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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)



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

For the fiscal year ended March 31, 2007

OR



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

Commission file number: 000-30931



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OPNET TECHNOLOGIES, INC.

(Exact name
of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 52-1483235                          
|(State or other jurisdiction of Incorporation or organization) |  | (I.R.S. Employer Identification No.)

7255 Woodmont Avenue, Bethesda, Maryland 20814-7900

(Address of principal executive offices) (Zip Code)

Registrants telephone number; including area code: (240) 497-3000

Securities registered
pursuant to Section 12(b) of the Act: Common Stock, $ .001 par value

Securities registered pursuant to Section 12(g)
of the Act: None



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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES ̈NO  x

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES ̈NO  x

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.    YESx    NO ̈

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of accelerated filer or large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer ̈Accelerated filer    x                    Non-accelerated filer ̈

The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed using the closing sale price of the registrants Common Stock on September 30, 2006, as reported on the NASDAQ Global Market, was approximately $121,000,000. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive for other purposes.

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 June 1, 2007 was 20,605,037.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrants definitive Proxy Statement for the 2007 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.



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OPNET TECHNOLOGIES, INC.

ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 2007

TABLE OF CONTENTS



|              |  |    |  |                                                                                                              |  |     
|------------- |  | -- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|ITEM          |  |    |  |                                                                                                              |  | PAGE
|              |  |    | 
|              |  |    |  | PART I                                                                                                       |  |     
|1.            |  |   |  | Business Overview                                                                                            |  | 1   
|1A.           |  |   |  | Risk Factors                                                                                                 |  | 11  
|1B.           |  |   |  | Unresolved Staff Comments                                                                                    |  | 19  
|2.            |  |   |  | Properties                                                                                                   |  | 19  
|3.            |  |   |  | Legal Proceedings                                                                                            |  | 19  
|4.            |  |   |  | Submission of Matters to a Vote of Security Holders                                                          |  | 19  
|              |  |    | 
|              |  |    |  | PART II                                                                                                      |  |     
|              |  |    | 
|5.            |  |   |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 20  
|6.            |  |   |  | Selected Consolidated Financial Data                                                                         |  | 22  
|7.            |  |   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 23  
|7A.           |  |   |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 38  
|8.            |  |   |  | Financial Statements and Supplementary Data                                                                  |  | 38  
|9.            |  |   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 39  
|9A.           |  |   |  | Controls and Procedures                                                                                      |  | 39  
|9B.           |  |   |  | Other Information                                                                                            |  | 43  
|              |  |    | 
|              |  |    |  | PART III                                                                                                     |  |     
|              |  |    | 
|10.           |  |   |  | Directors, Executive Officers and Corporate Governance                                                       |  | 44  
|11.           |  |   |  | Executive Compensation                                                                                       |  | 44  
|12.           |  |   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 44  
|13.           |  |   |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 44  
|14.           |  |   |  | Principal Accountant Fees and Services                                                                       |  | 44  
|              |  |    | 
|              |  |    |  | PART IV                                                                                                      |  |     
|              |  |    | 
|15.           |  |   |  | Exhibits and Financial Statement Schedules                                                                   |  | 45  
|              | 
|SIGNATURES    |  | 46
|              | 
|EXHIBIT INDEX |  | 74



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Forward Looking Information

This Annual Report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as anticipate, believe,
could, estimate, expect, intend, may, plan, potential, should, and would or similar words. You should read statements that contain these
words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position, or state other forward-looking information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that we are not able to predict accurately or control. The factors listed in this Annual Report on Form 10-K under Risk Factors, as well as any cautionary language
in this Annual Report on Form 10-K, provide examples of risks, uncertainties, and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should also carefully review the
risks outlined in other documents that we file from time to time with the Securities and Exchange Commission, including our Quarterly Reports on Form 10-Q that we will file in fiscal 2008.

The forward-looking statements provided in this Annual Report on Form 10-K represent our expectations as of June 8, 2007. We anticipate that
subsequent events and developments may cause our expectations to change. However, while we may elect to update this forward-looking information at some point in the future, we specifically disclaim any obligation to do so. This forward-looking
information should not be relied upon as representing our expectations as of any date subsequent to June 8, 2007.

The years ended
March 31, 2007, 2006 and 2005, are referred to as fiscal 2007, fiscal 2006 and fiscal 2005, respectively, in this Annual Report on Form 10-K.

We are a Delaware corporation, our principal executive office is located at 7255 Woodmont Avenue, Bethesda, Maryland 20814-7900 and our telephone number
is (240) 497-3000. Our web site address is www.opnet.com. The information on our web site is not incorporated by reference into this Annual Report on Form 10-K and should not be considered to be a part of this Annual Report on Form 10-K. Our
web site address is included in this Annual Report on Form 10-K as an inactive textual reference only.



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PART I

ITEM 1. BUSINESS OVERVIEW

(dollar and share amounts in thousands)

OPNET Technologies, Inc. is a provider of management software for networks and applications. Our software addresses application performance management,
network management, capacity planning and design, and network research and development. OPNET differentiates itself from traditional management software providers by focusing on analytics. Traditional management tools emphasize monitoring and
reporting, which are inherently reactive processes. In contrast, OPNET focuses on algorithms and modeling to rapidly troubleshoot and resolve performance problems and to proactively prevent problems from occurring.

Embedded in OPNET software is expert knowledge about how network devices, network protocols, applications, and servers operate and interact. This
intelligence enables users in application development, network operations, engineering, planning, and security functions to be more effective in optimizing performance and availability of their networks and applications. We believe our software can
appeal to a broad customer base, including corporate enterprises, government and defense agencies, network service providers, and network equipment manufacturers, empowering them to make better use of resources, reduce operational problems, and
improve competitiveness.

We market focused software for each of our target markets. Since inception, we have sold our products to:



| |  |  | enterprises such as Blue Cross Blue Shield, Chevron, Citigroup, Heinz, IBM Global Services, Target and Texas Utilities;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | service providers such as British Telecom, Intelsat, NTT, Telus, T-Mobile and Verizon;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | network equipment manufacturers such as Cisco Systems, Ericsson, Hewlett-Packard, Intel Corporation, and Nokia; and
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | government agencies such as the FBI, NASA, NATO, United States Department of Defense, United States Department of Homeland Security, and United States Department of
State.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Industry Background

Growth and Increased Complexity of Networks and Dependence on Applications

Organizations rely on
networks and enterprise software applications to successfully execute their strategies. The increasing use of applications, such as enterprise resource planning, business intelligence, corporate intranets, online transaction processing, e-mail, web
meetings, instant messaging, portals, web services, voice over IP, wireless, and streaming multimedia, has resulted in significant growth in underlying network and application infrastructures. In addition, the proliferation and widespread adoption
of the Internet and web services architectures have expanded the role of networks beyond organizational boundaries.

Enterprises and
service providers must now manage the convergence of voice, data, and video traffic over traditional, wireless, and optical architectures by integrating numerous existing and emerging technologies. The complexity is exacerbated by the current
corporate regulatory environment, which requires improved management processes and documentation. As a result of these factors, businesses and government entities are forced to confront significant challenges related to the cost, risk, and
performance of IT, or information technology.

IT infrastructures are sophisticated, dynamic systems that evolve on a daily basis.
Applications are typically distributed across many clients, servers, and network segments. New and enhanced business applications are regularly being deployed and re-deployed. The geographic distribution of users relative to IT services shifts due



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to the consolidation of organizations and infrastructures. Traffic levels exhibit steady growth, necessitating constant evaluation of and improvements to the
network-underlying infrastructure in order to maintain business and application performance. However, due to the dependencies among network, server, and application configurations, it is very difficult for IT professionals to identify the true root
cause of performance problems when they occur. The data required to diagnose problems is often difficult to obtain, and processes for analyzing this data are often manual and time consuming, requiring significant experience and expertise. When an
end-user experiences performance problems with an important business application, the challenge facing a typical IT manager is to determine: whether there is enough bandwidth available; whether the database server has enough capacity; whether
network routing protocols are tuned properly; whether protocols on the client and server are likewise tuned properly; and whether the application was designed and implemented efficiently with end-user performance in mind.

Without a clear understanding of the source of problems and the specific changes required to solve them, IT managers resort to uninformed decision-making
that often results in wasteful spending on unnecessary and ineffective server and network upgrades. IT professionals need solutions that enable them to focus their time and resources in the right places when problems occur in distributed enterprise
applications, and to maximize the use of existing infrastructure. Further, since modifications to infrastructure have the potential to cause service level degradation or even network failures, there is a growing need to plan and implement network
changes in a controlled manner, taking into account the potential consequences of each action.

Inadequacy of Traditional Application
and Network Management Tools

Traditional application and network management tools have primarily played an important role in reporting
on present and historical performance and availability. These systems typically collect, store and report on data about the status of networks and systems, such as response time and utilization. Traditional application and network management
products are limited by their lack of understanding of the underlying technologies that support applications, and the relationships among these technologies. While they provide useful information, they do not automate the next step, which is
performing intelligent analysis to transform collected data into actionable information.

Market Opportunity for OPNET Software

Organizations need network and application management software that possess the analytics required to overcome the limitations of
traditional tools for rapidly resolving complex problems and proactively preventing problems from occurring. OPNET software is focused on these areas. Our software has embedded knowledge and operational understanding of networks, applications, and
systems for quickly troubleshooting problems and automatically predicting the impact of changes. We believe business executives and IT professionals require software like ours to:



| |  |  | reduce operating and capital costs;
| | - |  | -----------------------------------



| |  |  | increase business productivity; and
| | - |  | -----------------------------------



| |  |  | manage risk.
| | - |  | ------------

We believe the value
proposition from OPNET software applies to a broad range of potential customers including:



| |  |  | large and medium-sized enterprises that rely on IT to conduct business;
| | - |  | -----------------------------------------------------------------------



| |  |  | government/defense agencies;
| | - |  | ----------------------------



| |  |  | service providers, including telecommunications carriers, internet service providers, or ISPs, and managed service providers, or MSPs; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | network equipment manufacturers.
| | - |  | --------------------------------



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Enterprises require analytics for more effectively identifying the root causes of application performance
problems, ensuring the successful deployment of new applications, auditing device configurations, validating changes, and performing critical operational and strategic planning functions.

Government and defense agencies have needs similar to those of enterprises, service providers, and network equipment manufacturers. These agencies also
sometimes require specialized services to support large projects that incorporate OPNETs technology.

Service providers require
analytics for optimizing their investments in network infrastructure, more effectively troubleshooting network issues, ensuring network configuration integrity and security, planning for services based on new technologies including wireless and
optical, and making better use of network resources to increase competitiveness.

Network equipment manufacturers require advanced modeling
and simulation solutions for accelerating network research and development, reducing time-to-market for new technologies, developing custom network design and analysis software, and for reducing sales cycles for sophisticated technology products.

OPNET Solutions and Products

OPNET software products directly address the application and network management needs of enterprises, government and defense agencies, service providers, and network equipment manufacturers. Our software uses a variety of advanced
technologies to support the analysis of network, application, and server performance under a wide range of current and future operating conditions. Our products include model libraries that permit the simulation and analysis of major network
technologies and communication protocols. We sell both off-the-shelf and customized products that offer interfaces to third party network management products, including those from AlterPoint, BMC, Cisco Systems, Computer Associates, EMC Smarts,
Fluke Networks, HP, IBM Micromuse, InfoVista, NetScout, Opsware, and others. Most OPNET products share a significant amount of core software based on an open architecture. Our product architecture enables us to create new products more efficiently,
to foster interoperability of our products, and to provide interfaces to a wide range of external data sources including third party management tools and network topology, traffic, and configuration information.

The following sections summarize the OPNET product portfolio by target market:

Primary Target Market: Enterprise IT (Corporate and Government/Defense)



| |  |  | ACE, first introduced in May 2000, enables application performance management through advanced analytics. ACE is used to troubleshoot performance problems in
production applications and to enable successful application deployment during quality assurance.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | IT Guru Network Planner was first introduced in August 1998 as IT Guru. It provides predictive network capacity planning and design optimization, as
well as validation of network configuration changes.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | IT Guru Systems Plannerwas introduced in December 2006 as an option for IT Guru. It provides capacity planning for servers and mainframes.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | IT Sentinelwas first introduced in August 2004. IT Sentinel provides automatic and continuous network configuration integrity and security auditing.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | OPNET Panoramawas first introduced in December 2004 following OPNETs acquisition of Altaworks Corporation. Panorama provides real-time system
analytics for application performance management. It is used prior to application development. With Panorama focusing on advanced application analysis from the server perspective, and IT Gurus network perspective, we believe that we are well
positioned to address the complex issues that our clients may face as they migrate to web services architectures.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | SLA Commander was first introduced in December 2004 following OPNETs acquisition of Altaworks Corporation. Commander provides active application
response time monitoring for web-based applications.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | OPNET LoadScaler,introduced in June 2006, stress tests web applications to quantify scalability and identify performance limitations. Testing with
LoadScaler helps provide assurance that applications can scale to deliver consistent performance.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | VNE Server was first introduced in June 2002. VNE Server, or Virtual Network Environment Server automatically maintains a detailed, near real-time data model
of the production IT network. VNE Server includes a suite of adapters that obtain topology, traffic, and other information from network devices as well as a broad range of third party data sources. VNE Server automates the data collection process
for other OPNET products, including IT Guru Network Planner and SP Guru Network Planner. VNE Server capabilities are included in IT Sentinel and SP Sentinel.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Primary Target Market: Network Service Providers (both Commercial and Government/Defense)



| |  |  | SP Guru Network Plannerwas first introduced in June 2001. SP Guru Network Planner is built on the IT Guru Network Planner product, and contains analytics
that are valuable to service providers for planning, network design optimization, and validation of configuration changes. SP Guru Network Planner includes modeling and analysis technologies for IP, MPLS, and ATM networks, and when combined with SP
Guru Transport Planner, provides a single environment for network-level and optical transport-level analysis.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SP Guru Transport Planner,formerlyWDM Guru, was first introduced in December 2001. SP Guru Transport Planner is an optical network-planning product
for designing resilient, cost-efficient optical networks. SP Guru Transport Planner is also sold to network equipment manufacturers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SP Sentinelwas first introduced in August 2004. SP Sentinel provides automated and continuous network configuration integrity and security auditing for
service providers.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Primary Target Market: Network R&D Organizations (Defense and Equipment Manufacturers)



| |  |  | OPNET Modeler was OPNETs first product, introduced in 1987. OPNET Modeler is a network modeling and simulation product. It enables users to evaluate
how networking equipment, communications technologies, systems, and protocols will perform under simulated network conditions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Primary Target Market: Defense



| |  |  | Network Common Operating Picture, or NETCOP, is software that combines OPNET software technologies with OPNET customization services to provide real-time
visualization and status information for multi-vendor, multi-technology networks. For defense organizations, NETCOP simplifies and improves situational awareness for warfighters. It merges topology with data from already-deployed event, performance
and configuration management tools, and adds analytics to provide a launching platform for rapid troubleshooting and planning. The first NETCOP implementation was announced in September 2003. NETCOP is also sold to commercial enterprise and service
provider customers.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

OPNET Modules

We develop and sell a variety of software modules that provide additional functions to our application and network management software products. Currently available OPNET modules include:

Primary Target Market: Enterprise IT (Corporate and Government/Defense)



| |  |  | ACE Forensic Agent Managerprovides centralized agent management and end-user-driven captures, using a web browser;
| | - |  | ------------------------------------------------------------------------------------------------------------------



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| |  |  | Automationenables automated, unattended execution of IT Guru Network Planner and SP Guru Network Planner workflows;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | Flow Analysisperforms studies based on traffic flow for IT Sentinel and SP Sentinel, including survivability analysis and security assessments;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | NetDoctor is a network configuration analysis engine for routing, security, policy, and change management;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | System Performance Module for BMC Performance Assurance enables the direct import of server process data from BMCs PATROL Performance Assurance product
into IT Guru Systems Planner;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | System Performance Module for HP OpenViewenables the direct import of application and process data from Hewlett Packards OpenView Performance Manager
into IT Guru Systems Planner.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Primary Target Market: Network R&D Organizations (Defense and Equipment
Manufacturers)



| |  |  | Specialized discrete event model libraries for simulating communication protocols.
| | - |  | ----------------------------------------------------------------------------------

OPNET Model Libraries

The model
libraries are used by OPNET products to simulate and analyze major networking technologies and communication protocols. These libraries provide the building blocks used to generate models of networks. A network model consists of software objects
that correspond to the devices, computers, and links that constitute the actual network of interest. The behavior of these objects is controlled by models of devices, computers, applications, communication protocols, and links. IT Guru Network
Planner, IT Guru Systems Planner, IT Sentinel, SP Guru Network Planner, SP Sentinel,andOPNET Modeler include extensive libraries of popular and emerging networking technologies and communication protocols, such as TCP/IP, hypertext
transfer protocol, or HTTP, open shortest path first routing, or OSPF, asynchronous transfer mode, or ATM, frame relay, IP-QoS, 802.11, or Wi-Fi, and 802.16, or WiMAX. Some of our model libraries are included in our base products and others are
available for an additional fee as modules.

Our software license agreements provide our customers with perpetual and term licenses for use
by a specified number of concurrent users or for use by an unlimited number of concurrent users.

Customers

For fiscal 2007, fiscal 2006, and fiscal 2005 we generated 21.1%, 21.7%, and 19.1% respectively, of our total revenue from customers located outside the
United States. No single customer accounted for 10% or more of revenue for fiscal 2007, 2006, or 2005. As of March 31, 2007, more than 99% of our property and equipment were held inside the United States. As of March 31, 2007, all of our
intangible assets were held inside the United States. Note 14 to our consolidated financial statements presents information regarding revenue generated in the United States and internationally.

We derive a substantial portion of our revenue from sales directly or indirectly to United States government agencies. For fiscal 2007 and fiscal 2006,
revenue from transactions with United States government agencies was approximately 43%, of our total revenue. For fiscal 2005, revenue from transactions with United States government agencies was approximately 47%, of our total revenue. Government
sales are subject to a variety of risks including adequate appropriation of funds by the United States Congress, termination for convenience, contract renegotiations/extensions, and a decline in government spending.

In January 2003, we were awarded a consulting contract with the United States Department of Defense. In January 2005, we were awarded the contract option
for calendar year 2005 in the amount of $2,965. The option contributed approximately $1,945 and $657 of consulting revenue for fiscal 2006 and fiscal 2005, respectively.



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In February 2006, we were awarded the contract option for calendar year 2006 in the amount of $2,899. The option contributed approximately $2,329 and $596 of
consulting revenue for fiscal 2007 and 2006, respectively. In February 2007, we were awarded the contract option for calendar year 2007 in the amount of $2,119. As of March 31, 2007 we received additional awards of $779 associated with original
award of $2,119. The option for calendar year 2007 and associated additional awards of $779 received as of March 31, 2007 contributed approximately $167 of consulting revenue for fiscal 2007. Our future results of operations could be adversely
affected if any of the remaining options are not exercised or the contract otherwise does not receive additional funding. Funding under the contract option may be increased or decreased during the calendar year.

Sales and Marketing

We sell our
software through our direct sales force, our international subsidiaries, third-party distributors, and a number of original equipment manufacturers, or OEM, and value-added resellers. To date, OEMs have not accounted for more than 10% of our
revenue. In North America, our direct sales force accounts for the majority of our sales. As of March 31, 2007, our sales and marketing teams consisted of 141 employees, including 80 quota-carrying salespersons located in our headquarters in
Bethesda, Maryland and our domestic offices in Cary, North Carolina; Dallas, Texas; Nashua, New Hampshire; and Santa Clara, California; and our overseas subsidiaries in Paris, France; Slough, United Kingdom; and Frankfurt, Germany. We intend to
expand our sales and marketing organization by recruiting additional qualified individuals.

Our international sales activities are also
supported by 24 distributors that resell our products in Argentina, Australia, China, Finland, France, Germany, Greece, Hong Kong, India, Indonesia, Israel, Japan, Malaysia, Poland, Singapore, South Africa, South Korea, Sweden, Taiwan, Turkey, and
Venezuela. Our marketing division works internally with our engineering and sales teams to develop customer value propositions and product messages, and externally with various third parties to develop brand awareness, and leads for sales. Our
external marketing activities are aimed at existing customers, new customer prospects, the media, and industry analysts. These include:



| |  |  | participation in industry tradeshows;
| | - |  | -------------------------------------



| |  |  | technology seminars and users groups;
| | - |  | -------------------------------------



| |  |  | advertisements in trade journals and online;
| | - |  | --------------------------------------------



| |  |  | direct mailings;
| | - |  | ----------------



| |  |  | product collateral development and maintaining OPNETs website;
| | - |  | ---------------------------------------------------------------



| |  |  | free software for academic use at universities;
| | - |  | -----------------------------------------------



| |  |  | specialized product sales support;
| | - |  | ----------------------------------



| |  |  | specialized sales support with OPNET resellers;
| | - |  | -----------------------------------------------



| |  |  | briefings with industry analysts; and
| | - |  | -------------------------------------



| |  |  | a variety of public relations activities, including our annual international technology conference OPNETWORK.
| | - |  | -------------------------------------------------------------------------------------------------------------

For each of the last ten years, we have sponsored OPNETWORK, an annual international technology conference convened in Washington, D.C. that focuses on
application and network management for professionals in all areas of networking and information technology. OPNETWORK 2006, which was held in August 2006 in Washington, DC, included approximately 650 hours of classes, labs, and panels led by OPNET
employees and outside experts. Not including OPNET employees, approximately 1,600 IT and engineering professionals, representing 35 countries, participated in the conference. OPNETWORK 2007 is scheduled to be held in Washington, D.C. in August 2007.



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Service and Support

Our service and support offerings include:



| |  |  | consulting services;
| | - |  | --------------------



| |  |  | software license updates, technical support and services, which includes license updates, training for customers with current maintenance agreements, and technical
support (by telephone, e-mail or fax), all provided on a when-and-if-available basis (except technical support) under our maintenance agreement; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | training for customers without current maintenance agreements, which includes courses that enable our customers to more effectively use our products.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

We offer consulting services to assist our clients to facilitate the adoption of our software solutions and to provide
installation services for our product offerings. Installation services are performed by our consulting staff, which consists of software development engineers, quality assurance engineers, technical documentation specialists, and project managers.
Some customers also choose to engage our consulting services for troubleshooting application performance problems, network planning, network design, communication protocol design and customization services. As of March 31, 2007, our consulting
staff consisted of 111 employees.

Our customers may purchase software license updates, technical support and services, all provided on a
when-and-if available basis under our maintenance agreement. Payments for software license updates, technical support and services whether on initial order or on renewal, are generally made in advance and are nonrefundable.

Software license updates consist of the right to unspecified software updates on a when-and-if-available basis and are typically entered into in
connection with the initial software license purchase. Software license updates, technical support and services may be renewed upon expiration of the term, which is generally one year. Customers can purchase software license updates separately from
technical support and services. Customers purchasing technical support are still required to purchase periodic unspecified product updates.

We provide customer support from our support center at our headquarters in Bethesda, Maryland, as well as from support staff in France, the United Kingdom, and Australia. We have designed and implemented a comprehensive information system
to ensure that customer inquiries are addressed promptly, tracked until fully resolved, and recorded for future reference. Reports on the overall responsiveness of the technical support infrastructure, and the status of pending customer inquiries,
are provided regularly to our technical support staff, technical support management, and executive management.

We have a core team of 12
technical support staff supplemented by a number of product developers and consultants who perform technical support on a rotational basis. We believe this staffing approach maximizes the access customers have to the best available product
expertise, while providing product developers with direct customer feedback, which in turn helps us improve our products.

We regularly
offer training courses to our customers to assist them in maximizing the benefit they receive from using our products. Our training classes cover a broad range of topics. Training classes are offered at our headquarters in Bethesda, Maryland, our
facilities in Santa Clara, California; Cary, North Carolina; Paris, France; and Slough, United Kingdom; and at our customers locations. As of March 31, 2007, our full time training staff consisted of 5 employees.

Research and Development

We believe
that our ability to enhance our current products and create new products in response to the needs of our customer base may be an important factor for our future success. Accordingly, we intend to continue to



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commit significant resources to product research and development. We expect to accomplish a large part of our product improvements and new product
development through internal development efforts. New capabilities may also be integrated into our product lines through the acquisition of technologies or businesses, or the licensing of externally developed technologies.

Our total expenses for research and development for fiscal 2007, 2006, and 2005 were $21,688, $18,643, and $15,455, respectively. Our research and
development efforts to date have been conducted at our offices in Bethesda, Maryland; Cary, North Carolina; Nashua, New Hampshire; and Ghent, Belgium. All related costs have been expensed as incurred. As of March 31, 2007, our research and
development staff consisted of 161 engineers and technical professionals.

Our research and development efforts are directed at increasing
our revenue by expanding the scope of our product offerings to address additional customer requirements. Our existing customers provide a meaningful source of information, which we use in order to guide our future product development. In addition,
we invest in research and analysis of trends in our industry and our product markets, and we expect that our future products may reflect the results of these analyses.

Competition

The market for our products is evolving rapidly and is highly competitive. We believe
that this market is likely to become more competitive as the demand for intelligent application and network management products continues to increase. Although we believe that none of our competitors offer products that are identical to ours, we are
subject to current and potential competition from:



| |  |  | software vendors with networked application troubleshooting and predictive analysis offerings, such as Compuware and its Vantage product line;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | consultants who offer advisory services related to intelligent application and network management; and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | customers who develop their own network and application management capabilities, either internally or through outsourcing.
| | - |  | --------------------------------------------------------------------------------------------------------------------------

Also, it is possible that other vendors as well as some of our customers or distributors may develop and market competitive products in the future. Many
of our current and potential competitors are larger and have substantially greater financial and technical resources than we do.

We
believe the principal competitive factors affecting the market for our software products are the following:



| |  |  | scope, quality, and cost-effectiveness of application and network management solutions;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | industry knowledge and expertise embedded in the software;
| | - |  | ----------------------------------------------------------



| |  |  | the interoperability of solutions with existing network management solutions;
| | - |  | -----------------------------------------------------------------------------



| |  |  | product performance, accuracy, technical features, ease of use, and price; and
| | - |  | ------------------------------------------------------------------------------



| |  |  | customer service and support.
| | - |  | -----------------------------

Intellectual Property

We rely on a combination of copyright, trademark, patent, and trade secret laws, confidentiality
agreements, and contractual provisions to protect our intellectual property. However, we believe that these laws and agreements afford us only limited protection. Despite our efforts to protect our intellectual property, unauthorized parties may
infringe upon our proprietary rights. In addition, the laws of some foreign countries do not provide as much protection of our proprietary rights as do the laws of the United States.



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We currently hold registered trademarks in the United States for OPNET, OPNETWORK, IT Guru, IT Sentinel,
Netbiz, NetDoctor, OPNET Modeler, SP Guru, SP Sentinel, VNE Server, and WDM Guru. We have pending applications in the United States for the trademark registrations of 3DNV, Netcop, OPNET LoadScaler, OPNET Panorama, and SLA Commander. We
also hold additional registered trademarks in the United States and have additional pending applications. If not renewed, our registered trademarks will expire at various times between February 2008 and September 2016. We have applied for trademark
protection in a number of international jurisdictions, and hold a registered trademark for OPNET in Benelux, France, Germany, Japan, the Peoples Republic of China, Taiwan and the United Kingdom that will expire at various times between January 2009
and January 2013. Other trademarks or service marks appearing in this Annual Report on Form 10-K are the property of their respective holders.

