<PAGE>
================================================================================



                       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, 2003 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


          Indicate by check mark whether the registrant is an accelerated filer
     (as defined in Rule 12b-2 of the Act).

          | | Yes                                         |X| No


          Number of shares outstanding of the registrant's common stock, as of
     May 15, 2003: 7,866,359

================================================================================
<PAGE>
                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
<S>                                                                                                          <C>
PART I.  FINANCIAL INFORMATION

        Item 1. Unaudited Consolidated Financial Statements


           Consolidated Balance Sheets
                  as of December 31, 2002 and March 31, 2003..................................................1

           Consolidated Statements of Operations
                  for the three month periods ended March 31, 2002 and 2003...................................2

           Consolidated Statement of Changes in Shareholders' Equity
                  for the three month period ended  March 31, 2003............................................3

           Consolidated Statements of Cash Flows
                  for the three month periods ended March 31, 2002 and 2003...................................4

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

        Item 2.   Management's Discussion and Analysis of Financial Condition
                   and Results of Operations..................................................................12

        Item 3.    Quantitative and Qualitative Disclosures about Market Risk.................................16

        Item 4.    Controls and Procedures....................................................................17


PART II. OTHER INFORMATION

        Item 6.   Exhibits and Reports on Form 8-K............................................................18

SIGNATURES        ............................................................................................19
</TABLE>


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 Securities and Exchange Commission.


<PAGE>
                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (dollars in thousands, except share data)
<TABLE>
<CAPTION>
                                                                             AS OF              AS OF
                                                                          DECEMBER 31,        MARCH 31,
                                       ASSETS                                2002               2003
                                                                        ---------------    ---------------
                                                                                             (unaudited)
Current assets:

<S>                                                                         <C>                <C>
     Cash and cash equivalents                                              $  1,150           $    945
     Restricted cash                                                             241              2,741
     Trade accounts receivable, net                                           12,267              9,902
     Inventory                                                                 2,217              1,950
     Other current assets                                                      1,401              1,052
                                                                            --------           --------
         Total current assets                                                 17,276             16,590
Property and equipment, net                                                    1,972              1,814
Goodwill                                                                       4,929              4,929
Other intangible assets, net                                                     404                378
Long-term deposits                                                             5,700               --
Other assets                                                                     669                710
Prepaid employee termination benefits                                          2,355              2,370
                                                                            --------           --------

         Total assets                                                       $ 33,305           $ 26,791
                                                                            ========           ========

                        LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Short-term debt and current maturities of long-term debt, net          $  3,755           $  6,095
     Trade accounts payable                                                    5,185              4,036
     Accrued payroll, payroll taxes and social benefits                        2,098              1,818
     Other current liabilities                                                 3,411              3,193
                                                                            --------           --------
         Total current liabilities                                            14,449             15,142
                                                                            --------           --------
Long-term liabilities:
     Long-term debt                                                            6,278                593
     Other liabilities                                                           477                575
     Liability for employee termination benefits                               3,364              3,341
                                                                            --------           --------
            Total long-term liabilities                                       10,119              4,509
                                                                            --------           --------
Minority interests                                                             1,609              1,626
                                                                            --------           --------
Shareholders' equity:
     Common stock - $.01 par value per share:
         Authorized - 20,000,000 shares; Issued - 8,161,867 and
             8,211,867 shares as of December 31, 2002 and
             March 31, 2003, respectively                                         82                 82
     Additional paid-in capital                                               37,687             37,737
     Warrants                                                                    364                461
     Deferred compensation                                                        (7)                (5)
     Accumulated deficit                                                     (26,787)           (28,548)
     Treasury stock, at cost - 845,704 and 847,704 shares                     (3,913)
          at December 31, 2002 and March 31, 2003, respectively               (3,915)
       Stockholder's note                                                       (298)              (298)
                                                                            --------           --------
         Total shareholders' equity                                            7,128              5,514
                                                                            --------           --------
         Total liabilities and shareholders' equity                         $ 33,305           $ 26,791
                                                                            ========           ========
</TABLE>
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)
<TABLE>
<CAPTION>

                                                                                 THREE MONTHS ENDED MARCH 31,
                                                                                --------------------------------
                                                                                    2002               2003
                                                                                -------------      -------------
Sales:
<S>                                                                               <C>                <C>
     Products                                                                     $  8,701           $  8,976
     Services                                                                        4,107              3,892
                                                                                  --------           --------
                                                                                    12,808             12,868
                                                                                  --------           --------
Cost of sales:
     Products                                                                        6,821              7,300
     Services                                                                        3,009              2,499
                                                                                  --------           --------
                                                                                     9,830              9,799
                                                                                  --------           --------
     Gross profit                                                                    2,978              3,069

Research and development expenses                                                      460                153
Selling, general and administrative expenses                                         4,300              4,302
                                                                                  --------           --------
     Operating loss                                                                 (1,782)            (1,386)
Interest income                                                                         93                 22
Interest expense                                                                       (94)              (354)
Other income (expense), net                                                             27                (14)
Minority interests                                                                      (4)               (17)
                                                                                  --------           --------
     Loss before provision for income taxes                                         (1,760)            (1,749)
Provision for income taxes                                                              42                 12
                                                                                  --------           --------
     Net loss                                                                     $ (1,802)          $ (1,761)
                                                                                  ========           ========


Basic and diluted loss per share:
     Net loss per share - basic and diluted                                       $  (0.25)          $  (0.24)
                                                                                  ========           ========
       Weighted average number of shares outstanding - basic and diluted             7,353              7,345
                                                                                  ========           ========
</TABLE>










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>

                         Number       Common    Additional
                        of Shares     Stock      Paid-In     Deferred                 Treasury   Stockholder's  Accumulated
                                                 Capital   Compensation     Warrants   Stock        Note        Deficit     Total
                       ----------   ----------  ---------- ------------    ---------  --------   -------------  ----------- -----

Balances as of

<S>                     <C>      <C>         <C>         <C>          <C>         <C>          <C>          <C>         <C>
   December 31, 2002     8,162    $     82    $ 37,687    $     (7)    $    364    $ (3,913)    $   (298)    $(26,787)   $  7,128

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

Issuance of shares
  as compensation           50        --            50        --           --          --           --           --            50

Warrants issued for
  professional
  services                --          --          --          --             97        --           --           --            97

