  | 2.20                    |  |  | $                                                  | 5,036 |  |  | $ | 7.68 | 
|Nonvested at end of period         |  |                                                  | 275,000   |   |                                              | $ | 9.79  |                                              |  |  | 9.69                    |  |  | $                                                  | 690   |  |  | $ | 4.17 | 



|                                   |  |                                                  |            |   |                                              |   |       |                                              |  |  |                         |  |  |                                                    |        |  |  |   |       | 
|---------------------------------- |  | ------------------------------------------------ | ---------- | - | -------------------------------------------- | - | ----- | -------------------------------------------- |  |  | ----------------------- |  |  | -------------------------------------------------- | ------ |  |  | - | ----- | 
|                                   |  | Nine Months Ended December 31, 2010              |           
|                                   |  | Options                                          |            |   | WeightedAverageExercise PricePer OptionShare |   |       | WeightedAverageRemainingContract Life(Years) |  |  | AggregateIntrinsicValue |  |  | WeightedAverageGrant DateFair ValuePer OptionShare |       
|                                   |  | (dollars in thousands, except per share amounts) |           
|Outstanding at beginning of period |  |                                                  | 2,494,082  |   |                                              | $ | 10.86 |                                              |  |  |                        |  |  | $                                                  | 39,167 |  |  | $ | 7.31  | 
|Granted                            |  |                                                  |           |   |                                              | $ |      |                                              |  |  |                        |  |  | $                                                  |       |  |  | $ |      | 
|Exercised                          |  |                                                  | (1,118,500 | ) |                                              | $ | 11.42 |                                              |  |  |                        |  |  | $                                                  | 7,701  |  |  | $ | 8.26  | 
|Forfeited or expired               |  |                                                  | (111,350   | ) |                                              | $ | 19.50 |                                              |  |  |                        |  |  | $                                                  |       |  |  | $ | 13.30 | 
|                                   |  |                                                  |            |   |                                              |   |       |                                              |  |  |                         |  |  |                                                    |        |  |  |   |       | 
|Outstanding at end of period       |  |                                                  | 1,264,232  |   |                                              | $ | 9.59  |                                              |  |  | 3.34                    |  |  | $                                                  | 21,449 |  |  | $ | 5.94  | 
|                                   |  |                                                  |            |   |                                              |   |       |                                              |  |  |                         |  |  |                                                    |        |  |  |   |       | 
|Exercisable at end of period       |  |                                                  | 989,232    |   |                                              | $ | 9.54  |                                              |  |  | 1.85                    |  |  | $                                                  | 16,837 |  |  | $ | 6.43  | 
|Nonvested at end of period         |  |                                                  | 275,000    |   |                                              | $ | 9.79  |                                              |  |  | 8.69                    |  |  | $                                                  | 4,612  |  |  | $ | 4.17  | 



|                                   |  |                                                  |           |   |                                              |   |       |                                              |  |  |                         |  |  |                                                    |       |  |  |   |      | 
|---------------------------------- |  | ------------------------------------------------ | --------- | - | -------------------------------------------- | - | ----- | -------------------------------------------- |  |  | ----------------------- |  |  | -------------------------------------------------- | ----- |  |  | - | ---- | 
|                                   |  | Nine Months Ended December 31, 2009              |          
|                                   |  | Options                                          |           |   | WeightedAverageExercise PricePer OptionShare |   |       | WeightedAverageRemainingContract Life(Years) |  |  | AggregateIntrinsicValue |  |  | WeightedAverageGrant DateFair ValuePer OptionShare |      
|                                   |  | (dollars in thousands, except per share amounts) |          
|Outstanding at beginning of period |  |                                                  | 2,556,723 |   |                                              | $ | 10.89 |                                              |  |  |                        |  |  | $                                                  | 5,379 |  |  | $ | 7.62 | 
|Granted                            |  |                                                  | 275,000   |   |                                              | $ | 9.79  |                                              |  |  |                        |  |  | $                                                  | 690   |  |  | $ | 4.17 | 
|Exercised                          |  |                                                  | (46,737   | ) |                                              | $ | 6.25  |                                              |  |  |                        |  |  | $                                                  | 178   |  |  | $ | 4.26 | 
|Forfeited or expired               |  |                                                  | (49,256   | ) |                                              | $ | 11.63 |                                              |  |  |                        |  |  | $                                                  | 57    |  |  | $ | 8.11 | 
|                                   |  |                                                  |           |   |                                              |   |       |                                              |  |  |                         |  |  |                                                    |       |  |  |   |      | 
|Outstanding at end of period       |  |                                                  | 2,735,730 |   |                                              | $ | 10.84 |                                              |  |  | 2.95                    |  |  | $                                                  | 5,726 |  |  | $ | 7.32 | 
|                                   |  |                                                  |           |   |                                              |   |       |                                              |  |  |                         |  |  |                                                    |       |  |  |   |      | 
|Exercisable at end of period       |  |                                                  | 2,460,730 |   |                                              | $ | 10.96 |                                              |  |  | 2.20                    |  |  | $                                                  | 5,036 |  |  | $ | 7.68 | 
|Nonvested at end of period         |  |                                                  | 275,000   |   |                                              | $ | 9.79  |                                              |  |  | 9.69                    |  |  | $                                                  | 690   |  |  | $ | 4.17 | 

During the three and
nine months ended December 31, 2010, no stock options vested or were granted. During the three and nine months ended December 31, 2009, no stock options vested and 275,000 stock options were granted.

To estimate the grant-date fair value of its stock options, the Company uses the Black-Scholes option-pricing model. The Black-Scholes
model estimates the per share fair value of an option on its date of grant based on the following: the options exercise price; the price of the underlying stock on the date of grant; the estimated dividend yield; a risk-free
interest rate; the estimated option term; and the expected volatility. For the risk-free interest rate, the Company uses a United States Treasury Bond due in the number of years equal to the



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options expected term. The estimated option term is calculated based upon the simplified method set out in ASC 718. The Company uses the simplified method to determine the estimated option
term because it lacks sufficient historical share option exercise data. To determine expected volatility, the Company analyzes the historical volatility of its stock over the expected term of the option.

During the three months ended December 31, 2010 and 2009, respectively, the Company received proceeds of approximately $5.2 million
and $143,000 and issued 452,481 and 22,486 shares of common stock, respectively, pursuant to employee and director exercises of stock options. During the nine months ended December 31, 2010 and 2009, respectively, the Company received proceeds of
approximately $12.8 million and $273,000 and issued 1,123,031 and 43,299 shares of common stock, respectively, pursuant to employee and director exercises of stock options.

Restricted Stock

The Companys restricted stock grants are accounted
for as equity awards. The expense is based on the price of the Companys common stock on the date of grant and is recognized on a straight-line basis over the requisite service period. The Companys restricted stock agreements do not
contain any post-vesting restrictions.

A summary of the restricted stock grants for the three and nine months ended December 31, 2010
and 2009 is as follows:



|                                 |  |                                     |         |   |                                         |   |       |                       |  |  |                                         |   |  |   |       | 
|-------------------------------- |  | ----------------------------------- | ------- | - | --------------------------------------- | - | ----- | --------------------- |  |  | --------------------------------------- | - |  | - | ----- | 
|                                 |  | Three Months EndedDecember 31, 2010 |         |   | Nine Months EndedDecember 31, 2010      |  
|                                 |  | RestrictedStock Grants              |         |   | WeightedAverageGrant FairValue PerShare |   |       | RestrictedStockGrants |  |  | WeightedAverageGrant FairValue PerShare |  
|Nonvested at beginning of period |  |                                     | 162,003 |   |                                         | $ | 12.20 |                       |  |  | 183,797                                 |   |  | $ | 10.87 | 
|Granted                          |  |                                     | 63,816  |   |                                         | $ | 25.07 |                       |  |  | 103,645                                 |   |  | $ | 21.73 | 
|Vested                           |  |                                     | (13,171 | ) |                                         | $ | 21.97 |                       |  |  | (74,505                                 | ) |  | $ | 12.87 | 
|Forfeited                        |  |                                     | (527    | ) |                                         | $ | 14.68 |                       |  |  | (816                                    | ) |  | $ | 14.19 | 
|                                 |  |                                     |         |   |                                         |   |       |                       |  |  |                                         |   |  |   |       | 
|Nonvested at end of period       |  |                                     | 212,121 |   |                                         | $ | 15.46 |                       |  |  | 212,121                                 |   |  | $ | 15.46 | 
|                                 |  |                                     |         |   |                                         |   |       |                       |  |  |                                         |   |  |   |       | 
|Nonvested expected to vest       |  |                                     | 194,088 |   |                                         | $ | 15.44 |                       |  |  |                                         |   |  |   |       | 



|                                 |  |                                     |         |   |                                         |   |       |                         |  |  |                                         |   |  |   |       | 
|-------------------------------- |  | ----------------------------------- | ------- | - | --------------------------------------- | - | ----- | ----------------------- |  |  | --------------------------------------- | - |  | - | ----- | 
|                                 |  | Three Months EndedDecember 31, 2009 |         |   | Nine Months EndedDecember 31, 2009      |  
|                                 |  | RestrictedStock Grants              |         |   | WeightedAverageGrant FairValue PerShare |   |       | Restricted 
StockGrants |  |  | WeightedAverageGrant FairValue PerShare |  
|Nonvested at beginning of period |  |                                     | 202,205 |   |                                         | $ | 10.41 |                         |  |  | 235,562                                 |   |  | $ | 10.66 | 
|Granted                          |  |                                     | 1,350   |   |                                         | $ | 12.16 |                         |  |  | 22,491                                  |   |  | $ | 10.06 | 
|Vested                           |  |                                     | (7,897  | ) |                                         | $ | 14.38 |                         |  |  | (49,640                                 | ) |  | $ | 12.20 | 
|Forfeited                        |  |                                     | (3,191  | ) |                                         | $ | 9.40  |                         |  |  | (15,946                                 | ) |  | $ | 9.63  | 
|                                 |  |                                     |         |   |                                         |   |       |                         |  |  |                                         |   |  |   |       | 
|Nonvested at end of period       |  |                                     | 192,467 |   |                                         | $ | 10.27 |                         |  |  | 192,467                                 |   |  | $ | 10.27 | 
|                                 |  |                                     |         |   |                                         |   |       |                         |  |  |                                         |   |  |   |       | 

ESPP

The ESPP provides all eligible employees the ability to collectively purchase up to a total of 3,070,000 shares of the Companys common stock. On September 14, 2009, the stockholders voted to
increase the number of shares authorized for issuance under the ESPP from 820,000 shares to 3,070,000 shares, effective February 1, 2010. An employee may authorize a payroll deduction up to a maximum of 10% of his or her compensation



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during the plan period. The purchase price for each share purchased is the lesser of 85% of the closing price of the common stock on the first or last day of the plan period. The plan period for
the ESPP ends on the last day of January and July of each year.

