SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   ----------

                                    FORM 10-Q

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

                  For the quarterly period ended March 31, 1998
                           Commission File No. 0-23611


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


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


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


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


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

              Yes:                                    No:   X*
                  -------                                -------


      Indicate  the number of shares  outstanding  of each of the  Registrant's
classes of common stock, as of April 30, 1998:

              Class                                   Number of Shares
              -----                                   ----------------
    Common Stock, no par value                            9,374,639


*Registrant became subject to the filing requirements of the Securities Exchange
Act of 1934, as amended,  on March 12, 1998, when its Registration  Statement on
Form 8-A became effective.


<PAGE>


                                DSET CORPORATION

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


                                                                         Page
                                                                         ----

PART I.  FINANCIAL INFORMATION.........................................    1

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

               Balance Sheets as of March 31,1998 (unaudited) and
                   December 31, 1997...................................    2

               Statements of Income for the Three Months Ended March
                   31, 1998 and 1997 (unaudited).......................    3

               Statements of Cash Flows for the Three Months Ended
                   March 31, 1998 and 1997 (unaudited).................    4

               Notes to Financial Statements (unaudited)...............    5

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

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

               Liquidity and Capital Resources.........................    11

PART II. OTHER INFORMATION.............................................    13

     Item 2.   Changes in Securities and Use of Proceeds...............    13

     Item 5.   Other Information.......................................    14

     Item 6.   Exhibits and Reports on Form 8-K........................    14

SIGNATURES.............................................................    15


                                     - i -


<PAGE>





















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

                          Item 1.  Financial Statements





















                                      -1-
<PAGE>
<TABLE>
<CAPTION>

                                           DSET Corporation
                                            Balance Sheets

                                                                         March 31, 1998   December 31, 1997
                                                                         --------------   -----------------
                     Assets                                               (unaudited)
<S>                                                                      <C>                <C>         
Current assets:
  Cash and cash equivalents ..........................................   $  4,225,501       $  2,081,846
  Marketable securities ..............................................     38,565,394          1,123,795
  Accounts receivable, net of allowance for doubtful
    accounts of $91,989 and $125,504 .................................      4,358,286          7,564,442
  Deferred income taxes ..............................................        158,681            158,681
  Prepaid expenses and other current assets ..........................         57,267            243,883
                                                                         ------------       ------------
    Total current assets .............................................     47,365,129         11,172,647

Fixed assets, net ....................................................      1,605,735          1,560,948
Goodwill, net ........................................................        158,371            167,873
Other assets .........................................................        377,490            413,760
                                                                         ------------       ------------
    Total assets .....................................................   $ 49,506,725       $ 13,315,228
                                                                         ============       ============

                    Liabilities, Cumulative Redeemable Convertible Preferred
                    Stock and Shareholders' Equity (Deficit)

Current liabilities:
  Accounts payable and accrued expenses ..............................   $  2,501,309       $  2,779,954
  Income taxes payable ...............................................         41,484               --
  Deferred revenues ..................................................      1,826,933          1,897,039
  Note payable .......................................................        220,000            220,000
                                                                         ------------       ------------
    Total current liabilities ........................................      4,589,726          4,896,993
Deferred income taxes ................................................        103,714            103,714
Note payable .........................................................         56,657            111,657
                                                                         ------------       ------------
     Total liabilities ...............................................      4,750,097          5,112,364
                                                                         ------------       ------------
Commitments
Series A cumulative redeemable convertible preferred stock,
  no par value; 750,000 shares authorized, no shares issued or
  outstanding at March 31, 1998; 676,361 shares issued and
  outstanding at December 31, 1997; cumulative accrued and
  undeclared dividends of $1,680,859 at December 31, 1997 ............           --           11,603,996
                                                                         ------------       ------------

Shareholders' equity (deficit):
Preferred stock, no par value; 5,000,000 shares authorized, no
  shares issued and outstanding at March 31, 1998; no shares
  authorized, issued or outstanding at December 31, 1997 .............           --                 --
Common stock, no par value; authorized 40,000,000 shares,
  issued 9,312,467 at March 31, 1998 and 6,775,092 shares
  at December 31, 1997, respectively .................................     40,322,300          2,537,806
Deferred stock compensation ..........................................       (793,768)          (875,835)
Retained earnings ....................................................      5,228,096          4,936,894
Treasury stock, no shares and 3,043,625 shares of common
  stock at cost at March 31, 1998 and December 31, 1997,
  respectively .......................................................           --           (9,999,997)
                                                                         ------------       ------------
  Total shareholders' equity (deficit) ...............................     44,756,628         (3,401,132)
                                                                         ------------       ------------
      Total liabilities, cumulative redeemable convertible
      preferred stock and shareholders' equity (deficit) .............   $ 49,506,725       $ 13,315,228
                                                                         ============       ============


