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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 COMMISSION FILE NUMBER 0-19771






                          DATA SYSTEMS & SOFTWARE INC.
               (Exact name of registrant as specified in charter)






                DELAWARE                                       22-2786081
     (State or other jurisdiction of                         (I.R.S. employer
     incorporation or organization)                        identification no.)

    200 ROUTE 17, MAHWAH, NEW JERSEY                              07430
(Address of principal executive offices)                        (Zip code)

                                 (201) 529-2026
               Registrant's telephone number, including area code

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



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

          |X| Yes                                               |_| No

     Number of shares  outstanding of the  registrant's  common stock, as of May
15, 2002: 7,353,163

================================================================================

<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES


                                TABLE OF CONTENTS

PART I.  FINANCIAL INFORMATION

Item 1.  Unaudited Consolidated Financial Statements


         Consolidated Balance Sheets
           as of December 31, 2001 and March 31, 2002 .......................  1

         Consolidated Statements of Operations
           for the three month periods ended March 31, 2001 and 2002 ........  2

         Consolidated Statement of Changes in Shareholders' Equity
           for the three month period ended  March 31, 2002 .................  3

         Consolidated Statements of Cash Flows
           for the three month periods ended March 31, 2001 and 2002 ........  4

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

Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations ........................................  9

PART II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K ................................... 12

SIGNATURES .................................................................. 13



Certain statements contained in this report are forward-looking in nature. These
statements  are  generally  identified  by the  inclusion of phrases such as "we
expect",  "we  anticipate",  "we  believe",  "we  estimate" and other phrases of
similar meaning. Whether such statements ultimately prove to be accurate depends
upon a variety of factors that may affect our business and  operations.  Many of
these  factors are  described in our most recent  Annual  Report on Form 10-K as
filed with the Securities and Exchange Commission.

<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                  (dollars in thousands, except per share data)

                                                           AS OF        AS OF
                                                        DECEMBER 31,   MARCH 31,
                          ASSETS                            2001         2002
                                                          --------     --------
                                                                     (unaudited)
Current assets:
     Cash and cash equivalents .........................  $  4,025     $  3,716
     Short-term interest bearing bank deposits
       and debt securities .............................     1,828        1,836
     Restricted cash ...................................       317        6,325
     Trade accounts receivable, net ....................    10,197       10,199
     Inventory .........................................       658          902
     Other current assets ..............................     1,858          886
                                                          --------     --------
         Total current assets ..........................    18,883       23,864
Investments ............................................        90           90
Property and equipment, net ............................     2,296        2,180
Goodwill, net of accumulated amortization of $2,677
  at December 31, 2001 .................................     7,737        7,689
Other intangible assets, net ...........................       909          826
Long-term deposits .....................................     6,000           --
Other assets ...........................................       676          607
Prepaid employee termination benefits ..................     2,653        2,655
                                                          --------     --------
         Total assets ..................................  $ 39,244     $ 37,911
                                                          ========     ========

                        LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Short-term debt and current maturities
       of long-term debt ...............................  $  2,499     $  7,393
     Trade accounts payable ............................     4,010        5,312
     Accrued payroll, payroll taxes and
       social benefits .................................     2,193        2,298
     Other current liabilities .........................     3,372        3,167
                                                          --------     --------
         Total current liabilities .....................    12,074       18,170
                                                          --------     --------
Long-term liabilities:
     Long-term debt ....................................     6,182          709
     Other liabilities .................................       285          225
     Liability for employee termination benefits .......     3,811        3,751
                                                          --------     --------
         Total long-term liabilities ...................    10,278        4,685
                                                          --------     --------
Minority interests .....................................     2,530        2,494
                                                          --------     --------
Shareholders' equity:
     Common stock - $.01 par value per share:
       Authorized - 20,000,000 shares;
         Issued - 8,161,867 shares at
         December 31, 2001 and March 31, 2002 ..........        82           82
     Additional paid-in capital ........................    36,981       36,981
     Warrants ..........................................       114          114
     Deferred compensation .............................       (14)         (12)
     Accumulated deficit ...............................   (18,643)     (20,445)
     Treasury stock, at cost - 808,704 shares
       at December 31, 2001 and
       March 31, 2002 ..................................    (3,860)      (3,860)
       Stockholder's note ..............................      (298)        (298)
                                                          --------     --------
         Total shareholders' equity ....................    14,362       12,562
                                                          --------     --------
         Total liabilities and shareholders' equity ....  $ 39,244     $ 37,911
                                                          ========     ========

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

                                      - 1 -
<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
                      (in thousands, except per share data)