To estimate the fair value of shares issued under the ESPP,
the Company uses the Black-Scholes option-pricing model. The Black-Scholes model estimates the per share fair value of an ESPP share at the beginning of the plan period based on the following: the price of the underlying stock on the first day of
the plan period; the estimated dividend yield; a risk-free interest rate; the term of the plan period (six months); and the expected volatility. For the risk-free interest rate, the Company uses a United States Treasury Bond
due in six months. To determine expected volatility, the Company analyzes the historical volatility of its stock over the six months prior to the first day of the plan period.

During the nine months ended December 31, 2010 and 2009, employees purchased 70,178 and 87,748 shares of common stock under the ESPP, respectively, resulting in proceeds to the Company of
approximately $727,000 and $625,000, respectively.



|5. | Acquisition of DSAuditor from Embarcadero Technologies, Inc.
|-- | ------------------------------------------------------------

On August 25, 2010, the Company acquired substantially all the assets associated with the DSAuditor product line from Embarcadero Technologies, Inc., or Embarcadero, a privately held software company
headquartered in San Francisco, California. The Company paid approximately $2.3 million cash to Embarcadero to acquire such assets. An initial payment of $25,000 was made in September 2009, and the remaining purchase price of $2.25 million was made
in August 2010. DSAuditor is a software product that provides visibility into database activity and performance. The acquisition contributed key capabilities to the Companys product portfolio for application performance management.

The DSAuditor product line acquisition was accounted for as a business combination in accordance with the guidance outlined in ASC Topic
805. The operating results associated with the DSAuditor product line from August 25, 2010 to September 30, 2010 and the transaction-related professional services costs have been included in the Companys condensed consolidated
statements of operations for the nine months ended December 31, 2010. The acquisition date fair value of the total consideration transferred was approximately $2.3 million.

The following table summarizes the estimated fair values of the DSAuditor product line acquired and liabilities assumed on the
acquisition date:



|                                |  |                   |       |   |                    |  |               |             |  |  |                   | 
|------------------------------- |  | ----------------- | ----- | - | ------------------ |  | ------------- | ----------- |  |  | ----------------- | 
|                                |  | At August 25,2010 |       |   | AmortizationMethod |  |               | Useful Life | 
|                                |  | (in thousands)    |       |   |                    |  |               |             | 
|Property and equipment, net     |  | $                 | 14    |   |                    |  | Straight-line |             |  |  | 1 month  3 years | 
|Deferred revenue                |  |                   | (79   | ) |                    |  |               |             |  |  |                   | 
|Identifiable intangible assets: |  |                   |       |   |                    |  |               |             |  |  |                   | 
|Developed technologyDS Auditor |  |                   | 1,458 |   |                    |  | Straight-line |             |  |  | 5 years           | 
|Trade names and trademark       |  |                   | 47    |   |                    |  | Straight-line |             |  |  | 5 years           | 
|Customer relationships          |  |                   | 27    |   |                    |  | Straight-line |             |  |  | 5 years           | 
|Non-compete agreements          |  |                   | 16    |   |                    |  | Straight-line |             |  |  | 1 year            | 
|                                |  |                   |       |   |                    |  |               |             |  |  |                   | 
|Total identifiable assets       |  |                   | 1,483 |   |                    |  |               |             |  |  |                   | 
|                                |  |                   |       |   |                    |  |               |             |  |  |                   | 
|Goodwill                        |  |                   | 767   |   |                    |  |               |             |  |  |                   | 
|                                |  |                   |       |   |                    |  |               |             |  |  |                   | 
|Net assets acquired             |  | $                 | 2,250 |   |                    |  |               |             |  |  |                   | 
|                                |  |                   |       |   |                    |  |               |             |  |  |                   | 



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Intangible Assets

Intangible assets consist primarily of the developed technology associated with the DSAuditor product acquired. The Company determined
that estimated acquisition date fair value of the DSAuditor developed technology was approximately $1.5 million. The Company utilized an income approach known as the Relief-From-Royalty Method to value the acquired developed technology assets.

Goodwill

The excess of the consideration transferred over the fair values assigned to the assets acquired and liabilities assumed was $767,000, which represents the goodwill resulting from the acquisition. The
goodwill is expected to be deductible for income tax purposes. The Company will test goodwill for impairment on an annual basis, or sooner if deemed necessary. As of December 31, 2010, there were no changes in the recognized amount of goodwill
resulting from the acquisition of the DSAuditor product line.



|6. | Marketable Securities
|-- | ---------------------

At
December 31, 2010, marketable securities consisted of United States Treasury bills and United States Treasury notes with original maturities greater than three months and less than one year.

The following table summarizes the Companys marketable securities at December 31, 2010:



|                                     |  |                   |        |  |                      |   |   |             |  |   |        | 
|------------------------------------ |  | ----------------- | ------ |  | -------------------- | - | - | ----------- |  | - | ------ | 
|                                     |  | December 31, 2010 |       
|                                     |  | AmortizedCost     |        |  | GrossUnrealizedGains |   |   | MarketValue | 
|                                     |  | (in thousands)    |       
|United States government obligations |  | $                 | 34,946 |  |                      | $ | 5 |             |  | $ | 34,951 | 
|                                     |  |                   |        |  |                      |   |   |             |  |   |        | 
|Total                                |  | $                 | 34,946 |  |                      | $ | 5 |             |  | $ | 34,951 | 
|                                     |  |                   |        |  |                      |   |   |             |  |   |        | 



|7. | Fair Value
|-- | ----------

The following
table details the fair value measurements within the three levels of fair value hierarchy of the Companys financial assets, consisting of cash, cash equivalents, and marketable securities at December 31 and March 31, 2010:



|                                                                       |  |                  |         |  |                                                   |   |         |         |  |   |         |  |  |   |   | 
|---------------------------------------------------------------------- |  | ---------------- | ------- |  | ------------------------------------------------- | - | ------- | ------- |  | - | ------- |  |  | - | - | 
|                                                                       |  |                  |         |  | Fair Value Measurement 
atDecember 31, 2010 Using |  
|                                                                       |  | Total Fair Value |         |  | Level 1                                           |   |         | Level 2 |  |   | Level 3 | 
|                                                                       |  | (in thousands)   |        
|Cash                                                                   |  | $                | 27,811  |  |                                                   | $ | 27,811  |         |  | $ |        |  |  | $ |  | 
|Money market funds                                                     |  |                  | 38,215  |  |                                                   |   | 38,215  |         |  |   |        |  |  |   |  | 
|United States government obligations included in
marketable securities |  |                  | 34,951  |  |                                                   |   | 34,951  |         |  |   |        |  |  |   |  | 
|                                                                       |  |                  |         |  |                                                   |   |         |         |  |   |         |  |  |   |   | 
|Total                                                                  |  | $                | 100,977 |  |                                                   | $ | 100,977 |         |  | $ |        |  |  | $ |  | 
|                                                                       |  |                  |         |  |                                                   |   |         |         |  |   |         |  |  |   |   | 



|                   |  |                  |         |  |                                                |   |         |         |  |   |         |  |  |   |   | 
|------------------ |  | ---------------- | ------- |  | ---------------------------------------------- | - | ------- | ------- |  | - | ------- |  |  | - | - | 
|                   |  |                  |         |  | Fair Value Measurement 
atMarch 31, 2010 Using |  
|                   |  | Total Fair Value |         |  | Level 1                                        |   |         | Level 2 |  |   | Level 3 | 
|                   |  | (in thousands)   |        
|Cash               |  | $                | 21,545  |  |                                                | $ | 21,545  |         |  | $ |        |  |  | $ |  | 
|Money market funds |  |                  | 83,136  |  |                                                |   | 83,136  |         |  |   |        |  |  |   |  | 
|                   |  |                  |         |  |                                                |   |         |         |  |   |         |  |  |   |   | 
|Total              |  | $                | 104,681 |  |                                                | $ | 104,681 |         |  | $ |        |  |  | $ |  | 
|                   |  |                  |         |  |                                                |   |         |         |  |   |         |  |  |   |   | 



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At December 31 and March 31, 2010, the Company valued money market funds and
United States government obligations using a Level 1 valuation because market prices in active markets for identical assets were readily available. The per-share net asset value of the Companys money market funds has remained at a constant
amount of $1.00 per share. Also, as of December 31 and March 31, 2010, there were no withdrawal limits on redemptions for any of the money market funds that the Company holds. The Company did not value any financial assets using Level 2 or
Level 3 valuations at December 31, 2010 or March 31, 2010.