In addition, we have nine patents granted by the United States Patent and Trademark Office for technology related to the OPNET product suite that will expire in 2018, 2022, 2023 (four), and 2024 (three). We also received a Notice
of Allowance for a patent application in fiscal 2007, which we expect to be issued in fiscal 2008. In addition, we have fifty-seven other pending United States patent applications, two pending European patent applications, and two pending
PCT patent applications that if granted would expire approximately twenty years from the filing date of the applications. Of these, nineteen are provisional patent applications that have been filed with the United States Patent and Trademark Office
and for which we expect to pursue non-provisional applications within the next year. We believe that, because of the rapid pace of change in our industry, intellectual property protection for our products and the knowledge, abilities, and
experience of our employees may be significant factors for our future success.

On September 27, 2004, OPNET received notice of a
lawsuit filed by Compuware Corporation, in the United States District Court for the Eastern District of Michigan, alleging patent infringement and seeking injunctive relief and unspecified monetary damages. On February 6, 2006, OPNET filed a
lawsuit against Compuware Corporation in Montgomery County, Maryland, Circuit Court, seeking damages and injunctive relief for Compuwares misappropriation and misuse of OPNETs trade secrets, confidential and proprietary information and
unfair competition; however, the lawsuit was not served on Compuware. On April 10, 2006, we signed a confidential settlement agreement with Compuware Corporation that amicably resolved all disputed matters in the lawsuits filed by each company
in Michigan and in Maryland on terms OPNET believes are favorable to it. Specifically, no material amounts were exchanged by the parties and the settlement agreement does not entail a royalty or licensing agreement between the parties.

Executive Officers and Directors of the Registrant

Our executive officers and directors, and their ages as of June 1, 2007, are as follows:



|                              |  |     |  |                                                  
|----------------------------- |  | --- |  | -------------------------------------------------
|Name                          |  | Age |  | Position                                         
|Marc A. Cohen                 |  | 43  |  | Chairman of the Board and Chief Executive Officer
|Alain J. Cohen                |  | 40  |  | President, Chief Technology Officer and Director 
|Mel F. Wesley                 |  | 35  |  | Vice President and Chief Financial Officer       
|Steven G. Finn, PhD (1)(2)(3) |  | 61  |  | Director                                         
|Ronald W. Kaiser (1)(2)(3)    |  | 53  |  | Director                                         
|William F. Stasior (1)(2)(3)  |  | 66  |  | Director                                         

---

|(1) | Member of the Audit Committee
|--- | -----------------------------

|(2) | Member of the Compensation Committee
|--- | ------------------------------------

|(3) | Member of the Nominating Committee
|--- | ----------------------------------

Set forth below is
information regarding the professional experience for each of our executive officers and directors. These executive officers and directors were elected to serve until their successors have been elected. Marc A. Cohen and Alain J. Cohen are brothers.
There is no other family relationship between any of our other executive officers or between any of these officers and any of our directors.



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Marc A. Cohen,one of our founders, has served as our Chairman of the Board since our inception in
1986 and as our Chief Executive Officer since 1994. From 1986 to 1992, Mr. Cohen was also a consultant with Booz Allen Hamilton Inc., or Booz Allen, an international management and consulting company. Mr. Cohen received a bachelors
degree in engineering science from Harvard University and a masters degree in electrical engineering from Stanford University. Mr. Cohen also serves as a Trustee and as a member of the Board of Directors of the Dana-Farber Cancer
Institute in Boston, Massachusetts.

Alain J. Cohen, one of our founders, has served as our President and Chief Technology Officer
and as a member of our Board of Directors since our inception in 1986. Mr. Cohen received a bachelors degree in electrical engineering from the Massachusetts Institute of Technology, or M.I.T.

Mel F. Wesleyhas served as our Vice President and Chief Financial Officer since July 2005. Mr. Wesley served as our Acting Chief Financial
Officer from December 2004 to July 2005 and our Corporate Controller from June to December 2004. From August 2003 to June 2004, Mr. Wesley served as Corporate Controller for SteelCloud, Inc., a publicly traded corporation that provides design,
development and manufacturing of network appliances and infrastructure server products. From October 2000 to August 2003, Mr. Wesley served as an Assistant Controller for Learning Tree International, Inc., a publicly traded corporation that
provides training to information technology professionals and managers. From December 1999 to October 2000, Mr. Wesley served as Financial Accounting Manager of Learning Tree.

Dr. Steven G. Finn has served as a member of our Board of Directors since March 1998. Dr. Finn has been a principal research
scientist and lecturer at M.I.T. since 1991. Dr. Finn has also served as a consultant with Matrix Partners, a venture capital firm, since 1991.

Ronald W. Kaiser has served as a member of our Board of Directors since October 2003. Since January of 2007, Mr. Kaiser has served as Chief Financial Officer of Sucampo Pharmaceuticals, Inc., a specialty
pharmaceutical company. Mr. Kaiser served as Chief Financial Officer of Pharmathene, Inc, a privately held bio-defense company from April of 2005 through December of 2006. Mr. Kaiser served as Chief Financial Officer, Treasurer and
Secretary of Air Cargo, Inc., a privately-held firm and provider of United States and European cargo transportation logistics from February 2003 through March 2005. Air Cargo filed for Chapter 11 bankruptcy on December 7, 2004. Mr. Kaiser
served as Chief Financial Officer and Treasurer of OTG Software, Inc., or OTG from June 1998 until the sale of OTG to Legato Systems, Inc. in May 2002. OTG was a publicly traded corporation that provided online data storage and data access software
solutions for business applications, email management and related services. From April 1998 to June 1998, Mr. Kaiser was an employee of Network Associates, Inc., an Internet security company, following the acquisition of Trusted Information
Systems, Inc. by Network Associates, Inc. From May 1996 to April 1998, Mr. Kaiser served as the Chief Financial Officer of Trusted Information Systems, Inc., an information security company.

William F. Stasiorhas served as a member of our Board of Directors since March 1998. Since October 1999, he has served as Senior Chairman of Booz
Allen. From 1991 to 1999, he served as Chairman and Chief Executive Officer of Booz Allen. Mr. Stasior currently serves on the Boards of Directors of SkyTerra Communications, Inc., a telecommunications service provider, and Vanu Inc., a
privately-held software company.

Employees

As of March 31, 2007, we had 490 full-time employees, 460 of whom were located in the United States. These included 141 in sales and marketing, 129 in professional services and support, 161 in engineering,
research, and development, and 59 in general and administrative functions. Our employees are not represented by a collective bargaining agreement and we consider our relations with our employees to be good.



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Availability of SEC Reports

Our web site address is www.opnet.com. We make available free of charge on our web site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission, or SEC. The information on our
web site is not incorporated by reference into this Annual Report and should not be considered to be a part of this Annual Report. Our web site address is included in this Annual Report as an inactive textual reference only.

We file our reports with the SEC electronically via the SECs Electronic Data Gathering, Analysis and Retrieval system, or EDGAR. The SEC maintains
a website that contains reports, proxy and information statements, and other information regarding companies that file electronically with the SEC via EDGAR. The address of this website is www.sec.gov.

Any reports, statements or other information that we file with the SEC may be read or copied at the SECs Public Reference Room at 100 F Street,
N.E., Room 1580, Washington, D.C. 20549. Copies of these documents can be requested upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1 (800) SEC-0330 for further information on the operation of the Public
Reference Room.

Code of Business Conduct and Ethics

On May 4, 2004 we adopted a code of business conduct and ethics for all directors, officers, and employees pursuant to Section 406 of the Sarbanes-Oxley Act of 2002. The Code of Business Conduct and Ethics
is available on our website at www.opnet.com.Suspected violations of this Code may be reported on a confidential or anonymous basis by telephone, facsimile, or by e-mail to our General Counsel and to the Chairman of the Audit Committee of
the Board of Directors. We intend to disclose any amendment to, and any waiver from, any provision of this Code that applies to any director, the Chief Executive Officer, Chief Financial Officer, or any other executive officer and that relates
to any element of this Code enumerated in Item 406(b) of Regulation S-K, on Form 8-K.

ITEM 1A. RISK FACTORS

The following important factors, among others, could cause actual results to differ
materially from those indicated by forward-looking statements made in this Annual Report and presented elsewhere by management from time to time.

Our operating results may fluctuate significantly as a result of factors outside of our control, which could cause the market price of our stock to decline.

Our operating results have fluctuated in the past, and are likely to fluctuate significantly in the future. Our financial results may as a consequence
fall short of the expectations of public market analysts or investors, which could cause the price of our common stock to decline. Our revenue and operating results may vary significantly from quarter to quarter due to a number of factors, many of
which are beyond our control. Factors that could affect our operating results include:



| |  |  | the timing of large orders;
| | - |  | ---------------------------



| |  |  | changes in the proportion of software arrangements requiring contract accounting;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | changes in the mix of our sales, including the mix between higher margin software products and lower margin services and maintenance, and the proportion of our
license sales requiring us to make royalty payments;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing and amount of our marketing, sales, and product development expenses;
| | - |  | --------------------------------------------------------------------------------



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| |  |  | the cost and time required to develop new software products;
| | - |  | ------------------------------------------------------------



| |  |  | the introduction, timing, and market acceptance of new products introduced by us or our competitors;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | changes in network technology or in applications, which could require us to modify our products or develop new products;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | general economic conditions, which can affect our customers purchasing decisions, the length of our sales cycle, and our customers ability to pay us on
time, if at all;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in our pricing policies or those of our competitors; and
| | - |  | ----------------------------------------------------------------



| |  |  | the timing and size of potential acquisitions by us.
| | - |  | ----------------------------------------------------

We expect to make significant expenditures in all areas of our business, particularly sales and marketing operations, in order to promote future growth. Because the expenses associated with these activities are
relatively fixed in the short term, we may be unable to adjust spending quickly enough to offset any unexpected shortfall in revenue growth or any decrease in revenue levels. In addition, our revenue in any quarter depends substantially on orders we
receive and ship in that quarter. We typically receive a significant portion of orders in any quarter during the last month of the quarter, and we cannot predict whether those orders will be placed and shipped in that period. If we have lower
revenue than we expect, we may not be able to respond quickly enough to reduce our operating expenses. Therefore, any significant shortfall in revenue or delay of customer orders could have an immediate adverse effect on our operating results in
that quarter.

For all of these reasons, quarterly comparisons of our financial results are not necessarily meaningful, and you should not
rely on them as an indication of our future performance.

If we do not successfully expand our sales force, we may be unable to
increase our sales.

We sell our products primarily through our direct sales force, and we must expand the
size of our sales force to increase revenue. If we are unable to hire or retain qualified sales personnel, if newly hired personnel fail to develop the necessary skills to be productive, or if they reach productivity more slowly than anticipated,
our ability to increase our revenue and grow our business could be compromised. Our sales people require a long period of time to become productive, typically three to nine months. The time required to reach productivity, as well as the challenge of
attracting, training, and retaining qualified candidates, may make it difficult to meet our sales force growth targets. Further, we may not generate sufficient sales to offset the increased expense resulting from growing our sales force, or we may
be unable to manage a larger sales force.

The market for intelligent network management software is new and evolving, and if this
market does not develop as anticipated, our revenue could decline.

We derive all of our revenue from the sale of products and
services that are designed to allow our customers to manage the performance of networks and applications. Accordingly, if the market for intelligent network and application management software does not continue to grow, we could face declining
revenue, which could ultimately lead to our becoming unprofitable. The market for intelligent network and application management software solutions is evolving. Therefore, we cannot accurately assess the size of the market and may be unable to
identify an effective distribution strategy, the competitive environment that will develop, and the appropriate features and prices for products to address the market. If we are to be successful, our current and potential customers must recognize
the value of intelligent network management software solutions, decide to invest in the management of their networks, and, in particular, adopt and continue to use our software solutions.



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Our customers are primarily in four target groups and our operating results may be adversely
affected by changes in one or more of these groups.

Our software solutions and services are designed to meet the needs of
enterprises, United States government agencies, service providers, and network equipment manufacturers, and we market our solutions and services to those four customer groups. Consequently, our financial results depend, in significant part, upon the
economic conditions of enterprises, United States government agencies, service providers, and network equipment manufacturers. An economic downturn or adverse change in the regulatory environment or business prospects for one or more of these
customer groups may decrease our revenue or lower our growth rate.

The United States Department of Defense may not extend one
consulting contract with us, which could harm our business.

In January 2003, we were awarded a consulting contract with the United
States Department of Defense. In January 2005, United States Department of Defense exercised the second of four possible contract extensions. The funding under this contract for calendar year 2005 was $2,965. In February 2006, United States
Department of Defense exercised the third of four possible contract extensions. The funding under this contract for calendar year 2006 was $2,899. In February 2007, we were awarded the contract option for calendar year 2007 in the amount of $2,119.
As of March 31, 2007, we received additional awards of $779 associated with the original award of $2,119. Our results of operations could be adversely affected if the contract does not receive additional funding.

A decline in information technology spending may result in a decrease in our revenue or lower our growth rate.

A decline in the demand for information technology among our current and prospective customers may result in decreased revenue or a lower growth rate for
us because our sales depend, in part, on our customers budgets for new or additional information technology systems and services. A continued economic downturn may cause our customers to reduce or eliminate information technology spending and
force us to lower prices of our solutions, which would substantially reduce the number of new software licenses we sell and the average sales price for these licenses. Accordingly, we cannot assure you that we will be able to increase or maintain
our revenue.

Our sales to United States government agencies subject us to special risks that could adversely affect our
business.

We derive a substantial portion of our revenue from sales directly or indirectly to United States
government agencies. Transactions with United States government agencies accounted for approximately 43% of our total revenue for fiscal 2007 and fiscal 2006, and 47% of our total revenue for fiscal 2005. Government sales entail a variety of risks
including:



| |  |  | Government contracts are subject to the approval of appropriations by the United States Congress to fund the expenditures by the agencies under these contracts.
Congress often appropriates funds for government agencies on a yearly basis, even though their contracts may call for performance over a number of years.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A significant decline in government expenditures generally, or a shift in budget priorities away from agencies or programs that we support, could cause a material
decline in our government business. In particular, a decline in government spending on information technology or related services could hurt our government business.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our products and services are included on a General Services Administration, or GSA schedule. We believe that the GSA schedule facilitates our sales to United
States government agencies. The loss of the GSA schedule covering our products and services could adversely affect our results of operations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | We must comply with complex federal procurement laws and regulations in connection with government contracts, which may impose added costs on our business.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Some of our government business requires that we maintain facility security clearances, and requires some of our employees to maintain individual security
clearances. If we were to lose these clearances, our government business might decline.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The federal government audits and reviews the performance of federal contractors on contracts, pricing practices, cost structure, and compliance with applicable
laws, regulations, and standards. An audit of our work could result in a finding that we overcharged the government, which could result in an adjustment to our previously reported operating results. If a government audit uncovers improper or illegal
activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with United States
federal government agencies.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Many of our government contracts are firm fixed-price contracts. To the extent that the assumptions we have used in pricing these contracts prove inaccurate, we
could incur and accrue losses on contracts, which would adversely affect our operating results.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A portion of our sales to the United States government are made indirectly as a subcontractor to another government contractor, referred to as the prime contractor,
who has the direct relationship with the government. We also team with prime contractors to bid on competitive government opportunities for which we hope to serve as a subcontractor. If prime contractors lose existing business on which we serve as a
subcontractor, or fail to win the competitive bids on which we team with them, our government business would be hurt.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We could face expense and delay if any or our competitors, or competitors of the prime contractors to which we serve as a subcontractor, protest or challenge
contract awards made to us or our prime contractors pursuant to competitive bidding.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Federal government contracts contain provisions and are subject to laws and regulations that provide government clients with rights and remedies not typically found
in commercial contracts. These rights and remedies allow government clients, among other things, to terminate existing contracts, with short notice, for convenience without cause; reduce or modify contracts or subcontracts; and claim rights in
products, systems, and technology produced by us.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If our newest products, particularly those targeted primarily
for enterprises and United States government agencies, do not gain widespread market acceptance, our revenue might not increase and could even decline.

We expect to derive a substantial portion of our revenue in the future from sales to enterprises and United States government agencies of our Application Performance Management and Network Operations
product offerings. Our business depends on customer acceptance of these products and our revenue may not increase, or may even decline, if our target customers do not adopt and expand their use of our products.

We may not be able to grow our business if service providers do not buy our products.

An element of our strategy is to continue selling to service providers our Network Planning and Design and our Network Operations product
offerings. Accordingly, if our products fail to perform favorably in the service provider environment, or fail to gain wider adoption by service providers, our business and future operating results could suffer.

Our lengthy and variable sales cycle makes it difficult to predict operating results.

It is difficult for us to forecast the timing and recognition of revenue from sales of our products because prospective customers often take significant
time evaluating our products before licensing them. The period



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between initial customer contact and a purchase by a customer may vary from three months to more than a year. During the sales process, the customer may
decide not to purchase or may reduce proposed orders of our products for various reasons, including changes in budgets and purchasing priorities. Our prospective customers routinely require education regarding the use and benefit of our products.
This may also lead to delays in receiving customers orders.

Our ability to increase our sales may be impaired if we do not
expand and manage our indirect distribution channels.

To increase our sales, we must, among other things,
further expand and manage our indirect distribution channels, which consist primarily of international distributors and original equipment manufacturers and resellers. If we are unable to expand and manage our relationships with our distributors,
our distributors are unable or unwilling to market and sell our products effectively, or we lose existing distributor relationships, we might not be able to increase our revenue. Our international distributors and original equipment manufacturers
and resellers have no obligation to market or purchase our products. In addition, they could partner with our competitors, bundle or resell competitors products, or internally develop products that compete with our products.

We may not be able to successfully manage our expanding operations, which could impair our ability to operate profitably.

We may be unable to operate our business profitably if we fail to manage our growth. Our growth has sometimes strained, and may in
the future continue to strain, our managerial, administrative, operational, and financial resources and controls. We plan to continue to expand our operations and increase the number of our full-time employees. Our ability to manage growth may
depend in part on our ability to continue to enhance our operating, financial, and management information systems. Our personnel, systems, and controls may not be adequate to support our growth. In addition, our revenue may not continue to grow at a
sufficient rate to absorb the costs associated with a larger overall employee base.

If we are unable to introduce new and enhanced
products on a timely basis that respond effectively to changing technology, our revenue may decline.

Our
market is characterized by rapid technological change, changes in customer requirements, frequent new product and service introductions and enhancements, and evolving industry standards. If we fail to develop and introduce new and enhanced products
on a timely basis that respond to these changes, our products could become obsolete, demand for our products could decline and our revenue could fall. Advances in network management technology, software engineering, and simulation technology, or the
emergence of new industry standards, could lead to new competitive products that have better performance, more features, or lower prices than our products and could render our products unmarketable.

Our future revenue is substantially dependent upon our existing customers continuing to license additional products, renew maintenance agreements,
and purchase additional services.

Our existing customers have traditionally generated additional revenue from consulting
services, renewed maintenance agreements, and purchase of additional software licenses, which represents a majority of our annual revenue. The maintenance agreements are generally renewable at the option of the customers and there are no mandatory
payment obligations or obligations to license additional software. In addition, customers may decide not to purchase additional products or services. If our existing customers fail to renew their maintenance agreements or purchase additional
products or services, our revenue could decrease.



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Increases in professional services revenue as a percentage of total revenue could decrease overall
margins.

We realize lower margins on professional service revenue than we do on other types of revenue. As a result, if
professional services revenue increases as a proportion of total revenue, our gross margins will be lower.

The following table outlines
the gross margins for our three types of revenue for the periods indicated:



|                                                          |  |            |   |  |            |   |  |            |  
|--------------------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
|                                                          |  | Fiscal2007 |   |  | Fiscal2006 |   |  | Fiscal2005 |  
|New software licenses                                     |  | 98.5       | % |  | 98.0       | % |  | 97.4       | %
|Software license updates, technical support, and services |  | 88.4       |   |  | 89.1       |   |  | 88.1       |  
|Professional services revenue                             |  | 33.4       |   |  | 31.2       |   |  | 32.0       |  

If we fail to retain our key personnel and attract and retain additional qualified
personnel, we might not be able to maintain our current level of revenue.

Our future success and our ability to maintain our
current level of revenue depends upon the continued service of our executive officers and other key sales and research and development personnel. The loss of any of our key employees, in particular Marc A. Cohen, our Chairman of the Board and Chief
Executive Officer, and Alain J. Cohen, our President and Chief Technology Officer, could also adversely affect our ability to pursue our growth strategy. We do not have employment agreements or any other agreements that obligate any of our officers
or key employees to remain with us.

We must also continue to hire highly qualified individuals, particularly software engineers and sales
and marketing personnel. Our failure to attract and retain technical personnel for our product development, consulting services, and technical support teams may limit our ability to develop new products or product enhancements. Competition for these
individuals is intense, and we may not be able to attract and retain additional highly qualified personnel in the future. In addition, limitations imposed by federal immigration laws and the availability of visas could impair our ability to recruit
and employ skilled technical professionals from other countries to work in the United States.

Our international operations subject
our business to additional risks, which could cause our sales or profitability to decline.

We plan to
increase our international sales activities, but these plans are subject to a number of risks that could cause our sales to decline or could otherwise cause a decline in profitability. These risks include:



| |  |  | difficulty in attracting distributors that will market and support our products effectively;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | greater difficulty in accounts receivable collection and longer collection periods;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the need to comply with varying employment policies and regulations that could make it more difficult and expensive to manage our employees if we need to establish
more direct sales or support staff outside the United States;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | potentially adverse tax consequences;
| | - |  | -------------------------------------



| |  |  | the effects of currency fluctuations; and
| | - |  | -----------------------------------------



| |  |  | political and economic instability.
| | - |  | -----------------------------------

We expect to face increased competition, which could cause us to lose sales, resulting in lower profitability.

Increasing competition in our market could cause us to lose sales and become unprofitable. We believe that the market for intelligent network management software is likely to become more competitive as it evolves and



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the demand for intelligent network management solutions continues to increase. At least one of our current competitors and many of our potential competitors
are larger and have substantially greater financial and technical resources than we do. In addition, it is possible that other vendors as well as some of our customers or distributors may develop and market solutions that compete with our products
in the future.

If our products contain errors and we are unable to correct those errors, our reputation could be harmed and our
customers could demand refunds from us or assert claims for damages against us.

Our software products could
contain significant errors or bugs that may result in:



| |  |  | the loss of or delay in market acceptance and sales of our products;
| | - |  | --------------------------------------------------------------------



| |  |  | the delay in introduction of new products or updates to existing products;
| | - |  | --------------------------------------------------------------------------



| |  |  | diversion of our resources;
| | - |  | ---------------------------



| |  |  | injury to our reputation; and
| | - |  | -----------------------------



| |  |  | increased support costs.
| | - |  | ------------------------

Bugs may
be discovered at any point in a products life cycle. We expect that errors in our products may be found in the future, particularly in new product offerings and new releases of our current products.

Because our customers use our products to manage networks that are critical to their business operations, any failure of our products could expose us to
product liability claims. In addition, errors in our products could cause our customers networks and systems to fail or compromise their data, which could also result in liability to us. Product liability claims brought against us could divert
the attention of management and key personnel, could be expensive to defend, and may result in adverse settlements and judgments.

Our software products rely on our intellectual property, and any failure to protect our intellectual property could enable our competitors to market products with similar features that may reduce our revenue and could allow the use of
our products by users who have not paid the required license fee.

If we are unable to protect our
intellectual property, our competitors could use our intellectual property to market products similar to our products, which could reduce our revenue. In addition, we may be unable to prevent the use of our products by persons who have not paid the
required license fee, which could reduce our revenue. Our success and ability to compete depend substantially upon the internally developed technology that is incorporated in our products. Policing unauthorized use of our products is difficult, and
we may not be able to prevent misappropriation of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as those in the United States. Others may circumvent the patents, copyrights, and
trade secrets we own. In the ordinary course of business, we enter into a combination of confidentiality, non-competition, and non-disclosure agreements with our employees.

These measures afford only limited protection and may be inadequate, especially because our employees are highly sought after and may leave our employ
with significant knowledge of our proprietary information. In addition, any confidentiality, non-competition and non-disclosure agreements we enter into may be found to be unenforceable, or our copy protection mechanisms embedded in our software
products could fail or could be circumvented.

Our products employ technology that may infringe on the proprietary rights of others,
and, as a result, we could become liable for significant damages.

We expect that our software products may be
increasingly subject to third-party infringement claims as the number of competitors in our industry segment grows and the functionalities of products in different industry segments overlap.



17



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Regardless of whether these claims have any merit, they could:



| |  |  | be time-consuming to defend;
| | - |  | ----------------------------



| |  |  | result in costly litigation;
| | - |  | ----------------------------



| |  |  | divert our managements attention and resources;
| | - |  | ------------------------------------------------



| |  |  | cause us to delay or cease product shipments; or
| | - |  | ------------------------------------------------



| |  |  | require us to enter into royalty or licensing agreements.
| | - |  | ---------------------------------------------------------

These royalty or licensing agreements may not be available on terms acceptable to us, if at all. A successful claim of product infringement against us or our failure or inability to license the infringed or similar
technology could adversely affect our business because we would not be able to sell the affected product without redeveloping it or incurring significant additional expense.

Future interpretations of existing accounting standards could adversely affect our operating results.

The Securities and Exchange Commission, American Institute of Certified Public Accountants and various other authoritative accounting bodies continue to
issue interpretations and guidance for applying the relevant standards to a wide range of sales contract terms and business arrangements that are prevalent in the software industry. Future interpretations of existing accounting standards or changes
in our business practices could result in future changes in our revenue recognition accounting policies that could have a material adverse effect on our results of operations.

As with other software vendors, we may be required to delay revenue recognition into future periods, which could adversely affect our operating
results.

We have in the past had to, and in the future may have to, defer recognition for license fees due to several
factors, including whether:



| |  |  | software arrangements include undelivered elements for which we do not have vendor specific evidence of fair value;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | we must deliver services for significant customization, enhancements and modifications of our software;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | the transaction involves material acceptance criteria or there are other identified product-related issues;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the transaction involves contingent payment terms or fees;
| | - |  | ----------------------------------------------------------



| |  |  | we are required to accept a fixed-fee services contract; or
| | - |  | -----------------------------------------------------------



| |  |  | we are required to accept extended payment terms.
| | - |  | -------------------------------------------------

Because of the factors listed above and other specific requirements under accounting principles generally accepted in the United States of America for software revenue recognition, we must have very precise terms in
our software arrangements in order to recognize revenue when we initially deliver software or perform services. Negotiation of mutually acceptable terms and conditions can extend the sales cycle, and sometimes we do not obtain terms and conditions
that permit revenue recognition at the time of delivery.

If we undertake acquisitions, they may be expensive and disruptive to our
business and could cause the market price of our common stock to decline.

