<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 March 31, 2002
                         Commission File Number 0-23611


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


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


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


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


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

                Yes: X                           No:
                    ---                              ---

         Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of April 30, 2002:


            Class                                      Number of Shares
            -----                                      ----------------
  Common Stock, no par value                              5,082,402




<PAGE>




                               DSET CORPORATION

                              TABLE OF CONTENTS

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

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

                      Condensed Consolidated Balance Sheets as of March 31, 2002 and
                          December 31, 2001............................................................         2

                      Condensed Consolidated Statements of Loss
                          and Comprehensive Loss for the Three Months Ended March 31,
                          2002 and 2001................................................................         3

                      Condensed Consolidated Statements of Cash Flows for the Three Months
                          Ended March 31, 2002 and 2001................................................         4

                      Notes to Condensed Consolidated Financial Statements.............................         5

           Item 2.    Management's Discussion and Analysis of Financial Condition and
                          Results  of Operations.......................................................        15

                      Results of Operations............................................................        19

                      Liquidity and Capital Resources..................................................        21

           Item 3.    Quantitative and Qualitative Disclosures About Market Risk.......................        24

PART II.      OTHER INFORMATION........................................................................        25

           Item 2.    Changes in Securities and Use of Proceeds........................................        25

           Item 4.    Submission of Matters to a Vote of Security Holders..............................        25

           Item 5.    Other Information................................................................        25

           Item 6.    Exhibits and Reports on Form 8-K.................................................        25

SIGNATURES.............................................................................................        26
</TABLE>



                                       i




<PAGE>



                          PART I. FINANCIAL INFORMATION


               Item 1. Condensed Consolidated Financial Statements



                                       1





<PAGE>




DSET Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                       March 31, 2002      December 31, 2001
                                                                       --------------      -----------------
<S>                                                                   <C>                   <C>
Assets
Current assets:
   Cash and cash equivalents                                             $ 6,504,081          $12,958,074
   Accounts receivable, net of allowance for doubtful accounts
     of $7,697,383 at March 31, 2002 and December 31, 2001                   629,230              823,793
   Income taxes receivable                                                 1,407,386                8,416
   Prepaid licenses                                                          916,416              935,000
   Prepaid expenses and other current assets                                 373,831              329,864
                                                                         -----------          -----------
        Total current assets                                               9,830,944           15,055,147

Fixed assets, net                                                          2,261,868            2,173,139
Acquired technology, net                                                   3,866,667                   --
Goodwill, net                                                             11,478,961               19,004
Loans to ISPsoft, Inc.                                                            --            3,850,000
Merger and acquisition costs                                                      --            1,042,985
Other assets, net                                                            525,064              417,289
                                                                         -----------          -----------
        Total assets                                                     $27,963,504          $22,557,564
                                                                         ===========          ===========
Liabilities and Shareholders' Equity
Current liabilities:
   Accounts payable and accrued expenses                                 $ 2,974,327          $ 2,459,972
   Deferred revenues                                                       1,964,794            2,293,214
   Accrued restructuring expenses                                          1,034,211            1,177,154
   Notes payable                                                             800,000              493,786
   Current portion of capital lease obligation                               138,367              138,367
                                                                         -----------          -----------
        Total current liabilities                                          6,911,699            6,562,493

Long term accrued restructuring expenses                                     970,907            1,021,344
Deferred rent                                                                559,836              549,566
Capital lease obligation                                                     245,439              282,494
Other liabilities                                                             21,000               21,000
                                                                         -----------          -----------
        Total liabilities                                                  8,708,881            8,436,897
                                                                         -----------          -----------

Commitments and contingencies

Shareholders' equity:

   Preferred stock, no par value; 5,000,000 shares authorized, no shares
     issued or outstanding at March 31, 2002 and December 31, 2001                --                   --
   Series A Junior Participating Preferred stock, no par value; 5,000 shares
     authorized, no shares issued or outstanding at March 31, 2002 or
     December 31, 2001                                                            --                   --
   Common stock, no par value; 10,000,000 shares authorized, 5,188,543
     and 2,907,400 shares issued at March 31, 2002 and December 31, 2001,
     respectively; 5,082,402 and 2,801,259 shares outstanding at
     March 31, and December 31, 2001, respectively                        57,043,533           50,138,022
   Accumulated deficit                                                   (37,609,048)         (35,837,420)
   Other comprehensive loss                                                  (21,802)             (21,875)
   Treasury stock, at cost; 106,141 shares at March 31, 2002
     and December 31, 2001                                                  (158,060)            (158,060)
                                                                         -----------          -----------
        Total shareholders' equity                                        19,254,623           14,120,667
                                                                         -----------          -----------
        Total liabilities and shareholders' equity                       $27,963,504          $22,557,564
                                                                         ===========          ===========
</TABLE>




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


                                       2




<PAGE>




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


<TABLE>
<CAPTION>
                                                                                Three Months Ended March 31,
                                                                               -----------------------------
                                                                                   2002             2001
                                                                                   ----             ----
<S>                                                                         <C>                <C>
Revenues:
   License revenues                                                            $   253,343      $  1,521,160
   Service revenues                                                              1,248,012         1,894,280
                                                                               -----------      ------------

          Total revenues                                                         1,501,355         3,415,440
                                                                               -----------      ------------

Cost of revenues:
   License revenues                                                                202,473           501,826
   Service revenues                                                              1,034,367         1,990,663
                                                                               -----------      ------------

          Total cost of revenues                                                 1,236,840         2,492,489
                                                                               -----------      ------------

          Gross profit                                                             264,515           922,951
                                                                               -----------      ------------

Operating expenses:
   Sales and marketing                                                             735,502         2,529,592
   Research and product development                                                986,665         3,909,534
   General and administrative                                                    1,219,097         1,852,265
   Bad debt expense and other charges                                                    -           440,087
   Amortization of goodwill                                                              -           100,117
   Restructuring and impairment charges                                            463,781         3,428,918
                                                                               -----------      ------------

        Total operating expenses                                                 3,405,045        12,260,513
                                                                               -----------      ------------

          Operating loss                                                        (3,140,530)      (11,337,562)

Interest expense and other income (expense)                                        (63,405)          (46,928)
Interest income and realized gains and losses on marketable securities              45,919           490,265
                                                                               -----------      ------------

Loss before income taxes                                                        (3,158,016)      (10,894,225)

Provision (benefit) for income taxes                                            (1,386,388)           28,837
                                                                               -----------      ------------

Net loss                                                                       $(1,771,628)     $(10,923,062)
                                                                               ===========      ============

Other comprehensive income (loss), net of tax
   Unrealized appreciation on investments                                                -            56,941
   Cumulative translation adjustment                                                    73             1,669
                                                                               -----------      ------------
          Comprehensive loss                                                   $(1,771,555)     $(10,864,452)
                                                                               ===========      ============

Net loss applicable to common shares                                           $(1,771,628)     $(10,923,062)
                                                                               ===========      ============
Net loss per common share - basic and diluted                                  $     (0.41)     $      (3.76)
                                                                               ===========      ============

Weighted average number of common shares outstanding                             4,296,675         2,907,199
                                                                               ===========      ============
</TABLE>

