<Page>
________________________________________________________________________________

                       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, 2001

                         COMMISSION FILE NUMBER 0-23611

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

                                DSET CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<Table>
<S>                                              <C>
                  NEW JERSEY                                       22-3000022
        (STATE OR OTHER JURISDICTION OF               (I.R.S. EMPLOYER IDENTIFICATION NO.)
        INCORPORATION OR ORGANIZATION)

 1160 U.S. HIGHWAY 22, BRIDGEWATER, NEW JERSEY                        08807
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                        (ZIP CODE)
</Table>

                                 (908) 526-7500
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

    Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X] No [ ]

    Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of August 1, 2001:

<Table>
<Caption>
CLASS                                                         NUMBER OF SHARES
-----                                                         ----------------
<S>                                                           <C>
Common Stock, no par value..................................     11,629,419
</Table>
________________________________________________________________________________




<Page>
                                DSET CORPORATION
                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                                 PAGE
                                                                                 ----
<S>       <C>      <C>                                                           <C>
PART I.  FINANCIAL INFORMATION.................................................    1
          Item 1.  Condensed Consolidated Financial Statements.................    1
                   Condensed Consolidated Balance Sheets as of June 30, 2001
                     and December 31, 2000.....................................    1
                   Condensed Consolidated Statements of (Loss) Income and
                     Comprehensive (Loss) Income for the Three and Six Months
                     Ended June 30, 2001 and 2000..............................    2
                   Condensed Consolidated Statements of Cash Flows for the Six
                     Months Ended June 30, 2001 and 2000.......................    3
                   Notes to Condensed Consolidated Financial Statements........    4
          Item 2.  Management's Discussion and Analysis of Financial Condition
                     and Results of Operations.................................   13
                   Results of Operations -- Three Months Ended June 30, 2001...   17
                   Results of Operations -- Six Months Ended June 30, 2001.....   18
                   Liquidity and Capital Resources.............................   19
          Item 3.  Quantitative and Qualitative Disclosures About Market
                     Risk......................................................   20

PART II.  OTHER INFORMATION....................................................   21
          Item 2.  Use of Proceeds.............................................   21
          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
</Table>

                                       i




<Page>
                        PART I -- FINANCIAL INFORMATION.

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                       DSET CORPORATION AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

<Table>
<Caption>
                                                                JUNE 30,       DECEMBER 31,
                                                                  2001             2000*
                                                                  ----             -----
<S>                                                           <C>            <C>
ASSETS
Current assets:
    Cash and cash equivalents...............................  $  5,901,946      $ 7,314,254
    Marketable securities...................................    15,087,610       27,760,494
    Income taxes receivable.................................     3,349,903        3,561,201
    Accounts receivable, net of allowance for doubtful
      accounts of $13,000,000 and $12,285,676 at June 30,
      2001 and December 31, 2000, respectively..............     1,577,582        6,248,635
    Prepaid licenses........................................     1,204,185          766,071
    Prepaid expenses and other current assets...............       701,090        1,768,709
                                                              ------------      -----------
        Total current assets................................    27,822,316       47,419,364
Acquired technology, net....................................       747,500        4,380,141
Software licenses, net......................................            --        2,257,101
Software development costs, net.............................            --          435,746
Fixed assets, net...........................................     4,023,943        4,999,684
Goodwill, net...............................................       374,750          928,141
Other assets, net...........................................     1,932,072          762,381
                                                              ------------      -----------
        Total assets........................................  $ 34,900,581      $61,182,558
                                                              ------------      -----------
                                                              ------------      -----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable and accrued expenses...................  $  4,045,133      $ 7,380,850
    Accrued restructuring expenses..........................     2,345,839          647,196
    Deferred revenues.......................................     2,983,414        3,088,086
    Current portion of notes payable........................       837,004          872,129
    Current portion of capital lease obligation.............       138,367          138,367
                                                              ------------      -----------
        Total current liabilities...........................    10,349,757       12,126,628
Long-term notes payable.....................................            --          409,901
Deferred rent...............................................       527,497          505,264
Capital lease obligation....................................       354,209          423,304
                                                              ------------      -----------
        Total liabilities...................................    11,231,463       13,465,097
                                                              ------------      -----------
Shareholders' Equity:
    Common stock, no par value; 40,000,000 shares
      authorized, 11,629,419 and 11,627,544 shares issued
      and outstanding at June 30, 2001 and December 31,
      2000, respectively....................................    50,146,240       50,169,404
    Deferred stock compensation.............................       (27,265)         (59,371)
    Accumulated deficit.....................................   (26,644,033)      (2,564,554)
    Accumulated other comprehensive income..................       194,176          171,982
                                                              ------------      -----------
        Total shareholders' equity..........................    23,669,118       47,717,461
                                                              ------------      -----------
        Total liabilities and shareholders' equity..........  $ 34,900,581      $61,182,558
                                                              ------------      -----------
                                                              ------------      -----------
</Table>

---------

*  Certain amounts have been reclassified for comparative purposes.

