SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission File No. 0-23611
DSET Corporation
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(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-3000022
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1160 US Highway 22, Bridgewater, New Jersey 08807
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(Address of Principal Executive Offices) (Zip Code)
(908) 526-7500
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(Registrant's Telephone Number,
Including Area Code)
1011 US Highway 22, Bridgewater, New Jersey 08807
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
---- ----
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of July 30, 1999:
Class Number of Shares
----- ----------------
Common Stock, no par value 10,481,406
<PAGE>
DSET CORPORATION
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION......................................... 1
Item 1. Financial Statements..................................... 1
Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998 (audited)........... 2
Consolidated Statements of Income for the Three
Months Ended June 30, 1999 and 1998 (unaudited)....... 3
Consolidated Statements of Income for the Six
Months Ended June 30, 1999 and 1998 (unaudited)....... 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1999 and 1998 (unaudited)....... 5
Notes to Consolidated Financial Statements (unaudited)... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 11
Results of Operations.................................... 12
Liquidity and Capital Resources.......................... 15
Item 3. Quantitative and Qualitative Disclosures About Market
Risk..................................................... 19
PART II. OTHER INFORMATION............................................. 20
Item 2. Changes in Securities and Use of Proceeds................ 20
Item 4. Submission of Matters to a Vote of Security Holders...... 21
Item 5. Other Information........................................ 22
Item 6. Exhibits and Reports on Form 8-K......................... 22
SIGNATURES.............................................................. 23
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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<PAGE>
DSET CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
ASSETS (unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 2,146,230 $ 1,159,070
Marketable securities.............................. 39,743,478 43,863,980
Accounts receivable, net of allowance for doubtful
accounts of $223,665 and $175,979................ 10,373,994 9,108,059
Deferred income taxes.............................. 279,769 258,144
Prepaid expenses and other current assets.......... 1,393,603 193,418
---------------- ------------------
Total current assets............................. 53,937,074 54,582,671
Acquired technology, net.............................. 2,410,317 --
Capitalized software development costs, net........... 629,408 --
Fixed assets, net..................................... 2,650,178 1,592,114
Goodwill, net......................................... 307,259 129,864
Other assets.......................................... 678,253 548,963
----------------
------------------
Total assets..................................... $ 60,612,489 $ 56,853,612
================ ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............. $ 3,550,207 $ 3,560,994
Income taxes payable............................... 17,298 145,673
Deferred revenues.................................. 1,837,858 1,726,906
Note payable....................................... -- 111,657
Current portion of capital lease obligation........ 115,116 --
---------------- ------------------
Total current liabilities........................ 5,520,479 5,545,230
Long term portion of capital lease obligation...... 563,059 --
Deferred income taxes.............................. 73,438 119,127
---------------- ------------------
Total liabilities................................ 6,156,976 5,664,357
---------------- ------------------
Commitments
Shareholders' equity:
Common stock, no par value; 40,000,000 shares
authorized, 10,468,806 and 9,817,559 shares
issued and outstanding at June 30, 1999 and
December 31, 1998, respectively..................... 44,018,462 41,912,361
Deferred stock compensation........................... (365,850) (494,306)
Retained earnings..................................... 10,956,225 9,731,077
Unrealized appreciation (depreciation)
on investments...................................... (153,324) 40,123
---------------- ------------------
Total shareholders' equity....................... 54,455,513 51,189,255
---------------- ------------------
Total liabilities and shareholders' equity....... $ 60,612,489 $ 56,853,612
================ ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
DSET CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------- ----------------------
1999 1998*
---------------------- ----------------------
<S> <C> <C>
REVENUES:
License revenues.................................... $ 5,245,927 $ 3,579,949
Service revenues.................................... 3,871,756 3,360,240
---------------- ----------------
Total revenues................................. 9,117,683 6,940,189
---------------- ----------------
COST OF REVENUES:
License revenues................................... 278,557 514,077
Service revenues................................... 1,637,264 931,883
---------------- ----------------
Total cost of revenues......................... 1,915,821 1,445,960
---------------- ----------------
Gross profit..................................... 7,201,862 5,494,229
---------------- ----------------
OPERATING EXPENSES:
Sales and marketing................................ 2,981,478 2,112,884
Research and product development................... 2,464,042 1,605,378
General and administrative......................... 1,175,691 647,052
---------------- ----------------
Total operating expenses....................... 6,621,211 4,365,314
---------------- ----------------
Operating income................................. 580,651 1,128,915
Amortization.......................................... (77,341) (9,502)
Interest expense and other income (expense)........... (40,585) (586)
Interest income....................................... 549,980 569,484
---------------- ----------------
Income before taxes................................... 1,012,705 1,688,311
Provision for income taxes............................ 359,509 636,762
---------------- ----------------
Net income............................................ $ 653,196 $ 1,051,549
================ ================
Net income per common share........................... $ 0.06 $ 0.11
================ ================
Weighted average number of common shares
outstanding.......................................... 10,403,646 9,404,100
================ ================
Net income per common share assuming
dilution............................................. $ 0.06 $ 0.09
================ ================
Weighted average number of common shares and
common equivalent shares outstanding................ 11,773,392 11,690,395
================ ================
</TABLE>
*Certain amounts have been reclassified for comparative purposes.
The accompanying notes are an integral part of these financial statements.
