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 June 30, 1999
                           Commission File No. 0-23611

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

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

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

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

1011 US Highway 22, Bridgewater, New Jersey                                08807
--------------------------------------------------------------------------------
(Former  Name,  Former Address  and Former  Fiscal Year,  if Changed Since  Last
Report)


     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 July 30, 1999:

           Class                                         Number of Shares
           -----                                         ----------------
 Common Stock, no par value                                 10,481,406



<PAGE>

                                DSET CORPORATION

                                TABLE OF CONTENTS


                                                                            Page
                                                                            ----

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

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

               Consolidated Balance Sheets as of June 30, 1999
                  (unaudited) and December 31, 1998 (audited)...........     2

               Consolidated Statements of Income for the Three
                  Months Ended June 30, 1999 and 1998 (unaudited).......     3

               Consolidated Statements of Income for the Six
                  Months Ended June 30, 1999 and 1998 (unaudited).......     4

               Consolidated Statements of Cash Flows for the Six
                  Months Ended June 30, 1999 and 1998 (unaudited).......     5

               Notes to Consolidated Financial Statements (unaudited)...     6

       Item 2. Management's Discussion and Analysis of Financial
               Condition and Results of Operations......................     11

               Results of Operations....................................     12

               Liquidity and Capital Resources..........................     15

       Item 3. Quantitative and Qualitative Disclosures About Market
               Risk.....................................................     19

PART II.  OTHER INFORMATION.............................................     20

       Item 2. Changes in Securities and Use of Proceeds................     20

       Item 4. Submission of Matters to a Vote of Security Holders......     21

       Item 5. Other Information........................................     22

       Item 6. Exhibits and Reports on Form 8-K.........................     22

SIGNATURES..............................................................     23


                                      -i-

<PAGE>





                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS






                                      -1-
<PAGE>


                                DSET CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                      June 30, 1999            December 31, 1998
                                                                      -------------            -----------------
                          ASSETS                                      (unaudited)              (audited)
<S>                                                             <C>                      <C>
Current assets:
   Cash and cash equivalents..........................          $         2,146,230      $          1,159,070
   Marketable securities..............................                   39,743,478                43,863,980
   Accounts receivable, net of allowance for doubtful
     accounts of $223,665 and $175,979................                   10,373,994                 9,108,059
   Deferred income taxes..............................                      279,769                   258,144
   Prepaid expenses and other current assets..........                    1,393,603                   193,418
                                                                      ----------------         ------------------
     Total current assets.............................                   53,937,074                54,582,671

Acquired technology, net..............................                    2,410,317                        --
Capitalized software development costs, net...........                      629,408                        --
Fixed assets, net.....................................                    2,650,178                 1,592,114
Goodwill, net.........................................                      307,259                   129,864
Other assets..........................................                      678,253                   548,963
                                                                      ----------------
                                                                                               ------------------
     Total assets.....................................          $        60,612,489      $         56,853,612
                                                                      ================         ==================

     LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable and accrued expenses..............          $         3,550,207      $          3,560,994
   Income taxes payable...............................                       17,298                   145,673
   Deferred revenues..................................                    1,837,858                 1,726,906
   Note payable.......................................                           --                   111,657
   Current portion of capital lease obligation........                      115,116                        --
                                                                      ----------------         ------------------
     Total current liabilities........................                    5,520,479                 5,545,230
   Long term portion of capital lease obligation......                      563,059                        --
   Deferred income taxes..............................                       73,438                   119,127
                                                                      ----------------         ------------------
     Total liabilities................................                    6,156,976                 5,664,357
                                                                      ----------------         ------------------

Commitments

Shareholders' equity:
Common stock, no par value; 40,000,000 shares
  authorized, 10,468,806 and 9,817,559 shares
  issued and outstanding at June 30, 1999 and
  December 31, 1998, respectively.....................                   44,018,462                41,912,361
Deferred stock compensation...........................                     (365,850)                 (494,306)
Retained earnings.....................................                   10,956,225                 9,731,077
Unrealized appreciation (depreciation)
  on investments......................................                     (153,324)                   40,123
                                                                      ----------------         ------------------
     Total shareholders' equity.......................                   54,455,513                51,189,255
                                                                      ----------------         ------------------
     Total liabilities and shareholders' equity.......          $        60,612,489      $         56,853,612
                                                                      ================         ==================
</TABLE>