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



                                       3




<PAGE>



DSET Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                               Three Months Ended March 31,
                                                                               -----------------------------
                                                                                   2002            2001
                                                                                   ----            ----
<S>                                                                          <C>              <C>
Cash flows from operating activities:
   Net loss                                                                    $(1,771,628)     $(10,923,062)
   Adjustments to reconcile net loss to net cash
     (used in) operating activities, net of effects of acquisitions:
     Stock based compensation charges                                                    -            (9,227)
     Realized (gain) on marketable securities                                            -          (131,087)
     Depreciation                                                                  170,850           352,991
     Amortization                                                                  133,333           421,964
     Bad debt expense and other charges                                                  -           440,087
     Asset impairments                                                             147,099         2,895,825
     Changes in operating assets and liabilities:
        Accounts receivable                                                        210,563           914,348
        Income taxes                                                            (1,398,970)          122,804
        Prepaid licenses                                                            18,584           (88,001)
        Prepaid expenses and other current assets                                  (42,854)          679,992
        Other assets                                                               (61,657)         (192,895)
        Accounts payable and accrued expenses                                      444,513        (2,678,345)
        Deferred revenues                                                         (328,420)         (23,916)
        Accrued restructuring expenses                                            (193,380)          529,375
        Deferred rent                                                               10,270           15,222
                                                                               -----------      ------------
          Net cash (used in) operating activities                               (2,661,697)       (7,673,925)
                                                                               -----------      ------------
Cash flows from investing activities:
   Redemption of marketable securities                                                   -         8,214,905
   Acquisition of business, less cash acquired                                  (3,248,422)                -
   Purchase of acquired technology                                                       -          (347,035)
   Acquisition of fixed assets                                                     (19,106)         (603,603)
                                                                               -----------      ------------
          Net cash provided by (used in) investing activities                   (3,267,528)        7,264,267
                                                                               -----------      ------------
Cash flows from financing activities:
   Repayments of notes payable                                                    (493,786)         (500,000)
   Repayments of capital lease obligation                                          (37,055)          (34,169)
   Repayment from officers and shareholders                                          6,000             7,600
   Proceeds from the exercise of stock options                                           -             4,538
                                                                               -----------      ------------
          Net cash (used in) financing activities                                 (524,841)         (522,031)
                                                                               -----------      ------------
   Effect of foreign exchange rate changes on cash                                      73             1,669
                                                                               -----------      ------------
          Net (decrease) in cash and cash equivalents                           (6,453,993)         (930,020)
                                                                               -----------      ------------
   Cash and cash equivalents, beginning of period                               12,958,074         7,314,254
                                                                               -----------      ------------
   Cash and cash equivalents, end of period                                    $ 6,504,081      $  6,384,234
                                                                               ===========      ============
Supplemental disclosure of cash flow information:
   Cash (received) paid during the period for income taxes                     $    12,582      $   (123,933)
   Cash paid during the period for interest                                         14,293            36,528
Non-cash activities:
   Accrued merger and acquisition costs                                            400,368                 -
   Issuance of common stock and options in business acquisition                  6,905,511                 -

Supplemental information of business acquired:
   Fair value of assets acquired:
       Cash                                                                          1,183                 -
       Current assets                                                               23,113                 -
       Non-current assets                                                          430,855                 -
       Acquired technology                                                       4,000,000                 -
       Goodwill                                                                 11,459,957                 -

    Less liabilities assumed and non-cash consideration:
       Current liabilities                                                        (268,695)                -
       Notes payable                                                              (800,000)                -
       Stock issued                                                             (6,378,077)                -
       Stock options issued                                                       (527,434)                -
       Accrued merger and acquisition costs                                       (400,368)                -
                                                                               -----------      ------------
Cash paid                                                                        7,540,534                 -
    Less, cash acquired                                                             (1,183)                -
Net cash paid                                                                    7,539,351                 -
    Less, cash paid prior to December 31,2001                                    4,290,929                 -
                                                                               -----------      ------------
Acquisition of business, less cash acquired                                    $ 3,248,422      $          -
</TABLE>

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





                                       4




<PAGE>



DSET Corporation and Subsidiaries
March 31, 2002
Notes to Condensed Consolidated Financial Statements (Unaudited)


1.    Basis of Presentation

      The condensed consolidated financial information presented as of March 31,
      2002 and for the three month periods ended March 31, 2002 and 2001 is
      unaudited, but in the opinion of the management of DSET Corporation("DSET"
      or the "Company"), contains all adjustments (consisting only of normal
      recurring adjustments) which the Company considers necessary for the fair
      presentation of the Company's financial position as of March 31, 2002, the
      results of its operations and its cash flows for the three month periods
      ended March 31, 2002 and 2001. 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, 2001. The December 31, 2001 balance sheet data contained in
      this Form 10-Q was derived from audited financial statements, but does not
      include all the 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.

      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 was 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 shares. The Company's common stock commenced trading at the
      post-split price on August 22, 2001. All share and per share amounts in
      this Form 10-Q have been adjusted retroactively to reflect the
      one-for-four reverse stock split.

2.    Going Concern

      The condensed consolidated financial statements of DSET have been prepared
      on the basis that DSET will continue as a going concern, which
      contemplates the realization of assets and satisfaction of liabilities and
      commitments in the normal course of business. At March 31, 2002 and
      December 31, 2001, DSET had an accumulated deficit of $37.6 million and
      $35.8 million and working capital of $2.9 million and $8.5 million,
      respectively. DSET also incurred net losses of $1.8 million for the
      quarter ended March 31, 2002 and $33.3 million for the year ended December
      31, 2001. These factors raise substantial doubt about DSET's ability to
      continue as a going concern. The losses and deficits resulted principally
      from the lack of demand for DSET's products due to a


                                       5




<PAGE>



DSET Corporation and Subsidiaries
March 31, 2002
Notes to Condensed Consolidated Financial Statements (Unaudited)



      major downturn in the telecommunications industry which began in the
      second half of 2000 (and continues to the present), having its most acute
      impact on Competitve Service Providers ("CSPs"), the Company's primary
      targeted customers. This downturn was brought about by the sudden
      withdrawal of available financing to the CSPs from traditional sources.
      Many of the Company's customers have declared bankruptcy, refused to pay
      or delayed additional purchases. This has resulted in the impairment of
      tangible and intangible assets, excess capacities and substantial bad
      debts. The Company has taken action to mitigate these circumstances by
      reducing headcount, subletting facilities and searching for additional
      financing to enable it to fund its return to positive cash flow and
      profitability.

      In 2002 DSET received two non-compliance notifications from the Nasdaq
      Stock Market, Inc. ("Nasdaq").

      On February 14, 2002, the Company received notice from Nasdaq that for the
      preceding 30 consecutive trading days, the Company's common stock had not
      maintained the minimum Market Value of Publicly Held Shares ("MVPHS") of
      $5,000,000 as required for continued inclusion by Marketplace Rule
      4450(a)(2) (the "Rule") on the Nasdaq National Market. MVPHS equals the
      closing bid price multiplied by that portion of a company's outstanding
      shares which is in the hands of public investors (i.e., - shares not held
      by company officers, directors, or investors who hold a controlling
      interest in the company.) Therefore, in accordance with Marketplace Rule
      4450(e)(1), the Company has 90 calendar days, or until May 15, 2002, to
      regain compliance. If compliance with the Rule cannot be demonstrated by
      May 15, 2002, the Company's securities will be delisted from the Nasdaq
      National Market. The Company has applied to transfer the trading of its
      common stock to the Nasdaq SmallCap Market and delisting is stayed
      pending Nasdaq's ruling on this application.

      On March 5, 2002, the Company received notice from Nasdaq that for the
      previous 30 consecutive trading days, the price of the Company's common
      stock had closed below the minimum $1.00 per share requirement for
      continued inclusion under Marketplace Rule 4450(a)(5) (the "$1.00 Rule").
      Therefore, in accordance with Marketplace Rule 4450(e)(2), the Company has
      90 calendar days, or until June 3, 2002, to regain compliance. If
      compliance with the $1.00 Rule cannot be demonstrated by June 3, 2002, the
      Company's securities will be delisted from the Nasdaq National Market.
      The Company has applied to transfer the trading of its common stock to
      the Nasdaq SmallCap Market and delisting is stayed pending Nasdaq's
      ruling on this application.

