<PAGE>

                                                                  CONFORMED COPY


                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                              --------------------

                                   FORM 10-Q/A

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

                  For the quarterly period ended June 30, 2001
                         Commission File Number 0-23611


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


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


1160 U.S. Highway 22, Bridgewater, New Jersey                  08807
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                     (Zip Code)


                                 (908) 526-7500
                         -------------------------------
                         (Registrant's Telephone Number,
                              Including Area Code)
</TABLE>


         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 August 1, 2001:

<TABLE>
<CAPTION>
             Class                                   Number of Shares
             -----                                   ----------------
<S>                                               <C>
   Common Stock, no par value                           11,629,419
</TABLE>







<PAGE>



                                DSET CORPORATION

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                              Page
                                                                                                              ----
<S>                                                                                                       <C>
PART I.       FINANCIAL INFORMATION....................................................................         1

           Item 1.    Condensed Consolidated Financial Statements......................................         1

                      Condensed Consolidated Balance Sheets as of June 30, 2001
                        and December 31, 2000..........................................................         2

                      Condensed Consolidated Statements of (Loss) Income
                        and Comprehensive (Loss) Income for the Three Months Ended June
                        30, 2001 and 2000..............................................................         3

                      Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss)
                        Income for the Six Months Ended June 30, 2001 and 2000.........................         4

                      Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30,
                        2001 and 2000..................................................................         5

                      Notes to Condensed Consolidated Financial Statements.............................         6

           Item 2.    Management's Discussion and Analysis of Financial Condition and
                        Results of Operations..........................................................        19

                      Results of Operations - Three Months Ended June 30, 2001 ........................        25

                      Results of Operations - Six Months Ended June 30, 2001 ..........................        27

                      Liquidity and Capital Resources..................................................        29

           Item 3.    Quantitative and Qualitative Disclosures About Market Risk.......................        31

PART II.      OTHER INFORMATION........................................................................        32

           Item 2.    Use of Proceeds..................................................................        32

           Item 4.    Submission of Matters to a Vote of Security Holders..............................        32

           Item 5.    Other Information................................................................        33

           Item 6.    Exhibits and Reports on Form 8-K.................................................        34

SIGNATURES.............................................................................................        35
</TABLE>


                                       i







<PAGE>








                          PART I. FINANCIAL INFORMATION


               Item 1. Condensed Consolidated Financial Statements




                                       1







<PAGE>



DSET Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                June 30, 2001       December 31, 2000
                                                                                -------------       -----------------
                                                                                 (unaudited)           (unaudited)*
<S>                                                                               <C>                  <C>
Assets
Current assets:
   Cash and cash equivalents                                                      $ 5,901,946          $ 7,314,254
   Marketable securities                                                           15,087,610           27,760,494
   Income taxes receivable                                                          3,349,903            3,561,201
   Accounts receivable, net of allowance for doubtful accounts
     of $13,000,000 and $12,285,676 at June 30, 2001 and
     December 31, 2000, respectively                                                1,577,582            6,248,635
   Prepaid licenses                                                                 1,204,185              766,071
   Prepaid expenses and other current assets                                          701,090            1,768,709
                                                                                  -----------          -----------
       Total current assets                                                        27,822,316           47,419,364

Acquired technology, net                                                              747,500            4,380,141
Software licenses, net                                                                      -            2,257,101
Software development costs, net                                                             -              435,746
Fixed assets, net                                                                   4,023,943            4,999,684
Goodwill, net                                                                         374,750              928,141
Other assets, net                                                                   1,932,072              762,381
                                                                                  -----------          -----------
       Total assets                                                               $34,900,581          $61,182,558
                                                                                  ===========          ===========

Liabilities and Shareholders' Equity
Current liabilities:
   Accounts payable and accrued expenses                                          $ 4,045,133          $ 7,380,850
   Accrued restructuring expenses                                                   2,345,839              647,196
   Deferred revenues                                                                2,983,414            3,088,086
   Current portion of notes payable                                                   837,004              872,129
   Current portion of capital lease obligation                                        138,367              138,367
                                                                                  -----------          -----------
       Total current liabilities                                                   10,349,757           12,126,628

Long-term notes payable                                                                     -              409,901
Deferred rent                                                                         527,497              505,264
Capital lease obligation                                                              354,209              423,304
                                                                                  -----------          -----------
       Total liabilities                                                           11,231,463           13,465,097
                                                                                  -----------          -----------


Shareholders' equity:
   Common stock, no par value; 40,000,000 shares authorized, 11,629,419
    and 11,627,544 shares issued and outstanding at June 30, 2001
    and December 31, 2000, respectively                                            50,146,240           50,169,404
   Deferred stock compensation                                                        (27,265)             (59,371)
   Accumulated deficit                                                            (26,644,033)          (2,564,554)
   Accumulated other comprehensive income                                             194,176              171,982
                                                                                  -----------          -----------
       Total shareholders' equity                                                  23,669,118           47,717,461
                                                                                  -----------          -----------
       Total liabilities and shareholders' equity                                 $34,900,581          $61,182,558
                                                                                  ===========          ===========
</TABLE>


       * Certain amounts have been reclassified for comparative purposes.



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


                                        2









<PAGE>




DSET Corporation and Subsidiaries
Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss)
Income
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                Three Months Ended June 30,
                                                                                ---------------------------
                                                                                2001                  2000*
                                                                                ----                  ----
                                                                            (unaudited)           (unaudited)
<S>                                                                      <C>                   <C>
Revenues:
   License revenues                                                         $    586,179           $12,205,568
   Service revenues                                                            2,030,061             4,028,048
                                                                            ------------           -----------

              Total revenues                                                   2,616,240            16,233,616
                                                                            ------------           -----------

Cost of revenues:
   License revenues                                                              524,064               899,219
   Service revenues                                                            1,564,951             2,552,328
                                                                            ------------           -----------

         Total cost of revenues                                                2,089,015             3,451,547
                                                                            ------------           -----------

         Gross profit                                                            527,225            12,782,069
                                                                            ------------           -----------

Operating expenses:
   Sales and marketing                                                         2,119,597             4,146,346
   Research and product development                                            2,993,705             4,188,071
   General and administrative                                                  1,416,865               995,096
   Bad debt expense                                                              545,188               613,331
   Amortization of goodwill and other intangibles                                103,284               103,284
   Restructuring and other charges                                             6,780,157                     -
                                                                            ------------           -----------

         Total operating expenses                                             13,958,796            10,046,128
                                                                            ------------           -----------

         Operating (loss) income                                             (13,431,571)            2,735,941

Interest expense and other income (expense), net                                 (30,661)              (40,754)
Interest income                                                                  404,130               582,845
                                                                            ------------           -----------

(Loss) income before income taxes                                            (13,058,102)            3,278,032

Provision  for income taxes                                                       98,315             1,106,534
                                                                            ------------           -----------

Net (loss) income                                                           $(13,156,417)          $ 2,171,498
                                                                            ============           ===========

Other comprehensive (loss) income, net of tax
     Unrealized (depreciation) appreciation on investments                       (55,805)               85,881
     Cumulative translation adjustment                                            19,389                   (27)
                                                                            ------------           -----------
         Comprehensive (loss) income                                        $(13,192,833)          $ 2,257,352
                                                                            ============           ===========
Net (loss) income applicable to common shares                               $(13,156,417)          $ 2,171,498
                                                                            ============           ===========

Net (loss) income per common share                                          $      (1.13)          $      0.19
                                                                            ============           ===========

Weighted average number of common shares outstanding                          11,629,419            11,420,067
                                                                            ============           ===========

Net (loss) income per common share assuming dilution                        $      (1.13)          $      0.18
                                                                            ============           ===========

Weighted average number of common shares and
   common equivalent shares outstanding                                       11,629,419            12,204,396
                                                                            ============           ===========
</TABLE>




       * Certain amounts have been reclassified for comparative purposes.


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


                                        3







<PAGE>




DSET Corporation and Subsidiaries
Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss)
Income
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                 Six Months Ended June 30,
                                                                                ---------------------------
                                                                                2001                  2000*
                                                                                ----                  ----
                                                                            (unaudited)            (unaudited)
<S>                                                                       <C>                   <C>
Revenues:
   License revenues                                                         $  2,107,339          $ 20,300,987
   Service revenues                                                            3,924,342             7,531,042
                                                                            ------------          ------------

              Total revenues                                                   6,031,681            27,832,029
                                                                            ------------          ------------

Cost of revenues:
   License revenues                                                            1,025,890             1,698,438
   Service revenues                                                            3,555,615             4,787,973
                                                                            ------------          ------------

         Total cost of revenues                                                4,581,505             6,486,411
                                                                            ------------          ------------

         Gross profit                                                          1,450,176            21,345,618
                                                                            ------------          ------------

Operating expenses:
   Sales and marketing                                                         4,649,189             6,257,349
   Research and product development                                            6,903,239             7,606,422
   General and administrative                                                  3,269,130             2,635,733
   Bad debt expense                                                              985,275               866,194
   Amortization of goodwill and other intangibles                                203,400               206,568
   Restructuring and other charges                                            10,209,075                     -
                                                                            ------------          ------------

         Total operating expenses                                             26,219,308            17,572,266
                                                                            ------------          ------------

         Operating (loss) income                                             (24,769,132)            3,773,352

Interest expense and other income (expense), net                                 (77,589)              (96,053)
Interest income                                                                  894,395               981,280
                                                                            ------------          ------------

(Loss) income before income taxes                                            (23,952,326)            4,658,579

Provision  for income taxes                                                      127,153             1,566,381
                                                                            ------------          ------------

Net (loss) income                                                           $(24,079,479)         $  3,092,198
                                                                            ============          ============

 Other comprehensive (loss) income, net of tax
     Unrealized appreciation on investments                                        1,135               183,388
     Cumulative translation adjustment                                            21,059                  (747)
                                                                            ------------          ------------
         Comprehensive (loss) income                                        $(24,057,285)         $  3,274,839
                                                                            ============          ============
Net (loss) income applicable to common shares                               $(24,079,479)         $  3,092,198
                                                                            ============          ============

 Net (loss) income per common share                                         $      (2.07)         $       0.28
                                                                            ============          ============

 Weighted average number of common shares
   outstanding                                                                11,629,108            11,228,763
                                                                            ============          ============

 Net (loss) income per common share assuming dilution                       $      (2.07)         $       0.26
                                                                            ============          ============

 Weighted average number of common shares and
   common equivalent shares outstanding                                       11,629,108            12,056,417
                                                                            ============          ============
</TABLE>


       * Certain amounts have been reclassified for comparative purposes.



