<PAGE>   1

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[MARK ONE]
   [X]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

                                       OR

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

           FOR THE TRANSITION PERIOD FROM ____________ TO ____________

                        COMMISSION FILE NUMBER: 000-26735

                           TELEMATE.NET SOFTWARE, INC.
             (Exact Name of Registrant as Specified in Its Charter)


              GEORGIA                                     58-1656726
  (State or Other Jurisdiction of           (I.R.S. Employer Identification No.)
   Incorporation or Organization)

  4250 PERIMETER PARK SOUTH, SUITE 200                     30341
            ATLANTA, GEORGIA                             (Zip Code)
(Address of Principal Executive Offices)

       Registrant's telephone number, including area code: (770) 936-3700

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 [ ]


The number of shares of the issuer's class of capital stock as of July 27, 2001,
the latest practicable date, is as follows: 9,440,645 shares of Common Stock,
$0.01 par value.

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

<PAGE>   2

                           TELEMATE.NET SOFTWARE, INC.
                                    FORM 10-Q
                           QUARTER ENDED JUNE 30, 2001

                                TABLE OF CONTENTS


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

           Balance Sheets as of June 30, 2001 and December 31, 2000                            3

           Statements of Operations for the three months and six months ended June 30,
             2001 and 2000                                                                     4

           Statements of Cash Flows for the six months ended June 30, 2001 and 2000            5

           Notes to Financial Statements                                                       6

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS.                                                7

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                        14

                                             PART II
                                        OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.                                                                   15

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.                                           15

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.                                                     15

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS                                 15

ITEM 5.  OTHER INFORMATION.                                                                   15

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.                                                    15

SIGNATURES.                                                                                   16
</TABLE>


                                   Form 10-Q
                                  Page 2 of 16

<PAGE>   3

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                           TELEMATE.NET SOFTWARE, INC.
                                 BALANCE SHEETS
                 (UNAUDITED AND IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                 JUNE 30,         DECEMBER 31,
                                                                                   2001               2000
                                                                                 --------         ------------
<S>                                                                              <C>              <C>
                                     ASSETS

Current assets:
           Cash and cash equivalents ......................................      $ 22,785           $ 28,263
           Trade accounts receivable, net of allowance for
                  doubtful accounts and returns............................         1,138              2,264
           Prepaid expenses and other current assets.......................           777                511
                                                                                 --------           --------
               Total current assets........................................        24,700             31,038
Property and equipment, net ...............................................         1,407              2,215
Other assets...............................................................           111                 75
                                                                                 --------           --------
                Total assets...............................................      $ 26,218           $ 33,328
                                                                                 ========           ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
           Accounts payable................................................      $    962           $    615
           Accrued expenses and other liabilities .........................         3,498              2,089
           Deferred revenue................................................         2,537              2,933
                                                                                 --------           --------
               Total liabilities ..........................................         6,997              5,637
Shareholders' equity:
           Preferred stock, $.01 par value; 19,700,000 authorized
               and undesignated, none issued...............................            --                  --
           Common stock, $.01 par value; 100,000,000 shares authorized,
               9,247,265 shares issued and outstanding at June 30, 2001
               and 7,958,486 issued and outstanding at December 31, 2000...            92                 80
           Additional paid-in capital .....................................        54,080             53,123
           Accumulated deficit ............................................       (34,026)           (25,491)
           Notes receivable and accrued interest from shareholders ........          (925)               (21)
                                                                                 --------           --------
               Total shareholders' equity .................................        19,221             27,691
                                                                                 --------           --------
Commitments and contingencies
           Total liabilities and shareholders' equity .....................      $ 26,218           $ 33,328
                                                                                 ========           ========
</TABLE>

                 See accompanying notes to financial statements


                                   Form 10-Q
                                  Page 3 of 16

<PAGE>   4

                           TELEMATE.NET SOFTWARE, INC.
                            STATEMENTS OF OPERATIONS
              (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED                      SIX MONTHS ENDED
                                                                    JUNE 30,                               JUNE 30,
                                                          -----------------------------         -----------------------------
                                                             2001               2000               2001               2000
                                                          ----------         ----------         ----------         ----------
<S>                                                       <C>                <C>                <C>                <C>
Revenue:
   Product revenue ...............................        $      429         $    1,109         $    1,037         $    2,215
   Service revenue ...............................             1,405              1,663              2,955              3,675
                                                          ----------         ----------         ----------         ----------
         Total revenue ...........................             1,834              2,772              3,992              5,890
Cost of revenue:
   Product costs .................................               147                410                371                909
   Service costs .................................               444              1,015              1,075              1,912
                                                          ----------         ----------         ----------         ----------
         Total cost of revenue ...................               591              1,425              1,446              2,821
                                                          ----------         ----------         ----------         ----------
         Gross profit ............................             1,243              1,347              2,546              3,069
                                                          ----------         ----------         ----------         ----------

Operating expenses:
   Research and development ......................               765                937              1,884              1,835
   Sales and marketing ...........................             1,767              4,151              3,870              7,563
   General and administrative ....................             1,351              1,484              2,736              2,550
   Merger expense ................................               362                 --                362                 --
   Restructuring charges - personnel .............             2,142                 --              2,142                 --
   Asset impairment due to restructuring .........               695                 --                695                 --
                                                          ----------         ----------         ----------         ----------
         Total operating expenses ................             7,082              6,572             11,689             11,948
                                                          ----------         ----------         ----------         ----------
         Operating loss ..........................            (5,839)            (5,225)            (9,143)            (8,879)