Purchase of
  treasury shares         --          --          --          --           --            (2)        --           --            (2)

Net loss                  --          --          --          --           --          --           --         (1,761)     (1,761)
                        -----     -------    --------    --------     --------    --------     --------      --------     --------
Balances as of
   March 31, 2003        8,212    $     82    $ 37,737    $     (5)    $    461    $ (3,915)    $   (298)    $(28,548)    $ 5,514
                         =====     =======    ========    ========     ========    ========     ========      ========    ========
</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)
<TABLE>
<CAPTION>
                                                                                               THREE MONTHS ENDED MARCH 31,
                                                                                          --------------------------------------
                                                                                                   2002              2003
                                                                                               -----------      -------------
Cash flows provided by operating activities:
<S>                                                                                              <C>               <C>
   Net loss                                                                                      $(1,802)          $(1,761)
   Adjustments to reconcile net loss to net cash
      provided by operating activities:
       Depreciation and amortization                                                                 344               262
       Allowance for doubtful accounts                                                               (70)               29
       Amortization of deferred compensation                                                           2                 2
       Accretion of discount on convertible note and amortization of
              related costs and warrants                                                              --               169
       Minority interest and write-off of minority interest balance                                  (36)               17
       Unrealized loss on debt securities                                                             39               --
       Decrease in liability for employee termination benefits                                       (60)              (23)
       Issuance of shares as compensation                                                             --                50
       Loss on disposition of property and equipment                                                  13                 1
       Other                                                                                         (15)                3
       Change in operating assets and liabilities:
         Funding of termination benefits                                                              (2)              (15)
         Decrease in accounts receivable and current assets                                        1,126             2,705
         Decrease (increase) in inventory                                                           (244)              267
         Increase (decrease) in accounts payable and other liabilities                             1,125            (1,539)
                                                                                                 -------           -------
         Net cash provided by operating activities                                                   420               167
                                                                                                 -------           -------
Cash flows provided by (used in) investing activities:
     Restricted cash                                                                                  (8)            3,200
     Proceeds and maturity of debt securities                                                        206               --
     Investment in debt securities                                                                  (253)              --
     Acquisitions of property and equipment                                                         (110)              (94)
     Proceeds from sale of property and equipment                                                   --                  14
                                                                                                 -------           -------
         Net cash provided by (used in) investing activities                                        (165)            3,120
                                                                                                 -------           -------
Cash flows used in financing activities:
     Short-term debt, net                                                                         (1,187)             (232)
     Borrowings of long-term debt                                                                    646              --
     Repayments of long-term debt                                                                    (23)           (3,258)
     Purchase of treasury stock                                                                     --                  (2)
                                                                                                 -------           -------
         Net cash used in financing activities                                                      (564)           (3,492)
                                                                                                 -------           -------
Net decrease in cash and cash equivalents                                                           (309)             (205)
Cash and cash equivalents at beginning of period                                                   4,025             1,150
                                                                                                 -------           -------
Cash and cash equivalents at end of period                                                       $ 3,716           $   945
                                                                                                 =======           =======
Supplemental cash flow information:
   Cash paid during the period for:
       Interest                                                                                  $    80           $   169
                                                                                                 =======           =======
       Income taxes                                                                              $    43           $    41
                                                                                                 =======           =======
Non-cash investing and financing activities:
   Issuance of warrants for professional services                                                                  $    97
                                                                                                                   =======
   Adjustment of goodwill and intangible assets                                                  $    48
                                                                                                 =======
   Increase in deferred tax liability associated with adjustment of intangible assets .          $    17
                                                                                                 =======
</TABLE>
 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.  ("DSSI") 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, 2003 are not  necessarily  indicative of the
results  that may be  expected  for the year ending  December  31,  2003.  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,  2002.
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

     As of March 31, 2003, the Company had working capital of $1,448,  including
$945 in  non-restricted  cash and cash  equivalents.  Net cash used in the first
quarter of 2003 was $205.  The  primary  uses of the  Company's  cash during the
quarter were the  Company's  loss,  (primarily  losses in Comverge and corporate
expenses)  and payments of debt,  which was  partially  offset by the release of
previously  restricted  cash and  collections of trade  accounts  receivables in
excess of reductions in accounts payable.

     Of the total working capital at March 31, 2003,  approximately  $565 was in
the Company's majority owned dsIT subsidiary. Due to Israeli tax and company law
constraints,  as well as the significant minority interest in dsIT, such working
capital  and cash flows from dsIT's  operations  are not  readily  available  to
finance U.S. activities.

     As further  described  in Note 9, on April 7, 2003 the  Company's  Comverge
subsidiary signed and closed on an agreement for private equity financing in the
amount of  $13,000,  $3,250 of which was  invested  by the Company and $9,750 of
which was invested by a group of leading energy venture  capital  investors.  At
the same time, Comverge obtained a new credit facility for up to an aggregate of
$6,500 in term loan and a line of credit.  In connection with the private equity
financing and the new credit facility, Comverge paid off in full its $5,500 bank
term  loan  ($3,000  of  which  was  paid  down  at the  end of  March  2003  in
contemplation  of the  financing  and $2,500 at closing) and its $2,000  secured
line of credit, which line was also terminated.  As a result of the repayment of
the term loan,  $1,000 of DSSI's  long-term  deposit  which had been  pledged to
Comverge's bank as security for Comverge's loan became  unrestricted  and is now
freely available to the Company as unrestricted working capital.  Comverge's new
credit  facility  includes a $1,500  term loan,  secured by a $1,500  restricted
long-term  deposit of DSSI at  Comverge's  new lender,  and a revolving  line of
credit of up to $5,000,  secured by the assets of Comverge.  Comverge has agreed
to prepay the term loan in and permit  release of DSSI's $1,500 deposit over the
12 months commencing December 31, 2004, subject to certain conditions.

     The Company  believes  that the  proceeds of the  financing  and new credit
arrangements  should provide sufficient  financing for Comverge to independently
fund its activities.



                                      - 5 -



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


     dsIT is utilizing  approximately $1,300 of its $1,800 lines of credit as of
March 31,  2003.  dsIT's lines of credit are  denominated  in NIS and bearing an
average interest rate of the Israeli prime rate plus 0.9% per annum. The Israeli
prime rate  fluctuates and as of March 31, 2003 is 10.4%.  The Company  believes
that dsIT will have  sufficient  liquidity to finance its  activities  from cash
flow from its own operations over the next 12 months. This is based on continued
utilization of its line of credit and improved  operating  results stemming from
continued cost reductions.