      DSET's failure to meet the Nasdaq's maintenance criteria in the future
      may result in the delisting of its common stock from the Nasdaq National
      Market. In such event, trading, if any, of DSET's common stock may then
      continue to be conducted in the Nasdaq SmallCap market, if DSET meets its
      criteria or the over-the-counter market, in what is commonly referred to
      as the electronic bulletin board or the "pink sheets". As a result, an
      investor may find it more difficult to dispose of or obtain accurate
      quotations as to the market value of DSET's common stock. In addition, in
      the event DSET's common stock is delisted, broker-dealers would have
      certain regulatory burdens imposed upon them, which may discourage them
      from effecting transactions in DSET's common stock,


                                       6




<PAGE>


DSET Corporation and Subsidiaries
March 31, 2002
Notes to Condensed Consolidated Financial Statements (Unaudited)


      further limiting the liquidity thereof. This may have the effect of
      limiting DSET's ability to raise additional financing.

      DSET's ability to continue as a going concern is dependent upon its
      ability to generate sufficient cash flows to meet its obligations as they
      come due. DSET believes that the cost reductions from its restructurings
      in 2001 (including work force reductions) and the merger with ISPsoft will
      enhance its cash flows from operations. Additional financing may still be
      required for DSET to fund its operating and capital requirements through
      2002. If cash flows are insufficient, or the Company is unable to raise
      funds on acceptable terms, there would be a material adverse effect on
      DSET's financial position and operations and its ability to continue as a
      going concern. This could force DSET to further reduce its capital
      expenditures, reduce its workforce, sell certain assets or possibly
      explore additional alternatives including seeking bankruptcy protection.
      The consolidated financial statements do not include any adjustments
      relating to the recoverability of the carrying amount of the recorded
      assets or the amount of liabilities that might result from the outcome
      of these uncertainties. The Company cannot be certain that additional
      debt or equity financing will be available when required or, if available,
      that it can secure it on terms satisfactory to the Company.

3.    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; and DSET Canada, Inc. ("Canada"). All significant
      intercompany transactions have been eliminated in consolidation.

      Goodwill
      Goodwill represents the excess of the purchase price of an acquistion over
      the fair value of the net tangible and intangible assets acquired. In
      accordance with Statement of Financial Accounting Standards ("SFAS") 142
      "Goodwill and Other Intangible Assets", the Company ceased amortizing
      goodwill effective January 1, 2002. In 2001 the Company amortized
      goodwill using a straight-line method over an estimated useful life of
      five years. The Company periodically assesses the realizability of
      goodwill based on estimated future cash flows. Accumulated amortization
      was $162,000 as of March 31, 2002 and December 31, 2001. On January 31,
      2002 the Company merged with ISPsoft, Inc. In accordance with SFAS 141,
      "Business Combinations", the merger was accounted for as a purchase
      resulting in the recording of approximately $11.5 million in goodwill.
      (See Note 7)


                                       7




<PAGE>


DSET Corporation and Subsidiaries
March 31, 2002
Notes to Condensed Consolidated Financial Statements (Unaudited)


      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. The acquired technology,
      resulting from the Company's merger with ISPsoft, Inc., was valued at $4.0
      million. It was determined that the technology had a finite life of five
      years from the time of purchase. In the first quarter of 2002,
      amortization expense of $133,000 was recognized as cost of revenues. (See
      Note 7)

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

      Long-Lived Assets
      In August 2001, SFAS 144, "Accounting for the Impairment or Disposal of
      Long-Lived Assets", was issued, replacing SFAS 121, "Accounting for the
      Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
      Of" and portions of APB Opinion 30, "Reporting the Results of Operations".
      SFAS 144 provides a single accounting model for long-lived assets to be
      disposed of and changes the criteria to be met to classify an asset as
      held-for-sale. SFAS 144 retains the requirement of APB Opinion 30 to
      report discontinued operations separately from continuing operations and
      extends that reporting to a component of an entity that either has been
      disposed of or is classified as held-for-sale. The Company adopted SFAS
      144 effective January 1, 2002 and there was no impact on the condensed
      consolidated financial statements for the quarter ended March 31, 2002.

      Treasury Stock
      The Company's purchases of shares of its common stock are recorded, at
      cost, as Treasury Stock and results in a reduction of stockholders'
      equity. When treasury shares are reissued, the Company uses a first-in,
      first-out method and the difference between the repurchase cost and the
      reissuance price is treated as an adjustment to common stock.

      Revenue Recognition
      License revenues are comprised of one time license fees for
      electronic-bonding gateways, application development tools, Local Number
      Portability ("LNP") solutions and repetitive license royalty fees for
      application development tools that are sold on a multiple-use basis.
      Revenue for the one time license fees is recognized when there is
      persuasive evidence that an arrangement exists, delivery has occurred, the
      fee is fixed and determinable and collection is probable. Royalty revenue
      for the multiple-use licenses is recognized when the customer sells a
      product within which is


                                       8




<PAGE>


DSET Corporation and Subsidiaries
March 31, 2002
Notes to Condensed Consolidated Financial Statements (Unaudited)


      embedded libraries of the application development tools. The contracts for
      multiple-use licenses do not call for any minimum royalties.

      Service revenues are comprised of postcontract customer support service
      fees, gateway rental fees, professional service fees which include
      training, consulting, installation, implementation, and charges for
      reimbursable expenses and custom product development fees. Revenues for
      postcontract customer support services and gateway rental fees are
      recognized ratably over the period in which the services are provided.
      Revenues for training in the Company's products are recognized when the
      training has been completed. Revenues for consulting services are
      recognized in the period in which the consulting services are provided.
      Revenues for product installation and implementation services are
      recognized when contractually agreed upon milestones have been achieved.
      It is not necessary for the Company to provide implementation services.
      Outside third parties are available to perform integration of the
      Company's software with the customer's systems or the customer can choose
      to install the software. Revenues for reimbursable expenses are recognized
      as the expenses are incurred. Revenues for custom product development are
      recognized under the contract method of accounting in accordance with
      AICPA Statement of Position 81-1, "Accounting for Performance of
      Construction-Type and Certain Production-Type Contracts" since they
      generally require significant production, modification or customization of
      the Company's products. Revenue for custom product development is
      recognized as a percentage of the contract completed based upon the ratio
      of direct labor costs incurred to the estimated total direct labor costs
      required for the project. Any revenue for custom product development that
      is recognized in excess of amounts invoiced to the customer for progress
      billings is recorded as unbilled accounts receivable.

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

      In 2001, the Company began a new gateway rental program which provides
      existing and prospective customers the ability to rent electronic-bonding
      gateways on a month-to-month basis, with a 90-day cancellation provision.
      The program includes the use of the software, technical support, software
      upgrades and change management services for a monthly fee. Revenue under
      this program is recognized pro rata as customers use the Company's
      software and services.

      Income Taxes


                                       9




<PAGE>


DSET Corporation and Subsidiaries
March 31, 2002
Notes to Condensed Consolidated Financial Statements (Unaudited)


      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 more likely than not to be realized.

      For certain stock options, the Company receives a tax deduction for the
      difference between the fair value 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.

      The tax benefit in the first quarter of 2002 relates to the Job Creation
      and Worker Assistance Act ("JCWAA") signed into law in March 2002, which
      allows an extension to the general net operating loss carry-back period to
      five years (from two years).

      Reclassifications
      Certain amounts in 2001 have been reclassified to conform to the current
      period presentation.

      New Accounting Standards
      In August 2001, the Financial Accounting Standards Board issued SFAS 143,
      "Accounting for Asset Retirement Obligations", which addresses financial
      accounting and reporting obligations associated with the retirement of
      tangible long-lived assets and the associated asset retirement costs. The
      Statement applies to legal obligations associated with the retirement of
      long-lived assets that result from the acquisition, construction,
      development, and (or) the normal operation of a long-lived asset, except
      for certain obligations of lessees. The effective date for SFAS 143 is for
      financial statements issued for fiscal years beginning after June 15,
      2002. The Company does not expect that the adoption of the provisions of
      SFAS 143 will have a material impact on its results of operations or
      financial position.