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<PAGE>
DSET CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------
1999 1998*
---------------------- ---------------------
<S> <C> <C>
REVENUES:
License revenues................................... $ 9,399,073 $ 6,216,584
Service revenues................................... 7,194,896 6,045,717
---------------- ----------------
Total revenues................................. 16,593,969 12,262,301
---------------- ----------------
COST OF REVENUES:
License revenues................................... 561,666 754,706
Service revenues................................... 2,904,212 1,633,878
---------------- ----------------
Total cost of revenues......................... 3,465,878 2,388,584
---------------- ----------------
Gross profit..................................... 13,128,091 9,873,717
---------------- ----------------
OPERATING EXPENSES:
Sales and marketing................................ 5,376,132 4,095,878
Research and product development................... 4,809,940 3,100,277
General and administrative......................... 1,986,004 1,176,752
---------------- ----------------
Total operating expenses....................... 12,172,076 8,372,907
---------------- ----------------
Operating income................................. 956,015 1,500,810
Amortization.......................................... (86,843) (19,005)
Interest expense and other income (expense)........... (55,792) (42,829)
Interest income....................................... 1,087,622 687,232
---------------- ----------------
Income before taxes................................... 1,901,002 2,126,208
Provision for income taxes............................ 675,854 783,457
---------------- ----------------
Net income............................................ $ 1,225,148 $ 1,342,751
================ ================
Net income per common share........................... $ 0.12 $ 0.16
================ ================
Weighted average number of common shares
outstanding..........................................
10,216,115 8,357,346
================ ================
Net income per common share assuming
dilution............................................. $ 0.11 $ 0.13
================ ================
Weighted average number of common shares and
common equivalent shares outstanding................. 11,502,543 10,643,675
================ ================
</TABLE>
*Certain amounts have been reclassified for comparative purposes.
The accompanying notes are an integral part of these financial statements.
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<PAGE>
DSET CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------
1999 1998*
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 1,225,148 $ 1,342,751
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes.................................... (67,314) --
Tax benefit from exercise of stock options............... 1,273,083 329,320
Depreciation............................................. 366,442 231,812
Amortization............................................. 86,843 19,005
Amortization of deferred stock compensation.............. 128,456 164,134
Loss from joint venture.................................. 36,238 39,655
Gain on disposal of assets............................... (120) --
Changes in assets and liabilities:
Accounts receivable.................................... (1,265,935) 565,523
Other assets........................................... (1,365,715) 69,269
Accounts payable and accrued expenses.................. (10,786) 209,483
Income taxes payable................................... (128,375) 71,501
Deferred revenues...................................... 110,951 122,863
---------------- ---------------
Net cash provided by operating activities............ 388,916 3,165,316
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchases) of marketable securities, net.............. 3,927,055 (38,264,442)
Acquisition of assets:
Acquired technology....................................... (2,458,416) --
Goodwill.................................................. (200,000) --
Capitalized software development costs...................... (645,547) --
Acquisition of fixed assets................................. (1,025,314) (340,836)
---------------- ---------------
Net cash used in investing activities............... (402,222) (38,605,278)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital sale/leaseback........................ 279,104 --
Repayment by officers and shareholders...................... -- 100,000
Repayment of note payable................................... (111,657) (110,000)
Proceeds from the issuance of common stock (net)............ -- 36,050,825
Proceeds from exercise of stock options..................... 833,019 357,836
---------------- ---------------
Net cash provided by financing activities........... 1,000,466 36,398,661
---------------- ---------------
Net increase in cash and cash equivalents........... 987,160 958,699
Cash and cash equivalents, beginning of period................. 1,159,070 2,081,846
---------------- ---------------
Cash and cash equivalents, end of period....................... $ 2,146,230 $ 3,040,545
================ ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes................ $ 490,472 $ 391,512
Cash paid during the period for interest.................... 39,198 7,604
Non-cash activities:
Conversion of Series A preferred stock to common
stock...................................................... -- 11,603,996
Lease of fixed assets....................................... 399,071 --
</TABLE>
*Certain amounts have been reclassified for comparative purposes.
The accompanying notes are an integral part of these financial statements.
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<PAGE>
DSET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION:
The consolidated information presented for June 30, 1999 and 1998, and for
the three-month and six-month periods then ended, is unaudited, but, in the
opinion of DSET Corporation's (the "Company") management, the accompanying
unaudited financial statements contain all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for the fair
presentation of the Company's financial position as of June 30, 1999 and the
results of its operations and its cash flows for the three-month and six-month
periods ended June 30, 1999 and 1998. The financial statements included herein
have been prepared in accordance with generally accepted accounting principles
and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the Company's 1998 audited financial statements and
accompanying notes and Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
Results for the interim period are not necessarily indicative of results
that may be expected for the entire year.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The consolidated entity includes DSET Corporation and its wholly owned
subsidiaries, DSET Acquisition Corp., a Delaware corporation, and Chengdu DSET
Science & Technology Co., Ltd. (China).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
The marketable securities portfolio held by the Company consists primarily
of short-term securities of grade A or better with maturities of two years or
less which are considered to be available for sale securities and are reported
at cost. Unrealized depreciation on investments was $153,324 at June 30, 1999.
At June 30, 1998 there was no unrealized appreciation or depreciation.
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<PAGE>
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Capitalization of software development costs begins on establishment of
technological feasibility. Costs incurred prior to establishment of
technological feasibility are charged to research and product development
expense. The ongoing assessment of recoverability of capitalized costs requires
considerable judgment by management with respect to certain factors including
the anticipated future gross revenue, estimated economic life and changes in
technology. These factors are considered on a product-by-product basis.