                                                           THREE MONTHS ENDED
                                                               MARCH 31,
                                                          ---------------------
                                                            2001         2002
                                                          --------     --------
Sales:
     Products ..........................................  $  9,253     $  8,701
     Services ..........................................     3,976        4,107
                                                          --------     --------
                                                            13,229       12,808
                                                          --------     --------
Cost of sales:
     Products ..........................................     7,521        6,821
     Services ..........................................     3,016        3,009
                                                          --------     --------
                                                            10,537        9,830
                                                          --------     --------
     Gross profit ......................................     2,692        2,978

Research and development expenses ......................       482          460
Selling, general and administrative expenses ...........     4,184        4,300
                                                          --------     --------
     Operating loss ....................................    (1,974)      (1,782)
Interest income ........................................       384           93
Interest expense .......................................      (189)         (94)
Other income (loss), net ...............................       (61)          27
Minority interests .....................................        --           (4)
                                                          --------     --------
     Loss before provision for income taxes ............    (1,840)      (1,760)
Provision for income taxes .............................        27           42
                                                          --------     --------
     Net loss ..........................................  $ (1,867)    $ (1,802)
                                                          ========     ========

Basic and diluted loss per share:
     Net loss per share ................................  $  (0.27)    $  (0.25)
                                                          ========     ========
       Weighted average number of shares
         outstanding - basic and diluted ...............     6,964        7,353
                                                          ========     ========


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

                                      - 2 -
<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>
                                          Additional
                        Number   Common     Paid-In    Deferred                 Treasury  Stockholder's   Accumulated
                      of Shares   Stock     Capital  Compensation   Warrants     Stock        Note          Deficit          Total
                      ---------   -----     -------  ------------   --------    -------   -------------   -----------      --------
<S>                     <C>      <C>        <C>        <C>          <C>         <C>           <C>           <C>            <C>
Balances as of
  December 31, 2001     8,162    $  82      $36,981    $  (14)      $  114      $(3,860)      $(298)        $(18,643)      $ 14,362

Amortization of
 deferred
 compensation              --       --           --         2           --           --          --               --              2


Net loss                   --       --           --        --           --           --          --           (1,802)        (1,802)
                        -----    -----      -------    ------       ------      -------       -----         --------       --------

Balances as of
  March 31, 2002        8,162    $  82      $36,981    $  (12)      $  114      $(3,860)      $(298)        $(20,445)      $ 12,562
                        =====    =====      =======    ======       ======      =======       =====         ========       ========
</TABLE>


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

                                      - 3 -
<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
                             (dollars in thousands)

                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                               ----------------
                                                                2001      2002
                                                               ------    ------
Cash flows used in operating activities:
  Net loss .................................................. $(1,867)  $(1,802)
  Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
      Depreciation and amortization .........................     353       344
        Allowance for doubtful accounts .....................      --       (70)
        Amortization of deferred compensation ...............      --         2
        Minority interest ...................................      --         4
        Write-off of minority interest balance ..............      --       (40)
        Unrealized loss on debt securities ..................      --        39
      Increase (decrease) in liability for employee
        termination benefits ................................     287       (60)
      Exchange adjustment on long-term debt .................      --       (15)
      Loss on disposition of property and equipment .........      10        13
      Receipt of investments for services rendered ..........     (50)       --
      Change in operating assets and liabilities:
        Decrease (increase) in accounts receivable
          and other current assets ..........................    (817)    1,040
        Decrease (increase) in inventory ....................     133      (244)
        Decrease (increase) in other assets .................     (75)       86
        Increase in accounts payable and
          other liabilities .................................     763     1,125
                                                               ------    ------
      Net cash provided by (used in) operating activities ...  (1,263)      422
                                                               ------    ------
Cash flows provided by (used in) investing activities:
  Short-term bank deposits, net .............................     (96)       --
  Restricted cash ...........................................     (11)       (8)
  Proceeds and maturity of debt securities ..................      --       206
  Investment in debt securities .............................  (1,151)     (253)
  Acquisitions of property and equipment ....................    (196)     (110)
  Funding of termination benefits ...........................     (20)       (2)
  Acquisition of intangible assets ..........................      (4)       --
                                                               ------    ------
    Net cash used in investing activities ...................  (1,478)     (167)
                                                               ------    ------
Cash flows provided by (used in)
 financing activities:
  Short-term debt, net ......................................    (295)   (1,187)
  Borrowings of long-term debt ..............................      --       646
  Repayments of long-term debt ..............................      (3)      (23)
  Proceeds from stock options exercises .....................      16        --
  Purchase of treasury stock ................................    (809)       --
                                                               ------    ------
    Net cash used in financing activities ...................  (1,091)     (564)
                                                               ------    ------
Net decrease in cash and cash equivalents ...................  (3,832)     (309)
Cash and cash equivalents at beginning of period ............  10,877     4,025
                                                               ------    ------
Cash and cash equivalents at end of period ..................  $7,045    $3,716
                                                               ======    ======
Supplemental cash flow information:
  Cash paid during the period for:
    Interest ................................................  $  127    $   80
                                                               ======    ======
    Income taxes ............................................  $   32    $   43
                                                               ======    ======