|8. | Earnings Per Share
|-- | ------------------

The
following is a reconciliation of the amounts used in calculating basic and diluted net income per common share for the three and nine months ended December 31, 2010 and 2009:



|                                                                                 |  |                                                  |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|-------------------------------------------------------------------------------- |  | ------------------------------------------------ | ---------- | - | ----------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                 |  | Three Months EndedDecember 31,                   |            |   | Nine Months EndedDecember 31, |  
|                                                                                 |  | 2010                                             |            |   | 2009                          |   |            | 2010 |  |   | 2009       |  
|                                                                                 |  | (dollars in thousands, except per share amounts) |           
|Net income (numerator):                                                          |  |                                                  |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Basic and diluted net income attributable to common stockholders                 |  | $                                                | 4,324      |   |                               | $ | 2,340      |      |  | $ | 8,578      |   |  | $ | 3,514      |  
|Dividends paid on nonvested restricted stock                                     |  |                                                  | (135       | ) |                               |   | (17        | )    |  |   | (165       | ) |  |   | (55        | )
|Undistributed earnings attributable to non-vested restricted stock               |  |                                                  |           |   |                               |   | (5         | )    |  |   |           |   |  |   |           |  
|                                                                                 |  |                                                  |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Net income available to common stockholders excluding nonvested restricted stock |  | $                                                | 4,189      |   |                               | $ | 2,318      |      |  | $ | 8,413      |   |  | $ | 3,459      |  
|                                                                                 |  |                                                  |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Shares (denominator):                                                            |  |                                                  |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Weighted average common shares outstandingbasic                                 |  |                                                  | 21,608,057 |   |                               |   | 20,540,123 |      |  |   | 21,262,767 |   |  |   | 20,571,815 |  
|Effect of other dilutive securitiesoptions                                      |  |                                                  | 621,975    |   |                               |   | 282,577    |      |  |   | 658,294    |   |  |   | 214,158    |  
|                                                                                 |  |                                                  |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Weighted average diluted shares outstanding                                      |  |                                                  | 22,230,032 |   |                               |   | 20,822,700 |      |  |   | 21,921,061 |   |  |   | 20,785,973 |  
|                                                                                 |  |                                                  |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Net income per common share:                                                     |  |                                                  |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Basic                                                                            |  | $                                                | 0.19       |   |                               | $ | 0.11       |      |  | $ | 0.40       |   |  | $ | 0.17       |  
|Diluted                                                                          |  | $                                                | 0.19       |   |                               | $ | 0.11       |      |  | $ | 0.38       |   |  | $ | 0.17       |  

The weighted average
diluted shares outstanding during any period does not include shares issuable upon exercise of any stock option where the exercise price of the stock option is greater than the average market price because including such shares would be
anti-dilutive. There were no options with an anti-dilutive effect during the three and nine months ended December 31, 2010. Options for the purchase of 1,168,290 and 1,704,340 common shares were excluded from the weighted average diluted shares
outstanding calculation for the three and nine months ended December 31, 2009 because their effect was anti-dilutive.



|9. | Stockholders Equity
|-- | --------------------

Treasury Stock

On January 31, 2005, the Company announced that the Board had authorized the repurchase of up to 1,000,000 shares of the Companys common stock from time to time on the open market or in
privately negotiated transactions. On February 4, 2008, the Company announced that the Board had authorized the repurchase of an additional 1,000,000 shares of the Companys common stock under the stock repurchase program. This stock
repurchase program does not have a specified termination date. Any repurchased shares will be available for use in connection with the Companys stock plans or other corporate purposes. The Company



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##### Table of Contents

expended $440,000 and $905,000 to purchase 16,774 and 84,734 shares during the three months ended December 31, 2010 and 2009, respectively, at average prices of $26.23 and $10.69 per share,
respectively. The Company expended $3.3 million and $1.1 million to purchase 213,875 and 100,885 shares during the nine months ended December 31, 2010 and 2009, respectively, at average prices of $15.63 and $10.51 per share, respectively.

Restricted stock shares withheld from employees to satisfy the minimum statutory withholding obligations with respect to the
income recognized by these employees upon the vesting of their restricted stock share during the year are included in these totals.

As of December 31, 2010, the Company had repurchased 1,511,836 shares of common stock under the stock repurchase program.

Dividend



The following table summarizes the Companys cash dividend payments for the nine months ended December 31, 2010:



|                 |  |                         |  |                    |  |                 
|---------------- |  | ----------------------- |  | ------------------ |  | ----------------
|Declaration Date |  | Stockholder Record Date |  | Payment Date       |  | Amount per Share
|May 5, 2010      |  | June 15, 2010           |  | June 30, 2010      |  | $0.10           
|August 4, 2010   |  | September 14, 2010      |  | September 29, 2010 |  | $0.10           
|October 27, 2010 |  | November 14, 2010       |  | November 30, 2010  |  | $0.75           
|October 27, 2010 |  | December 7, 2010        |  | December 21, 2010  |  | $0.10           

The declaration of
cash dividends in the future is subject to final determination each quarter by the Board based on a number of factors, including the Companys financial performance and available cash resources, its cash requirements and alternative uses of
cash that the Board may conclude would represent an opportunity to generate a greater return on investment for the Company. The Board may decide that future dividends will be in amounts that are different than the amount described above or may
decide to suspend or discontinue the payment of cash dividends altogether.



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|10. | Business Segment and Geographic Information
|--- | -------------------------------------------

The Company operates in one industry segment, the development and sale of computer software programs and related services. The chief operating decision maker evaluates the performance of the Company using
one industry segment. Revenue from transactions with United States government agencies was approximately 25.2% and 37.9% of total revenue for the three months ended December 31, 2010 and 2009, respectively. Revenue from transactions with United
States government agencies was approximately 34.1% and 41.5% of total revenue for the nine months ended December 31, 2010 and 2009, respectively. No single customer accounted for 10% or more of revenue for the three or nine months ended
December 31, 2010 or 2009. In addition, there was no country, with the exception of the United States, where aggregate sales accounted for 10% or more of total revenue in either the three or nine months ended December 31, 2010 or 2009.
Substantially all assets were held in the United States at December 31 and March 31, 2010. Revenue by geographic area and as a percentage of total revenue follows:



|                 |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|---------------- |  | ------------------------------ | ------ | - | ----------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                 |  | Three Months EndedDecember 31, |        |   | Nine Months EndedDecember 31, |  
|                 |  | 2010                           |        |   | 2009                          |   |        | 2010 |  |   | 2009    |  
|                 |  | (dollars in thousands)         |       
|Geographic Area: |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|United States    |  | $                              | 28,442 |   |                               | $ | 26,074 |      |  | $ | 80,060  |   |  | $ | 72,573 |  
|International    |  |                                | 11,236 |   |                               |   | 7,481  |      |  |   | 26,821  |   |  |   | 19,337 |  
|                 |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Total revenue    |  | $                              | 39,678 |   |                               | $ | 33,555 |      |  | $ | 106,881 |   |  | $ | 91,910 |  
|                 |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Geographic Area: |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|United States    |  |                                | 71.7   | % |                               |   | 77.7   | %    |  |   | 74.9    | % |  |   | 79.0   | %
|International    |  |                                | 28.3   | % |                               |   | 22.3   | %    |  |   | 25.1    | % |  |   | 21.0   | %
|                 |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Total revenue    |  |                                | 100.0  | % |                               |   | 100.0  | %    |  |   | 100.0   | % |  |   | 100.0  | %
|                 |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |        |  



|11. | Comprehensive Income
|--- | --------------------

Comprehensive income includes net income, foreign currency translation adjustments, and unrealized gain or loss on cash equivalents and
marketable securities. The components of comprehensive income, net of tax, are as follows:



|                                                                          |  |                                |       |   |                              |   |       |      |  |   |       |  |  |   |       | 
|------------------------------------------------------------------------- |  | ------------------------------ | ----- | - | ---------------------------- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                                                                          |  | Three MonthsEndedDecember 
31, |       |   | Nine MonthsEndedDecember 31, |  
|                                                                          |  | 2010                           |       |   | 2009                         |   |       | 2010 |  |   | 2009  | 
|                                                                          |  | (in thousands)                 |      
|Net income                                                                |  | $                              | 4,324 |   |                              | $ | 2,340 |      |  | $ | 8,578 |  |  | $ | 3,514 | 
|Foreign currency translation adjustments                                  |  |                                | (275  | ) |                              |   | (159  | )    |  |   | 112   |  |  |   | 452   | 
|Net unrealized (loss)/gains on cash equivalents and marketable securities |  |                                | (3    | ) |                              |   |      |      |  |   | 5     |  |  |   |      | 
|                                                                          |  |                                |       |   |                              |   |       |      |  |   |       |  |  |   |       | 
|Total comprehensive income                                                |  | $                              | 4,046 |   |                              | $ | 2,181 |      |  | $ | 8,695 |  |  | $ | 3,966 | 
|                                                                          |  |                                |       |   |                              |   |       |      |  |   |       |  |  |   |       | 

Accumulated other comprehensive loss of $882,000 at December 31, 2010 was comprised of $887,000 of
foreign currency translation adjustments and $5,000 of net unrealized gains on marketable securities. Accumulated other comprehensive loss of $1.0 million at March 31, 2010 was comprised of foreign currency translation adjustments.