              The accompanying notes are an integral part of these financial statements.
</TABLE>


                                                 -2-


<PAGE>
<TABLE>
<CAPTION>

                                   DSET Corporation
                                 Statements of Income
                                      (unaudited)

                                                          Three Months Ended March 31
                                                          ---------------------------
                                                              1998            1997
                                                          ------------    -----------
<S>                                                        <C>            <C>        
Revenues:
License revenues .......................................   $ 2,636,635    $ 1,481,530
Service revenues .......................................     2,685,478      1,712,542
                                                           -----------    -----------
    Total revenues .....................................     5,322,113      3,194,072
                                                           -----------    -----------

Cost of revenues:
License revenues .......................................       240,629         69,806
Service revenues .......................................       701,995        688,720
                                                           -----------    -----------
    Total cost of revenues .............................       942,624        758,526
                                                           -----------    -----------
Gross profit ...........................................     4,379,489      2,435,546
                                                           -----------    -----------

Operating expenses:
Sales and marketing ....................................     1,982,994        791,923
Research and product development .......................     1,494,900        709,175
General and administrative .............................       529,701        648,799
                                                           -----------    -----------
    Total operating expenses ...........................     4,007,595      2,149,897
                                                           -----------    -----------

Operating income .......................................       371,894        285,649
Amortization of goodwill ...............................         9,502           --
Interest and other expense .............................       (36,051)          --
Interest and other income ..............................       111,556         20,204
                                                           -----------    -----------
Income before income taxes .............................       437,897        305,853
Provision for income taxes .............................       146,695        100,931
                                                           -----------    -----------
Net income .............................................       291,202        204,922
Less:  accrued preferred stock dividends ...............          --          214,889
                                                           -----------    -----------
Net income (loss) applicable to common shares ..........   $   291,202    $    (9,967)
                                                           ===========    ===========
Net income per common share ............................   $      0.04    $      0.00
                                                           ===========    ===========
Weighted average number of common shares outstanding ...     7,310,539      3,467,873
                                                           ===========    ===========

Net income per common share assuming dilution ..........   $      0.03    $      0.00
                                                           ===========    ===========
Weighted average number of common shares and common
    equivalent shares outstanding ......................     9,846,772      3,467,873
                                                           ===========    ===========


      The accompanying notes are an integral part of these financial statements.
</TABLE>


                                         -3-


<PAGE>
<TABLE>
<CAPTION>

                                         DSET Corporation
                                     Statements of Cash Flows
                                            (unaudited)

                                                                     Three Months Ended March 31
                                                                   ------------------------------
                                                                         1998           1997
                                                                   ------------      ------------
<S>                                                                <C>               <C>         
Cash flows from operating activities:
    Net income .................................................   $    291,202      $    204,922
Adjustments to reconcile net income to net cash provided by
operating activities:
    Depreciation ...............................................        115,236            85,833
    Amortization ...............................................          9,502            37,290
    Deferred stock compensation ................................         82,067              --
    Loss from joint venture ....................................         36,270              --
Changes in assets and liabilities:
    Accounts receivable ........................................      3,206,156           275,192
    Other assets ...............................................         86,616            29,802
    Accounts payable and accrued expenses ......................       (278,645)          (53,468)
    Income taxes payable .......................................         41,484            21,883
    Deferred revenues ..........................................        (70,106)          (24,033)
                                                                   ------------      ------------
        Net cash provided by operating activities ..............      3,519,782           577,421
                                                                   ------------      ------------
Cash flows from investing activities:
    Repayment by officers and shareholders .....................        100,000              --
    Purchases of marketable securities, net ....................    (37,441,599)           (3,552)
    Acquisition of fixed assets ................................       (160,023)         (145,246)
    Loan repayments ............................................        (55,000)             --
                                                                   ------------      ------------
        Net cash used in investing activities ..................    (37,556,622)         (148,798)
                                                                   ------------      ------------
Cash flows from financing activities:
    Proceeds from the issuance of common stock (net) ...........     36,082,230              --
    Proceeds from exercise of stock options ....................         98,265           120,426
                                                                   ------------      ------------
        Net cash provided by financing activities ..............     36,180,495           120,426
                                                                   ------------      ------------
        Net increase in cash and cash equivalents ..............      2,143,655           549,049
    Cash and cash equivalents, beginning of period .............      2,081,846           758,048
                                                                   ------------      ------------
    Cash and cash equivalents, end of period ...................   $  4,225,501      $  1,307,097
                                                                   ============      ============
Supplemental disclosure of cash flow information:
    Cash paid during the period for income taxes ...............   $     74,401      $    145,212
    Cash paid during the period for interest ...................          4,145              --
Non-cash activities:
    Accrued dividends on Series A preferred stock ..............   $       --        $    214,889
    Conversion of Series A preferred stock to common stock .....     11,603,996              --


