SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                               ------------------
                                    FORM 10-Q

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

                  For the quarterly period ended March 31, 1999
                           Commission File No. 0-23611

                                DSET Corporation
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

   New Jersey                                            22-3000022
-------------------------------             ------------------------------------
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

1011 US Highway 22, Bridgewater, New Jersey                                08807
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                              (Zip Code)

                                 (908) 526-7500
                         -------------------------------
                         (Registrant's Telephone Number,
                              Including Area Code)

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing  requirements  for the past 90 days.

                 Yes: X                            No:
                     ---                              ---

     Indicate  the  number of  shares  outstanding  of each of the  Registrant's
classes of common  stock,  as of April 30, 1999:

          Class                                                 Number of Shares
          -----                                                 ----------------
 Common Stock, no par value                                        10,350,229

<PAGE>

                                DSET CORPORATION

                                TABLE OF CONTENTS
                                -----------------


                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION............................................    1

       Item 1.    Financial Statements....................................    1

                  Consolidated Balance Sheets as of March 31,1999
                    (unaudited) and December 31, 1998 (audited)...........    2

                  Consolidated Statements of Income for the Three
                    Months Ended March 31, 1999 and 1998 (unaudited)......    3

                  Consolidated Statements of Cash Flows for the Three
                    Months Ended March 31, 1999 and 1998 (unaudited)......    4

                  Notes to Consolidated Financial Statements (unaudited)..    5

       Item 2.    Management's Discussion and Analysis of Financial
                    Condition and Results of Operations...................    9

                  Results of Operations...................................    10

                  Liquidity and Capital Resources.........................    12

       Item 3.    Quantitative and Qualitative Disclosures About Market
                    Risk..................................................    16

PART II. OTHER INFORMATION................................................    17

       Item 2.    Changes in Securities and Use of Proceeds...............    17

       Item 6.    Exhibits and Reports on Form 8-K........................    18

SIGNATURES................................................................    19

                                      - i -
<PAGE>










                          PART I. FINANCIAL INFORMATION
                          -----------------------------

                          ITEM 1. FINANCIAL STATEMENTS









                                      - 1 -
<PAGE>

                                DSET CORPORATION
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                       March 31, 1999        December 31, 1998
                                                                       --------------        -----------------
                          ASSETS                                        (unaudited)               (audited)
<S>                                                                 <C>                    <C>              
Current assets:
   Cash and cash equivalents..........................              $     1,475,712        $       1,159,070
   Marketable securities..............................                   42,830,065               43,863,980
   Accounts receivable, net of allowance for doubtful
    accounts of $191,879 and $175,979.................                    7,756,953                9,108,059
   Deferred income taxes..............................                      258,144                  258,144
   Prepaid expenses and other current assets..........                      590,800                  193,418
                                                                      --------------          ---------------
       Total current assets...........................                   52,911,674               54,582,671

Acquired technology...................................                    2,424,890                       --
Capitalized software development costs, net...........                      231,091                       --
Fixed assets, net.....................................                    1,589,931                1,592,114
Goodwill, net.........................................                      320,362                  129,864
Other assets..........................................                      667,816                  548,963
                                                                      --------------          ---------------
       Total assets...................................              $    58,145,764        $      56,853,612
                                                                      ==============          ===============

             LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable and accrued expenses..............              $     3,160,420        $       3,560,994
   Income taxes payable...............................                           --                  145,673
   Deferred revenues..................................                    2,002,241                1,726,906
   Note payable.......................................                       56,657                  111,657
                                                                      --------------          ---------------
       Total current liabilities......................                    5,219,318                5,545,230
Deferred income taxes.................................                      119,127                  119,127
                                                                      --------------          ---------------
       Total liabilities..............................                    5,338,445                5,664,357
                                                                      --------------          ---------------

Commitments

Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares
 authorized, none issued or outstanding at March 31,
 1999 and December 31, 1998...........................                           --                       --
Common stock, no par value; 40,000,000 shares
 authorized, 10,341,984 and 9,817,559 shares
 issued and outstanding at March 31, 1999 and
 December 31,1998, respectively.......................                   42,975,513               41,912,361
Deferred stock compensation...........................                     (430,417)                (494,306)
Retained earnings.....................................                   10,303,029                9,731,077
Unrealized appreciation (depreciation) on
 investments..........................................                      (40,806)                  40,123
                                                                      --------------          ---------------
       Total shareholders' equity.....................                   52,807,319               51,189,255
                                                                      --------------          ---------------
       Total liabilities and shareholders' equity.....              $    58,145,764        $      56,853,612
                                                                      ==============          ===============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       - 2 -
<PAGE>

                                DSET CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         Three Months Ended March 31,
                                                                ----------------------------------------------

                                                                        1999                        1998
                                                                -------------------       --------------------
<S>                                                             <C>                       <C>  
REVENUES:
 License revenues......................................          $      4,153,146          $        2,636,635
 Service revenues......................................                 3,323,140                   2,685,478
                                                                   --------------             ---------------
     Total revenues....................................                 7,476,286                   5,322,113
                                                                   --------------             ---------------

COST OF REVENUES:
 License revenues......................................                   283,109                     240,629
 Service revenues......................................                 1,266,948                     701,995
                                                                   --------------             ---------------
     Total cost of revenues............................                 1,550,057                     942,624
                                                                   --------------             ---------------

   Gross profit........................................                 5,926,229                   4,379,489
                                                                   --------------             ---------------