Amortization of software development costs is the greater of the amount computed
using (a) the ratio that current gross revenues for a product bear to the total
of current and anticipated future gross revenues for that product or (b) the
straight-line method over the remaining estimated economic life ranging from
three to five years of the product including the period being reported on.
ACQUIRED TECHNOLOGY
Acquired technology represents the costs of feasible technology acquired
from external sources. At June 30, 1999, acquired technology reflects the
purchase price of certain assets of Network Programs LLC ("NPL"), as well as
related costs to acquire such assets.
Amortization of acquired technology is the greater of the amount computed
using (a) the ratio that current gross revenues for a product bear to the total
of current and anticipated future gross revenues for that product or (b) the
straight-line method over the remaining estimated economic life ranging from
three to five years of the product including the period being reported on.
REVENUE RECOGNITION
License revenue is recorded when the software has been shipped to the
Company's licensees and all significant obligations have been satisfied. Revenue
from run-time licenses is recognized as equipment using the Company's software
is deployed by the Company's customers. Custom application development service
revenue is recognized over the period in which the service is performed based on
the percentage of direct labor costs incurred to the total costs estimated.
Service revenue from maintenance contracts is deferred and recognized over
the term of the respective contracts (typically twelve months).
INCOME TAXES
The Company utilizes an asset and liability approach to financial reporting
for income taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future,
based on enacted tax laws and rates applicable to the period in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce the deferred tax assets to the amount
expected to be realized.
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<PAGE>
For certain stock options, the Company receives a tax deduction for the
difference between the fair market value of the Company's Common Stock on the
date of exercise of the stock option and the exercise price. To the extent the
amount deducted for income taxes exceeds the amount charged to operations for
financial statement purposes, the related tax benefits are credited to
shareholders' equity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts in the financial statements for cash and cash
equivalents, accounts receivable, and accounts payable and accrued expenses
approximate their market value because of the short maturity of those
instruments.
RECENTLY ISSUED ACCOUNTING STANDARDS
On June 15, 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"). SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). SFAS No. 133 requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of the
Company anticipates that, due to its limited use of derivative instruments, the
adoption of SFAS No. 133 will not have a significant effect on the Company's
results of operations or its financial position.
NOTE 3 -- NPL ACQUISITION:
On January 25, 1999, DSET Acquisition Corp., a wholly-owned subsidiary of
the Company, consummated the acquisition of certain assets of NPL. The purchase
price consisted of $2,500,000 payable in cash to NPL.
At June 30, 1999, the costs to acquire NPL are recorded as acquired
technology and goodwill. In addition, research and development costs associated
with bringing the acquired assets to market have been recorded as capitalized
software development costs at June 30, 1999. Amortization of these costs
commenced with the shipment of the product in the second quarter of 1999;
amortization expense related to this asset was $68,000. All future development
costs associated with the product will be expensed.
NOTE 4 -- INITIAL PUBLIC OFFERING:
On March 18, 1998, the Company consummated an initial public offering of
3,500,000 shares of its Common Stock at a price to the public of $16.00 per
share, of which 2,500,000 shares were issued and sold by the Company and
1,000,000 shares were sold by certain shareholders of the Company (the "Selling
Shareholders"). The net proceeds to the Company from the offering were
approximately $36.1 million. On April 7, 1998, certain Selling Shareholders sold
an additional 525,000 shares of the Company's Common Stock at a price to the
public of $16.00 per share upon the consummation of the exercise of the
Underwriters' over-allotment option. The Company did not receive any of the
proceeds from the sale of shares by the Selling Shareholders.
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<PAGE>
The net proceeds received by the Company upon the consummation of such
offering, pending specific application, were invested in short-term,
investment-grade, interest-bearing instruments. See "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
NOTE 5 -- EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (EPS), which
specifies the computation, presentation and disclosure requirements for earnings
per share of entities with publicly held company stock or potential common
stock. The statement defines two earnings per share calculations, basic and
diluted. The objective of basic EPS is to measure the performance of an entity
over the reporting period by dividing income available to common stock by the
weighted average shares outstanding. The objective of diluted EPS is consistent
with that of basic EPS, that is to measure the performance of an entity over the
reporting period, while giving effect to all dilutive potential common shares
that were outstanding during the period. The calculation of diluted EPS is
similar to basic EPS except both the numerator and denominator are increased for
the conversion of potential common shares. The following table is a
reconciliation of the numerator and denominator under each method:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
1999 1998
---- ----
PER PER
SHARE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
Net income
applicable to
common shares $ 653,196 10,403,646 $ 0.06 $ 1,051,549 9,404,100 $ 0.11
ASSUMING
DILUTION:
Net income
applicable to
common shares:
Warrants -- 150,871 -- 160,859
Stock options -- 1,218,875 -- 2,125,436
--------- ----------- ----------- ----------
$ 653,196 11,773,392 $ 0.06 $ 1,051,549 11,690,395 $ 0.09
========= =========== =========== ==========
</TABLE>
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<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
1999 1998
---- ----
PER PER
SHARE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
Net income
applicable to
common shares $ 1,225,148 10,216,115 $ 0.12 $ 1,342,751 8,357,346 $ 0.16
ASSUMING
DILUTION:
Net income
applicable to
common shares:
Warrants -- 153,367 -- 158,909
Stock options -- 1,133,061 -- 2,127,420
---------- ----------- ---------- ----------
$ 1,225,148 11,502,543 $ 0.11 $ 1,342,751 10,643,675 $ 0.13
========== =========== ========== ==========
</TABLE>
NOTE 6--CAPITAL LEASE OBLIGATION:
In June 1999, the Company entered into a five year capital lease agreement
at an annual interest rate of 8.21%. Annual lease payments approximate $170,000.