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

                                       1




<Page>
                       DSET CORPORATION AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND
                          COMPREHENSIVE (LOSS) INCOME
                                  (UNAUDITED)

<Table>
<Caption>
                                           THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                           ----------------------------   --------------------------
                                               2001           2000*           2001          2000*
                                               ----           -----           ----          -----
<S>                                        <C>             <C>            <C>            <C>
Revenues:
    License revenues.....................  $    586,179    $12,205,568    $  2,107,339   $20,300,987
    Service revenues.....................     2,030,061      4,028,048       3,924,342     7,531,042
                                           ------------    -----------    ------------   -----------
        Total revenues...................     2,616,240     16,233,616       6,031,681    27,832,029
                                           ------------    -----------    ------------   -----------
Cost of revenues:
    License revenues.....................       524,064        899,219       1,025,890     1,698,438
    Service revenues.....................     1,564,951      2,552,328       3,555,615     4,787,973
                                           ------------    -----------    ------------   -----------
        Total cost of revenues...........     2,089,015      3,451,547       4,581,505     6,486,411
                                           ------------    -----------    ------------   -----------
        Gross profit.....................       527,225     12,782,069       1,450,176    21,345,618
                                           ------------    -----------    ------------   -----------
Operating expenses:
    Sales and marketing..................     2,119,597      4,146,346       4,649,189     6,257,349
    Research and product development.....     2,993,705      4,188,071       6,903,239     7,606,422
    General and administrative...........     1,416,865        995,096       3,269,130     2,635,733
    Bad debt expense.....................       545,188        613,331         985,275       866,194
    Amortization of goodwill and other
      intangibles........................       103,284        103,284         203,400       206,568
    Restructuring and other charges......     6,780,157             --      10,209,075            --
                                           ------------    -----------    ------------   -----------
        Total operating expenses.........    13,958,796     10,046,128      26,219,308    17,572,266
                                           ------------    -----------    ------------   -----------
        Operating (loss) income..........   (13,431,571)     2,735,941     (24,769,132)    3,773,352
Interest expense and other income
  (expense), net.........................       (30,661)       (40,754)        (77,589)      (96,053)
Interest income..........................       404,130        582,845         894,395       981,280
                                           ------------    -----------    ------------   -----------
(Loss) income before income taxes........   (13,058,102)     3,278,032     (23,952,326)    4,658,579
Provision for income taxes...............        98,315      1,106,534         127,153     1,566,381
                                           ------------    -----------    ------------   -----------
Net (loss) income........................  $(13,156,417)   $ 2,171,498    $(24,079,479)  $ 3,092,198
                                           ------------    -----------    ------------   -----------
                                           ------------    -----------    ------------   -----------
Other comprehensive (loss) income, net of
  tax:
    Unrealized (depreciation)
      appreciation on investments........       (55,805)        85,881           1,135       183,388
    Cumulative translation adjustment....        19,389            (27)         21,059          (747)
                                           ------------    -----------    ------------   -----------
        Comprehensive (loss) income......  $(13,192,833)   $ 2,257,352    $(24,057,285)  $ 3,274,839
                                           ------------    -----------    ------------   -----------
                                           ------------    -----------    ------------   -----------
Net (loss) income applicable to common
  shares.................................  $(13,156,417)   $ 2,171,498    $(24,079,479)  $ 3,092,198
                                           ------------    -----------    ------------   -----------
                                           ------------    -----------    ------------   -----------
Net (loss) income per common share.......  $      (1.13)   $      0.19    $      (2.07)  $      0.28
                                           ------------    -----------    ------------   -----------
                                           ------------    -----------    ------------   -----------
Weighted average number of common shares
  outstanding............................    11,629,419     11,420,067      11,629,108    11,228,763
                                           ------------    -----------    ------------   -----------
                                           ------------    -----------    ------------   -----------
Net (loss) income per common share
  assuming dilution......................  $      (1.13)   $      0.18    $      (2.07)  $      0.26
                                           ------------    -----------    ------------   -----------
                                           ------------    -----------    ------------   -----------
Weighted average number of common shares
  and common equivalent shares
  outstanding............................    11,629,419     12,204,396      11,629,108    12,056,417
                                           ------------    -----------    ------------   -----------
                                           ------------    -----------    ------------   -----------
</Table>

---------

* Certain amounts have been reclassified for comparative purposes.