4.    Revenue Concentration


                                       10




<PAGE>


DSET Corporation and Subsidiaries
March 31, 2002
Notes to Condensed Consolidated Financial Statements (Unaudited)


      The Company had three customers accounting for 13%, 12%, and 10% of
      revenues, respectively, for the quarter ended March 31, 2002 and one
      customer that accounted for 37% of revenues for the quarter ended March
      31, 2001.

5.   Earnings Per Share

      The Company computes, presents and discloses earnings per share in
      accordance with SFAS No. 128 "Earnings Per Share" ("EPS") which specifies
      the computation, presentation and disclosure requirements for earnings per
      share of entities with publicly held common stock or potential common
      stock. 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 income
      available to common stock by the weighted average shares outstanding. The
      objective of diluted EPS is consistent with that of basic EPS, that is to
      measure the performance of an entity over the reporting period, while
      giving effect to all dilutive potential common shares that were
      outstanding during the period. The calculation of diluted EPS is similar
      to basic EPS except both the numerator and denominator are increased for
      the conversion of potential common shares. Due to the Company's net loss
      for the three month periods ended March 31, 2002 and 2001, all outstanding
      stock options are considered to be anti-dilutive.

      At March 31, 2002, the exercise prices of all outstanding stock options
      exceeded the market price of the Company's common stock. All outstanding
      options to purchase 1,148,974 shares of common stock are antidilutive and
      excluded from the computation of diluted loss per share for the three
      months ended March 31, 2002.

6.   Restructuring and Impairment Charges

      In the first quarter of 2002, the Company decided to close its San Ramon,
      California office and reduce the sales and marketing workforce.

      The approximate restructuring and impairment charges recorded in the first
      quarter 2002 are summarized as follows:

<TABLE>
       <S>                                         <C>
         Fixed asset impairments                       $147,000
         Employee severance                             285,000
         Other                                           32,000
                                                       --------
                                                       $464,000
                                                       ========
</TABLE>

      In the first quarter of 2001, the Company decided to reduce the workforce
      in the United States and to close its Canadian subsidiary due to the
      changing and unpredictable conditions in the marketplace, and the
      discontinuance of product lines in an effort to conserve cash. The
      approximate restructuring charges recorded in the first quarter 2001 are
      summarized as follows:


                                       11




<PAGE>


DSET Corporation and Subsidiaries
March 31, 2002
Notes to Condensed Consolidated Financial Statements (Unaudited)


<TABLE>
       <S>                                                 <C>
         Software license asset impairment                          $2,174,000
         U.S. and Canadian employee severance                          378,000
         U.S. and Canadian fixed asset impairments
           and future non-refundable lease payments                    847,000
         Other                                                          30,000
                                                                    -----------
                                                                    $3,429,000
                                                                    ===========
</TABLE>

      The total remaining restructuring accrual inclusive of termination
      benefits and non-refundable lease payments at March 31, 2002 is
      approximately $2.0 million as summarized as follows:

<TABLE>
<CAPTION>
                                                                        Short-term     Long-term
                                                                        ----------     ---------
    <S>                                                               <C>           <C>
      Severance                                                         $  256,000    $        -
      Rent                                                                 336,000       732,000
      Equipment leases                                                     378,000       239,000
      Other                                                                 64,000             -
                                                                        ----------    ----------
         Total accrued restructuring expenses at March 31, 2002         $1,034,000    $  971,000
                                                                        ==========    ==========
      Reconciliation of Accrued restructuring expenses

      Balance, December 31, 2001                                                      $2,198,000
      Additions                                                                          317,000
      Payments                                                                          (510,000)
                                                                                      ----------
      Balance, March 31, 2002                                                         $2,005,000
                                                                                      ==========
</TABLE>

7. Merger with ISPsoft Inc.

      In June 2001, the Company announced an agreement to merge with ISPsoft,
      which closed on January 31, 2002. The merger was accounted for under the
      purchase method in accordance with SFAS 141. ISPsoft has developed
      Internet Protocol provisioning and activation software which has achieved
      technological feasibility. At closing, ISPsoft security holders received
      an aggregate of 2,281,143 shares of DSET common stock, $1,000,000 in
      cash, issuance of an aggregate of $800,000 of DSET notes payable and
      payment of $544,519 in cash in exchange for certain debts payable by
      ISPsoft to certain ISPsoft security holders and/or affiliates, and are
      entitled to receive up to $500,000 in cash and/or unregistered shares of
      DSET common stock in potential milestone payments (if revenues from
      ISPsoft products are $4.0 million by June 30, 2002) in exchange for their
      ISPsoft securities in the


                                       12




<PAGE>


DSET Corporation and Subsidiaries
March 31, 2002
Notes to Condensed Consolidated Financial Statements (Unaudited)



      merger. In addition, the Company loaned ISPsoft $4.4 million through the
      consummation of the transaction. DSET also assumed the ISPsoft 2000 Stock
      Plan and granted the holders of 2,781,010 issued and outstanding options
      to purchase shares of ISPsoft common stock the right to purchase up to
      241,483 shares of DSET common stock. The results of operations of ISPsoft
      are included in the accompanying Condensed Consolidated Statements of Loss
      and Comprehensive Loss beginning February 1, 2002.

      In conjunction with the merger with ISPsoft, the Company issued two
      $400,000 notes on January 31, 2002 to Signal Lake Venture Fund, L.P. and
      Lucent Technologies, Inc. The principal of these notes accrue interest at
      8% per year and are due and payable on the earlier of (a) January 31,
      2003; (b) the consummation by DSET of at least $10,000,000 in equity
      financing; or (c) the receipt by the Company of at least $5,000,000
      in cash from sales agreements for the sale of ISPsoft's products, provided
      such agreements were executed prior to January 31, 2002.

      Consideration and Purchase Price Allocation

      The following is a summary of the consideration paid for ISPsoft and
      related purchase price allocation:

<TABLE>
      <S>                                                                        <C>

                  DSET common stock equity consideration                            $ 6,378,077
                  Fair value of DSET's options in exchange for ISPsoft options          527,434
                  Cash consideration to shareholders of ISPsoft                       1,544,519
                  Loans to ISPsoft prior to consummation                              4,400,000
                  Assumption of notes payable                                           800,000
                  Merger and acquisition costs                                        1,996,383
                                                                                    -----------

                  Total Consideration                                               $15,646,413
                                                                                    ===========
         Allocation of consideration:
                  Net tangible assets of ISPsoft                                    $   186,456
                  Acquired technology                                                 4,000,000
                  Goodwill                                                           11,459,957
                                                                                    -----------
                                                                                    $15,646,413
                                                                                    ===========
</TABLE>

      Common stock consideration has been calculated based on Emerging Issues
      Task Force Issue ("EITF") 99-12, "Accounting for Formula Arrangements
      under EITF 95-19". For this calculation, DSET used the average market
      price for a few days before and after the merger was agreed to and
      announced, June 26, 2001 ($2.796 per common share).


                                       13




<PAGE>


DSET Corporation and Subsidiaries
March 31, 2002
Notes to Condensed Consolidated Financial Statements (Unaudited)


      Fair value of ISPsoft's options exchanged for the Company's options has
      been calculated based on FASB Interpretation No. 44, "Accounting for
      Certain Transactions Involving Stock Compensation - an interpretation of
      APB Opinion No. 2511 and EITF 00-23, "Issues Related to the Accounting for
      Stock Compensation Under APB 25 and FIN44." DSET used the average market
      price for the few days before and after the merger was agreed to (as
      explained above) for the vested portion of the options issued, and the
      market price on the consummation date, January 31, 2002, for the unvested
      portion.

      Selected Pro Forma Financial Information

      The Company has prepared a pro forma loss statement in accordance with
      SFAS 141, for the first quarter of 2002 and 2001 as if ISPsoft were part
      of DSET as of January 1, 2002 and 2001, respectively. In the period ended
      January 31, 2002, ISPsoft recorded a non-recurring item which decreased
      the provision for income taxes expense by $227,000 for the sale of
      ISPsoft tax credits, which is included below in the selected pro forma
      information.