OPERATING EXPENSES:
 Sales and marketing...................................                 2,394,654                   1,982,994
 Research and product development......................                 2,345,898                   1,494,900
 General and administrative............................                   810,313                     529,701
                                                                   --------------             ---------------
     Total operating expenses..........................                 5,550,865                   4,007,595
                                                                   --------------             ---------------

   Operating income....................................                   375,364                     371,894

Amortization of goodwill...............................                    (9,502)                     (9,502)
Interest and other expense.............................                   (15,207)                    (36,051)
Interest income........................................                   537,642                     111,556
                                                                   --------------             ---------------
Income before taxes....................................                   888,297                     437,897

Provision for income taxes.............................                   316,345                     146,695
                                                                   --------------             ---------------
Net income.............................................          $        571,952          $          291,202
                                                                   ==============             ===============



Net income per common share............................          $           0.06          $             0.04
                                                                   ==============             ===============
Weighted average number of common shares
 outstanding...........................................                10,028,583                   7,310,539
                                                                   ==============             ===============

Net income per common share assuming dilution..........          $           0.05          $             0.03
                                                                   ==============             ===============
Weighted average number of common shares and
 common equivalent shares outstanding..................                11,331,694                   9,846,772
                                                                   ==============             ===============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      - 3 -
<PAGE>

                                DSET CORPORATION
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                          Three Months Ended March 31,
                                                               -------------------------------------------------

                                                                        1999                         1998
                                                               --------------------        ---------------------
<S>                                                            <C>                      <C>                  
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income.........................................           $       571,952           $          291,202
   Adjustments to reconcile net income to net cash
    provided by operating activities:
     Tax benefit from exercise of stock options.......                   589,819                           --
     Depreciation.....................................                   184,009                      115,236
     Amortization.....................................                     9,502                        9,502
     Amortization of deferred stock compensation......                    63,889                       82,067
     (Profit) loss from joint venture.................                    (1,208)                      36,270
     Changes in assets and liabilities:
       Accounts receivable............................                 1,351,106                    3,206,156
       Other assets...................................                  (515,027)                      86,616
       Accounts payable and accrued expenses..........                  (400,574)                    (278,645)
       Income taxes payable...........................                  (145,673)                      41,484
       Deferred revenues..............................                   275,335                      (70,106)
                                                                  ---------------             ----------------
         Net cash provided by operating activities....                 1,983,130                    3,519,782
                                                                  ---------------             ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Sales (purchases) of marketable securities, net....                   952,985                  (37,441,599)
   Acquisition of assets:
     Acquired technology..............................                (2,424,890)                          --
     Goodwill.........................................                  (200,000)                          --
   Capitalized software development costs.............                  (231,091)                          --
   Acquisition of fixed assets........................                  (181,826)                    (160,023)
                                                                  ---------------             ----------------
         Net cash used in investing activities........                (2,084,822)                 (37,601,622)
                                                                  ---------------             ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Repayment by officers and shareholders.............                        --                      100,000
   Repayment of note payable..........................                   (55,000)                     (55,000)
   Proceeds from the issuance of common stock (net)...                        --                   36,082,230
   Proceeds from exercise of stock options............                   473,334                       98,265
                                                                  ---------------             ----------------
         Net cash provided by financing activities....                   418,334                   36,225,495
                                                                  ---------------             ----------------
         Net increase in cash and cash equivalents....                   316,642                    2,143,655
Cash and cash equivalents, beginning of period........                 1,159,070                    2,081,846
                                                                  ---------------             ----------------
Cash and cash equivalents, end of period..............         $       1,475,712        $           4,225,501
                                                                  ===============             ================

Supplemental disclosure of cash flow information:
   Cash paid during the period for income taxes.......         $          99,400        $              74,401
   Cash paid during the period for interest...........                     1,396                        4,145
Non-cash activities:
   Conversion of Series A preferred stock to
    common stock......................................                        --                   11,603,996
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      - 4 -
<PAGE>

                                DSET CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1 -- BASIS OF PRESENTATION:

     The consolidated information presented for March 31, 1999 and 1998, and for
the three-month  periods then ended,  is unaudited,  but, in the opinion of DSET
Corporation's (the "Company")  management,  the accompanying unaudited financial
statements  contain  all  adjustments   (consisting  only  of  normal  recurring
adjustments) which the Company considers  necessary for the fair presentation of
the  Company's  financial  position  as of March 31, 1999 and the results of its
operations and its cash flows for the  three-month  periods ended March 31, 1999
and 1998.  The  financial  statements  included  herein  have been  prepared  in
accordance with generally accepted accounting principles and the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and
footnote  disclosures  normally  included in  financial  statements  prepared in
accordance with generally accepted accounting  principles have been condensed or
omitted.  These  financial  statements  should be read in  conjunction  with the
Company's  1998  audited  financial   statements  and  accompanying   notes  and
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  contained in the  Company's  Annual Report on Form 10-K for the year
ended December 31, 1998.

     Results for the interim  period are not  necessarily  indicative of results
that may be expected for the entire year.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     CONSOLIDATION

     The  consolidated  entity  includes DSET  Corporation  and its wholly owned
subsidiaries,  DSET Acquisition Corp., a Delaware corporation,  and Chengdu DSET
Science & Technology Co., Ltd. (China).