Assets recorded under this lease are included in fixed assets as follows:
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
FURNITURE AND FIXTURES $ 698,521 $ --
ACCUMULATED AMORTIZATION $ -- $ --
-------------- -----------------
$ 698,521 $ --
============== =================
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
DSET designs, develops, markets and supports standards-based application
development tools, custom application development services, and Local Number
Portability Solutions ("LNP") and operational support systems ("OSS") gateway
products for the global telecommunications industry. From its founding in 1989,
the Company has focused on the creation of applications that could be
distributed among many processors in order to solve highly complex problems in
the network management arena. Additionally, the Company developed extensive
knowledge of requirements for multiple protocols and multi-vendor communications
as well as real time operating systems. In the early 1990's, the Company made a
strategic decision to focus on creating suites of tools that facilitate the
development of Telecommunications Management Network ("TMN") solutions.
Substantially all of the Company's revenues to date has been derived from
application development tools and services based on TMN standards. The Company's
recently developed pre-built carrier-to-carrier applications facilitate the flow
of business information between competing carriers and their respective OSSs.
The Company's success will depend on continued growth in the market for advanced
telecommunications products and services. For the quarters ended June 30, 1999
and 1998, the Company derived approximately 57.5% and 51.6%, respectively, of
its total revenues from license revenues and approximately 42.5% and 48.4%,
respectively, of its total revenues from service revenues.
The Company's revenues are generated from two sources: license and service
revenues from network equipment vendors; and license and service revenues from
telecommunications carriers, including competitive local exchange carriers
("CLECs"). During the second quarter of 1999, the Company derived $6.9 million
of revenues from network equipment vendors and $2.2 million of revenues from
CLECs and other carriers.
The Company had one customer which accounted for 10.5% of revenues for the
quarter ending June 30, 1999, and no customers which accounted for more than 10%
of revenues for the quarter ending June 30, 1998. The Company had one customer
which accounted for 10.1% of revenues for the six months ending June 30, 1999
and one customer which accounted for 15.9% of revenues for the six months ending
June 30, 1998. The Company anticipates that its results of operations in any
given period will continue to depend to a significant extent upon sales to a
small number of customers. As a result of this customer concentration, the
Company's revenues from quarter to quarter and business, financial condition and
results of operations may be subject to substantial period-to-period
fluctuations.
The Company derives a portion of its revenues from international sales
which constituted approximately 14.8% and 21.2% of the Company's total revenues
in the quarters ended June 30, 1999 and 1998, respectively. The Company's
international sales currently are United States dollar-denominated. As a result,
an increase in the value of the United States dollar relative to foreign
currencies could make the Company's products and services less competitive in
international markets.
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<PAGE>
On January 25, 1999, DSET Acquisition Corp., a wholly-owned subsidiary of
the Company, consummated the acquisition of certain assets of Network Programs
LLC ("NPL"). The purchase price consisted of $2,500,000 payable in cash to NPL.
NPL provided specialized software to CLECs.
FORWARD-LOOKING STATEMENTS
Statements contained in this 10-Q that are not based on historical fact are
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking
statements may be identified by the use of forward-looking terminology such as
"may," "will," "expect," "estimate," "anticipate," "continue," or similar terms,
variations of such terms or the negative of those terms. In particular, the
Company's statements relating to the Year 2000 compliance of its products and
internal systems are forward-looking statements intended to qualify for the safe
harbor provided by the Exchange Act. Such forward-looking statements involve
risks and uncertainties, including, but not limited to: (i) the Company's
dependence on the rapidly evolving telecommunications industry, (ii) the
Company's dependence on the TMN industry standard, (iii) rapid technological
change in the Company's industry, (iv) risks associated with the development and
marketing of new products, including carrier-to-carrier applications, such as
LNP or OSS gateways, (v) risks associated with acquisitions of businesses by the
Company, including risks relating to unanticipated liabilities or expenses or
lower than expected revenues of such acquired businesses, and (vi) risks and
variables, including engineering costs, associated with the remediation of
certain of the Company's products which are not Year 2000 compliant. The success
of the Company depends to a large degree upon increased utilization of its
application development tools, custom application development services and
carrier-to-carrier applications, such as LNP or OSS gateways, by
telecommunications carriers and network equipment vendors, and the buying
patterns of CLECs. As a result of such risks and others expressed from time to
time in the Company's filings with the Securities and Exchange Commission (the
"Commission"), the Company's actual results may differ materially from the
results discussed in or implied by the forward-looking statements contained
herein.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUES. Total revenues increased 31.4% to $9.1 million in the second
quarter of 1999 from $6.9 million in the second quarter of 1998. License
revenues increased 46.5% to $5.2 million in the second quarter of 1999 from $3.5
million in the second quarter of 1998. This increase was primarily attributable
to initial sales of carrier-to-carrier products. Service revenues increased
15.2% to $3.9 million in the second quarter of 1999 from $3.4 million in the
second quarter of 1998. This increase was primarily attributable to increased
custom development projects for network equipment vendors, CLECs and other
carriers. In the quarters ended June 30, 1999 and 1998, the Company derived
approximately 57.5% and 51.6%, respectively, of its total revenues from license
revenues and approximately 42.5% and 48.4%, respectively, of its total revenues
from service revenues.