      The following pro forma statement of loss presents the consolidated
      results had DSET and ISPsoft been combined at the beginning of the
      respective periods:

<TABLE>
<CAPTION>
                                                                                        Three Months Ended March 31,
                                                                                     ------------------------------------
                                                                                         2002                   2001
                                                                                         ----                   ----
<S>                                                                                <C>                    <C>
Revenues:                                                                            $ 1,501,355             $  3,415,440

Cost of revenues:                                                                      1,370,173                2,892,489
                                                                                     -----------             ------------

Gross Profit:                                                                            131,182                  522,951
                                                                                     -----------             ------------

Operating expenses:                                                                    4,104,084               13,701,840
                                                                                     -----------             ------------

Operating loss:                                                                       (3,972,902)             (13,178,889)

Loss before income taxes                                                              (3,997,255)             (12,809,975)

Provision (benefit) for income taxes                                                  (1,613,992)                  28,837
                                                                                     -----------             ------------
Net loss applicable to common shares                                                 $(2,383,263)            $(12,838,812)
                                                                                     ===========             ============

Net loss per common share - basic and diluted                                        $     (0.47)            $      (2.47)

Weighted average number of common shares outstanding                                   5,082,402                5,188,342
</TABLE>


                                       14




<PAGE>




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

     General

         DSET develops and markets service-provisioning and electronic-bonding
     solutions for use by telecommunications providers around the world. Our
     Universal Provisioning eXchange ("UPX") software platform, acquired in our
     merger with ISPsoft in January 2002, enables a service provider to
     provision, activate, and manage services such as Internet Protocol ("IP")
     based virtual private networks ("VPNs") in complex multi-vendor network
     environments. We also offer a family of software solutions for competitive
     service providers ("CSPs") that enables them to exchange information with
     other telecommunications service providers to reduce the time necessary to
     provision new voice and data services for their customers.

         1999 and 2000 were years of unprecedented demand for all types of
     communications products and services. Companies in the telecommunications
     industry had access to and utilized abundant sources of investment capital.
     However, the downturn in the industry, which began in the second half of
     2000, reduced our revenues significantly beginning in the third quarter of
     2000 and through the first quarter of 2002. This downturn was brought about
     by the sudden withdrawal of available financing from almost all of the
     traditional financing sources (vendors, lenders, private equity/venture
     capital sources, public equity markets and large corporate partners) to our
     current and potential customers. Prior to this downturn, the new CSPs were
     successfully and regularly obtaining large capital commitments allowing
     them to increase the size and the pace of their infrastructure spending.
     This funding crisis also affected our collection efforts since many
     customers either declared bankruptcy or concluded that they did not have
     sufficient available cash to pay their obligations to DSET. We believe that
     we have adequately reserved for doubtful accounts, although no assurance
     can be made that additional customers will not go bankrupt or have
     financial difficulties.

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

         In the second half of 2000 and continuing through the first quarter of
     2002, the business models of many service providers came into doubt. The
     industry continues to see a dramatic decline in the availability of
     capital and spending by service providers. 2001 can be characterized as a
     year of survival and retrenchment for the industry, with the contraction
     of the CSPs severely impacting hardware and software vendors that had
     previously experienced substantial growth in revenues and profits.
     Virtually every company that remained in business, including DSET, had to
     reorganize. In 2001, we incurred substantial losses, and accordingly
     reduced headcount and expenses in an effort to conserve cash and
     ultimately return to profitability. We have utilized cash previously
     invested in marketable securities to finance the


                                       15




<PAGE>



     losses brought about by the downturn. In the first quarter of 2002, we
     continue to see turmoil in the industry as additional customers have either
     commenced or declared their intent to commence formal reorganization
     proceedings.

         We currently offer two additional sales models, in addition to the
     traditional perpetual license and services arrangement, to our customers to
     acquire our products and services: a transaction based payment plan ("Pay
     as You Grow") and a rental program with little cash due up front ("Gateway
     Rental Program"). Prior to the inclusion of these alternative programs, our
     license revenues were derived from the sale of electronic-bonding gateways
     to CSPs under contracts that provided for perpetual licenses and
     corresponding fees, with the total price of a license sale to a customer
     depending on the number of licensed products, the number of trading
     partners and amount of additional services acquired.

         In the second quarter of 2001 we began marketing a "Pay as You Grow"
     pricing option to provide an alternative to CSPs that are constrained by
     lack of funding. The "Pay As You Grow" model is a run time royalty model
     with a minimum monthly payment requirement. The contractual minimum payment
     amounts are determined based on estimated monthly usage by the customer at
     the beginning of the contract. The customer is charged monthly based on the
     actual usage of the software or the minimum contract amount, whichever is
     greater. Usage is defined as completed transactions for provisioning
     services between a CSP and a trading partner. Therefore, revenue will be
     recognized on a periodic basis as it becomes due in accordance with SOP
     97-2. The pricing model has the effect of spreading our normal license
     revenue over two to three years depending on customer usage. This program
     has been offered to certain potential customers beginning in the second
     quarter of 2001. Although no contracts have yet to be consummated with this
     pricing model and no revenue has been recognized to date on this basis, it
     is this model, together with the traditional long-term license that we
     intend to use in marketing our UPX platform and solutions.

         In the fourth quarter of 2001, again in an effort to find the right
     financial model to encourage CSPs to once again start buying
     electronic-bonding gateways, we announced our Gateway Rental Program, which
     provides existing and prospective customers the ability to rent
     electronic-bonding gateways on a month-to-month basis, with a 90-day
     cancellation provision. The program includes the use of the software,
     technical support, software upgrades and change management services for a
     monthly charge that is roughly equivalent to what they had been paying for
     the maintenance services only. Service revenue is recognized in the month
     in which customers use our software and services.

         Our service revenues are comprised of fees derived from custom program
     development, implementation, installation, training fees and maintenance.
     Our custom program 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 program
     development services are generally recognized on a percentage of completion
     basis calculated as direct labor costs are incurred in relation to
     estimated total direct labor costs at completion for each project. The
     impact of revisions in percentage of


                                       16




<PAGE>


      completion estimates is reflected in the period in which the revisions are
      made. Maintenance services, for which we typically charge annually between
      15% and 30% of the price of the products licensed by the customer
      annually, may be purchased at the customer's option. Maintenance fees are
      recognized as service revenue over the term of the maintenance period.

         Our cost of license revenues consists primarily of royalties paid to
     third-party software companies and the amortization of acquired technology
     and capitalized software development costs. We generally are 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. Our 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.

         For the quarters ended March 31, 2002 and 2001, we derived
     approximately 16.9% and 44.5%, respectively, of our total revenues from
     license revenues and approximately 83.1% and 55.5%, respectively, of our
     total revenues from service revenues. During the first quarter of 2002,
     revenues generated from CSPs were approximately $1.3 million and revenues
     generated from network equipment vendors for LNP solutions, application
     development tools and related services were approximately $184,000. During
     the first quarter of 2001, revenues generated from CSPs were $2.8 million
     and revenues generated from network equipment vendors were approximately
     $600,000.

         We had three customers accounting for 13%, 12%, and 10% of revenues,
     respectively, for the quarter ended March 31, 2002 and one customer that
     accounted for 37% of revenues for the quarter ended March 31, 2001. We
     derive a portion of our revenues from international sales, which
     constituted 0% of our total revenues in the first quarter of 2002 and
     1.3% in the first quarter of 2001. Our international sales have been United
     States dollar-denominated. As a result, an increase in the value of the
     United States dollar relative to foreign currencies could make our
     products and services less competitive in international markets.