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

                                       2




<Page>
                       DSET CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<Table>
<Caption>
                                                               SIX MONTHS ENDED JUNE 30,
                                                              ---------------------------
                                                                  2001          2000*
                                                                  ----          -----
<S>                                                           <C>            <C>
Cash flows from operating activities:
    Net (loss) income.......................................  $(24,079,479)  $  3,092,198
    Adjustments to reconcile net (loss) income to net cash
      (used in) provided by operating activities:
        Deferred income taxes...............................            --       (208,544)
        Tax benefit from exercise of stock options..........            --      2,117,448
        Stock based compensation charges....................         4,404         65,810
        Depreciation........................................       715,857        546,163
        Amortization........................................       763,498        692,617
        Loss on disposal of assets..........................         6,645            463
        Bad debt expense....................................       985,275        698,000
        Asset impairment....................................     7,483,455             --
        (Gain) loss on redemption of marketable
          securities........................................      (233,241)       255,000
        Changes in assets and liabilities:
            Accounts receivable.............................     3,685,778        192,261
            Prepaid licenses................................      (438,114)      (671,000)
            Income taxes payable and receivable.............       211,298       (824,861)
            Prepaid expenses and other current assets.......       806,695       (513,579)
            Other assets, net...............................        21,682         (9,318)
            Accounts payable and accrued expenses...........    (3,061,360)     1,001,044
            Accrued restructuring expenses..................     1,698,643             --
            Deferred revenues...............................      (104,672)     1,661,760
            Deferred rent...................................        22,233             --
                                                              ------------   ------------
                Net cash (used in) provided by operating
                  activities................................   (11,511,403)     8,095,462
                                                              ------------   ------------
Cash flows from investing activities:
    Purchases of marketable securities......................            --    (18,059,148)
    Redemption of marketable securities.....................    12,907,260     21,346,135
    Acquisition of technology...............................      (607,035)      (952,746)
    Acquisition of software licenses........................            --     (1,250,000)
    Acquisition of fixed assets.............................      (666,358)    (1,590,506)
    Proceeds from disposition of fixed assets...............            --          1,000
    Repayments of loans to officers and shareholders........         8,726             --
                                                              ------------   ------------
                Net cash provided by (used in) investing
                  activities................................    11,642,593       (505,265)
                                                              ------------   ------------
Cash flows from financing activities:
    Loans to ISPSoft, Inc...................................    (1,000,000)            --
    Repayments of notes payable.............................      (500,000)      (500,000)
    Repayments of capital lease obligation..................       (69,095)       (63,919)
    Proceeds from the exercise of stock options and
      warrants..............................................         4,538      1,806,685
                                                              ------------   ------------
                Net cash (used in) provided by financing
                  activities................................    (1,564,557)     1,242,766
                                                              ------------   ------------
    Effect of foreign exchange rate changes on cash.........        21,059           (747)
                                                              ------------   ------------
                Net (decrease) increase in cash and cash
                  equivalents...............................    (1,412,308)     8,832,216
                                                              ------------   ------------
    Cash and cash equivalents, beginning of period..........     7,314,254      2,212,759
                                                              ------------   ------------
    Cash and cash equivalents, end of period................  $  5,901,946   $ 11,044,975
                                                              ------------   ------------
                                                              ------------   ------------
Supplemental disclosure of cash flow information:
    Cash (received) paid during the period for income
      taxes.................................................  $   (118,150)  $    673,150
    Cash paid during the period for interest................  $     76,038   $     27,820
Non-cash activities:
    Deferred payment of software licenses...................  $         --   $  1,250,000
</Table>

---------

* Certain amounts have been reclassified for comparative purposes.

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

                                       3




<Page>
                       DSET CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
                                 JUNE 30, 2001

1. BASIS OF PRESENTATION

    The condensed consolidated financial information presented as of June 30,
2001 and for the three-month and six-month periods ended June 30, 2001 and 2000
is unaudited, but in the opinion of DSET Corporation's ('DSET' or the 'Company')
management, contain all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for the fair presentation of
the Company's financial position as of June 30, 2001, the results of its
operations for the three-month and six-month periods ended June 30, 2001 and
2000, and its cash flows for the six-month periods ended June 30, 2001 and 2000.
The financial statements included herein have been prepared in accordance with
generally accepted accounting principles and the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These financial statements should be read in conjunction with the Company's
audited financial statements and accompanying notes and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000. The
December 31, 2000 balance sheet data contained in this Form 10-Q was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles.

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

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

CASH AND CASH EQUIVALENTS

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

MARKETABLE SECURITIES

    The marketable securities held by the Company are considered to be
available-for-sale securities and are reported at fair value. Unrealized
appreciation was $181,000 (net of deferred taxes of $102,000) at June 30, 2001.
Cost is determined on a specific identification basis.

FIXED ASSETS

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

                                       4




<Page>
                       DSET CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 2001

GOODWILL

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

SOFTWARE DEVELOPMENT COSTS

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

ACQUIRED TECHNOLOGY

    Acquired technology represents the costs of feasible technology acquired
from external sources. Amortization of acquired technology is the greater of the
amount computed using (a) the ratio that current gross revenues for a product
bears to the total of current and anticipated future gross revenues for that
product or (b) the straight-line method over the remaining estimated economic
life ranging from three to five years of the product including the period being
reported on. Accumulated amortization was $263,000 as of June 30, 2001 and
$1,197,000 as of December 31, 2000. In June 2001, the Company decided to
discontinue the sale of certain products (see Note 7). As a result, the Company
recognized an asset impairment for the acquired technology, related to
discontinued products.

RESEARCH AND PRODUCT DEVELOPMENT

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

LONG-LIVED ASSETS

    The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then compares
the carrying amount of the asset to the estimated future net cash flows expected
to result from the use of the asset. If the carrying amount of the asset exceeds
estimated undiscounted future net cash flows, the Company measures the amount of
the

                                       5




<Page>
                       DSET CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 2001

impairment by comparing the carrying amount of the asset to its fair value. Fair
value is generally measured by discounting expected future net cash flows at the
rate the Company utilizes to evaluate potential investments.

REVENUE RECOGNITION

    License revenues are recorded when the software has been shipped to the
Company's licensees and all significant obligations have been satisfied. Any
contract holdbacks or contingent charges are recognized as revenue when they are
satisfied. Custom gateway development 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 estimated direct labor costs.