Interest income...................................               251                510                608              1,028
                                                          ----------         ----------         ----------         ----------
             Net loss before income taxes ........            (5,588)            (4,715)            (8,535)            (7,851)
Income taxes .....................................                --                 --                 --                 --
                                                          ----------         ----------         ----------         ----------
             Net loss ............................        $   (5,588)        $   (4,715)        $   (8,535)        $   (7,851)
                                                          ==========         ==========         ==========         ==========

Basic and diluted net loss per share .............        $    (0.64)        $    (0.61)        $    (1.02)        $    (1.03)
                                                          ==========         ==========         ==========         ==========
Basic and diluted weighted-average shares ........         8,775,734          7,736,679          8,374,406          7,616,052
                                                          ==========         ==========         ==========         ==========
</TABLE>

                 See accompanying notes to financial statements


                                   Form 10-Q
                                  Page 4 of 16

<PAGE>   5

                          TELEMATE.NET SOFTWARE, INC.
                            STATEMENTS OF CASH FLOWS
                          (UNAUDITED AND IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                    SIX MONTHS ENDED
                                                                                                        JUNE 30,
                                                                                               ---------------------------
                                                                                                 2001               2000
                                                                                               --------           --------
<S>                                                                                            <C>                <C>
Cash flows from operating activities:
      Net loss ......................................................................          $ (8,535)          $ (7,851)
      Adjustments to reconcile net loss to net cash used in
         operating activities:
              Depreciation and amortization .........................................               527                468
              Compensation on stock options .........................................                 5                  4
              Interest earned on shareholder notes ..................................               (10)                (1)
              Impairment of fixed assets ............................................               695                 --
              Loss on disposal of assets ............................................                25                 --
              Changes in operating assets and liabilities:
                   Trade accounts receivables .......................................             1,126                110
                   Prepaid expenses and other current assets ........................              (267)                14
                   Other assets .....................................................                 5                (15)
                   Accounts payable, accrued expenses, and other liabilities.........             1,756               (176)
                   Deferred revenue .................................................              (395)               292
                                                                                               --------           --------
                        Net cash used in operating activities .......................            (5,068)            (7,155)
                                                                                               --------           --------

Cash flows from investing activities:
      Purchases of property and equipment ...........................................              (490)            (1,271)
      Proceeds on sale of assets ....................................................                10                 --
                                                                                               --------           --------
                        Net cash used in investing activities .......................              (480)            (1,271)
                                                                                               --------           --------

Cash flows from financing activities:
      Proceeds from the issuance of common stock through ESPP .......................                33                 --
      Proceeds from the exercise of stock options ...................................                37                505
      Payments received on notes receivable from shareholders .......................                --                  8
                                                                                               --------           --------
                         Net cash provided by financing .............................                70                513
                                                                                               --------           --------

      Net decrease in cash and cash equivalents .....................................            (5,478)            (7,913)

Cash and cash equivalents at beginning of period ....................................            28,263             42,755
                                                                                               --------           --------

Cash and cash equivalents at end of period ..........................................          $ 22,785           $ 34,842
                                                                                               ========           ========

Supplemental disclosure of significant noncash investing and financing activities

      Issuance of common stock in exchange for notes receivable .....................          $    895                 --
                                                                                               ========           ========
</TABLE>

                 See accompanying notes to financial statements


                                   Form 10-Q
                                  Page 5 of 16

<PAGE>   6

                          TELEMATE.NET SOFTWARE, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                  (Unaudited)

1.                Basis of Presentation

         The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed, or
omitted, pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). In the opinion of management, the statements include all
adjustments necessary (which are of a normal and recurring nature) for the fair
presentation of the results of the interim periods presented. These financial
statements should be read in conjunction with the audited financial statements
for the year ended December 31, 2000, found in filings made by Telemate.Net
Software, Inc. with the SEC, including its Annual Report on Form 10-K filed with
the Commission on April 2, 2001.

2.                Net Loss Per Common Share

         Basic net loss per share was computed using the weighted average number
of shares of common stock outstanding during the period. Diluted net loss per
share considers the effect of dilutive common stock equivalents. Dilutive common
equivalent shares consist of stock options. However, because the inclusion of
the common stock equivalents would be anti-dilutive, the weighted average number
of common shares outstanding during the period for the basic and diluted net
loss per share is the same.

3.                Planned Merger

         On May 4, 2001, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Verso Technologies, Inc. ("Verso"), a
Minnesota corporation, and Titan Acquisition Sub, Inc., a Delaware corporation
that has been reincorporated in Georgia and a wholly-owned subsidiary of Verso,
in which the Company's common stock will be converted into the right to receive
an aggregate number of Verso shares valued at $30 million, subject to reduction
on a dollar-for-dollar basis if the Company's available cash at closing after
restructuring charges and other adjustments falls below $20 million. The Company
and Verso estimate that the total number of Verso shares to be issued to holders
of Telemate.Net common stock in the merger will be approximately 23.4 million
shares.

         The merger with Verso is intended to constitute a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended, and is to be
accounted for as a purchase transaction by Verso. Consummation of the merger is
subject to various conditions, including, among other things, receipt of the
necessary approvals of the shareholders of the Company and Verso, regulatory
approvals and customary closing conditions.

         In connection with the proposed merger, Verso will file a proxy
statement and Registration Statement on Form S-4 with the SEC, and the Company
will file a proxy statement with the SEC. The Company and Verso will mail a
Joint Proxy Statement/Prospectus to shareholders of the Company and Verso
containing additional information about the proposed merger after approval from
the SEC. The transaction is expected to close late in the third quarter or early
in the fourth quarter of 2001, but this expectation is subject to many factors,
including whether the SEC reviews the proposed merger. In the event the
transaction does not close, under certain circumstances a break-up fee of $4
million plus expenses would be payable by the company.