     CASH AND CASH EQUIVALENTS

     The  Company  considers  all highly  liquid  investments  purchased  with a
maturity of three months or less to be cash equivalents.

     MARKETABLE SECURITIES

     The marketable  securities portfolio held by the Company consists primarily
of short-term  securities of grade A2 or better with  maturities of two years or
less which are  considered to be available for sale  securities and are reported
at cost.  Unrealized  depreciation  on investments was $40,806 at March 31, 1999
and unrealized appreciation was $40,123 at March 31, 1998.

                                      - 5 -
<PAGE>

     CAPITALIZED SOFTWARE DEVELOPMENT COSTS

     Capitalization  of software  development  costs begins on  establishment of
technological   feasibility.   Costs   incurred   prior  to   establishment   of
technological  feasibility  are  charged to  research  and  product  development
expense.  The ongoing assessment of recoverability of capitalized costs requires
considerable  judgment by management with respect to certain  factors  including
the  anticipated  future gross revenue,  estimated  economic life and changes in
technology.   These  factors  are  considered  on  a  product-by-product  basis.
Amortization of software  development  costs is calculated using a straight-line
method over the estimated  useful life of the  respective  product  ranging from
three to five years.

     ACQUIRED TECHNOLOGY

     Acquired  technology  represents the costs of feasible  technology acquired
from  external  sources.  At March 31, 1999,  acquired  technology  reflects the
purchase  price of certain  assets of Network  Programs LLC ("NPL"),  as well as
related costs to acquire such assets.  There was no amortization expense related
to acquired technology for the quarter ended March 31, 1999.

     Amortization of acquired  technology is calculated using the  straight-line
method over the estimated  useful life of the  respective  product  ranging from
three to five years.

     REVENUE RECOGNITION

     License  revenue is  recorded  when the  software  has been  shipped to the
Company's licensees and all significant obligations have been satisfied. Revenue
from run-time  licenses is recognized as equipment using the Company's  software
is deployed by the Company's customers.  Custom application  development service
revenue is recognized over the period in which the service is performed based on
the percentage of direct labor costs incurred to the total costs estimated.

     Service revenue from maintenance  contracts is deferred and recognized over
the term of the respective contracts (typically twelve months).

     INCOME TAXES

     The Company utilizes an asset and liability approach to financial reporting
for income  taxes.  Deferred  income tax assets  and  liabilities  are  computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future,
based on  enacted  tax laws and  rates  applicable  to the  period  in which the
differences  are expected to affect  taxable  income.  Valuation  allowances are
established,  when  necessary,  to reduce the  deferred tax assets to the amount
expected to be realized.

     For certain  stock  options,  the Company  receives a tax deduction for the
difference  between the fair market value of the  Company's  Common Stock on the
date of exercise of the stock option and the exercise  price.  To the extent the
amount  deducted for income taxes exceeds the amount  charged to operations  for
financial  statement  purposes,   the  related  tax  benefits  are  credited  to
shareholders' equity.

                                      - 6 -
<PAGE>

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  carrying  amounts  in the  financial  statements  for  cash  and  cash
equivalents,  accounts  receivable,  and accounts  payable and accrued  expenses
approximate   their  market  value  because  of  the  short  maturity  of  those
instruments.

     RECENTLY ISSUED ACCOUNTING STANDARDS

     On June 15, 1998, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards  No. 133  "Accounting  for  Derivatives  and
Hedging  Activities"  ("SFAS No. 133"). SFAS No. 133 is effective for all fiscal
quarters of all fiscal years  beginning after June 15, 1999 (January 1, 2000 for
the Company).  SFAS No. 133 requires that all derivative instruments be recorded
on the  balance  sheet  at  their  fair  value.  Changes  in the  fair  value of
derivatives are recorded each period in current earnings or other  comprehensive
income,  depending  on whether a  derivative  is  designated  as part of a hedge
transaction  and,  if it is, the type of hedge  transaction.  Management  of the
Company anticipates that, due to its limited use of derivative instruments,  the
adoption  of SFAS No. 133 will not have a  significant  effect on the  Company's
results of operations or its financial position.

NOTE 3 -- NPL ACQUISITION:

     On January 25, 1999, DSET Acquisition  Corp., a wholly-owned  subsidiary of
the Company,  consummated the acquisition of certain assets of NPL. The purchase
price consisted of $2,500,000  payable in cash to NPL.

     At March 31,  1999,  the costs to  acquire  NPL are  recorded  as  acquired
technology and goodwill. In addition,  research and development costs associated
with bringing the acquired  assets to market have been  recorded as  capitalized
software  development costs at March 31, 1999.  Amortization of these costs will
commence upon shipment of the product and future  development  costs  associated
with the product thereafter will be expensed.

NOTE 4 -- INITIAL PUBLIC OFFERING:

     On March 18, 1998, the Company  consummated  an initial public  offering of
3,500,000  shares of its  Common  Stock at a price to the  public of $16.00  per
share,  of which  2,500,000  shares  were  issued  and sold by the  Company  and
1,000,000 shares were sold by certain  shareholders of the Company (the "Selling
Shareholders").  The  net  proceeds  to  the  Company  from  the  offering  were
approximately $36.1 million. On April 7, 1998, certain Selling Shareholders sold
an additional  525,000  shares of the  Company's  Common Stock at a price to the
public  of  $16.00  per  share  upon the  consummation  of the  exercise  of the
Underwriters'  over-allotment  option.  The  Company  did not receive any of the
proceeds from the sale of shares by the Selling Shareholders.