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

                                      -2-

<PAGE>

                                DSET CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                       Three Months Ended June 30,
                                                                ----------------------  ----------------------
                                                                          1999                     1998*
                                                                ----------------------  ----------------------
<S>                                                             <C>                      <C>
REVENUES:
  License revenues....................................         $          5,245,927      $       3,579,949
  Service revenues....................................                    3,871,756              3,360,240
                                                                      ----------------        ----------------
       Total revenues.................................                    9,117,683              6,940,189
                                                                      ----------------        ----------------

COST OF REVENUES:
   License revenues...................................                      278,557                514,077
   Service revenues...................................                    1,637,264                931,883
                                                                      ----------------        ----------------
       Total cost of revenues.........................                    1,915,821              1,445,960
                                                                      ----------------        ----------------

     Gross profit.....................................                    7,201,862              5,494,229
                                                                      ----------------        ----------------

OPERATING EXPENSES:
   Sales and marketing................................                    2,981,478              2,112,884
   Research and product development...................                    2,464,042              1,605,378
   General and administrative.........................                    1,175,691                647,052
                                                                      ----------------        ----------------
       Total operating expenses.......................                    6,621,211              4,365,314
                                                                      ----------------        ----------------

     Operating income.................................                      580,651              1,128,915

Amortization..........................................                      (77,341)                (9,502)
Interest expense and other income (expense)...........                      (40,585)                  (586)
Interest income.......................................                      549,980                569,484
                                                                      ----------------        ----------------
Income before taxes...................................                    1,012,705              1,688,311

Provision for income taxes............................                      359,509                636,762
                                                                      ----------------        ----------------
Net income............................................          $           653,196      $       1,051,549
                                                                      ================        ================



Net income per common share...........................          $              0.06      $            0.11
                                                                      ================        ================
Weighted average number of common shares
 outstanding..........................................                   10,403,646              9,404,100
                                                                      ================        ================

Net income per common share assuming
 dilution.............................................          $              0.06      $            0.09
                                                                      ================        ================
Weighted average number of common shares and
  common equivalent shares outstanding................                   11,773,392             11,690,395
                                                                      ================        ================
</TABLE>

        *Certain amounts have been reclassified for comparative purposes.

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

                                      -3-
<PAGE>

                                DSET CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                        Six Months Ended June 30,
                                                                ----------------------------------------------
                                                                          1999                    1998*
                                                                ----------------------   ---------------------
<S>                                                             <C>                      <C>
REVENUES:
   License revenues...................................          $         9,399,073      $       6,216,584
   Service revenues...................................                    7,194,896              6,045,717
                                                                      ----------------        ----------------
       Total revenues.................................                   16,593,969             12,262,301
                                                                      ----------------        ----------------

COST OF REVENUES:
   License revenues...................................                      561,666                754,706
   Service revenues...................................                    2,904,212              1,633,878
                                                                      ----------------        ----------------
       Total cost of revenues.........................                    3,465,878              2,388,584
                                                                      ----------------        ----------------

     Gross profit.....................................                   13,128,091              9,873,717
                                                                      ----------------        ----------------

OPERATING EXPENSES:
   Sales and marketing................................                    5,376,132              4,095,878
   Research and product development...................                    4,809,940              3,100,277
   General and administrative.........................                    1,986,004              1,176,752
                                                                      ----------------        ----------------
       Total operating expenses.......................                   12,172,076              8,372,907
                                                                      ----------------        ----------------

     Operating income.................................                      956,015              1,500,810

Amortization..........................................                      (86,843)               (19,005)
Interest expense and other income (expense)...........                      (55,792)               (42,829)
Interest income.......................................                    1,087,622                687,232
                                                                      ----------------        ----------------
Income before taxes...................................                    1,901,002              2,126,208

Provision for income taxes............................                      675,854                783,457
                                                                      ----------------        ----------------
Net income............................................          $         1,225,148      $       1,342,751
                                                                      ================        ================



Net income per common share...........................          $              0.12      $            0.16
                                                                      ================        ================
Weighted average number of common shares
 outstanding..........................................
                                                                         10,216,115              8,357,346
                                                                      ================        ================

Net income per common share assuming
 dilution.............................................          $              0.11      $            0.13
                                                                      ================        ================
Weighted average number of common shares and
 common equivalent shares outstanding.................                   11,502,543             10,643,675
                                                                      ================        ================
</TABLE>


        *Certain amounts have been reclassified for comparative purposes.