                                   Form 10-Q
                                  Page 6 of 16

<PAGE>   7
         On July 27, 2001, in connection with the proposed merger with Verso,
the Company closed on the purchase of $15.0 million of Verso's non-voting Series
B Preferred Stock to help finance Verso's purchase of NACT Telecommunications.
The preferred stock accrues dividends at 10% per annum through December 31,
2001, increasing to 15% after December 31, 2001 should such shares remain
outstanding after that time, and will have a liquidation preference and certain
conversion rights. The preferred stock will be redeemable at par value by Verso
on or before December 31, 2001, or with a 25% premium at the option of
Telemate.Net after December 31, 2001.

4.                Restructuring

         On May 7, 2001, the Company announced that it planned to reduce its
workforce by approximately 90 employees, or approximately 60%, over the next
several months to preserve cash and accelerate profitability. The reduction in
the workforce occurred in all departments of the organization and at all levels
of management and non-management personnel. The reduction in force was not
contingent upon the closing of the agreement with Verso. The Company is
providing employees affected by the reduction with severance packages and
outplacement counseling. The Company took a one time charge in the quarter
ended June 30, 2001 of approximately $2.1 million for compensation-related
expenses and an additional charge of approximately $700,000 for assets
impaired as a result of the restructuring. At June 30, 2001 approximately
$548,000, primarily compensation, had been charged against the liability
established for the restructuring. At July 31, 2001 approximately 93% of the
staff scheduled for separation had left the company with the remainder
scheduled to leave by year-end.

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

         Certain of the information included in this report, including
statements regarding our growth and operating strategy, liquidity and capital
expenditures, trends in our industry and proposed merger with Verso
Technologies, Inc. constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and we intend that such
forward-looking statements be subject to the safe harbors created thereby.
Examples of words indicating forward-looking statements include "believe,"
"expect", "goal," "plan," "intend," "estimate," "may," and "will" or similar
words. These forward-looking statements reflect our current views with respect
to future events and financial performance, but are subject to many
uncertainties and factors relating to our operations and business environment
that may cause our actual results to be materially different from any future
results expressed or implied by such forward-looking statements. For further
information about these and other factors that could affect our future results,
please see Exhibit 99.1 attached to this quarterly report.

OVERVIEW

         Telemate.Net Software, Inc. is a provider of network usage management
solutions for businesses worldwide. Our Internet access management and call
accounting offerings enable companies to increase productivity, reduce
unnecessary expenses, enhance network performance, mitigate risk and maximize
e-commerce effectiveness. During the quarter ended June 30, 2001, we released
our WebFilter product, which proactively blocks employees from reaching
objectionable Internet content as defined by their employers. A combined
Internet filtering and reporting appliance, WebFilter utilizes automated content
recognition technology to deliver adaptive Internet filtering. This advanced
architecture provides users with more accurate categorization of Internet
activity than that of the "hit" or "keyword" lists currently used by
competitors.

         Our revenue consists of product and service revenue. Our product
revenue is derived primarily from licensing our software products. We also
resell complementary hardware, which has historically accounted for less than
10% of our total annual revenue. Service revenue consists of fees paid for
maintenance services, product updates and professional services. Maintenance
services include diagnosis and bug fixes in the current version of the product
and telephone consultation to discuss general support questions. Product updates
include error correction and minor enhancements to the product models purchased
and periodic updates to tariff information for call accounting products.
Substantially all of our license agreements are perpetual. Support agreements
are typically for a term of one year and renew automatically upon payment of an
annual maintenance fee by the customer. This support fee typically represents
20% of the current list price of licensed products. Professional services
include installation, training and custom report generation.


                                   Form 10-Q
                                  Page 7 of 16

<PAGE>   8


         We recognize revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position 97-2, Software Revenue
Recognition, and Statement of Position 98-9, Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions. Revenue derived from
software license fees and hardware is typically recognized upon shipment. We use
the residual method to recognize revenue. Under the residual method, the fair
value of the undelivered elements is deferred and the remaining portion of the
arrangement is recognized revenue. Revenue generated from software support
services primarily involves annual contracts and is recognized ratably over the
service period. Revenue related to professional services is recognized as
services are provided. Deferred revenue generally represents advance payments
received from customers and billings invoiced to customers for software support
and professional services in advance of the time revenue is recognized.

         We identify revenue as call accounting revenue or Internet/integrated
revenue based upon the types of data sources licensed and the delivery of call
accounting product features. If a customer is delivered tariff information for
all data sources they have licensed, the product revenue is identified as call
accounting. All other product revenue is identified as Internet/integrated.
Service revenue is identified based on the associated product identification.

         We sell our products through a combination of direct sales and
third-party resellers and distributors. While our direct sales force is expected
to continue to generate a large proportion of future revenue, we are
increasingly utilizing indirect distribution channels, such as network
resellers, systems integrators and distributors, as an important complement to
our direct sales force. Distributors and resellers purchase our products for
resale at a discount from our standard price list. This discount generally
ranges from 20% to 50% and varies based on a number of factors including their
volume of business, whether they distribute to other resellers and whether they
provide product support.

         We also maintain relationships with leading networking and network
security product vendors that help to market and distribute our products. These
vendors assist in the sales and marketing of our products by bundling them with
their own products, selling our products through their sales forces and
promoting our products at trade shows, seminars and through their web sites. We
have entered into marketing partnerships with major firewall and proxy server
suppliers including Cisco Systems, Checkpoint Software Technologies and
Microsoft Corporation. We expect to continue to focus our sales resources on
strengthening existing relationships and creating new strategic relationships.