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


                                        4







<PAGE>



DSET Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                 Six Months Ended June 30,
                                                                                ---------------------------
                                                                                2001                  2000*
                                                                                ----                  ----
                                                                            (unaudited)           (unaudited)
<S>                                                                       <C>                   <C>
Cash flows from operating activities:
   Net (loss) income                                                        $(24,079,479)         $  3,092,198
   Adjustments to reconcile net (loss) income to net cash
    (used in) provided by operating activities:
     Deferred income taxes                                                             -              (208,544)
     Tax benefit from exercise of stock options                                        -             2,117,448
     Stock based compensation charges                                              4,404                65,810
     Depreciation                                                                715,857               546,163
     Amortization                                                                763,498               692,617
     Loss on disposal of assets                                                    6,645                   463
     Bad debt expense                                                            985,275               698,000
     Asset impairment                                                          7,483,455                     -
     (Gain) loss on redemption of marketable securities                         (233,241)              255,000
     Changes in assets and liabilities:
       Accounts receivable                                                     3,685,778               192,261
       Prepaid licenses                                                         (438,114)             (671,000)
       Income taxes payable and receivable                                       211,298              (824,861)
       Prepaid expenses and other current assets                                 806,695              (513,579)
       Other assets, net                                                          21,682                (9,318)
       Accounts payable and accrued expenses                                  (3,061,360)            1,001,044
       Accrued restructuring expenses                                          1,698,643                     -
       Deferred revenues                                                        (104,672)            1,661,760
       Deferred rent                                                              22,233                     -
                                                                            ------------          ------------
         Net cash (used in) provided by operating activities                 (11,511,403)            8,095,462
                                                                            ------------          ------------
Cash flows from investing activities:
   Purchases of marketable securities                                                  -           (18,059,148)
   Redemption of marketable securities                                        12,907,260            21,346,135
   Acquisition of technology                                                    (607,035)             (952,746)
   Acquisition of software licenses                                                    -            (1,250,000)
   Acquisition of fixed assets                                                  (666,358)           (1,590,506)
   Proceeds from disposition of fixed assets                                           -                 1,000
   Repayments of loans to officers and shareholders                                8,726                     -
                                                                            ------------          ------------
         Net cash provided by (used in) investing activities                  11,642,593              (505,265)
                                                                            ------------          ------------
Cash flows from financing activities:

   Loans to ISPSoft, Inc.                                                     (1,000,000)                    -
   Repayments of notes payable                                                  (500,000)             (500,000)
   Repayments of capital lease obligation                                        (69,095)              (63,919)
   Proceeds from the exercise of stock options and warrants                        4,538             1,806,685
                                                                            ------------          ------------
         Net cash (used in) provided by financing activities                  (1,564,557)            1,242,766
                                                                            ------------          ------------
   Effect of foreign exchange rate changes on cash                                21,059                  (747)
                                                                            ------------          ------------
         Net (decrease) increase in cash and cash equivalents                 (1,412,308)            8,832,216
                                                                            ------------          ------------

   Cash and cash equivalents, beginning of period                              7,314,254             2,212,759
                                                                            ------------          ------------
   Cash and cash equivalents, end of period                                 $  5,901,946          $ 11,044,975
                                                                            ============          ============

Supplemental disclosure of cash flow information:
   Cash (received) paid during the period for income taxes                  $   (118,150)         $    673,150
   Cash paid during the period for interest                                 $     76,038          $     27,820
Non-cash activities:
   Deferred payment of software licenses                                    $          -          $  1,250,000
</TABLE>



       * Certain amounts have been reclassified for comparative purposes.


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


                                        5






<PAGE>




DSET Corporation and Subsidiaries
June 30, 2001
Notes to Condensed Consolidated Financial Statements (unaudited)


1.   Basis of Presentation

     The condensed consolidated financial information presented as of June 30,
     2001 and for the three-month and six-month periods ended June 30, 2001 and
     2000 is unaudited, but in the opinion of DSET Corporation's ("DSET" or the
     "Company") management, 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 June 30, 2001, the
     results of its operations for the three-month and six-month periods ended
     June 30, 2001 and 2000, and its cash flows for the six-month periods ended
     June 30, 2001 and 2000. 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 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/A for the year ended December 31,
     2000. The December 31, 2000 balance sheet data contained in this Form
     10-Q/A was derived from audited financial statements, but does not include
     all disclosures required by generally accepted accounting principles.

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

2.   Summary of Significant Accounting Policies

     Consolidation
     The condensed consolidated financial statements include all wholly-owned
     subsidiaries from the respective dates of their acquisition or formation.
     The consolidated entity includes DSET Corporation and its wholly-owned
     subsidiaries, DSET Acquisition Corp., a Delaware corporation; Konark Inc.
     ("Konark"), a California corporation; PIC Technologies, Inc., a Delaware
     corporation; Chengdu DSET Science & Technology Co., Ltd. (China); and DSET
     Canada, Inc. ("Canada"), (see Note 7). Effective January 8, 2001, China was
     sold. All intercompany transactions have been eliminated in consolidation.

     Cash and Cash Equivalents
     The Company considers all highly liquid investments purchased with an
     original maturity of three months or less to be cash equivalents.

     Marketable Securities
     The marketable securities held by the Company are considered to be
     available-for-sale securities and are reported at fair value. Unrealized
     appreciation was $181,000 (net of


                                       6







<PAGE>




DSET Corporation and Subsidiaries
June 30, 2001
Notes to Condensed Consolidated Financial Statements (unaudited)

     deferred taxes of $102,000) at June 30, 2001. Cost is determined on a
     specific identification basis.

     Fixed Assets
     Equipment, furniture and purchased software are stated at cost less
     accumulated depreciation and amortization. Depreciation is calculated using
     a straight-line method over estimated useful lives ranging from three to
     seven years. Leasehold improvements are amortized over the lesser of the
     estimated useful life or the lease term. Gains and losses on the disposal
     of fixed assets are recognized in the Statement of Income (Loss) in the
     period of disposition.

     Goodwill
     The Company amortizes goodwill using a straight-line method over an
     estimated useful life of five years. The Company periodically assesses the
     realizability of the asset based on estimated future cash flows.
     Accumulated amortization was $333,000 as of June 30, 2001 and $442,000 as
     of December 31, 2000. In June 2001, the Company decided to discontinue the
     sale of certain products (see Note 7). As a result, the Company recognized
     an asset impairment for the goodwill related to the discontinued products.

     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 judgement by management with respect to certain
     factors, including the anticipated future gross revenues, estimated
     economic life and changes in technology. These factors are considered on a
     product-by-product basis. Amortization of software development costs is the
     greater amount computed using (a) the ratio that current gross revenues for
     a product bears to the total of current and anticipated future gross
     revenues for that product or (b) the straight-line method over the
     remaining estimated economic life ranging from three to five years of the
     product including the period being reported on. Accumulated amortization
     was zero as of June 30, 2001 and $210,000 as of December 31, 2000. In June
     2001, the Company decided to discontinue the sale of certain products (see
     Note 7). As a result, the Company recognized an asset impairment for the
     capitalized software development costs related to the discontinued
     products.

     Acquired Technology
     Acquired technology represents the costs of feasible technology acquired
     from external sources. Amortization of acquired technology is the greater
     of the amount computed using (a) the ratio that current gross revenues for
     a product bears to the total of current and anticipated future gross
     revenues for that product or (b) the straight-line method over the
     remaining estimated economic life ranging from three to five years of the
     product including the period being reported on. Accumulated amortization
     was $263,000 as of June 30, 2001 and $1,197,000 as of December 31, 2000. In
     June 2001, the Company decided to


                                       7







<PAGE>




DSET Corporation and Subsidiaries
June 30, 2001
Notes to Condensed Consolidated Financial Statements (unaudited)

     discontinue the sale of certain products (see Note 7). As a result, the
     Company recognized an asset impairment for the acquired technology related
     to discontinued products.

     Research and Product Development
     Research and product development costs are charged to expense as incurred.
     However, the costs incurred for the development of computer software that
     will be sold, leased, or otherwise marketed are capitalized when
     technological feasibility has been established.

     Long-Lived Assets
     The Company reviews its long-lived assets for impairment whenever events or
     changes in circumstances indicate that the carrying amount of an asset may
     not be recoverable. The Company considers historical performance and future
     estimated results in its evaluation of potential impairment and then
     compares the carrying amount of the asset to the estimated future net cash
     flows expected to result from the use of the asset. If the carrying amount
     of the asset exceeds estimated undiscounted future net cash flows, the
     Company measures the amount of the impairment by comparing the carrying
     amount of the asset to its fair value. Fair value is generally measured by
     discounting expected future net cash flows at the rate the Company utilizes
     to evaluate potential investments.

     Revenue Recognition
     License revenues are comprised of one time license fees for application
     development tools, Local Number Portability ("LNP") solutions and
     electronic-bonding gateways and of repetitive license royalty fees for
     application development tools that are sold on a multiple-use basis.
     Revenue for the one time license fees are recognized when there is
     persuasive evidence that an arrangement exists, delivery has occurred, the
     fee is fixed and determinable and collection is probable. Royalty revenue
     for the multiple-use licenses is recognized when the customer sells a
     product within which is embedded libraries of the application development
     tools. The contracts for multiple-use licenses do not call for any minimum
     royalties.