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

                                      -4-
<PAGE>

                                DSET CORPORATION
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                 Six Months Ended June 30,
                                                                         ------------------------------------------
                                                                                  1999                   1998*
                                                                         ------------------      ------------------
<S>                                                                   <C>                        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income...................................................      $        1,225,148         $     1,342,751
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Deferred income taxes....................................                 (67,314)                     --
       Tax benefit from exercise of stock options...............               1,273,083                 329,320
       Depreciation.............................................                 366,442                 231,812
       Amortization.............................................                  86,843                  19,005
       Amortization of deferred stock compensation..............                 128,456                 164,134
       Loss from joint venture..................................                  36,238                  39,655
       Gain on disposal of assets...............................                    (120)                     --
       Changes in assets and liabilities:
         Accounts receivable....................................              (1,265,935)                565,523
         Other assets...........................................              (1,365,715)                 69,269
         Accounts payable and accrued expenses..................                 (10,786)                209,483
         Income taxes payable...................................                (128,375)                 71,501
         Deferred revenues......................................                 110,951                 122,863
                                                                           ----------------       ---------------
           Net cash provided by operating activities............                 388,916               3,165,316
                                                                           ----------------       ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Sales (purchases) of marketable securities, net..............               3,927,055             (38,264,442)
   Acquisition of assets:
     Acquired technology.......................................               (2,458,416)                     --
     Goodwill..................................................                 (200,000)                     --
   Capitalized software development costs......................                 (645,547)                     --
   Acquisition of fixed assets.................................               (1,025,314)               (340,836)
                                                                           ----------------       ---------------
           Net cash used in investing activities...............                 (402,222)            (38,605,278)
                                                                           ----------------       ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from capital sale/leaseback........................                  279,104                      --
   Repayment by officers and shareholders......................                       --                 100,000
   Repayment of note payable...................................                 (111,657)               (110,000)
   Proceeds from the issuance of common stock (net)............                       --              36,050,825
   Proceeds from exercise of stock options.....................                  833,019                 357,836
                                                                           ----------------       ---------------
           Net cash provided by financing activities...........                1,000,466              36,398,661
                                                                           ----------------       ---------------
           Net increase in cash and cash equivalents...........                  987,160                 958,699
Cash and cash equivalents, beginning of period.................                1,159,070               2,081,846
                                                                           ----------------       ---------------
Cash and cash equivalents, end of period.......................       $        2,146,230          $    3,040,545
                                                                           ================       ===============

Supplemental disclosure of cash flow information:
   Cash paid during the period for income taxes................       $          490,472     $           391,512
   Cash paid during the period for interest....................                   39,198                   7,604
Non-cash activities:
   Conversion of Series A preferred stock to common
    stock......................................................                       --              11,603,996
   Lease of fixed assets.......................................                  399,071                      --
</TABLE>

       *Certain amounts have been reclassified for comparative purposes.

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

                                      -5-
<PAGE>

                                DSET CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1 -- BASIS OF PRESENTATION:

     The consolidated  information presented for June 30, 1999 and 1998, and for
the  three-month  and six-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 June 30, 1999 and the
results of its operations and its cash flows for the  three-month  and six-month
periods ended June 30, 1999 and 1998. The financial  statements  included herein
have been prepared in accordance with generally accepted  accounting  principles
and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted.  These  financial  statements  should be read in
conjunction   with  the  Company's   1998  audited   financial   statements  and
accompanying  notes  and  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations  contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.

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

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     CONSOLIDATION

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

     CASH AND CASH EQUIVALENTS

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

     MARKETABLE SECURITIES

     The marketable  securities portfolio held by the Company consists primarily
of short-term  securities  of grade A or better with  maturities of two years or
less which are  considered to be available for sale  securities and are reported
at cost.  Unrealized  depreciation on investments was $153,324 at June 30, 1999.
At June 30, 1998 there was no unrealized appreciation or depreciation.

                                      -6-
<PAGE>

     CAPITALIZED SOFTWARE DEVELOPMENT COSTS

     Capitalization  of software  development  costs begins on  establishment of
technological   feasibility.   Costs   incurred   prior  to   establishment   of
technological  feasibility  are  charged to  research  and  product  development
expense.  The ongoing assessment of recoverability of capitalized costs requires
considerable  judgment by management with respect to certain  factors  including
the  anticipated  future gross revenue,  estimated  economic life and changes in
technology.   These  factors  are  considered  on  a  product-by-product  basis.
Amortization of software development costs is the greater of the amount computed
using (a) the ratio that current gross  revenues for a product bear 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.

     ACQUIRED TECHNOLOGY

     Acquired  technology  represents the costs of feasible  technology acquired
from  external  sources.  At June 30,  1999,  acquired  technology  reflects the
purchase  price of certain  assets of Network  Programs LLC ("NPL"),  as well as
related costs to acquire such assets.

     Amortization  of acquired  technology is the greater of the amount computed
using (a) the ratio that current gross  revenues for a product bear 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.