    When the engineering of certain gateways is not yet completed, revenue is
recognized on orders for that gateway using the percentage of completion method
as defined above. Any revenue recognized in excess of amounts invoiced to the
customer for progress billings are recorded as unbilled accounts receivable.

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

    Revenues under software arrangements involving multiple elements of a sale
are allocated to each element based on vendor specific objective evidence of the
value of elements.

INCOME TAXES

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

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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

                                       6




<Page>
                       DSET CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 2001

useful lives of its acquired technology and software development costs based
upon changes in technology and industry conditions.

RECLASSIFICATIONS

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

NEW ACCOUNTING STANDARDS

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

3. DEBT OBLIGATIONS

a) CAPITAL LEASE OBLIGATION

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

<Table>
<Caption>
                                                              JUNE 30,    DECEMBER 31,
                                                                2001          2000
                                                                ----          ----
<S>                                                           <C>         <C>
Furniture and fixtures......................................  $ 412,777    $ 743,462
Accumulated amortization....................................   (117,937)    (159,313)
                                                              ---------    ---------
                                                              $ 294,840    $ 584,149
                                                              ---------    ---------
                                                              ---------    ---------
</Table>

b) LINES OF CREDIT

    In August 2000, the Company renewed an unsecured revolving credit facility
with a bank increasing the line of credit to $5.0 million. Borrowings under this
line of credit bear interest at the bank's prime rate (6.75% at June 30, 2001)
less 0.25% on amounts outstanding of less than $1.0 million and at the bank's
prime rate for aggregate principal amounts exceeding $1.0 million. No borrowings
under this line were outstanding at June 30, 2001 or December 31, 2000. This
credit facility contains, among other provisions, a covenant which restricts the
Company's ability to pay cash dividends. Since December 31, 2000, the 'earnings
before income taxes, depreciation and amortization' ('EBITDA') covenant has not
been met and therefore the line is not currently available.

                                       7




<Page>
                       DSET CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 2001

NOTES PAYABLE

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

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

<Table>
<Caption>
                                                              PRINCIPAL
YEAR ENDING DECEMBER 31,                                       PAYMENTS
------------------------                                       --------
<S>                                                           <C>
2001........................................................  $  500,000
2002........................................................     500,000
                                                              ----------
                                                               1,000,000

Less: Unamortized interest..................................    (162,996)
                                                              ----------
Present value of notes payable..............................  $  837,004
                                                              ----------
                                                              ----------
</Table>

4. REVENUE CONCENTRATION

    The Company had two customers accounting for 14% and 10% of revenues,
respectively, for the quarter ended June 30, 2001 and no customers which
accounted for more than 10% of revenues for the quarter ended June 30, 2000. The
Company had one customer which accounted for 27% of revenues for the six months
ended June 30, 2001 and no customer who accounted for more than 10% of revenues
for the six months ended June 30, 2000. The Company had seven customers each
accounting for more than 10% of accounts receivable, net at June 30, 2001.
Collectively, these seven customers accounted for 96% of accounts receivable,
net at June 30, 2001. The Company had one customer accounting for 23% of
accounts receivable, net at December 31, 2000. The Company derives a portion of
its revenues from international sales which constituted approximately 1% and 3%
of the Company's total revenues in the second quarter of 2001 and 2000,
respectively. The Company's international sales currently are United States
dollar-denominated. As a result, an increase in the value of the United States
dollar relative to foreign currencies could make the Company's products and
services less competitive in international markets.

5. EARNINGS PER SHARE

    The Company calculates, presents and discloses earnings per share ('EPS') in
accordance with SFAS No. 128, 'Earnings per Share'. The statement defines two
earnings per share calculations, basic and assuming dilution. The objective of
basic EPS is to measure the performance of an entity over the reporting period
by dividing net income available to common stock by the weighted average shares
outstanding. The objective of diluted EPS is consistent with that of basic EPS,
that is to measure the performance of an entity over the reporting period, while
giving effect to all dilutive potential common shares that were outstanding
during the period. The calculation of diluted EPS is similar to basic EPS except
the denominator is increased for the conversion of potential common shares. Due
to the Company's net loss for the three month and six month periods ended June
30, 2001, all outstanding stock options are considered to be antidilutive. The
following table is a reconciliation of the numerator and denominator under each
method:

                                       8




<Page>
                       DSET CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 2001

<Table>
<Caption>
                                               FOR THE THREE MONTHS ENDED JUNE 30,
                           ---------------------------------------------------------------------------
                                           2001                                   2000
                           -------------------------------------   -----------------------------------
                               NET                     PER SHARE      NET                    PER SHARE
                               LOSS         SHARES      AMOUNT       INCOME       SHARES      AMOUNT
                               ----         ------      ------       ------       ------      ------
<S>                        <C>            <C>          <C>         <C>          <C>          <C>
BASIC EPS:
Net (loss) income
  applicable to common
  shares.................  $(13,156,417)  11,629,419    $(1.13)    $2,171,498   11,420,067     $0.19