     Service revenues are comprised of postcontract customer support service
     fees, professional service fees including training, consulting,
     installation, implementation, and charges for reimbursable expenses and
     custom product development fees. Revenues for the postcontract customer
     support services are recognized ratably over the period in which the
     services are provided. Revenues for training in the Company's products are
     recognized when the training has been completed. Revenues for consulting
     services are recognized in the period in which the consulting services are
     provided. Revenues for product installation and implementation services are
     recognized when contractually agreed upon milestones have been achieved. It
     is not necessary for the Company to provide implementation services.
     Outside third-parties are available to perform integration of the Company's
     software with the customer's systems or the customer can choose to install
     the software. Revenues for reimbursable expenses are recognized as the
     expenses are incurred. Revenues for custom product development are
     recognized under the contract method of accounting since they


                                       8





<PAGE>




DSET Corporation and Subsidiaries
June 30, 2001
Notes to Condensed Consolidated Financial Statements (unaudited)


     generally require significant production, modification or customization of
     the Company's products. Revenue for custom product development is
     recognized as a percentage of the contract completed based upon the ratio
     of direct labor costs incurred to the estimated total direct labor costs
     required for the project. Any revenue for custom product development that
     is recognized in excess of amounts invoiced to the customer for progress
     billings is recorded as unbilled accounts receivable.

     Some customer contracts provide for multiple elements to be delivered (for
     example, electronic-bonding gateway product, postcontract customer support,
     training, custom product development). In those contracts that include
     multiple elements, the contract fee is allocated to the various elements
     based on vendor-specific objective evidence (VSOE) of fair value. Vendor
     specific objective evidence of fair value is the price charged when the
     same element is sold separately, or for an element not yet being sold
     separately, the price established by the Company's product management
     department.

     In 2000, the Company entered into an agreement with NE Technologies
     pursuant to which NE Technologies performs as a subcontractor for DSET with
     respect to substantially all of the post contract customer support for
     network solutions to which DSET was obligated. In connection with such
     agreement, DSET receives a royalty of between fifteen and thirty percent
     for all new business generated by NE Technologies. Such royalties
     amounted to $154,000 for the six months ending June 30, 2001.


     Income Taxes
     The Company utilizes an asset and liability approach for financial
     reporting for income taxes. Deferred income tax assets and liabilities are
     computed 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 at
     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.

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

     Use of Estimates in the Preparation of Financial Statements


                                       9





<PAGE>




DSET Corporation and Subsidiaries
June 30, 2001
Notes to Condensed Consolidated Financial Statements (unaudited)


     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates. Estimates are used when accounting for certain items such as the
     allowance for doubtful accounts, depreciation and amortization, future
     revenue streams from its products and income taxes. Additionally, the
     Company evaluates the useful lives of its acquired technology and software
     development costs based upon changes in technology and industry conditions.

     Reclassifications
     Certain amounts in 2000 have been reclassified to conform to the current
     period presentation.

     New Accounting Standards
     In July 2001, the Financial Accounting Standards Board ("FASB") issued
     Statements of Financial Accounting Standard No. 141("SFAS 141") "Business
     Combinations" and No. 142, ("SFAS 142") "Goodwill and Other Intangible
     Assets". SFAS 141 supersedes APB Opinion No. 16, "Business Combinations"
     and SFAS 38, "Accounting for Preacquisition Contingencies of Purchased
     Enterprises" and requires that all business combinations be accounted for
     by the purchase method and eliminates the pooling-of-interests method. SFAS
     141 is effective for all business combinations completed after June 30,
     2001 except for poolings initiated before July 1, 2001. SFAS 142 supersedes
     APB No. 17, "Intangible Assets" and prohibits amortization of goodwill and
     other intangible assets that have an indefinite life. SFAS 142 is effective
     for all fiscal years beginning after December 15, 2001. However, all
     goodwill and intangible assets that are acquired after June 30, 2001 are
     immediately subject to SFAS 142. DSET will account for the pending merger
     with ISPSoft Inc. (see Note 8) in accordance with SFAS 141 and SFAS 142.

     Upon the Company's adoption of SFAS 141 and 142, DSET will not amortize
     goodwill or other intangibles acquired after June 30, 2001, unless such
     goodwill or other intangible possesses a finite life. The amortization of
     goodwill acquired before June 30, 2001 will be discontinued at January 1,
     2002.

     At January 1, 2002, DSET will have unamortized goodwill of $303,000. In
     accordance with SFAS 142, this amount will no longer be amortized. If it
     were amortized, the amount of amortization would be $123,000 in 2002.


                                       10





<PAGE>




DSET Corporation and Subsidiaries
June 30, 2001
Notes to Condensed Consolidated Financial Statements (unaudited)


3.   Debt Obligations

     a) Capital Lease Obligation
     In June 1999, the Company entered into a five-year capital lease agreement
     mainly for office furniture and fixtures in the Company's facilities in
     Bridgewater, New Jersey and Plano, Texas at an annual rate of 8.21%. The
     annual lease payments approximate $180,000. As part of the reductions in
     workforce (see Note 7), the Company recognized an asset impairment for
     certain assets under these leases as such assets will not be utilized.
     Assets recorded under this lease (adjusted for the restructuring discussed
     in Note 7) are included in fixed assets as follows:

<TABLE>
<CAPTION>
                                June 30, 2001        December 31, 2000
                                -------------        -----------------
    <S>                            <C>                      <C>
    Furniture and fixtures         $  412,777               $  743,462
    Accumulated amortization         (117,937)                (159,313)
                                   ----------               ----------
                                   $  294,840               $  584,149
                                   ==========               ==========
</TABLE>


     b) Lines of Credit
     In August 2000, the Company renewed an unsecured revolving credit facility
     with a bank increasing the line of credit to $5.0 million. Borrowings under
     this line of credit bear interest at the bank's prime rate (6.75% at June
     30, 2001) less 0.25% on 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 at June 30, 2001 or
     December 31, 2000. This credit facility contains, among other provisions, a
     covenant, which restricts the Company's ability to pay cash dividends.
     Since December 31, 2000, the "earnings before income taxes, depreciation
     and amortization" ("EBITDA") covenant has not been met and therefore the
     line is not currently available.

     c) Notes Payable
     As part of the acquisition of Konark, the Company paid $1.0 million in cash
     and issued a $2.5 million non-interest bearing note payable which has been
     discounted at 8.25%. Interest expense is accreted monthly and totalled
     $25,000 for the three months ended June 30, 2001. The note is payable in
     five installments, and matures on March 1, 2002.


                                       11





<PAGE>




DSET Corporation and Subsidiaries
June 30, 2001
Notes to Condensed Consolidated Financial Statements (unaudited)


     As of June 30, 2001, all remaining payments under the notes are classified
     as short-term and are payable as follows:

<TABLE>
<CAPTION>
                                                           Principal
                    Year Ending December 31,               Payments
                    ------------------------              ----------
                    <S>                                    <C>
                    2001                                  $  500,000
                    2002                                     500,000
                                                          ----------
                                                           1,000,000

                    Less:  Unamortized interest             (162,996)
                                                          ----------

                    Present value of notes payable           837,004
                                                          ==========
</TABLE>


4.   Revenue Concentration

     The Company had two customers accounting for 14% and 10% of revenues,
     respectively, for the quarter ended June 30, 2001 and no customers, which
     accounted for more than 10% of revenues for the quarter ended June 30,
     2000. The Company had one customer, which accounted for 27% of revenues for
     the six months ended June 30, 2001 and no customer who accounted for more
     than 10% of revenues for the six months ended June 30, 2000. The Company
     had seven customers each accounting for more than 10% of accounts
     receivable, net at June 30, 2001. Collectively, these seven customers
     accounted for 96% of accounts receivable, net at June 30, 2001. The Company
     had one customer accounting for 23% of accounts receivable, net at December
     31, 2000. The Company derives a portion of its revenues from international
     sales, which constituted approximately 1% and 3% of the Company's total
     revenues in the second quarter of 2001 and 2000, 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.

5.   Earnings Per Share

     The Company calculates, presents and discloses earnings per share ("EPS")
     in accordance with SFAS No. 128, "Earnings per Share". The statement
     defines two earnings per share calculations, basic and assuming dilution.
     The objective of basic EPS is to measure the performance of an entity over
     the reporting period by dividing net 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 the denominator
     is increased for the conversion of potential common shares. Due to the
     Company's net loss for the three month and six month periods ended June 30,
     2001, all


                                       12





<PAGE>




DSET Corporation and Subsidiaries
June 30, 2001
Notes to Condensed Consolidated Financial Statements (unaudited)


     outstanding stock options are considered to be antidilutive. The following
     table is a reconciliation of the numerator and denominator under each
     method:


<TABLE>
<CAPTION>
                                                        For the Three Months Ended June 30,
                                                        -----------------------------------
                                               2001                                             2000
                               ----------------------------------------       --------------------------------------------

                                 Net                             Per Share        Net                             Per Share
                                 Loss           Shares             Amount        Income         Shares             Amount
                                 ----           ------             ------        ------         ------             ------
<S>                       <C>                   <C>               <C>            <C>            <C>               <C>
Basic EPS:
Net (loss) income
applicable to
common shares                 $(13,156,417)     11,629,419        $(1.13)       $2,171,498      11,420,067          $0.19

Assuming dilution:
      Stock options                      -               -                               -          41,477
      Warrants                           -               -                               -         742,852
                               -----------      ----------                       ---------      ----------
                              $(13,156,417)     11,629,419        $(1.13)       $2,171,498      12,204,396          $0.18
                               ===========      ==========                       =========      ==========
</TABLE>



<TABLE>
<CAPTION>
                                                         For the Six Months Ended June 30,
                                                         ---------------------------------
                                               2001                                             2000
                               ----------------------------------------       -------------------------------------------

                                 Net                            Per Share        Net                            Per Share
                                 Loss           Shares            Amount        Income         Shares             Amount
                                 ----           ------            ------        ------         ------             ------
<S>                             <C>             <C>               <C>            <C>             <C>                <C>
Basic EPS:
Net (loss) income
applicable to
common shares                 $(24,079,479)     11,629,108        $(2.07)       $3,092,198      11,228,763          $0.28

Assuming dilution:
      Stock options                      -               -                               -          42,390
      Warrants                           -               -                               -         785,264
                               -----------      ----------                    ------------      ----------
                              $(24,079,479)     11,629,108        $(2.07)       $3,092,198      12,056,417          $0.26
                               ===========      ==========                    ============      ==========
</TABLE>


                                       13





<PAGE>




DSET Corporation and Subsidiaries
June 30, 2001
Notes to Condensed Consolidated Financial Statements (unaudited)


     At June 30, 2001 substantially all option exercise prices exceeded the
     market price of the Company's common stock. At June 30, 2001, outstanding
     options to purchase 2,029,165 shares of common stock are antidilutive and
     excluded from the computation of diluted loss per share for the three-month
     and six-month periods ended June 30, 2001. See Note 10 regarding the
     Company's reverse stock split.