     As of May 9, 2003 the Company's wholly owned US operations (i.e., excluding
dsIT and  Comverge)  had an  aggregate of $1,953 in  unrestricted  cash and cash
equivalents,  reflecting  a $921  increase  from the balance as of December  31,
2002.

     The Company  believes it has more than sufficient  liquidity to finance its
US-based operating  activities and its corporate  activities for at least the 12
months  following the date of this report.  The Company intends to finance these
activities  from  cash on hand and  from  operating  cash  flows  from  expected
profitable operations of the computer hardware segment.


NOTE 3: INVENTORY

         Inventory consists of the following:     As of             As of
                                               December 31,       March 31,
                                                  2002              2003
                                                  ----              ----
Raw materials, spare parts and supplies          $1,396          $1,666
Work-in-process                                     161             161
Finished goods and merchandise                      660             123
                                                 ------          ------
                                                 $2,217          $1,950
                                                 ======          ======

NOTE 4--GOODWILL AND OTHER INTANGIBLE ASSETS

     The table below presents the carrying amount of goodwill, by segment. There
were no acquisitions or impairments of goodwill  recorded during the three-month
period ended March 31, 2003.
<TABLE>
<CAPTION>
                                                  Software        Energy
                                               Consulting and   Intelligence
                                                C Development    Solutions       Total
                                               ---------------- ---------------- --------
Segment balances as of December 31, 2002
<S>                                               <C>             <C>             <C>
   and March 31, 2003                             $4,430          $  499          $4,929
                                                  ======          ======          ======
</TABLE>
     The following table presents  certain  information  regarding the Company's
amortizable  intangible  assets as of March 31, 2003 and December 31, 2002.  All
intangibles  assets are being  amortized over their  estimated  useful lives, as
indicated below, with no estimated residual values.
<TABLE>
<CAPTION>
                                                                           As of March 31, 2003
                                                              ---------------------------------------------
                                                 Weighted
                                                 average         Gross
                                               amortization      carrying      Accumulated          Net
                                                  period         amount        amortization        amount
                                             -----------------  ---------      ------------       ---------
      Amortizing intangible assets:
<S>                                             <C>               <C>            <C>                <C>
          Licenses                               5.0 yrs         $568          $568              $    -
          Patents                               15.0 yrs          288            74                 214
          Software licenses                      4.6 yrs          260            96                 164
                                                                -------       ------------       -------
                    Total                                       $1,116          $738             $  378
                                                                ========      ============       =======
</TABLE>
                                      - 6 -
<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                                          As of December 31, 2002
                                                              ------------------------------------------------
                                                 Weighted
                                                 average        Gross                              Net
                                               amortization    carrying       Accumulated        carrying
                                                  period        amount        amortization        amount
                                             --------------    ----------  ------------------  ------------
      Amortizing intangible assets:
<S>                                               <C>             <C>           <C>               <C>
          Licenses                                5.0 yrs        $568          $563              $    5
          Patents                                15.0 yrs         288            70                 218
          Software licenses                       4.6 yrs         260            79                 181
                                                            ------------   -----------------  ------------
                    Total                                      $1,116          $712                $404
                                                            ============   =================  ============
</TABLE>
     Amortization  in  respect  of  license,   patents  and  software   licenses
intangible  amounted to $131 and $26 for the three  months  ended March 31, 2002
and 2003,  respectively  (2002  includes  amortization  of $48 with  respect  to
acquired backlog fully amortized in 2002).

     Amortization expense with respect to intangible assets for each of the next
five years and thereafter is estimated as follows:

                          Year ended March 31,
                                  2004                                     $76
                                  2005                                      48
                                  2006                                      47
                                  2007                                      43
                                  2008                                      29
                               Thereafter                                  135
                                                                    -----------
                                                                          $378
                                                                    ===========

NOTE 5: WARRANTY PROVISION

     The Company generally  warrants its products against certain  manufacturing
and other defects. These product warranties are provided for specific periods of
time and/or usage of the product  depending  on the nature of the  product,  the
geographic location of its sale and other factors.  The accrued product warranty
costs are based primarily on historical  experience of actual warranty claims as
well as current  information  on repair costs.  Warranty  claims expense for the
three month  period  ended March 31, 2003  amounted to $3.

     The following  table provides the changes  in  the  Company's provision for
product  warranties for the three-month period ended March 31, 2003:

             Warranty provision as at January 1, 2003                   $52
             Accruals for warranties issued during the period             3
             Warranty settlements made during the period                 (3)
                                                                 -----------

             Warrant provision as of March 31, 2003                     $52
                                                                 ===========

     The Company's Comverge  subsidiary provides its customers a warranty on its
products  for  periods  ranging  from  six to 12  months.  Such  warranties  are
accounted for in accordance with SFAS No. 5 "Accounting for Contingencies". dsIT
defers a portion  of its  revenues  on  projects  and  recognizes  them over the
warranty  period so as to cover any costs related to these  warranties.  To date
the Company has not incurred  material costs related to warranty  obligations in
excess of the revenues deferred.

                                      - 7 -


<PAGE>


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

     The Company's  product  license and services  agreements  include a limited
indemnification  provision  for  claims  from  third  parties  relating  to  the
Company's intellectual property included in the Company's products and projects.
Such indemnification provisions are accounted for in accordance with SFAS No. 5.
The  indemnification is generally limited to the amount paid by the customer and
to  date  there  have  not  been  material  claims  under  such  indemnification
provisions.

NOTE 6: STOCK-BASED COMPENSATION

     In December 2002,  Statement of Financial Accounting Standards ("SFAS") No.
148,  "Accounting for Stock Based  Compensation - Transition and Disclosure,  an
amendment to FASB  Statement No. 123" was issued.  SFAS No. 148 amended SFAS No.
123, "Accounting for Stock-Based Compensation" to provide alternative methods of
transition  for a voluntary  change to the fair value based method of accounting
for  stock-based  employee  compensation.  In addition,  SFAS No. 148 amends the
disclosure  requirements of SFAS No. 123 related to disclosures about the method
of accounting for stock-based employee compensation and the effect of the method
used  on  reported  results.  The  disclosure  provisions  of SFAS  No.  148 are
applicable to both interim and annual financial statements ending after December
15, 2002, and as such have been incorporated below.