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<PAGE>
GROSS PROFIT. The Company's gross profit increased 31.1% to $7.2 million in
the second quarter of 1999 from $5.5 million in the second quarter of 1998.
Gross profit percentage decreased slightly to 79.0% of total revenues in the
second quarter of 1999 from 79.2% in the second quarter of 1998. Gross profit
percentage for license revenues increased to 94.7% for the second quarter of
1999 from 85.6% in the second quarter of 1998 due to less third party software
as a component of revenues and sales of more internally developed products.
Gross profit percentage for service revenues decreased to 57.7% in the second
quarter of 1999 from 72.3% in the second quarter of 1998. This decrease was
primarily attributable to increased use of outside consultants to complete
custom development projects.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 41.1%
to $3.0 million in the second quarter of 1999 from $2.1 million in the second
quarter of 1998, and increased to 32.7% of total revenues in the second quarter
of 1999 from 30.4% of total revenues in the second quarter of 1998. This
increase in costs was primarily attributable to the hiring of additional
personnel for the Company's sales force and the marketing department and a
provision for bad debts. The Company has been hiring sales personnel to cover
parts of Europe and Asia. The increase as a percentage of revenue is due to
lower than anticipated revenue for the quarter, but actual expenses were within
planned levels.
RESEARCH AND PRODUCT DEVELOPMENT EXPENSES. Research and product development
expenses increased 53.5% to $2.5 million in the second quarter of 1999 from $1.6
million in the second quarter of 1998, and increased to 27.0% of total revenues
in the second quarter of 1999 from 23.1% of total revenues in the second quarter
of 1998. This increase in research and product development expenses was due
primarily to additional personnel expenses attributable to an increase in
staffing due to expansion in the number of projects under development and in
part to the hiring of former NPL employees. The increase as a percentage of
revenue is due to lower than anticipated revenue for the quarter, but actual
expenses were within planned levels.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 81.7% to $1.2 million in the second quarter of 1999 from $647,000 in
the second quarter of 1998, and increased to 12.9% of total revenues in the
second quarter of 1999 from 9.3% of total revenues in the second quarter of
1998. The increase of general and administrative expenses was due to additional
staffing, recruiting and relocation costs and outside services costs. The
increase as a percentage of revenue is due to lower than anticipated revenue for
the quarter, but actual expenses were within planned levels.
INTEREST EXPENSE AND OTHER INCOME AND EXPENSES, NET. Net interest expense
and other income and expense increased to $40,000 for the quarter ending June
30, 1999 from $1,000 for the quarter ending June 30, 1998 due primarily to an
increased loss in the Company's European joint venture.
INTEREST INCOME. Interest income decreased to $550,000 for the quarter
ending June 30, 1999 from $569,000 for the quarter ending June 30, 1998
reflecting lower interest rates in 1999 as compared to the corresponding period
in 1998.
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<PAGE>
INCOME TAXES. The Company's effective tax rate was 35.5% and 37.7% for each
of the quarters ended June 30, 1999 and 1998, respectively. Such effective tax
rates are lower than statutory tax rates due primarily to research and
development tax credits. As of June 30, 1999, the research and development tax
credit has not been renewed. If this provision is not renewed, the loss of this
credit will result in a higher effective tax rate for the Company in future
periods. The higher rate in 1998 was due to the non-deductible nature of
deferred stock compensation associated with the issuance of stock options.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES. Total revenues increased 35.3% to $16.6 million for the six
months ending June 30, 1999 from $12.3 million for the six months ending June
30, 1998. License revenues increased 51.2% to $9.4 million for the six months
ending June 30, 1999 from $6.2 million for the six months ending June 30, 1998.
The increase in revenue is due to the sale of carrier-to-carrier products.
Service revenues increased 19.0% to $7.2 million for the six months ending June
30, 1999 from $6.0 million for the six months ending June 30, 1998. This
increase was primarily attributable to an increase in custom development
projects and maintenance fees. In the six months ending June 30, 1999 and 1998,
the Company derived approximately 56.6% and 50.7%, respectively, of its total
revenues from license revenues and approximately 43.4% and 49.3%, respectively,
of its total revenues from service revenues.
GROSS PROFIT. The Company's gross profit increased 33.0% to $13.1 million
for the six months ending June 30, 1999 from $9.9 million for the six months
ending June 30, 1998. Gross profit percentage decreased to 79.1% of total
revenues for the six months ending June 30, 1999 from 80.5% for the six months
ending June 30, 1998. Gross profit percentage for license revenues increased to
94.0% for the six months ending June 30, 1999 from 87.9% for the six months
ending June 30, 1998 due to less third party software as a component of
revenues, and sales of more internally developed products. Gross profit
percentage for service revenues decreased to 59.6% for the six months ended June
30, 1999 from 73.0% for the six months ending June 30, 1998. This decrease was
primarily attributable to increased use of outside consultants to complete
custom development projects.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 31.3%
to $5.4 million for the six months ending June 30, 1999 from $4.1 million for
the six months ending June 30, 1998, and decreased to 32.4% of total revenues
for the six months ending June 30, 1999 from 33.4% of total revenues for the six
months ending June 30, 1998. This increase in costs was primarily due to the
hiring of additional personnel for the Company's sales force and the marketing
department and a provision for bad debts. The decrease as a percentage of
revenue is attributable to lower commission rates associated with employed sales
personnel as compared to outside agents' commission.