     REVENUE RECOGNITION

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

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

     INCOME TAXES

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

                                      -7-
<PAGE>

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

     FAIR VALUE OF FINANCIAL INSTRUMENTS

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

     RECENTLY ISSUED ACCOUNTING STANDARDS

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

NOTE 3 -- NPL ACQUISITION:

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

     At June 30,  1999,  the  costs to  acquire  NPL are  recorded  as  acquired
technology and goodwill. In addition,  research and development costs associated
with bringing the acquired  assets to market have been  recorded as  capitalized
software  development  costs  at June 30,  1999.  Amortization  of  these  costs
commenced  with the  shipment  of the  product  in the  second  quarter of 1999;
amortization  expense related to this asset was $68,000.  All future development
costs associated with the product will be expensed.

NOTE 4 -- INITIAL PUBLIC OFFERING:

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

                                      -8-
<PAGE>

     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."

NOTE 5 -- EARNINGS PER SHARE:

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

<TABLE>
<CAPTION>

                                                      FOR THE THREE MONTHS ENDED JUNE 30,
                                              1999                                            1998
                                              ----                                            ----

                                                              PER                                             PER
                                                             SHARE                                           SHARE
                            INCOME           SHARES          AMOUNT        INCOME            SHARES          AMOUNT
                            ------           ------          ------        ------            ------          ------
<S>                       <C>               <C>              <C>         <C>                 <C>              <C>
BASIC EPS:
Net income
applicable to
common shares             $ 653,196         10,403,646       $ 0.06      $ 1,051,549         9,404,100        $ 0.11

ASSUMING
DILUTION:
Net income
applicable to
common shares:
  Warrants                       --            150,871                            --           160,859
  Stock options                  --          1,218,875                            --         2,125,436
                           ---------       -----------                   -----------        ----------
                          $ 653,196         11,773,392       $ 0.06      $ 1,051,549        11,690,395        $ 0.09
                           =========       ===========                   ===========        ==========
</TABLE>

                                      -9-
<PAGE>

<TABLE>
<CAPTION>
                                                        FOR THE SIX MONTHS ENDED JUNE 30,
                                                1999                                           1998
                                                ----                                           ----

                                                                PER                                           PER
                                                               SHARE                                         SHARE
                             INCOME            SHARES          AMOUNT        INCOME           SHARES         AMOUNT
                             ------            ------          ------        ------           ------         ------
<S>                        <C>                 <C>             <C>          <C>               <C>            <C>
BASIC EPS:
Net income
applicable to
common shares              $ 1,225,148         10,216,115      $ 0.12       $ 1,342,751       8,357,346      $ 0.16

ASSUMING
DILUTION:
Net income
applicable to
common shares:
  Warrants                          --            153,367                            --         158,909
  Stock options                     --          1,133,061                            --       2,127,420
                            ----------        -----------                    ----------      ----------
                           $ 1,225,148         11,502,543      $ 0.11       $ 1,342,751      10,643,675      $ 0.13
                            ==========        ===========                    ==========      ==========
</TABLE>

NOTE 6--CAPITAL LEASE OBLIGATION:

     In June 1999, the Company  entered into a five year capital lease agreement
at an annual interest rate of 8.21%. Annual lease payments approximate $170,000.
Assets recorded under this lease are included in fixed assets as follows:

                                     JUNE 30, 1999             DECEMBER 31, 1998
                                     -------------             -----------------
FURNITURE AND FIXTURES             $       698,521            $               --

ACCUMULATED AMORTIZATION           $            --            $               --
                                    --------------             -----------------
                                   $       698,521            $               --
                                    ==============             =================

                                      -10-
<PAGE>

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

GENERAL

     DSET designs,  develops,  markets and supports standards-based  application
development tools,  custom application  development  services,  and Local Number
Portability  Solutions  ("LNP") and operational  support systems ("OSS") gateway
products for the global telecommunications  industry. From its founding in 1989,
the  Company  has  focused  on  the  creation  of  applications  that  could  be
distributed  among many processors in order to solve highly complex  problems in
the network  management arena.  Additionally,  the Company  developed  extensive
knowledge of requirements for multiple protocols and multi-vendor communications
as well as real time operating systems.  In the early 1990's, the Company made a
strategic  decision to focus on  creating  suites of tools that  facilitate  the
development  of   Telecommunications   Management   Network  ("TMN")  solutions.
Substantially  all of the  Company's  revenues  to date  has been  derived  from
application development tools and services based on TMN standards. The Company's
recently developed pre-built carrier-to-carrier applications facilitate the flow
of business  information  between competing  carriers and their respective OSSs.
The Company's success will depend on continued growth in the market for advanced
telecommunications  products and services.  For the quarters ended June 30, 1999
and 1998, the Company derived  approximately 57.5% and 51.6%,  respectively,  of
its total  revenues  from license  revenues and  approximately  42.5% and 48.4%,
respectively, of its total revenues from service revenues.