ASSUMING DILUTION:
    Stock options........            --           --                       --       41,477
    Warrants.............            --           --                       --      742,852
                           ------------   ----------               ----------   ----------
                           $(13,156,417)  11,629,419    $(1.13)    $2,171,498   12,204,396     $0.18
                           ------------   ----------               ----------   ----------
                           ------------   ----------               ----------   ----------
</Table>

<Table>
<Caption>
                                                FOR THE SIX MONTHS ENDED JUNE 30,
                           ---------------------------------------------------------------------------
                                           2001                                   2000
                           -------------------------------------   -----------------------------------
                               NET                     PER SHARE      NET                    PER SHARE
                               LOSS         SHARES      AMOUNT       INCOME       SHARES      AMOUNT
                               ----         ------      ------       ------       ------      ------
<S>                        <C>            <C>          <C>         <C>          <C>          <C>
BASIC EPS:
Net (loss) income
  applicable to common
  shares.................  $(24,079,479)  11,629,108    $(2.07)    $3,092,198   11,228,763     $0.28

ASSUMING DILUTION:
    Stock options........            --           --                       --       42,390
Warrants.................            --           --                       --      785,264
                           ------------   ----------               ----------   ----------
                           $(24,079,479)  11,629,108    $(2.07)    $3,092,198   12,056,417     $0.26
                           ------------   ----------               ----------   ----------
                           ------------   ----------               ----------   ----------
</Table>

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

6. RELATED PARTY TRANSACTIONS

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

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

                                       9




<Page>
                       DSET CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 2001

7. RESTRUCTURING AND OTHER CHARGES

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

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

    The approximate restructuring charges are summarized as follows:

<Table>
<S>                                                           <C>
Daleen software license asset impairment....................  $2,174,000
U.S. and Canadian work force reduction......................     378,000
U.S. and Canadian fixed asset impairments and future
  non-refundable lease payments.............................     847,000
Other.......................................................      30,000
                                                              ----------
Total First Quarter Restructuring and other charges.........  $3,429,000
                                                              ----------
                                                              ----------
</Table>

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

    The approximate restructuring charges are summarized as follows:

<Table>
<S>                                                           <C>
Asset impairment............................................  $4,520,000
Work force reduction........................................     969,000
Fixed asset impairments and future non-refundable lease
  payments..................................................   1,291,000
                                                              ----------
Total Second Quarter 2001 Restructuring and other charges...  $6,780,000
                                                              ----------
                                                              ----------
</Table>

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

8. MERGER WITH ISPSOFT INC.

MERGER AGREEMENT

    In June 2001, the Company announced an agreement to merge with ISPSoft Inc.
('ISPSoft'). ISPSoft has developed what the Company believes to be a technically
advanced implementation of Internet Protocol (IP) provisioning software.
ISPSoft security holders will receive an aggregate of up to 9,124,547 shares of
DSET common stock, $1,000,000 in cash and up to $1,000,000 in cash or
unregistered shares of

                                       10




<Page>
                       DSET CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 2001

DSET common stock in potential milestone payments in exchange for their ISPSoft
securities in the merger. DSET will also issue 764,962 options to purchase
shares of DSET common stock upon the assumption of 2,162,930 currently issued
and outstanding options to purchase shares of ISPSoft common stock. The shares
and options indicated are subject to final adjustment as of the date of closing.
The merger transaction with ISPSoft is subject to approval by DSET's
shareholders.

LOAN TRANSACTIONS

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

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

9. EMPLOYEE STOCK PURCHASE PLAN

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

                                       11




<Page>
                       DSET CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (UNAUDITED) -- (CONTINUED)
                                 JUNE 30, 2001

market value of the Company's common stock at the commencement or termination of
the six-month period. The ESPP will expire on July 1, 2005.

NOTE 10. SUBSEQUENT EVENTS

SHAREHOLDER RIGHTS PLAN

    In July 2001 the Company announced that its board of directors had adopted a
shareholder rights plan (the 'Rights Plan'). Under the Rights Plan, each
shareholder of record on July 31, 2001 will receive a distribution of one right
for each share of DSET common stock ('Rights'). Initially the Rights will be
represented by DSET's common stock certificates, will not be traded separately
from DSET's common stock, and will not be exercisable. The Rights become
exercisable only if an entity acquires, or announces a tender offer, that would
result in ownership of 15% or more of DSET's common stock, at which time each
Right would enable the holder to buy one-thousandth of a share of DSET's Series
A Junior Participating Preferred Stock at an exercise price of $20, subject to
adjustment. The actual number of shares acquirable by the holder equals $20
divided by one-half of the current market price of DSET's common stock.
Additionally, the Rights Plan provides that in the event of a subsequent merger
or other acquisition of DSET, the holders of Rights will be entitled to buy
shares of common stock of the acquiring entity at one-half of the market price
of the acquiring company's shares.

NASDAQ NOTICE

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

REVERSE STOCK SPLIT

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

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

<Table>
<Caption>
                                                   THREE MONTHS        SIX MONTHS
                                                  ENDED JUNE 30,     ENDED JUNE 30,
                                                 ----------------   ----------------
                                                  2001      2000     2001      2000
                                                  ----      ----     ----      ----
<S>                                              <C>       <C>      <C>       <C>
Basic..........................................  $(4.52)   $0.76    $(8.28)   $1.12
Assuming Dilution..............................  $(4.52)   $0.72    $(8.28)   $1.04
</Table>

                                       12




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

GENERAL

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

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

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

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

    The market opportunity to sell electronic bonding gateway software and
services has contracted significantly in the nine months from October 2000 to
June 2001. As a result, the Company has implemented a series of steps to reduce
expenses and control cash.