RESEARCH AND PRODUCT DEVELOPMENT EXPENSES. Research and product development
expenses increased 55.1% to $4.8 million for the six months ending June 30, 1999
from $3.1 million for the six months ending June 30, 1998, and increased to
29.0% of total revenues for the six months ending June 30, 1999 from 25.3% of
total revenues for the six months ending June 30, 1998. This increase in
research and product development expenses both in absolute dollars
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<PAGE>
and as a percentage of revenues was due primarily to the hiring of additional
outside consultants, additional personnel expenses attributable to an increase
in staffing due to an expansion in the number of projects under development and
in part to the hiring of former NPL employees.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 68.8% to $2.0 million for the six months ending June 30, 1999 from
$1.2 million for the six months ending June 30, 1998, and increased to 12.0% of
total revenues for the six months ending June 30, 1999 from 9.6% of total
revenues for the six months ending June 30, 1998. The increase of general and
administrative expenses was due to additional staffing, recruiting and
relocation costs and outside services costs.
INTEREST EXPENSE AND OTHER INCOME AND EXPENSES, NET. Net interest expense
and other income and expenses increased to $56,000 for the six months ending
June 30, 1999 compared to $43,000 for the six months ending June 30, 1998
reflecting slightly higher interest expense for 1999.
INTEREST INCOME. Interest income increased to $1.1 million for the six
months ending June 30, 1999 from $687,000 for the six months ending June 30,
1998 due primarily to interest earned on higher cash and short-term investment
balances available as a result of the proceeds of the Company's initial public
offering of its Common Stock in March 1998.
INCOME TAXES. The Company's effective tax rate was 35.6% and 36.8% for each
of the six months ending June 30, 1999 and 1998, respectively. Such effective
tax rates were lower than the statutory tax rates due primarily to research and
development tax credits. The rate is higher in 1998 due to the non-deductibility
of deferred stock compensation associated with the issuance of stock options. As
of June 30, 1999, the research and development tax credit has not been renewed.
If this provision in the tax code is not retroactively renewed, the loss of this
credit will result in a higher effective rate for the Company in future periods.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1989, the Company has financed its operations
primarily through cash generated by operations and cash raised through its March
1998 initial public offering. At June 30, 1999, the Company's cash, cash
equivalents and marketable securities aggregated approximately $41.9 million, of
which cash and cash equivalents aggregated approximately $2.1 million. The
Company's working capital was $48.4 million at June 30, 1999.
Accounts receivable increased to $10.4 million at June 30, 1999 from $9.1
million at December 31, 1998 as a result of increased unbilled project revenue
and delays in the collection of certain accounts receivable. Included in
accounts receivable was approximately $2.6 million of unbilled project revenue
at June 30, 1999 as compared to $1.5 million at December 31, 1998.
The Company bills its customers, several of which are based in Korea and
Japan, in U.S. dollars at agreed-upon contractual terms. The Company has not
experienced any significant negative effects on its liquidity as a result of the
volatility and devaluation trends that have been experienced in certain Asian
markets, although no assurance can be made that the Company will
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<PAGE>
not experience difficulty collecting accounts receivable from such customers in
the future. Accounts receivable at June 30, 1999 includes approximately $559,000
from customers in this region.
The Company's capital expenditures were approximately $1,424,000 and
$341,000 for the six months ending June 30, 1999 and 1998, respectively. The
increase in equipment and facilities-related expenditures are primarily the
result of the move to an expanded corporate headquarters facility in
Bridgewater, New Jersey to accommodate current and future growth. The Company
anticipates higher levels of equipment and facility expenditures in the Texas
office in the foreseeable future as it also moves this office in July 1999 to
accommodate current and future growth.
In June 1999, the Company entered into a five year capital lease agreement
at an annual interest rate of 8.21%. Assets recorded under this lease are
included in fixed assets. Annual lease payments approximate $170,000.
In August 1997, the Company obtained an unsecured revolving credit facility
with a bank pursuant to which the Company may borrow up to a maximum of $3.0
million. Borrowings under this line of credit bear interest at the bank's prime
rate less 0.25% on aggregate principal amounts outstanding of less than $1.0
million and at the bank's prime rate for aggregate principal amounts exceeding
$1.0 million. No borrowings under this line were outstanding as of June 30,
1999. This credit facility contains, among other provisions, covenants which (i)
mandate the amount of working capital the Company must maintain at the end of
each calendar quarter and (ii) restrict the Company's ability to pay cash
dividends. The unsecured revolving credit facility expires on August 5, 2000.
On March 18, 1998, the Company consummated an initial public offering of
3,500,000 shares of its Common Stock at a price to the public of $16.00 per
share of which 2,500,000 shares were issued and sold by the Company and
1,000,000 shares were sold by certain Selling Shareholders. The net proceeds to
the Company from the offering were approximately $36.1 million. On April 7,
1998, certain Selling Shareholders sold an additional 525,000 shares of the
Company's Common Stock at a price to the public of $16.00 per share upon the
consummation of the exercise of the Underwriters' over-allotment option. The
Company did not receive any of the proceeds from the sale of shares by the
Selling Shareholders.
The net proceeds received by the Company upon the consummation of such
offering, pending specific application, are invested in short-term,
investment-grade, interest-bearing instruments.