         In June 2001, we enhanced our current product offerings with
NetSpective(TM) WebFilter, a new Internet filtering appliance that utilizes a
unique automated content recognition approach for advanced Internet filtering
integrated with the Company's existing reporting solutions. We designed this
product to be a simple, plug-and-play Internet access management solution that
will lend itself to widespread distribution through value-added resellers and
other channel partners. We believe Internet access management customers prefer
a combined reporting and filtering product offering, which has hampered our
efforts to sell a reporting-only solution. Therefore, we view the introduction
of NetSpective WebFilter and the expansion of our distribution channels as
critical elements for our future growth.

PROPOSED MERGER

         On May 4, 2001, we entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Verso Technologies, Inc. ("Verso"), a Minnesota
corporation, and Titan Acquisition Sub, Inc., a Delaware corporation that has
been reincorporated in Georgia and a wholly-owned subsidiary of Verso, in which
the Company's common stock will be converted into the right to receive an
aggregate number of Verso shares valued at $30 million, subject to reduction on
a dollar-for-dollar basis if our available cash at closing after restructuring
charges and other adjustments falls below $20 million. The Company and Verso
estimate that the total number of Verso shares to be issued to holders of
Telemate.Net common stock in the merger will be approximately 23.4 million
shares.

         The merger with Verso is intended to constitute a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended, and is to be
accounted for as a purchase transaction by Verso. Consummation of the merger is
subject to various conditions, including, among other things, receipt of the
necessary approvals of our shareholders and the shareholders of Verso,
regulatory approvals and customary closing conditions.

         On July 27, 2001, in connection with proposed merger with Verso, we
closed on the purchase of $15.0 million of Verso's non-voting Series B Preferred
Stock to help finance Verso's purchase of NACT Telecommunications. The preferred
stock accrues dividends at 10% per annum through December 31, 2001, increasing
to 15% after December 31, 2001 should such shares remain outstanding after that


                                   Form 10-Q
                                  Page 8 of 16

<PAGE>   9
time, and will have a liquidation preference and certain conversion rights. The
preferred stock will be redeemable at par value by Verso on or before December
31, 2001, or with a 25% premium at the option of Telemate.Net after December 31,
2001.

         In connection with the proposed merger, Verso will file a proxy
statement and Registration Statement on Form S-4 with the SEC and we will file a
proxy statement with the SEC. We will jointly mail with Verso a Joint Proxy
Statement/Prospectus to our shareholders and shareholders of Verso containing
additional information about the proposed merger after approval from the SEC.
The transaction is expected to close late in the third quarter or early in the
fourth quarter of 2001.

RESTRUCTURING

         On May 7, 2001, the Company announced that it planned to reduce its
workforce by approximately 90 employees, or approximately 60%, over the next
several months to preserve cash and accelerate profitability. The reduction in
the workforce occurred in all departments of the organization and at all levels
of management and non-management personnel. The reduction in force was not
contingent upon the closing of the agreement with Verso. The Company is
providing employees affected by the reduction with severance packages and
outplacement counseling. The Company took a one time charge in the quarter
ended June 30, 2001 of approximately $2.1 million for compensation-related
expenses and an additional charge of approximately $700,000 for assets
impaired as a result of the restructuring. At June 30, 2001 approximately
$548,000, primarily compensation, had been charged against the liability
established for the restructuring. At July 31, 2001 approximately 93% of the
staff scheduled for separation had left the company with the remainder
scheduled to leave by year-end.

RESULTS OF OPERATIONS

         The following tables set forth our Internet/integrated and call
accounting revenue, both in absolute dollars and as a percentage of total
revenue unaudited and in thousands:

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                                          JUNE 30,                             JUNE 30,
                                                                ---------------------------          ---------------------------
                                                                  2001               2000              2001               2000
                                                                --------           --------          --------           --------
<S>                                                             <C>                <C>               <C>                <C>
REVENUE:
            INTERNET/INTEGRATED:
                 Product revenue .....................          $    105           $    631          $    321           $  1,350
                 Services revenue ....................               287                462               662              1,205
                                                                --------           --------          --------           --------
                TOTAL INTERNET/INTEGRATED REVENUE ....               392              1,093               983              2,555
            CALL ACCOUNTING:
                 Product revenue .....................               324                478               716                865
                 Services revenue ....................             1,118              1,201             2,293              2,470
                                                                --------           --------          --------           --------
                TOTAL CALL ACCOUNTING REVENUE ........             1,442              1,679             3,009              3,335
            TOTAL:
                 Product revenue .....................               429              1,109             1,037              2,215
                 Services revenue ....................             1,405              1,663             2,955              3,675
                                                                --------           --------          --------           --------
                        TOTAL REVENUE ................          $  1,834           $  2,772          $  3,992           $  5,890
                                                                ========           ========          ========           ========

PERCENTAGE OF TOTAL REVENUE:
            INTERNET/INTEGRATED:
                 Product revenue .....................               5.7%              22.8%              8.1%              22.9%
                 Services revenue ....................              15.6               16.7              16.6               20.5
                                                                --------           --------          --------           --------
                TOTAL INTERNET/INTEGRATED REVENUE ....              21.3               39.5              24.7               43.4
            CALL ACCOUNTING:
                 Product revenue .....................              17.7               17.2              17.9               14.7
                 Services revenue ....................              61.0               43.3              57.4               41.9
                                                                --------           --------          --------           --------
                TOTAL CALL ACCOUNTING REVENUE ........              78.7               60.5              75.3               56.6
            TOTAL:
                 Product revenue .....................              23.4               40.0              26.0               37.6
                 Services revenue ....................              76.6               60.0              74.0               62.4
                                                                --------           --------          --------           --------
                        TOTAL REVENUE ................             100.0%             100.0%            100.0%             100.0%
                                                                ========           ========          ========           ========
</TABLE>