We completed the Altaworks
acquisition in October 2004. We may continue to acquire or make investments in companies, products or technologies if opportunities arise. Any acquisition could be expensive, disrupt our ongoing business, distract our management and employees, and
adversely affect our financial results and the



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market price of our common stock. We may not be able to identify suitable acquisition or investment candidates, and if we do identify suitable candidates, we
may not be able to make these acquisitions or investments on commercially acceptable terms or at all. If we make an acquisition, we could have difficulty integrating the acquired technology, employees, or operations. In addition, the key personnel
of the acquired company may decide not to work for us.

We also expect that we would incur substantial expenses if we acquired other
businesses or technologies. We might use cash on hand, incur debt, or issue equity securities to pay for any future acquisitions. If we issue additional equity securities, our stockholders could experience dilution and the market price of our stock
may decline.

Our products are subject to changing computing environments, including operating system software and hardware
platforms, which could render our products obsolete.

The evolution of existing computing environments and the
introduction of new popular computing environments may require us to redesign our products or develop new products. Computing environments, including operating system software and hardware platforms, are complex and change rapidly. Our products are
designed to operate in currently popular computing environments. Due to the long development and testing periods required to adapt our products to new or modified computing environments, our research and development efforts could be distracted and
we could experience significant delays in product releases or shipments, which could result in lost revenue and significant additional expense.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

Our corporate office and principal facility is located in Bethesda, Maryland and
consists of approximately 82,000 square feet of office space held under two leases. The lease for 60,000 square feet expires on January 31, 2011, exclusive of renewal options, and the lease for 22,000 square feet expires on January 31,
2016, exclusive of renewal options. We also lease office space in the following locations: Cary, North Carolina; Dallas, Texas; Santa Clara, California; Nashua, New Hampshire; Ghent, Belgium; Paris, France; and Slough, United Kingdom.

ITEM 3. LEGAL PROCEEDINGS

On September 27, 2004, OPNET received notice of a lawsuit filed by
Compuware Corporation, in the United States District Court for the Eastern District of Michigan, alleging patent infringement and seeking injunctive relief and unspecified monetary damages. On February 6, 2006, OPNET filed a lawsuit against
Compuware Corporation in Montgomery County, Maryland, Circuit Court, seeking damages and injunctive relief for Compuwares misappropriation and misuse of OPNETs trade secrets, confidential and proprietary information and unfair
competition; however, the lawsuit was not served on Compuware. On April 10, 2006, we signed a confidential settlement agreement with Compuware Corporation that amicably resolved all disputed matters in the lawsuits filed by each company in
Michigan and in Maryland on terms OPNET believes are favorable to it. Specifically, no material amounts were exchanged by the parties and the settlement agreement does not entail a royalty or licensing agreement between the parties.

We are involved in various claims and legal proceedings arising from our normal operations. We do not regard any of those matters to be material.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our
stockholders during the fourth quarter of fiscal 2007.



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##### Table of Contents

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Stock

Our common stock began trading on the NASDAQ Global Market on August 2,
2000, under the symbol OPNT. The following table sets forth, on a per share basis, for the indicated periods, the high and low intra-day sale prices of our common stock as reported by the NASDAQ Global Market.



|              |  |                                                          |       |      |   |       |  |     |       |  |   |     
|------------- |  | -------------------------------------------------------- | ----- | ---- | - | ----- |  | --- | ----- |  | - | ----
|              |  | Quarterly Common Stock-Price for theYear Ended March 31,
|              |  | 2007                                                     |       | 2006
|Quarter ended |  | High                                                     |       | Low  |   | High  |  | Low
|June 30       |  | $                                                        | 15.00 |      | $ | 10.07 |  | $   | 8.87  |  | $ | 7.24
|September 30  |  |                                                          | 14.29 |      |   | 10.74 |  |     | 8.91  |  |   | 7.06
|December 31   |  |                                                          | 16.82 |      |   | 12.89 |  |     | 9.77  |  |   | 8.00
|March 31      |  |                                                          | 15.98 |      |   | 12.86 |  |     | 10.72 |  |   | 8.53

Number of Stockholders of Record

As of June 1, 2007, we had approximately 95 holders of record of common stock. Because many of these shares are held by brokers and other
institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these holders of record.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information regarding our
current equity compensation plans as of March 31, 2007.

Equity Compensation Plan Information

(in thousands, except per share price)



|                                                           |  |                                                                   |  |                                                     |       |                                                                                                                                       |       |    
|---------------------------------------------------------- |  | ----------------------------------------------------------------- |  | --------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------- | ----- | ---
|Plan Category                                              |  | Number ofsecurities to beissued uponexercise ofoutstandingoptions |  | Weighted-average exerciseprice ofoutstandingoptions |       | Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding
securitiesreflected in column (a)) |      
|                                                           |  | (a)                                                               |  |                                                     |       | (1)                                                                                                                                   |      
|Equity compensation plans approved by security holders     |  | 2,841                                                             |  | $                                                   | 10.73 |                                                                                                                                       | 2,357 | (2)
|Equity compensation plans not approved by security holders |  |                                                                  |  |                                                     |      |                                                                                                                                       |      |    
|                                                           |  |                                                                   |  |                                                     |       |                                                                                                                                       |       |    
|Total                                                      |  | 2,841                                                             |  | $                                                   | 10.73 |                                                                                                                                       | 2,357 |    

---

|(1) | In addition to being available for future issuance upon exercise of options that may be granted after March 31, 2007, all of the remaining 2,224 shares under the Companys
Amended and Restated 2000 Stock Incentive Plan may instead be issued in the form of restricted stock, stock appreciation rights or other stock-based awards.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes 133 shares issuable under the Companys 2000 Employee Stock Purchase Plan, including shares issuable in connection with the current offering period
which ends on July 31, 2007. Also includes 2,224 shares issuable under the 2000 Plan. Under the 2000 Plan, the number of shares available for issuance automatically increases on the first trading day of each calendar year by an amount equal to
3% of the
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20



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##### Table of Contents

| | shares of Common Stock outstanding on the last trading day of the preceding calendar year, not to exceed an annual increase of 1,000 shares, or a lesser
amount determined by the Board of Directors, or the Board. The Board did not approve any increase in shares for issuance on the first trading day of calendar year 2007.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dividends

We have never paid or
declared any cash dividends on our common stock or other securities. Our loan agreement with a commercial bank prohibits the payment of dividends. We currently intend to retain all future earnings, if any, for use in the operation of our business,
and therefore, do not anticipate paying cash dividends in the foreseeable future.

Use of Proceeds

In August 2000, we closed an initial public offering of our common stock. The Registration Statement on Form S-1 (No. 333-32588) was declared effective by
the Securities and Exchange Commission on August 1, 2000 and we commenced the offering on that date. After deducting the underwriting discounts and commissions and the offering expenses, the net proceeds from the offering were approximately
$54,114.

Stock Repurchase Plan

Issuer Purchases Of Equity Securities

(in thousands, except per share price)



|                      |  |                                 |  |                             |       |                                                                                  |    |                                                                            |    
|--------------------- |  | ------------------------------- |  | --------------------------- | ----- | -------------------------------------------------------------------------------- | -- | -------------------------------------------------------------------------- | ---
|Period                |  | Total Number ofShares Purchased |  | Average Price Paidper Share |       | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms (1) |    | Maximum Numberof Shares That MayYet Be PurchasedUnder the Plans orPrograms
|January 1  31, 2007  |  |                                |  |                             |      |                                                                                  |   |                                                                            | 531
|February 1  28, 2007 |  | 29                              |  | $                           | 15.53 |                                                                                  | 29 |                                                                            | 502
|March 1  31, 2007    |  | 16                              |  | $                           | 13.92 |                                                                                  | 16 |                                                                            | 486

---

|(1) | On January 31, 2005, we announced a stock repurchase program pursuant to which we are authorized to purchase up to 1,000 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. Any repurchased shares will be available for use in connection with our stock plans or other corporate purchases.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

(dollars and share amounts in thousands,
except per share data)

The following selected consolidated financial data should be read in conjunction with our consolidated financial
statements and the related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report. The statement of operations data for the years ended March 31,
2007, 2006, and 2005, and the balance sheet data as of March 31, 2007 and 2006, are derived from our audited consolidated financial statements included in this Annual Report. The balance sheet data as of March 31, 2005, 2004 and 2003 and
the statement of operations data for the years ended March 31, 2004 and 2003 are derived from our consolidated financial statements that are not included in this annual report. Historical results are not necessarily indicative of results that
may be expected for any future period.



|                                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|-------------------------------------------------------- |  | ------------------------------------- | ------- | ---- | - | ------- | ---- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                                         |  | Year Ended March 31,                 
|                                                         |  | 2007                                  |         | 2006 |   |         | 2005 |  | 2004 |         | 2003
|                                                         |  | (in thousands, except per share data)
|Statement of Operations Data:                            |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Revenue:                                                 |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|New software licenses                                    |  | $                                     | 43,186  |      | $ | 31,976  |      |  | $    | 29,507  |      | $ | 28,164  |  | $ | 22,187 
|Software license updates, technical support and services |  |                                       | 28,062  |      |   | 24,226  |      |  |      | 19,805  |      |   | 15,152  |  |   | 12,667 
|Professional services                                    |  |                                       | 23,882  |      |   | 19,913  |      |  |      | 14,931  |      |   | 13,137  |  |   | 11,573 
|                                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Total revenue                                            |  |                                       | 95,130  |      |   | 76,115  |      |  |      | 64,243  |      |   | 56,453  |  |   | 46,427 
|                                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Cost of revenue:                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|New software licenses                                    |  |                                       | 638     |      |   | 657     |      |  |      | 778     |      |   | 831     |  |   | 829    
|Software license updates, technical support and services |  |                                       | 3,264   |      |   | 2,637   |      |  |      | 2,348   |      |   | 1,730   |  |   | 1,710  
|Professional services                                    |  |                                       | 15,904  |      |   | 13,705  |      |  |      | 10,154  |      |   | 7,510   |  |   | 4,637  
|Amortization of acquired technology                      |  |                                       | 723     |      |   | 832     |      |  |      | 651     |      |   | 509     |  |   | 504    
|                                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Total cost of revenue                                    |  |                                       | 20,529  |      |   | 17,831  |      |  |      | 13,931  |      |   | 10,580  |  |   | 7,680  
|                                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Gross profit                                             |  |                                       | 74,601  |      |   | 58,284  |      |  |      | 50,312  |      |   | 45,873  |  |   | 38,747 
|                                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Operating expenses:                                      |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Research and development                                 |  |                                       | 21,688  |      |   | 18,643  |      |  |      | 15,455  |      |   | 13,040  |  |   | 12,909 
|Sales and marketing                                      |  |                                       | 34,133  |      |   | 26,300  |      |  |      | 22,803  |      |   | 19,446  |  |   | 18,245 
|General and administrative                               |  |                                       | 10,994  |      |   | 13,375  |      |  |      | 9,742   |      |   | 5,717   |  |   | 4,897  
|                                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Total operating expenses                                 |  |                                       | 66,815  |      |   | 58,318  |      |  |      | 48,000  |      |   | 38,203  |  |   | 36,051 
|                                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Income (loss) from operations                            |  |                                       | 7,786   |      |   | (34     | )    |  |      | 2,312   |      |   | 7,670   |  |   | 2,696  
|Interest and other income, net                           |  |                                       | 3,834   |      |   | 2,680   |      |  |      | 1,384   |      |   | 594     |  |   | 879    
|                                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Income before provision for income taxes                 |  |                                       | 11,620  |      |   | 2,646   |      |  |      | 3,696   |      |   | 8,264   |  |   | 3,575  
|Provision for income taxes                               |  |                                       | 3,655   |      |   | 509     |      |  |      | 1,644   |      |   | 2,506   |  |   | 832    
|                                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Net income                                               |  | $                                     | 7,965   |      | $ | 2,137   |      |  | $    | 2,052   |      | $ | 5,758   |  | $ | 2,743  
|                                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Basic net income per common share                        |  | $                                     | 0.39    |      | $ | 0.10    |      |  | $    | 0.10    |      | $ | 0.29    |  | $ | 0.14   
|                                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Diluted net income per common share                      |  | $                                     | 0.38    |      | $ | 0.10    |      |  | $    | 0.10    |      | $ | 0.28    |  | $ | 0.14   
|                                                         |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Basic weighted average shares outstanding                |  |                                       | 20,358  |      |   | 20,374  |      |  |      | 20,158  |      |   | 19,697  |  |   | 19,273 
|Diluted weighted average shares outstanding              |  |                                       | 21,206  |      |   | 20,604  |      |  |      | 20,624  |      |   | 20,650  |  |   | 19,974 
|                                                         |  |                                       |         |      |  
|Balance Sheet Data (end of period):                      |  |                                       |         |      |   |         |      |  |      |         |      |   |         |  |   |        
|Cash, cash equivalents and marketable securities         |  | $                                     | 91,381  |      | $ | 85,861  |      |  | $    | 82,185  |      | $ | 81,493  |  | $ | 70,251 
|Total assets                                             |  |                                       | 147,658 |      |   | 127,347 |      |  |      | 125,185 |      |   | 116,682 |  |   | 100,641
|Long-term debt                                           |  |                                       |        |      |   | 103     |      |  |      | 150     |      |   | 300     |  |   | 300    
|Total stockholders equity                               |  |                                       | 112,871 |      |   | 99,398  |      |  |      | 99,965  |      |   | 96,371  |  |   | 86,388 



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(dollars and share amounts in thousands, except per share data)

You should read the following discussion
and analysis in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties,
and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under Item 1A. Risk Factors and elsewhere
in this Annual Report on Form 10-K.

Overview

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

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

Our revenue is derived from three primary sources: (1) new software licenses, (2) software
license updates, technical support and services, and (3) professional services, which include consulting and training services for customers without current maintenance agreements. New software license revenue represents all fees earned from
granting customers licenses to use our software, and excludes revenue derived from software license updates, which are included in software license updates, technical support, and services revenue. Our software master license agreement provides our
customers with the right to use our software either perpetually, which we refer to as perpetual licenses, or during a defined term, generally for two to four years, which we refer to as term licenses. For fiscal 2007, perpetual licenses represented
approximately 97% of software license revenue transactions. Substantially all of our software license arrangements include both perpetual licenses and software license updates, technical support, and services. Software license updates, technical
support, and services revenue represent fees associated with the sale of unspecified license updates, technical support and when-and-if available training under our maintenance and training agreements. We offer professional services, under both time
and material and fixed-price agreements, primarily to facilitate the adoption of our technology.

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 solutions, we believe that they ultimately generate additional sales of software licenses.

The key strategies of our business plan include increasing sales to existing customers, increasing deal size by selling modules and
introducing new products, improving our sales and marketing execution, establishing alliances to extend our market reach and increasing our international presence.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 manage the increases in our total expenses as we implement these strategies.



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In April 2007, we entered into a multi-year worldwide distribution agreement with Computer Associates
that will build on the referral agreement entered into in November of 2005. Under the terms of the agreement, Computer Associates is distributing our IT Guru Systems Planner Solution and we will collaborate with Computer Associates to offer
professional services and support. Computer Associates began sales of our products in April 2007.

In November 2005, we entered into a
global sales and marketing referral agreement with Computer Associates. Under the terms of the agreement, Computer Associates began marketing our systems performance and capacity modeling technologies. Computer Associates began sales of our products
under this agreement in the third quarter of fiscal 2006, and we started recording revenue from this relationship during the third quarter of fiscal 2006.

In March 2005, we entered into a multi-year worldwide distribution agreement with Cisco Systems. Under the terms of the agreement, Cisco is distributing a broad range of our software products. We will also collaborate
with Ciscos Network Management Technology Group to develop new network management solutions. Cisco began sales of our products in the second half of calendar 2005, and we started recording revenue from the Cisco Systems agreement during the
fourth quarter of fiscal 2006.

Summary of Our Fiscal 2007 Financial Performance

During fiscal 2007, we increased revenue, gross profit, cash, cash equivalents and marketable securities, and deferred revenue as compared to fiscal 2006.
We believe that revenue growth during fiscal 2007 as compared to fiscal 2006 was attributable to executing on our business plan and to an improving economy.

The following table summarizes information on some of our key financial and operating metrics.



|                                                                           |  |                                               |        |   |            |   |        |              |  |   |                  |   |  |       |   
|-------------------------------------------------------------------------- |  | --------------------------------------------- | ------ | - | ---------- | - | ------ | ------------ |  | - | ---------------- | - |  | ----- | --
|                                                                           |  | Fiscal2007                                    |        |   | Fiscal2006 |   |        | AmountChange |  |   | PercentageChange |  
|                                                                           |  | (dollars in thousands, except per share data) |       
|Operations Data:                                                           |  |                                               |        |   |            |   |        |              |  |   |                  |   |  |       |   
|Total revenue                                                              |  | $                                             | 95,130 |   |            | $ | 76,115 |              |  | $ | 19,015           |   |  | 25.0  | % 
|Total cost of sales                                                        |  | $                                             | 20,529 |   |            | $ | 17,831 |              |  | $ | 2,698            |   |  | 15.1  | % 
|Gross profit                                                               |  | $                                             | 74,601 |   |            | $ | 58,284 |              |  | $ | 16,317           |   |  | 28.0  | % 
|Gross profit as a percentage of total revenue (gross margin)               |  |                                               | 78.4   | % |            |   | 76.6   | %            |  |   |                  |   |  |       |   
|Total operating expenses                                                   |  | $                                             | 66,815 |   |            | $ | 58,318 |              |  | $ | 8,497            |   |  | 14.6  | % 
|Income (loss) from operations                                              |  | $                                             | 7,786  |   |            | $ | (34    | )            |  | $ | 7,820            |   |  | 230.0 | % 
|Income from operations as a percentage of total revenue (operating margin) |  |                                               | 8.2    | % |            |   | 0.0    | %            |  |   |                  |   |  |       |   
|Net income                                                                 |  | $                                             | 7,965  |   |            | $ | 2,137  |              |  | $ | 5,828            |   |  | 272.7 | % 
|Diluted net income per common share                                        |  | $                                             | 0.38   |   |            | $ | 0.10   |              |  | $ | 0.28             |   |  | 280.0 | % 
|Total employees (period end)                                               |  |                                               | 490    |   |            |   | 433    |              |  |   | 57               |   |  | 13.2  | % 
|Total average employees                                                    |  |                                               | 487    |   |            |   | 427    |              |  |   | 60               |   |  | 14.1  | % 
|Total consultants (period end)                                             |  |                                               | 111    |   |            |   | 96     |              |  |   | 15               |   |  | 15.6  | % 
|Total quota-carrying sales persons (period end)                            |  |                                               | 80     |   |            |   | 62     |              |  |   | 18               |   |  | 29.0  | % 
|                                                                           |  |                                               |        |  
|Financial Condition and Liquidity Data:                                    |  |                                               |        |   |            |   |        |              |  |   |                  |   |  |       |   
|Cash, cash equivalents, and marketable securities (period end)             |  | $                                             | 91,381 |   |            | $ | 85,861 |              |  | $ | 5,520            |   |  | 6.4   | % 
|Cash flows from operating activities                                       |  | $                                             | 6,201  |   |            | $ | 8,705  |              |  | $ | (2,504           | ) |  | (28.8 | )%
|Total deferred revenue (period end)                                        |  | $                                             | 23,307 |   |            | $ | 16,579 |              |  | $ | 6,728            |   |  | 40.6  | % 

We achieved growth in all revenue categories during fiscal 2007. The growth in total revenue was
generated primarily by growth in sales of our products and services to corporate enterprises, and to a lesser extent, sales of



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our products and services to the United States government. While total revenue generated from sales of products and services to the United States government
increased in absolute dollars by $7,655 during fiscal 2007, the percentage of revenue from transactions with the United States government accounted for 43% of total revenue for both fiscal 2007 and fiscal 2006. United States government customers,
including the Department of Defense, utilize our software and professional services to take advantage of our extensive expertise and intellectual property in networking, applications, and protocols.Our ability to model and simulate
end-to-end network and application performance is valuable in determining the impact of tactical or strategic changes to networks, planning for contingencies, and evaluating the impact of new network technologies and protocols. In addition, our
solutions are scalable and address large, complex military systems and networks, such as mobile networks, with a variety of operationally proven, advanced predictive performance techniques. This enables the Department of Defense to use our software
and services to achieve important transformational objectives such as network centricity and improved battle space awareness.

Our
international revenue increased 21.3% to $20,059, or 21.1% of total revenue, for fiscal 2007. We expect revenue from sales outside the United States to continue to account for a significant portion of our total revenue in the future. International
revenue in fiscal 2007 benefited from a more experienced direct sales force and our increased focus on corporate enterprises. Sales to corporate enterprises accounted for the largest portion of our international revenue during fiscal 2007. During
fiscal 2007, sales to corporate enterprises and service providers accounted for the majority of our international revenue. We believe that continued growth and profitability will require further expansion of our sales, marketing and customer service
functions in international markets.

During fiscal 2007, gross profit increased 28.0% to $74,601. Our gross profit increased in absolute
dollars in fiscal 2007, and as a percentage of total revenue, increasing from 76.6% in fiscal 2006 to 78.4% in fiscal 2007. This increase as a percentage of total revenue was attributable to our implementation of strategies designed to increase the
proportion of license revenue to total revenue.

As a software company, we believe that our business model has the potential to generate
operating margins of 17% or more. Our operating margin increased to 8.2% during fiscal 2007 from 0.0% during fiscal 2006. The increase in operating margin was largely the result of a $19,015 increase in total revenue, which was partially offset by
an increase in operating expenses of $8,497. Our fiscal 2006 operating expenses included $3,851 in legal expenses related to the lawsuit filed by Compuware Corporation in September of 2004. No significant legal expenses related to the lawsuit filed
by Compuware Corporation were incurred during fiscal 2007, as the lawsuit was settled in April 2006.

Trends That May Affect Our
Business and Future Results

While we are cautiously optimistic that economic conditions may continue to improve and result in a
stronger environment for IT spending, an economic downturn or adverse change in the regulatory environment or business prospects for our customers may decrease our revenue or lower our growth rate. The demand for our products and services by
corporate enterprise and United States government customers has been much stronger than the demand from service providers and network equipment manufacturers. We believe that lower business activity with service providers and network equipment
manufacturers is primarily due to the challenging economy in which these businesses operate, which we expect to continue, at least in the near term. Consequently, our revenue growth and financial results depend, in significant part, upon the
economic health of corporate enterprises and United States government agencies and the general environment for IT spending.

We intend to
take advantage of a gradually improving economy and expect to increase spending in all areas of our business in order to promote future growth. We anticipate the following trends and patterns over the next several quarters:

Total Revenue.We currently expect future growth in revenue to come from sales to enterprise IT organizations and the United States government. We
expect revenue from sales to service providers and network



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equipment manufacturers to fluctuate from quarter to quarter with the potential for periods of declining license revenue. Our ability to increase
professional service 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. As a
result of these factors, we believe that we may experience fluctuations in quarterly revenue.

International Revenue.Our
international sales are affected by the mix of direct and indirect sales channels and our focus on increasing sales to corporate enterprises. We believe that these factors affect the timing of sales orders as well as our ability to forecast future
revenue. We expect overall international revenue growth in fiscal 2008; however, we expect to continue experiencing quarterly fluctuations of international revenue.

Gross Profit Margin.We anticipate an increase in the cost of professional services primarily from hiring additional consultants to support demand
for our services. Our overall gross profit margin will be affected by the profitability of individual consulting engagements as well as the amount of gross profit from the sale of new software licenses and software license updates, technical support
and services, which have substantially higher gross margins than the gross margin on professional services revenue.

Research
and Development Expenses.We believe that continued investment in research and development will be required to maintain our competitive position and broaden our product lines, as well as enhance the features and functionality of our current
products. We made significant personnel investments in research and development during fiscal 2007. We expect that the absolute dollar amount of these expenditures 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 growth, among other factors.

Sales and Marketing Expenses.We depend upon our direct sales model to generate revenue and believe that increasing the size of our quota-carrying sales team is essential for long-term growth. We plan to add
quota-carrying sales persons during fiscal 2008 to pursue our growth strategies. We anticipate that we will continue to commit substantial resources to sales and marketing in the future and that sales and marketing expenses may increase both
in absolute dollars and as a percentage of total revenue in future periods.

General and Administrative Expenses.General and
administrative expenses are expected to increase as we continue to expand our operations; however, we expect the dollar amount of these expenditures to decrease as a percentage of total revenue in future periods. Our general and administrative
expenses decreased 17.8% from fiscal 2006 to fiscal 2007 due primarily to legal expenses of $3,851 incurred during fiscal 2006 related to the lawsuit filed by Compuware Corporation in September of 2004. No significant legal expenses related to the
lawsuit filed by Compuware Corporation were incurred during fiscal 2007, as the lawsuit was settled in April 2006. Our ability to decrease these expenses, as a percentage of revenue, will depend upon increases in our revenue growth, among other
factors.

Operating Margin.Since a significant portion of our software license arrangements close in the latter part of each
quarter, we may not be able to adjust our cost structure in the short-term to respond to lower than expected revenue, which would adversely impact our operating margin and earnings. Our operating margin increased to 8.2% during fiscal 2007 from 0.0%
during fiscal 2006. The increase in operating margin was largely the result of a $19,015 increase in total revenue, which was partially offset by an increase in operating expenses of $8,497. Our fiscal 2006 operating expenses included $3,851 in
legal expenses related to the lawsuit filed by Compuware Corporation in September of 2004. No significant legal expenses related to the lawsuit filed by Compuware Corporation were incurred during fiscal 2007, as the lawsuit was settled in April
2006. We remain committed to our long-term growth strategies and do not believe that adjustments to our cost structure are necessary at this time, but we intend to closely manage expenses.



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Acquisitions

On October 6, 2004, we completed the acquisition of Altaworks for a total purchase price of approximately $3,431. As a result of the merger, we acquired all the assets and liabilities of Altaworks. We paid the
purchase price in cash from working capital. As a result of the acquisition, we acquired two commercially available software products that provide advanced correlation and analysis technologies to our product portfolio for end-to-end application
performance analysis and, with the addition of Altaworks employees, have greater engineering depth and technical expertise.

This
acquisition was accounted for as a purchase; consequently, operations of the acquired business were included in our financial statements prospectively from the date of acquisition.

Critical Accounting Policies and Use of Estimates

The accompanying discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from the estimates made by management with respect to these and other items that require managements estimates.

We have identified the accounting policies that are critical to understanding our historical and future performance, as these policies affect the
reported amounts of revenue and the more significant areas involving managements judgments and estimates. These critical accounting policies relate to revenue recognition and deferred revenue, stock based compensation, allowance for doubtful
accounts, valuation of long-lived assets, including intangible assets and impairment review of goodwill, software development costs and income taxes. These policies, and our procedures related to these policies, are described in detail below. In
addition, please refer to Note 1 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further discussion of our accounting policies.