Non-cash investing and financing activities:
  Adjustment of goodwill and intangible assets ..............            $   48
                                                                         ======
  Increase in deferred tax liability associated
    with adjustment of intangible assets ....................            $   17
                                                                         ======


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

                                     - 4 -
<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
                             (dollars in thousands)


NOTE 1: BASIS OF PRESENTATION

     The  accompanying  unaudited  consolidated  financial  statements  of  Data
Systems & Software Inc. and  subsidiaries  (the "Company") have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim  financial  information and with the instructions to Article
10 of Regulation  S-X.  Accordingly,  they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete consolidated financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 2002
are not necessarily  indicative of the results that may be expected for the year
ending December 31, 2002.  These  unaudited  consolidated  financial  statements
should be read in conjunction  with the  consolidated  financial  statements and
footnotes  thereto  included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.  Certain  reclassifications  have been made to the
Company's prior period's  consolidated  financial statements to conform with the
current period's consolidated financial statement presentation.

NOTE 2: FINANCING OF OPERATIONS

     The recent  acquisition of Endan and improved operating results at dsIT has
resulted in significant  improvement  in dsIT's working  capital and cash flows.
The Company expects that dsIT has sufficient liquidity to finance its activities
from cash flow from its own  operations.  Due to  Israeli  tax and  company  law
constraints as well as the  significant  minority  interest in dsIT, the Company
does not expect to be able to utilize cash  generated  from dsIT  operations  to
finance US operating or corporate activities in the foreseeable future.

     As of April 30, 2002 the Company had an aggregate  of $3,900 in cash,  cash
equivalents  and short term debt  securities.  The Company  believes  that these
funds and expected net cash flow from operations will be adequate to fund its US
operating  and  corporate  activities  for at  least  the next 12  months.  This
improved outlook as compared to the Company's  expectations in its Form 10-K for
2001 reflects the following trends:

     o    Improved  operating cash flow at Comverge  during the first quarter of
          2002,  a trend which the Company  expects  will  continue  through the
          year. The Company  expects that  Comverge's net negative cash flow for
          the  remainder  of the second  quarter and the third  quarter will not
          exceed $1 million and that  Comverge  will be cash flow neutral by the
          last quarter of 2002.  This  reflects  expected  increased  sales from
          contracts in hand and new business currently being negotiated, as well
          as expected  improvements in margins due to planned  reductions in its
          cost structure  which the Company plans on  implementing in the second
          quarter.

     o    The Company expects its domestic  operations other than Comverge (i.e.
          the  computer  hardware  sales  segment and the US  operations  of the
          software  consulting and development  segment) to operate at or better
          than cash flow neutral by the end of the second quarter of 2002.

     o    The Company's  corporate  expenses have been declining over the recent
          quarters and  management is taking steps to even further  reduce these
          costs.

     Over  the  longer  term,   Comverge  is  currently   seeking  to  establish
independent  outside  funding  to  finance  its  activities.  As  planned,  such
financing  would  allow the  Company  to  utilize  the $6.0  million  restricted
deposit,  currently  pledged to guarantee the Comverge bank loan, to finance its
other  US  activities  over  the  longer  term.  The  Company  may  also  pursue
alternative  asset-based  financing to provide  additional  liquidity for its US
operating and corporate  activities.  However,  there are no assurances that the
Company  or  Comverge  will be able  to  raise  capital  or  secure  alternative
financing  or raise  amounts  sufficient  to meet the  longer  term needs of the
business.

NOTE 3: NEWLY ADOPTED ACCOUNTING PRINCIPLES

     The Company  adopted the  remaining  provisions  of  Statement of Financial
Accounting  Standards  (SFAS) No. 141,  "Business  Combinations"  and all of the
provisions of SFAS No. 142,  "Goodwill and Other Intangible  Assets",  effective
January 1, 2002.  Upon  adoption of SFAS No.  142,  the  Company  evaluated  its
existing  intangible assets and goodwill that were acquired in purchase business
combinations,  so as to make any necessary reclassifications in order to conform
with the new  classification  criteria in SFAS No. 141 for recognition  separate
from goodwill.  The Company  reassessed the useful lives and residual  values of
all  intangible  assets  acquired,  in order to make any necessary  amortization
period adjustments. If an intangible asset is identified as having an indefinite
useful life, the Company is required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142. Impairment is measured as the
excess of  carrying  value  over the fair value of an  intangible  asset with an
indefinite  life.  Any  impairment  loss is  measured  as of January 1, 2002 and
recognized  as the  cumulative  effect of a change in accounting  principle.  In
connection  with the  adoption  of SFAS  No.  142,  the  Company  evaluated  its
intangible  assets  and  determined  that  it  has  no  indefinite  useful  life
intangibles.  The Company has also  evaluated the remaining  useful lives of its
intangible  assets that will  continue to be amortized  and  determined  that no
revision to the useful lives will be required.