     The Company's revenues are generated from two sources:  license and service
revenues from network equipment  vendors;  and license and service revenues from
telecommunications  carriers,  including  competitive  local  exchange  carriers
("CLECs").  During the second quarter of 1999, the Company  derived $6.9 million
of revenues  from network  equipment  vendors and $2.2 million of revenues  from
CLECs and other carriers.

     The Company had one customer which  accounted for 10.5% of revenues for the
quarter ending June 30, 1999, and no customers which accounted for more than 10%
of revenues for the quarter  ending June 30, 1998.  The Company had one customer
which  accounted  for 10.1% of revenues for the six months  ending June 30, 1999
and one customer which accounted for 15.9% of revenues for the six months ending
June 30, 1998.  The Company  anticipates  that its results of  operations in any
given  period will  continue to depend to a  significant  extent upon sales to a
small  number of  customers.  As a result of this  customer  concentration,  the
Company's revenues from quarter to quarter and business, financial condition and
results  of   operations   may  be  subject  to   substantial   period-to-period
fluctuations.

     The Company  derives a portion of its  revenues  from  international  sales
which constituted  approximately 14.8% and 21.2% of the Company's total revenues
in the  quarters  ended  June 30,  1999 and 1998,  respectively.  The  Company's
international sales currently are United States dollar-denominated. As a result,
an  increase  in the value of the  United  States  dollar  relative  to  foreign
currencies  could make the Company's  products and services less  competitive in
international markets.

                                      -11-
<PAGE>

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

FORWARD-LOOKING STATEMENTS

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998

     REVENUES.  Total  revenues  increased  31.4% to $9.1  million in the second
quarter  of 1999  from $6.9  million  in the  second  quarter  of 1998.  License
revenues increased 46.5% to $5.2 million in the second quarter of 1999 from $3.5
million in the second quarter of 1998. This increase was primarily  attributable
to initial sales of  carrier-to-carrier  products.  Service  revenues  increased
15.2% to $3.9  million  in the second  quarter of 1999 from $3.4  million in the
second quarter of 1998.  This increase was primarily  attributable  to increased
custom  development  projects  for network  equipment  vendors,  CLECs and other
carriers.  In the  quarters  ended June 30, 1999 and 1998,  the Company  derived
approximately 57.5% and 51.6%, respectively,  of its total revenues from license
revenues and approximately 42.5% and 48.4%, respectively,  of its total revenues
from service revenues.

                                      -12-
<PAGE>

     GROSS PROFIT. The Company's gross profit increased 31.1% to $7.2 million in
the  second  quarter of 1999 from $5.5  million  in the second  quarter of 1998.
Gross profit  percentage  decreased  slightly to 79.0% of total  revenues in the
second  quarter of 1999 from 79.2% in the second  quarter of 1998.  Gross profit
percentage  for license  revenues  increased to 94.7% for the second  quarter of
1999 from 85.6% in the second  quarter of 1998 due to less third party  software
as a component  of revenues  and sales of more  internally  developed  products.
Gross profit  percentage for service  revenues  decreased to 57.7% in the second
quarter of 1999 from 72.3% in the second  quarter  of 1998.  This  decrease  was
primarily  attributable  to  increased  use of outside  consultants  to complete
custom development projects.

     SALES AND MARKETING EXPENSES.  Sales and marketing expenses increased 41.1%
to $3.0  million in the second  quarter of 1999 from $2.1  million in the second
quarter of 1998,  and increased to 32.7% of total revenues in the second quarter
of 1999  from  30.4% of total  revenues  in the  second  quarter  of 1998.  This
increase  in costs  was  primarily  attributable  to the  hiring  of  additional
personnel  for the  Company's  sales force and the  marketing  department  and a
provision  for bad debts.  The Company has been hiring sales  personnel to cover
parts of Europe and Asia.  The  increase  as a  percentage  of revenue is due to
lower than anticipated revenue for the quarter,  but actual expenses were within
planned levels.