     SFAS No. 123, permits  companies to (i) recognize as expense the fair value
of  stock-based  awards,  or (ii) continue to apply the provisions of Accounting
Principles Board Opinion No. 25,  "Accounting for Stock Issued to Employees" and
related  interpretations  ("APB  25"),  and  provide  pro forma net  income  and
earnings  per share  disclosures  for  employee  stock  option  grants as if the
fair-value-based  method  defined in SFAS No. 123 had been applied.  The Company
continues  to  apply  the  provisions  of APB  25  and  provide  the  pro  forma
disclosures  in accordance  with the  provisions of SFAS Nos. 123 and 148 to its
Stock Option and Incentive Plan.  Under APB 25, the Company has not recorded any
stock-based  employee and director  compensation  cost associated with its stock
option plan, as all options  granted under the plan had an exercise  price equal
to the market value of the underlying common stock on the date of grant.

     The following  table  illustrates the effect on net loss and loss per share
if the Company had applied the fair value recognition provisions of SFAS No. 123
to its stock option plan:
<TABLE>
<CAPTION>
                                                                              Three Months Ended March 31,
                                                                              ----------------------------
                                                                                 2002              2003
                                                                                 ----              ----
<S>                                                                           <C>                <C>
Net loss as reported..........................................................$(1,802)           $(1,761)
Plus: Stock-based employee and director compensation expense included
       in reported net loss                                                         2                 52
Less: Total stock-based employee compensation expense determined under
       fair value based method for all awards                                     508                109
                                                                               -------           -------
Pro forma net loss............................................................$(2,308)           $(1,818)
                                                                               =======           =======

Net loss per share:
      Basic and diluted - as reported..........................................$(0.25)           $ (0.24)
                                                                               =======           =======
      Basic and diluted - pro forma............................................$(0.31)           $ (0.25)
                                                                               =======           =======
</TABLE>
     The pro forma  information  in the above  table  also  gives  effect to the
application  of  SFAS  No.  123 on  the  share  option  plans  of the  Company's
subsidiaries.





                                      - 8 -

<PAGE>


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


NOTE 7: WARRANTS

     On February 25, 2003, the Company engaged a third-party for the purposes of
providing  investor awareness and business advisory services for a period of one
year. The Company is to pay a monthly advisory fee, totaling $90 over the period
of the agreement.  In addition, the Company granted the third-party common stock
purchase  warrants for the purchase of 120,000  shares of the  Company's  common
stock  (60,000 at $2.00 per share and 60,000 at $2.50 per share).  The  warrants
become fully vested on May 26, 2003 and expire on February 25, 2005. The Company
used the  Black-Scholes  valuation  method  to  estimate  the fair  value of the
warrants,  using a risk free interest rate of 1.75%,  their  contractual life of
two years, an annual  volatility of 88% and no expected  dividends.  The Company
estimated the fair value of the warrants to be approximately $97, which is being
charged to selling, general and administrative expense over the one-year life of
the service agreement on a straight-line basis.

NOTE 8: SEGMENT INFORMATION
<TABLE>
<CAPTION>
                                           SOFTWARE
                                         CONSULTING       ENERGY
                                            AND       INTELLIGENCE  COMPUTER
                                        DEVELOPMENT    SOLUTIONS    HARDWARE          OTHER (*)         TOTAL
                                        -----------   ------------  --------          ---------         -----
Three months ended March 31, 2003:
<S>                                      <C>            <C>            <C>            <C>            <C>
   Revenues from external customers      $  3,230       $  4,700       $  4,930       $      8       $ 12,868
   Intersegment revenues                     --              284             20           --              304
   Segment gross profit                       863          1,313            885              8          3,069
   Segment income (loss)                      (21)        (1,125)            50             (6)        (1,102)

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)
</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 LOSS TO CONSOLIDATED NET LOSS
                                              Three months ended
                                                   March 31,
                                            -----------------------
                                               2002         2003
Total loss for reportable segments           $(1,051)      $(1,096)
Other operational segment income (loss)           20            (6)
                                             --------      --------
Total operating loss                          (1,031)       (1,102)
Net loss of corporate headquarters              (771)         (659)
                                             --------      --------
Total consolidated net loss                  $(1,802)      $(1,761)
                                             =======       ========
NOTE 9: SUBSEQUENT EVENTS

(a) Comverge equity financing

     On April 7, 2003, the Company and its Comverge subsidiary signed and closed
on a definitive  agreement with a syndicate of venture  capital firms raising an
aggregate of $13,000 in capital  funding.  The Company  purchased  $3,250 of the
Series A Convertible Preferred Stock issued by Comverge in the equity financing.

                                      - 9 -

<PAGE>


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

     A syndicate of venture capital firms purchased the remaining  $7,750 of the
Series A Convertible  Preferred Stock issued by Comverge,  and one member of the
syndicate also purchased  $2,000 of a Series A-1 Convertible  Preferred Stock of
Comverge.   The  Company  remains   Comverge's   largest   shareholder,   owning
approximately  50.6% of the  outstanding  capital stock of Comverge  (42.6% on a
fully diluted basis).  The Company holds  approximately 26% of all the preferred
stock issued by Comverge in the private equity financing,  in addition to owning
approximately  80% of Comverge's  common stock.  The  Company's  investment  was
primarily  financed by $3,000 of cash  previously  restricted  (classified  as a
long-term deposit at December 31, 2002

     The venture  capital firm which  purchased the Series A-1  Preferred  Stock
entered into an agreement with Comverge  pursuant to which  Comverge  granted to
the  venture  capital  firm an option to put its shares of Series A-1  Preferred
Stock to Comverge for $2,000. The put is exercisable from April 8, 2004 to April
18,  2004.  This  agreement  also  grants to  Comverge  a right to call from the
venture capital firm its Series A-1 Preferred Stock for $2,000, which call right
expires on April 18, 2004,  and its Series A Preferred  Stock,  which call right
expires  on July 8,  2003 at a call  price  equal to the  purchase  price of the
Preferred Stock plus an 8% annual dividend.