                                      - 5 -
<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
                             (dollars in thousands)

     In  connection  with  SFAS  No.  142's  transitional   goodwill  impairment
evaluation,  the  Statement  requires  the Company to perform an  assessment  of
whether  there is an  indication  that  goodwill  is  impaired as of the date of
adoption.  To accomplish this, the Company must identify its reporting units and
determine the carrying  value of each reporting unit by assigning the assets and
liabilities,  including the existing  goodwill and intangible  assets,  to those
reporting  units as of  January 1, 2002.  The  Company  will then have up to six
months until June 30, 2002 to determine  the fair value of each  reporting  unit
and compare it to the carrying  amount of the reporting  unit. To the extent the
carrying  amount of a reporting  unit  exceeds  the fair value of the  reporting
unit, an indication  exists that the reporting unit goodwill may be impaired and
the Company must perform the second step of the  transitional  impairment  test.
The second step is required to be completed  as soon as  possible,  but no later
than the end of 2002.  In the second step,  the Company must compare the implied
fair  value of the  reporting  unit  goodwill  with the  carrying  amount of the
reporting unit goodwill,  both of which would be measured as of January 1, 2002.
The implied fair value of goodwill is determined by allocating the fair value of
the  reporting  unit to all of the  assets  (recognized  and  unrecognized)  and
liabilities  of the  reporting  unit in a manner  similar  to a  purchase  price
allocation in  accordance  with SFAS No. 141. The residual fair value after this
allocation  is the  implied  fair  value of the  reporting  unit  goodwill.  Any
transitional  impairment  loss will be recognized as the cumulative  effect of a
change in  accounting  principle  in the  Company's  consolidated  statement  of
operations  as of January 1, 2002.  The Company  expects to complete its initial
impairment review of goodwill by the end of the second quarter of 2002.  Because
of the  extensive  effort  needed to comply with adopting SFAS No. 142 it is not
practicable to reasonably  estimate whether any transitional  impairment  losses
associated with the Company's goodwill will be required to be recognized.

     The Company ceased  amortization of goodwill  acquired in purchase business
combinations  completed prior to July 1, 2001. Pro forma net loss, and pro forma
basic and diluted loss per share for the quarter ended March 31, 2001,  adjusted
to exclude amounts no longer amortized are as follows:

                                                             Three months ended
                                                               March 31, 2001
                                                             ------------------
     Net loss as reported                                          $(1,867)
        Add back: Goodwill amortization                                127
                                                                 ---------
        Pro forma net loss                                         $(1,740)
                                                                 =========

     Basic and diluted loss per share:
        As reported                                                 $(0.27)
        Goodwill amortization                                         0.02
                                                                 ---------
        Pro forma                                                   $(0.25)
                                                                 =========

     Amortization of intangible assets for the three months ended March 31, 2002
was  $131,000.  Amortization  expense  for  each  of the  next  five  years  and
thereafter is estimated as follows:

     Year ending
     December 31,
     ------------
        2002                                                          $447
        2003                                                           216
        2004                                                           181
        2005                                                            36
        2006                                                            36
        Thereafter                                                      41
                                                                      ----
                                                                      $957
                                                                      ====

     Other intangible assets consists of:
                                                                As of March 31,
                                                                      2002
                                                                ---------------
     License, net of accumulated amortization of $486             $     81
     Patents, net of accumulated amortization of $61                   218
     Software licenses, net of accumulated amortization of $45         455
     Backlog, net of accumulated amortization of $48                    72
                                                                  --------
                                                                  $    826
                                                                  ========

                                      - 6 -
<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
                             (dollars in thousands)