     RESEARCH AND PRODUCT DEVELOPMENT EXPENSES. Research and product development
expenses increased 53.5% to $2.5 million in the second quarter of 1999 from $1.6
million in the second  quarter of 1998, and increased to 27.0% of total revenues
in the second quarter of 1999 from 23.1% of total revenues in the second quarter
of 1998.  This  increase in research  and product  development  expenses was due
primarily  to  additional  personnel  expenses  attributable  to an  increase in
staffing  due to expansion in the number of projects  under  development  and in
part to the hiring of former NPL  employees.  The  increase as a  percentage  of
revenue is due to lower than  anticipated  revenue for the  quarter,  but actual
expenses were within planned levels.

     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
increased  81.7% to $1.2 million in the second  quarter of 1999 from $647,000 in
the second  quarter of 1998,  and  increased  to 12.9% of total  revenues in the
second  quarter of 1999 from 9.3% of total  revenues  in the  second  quarter of
1998. The increase of general and administrative  expenses was due to additional
staffing,  recruiting  and  relocation  costs and outside  services  costs.  The
increase as a percentage of revenue is due to lower than anticipated revenue for
the quarter, but actual expenses were within planned levels.

     INTEREST  EXPENSE AND OTHER INCOME AND EXPENSES,  NET. Net interest expense
and other income and expense  increased  to $40,000 for the quarter  ending June
30, 1999 from $1,000 for the quarter  ending June 30, 1998 due  primarily  to an
increased loss in the Company's European joint venture.

     INTEREST  INCOME.  Interest  income  decreased  to $550,000 for the quarter
ending  June 30,  1999  from  $569,000  for the  quarter  ending  June 30,  1998
reflecting lower interest rates in 1999 as compared to the corresponding  period
in 1998.

                                      -13-
<PAGE>

     INCOME TAXES. The Company's effective tax rate was 35.5% and 37.7% for each
of the quarters ended June 30, 1999 and 1998,  respectively.  Such effective tax
rates  are  lower  than  statutory  tax  rates due  primarily  to  research  and
development  tax credits.  As of June 30, 1999, the research and development tax
credit has not been renewed. If this provision is not renewed,  the loss of this
credit  will  result in a higher  effective  tax rate for the  Company in future
periods.  The  higher  rate in  1998  was due to the  non-deductible  nature  of
deferred stock compensation associated with the issuance of stock options.

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

     REVENUES.  Total  revenues  increased  35.3% to $16.6  million  for the six
months  ending June 30, 1999 from $12.3  million for the six months  ending June
30, 1998.  License  revenues  increased 51.2% to $9.4 million for the six months
ending June 30, 1999 from $6.2 million for the six months  ending June 30, 1998.
The  increase  in  revenue  is due to the sale of  carrier-to-carrier  products.
Service revenues  increased 19.0% to $7.2 million for the six months ending June
30,  1999 from $6.0  million  for the six  months  ending  June 30,  1998.  This
increase  was  primarily  attributable  to an  increase  in  custom  development
projects and maintenance  fees. In the six months ending June 30, 1999 and 1998,
the Company derived  approximately  56.6% and 50.7%,  respectively, of its total
revenues from license revenues and approximately 43.4% and 49.3%,  respectively,
of its total revenues from service revenues.

     GROSS PROFIT.  The Company's gross profit  increased 33.0% to $13.1 million
for the six months  ending  June 30,  1999 from $9.9  million for the six months
ending  June 30,  1998.  Gross  profit  percentage  decreased  to 79.1% of total
revenues  for the six months  ending June 30, 1999 from 80.5% for the six months
ending June 30, 1998. Gross profit percentage for license revenues  increased to
94.0% for the six  months  ending  June 30,  1999 from  87.9% for the six months
ending  June  30,  1998 due to less  third  party  software  as a  component  of
revenues,  and  sales  of  more  internally  developed  products.  Gross  profit
percentage for service revenues decreased to 59.6% for the six months ended June
30, 1999 from 73.0% for the six months  ending June 30, 1998.  This decrease was
primarily  attributable  to  increased  use of outside  consultants  to complete
custom development projects.

     SALES AND MARKETING EXPENSES.  Sales and marketing expenses increased 31.3%
to $5.4  million for the six months  ending June 30, 1999 from $4.1  million for
the six months ending June 30, 1998,  and  decreased to 32.4% of total  revenues
for the six months ending June 30, 1999 from 33.4% of total revenues for the six
months  ending June 30, 1998.  This  increase in costs was  primarily due to the
hiring of additional  personnel for the Company's  sales force and the marketing
department  and a  provision  for bad debts.  The  decrease as a  percentage  of
revenue is attributable to lower commission rates associated with employed sales
personnel as compared to outside agents' commission.