6.   Related Party Transactions

     During the year ended 2000, the Company extended three loans to its
     President and Chief Executive Officer totaling $902,728 with a 6% interest
     rate per annum with one due November 2000, one due May 2001 and one due
     October 2001. As of December 31, 2000, the President and Chief Executive
     Officer repaid $527,728 against these loans leaving an outstanding balance
     of $627,728 inclusive of a loan of $252,728, which originated in August
     1999. The Company's President and Chief Executive Officer has pledged
     various personal assets including vested options to purchase the Company's
     stock, shares of the Company's Common Stock, personal real estate assets
     and various securities against these loans. The Company recorded a
     provision of $350,000 for bad debt expense against these loans in the
     fourth quarter of 2000 for the amount of the loans that exceeds the
     estimated realizable value.

     In March 2001, the Company and its President and Chief Executive Officer
     entered into a new loan arrangement which consolidated the outstanding
     balance for all previous loans and provided for a four-year payment
     schedule with a balloon payment due at the end of the term.

7.   Restructuring and Other Charges

     In January 2001, the Company sold its subsidiary, Chengdu DSET Science and
     Technology Co., Ltd. In accordance with Statement of Financial Accounting
     Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
     for Long-Lived Assets to Be Disposed Of", the Company recorded a pre-tax
     charge of $278,500 in the fourth quarter of 2000 against the remaining
     investment in the subsidiary.

     In March 2001, the Company deemed it necessary to reduce the workforce in
     the United States and Canada by forty-seven employees, close its Canadian
     subsidiary, DSET Canada, Inc., due to the changing and unpredictable
     conditions in the marketplace, and discontinue certain product lines in an
     effort to conserve cash. The involuntary employee separations were mainly
     in research & development and professional services. The Company recorded
     an impairment charge of approximately $2.2 million in the first quarter of
     2001 for the carrying value of a license acquired from Daleen, Inc. that
     allowed the Company to enter into the Canadian market.


                                       14







<PAGE>




DSET Corporation and Subsidiaries
June 30, 2001
Notes to Condensed Consolidated Financial Statements (unaudited)

     The approximate restructuring charges are summarized as follows:


<TABLE>
         <S>                                                      <C>
         Daleen software license asset impairment                 $2,174,000

         U.S. and Canadian work force reduction                      378,000

         U.S. and Canadian fixed asset impairments
          and future non-refundable lease payments                   847,000

         Other                                                        30,000
                                                                  ----------

         Total First Quarter Restructuring and other charges      $3,429,000
                                                                  ==========
</TABLE>



     In June 2001, the Company further reduced its workforce in the United
     States by approximately seventy-one employees due to the continued changing
     and unpredictable conditions in the marketplace and to discontinuing
     certain product lines in an effort to conserve cash. The employees
     terminated mainly supported the ezSubscribe, ez911, CNAM/LIDB and PIC
     gateways. The Company recorded an asset impairment of approximately $4.5
     million in the second quarter of 2001 for the carrying value of intangible
     assets related to the discontinued products.

     The approximate restructuring charges are summarized as follows:


<TABLE>
         <S>                                                                    <C>
         Assets impairment                                                      $4,520,000

         Work force reduction                                                      969,000

         Fixed asset impairments and future non-refundable lease payments        1,291,000
                                                                                ----------

         Total Second Quarter 2001 Restructuring and other charges              $6,780,000
                                                                                ==========
</TABLE>


     For the six months ended June 30, 2001, the amount of termination benefits
     paid to employees due to the March and June restructuring was $167,000,
     with a remaining accrual of $1.1 million. The total accrual inclusive of
     essentially termination benefits and non-refundable lease payments at June
     30, 2001 is $2.3 million. It is anticipated that the majority of the
     remaining accrued expenses will be paid in the third and fourth quarter of
     2001.

8.   Merger with ISPSoft Inc.

     Merger Agreement


                                       15





<PAGE>




DSET Corporation and Subsidiaries
June 30, 2001
Notes to Condensed Consolidated Financial Statements (unaudited)


     In June 2001, the Company announced an agreement to merge with ISPSoft Inc.
     ("ISPSoft"). ISPSoft has developed what the Company believes to be a
     technically advanced implementation of Internet Protocol (IP) provisioning
     software. ISPSoft security holders will receive an aggregate of up to
     9,124,547 shares of DSET common stock, $1,000,000 in cash and up to
     $1,000,000 in cash or unregistered shares of DSET common stock in potential
     milestone payments in exchange for their ISPSoft securities in the merger.
     DSET will also issue 764,962 options to purchase shares of DSET common
     stock upon the assumption of 2,162,930 currently issued and outstanding
     options to purchase shares of ISPSoft common stock. The shares and options
     indicated are subject to final adjustment as of the date of closing. The
     merger transaction with ISPSoft is subject to approval by DSET's
     shareholders.

     Loan Transactions
     In May 2001, simultaneously with the execution of a letter of intent
     related to the merger with ISPSoft, DSET loaned ISPSoft $500,000 pursuant
     to a secured promissory note. Principal and interest, which accrued at
     eight percent per year, was payable on the earlier of (i) October 31, 2001,
     (ii) ISPSoft determining not to enter into a merger with the Company, and
     (iii) the consummation by ISPSoft of an equity financing after May 9, 2001
     that resulted in gross proceeds to ISPSoft of at least $2,000,000,
     exclusive of any proceeds received upon the conversion of any promissory
     notes issued by ISPSoft. The parties also executed a security agreement
     under which ISPSoft granted DSET a security interest in substantially all
     of ISPSoft's assets. DSET also became party to an intercreditor agreement
     with ISPSoft's other secured lenders under which DSET's security interest
     was to be equal in priority to the security interests of the other secured
     lenders.

     In June 2001, simultaneously with the execution of the merger agreement
     with ISPSoft, ISPSoft issued to DSET a $2,000,000 promissory note, which
     replaced the $500,000 note. The remaining loan amounts were to be loaned by
     DSET to ISPSoft as follows: $500,000 in June 2001; $500,000 in July 2001;
     and $500,000 in August 2001. The $1,000,000 that was loaned to ISPSoft as
     of June 30, 2001 has been classified as a long-term asset. Principal and
     interest, which accrues at eight percent per year, is payable on the
     earlier of (i) October 31, 2001, unless the failure to close the merger is
     caused by the failure of DSET to obtain requisite shareholder approval, in
     which case the note shall be payable on January 31, 2002; (ii) ISPSoft
     being required to pay a break up fee as a result of ISPSoft's termination
     of the merger agreement; and (iii) the consummation by ISPSoft of an equity
     financing after June 26, 2001 that results in gross proceeds to ISPSoft of
     at least $2,000,000, exclusive of any proceeds received upon the conversion
     of any promissory notes issued by ISPSoft. The parties also executed an
     amended and restated security agreement on substantially the same terms as
     the first security agreement. The security interest granted to DSET is
     equal in priority to the security interests of the other secured lenders of
     ISPSoft.

9.   Employee Stock Purchase Plan


                                       16





<PAGE>




DSET Corporation and Subsidiaries
June 30, 2001
Notes to Condensed Consolidated Financial Statements (unaudited)


     On June 13, 2001, the Company adopted an Employee Stock Purchase Plan
     ("ESPP") under Section 423 of the Internal Revenue Code. The ESPP is
     effective July 1, 2001. Under the ESPP, eligible employees are provided an
     opportunity to purchase shares of the Company's common stock through
     regular payroll deductions. The total number of shares of common stock that
     are authorized for issuance under the ESPP is 1,000,000. Employees are
     given an opportunity to purchase shares of common stock during consecutive
     six-month periods, and the right to purchase shares will expire on the last
     day of the six-month period. The purchase price for shares offered under
     the ESPP for the first plan period ending December 31, 2001 was equal to a
     percentage designated by the compensation committee of the Board of
     Directors (not less than 85%) of the closing price of the Company's common
     stock on June 29, 2001 and December 31, 2001 as reported on the Nasdaq
     National Market. For each subsequent six-month period, the purchase price
     for shares offered under the ESPP will be equal to a percentage designated
     by the compensation committee of the Board of Directors (not less than 85%)
     of the lower of the fair market value of the Company's common stock at the
     commencement or termination of the six-month period. The ESPP will expire
     on July 1, 2005.

10.  Subsequent Events

     Shareholder Rights Plan
     In July 2001 the Company announced that its board of directors had adopted
     a shareholder rights plan (the "Rights Plan"). Under the Rights Plan, each
     shareholder of record on July 31, 2001 will receive a distribution of one
     right for each share of DSET common stock ("Rights"). Initially the Rights
     will be represented by DSET's common stock certificates, will not be traded
     separately from DSET's common stock, and will not be exercisable. The
     Rights become exercisable only if an entity acquires, or announces a tender
     offer, that would result in ownership of 15% or more of DSET's common
     stock, at which time each Right would enable the holder to buy
     one-thousandth of a share of DSET's Series A Junior Participating Preferred
     Stock at an exercise price of $20, subject to adjustment. The actual number
     of shares acquirable by the holder equals $20 divided by one-half of the
     then current market price of DSET's common stock. Additionally, the Rights
     Plan provides that in the event of a subsequent merger or other acquisition
     of DSET, the holders of Rights will be entitled to buy shares of common
     stock of the acquiring entity at one-half of the market price of the
     acquiring company's shares. The Company will account for the contingent
     conversion option in the Rights Plan in accordance with EITF 00-27
     "Application of EITF Issue No. 98-5, `Accounting for Convertible Securities
     with Beneficial Conversion Features or Contingently Adjustable Conversion
     Ratios' to Certain Convertible Instruments" which requires the Company to
     compute the resulting number of shares that would be received pursuant to
     the new conversion price upon the occurrence of the conversion event. The
     number of shares that would be received upon conversion based on the
     adjusted conversion price would then be compared with the number that would
     have been received prior to the


                                       17





<PAGE>




DSET Corporation and Subsidiaries
June 30, 2001
Notes to Condensed Consolidated Financial Statements (unaudited)


     occurrence of the contingent event. The excess number of shares multiplied
     by the commitment date stock price would equal the incremental intrinsic
     value that results from the resolution of the contingency and the
     corresponding adjustment to the conversion price. That incremental amount
     would be recognized when the triggering event occurs in accordance with
     EITF 00-27.