         The merger with ISPsoft was completed on January 31, 2002. ISPsoft
     has developed what we believe to be a technically advanced version of 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. At closing, ISPsoft security holders
     received an aggregate of 2,281,143 shares of DSET common stock, $1,000,000
     in cash, issuance of an aggregate of $800,000 of DSET Notes Payable and
     payment of $544,519 in cash in exchange for certain debts payable by
     ISPsoft to certain ISPsoft security holders and/or affiliates and are
     entitled to receive up to $500,000 in cash and/or


                                       17




<PAGE>



      unregistered shares of DSET common stock in potential milestone payments
      (if revenues from ISPsoft products are $4.0 million by June 30, 2002) in
      exchange for their ISPsoft securities in the merger. In addition, we
      loaned ISPsoft $4.4 million through the consummation of the transaction.
      We also assumed the ISPsoft 2000 Stock Plan and granted the holders of
      2,781,010 issued and outstanding options to purchase shares of ISPsoft
      common stock the right to purchase up to 241,483 shares of DSET common
      stock. Effective February 1, 2002 ISPsoft's staff became our employees
      including three administrative, three sales and marketing, and 37 research
      and development employees. In the quarter ended March 31, 2002, these
      new departments contributed $200,000, $300,000, and $1,000,000 in
      operating expenses, respectively.

     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) our ability to continue as a going concern; (ii)
     risks associated with the integration of ISPsoft with us following our
     recent acquisition of ISPsoft and the potential acquisition of other
     businesses by us, including risks relating to unanticipated liabilities or
     expenses, lower than expected revenues and the commercialization of
     acquired technology or products; (iii) the need for substantial financing
     to continue operations; (iv) the risk that our application for transfer
     trading of our common stock to the Nasdaq Small Cap Market may not be
     approved and/or that our common stock may be delisted from the Nasdaq
     National Market; (v) our dependence on the market for advanced
     telecommunications products and services; (vi) rapid technological change
     in our industry; (vii) our lack of an operating history in providing
     Internet Protocol (IP) based provisioning and management applications and
     services; (viii) the failure to protect proprietary rights or enforce
     licensing rights; and (ix) the loss of third-party software we utilize in
     our products. The success of the Company depends to a large degree upon
     increased demand by telecom service providers for its products and
     services, and the market for IP provisioning software. As a result of such
     risks and others expressed from time to time in the Company's filings with
     the Securities and Exchange Commission, the Company's actual results may
     differ materially from the results discussed in or implied by the
     forward-looking statements contained herein.

     Critical Accounting Estimates and Judgements

         Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to bad debts, investments, recoverability of long-lived assets,
income taxes, restructuring charges, post-contract customer support agreements,
and contingencies and litigation. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

As more fully described in Note 3 to our consolidated financial statements, we
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.

         o We recognize both product and service revenue.

            o  We do not recognize revenue if, in our judgment, the revenue does
               not meet the requirements of AICPA Statement of Position ("SOP")
               97-2, `Software Revenue Recognition' (i.e., persuasive evidence
               that an arrangement exists, delivery has occurred, the customer's
               fee is fixed and determinable and collectibility is probable).

            o  On long-term, fixed price contracts, we recognize revenue using
               the percentage-of-completion method in accordance with SOP 81-1,
               "Accounting for Performance of Construction-Type and Certain
               Production-Type Contracts." As work progresses, we rely on
               estimates of total expected contract revenue and costs. We follow
               this method since reasonably dependable estimates of the revenue
               and costs applicable to various stages of a contract can be made.
               Recognized revenues and profit are subject to revisions as the
               contract progresses to completion. Revisions in profit estimates
               are credited to income in the period in which the facts that give
               rise to the revision become known.

         o We maintain allowances for doubtful accounts for estimated losses
           resulting from the inability of our customers to make required
           payments. If the financial condition of our customers deteriorates,
           resulting in an impairment of their ability to make payments,
           additional allowances may be required.


                                       18




<PAGE>

         o We make a determination as to the carrying value of intangibles,
           long-lived assets and related good will that may not be recoverable
           based upon the existence of indicators of impairment and measure any
           impairment in accordance with the provisions of SFAS 142, based on a
           projected discounted cash flow method using a discount rate
           determined by management to be commensurate with the risk inherent in
           our current business model. We currently do not expect to record an
           impairment charge, however, there can be no assurance that at the
           time of future review that a material impairment charge will not be
           recorded.

         o Contraction of the telecommunications industry commencing in the
           latter half of 2000 and continuing through the first quarter of 2002
           has led us to re-examine all facets of our business. In the face of
           declining revenues and certain customers' unwillingness or inability
           to honor their commitments, it became necessary for us to take steps
           to reorganize to a level commensurate with the expected reduced
           revenue levels. These steps included recognizing asset impairments on
           many of our long-lived intangible and tangible assets, closing
           facilities, reducing and consolidating the workforce, seeking sublet
           tenants for portions of facilities covered by long term operating
           leases, and recognizing charges against earnings in the current
           period for future fixed asset and facility lease payments that will
           not benefit future periods. Considerable management judgment is
           necessary to estimate the charges for asset impairments and
           restructuring. Restructuring charges derived from our plans of
           closing facilities and discontinuing certain product lines are
           recognized pursuant to Emerging Issues Task Force ("EITF") No. 94-3,
           "Liability Recognition for Certain Employee Termination Benefits and
           Other Costs to Exit an Activity (Including Certain Costs Incurred in
           a Restructuring)" and Staff Accounting Bulletin ("SAB") 100,
           "Restructuring and Impairment Charges".

         o We record a valuation allowance to reduce our deferred tax assets to
           the amount that is more likely than not to be realized. While we have
           considered future taxable income and ongoing prudent and feasible tax
           planning strategies in assessing the need for the valuation
           allowance, in the event we were to determine that we would be able to
           realize our deferred tax assets in the future in excess of our net
           recorded amount (zero at December 31, 2001), an adjustment to the
           deferred tax asset would increase income in the period such
           determination was made.

     Results of Operations

     Three Months Ended March 31, 2002 Compared to the Three Months Ended March
     31, 2001

         Revenues. Total revenues decreased by 56.0% to $1.5 million in the
     first quarter of 2002 from $3.4 million in the first quarter of 2001.
     License revenues decreased by 83.3% to $253,000 in the


                                       19




<PAGE>



     first quarter of 2002 from $1.5 million in the first quarter of 2001. This
     decrease was attributable to a downturn in the telecom industry, especially
     in our market niche, resulting in a reduction in orders by prospective
     customers due to poor operating results of the CSPs, and the absence of
     available funding from capital markets to these prospective customers.
     Service revenues decreased 34.1% to $1.2 million in the first quarter of
     2002 from $1.9 million in the first quarter of 2001. This decrease was
     attributable to a $523,000 decrease in revenue for network solutions, a
     $81,000 decrease in gateway solutions service revenue and a $41,000
     decrease in LNP solutions revenue.

          Gross profit. The Company's gross profit decreased 71.3% to $265,000
     in the first quarter of 2002 from $923,000 in the first quarter of 2001.
     Gross profit percentage for license revenues decreased to 20.0% in the
     first quarter of 2002 from 67.0% in the first quarter of 2001. The
     decrease was due to one large contract signed in the first quarter of 2001,
     for which there was a significant gross profit. Gross profit percentage
     for service revenues increased to 17.1% in the first quarter of 2002 from
     -5.1% in the first quarter of 2001. The increase was due to a decrease in
     operating expenses for the department.

         Sales and marketing expenses. Sales and marketing expenses decreased
     70.9% to $736,000 in the first quarter of 2002 from $2.5 million in the
     first quarter of 2001. The decrease in sales and marketing expenses was
     mainly attributable to a $1.0 million decrease in personnel related
     expenses, a $300,000 decrease in travel, a $300,000 decrease in occupancy
     costs and depreciation, a $100,000 decrease in commissions (due to reduced
     sales), and a $100,000 reduction in miscellaneous other expenses. The
     decrease was mainly due to a drop in average headcount for these
     departments to eleven in the first quarter of 2002 as compared to 48 for
     the first quarter of 2001.