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|12. | Commitments and Contingencies
|--- | -----------------------------

The Company is currently under an income tax audit in Germany for fiscal years 2005 through 2007. The Company does not expect this matter to have a material effect on the Companys financial
condition, results of operations, or cash flows.

The Company accounts for guarantees in accordance with FASB Interpretation
No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (as codified in ASC 460 Guarantees). Interpretation No. 45 elaborates on the
disclosures required in financial statements concerning obligations under certain guarantees. It also clarifies the requirements related to the recognition of liabilities by a guarantor at the inception of certain guarantees. The provisions related
to recognizing a liability at inception of the guarantee do not apply to product warranties or indemnification provisions in the Companys software license agreements.

Under the terms of substantially all of the Companys license agreements, it has agreed to defend and pay any final judgment against its customers arising from claims against such customers that the
Companys software products infringe the intellectual property rights of a third party. To date: i) the Company has not received any notice that any customer is subject to an infringement claim arising from the use of its software products, ii)
the Company has not received any request to defend any customers from infringement claims arising from the use of its software products, and iii) the Company has not paid any final judgment on behalf of any customer related to an infringement claim
arising from the use of its software products. Because the outcome of infringement disputes are related to the specific facts in each case, and given the lack of previous or current indemnification claims, the Company cannot estimate the maximum
amount of potential future payments, if any, related to its indemnification provisions. However, the Company believes these indemnification provisions will not have a material adverse effect on its operating performance, financial condition, or cash
flows. As of December 31, 2010, the Company has not recorded any liabilities related to these indemnifications.

The
Companys standard license agreement includes a warranty provision for software products. The Company generally warrants for the first ninety days after delivery that the software shall operate substantially as stated in the then current
documentation provided that the software is used in a supported computer system. The Company provides for the estimated cost of product warranties based on specific warranty claims, provided that it is probable that a liability exists and provided
the amount can be reasonably estimated. To date, the Company has not had any material costs associated with these warranties.

The Company is involved in other claims and legal proceedings arising from normal operations. The Company does not expect these matters,
individually or in the aggregate, to have a material effect on the Companys financial condition, results of operations, or cash flows.



|13. | Income Taxes
|--- | ------------

The
Companys effective tax rate was 22.1% and 31.5% for the three months ended December 31, 2010 and 2009, respectively. The Companys tax rate differed from the statutory tax rate in these periods principally due to state income taxes,
the difference between United States and foreign tax rates, research and development credits, the domestic production activities deduction, and book compensation under the Companys ESPP not deductible for tax purposes. The decrease in the
Companys effective tax rate for the three months ended December 31, 2010, as compared to the same period in the prior fiscal year, was largely due to adjusting the Companys third quarter tax provision to reflect the benefit of the
retroactive reinstatement of the research and development tax credit back to January 1, 2010 as a result of law enacted in December 2010. The Companys effective tax rate was 31.3% and 29.8% for the nine months ended December 31, 2010
and 2009, respectively. The increase in the Companys effective tax rate for the nine months ended December 31, 2010, as compared to the same period in the prior fiscal year, was largely due to a lower proportion of research and
development tax credits based on higher pre-tax book income for the nine months ended December 31, 2010 compared to December 31, 2009.



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The following table summarizes the tax years that are either currently under audit or remain
open under the statute of limitations and are subject to examination by the tax authorities in the most significant jurisdictions in which the Company operates:



|               |  |              
|-------------- |  | -------------
|Australia      |  | FY07    FY09
|Belgium        |  | FY08    FY09
|France         |  | FY07    FY10
|Germany        |  | FY05    FY09
|United Kingdom |  | FY09         
|Singapore      |  | FY08    FY09
|United States  |  | FY08    FY10
|Maryland       |  | FY05    FY10

The Company is currently under an income tax audit in Germany for fiscal years 2005 through 2007.

During the quarter ended September 30, 2010, the IRS completed its examination of the Companys fiscal 2007 federal tax return.
As a result of the IRS settlement, the Company recorded a decrease in the unrecognized tax benefits related to uncertain tax positions of $106,000.



|14. | Subsequent Events
|--- | -----------------

On
January 26, 2011, the Board approved a quarterly cash dividend in the amount of $0.10 per share, which will be paid on March 30, 2011 to stockholders of record as of the close of business on March 16, 2011. The declaration of cash
dividends in the future is subject to final determination each quarter by the Board based on a number of factors, including the Companys financial performance and available cash resources, its cash requirements and alternative uses of cash
that the Board may conclude would represent an opportunity to generate a greater return on investment for the Company. The Board may decide that future dividends will be in amounts that are different than the amount described above or may decide to
suspend or discontinue the payment of cash dividends altogether.

The existing lease for the Companys corporate office
located in Bethesda, Maryland expired on January 31, 2011. On January 31, 2011, the Company renewed the lease. The office space consists of approximately 60,000 square feet and has been renewed through January 31, 2021, exclusive of renewal options.
The lease provides for one renewal option (at the option of the landlord) for not less than three and one half years and not more than ten years. The lease also provides for a short-term extension at January 31, 2021 (at the option of the tenant) of
three months. The minimum lease payments, inclusive of aforementioned short-term extension, as of January 31, 2011 are approximately $27.4 million over the period from February 1, 2011 through April 30, 2021. The monthly rent for the first lease
year is $200,000, and is subject to escalation of 3.75% each year. The lease also requires the Company to maintain a security deposit of approximately $471,000 in the form of a bank letter of credit.



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|ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis related to our financial condition and results of operations for the three and nine months ended
December 31, 2010 and 2009 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, 2010, filed with the Securities and Exchange Commission, or SEC, on June 4, 2010. 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, 2010. 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 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 programs and related services.
Our operations are principally in the United States. We also have subsidiaries with offices in Belgium, France, Germany, the United Kingdom, Singapore, and China. We primarily depend upon our direct sales force to generate revenue in the United
States. In addition, in the United States we operate a sales program to extend our market reach by establishing sales alliances with third parties called the Synergy Program. The Synergy Programs focus is on selling our application performance
management software products, including AppResponse Xpert 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.
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 and 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 nine months ended
December 31, 2010 and 2009, perpetual licenses represented approximately 91% and 92%, respectively, of product revenue. Substantially all of our product arrangements include both product and product updates, technical support, and services.
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. We offer professional services,
under both time-and-material and fixed-price agreements, primarily to facilitate the adoption of our software products.



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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 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.

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

During the three months ended December 31, 2010, or Q3 fiscal 2011, as compared to the three months ended September 30, 2010, or
Q2 fiscal 2011, we generated an increase in total revenue, gross profit, income from operations, and net income. The increase in our total revenue and profitability was primarily the result of an increase in product revenue of $2.5 million. Net
income was also favorably affected by $702,000 as a result of reflecting the retroactive reinstatement of the research and development tax credit back to January 1, 2010 in our Q3 fiscal 2011 tax provision. The reinstatement was signed into law
during December 2010. The increase in product revenue was due to an increase in sales to corporate enterprise customers which was partially offset by a decrease in sales to United States government customers. The increase in sales to corporate
enterprise customers was largely driven by purchases of our application performance management products by such customers. The sequential decrease in sales to United States government customers reflects a seasonal trend we typically experience
during the last calendar quarter due to United States governments fiscal year end of September 30. We also believe this seasonal trend was more pronounced in Q3 fiscal 2011 due to budget constraints being experienced by government
customers.

During Q3 fiscal 2011, as compared to Q2 fiscal 2011, we experienced an increase in deferred revenue and cash flow
from operations. The increase in deferred revenue was largely due to growth in customers renewing software maintenance contracts during Q3 fiscal 2011, as compared to Q2 fiscal 2011, which is a seasonal trend we typically experience during the last
calendar quarter. The increase in cash flow from operations was largely due to an increase in accounts receivable collections activity during Q3 fiscal 2011, as compared to Q2 fiscal 2011. During Q3 fiscal 2011, as compared to Q2 fiscal 2011, we
experienced a decrease in cash, cash equivalents and marketable securities. The decrease was largely due to the payment of $18.5 million in dividend payments during the quarter, partially offset by cash generated from operations.