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

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

    In 2000, revenues from the sale of LNP solutions and application development
tools to customers under contracts were generally derived from license fees and
run-time royalty fees. Prices for licenses of the Company's LNP solutions and
application development tool suites can range from approximately $150,000 to
$400,000, depending on the number of licensed components and development users.
The Company's license agreements for application development tools also
typically provide for run-time royalty fees that are earned at the time of
deployment by equipment vendors to telecommunications carriers of network
devices that have embedded applications built with the Company's software. A
run-time license permits an equipment vendor to incorporate applications
developed with the Company's software tools in such vendor's telecommunications
network devices. Run-time royalty fees are recognized as the Company is notified
of such deployment. Notification is typically received from customers pursuant
to quarterly reports or via purchase orders for individual licenses.

                                       13




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

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

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

    The Company primarily markets and sells its products and services through a
direct sales force in North America. The Company derives a portion of its
revenues from international sales, which constituted approximately 1% and 3% of
the Company's total revenues in the second quarter of 2001 and 2000,
respectively. International sales are derived from Europe (primarily Italy and
Germany), and Asia (primarily Korea, China and Japan). The Company's
international sales currently are United States dollar-denominated. As a result,
an increase in the value of the United States dollar relative to foreign
currencies could make the Company's products and services less competitive in
international markets.

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

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

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

                                       14




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

    The Company's return to profitability will depend on the market for OSS
interconnection products and services and new revenue streams resulting from the
merger with ISPSoft ("ISPSoft"). The CSPs have experienced a decrease in funding
due to, among other factors, concerns over their business models. This decrease
in funding has forced CSPs to stop spending on many capital projects, including
DSET gateways. Many of the Company's targeted customers have already purchased
billing and order management systems but have decided to delay their purchases
of gateways until the funding climate improves and the order flow from their
customers increases. These purchasing delays not only occurred at large
well-funded CSPs, but also at start-up CSPs. This funding crisis also affected
the Company's collection efforts since many of the Company's customers
experienced financial difficulties and were unable to pay the Company. While the
Company believes that it has adequately reserved for doubtful accounts, no
assurance can be made that no additional customers will be unable to pay or go
bankrupt.

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

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

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

                                       15




<Page>
The shares and options indicated are subject to final adjustment as of the date
of closing. The merger transaction with ISPSoft is subject to approval by DSET's
shareholders.

    On July 23, 2001, the Company announced that on July 20, 2001 its Board of
Directors had adopted a shareholder rights plan (the 'Rights Plan'). Under the
Rights Plan, each shareholder of record on July 31, 2001 will receive a
distribution of one Right for each share of DSET common stock ('Rights').
Initially the Rights will be represented by DSET's common stock certificates,
will not be traded separately from DSET's common stock, and will not be
exercisable. The Rights become exercisable only if an entity acquires, or
announces a tender offer, that would result in ownership of 15% or more of
DSET's common stock, at which time each Right would enable the holder to buy
one-thousandth of a share of DSET's Series A Junior Participating Preferred
Stock at an exercise price of $20, subject to adjustment. The actual number of
shares acquirable by the holder equals $20 divided by one-half of the current
market price of DSET's common stock. Additionally, the Rights Plan provides that
in the event of a subsequent merger or other acquisition of DSET, the holders of
Rights will be entitled to buy shares of common stock of the acquiring entity at
one-half of the market price of the acquiring company's shares.

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

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

FORWARD-LOOKING STATEMENTS

    Statements contained in this Form 10-Q that are not based on historical fact
are 'forward-looking statements' within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements may be
identified by the use of forward-looking terminology such as 'may,' 'will,'
'should,' 'expect,' 'estimate,' 'anticipate,' 'continue,' or similar terms,
variations of such terms or the negative of those terms. Such forward-looking
statements involve risks and uncertainties, including, but not limited to:
(i) the substantial variability of the Company's quarterly operating results,
(ii) the Company's dependence on the rapidly evolving telecommunications
industry, (iii) rapid technological change in the Company's industry,
(iv) uncertainty in the Company's customers' cash flow and external financing
environment, (v) the limited number of customers for a significant portion of
the Company's revenue, (vi) risks associated with market acceptance of the
Company's OSS gateways, (vii) risks associated with intense competition in the
industry, including competition for qualified technical personnel, (viii) the
buying patterns of the telecommunications providers, (ix) the ongoing risk of
that telecommunications providers will not get expected funding to advance their
business model and (x) risks associated with acquisitions of businesses by the
Company, including risks relating to unanticipated liabilities or expenses or
lower than expected revenues of such acquired businesses. The success of the
Company depends to a large degree upon increased demand by Telecom Service
Providers for its OSS Interconnection products, demand for its LNP products by
network equipment vendors, and if the Company's contemplated merger with ISPSoft
is consummated, the market for Internet Protocol (IP) provisioning software. As
a result of such risks and others

                                       16




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

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2000

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

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

    Sales and marketing expenses. Sales and marketing expenses decreased 48.9%
to $2.1 million in the second quarter of 2001 from $4.1 million in the second
quarter of 2000. The decrease in sales and marketing expenses was primarily
attributable to lower personnel and related costs, lower travel expense, and
lower contract labor costs due to the reduction in sales activity.