The Company believes that its existing available cash, credit facility and
the cash flow expected to be generated from operations, together with the
proceeds from its initial public offering, will be adequate to satisfy its
current and planned operations for at least the next 12 months. There can be no
assurance, however, that the Company will not require additional financing prior
to such time to fund its operations or possible acquisitions.
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<PAGE>
On January 25, 1999, DSET Acquisition Corp., a wholly owned subsidiary of
the Company, acquired certain assets of NPL for $2.5 million. NPL was a New
Jersey-based company which specialized in software aimed at reducing the time
necessary for a CLEC to provide prospective customers with sales proposals that
clearly define the CLEC's current service offering compared to the incumbent
local exchange carrier's current service offering.
YEAR 2000 COMPLIANCE
ASSESSMENT. The Company believes that its exposure to Year 2000 problems
lies primarily in the following areas: (i) its internal operating systems; (ii)
its tool suites, custom applications and pre-built electronic bonding gateways
and network management applications; and (iii) systems of third parties with
whom the Company has material relationships. The Company has completed its
assessment with respect to its internal operating systems and tool suites. The
Company continues to evaluate its exposure with respect to certain custom
applications and its relationships with third parties.
INTERNAL OPERATING SYSTEMS. The Company believes its internal operating
computer systems and management information system are currently Year 2000
compliant, and the Company does not believe that there will be future
significant costs related to future maintenance of such compliance.
TOOL SUITES AND PRE-BUILT APPLICATIONS. The Company has conducted an
internal review and believes that its tool suites (and their update if
applicable) developed after May 27, 1997 have been tested and are Year 2000
compliant. These products (original version number noted) include:
PRODUCT NAME VERSION
------------ -------
ASN.C/C++ 3.5.3
Agent Tester 2.0.1
CMIP Translator 1.0.1
Distributed Systems Generator 4.2.0
GDMO Agent Emulator 2.0.0
GDMO Agent Toolkit 2.0.0
GDMO Compiler 3.0.0
LNP Test Extensions 2.0.0
Manager Code Generator 1.0.4
Manager Toolkit 1.0.0
Marben OSIAM Stack 2.6f/2.6g
Visual Agent Builder 1.0.0
LSMS 2.0.1
Testing of the Company's pre-built electronic bonding gateways and network
management applications for Year 2000 compliance are ongoing. In addition, the
Company continues to review and monitor all such products for Year 2000
compliance.
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<PAGE>
CUSTOM APPLICATIONS. In November 1998, the Company determined that certain
custom applications developed and delivered to approximately ten customers were
not Year 2000 compliant. All of these customers were notified of such Year 2000
compliance status in November 1998. The Company has agreed to assist each of
these customers with any and all remediation solutions required to achieve Year
2000 compliance with the Company's products. The Company does not believe such
remediation will be significant or will materially adversely affect the
Company's financial condition and results of operations. To date, the Company
has incurred certain remediation expenses related to such compliance, pursuant
to the warranty provisions of the applicable agreements. Presently, the Company
is continuing to analyze the extent to which any of the affected custom
applications were integrated by customers into other products which may expose
the Company to claims from its customers. A failure to properly implement the
correction, or problems with the correction, could cause errors in customers'
products which may materially impact the functionality of those products.
THIRD PARTY RELATIONSHIPS. The Company is dependent on various third party
software and hardware vendors and suppliers. The Company is also dependent on
third party service providers and partners such as telephone companies, banks,
insurance carriers, auditors and marketing partners. The failure of such third
parties to deliver Year 2000 compliant products or to remediate their internal
systems could jeopardize the Company's ability to meet its obligations to its
customers. As a result, the Company is presently conducting inquiries of its
outside vendors, suppliers, service providers and marketing partners to identify
and resolve Year 2000 exposure from third parties. Upon completion of the
foregoing, the Company will be able to assess such exposure and financial
impact, if any, should such parties fail to be Year 2000 compliant.
RISKS OF YEAR 2000 ISSUES. The Company expects to identify and resolve all
Year 2000 problems that could materially adversely affect its business,
financial condition or results of operations. However, the Company believes that
it is not possible to determine with complete certainty that all Year 2000
problems affecting the Company have been identified or corrected. Further, the
Company cannot accurately predict how many failures related to the Year 2000
Problem will occur or the severity, duration or financial consequences of such
failures. The Company believes that the most reasonably likely worst case Year
2000 scenario would include a combination of some or all of the following:
o The Company's internal operating systems may fail or provide erroneous
information. Such failure could result in: reduced utilization of
technical or other personnel; the inability to timely generate
financial reports and statements; and improper billing and record
keeping;
o A number of system failures that may require significant efforts
by the Company or its customers to prevent or alleviate material
business disruptions; and
o Failure in HVAC, lighting, telephone, security and similar systems on
which the Company relies.
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<PAGE>
Additionally, the Company cannot guarantee that its products will not be
used by other companies, or its customers, to build applications which might not
be Year 2000 compliant, or that the Company's products or applications built
with the Company's products will not be integrated by the Company or its
customers or interact with non-compliant software or other products which may
expose the Company to claims from its customers.
COSTS. Other than time spent by the Company's personnel, the costs
associated with remediating non-compliant custom applications and assessing Year
2000 compliance issues have not been significant to date. The Company believes
that the continued analysis of compliance of new releases of products and
evaluation of potential Year 2000 problems will result in aggregate expenditures
of less than $100,000.