                                   Form 10-Q
                                  Page 9 of 16

<PAGE>   10

Three Months Ended June 30, 2001 and 2000

         Revenue. Total revenue was $1.8 million for the three months ended June
30, 2001, down 33.8% from $2.8 million for the second quarter of 2000. Total
product revenue was $429,000, or 23.4% of total revenue, in the three months
ended June 30, 2001, representing a 61.3% decrease from $1.1 million, or 40.0%
of total revenue, for the same period in 2000. Revenue from the resale of
complementary hardware included in product revenue was $66,000 for the three
months ended June 30, 2001, a decrease from $330,000, for the same period in
2000. Total service revenue was $1.4 million, or 76.6% of total revenue, in the
three months ended June 30, 2001, representing a 15.6% decrease from $1.7
million, or 60.0% of total revenue, for the same period in 2000. During the
second quarter of 2001, a sales agreement with Electronic Data Systems, a
third-party contractor, to provide software, hardware, installation and support
services for 51 different Army National Guard sites represented approximately
4.8% of total revenue, compared to approximately 11.0% in the same quarter of
2000. We have delivered all software and hardware under the original agreement
with Electronic Data Systems, and we are currently providing only support
services. We expect support revenue associated with this agreement to be less
than $300,000 during 2001.


                                   Form 10-Q
                                  Page 10 of 16

<PAGE>   11
         Internet/Integrated Revenue. Total Internet/integrated revenue was
$392,000, or 21.3% of total revenue, in the three months ended June 30, 2001, a
64.1% decrease from $1.1 million, or 39.5% of total revenue, for the same period
in 2000. Internet/integrated product revenue was $105,000, or 5.7% of total
revenue, in the three months ended June 30, 2001, representing a 83.4% decrease
from $631,000 or 22.8% of total revenue, for the same period in 2000.
Internet/integrated service revenue was $287,000, or 15.6% of total revenue, in
the three months ended June 30, 2001, representing a 37.9% decrease from
$462,000, or 16.7% of total revenue, for the same period in 2000. A significant
factor in the decrease in Internet/integrated product and service revenue was
the decrease in the sale of software, hardware and the completion of
professional services in connection with the sales agreement with Electronic
Data Systems referred to under Revenue above. In addition, total
Internet/integrated revenue was further impacted due to the shift in our sales
focus. In the second quarter of 2000, our emphasis was on the sale of an
integrated solution, which included both call accounting and internet data
sources. In the second half of 2000 and into 2001, our focus has been on sales
of distinct Internet and call accounting applications. Therefore, sales that
might previously have been included in the integrated category are now split
between call accounting and internet revenue, and Internet/integrated revenue in
2001 represents pure Internet sales almost exclusively. Our restructuring in May
2001, which reduced and realigned sales teams, also impacted our second quarter
results. We released our new WebFilter product in June 2001 and believe this
product will allow us to grow our Internet revenue over time. Revenue on our
WebFilter appliance will be recognized over the period of subscription, normally
12 months. Therefore, reported revenue will significantly lag behind sales and
cash flow as we launch this new product.

         Call Accounting Revenue. Total call accounting revenue was $1.4
million, or 78.7% of total revenue, for the three months ended June 30, 2001, a
14.1% decrease from $1.7 million, or 60.5% of total revenue, for the same period
in 2000. Call accounting product revenue was $324,000, or 17.7% of total
revenue, for the three months ended June 30, 2001, representing a 32.2% decrease
from $478,000, or 17.2% of total revenue, for the same period in 2000. Call
accounting service revenue was $1.1 million, or 61.0% of total revenue, in the
three months ended June 30, 2001, representing a 7.0% decrease from $1.2
million, or 43.3% of total revenue, for the same period in 2000. Our
restructuring in May 2001, which reduced and realigned sales teams, negatively
impacted the second quarter's call accounting revenue. We believe the staff
realignments and renewed focus on reselling to our installed customer base will
enable us to maintain call accounting revenue the next several quarters. Call
accounting service revenue dollars remained relatively flat but represent a
higher percentage of total revenue, and we expect service revenue to remain at
this higher level relative to total revenue.

         Cost of Product Revenue. Cost of product revenue was $147,000, or 8.0%
of total revenue, in the three months ended June 30, 2001, a 64.1% decrease from
$410,000, or 14.8% of total revenue, for the same period in 2000. This decrease
in product costs was primarily attributable to a reduction in hardware sales
related to the sales agreement with Electronic Data Systems discussed in Revenue
above as well as a reduction in software royalties that are more in line with
reduced product revenue. Management believes the hardware component of revenue
will remain at the current lower levers for the foreseeable future.

         Cost of Service Revenue. Cost of service revenue was $444,000, or 24.2%
of total revenue, for the three months ended June 30, 2001, representing a 56.3%
decrease from $1.0 million, or 36.6% of total revenue, for the same period in
2000. The decline in service costs resulted from decreases in our service
personnel costs, which were a result of our reduction in force. We believe we
can continue to operate at these lower staffing levels and maintain high
quality of customer service going forward.

         Research and Development Expenses. Research and development expenses
were $765,000, or 41.7% of total revenue, for the three months ended June 30,
2001, representing a 18.4% decrease from $937,000, or 33.8% of total revenue,
for the same period in 2000. The decrease in total research and development
expenses reflects decreases in personnel expenses following completion of the
development of our new WebFilter product. Due to our reduction in work force, we
expect research and development expenses to remain flat or slightly decline for
the remainder of the year.

         Sales and Marketing Expenses. Sales and marketing expenses were $1.8
million, or 96.3% of total revenue, for the three months ended June 30, 2001,
representing a 57.4% decrease from $4.2 million, or 149.7% of total revenue, for
the same period in 2000. The decrease in both absolute dollars and as a
percentage of total revenue was due to several factors, primarily the reduction
of sales and marketing personnel, more targeted, revenue-driving marketing
programs and less travel. We expect that the effects of our second quarter
reduction in force will be seen in a reduction in sales and marketing expenses
for the remainder of the year.