            The accompanying notes are an integral part of these financial statements.
</TABLE>


                                                -4-


<PAGE>


                                DSET CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)



NOTE 1 -- BASIS OF PRESENTATION:

      The  information  presented  for  March  31,  1998 and  1997,  and for the
three-month  periods  then  ended,  is  unaudited,  but,  in the opinion of DSET
Corporation's (the "Company")  management,  the accompanying unaudited financial
statements  contain  all  adjustments   (consisting  only  of  normal  recurring
adjustments) which the Company considers  necessary for the fair presentation of
the  Company's  financial  position  as of March 31, 1998 and the results of its
operations and its cash flows for the  three-month  periods ended March 31, 1998
and 1997.  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  for the year ended December 31, 1997,
which were included as part of the Company's  Registration Statement on Form S-1
(Registration  No.  333-43827),  as declared  effective  by the  Securities  and
Exchange Commission (the "Commission") on March 12, 1998.

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


NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      Cash and Cash Equivalents
      -------------------------

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

      Marketable Securities
      ---------------------

      The marketable securities portfolio held by the Company consists primarily
of money market funds which are considered to be  available-for-sale  securities
and are  reported at fair value.  Unrealized  holding  gains and losses were not
significant at March 31, 1998 and 1997.

      Capitalized Software Development Costs
      --------------------------------------

      Capitalization   of  costs  begins  on   establishment   of  technological
feasibility.  Costs incurred prior to establishment of technological feasibility
are charged to research and product development  expense. The ongoing assessment
of  recoverability  of  capitalized  costs  requires  considerable  judgment  by
management with respect to certain factors including the anticipated


                                      -5-
<PAGE>


future gross revenue,  estimated economic life and changes in technology.  These
factors are considered on a product-by-product basis.

      Amortization  of  capitalized   software  costs  is  calculated   using  a
straight-line  method over the estimated  useful life of the respective  product
(five years).  Amortization  expense  related to capitalized  software costs was
approximately  $-0- and  $37,000 for the three  months  ended March 31, 1998 and
1997, respectively.

      Revenue Recognition
      -------------------

      License  revenues are recorded when the software has been delivered to the
Company's  licensees  and  all  significant  obligations  have  been  satisfied.
Revenues from run-time  licenses are recognized as equipment using the Company's
software is deployed by the Company's customers. Service revenues are recognized
over the period in which the service is  performed  based on the  percentage  of
direct  labor  costs  incurred  to the  total  costs  estimated.  Revenues  from
maintenance  contracts  are  deferred  and  recognized  over  the  term  of  the
respective contracts (typically twelve months).

      Income Taxes
      ------------

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

      Fair Value of Financial Instruments
      -----------------------------------

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

      Recently Issued Accounting Standards
      ------------------------------------

      In February  1997,  the  Financial  Accounting  Standards  Board  issued
Statement  No.  128,  "Earnings  Per  Share"  ("SFAS No.  128").  SFAS No. 128
applies to entities with publicly held common stock or potential  common stock
and is effective  for  financial  statements  issued for periods  ending after
December 15, 1997.  Accordingly,  the Company implemented SFAS No. 128 for the
year ended December 31, 1997 (see Note 5).