CONTINGENCY PLANS. The Company believes its plans for addressing the Year
2000 Problem are adequate. The Company does not believe it will incur a material
financial impact from system failures, or from the costs associated with
assessing the risks of failure, arising from the Year 2000 Problem.
Consequently, the Company does not intend to create a detailed contingency plan.
In the event that the Company does not adequately identify and resolve its Year
2000 issues, the absence of a detailed contingency plan may materially adversely
affect the Company's business, financial condition and results of operations.
EUROPEAN MONETARY UNION
On January 1, 1999, eleven of the fifteen member countries of the European
Union set fixed conversion rates between their existing legacy currencies and
the euro. At such time, these participating countries adopted the euro as their
common legal currency. The eleven participating countries now issue sovereign
debt exclusively in euro and will redenominate outstanding sovereign debt. The
legacy currencies will continue to be used as legal tender through January 1,
2002, at which point the legacy currencies will be canceled and euro bills and
coins will be used for cash transactions in the participating countries.
The Company does not denominate its international revenues in foreign
currencies. The Company currently does not believe that the euro conversion will
have a material impact on the Company's results of operations or financial
condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that it is not subject to a material impact to its
financial position or results of operations relating to market risk associated
with derivative securities.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
CHANGES IN SECURITIES
The following information relates to all securities of the Company sold by
the Company within the past quarter which were not registered under the
securities laws at the time of grant, issuance and/or sale:
OPTION GRANTS
1. During the second quarter of 1999, the Company granted stock options
pursuant to its 1998 Stock Plan which were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). All of
such option grants were granted at the then current fair market value
of the Common Stock. The following table sets forth certain
information regarding such grants during the quarter:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- -----
199,661 $ 11.31
COMMON STOCK ISSUANCES
2. During the second quarter of 1999, the Company issued shares of Common
Stock pursuant to exercises of stock options granted under its 1993
Stock Option Plan which were not registered under the Securities Act.
The following table sets forth certain information regarding such
issuances during the quarter:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- -----
126,822 $ 2.98
The Company did not employ an underwriter in connection with the issuance
of the securities described above. The Company believes that the issuance of the
foregoing securities was exempt from registration under either (i) Section 4(2)
of the Securities Act as transactions not involving any public offering and such
securities having been acquired for investment and not with a view to
distribution, or (ii) Rule 701 under the Securities Act as transactions made
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<PAGE>
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation. All recipients had adequate access to
information about the Company.
USE OF PROCEEDS FROM INITIAL PUBLIC OFFERING
On March 12, 1998, the Commission declared effective the Company's
Registration Statement (Registration Statement No. 333-43827) as filed with the
Commission in connection with the Company's initial public offering of Common
Stock, which was managed by BT Alex. Brown Incorporated, BancAmerica Robertson
Stephens and SoundView Financial Group, Inc. Pursuant to such Registration
Statement, the Company registered and sold an aggregate of 2,500,000 shares of
its Common Stock, for a gross aggregate offering price of $40.0 million. The
Company incurred underwriting discounts and commissions of approximately $2.8
million. In connection with such offering, the Company incurred total expenses
of approximately $1.1 million. As of June 30, 1999, all of the $36.1 million in
net proceeds received by the Company upon consummation of such offering, pending
specific application, were invested in short-term, investment-grade,
interest-bearing instruments.
On January 25, 1999, DSET Acquisition Corp., a wholly-owned subsidiary of
the Company, consummated the acquisition of certain assets of NPL. The purchase
price consisted of $2,500,000 payable in cash to NPL. NPL provided specialized
software to CLECs.
For working capital restrictions and limitations on the payment of
dividends, see "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company (the "Meeting") was held
on June 10, 1999.
There were present at the Meeting in person or by proxy shareholders
holding an aggregate of 9,103,585 shares of Common Stock. The results of the
vote taken at such Meeting with respect to each nominee for director were as
follows:
Common Stock Nominees For Withheld
--------------------- --- --------
William P. McHale, Jr. 9,093,265 Shares 10,320 Shares
S. Daniel Shia 9,093,265 Shares 10,320 Shares
Bruce R. Evans 9,093,265 Shares 10,320 Shares
John C. Thibault 9,093,265 Shares 10,320 Shares
Jacob J. Goldberg 9,093,265 Shares 10,320 Shares
In addition, a vote of the shareholders was taken at the Meeting on the
proposal to ratify the appointment of PricewaterhouseCoopers LLP as the
independent auditors of the Company for the fiscal year ending December 31,
1999. Of the shares present at the meeting in person or by proxy, 9,097,037
shares of Common Stock were voted in favor of such proposal, 2,330 shares of
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<PAGE>
Common Stock were voted against such proposal and 4,218 shares of Common Stock
abstained from voting.
ITEM 5. OTHER INFORMATION
RELOCATION OF PRINCIPAL EXECUTIVE OFFICES
In June 1999, the Company moved its Principal Executive Offices from 1011
US Highway 22, Bridgewater, New Jersey, 08807 to 1160 US Highway 22,
Bridgewater, New Jersey, 08807.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27 - Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which
this report on Form 10-Q is filed.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DSET CORPORATION
DATE: August 16, 1999 By:/s/ William P. McHale, Jr.
--------------------------------
William P. McHale, Jr.
President and Chief Executive
Officer
(Principal Executive Officer)
DATE: August 16, 1999 By:/s/ Susan M. Boykas
--------------------------------
Susan M. Boykas
Acting Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE UNAUDITED
FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<CIK> 0001052196
<NAME> DSET Corporation
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