     Effective  January  1,  2002,  the  Company  also  adopted  SFAS  No.  144,
"Accounting for the Impairment or Disposal of Long-Lived  Assets".  SFAS No. 144
addresses  financial  accounting and reporting for the impairment or disposal of
long-lived assets.  SFAS No. 144 requires that long-lived assets be reviewed for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of an asset may not be recoverable.  Recoverability of assets to
be held and used is measured by a comparison of the carrying  amount of an asset
to undiscounted  future net cash flows expected to be generated by the asset. If
the carrying amount of an asset exceeds its estimated future  undiscounted  cash
flows,  an  impairment  charge is recognized by the amount by which the carrying
amount of the asset  exceeds the fair value of the asset.  SFAS No. 144 requires
companies  to  separately  report  discontinued   operations  and  extends  that
reporting to a component of an entity that either has been disposed of (by sale,
abandonment,  or in a distribution to owners) or is classified as held for sale.
Assets to be disposed of are  reported  at the lower of the  carrying  amount or
fair value less costs to sell. The adoption of SFAS No. 144 had no impact on the
Company's  consolidated  financial statements because the impairment  assessment
under SFAS No. 144 is largely  unchanged  from SFAS No. 121. The  provisions  of
this statement for assets held for sale or other disposal generally are required
to  be  applied  prospectively  to  newly  initiated  disposal  activities  and,
therefore, will depend on future actions initiated by management.

NOTE 4: INVENTORY

     Inventory consists of the following:                As of          As of
                                                      December 31,     March 31,
                                                          2001           2002
                                                          ----           ----

     Raw materials, spare parts and supplies              $409           $784
     Finished goods and merchandise                        249            118
                                                           ---            ---

                                                          $658           $902
                                                          ====           ====

NOTE 5: ACQUISITIONS

     In December  2001, a subsidiary of the Company  acquired 100% of the shares
of Endan IT Solutions Ltd. in a transaction accounted for as a purchase business
combination and partial sale of a subsidiary.  The aggregate  purchase price for
Endan was $5,788.  The results of  operations  and cash flows of Endan have been
included in our  financial  statements  beginning  January 1, 2002.  For further
information, refer to the notes to the consolidated financial statements for the
year ended  December 31, 2001,  included in our annual  report on Form 10-K.  At
December  31,  2001,  the Company was in the  process of  obtaining  third-party
valuations  of certain  intangible  assets  and  evaluating  the  outcome of the
litigation  discussed  in  Note 15 (e) to our  December  31,  2001  consolidated
statements;  thus,  the  allocation of the purchase  price was  preliminary  and
subject to refinement. Upon receipt of third-party valuation information, it was
determined that the fair value of software licenses  acquired  (five-year useful
life) initially recorded at $500 at December 31, 2001 was $428 and that the fair
value of backlog  acquired  (one-year  useful life) not  initially  recorded was
$120. The acquired goodwill resulting from the acquisition was reduced by $48 as
a result of these  valuations  and related  deferred  taxes were  adjusted.  The
entire goodwill acquired was assigned to the software consulting and development
segment.  The Company  continues  to evaluate  the status of the  aforementioned
litigation.  While the Company  does not expect an adverse  ruling,  any amounts
awarded or paid will result in an increase or decrease in goodwill.


                                     - 7 -
<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
                             (dollars in thousands)


NOTE 6: SEGMENT INFORMATION

<TABLE>
<CAPTION>
                                                SOFTWARE
                                               CONSULTING      ENERGY
                                                   AND       INTELLIGENCE  COMPUTER
                                               DEVELOPMENT    SOLUTIONS    HARDWARE       OTHER(*)    TOTAL
                                               -----------   ------------  --------       --------    -----
<S>                                              <C>           <C>          <C>             <C>      <C>
Three months ended March 31, 2002:
   Revenues from external customers              $3,835        $4,654       $4,256          $63      $12,808
   Intersegment revenues                             19           271           17            -          307
   Segment gross profit                             789         1,440          714           35        2,978
   Segment income (loss)                           (174)         (851)         (26)          20       (1,031)

Three months ended March 31, 2001:
   Revenues from external customers              $3,780        $3,389       $6,014          $46      $13,229
   Intersegment revenues                              3           314           25            -          342
   Segment gross profit                             736         1,000          931           25        2,692
   Segment income (loss)                           (378)       (1,122)         257           (8)      (1,251)
</TABLE>

----------
(*)  Represents  the  operations of a VAR software  operation in Israel that did
     not meet the quantitative thresholds of SFAS No. 131.


RECONCILIATION OF SEGMENT INCOME (LOSS) TO CONSOLIDATED NET LOSS

                                                          Three months ended
                                                                March 31,
                                                        ------------------------
                                                          2001            2002
                                                        -------         -------

Total loss for reportable segments                      $(1,243)        $(1,051)
Other operational segment income (loss)                      (8)             20
                                                        -------         -------
Total operating loss                                     (1,251)         (1,031)
Net loss of corporate headquarters                         (616)           (771)
                                                        -------         -------
Total consolidated net loss                             $(1,867)        $(1,802)
                                                        =======         =======


                                      - 8 -
<PAGE>


                          DATA SYSTEMS & SOFTWARE INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW AND TREND INFORMATION

     The following  discussion  includes  statements that are forward-looking in
nature.  Whether such statements  ultimately prove to be accurate depends upon a
variety of factors that may affect our business and operations. Certain of these
factors are discussed  below under "Factors That May Influence  Future  Results"
and in "Item 1.  Description  of Business - Factors  That May  Influence  Future
Results" in our Annual Report on Form 10-K for the year ended December 31, 2001,
(the "2001 10-K").