      In June 1997, the Financial  Accounting  Standards Board issued  Statement
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 applies
to all companies and is effective for fiscal years  beginning after December 15,
1997. SFAS No. 130 establishes


                                      -6-
<PAGE>


standards  for the  reporting  and display of  comprehensive  income in a set of
financial  statements.  Comprehensive  income is  defined  as the  change in net
assets of a business enterprise during a period from transactions generated from
non-owner  sources.  It includes  all changes in equity  during a period  except
those  resulting  from  investments  by  owners  and  distributions  to  owners.
Management  believes  that the  adoption  of SFAS No. 130 has not had a material
impact on the financial statements.

      In June 1997, the Financial  Accounting  Standards Board issued  Statement
No. 131  "Disclosures  about Segments of an Enterprise and Related  Information"
("SFAS No. 131").  SFAS No. 131 applies to all public companies and is effective
for fiscal years  beginning  after December 15, 1997. SFAS No. 131 requires that
business segment financial  information be reported in the financial  statements
utilizing the management  approach.  The  management  approach is defined as the
manner in which  management  organizes the segments  within the  enterprise  for
making operating decisions and assessing  performance.  The Company has only one
operating   segment  -  providing   software   products   and  services  to  the
telecommunications  industry.  Management  believes the adoption of SFAS No. 131
has not had a material impact on the financial statements.

      In October 1997, the American  Institute of Certified  Public  Accountants
issued  Statement of Position 97-2,  "Software  Revenue  Recognition,"  which is
effective for transactions entered into in fiscal years beginning after December
15,  1997.  The  Statement  of Position  governs the  recognition  of revenue by
enterprises that license, sell, lease or otherwise market software, except where
software is  incidental  to the products or services  being  offered as a whole.
Application of this  Statement of Position has not had a material  impact on the
financial statements.


NOTE 3 -- INITIAL PUBLIC OFFERING:

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

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


                                      -7-
<PAGE>


NOTE 4 -- CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK:

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


NOTE 5 -- EARNINGS PER SHARE:

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

<TABLE>
<CAPTION>


                                                 For the three months ended March 31, 1998
                                                -------------------------------------------
                                                                                  Per Share
                                                   Income           Shares          Amount
                                                ------------     -----------      ---------

<S>                                             <C>                <C>             <C>     
Basic EPS:
Net income applicable to common shares ......   $   291,202        7,310,539       $   0.04
Assuming dilution:
Net income applicable to common shares
    Warrants ................................          --            156,959
    Stock options ...........................          --          2,379,274
                                                ----------- -    -----------
                                                $   291,202        9,846,772       $   0.03
                                                ============     ===========


</TABLE>


                                      -8-
<PAGE>


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


GENERAL

      DSET designs, develops,  markets and supports standards-based  application
development  tools,  custom  application  development  services,   Local  Number
Portability solutions and OSS Gateway products for the global telecommunications
industry.  From its  founding in 1989,  the  Company has focused on  distributed
concurrent  object  technology  and the creation of  applications  that could be
distributed among many processors. Additionally, the Company developed extensive
knowledge of requirements for multiple protocols and multi-vendor communications
as well as real time operating systems.  In the early 1990's, the Company made a
strategic  decision to focus on  creating  suites of tools that  facilitate  the
development of solutions based upon the  Telecommunications  Management  Network
("TMN") standard. Substantially all of the Company's  revenues to date have been
derived from application  development tools and services based on TMN standards.
The Company's success will depend on continued growth in the market for advanced
telecommunications products and services.

      The Company had one and four  significant  customers  which  accounted for
24.6% and 56.6%,  respectively,  of total  revenues  for the three  months ended
March 31, 1998 and 1997, respectively.  The Company anticipates that its results
of  operations  in any given  period will  continue  to depend to a  significant
extent upon sales to a small number of  customers.  As a result of this customer
concentration,  the  Company's  revenues  from quarter to quarter and  business,
financial  condition  and results of  operations  may be subject to  substantial
period-to-period fluctuations.

      The Company  derives a large  portion of its revenues  from  international
sales which  constituted  approximately  31.6% and 18.9% of the Company's  total
revenues  in the  quarters  ended  March 31,  1998 and 1997,  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.