     The net  proceeds  received by the Company  upon the  consummation  of such
offering,   pending   specific   application,   were  invested  in   short-term,
investment-grade,   interest-bearing  instruments.  See  "Item  2.  Management's
Discussion  and Analysis of Financial  Condition  and Results of  Operations  --
Liquidity and Capital Resources."

                                      - 7 -
<PAGE>

NOTE 5 -- CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK:

     In  December  1995,  the  Company  issued  676,361  shares  of  cumulative,
convertible Series A Preferred Stock. Upon consummation of the Company's initial
public  offering,  the  shares  of  Series A  Preferred  Stock  and  accumulated
dividends were converted into an aggregate of 3,043,625  shares of the Company's
Common Stock.

NOTE 6 -- EARNINGS PER SHARE:

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 128,  "Earnings per Share" (EPS),  which
specifies the computation, presentation and disclosure requirements for earnings
per share of entities  with  publicly  held company  stock or  potential  common
stock.  The  statement  defines two earnings per share  calculations,  basic and
diluted.  The objective of basic EPS is to measure the  performance of an entity
over the reporting  period by dividing  income  available to common stock by the
weighted average shares outstanding.  The objective of diluted EPS is consistent
with that of basic EPS, that is to measure the performance of an entity over the
reporting  period,  while giving effect to all dilutive  potential common shares
that were  outstanding  during the  period.  The  calculation  of diluted EPS is
similar to basic EPS except both the numerator and denominator are increased for
the  conversion  of  potential   common  shares.   The  following   table  is  a
reconciliation of the numerator and denominator under each method:

<TABLE>
<CAPTION>
                                                                 FOR THE THREE MONTHS ENDED MARCH 31, 1999
                                                            ----------------------------------------------------
                                                                                                     PER SHARE
                                                                 INCOME                SHARES          AMOUNT
                                                            ----------------      ---------------   ------------
<S>                                                        <C>                       <C>            <C> 
BASIC EPS:
Net income applicable to common shares............          $       571,952           10,028,583     $    0.06

ASSUMING DILUTION:
Net income applicable to common shares:
     Warrants.....................................                       --              155,864
     Stock options................................                       --            1,147,247
                                                            ----------------      ---------------
                                                            $       571,952           11,331,694     $    0.05
                                                            ================      ===============




                                                                 FOR THE THREE MONTHS ENDED MARCH 31, 1999
                                                            ----------------------------------------------------
                                                                                                     PER SHARE
                                                                 INCOME                SHARES          AMOUNT
                                                            ----------------      ---------------   ------------
BASIC EPS:
Net income applicable to common shares............          $       291,202            7,310,539     $    0.04

ASSUMING DILUTION:
Net income applicable to common shares:
     Warrants.....................................                       --              156,959
     Stock options................................                       --            2,379,274
                                                            ----------------      ---------------
                                                            $       291,202            9,846,772     $    0.03
                                                            ================      ===============
</TABLE>

                                      - 8 -
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS.

GENERAL

     DSET designs,  develops,  markets and supports standards-based  application
development tools,  custom application  development  services,  and Local Number
Portability  Solutions  ("LNP") and operational  support systems ("OSS") gateway
products for the global telecommunications  industry. From its founding in 1989,
the  Company  has  focused  on  the  creation  of  applications  that  could  be
distributed  among many processors in order to solve highly complex  problems in
the network  management arena.  Additionally,  the Company  developed  extensive
knowledge of requirements for multiple protocols and multi-vendor communications
as well as real time operating systems.  In the early 1990's, the Company made a
strategic  decision to focus on  creating  suites of tools that  facilitate  the
development  of   Telecommunications   Management   Network  ("TMN")  solutions.
Substantially  all of the  Company's  revenues  to date  has been  derived  from
application development tools and services based on TMN standards. The Company's
recently developed pre-built carrier-to-carrier applications facilitate the flow
of business  information  between competing  carriers and their respective OSSs.
The Company's success will depend on continued growth in the market for advanced
telecommunications  products and services. For the quarters ended March 31, 1999
and 1998, the Company derived  approximately 55.6% and 49.5%,  respectively,  of
its total  revenues  from license  revenues and  approximately  44.4% and 50.5%,
respectively, of its total revenues from service revenues.

     The Company's revenues are generated from two sources:  license and service
revenues from network equipment  vendors;  and license and service revenues from
telecommunications  carriers,  including  competitive  local  exchange  carriers
("CLECs"). During the first quarter of 1999, the Company derived $5.6 million of
revenues from network  equipment vendors and $1.9 million of revenues from CLECs
and other carriers.

     The Company had no customers which accounted for 10% of sales for the three
months  ending  March 31, 1999 and one  customer  which  accounted  for 24.6% of
revenue for the three months ending March 31, 1998. The Company anticipates that
its  results of  operations  in any given  period  will  continue to depend to a
significant  extent upon sales to a small  number of  customers.  As a result of
this customer concentration,  the Company's revenues from quarter to quarter and
business,  financial  condition  and  results  of  operations  may be subject to
substantial period-to-period fluctuations.

     The Company  derives a portion of its  revenues  from  international  sales
which constituted  approximately 10.4% and 31.6% of the Company's total revenues
in the  quarters  ended March 31,  1999 and 1998,  respectively.  The  Company's
international sales currently are United States dollar-denominated. As a result,
an  increase  in the value of the  United  States  dollar  relative  to  foreign
currencies  could make the Company's  products and services less  competitive in
international markets.