     Nasdaq Notice
     DSET's common stock is currently listed on the Nasdaq National Market. On
     July 9, 2001, the Company received notification from the Nasdaq Stock
     Market, Inc. ("Nasdaq") that the Company was not in compliance with
     Nasdaq's $1.00 minimum bid price requirement because the Company's common
     stock had closed below that minimum price for thirty consecutive trading
     days. The Company has ninety days to regain compliance. The failure to meet
     Nasdaq's maintenance criteria may result in the de-listing of the Company's
     common stock from the Nasdaq National Market and could have a material
     adverse effect on the Company.

     Reverse Stock Split
     On August 14, 2001 the Company announced a reverse stock split effective on
     the close of business on August 21, 2001, pursuant to which one new share
     of common stock of the Company will be issued in exchange for each four
     outstanding shares of common stock. The Board of Directors approved the
     reverse split under New Jersey law and also authorized the reduction of the
     Company's authorized common stock four-fold from 40,000,000 to 10,000,000.
     The Company's common stock is expected to commence trading at the post
     split price on August 22, 2001. The Company believes that the reverse stock
     split will increase the market price per share of the common stock to well
     above the minimum bid price of $1.00 necessary to meet the Nasdaq National
     Market's listing requirement.

     The pro forma net (loss) earnings per common share reflecting the reverse
     stock split are as follows:


<TABLE>
<CAPTION>
                              Three Months Ended June 30,       Six Months Ended June 30,
                               2001                2000          2001                2000
                               ----                ----          ----                ----
    <S>                      <C>                   <C>         <C>                  <C>
    Basic                    $(4.53)               $0.76       $(8.28)              $1.10
    Assuming Dilution        $(4.53)               $0.71       $(8.28)              $1.03
</TABLE>


                                       18







<PAGE>




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

General

         DSET is a supplier of software and services that solve complex network
and service management problems for a variety of customers in the
telecommunications industry.

         DSET's software products have varied over the past eleven years and
2000 marked the final stages of the Company's transition from being a provider
of application development tools and local service management system ("LSMS")
application products to a provider of electronic-bonding gateway software and
services. DSET had sold both product lines to network equipment providers,
fueling DSET's growth in the mid 1990's. Since the Company expected such product
lines to decline in revenue as a result of technological changes and reduction
in the size of such customers' respective markets, DSET ceased development and
direct sale of these products as of the end of 2000.

         In 1998, the Company started internal development efforts to build
electronic-bonding gateways that enable competitive telecommunications service
providers to implement electronic Trading Partner Networks ("TPNs"), which
significantly reduce the time required to provision new phone services for
customers and resolve service outages to maintain high service quality and
ensure customer retention. DSET sells these gateways to competitive service
providers ("CSPs"), which are comprised of facilities-based competitive local
exchange carriers ("CLECs"), data local exchange carriers ("DLECs"), cable
companies and utilities. Since then, the Company has established a leadership
position in this market as demonstrated by having over 30 active customers
throughout North America.

         Many of DSET's gateways currently support interfaces to a variety of
different operational support systems ("OSSs"), such as an order management
systems ("OMS") or a customer relationship management ("CRM") system. By
integrating with an OMS or a CRM system, the information on the order form or
trouble ticket can be sent electronically without human intervention back and
forth across the TPN once it is entered. This process plays a key role for CSPs
as they attempt to implement a flow-through provisioning.

         A major downturn in the telecommunications industry, and specifically
the CLEC market, occurred in the second half of the year 2000. This downturn
reduced DSET's revenues significantly as compared with the corresponding periods
of the previous year beginning in the third quarter of 2000 and continuing to
the most recent quarter-end. This also caused the Company to incur losses for
each of these quarters. The downturn was brought about by the almost sudden
withdrawal of available financing from almost all of the traditional financing
sources (vendors, lenders, private equity/venture capital sources, public equity
markets and large corporate partners) to the Company's current and potential
customers. The CLECs have experienced this decrease in funding due to concerns
over their business models. It has forced CLECs to stop spending on many capital
projects, including establishing trading partner networks, resulting in lower
sales of DSET products and services. Many of DSET's targeted




                                       19








<PAGE>


customers have already purchased billing and order management systems but have
decided to delay their purchases of gateways until the funding climate improves
and the order flow from their customers increases. These purchasing delays not
only occurred at large well-funded CLECs, but also at start-up CLECs. Prior to
this downturn, the new CLECs were successfully and regularly obtaining large
capital commitments allowing them to increase the size and the pace of their
infrastructure spending. This funding crisis also affected our collection
efforts since many customers either declared bankruptcy or concluded that they
did not have sufficient available cash to repay their obligations to DSET. While
we believe that we have adequately reserved for potential doubtful accounts, no
assurance can be made that no additional customers will be unable to pay their
outstanding obligations or go bankrupt.

         DSET's policy to assess the probability of collection, consists of
reviewing public and private sources of financial information for all potential
customers (e.g. financial statements, periodic filings and press releases),
inquiring of management of the potential customer as to how they intend to pay
for their purchase, reviewing available information from credit rating agencies,
reviewing recent announcements regarding completed and proposed financing and
discussing the potential customer's credit worthiness with other suppliers.

         Prior to the third quarter of 2000, the Company's experience with the
necessity for creating allowances for bad debt had been good. The Company's
ongoing credit assessment procedures include maintaining contact with the
customer regarding the status of the receivable, reviewing all overdue
outstanding balances and continuing to review available public and private
information regarding the customer's ability to pay. The sudden and swift market
change beginning in the third quarter of 2000 resulted in certain customers
declaring bankruptcy as some had overextended their available financing, others
to reduce their capital expenditures and others to state their intention not to
pay their outstanding obligations.

         DSET is currently offering license run time pricing with little monies
due up front as a response to this downturn. DSET has also reduced headcount and
expenses in an effort to conserve cash and ultimately return to profitability.
DSET has utilized monies previously invested in marketable securities to finance
the losses brought about by the downturn.

         DSET's license revenues are derived from the sale of electronic-bonding
gateways to CSPs under contracts that provide for license fees. Prices for
licenses of the CSP products range from $115,000 to $500,000. The total price of
a license sale to a customer depends on the number of licensed products and the
number of trading partners.

         During the second quarter of 2001, DSET introduced a "Pay As You Grow"
pricing option to provide alternatives to CSPs that are constrained by lack of
funding. Under this pricing plan, customers spread out their licensee payments
over two to three years. This new pricing plan was introduced to facilitate
customer decision making in this difficult economic environment and to build a
recurring revenue stream.

         In 2000, revenues from the sale of LNP solutions and application
development tools to customers under contracts were generally derived from
license fees and run-time royalty fees.




                                       20








<PAGE>


Prices for licenses of the Company's LNP solutions and application development
tool suites can range from approximately $150,000 to $400,000, depending on the
number of licensed components and development users. The Company's license
agreements for application development tools also typically provide for run-time
royalty fees that are earned at the time of deployment by equipment vendors to
telecommunications carriers of network devices that have embedded applications
built with the Company's software. A run-time license permits an equipment
vendor to incorporate applications developed with the Company's software tools
in such vendor's telecommunications network devices. Run-time royalty fees are
recognized as the Company is notified of such deployment. Notification is
typically received from customers pursuant to quarterly reports or via purchase
orders for individual licenses.

         Commencing in 2001, DSET receives and recognizes royalty revenues from
NE Technologies relating to their revenues from their business operations
including application development product suites license, maintenance, projects
and other related services.

         The Company's service revenues are comprised of fees derived from
custom development, implementation, installation, training fees and maintenance.
The Company's custom development services are generally individually negotiated
and contracted for on a fixed price basis. Prices for such projects vary
depending upon the size and scope of the project and estimated time and effort
to completion. Revenues from custom development services are generally
recognized on a percentage of completion basis calculated as direct labor costs
are incurred in relation to estimated total costs at completion for each
project. The impact of revisions in percentage of completion estimates is
reflected in the period in which the revisions are made. Maintenance services,
for which the Company typically charges between 15% and 30% annually of the
price of the products licensed by the customer, may be purchased at the
customer's option. Maintenance fees are recognized as service revenue over the
term of the maintenance period, which is typically a 12-month term.

         The Company's costs of license revenues consist primarily of royalties
paid to third party software companies and the amortization of acquired
technology and capitalized software development costs. The Company generally is
not contractually obligated to make minimum royalty payments. Costs of service
revenues include primarily payroll, related benefit costs, personnel and other
operating expenses. Sales and marketing expenses consist of salaries,
commissions and bonuses paid to sales and marketing personnel, as well as travel
and promotional expenses. Research and product development expenses encompass
primarily software engineering personnel costs, costs of third-party equipment,
costs associated with customer satisfaction and quality and software utilized
for development purposes. Research and product development expenses are charged
to operations as such costs are incurred. The Company's research and development
projects are evaluated for technological feasibility in order to determine
whether they meet capitalization requirements. General and administrative
expenses are comprised of personnel costs and occupancy costs for
administrative, executive and finance personnel.

         The Company primarily markets and sells its products and services
through a direct sales force in North America. The Company derives a portion of
its revenues from international sales,




                                       21








<PAGE>


which constituted approximately 1% and 3% of the Company's total revenues in the
second quarter of 2001 and 2000, respectively. International sales are derived
from Europe (primarily Italy and Germany), and Asia (primarily Korea, China and
Japan). 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.

         During fiscal year 2000, the Company recorded a pre-tax restructuring
charge of $601,600 for a headcount reduction of 71 employees and other costs
associated with the consolidation of development centers into two rather than
three facilities. These restructuring actions occurred in the Company's fourth
fiscal quarter and were taken to align the Company's cost structure with the
prevailing market conditions.

         In January 2001, the Company sold its subsidiary, Chengdu DSET Science
and Technology Co., Ltd. In accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", the Company recorded a pre-tax charge of
$278,500 in the fourth fiscal quarter of 2000 against the remaining investment
in the subsidiary. The Company has implemented a series of steps to reduce
expenses and conserve cash.