Revenue Recognition.We derive revenue from three primary sources: (1) new software licenses, (2) software license
updates, technical support and services, which include software license updates, certain training provided and offered on a when-an-if available basis to customers, and technical support, and (3) professional services, which include consulting
and custom training services for customers without a current maintenance agreement. We recognize revenue based on the provisions of the American Institute of Certified Public Accountants Statement of Position, or SOP No. 97-2, Software
Revenue Recognition, as amended by SOP No. 98-9, Modification of SOP No. 97-2, Software Revenue Recognition, With Respect to Certain Transactions, SOP No. 81-1, Accounting for Performance of Construction-Type
and Certain Production-Type Contracts and the Securities and Exchange Commission Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements.

New software license revenue represents all fees earned from granting customers licenses to use our software, and excludes revenue derived from software
license updates, which are included in software license updates, technical support and services revenue. Our new software license revenue consists of perpetual and term license sales of software products. New software license revenue is recognized
when these criteria are met: persuasive evidence of an arrangement exists, delivery of the software has occurred, the software license fee is fixed or determinable, and collectibility is probable. We define each of these four criteria as follows:



| |  |  | Persuasive evidence of an arrangement exists. For license arrangements with end-users, it is our customary practice to have a written software
license agreement, which is signed by both the end user and us, and a purchase order or equivalent. A written contract can be executed based on the customer-
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | specific format or on the standard shrink wrap software master license agreement. For those end users who have previously negotiated a software
license agreement with us, the initial software license agreement is used as evidence of a written contract. Sales to distributors, resellers, and value-added resellers, which we collectively referred to as resellers, are primarily made outside of
North America and are evidenced by a master reseller agreement governing the relationship, which is signed by both the reseller and us, together with a purchase order on a transaction-by-transaction basis. To further evidence an arrangement, our
master reseller agreement requires that the reseller provide to us copies of the end users purchase order and executed copies of the end users software master license agreements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Delivery has occurred. Physical delivery of our software products to end users or resellers, which we collectively referred to as customers, is
generally considered to have occurred upon the transfer of media containing our software products to a common carrier (usually FOB shipping point based on standard agreement terms). Software products may also be delivered electronically to end
users. Electronic delivery is deemed to occur after end users have been provided with access codes that allow them to take immediate possession of the software. If a software arrangement includes undelivered software products or services that are
essential to the functionality of delivered software products, delivery is not considered to have occurred until these software products or services are delivered.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The fee is fixed or determinable. It is our policy to not provide customers the right to any adjustments or refund of any portion of their
license fees paid, acceptance provisions, cancellation privileges, or rights of return. Our normal payment terms for our software products and services currently range from net 30 days to net 90 days and primarily vary based on the country in which
an agreement is executed. Payments that extend beyond our normal payment terms from the contract date but that are due within six months are generally deemed to be fixed or determinable based on our successful collection history on such
arrangements, and thereby satisfy the required criteria for revenue recognition. Arrangements with payment terms extending beyond six months are considered not to be fixed or determinable, and revenue from such arrangements is recognized as payments
become due and payable.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Collectibility is probable. Collectibility is assessed on a customer-by-customer basis. We typically sell to customers for whom there is a history of
successful collection. New customers are subject to a credit review process that evaluates the customers ability to pay.If we determine from the outset of an arrangement that collectibility is not probable, revenue is recognized as
cash is collected.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In instances when any of the four criteria are not met, we defer recognition of software license
revenue until the criteria are met. When the sale of the software product requires us to make significant enhancements, customization or modifications to the software that are essential to its functionality, software license revenue and consulting
fees are recognized using contract accounting under SOP 81-1. We estimate the percentage-of-completion, under SOP 81-1, based on our estimate of total hours to complete the project as a percentage of total hours incurred and the estimated hours
to complete.

The process of estimation inherent in the application of the percentage-of-completion method of accounting for revenue is
subject to judgments and uncertainties and may affect the amounts of software license revenue and professional services revenue under certain contracts and related expenses reported in our consolidated financial statements. A number of internal and
external factors can affect our estimates to complete client engagements, including skill level and experience of project managers, staff assigned to engagements, and continuity and attrition level of professional services staff. Changes in the
estimated stage of completion of a particular project could create variability in our revenue and results of operations if we are required to increase or decrease previously recognized revenue related to a particular project or if we expect to incur
a loss on the project.

Software license updates, technical support and services revenue represents fees associated with the sale of
license updates, training, and technical support, all provided on a when-and-if-available basis under our maintenance agreement. Payments for software license updates, technical support and services (on initial order or on renewal) are generally
made in advance and are nonrefundable. License updates consist of the right to



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unspecified software updates on a when-and-if-available basis and are typically entered into in connection with the initial software license purchase.
License updates, technical support and services may be renewed upon expiration of the term. Customers can purchase license updates separately from technical support and services. Revenue from license updates, technical support and services is
deferred and recognized as revenue on a straight-line basis over the term of the maintenance agreement.

Revenue under multiple-element
arrangements, which typically include new software licenses, consulting services, training and maintenance agreements sold together, are allocated to each element in the arrangement primarily using the residual method based upon the fair value of
the undelivered elements, which is specific to us (vendor-specific objective evidence of fair value or VSOE). This means that we defer revenue from the arrangement fee equivalent to the fair value of the undelivered elements. Discounts, if any, are
applied to the delivered elements, usually software licenses, under the residual method. For periodic unspecified product updates and technical support agreements, VSOE is based upon either the renewal rate specified in each contract or the price
charged when sold separately. For consulting services and training for customers without a current maintenance agreement, VSOE is based upon the rates charged for these services when sold separately. If the only undelivered elements in an
arrangement are periodic unspecified updates or technical support agreements for which we are unable to establish VSOE, all revenue is recognized ratably over the contract period.

Professional services revenue consists of fees from consulting services and training for customers without a current maintenance agreement and is
recognized as the services are performed. When we enter into consulting service arrangements that include significant modifications to the software that are essential to the customers use and the arrangement is bundled with software, revenue
under the entire arrangement is recognized under the percentage-of-completion method. In these circumstances, revenue to be recognized after applying the residual method is allocated to new software license revenue based upon the relative list price
of each product, and to professional services revenue based upon the VSOE of fair value of the professional services, respectively.

We
sell new software licenses, license updates, technical support and services agreements to distributors at predetermined prices. Sales to distributors are not contingent upon resale of the software to the end user. In most cases, we provide license
updates, technical support and services agreements directly to distributors and the distributors provide support to the end customer. Revenue from sales to distributors is recorded at the amounts charged to the distributor and in the same manner as
new software license, license updates, technical support and services sales sold through our direct sales force. Amounts received in advance of revenue recognition are classified as deferred revenue.

Stock-Based Compensation.On April 1, 2006, we adopted SFAS 123R, which revised SFAS 123, Accounting for Stock-Based
Compensation. Prior to fiscal year 2007 and the adoption of SFAS 123R, we followed the intrinsic value method of accounting for our stock-based employee compensation arrangements as defined by Accounting Principles Board Opinion, or APB,
No. 25, Accounting for Stock Issued to Employees. We have identified our accounting for stock-based compensation as a critical accounting policy, as this policy affects the reported amount of stock-based compensation expense and
involves the use of managements judgments and estimates. Stock-based compensation expense in connection with our application of SFAS 123R was $1,462 for fiscal 2007.

SFAS 123R requires an entity to recognize an expense within its income statement for all share-based payment arrangements, which includes employee stock
option plans, restricted stock grants, and ESPP. We have elected to continue 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. Our stock options and nonvested stock do not contain performance conditions. There have been no modifications to awards in 2007. We adopted SFAS 123R under the modified prospective method. Under the modified prospective method, SFAS 123R
applies to new awards and to awards modified, repurchased, or cancelled after April 1, 2006 as well as to the unvested portion of awards outstanding as of April 1, 2006. Stock-based compensation for unvested awards granted prior to April,
1, 2006 is based upon the grant date fair value of such compensation as determined under pro forma provisions of SFAS No 123.



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Our 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.

To estimate the grant-date fair value of our stock
options, we use the Black-Scholes option-pricing model, consistent with that used for pro forma disclosure under SFAS No 123. 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, we use a U.S. Treasury Bond due in a number of years equal to the options expected term. To estimate expected volatility, we analyzed the historic volatility of our common stock.

Compensation cost for stock 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 income statement in the same expense line as the cash compensation paid to the respective employees. SFAS 123R also requires us
to estimate forfeitures in calculating the expense related to stock-based compensation. We have concluded that our historical forfeiture rate is the best measure to estimate future forfeitures of granted stock options. The impact on compensation
costs due to changes in the expected forfeiture rate will be recognized in the period that they become known. As of March 31, 2007, nonvested stock-based deferred compensation associated with stock options totaled $1,278 and is expected to be
recognized over a weighted average period of 1.6 years.

Our restricted stock grants are accounted for as equity awards. The expense is
based on the price of the Companys common stock, and is recognized on a straight-line basis over the requisite service period. We did not grant any restricted stock prior to February 2006. The restricted stock agreements do not contain any
post-vesting restrictions. As of March 31, 2007, nonvested stock-based deferred compensation associated with restricted stock totaled $644 and is expected to be recognized over a weighted average period of 1.1 years.

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts receivable for estimated losses resulting from the
inability of our customers to make required payments and for the limited circumstances when the customer disputes the amounts due us. Our methodology for determining this allowance requires significant estimates. In estimating the allowance, we
consider the age of the receivable, the creditworthiness of the customer, the economic conditions of the customers industry and general economic conditions. While we believe that the estimates we use are reasonable, should any of these factors
change; our estimates may also change, which could affect the amount of our future allowance for doubtful accounts as well as future operating income. Specifically, if the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments to us, additional allowances could be required. As of March 31, 2007 and 2006, accounts receivable totaled $25,300 and $15,381, net of an allowance for doubtful accounts of $133 and $140,
respectively.

Valuation of Intangible Assets and Goodwill.We account for our goodwill and intangible assets in
accordance with SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. Our intangible assets consist of acquired technology related to our acquisitions of a software product for
modeling voice communications in December 2003, Altaworks in October 2004, and purchased technology we purchased from RadView Software, Ltd. in December 2005 and SQMworks, Inc. in April 2006. They are stated at the lower of unamortized cost or net
realizable value and amortized on a straight-line basis over their expected useful lives of three years except for our 2003 acquisition, which is amortized on a straight-line basis over five years. We use the projected discounted cash flow method in
valuing our acquired technology related to acquisitions, using certain assumptions including revenue growth, cost levels, present value discount rate, and working capital requirements. We use the amount of cash paid to value purchased technology.
While we believe the assumptions used to value our acquired technology related to acquisitions are reasonable, actual results will likely differ from those assumptions. Future cash flows are subject to change for a variety of internal and external



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factors. We will periodically review the value of acquired technology for reasonableness. Changes in our assumptions at the time of future periodic reviews
could result in impairment losses. As of March 31, 2007 and 2006, intangible assets totaled $899 and $1,240, net of accumulated amortization of $1,148 and $2,925, respectively. No impairment losses have been recorded to date.

Goodwill is recorded when the consideration paid for acquisitions exceeds the fair value of net tangible and intangible assets acquired. Goodwill is not
amortized. We perform an annual review during our fourth quarter or earlier to identify any facts or circumstances that indicate the carrying value of goodwill is impaired. The review is based on various analyses including cash flow and
profitability projections and the market capitalization of our common stock. Impairment, if any, is based on the excess of the carrying amount of goodwill over its fair value. We performed our annual impairment test of goodwill as of March 31,
2007 and 2006 and concluded that there was no goodwill impairment. As of March 31, 2007 and 2006, we had goodwill of $14,639. No impairment losses have been recorded to date.

Accounting for Software Development Costs.Costs incurred in the research and development of new software products are expensed as incurred until
technological feasibility is established. Development costs are capitalized beginning when a products technological feasibility has been established and ending when the product is available for general release to our customers. Technological
feasibility is reached when the product reaches the working model stage. To date, products and enhancements have generally reached technological feasibility and have been released for sale at substantially the same time and all research and
development costs have been expensed. Consequently, no research and development costs were capitalized in fiscal 2007, 2006 and 2005.

Income Taxes.The income tax provision includes income taxes currently payable plus the net change during the year in deferred tax assets or liabilities. Deferred tax assets and liabilities reflect the differences between the
carrying value under GAAP and the tax basis of assets and liabilities using enacted statutory tax rates in effect for the period in which the differences are expected to reverse. Judgments and estimates are required in the calculation of the
deferred tax assets, valuation allowance, accrual of contingencies, research and development tax credits, and foreign tax credits.



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Results of Operations

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



|                                                          |  |            |   |  |            |   |  |            |  
|--------------------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
|                                                          |  | Fiscal2007 |   |  | Fiscal2006 |   |  | Fiscal2005 |  
|Revenue:                                                  |  |            |   |  |            |   |  |            |  
|New software licenses                                     |  | 45.4       | % |  | 42.0       | % |  | 45.9       | %
|Software license updates, technical support and services  |  | 29.5       |   |  | 31.8       |   |  | 30.8       |  
|Professional services                                     |  | 25.1       |   |  | 26.2       |   |  | 23.3       |  
|                                                          |  |            |   |  |            |   |  |            |  
|Total revenue                                             |  | 100.0      |   |  | 100.0      |   |  | 100.0      |  
|                                                          |  |            |   |  |            |   |  |            |  
|Cost of revenue:                                          |  |            |   |  |            |   |  |            |  
|New software licenses                                     |  | 0.7        |   |  | 0.9        |   |  | 1.2        |  
|Software license updates, technical support, and services |  | 3.4        |   |  | 3.4        |   |  | 3.7        |  
|Professional services                                     |  | 16.7       |   |  | 18.0       |   |  | 15.8       |  
|Amortization of acquired technology                       |  | 0.8        |   |  | 1.1        |   |  | 1.0        |  
|                                                          |  |            |   |  |            |   |  |            |  
|Total cost of revenue                                     |  | 21.6       |   |  | 23.4       |   |  | 21.7       |  
|                                                          |  |            |   |  |            |   |  |            |  
|Gross profit                                              |  | 78.4       |   |  | 76.6       |   |  | 78.3       |  
|                                                          |  |            |   |  |            |   |  |            |  
|Operating expenses:                                       |  |            |   |  |            |   |  |            |  
|Research and development                                  |  | 22.8       |   |  | 24.6       |   |  | 24.1       |  
|Sales and marketing                                       |  | 35.8       |   |  | 34.5       |   |  | 35.5       |  
|General and administrative                                |  | 11.6       |   |  | 17.5       |   |  | 15.1       |  
|                                                          |  |            |   |  |            |   |  |            |  
|Total operating expenses                                  |  | 70.2       |   |  | 76.6       |   |  | 74.7       |  
|                                                          |  |            |   |  |            |   |  |            |  
|Income (loss) from operations                             |  | 8.2        |   |  | (0.0       | ) |  | 3.6        |  
|Interest and other income, net                            |  | 4.0        |   |  | 3.5        |   |  | 2.2        |  
|                                                          |  |            |   |  |            |   |  |            |  
|Income before provision for income taxes                  |  | 12.2       |   |  | 3.5        |   |  | 5.8        |  
|Provision for income taxes                                |  | 3.8        |   |  | 0.7        |   |  | 2.6        |  
|                                                          |  |            |   |  |            |   |  |            |  
|Net income                                                |  | 8.4        | % |  | 2.8        | % |  | 3.2        | %
|                                                          |  |            |   |  |            |   |  |            |  

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



|                                                                  |  |            |   |  |            |   |  |            |  
|----------------------------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
|                                                                  |  | Fiscal2007 |   |  | Fiscal2006 |   |  | Fiscal2005 |  
|Cost of new software licenses                                     |  | 1.5        | % |  | 2.1        | % |  | 2.6        | %
|Cost of software license updates, technical support, and services |  | 11.6       |   |  | 10.9       |   |  | 11.9       |  
|Cost of professional services                                     |  | 66.6       |   |  | 68.8       |   |  | 68.0       |  

Revenue

New Software License Revenue.New software licenses revenue was $43,186, $31,976, and $29,507, in fiscal 2007, 2006, and 2005, respectively, representing an increase of 35.1% in fiscal 2007 from fiscal 2006 and
an increase of 8.4% in fiscal 2006 from fiscal 2005. For fiscal 2007, the increase in license revenue was primarily due to higher sales volumes to corporate enterprises and the United States government of the platform products VNE Server, IT
Sentinel, SP Sentinel, NETCOP, and OPNET Panorama and modules such asACE Advanced Console, SLA Commander, ACE Advanced Planning Module, 802.16 Specialized Model, ,andSITL Module. Royalties pertaining to a distribution
agreement with Cisco Systems also contributed to the increase in fiscal 2007 license revenue as compared to fiscal 2006. For fiscal 2006, the increase in license revenue was primarily



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due to higher sales volumes to service providers and corporate enterprises of the platform products VNE Server, IT Sentinel, SP Sentinel, Netcop, and
Panorama and modules such asACE Advanced Console, Commander Console and Planning and Design, Netcop, ACE Advanced Planning Module, 802.16 Specialized Model, Commander, SITLM and Planning and Designmodules became available in
fiscal 2006. Royalties pertaining to a distribution agreement with Cisco Systems also contributed to the increase in fiscal 2006 license revenue as compared to fiscal 2005.

Software License Updates, Technical Support and Services Revenue.Software license updates, technical support and services revenue was $28,062,
$24,226, and $19,805 in fiscal 2007, 2006, and 2005, respectively, representing increases of 15.8% in fiscal 2007 from fiscal 2006 and 22.3% in fiscal 2006 from fiscal 2005. Software license updates, technical support and services revenue growth
rates are affected by the overall new software license revenue growth rates, as well as the renewal rate of annual maintenance contracts by existing customers. The increase in software license updates and technical support revenue in fiscal 2007 and
fiscal 2006 reflects increases in the overall customer installed base as compared to the prior fiscal year.

Professional Services
Revenue.The components of professional services for fiscal 2007, fiscal 2006, and fiscal 2005 were as follows:



|                              |  |                |        |            |   |            |  |   |       
|----------------------------- |  | -------------- | ------ | ---------- | - | ---------- |  | - | ------
|                              |  | Fiscal 2007    |        | Fiscal2006 |   | Fiscal2005
|                              |  | (in thousands)
|Consulting services           |  | $              | 22,399 |            | $ | 18,639     |  | $ | 13,477
|Training and other income     |  |                | 1,483  |            |   | 1,274      |  |   | 1,454 
|                              |  |                |        |            |   |            |  |   |       
|Professional services revenue |  | $              | 23,882 |            | $ | 19,913     |  | $ | 14,931
|                              |  |                |        |            |   |            |  |   |       

Professional services revenue was $23,882, $19,913, and $14,931 in fiscal 2007, 2006 and 2005,
respectively, representing increases of 19.9% in fiscal 2007 from fiscal 2006 and of 33.4% in fiscal 2006 from fiscal 2005. Consulting services revenue comprises 93.8%, 93.6%, and 90.3% of professional services revenue for fiscal 2007, 2006, and
2005, respectively. The increases in professional services revenue were primarily due to growing demand for our consulting services by United States government agencies and, to a lesser extent, corporate enterprise customers. Revenue from consulting
services provided to United States government agencies were $15,845, $13,868, and $10,349, respectively, representing increases of 14.3% in fiscal 2007 from fiscal 2006 and 34.0% in fiscal 2006 from fiscal 2005.

In January 2003, we were awarded a consulting contract with the United States Department of Defense. In January 2005, we were awarded the contract option
for calendar year 2005 in the amount of $2,965. The option contributed approximately $1,945 and $657 of consulting revenue for fiscal 2006 and fiscal 2005, respectively. In February 2006, we were awarded the contract option for calendar year 2006 in
the amount of $2,899. The option contributed approximately $2,329 and $596 of consulting revenue for fiscal 2007 and 2006, respectively. Our future results of operations could be adversely affected if any of the remaining options are not exercised
or the contract otherwise does not receive additional funding. In February 2007, we were awarded the contract option for calendar year 2007 in the amount of $2,119. As of March 31, 2007 we received additional awards of $779 associated with
original award of $2,119. The option for calendar year 2007 and associated additional awards of $779 received as of March 31, 2007 contributed approximately $167 of consulting revenue for fiscal 2007. Our future results of operations could be
adversely affected if the contract does not receive additional funding. Funding under this award may be increased or decreased during the calendar year.

International Revenue. Our international revenue increased 21.3% to $20,059, or 21.1% of total revenue from $16,541, or 21.7% of total revenue, for fiscal 2007 and 2006, respectively. Our international revenue
increased 34.8% during fiscal 2006 from $12,268, or 19.1% of total revenue, for fiscal 2005. The increase in international revenue in fiscal 2007 and fiscal 2006 was primarily the result of an increase in sales to corporate enterprise customers. Our
international revenue is primarily generated in Europe and Japan. We have focused our



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efforts on increasing international sales to corporate enterprises. International revenue from corporate enterprises comprised the largest portion of
international revenue for fiscal 2007. During fiscal 2007, sales to corporate enterprises and service providers accounted for the majority of our international revenue. During fiscal 2007, 2006, and 2005, we expanded our operations outside the
United States through the hiring of additional direct sales persons in our foreign subsidiaries.

Cost of Revenue

Cost of new software license revenue consists primarily of royalties, media, manuals, and distribution costs. Cost of license updates, technical support
and services revenue consists of costs to provide training to customers with active maintenance contracts, royalties, media, distribution costs, and personnel-related costs in providing technical support. Cost of professional services revenue
consists primarily of personnel-related costs in providing consulting and custom training to our customers. Gross margins on new software license revenue and software license updates, technical support and services revenue are substantially higher
than gross margin on professional services revenue, due to the low amount of cost for materials, packaging and other costs of software products compared with the relatively high personnel costs associated with providing consulting services and
customer training.

Cost of New Software License Revenue.Cost of software license revenue was $638, $657, and $778 in fiscal 2007,
fiscal 2006, and fiscal 2005, respectively. Gross margin on software licenses revenue was 98.5%, 98.0%, and 97.4% for fiscal 2007, 2006 and 2005, respectively. The cost of new software license revenue is primarily comprised of royalty payments
required for certain of our software license sales. Consequently, the proportion of licenses sold that require royalty payments impacts the gross margin. The increase in gross margin in fiscal 2007 and fiscal 2006 was primarily the result of
proportionately fewer license sales requiring royalty payments.

Cost of Software License Updates, Technical Support and Services
Revenue.Cost of software license updates, technical support and services revenue was $3,264, $2,637, and $2,348 in fiscal 2007, fiscal 2006, and fiscal 2005, respectively. Gross margin on software license updates and technical support revenue
was 88.4%, 89.1%, and 88.1% for fiscal 2007, 2006 and 2005, respectively. The cost of software license updates, technical support and services revenue is primarily impacted by the cost of labor associated with providing technical support and related
services, and to a lesser extent, royalty payments required for certain license update sales. Gross margins decreased in fiscal 2007 from fiscal 2006 due to an increase in the cost of providing technical support and services as a result of offering
training to maintained customers on a when-and-if available basis beginning January 1, 2007. Gross margins increased in fiscal 2006 from fiscal 2005 due a decrease in the proportion of license updates sold that require royalty payments.
Stock-based compensation expense allocated to cost of software license updates and technical support in connection with our application of SFAS 123R was $16 for fiscal 2007. We did not recognize any stock-based compensation expense related to SFAS
123R in fiscal 2006.

Cost of Professional Services Revenue.Cost of professional services revenue was $15,904, $13,705, and $10,154
in fiscal 2007, fiscal 2006, and fiscal 2005, respectively. Gross margin on professional services revenue increased to 33.4% for fiscal 2007 from 31.2% for fiscal 2006. Gross margin on professional services revenue decreased to 31.2% for fiscal 2006
from 32.0% for fiscal 2005. The increase in cost of professional services in fiscal 2007 from fiscal 2006 and in fiscal 2006 from fiscal 2005 was primarily due to an increase in our consulting staff to meet demand for our services. We had 111, 96,
and 74 consulting employees at the end of fiscal 2007, 2006, and 2005, respectively. The increase in gross margin in fiscal 2007 from fiscal 2006 was primarily due to the increase in profitability related to certain consulting engagements. The
decrease in gross margin in fiscal 2006 from fiscal 2005 was primarily the result of costs necessary to recruit, train and assign new consulting staff to billable projects. We expect the cost of professional services revenue as a percentage of
professional services revenue to vary based primarily on the profitability of individual consulting engagements, and to a lesser extent, costs necessary to recruit and train new consulting staff. Stock-based compensation expense allocated to cost of
professional services in connection with our application of SFAS 123R was $175 for fiscal 2007. We did not recognize any stock-based compensation expense related to SFAS 123R in fiscal 2006.



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Operating Expenses

Research and Development.Research and development expenses were $21,688, $18,643, and $15,455 in fiscal 2007, fiscal 2006, and fiscal 2005, respectively, representing increases of 16.3% in fiscal 2007 from
fiscal 2006 and 20.6% in fiscal 2006 from fiscal 2005. The increase in fiscal 2007 from fiscal 2006 and the increase in fiscal 2006 from fiscal 2005 was primarily due to higher personnel costs as a result of increased staffing levels required for
developing new products as well as sustaining and upgrading existing products. We do not capitalize research and development costs since we release our product to the public at the same time that technological feasibility is reached. We had 161,
150, and 139 research and development employees at the end of fiscal 2007, 2006, and 2005, respectively. Stock-based compensation expense allocated to research and development in connection with our application of SFAS 123R was $533 for fiscal 2007.
We did not recognize any stock-based compensation expense related to SFAS 123R in fiscal 2006.

Sales and Marketing. Sales and
marketing expenses were $34,133, $26,300, and $22,803 in fiscal 2007, fiscal 2006, and fiscal 2005, respectively. The 29.8% increase in fiscal 2007 from fiscal 2006 was due to an increase in commission expense and personnel costs of $5,375 related
to sales growth and personnel growth, an increase in conference costs of $1,009, an increase in professional services of $496 and an increase in advertising of $322. The increase in fiscal 2007 from fiscal 2006 was the result of efforts to pursue
our business plan. The 15.3% increase in fiscal 2006 from fiscal 2005 was primarily due to increased commission expense related to increased sales and increases in our sales and marketing staff to pursue our business plan. Stock-based compensation
expense allocated to sales and marketing in connection with our application of SFAS 123R was $329 for fiscal 2007. We did not recognize any stock-based compensation expense related to SFAS 123R in fiscal 2006.

General and Administrative. General and administrative expenses were $10,994, $13,375, and $9,742 in fiscal 2007, fiscal 2006, and fiscal 2005,
respectively. The 17.8% decrease in fiscal 2007 from fiscal 2006 was primarily due to a decrease in professional services during fiscal 2007. The decrease in professional services in fiscal 2007 was primarily the result of incurring legal expenses
of $3,851 during fiscal 2006 related to the lawsuit filed by Compuware Corporation in September of 2004. No significant legal expenses related to the lawsuit filed by Compuware Corporation were incurred during fiscal 2007, as the lawsuit was settled
in April 2006. The decrease in professional services during fiscal 2007 was partially offset by a $1,234 increase in personnel costs necessary to support our business plan. The 37.3% increase in fiscal 2006 from fiscal 2005 was primarily due to
incurring $3,851 in legal expenses related to the lawsuit filed by Compuware Corporation in September of 2004, which was partially offset by a decrease in professional services costs associated with Sarbanes-Oxley compliance efforts. Stock-based
compensation expense allocated to general and administrative in connection with our application of SFAS 123R was $409 for fiscal 2007. We did not recognize any stock-based compensation expense related to SFAS 123R in fiscal 2006.