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



|                                                                                                       |  |                                               |         |   |                   |   |         |              |  |   |                  |   |  |  |       |   
|------------------------------------------------------------------------------------------------------ |  | --------------------------------------------- | ------- | - | ----------------- | - | ------- | ------------ |  | - | ---------------- | - |  |  | ----- | --
|                                                                                                       |  | Three Months Ended                            |         |   |                   |   |         |              | 
|                                                                                                       |  | December 31,2010                              |         |   | September 30,2010 |   |         | AmountChange |  |   | PercentageChange |  
|                                                                                                       |  | (dollars in thousands, except per share data) |        
|Financial Data:                                                                                        |  |                                               |         |   |                   |   |         |              |  |   |                  |   |  |  |       |   
|Total revenue                                                                                          |  | $                                             | 39,678  |   |                   | $ | 36,118  |              |  | $ | 3,560            |   |  |  | 9.9   | % 
|Total cost of revenue                                                                                  |  | $                                             | 8,404   |   |                   | $ | 8,451   |              |  | $ | (47              | ) |  |  | (0.6  | )%
|Gross profit                                                                                           |  | $                                             | 31,274  |   |                   | $ | 27,667  |              |  | $ | 3,607            |   |  |  | 13.0  | % 
|Gross profit as a percentage of total revenue (gross margin)                                           |  |                                               | 78.8    | % |                   |   | 76.6    | %            |  |   |                  |   |  |  |       |   
|Total operating expenses                                                                               |  | $                                             | 25,671  |   |                   | $ | 23,015  |              |  | $ | 2,656            |   |  |  | 11.5  | % 
|Income from operations                                                                                 |  | $                                             | 5,603   |   |                   | $ | 4,652   |              |  | $ | 951              |   |  |  | 20.4  | % 
|Income from operations as a percentage of total revenue (operating margin)                             |  |                                               |         |   |                   |   | 12.9    | %            |  |   |                  |   |  |  |       |   
|Net income                                                                                             |  | $                                             | 4,324   |   |                   | $ | 2,916   |              |  | $ | 1,408            |   |  |  | 48.3  | % 
|Diluted net income per common share                                                                    |  | $                                             | 0.19    |   |                   | $ | 0.13    |              |  | $ | 0.06             |   |  |  | 46.2  | % 
|                                                                                                       |  |                                               |         |  
|Other Operations Data:                                                                                 |  |                                               |         |   |                   |   |         |              |  |   |                  |   |  |  |       |   
|Total employees (period end)                                                                           |  |                                               | 558     |   |                   |   | 566     |              |  |   | (8               | ) |  |  | (1.4  | )%
|Total average employees                                                                                |  |                                               | 560     |   |                   |   | 566     |              |  |   | (6               | ) |  |  | (1.1  | )%
|Total consultants (period end)                                                                         |  |                                               | 86      |   |                   |   | 91      |              |  |   | (5               | ) |  |  | (5.5  | )%
|Total quota-carrying sales persons (excluding directors and inside sales representatives) (period end) |  |                                               | 69      |   |                   |   | 64      |              |  |   | 5                |   |  |  | 7.8   | % 
|                                                                                                       |  |                                               |         |  
|Financial Condition and Liquidity Data:                                                                |  |                                               |         |   |                   |   |         |              |  |   |                  |   |  |  |       |   
|Cash, cash equivalents, and marketable securities (period end)                                         |  | $                                             | 100,977 |   |                   | $ | 108,324 |              |  | $ | (7,347           | ) |  |  | (6.8  | )%
|Cash flows provided by operating activities                                                            |  | $                                             | 6,858   |   |                   | $ | 495     |              |  | $ | 6,363            |   |  |  | 1,285 | % 
|Total deferred revenue (period end)                                                                    |  | $                                             | 42,897  |   |                   | $ | 40,223  |              |  | $ | 2,674            |   |  |  | 6.6   | % 

Our increase in total
revenue in Q3 fiscal 2011 from Q2 fiscal 2011 was primarily due to an increase in product revenue of $2.5 million. The sequential increase in product revenue was primarily the result of an increase in sales to corporate enterprise customers which
was partially offset by a decrease in sales to United States government customers. The increase in sales to corporate enterprise customers was due to increase in demand for application performance management products. The decrease in sales to United
States government customers we believe was primarily the result of the seasonal buying patterns from United States government customers and, to a lesser extent, the result of budget constraints being experienced by these customers. Total revenue
generated from sales to United States government customers decreased by $4.5 million during Q3 fiscal 2011 as compared to Q2 fiscal 2011. The percentage of total revenue from United States government customers decreased to 25.2% in Q3 fiscal 2011
from 40.2% in Q2 fiscal 2011.

Our international revenue was $11.2 million and $8.1 million for Q3 fiscal 2011 and Q2 fiscal
2011, respectively. The increase in international revenue was primarily the result of an increase in revenue from corporate enterprise customers. As a percentage of total revenue, international revenue increased from 22.3% to 28.3% during Q3 fiscal
2011. 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 Q3 fiscal 2011. 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 $3.6 million, or 13.0%, to $31.3 million for Q3 fiscal 2011 from $27.7 million for Q2 fiscal 2011. The increase in gross profit was primarily the result of a $2.5 million
increase in product revenue.



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Our gross margin increased to 78.8% in Q3 fiscal 2011 from 76.6% in Q2 fiscal 2011. Gross margin on product revenue, product updates, technical support and services revenue and professional
services revenue for Q3 fiscal 2011 was 85.7%, 90.9%, and 34.0%, respectively. Changes in revenue from product and product updates, technical support and services 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 is showing signs of improvement, but our ability to
generate increased revenue domestically and internationally will depend largely upon continued improvement in 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 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 believe that continued increases in the proportion of sales of our application performance management products, as compared to our other products, would 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 application performance management 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 percentage 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 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 application performance management products. We believe there is more competition in
the markets served by our application performance management products as compared to the markets for our other products. We made personnel investments in research and development during fiscal 2010, and we plan to continue making investments 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. During fiscal 2010, we focused on improving the productivity of our
sales force and only made modest investments in additional direct sales personnel. We plan to continue this approach during the next several quarters. We also plan to increase expenditures in areas we believe will enhance the visibility of our
products in the marketplace, especially our application performance management products. While we expect that the absolute dollar amount of sales and marketing expenses will increase in fiscal 2011 as compared to fiscal 2010, our ability to lower
these expenses as a percentage of revenue will depend upon increases in our revenue.



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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 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. Our operating margin increased to 14.1%
during Q3 fiscal 2011 from 12.9% during Q2 fiscal 2011. The increase was primarily the result of a $2.5 million increase in product revenue. 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, 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, 2010 filed with the SEC on June 4, 2010.



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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 MonthsEndedDecember 31, |       |   | Nine MonthsEndedDecember 31, | 
|                                                               |  | 2010                          |       |   | 2009                         |  |       | 2010 |  |  | 2009  |  
|Revenue:                                                       |  |                               |       |   |                              |  |       |      |  |  |       |   |  |  |       |  
|Product                                                        |  |                               | 50.9  | % |                              |  | 46.2  | %    |  |  | 47.6  | % |  |  | 39.2  | %
|Product updates, technical support and services                |  |                               | 35.1  |   |                              |  | 35.6  |      |  |  | 36.8  |   |  |  | 38.0  |  
|Professional services                                          |  |                               | 14.0  |   |                              |  | 18.2  |      |  |  | 15.6  |   |  |  | 22.8  |  
|                                                               |  |                               |       |   |                              |  |       |      |  |  |       |   |  |  |       |  
|Total revenue                                                  |  |                               | 100.0 |   |                              |  | 100.0 |      |  |  | 100.0 |   |  |  | 100.0 |  
|                                                               |  |                               |       |   |                              |  |       |      |  |  |       |   |  |  |       |  
|Cost of revenue:                                               |  |                               |       |   |                              |  |       |      |  |  |       |   |  |  |       |  
|Product                                                        |  |                               | 7.3   |   |                              |  | 5.3   |      |  |  | 6.2   |   |  |  | 4.5   |  
|Product updates, technical support and services                |  |                               | 3.2   |   |                              |  | 3.5   |      |  |  | 3.6   |   |  |  | 3.9   |  
|Professional services                                          |  |                               | 9.3   |   |                              |  | 13.9  |      |  |  | 11.4  |   |  |  | 15.8  |  
|Amortization of acquired technology and customer relationships |  |                               | 1.4   |   |                              |  | 1.4   |      |  |  | 1.4   |   |  |  | 1.5   |  
|                                                               |  |                               |       |   |                              |  |       |      |  |  |       |   |  |  |       |  
|Total cost of revenue                                          |  |                               | 21.2  |   |                              |  | 24.1  |      |  |  | 22.6  |   |  |  | 25.7  |  
|                                                               |  |                               |       |   |                              |  |       |      |  |  |       |   |  |  |       |  
|Gross profit                                                   |  |                               | 78.8  |   |                              |  | 75.9  |      |  |  | 77.4  |   |  |  | 74.3  |  
|                                                               |  |                               |       |   |                              |  |       |      |  |  |       |   |  |  |       |  
|Operating expenses:                                            |  |                               |       |   |                              |  |       |      |  |  |       |   |  |  |       |  
|Research and development                                       |  |                               | 22.1  |   |                              |  | 23.8  |      |  |  | 23.8  |   |  |  | 25.6  |  
|Sales and marketing                                            |  |                               | 33.4  |   |                              |  | 33.9  |      |  |  | 32.8  |   |  |  | 34.6  |  
|General and administrative                                     |  |                               | 9.2   |   |                              |  | 8.0   |      |  |  | 9.0   |   |  |  | 8.7   |  
|                                                               |  |                               |       |   |                              |  |       |      |  |  |       |   |  |  |       |  
|Total operating expenses                                       |  |                               | 64.7  |   |                              |  | 65.7  |      |  |  | 65.6  |   |  |  | 68.9  |  
|                                                               |  |                               |       |   |                              |  |       |      |  |  |       |   |  |  |       |  
|Income from operations                                         |  |                               | 14.1  |   |                              |  | 10.2  |      |  |  | 11.8  |   |  |  | 5.4   |  
|Interest and other expense, net                                |  |                               | (0.1  | ) |                              |  | (0.0  | )    |  |  | (0.1  | ) |  |  | (0.0  | )
|                                                               |  |                               |       |   |                              |  |       |      |  |  |       |   |  |  |       |  
|Income before provision for income taxes                       |  |                               | 14.0  |   |                              |  | 10.2  |      |  |  | 11.7  |   |  |  | 5.4   |  
|Provision for income taxes                                     |  |                               | 3.1   |   |                              |  | 3.2   |      |  |  | 3.7   |   |  |  | 1.6   |  
|                                                               |  |                               |       |   |                              |  |       |      |  |  |       |   |  |  |       |  
|Net income                                                     |  |                               | 10.9  | % |                              |  | 7.0   | %    |  |  | 8.0   | % |  |  | 3.8   | %
|                                                               |  |                               |       |   |                              |  |       |      |  |  |       |   |  |  |       |  

Revenue

Product Revenue.Product revenue was $20.2 million and $15.5 million for the three months ended December 31, 2010 and 2009, respectively, representing an increase of 30.3%. The increase was
due to growth in sales to corporate enterprise customers and, to a lesser extent, international government customers, partially offset by a decrease in sales to United States government customers. Product revenue was $50.8 million and $36.1 million
for the nine months ended December 31, 2010 and 2009, respectively, representing an increase of 40.9%. The increase was largely due to growth in sales to corporate enterprise customers and, to a lesser extent, international government
customers. The increase in sales to corporate enterprise and international government customers for the three and nine month periods was primarily due to growth in sales of our application performance management products. The decrease in sales to
United States government customers for the three-month period ended December 31, 2010, as compared to the same period the prior fiscal year, is what the Company perceives as tighter budget constraints for government customers.