     During the periods included in this report, we operated in three reportable
segments:  software consulting and development,  energy intelligence  solutions,
and computer  hardware.  The following analysis should be read together with the
segment  information  provided in Note 6 to the interim  unaudited  consolidated
financial  statements  included in this quarterly  report,  which information is
hereby incorporated by reference into this Item 2.

     SOFTWARE CONSULTING AND DEVELOPMENT

     The acquisition of Endan in December 2001,  resulted in increased sales and
reduced losses in our software  consulting and development  segment in the first
quarter of 2002,  improving on the  immediately  preceding  quarter and the same
quarter in 2001.  This was  achieved by  expanding  our revenue base with little
incremental overhead, utilizing economies of scale. While reducing costs was our
subsidiary dsIT's main focus during this quarter, in the coming quarters it will
be increasing  its  marketing  efforts to further  expand its revenue base.  The
recent  turmoil in Israel has not had a material  affect on our business  there,
although it has had a negative affect on the Israeli economy.  Should the unrest
continue, it is unclear how our business there will be affected.

     ENERGY INTELLIGENCE SOLUTIONS

     In the first quarter of 2002, the steps taken in 2001 to establish Comverge
as an  independent  entity,  including the assembly of a strong,  new management
team, began showing results.  Revenues  increased and losses were reduced during
this  quarter as compared  to the  immediately  preceding  quarter and the first
quarter of 2001.  The  increase  in sales,  in the first  quarter  of 2002,  was
primarily  related to two new pilot  projects for  MaingateTM  and  SuperStatsTM
products and a significant increase in MaingateTM shipments to Gulf Power.

     We expect to maintain  this higher  level of sales and  continue to improve
our  operating  results.  This  is due in part to new  business,  including  our
recently  announced  $3.2 million  contract for an integrated  deployment of our
Maingate(TM)  wireless  web  gateway  system,  combined  with  the  sale  of our
PowerCAMP(TM)  End-to-End  Energy  Intelligence(TM)  software  solution  for PPL
Electric Utilities (PPL).

     Operating  cash  flow at  Comverge  continues  to  improve.  We now  expect
Comverge to be cash flow neutral by the last quarter of this year.  The improved
outlook  is due to  expected  increased  sales  from  contracts  in hand and new
business currently being negotiated, as well as expected improvements in margins
due to planned  reductions in direct  costs.  We are  continuing  our efforts to
obtain outside  financing for Comverge and are in  discussions  with a number of
potential investors who have shown serious interest.

     COMPUTER HARDWARE

     Although Databit's sales were down in the first quarter of 2002 compared to
the first  quarter of 2001,  they  increased  over last  quarter's  sales and we
expect this  improvement  to  continue.  Databit's  customer  mix  continues  to
improve,  which  allowed us to improve  gross profit margin to almost 17% in the
first  quarter of 2002 as  compared  just under 16% last  quarter  and the first
quarter of 2001.  We cannot be sure how long this  improved  gross profit margin
will continue.


                                      - 9 -
<PAGE>


RESULTS OF OPERATIONS

     The  following  table sets forth  certain  information  with respect to the
results of  operations  of the Company for the three months ended March 31, 2001
and  2002,  including  the  percentage  of total  revenues  during  each  period
attributable  to selected  components of operations  statement  data and for the
period to period percentage changes in such components.

<TABLE>
<CAPTION>
                                                               Three months ended March 31,                Change from
                                                   ------------------------------------------------------
                                                             2001                         2002             2001 to 2002
                                                   --------------------------   ------------------------- --------------
                                                     ($,000)     % of sales         ($,000)    % of sales    % of 2001
                                                   ------------ -------------   ------------ ------------ --------------
<S>                                                   <C>              <C>         <C>            <C>             <C>
    Sales                                             $13,229          100%        $12,808        100%            (3)%
    Cost of sales                                      10,537           80           9,830         77             (7)
                                                   ------------ -------------   ------------ ------------
        Gross profit                                    2,692           20           2,978         23             11
    R&D expenses                                          482            3             460          4             (5)
    SG&A expenses                                       4,184           32           4,300         34              3
                                                   ------------ -------------   ------------ ------------
        Operating loss                                 (1,974)         (15)         (1,782)       (14)           (10)
    Interest income (expense), net                        195            1              (1)         0           (100)
    Other income (loss), net                              (61)           0              27          0            144
    Minority interest                                      --           --              (4)         0
                                                   ------------ -------------   ------------ ------------
        Loss before provision for income taxes         (1,840)         (14)         (1,760)       (14)            (4)
    Provision for income taxes                             27            0              42          0             56
                                                   ------------ -------------   ------------ ------------