                                   Form 10-Q
                                  Page 11 of 16

<PAGE>   12

         General and Administrative Expenses. General and administrative
expenses were $1.4 million, or 73.7% of total revenue, in the three months ended
June 30, 2001, representing a 9.0% decrease from $1.5 million, or 53.5% of total
revenue, for the same period in 2000. This decrease was primarily due to lower
recruiting fees and headcount-related expenses. We expect general and
administrative costs to remain flat over the next several months.

         Merger Expense. Merger expense was $362,000, or 19.7% of total revenue,
for the three months ended June 30, 2001. This represents legal and investment
banking fees incurred in connection with pending merger with Verso Technologies,
Inc. Additional charges will be incurred as we work toward the completion of the
merger. There was no similar charge in 2000.

         Restructuring Charge. Restructuring charge was $2.1 million, or 116.8%
of total revenue, for the three months ended June 30, 2001, primarily
representing severance compensation to be paid in connection with our 60%
reduction in work force. There was no similar charge in 2000.

         Asset Impairment Due to Restructuring. Asset impairment due to
restructuring was $695,000, or 37.9% of total revenue, for the three months
ended June 30, 2001. This charge represents the write down of assets that could
no longer be productively deployed as a result of our reduction in force.

         Interest Income. Interest income was $251,000, or 13.7% of total
revenue, for the three months ended June 30, 2001, compared to $510,000, or
18.4% of total revenue, for the same quarter of 2000. Proceeds from investment
of the remaining funds received in our initial public offering account for the
interest income.

Six Months Ended June 30, 2001 and 2000

         Revenue. Total revenue was $4.0 million for the six months ended June
30, 2001, down 32.2% from $5.9 million for the first half of 2000. Total product
revenue was $1.0 million, or 26.0% of total revenue, in the six months ended
June 30, 2001, representing a 53.2% decrease from $2.2 million, or 37.6% of
total revenue, for the same period in 2000. Revenue from the resale of
complementary hardware included in product revenue was $168,000, for the six
months ended June 30, 2001, a decrease from $776,000 for the same period in
2000. Total service revenue was $3.0 million, or 74.0% of total revenue, in the
six months ended June 30, 2001, representing a 19.6% decrease from $3.7 million,
or 62.4% of total revenue, for the same period in 2000. During the first half of
2001, a sales agreement with Electronic Data Systems, a third-party contractor,
to provide software, hardware, installation and support services for the U.S.
Army National Guard at 51 different sites represented approximately 4.7% of
total revenue, compared to approximately 15.6% in the same quarter of 2000. We
have delivered all software and hardware under the original agreement with
Electronic Data Systems, and we are currently providing only support services.
We expect support revenue under this agreement to be less than $300,000 during
2001.

         Internet/Integrated Revenue. Total Internet/integrated revenue was
$983,000, or 24.7% of total revenue, in the six months ended June 30, 2001, a
61.5% decrease from $2.6 million, or 43.4% of total revenue, for the same period
in 2000. Internet/integrated product revenue was $321,000, or 8.1% of total
revenue, in the six months ended June 30, 2001, representing a 76.2% decrease
from $1.4 million or 22.9% of total revenue, for the same period in 2000.
Internet/integrated service revenue was $662,000, or 16.6% of total revenue, in
the six months ended June 30, 2001, representing a 45.1% decrease from $1.2
million, or 20.5% of total revenue, for the same period in 2000. A significant
factor in the decrease in Internet/integrated product and service revenue was
the decrease in the sale of software, hardware and the completion of
professional services in connection with our agreement with Electronic Data
Systems referred to under Revenue above. In addition, total Internet/integrated
revenue was further impacted due to the shift in our sales focus. In the first
half of 2000, our emphasis was on the sale of an integrated solution, which
included both call accounting and internet data sources. In the second half of
2000 and in 2001, our focus has been on sales of distinct Internet and call
accounting applications. Therefore, sales that might previously have been
included in the integrated category are now split between call accounting and
internet revenue, while Internet/integrated revenue in 2001 represents pure
internet sales almost exclusively. Our restructuring in May 2001, which reduced
and realigned sales teams, also had some impact on our Internet revenue for the
six months ended June 30, 2001. We released our new WebFilter product in June
2001 and believe this product will allow us to grow our Internet revenue over
time. Revenue on our WebFilter appliance will be recognized over the period of
subscription, normally 12 months. Therefore reported revenue will significantly
lag behind sales and cash flow as we launch this new product.


                                   Form 10-Q
                                  Page 12 of 16

<PAGE>   13
         Call Accounting Revenue. Total call accounting revenue was $3.0
million, or 75.3% of total revenue, for the six months ended June 30, 2001, a
9.8% decrease from $3.3 million, or 56.6% of total revenue, for the same period
in 2000. Call accounting product revenue was $716,000, or 17.9% of total
revenue, for the six months ended June 30, 2001, representing a 17.2% decrease
from $865,000, or 14.7% of total revenue, for the same period in 2000. Call
accounting service revenue was $2.3 million, or 57.4% of total revenue, in the
six months ended June 30, 2001, representing a 7.1% decrease from $2.5 million,
or 41.9% of total revenue, for the same period in 2000. We believe the staff
realignments and renewed focus on reselling to our installed customer base will
enable us to maintain call accounting revenue going forward. Call accounting
service revenue has decreased compared to the first half of 2000 because of
lower product sales in the second half of 2000. The lower product sales resulted
in less unbundled support being deferred in the same period of 2000. This
decrease in deferrals has negatively impacted service revenue for the first six
months of 2001.