      Statements  contained  in this Form 10-Q that are not based on  historical
fact are  "forward-looking  statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended.  Forward-looking  statements may be
identified  by the use of  forward-looking  terminology  such as "may,"  "will,"
"expect," "estimate,"  "anticipate," "continue," or similar terms, variations of
such terms or the  negative  of those  terms.  Such  forward-looking  statements
involve  risks  and  uncertainties,  including,  but  not  limited  to:  (i) the
Company's dependence on the rapidly evolving  telecommunications  industry, (ii)
the  Company's   dependence  on  the  TMN  industry  standard  and  (iii)  rapid
technological  change in the  Company's  industry.  The  success of the  Company
depends  to a  large  degree  upon  increased  utilization  of  its  application
development    tools,    custom    application    development    services    and
carrier-to-carrier  applications  by  telecommunications  carriers  and  network
equipment vendors. As a result of such risks and


                                       -9-
<PAGE>


others expressed from time to time in the Company's filings with the Commission,
the Company's actual results may differ materially from the results discussed in
or implied by the forward-looking statements contained herein.


RESULTS OF OPERATIONS

Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
-------------------------------------------------------------------------------

     Revenues.  Total  revenues  increased  66.6% to $5.3  million  in the first
quarter of 1998 from $3.2 million in the first quarter of 1997. License revenues
increased  77.9% to $2.6 million in the first  quarter of 1998 from $1.5 million
in the first quarter of 1997.  This increase was  primarily  attributable  to an
increased  demand for the  Company's  TMN-based  agent tools.  Service  revenues
increased  56.8% to $2.7 million in the first  quarter of 1998 from $1.7 million
in the first  quarter of 1997.  This  increase  was  primarily  attributable  to
professional  services projects and an increase in fees from consulting services
and training courses. In the quarters ended March 31, 1998 and 1997, the Company
derived approximately 49.5% and 46.4%, respectively,  of its total revenues from
license revenues and approximately 50.5% and 53.6%,  respectively,  of its total
revenues from service revenues.

      Gross profit.  The Company's gross profit  increased 79.8% to $4.4 million
in the first  quarter of 1998 from $2.4  million  in the first  quarter of 1997.
Gross  profit  percentage  increased  to 82.2% of total  revenues  in the  first
quarter of 1998 from 76.2% in the first quarter of 1997. Gross profit percentage
for license revenues decreased to 90.9% for the first quarter of 1998 from 95.3%
for the comparable  1997 period.  This decrease was  attributable to the royalty
costs  associated with the Company's sale of third party software.  Gross profit
percentage for service  revenue  increased to 73.9% in the first quarter of 1998
from 59.8% in the first  quarter of 1997.  This  increase  was  attributable  to
higher margins associated with consulting services and training revenues.

      Sales and  marketing  expenses.  Sales and  marketing  expenses  increased
150.4% to $2.0 million in the first  quarter of 1998 from  $792,000 in the first
quarter of 1997,  and increased to 37.3% of total  revenues in the first quarter
of 1998 from 24.8% of total revenue in the first quarter of 1997.  This increase
was  attributable  primarily to increased  personnel  costs  resulting  from the
increase in the  Company's  sales force and an increase in  commissions  paid in
connection with foreign sales through distributors.

      Research   and  product   development   expenses.   Research  and  product
development  expenses  increased  110.8% to $1.5 million in the first quarter of
1998 from  $709,000 in the first  quarter of 1997,  and  increased to 28.1% from
22.2% of total revenues over the respective  periods.  This increase in research
and product development expenses both in absolute dollars and as a percentage of
revenues was due primarily to additional  personnel expenses  attributable to an
increase  in  staffing  and  an  expansion  in  the  number  of  projects  under
development.

      General and administrative  expenses.  General and administrative expenses
decreased  18.3% to $529,000 in the first  quarter of 1998 from  $649,000 in the
first quarter of 1997,  and 

                                      -10-
<PAGE>


decreased to 9.9% from 20.3% of total revenues for the respective  periods.  The
reduction of general and administrative expenses in the first quarter of 1998 as
compared to the corresponding  period in 1997 was due to the non-recurring  cost
of hiring two executives in 1997.  Further reduction of these expenses is due to
the transition of the Chief Technical Officer from  administrative  functions to
technical functions.

      Interest  income.  Net interest income  increased to $75,500 for the first
quarter of 1998 compared to $20,000 for the first quarter of 1997. This increase
was due to higher balances in cash and short-term investments as a result of the
Company's initial public offering of its Common Stock in March of 1998.