        Net loss                                      $(1,867)         (14)%       $(1,802)       (14)%           (3)%
                                                   ============ =============   ============ ============
</TABLE>

     SALES.  Sales in the  first  quarter  of 2002  were  $12.8  million,  a 31%
increase  over the  immediately  preceding  quarter,  ended  December  31, 2001,
although 3% below the level of the first quarter of 2001. The  improvement  over
the  immediately  preceding  quarter  was in all  segments,  while the  decrease
compared to the first quarter of 2001 was  primarily  due to decreased  sales in
the computer  hardware  sales segment,  which more than offset  increases in the
other segments.  Sales in the software  consulting and development  segment were
$3.8 million,  a 51% increase over the  immediately  preceding  quarter sales of
$2.6 million and marginally  better than the first quarter of 2001. The increase
over sales in the  immediately  preceding  quarter was primarily a result of the
Endan acquisition and the revenues from its IT business. The Endan-related sales
in the first  quarter of 2002 more than  offset the  decrease  in the  segment's
real-time  system  related  sales  since the first  quarter of 2001.  Sales also
increased in the energy  intelligence  solutions segment to $4.7 million, or 37%
better than sales of $3.4 million in both the immediately  preceding quarter and
the first  quarter of 2001.  This  increase was  primarily  attributable  to the
aforementioned  new pilot  projects for our Maingate and SuperStat  products and
increased  Maingate  shipments  to Gulf Power.  In our computer  hardware  sales
segment,  sales were $4.3 million,  a 12% increase over sales in the immediately
preceding  quarter of $3.8 million,  while still 29% below the record high first
quarter of 2001.

     GROSS  PROFIT.  Gross profit in the first quarter of 2002 was $3.0 million,
increasing by $2.3 million,  or 350%,  from the  immediately  preceding  quarter
gross profit of $662,000, and $286,000, or 11%, as compared to the first quarter
of 2001. Gross profit margin for this quarter was 23%, as compared to 7% and 20%
in  the   immediately   preceding   quarter  and  the  first  quarter  of  2001,
respectively.  This increase was primarily attributable to Comverge, where gross
profit in the first quarter of 2002 was $1.4 million,  or 31% of segment  sales,
as opposed to a gross loss in the immediately  preceding  quarter and 44% higher
than gross profit in the first  quarter of 2001.  This  increase  was  primarily
attributable  to the increase in sales and improved gross profit margin,  due to
economies of scale.  In addition,  Comverge  completed a number of projects that
had  incurred  losses in  immediately  preceding  periods.  Gross  profit in the
software  consulting  and  development  segment was $789,000,  or 21% of segment
sales,  representing a 146% and 7% increase over gross profit of the immediately
preceding quarter and first quarter of 2001, respectively.  These increases were
primarily due to the aforementioned Endan acquisition,  which increased sales at
higher profit margins. In addition, there was a decrease in compensation expense
due to the slower  hi-tech  employment  market,  particularly  in Israel.  Gross
profit in the computer  hardware  sales segment in the first quarter of 2002 was
$714,000,  or 17% of segment  sales.  This  reflects a 21%  increase  over gross
profits in the immediately  preceding  quarter,  slowly  recovering from the low
performance  of the last two  quarters of 2001,  while still 23% below the first
quarter of 2001.

     SELLING,  GENERAL AND ADMINISTRATIVE  EXPENSES ("SG&A").  SG&A in the first
quarter of 2002 was $4.3 million,  similar to that of the immediately  preceding
quarter,  while a 3%  increase  over  SG&A in the  first  quarter  of 2001.  The
increase over the first quarter of 2001 was primarily  attributable  to expenses
related to the  increased  level of activity  and the  enhanced  management  and
marketing team in the energy intelligence solutions segment, partially offset by
the elimination of goodwill amortization in 2002.

     INTEREST  INCOME.  Interest income  continued to decrease this quarter as a
result of the decreasing funds invested, primarily as a result of our funding of
Comverge's operations as well as the decrease in interest rates.