Interest and other income, net.Other income, net was $3,834, $2,680, and $1,384 in fiscal 2007, fiscal 2006 and fiscal 2006, respectively. The
increases in fiscal 2007 and fiscal 2006 were primarily due to an increase in interest income earned on our cash and cash equivalents and marketable securities. The increase in interest income is primarily the result of an increase in the aggregate
balance of cash, cash equivalents, and marketable securities together with an increase in interest rates.

Provision for Income Taxes.Our effective tax rates were 32%, 19%, and 44% for fiscal 2007, fiscal 2006 and fiscal 2005, respectively. The increase in our effective tax rate in fiscal 2007 from fiscal 2006 was primarily the result of the reduced benefit of research and
development credits and adjusting projected foreign tax credits and projected research and development tax credits to the actual amount of the credits computed in conjunction with completing and filing our fiscal 2006 tax return in December of
fiscal 2007. The decrease in our effective tax rate in fiscal 2006 from fiscal 2005 was primarily the result of adjusting projected foreign tax credits and projected research and development tax credits to the actual amount of the credits computed
in conjunction with completing and filing our fiscal 2005 tax return in December of fiscal 2006.



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The effective tax rate differs from the statutory tax rate and varies from period to period due
principally to the amount of income before taxes from various tax jurisdictions, foreign tax expense, and the amount of tax credits available to us in each period from incremental research expenditures.

Future provisions for taxes will depend, among other things, on the mix and amount of worldwide income, the tax rates in effect for various tax
jurisdictions and the amount of research and development tax credits, foreign tax credits and other items for which we are eligible.

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. In August 2000, we completed our initial public offering in which we raised approximately $54,114, net of underwriting discounts and offering expenses payable by us. As of March 31, 2007 and
2006, we had cash, cash equivalents, and marketable securities totaling $91,381 and $85,861, respectively.

Cash provided by operating
activities was $6,201, $8,705, and $4,689 for fiscal 2007, 2006 and 2005, respectively. Cash provided by operating activities is primarily derived from net income, as adjusted for non-cash items such as depreciation and amortization expense, tax
benefits from exercise of employee stock options, and changes in operating assets and liabilities. The decrease in cash provided by operating activities in fiscal 2007 from fiscal 2006 was primarily attributable to a decrease in cash resulting from
an increase in accounts receivable, which was partially offset by an increase in cash resulting from an increase in net income and deferred revenue. The increase in cash provided by operating activities in fiscal 2006 from fiscal 2005 was primarily
attributable to a decrease in accounts receivable.

Net cash used in investing activities was $41,377 for fiscal 2007. Net cash provided by
investing activities was $22,667 for fiscal 2006. Net cash used in investing activities was $9,063 in fiscal 2005. Investing activities include the purchase, sale or maturity of marketable securities, acquisition of property and equipment, and net
expenditures for business and technology acquisitions. For fiscal 2007, funds were used to purchase marketable securities of $109,637, purchase property and equipment of $3,529 and purchase intangible assets of $366. Proceeds from the sale/maturity
of investments were $72,155 for fiscal 2007. For fiscal 2006, funds were used to purchase marketable securities of $31,940, purchase property and equipment of $1,452 and purchase intangible assets of $793. Proceeds from the sale/maturity of
investments were $56,852 for fiscal 2006. For fiscal 2007, 2006 and 2005, a majority of our capital expenditures were for information technology and software purchases.

Cash provided by financing activities was $2,452 for fiscal 2007. Cash used in financing activities was $2,514 for fiscal 2006. Cash provided by financing activities was $1,039 for fiscal 2005. We used $1,521 to
acquire 104 shares of treasury stock during fiscal 2007. We used $3,625 to acquire 409 shares of treasury stock during fiscal 2006. Cash provided by financing activities for 2007 reflects the proceeds received from the exercise of stock options of
$2,987 and proceeds from the sale of common stock under our 2000 Employee Stock Purchase Plan of $753. Cash provided by financing activities for 2006 reflects the proceeds received from the exercise of stock options of $613 and proceeds from the
sale of common stock under our 2000 Employee Stock Purchase Plan of $498. Prior to the adoption of SFAS 123R, we reported tax benefits from the exercise of stock options as an operating cash flow in the consolidated statement of cash flows. In the
period beginning April 1, 2006, excess tax benefits from the exercise of stock options are presented as an increase in cash flow from financing activities. Fiscal 2007, excess tax benefits from the exercise of stock options were $383.

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



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on our consolidated balance sheets. We expect to fund these contractual arrangements with our cash and marketable securities as well as cash generated
from operations in the normal course of business.

The following table summarizes our contractual operating lease arrangements at
March 31, 2007, and the timing and effect that such commitments are expected to have on our liquidity and cash flow in future periods.



|                                       |  |                        |        |                 |   |            |  |            |       |                  |   |       |  |   |      
|-------------------------------------- |  | ---------------------- | ------ | --------------- | - | ---------- |  | ---------- | ----- | ---------------- | - | ----- |  | - | -----
|                                       |  | Payments Due by Period
|Contractual Obligations                |  | Total                  |        | Less Than1 Year |   | 1 - 3Years |  | 3 - 5Years |       | More than5 Years
|(dollars in thousands)                 |  |                        |        |                 |   |            |  |            |       |                 
|Facilities Operating Lease Obligations |  | $                      | 20,164 |                 | $ | 4,277      |  | $          | 7,776 |                  | $ | 4,292 |  | $ | 3,819
|Other Operating Lease Obligations      |  |                        | 98     |                 |   | 49         |  |            | 49    |                  |   |      |  |   |     
|                                       |  |                        |        |                 |   |            |  |            |       |                  |   |       |  |   |      
|Total                                  |  | $                      | 20,262 |                 | $ | 4,326      |  | $          | 7,825 |                  | $ | 4,292 |  | $ | 3,819
|                                       |  |                        |        |                 |   |            |  |            |       |                  |   |       |  |   |      

In April 2007, the Company entered into an operating lease to replace existing office space. The
new lease will increase the Companys operating lease obligations by $798 through March 2012. See Notes 8 and 9 to our consolidated financial statements for additional information related to our operating leases. As of March 31, 2007, we
have no capital lease obligations.

Effective June 10, 2002, we entered into a credit facility with a commercial bank. The credit
facility permits the use of funds for general corporate purposes and the issuance of letters of credit up to a maximum of $10,000 in the aggregate. Borrowings under the credit facility are limited to 80% of eligible accounts receivable. We used the
facility to issue an irrevocable letter of credit for approximately $2,122 to satisfy the security deposit requirements for our corporate office lease. Upon a default, as defined in the corporate office lease agreement, and written notice from the
landlord to us, the landlord had the right to draw upon the letter of credit in whole or in part. Interest is payable monthly, based on LIBOR plus the applicable margin ranging from 2% to 2.5% as stated in the loan agreement. The credit facility
includes a fee in the amount of 0.25% per annum on the unused portion of the credit facility. The credit facility is collateralized by our accounts receivable. The loan agreement contains customary affirmative and negative covenants including a
restriction on the payment of dividends. We were in compliance with all affirmative and negative covenants as of March 31, 2007. Effective June 10, 2006, the credit facility was renewed for $2,600 and is due to expire on June 30,
2007. As of March 31, 2007, we had available borrowings of $271 under the credit facility. We plan to renew the credit facility in fiscal 2008.

We do 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.

We expect working capital needs to increase in the foreseeable future in order for us to execute our business plan. We
anticipate that operating activities, as well as planned capital expenditures, 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.

We believe that our current cash and cash equivalents, marketable securities, and cash generated from operations
will be sufficient to meet our anticipated cash requirements for working capital and capital expenditures at least through fiscal 2008.

Recently Issued Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board, or FASB, issued FASB
interpretation, or FIN, No. 48, Accounting for Uncertainty in Income Taxes, which is effective for fiscal years beginning after December 15, 2006. FIN No. 48 clarifies the accounting for uncertainty in income taxes
recognized in the financial statements in accordance with Statement of Financial Accounting Standards, or SFAS, No. 109,



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Accounting for Income Taxes. This interpretation illustrates how a company should recognize, measure, present and disclose uncertain tax
positions that the Company has taken or expects to take on a tax return in its financial statements. We are currently evaluating the impact of adopting FIN No. 48 on our financial position and results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, or SFAS No. 157.
This standard clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. Additionally, it establishes a fair value hierarchy that prioritizes the information used
to develop those assumptions. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We have not yet determined the impact that the implementation of SFAS No. 157 will have on our
results of operations or financial condition.

In September 2006, the Securities and Exchange Commission, or SEC, issued Staff Accounting
Bulletin No. 108, Topic 1N, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, or SAB 108. SAB 108 interprets the staffs views regarding the process of
quantifying financial statement misstatements and is effective for financial statements issued for fiscal years ending after November 15, 2006. We will apply the guidance provided by SAB 108 as necessary.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159
permits entities to choose to measure, on an item-by-item basis, specified financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are required to be reported
in earnings at each reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, the provisions of which are required to be applied prospectively. The Companys results of operations and financial
condition will not be affected by SFAS No. 159 since the Company does not plan to implement the fair value option.

ITEM 7A. 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 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, marketable securities or notes payable.

At March 31, 2007, we had $34,766 in cash and cash equivalents and $56,615 in marketable securities. Based on our cash, cash equivalents, and
marketable securities as of March 31, 2007, a one percentage point increase/decrease in the interest rates would increase or decrease our annual interest income and cash flows by approximately $914.

A majority of our revenue transactions outside the United States are denominated in United States dollars. Since the operating expenses of our foreign
subsidiaries are denominated in local currencies, our results of operations 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. Due to the limited nature of our foreign operations, we do not believe that a 5% change in exchange rates would have a material effect on our business, financial condition, or results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements together with the related
notes and the report of Deloitte & Touche LLP, independent registered public accounting firm, are set forth in the Index to Financial Statements at Item 15 of this Form 10-K.



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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

Not
applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Our management, with the participation of the Chief Executive Office
and Chief Financial Officer, evaluated the effectiveness of the disclosure controls and procedures as of March 31, 2007. The disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
means 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 recognized 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 March 31, 2007, 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.

Managements report on our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and the independent registered public accounting firms related audit report on internal control over financial reporting are included in this Item 9A
of this Form 10-K.

No change in our internal control over financial reporting occurred during the fiscal quarter ended March 31, 2007
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

MANAGEMENTS REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of OPNET Technologies, Inc. and its subsidiaries (the Company) is
responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process
designed by, or under the supervision of, the companys principal executive and principal financial officers and effected by the Companys Board of Directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that



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controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2007. In making this
assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and those criteria, management concluded that the
companys internal control over financial reporting was effective as of March 31, 2007.

Our independent registered public
accounting firm has issued an attestation report on our assessment of our internal control over financial reporting. The report is included herein.

OPNET Technologies, Inc.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON

INTERNAL CONTROL OVER FINANCIAL REPORTING ON THE

CONSOLIDATED FINANCIAL STATEMENTS

To the Audit Committee and Stockholders of

OPNET Technologies, Inc.

Bethesda, Maryland

We have audited managements assessment, included in the accompanying
Managements Report on Internal Control Over Financial Reporting, that OPNET Technologies, Inc. and its subsidiaries (the Company) maintained effective internal control over financial reporting as of March 31, 2007, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Companys
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A
companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the
companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of
the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, managements assessment that the Company maintained
effective internal control over financial reporting as of March 31, 2007, is fairly stated, in all material respects, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2007, based on the criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.



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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year ended March 31, 2007, of the Company and our report dated June 6, 2007 expressed an unqualified opinion on those financial statements and included an explanatory
paragraph regarding the change in method of accounting for share-based payments to conform to Financial Accounting Standards Board Statement No. 123 (revised 2004), Share Based Payment.



|                         
|-------------------------
|/s/ DELOITTE & TOUCHE LLP
|                         
|McLean, Virginia         
|June 6, 2007             



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ITEM 9B. OTHER INFORMATION

On May 9, 2007, our Board of Directors adopted Amendment No. 1 to
our Second Amended and Restated By-laws to provide for the issuance of uncertificated shares of our capital stock.



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PART III

Certain information required by Part III is omitted from this Annual Report as we intend to file
our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, not later than 120 days after the end of the fiscal year covered by this Annual Report, and
certain information included in the Proxy Statement is incorporated herein by reference.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information in the section entitled
Executive Officers and Directors of the Registrant in Part I hereof is incorporated herein by reference. The information in the sections entitled Election of Directors, Section 16(a) Beneficial Ownership Reporting
Compliance and Code of Business Conduct and Ethics in the Proxy Statement is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information in the sections entitled Summary Compensation
Table, Compensation of Directors, Compensation Committee Interlocks and Insider Participation and Compensation Discussion and Analysis in the Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information in the sections entitled Equity Compensation Plan Information and Security Ownership of Certain Beneficial Owners and Management in the Proxy Statement are incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information in
the section entitled Certain Transactions in the Proxy Statement is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information in the section entitled
Independent Registered Public Accounting Firm Fees and Other Matters in the Proxy Statement is incorporated herein by reference.



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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are
filed as part of this Form 10-K:

1. Financial Statements. The following financial statements of OPNET Technologies, Inc.
are filed as part of this Form 10-K on the pages indicated:

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                              |  |     
|------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                              |  | Page
|Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements              |  | 47  
|Consolidated Balance Sheets as of March 31, 2007 and 2006                                                     |  | 48  
|Consolidated Statements of Operations for the years ended March 31, 2007, 2006, and 2005                      |  | 49  
|Consolidated Statements of Changes in Stockholders Equity for the years ended March 31, 2007, 2006, and 2005 |  | 50  
|Consolidated Statements of Cash Flows for the years ended March 31, 2007, 2006, and 2006                      |  | 51  
|Notes to Consolidated Financial Statements                                                                    |  | 52  

(b) Exhibits. The exhibits listed in the Exhibits Index immediately preceding such
exhibits are filed as part of this Annual Report on Form 10-K.

(c) Financial Statement Schedules. Financial statement
schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes in this Annual Report on Form 10-K.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 8th day of June 2007.



OPNET TECHNOLOGIES, INC.By:

/S/    MARC A.
COHENMarc A. Cohen Chairman of the Board and Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the 8th day of June 2007.



|                                               |  |                                                                                             
|---------------------------------------------- |  | --------------------------------------------------------------------------------------------
|Signature                                      |  | Title                                                                                       
|                                               | 
|/S/    MARC A.
COHEN Marc A. Cohen             |  | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)
|                                               | 
|Alain J.
Cohen                                 |  | President, Chief Technology Officer and Director                                            
|                                               | 
|/S/    MEL F.
WESLEY Mel F. Wesley             |  | Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)     
|                                               | 
|/S/    STEVEN G. FINN,
PHD Steven G. Finn, PhD |  | Director                                                                                    
|                                               | 
|Ronald W.
Kaiser                               |  | Director                                                                                    
|                                               | 
|/S/    WILLIAM F.
STASIOR William F. Stasior   |  | Director                                                                                    



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE CONSOLIDATED FINANCIAL STATEMENTS

To the Audit Committee and
Stockholders of

OPNET Technologies, Inc.

Bethesda, Maryland

We have audited the accompanying consolidated balance sheets of OPNET Technologies, Inc. and its subsidiaries (the Company) as
of March 31, 2007 and 2006, and the related consolidated statements of operations, changes in stockholders equity, and cash flows for each of the three years in the period ended March 31, 2007. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2007 and 2006, and the results of its operations and its cash
flows for each of the three years in the period ended March 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Companys internal control over financial reporting as of
March 31, 2007, based on the criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 6, 2007 expressed an
unqualified opinion on managements assessment of the effectiveness of the Companys internal control over financial reporting and an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.

As discussed in Note 1 to the consolidated financial statements, in fiscal year 2007, the Company changed its method of accounting for
share-based payments to conform to Financial Accounting Standards Board Statement No. 123 (revised 2004), Share-Based Payment.



|                         
|-------------------------
|/s/ DELOITTE & TOUCHE LLP
|                         
|McLean, Virginia         
|June 6, 2007             



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OPNET TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)



|                                                                                                                                                                                                                  |  |           |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                                  |  | March 31, |        
|                                                                                                                                                                                                                  |  | 2007      |         |   | 2006 |  
|ASSETS                                                                                                                                                                                                            |  |           |         |   |      |   |         |  
|Current assets:                                                                                                                                                                                                   |  |           |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                                                                                         |  | $         | 34,766  |   |      | $ | 66,710  |  
|Marketable securities                                                                                                                                                                                             |  |           | 56,615  |   |      |   | 19,151  |  
|Accounts receivable, net of $133 and $140 in allowance for doubtful accounts at March 31, 2007 and 2006, respectively                                                                                             |  |           | 21,604  |   |      |   | 12,765  |  
|Unbilled accounts receivable                                                                                                                                                                                      |  |           | 3,696   |   |      |   | 2,616   |  
|Deferred income taxes, prepaid expenses and other current assets                                                                                                                                                  |  |           | 4,366   |   |      |   | 2,339   |  
|                                                                                                                                                                                                                  |  |           |         |   |      |   |         |  
|Total current assets                                                                                                                                                                                              |  |           | 121,047 |   |      |   | 103,581 |  
|                                                                                                                                                                                                                  |  |          
|Property and equipment, net                                                                                                                                                                                       |  |           | 8,745   |   |      |   | 6,088   |  
|Intangible assets, net                                                                                                                                                                                            |  |           | 899     |   |      |   | 1,240   |  
|Goodwill                                                                                                                                                                                                          |  |           | 14,639  |   |      |   | 14,639  |  
|Deferred income taxes and other assets                                                                                                                                                                            |  |           | 2,328   |   |      |   | 1,799   |  
|                                                                                                                                                                                                                  |  |           |         |   |      |   |         |  
|Total assets                                                                                                                                                                                                      |  | $         | 147,658 |   |      | $ | 127,347 |  
|                                                                                                                                                                                                                  |  |           |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                              |  |           |         |   |      |   |         |  
|Current liabilities:                                                                                                                                                                                              |  |           |         |   |      |   |         |  
|Accounts payable                                                                                                                                                                                                  |  | $         | 276     |   |      | $ | 1,019   |  
|Accrued liabilities                                                                                                                                                                                               |  |           | 8,321   |   |      |   | 8,539   |  
|Deferred and accrued income taxes                                                                                                                                                                                 |  |           | 458     |   |      |   | 527     |  
|Current portion of notes payable                                                                                                                                                                                  |  |           |        |   |      |   | 47      |  
|Deferred rent                                                                                                                                                                                                     |  |           | 210     |   |      |   | 89      |  
|Deferred revenue                                                                                                                                                                                                  |  |           | 22,414  |   |      |   | 15,800  |  
|                                                                                                                                                                                                                  |  |           |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                                                         |  |           | 31,679  |   |      |   | 26,021  |  
|                                                                                                                                                                                                                  |  |          
|Accrued liabilities                                                                                                                                                                                               |  |           | 259     |   |      |   |        |  
|Note payable                                                                                                                                                                                                      |  |           |        |   |      |   | 103     |  
|Deferred rent                                                                                                                                                                                                     |  |           | 1,956   |   |      |   | 1,033   |  
|Deferred revenue                                                                                                                                                                                                  |  |           | 893     |   |      |   | 779     |  
|Deferred income tax                                                                                                                                                                                               |  |           |        |   |      |   | 13      |  
|                                                                                                                                                                                                                  |  |           |         |   |      |   |         |  
|Total liabilities                                                                                                                                                                                                 |  |           | 34,787  |   |      |   | 27,949  |  
|                                                                                                                                                                                                                  |  |           |         |   |      |   |         |  
|Commitments and contingencies (Note 8)                                                                                                                                                                            |  |           |         |   |      |   |         |  
|                                                                                                                                                                                                                  |  |          
|Stockholders equity:                                                                                                                                                                                             |  |           |         |   |      |   |         |  
|Common stockpar value $0.001; 100,000 shares authorized; 27,289 and 26,738 shares issued at March 31, 2007 and 2006, respectively;
20,641 and 20,194 shares outstanding at March 31, 2007 and 2006, respectively |  |           | 27      |   |      |   | 27      |  
|Additional paid-in capital                                                                                                                                                                                        |  |           | 86,881  |   |      |   | 80,984  |  
|Deferred compensation                                                                                                                                                                                             |  |           |        |   |      |   | (393    | )
|Retained earnings                                                                                                                                                                                                 |  |           | 34,815  |   |      |   | 26,850  |  
|Accumulated other comprehensive income (loss)                                                                                                                                                                     |  |           | 394     |   |      |   | (345    | )
|Treasury stock6,647 and 6,543 shares at March 31, 2007 and 2006, respectively, at cost                                                                                                                           |  |           | (9,246  | ) |      |   | (7,725  | )
|                                                                                                                                                                                                                  |  |           |         |   |      |   |         |  
|Total stockholders equity                                                                                                                                                                                        |  |           | 112,871 |   |      |   | 99,398  |  
|                                                                                                                                                                                                                  |  |           |         |   |      |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                        |  | $         | 147,658 |   |      | $ | 127,347 |  
|                                                                                                                                                                                                                  |  |           |         |   |      |   |         |  

See accompanying notes to consolidated financial statements.



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OPNET TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



|                                                         |  |                      |        |      |   |        |      |  |   |       
|-------------------------------------------------------- |  | -------------------- | ------ | ---- | - | ------ | ---- |  | - | ------
|                                                         |  | Year Ended March 31,
|                                                         |  | 2007                 |        | 2006 |   |        | 2005
|Revenues:                                                |  |                      |        |      |   |        |      |  |   |       
|New software licenses                                    |  | $                    | 43,186 |      | $ | 31,976 |      |  | $ | 29,507
|Software license updates, technical support and services |  |                      | 28,062 |      |   | 24,226 |      |  |   | 19,805
|Professional services                                    |  |                      | 23,882 |      |   | 19,913 |      |  |   | 14,931
|                                                         |  |                      |        |      |   |        |      |  |   |       
|Total revenues                                           |  |                      | 95,130 |      |   | 76,115 |      |  |   | 64,243
|                                                         |  |                      |        |      |   |        |      |  |   |       
|Cost of revenues:                                        |  |                      |        |      |   |        |      |  |   |       
|New software licenses                                    |  |                      | 638    |      |   | 657    |      |  |   | 778   
|Software license updates, technical support and services |  |                      | 3,264  |      |   | 2,637  |      |  |   | 2,348 
|Professional services                                    |  |                      | 15,904 |      |   | 13,705 |      |  |   | 10,154
|Amortization of acquired technology                      |  |                      | 723    |      |   | 832    |      |  |   | 651   
|                                                         |  |                      |        |      |   |        |      |  |   |       
|Total cost of revenues                                   |  |                      | 20,529 |      |   | 17,831 |      |  |   | 13,931
|                                                         |  |                      |        |      |   |        |      |  |   |       
|Gross profit                                             |  |                      | 74,601 |      |   | 58,284 |      |  |   | 50,312
|                                                         |  |                      |        |      |   |        |      |  |   |       
|Operating expenses:                                      |  |                      |        |      |   |        |      |  |   |       
|Research and development                                 |  |                      | 21,688 |      |   | 18,643 |      |  |   | 15,455
|Sales and marketing                                      |  |                      | 34,133 |      |   | 26,300 |      |  |   | 22,803
|General and administrative                               |  |                      | 10,994 |      |   | 13,375 |      |  |   | 9,742 
|                                                         |  |                      |        |      |   |        |      |  |   |       
|Total operating expenses                                 |  |                      | 66,815 |      |   | 58,318 |      |  |   | 48,000
|                                                         |  |                      |        |      |   |        |      |  |   |       
|Income (loss) from operations                            |  |                      | 7,786  |      |   | (34    | )    |  |   | 2,312 
|Interest and other income, net                           |  |                      | 3,834  |      |   | 2,680  |      |  |   | 1,384 
|                                                         |  |                      |        |      |   |        |      |  |   |       
|Income before provision for income taxes                 |  |                      | 11,620 |      |   | 2,646  |      |  |   | 3,696 
|Provision for income taxes                               |  |                      | 3,655  |      |   | 509    |      |  |   | 1,644 
|                                                         |  |                      |        |      |   |        |      |  |   |       
|Net income                                               |  | $                    | 7,965  |      | $ | 2,137  |      |  | $ | 2,052 
|                                                         |  |                      |        |      |   |        |      |  |   |       
|Basic net income per common share                        |  | $                    | 0.39   |      | $ | 0.10   |      |  | $ | 0.10  
|                                                         |  |                      |        |      |   |        |      |  |   |       
|Diluted net income per common share                      |  | $                    | 0.38   |      | $ | 0.10   |      |  | $ | 0.10  
|                                                         |  |                      |        |      |   |        |      |  |   |       
|Basic weighted average common shares outstanding         |  |                      | 20,358 |      |   | 20,374 |      |  |   | 20,158
|                                                         |  |                      |        |      |   |        |      |  |   |       
|Diluted weighted average common shares outstanding       |  |                      | 21,206 |      |   | 20,604 |      |  |   | 20,624
|                                                         |  |                      |        |      |   |        |      |  |   |       

See accompanying notes to consolidated financial statements.