         Cost of Product Revenue. Cost of product revenue was $371,000, or 9.3%
of total revenue, in the six months ended June 30, 2001, a 59.2% decrease from
$909,000, or 15.4% of total revenue, for the same period in 2000. This decrease
in product costs was primarily attributable to a reduction in hardware sales
related to the Electronic Data Systems sales agreement discussed in Revenue
above as well as a reduction in software royalties that are more in line with
reduced product revenue. Management believes the hardware component of revenue
will remain at the current lower levels for the foreseeable future.

         Cost of Service Revenue. Cost of service revenue was $1.1 million, or
26.9% of total revenue, for the six months ended June 30, 2001, representing a
43.8% decrease from $1.9 million, or 32.5% of total revenue, for the same period
in 2000. The decline in service costs primarily resulted from decreases in our
service personnel costs, generated by our reduction in force. In addition we had
less travel expense as a result of the professional services required for the
agreement mentioned under Revenue having been completed during 2000. We believe
we can continue to operate at these lower staffing levels and maintain high
quality customer service going forward.

         Research and Development Expenses. Research and development expenses
were $1.9 million, or 47.2% of total revenue, for the six months ended June 30,
2001, representing a 2.7% increase from $1.8 million, or 31.1% of total revenue,
for the same period in 2000. Total research and development expenses remained
flat as we completed development of our new WebFilter product. Due to our
reduction in work force, we expect research and development expenses to show a
decline and level off for the remainder of the year.

         Sales and Marketing Expenses. Sales and marketing expenses were $3.9
million, or 96.9% of total revenue, for the six months ended June 30, 2001,
representing a 48.8% decrease from $7.6 million, or 128.4% of total revenue, for
the same period in 2000. The decrease in both absolute dollars and as a
percentage of total revenue was due to several factors, primarily the reduction
of sales and marketing personnel, more targeted, marketing programs and less
recruiting and travel expense. We expect that the effects of our second quarter
reduction in force will be seen in a reduction in sales and marketing expenses
for the remainder of the year.

         General and Administrative Expenses. General and administrative
expenses were $2.7 million, or 68.5% of total revenue, in the six months ended
June 30, 2001, representing a 7.3% increase from $2.6 million, or 43.3% of total
revenue, for the same period in 2000. We expect general and administrative costs
to remain flat over the next several months.

         Merger Expense. Merger expense was $362,000, or 9.1% of total revenue,
for the six months ended June 30, 2001. This represents legal and investment
banking fees incurred in connection with the pending merger with Verso
Technologies, Inc. Additional charges will be incurred as we work toward the
completion of the merger. There was no similar charge in 2000.

         Restructuring Charge. Restructuring charge was $2.1 million, or 53.7%
of total revenue for the six months ended June 30, 2001, primarily representing
severance compensation to be paid in connection with our 60% reduction in work
force. There was no similar charge in 2000.


                                   Form 10-Q
                                  Page 13 of 16

<PAGE>   14

         Asset Impairment Due to Restructuring. Asset impairment due to
restructuring was $695,000, or 17.4% of total revenue, for the six months ended
June 30, 2001. This charge represents the write down of assets that could no
longer be productively deployed as a result of our reduction in force.

         Interest Income. Interest income was $608,000, or 15.2% of total
revenue, for the six months ended June 30, 2001, compared to $1.0 million, or
17.5% of total revenue, for the same quarter of 2000. Proceeds from investment
of the remaining funds received in our initial public offering account for the
interest income.

LIQUIDITY AND CAPITAL RESOURCES

         Historically, we have funded our business from cash generated from
operations and the issuance of long-term debt. However, in October 1999, we
completed our initial public offering that provided us approximately $42.8
million in net cash proceeds. We had cash and cash equivalents of $22.8 million
at June 30, 2001 and $34.8 million at June 30, 2000.

         On July 27, 2001, we used $15.0 million of our cash and cash
equivalents to purchase 750,000 shares of the non-voting Series B Preferred
Stock of Verso Technologies, Inc. Verso used the proceeds from the purchase to
partially fund its acquisition of NACT Telecommunications, Inc., which purchase
was also consummated on July 27, 2001. As a result of our $15.0 million
purchase of non-voting Series B Preferred Stock, we have significantly less
cash and cash equivalents on hand as of the filing date of this Report than we
did on June 30, 2001.

         Cash used in operating activities during the six months ended June 30,
2001 was $5.1 million, a 29.2% decrease from $7.2 million for the same period in
2000. This change reflects the net impact of decreases in our net loss and
changes in accounts receivable, accounts payable and deferred revenue. Our
investing activities primarily include expenditures for fixed assets to support
our operations. Net cash provided by financing activities was $70,000 for the
six-month period ended June 30, 2001, compared to $513,000 for the period ended
June 30, 2000. This change was due primarily to the decrease in the exercise of
stock options.

         Because we have not generated significant revenue from sales outside
the United States, we have not sustained material foreign currency exchange
losses and presently do not attempt to hedge our exposure to fluctuations in
foreign currency exchange rates. Should our revenue from international sales
increase and should such sales be denominated in foreign currencies, we intend
to adopt a hedging strategy against foreign currency fluctuations.

         The reduction in work force in the second quarter 2001 and pending
Telemate.Net/Verso Technologies, Inc. merger has resulted in merger,
restructuring and asset impairment charges of approximately $3.2 million. In the
event the pending merger transaction does not close, we remain confident that
our existing liquidity and capital resources will be sufficient to satisfy our
cash requirements for at least the next 12 months. However, to the extent that
income from operations is insufficient to implement our business strategies, or
if we identify additional strategic investments in our business, technology or
products, we may be required to raise additional funds through equity or debt
financing. If adequate funds are not available on acceptable terms or at all,
our ability to implement our business strategies or take advantage of
unanticipated opportunities or otherwise respond to competitive pressures would
be limited. There can be no assurance that we will be able to raise these
additional funds on terms acceptable to us, or at all.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         We are exposed to a number of market risks in the ordinary course of
our business, such as foreign currency exchange risk resulting from our
international operations. These risks arise in the normal course of business
rather than from trading. In addition, some of our traded assets are exposed to
market risks such as interest rate fluctuations. Our management has examined our
exposures to all of these risks and has concluded that none of our exposures in
these areas is material to fair values, cash flows or earnings.