                                      - 9 -
<PAGE>

     On January 25, 1999, DSET Acquisition  Corp., a wholly-owned  subsidiary of
the Company,  consummated the acquisition of certain assets of Network  Programs
LLC ("NPL").  The purchase price consisted of $2,500,000 payable in cash to NPL.
NPL provided specialized software to CLECs.

FORWARD-LOOKING STATEMENTS

     Statements contained in this 10-Q that are not based on historical fact are
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange  Act  of  1934,  as  amended  (the  "Exchange  Act").   Forward-looking
statements may be identified by the use of  forward-looking  terminology such as
"may," "will," "expect," "estimate," "anticipate," "continue," or similar terms,
variations  of such terms or the negative of those  terms.  In  particular,  the
Company's  statements  relating to the Year 2000  compliance of its products and
internal systems are forward-looking statements intended to qualify for the safe
harbor  provided by the Exchange Act. Such  forward-looking  statements  involve
risks and  uncertainties,  including,  but not  limited  to:  (i) the  Company's
dependence  on  the  rapidly  evolving  telecommunications  industry,  (ii)  the
Company's  dependence on the TMN industry  standard,  (iii) rapid  technological
change in the Company's industry, (iv) risks associated with the development and
marketing of new products,  including carrier-to-carrier  applications,  such as
LNP or OSS gateways, (v) risks associated with acquisitions of businesses by the
Company,  including risks relating to  unanticipated  liabilities or expenses or
lower than  expected  revenues of such acquired  businesses,  and (vi) risks and
variables,  including  engineering  costs,  associated  with the  remediation of
certain of the Company's products which are not Year 2000 compliant. The success
of the Company  depends to a large  degree  upon  increased  utilization  of its
application  development  tools,  custom  application  development  services and
carrier-to-carrier   applications,   such   as   LNP   or   OSS   gateways,   by
telecommunications  carriers  and  network  equipment  vendors,  and the  buying
patterns of CLECs.  As a result of such risks and others  expressed from time to
time in the Company's  filings with the Securities and Exchange  Commission (the
"Commission"),  the  Company's  actual  results may differ  materially  from the
results  discussed  in or implied by the  forward-looking  statements  contained
herein.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

     REVENUES.  Total  revenues  increased  40.5% to $7.5  million  in the first
quarter of 1999 from $5.3 million in the first quarter of 1998. License revenues
increased  57.5% to $4.2 million in the first  quarter of 1999 from $2.6 million
in the first  quarter of 1998.  This  increase  was  primarily  attributable  to
initial sales of carrier-to-carrier  products.  Service revenues increased 23.7%
to $3.3  million  in the first  quarter  of 1999 from $2.7  million in the first
quarter of 1998. This increase was primarily  attributable  to increased  custom
development projects. In the quarters ended March 31, 1999 and 1998, the Company
derived approximately 55.6% and 49.5%, respectively,  of its total revenues from
license revenues and approximately 44.4% and 50.5%,  respectively,  of its total
revenues from service revenues.

                                     - 10 -
<PAGE>

     GROSS PROFIT. The Company's gross profit increased 35.3% to $5.9 million in
the first quarter of 1999 from $4.4 million in the first quarter of 1998.  Gross
profit  percentage  decreased to 79.3% of total revenues in the first quarter of
1999 from  82.3% in the first  quarter  of 1998.  Gross  profit  percentage  for
license revenues increased to 93.2% for the first quarter of 1999 from 90.9% for
the  comparable  1998 period due to less third party  software as a component of
sales, and sales of more internally developed products.  Gross profit percentage
for service  revenue  decreased to 61.9% in the first quarter of 1999 from 73.9%
in the first quarter of 1998. This decrease was attributable to increased use of
outside consultants to complete custom development products.

     SALES AND MARKETING EXPENSES.  Sales and marketing expenses increased 20.8%
to $2.4  million  in the first  quarter  of 1999 from $2.0  million in the first
quarter of 1998,  and decreased to 32.0% of total  revenues in the first quarter
of 1999 from 37.3% of total revenues in the first quarter of 1998. This increase
in absolute dollars is primarily  attributable to increased  personnel and costs
related to the Company's sales force and marketing department. The decrease as a
percentage  of  revenue is due to the lower  commission  rates  associated  with
employed  sales  personnel as compared to agents'  commissions.  The Company has
been hiring  sales  personnel  to cover parts of Europe and Asia.  In  addition,
sales to these  regions  were  lower in 1999 as  compared  to the  corresponding
quarter in 1998.

     RESEARCH AND PRODUCT DEVELOPMENT EXPENSES. Research and product development
expenses  increased 56.9% to $2.3 million in the first quarter of 1999 from $1.5
million in the first quarter of 1998, and increased to 31.4% from 28.1% of total
revenues  over the  respective  periods.  This  increase in research and product
development  expenses  both in absolute  dollars and as a percentage of revenues
was due primarily to additional  personnel expenses  attributable to an increase
in staffing due to expansion in the number of projects under  development and in
part to the hiring of former NPL employees.

     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
increased  53.0% to $810,000 in the first  quarter of 1999 from  $530,000 in the
first quarter of 1998,  and increased to 10.8% from 10.0% of total  revenues for
the respective periods.  The increase of general and administrative  expenses in
the first quarter of 1999 as compared to the corresponding period in 1998 is due
to additional staffing, certain costs associated with being a public company and
recruiting costs.