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OPNET TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(in thousands)



|                                                             |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   |         |  
|------------------------------------------------------------ |  | ------------ |  | ------------------------ | - |  | -------------- | -- |  | ---------------- | ------ | ----------------------------------- |  | ----- | ------------------------ | - | ------ | - |  | - | ------ |  | - | ---- | - |  | - | ------- | -
|                                                             |  | Common Stock |  | AdditionalPaid inCapital |   |  | Treasury Stock |    |  | RetainedEarnings |        | AccumulatedOtherComprehensiveIncome |  |       | TotalStockholdersEquity |  
|                                                             |  | SharesIssued |  | SharesOutstanding        |   |  | Amount         |    |  | Shares           |        | Amount                              |  |       |                          |  
|Balance, April 1, 2004                                       |  | 26,184       |  | 20,050                   |   |  | $              | 26 |  | $                | 77,787 |                                     |  | 6,134 |                          | $ | (4,100 | ) |  | $ | 22,661 |  | $ | (3   | ) |  | $ | 96,371  |  
|Net income                                                   |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   | 2,052  |  |   |      |   |  |   | 2,052   |  
|Foreign currency translation (net of tax)                    |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   | 9    |   |  |   | 9       |  
|Unrealized (loss) on marketable securities (net of tax)      |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   | (86  | ) |  |   | (86     | )
|                                                             |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   |         |  
|Total comprehensive income                                   |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 1,975   |  
|                                                             |  |              |  |                          |   |  |                |    | 
|Issuance of common stock:                                    |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   |         |  
|Exercise of options                                          |  | 217          |  | 217                      |   |  |                |    |  |                  | 714    |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 714     |  
|Employee stock purchase plan                                 |  | 42           |  | 42                       |   |  |                |    |  |                  | 364    |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 364     |  
|Tax benefit from exercise of stock options                   |  |              |  |                          |   |  |                |    |  |                  | 529    |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 529     |  
|Amortization of deferred compensation                        |  |              |  |                          |   |  |                |    |  |                  | 12     |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 12      |  
|                                                             |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   |         |  
|Balance, March 31, 2005                                      |  | 26,443       |  | 20,309                   |   |  |                | 26 |  |                  | 79,406 |                                     |  | 6,134 |                          |   | (4,100 | ) |  |   | 24,713 |  |   | (80  | ) |  |   | 99,965  |  
|Net income                                                   |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   | 2,137  |  |   |      |   |  |   | 2,137   |  
|Foreign currency translation (net of tax)                    |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   | (315 | ) |  |   | (315    | )
|Unrealized gain on marketable securities (net of tax)        |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   | 50   |   |  |   | 50      |  
|                                                             |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   |         |  
|Total comprehensive income                                   |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 1,872   |  
|                                                             |  |              |  |                          |   |  |                |    | 
|Issuance of common stock:                                    |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   |         |  
|Exercise of options                                          |  | 179          |  | 179                      |   |  |                |    |  |                  | 612    |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 612     |  
|Employee stock purchase plan                                 |  | 73           |  | 73                       |   |  |                | 1  |  |                  | 497    |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 498     |  
|Tax benefit from exercise of stock options                   |  |              |  |                          |   |  |                |    |  |                  | 49     |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 49      |  
|Restricted stock issuance                                    |  | 43           |  | 43                       |   |  |                |    |  |                  | 408    |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 408     |  
|Purchase of treasury shares                                  |  |              |  | (409                     | ) |  |                |    |  |                  |        |                                     |  | 409   |                          |   | (3,625 | ) |  |   |        |  |   |      |   |  |   | (3,625  | )
|Deferred compensation                                        |  |              |  |                          |   |  |                |    |  |                  | (408   | )                                   |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | (408    | )
|Amortization of deferred compensation                        |  |              |  |                          |   |  |                |    |  |                  | 27     |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 27      |  
|                                                             |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   |         |  
|Balance, March 31, 2006                                      |  | 26,738       |  | 20,194                   |   |  |                | 27 |  |                  | 80,591 |                                     |  | 6,543 |                          |   | (7,725 | ) |  |   | 26,850 |  |   | (345 | ) |  |   | 99,398  |  
|Net income                                                   |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   | 7,965  |  |   |      |   |  |   | 7,965   |  
|Foreign currency translation (net of tax)                    |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   | 758  |   |  |   | 758     |  
|Unrealized (loss) gain on marketable securities (net of tax) |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   | (19  | ) |  |   | (19     | )
|                                                             |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   |         |  
|Total comprehensive income                                   |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 8,704   |  
|                                                             |  |              |  |                          |   |  |                |    | 
|Issuance of common stock:                                    |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   |         |  
|Exercise of options                                          |  | 381          |  | 381                      |   |  |                |    |  |                  | 2,987  |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 2,987   |  
|Employee stock purchase plan                                 |  | 85           |  | 85                       |   |  |                |    |  |                  | 753    |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 753     |  
|Tax benefit from exercise of stock options                   |  |              |  |                          |   |  |                |    |  |                  | 1,088  |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 1,088   |  
|Restricted stock issuance                                    |  | 85           |  | 85                       |   |  |                |    |  |                  |       |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   |        |  
|Purchase of treasury shares                                  |  |              |  | (104                     | ) |  |                |    |  |                  |        |                                     |  | 104   |                          |   | (1,521 | ) |  |   |        |  |   |      |   |  |   | (1,521  | )
|Stock based compensation expense                             |  |              |  |                          |   |  |                |    |  |                  | 1,462  |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   | 1,462   |  
|                                                             |  |              |  |                          |   |  |                |    | 
|Balance, March 31, 2007                                      |  | 27,289       |  | 20,641                   |   |  | $              | 27 |  | $                | 86,881 |                                     |  | 6,647 |                          | $ | (9,246 | ) |  | $ | 34,815 |  | $ | 394  |   |  | $ | 112,871 |  
|                                                             |  |              |  |                          |   |  |                |    |  |                  |        |                                     |  |       |                          |   |        |   |  |   |        |  |   |      |   |  |   |         |  

See accompanying notes to consolidated financial statements.



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OPNET TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                  |  |                      |          |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------- |  | -------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                  |  | Year Ended March 31, |         
|                                                                                  |  | 2007                 |          |   | 2006 |   |         | 2005 | 
|Cash flows from operating activities:                                             |  |                      |          |   |      |   |         |      |  |   |         |  
|Net income                                                                        |  | $                    | 7,965    |   |      | $ | 2,137   |      |  | $ | 2,052   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                      |          |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                     |  |                      | 2,348    |   |      |   | 2,422   |      |  |   | 2,323   |  
|Loss on disposition of fixed assets                                               |  |                      | 12       |   |      |   | 5       |      |  |   | 50      |  
|Provision for losses (gains) on accounts receivable                               |  |                      | 25       |   |      |   | 27      |      |  |   | (111    | )
|Deferred income taxes                                                             |  |                      | 50       |   |      |   | (275    | )    |  |   | 752     |  
|Non-cash stock-based compensation expense                                         |  |                      | 1,462    |   |      |   | 27      |      |  |   | 12      |  
|Receipt of government grant                                                       |  |                      |         |   |      |   |        |      |  |   | (110    | )
|Changes in assets and liabilities:                                                |  |                      |          |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                               |  |                      | (9,944   | ) |      |   | 413     |      |  |   | (3,107  | )
|Prepaid expenses and other current assets                                         |  |                      | (2,151   | ) |      |   | 1,484   |      |  |   | 407     |  
|Other assets                                                                      |  |                      | 38       |   |      |   | (34     | )    |  |   | 50      |  
|Accounts payable                                                                  |  |                      | (743     | ) |      |   | 191     |      |  |   | (106    | )
|Accrued liabilities                                                               |  |                      | (762     | ) |      |   | 1,665   |      |  |   | 1,772   |  
|Accrued income taxes                                                              |  |                      | 512      |   |      |   | (118    | )    |  |   | (2,044  | )
|Deferred revenue                                                                  |  |                      | 6,728    |   |      |   | 697     |      |  |   | 2,107   |  
|Deferred rent                                                                     |  |                      | 1,044    |   |      |   | 15      |      |  |   | 113     |  
|Tax benefit from exercise of stock options                                        |  |                      | (383     | ) |      |   | 49      |      |  |   | 529     |  
|                                                                                  |  |                      |          |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                         |  |                      | 6,201    |   |      |   | 8,705   |      |  |   | 4,689   |  
|                                                                                  |  |                      |          |   |      |   |         |      |  |   |         |  
|Cash flows from investing activities:                                             |  |                      |          |   |      |   |         |      |  |   |         |  
|Acquisition of Altaworks                                                          |  |                      |         |   |      |   |        |      |  |   | (3,431  | )
|Acquired technology                                                               |  |                      | (366     | ) |      |   | (793    | )    |  |   |        |  
|Purchase of property and equipment                                                |  |                      | (3,529   | ) |      |   | (1,452  | )    |  |   | (1,533  | )
|Purchase of investments                                                           |  |                      | (109,637 | ) |      |   | (31,940 | )    |  |   | (58,523 | )
|Proceeds from sale/maturity of investments                                        |  |                      | 72,155   |   |      |   | 56,852  |      |  |   | 54,424  |  
|                                                                                  |  |                      |          |   |      |   |         |      |  |   |         |  
|Net cash (used in) provided by investing activities                               |  |                      | (41,377  | ) |      |   | 22,667  |      |  |   | (9,063  | )
|                                                                                  |  |                      |          |   |      |   |         |      |  |   |         |  
|Cash flows from financing activities:                                             |  |                      |          |   |      |   |         |      |  |   |         |  
|Acquisition of treasury stock                                                     |  |                      | (1,521   | ) |      |   | (3,625  | )    |  |   |        |  
|Payment of note payable                                                           |  |                      | (150     | ) |      |   |        |      |  |   | (40     | )
|Tax benefit from exercise of stock options                                        |  |                      | 383      |   |      |   |        |      |  |   |        |  
|Proceeds from exercise of common stock options                                    |  |                      | 2,987    |   |      |   | 613     |      |  |   | 715     |  
|Issuance of common stock under employee stock purchase plan                       |  |                      | 753      |   |      |   | 498     |      |  |   | 364     |  
|                                                                                  |  |                      |          |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) financing activities                               |  |                      | 2,452    |   |      |   | (2,514  | )    |  |   | 1,039   |  
|                                                                                  |  |                      |          |   |      |   |         |      |  |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                      |  |                      | 780      |   |      |   | (319    | )    |  |   | 14      |  
|                                                                                  |  |                      |          |   |      |   |         |      |  |   |         |  
|Net (decrease) increase in cash and cash equivalents                              |  |                      | (31,944  | ) |      |   | 28,539  |      |  |   | (3,321  | )
|Cash and cash equivalents, beginning of year                                      |  |                      | 66,710   |   |      |   | 38,171  |      |  |   | 41,492  |  
|                                                                                  |  |                      |          |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents, end of year                                            |  | $                    | 34,766   |   |      | $ | 66,710  |      |  | $ | 38,171  |  
|                                                                                  |  |                      |          |   |      |   |         |      |  |   |         |  

See accompanying notes to consolidated financial statements



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OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollar and share amounts in thousands, except per share data)

1. Organization and Significant Accounting Policies

Organization. OPNET Technologies, Inc., (hereafter, the Company or OPNET), is a provider of management software for networks and applications. The Companys solutions address application performance
management, capacity planning and design, network 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 product suites in North America primarily through a direct sales force and, to a lesser extent, several resellers and original equipment manufacturers. Internationally, the Company conducts research and development through a
wholly-controlled subsidiary in Ghent, Belgium and markets products through wholly-owned subsidiaries in Paris, France; Frankfurt, Germany; Slough, United Kingdom; and Sydney, Australia; third-party distributors; and value-added resellers. The
Company is headquartered in Bethesda, Maryland and has offices in Cary, North Carolina; Dallas, Texas; Santa Clara, California; and Nashua, New Hampshire.

Principles of Consolidation.The consolidated financial statements include the results of OPNET Technologies, Inc. and its wholly-owned subsidiaries: OPNET Technologies SAS; OPNET Technologies Limited;
OPNET Technologies, BVBA; OPNET Technologies, Pty. Ltd.; OPNET Analysis, Inc.; and OPNET Technologies, GmbH. All intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications.Certain fiscal 2006 and fiscal 2005 amounts have been reclassified to conform to the fiscal 2007 presentation.

Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles, or
GAAP, requires management to make estimates, judgments and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from these estimates. Significant items subject to such estimates and assumptions include revenue recognition, carrying
amount and useful lives of long-lived assets, valuation allowances for accounts receivable and deferred tax assets, research and development tax credit, software development costs and loss contingencies, such as litigation, claims and assessments.

Cash and Cash Equivalents. Cash and cash equivalents consist of deposits in banks and all highly liquid investments with
maturities of three months or less when purchased.

Marketable Securities.The Company has determined that all of its
investments are marketable securities to be classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in stockholders equity in the accompanying consolidated
balance sheets under the caption Accumulated other comprehensive loss. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in the
Interest income line item on the accompanying consolidated statements of operations. Realized gains and losses on available-for-sale securities are included in the Interest income line item on the consolidated statements
of operations. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in the Interest income line item on the consolidated
statements of operations.



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OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



Supplemental Cash Flow Information.



|                                                |  |                      |       |      |   |      |  |   |       |  
|----------------------------------------------- |  | -------------------- | ----- | ---- | - | ---- |  | - | ----- | -
|                                                |  | Year ended March 31, |      
|                                                |  | 2007                 |       | 2006 |   | 2005 | 
|Cash paid during the fiscal year for:           |  |                      |       |      |   |      |  |   |       |  
|Income taxes                                    |  | $                    | 3,415 |      | $ | 53   |  | $ | 2,504 |  
|                                                |  |                      |      
|Non-cash financing and investing activities:    |  |                      |       |      |   |      |  |   |       |  
|Unrealized gain/(loss) on marketable securities |  |                      |      |      |   | 19   |  |   | (67   | )
|Restricted stock issued                         |  |                      | 1,152 |      |   | 408  |  |   |      |  

Advertising Expense.Advertising expense for fiscal 2007 and fiscal 2006 was $686
and $367, respectively.

Concentration of Credit Risk. Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of cash, marketable securities and accounts receivable. The Company generally does not require collateral on accounts receivable, as the majority of its customers are large, well-established
companies, or government entities.

The Company maintains its cash balances at several financial institutions. The Federal Deposit
Insurance Corporation insures the bank accounts up to $100. Although balances exceed that amount, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk to cash.

Fair Value of Financial Instruments.The fair value of the Companys cash and cash equivalents, marketable securities, accounts
receivable, accounts payable, and accrued expenses approximates their respective carrying amounts.

Software Development
Costs. Development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. The Company considers
technological feasibility to be established when all planning, designing, coding, and testing has been completed according to design specifications. After technological feasibility has been established, any additional costs are capitalized in
accordance with Statement of Financial Accounting Standards, or SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. Through March 31, 2007, software development has been
substantially completed concurrently with the establishment of technological feasibility and, accordingly, no costs have been capitalized to date.

Property and Equipment. Property and equipment are stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, of five to seven years.
Leasehold improvements are depreciated over the shorter of the estimated useful life of the assets, the non-cancelable term of the related lease, or the non-cancelable lease term plus all periods for which executive management believes that the
failure to renew the lease imposes a penalty in an amount such that the renewal appears, at the inception of the lease, to be reasonably assured. Repairs and maintenance are expensed as incurred.

Intangible Assets.Intangible assets consist of purchased technology and acquired technology related to the Companys
acquisitions. Intangible assets are originally recorded at cost and amortized on a straight-line basis over their expected useful lives of three to five years in accordance with SFAS No. 142, Goodwill and Other Intangible Assets, or
SFAS No. 142. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, intangible assets are reviewed whenever any events or changes in circumstances



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OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



indicate that the carrying amount of the asset may not be recoverable. There has been no impairment as of March 31, 2007 or 2006.

Goodwill.In accordance with SFAS No. 142, goodwill is not amortized and is tested for impairment annually during the
Companys fourth quarter and whenever events and circumstances occur indicating that goodwill might be impaired. The Company performed its annual impairment test of goodwill as of March 31, 2007 and 2006 and concluded that there was no
goodwill impairment.

Valuation of Long-Lived Assets.In accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, the Company reviews its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be
fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There has been no
impairment as of March 31, 2007 or 2006.

Revenue Recognition. The Company derives revenue from three primary sources:
(1) new software licenses, (2) software license updates, technical support and services, which include software license update, certain training provided and offered on a when-an-if available basis to customers, and technical support, and
(3) professional services, which include consulting and custom training services for customers without a current maintenance agreement. The Company recognizes revenue based on the provisions of the American Institute of Certified Public
Accountants Statement of Position, or SOP No. 97-2, Software Revenue Recognition, as amended by SOP No. 98-9, Modification of SOP No. 97-2, Software Revenue Recognition, With Respect to Certain Transactions,
SOP No. 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts and the Securities and Exchange Commission Staff Accounting Bulletin No. 104, Revenue Recognition in Financial
Statements.

New software license revenue represents all fees earned from granting customers licenses to use the Companys
software, and excludes revenue derived from software license updates, which are included in software license updates, technical support and services revenue. The Companys new software license revenue consists of perpetual and term license
sales of software products. New software license revenue is recognized when these criteria are met: persuasive evidence of an arrangement exists, delivery of the software has occurred, the software license fee is fixed or determinable, and
collectibility is probable. The Company defines each of these four criteria as follows:



| |  |  | Persuasive evidence of an arrangement exists. For license arrangements with end-users, it is the Companys customary practice to have a
written software license agreement), which is signed by both the end user and the Company, and a purchase order or equivalent. A written contract can be executed based on the customer-specific format or on the standard shrink wrap
software master license agreement. For those end users who have previously negotiated a software license agreement with the Company, the initial software license agreement is used as evidence of a written contract. Sales to distributors, resellers,
and value-added resellers, which the Company collectively referred to as resellers, are primarily made outside of North America and are evidenced by a master reseller agreement governing the relationship, which is signed by both the reseller and the
Company, together with a purchase order on a transaction-by-transaction basis. To further evidence an arrangement, the Companys master reseller agreement requires that the reseller provide to the Company copies of the end users purchase
order and executed copies of the end users software master license agreements.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Delivery has occurred. Physical delivery of the Companys software products to end users or resellers, which it collectively referred to as
customers, is generally considered to have occurred upon the transfer
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



| | of media containing the Companys software products to a common carrier (usually FOB shipping point based on standard agreement terms). Software
products may also be delivered electronically to end users. Electronic delivery is deemed to occur after end users have been provided with access codes that allow them to take immediate possession of the software. If a software arrangement includes
undelivered software products or services that are essential to the functionality of delivered software products, delivery is not considered to have occurred until these software products or services are delivered.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The fee is fixed or determinable. It is the Companys policy to not provide customers the right to any adjustments or refund of any portion
of their license fees paid, acceptance provisions, cancellation privileges, or rights of return. The Companys normal payment terms for its software products and services currently range from net 30 days to net 90 days and primarily vary based
on the country in which an agreement is executed. Payments that extend beyond the Companys normal payment terms from the contract date but that are due within six months are generally deemed to be fixed or determinable based on its successful
collection history on such arrangements, and thereby satisfy the required criteria for revenue recognition.Arrangements with payment terms extending beyond six months are considered not to be fixed or determinable, and revenue from such
arrangements is recognized as payments become due and payable.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Collectibility is probable. Collectibility is assessed on a customer-by-customer basis. The Company typically sells to customers for whom there is a
history of successful collection. New customers are subject to a credit review process that evaluates the customers ability to pay.If the Company determines from the outset of an arrangement that collectibility is not probable, revenue
is recognized as cash is collected.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In instances when any of the four criteria are not met, the Company defers
recognition of software license revenue until the criteria are met. When the sale of the software product requires the Company to make significant enhancements, customization or modifications to the software that are essential to its functionality,
software license revenue and consulting fees are recognized using contract accounting under SOP 81-1. The Company estimates the percentage-of-completion, under SOP 81-1, based on its estimate of total hours to complete the project as a
percentage of total hours incurred and the estimated hours to complete.

The process of estimation inherent in the application of the
percentage-of-completion method of accounting for revenue is subject to judgments and uncertainties and may affect the amounts of software license revenue and professional services revenue under certain contracts and related expenses reported in the
Companys consolidated financial statements. A number of internal and external factors can affect the Companys estimates to complete client engagements, including skill level and experience of project managers, staff assigned to
engagements, and continuity and attrition level of professional services staff. Changes in the estimated stage of completion of a particular project could create variability in the Companys revenue and results of operations if it is required
to increase or decrease previously recognized revenue related to a particular project or if it expects to incur a loss on the project.

Software license updates, technical support and services revenue represents fees associated with the sale of license updates, training, and technical support, all provided on a when-and-if-available basis under the Companys
maintenance agreement. Payments for software license updates, technical support and services (on initial order or on renewal) are generally made in advance and are nonrefundable. License updates consist of the right to unspecified software updates
on a when-and-if-available basis and are typically entered into in connection with the initial software license purchase. License updates, technical support and services may be renewed upon expiration of the term. Customers can purchase license
updates separately from technical support



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##### Table of Contents

OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



and services. Revenue from license updates, technical support and services is deferred and recognized as revenue on a straight-line basis over the term of
the maintenance agreement.

Revenue under multiple-element arrangements, which typically include new software licenses, consulting
services, training and maintenance agreements sold together, are allocated to each element in the arrangement primarily using the residual method based upon the fair value of the undelivered elements, which is specific to the Company
(vendor-specific objective evidence of fair value or VSOE). This means that the Company defers revenue from the arrangement fee equivalent to the fair value of the undelivered elements. Discounts, if any, are applied to the delivered elements,
usually software licenses, under the residual method. For periodic unspecified product updates and technical support agreements, VSOE is based upon either the renewal rate specified in each contract or the price charged when sold separately. For
consulting services and training for customers without a current maintenance agreement, VSOE is based upon the rates charged for these services when sold separately. If the only undelivered elements in an arrangement are periodic unspecified updates
or technical support agreements for which the Company is unable to establish VSOE, all revenue is recognized ratably over the contract period.

Professional services revenue consists of fees from consulting services and training for customers without a current maintenance agreement and is recognized as the services are performed. When the Company enters into consulting service
arrangements that include significant modifications to the software that are essential to the customers use and the arrangement is bundled with software, revenue under the entire arrangement is recognized under the percentage-of-completion
method. In these circumstances, revenue to be recognized after applying the residual method is allocated to new software license revenue based upon the relative list price of each product, and to professional services revenue based upon the VSOE of
fair value of the professional services, respectively.

The Company sells new software licenses, license updates, technical support and
services agreements to distributors at predetermined prices. Sales to distributors are not contingent upon resale of the software to the end user. In most cases, the Company provides license updates, technical support and services agreements
directly to distributors and the distributors provide support to the end customer. Revenue from sales to distributors is recorded at the amounts charged to the distributor and in the same manner as new software license, license updates, technical
support and services sales sold through the Companys direct sales force. Amounts received in advance of revenue recognition are classified as deferred revenue.

Allowance for Doubtful Accounts. The Company maintains an allowance for doubtful accounts receivable for estimated losses resulting from the inability of its customers to make required payments and for
the limited circumstances when the customer disputes the amounts due the Company. The Companys methodology for determining this allowance requires significant estimates. In estimating the allowance, the Company considers the age of the
receivable, the creditworthiness of the customer, the economic conditions of the customers industry and general economic conditions.

Income Taxes.The income tax provision includes income taxes currently payable plus the net change during the year in deferred tax assets or liabilities. Deferred tax assets and liabilities reflect the differences
between the carrying value under GAAP and the tax basis of assets and liabilities using enacted statutory tax rates in effect for the period in which the differences are expected to reverse. Judgments and estimates are required in the calculation of
the deferred tax assets, valuation allowance, accrual of contingencies, research and development tax credits, and foreign tax credits.

Foreign Currency Transactions.Revenue and expenses denominated in foreign currencies are translated at the average exchange rates during the period. Gains or losses on foreign exchange transactions are reported in the
consolidated statements of operations.



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##### Table of Contents

OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



Foreign Currency Translation.The results of operations for the Companys
international subsidiaries are translated from the designated functional currencies into United States dollars using average exchange rates during each period. Assets and liabilities are translated using exchange rates at the end of each period.
Translation gains and losses are reported as a component of accumulated other comprehensive loss in stockholders equity.

Comprehensive Income. Certain revenues, expenses, gains and losses are recognized in comprehensive income but excluded from net income. Comprehensive income includes net income, foreign currency translation adjustments, and
unrealized gains and losses on marketable securities.

Earnings per Share. Basic earnings per share is computed by dividing
net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common
shares were exercised or converted into common shares for all periods presented.

Stock-Based Compensation. Beginning in
fiscal 2007, the Company accounts for stock-based compensation given to employees in accordance with Financial Accounting Standards No. 123R, Share-Based Payment, or SFAS No. 123R, which is a revision of SFAS No. 123 and
supersedes Accounting Principles Board, or APB Opinion No. 25. SFAS No. 123R requires all share-based payments and nonvested shares (restricted stock) to employees, including grants of employee stock options, to be valued at fair value on
the date of grant, and to be expensed over the applicable vesting period. Pro forma disclosure of the income statement effects of share-based payments is no longer an alternative. SFAS No. 123R is effective for all stock-based awards granted on
or after January 1, 2006. In addition, the Company also recognized compensation expense related to any awards that were not fully vested as of the effective date.

Prior to fiscal 2007, the Company accounted for stock-based compensation given to employees using the intrinsic value method in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and accordingly, recognized compensation expense for fixed stock option grants when the exercise price was less than the quoted market price of the shares on the date of the
grant. SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure, permitted the use of either a fair-value based method
or the intrinsic value method provided in APB No. 25 to account for employee stock-based compensation arrangements. Companies that elected to use the intrinsic value method provided in APB No. 25 were required to disclose the pro forma net
income (loss) and earnings (loss) per share that would have resulted from the use of the fair value method. We have provided below the pro forma disclosures of the effect on net income and earnings per share as if SFAS No. 123, as amended, had
been applied in measuring compensation expense for fiscal 2006 and 2005.



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##### Table of Contents

OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



The following table illustrates the effect on net income and related net income per share for fiscal
2006 and 2005 had compensation cost for employee stock-based compensation plans been determined based upon the fair value method prescribed under SFAS No. 123, as amended:



|                                                                                                                                            |  |      |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                                                                                                            |  | 2006 |        |   | 2005 |  
|Net income                                                                                                                                  |  | $    | 2,137  |   |      | $ | 2,052  |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |      | 15     |   |      |   | 12     |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |      | (1,728 | ) |      |   | (3,377 | )
|                                                                                                                                            |  |      |        |   |      |   |        |  
|Pro forma net income (loss)                                                                                                                 |  | $    | 424    |   |      | $ | (1,313 | )
|                                                                                                                                            |  |      |        |   |      |   |        |  
|Basic net income (loss) per common share:                                                                                                   |  |      |        |   |      |   |        |  
|As reported                                                                                                                                 |  | $    | 0.10   |   |      | $ | 0.10   |  
|Pro forma                                                                                                                                   |  | $    | 0.02   |   |      | $ | (.07   | )
|Diluted net income (loss) per common share:                                                                                                 |  |      |        |   |      |   |        |  
|As reported                                                                                                                                 |  | $    | 0.10   |   |      | $ | 0.10   |  
|Pro forma                                                                                                                                   |  | $    | 0.02   |   |      | $ | (.07   | )

Recently Issued Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board, or FASB, issued FASB interpretation, or FIN, No. 48, Accounting for Uncertainty in
Income Taxes, which is effective for fiscal years beginning after December 15, 2006. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with Statement of Financial
Accounting Standards, or SFAS, No. 109, Accounting for Income Taxes. This interpretation illustrates how a company should recognize, measure, present and disclose uncertain tax positions that the Company has taken or expects to take
on a tax return in its financial statements. The Company is currently evaluating the impact of adopting FIN No. 48 on its financial position and results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, or SFAS No. 157.
This standard clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. Additionally, it establishes a fair value hierarchy that prioritizes the information used
to develop those assumptions. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has not yet determined the impact that the implementation of SFAS No. 157 will
have on their results of operations or financial condition.

In September 2006, the Securities and Exchange Commission, or SEC, issued
Staff Accounting Bulletin No. 108, Topic 1N, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, or SAB 108. SAB 108 interprets the staffs views regarding
the process of quantifying financial statement misstatements and is effective for financial statements issued for fiscal years ending after November 15, 2006. The Company will apply the guidance provided by SAB 108 as necessary.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159
permits entities to choose to measure, on an item-by-item basis, specified financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are required to be reported
in earnings at each reporting date. SFAS No. 159 is effective



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OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



for fiscal years beginning after November 15, 2007, the provisions of which are required to be applied prospectively. The Companys results of
operations and financial condition will not be impacted by SFAS No. 159 since the Company does not plan to implement the fair value option.