Product Updates, Technical Support and Services Revenue.Product updates, technical support and services revenue was $13.9 million
and $12.0 million for the three months ended December 31, 2010 and 2009, respectively, representing an increase of 16.3%. Product updates, technical support and services revenue was $39.3 million and $34.9 million for the nine months ended
December 31, 2010 and 2009, respectively, representing an increase of 12.5%. 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



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existing customers. The increase in product updates, technical support and services revenue for both periods reflect increases in the overall customer installed base. Increases in the overall
customer installed base increase the demand for annual renewals of maintenance contracts.

The dollar amount of our deferred
revenue under our maintenance contracts at the end of each quarter is a key factor in determining the near-term growth of our product updates, technical support and services revenue. The balance of deferred revenue under our maintenance contracts
generally increases when we sell product licenses and when we sell renewals of annual maintenance contracts. The amount of deferred revenue under our maintenance contracts was $37.4 million and $32.2 million at December 31, 2010 and 2009,
respectively. The amount of deferred revenue under our maintenance contracts will generally be recognized as product updates, technical support and services revenue over the life of each individually purchased maintenance contract, which is
typically a twelve-month period.

Professional Services Revenue.The components of professional services revenue for
the three and nine months ended December 31, 2010 and 2009 are as follows:



|                              |  |                                |       |  |                               |   |       |      |  |   |        |  |  |   |        | 
|----------------------------- |  | ------------------------------ | ----- |  | ----------------------------- | - | ----- | ---- |  | - | ------ |  |  | - | ------ | 
|                              |  | Three MonthsEnded,December 31, |       |  | Nine MonthsEnded,December 31, |  
|                              |  | 2010                           |       |  | 2009                          |   |       | 2010 |  |   | 2009   | 
|                              |  | (in thousands)                 |      
|Consulting services revenue   |  | $                              | 5,458 |  |                               | $ | 6,023 |      |  | $ | 16,412 |  |  | $ | 20,625 | 
|Training revenue              |  |                                | 135   |  |                               |   | 87    |      |  |   | 367    |  |  |   | 301    | 
|                              |  |                                |       |  |                               |   |       |      |  |   |        |  |  |   |        | 
|Professional services revenue |  | $                              | 5,593 |  |                               | $ | 6,110 |      |  | $ | 16,779 |  |  | $ | 20,926 | 
|                              |  |                                |       |  |                               |   |       |      |  |   |        |  |  |   |        | 

Professional services revenue was $5.6 million and $6.1 million for the three months ended December 31,
2010 and 2009, respectively, representing a decrease of 8.5%. Consulting services revenue accounted for 97.6% and 98.6% of professional services revenue for the three months ended December 31, 2010 and 2009, respectively. The decrease in
professional services revenue was the result of completing a large United States government contract during fiscal 2010 that contributed $756,000 in consulting revenue during the three months ended December 31, 2009, and did not contribute
consulting revenue during the three months ended December 31, 2010. The decrease in revenue attributable to the completion of this large contract was, partially offset by an increase in revenue generated from corporate enterprise customers. The
percentage of total consulting revenue from United States government customers for the three months ended December 31, 2010 and 2009 was 62.8% and 73.7%, respectively. Professional services revenue was $16.8 million and $20.9 million for the
nine months ended December 31, 2010 and 2009, respectively, representing a decrease of 19.8%. Consulting services revenue accounted for 97.8% and 98.6% of professional services revenue for the nine months ended December 31, 2010 and 2009,
respectively. The decrease in professional services revenue was the result of completing two large United States government contracts during fiscal 2010 that contributed $4.1 million in consulting revenue during the nine months ended
December 31, 2009, and did not contribute consulting revenue during the nine months ended December 31, 2010. The percentage of total consulting revenue from United States government customers for the nine months ended December 31,
2010 and 2009 was 68.8% and 70.5%, respectively.

International Revenue.

Our international revenue was $11.2 million and $7.5 million for the three months ended December 31, 2010 and 2009, respectively,
representing an increase of 50.2%. Our international revenue as a percentage of total revenue was 28.3% and 22.3% for the three months ended December 31, 2010 and 2009, respectively. Our international revenue was $26.8 million and $19.3 million
for the nine months ended December 31, 2010 and 2009, respectively, representing an increase of 38.7%. Our international revenue as a percentage of total revenue was 25.1% and 21.0% for the nine months ended December 31, 2010 and 2009,
respectively. The absolute dollar increases in international revenue were largely the result of an increase in sales of our application performance



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management products to corporate enterprise customers. Revenue from corporate enterprise customers accounted for the largest percentage of international revenue for the three and nine month
periods ended December 31, 2010 and 2009. Our international revenue is primarily generated in Europe and Asia.

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 MonthsEnded,December 31, |      |   | Nine MonthsEnded,December 31, | 
|                                                |  | 2010                           |      |   | 2009                          |  |      | 2010 |  |  | 2009 |  
|Cost of Revenue:                                |  |                                |      |   |                               |  |      |      |  |  |      |   |  |  |      |  
|Product                                         |  |                                | 14.3 | % |                               |  | 11.4 | %    |  |  | 13.1 | % |  |  | 11.4 | %
|Product updates, technical support and services |  |                                | 9.1  | % |                               |  | 9.8  | %    |  |  | 9.7  | % |  |  | 10.2 | %
|Professional services                           |  |                                | 66.0 | % |                               |  | 76.6 | %    |  |  | 72.6 | % |  |  | 69.6 | %

Cost of product revenue
consists primarily of the cost of hardware platforms associated with the delivery of some software products, royalties, fees paid to indirect channel partners and, to a lesser extent, media, manuals, and distribution costs. Cost of product 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 product revenue and product updates, technical
support and services revenue are substantially higher than gross margins on professional services revenue, due to the low cost of delivering software products and providing technical support and maintenance compared with the relatively high
personnel costs associated with providing consulting services and customer training.

Cost of Product Revenue.Cost of product revenue was $2.9 million and $1.8 million for the three months ended December 31, 2010 and 2009, respectively. The increase of 64.2% was primarily the result of a $709,000 increase in costs related to hardware
platforms used to deliver our AppResponse Xpert (formerly known as ACE Live) software products. Total hardware platform costs associated with the delivery of our AppResponse Xpert software products for the three months ended December 31, 2010
and 2009 was $2.3 million and $1.5 million, respectively. Gross margin on product revenue decreased to 85.7% for the three months ended December 31, 2010, compared to 88.6% for the same period in fiscal 2010. Cost of product revenue was $6.7
million and $4.1 million for the nine months ended December 31, 2010 and 2009, respectively. The increase of 62.5% was primarily the result of a $2.1 million increase in costs related to hardware platforms used to deliver our AppResponse Xpert
software products. Total hardware platform costs associated with the delivery of our AppResponse Xpert software products for the nine months ended December 31, 2010 and 2009 was $5.3 million and $3.2 million, respectively. Gross margin on
product revenue decreased to 86.9% for the nine months ended December 31, 2010, compared to 88.6% for the same period in fiscal 2010. The increase in the cost of product revenue for the three and nine months ended December 31, 2010 was
primarily the result of growth in sales of our AppResponse Xpert and the associated hardware platform cost. The decrease in gross margin on product revenue for the three and nine-month periods ended December 31, 2010, as compared to the same
periods in fiscal 2010 was primarily due to an increase in the proportion of AppResponse Xpert software products sold.

Cost of Product Updates, Technical Support and Services Revenue.Cost of product updates, technical support and services revenue
was $1.3 million and $1.2 million for the three months ended December 31, 2010 and 2009, respectively. The increase in cost of product updates, technical support and services revenue was primarily the result of depreciation expense on hardware
necessary to provide customer support, and to a lesser extent, compensation expense related to an increase in staffing necessary to provide customer support. Gross margin on product updates, technical support and services revenue increased to 90.9%
for the three months ended



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December 31, 2010, from 90.2% for the same period in fiscal 2010. Stock-based compensation expense allocated to cost of product updates, technical support and services was $6,000 and $4,000
for the three months ended December 31, 2010 and 2009, respectively. Cost of product updates, technical support and services revenue was $3.8 million and $3.6 million for the nine months ended December 31, 2010 and 2009, respectively. The
increase in cost of product updates, technical support and services revenue was primarily the result of compensation expense related to an increase in staffing necessary to provide customer support. Gross margin on product updates, technical support
and services revenue increased to 90.3% for the nine months ended December 31, 2010, from 89.8% for the same period in fiscal 2010. Stock-based compensation expense allocated to cost of product updates, technical support and services was
$14,000 for the nine months ended December 31, 2010 and 2009.