    Research and product development expenses. Research and product development
expenses decreased 28.5% to $3.0 million in the second quarter of 2001 from $4.2
million in the second quarter of 2000. In March 2001, an expense reduction plan
was put in place related primarily to a reduction in headcount, and the
substantial effect of these actions was realized in the second quarter of 2001.

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

    Bad debt expense. Bad debt expense decreased to approximately $545,000 in
the second quarter of 2001 from $613,000 in the second quarter of 2000. There
was a decrease due to the volume of charges to bad debt expenses over the last
year and the decrease in size of accounts receivable.

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

    Restructuring and other charges. Restructuring and other charges in the
second quarter of 2001 were $6.8 million including an asset impairment of $4.5
million for the carrying value of certain licenses related to acquired
technology and goodwill, approximately $1.0 million in severance

                                       17




<Page>
charges related to the June 2001 reduction in force, and $1.3 million in charges
related to fixed asset impairments and non-refundable future lease payments.

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

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

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

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000

    Revenues. Total revenues decreased by 78.3% to $6.0 million in the six
months ended June 30, 2001 from $27.8 million in the six months ended June 30,
2000. License revenues decreased by 89.6% to $2.1 million in the six months
ended June 30, 2001 from $20.3 million in the six months ended June 30, 2000.
This decrease was attributable to a reduction in orders by prospective customers
due to financing issues. Service revenues decreased 47.9% to $3.9 million in the
six months ended June 30, 2001 from $7.5 million in the six months ended
June 30, 2000. This decrease was primarily attributable to less maintenance
contracts due to a reduction in orders as well as less percentage of completion
revenue recorded for custom carrier and network projects. Revenues recorded
using the percentage of completion method of contract accounting amounted to
$50,000 in the six months ended June 30, 2001 as compared to $4.4 million in the
six months ended June 30, 2000. Trading Partner Network implementation service
revenue increased to $1.0 million in the six months ended June 30, 2001 as
compared to $109,000 in the six months ended June 30, 2000.

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

    Sales and marketing expenses. Sales and marketing expenses decreased 25.7%
to $4.6 million in the six months ended June 30, 2001 from $6.3 million in the
six months ended June 30, 2001. The decrease in sales and marketing expenses was
primarily attributable to lower personnel and related costs, lower travel
expenses and lower contract labor costs due to the reduction in sales activity.

    Research and product development expenses. Research and product development
expenses decreased 9.2% to $6.9 million in the six months ended June 30, 2001
from $7.6 million in the six months ended June 30, 2000. In March 2001, an
expense reduction plan was put in place related

                                       18




<Page>
primarily to a reduction in headcount, and the substantial effect of those
actions was realized in the second quarter of 2001.

    General and administrative expenses. General and administrative expenses
increased 24.0% to $3.3 million in the six months ended June 30, 2001 from $2.6
million in the six months ended June 30, 2000. The increase in general and
administrative expenses was due primarily to occupancy, information technology
personnel and additional professional fees. Due to the relocation of
non-administrative personnel to the Company's Plano office, administrative
departments have absorbed a larger portion of the facilities costs of the
Bridgewater facility.

    Bad debt expense. Bad debt expense increased to approximately $985,000 in
the six months ended June 30, 2001 from approximately $866,000 in the six months
ended June 30, 2000. The increase was due in part to the uncertainty in the cash
flow and external financing for CSPs, which continued to impact the Company's
ability to collect its receivables.

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

    Since its inception in 1989, the Company has financed its operations
primarily through cash generated by operations and cash raised through its March
1998 initial public offering. At June 30, 2001, the Company's cash, cash
equivalents and marketable securities aggregated approximately $21.0 million, of
which cash and cash equivalents aggregated approximately $5.9 million and
marketable securities aggregated approximately $15.1 million. Marketable
securities at June 30, 2001 were comprised of fixed income government securities
and corporate bonds. The Company's working capital was $17.5 million and $35.3
million at June 30, 2001 and December 31, 2000, respectively.

    Accounts receivable, net, decreased to $1.6 million at June 30, 2001 from
$6.2 million at December 31, 2000, primarily as a result of decreased sales and
the collection of outstanding receivables. Included in accounts receivable at
June 30, 2001 was $13.2 million for trade receivables and $1.7 million for
unbilled project revenue as compared to $16.1 million for trade receivables

                                       19




<Page>
and $2.9 million for unbilled project revenue at December 31, 2000. The
allowance for doubtful accounts was $13.0 million at June 30, 2001 as compared
to $12.3 million at December 31, 2000. Unbilled project revenue is the excess
amount of revenue recognized through percentage of completion that has not been
billed to the customer. Payment terms to customers are generally net zero to net
ninety days.