2.
Stock-Based Compensation

The Companys Amended and Restated 2000 Stock Incentive Plan, or 2000 Plan, provides for the granting of
incentive and non-qualified stock options and restricted stock to purchase up to 5,540 shares of the Companys common stock. The number of shares available for issuance will automatically increase on the first trading day of each calendar year
by an amount equal to the lesser of 3% of the shares of common stock outstanding on the last trading day of the preceding calendar year, or an amount determined by the Board of Directors, not to exceed an annual increase of 1,000 shares. The Board
of Directors voted not to increase the number of shares for issuance on the first trading day of calendar year 2007, 2006, or 2005. Options are granted for terms up to ten years and generally vest over periods ranging from one to six years from the
date of the grant. Restricted stock granted to employees under this plan generally vests over four years from the date of the grant. Restricted stock granted to non-employees under this plan generally vests over six months from the date of the
grant. New option grants and restricted stock grants are granted from new shares of the Companys common stock.

The Companys
1993 Incentive Stock Option Plan, or 1993 Plan, provides for the granting of incentive stock options to purchase up to 3,000 shares of common stock of the Company. Options are granted for terms of up to ten years, and generally vest over periods
ranging from one to six years from the date of the grant. The Board of Directors approved a resolution to make no further grants for options or stock awards under the 1993 Plan upon approval of the 2000 Plan.

In March 2000, the Board of Directors approved the adoption of the 2000 Director Stock Option Plan, which provides for the automatic annual granting of
options to purchase stock to the Companys directors, who are not its employees, for up to a total of 225 shares of common stock of the Company.

During fiscal year 2001, the Board of Directors approved the adoption of the 2000 Employee Stock Purchase Plan, or ESPP, which provides every employee, including members of the Board of Directors who are employees, to
collectively purchase up to a total of 300 shares of common stock of the Company. An employee may authorize a payroll deduction up to a maximum of 10% of compensation 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 and is considered compensatory under SFAS 123R.

On April 1, 2006, the Company adopted SFAS 123R, which revised SFAS 123, Accounting for Stock-Based Compensation using the modified prospective method. Prior to fiscal year 2007 and the adoption of SFAS 123R, the Company
followed the intrinsic value method of accounting for its stock-based employee compensation arrangements as defined by Accounting Principles Board Opinion, or APB, No. 25.

SFAS 123R requires an entity to recognize an expense within its income statement for all share-based payment arrangements, which includes employee stock
option plans, restricted stock grants, and ESPP. The Company has elected to continue 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. The Company adopted SFAS 123R under the modified prospective method. Under the modified prospective method, SFAS 123R applies to new awards and to awards modified, repurchased, or cancelled after April 1, 2006 as well as to the
nonvested portion of awards outstanding as of April 1, 2006. Stock-based compensation for awards granted prior to April 1, 2006 is based upon the grant date fair value of such compensation as determined under the pro forma provisions of
SFAS No 123.



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OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



Prior to the adoption of SFAS 123R, the Company reported tax benefits from the exercise of stock
options as an operating cash flow in the consolidated statement of cash flows. In the period beginning April 1, 2006, excess tax benefits from the exercise of stock options are presented as a cash flow from financing activity. For fiscal 2007,
2006, and 2005, excess tax benefits from the exercise of stock options were $383, $49 and $529, respectively.

A summary of the total
stock-based compensation expense for fiscal 2007, 2006 and 2005 is as follows:



|                               |  |                |       |      |   |      |  |   |   
|------------------------------ |  | -------------- | ----- | ---- | - | ---- |  | - | --
|                               |  | 2007           |       | 2006 |   | 2005
|                               |  | (in thousands)
|Stock options                  |  | $              | 996   |      | $ | 12   |  | $ | 12
|Restricted stock               |  |                | 236   |      |   | 15   |  |   |  
|ESPP                           |  |                | 230   |      |   |     |  |   |  
|                               |  |                |       |      |   |      |  |   |   
|Total stock-based compensation |  | $              | 1,462 |      | $ | 27   |  | $ | 12
|                               |  |                |       |      |   |      |  |   |   

A summary of the total nonvested stock-based deferred compensation at March 31, 2007 and 2006
is as follows:



|                                         |  |                |       |      |   |    
|---------------------------------------- |  | -------------- | ----- | ---- | - | ---
|                                         |  | 2007           |       | 2006
|                                         |  | (in thousands)
|Restricted stock                         |  | $              | 1,278 |      | $ | 393
|Stock options                            |  |                | 644   |      |   |   
|ESPP                                     |  |                | 111   |      |   |   
|                                         |  |                |       |      |   |    
|Total nonvested stock-based compensation |  | $              | 2,033 |      | $ | 393
|                                         |  |                |       |      |   |    

The cost of the nonvested restricted stock, stock options, and ESPP at March 31, 2007 are
expected to be recognized over a weighted average period of 1.6 years, 1.1 years and 4 months, 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 fiscal 2007, 2006, and 2005
is as follows:



|                                           |  |                        |   |  |                               |       |                                               |      |                                         |   |                                     |  |   |     
|------------------------------------------ |  | ---------------------- | - |  | ----------------------------- | ----- | --------------------------------------------- | ---- | --------------------------------------- | - | ----------------------------------- |  | - | ----
|                                           |  | 2007                  
|                                           |  | Options (in thousands) |   |  | WeightedAverageExercise Price |       | WeightedAverageRemainingContract Life (Years) |      | AggregateIntrinsic Value (in thousands) |   | WeightedAverageGrant DateFair Value
|Outstanding at beginning of period         |  | 3,233                  |   |  | $                             | 10.37 |                                               |     |                                         | $ | 11,362                              |  | $ | 7.31
|Granted                                    |  | 30                     |   |  | $                             | 13.25 |                                               |     |                                         | $ | 8                                   |  | $ | 3.90
|Exercised                                  |  | (381                   | ) |  | $                             | 7.84  |                                               |     |                                         | $ | 2,406                               |  | $ | 5.53
|Forfeited or expired                       |  | (41                    | ) |  | $                             | 10.78 |                                               |     |                                         | $ | 113                                 |  | $ | 7.30
|                                           |  |                        |   |  |                               |       |                                               |      |                                         |   |                                     |  |   |     
|Outstanding at end of period               |  | 2,841                  |   |  | $                             | 10.73 |                                               | 4.91 |                                         | $ | 9,092                               |  | $ | 7.51
|                                           |  |                        |   |  |                               |       |                                               |      |                                         |   |                                     |  |   |     
|Exercisable at end of period               |  | 2,650                  |   |  | $                             | 10.80 |                                               | 4.71 |                                         | $ | 8,356                               |  | $ | 7.65
|                                           |  |                        |   |  |                               |       |                                               |      |                                         |   |                                     |  |   |     
|Nonvested at end of period                 |  | 191                    |   |  | $                             | 9.67  |                                               | 7.68 |                                         | $ | 735                                 |  | $ | 5.68
|                                           |  |                        |   |  |                               |       |                                               |      |                                         |   |                                     |  |   |     
|Nonvested options expected to be exercised |  | 183                    |   |  | $                             | 9.40  |                                               | 7.51 |                                         | $ | 689                                 |  | $ | 5.46
|                                           |  |                        |   |  |                               |       |                                               |      |                                         |   |                                     |  |   |     



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OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



|                                   |  |                        |   |  |                               |       |                                              |      |                                         |   |                                     |  |   |     
|---------------------------------- |  | ---------------------- | - |  | ----------------------------- | ----- | -------------------------------------------- | ---- | --------------------------------------- | - | ----------------------------------- |  | - | ----
|                                   |  | 2006                  
|                                   |  | Options (in thousands) |   |  | WeightedAverageExercise Price |       | WeightedAverageRemainingContract Life(Years) |      | AggregateIntrinsic Value (in thousands) |   | WeightedAverageGrant DateFair Value
|Outstanding at beginning of period |  | 3,573                  |   |  | $                             | 10.10 |                                              |     |                                         | $ | 5,396                               |  | $ | 7.13
|Granted                            |  | 30                     |   |  | $                             | 8.61  |                                              |     |                                         | $ | 48                                  |  | $ | 4.31
|Exercised                          |  | (180                   | ) |  | $                             | 3.41  |                                              |     |                                         | $ | 1,083                               |  | $ | 2.35
|Forfeited or expired               |  | (190                   | ) |  | $                             | 11.59 |                                              |     |                                         | $ | 91                                  |  | $ | 8.06
|                                   |  |                        |   |  |                               |       |                                              |      |                                         |   |                                     |  |   |     
|Outstanding at end of period       |  | 3,233                  |   |  | $                             | 10.37 |                                              | 5.57 |                                         | $ | 4,135                               |  | $ | 7.31
|                                   |  |                        |   |  |                               |       |                                              |      |                                         |   |                                     |  |   |     
|Exercisable at end of period       |  | 2,772                  |   |  | $                             | 10.78 |                                              | 5.30 |                                         | $ | 3,038                               |  | $ | 7.66
|                                   |  |                        |   |  |                               |       |                                              |      |                                         |   |                                     |  |   |     
|Nonvested at end of period         |  | 461                    |   |  | $                             | 7.85  |                                              | 7.17 |                                         | $ | 1,097                               |  | $ | 5.19
|                                   |  |                        |   |  |                               |       |                                              |      |                                         |   |                                     |  |   |     
|                                   | 
|                                   |  | 2005                  
|                                   |  | Options (in thousands) |   |  | WeightedAverageExercise Price |       | WeightedAverageRemainingContract Life(Years) |      | AggregateIntrinsic Value(in thousands)  |   | WeightedAverageGrant DateFair Value
|Outstanding at beginning of period |  | 3,599                  |   |  | $                             | 9.76  |                                              |     |                                         | $ | 4,074                               |  | $ | 6.94
|Granted                            |  | 357                    |   |  | $                             | 9.07  |                                              |     |                                         | $ | 9                                   |  | $ | 5.73
|Exercised                          |  | (217                   | ) |  | $                             | 3.29  |                                              |     |                                         | $ | 1,371                               |  | $ | 1.97
|Forfeited or expired               |  | (166                   | ) |  | $                             | 9.46  |                                              |     |                                         | $ | 97                                  |  | $ | 6.72
|                                   |  |                        |   |  |                               |       |                                              |      |                                         |   |                                     |  |   |     
|Outstanding at end of period       |  | 3,573                  |   |  | $                             | 10.10 |                                              | 5.99 |                                         | $ | 2,886                               |  | $ | 7.13
|                                   |  |                        |   |  |                               |       |                                              |      |                                         |   |                                     |  |   |     
|Exercisable at end of period       |  | 2,328                  |   |  | $                             | 10.61 |                                              | 5.42 |                                         | $ | 1,923                               |  | $ | 7.60
|                                   |  |                        |   |  |                               |       |                                              |      |                                         |   |                                     |  |   |     
|Nonvested at end of period         |  | 1,245                  |   |  | $                             | 9.13  |                                              | 7.06 |                                         | $ | 963                                 |  | $ | 6.25
|                                   |  |                        |   |  |                               |       |                                              |      |                                         |   |                                     |  |   |     

During fiscal 2007, 284 stock options vested with a weighted average grant date fair value of
$7.16.

To estimate the grant-date fair value of its stock options, the Company uses the Black-Scholes option-pricing model, consistent
with that used for pro forma disclosure under SFAS No 123. 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 U.S. Treasury Bond due in a number of
years equal to the options expected term. To estimate expected volatility, the term is based on the Companys expectation of when the grantees will exercise their options, the Company analyzes the historic volatility of its common stock.

The weighted average assumptions to determine the grant-date fair value for stock options for fiscal 2007, 2006 and 2005 are as follows:



|                        |  |         |   |  |         |   |  |         |  
|----------------------- |  | ------- | - |  | ------- | - |  | ------- | -
|                        |  | 2007    |   |  | 2006    |   |  | 2005    |  
|Risk-free interest rate |  | 5.02    | % |  | 4.01    | % |  | 3.38    | %
|Expected dividend yield |  | 0.00    | % |  | 0.00    | % |  | 0.00    | %
|Expected life           |  | 2 years |   |  | 4 years |   |  | 4 years |  
|Volatility factor       |  | 43      | % |  | 61      | % |  | 91      | %



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##### Table of Contents

OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



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 income statement in the same expense line as the cash compensation paid to the
respective employees. SFAS 123R also requires the Company to estimate forfeitures in calculating the expense related to stock-based compensation. 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 will be recognized in the period that they become known. To date there has been no change in the Companys forfeiture rate, so
there has been no impact on compensation cost.

During fiscal 2007, 2006 and 2005, respectively, we received proceeds of approximately
$2,987, $613, and $715 and issued 381, 179, and 217 shares of common stock, pursuant to employee exercises of stock options.

On
October 26, 2005, the Companys Board of Directors approved the accelerated vesting of all unvested options that had an exercise price of $11.75 or greater and were held by current employees, including executive officers. This accelerated
vesting affected options with respect to 254 shares of the Companys common stock that was not vested under such options, and was effective for stock options outstanding as the close of business on October 26, 2005.

The Board of Directors primary purpose in accelerating vesting was to eliminate future stock-based employee compensation expense that the Company
would have otherwise recognized in its consolidated statement of operations with respect to these accelerated options once SFAS 123R became effective. Furthermore, the Board of Directors concluded that the retention value of the unvested portion of
these options was minimal given the then-current market price for the Companys common stock. Because these options have exercise prices well in excess of the Companys then-current stock price which was $8.13 at the close of business on
October 26, 2005, as reported by the NASDAQ National market, the Board of Directors concluded that these options would not offer sufficient incentive to the employees to remain with the Company when compared to the future compensation expense
that would have been attributable to the options. The estimated maximum future expense that was eliminated was approximately $922.

All of
these options had an exercise price of $11.75, a grant date of October 23, 2003, and a vesting schedule that provided for pro rata annual vesting for 99.8% of the grants over five years from the date of the grant and for all cliff vesting for
0.2% of the grant in three years from the date of the grant. In the case of options held by executive officers of the Company, vesting was accelerated with respect to 48 shares for the Companys CEO.

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, and is recognized on a straight-line basis over the requisite service period. The Company did not grant any restricted
stock prior to February 2006. As a result, there were no restricted stock grants for fiscal 2005. The Companys restricted stock agreements do not contain any post-vesting restrictions.



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OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



A summary of the restricted stock grants is as follows:



|                                 |  |                                       |   |                                       |                                 |       |                        |    |                                 |   |     
|-------------------------------- |  | ------------------------------------- | - | ------------------------------------- | ------------------------------- | ----- | ---------------------- | -- | ------------------------------- | - | ----
|                                 |  | 2007                                  |   | 2006                                 
|                                 |  | RestrictedStock Grants                |   |                                       | WeightedAverage GrantFair Value |       | RestrictedStock Grants |    | WeightedAverage GrantFair Value
|                                 |  | (in thousands, except per share data) |   | (in thousands, except per share data)
|Nonvested at beginning of period |  | 43                                    |   |                                       | $                               | 9.39  |                        |   |                                 |   |    
|Granted                          |  | 89                                    |   |                                       | $                               | 13.48 |                        | 43 |                                 | $ | 9.39
|Vested                           |  | (1                                    | ) |                                       | $                               | 13.44 |                        |   |                                 |   |    
|Forfeited                        |  | (4                                    | ) |                                       | $                               | 11.67 |                        |   |                                 |   |    
|                                 |  |                                       |   |                                       |                                 |       |                        |    |                                 |   |     
|Nonvested at end of period       |  | 127                                   |   |                                       | $                               | 12.14 |                        | 43 |                                 | $ | 9.39
|                                 |  |                                       |   |                                       |                                 |       |                        |    |                                 |   |     

Employee Stock Purchase Plan

The weighted average assumptions to determine the value for employee stock purchase plan, or ESPP, shares for fiscal 2007 are as follows:



|                        |  |           |  
|----------------------- |  | --------- | -
|                        |  | 2007      |  
|Risk-free interest rate |  | 5.16      | %
|Expected dividend yield |  | 0.00      | %
|Expected life           |  | 0.5 years |  
|Volatility factor       |  | 45        | %

3. Marketable Securities

Marketable securities as of March 31, 2007 and 2006, consisted of the following:



|                                  |  |                |        |                     |   |                     |  |   |             |   |  |   |       
|--------------------------------- |  | -------------- | ------ | ------------------- | - | ------------------- |  | - | ----------- | - |  | - | ------
|                                  |  | AmortizedCost  |        | GrossUnrealizedGain |   | GrossUnrealizedLoss |  |   | MarketValue
|                                  |  | March 31, 2007
|Municipal securities              |  | $              | 46,615 |                     | $ |                    |  | $ |            |   |  | $ | 46,615
|Auction rate securities           |  |                | 10,000 |                     |   |                    |  |   |            |   |  |   | 10,000
|                                  |  |                |        |                     |   |                     |  |   |             |   |  |   |       
|Marketable securities             |  | $              | 56,615 |                     | $ |                    |  | $ |            |   |  | $ | 56,615
|                                  |  |                |        |                     |   |                     |  |   |             |   |  |   |       
|                                  | 
|                                  |  | March 31, 2006
|Corporate bonds and notes         |  | $              | 6,747  |                     | $ | 2                   |  | $ | (10         | ) |  | $ | 6,739 
|United States government agencies |  |                | 12,423 |                     |   |                    |  |   | (11         | ) |  |   | 12,412
|                                  |  |                |        |                     |   |                     |  |   |             |   |  |   |       
|Marketable securities             |  | $              | 19,170 |                     | $ | 2                   |  | $ | (21         | ) |  | $ | 19,151
|                                  |  |                |        |                     |   |                     |  |   |             |   |  |   |       

With the exception of the auction rate securities, all of the Companys marketable securities
have maturity dates of less than one year. The auction rate securities have maturities extending through May 2046, with interest rate resets every 28 days.



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##### Table of Contents

OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



4. Intangible Assets and Goodwill

Intangible assets consisted of the following:



|                                  |  |      |        |   |      |   |        |  
|--------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                  |  | 2007 |        |   | 2006 |  
|Acquired and purchased technology |  | $    | 2,047  |   |      | $ | 4,165  |  
|Accumulated amortization          |  |      | (1,148 | ) |      |   | (2,925 | )
|                                  |  |      |        |   |      |   |        |  
|Intangible assets, net            |  | $    | 899    |   |      | $ | 1,240  |  
|                                  |  |      |        |   |      |   |        |  

Our intangible assets consist of acquired technology related to our acquisitions of a software
product for modeling voice communications in December 2003, Altaworks in October 2004, and purchased technology from RadView Software, Ltd. in December 2005 and SQMworks, Inc. which we purchased in April 2006 for $400. Acquired and purchased
technology resulted in amortization expense for fiscal 2007, 2006, and 2005 of $723, $832 and $651, respectively. Amortization expense from acquired technology is included in cost of revenue in the condensed consolidated statements of operations.
The Company amortizes the intangible assets on a straight-line basis over their expected useful lives of three to five years. The Company currently expects future amortization expenses attributable to these acquisitions of $543 in fiscal 2008 and
$356 in the fiscal 2009.

The value of goodwill is primarily derived from the acquisitions of Altaworks in October 2004, WDM NetDesign in
January 2002, and NetMaker in March 2001. The Company made no adjustment to goodwill in fiscal 2007 or fiscal 2006.

5. Property and Equipment

Property and equipment consisted of the following at March 31, 2007 and 2006:



|                               |  |      |        |   |      |   |        |  
|------------------------------ |  | ---- | ------ | - | ---- | - | ------ | -
|                               |  | 2007 |        |   | 2006 |  
|Computer equipment             |  | $    | 7,866  |   |      | $ | 6,824  |  
|Leasehold improvements         |  |      | 4,395  |   |      |   | 4,328  |  
|Construction in progress       |  |      | 2,320  |   |      |   |       |  
|Purchased software             |  |      | 2,165  |   |      |   | 1,664  |  
|Office furniture and equipment |  |      | 1,456  |   |      |   | 1,443  |  
|                               |  |      |        |   |      |   |        |  
|Total                          |  |      | 18,202 |   |      |   | 14,259 |  
|Less: accumulated depreciation |  |      | (9,457 | ) |      |   | (8,171 | )
|                               |  |      |        |   |      |   |        |  
|Property and equipment, net    |  | $    | 8,745  |   |      | $ | 6,088  |  
|                               |  |      |        |   |      |   |        |  

In December 2006, we entered into an operating lease in Bethesda, MD to increase the office space
of our corporate facilities. At March 31, 2007, we had $2,320 in construction in progress associated with the build out of this space. For more information regarding our office space see Note 8.

Depreciation expense for fiscal 2007, 2006, and 2005 was $1,625, $1,590, and $1,672, respectively.



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##### Table of Contents

OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



6. Accrued Liabilities

Accrued liabilities consisted of the following at March 31, 2007 and 2006:



|                                    |  |      |       |      |   |      
|----------------------------------- |  | ---- | ----- | ---- | - | -----
|                                    |  | 2007 |       | 2006
|Accrued compensation and bonuses    |  | $    | 4,709 |      | $ | 4,271
|Accrued accounting and tax services |  |      | 505   |      |   | 1,064
|Accrued legal services              |  |      | 195   |      |   | 889  
|Accrued leasehold improvements      |  |      | 724   |      |   |     
|Other                               |  |      | 2,188 |      |   | 2,315
|                                    |  |      |       |      |   |      
|Total                               |  | $    | 8,321 |      | $ | 8,539
|                                    |  |      |       |      |   |      

7. Income Taxes

The components of the provision for income taxes for the years ended March 31, 2007, 2006 and 2005, were as follows:



|                                   |  |      |       |   |      |   |      |      |  |   |      
|---------------------------------- |  | ---- | ----- | - | ---- | - | ---- | ---- |  | - | -----
|                                   |  | 2007 |       |   | 2006 |   |      | 2005
|Current provision:                 |  |      |       |   |      |   |      |      |  |   |      
|Federal                            |  | $    | 2,471 |   |      | $ | 397  |      |  | $ | 493  
|State                              |  |      | 785   |   |      |   | 98   |      |  |   | 129  
|Foreign                            |  |      | 349   |   |      |   | 289  |      |  |   | 270  
|                                   |  |      |       |   |      |   |      |      |  |   |      
|Total current provision            |  |      | 3,605 |   |      |   | 784  |      |  |   | 892  
|                                   |  |      |       |   |      |   |      |      |  |   |      
|Deferred provision (benefit):      |  |      |       |   |      |   |      |      |  |   |      
|Federal                            |  |      | (28   | ) |      |   | (297 | )    |  |   | 635  
|State                              |  |      | 23    |   |      |   | (27  | )    |  |   | 59   
|Foreign                            |  |      | 55    |   |      |   | 49   |      |  |   | 58   
|                                   |  |      |       |   |      |   |      |      |  |   |      
|Total deferred provision (benefit) |  |      | 50    |   |      |   | (275 | )    |  |   | 752  
|                                   |  |      |       |   |      |   |      |      |  |   |      
|Total provision for income taxes   |  | $    | 3,655 |   |      | $ | 509  |      |  | $ | 1,644
|                                   |  |      |       |   |      |   |      |      |  |   |      



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##### Table of Contents

OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



At March 31, 2007 and 2006, respectively, the components of our deferred tax assets and deferred
tax liabilities were as follows:



|                                                     |  |      |         |   |      |   |         |  
|---------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                     |  | 2007 |         |   | 2006 |  
|Deferred tax assets:                                 |  |      |         |   |      |   |         |  
|Accrued expenses                                     |  | $    | 1,146   |   |      | $ | 605     |  
|Deferred revenue                                     |  |      | 178     |   |      |   | 238     |  
|In-process research and development                  |  |      | 178     |   |      |   | 198     |  
|Deferred rent                                        |  |      | 832     |   |      |   | 397     |  
|Research and development tax credit carryforward     |  |      | 1,188   |   |      |   | 1,471   |  
|Accelerated book amortization of acquired technology |  |      | 437     |   |      |   | 490     |  
|Bad debt reserve                                     |  |      | 51      |   |      |   | 54      |  
|Federal net operating loss carryforward              |  |      | 13,049  |   |      |   | 13,103  |  
|Foreign net operating loss carryforward              |  |      | 61      |   |      |   | 118     |  
|Deferred stock based compensation                    |  |      | 396     |   |      |   |        |  
|Other temporary differences                          |  |      | 49      |   |      |   | 49      |  
|                                                     |  |      |         |   |      |   |         |  
|Gross deferred tax assets                            |  |      | 17,565  |   |      |   | 16,723  |  
|                                                     |  |      |         |   |      |   |         |  
|Less: valuation allowance                            |  |      | (13,289 | ) |      |   | (13,289 | )
|                                                     |  |      |         |   |      |   |         |  
|Total deferred tax asset                             |  |      | 4,276   |   |      |   | 3,434   |  
|                                                     |  |      |         |   |      |   |         |  
|Deferred tax liabilities:                            |  |      |         |   |      |   |         |  
|Accelerated depreciation                             |  |      | 124     |   |      |   | (74     | )
|Tax amortization of goodwill                         |  |      | (1,680  | ) |      |   | (1,400  | )
|Tax liabilities related to acquisitions              |  |      | (44     | ) |      |   | (158    | )
|Tax accounting for unbilled accounts receivable      |  |      | (593    | ) |      |   | (130    | )
|                                                     |  |      |         |   |      |   |         |  
|Total deferred tax liabilities                       |  |      | (2,193  | ) |      |   | (1,762  | )
|                                                     |  |      |         |   |      |   |         |  
|Net deferred tax asset                               |  | $    | 2,083   |   |      | $ | 1,672   |  
|                                                     |  |      |         |   |      |   |         |  

SFAS No. 109 Accounting for Income Taxes, or SFAS No. 109 requires that the
Company assess the realizability of deferred tax assets at each reporting period. These assessments generally consider several factors including the reversal of existing deferred tax asset temporary differences, projected future taxable income, tax
planning strategies, and historical and future book income adjusted for permanent book to tax differences. As stated below, the Company has established a valuation allowance related to a portion of the deferred tax asset associated with the
Altaworks transaction due to limitations under Section 382 of the Internal Revenue Code. The Company believes that it is more likely than not that the remaining net deferred tax asset of $2,083 will be realized based upon its history of
profitability, estimates of future taxable income, and the period over which the tax benefits can be realized.