     The Series A Preferred  Stock will have priority over Comverge common stock
and other preferred stock for dividends and liquidations  (which includes a sale
of  Comverge).  Additionally,  the Series A Preferred  Stock have  anti-dilution
protection for stock issuances by Comverge below the per share purchase price of
the Series A Preferred  Stock (subject to customary  exceptions such as employee
stock  options) as well as  approval  rights for major  corporate  transactions,
stock  issuances,  declaration  or  payment  of  dividends,  changing  corporate
governance documents, liquidation or dissolution of Comverge and other corporate
matters.  The Series A Preferred Stock is also  convertible into Comverge common
stock at the  holder's  option or upon an  initial  public  offering  with gross
proceeds  of at least  $30,000  and an  offering  price at least  five times the
original purchase price of the Series A Preferred Stock.

     The  Company  has  entered  into  various  agreements  with  Comverge,  the
syndicate  of  venture  capital  investors  and  certain  of  Comverge's  common
stockholders.  These agreements provide for, among other things, restrictions on
the transfer of the Series A Preferred  Stock and  Comverge  common  stock,  the
voting of the Company's  Series A Preferred Stock and Comverge common stock, the
Company's right to receive  quarterly and annual financial reports from Comverge
and registration  rights for the Company's Series A Preferred Stock and Comverge
common   stock.   Under   Comverge's   Amended  and  Restated   Certificate   of
Incorporation,  the holders of Comverge common stock have the right to elect two
of the five directors on Comverge's Board. Certain preferred  shareholders other
than the Company have the right to elect the other three directors.  Pursuant to
a voting agreement,  one of the directors elected by the holders of the Comverge
common stock must be the CEO of  Comverge.  The  Company's  chairman and CEO and
Comverge's CEO were elected as directors by the Comverge common stockholders.

     In connection with the agreement, Comverge secured a $6,500 credit facility
with a leading  financial  institution.  In connection  with the private  equity
financing  and this new credit  facility,  Comverge  paid off $3,000 of its bank
term loan at the end of March 2003 in  contemplation  of the  financing and paid
off the  remaining  $2,500  bank loan  outstanding  as of March 31, 2003 and the
$2,000 secured line of credit,  which line was also  terminated.  As a result of
the  repayment of the term loan,  $1,000 of DSSI's  long-term  deposit which had
been  pledged  to  Comverge's  bank  as  security  for  Comverge's  loan  became
unrestricted and is now freely available to the Company as unrestricted  working
capital.

     Comverge's new credit facility includes a $1,500 term loan secured by a the
pledge of a $1,500 restricted  long-term deposit at Comverge's new lender, and a
revolving  line of credit of up to $5,000  secured  by the  assets of  Comverge.
Comverge agreed to make certain  prepayments on the term loan and the new lender
agreed to the release of amounts equal to such payments from the pledge account,
subject to certain conditions, as follows:

                                     - 10 -

<PAGE>


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

o    Three payments of $500 on December 31, 2003, June 30, 2004 and December 31,
     2004 if (a) Comverge raises at least $2,000 in additional  equity financing
     by July 6, 2003 or (b) the put option  held by the holder of the Series A-1
     Preferred Stock has not been exercised by April 18, 2004 (in which case the
     December 31, 2003 payment would be made on April 28, 2004);

o    Two payments of $750 on December 31, 2003 and June 30, 2004 if (a) Comverge
     raises at least $5,000 in  additional  equity  financing by July 6, 2003 or
     (b) the put option held by a member of the syndicate has not been exercised
     by April 18, 2004 and Comverge raises at least $3,000 in additional  equity
     financing  by July 6, 2003 (in which case the balance of the  December  31,
     2003 payment would be made on April 28, 2004);

o    If none of the other triggering events have occurred, then the Company will
     not be entitled to the release of the $1,500 until April 1, 2006,  although
     Comverge will use commercially  reasonable  efforts to cause the release of
     the money to the Company before that date.

     Until  December  31,  2003,  the Company  has the option to  purchase  from
Comverge up to $1,500 million of Series A-2  Convertible  Preferred  Stock.  The
amount of Series A-2 Preferred Stock that the Company may purchase from Comverge
will be limited to the number of shares that could be purchased by the principal
balance  of the  $1,500  term loan as of the date the  Company  gives  notice of
exercising  the Series A-2 option.  The Series A-2 Preferred  Stock has the same
purchase price as the Series A-1 Preferred  Stock,  but is junior in priority in
liquidation  (which  includes  the sale of  Comverge)  to both the  Series A and
Series A-1 Preferred Stock. In all other respects the Series A-2 Preferred Stock
has the same rights as the Series A Preferred Stock and the Series A-1 Preferred
Stock.

     The Company is evaluating  the agreements  related to the equity  financing
and the ongoing  management of Comverge to  determining  whether or not Comverge
continues to be a controlled  subsidiary of the Company;  no  determination  has
been made as of the date of issuance  of these  financial  statements.  If it is
determined  that  Comverge is no longer a controlled  subsidiary,  effective the
second  quarter of 2003,  the  Company  would no longer  consolidate  Comverge's
balance sheets and results of operations into the Company's consolidated balance
sheets and  consolidated  statements  of  operations  and would  account for the
investment in Comverge on the equity method.

(b) Acquisition

     In April 2003,  Comverge  acquired  certain  assets of Sixth  Dimension  in
     exchange for 877,000 shares of Comverge common stock.

(c)  Issuance of shares to Comverge lender

     In March 2003, the Company  received a notice of conversion from the lender
under  Comverge's line of credit for the conversion of $600 principal  amount of
the debt outstanding under the line at a conversion price of $1.50 per share. In
April 2003, following the repayment in full of all amounts outstanding under the
line,  the Company,  in lieu of the  conversion,  issued  400,000  shares of its
common  stock  to  the lender under the same  terms as  the conversion and at an
amount equal to the aggregate  conversion price of $600.

(d)  Issuance of shares to holder of convertible note

     On May 5, 2003,  the Company  issued 102,196 shares in lieu of payment of a
$200,000 monthly installment of principal on a convertible note. The Company has
the  option  to pay the  remaining  $400,000  principal  balance  of the note by
delivering shares of common stock, subject to the terms of the note.


                                     - 11 -


<PAGE>


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

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

     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, 2002,
(the "2002 10-K").