         In March 2001, the Company reduced its workforce in the United States
and closed its Canadian subsidiary, and discontinued certain product lines in an
effort to conserve cash. The Company recorded an asset impairment of
approximately $2.2 million in the first quarter of 2001 for the carrying value
of certain licenses related to the Canadian market. Headcount was reduced by 47
employees in the United States and Canada. Charges relating to severance, lease
payments and facility closure were approximately $1.2 million.

         In June 2001, in connection with a restructuring plan to exit certain
non-strategic product lines and to streamline its cost structure, the Company
recorded in the second quarter a pre-tax charge to earnings of approximately
$6.8 million, which includes an asset impairment of approximately $4.5 million
for the carrying value of certain licenses related to the discontinued products,
severance charges of $1.0 million for approximately 70 involuntary employee
separations, and fixed asset and lease write-downs of $1.3 million.

         The Company's return to profitability will depend on the market for OSS
interconnection products and services and new revenue streams resulting from the
merger with ISPSoft ("ISPSoft"). The CSPs have experienced a decrease in funding
due to, among other factors, concerns over their business models. This decrease
in funding has forced CSPs to stop spending on many capital projects, including
DSET gateways. Many of the Company's targeted customers have already purchased
billing and order management systems but have decided to delay their purchases
of gateways until the funding climate improves and the order flow from their
customers increases. These purchasing delays not only occurred at large
well-funded CSPs, but also at start-up CSPs. This funding crisis also affected
the Company's collection efforts since many of the Company's customers
experienced financial difficulties and were unable to pay the




                                       22








<PAGE>


Company. While the Company believes that it has adequately reserved for doubtful
accounts, no assurance can be made that no additional customers will be unable
to pay or go bankrupt.

         For the quarters ended June 30, 2001 and 2000, the Company derived
approximately 22.4% and 75.2%, respectively, of its total revenues from license
revenues and approximately 77.6% and 24.8%, respectively, of its total revenues
from service revenues. During the second quarter of 2001, revenues generated
from CSPs were approximately $2.0 million and revenues generated from network
equipment vendors for local number portability ("LNP") solutions, application
development tools and related services were approximately $600,000. During the
second quarter of 2000, revenues generated from CSPs were $12.0 million and
revenues generated from network equipment vendors were approximately $4.2
million.

         The Company had two customers accounting for 14% and 10% of revenues,
respectively, for the quarter ended June 30, 2001 and no customers, which
accounted for more than 10% of revenues for the quarter ended June 30, 2000. The
Company had one customer, which accounted for 27% of revenues for the six months
ended June 30, 2001 and no customer, which accounted for more than 10% of
revenues for the six months ended June 30, 2000. The Company had seven customers
each accounting for more than 10% of accounts receivable, net at June 30, 2001.
Collectively, these seven customers accounted for 96% of accounts receivable,
net at June 30, 2001. The Company had one customer accounting for 23% of
accounts receivable, net at December 31, 2000. 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. In addition, the
Company anticipates that its results of operations in any given period will also
continue to depend on its customers' cash flow and ability to obtain external
financing. As a result of this customer concentration and the uncertainty in the
customer's financing, the Company's revenues from quarter to quarter, financial
condition and results of operations may be subject to substantial
period-to-period fluctuations.

         On June 26, 2001 the Company announced the agreement to merge with
ISPSoft Inc. that is expected to be completed by the end of September 2001.
Headquartered in New Jersey, ISPSoft has developed what the Company believes to
be a technically advanced implementation of Internet Protocol (IP) provisioning
software. The market for next generation software-based provisioning systems is
expected to grow from approximately $800 million in 2001 to almost $1.6 billion
in 2004, according to a report by the research and consulting firm IDC. ISPSoft
security holders will receive an aggregate of up to 9,124,547 shares of DSET
common stock, $1,000,000 in cash and up to $1,000,000 in cash or unregistered
shares of DSET common stock in potential milestone payments in exchange for
their ISPSoft securities in the merger. DSET will also issue 764,962 options to
purchase shares of DSET common stock upon the assumption of 2,162,930 currently
issued and outstanding options to purchase shares of ISPSoft common stock. The
shares and options indicated are subject to final adjustment as of the date of
closing. The merger transaction with ISPSoft is subject to approval by DSET's
shareholders.

         On July 23, 2001, the Company announced that on July 20, 2001 its Board
of Directors had adopted a shareholder rights plan (the "Rights Plan"). Under
the Rights Plan, each shareholder of record on July 31, 2001 will receive a
distribution of one Right for each share of DSET common stock ("Rights").
Initially the Rights will be represented by DSET's common




                                       23








<PAGE>


stock certificates, will not be traded separately from DSET's common stock, and
will not be exercisable. The Rights become exercisable only if an entity
acquires, or announces a tender offer, that would result in ownership of 15% or
more of DSET's common stock, at which time each Right would enable the holder to
buy one-thousandth of a share of DSET's Series A Junior Participating Preferred
Stock at an exercise price of $20, subject to adjustment. The actual number of
shares acquirable by the holder equals $20 divided by one-half of the current
market price of DSET's common stock. Additionally, the Rights Plan provides that
in the event of a subsequent merger or other acquisition of DSET, the holders of
Rights will be entitled to buy shares of common stock of the acquiring entity at
one-half of the market price of the acquiring company's shares.

         DSET's common stock is currently listed on the Nasdaq National Market.
On July 9, 2001, the company received notification from the Nasdaq Stock Market,
Inc. ("Nasdaq") that the Company was not in compliance with Nasdaq's $1.00
minimum bid price requirement because the Company's common stock had closed
below that minimum price for thirty consecutive trading days. The Company has
ninety days to regain compliance. The failure to meet Nasdaq's maintenance
criteria may result in the de-listing of the Company's common stock from the
Nasdaq National Market and could have an adverse effect on the Company.

         On August 14, 2001 the Company announced the approval of a reverse
stock split effective on the close of business on August 21, 2001, pursuant to
which one new share of Common Stock of the Company will be issued in exchange
for each four outstanding shares of Common Stock. The Board of Directors
approved the reverse split under New Jersey law and also authorized the
reduction of the Company's authorized common stock four-fold from 40,000,000 to
10,000,000. The company's common stock is expected to commence trading at the
post split price on August 22, 2001. The Company believes that the reverse stock
split will increase the market price per share of the Common Stock to well above
the minimum bid price of $1.00 necessary to meet the Nasdaq National Market's
listing requirement.

Forward-Looking Statements

         Statements contained in this Form 10-Q/A 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. Forward-looking
statements may be identified by the use of forward-looking terminology such as
"may," "will," "should," "expect," "estimate," "anticipate," "continue," or
similar terms, variations of such terms or the negative of those terms. Such
forward-looking statements involve risks and uncertainties, including, but not
limited to: (i) the substantial variability of the Company's quarterly operating
results, (ii) the Company's dependence on the rapidly evolving
telecommunications industry, (iii) rapid technological change in the Company's
industry, (iv) uncertainty in the Company's customers' cash flow and external
financing environment, (v) the limited number of customers for a significant
portion of the Company's revenue, (vi) risks associated with market acceptance
of the Company's OSS gateways, (vii) risks associated with intense competition
in the industry, including competition for qualified technical personnel, (viii)
the buying patterns of the telecommunications providers, (ix) the ongoing risk
of that telecommunications providers will not get expected funding to




                                       24








<PAGE>


advance their business model and (x) 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. The
success of the Company depends to a large degree upon increased demand by
Telecom Service Providers for its OSS Interconnection products, demand for its
LNP products by network equipment vendors, and if the Company's contemplated
merger with ISPSoft is consummated, the market for Internet Protocol (IP)
provisioning software. 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 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 June 30, 2001 Compared to the Three Months Ended June 30,
2000

         Revenues. Total revenues decreased by 83.9% to $2.6 million in the
second quarter of 2001 from $16.2 million in the second quarter of 2000. License
revenues decreased by 95.2% to $586,000 in the second quarter of 2001 from $12.2
million in the second quarter of 2000. This decrease was attributable to a
reduction in orders by prospective customers due to financing issues. Service
revenues decreased 49.6% to $2.0 million in the second quarter of 2001 from $4.0
million in the second quarter of 2000. This decrease was attributable to a
$500,000 decrease in tools maintenance revenue for network solutions, a $200,000
decrease in other network solutions revenue, a $500,000 decrease in LNP
solutions maintenance, and a $800,000 decrease in LNP percentage of completion
revenue. Revenues recorded using the percentage of completion method of contract
accounting amounted to $50,000 in the second quarter of 2001 as compared to $2.1
million in the second quarter of 2000. Trading Partner Network implementation
service revenue increased to $465,000 in the three months ended June 30, 2001 as
compared to $69,000 in the three months ended June 30, 2000.

         Gross profit. The Company's gross profit decreased 95.9% to $527,000 in
the second quarter of 2001 from $12.8 million in the second quarter of 2000.
Gross profit percentage for license revenues decreased to 10.6% in the second
quarter of 2001 from 92.6% in the second quarter of 2000 due to a lower sales
volume and fixed charges related to the amortization of acquired technology and
capitalized software development costs. Gross profit percentage for service
revenues decreased to 22.9% in the second quarter of 2001 from 36.6% in the
second quarter of 2000. The decrease in gross profit percentages was
attributable to lower sales as there are fixed expenses within cost of goods
sold.

         Sales and marketing expenses. Sales and marketing expenses decreased
48.9% to $2.1 million in the second quarter of 2001 from $4.1 million in the
second quarter of 2000. The decrease in sales and marketing expenses was
attributable to a $1.0 million decrease in commissions (due to reduced sales), a
$200,000 reduction in personnel related expenses, a $100,000 reduction in
contract labor, a $100,000 reduction in travel, and a $600,000 net reduction in
other categories.



                                       25








<PAGE>


         Research and product development expenses. Research and product
development expenses decreased 28.5% to $3.0 million in the second quarter of
2001 from $4.2 million in the second quarter of 2000. In March 2001, an expense
reduction plan was put in place, and the substantial effect of these actions was
realized in the second quarter of 2001. Contract labor decreased by $700,000 and
personnel related expenses decreased by $500,000.