Cost of Professional Services Revenue.Cost of
professional services revenue was $3.7 million and $4.7 million for the three months ended December 31, 2010 and 2009, respectively. The decrease of 21.2% was primarily the result of an $854,000 decrease in compensation expense due to a
reduction in staffing levels in response to weaker demand for our consulting services. Gross margin on professional services revenue increased to 34.0% for the three months ended December 31, 2010 from 23.4% for the same period in fiscal 2010.
The increase in gross margin was primarily due to the close-out of fixed price contracts following confirmation from customers that no additional work on the associated projects was required. Stock-based compensation expense allocated to cost of
professional services was $19,000 and $25,000 for the three months ended December 31, 2010 and 2009, respectively. Cost of professional services revenue was $12.2 million and $14.6 million for the nine months ended December 31, 2010 and
2009, respectively. The decrease of 16.4% was primarily the result of a $1.9 million decrease in compensation expense and a $229,000 decrease in travel expenses due to the reduction in staffing levels in response to weaker demand for our consulting
services. Gross margin on professional services revenue decreased to 27.4% for the nine months ended December 31, 2010 from 30.4% for the same period in fiscal 2010. Stock-based compensation expense allocated to cost of professional services
was $56,000 and $81,000 for the nine months ended December 31, 2010 and 2009, respectively. We believe the weaker demand for our consulting services during the three and nine months ended December 31, 2010, as compared to the same period
in fiscal 2010, was due to the increase in the proportion of sales of our application performance management products, as our application performance management products generally require less time to implement as compared to our other products.

Operating Expenses

Research and Development.Research and development expenses were $8.8 million and $8.0 million for the three months ended December 31, 2010 and 2009, respectively, representing an increase of
9.5%. The increase in research and development expenses for the three months ended December 31, 2010, as compared to the same period in fiscal 2010, was largely due to a $580,000 increase in compensation expense due to increased staffing levels
necessary to develop new products and enhance and maintain existing products. Stock-based compensation expense allocated to research and development was $303,000 and $172,000 for the three months ended December 31, 2010 and 2009, respectively.
Research and development expenses were $25.4 million and $23.6 million for the nine months ended December 31, 2010 and 2009, respectively, representing an increase of 7.8%. The increase in research and development expenses for the nine months
ended December 31, 2010, as compared to the same period in fiscal 2010, was largely due to a $1.9 million increase in compensation expense due to increased staffing levels necessary to develop new products and enhance and maintain existing
products, which was partially offset by a decrease in common area maintenance costs related to facilities and lower legal fees associated with patent services. Stock-based compensation expense allocated to research and development was $641,000 and
$424,000 for the nine months ended December 31, 2010 and 2009, respectively.

Sales and Marketing. Sales and
marketing expenses were $13.3 million and $11.4 million for the three months ended December 31, 2010 and 2009, respectively. The increase of 16.8% was largely due to a $932,000 increase in sales commissions resulting from sales growth, and a
$642,000 increase in conference and trade show expenses resulting from more normalized marketing expenditures following the global economic downturn.



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Stock-based compensation expense allocated to sales and marketing was $165,000 and $109,000 for the three months ended December 31, 2010 and 2009, respectively. Sales and marketing expenses
were $35.1 million and $31.7 million for the nine months ended December 31, 2010 and 2009, respectively. The increase of 10.8% was largely due to a $1.7 million increase in conference and trade show expenses resulting from more normalized
marketing expenditures following the global economic downturn, and a $1.1 million increase in sales commissions resulting from sales growth. Stock-based compensation expense allocated to sales and marketing was $357,000 and $307,000 for the nine
months ended December 31, 2010 and 2009, respectively.

General and Administrative. General and administrative
expenses were $3.6 million and $2.7 million for the three months ended December 31, 2010 and 2009, respectively. The increase of 35.3% was largely due to a $749,000 increase in performance-related variable compensation expense. Stock-based
compensation expense allocated to general and administrative expense was $171,000 and $114,000 for the three months ended December 31, 2010 and 2009, respectively. General and administrative expenses were $9.6 million and $8.0 million for the
nine months ended December 31, 2010 and 2009, respectively. The increase of 19.9% was the result of an $816,000 increase in performance-related variable compensation expense, a $350,000 increase in bad debt expense, and a $233,000 increase in
professional service fees. Stock-based compensation expense allocated to general and administrative expense was $383,000 and $305,000 for the nine months ended December 31, 2010 and 2009, respectively.

Interest and Other Expense, net.Interest and other expense net, was an expense of $54,000 and an expense of $16,000 for the three
months ended December 31, 2010 and 2009, respectively. Interest and other (expense) income, net, was an expense of $85,000 and an expense of $4,000 for the nine months ended December 31, 2010 and 2009, respectively. The net change for the
three and nine months ended December 31, 2010, as compared to the same periods in fiscal 2010, was primarily the result of realized foreign currency gains and losses, which were partially offset by an increase in interest income.

Provision for Income Taxes. Our effective tax rate was 22.1% and 31.5% for the three months ended December 31, 2010 and 2009,
respectively. Our tax rate differed from the statutory tax rate in these periods principally due to state income taxes, the difference between the U.S. and foreign tax rates, research and development credits, the domestic production activities
deduction, and book compensation under our ESPP not deductible for tax purposes. The decrease in our effective tax rate for the three months ended December 31, 2010, as compared to the same period in the prior fiscal year, was largely due to
adjusting our third quarter tax provision to reflect the benefit of the retroactive reinstatement of the research and development tax credit back to January 1, 2010 as a result of law enacted in December 2010. Our effective tax rate was 31.3%
and 29.8% for the nine months ended December 31, 2010 and 2009, respectively. The increase in our effective tax rate for the nine months ended December 31, 2010, as compared to the same period in the prior fiscal year, was largely due to a
lower proportion of research and development tax credits based on higher pre-tax book income for the nine months ended December 31, 2010 compared to December 31, 2009.

We are currently under an income tax audit in Germany for fiscal years 2005 through 2007.

During the quarter ended September 30, 2010, the IRS completed its examination of our fiscal 2007 federal tax return. As a result of
the IRS settlement, we recorded a decrease in the unrecognized tax benefits related to uncertain tax positions of $106,000.

Liquidity and
Capital Resources

Since inception, we have funded our operations primarily through cash provided by operating activities
and through the sale of equity securities. As of December 31, 2010, we had cash, cash equivalents and marketable securities totaling $101.0 million.

Net cash provided by operating activities was $12.8 million and $16.8 million for the nine months ended December 31, 2010 and 2009, respectively. Net cash provided by operating activities is
primarily derived from



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net income, as adjusted for non-cash items such as depreciation and amortization expense, and changes in operating assets and liabilities. The decrease in net cash provided by operating
activities was primarily attributable to an increase in accounts receivable due to an increase in sales bookings and a decrease in cash provided by changes in deferred revenue due to growth in customers renewing software maintenance contracts, which
was partially offset by an increase in net income.

Net cash used in investing activities was $40.0 million and $1.7 million
for the nine months ended December 31, 2010 and 2009, respectively. For the nine months ended December 31, 2010, we used funds of $43.0 million to purchase marketable securities, funds of $2.2 million to acquire substantially all the
assets associated with the DSAuditor product line from Embarcadero Technologies, Inc., a privately held software company headquartered in San Francisco, California, and funds of $2.8 million to purchase property and equipment. We received proceeds
of $8.1 million from the sale or maturity of investments. For the nine months ended December 31, 2009, we used funds of $2.2 million to purchase property and equipment and funds of $433,000 to acquire technology. We also received proceeds of
$1.0 million from the maturity of investments.

Net cash used in financing activities was $11.6 million and $5.8 million for
the nine months ended December 31, 2010 and 2009, respectively. During the nine months ended December 31, 2010, we used funds of $22.8 million to pay a quarterly cash dividend of $0.10 per share to stockholders of record on June 15,
2010, September 14, 2010, and December 7, 2010, and a special dividend of $0.75 per share to stockholders of record on November 14, 2010. During the nine months ended December 31, 2009, we used funds of $5.6 million to pay a
quarterly cash dividend of $0.09 per share to stockholders of record on June 15, 2009 and September 15, 2009, and December 15, 2009. We used $3.3 million and $1.1 million to acquire 213,875 and 100,885 shares of our common stock
during the nine months ended December 31, 2010 and 2009, respectively. During the nine months ended December 31, 2010 and 2009, respectively, 17,737 and 12,930 of the shares that were acquired were shares withheld from employees to satisfy
the minimum statutory tax withholding obligations with respect to the income recognized by these employees upon the vesting of their restricted stock shares during the applicable period and the remainder were purchased under our ongoing stock
repurchase plan. Cash provided by financing activities generally reflects the proceeds received from the exercise of stock options and the sale of common stock under our ESPP. During the nine months ended December 31, 2010 and 2009,
respectively, we received proceeds of approximately $12.8 million and $273,000 and issued 1,123,031 and 43,299 shares of common stock, respectively, pursuant to employee and director exercises of stock options. During the nine months ended
December 31, 2010 and 2009, respectively, we received proceeds of approximately $727,000 and $625,000 and issued 70,178 and 87,748 shares of common stock, respectively, pursuant to the issuance of common stock under our ESPP. Excess tax
benefits from the exercise of stock options are presented as a cash flow from financing activities. For the nine months ended December 31, 2010 and 2009, excess tax benefits from the exercise of stock options were $967,000 and $5,000,
respectively.