     INTEREST AND OTHER EXPENSE. Interest and other expense decreased to $15,000
from $36,000 for the quarters ended March 31, 1999 and 1998,  respectively,  due
primarily  to the  offset  of  expenses  resulting  from a small  profit  in the
Company's  European  joint venture in the first quarter of 1999 as compared to a
loss in the first quarter of 1998.

     INTEREST  INCOME.  Interest income  increased to $538,000 from $112,000 for
the  quarters  ended March 31, 1999 and 1998,  respectively,  due  primarily  to
interest earned on higher cash and short term investment balances as a result of
the proceeds of the  Company's  initial  public  offering of its Common Stock in
March 1998.

                                     - 11 -
<PAGE>

     INCOME TAXES. The Company's effective tax rate was 35.6% and 33.5% for each
of the  quarters  ended  March 31,  1999 and 1998,  respectively.  The  increase
reflects  small  increases  in  miscellaneous  components  coupled  with a small
decrease in the expected research and development tax credit.

LIQUIDITY AND CAPITAL RESOURCES

     Since its  inception  in 1989,  the Company  has  financed  its  operations
primarily through cash generated by operations and cash raised through its March
1998 initial  public  offering.  At March 31, 1999,  the  Company's  cash,  cash
equivalents and marketable securities aggregated approximately $44.3 million, of
which cash and cash  equivalents  aggregated  approximately  $1.5  million.  The
Company's working capital was $47.7 million at March 31, 1999.

     Accounts  receivable  decreased to $7.8 million at March 31, 1999 from $9.1
million at December 31, 1998  primarily as a result of decreased  sales activity
for the first quarter 1999 as compared to the fourth  quarter of 1998.  Included
in accounts  receivable  was  approximately  $2.4  million of  unbilled  project
revenue at March 31, 1999 as compared to $1.5 million at December 31, 1998.

     The Company  bills its  customers,  several of which are based in Korea and
Japan, in U.S.  dollars at agreed-upon  contractual  terms.  The Company has not
experienced any significant negative effects on its liquidity as a result of the
volatility and devaluation trends that recently have been experienced in certain
Asian  markets,  although no  assurance  can be made that the  Company  will not
experience  difficulty collecting accounts receivable from such customers in the
future.  Accounts receivable at March 31, 1999 includes  approximately  $342,000
from customers in this region.

     The Company's capital expenditures were approximately $182,000 and $160,000
for the three  months ended March 31, 1999 and 1998,  respectively.  The Company
anticipates  higher levels of equipment and  facilities-related  expenditures in
the  foreseeable  future,  as it moves into an expanded  corporate  headquarters
facility in Bridgewater, New Jersey to accommodate current and future growth.

     In August 1997, the Company obtained an unsecured revolving credit facility
with a bank  pursuant  to which the  Company  may borrow up to a maximum of $3.0
million.  Borrowings under this line of credit bear interest at the bank's prime
rate less 0.25% on aggregate  principal  amounts  outstanding  of less than $1.0
million and at the bank's prime rate for aggregate  principal  amounts exceeding
$1.0 million.  No borrowings  under this line were  outstanding  as of March 31,
1999. This credit facility contains, among other provisions, covenants which (i)
mandate the amount of working  capital the Company  must  maintain at the end of
each  calendar  quarter  and (ii)  restrict  the  Company's  ability to pay cash
dividends.

     On March 18, 1998, the Company  consummated  an initial public  offering of
3,500,000  shares of its  Common  Stock at a price to the  public of $16.00  per
share of  which  2,500,000  shares  were  issued  and  sold by the  Company  and
1,000,000 shares were sold by certain Selling Shareholders.  The net proceeds to
the Company from the offering  were  approximately  $36.1  million.  On April 7,
1998,  certain  Selling  Shareholders  sold an additional  525,000 shares of the

                                     - 12 -
<PAGE>

Company's  Common  Stock at a price to the  public of $16.00  per share upon the
consummation of the exercise of the  Underwriters'  over-allotment  option.  The
Company  did not  receive  any of the  proceeds  from the sale of  shares by the
Selling Shareholders.

     The net  proceeds  received by the Company  upon the  consummation  of such
offering,   pending   specific   application,   are   invested  in   short-term,
investment-grade, interest-bearing instruments.

     The Company believes that its existing  available cash, credit facility and
the cash flow  expected  to be  generated  from  operations,  together  with the
proceeds  from its  initial  public  offering,  will be  adequate to satisfy its
current and planned operations for at least the next 12 months.  There can be no
assurance, however, that the Company will not require additional financing prior
to such time to fund its operations or possible acquisitions.

     On January 25, 1999, DSET  Acquisition  Corp., a wholly owned subsidiary of
the Company,  acquired  certain  assets of NPL for $2.5  million.  NPL was a New
Jersey-based  company which  specialized  in software aimed at reducing the time
necessary for a CLEC to provide prospective  customers with sales proposals that
clearly define the CLEC's  current  service  offering  compared to the incumbent
local exchange carrier's current service offering.