         General and administrative expenses. General and administrative
expenses increased 42.4% to $1.4 million in the second quarter of 2001 from $1.0
million in the second quarter of 2000. The increase in general and
administrative expenses was due to a $100,000 increase in occupancy costs, a
$100,000 increase in personnel related costs, a $100,000 increase in
professional fees and a $100,000 increase in other expenses. Due to the
relocation of non-administrative personnel to the Company's Plano office,
administrative departments have absorbed a larger portion of the facilities
costs of the Bridgewater facility.

         Bad debt expense. Bad debt expense decreased to approximately $545,000
in the second quarter of 2001 from $613,000 in the second quarter of 2000. The
bad debt expenses recognized in the second quarter of 2001 consisted of the
following components: a customer that did not fulfill its payment program after
resolving outstanding disputes ($252,000), the declaration of bankruptcy by a
customer ($110,000) and recognition of bad debt expenses due to customers that
discontinued projects or stated their intention not to pay ($183,000). Bad debt
expense as a percentage of sales was 20.8% in the second quarter of 2001 as
compared to 3.8% in the corresponding period in the previous year. Total
revenues were $2.6 million for the three months ended June 30, 2001 as compared
to the $16.2 million for the three months ended June 30, 2000 which drove the
increase in the bad debt expense as a percentage of sales.

         Amortization of goodwill and other intangibles. Amortization expense
remained the same at $103,000 in the second quarter of 2001 as well as the
second quarter of 2000.

         Restructuring and other charges. Restructuring and other charges in the
second quarter of 2001 were $6.8 million including an asset impairment of $4.5
million for the carrying value of certain licenses related to acquired
technology and goodwill, approximately $1.0 million in severance charges related
to the June 2001 reduction in force, and $1.3 million in charges related to
fixed asset impairments and non-refundable future lease payments.

         Interest expense and other income (expense). Interest expense and other
income and expense decreased to $31,000 for the second quarter of 2001 from
$41,000 for the second quarter of 2000 due to lower principal balances.

         Interest income. Interest income decreased to approximately $404,000 in
the second quarter of 2001 as compared to approximately $583,000 in the second
quarter of 2000. This decrease was due primarily to the recognition of gains and
losses on redemption of bonds and other securities, lower principal balances in
2001 due to the funding of operations and reduced interest rates due to the
current economic climate.



                                       26








<PAGE>


         Income taxes. The Company's effective tax rate was approximately 0.8%
and 33.8% for the second quarter of 2001 and 2000, respectively. The 2001 rate
differs substantially from the statutory rate due to a valuation allowance of
approximately $3.7 million against net operating loss carryforwards. In making
this assessment, the Company considered the unpredictability of customers'
funding and purchasing decisions. The provision recorded in the second quarter
2001 is the result of a change in estimate of the income tax receivable
reflecting the preparation of the Company's income tax return. In the second
quarter of 2000, the tax provision on the current period reflects an effective
tax rate lower than the statutory tax rate due to the utilization of research
and development and foreign tax credits offset by state income taxes.

Six Months Ended June 30, 2001 Compared to the Six Months Ended June 30, 2000

         Revenues. Total revenues decreased by 78.3% to $6.0 million in the six
months ended June 30, 2001 from $27.8 million in the six months ended June 30,
2000. License revenues decreased by 89.6% to $2.1 million in the six months
ended June 30, 2001 from $20.3 million in the six months ended June 30, 2000.
This decrease was attributable to a reduction in orders by prospective customers
due to financing issues. Service revenues decreased 47.9% to $3.9 million in the
six months ended June 30, 2001 from $7.5 million in the six months ended June
30, 2000. This decrease was attributable to a $2.7 million decrease in LSMS/LNP
custom projects and maintenance, a $1.3 million decrease in Network Solutions
revenue, offset by a $400,000 increase in Carrier Solutions service revenue. The
Company transitioned from the Network Solutions and LSMS/LNP business in 2001 to
concentrate on the Carrier Solutions business. Revenues recorded using the
percentage of completion method of contract accounting amounted to $50,000 in
the six months ended June 30, 2001 as compared to $4.4 million in the six months
ended June 30, 2000 ($200,000 for Network Solutions; $2.2 million for LSMS/LNP;
and $2.0 million for Carrier Solutions). The percentage of completion method is
used to recognize revenue the first time that a gateway or other custom product
is ordered. After the product has been designed, engineered, programmed, tested,
and accepted by the customer, subsequent sales of the product to other customers
are recognized as license revenues because significant additional customization
or modification is not required. Trading Partner Network implementation service
revenue increased to $1.0 million in the six months ended June 30, 2001 as
compared to $109,000 in the six months ended June 30, 2000. Maintenance for
Gateways increased to $1.7 million in the six months ended June 30, 2001 as
compared to $300,000 in the six months ended June 30, 2000.

         Gross profit. The Company's gross profit decreased 93.2% to $1.5
million in the six months ended June 30, 2001 from $21.3 million in the six
months ended June 30, 2000. Gross profit percentage for license revenues
decreased to 51.3% in the six months ended June 30, 2001 from 91.6% in the six
months ended June 30, 2000 due to a lower sales volume and amortization of
acquired technology and capitalized software development costs. Gross profit
percentage for service revenues decreased to 9.4% in the six months ended June
30, 2001 from 36.4% in the six months ended June 30, 2000. The decrease in gross
profit percentages was attributable to lower sales as there are fixed expenses
within cost of goods sold.



                                       27








<PAGE>


         Sales and marketing expenses. Sales and marketing expenses decreased
25.7% to $4.6 million in the six months ended June 30, 2001 from $6.3 million in
the six months ended June 30, 2000. The decrease in sales and marketing expenses
was attributable to a $1.3 million reduction in commission expense due to the
reduction in sales activity, a $300,000 decrease in travel expenses and a
$100,000 decrease in contract labor costs. .

         Research and product development expenses. Research and product
development expenses decreased 9.2% to $6.9 million in the six months ended June
30, 2001 from $7.6 million in the six months ended June 30, 2000. In March 2001,
an expense reduction plan was put in place, and the substantial effect of those
actions was realized in the second quarter of 2001. This was composed of a
$600,000 decrease in contract labor, a $200,000 decrease in occupancy costs, a
$200,000 decrease in travel expenses, a $250,000 decrease in other costs offset
by a $550,000 increase in personnel related expenses.

         General and administrative expenses. General and administrative
expenses increased 24.0% to $3.3 million in the six months ended June 30, 2001
from $2.6 million in the six months ended June 30, 2000. The increase in general
and administrative expenses was due to a $240,000 increase in occupancy costs, a
$500,000 increase in personnel related costs, a $190,000 increase in relocation
costs, a $150,000 increase in contract labor costs, and a $100,000 increase in
depreciation, all offset by a $480,000 decrease in recruiting costs. Due to the
relocation of non-administrative personnel to the Company's Plano office,
administrative departments have absorbed a larger portion of the facilities
costs of the Bridgewater facility.

         Bad debt expense. Bad debt expense increased to approximately $985,000
in the six months ended June 30, 2001 from approximately $866,000 in the six
months ended June 30, 2000. The bad debt expenses recognized in the six months
ended June 30, 2001 consisted of the following components: recognition of bad
debt expense due to customers that discontinued projects or stated their
intention not to pay ($497,000), a customer that did not fulfill its payment
program after resolving outstanding disputes ($252,000) and the declaration of
bankruptcy by two customers ($236,000). Bad debt expense as a percentage of
sales was 16.3% in the six months ended June 30, 2001 as compared to 3.1% in the
corresponding period in the previous year. Total revenues were $6.0 million for
the six months ended June 30, 2001 as compared to $27.8 million for the six
months ended June 30, 2000 which drove the increase in the bad debt expense as a
percentage of sales.

         Set forth below is a schedule comparing the company's bad debt expenses
recorded in the first and second quarters of 2001 with the periods in which the
corresponding revenue was recognized:





                                       28








<PAGE>




                                DSET Corporation
             Bad Debt Expense Related to Quarter Revenue Recognized
                             (Dollars in Thousands)

<TABLE>
<CAPTION>

                                                                Revenue Recognized
                        ---------------------------------------------------------------------------------------------------
                        Q2'99    Q3'99      Q4'99      Q1'00      Q2'00      Q3'00     Q4'00    Q1'01     Q2'01      Total
                        -----    -----      -----      -----      -----      -----     -----    -----     -----      -----

<S>                    <C>       <C>       <C>        <C>        <C>        <C>        <C>      <C>       <C>       <C>
Total revenue.......    $9,118   $12,909    $15,126   $11,598     $16,234    $13,867   $5,343    $3,415    $2,616    $90,226
Total Q1' 01 bad
    debt expense...     $  101   $   146    $    55   $    --     $   134    $     4   $   --    $   --    $   --    $   440
Total Q2' 01 bad
    debt expense...     $   30   $    63    $   214   $     4     $    95    $    96   $   23    $   20    $   --    $   545

</TABLE>


         Amortization of goodwill and other intangibles. Amortization expense
decreased to approximately $203,000 in the six months ended June 30, 2001 as
compared to $207,000 in the six months ended June 30, 2000.

         Restructuring and other charges. Restructuring and other charges in the
six months ended June 30, 2001 were $10.2 million including asset impairments of
$6.7 million for the carrying value of certain licenses related to acquired
technology and goodwill and $1.3 million in severance charges related to the
March and June 2001 staffing reductions, and $2.2 million for fixed asset
impairment and non-refundable future lease payments.

         Interest expense and other income (expense). Interest expense and other
income and expense decreased to $78,000 for the six months ended June 30, 2001
from $96,000 for the six months ended June 30, 2000 due to lower principal
balances.

         Interest income. Interest income decreased to approximately $894,000 in
the six months ended June 30, 2001 as compared to approximately $981,000 in the
six months ended June 30, 2000. This decrease was due to the recognition of
gains and losses on redemption of bonds and other securities, lower balances in
2001 due to the funding of operations and reduced interest rates due to the
current economic climate.