     RESEARCH AND PRODUCT DEVELOPMENT EXPENSES. Research and product development
expenses increased 55.1% to $4.8 million for the six months ending June 30, 1999
from $3.1  million for the six months  ending June 30,  1998,  and  increased to
29.0% of total  revenues  for the six months  ending June 30, 1999 from 25.3% of
total  revenues  for the six months  ending  June 30,  1998.  This  increase  in
research  and product  development  expenses  both in absolute  dollars

                                      -14-
<PAGE>

and as a percentage  of revenues was due  primarily to the hiring of  additional
outside consultants,  additional personnel expenses  attributable to an increase
in staffing due to an expansion in the number of projects under  development and
in part to the hiring of former NPL employees.

     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
increased  68.8% to $2.0  million  for the six months  ending June 30, 1999 from
$1.2 million for the six months ending June 30, 1998,  and increased to 12.0% of
total  revenues  for the six  months  ending  June 30,  1999  from 9.6% of total
revenues for the six months  ending June 30,  1998.  The increase of general and
administrative   expenses  was  due  to  additional  staffing,   recruiting  and
relocation costs and outside services costs.

     INTEREST  EXPENSE AND OTHER INCOME AND EXPENSES,  NET. Net interest expense
and other  income and expenses  increased  to $56,000 for the six months  ending
June 30,  1999  compared  to $43,000  for the six months  ending  June 30,  1998
reflecting slightly higher interest expense for 1999.

     INTEREST  INCOME.  Interest  income  increased  to $1.1 million for the six
months  ending June 30, 1999 from  $687,000  for the six months  ending June 30,
1998 due primarily to interest  earned on higher cash and short-term  investment
balances  available as a result of the proceeds of the Company's  initial public
offering of its Common Stock in March 1998.

     INCOME TAXES. The Company's effective tax rate was 35.6% and 36.8% for each
of the six months ending June 30, 1999 and 1998,  respectively.  Such  effective
tax rates were lower than the  statutory tax rates due primarily to research and
development tax credits. The rate is higher in 1998 due to the non-deductibility
of deferred stock compensation associated with the issuance of stock options. As
of June 30, 1999, the research and  development tax credit has not been renewed.
If this provision in the tax code is not retroactively renewed, the loss of this
credit will result in a higher effective rate for the Company in future periods.

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 June 30, 1999,  the  Company's  cash,  cash
equivalents and marketable securities aggregated approximately $41.9 million, of
which cash and cash  equivalents  aggregated  approximately  $2.1  million.  The
Company's working capital was $48.4 million at June 30, 1999.

     Accounts  receivable  increased to $10.4 million at June 30, 1999 from $9.1
million at December 31, 1998 as a result of increased  unbilled  project revenue
and  delays in the  collection  of  certain  accounts  receivable.  Included  in
accounts  receivable was approximately  $2.6 million of unbilled project revenue
at June 30, 1999 as compared to $1.5 million at December  31, 1998.

     The Company  bills its  customers,  several of which are based in Korea and
Japan, in U.S.  dollars at agreed-upon  contractual  terms.  The Company has not
experienced any significant negative effects on its liquidity as a result of the
volatility and  devaluation  trends that have been  experienced in certain Asian
markets,  although no assurance can be made that the Company will

                                      -15-
<PAGE>

not experience  difficulty collecting accounts receivable from such customers in
the future. Accounts receivable at June 30, 1999 includes approximately $559,000
from customers in this region.

     The  Company's  capital  expenditures  were  approximately  $1,424,000  and
$341,000  for the six months  ending June 30, 1999 and 1998,  respectively.  The
increase in equipment  and  facilities-related  expenditures  are  primarily the
result  of  the  move  to  an  expanded  corporate   headquarters   facility  in
Bridgewater,  New Jersey to accommodate  current and future growth.  The Company
anticipates  higher levels of equipment and facility  expenditures  in the Texas
office in the  foreseeable  future as it also moves this  office in July 1999 to
accommodate current and future growth.

     In June 1999, the Company  entered into a five year capital lease agreement
at an annual  interest  rate of 8.21%.  Assets  recorded  under  this  lease are
included in fixed assets. Annual lease payments approximate $170,000.

     In August 1997, the Company obtained an unsecured revolving credit facility
with a bank  pursuant  to which the  Company  may borrow up to a maximum of $3.0
million.  Borrowings under this line of credit bear interest at the bank's prime
rate less 0.25% on aggregate  principal  amounts  outstanding  of less than $1.0
million and at the bank's prime rate for aggregate  principal  amounts exceeding
$1.0 million.  No  borrowings  under this line were  outstanding  as of June 30,
1999. This credit facility contains, among other provisions, covenants which (i)
mandate the amount of working  capital the Company  must  maintain at the end of
each  calendar  quarter  and (ii)  restrict  the  Company's  ability to pay cash
dividends. The unsecured revolving credit facility expires on August 5, 2000.