OVERVIEW AND TREND INFORMATION

     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 8 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

     Revenues  were 7% lower than last  quarter and 15% below those in the first
quarter of 2002. This decrease is due to the continued  general  weakness in the
global hi-tech markets and in the software  consulting and development market in
particular.  We currently do not see the market  improving and as a result while
we  are  continuing  to  increase  our  marketing  efforts,  we  are  constantly
implementing  cost cutting measures so as to avoid losses in the segment,  until
the market improves.  Despite the continued decrease in revenues, as a result of
the cost cutting  measures  taken in 2002,  gross profits and  operating  income
improved in the first quarter of 2003, compared to the first quarter of 2002.

Energy Intelligence Solutions

     After putting in place its management team and reorganizing its product and
service offerings in 2002, in the first quarter of 2003 Comverge began to invest
in the  resources  required  to  take  Comverge  to  its  next  business  level,
refocusing  its activity from research and  development  to marketing and sales.
With the capital raised from its recent private equity  financing and new credit
facility, Comverge has the capital it needs to finance and expand its business.

Computer Hardware

     The  improved  results  in this  segment in the first  quarter of 2003,  as
compared  to the first  quarter of 2002,  reflect  the low level of sales in the
first quarter of 2002 following 9/11 and improved profit margins. Although we do
not expect sales to return to the record  levels of the fourth  quarter of 2002,
we  expect  sales in the  second  and  third  quarters  to  exceed  those of the
corresponding  periods in 2002. Due to the competitive market conditions,  there
can  be no  assurance  we  will  be  able  to  maintain  the  current  level  of
profitability in the segment's operations.















                                     - 12 -



<PAGE>

RESULTS OF OPERATIONS

     The  following  table sets forth  certain  information  with respect to the
consolidated  results of  operations  of the Company for the three  months ended
March 31, 2002 and 2003,  including the percentage of total revenues during each
period attributable to selected components of the operations  statement data and
for the period to period percentage changes in such components.
<TABLE>
<CAPTION>
                                                               Three months ended March 31,
                                                   ------------------------------------------------------  Change from
                                                             2002                         2003            2002 to 2003
                                                   --------------------------   ------------------------- --------------
                                                     ($,000)     % of sales       ($,000)    % of sales     % of 2002
                                                   ------------ -------------   ------------ ------------ --------------
<S>                                                   <C>               <C>        <C>              <C>            <C>
    Sales                                             $12,808           100%       $12,868          100%           0%
    Cost of sales                                       9,830          77            9,799         76              0
                                                   ------------ -------------   ------------ ------------
        Gross profit                                    2,978          23            3,069         24              3
    R&D expenses                                          460           4              153          1            (67)
    SG&A expenses                                       4,300          34            4,302         33              0
                                                   ------------ -------------   ------------ ------------
        Operating loss                                 (1,782)        (14)          (1,386)       (11)            22
    Interest expense, net                                  (1)          0             (332)       (3)         33,200
    Other income (expense), net                             27          0              (14)         0           (152)
    Minority interest                                      (4)          0              (17)         0            325
                                                   ------------ -------------   ------------ ------------
        Loss before provision for income taxes         (1,760)       (14)           (1,749)       (14)             1
    Provision for income taxes                             42           0               12          0            (71)
                                                   ------------ -------------   ------------ ------------
        Net loss                                      $(1,802)       (14)%         $(1,761)      (14)%             2%
                                                   ============ =============   ============ ============
</TABLE>
     Sales.  Sales in the first quarter of 2003 were $12.9  million,  marginally
above the $12.8 million of sales in the first quarter of 2002.

     Sales in our computer hardware segment  increased by $0.6 million,  or 16%,
from $4.3 million in the first  quarter of 2002,  to $4.9 million in 2003.  This
increase is primarily due to lower sales in the first quarter of 2002, following
the  downturn  experienced  in the  aftermath  of 9/11.  However,  as  expected,
computer  hardware segment sales in the first quarter of 2003 were 46% below the
level of the fourth  quarter of 2002, due to sales of $4.5 million in the fourth
quarter of 2002 to one customer  that were not repeated in the first  quarter of
2003. The increase in segment  sales,  as compared to the first quarter of 2002,
was offset by a decrease in software consulting and development sales, from $3.8
million in the first  quarter of 2002,  to $3.2 million in the first  quarter of
2003.  This  decrease was due to the  continued  general  weakness in the global
hi-tech  markets  and in the  software  consulting  and  development  market  in
particular.  Sales in our  energy  intelligence  solution  segment  in the first
quarter  of 2003 were $4.7  million,  similar  to those of the first  quarter of
2002.

     Gross  profit.  Gross profit in the first  quarter of 2003 was $3.1 million
increasing by $0.1 million,  or 3%,  compared to the first quarter of 2002, with
gross profit margins improving, from 23% in the first quarter of 2002, to 24% in
the  first  quarter  of 2003.  The  increase  in  gross  profits  was  primarily
attributable  to an increase in gross profit in the computer  hardware  segment,
partially offset by a decrease in the energy intelligence  solutions segment.

     In the computer hardware segment gross profit increased by $0.2 million, or
24%, from $0.7  million in the first  quarter  of 2002,  to $0.9  million in the
first quarter of 2003. This  increase  was due to the increase in sales as  well
as an improvement in the gross profit margin, which increased  from 17% of sales
in the first quarter of 2002 to 18% in the first quarter of 2003. Both increases
are primarily due to  the  slightly  improved  business  environment  since  the
beginning of 2002.

      Gross  profit  in  the energy  intelligence  solution segment decreased by
$0.1 million, or 9%, from $1.4 million in the first quarter 2002 to $1.3 million
in the first quarter 2003. This decrease was attributable to a decrease in gross
profit margin, from 31% of sales in the first quarter of 2002 to 28% of sales in
the first quarter of 2003, due to a  proportionately  larger mix of lower margin
Maingate and LCR product  sales to certain  customers in 2003,  when compared to
2002.

                                     - 13 -
<PAGE>


     Gross profit in the software  consulting and development segment marginally
increased to $0.9 million in the first  quarter of 2003 from $0.8 million in the
first quarter of 2002,  despite the decrease in sales.  This increase was due to
the  increase in gross profit  margin from 21% of sales in the first  quarter of
2002,  to 27% of sales in the first quarter of 2003.  The improved  gross profit
margin was  attributable to cost cutting measures taken during 2002 and improved
cost structure of new projects contracted over the last year.