                                     - 10 -
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

     As of March 31, 2002 we had working capital of approximately  $5.8 million,
including $5.6 million cash, cash equivalents and debt security investments.  In
addition  we had a deposit of $6 million  securing  Comverge's  bank debt of the
same amount,  which remains  pledged to the bank. Net cash used during the first
quarter of 2002 was $309,000.  Net cash provided by operating  activities during
this period was $422,000 due primarily to a  non-recurring  increase in accounts
payable of $1.1 million, most of which was paid down in April 2002. At April 30,
2002 which we had an  aggregate  of  approximately  $ 3.9 million in cash,  cash
equivalents and debt security investments.

     The recent  acquisition of Endan and improved operating results at dsIT has
resulted in significant improvement in dsIT's working capital and cash flows. We
expect that dsIT has sufficient  liquidity to finance its  activities  from cash
flow from its own operations.  Due to Israeli tax and company law constraints as
well as the significant  minority  interest in dsIT, we do not expect to be able
to utilize  cash  generated  from dsIT  operations  to finance US  operating  or
corporate activities in the foreseeable future.

     As of April 30,  2002 we had an  aggregate  of $3.9  million in cash,  cash
equivalents  and short term debt  securities.  We believe  that these  funds and
expected net cash flow from operations will be adequate to fund our US operating
and corporate  activities for at least the next 12 months. This improved outlook
as compared to our expectations in our Form 10-K for 2001 reflects the following
trends:

     o    Improved  operating cash flow at Comverge  during the first quarter of
          2002, a trend which we expect will  continue  through the year. We now
          expect that Comverge's net negative cash flow for the remainder of the
          second  quarter and the third  quarter  will not exceed $1 million and
          that  Comverge  will be cash flow neutral by the last quarter of 2002.
          This reflects expected  increased sales from contracts in hand and new
          business currently being negotiated,  as well as expected improvements
          in margins due to planned  reductions in its cost  structure  which we
          plan on implementing in the second quarter.

     o    We expect our  domestic  operations  other  than  Comverge  (i.e.  the
          computer  hardware sales segment and the US operations of the software
          consulting and development  segment) to operate at or better than cash
          flow neutral by the end of the second quarter of 2002.

     o    Our corporate  expenses have been declining  over the recent  quarters
          and management is taking steps to even further reduce these costs.

     Over  the  longer  term,   Comverge  is  currently   seeking  to  establish
independent  outside  funding  to  finance  its  activities.  As  planned,  such
financing  would  allow us to  utilize  the  $6.0  million  restricted  deposit,
currently  pledged to guarantee  the Comverge bank loan, to finance our other US
activities  over the longer  term.  We may also pursue  alternative  asset-based
financing to provide  additional  liquidity  for our US operating  and corporate
activities. However, there are no assurances that we or Comverge will be able to
raise capital or secure  alternative  financing or raise  amounts  sufficient to
meet the longer term needs of the business.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     In the  normal  course of  business,  we are  exposed  to  fluctuations  in
interest  rates on the $6  million  of debt  incurred  to  finance  our  capital
expenditures as well as short-term  debt,  currently $1.4 million to finance our
operations in Israel.  In addition,  our monetary  assets and  liabilities  (net
liability of  approximately  $270,000) in Israel are exposed to  fluctuations in
exchange  rates.  We do not  employ  specific  strategies  such  as  the  use of
derivative  instruments or hedging, to manage our interest rate or exchange rate
exposures.  In  addition,  we  currently  have  $1.7  million  invested  in debt
securities  with  maturities in excess of one year.  These debt  securities  are
classified  as  trading  securities  and  expose us to  interest  rate risk with
respect  to the  effect  fluctuations  of  market  interest  rates  have  on the
valuation of these securities. Our investment in debt securities is managed by a
company, which is controlled by one of our directors.


                                      -11 -
<PAGE>


                           PART II - OTHER INFORMATION


ITEM 6:   EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits

               Exhibit 10.1  Second  Amendment to  Employment  Agreement,  dated
                             as of March 12, 2002, by and between the Registrant
                             and George Morgenstern.

          (b)  Reports on Form 8-K

               Amendment  No. 1 on Form  8-K/A to Report  on Form 8-K,  filed on
               February  14,  2002,   relating  to  the   acquisition   by  dsIT
               Technologies Ltd.  (formerly Decision Systems Israel Ltd.) of all
               of  the  outstanding  shares  of  Endan  IT  Solutions  Ltd.


                                     - 12 -
<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 its
Principal Financial Officer thereunto duly authorized.


                                 DATA SYSTEMS & SOFTWARE INC.


Dated:  May 15, 2002


                                 By: /s/ YACOV KAUFMAN
                                     --------------------------------------
                                     Yacov Kaufman
                                     Vice President and Chief Financial Officer


                                     - 13 -