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

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

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

    During August 2000, the Company renewed an unsecured revolving credit
facility with a bank pursuant to which the Company may borrow up to a maximum of
$5.0 million. Borrowings under this line of credit bear interest at the bank's
prime rate less 0.25% on aggregate principal amounts outstanding of less than
$1.0 million and at the bank's prime rate for aggregate principal amounts
exceeding $1.0 million. No borrowings under this line were outstanding as of
June 30, 2001. This credit facility contains, among other provisions, covenants
which: (i) mandate the amount of working capital the Company must maintain at
the end of each calendar quarter; and (ii) restrict the Company's ability to pay
cash dividends. The unsecured revolving credit facility expires on August 5,
2004. Since December 31, 2000 the 'earnings before income taxes, depreciation
and amortization' ('EBITDA') covenant has not been met and therefore the line is
not currently available. The Company has applied for a waiver of this covenant
but does not believe it will be granted.

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

    The Company does not denominate its international revenues in foreign
currencies. The Company believes that it is not subject to a material impact to
its financial position or results of operations relating to market risk
associated with foreign currency rates or derivative securities.

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

                                       20




<Page>
                                    PART II.
                               OTHER INFORMATION

ITEM 2. USE OF PROCEEDS

    Use of Proceeds from Initial Public Offering

    On March 12, 1998, the Commission declared effective the Company's
Registration Statement (Registration Statement No. 333-43827) as filed with the
Commission in connection with the Company's initial public offering of Common
Stock, which was managed by BT Alex. Brown Incorporated, BancAmerica Robertson
Stephens and SoundView Financial Group, Inc. Pursuant to such Registration
Statement, the Company registered and sold an aggregate of 2,500,000 shares of
its Common Stock, for a gross aggregate offering price of $40.0 million. The
Company incurred underwriting discounts and commissions of approximately $2.8
million. In connection with such offering, the Company incurred total expenses
of approximately $1.1 million. As of June 30, 2001, the remainder of the $36.1
million in net proceeds received by the Company upon consummation of such
offering, pending specific application, were invested in short-term,
investment-grade, interest-bearing instruments and have been used to finance
operations.

    On January 25, 1999, DSET Acquisition Corp., a wholly-owned subsidiary of
the Company consummated the acquisition of certain assets of NPL. The purchase
price consisted of $2.5 million payable in cash to NPL and professional fees of
$158,000. NPL provided specialized software to CSPs. These assets were impaired
as of June 30, 2001.

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

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

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

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

    The Annual Meeting of Shareholders of the Company (the 'Annual Meeting') was
held on June 13, 2001. There were present at the Annual Meeting in person or by
proxy shareholders holding an aggregate of 11,198,520 shares of Common Stock.
The results of the vote taken at such Annual Meeting with respect to each
nominee for director were as follows:

<Table>
<Caption>
         COMMON STOCK NOMINEES                   FOR                 WITHHELD
         ---------------------                   ---                 --------
<S>                                       <C>                     <C>
William P. McHale, Jr...................  10,620,968 Shares       577,552 Shares
Jacob J. Goldberg.......................  10,761,168 Shares       437,352 Shares
C. Daniel Yost..........................  10,761,168 Shares       437,352 Shares
Andrew D. Lipman........................  10,761,048 Shares       436,472 Shares
</Table>

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

                                       21




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

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

ITEM 5. OTHER INFORMATION.

    On June 26, 2001 the Company announced the agreement to merge with ISPSoft,
Inc. that is expected to be completed by the end of September 2001. ISPSoft
security holders will receive an aggregate of up to 9,124,547 shares of DSET
common stock, $1,000000 in cash and up to $1,000,000 in cash or unregistered
shares of DSET common stock in potential milestone payments in exchange for
their ISPSoft securities in the merger. DSET will also issue 764,962 options
to purchase shares of DSET common stock upon the assumption of 2,162,930
currently issued and outstanding options to purchase shares of ISPSoft common
stock. The shares and options indicated are subject to final adjustment as of
the date of closing. ISPSoft has developed what the Company believes to be a
technically advanced implementation of Internet Protocol (IP) provisioning
software. The market for next generation software-based provisioning systems is
expected to grow from approximately $800 million in 2001 to almost $1.6 billion
in 2004, according to a report by the research and consulting firm IDC.

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

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

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

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

<Table>
<C>  <S>
(a)  Exhibits.
     None.
(b)  Reports on Form 8-K.
     The following reports on Form 8-K were filed during the
     quarter for which this report on Form 10-Q is filed:
     On July 25, 2001 the Company filed a current report on Form
     8-K with the Securities and Exchange Commission with respect
     to the Company's Shareholder Rights Plan.
</Table>

                                       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

<Table>
<S>                                               <C>
DATE: August 14, 2001                                     By:     /s/ WILLIAM P. MCHALE, JR.
                                                  ...................................................
                                                           WILLIAM P. MCHALE, JR., PRESIDENT
                                                              AND CHIEF EXECUTIVE OFFICER
                                                             (PRINCIPAL EXECUTIVE OFFICER)

DATE: August 14, 2001                                       By:       /s/ BRUCE M. CROWELL
                                                  ...................................................
                                                                   BRUCE M. CROWELL
                                                      VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
                                                     (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
</Table>

                                       23