                                   Form 10-Q
                                  Page 14 of 16

<PAGE>   15

                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

         No events occurred during the quarter covered by this Report that would
require response to this item.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

         No events occurred during the quarter covered by this Report that would
require response to this item.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         No events occurred during the quarter covered by this Report that would
require response to this item.

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

         No events occurred during the quarter covered by this Report that would
require response to this item.

ITEM 5.  OTHER INFORMATION.

         Subsequent event: On July 27, 2001, the Company purchased 750,000
shares of non-voting Series B Preferred Stock of Verso Technologies, Inc., a
Minnesota corporation ("Verso"), for an aggregate purchase price of $15.0
million (the "Purchase") pursuant to a Series B Preferred Stock Purchase
Agreement, dated as of May 4, 2001, between Verso and the Company, as amended by
the First Amendment thereto dated as of June 1, 2001 and as further amended by
the Second Amendment thereto dated as of July 27, 2001. Verso used the proceeds
from the purchase to partially fund its acquisition of NACT Telecommunications,
Inc., a Delaware corporation, from WA Telcom Products Co., Inc., a Delaware
corporation, which was consummated on July 27, 2001.

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

         (a)      Exhibits

                      The following exhibits are filed with this Report:

                           Exhibit 10.1   Agreement and Plan of Merger, dated
                           May 4, 2001, between Verso Technologies, Inc., Titan
                           Acquiring Sub, Inc. and Telemate.Net Software, Inc.
                           (incorporated by reference from Exhibit 2.1 to the
                           Company's Current Report on Form 8-K filed May 16,
                           2001 (File No. 000-26735)).

                           Exhibit 10.2   Voting Agreement, dated May 4, 2001,
                           between Verso Technologies, Inc. and certain
                           shareholders of Telemate.Net Software, Inc.
                           (incorporated by reference from Exhibit 99.2 to the
                           Company's Current Report on Form 8-K filed May 16,
                           2001 (File No. 000-26735)).

                           Exhibit 10.3   Voting Agreement, dated May 4, 2001,
                           between Telemate.Net Software, Inc. and certain
                           shareholders of Verso Technologies, Inc.
                           (incorporated by reference from Exhibit 99.3 to the
                           Company's Current Report on Form 8-K filed May 16,
                           2001 (File No. 000-26735)).

                           Exhibit 10.4   Form of Affiliate Agreement to be
                           entered into between Verso Technologies, Inc. and
                           certain shareholders of Telemate.Net Software, Inc.
                           (incorporated by reference from Exhibit 99.4 to the
                           Company's Current Report on Form 8-K filed May 16,
                           2001 (File No. 000-26735)).

                           Exhibit 10.5   Series B Preferred Stock Purchase
                           Agreement, dated May 4, 2001, between Verso
                           Technologies, Inc. and Telemate.Net Software, Inc.
                           (incorporated by reference from Exhibit 99.1 to the
                           Company's Current Report on Form 8-K filed May 16,
                           2001 (File No. 000-26735)).

                           Exhibit 10.6   First Amendment to Verso Technologies,
                           Inc. Series B Preferred Stock Purchase Agreement,
                           dated June 1, 2001, between Verso Technologies, Inc.
                           and Telemate.Net Software, Inc. (incorporated by
                           reference from Exhibit 99.2 to the Company's
                           Amendment No. 1 to its Current Report on Form 8-K
                           filed June 6, 2001 (File No. 000-26735)).

                           Exhibit 10.7   Second Amendment to Verso
                           Technologies, Inc. Series B Preferred Stock Purchase
                           Agreement, dated July 27, 2001, between Verso
                           Technologies, Inc. and Telemate.Net Software, Inc.
                           (incorporated by reference from Exhibit 99.3 to the
                           Company's Current Report on Form 8-K filed August 6,
                           2001 (File No. 000-26735)).

                           Exhibit 99.1   Safe Harbor Compliance Statement.



         (b)      Reports on Form 8-K

                      The Company filed a Current Report on Form 8-K on May 16,
                      2001 to announce under Item 5 that it had signed
                      definitive agreements to merge with a wholly-owned
                      subsidiary of Verso Technologies, Inc. and to purchase
                      non-voting preferred stock of Verso Technologies, Inc.

                      The Company filed an amendment to its Current Report on
                      Form 8-K on June 6, 2001 to announce under Item 5 that the
                      definitive agreements to merge with a wholly-owned
                      subsidiary of Verso Technologies, Inc. and to purchase
                      non-voting preferred stock of Verso Technologies, Inc. had
                      been amended.


                                   Form 10-Q
                                  Page 15 of 16

<PAGE>   16

                                   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.

                                 TELEMATE.NET SOFTWARE, INC.


Date: August 14, 2001                     /s/ Richard L. Mauro
                                 -----------------------------------------------
                                 Richard L. Mauro
                                 President and Chief Executive Officer
                                 (Principal Executive Officer)



Date: August 14, 2001                     /s/ Janet Van Pelt
                                 -----------------------------------------------
                                 Janet Van Pelt
                                 Senior Vice President - Finance and Operations,
                                 Chief Financial Officer and Treasurer
                                 (Principal Financial and Accounting Officer)


                                   Form 10-Q
                                  Page 16 of 16