YEAR 2000 COMPLIANCE

     ASSESSMENT.  The Company  believes  that its exposure to Year 2000 problems
lies primarily in the following areas: (i) its internal operating systems;  (ii)
its tool suites,  custom applications and pre-built  electronic bonding gateways
and network  management  applications;  and (iii)  systems of third parties with
whom the Company has  material  relationships.  The  Company has  completed  its
assessment with respect to its internal  operating systems and tool suites.  The
Company  continues  to evaluate  its  exposure  with  respect to certain  custom
applications and its relationships with third parties.

     INTERNAL  OPERATING  SYSTEMS.  The Company believes its internal  operating
computer  systems and  management  information  system are  currently  Year 2000
compliant,  and  the  Company  does  not  believe  that  there  will  be  future
significant costs related to future maintenance of such compliance.

     TOOL  SUITES AND  PRE-BUILT  APPLICATIONS.  The Company  has  conducted  an
internal  review and believes that its tool suites  developed after May 27, 1997
have been tested and are Year 2000 compliant. These products include:

               PRODUCT NAME                                VERSION
               ------------                                -------
               ASN.C/C++                                    3.5.3
               Agent Tester                                 2.0.1
               CMIP Translator                              1.0.1
               Distributed Systems Generator                4.2.0
               GDMO Agent Emulator                          2.0.0
               GDMO Agent Toolkit                           2.0.0
               GDMO Compiler                                3.0.0


                                     - 13 -
<PAGE>
               PRODUCT NAME                                VERSION
               ------------                                -------
               LNP Test Extensions                          2.0.0
               Manager Code Generator                       1.0.4
               Manager Toolkit                              1.0.0
               Marben OSIAM Stack                         2.6f/2.6g
               Visual Agent Builder                         1.0.0

     Testing of the Company's pre-built  electronic bonding gateways and network
management  applications for Year 2000 compliance are ongoing. In addition,  the
Company  continues  to  review  and  monitor  all such  products  for Year  2000
compliance.

     CUSTOM APPLICATIONS.  In November 1998, the Company determined that certain
custom applications  developed and delivered to approximately ten customers were
not Year 2000 compliant.  All of these customers were notified of such Year 2000
compliance  status in  November  1998.  The Company has agreed to assist each of
these customers with any and all remediation  solutions required to achieve Year
2000 compliance with the Company's  products.  The Company does not believe such
remediation  will  be  significant  or  will  materially  adversely  affect  the
Company's  financial  condition and results of operations.  To date, the Company
has incurred certain remediation  expenses related to such compliance,  pursuant
to the warranty provisions of the applicable agreements.  Presently, the Company
is  continuing  to  analyze  the  extent  to which  any of the  affected  custom
applications  were  integrated by customers into other products which may expose
the Company to claims from its  customers.  A failure to properly  implement the
correction,  or problems with the  correction,  could cause errors in customers'
products which may materially impact the functionality of those products.

     THIRD PARTY RELATIONSHIPS.  The Company is dependent on various third party
software and hardware  vendors and  suppliers.  The Company is also dependent on
third party service providers and partners such as telephone  companies,  banks,
insurance carriers,  auditors and marketing partners.  The failure of such third
parties to deliver Year 2000 compliant  products or to remediate  their internal
systems could  jeopardize the Company's  ability to meet its  obligations to its
customers.  As a result,  the Company is presently  conducting  inquiries of its
outside vendors, suppliers, service providers and marketing partners to identify
and resolve  Year 2000  exposure  from third  parties.  Upon  completion  of the
foregoing,  the  Company  will be able to assess  such  exposure  and  financial
impact, if any, should such parties fail to be Year 2000 compliant.

     RISKS OF YEAR 2000 ISSUES.  The Company expects to identify and resolve all
Year  2000  problems  that  could  materially  adversely  affect  its  business,
financial condition or results of operations. However, the Company believes that
it is not  possible to  determine  with  complete  certainty  that all Year 2000
problems affecting the Company have been identified or corrected.  Further,  the
Company  cannot  accurately  predict how many failures  related to the Year 2000
Problem will occur or the severity,  duration or financial  consequences of such
failures.  The Company believes that the most reasonably  likely worst case Year
2000 scenario would include a combination of some or all of the following:

                                     - 14 -
<PAGE>

  o       The Company's internal operating systems may fail or provide erroneous
          information.  Such failure  could result in:  reduced  utilization  of
          technical  or  other  personnel;  the  inability  to  timely  generate
          financial  reports and  statements;  and  improper  billing and record
          keeping;

  o       A number of system  failures that may require  significant  efforts by
          the Company or its customers to prevent or alleviate material business
          disruptions; and

  o       Failure in HVAC, lighting,  telephone, security and similar systems on
          which the Company relies.

     Additionally,  the Company  cannot  guarantee that its products will not be
used by other companies, or its customers, to build applications which might not
be Year 2000 compliant,  or that the Company's  products or  applications  built
with  the  Company's  products  will not be  integrated  by the  Company  or its
customers or interact with  non-compliant  software or other  products which may
expose the Company to claims from its customers.

     COSTS.  Other  than  time  spent  by the  Company's  personnel,  the  costs
associated with remediating non-compliant custom applications and assessing Year
2000 compliance  issues have not been  significant to date. The Company believes
that the  continued  analysis of  compliance  of new  releases  of products  and
evaluation of potential Year 2000 problems will result in aggregate expenditures
of less than $100,000.