Contractual Obligations

We have commitments under contractual arrangements to make future payments for goods and services. These contractual arrangements secure the rights to various assets and services to be used in the future
in the normal course of business. For example, we are contractually committed to make minimum lease payments for the use of property under operating lease agreements. In accordance with current accounting rules, the future rights and related
obligations pertaining to such contractual arrangements are not reported as assets or liabilities on our consolidated balance sheets. Our liability for unrecognized tax benefits under Financial Accounting Standards Board Accounting Standards
Codification 740 is reported in current and long-term other income taxes on our consolidated balance sheets. We expect to fund these contractual arrangements with our cash, cash equivalents and marketable securities as well as cash generated
from operations in the normal course of business.

As of December 31, 2010, we did not have any capital lease
obligations. The existing lease for our corporate office located in Bethesda, Maryland expired on January 31, 2011. On January 31, 2011, we renewed the lease. The office space consists of approximately 60,000 square feet and has
been renewed through January 31, 2021,



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exclusive of renewal options. The lease provides for one renewal option (at the option of the landlord) for not less than three and one half years and not more than ten years. The lease also
provides for a short-term extension at January 31, 2021 (at the option of the tenant) of three months. The minimum lease payments, inclusive of aforementioned short-term extension, as of January 31, 2011 are approximately $27.4 million
over the period from February 1, 2011 through April 30, 2021. The monthly rent for the first lease year is $200,000, and is subject to escalation of 3.75% each year. The lease also requires us to maintain a security deposit of
approximately $471,000 in the form of a bank letter of credit. For more information regarding our office space, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2010 filed with the SEC on June 4, 2010.

We expect working capital needs to increase in the foreseeable future in order for us to execute our business plan and growth strategies.
We anticipate that operating activities, as well as expected capital expenditures incurred in the normal course of business, will constitute a material use of our cash resources. In addition, we may utilize cash resources to fund acquisitions or
investments in complementary businesses, technologies or products as well as repurchase our common stock in accordance with our stock repurchase program authorized by our Board of Directors in January 2005, and the payment of dividends to our
stockholders.

We believe that our current cash and cash equivalents and cash generated from operations will be sufficient to
meet our anticipated cash requirements for working capital, capital expenditures and dividends for at least the next 12 months.

Off-Balance Sheet Arrangements

As of December 31, 2010, we did not have any off-balance sheet arrangements with unconsolidated entities or related parties, and, accordingly, there are no off-balance sheet risks to our liquidity
and capital resources from unconsolidated entities.

Contingencies

We are currently under an income tax audit in Germany for fiscal years 2005 through 2007. We do not expect this matter to have a material
effect on our financial condition, results of operations, or cash flows.

We are involved in other claims and legal
proceedings arising from our normal operations. We do not expect these matters, individually or in the aggregate, to have a material effect on our financial condition, results of operations, or cash flows.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

We consider all highly liquid investments purchased with a maturity of three months or less to be cash equivalents, and those with maturities greater than three months are considered to be marketable
securities. Cash equivalents and short-term marketable securities consist primarily of investment grade securities with high credit ratings of relatively short duration that trade in highly liquid markets. Accordingly, we have no quantitative
information concerning the market risks and believe that the risk is minimal. We currently do not hedge interest rate exposure, but do not believe that an increase in interest rates would have a material effect on the value of our cash equivalents
or marketable securities.

At December 31, 2010, we had $66.0 million in cash and cash equivalents and $35.0 million in
short-term marketable securities. Based on our cash, cash equivalents, and marketable securities as of December 31, 2010, a one percentage point increase or decrease in the interest rates would increase or decrease our annual interest income
and cash flows by approximately $1.0 million.

At December 31, 2010, $38.2 million of our $66.0 million in cash and cash
equivalents was held in money market funds and United States government obligations. The money market funds are predominately backed by United States government securities. The net asset value of our money market funds has remained at a constant



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amount of $1.00 per share. Also, as of December 31, 2010 there were no withdrawal limits on redemptions for any of the money market funds that we hold.

Our consolidated financial statements are denominated in United States dollars, and, accordingly, changes in the exchange rate between
foreign currencies and the United States dollar will affect the translation of our subsidiaries financial results into United States dollars for purposes of reporting our consolidated financial results. The accumulated currency translation
adjustment, recorded as a separate component of stockholders equity, was a loss of $887,000 and a loss of $719,000 at December 31, 2010 and 2009, respectively. A majority of our revenue transactions outside the United States are
denominated in local currencies and the majority of operating expenses associated with our foreign subsidiaries are denominated in local currencies; therefore, our results of operations and financial condition are subject to fluctuations due to
changes in foreign currency exchange rates, particularly changes in the British pound and the European Union euro. We currently do not hedge foreign exchange rate risk. Approximately 25.1% and 21.0% of our total revenue for the nine months ended
December 31, 2010 and 2009, respectively, was generated from outside of the United States. Due to the limited nature of our foreign operations, we do not believe that a 10% change in exchange rates would have a material effect on our business,
financial condition, or results of operations. Based on our revenue and operating expenses denominated in foreign currencies during the nine months ended December 31, 2010 and 2009, a 10% increase or decrease in exchange rates would increase or
decrease our consolidated net income by approximately $55,000 and $39,000, respectively.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the
disclosure controls and procedures as of December 31, 2010. The disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, mean
controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2010, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure
controls and procedures were effective at the reasonable assurance level.

No change in our internal control over financial
reporting occurred during the fiscal quarter ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION



|ITEM 1. | Legal Proceedings
|------- | -----------------

Neither we, nor any of our subsidiaries, are currently subject to any material legal proceedings, nor to our knowledge, is any material
legal proceeding threatened against us or any of our subsidiaries.



|ITEM 1A. | Risk Factors
|-------- | ------------

We operate
in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this
quarterly report on Form 10-Q, you should carefully consider the factors discussed in the Risk Factors section of our Annual Report on Form 10-K for the fiscal year ended March 31, 2010, as filed with the Securities and
Exchange Commission on June 4, 2010, or the Annual Report, which could materially affect our business, financial condition or future results. There are no material changes to the risk factors described in our Annual Report.



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|ITEM 2. | Unregistered Sales of Securities and Use of Proceeds
|------- | ----------------------------------------------------

Issuer Purchases of Equity Securities



|                      |  |                                 |        |  |                             |   |       |                                                                                  |  |  |                                                                            |  |  |  |         | 
|--------------------- |  | ------------------------------- | ------ |  | --------------------------- | - | ----- | -------------------------------------------------------------------------------- |  |  | -------------------------------------------------------------------------- |  |  |  | ------- | 
|Period                |  | Total Number ofShares Purchased |        |  | Average Price Paidper Share |   |       | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans
orPrograms (1) |  |  | Maximum Number ofShares That May YetBe Purchased Underthe Plans
orPrograms | 
|October 1  31, 2010  |  |                                 | 1,416  |  |                             | $ | 19.94 |                                                                                  |  |  | 1,416                                                                      |  |  |  | 503,522 | 
|November 1  30, 2010 |  |                                 | 111    |  |                             | $ | 24.29 |                                                                                  |  |  | 111                                                                        |  |  |  | 503,411 | 
|December 1  31, 2010 |  |                                 | 15,247 |  |                             | $ | 26.83 |                                                                                  |  |  | 15,247                                                                     |  |  |  | 488,164 | 
|                      |  |                                 |        |  |                             |   |       |                                                                                  |  |  |                                                                            |  |  |  |         | 
|Total                 |  |                                 | 16,774 |  |                             | $ | 26.23 |                                                                                  |  |  | 16,774                                                                     |  |  |  | 488,164 | 
|                      |  |                                 |        |  |                             |   |       |                                                                                  |  |  |                                                                            |  |  |  |         | 



|(1) | On January 31, 2005, we announced a stock repurchase program pursuant to which we are authorized to purchase up to 1,000,000 shares of common stock from time to
time on the open market or in privately negotiated transactions. This program does not have a specified termination date. On February 4, 2008, we announced that our Board of Directors approved an increase of an additional 1,000,000 shares under
our stock repurchase program. Any repurchased shares will be available for issuance in connection with our stock plans or other corporate purposes. As of December 31, 2010, we had repurchased an aggregate of 1,511,836 shares of common stock
under this program.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|ITEM 4. | (Removed and Reserved)
|------- | ----------------------



|ITEM 5. | Other Information
|------- | -----------------

None.



|ITEM 6. | Exhibits
|------- | --------

See exhibit
index.



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.



|                       |  |  |  |                                       |  |                                           
|---------------------- |  |  |  | ------------------------------------- |  | ------------------------------------------
|                       |  |  |  | OPNET TECHNOLOGIES, INC. (Registrant)
|                       |  |  | 
|                       |  |  |  | By:                                   |  | /S/    MEL F.
WESLEY                      
|Date: February 4, 2011 |  |  |  | Name:                                 |  | Mel F. Wesley                             
|                       |  |  |  | Title:                                |  | Vice President and Chief Financial Officer



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OPNET TECHNOLOGIES, INC.

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                              
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                  
|              | 
|3.1           |  | Third Amended and Restated Certificate of Incorporation of the Registrant, incorporated by reference from exhibit 3.2 to the Registrants Registration Statement on Form S-1
(File No. 333-2588).                            
|              | 
|3.2           |  | Second Amended and Restated By-Laws of the Registrant, incorporated by reference from exhibit 3.2 to the Registrants Annual Report on Form 10-K for the period ended March 31,
2007, as filed with the SEC on June 11, 2007.
|              | 
|10.1          |  | FY 2011 Executive Incentive Bonus Program, incorporated by reference from exhibit 10.1 to the Registrants Current Report on Form 8-K, as filed with the SEC on November 2,
2010.                                            
|              | 
|31.1          |  | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                                  
|              | 
|31.2          |  | Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.                                                                                                  
|              | 
|32.1          |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                           
|              | 
|32.2          |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                           



35