     Research and development expenses ("R&D"). R&D expenses decreased from $0.5
million in the first  quarter of 2002,  to $0.2 million in the first  quarter of
2003. This decrease was due to the continued decrease in R&D expenditures in the
energy  intelligence  solution  segment,  as it shifted its emphasis from R&D to
marketing and sales through 2002.

     Selling,  general and administrative  expenses ("SG&A"). SG&A was virtually
unchanged at $4.3 million in the first quarter of 2003, as compared to the first
quarter of 2002. However, within our segments, we had a $0.2 million decrease in
corporate  SG&A,  as well as a $0.2  million  decrease  in SG&A at our  software
consulting  and development segment.  These  decreases were  offset  by  a  $0.4
million  increase  in SG&A in  the  energy  intelligence  solution  segment. The
decreases in corporate and software  consulting and development segment overhead
were  attributable to cost  cutting   measures  taken  through  2002,  while the
increase in SG&A in our energy  intelligence  solution  segment was due  to  the
increased  marketing  and  administrative  efforts  invested  in  putting   into
place  the  infrastructure required to take the  segment  to  its next  business
level.

     Interest expense.  Prior to the investment  recently secured for our energy
intelligence  solution  segment,  we raised capital through issuing  convertible
debentures and utilized lines of credit to finance our  activities.  We incurred
finance  expenses in connection with the capital raised  including  interest and
amortization of non-cash costs associated with the convertible debt and warrants
issued. Although the interest associated with the utilization of lines of credit
is expected to continue at the current  level,  the  amortization  expenses  are
expected to decrease  over the coming  quarters.  Of the  $354,0000  of interest
expense during the first quarter of 2003,  $144,000 was related to the accretion
of  discounts  and  the   amortization  of  related  costs  in  connection  with
convertible debt and warrants.

LIQUIDITY AND CAPITAL RESOURCES

     As of March 31, 2003,  we had working  capital of $1.5  million,  including
$0.9 million in non-restricted  cash and cash equivalents.  Net cash used in the
first  quarter  of  2003  was  $0.2  million,   primarily  financing  our  loss,
(attributable  to losses in Comverge  and  corporate  expenses)  and payments of
debt,  which was partially  offset by the release of previously  restricted cash
and  collections  of trade  accounts  receivables  in  excess of  reductions  in
accounts  payable.  Of the total working capital at March 31, 2003, $0.6 million
was in our majority  owned dsIT  subsidiary.  Due to Israeli tax and company law
constraints as well as the significant  minority  interest in dsIT, such working
capital  and cash flows from dsIT's  operations  are not  readily  available  to
finance U.S. activities.

     As of May 9, 2003 the Company's wholly owned US operations (i.e., excluding
dsIT and  Comverge)  had an  aggregate of $1,953 in  unrestricted  cash and cash
equivalents,  reflecting  a $921  increase  from the balance as of December  31,
2002.

     We believe we have more than  sufficient  liquidity to finance our US-based
operating  activities  and our corporate  activities  for at least the 12 months
following the date of this report.  We intend to finance these  activities  from
cash on hand and from operating cash flows from expected  profitable  operations
of the computer hardware segment.

                                     - 14 -



<PAGE>





     For further detail, see Notes 2 and 9 to the interim unaudited consolidated
financial statements included in this quarterly report.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

     Our contractual  obligations  and commitments at March 31, 2003,  excluding
certain severance arrangements described below,  principally include obligations
associated with our  outstanding  indebtedness,  future minimum  operating lease
obligations  and  contractual  obligations  to our  CEO  for  payments  for  his
post-retirement consulting services to us, are as set forth in the table below.
<TABLE>
<CAPTION>
                                                                  Cash Payments Due During Year Ending March 31,
                                                            -----------------------------------------------------------
                                                                              (amounts in thousands)
                                                                              ---------------------
      Contractual Obligations                                 Total       2004      2005      2006       After 2006
                                                              -----       -----     -----     -----      ----------
<S>                                                             <C>       <C>       <C>          <C>         <C>
      Long-term debt related to US operations                   $3,300    $2,300    $1,000       $ --        $ --

      Long-term debt related to Israeli operations                 946       357       259        188         142

      Guarantees                                                   558       558        --         --          --

      Operating leases                                           5,094     1,654     1,385      1,018       1,037

      Consulting agreement with CEO                              1,525     1,525        --         --         ---
                                                                ------    ------    ------     ------     -------
      Total contractual cash obligations                       $11,423    $6,394    $2,644     $1,206      $1,179
                                                               =======    ======    ======     ======      ======

</TABLE>
     We expect to finance these  contractual  commitments  from cash on hand and
cash generated from operations.

     Previously,   we  accrued  a  loss  for  contingent   performance  of  bank
guarantees.  Our remaining  commitment under these guarantees is $0.6 million at
March 31 2003. We have  collateralized a portion of these guarantees by means of
a deposit of $0.2 million as of March 31, 2003. The obligation is presented as a
current liability, though it is uncertain as to when actual payment may be made.

     Under Israeli law and labor agreements,  dsIT and Comverge`s  subsidiary in
Israel are required to make  severance  payments to dismissed  employees  and to
employees leaving employment in certain other circumstances.  The obligation for
severance pay benefits, as determined by the Israeli Severance Pay Law, is based
upon length of service and last  salary.  These  obligations  are  substantially
covered by regular deposits with recognized  severance pay and pension funds and
by the purchase of insurance  policies.  As of March 31, 2003, we had a total of
$3.3 million in potential  severance  obligations,  of which  approximately $2.4
million was funded  with cash to  insurance  companies  and  approximately  $0.9
million was  unfunded.  The entire $3.3  million was accrued for as of March 31,
2003.

     We  are obligated to pay our Chief Executive Officer consulting fees over a
seven-year  period upon his  retirement  on December  31,  2003.  Although it is
currently contemplated those payments will begin on January 1, 2004, the CEO has
the option to terminate his employment agreement and begin his consulting period
prior to  December  31,  2003.  During the first  four  years of the  consulting
period,  we would have to pay the CEO 50% of his salary in effect at the time of
termination and 25% of that salary during the last three years of the consulting
period, plus contributions to a non-qualified  defined  contribution  retirement
plan equal to 25% of the consulting fee. At the start of the consulting  period,
we are also  required to fund  amounts  payable  for the term of the  consulting
period, by the purchase of an annuity or similar investment  product.  The CEO`s
base salary for 2003 (including cost of living adjustments) is $460,000.