         Research and product development expenses. Research and product
     development expenses decreased 74.8% to $1.0 million in the first quarter
     of 2002 from $3.9 million in the first quarter of 2001. Personnel related
     expenses decreased by $2.0 million, depreciation and occupancy and related
     costs decreased by $400,000, contract labor decreased by $250,000, travel
     and telephone expense decreased by $100,000, and hardware and software
     maintenance decreased by $100,000. The decrease was mainly due to a drop in
     average headcount for this department which was 21 in the first quarter of
     2002 as compared to 134 for the first quarter of 2001.

         General and administrative expenses. General and administrative
     expenses decreased 34.2% to $1.2 million in the first quarter of 2002 from
     $1.9 million in the first quarter of 2001. The decrease in general and
     administrative expenses was mainly due to a $200,000 decrease in relocation
     expenses, a decrease of $200,000 in occupancy and depreciation costs, a
     $200,000 decrease in miscellaneous other expenses, and a $100,000 decrease
     in recruiting costs.

         Bad debt expense. Bad debt expense was zero in the first quarter of
     2002 as compared to $440,000 in the first quarter of 2001.

         The Company's bad debt expense recorded in the first quarter of 2001
     corresponded to $302,000 of revenue recognized in 1999 and $138,000 of
     revenue recognized in the second and third quarters of 2000.


                                       20




<PAGE>



         Amortization of goodwill and other intangibles. Amortization expense
     was zero in the first quarter of 2002 compared to $100,000 in the first
     quarter of 2001. The reduction is due to the asset impairments for goodwill
     and other intangible assets and the effect of SFAS 142 which was adopted on
     January 1, 2002 whereby goodwill amortization ceased.

         Restructuring and other charges. Restructuring and other charges in the
     first quarter of 2002 were $464,000 which included a severance charge of
     $285,000 for the reorganization in the sales and marketing departments,
     $147,000 for the impairment of fixed assets and $32,000 for legal, moving,
     and rent charges associated with the closed office in San Ramon,
     California. In the first quarter of 2001, a $3.4 million dollar charge was
     taken, which included an impairment charge of $2.2 million for the carrying
     value of certain licenses related to the Canadian market, $400,000 in
     charges related to severances in March 2001 and $850,000 in charges related
     to the facility closure in Canada and fixed asset impairments in both
     Canada and the United States.

         Interest expense and other income (expense). Interest expense and other
     income and expense increased to $63,000 for the first quarter of 2002 from
     an expense of $47,000 for the first quarter of 2001. The difference was due
     to the accruing of interest on a note payable to Konark, which was paid in
     full in March 2002.

         Interest income and realized gains and losses on marketable securities.
     Interest income decreased to $46,000 in the first quarter of 2002 as
     compared to approximately $490,000 in the first quarter of 2001. This
     decrease was due to lower principal balances in 2002 due to the funding of
     operations and reduced interest rates due to the current economic climate
     as well as lower realized gains from redemptions of marketable securities
     and interest received on federal income tax refunds.

         Income taxes. We recognized a tax benefit of $1.4 million for the
     first quarter of 2002 as compared to a tax provision of $29,000 in the
     first quarter of 2001. The tax benefit in the first quarter of 2002
     relates to the Job Creation and Worker Assistance Act ("JCWAA") signed into
     law in March 2002, which allows an extension to the general net operating
     loss carry-back period to five years (from two years). The 2002 and 2001
     rates differ substantially from the statutory rate due to our losses.

Liquidity and Capital Resources

         Our consolidated financial statements have been prepared on the basis
     that we will continue as a going concern, which contemplates the
     realization of assets and satisfaction of liabilities and commitments in
     the normal course of business. At March 31, 2002, our cash and cash
     equivalents aggregated approximately $6.5 million. At December 31, 2001
     our cash and cash equivalents totaled $13.0 million. Our working capital
     was $2.9 million and $8.5 million at March 31, 2002 and December 31, 2001,
     respectively.

         At March 31, 2002, our principal sources of liquidity were our cash and
     cash equivalents that totaled $6.5 million. In addition, we expect to
     receive $1.4 million in cash


                                       21




<PAGE>


     for the expected U.S. Federal Income Tax refund due to the new tax
     carry-back provisions of the JCWAA by the end of the third quarter of 2002.

           Our operating activities used cash of $2.7 million and $7.7 million
     for the quarters ended March 31, 2002 and 2001, respectively. Cash used by
     operations in the first quarter of 2002 was primarily attributable to a net
     loss adjusted for the non-cash charges for depreciation and restructuring,
     as well as an increase in income taxes receivable and accounts payable and
     accruals, offset by decreases in accounts receivable and deferred revenues.

         Cash provided by (used in) investing activities in the quarters ended
     March 31, 2002, and 2001 was ($3.3) million and $7.3 million, respectively.
     Cash used in investing activities in the first quarter of 2002 was
     primarily attributable to the merger with ISPsoft, Inc. We expect minimal
     capital equipment and leasehold improvement expenditures to be made in
     2002.

         We used approximately $525,000 and $522,000 in cash in financing
     activities in the quarters ended March 31, 2002, and 2001, respectively. We
     paid approximately $500,000 in note obligations in connection with a
     previous acquisition during each of the quarters ended March 31, 2002 and
     2001.

         In addition, in 2002 DSET has received two non-compliance notifications
     from the Nasdaq Stock Market, Inc. ("Nasdaq").

         On February 14, 2002, we received notice from the Nasdaq Stock Market,
     Inc. ("Nasdaq") that for the preceding 30 consecutive trading days, our
     common stock had not maintained the minimum Market Value of Publicly Held
     Shares ("MVPHS") of $5,000,000 as required for continued inclusion by
     Marketplace Rule 4450(a)(2) (the "Rule") on the Nasdaq National Market.
     MVPHS equals the closing bid price multiplied by that portion of a
     company's outstanding shares which is in the hands of public investors
     (i.e., - shares not held by company officers, directors, or investors who
     hold a controlling interest in the company.) Therefore, in accordance
     with Marketplace Rule 4450(e)(1), we have 90 calendar days, or until May
     15, 2002, to regain compliance. If compliance with the Rule cannot be
     demonstrated by May 15, 2002, our securities will be delisted from the
     Nasdaq National Market. We have applied to transfer the trading of
     DSET's common stock to the Nasdaq Small Cap Market and delisting is stayed
     pending Nasdaq's ruling on our application.

         On March 5, 2002, we received notice from Nasdaq that for the previous
     30 consecutive trading days, the price of our common stock had closed
     below the minimum $1.00 per share requirement for continued inclusion
     under Marketplace Rule 4450(a)(5) (the "$1.00 Rule"). Therefore, in
     accordance with Marketplace Rule 4450(e)(2), we have 90 calendar days, or
     until June 3, 2002, to regain compliance. If compliance with the $1.00
     Rule cannot be demonstrated by June 3, 2002, our securities will be
     delisted from the Nasdaq National Market. We have applied to transfer the
     trading of DSET's common stock to the Nasdaq Small Cap Market and delisting
     is stayed pending Nasdaq's ruling on our application.


                                       22




<PAGE>


         Our failure to meet the Nasdaq's maintenance criteria in the future
     may result in the delisting of our common stock from the Nasdaq National
     Market. In such event, trading, if any, of DSET's common stock may then
     continue to be conducted in the Nasdaq SmallCap market, if we meet its
     criteria or the over-the-counter market, in what is commonly referred to as
     the electronic bulletin board or the "pink sheets". As a result, an
     investor may find it more difficult to dispose of or obtain accurate
     quotations as to the market value of DSET's common stock. In addition, in
     the event DSET's common stock is delisted, broker-dealers would have
     certain regulatory burdens imposed upon them, which may discourage them
     from effecting transactions in DSET's common stock, further limiting the
     liquidity thereof. This may have the effect of limiting our ability to
     raise additional financing.