         Income taxes. The Company's effective tax rate was approximately 0.5%
and 33.6% for the six months ended June 30, 2001 and 2000, respectively. The
2001 rate differs substantially from the statutory rate due to a valuation
allowance of approximately $8.2 million against the net operating loss
carryforwards. In making this assessment, the Company considered the
unpredictability of customers' funding and purchasing decisions. The provision
recorded in 2001 is the result of a change in estimate of the income tax
receivable when the return was actually prepared. In the six months ended June
30, 2000, the tax provision on the current period reflected an effective tax
rate lower than the statutory tax rate due to utilization of research and
development and foreign tax credits offset by state income taxes.

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




                                       29








<PAGE>


June 30, 2001, the Company's cash, cash equivalents and marketable securities
aggregated approximately $21.0 million, of which cash and cash equivalents
aggregated approximately $5.9 million and marketable securities aggregated
approximately $15.1 million. Marketable securities at June 30, 2001 were
comprised of fixed income government securities and corporate bonds. The
Company's working capital was $17.5 million and $35.3 million at June 30, 2001
and December 31, 2000, respectively.

         Accounts receivable, net, decreased to $1.6 million at June 30, 2001
from $6.2 million at December 31, 2000, primarily as a result of decreased sales
and the collection of outstanding receivables. Included in accounts receivable
at June 30, 2001 was $13.2 million for trade receivables and $1.7 million for
unbilled project revenue as compared to $16.1 million for trade receivables and
$2.9 million for unbilled project revenue at December 31, 2000. The allowance
for doubtful accounts was $13.0 million at June 30, 2001 as compared to $12.3
million at December 31, 2000. Unbilled project revenue is the excess amount of
revenue recognized through percentage of completion that has not been billed to
the customer. Payment terms to customers are generally net zero to net ninety
days.

         The Company bills its foreign customers in U.S. dollars at agreed-upon
contractual terms. Accounts receivable at June 30, 2001 includes approximately
$127,000 from foreign customers.

         The Company's capital expenditures were approximately $666,000 and
$1,591,000 for the six months ended June 30, 2001 and 2000, respectively.

         In June 1999, the Company entered into a five-year capital lease
agreement at an annual interest rate of 8.21% for equipment, furniture and
fixtures at its new office facilities. Assets recorded under this lease are
included in fixed assets. Annual lease payments approximate $180,000.

         During August 2000, the Company renewed an unsecured revolving credit
facility with a bank pursuant to which the Company may borrow up to a maximum of
$5.0 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
June 30, 2001. 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. The unsecured revolving credit facility expires on August 5,
2004. Since December 31, 2000 the "earnings before income taxes, depreciation
and amortization" ("EBITDA") covenant has not been met and therefore the line is
not currently available. The Company has applied for a waiver of this covenant
but does not believe it will be granted.

         The net proceeds received by the Company upon the consummation of its
initial public offering in March 1998, pending specific application, were
invested in short-term, investment-grade, interest-bearing instruments and have
been used to finance operations.



                                       30








<PAGE>


         The Company believes that its existing available cash and marketable
securities, and the cash flow expected to be generated from operations may not
be adequate to satisfy its current and planned operations for the next 12
months. The Company may require additional financing prior to such time to fund
its continued operations or possible acquisitions. If the Company cannot raise
more funds at acceptable terms, the Company could be required to reduce its
capital expenditures, scale back its research and product developments, reduce
its workforce and license to others products or technologies currently marketed
exclusively by the Company.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk.

         The Company does not denominate its international revenues in foreign
currencies. 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 foreign currency rates or derivative securities.

         The Company believes the market risk exposure with regard to marketable
securities held in the investment portfolio is limited to changes in quoted
market prices for such securities.



                                       31








<PAGE>


                           PART II. OTHER INFORMATION


Item 2.  Use of Proceeds

         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 June 30, 2001, the remainder 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 and have been used to finance
operations.

          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 $2.5 million payable in cash to NPL and professional
fees of $158,000. NPL provided specialized software to CSPs. These assets were
impaired as of June 30, 2001.

         On September 30, 1999, the Company purchased Konark and related
technologies for approximately $3.3 million in cash and certain deferred
payments plus professional fees and the related deferred tax liabilities. Konark
provided software, which enabled CSPs to rapidly activate new services for their
customers. These assets were impaired as of June 30, 2001.

         In June 2000 and July 2000, the Company purchased exclusive worldwide
licenses for various products from Daleen Technologies, Inc. for $2.5 million
payable in cash. A royalty will also be due based on future sales. Subsequently,
in March 2001, due to changing and unpredictable conditions in the marketplace
and in an effort to conserve cash, the Company decided to abandon this product
line and recorded an impairment charge of approximately $2.2 million for the
carrying value of this license.

         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 4.  Submission of Matters to a Vote of Security Holders.

         The Annual Meeting of Shareholders of the Company (the "Annual
Meeting") was held on June 13, 2001. There were present at the Annual Meeting in
person or by proxy shareholders




                                       32







<PAGE>


holding an aggregate of 11,198,520 shares of Common Stock. The results of the
vote taken at such Annual Meeting with respect to each nominee for director were
as follows:

<TABLE>
<CAPTION>

                Common Stock Nominees                   For                     Withheld
                ---------------------                   ---                     --------

<S>                                              <C>                         <C>
                William P. McHale, Jr.           10,620,968 Shares           577,552 Shares
                Jacob J. Goldberg                10,761,168 Shares           437,352 Shares
                C. Daniel Yost                   10,761,168 Shares           437,352 Shares
                Andrew D. Lipman                 10,761,048 Shares           436,472 Shares

</TABLE>

         In addition, a vote of the shareholders was taken at such Annual
Meeting with respect to the proposal to amend the Company's 1998 Stock Plan to
increase the maximum aggregate number of shares of Common Stock available for
issuance thereunder from 2,500,000 to 3,500,000 shares and to reserve an
additional 1,000,000 shares of Common Stock of the Company for issuance in
connection with awards granted under the 1998 Stock Plan. Of the shares of
Common Stock present at the Annual Meeting in person or by proxy, 3,244,597
shares of Common Stock were voted in favor of such proposal, 2,133,947 shares of
Common Stock were voted against such proposal and 10,244 shares of Common Stock
abstained from voting.

         In addition, a vote of shareholders was taken at the Annual Meeting
with respect to the proposal to adopt the Company's 2001 Employee Stock Purchase
Plan. Of the shares of Common Stock present at the Annual Meeting in person or
by proxy, 3,908,149 shares of Common Stock voted in favor of such proposal,
1,471,476 shares of Common Stock were voted against such proposal and 9,163
shares of Common Stock abstained from voting.

         In addition, a vote of the shareholders was taken at the Annual Meeting
on the proposal to ratify the appointment of PricewaterhouseCoopers LLP as the
independent auditors of the Company for the fiscal year ending December 31,
2001. Of the shares of Common Stock present at the Annual Meeting in person or
by proxy, 11,160,316 shares of Common Stock were voted in favor of such
proposal, 25,262 shares of Common Stock were voted against such proposal and
12,942 shares of Common Stock abstained from voting.


Item 5. Other Information.

         On June 26, 2001 the Company announced the agreement to merge with
ISPSoft Inc. is expected to should be completed by the end of September 2001.
ISPSoft security holders will receive an aggregate of up to 9,124,547 shares of
DSET common stock, $1,000,000 in cash and up to $1,000,000 in cash or
unregistered shares of DSET common stock in potential milestone payments in
exchange for their ISPSoft securities in the merger. DSET will also issue
764,962 options to purchase shares of DSET common stock upon the assumption of
2,162,930 currently issued and outstanding options to purchase shares of ISPSoft
common stock. The shares and options indicated are subject to final adjustment
as of the date of closing. ISPSoft has developed what the Company believes to be
a technically advanced implementation of Internet Protocol (IP) provisioning
software. The market for next generation software-based provisioning systems is





                                       33








<PAGE>


expected to grow from approximately $800 million in 2001 to almost $1.6 billion
in 2004, according to a report by the research and consulting firm IDC.

         On July 20, 2001, the Board of Directors of DSET declared a dividend of
one Right for each outstanding share of the Company's Common Stock to
stockholders of record at the close of business on July 31, 2001. Each Right
entitles the registered holder to purchase from the Company one one-thousandth
of a share of Series A Junior Participating Preferred Stock, no par value per
share, at a Purchase Price of $20.00 in cash, subject to adjustment. The
description and terms of the rights are set forth in a rights agreement dated
July 20, 2001 between the Company and American Stock Transfer & Trust Company,
as Rights Agent.

         DSET's common stock is currently listed on the Nasdaq National Market.
On July 9, 2001, the company received notification from the Nasdaq Stock Market,
Inc. ("Nasdaq") that the Company was not in compliance with Nasdaq's $1.00
minimum bid price requirement because the Company's common stock had closed
below that minimum price for thirty consecutive trading days. The Company has
ninety days to regain compliance. The failure to meet Nasdaq's maintenance
criteria may result in the de-listing of the Company's common stock from the
Nasdaq National Market and could have a material adverse effect on the Company.

         On August 14, 2001 the Company announced the approval of a reverse
stock split effective on the close of business on August 21, 2001, pursuant to
which one new share of Common Stock of the Company will be issued in exchange
for each four outstanding shares of Common Stock. The Board of Directors
approved the reverse split under New Jersey law and also reduced the Company's
authorized common stock four-fold from 40,000,000 to 10,000,000. The Company's
common stock is expected to commence trading at the post split price on August
22, 2001. The Company believes that the reverse stock split will increase the
market price per share of the Common Stock to well above the minimum bid price
of $1.00 necessary to meet the Nasdaq National Market's listing requirement.


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

       (a)          Exhibits.

                    None.

       (b)          Reports on Form 8-K.

                    The following reports on Form 8-K were filed during the
                    quarter for which this report on Form 10-Q/A is filed:

                    On July 25, 2001 the Company filed a current report on Form
                    8-K with the Securities and Exchange Commission with respect
                    to the Company's Shareholder Rights Plan.



                                       34









<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: December 11, 2001        By: /s/ William P. McHale, Jr.
                                          --------------------------------------
                                             William P. McHale, Jr., President
                                             and Chief Executive Officer
                                             (Principal Executive Officer)




        DATE: December 11, 2001        By:  /s/ Bruce M. Crowell
                                           -------------------------------------
                                             Bruce M. Crowell
                                             Vice President and Chief Financial
                                             Officer
                                             (Principal Financial and Accounting
                                             Officer)



                                       35