      We also have obligations under various  agreements and other  arrangements
with officers  and  other  employees  with  respect  to  severance  arrangements
and  multiyear employment agreements as described below.

                                     - 15 -

<PAGE>

     Under an employment  agreement with the Chief  Financial  Officer,  we also
have  obligations to pay severance,  upon  termination of his employment for any
reason other than for cause. Under this agreement, we must pay him (i) an amount
equal to 150% of his last  month`s  salary  multiplied  by the  number  of years
(including  partial years) that the CFO worked for us, plus (ii) an amount equal
to six times his last month`s salary. The severance  obligation would be reduced
by the amount  contributed by us to certain  Israeli pension and severance funds
pursuant to the CFO`s employment  agreement.  As of March 31, 2003, the unfunded
portion of such severance obligation was $71,000.

      Our Comverge subsidiary may  in  certain  circumstances  be liable to make
severance  payments to  its  CEO and  its  Executive  Vice  President. Under the
employment  agreement  with the CEO of Comverge, if his employment is terminated
without cause, Comverge would have to pay him  one  year  of base  salary, or if
there has been an IPO for Comverge, three years  of  base salary  plus up to 15%
of any  excess  parachute  payment.  The Comverge  CEO`s  salary  for  2002  was
$250,000  per annum.

     Under the employment agreement with Comverge's Executive Vice President, if
such officer's employment agreement  were  terminated  without  cause,  Comverge
would have to pay to such officer  three  months of base salary ($205,000 during
2002) for each year (or partial year) of service to Comverge up to a maximum  of
one year of salary.  The  Executive Vice  President's  employment  commenced  in
March 2001. Comverge is  not  obligated to  make  any severance  payments  under
these agreements if the CEO or the Executive Vice President voluntary terminates
his   employment  agreement.

      We   also  have severance  arrangements under an employment agreement with
the Chief Executive Officer of dsIT to pay severance under certain circumstances
If his employment  agreement is terminated by the Company or by him for  reasons
other  than for  cause,  we must  pay  him  (i) an amount  equal to last month`s
salary  multiplied  by the  number of years (including  partial  years) that  he
worked for Endan and  dsIT.  Our  severance  obligation  would be reduced by the
amounts contributed by to certain  Israeli  pension and severance funds pursuant
to his employment agreement. As of March  31, 2003, the unfunded portion of such
severance obligation was approximately $33,000.


ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     In the  normal  course of  business,  we are  exposed  to  fluctuations  in
interest  rates on the $5.2  million of debt  incurred  to finance  our  capital
expenditures as well as long-term debt and current maturities of long-term debt,
$590,000  and  $350,000  as of March 31,  2003,  respectively,  to  finance  our
operations. Of our $940,000 of long-term debt in Israel (which is denominated in
NIS),  $70,000 is linked to the U.S.  dollar,  $90,000 is linked to the  Israeli
consumer price index and $780,000 is unlinked. Our convertible note, with a face
value of $800,000,  has a fixed rate of interest of 10%; however, the conversion
feature of our  convertible  note is exposed to fluctuations in the price of our
common stock.  Additionally,  our monetary assets and liabilities (net liability
of  approximately  $690,000) 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 foreign currency exchange
rate exposures.





                                     - 16 -




<PAGE>




ITEM 4.    CONTROLS AND PROCEDURES

EVALUATION OF CONTROLS AND PROCEDURES

     Within 90 days prior to the date of filing of this  report,  we carried out
an  evaluation,  under  the  supervision  and  with  the  participation  of  our
management,  including  the Chief  Executive  Officer  and the  Chief  Financial
Officer,  of the design and operation of our disclosure controls and procedures.
Based on this  evaluation,  our Chief  Executive  Officer  and  Chief  Financial
Officer concluded that our disclosure  controls and procedures are effective for
gathering,  analyzing and disclosing the information we are required to disclose
in the reports we file under the  Securities  Exchange  Act of 1934,  within the
time periods specified in the SEC's rules and forms.

CHANGES IN CONTROLS AND PROCEDURES

     There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation.





































                                     - 17 -



<PAGE>



                           PART II - OTHER INFORMATION



ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K


         (a) Exhibits

99.1 Certification  of  Chief  Executive  Officer  pursuant  to  Section  906 of
     Sarbanes-Oxley Act of 2002.

99.2 Certification  of  Chief  Financial  Officer  pursuant  to  Section  906 of
     Sarbanes-Oxley Act of 2002.



         (b) Reports on Form 8-K


          Report on Form 8-K,  dated  February  27,  2003 filed on March 3, 2003
          relating to the transfer the listing of our common stock to the Nasdaq
          SmallCap Market

          Report on Form 8-K,  dated  February  28,  2003 filed on March 3, 2003
          announcing  the  agreement in principle our  subsidiary  for a venture
          capital financing for our Comverge Technologies, Inc. subsidiary.






                                     - 18 -



<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, 2003

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




                                     - 19 -

<PAGE>


     I,  George  Morgenstern,  the Chief  Executive  Officer  of Data  Systems &
Software Inc., certify that:

1.   I have  reviewed  this  quarterly  report  on Form  10-Q of Data  Systems &
     Software Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     (c)  presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent evaluation,  to the registrant's  auditors and to the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and


6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Dated:  May 15, 2003                By:  \S\ GEORGE MORGENSTERN
                                          -----------------------------
                                             George Morgenstern
                                             Chief Executive Officer





                                     - 20 -

<PAGE>

     I, Yacov Kaufman,  the Chief  Financial  Officer of Data Systems & Software
Inc., certify that:

1.   I have  reviewed  this  quarterly  report  on Form  10-Q of Data  Systems &
     Software Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     (c)  presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent evaluation,  to the registrant's  auditors and to the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and


6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Dated:  May 15, 2003                  By:   \S\ YACOV KAUFMAN
                                             -------------------------
                                               Yacov Kaufman
                                               Chief Financial Officer




                                     - 21 -
<PAGE>