     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,   are   invested  in   short-term,
investment-grade, interest-bearing instruments.

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

                                      -16-
<PAGE>

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

YEAR 2000 COMPLIANCE

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

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

     TOOL  SUITES AND  PRE-BUILT  APPLICATIONS.  The Company  has  conducted  an
internal  review  and  believes  that its  tool  suites  (and  their  update  if
applicable)  developed  after May 27,  1997 have been  tested  and are Year 2000
compliant. These products (original version number noted) include:

               PRODUCT NAME                             VERSION
               ------------                             -------
               ASN.C/C++                                 3.5.3
               Agent Tester                              2.0.1
               CMIP Translator                           1.0.1
               Distributed Systems Generator             4.2.0
               GDMO Agent Emulator                       2.0.0
               GDMO Agent Toolkit                        2.0.0
               GDMO Compiler                             3.0.0
               LNP Test Extensions                       2.0.0
               Manager Code Generator                    1.0.4
               Manager Toolkit                           1.0.0
               Marben OSIAM Stack                      2.6f/2.6g
               Visual Agent Builder                      1.0.0
               LSMS                                      2.0.1

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

                                      -17-
<PAGE>

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

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

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


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

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

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

                                      -18-
<PAGE>

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

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

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

EUROPEAN MONETARY UNION

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

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

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

                                      -19-
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

CHANGES IN SECURITIES

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

     OPTION GRANTS

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

                                                  WEIGHTED
                                                   AVERAGE
                              NUMBER              EXERCISE
                            OF SHARES               PRICE
                            ---------               -----
                             199,661              $ 11.31

     COMMON STOCK ISSUANCES

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

                                                  WEIGHTED
                                                   AVERAGE
                              NUMBER              EXERCISE
                            OF SHARES               PRICE
                            ---------               -----

                             126,822              $ 2.98


     The Company did not employ an underwriter  in connection  with the issuance
of the securities described above. The Company believes that the issuance of the
foregoing  securities was exempt from registration under either (i) Section 4(2)
of the Securities Act as transactions not involving any public offering and such
securities  having  been  acquired  for  investment  and  not  with  a  view  to
distribution,  or (ii) Rule 701 under the  Securities Act as  transactions  made

                                      -20-
<PAGE>

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 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, 1999, all of the $36.1 million in
net proceeds received by the Company upon consummation of such offering, pending
specific   application,   were   invested   in   short-term,   investment-grade,
interest-bearing instruments.

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

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

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

     The Annual Meeting of  Shareholders of the Company (the "Meeting") was held
on June 10, 1999.

     There  were  present  at the  Meeting  in person  or by proxy  shareholders
holding an  aggregate of 9,103,585  shares of Common  Stock.  The results of the
vote taken at such Meeting  with  respect to each  nominee for director  were as
follows:

          Common Stock Nominees         For                   Withheld
          ---------------------         ---                   --------
William P. McHale, Jr.             9,093,265 Shares         10,320 Shares
S. Daniel Shia                     9,093,265 Shares         10,320 Shares
Bruce R. Evans                     9,093,265 Shares         10,320 Shares
John C. Thibault                   9,093,265 Shares         10,320 Shares
Jacob J. Goldberg                  9,093,265 Shares         10,320 Shares

     In  addition,  a vote of the  shareholders  was taken at the 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,
1999.  Of the  shares  present at the  meeting in person or by proxy,  9,097,037
shares of Common Stock were voted in favor of such proposal, 2,330 shares of

                                      -21-
<PAGE>

Common Stock were voted  against such  proposal and 4,218 shares of Common Stock
abstained from voting.

ITEM 5.   OTHER INFORMATION

     RELOCATION OF PRINCIPAL EXECUTIVE OFFICES

     In June 1999, the Company moved its Principal  Executive  Offices from 1011
US  Highway  22,  Bridgewater,   New  Jersey,  08807  to  1160  US  Highway  22,
Bridgewater, New Jersey, 08807.


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.

                                      -22-
<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:      August 16, 1999                   By:/s/ William P. McHale, Jr.
                                                --------------------------------
                                                William P. McHale, Jr.
                                                President and Chief Executive
                                                Officer
                                                (Principal Executive Officer)




DATE:      August 16, 1999                   By:/s/ Susan M. Boykas
                                                --------------------------------
                                                Susan M. Boykas
                                                Acting Chief Financial Officer
                                                (Principal Financial and
                                                Accounting Officer)