         Our ability to continue as a going concern is dependent upon our
     ability to generate sufficient cash flows to meet our obligations as they
     come due. We believe that the cost reductions from our restructurings in
     2001 (including work force reductions) and the merger with ISPsoft will
     enhance our cash flows from operations. Additional financing may still be
     required for us to fund our operating and capital requirements through
     2002. If cashflows are insufficient or we are unable to raise funds on
     acceptable terms there would be a material adverse effect on our financial
     position and operations and our ability to continue as a going concern.
     This could force us to further reduce our capital expenditures, reduce our
     workforce, sell certain assets or possibly explore additional alternatives
     including seeking bankruptcy protection. The consolidated financial
     statements do not include any adjustments relating to the recoverability of
     the carrying amount of the recorded assets or the amount of liabilities
     that might result from the outcome of these uncertainties. We cannot be
     certain that additional debt or equity financing will be available when
     required or, if available, that we can secure it on terms satisfactory
     to us.

         Accounts receivable, net, decreased to $629,000 at March 31, 2002 from
     $824,000 at December 31, 2001, primarily as a result of decreased sales and
     the collection of outstanding receivables. Included in accounts receivable
     at March 31, 2002 was $7.5 million for trade receivables and $800,000 for
     unbilled project revenue as compared to $7.4 million for trade receivables
     and $1.1 million for unbilled project revenue at December 31, 2001. The
     allowance for doubtful accounts was $7.7 million at March 31, 2002 and
     December 31, 2001. 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.


                                       23




<PAGE>



   Contractual obligations including interest on these obligations are as
follows:

<TABLE>
<CAPTION>
                                                                        Payments Due by Period
                                                           April 1, 2002    April 1, 2003    April 1, 2005
                                                              through          through          through          After
                                                             March 31,        March 31,        March 31,       March 31,
Contractual Obligations                       Total            2003             2005             2007            2007
<S>                                     <C>              <C>               <C>              <C>
Notes payable                              $   864,000      $   864,000      $         0      $        0      $        0
Capitalized lease obligations                  421,260          180,540          240,720               0               0
Operating leases (equipment)*                1,391,637          984,574          356,144          50,919               0
Rental lease obligations*                   12,899,486        2,365,175        4,578,600       2,882,929       3,072,782
NJTC Venture Fund commitment                   800,000          200,000          600,000               0               0
                                           -----------      -----------      -----------      ----------      ----------
Total contractual cash obligations         $16,376,383      $ 4,594,289      $ 5,775,464      $2,933,848      $3,072,782
Sublessor agreements*                       (2,735,946)      (1,124,256)      (1,611,690)              0               0
                                           -----------      -----------      -----------      ----------      ----------
Net                                        $13,640,437      $ 3,470,033      $ 4,163,774      $2,933,848      $3,072,782
                                           ===========      ===========      ===========      ==========      ==========
</TABLE>


*  A total of $1.7 million is included in accrued restructuring expenses in the
   condensed consolidated financial statements as of March 31, 2002.


         We may seek additional funding through collaborative arrangements,
     borrowing money and by the sale of additional equity securities. Any sales
     of additional equity securities are likely to result in further dilution to
     our then existing shareholders. Further, if we issue additional equity
     securities, the new equity securities may have rights, preferences or
     privileges senior to those of existing holders of DSET's common stock.
     Alternatively, we may borrow money from conventional lenders, possibly at
     high interest rates, which may affect the value of our shareholders'
     holdings. Despite our efforts, funding may not be available at all or
     only on terms that are unacceptable. We also could be required to seek
     funds through arrangements with collaborative partners or others that may
     require us to relinquish rights to certain of our technologies, product
     candidates or products which we would otherwise pursue on our own.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

         We believe that we are not subject to a material impact to our
     financial position or results of operations relating to market risk
     associated with foreign currency rates or derivative securities.


                                       24




<PAGE>



                           PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds.

     Recent Sales of Unregistered Securities

     The following information relates to all securities sold by us within the
first quarter of 2002 which were not registered under the securities laws at
the time of grant, issuance and/or sale:

     1. During the first quarter of 2002, we granted stock options pursuant to
        our 1998 Stock Plan, as amended, which were not registered under the
        Securities Act of 1933, as amended. The following table sets forth
        certain information regarding such grants during the quarter.

<Table>
<Caption>
                      Number            Exercise
                     of Shares            Price
                     ---------            -----
<S>                   <C>                 <C>
                      474,786             $0.923
</Table>

     2. During the first quarter of 2002, we assumed stock options in connection
        with our merger with ISPsoft Inc. which were not registered under the
        Securities Act of 1933, as amended. The following table sets forth
        certain information regarding such options during the quarter.

<Table>
<Caption>
                      Number            Exercise
                     of Shares            Price
                     ---------            -----
<S>                   <C>                 <C>
                      241,483             $1.97
</Table>

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

     On April 23, 2002, we filed a registration statement on Form S-8 with the
Securities and Exchange Commission with respect to the foregoing securities.

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

     In connection with our merger with ISPsoft Inc., on January 31, 2002, we
held a Special Meeting of Shareholders.

     There were present at the Special Meeting in person or by proxy
stockholders holding an aggregate of 1,582,652 shares of our common stock.

     A vote of the shareholders was taken at such Special Meeting with respect
to the proposal to approve the merger with ISPsoft, the merger agreement,
as amended, and the proposed issuance of up to 2,519,735 shares of our
common stock and such other shares of common stock and consideration to
the security holders of ISPsoft in connection with the merger all as
described in the Joint Proxy Statement/Prospectus mailed to shareholders.
1,119,702 shares voted in favor of such proposal, 460,655 shares were
voted against such proposal and 2,295 shares abstained from voting.

     A vote of the shareholders was taken at such Special Meeting with respect
to the proposed amendment to our Amended and Restated Certificate of
Incorporation to provide for the classification of our Board of Directors
into three classes of directors with staggered terms of office as
described in the Joint Proxy Statement/Prospectus mailed to shareholders.
1,109,110 shares voted in favor of such proposal, 471,047 shares were
voted against such proposal and 2,495 shares abstained from voting.

     In addition, a vote of the shareholders was taken at the Special Meeting
with respect to the proposed amendments to our 1998 Stock Plan to increase
the maximum aggregate number of shares of our common stock available for
issuance under the 1998 Stock Plan from 875,000 shares to 1,125,000 shares
and to ensure compliance with section 162(m) of the Internal Revenue Code
as described in the Joint Proxy Statement/Prospectus mailed to
shareholders by approving the continuance of the 1998 Stock Plan, limiting
the maximum number of shares of our common stock with respect to which
awards may be granted to any person under the 1998 Stock Plan to 250,000
per calendar year, and making certain other conforming amendments.
1,099,540 shares voted in favor of such proposal, 477,642 shares were
voted against such proposal and 5,470 shares abstained from voting.

Item 5. Annual Meeting of Shareholders

     We held our last annual meeting of shareholders on June 13, 2001. Our
Board of Directors has not yet selected a definitive date for the annual meeting
shareholders for 2002. We will provide appropriate notice to shareholders
in connection with such meeting.

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

     (a)          Exhibits.

                  None.

     (b)          Reports on Form 8-K.

                  On February 7, 2002 the Company filed a current report on
                  Form 8-K with the Securities and Exchange Commission with
                  respect to the Company's merger with ISPsoft Inc. on
                  January 31, 2002.

                                       25




<PAGE>




                                   SIGNATURES

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



                                           DSET CORPORATION

     DATE: May 15, 2002                    By: /s/ William P. McHale, Jr.
                                               ---------------------------------
                                                   William P. McHale, Jr.,
                                                   Chief Executive Officer
                                                   (Principal Executive Officer)


     DATE: May 15, 2002                    By: /s/ Bruce M. Crowell
                                               ---------------------------------
                                                   Bruce M. Crowell
                                                   Vice President and Chief
                                                   Financial Officer
                                                   (Principal Financial and
                                                   Accounting Officer)


                                       26