      Income  taxes.  The  Company's  effective tax rate was 33.5% and 33.0% for
each of the quarters ended March 31, 1998 and 1997, respectively. Such effective
tax rates were lower than the  statutory tax rates due primarily to research and
development tax credits.


LIQUIDITY AND CAPITAL RESOURCES

      Since its  inception  in 1989,  the Company has  financed  its  operations
primarily through cash generated by operations. At March 31, 1998, the Company's
cash, cash equivalents and marketable securities aggregated  approximately $42.8
million,  of which  cash  and cash  equivalents  aggregated  approximately  $4.2
million. The Company's working capital was $42.8 million at March 31, 1998.

      Accounts receivable  decreased to $4.4 million at March 31, 1998 from $7.6
million at  December  31, 1997  primarily  as a result of  increased  collection
efforts on aged accounts.

      The Company bills its  customers,  several of which are based in Korea and
Japan, in U.S.  dollars at agreed-upon  contractual  terms.  The Company has not
experienced any significant negative effects on its liquidity as a result of the
volatility and devaluation trends that recently have been experienced in certain
Asian  markets.  Accounts  receivable at March 31, 1998  includes  approximately
$850,000 from customers in this region.

      The  Company's  capital  expenditures  were  approximately   $160,000  and
$145,000  for the three  months  ended  March 31,  1998 and 1997,  respectively.
Although   the   Company    anticipates   higher   levels   of   equipment   and
facilities-related   expenditures  in  the  foreseeable   future,   such  future
expenditures are not anticipated to be  significantly  higher as a percentage of
total revenues as compared to prior periods.

      The  Company  has  an  unsecured  revolving  credit  facility  with a bank
pursuant  to which the  Company  may  borrow up to a  maximum  of $3.0  million.
Borrowings under this line of credit bear interest at the bank's prime rate less
0.25% on amounts  outstanding  of less than $1.0 million and at the bank's prime
rate for aggregate principal amounts exceeding $1.0 million. No borrowings under
this line were outstanding as of March 31, 1998. This credit facility  contains,
among  other  provisions,  covenants  which (i)  mandate  the  amount of working
capital the 

                                      -11-
<PAGE>


Company must maintain at the end of each calendar  quarter and (ii) restrict the
Company's ability to pay cash dividends.

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

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

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


                                      -12-
<PAGE>


                           PART II. OTHER INFORMATION
                           --------------------------


Item 2.   Changes in Securities and Use of Proceeds


CHANGES IN SECURITIES

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

      1.    The Company has,  during the first  quarter of 1998,  granted  stock
            options pursuant to its 1993 Stock Option Plan which, at the time of
            grant,  had not yet been registered  under the securities  laws. The
            following table sets forth certain information regarding such grants
            during the quarter:

                             Number           Exercise
                           of shares            Price
                           ---------          --------

                            175,000             $13.00

                            227,000             $15.00

      The Company did not employ an underwriter in connection  with the issuance
of the securities described above. The Company believes that the issuance of the
foregoing  securities was exempt from registration under either (i) Section 4(2)
of the  Securities  Act of 1933,  as amended (the "Act"),  as  transactions  not
involving  any public  offering  and such  securities  having been  acquired for
investment and not with a view to  distribution,  or (ii) Rule 701 under the Act
as transactions made pursuant to a written compensatory benefit plan or pursuant
to a written  contract  relating to  compensation.  All  recipients had adequate
access to information about the Company.


USE OF PROCEEDS

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


                                      -13-
<PAGE>


upon consummation of such offering, pending specific application,  were invested
in short-term, investment-grade, interest-bearing instruments.

      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 5.   Other Information.


INITIAL PUBLIC OFFERING

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

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


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

          (a)   Exhibits.

                27    Financial Data Schedule

          (b)   Reports on Form 8-K.

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


                                      -14-
<PAGE>


                                   SIGNATURES


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


                                    DSET Corporation




DATE:   May 15, 1998                By: /s/ William P. McHale, Jr.
                                        -------------------------------------
                                        William P. McHale, Jr.
                                        President and Chief Executive Officer
                                        (Principal Executive Officer)




DATE:   May 15, 1998                By: /s/ Paul A. Lipari
                                        -------------------------------------
                                        Paul A. Lipari
                                        Chief Financial Officer
                                        (Principal Financial and Accounting
                                        Officer)








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