     CONTINGENCY  PLANS.  The Company believes its plans for addressing the Year
2000 Problem are adequate. The Company does not believe it will incur a material
financial  impact  from  system  failures,  or from the  costs  associated  with
assessing   the  risks  of  failure,   arising  from  the  Year  2000   Problem.
Consequently, the Company does not intend to create a detailed contingency plan.
In the event that the Company does not adequately  identify and resolve its Year
2000 issues, the absence of a detailed contingency plan may materially adversely
affect the Company's business, financial condition and results of operations.

EUROPEAN MONETARY UNION

     On January 1, 1999,  eleven of the fifteen member countries of the European
Union set fixed  conversion  rates between their existing legacy  currencies and
the euro. At such time, these participating  countries adopted the euro as their
common legal currency.  The eleven  participating  countries now issue sovereign
debt exclusively in euro and will redenominate  outstanding  sovereign debt. The
legacy  currencies  will continue to be used as legal tender through  January 1,
2002, at which point the legacy  currencies  will be canceled and euro bills and
coins will be used for cash transactions in the participating countries.

     The Company does not denominate its international  licensing  agreements in
foreign  currencies.  The  Company  currently  does  not  believe  that the euro
conversion will have a material impact on the Company's results of operations or
financial condition.

                                     - 15 -
<PAGE>

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company  believes  that it is not  subject to a material  impact to its
financial  position or results of operations  relating to market risk associated
with derivative  securities.


                                     - 16 -
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

Changes in Securities

     The following  information relates to all securities of the Company sold by
the  Company  within  the past  quarter  which  were not  registered  under  the
securities laws at the time of grant, issuance and/or sale:

     OPTION GRANTS

     1.   During the first  quarter of 1999,  the Company  granted stock options
          pursuant  to its 1998 Stock Plan which were not  registered  under the
          Securities Act of 1933, as amended (the "Securities Act"). All of such
          option  grants were  granted at the then  current fair market value of
          the Common Stock.  The following table sets forth certain  information
          regarding such grants during the quarter:

                                                  WEIGHTED
                                                  AVERAGE
                        NUMBER                    EXERCISE
                       OF SHARES                   PRICE
                       ---------                   -----
                        180,250                    $14.86


     COMMON STOCK ISSUANCES

     2.   During the first quarter of 1999,  the Company issued shares of Common
          Stock  pursuant to exercises of stock  options  granted under its 1993
          Stock Option Plan which were not registered  under the Securities Act.
          The following  table sets forth  certain  information  regarding  such
          issuances during the quarter:

                                                  WEIGHTED
                                                  AVERAGE
                        NUMBER                    EXERCISE
                       OF SHARES                   PRICE
                       ---------                   -----
                        524,425                    $ 0.88


     The Company did not employ an underwriter  in connection  with the issuance
of the securities described above. The Company believes that the issuance of the
foregoing  securities was exempt from registration under either (i) Section 4(2)
of the Securities Act as transactions not involving any public offering and such
securities  having  been  acquired  for  investment  and  not  with  a  view  to
distribution,  or (ii) Rule 701 under the  Securities Act as  transactions  made
pursuant  to a  written  compensatory  benefit  plan or  pursuant  to a  written
contract  relating  to  compensation.  All  recipients  had  adequate  access to
information  about the  Company.

                                     - 17 -
<PAGE>

USE OF PROCEEDS FROM INITIAL PUBLIC OFFERING

     On  March  12,  1998,  the  Commission  declared  effective  the  Company's
Registration Statement  (Registration Statement No. 333-43827) as filed with the
Commission in connection  with the Company's  initial public  offering of Common
Stock, which was managed by BT Alex. Brown Incorporated,  BancAmerica  Robertson
Stephens and  SoundView  Financial  Group,  Inc.  Pursuant to such  Registration
Statement,  the Company  registered and sold an aggregate of 2,500,000 shares of
its Common Stock,  for a gross  aggregate  offering price of $40.0 million.  The
Company incurred  underwriting  discounts and commissions of approximately  $2.8
million.  In connection with such offering,  the Company incurred total expenses
of approximately $1.1 million. As of March 31, 1999, all of the $36.1 million in
net proceeds received by the Company upon consummation of such offering, pending
specific   application,   were   invested   in   short-term,   investment-grade,
interest-bearing instruments.

     On January 25, 1999, DSET Acquisition  Corp., a wholly-owned  subsidiary of
the Company,  consummated the acquisition of certain assets of NPL. The purchase
price consisted of $2,500,000  payable in cash to NPL. NPL provided  specialized
software to CLECs.

     For  working  capital  restrictions  and  limitations  on  the  payment  of
dividends,  see "Item 2.  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K.

      (a)   Exhibits.

            10.1 - Lease Agreement dated  December 31, 1998 between the  Company
                   and Advance/GLB I L.L.C.

            27   - Financial Data Schedule

      (b)   Reports on Form 8-K.

            No reports on Form 8-K were filed  during the quarter for which this
            report on Form 10-Q is filed.


                                     - 18 -
<PAGE>

                                   SIGNATURES


     Pursuant to the  requirements  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.




                                               DSET Corporation




DATE:      May 17, 1999                        By:/s/ William P. McHale, Jr.
                                                  ----------------------------
                                                  William P. McHale, Jr.
                                                  President and  Chief Executive
                                                  Officer
                                                  (Principal Executive Officer)




DATE:      May 17, 1999                        By:/s/ Susan M. Boykas
                                                  -----------------------------
                                                  Susan M. Boykas
                                                  Acting Chief Financial Officer
                                                  (Principal Financial and
                                                  Accounting Officer)



                                     - 19 -