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##### Table of Contents

OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



The provision for income taxes for fiscal 2007, 2006 and 2005 differs from the amount computed by
applying the statutory United States Federal income tax rate to income before taxes as a result of the following:



|                                             |  |      |   |  |       |   |  |      |  
|-------------------------------------------- |  | ---- | - |  | ----- | - |  | ---- | -
|                                             |  | 2007 |   |  | 2006  |   |  | 2005 |  
|Statutory United States Federal rate         |  | 34.0 | % |  | 34.0  | % |  | 34.0 | %
|Increase (decrease) in taxes resulting from: |  |      |   |  |       |   |  |      |  
|State income taxesnet of Federal benefit    |  | 4.5  |   |  | 5.8   |   |  | 2.7  |  
|Tax credits                                  |  | (6.2 | ) |  | (31.5 | ) |  | (7.1 | )
|Nondeductible items                          |  | 0.7  |   |  | 2.4   |   |  | 1.4  |  
|Foreign tax expense                          |  |     |   |  | 8.8   |   |  | 7.3  |  
|Tax exempt income                            |  | (1.9 | ) |  | 1.0   |   |  |     |  
|Other                                        |  | 0 .1 |   |  |      |   |  | 1.4  |  
|Changes to estimates                         |  | 0.5  |   |  | (0.6  | ) |  | 6.4  |  
|Foreign tax rate differential                |  | (0.2 | ) |  | (0.6  | ) |  | (2.5 | )
|                                             |  |      |   |  |       |   |  |      |  
|Effective tax rate                           |  | 31.5 | % |  | 19.3  | % |  | 43.6 | %
|                                             |  |      |   |  |       |   |  |      |  

The increase in our effective tax rate in fiscal 2007 from fiscal 2006 was primarily the result of
the reduced benefit of research and development credits and adjusting projected foreign tax credits and projected research and development tax credits to the actual amount of the credits computed in conjunction with completing and filing our fiscal
2006 tax return in December of fiscal 2007. The decrease in our effective tax rate in fiscal 2006 from fiscal 2005 was primarily the result of adjusting projected foreign tax credits and projected research and development tax credits to the actual
amount of the credits computed in conjunction with completing and filing our fiscal 2005 tax return in December of fiscal 2006.

At
March 31, 2007, the Company had a United States federal research and development tax credit carryforward of approximately $1,188, and net operating loss carryforwards of approximately $38,379, which will expire in the years 2019 through
2024. The decrease in the Companys effective tax rate in fiscal 2006 is primarily the result of the benefit of projected research and development tax credits in the current year and a change in estimates of projected research and
development tax credits to the actual amount of the credits computed in conjunction with completing and filing its fiscal 2005 tax return and foreign tax expense. At March 31, 2007, the Companys German subsidiary had a foreign net
operating loss carryforward of approximately $160. Under the tax legislation of Germany, net operating losses have no expiration date.

As
part of the Altaworks Corporation acquisition, the Company received a federal net operating loss carryforward of approximately $38,775 and a research and development credit carryforward of approximately $1,188. The related deferred tax assets amount
to $14,372. These tax assets are subject to an annual limitation under Section 382 of the Internal Revenue Code. Because of the limitation imposed, management believes it is more likely than not, that a portion of the assets will not be
realized and has placed a valuation allowance of $13,289 against that portion.

At March 31, 2007, the Company had cumulative
undistributed earnings of foreign subsidiaries, for which no United States income or foreign withholding taxes have been recorded, of approximately $1,706 which have been reinvested indefinitely. Determination of the amount of unrecognized deferred
tax liability with respect to such earnings is not practicable. The additional taxes on the earnings of foreign subsidiaries, if remitted, would be partially offset by United States tax credits for foreign taxes already paid.



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##### Table of Contents

OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



8. Commitments and Contingencies

The Companys corporate office and principal facility is located in Bethesda, Maryland and consists of approximately 82,000 square feet of office space held under two leases. The lease for 60,000 square feet
expires on January 31, 2011, exclusive of renewal options. The lease provides for two five-year renewal options. The rent is subject to escalation based upon a consumer price indexed adjustment of up to 3% each year. The lease also requires the
Company to maintain a security deposit of approximately $2,122 in the form of a bank letter of credit, as discussed in Note 9, which is subject to annual reductions based upon meeting certain minimum financial requirements. The lease for 22,000
square feet expires on January 31, 2016, exclusive of renewal options. The lease provides for one five-year renewal options. The rent is subject to escalation based upon a consumer price indexed adjustment of up to 3% each year. The lease also
requires us to maintain a security deposit of approximately $69 in the form of a bank letter of credit, as discussed in Note 9, which is subject to annual reductions based upon meeting certain minimum financial requirements.

In addition, the Company leases office space under non-cancelable operating leases. The leases for office space contain escalation clauses that provide
for increased rentals based primarily on increases in real estate taxes, operating expenses, or the average consumer price index. Total rent expense under all leases for fiscal 2007, 2006, and 2005 was $3,821, $3,437, and $3,347, respectively. In
April 2007, the Company entered into an operating lease to replace existing office space. The new lease will increase the Companys operating lease obligations by $798. At March 31, 2007, future minimum lease payments required under
non-cancelable leases were as follows:



|                             |  |   |       
|---------------------------- |  | - | ------
|Year ending March 31,        |  |  
|2008                         |  | $ | 4,277 
|2009                         |  |   | 4,016 
|2010                         |  |   | 3,760 
|2011                         |  |   | 3,365 
|2012                         |  |   | 927   
|Thereafter                   |  |   | 3,819 
|                             |  |   |       
|Total minimum lease payments |  | $ | 20,164
|                             |  |   |       

On September 27, 2004, OPNET received notice of a lawsuit filed by Compuware Corporation, in
the United States District Court for the Eastern District of Michigan, alleging patent infringement and seeking injunctive relief and unspecified monetary damages. On February 6, 2006, OPNET filed a lawsuit against Compuware Corporation in
Montgomery County, Maryland, Circuit Court, seeking damages and injunctive relief for Compuwares misappropriation and misuse of OPNETs trade secrets, confidential and proprietary information and unfair competition; however, the lawsuit
was not served on Compuware. On April 10, 2006, we signed a confidential settlement agreement with Compuware Corporation that amicably resolved all disputed matters in the lawsuits filed by each company in Michigan and in Maryland on terms
OPNET believes are favorable to it. Specifically, no material amounts were exchanged by the parties and the settlement agreement does not entail a royalty or licensing agreement between the parties.

The Internal Revenue Service, or IRS, is examining the Companys federal corporate income tax returns for fiscal 2002 and 2003. While the IRS
examination of the Companys returns is not final at this time, the Company has reached an agreement with respect to the amount of research and development tax credits that it claimed on its tax returns for those years. As a
result of this agreement, the Company is reducing the amount of the research and development tax credits claimed on its tax returns for fiscal 2002 and 2003 by approximately $350. The IRS



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##### Table of Contents

OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



also asserted tax deficiencies related to the timing of revenue reported on the Companys tax returns for fiscal 2002 and 2003. The IRS has
asserted that revenue associated with certain contracts reported on the Companys fiscal year 2003 tax return, should have been included in taxable income on its tax return for the fiscal 2002. The Company does not
believe any tax deficiencies related to the timing of reporting revenue will be material to the financial statements.

The Company accounts
for guarantees in accordance with Financial Accounting Standards Board issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
(Interpretation No. 45). 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 reasonably believes these indemnification
provisions will not have a material adverse effect on its operating performance or financial condition. As of March 31, 2007, 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 its normal operations. The Company does not expect these matters, individually
or in the aggregate, to have a material effect on its financial condition, results of operations, or cash flows.

9. Credit Agreements and Notes Payable

Effective June 10, 2002, the Company entered into a credit facility with a commercial bank. The credit facility permits the use of
funds for general corporate purposes and the issuance of letters of credit up to a maximum of $10,000 in the aggregate. Borrowings under the credit facility are limited to 80% of eligible accounts receivable. The Company used the facility to issue
an irrevocable letter of credit for approximately $2,122 to satisfy the security deposit requirements for its corporate office lease. Upon a default, as defined in the corporate office lease agreement, and written notice from the landlord to the
Company, the landlord had the right to draw upon the letter of credit in whole or in part. Interest is payable monthly, based on LIBOR plus the applicable margin ranging from 2% to 2.5% as stated in the loan agreement. The credit facility includes a
fee in



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OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



the amount of 0.25% per annum on the unused portion of the credit facility. The credit facility is collateralized by the Companys accounts
receivable. The loan agreement contains customary affirmative and negative covenants including a restriction on the payment of dividends. The Company was in compliance with all affirmative and negative covenants as of March 31, 2007. Effective
June 10, 2006, the credit facility was renewed for $2,600 and is due to expire on June 30, 2007. As of March 31, 2007, we had available borrowings of $271 under the credit facility. We plan to renew the credit facility in fiscal 2008.

In November 2002, the Company received proceeds from a $150 loan from the Department of Economic Development of the State of Maryland
under the Maryland Economic Development Assistance Fund. The loan is subject to multiple maturity dates and has a 4.83% annual interest rate. As of March 31, 2006, under the terms of the loan, which included certain conditions regarding the
hiring of full time employees, the Company was obligated to repay the loan principal together with accrued interest. The principal amount together with accrued interest was paid in full on May 12, 2006.

10. Employee Benefit Plan

Effective August 1,
1993, the Company established a 401(k) retirement plan, or the Plan covering all eligible employees, as defined. Eligible employees who are at least 21 years old may participate. Under the terms of the Plan, participants may defer a portion of their
salaries as employee contributions. The Company makes matching contributions and may make discretionary and extra contributions. Employee contributions and extra contributions made by the Company are 100% vested immediately. In general, the
Companys matching and discretionary contributions vest ratably over a five-year period. The Companys expense under this Plan for fiscal 2007, 2006 and 2005 was $1,056, $890, and $689, respectively.

11. Earnings per Share

The following is a
reconciliation of the amounts used in calculating basic and diluted net income per common share for fiscal 2007, 2006 and 2005:



|                                                     |  |      |        |      |   |        |  |   |       
|---------------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                     |  | 2007 |        | 2006 |   | 2005  
|Net Income (Numerator):                              |  |      |        |      |   |        |  |   |       
|Basic and diluted net income                         |  | $    | 7,965  |      | $ | 2,137  |  | $ | 2,052 
|                                                     |  |      |        |      |   |        |  |   |       
|Shares (Denominator):                                |  |      |        |      |   |        |  |   |       
|Weighted average shares outstanding (basic)          |  |      | 20,358 |      |   | 20,374 |  |   | 20,158
|Plus:                                                |  |      |        |      |   |        |  |   |       
|Effect of other dilutive securitiesoptions          |  |      | 832    |      |   | 229    |  |   | 466   
|Effect of other dilutive securitiesrestricted stock |  |      | 16     |      |   | 1      |  |   |      
|                                                     |  |      |        |      |   |        |  |   |       
|Weighted average shares outstanding (diluted)        |  |      | 21,206 |      |   | 20,604 |  |   | 20,624
|                                                     |  |      |        |      |   |        |  |   |       
|Net income per common share:                         |  |      |        |      |   |        |  |   |       
|Basic                                                |  | $    | 0.39   |      | $ | 0.10   |  | $ | 0.10  
|Diluted                                              |  | $    | 0.38   |      | $ | 0.10   |  | $ | 0.10  

The Company had options for the purchase of 470, 2,367 and 2,434 common shares that were excluded
from the diluted average shares outstanding for the fiscal 2007, 2006, and 2005 respectively, because their effect was anti-dilutive.



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OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



12. Stockholders Equity

Treasury Stock. On January 31, 2005, the Company announced that the Board of Directors had authorized the repurchase of up to 1,000
shares of the Companys common stock from time to time on the open market or in privately negotiated transactions. 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 expended $1,521 and $3,625 to purchase 104 and 409 shares during fiscal 2007 and 2006, respectively, at an average price of $14.62 and $8.84. As of
March 31, 2007, the Company had repurchased 514 shares of common stock under this program.

Employee Stock Purchase Plan.During fiscal 2001, the Board of Directors approved the adoption of the 2000 Employee Stock Purchase Plan, or ESPP, which provides all eligible employees, including members of the Board of Directors who are employees, to collectively
purchase up to a total of 300 shares of the Companys common stock. An employee may authorize a payroll deduction up to a maximum of 10% of his or her compensation 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. A total of 85, 73, and 42 shares of the Companys common stock were issued under the ESPP in fiscal 2007, 2006 and 2005, respectively. The
issuance of the common stock resulted in proceeds to the Company of $753, $497, and $363, respectively.

13. Comprehensive Income

Comprehensive income includes net income, foreign currency translation adjustments, and net unrealized (losses)/gains on marketable securities. The
components of comprehensive income for fiscal 2007, 2006, and 2005, net of tax, are as follows:



|                                                       |  |      |       |   |      |   |       |      |  |   |       |  
|------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                       |  | 2007 |       |   | 2006 |   |       | 2005 | 
|Net income                                             |  | $    | 7,965 |   |      | $ | 2,137 |      |  | $ | 2,052 |  
|Foreign currency translation adjustments               |  |      | 758   |   |      |   | (315  | )    |  |   | 9     |  
|Net unrealized (losses) gains on marketable securities |  |      | (19   | ) |      |   | 50    |      |  |   | (86   | )
|                                                       |  |      |       |   |      |   |       |      |  |   |       |  
|Total comprehensive income                             |  | $    | 8,704 |   |      | $ | 1,872 |      |  | $ | 1,975 |  
|                                                       |  |      |       |   |      |   |       |      |  |   |       |  

14. Business Segment and Geographic Area Information

The Company operates in one industry segment, the development and sale of computer software programs and related services. The Chief Operating Officer
evaluates the performance of the Company using one industry segment. For the years ended March 31, 2007, 2006 and 2005, revenue from transactions with United States government agencies was approximately 43%, 43%, and 47% of total revenue,
respectively. No single customer accounted for 10% or more of revenue for fiscal 2007, 2006 or 2005. In addition, there was no country, with the exception of the United States, where aggregate sales accounted for 10% or more of total revenue. The
Companys assets were primarily held in the United States for fiscal 2007, 2006 and 2005.



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OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



Revenue by geographic destination and as a percentage of total revenue for fiscal 2007, 2006 and 2005
are as follows:



|                               |  |      |        |   |      |   |        |      |  |   |        |  
|------------------------------ |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                               |  | 2007 |        |   | 2006 |   |        | 2005 | 
|Geographic Area by Destination |  |      |        |   |      |   |        |      |  |   |        |  
|United States                  |  | $    | 75,071 |   |      | $ | 59,574 |      |  | $ | 51,975 |  
|International                  |  |      | 20,059 |   |      |   | 16,541 |      |  |   | 12,268 |  
|                               |  |      |        |   |      |   |        |      |  |   |        |  
|                               |  | $    | 95,130 |   |      | $ | 76,115 |      |  | $ | 64,243 |  
|                               |  |      |        |   |      |   |        |      |  |   |        |  
|Geographic Area by Destination |  |      |        |   |      |   |        |      |  |   |        |  
|United States                  |  |      | 78.9   | % |      |   | 78.3   | %    |  |   | 80.9   | %
|International                  |  |      | 21.1   |   |      |   | 21.7   |      |  |   | 19.1   |  
|                               |  |      |        |   |      |   |        |      |  |   |        |  
|                               |  |      | 100.0  | % |      |   | 100.0  | %    |  |   | 100.0  | %
|                               |  |      |        |   |      |   |        |      |  |   |        |  

15. Valuation and Qualifying Accounts

The following table sets forth activity in our valuation accounts:



|                                     |  |                                |        |                    |   |      |       |  |   |                |     |  |                          |     |   |  |   |       
|------------------------------------ |  | ------------------------------ | ------ | ------------------ | - | ---- | ----- |  | - | -------------- | --- |  | ------------------------ | --- | - |  | - | ------
|                                     |  | Balance at Beginning of
Period |        | Charges toExpenses |   |      | Other |  |   | Deductions (1) |     |  | Balance at End of Period
|Accounts receivable reserve account: |  |                                |        |                    |   |      |       |  |   |                |     |  |                          |     |   |  |   |       
|Year ended March 31, 2007            |  | $                              | 140    |                    | $ | 25   |       |  | $ |               |     |  | $                        | (32 | ) |  | $ | 133   
|Year ended March 31, 2006            |  | $                              | 180    |                    | $ | 27   |       |  | $ |               |     |  | $                        | (67 | ) |  | $ | 140   
|Year ended March 31, 2005            |  | $                              | 341    |                    | $ | (111 | )     |  | $ |               |     |  | $                        | (50 | ) |  | $ | 180   
|                                     |  |                                |        |                    |  
|Deferred tax valuation account:      |  |                                |        |                    |   |      |       |  |   |                |     |  |                          |     |   |  |   |       
|Year ended March 31, 2007            |  | $                              | 13,289 |                    | $ |     |       |  | $ |               |     |  | $                        |    |   |  | $ | 13,289
|Year ended March 31, 2006            |  | $                              | 13,289 |                    | $ |     |       |  | $ |               |     |  | $                        |    |   |  | $ | 13,289
|Year ended March 31, 2005            |  | $                              |       |                    | $ |     |       |  | $ | 13,289         | (2) |  | $                        |    |   |  | $ | 13,289

---

|(1) | Deductions represent write-offs of receivables previously reserved and adjustments to reflect accounts receivable at net realizable value.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(2) | See Note 7 for a description of the deferred tax valuation associated with the Altaworks Corporation acquisition.
|--- | -----------------------------------------------------------------------------------------------------------------

16. Quarterly Financial Data (Unaudited)



|                                                   |  |              |        |               |   |              |  |               |        |  |   |       
|-------------------------------------------------- |  | ------------ | ------ | ------------- | - | ------------ |  | ------------- | ------ |  | - | ------
|                                                   |  | FirstQuarter |        | SecondQuarter |   | ThirdQuarter |  | FourthQuarter
|Year Ended March 31, 2007                          |  |              |        |               |   |              |  |               |        |  |   |       
|Revenue                                            |  | $            | 22,632 |               | $ | 23,617       |  | $             | 24,522 |  | $ | 24,359
|Gross profit                                       |  |              | 17,867 |               |   | 18,693       |  |               | 19,358 |  |   | 18,683
|Income from operations                             |  |              | 1,820  |               |   | 1,796        |  |               | 2,733  |  |   | 1,437 
|Net income                                         |  |              | 1,635  |               |   | 1,727        |  |               | 3,024  |  |   | 1,579 
|Basic net income per common share                  |  | $            | 0.08   |               | $ | 0.09         |  | $             | 0.15   |  | $ | 0.07  
|Diluted net income per common share                |  | $            | 0.08   |               | $ | 0.08         |  | $             | 0.15   |  | $ | 0.07  
|Basic weighted average common shares outstanding   |  |              | 20,190 |               |   | 20,266       |  |               | 20,365 |  |   | 20,487
|Diluted weighted average common shares outstanding |  |              | 20,664 |               |   | 21,019       |  |               | 21,387 |  |   | 21,337



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OPNET TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollar and share
amounts in thousands, except per share data)



|                                                   |  |              |        |       |               |   |              |  |               |        |  |   |       
|-------------------------------------------------- |  | ------------ | ------ | ----- | ------------- | - | ------------ |  | ------------- | ------ |  | - | ------
|                                                   |  | FirstQuarter |        |       | SecondQuarter |   | ThirdQuarter |  | FourthQuarter
|Year Ended March 31, 2006                          |  |              |        |       |               |   |              |  |               |        |  |   |       
|Revenue                                            |  | $            | 16,477 |       |               | $ | 18,264       |  | $             | 20,098 |  | $ | 21,276
|Gross profit                                       |  |              | 12,212 |       |               |   | 14,047       |  |               | 15,566 |  |   | 16,459
|(Loss) income from operations                      |  |              | (1,167 | ) (1) |               |   | 21           |  |               | 319    |  |   | 793   
|Net (loss) income                                  |  |              | (454   | )     |               |   | 440          |  |               | 1,166  |  |   | 985   
|Basic net (loss) income per common share           |  | $            | (0.02  | )     |               | $ | 0.02         |  | $             | 0.06   |  | $ | 0.04  
|Diluted net (loss) income per common share         |  | $            | (0.02  | )     |               | $ | 0.02         |  | $             | 0.06   |  | $ | 0.04  
|Basic weighted average common shares outstanding   |  |              | 20,315 |       |               |   | 20,311       |  |               | 20,229 |  |   | 20,111
|Diluted weighted average common shares outstanding |  |              | 20,315 |       |               |   | 20,552       |  |               | 20,523 |  |   | 20,380

---

|(1) | The loss from operations for the three months ended June 30, 2005 is primarily due to a decrease in revenue resulting from longer than anticipated transaction processing cycles
related to a few significant corporate enterprise orders and investments in personnel necessary to pursue the Companys growth strategies.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17. Interest and Other Income, Net

The components of interest and other income, net for fiscal 2007, 2006, and 2005 are as
follows:



|                               |  |      |       |   |      |   |       |      |  |   |       |  
|------------------------------ |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                               |  | 2007 |       |   | 2006 |   |       | 2005 | 
|Interest income                |  | $    | 3,825 |   |      | $ | 2,748 |      |  | $ | 1,274 |  
|Interest expense               |  |      | (26   | ) |      |   | (56   | )    |  |   | (68   | )
|Other income                   |  |      | 38    |   |      |   | 18    |      |  |   | 178   |  
|Other expense                  |  |      | (3    | ) |      |   | (30   | )    |  |   |      |  
|                               |  |      |       |   |      |   |       |      |  |   |       |  
|Interest and other income, net |  | $    | 3,834 |   |      | $ | 2,680 |      |  | $ | 1,384 |  
|                               |  |      |       |   |      |   |       |      |  |   |       |  



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OPNET TECHNOLOGIES, INC.

EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                         |  |                                                                                                                                                                          
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                             |  | Source                                                                                                                                                                   
|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, as amended                                                                                                                                                       |  | Exhibit 3.2 to this Annual Report on Form 10-K.                                                                                                                          
|               |  |                                                                                                                                                                                                                        
|4.1            |  | Specimen common stock certificate                                                                                                                                                                                       |  | Incorporated by reference from exhibit 4.1 to the Registrants Registration Statement on Form S-1 (File No. 333-2588).                                                   
|               |  |                                                                                                                                                                                                                        
|4.2            |  | See Exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and By-Laws of the Registrant defining the rights of holders of common stock of the Registrant                                              |  | Incorporated by reference from exhibit 4.2 to the Registrants Registration Statement on Form S-1 (File No. 333-2588).                                                   
|               |  |                                                                                                                                                                                                                        
|10.1           |  | 2000 Employee Stock Purchase Plan, as Amended                                                                                                                                                                           |  | Incorporated by reference from exhibit 99.1 to the Registrants Current Report on Form 8-K filed with the Securities and Exchange Commission, or SEC, August 22, 2006.   
|               |  |                                                                                                                                                                                                                        
|10.2           |  | Amended and Restated Registration Rights Agreement, dated as of March 30, 2001, by and among the Registrant, Summit Ventures IV, L.P., Summit Investors III, L.P., Alain J. Cohen, Marc A. Cohen
and Make Systems, Inc. |  | Incorporated by reference from exhibit 10.1 to the Registrants Annual Report on Form 10-K for the period ended March 31, 2001 as filed with the SEC on June 29, 2001.   
|               |  |                                                                                                                                                                                                                        
|10.3           |  | Asset Purchase Agreement, dated as of March 20, 2001, by and among the Registrant, Make Systems, Inc. and Metromedia Company                                                                                            |  | Incorporated by reference from exhibit 2.1 to the Registrants Current Report on Form 8-K dated March 22, 2001 filed with the SEC on March 23, 2001 (File No. 000-30931).
|               |  |                                                                                                                                                                                                                        
|10.4           |  | Stock Purchase and Option Agreement, dated as of November 1, 1999, between the Registrant and Steven G. Finn                                                                                                            |  | Incorporated by reference from exhibit 10.6 to the Registrants Registration Statement on Form S-1 (File No. 333-2588).                                                  
|               |  |                                                                                                                                                                                                                        
|10.5           |  | Stock Purchase and Option Agreement, dated as of November 1, 1999, between the Registrant and William F. Stasior                                                                                                        |  | Incorporated by reference from exhibit 10.7 to the Registrants Registration Statement on Form S-1 (File No. 333-2588).                                                  
|               |  |                                                                                                                                                                                                                        
|10.6           |  | Amended and Restated 1993 Incentive Stock Option Plan                                                                                                                                                                   |  | Incorporated by reference from exhibit 10.10 to the Registrants Registration Statement on Form S-1 (File No. 333-2588).                                                 
|               |  |                                                                                                                                                                                                                        
|10.7           |  | 2000 Director Stock Option Plan                                                                                                                                                                                         |  | Incorporated by reference from exhibit 10.13 to the Registrants Registration Statement on Form S-1 (File No. 333-2588).                                                 
|               |  |                                                                                                                                                                                                                        
|10.8           |  | Non-competition Agreement, dated as of December 31, 1997, between the Registrant and Marc A. Cohen                                                                                                                      |  | Incorporated by reference from exhibit 10.15 to the Registrants Registration Statement on Form S-1 (File No. 333-2588).                                                 



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|               |  |                                                                                                                                                          |  |                                                                                                                                                                              
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                              |  | Source                                                                                                                                                                       
|               |  |                                                                                                                                                         
|10.9           |  | Non-competition Agreement, dated as of December 31, 1997, between the Registrant and Alain J. Cohen                                                      |  | Incorporated by reference from exhibit 10.16 to the Registrants Registration Statement on Form S-1 (File No. 333-2588).                                                     
|               |  |                                                                                                                                                         
|10.10          |  | Change-in Control Agreement, dated as of June 1, 2000, between the Registrant and Pradeep K. Singh                                                       |  | Incorporated by reference from exhibit 10.19 to the Registrants Annual Report on Form 10-K for the period ended March 31, 2001 as filed with the SEC on June 29, 2001.      
|               |  |                                                                                                                                                         
|10.11          |  | Office Lease Agreement, dated May 2000, between the Registrant and Street Retail, Inc.                                                                   |  | Incorporated by reference from exhibit 10.21 to the Registrants Annual Report on Form 10-K for the period ended March 31, 2001 as filed with the SEC on June 29, 2001.      
|               |  |                                                                                                                                                         
|10.12          |  | Amended and Restated 2000 Stock Incentive Plan                                                                                                           |  | Incorporated by reference from exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the period ended December 31, 2001 as filed with the SEC November 14,
2001.
|               |  |                                                                                                                                                         
|*10.13         |  | Loan Modification Agreement, dated June 26, 2006, between Registrant and Bank of America, N.A.                                                           |  | Exhibit 10.13 to this Annual Report on Form 10-K.                                                                                                                            
|               |  |                                                                                                                                                         
|10.14          |  | Form of Restricted Stock Agreement                                                                                                                       |  | Incorporated by reference from exhibit 10.1 to the Registrants Current Report on Form 8-K as filed with the SEC on February 17, 2006                                        
|               |  |                                                                                                                                                         
|*21            |  | Subsidiaries of the Registrant                                                                                                                           |  | Exhibit 21 to this Annual Report on Form 10-K.                                                                                                                               
|               |  |                                                                                                                                                         
|*23            |  | Consent of Deloitte & Touche LLP                                                                                                                         |  | Exhibit 23 to this Annual Report on Form 10-K.                                                                                                                               
|               |  |                                                                                                                                                         
|*31.1          |  | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended                               |  | Exhibit 31.1 to this Annual Report on Form 10-K.                                                                                                                             
|               |  |                                                                                                                                                         
|*31.2          |  | Certification of the Acting Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended                        |  | Exhibit 31.1 to this Annual Report on Form 10-K.                                                                                                                             
|               |  |                                                                                                                                                         
|*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        |  | Exhibit 32.1 to this Annual Report on Form 10-K.                                                                                                                             
|               |  |                                                                                                                                                         
|*32.2          |  | Certification of Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Exhibit 32.2 to this Annual Report on Form 10-K.                                                                                                                             

---

|* | filed herewith
|- | --------------



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