SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                         AMENDMENT No. 1 on FORM 10-Q/A
                                  To FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

                         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 November 12, 2004: 8,116,691

                                Explanatory Note

      This Amendment No. 1 to the registrant's Quarterly Report on Form 10-Q for
the quarterly  period ended September 30, 2004 is being filed to (i) correct the
number of outstanding  shares of the registrant's  common stock reflected on the
cover page of the report and (ii)  correct a  typographical  error in the column
headings  on the  consolidated  balance  sheets  included  in Item 1.  Unaudited
Consolidated Financial Statements of Part I. Financial Information.


<PAGE>

                         PART I - Financial Information

Item 1. Unaudited Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                                    As of                     As of
                                                                 December 31,              September 30,
                                      ASSETS                        2003                      2004
                                                                   --------                 --------
Current assets:                                                                            (unaudited)
<S>                                                              <C>                      <C>
  Cash and cash equivalents                                        $  1,213                 $    896
  Restricted cash                                                       241                      241
  Accounts receivable, net                                            7,053                    6,361
  Inventory                                                              88                       87
  Other current assets                                                  661                      768
                                                                   --------                 --------

    Total current assets                                              9,256                    8,353
                                                                   --------                 --------

Investment in Comverge, net                                              68                       --
Property and equipment, net                                             814                      677
Other assets                                                            613                      540
Funds in respect of employee termination benefits                     2,379                    2,636
Goodwill                                                              4,430                    4,236
Other intangible assets, net                                            114                       85
                                                                   --------                 --------
    Total assets                                                   $ 17,674                 $ 16,527
                                                                   ========                 ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Short-term bank credit and current
   maturities of long-term debt                                    $  1,517                 $  1,394
   Trade accounts payable                                             2,586                    2,315
   Accrued payroll, payroll taxes and social benefits                 1,451                    1,431
   Other current liabilities                                          2,973                    2,064
                                                                   --------                 --------
   Total current liabilities                                          8,527                    7,204
                                                                   --------                 --------
Investment in Comverge, net                                              --                    1,268
                                                                   --------                 --------

Long-term liabilities:
     Long-term debt                                                     632                      241
     Other liabilities                                                  227                       84
     Liability for employee termination benefits                      3,721                    4,088
                                                                   --------                 --------

            Total long-term liabilities                               4,580                    4,413
                                                                   --------                 --------
Minority interests                                                    1,367                    1,351
                                                                   --------                 --------
Shareholders' equity:
     Common stock - $0.01 par value per share:
       Authorized - 20,000,000 shares;
       Issued - 8,740,729 and 8,842,395 shares as of
          December 31, 2003 and September 30, 2004, respectively         87                       88
     Additional paid-in capital                                      39,595                   39,685
     Warrants                                                           461                      461
     Stock-based deferred compensation                                   --                      (64)
     Accumulated deficit                                            (33,069)                 (33,929)
      Treasury stock, at cost - 838,704 and 820,704
      shares at December 31, 2003 and
         September 30, 2004, respectively                            (3,874)                  (3,791)
     Accumulated other comprehensive loss                                --                     (159)
                                                                   --------                 --------
         Total shareholders' equity                                   3,200                    2,291
                                                                   --------                 --------
         Total liabilities and shareholders' equity                $ 17,674                 $ 16,527
                                                                   ========                 ========
</TABLE>
              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                      - 1 -
<PAGE>

                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
                 (in thousands, except net loss per share data)

<TABLE>
<CAPTION>
                                                               Nine months ended            Three months ended
                                                                 September 30,                September 30,
                                                             ----------------------      ----------------------
                                                               2003          2004          2003          2004
                                                             --------      --------      --------      --------
Sales:
<S>                                                          <C>           <C>           <C>           <C>
     Products ..........................................     $ 16,900      $ 13,157      $  3,779      $  4,764
     Services ..........................................        7,306         6,831         2,327         2,141
     Projects ..........................................        2,459         2,049           564           577
                                                             --------      --------      --------      --------
           Total sales .................................       26,665        22,037         6,670         7,482
                                                             --------      --------      --------      --------

Cost of sales:
     Products ..........................................       13,951        10,801         3,202         3,887
     Services ..........................................        5,082         5,049         1,665         1,670
     Projects ..........................................        2,087         1,655           601           469
                                                             --------      --------      --------      --------
           Total cost of sales .........................       21,120        17,505         5,468         6,026
                                                             --------      --------      --------      --------
     Gross profit ......................................        5,545         4,532         1,202         1,456

Operating expenses:
   Research and development ............................          153            --            --            --
   Selling, marketing, general and administrative ......        8,345         5,496         1,982         2,168
                                                             --------      --------      --------      --------
           Total operating expenses ....................        8,498         5,496         1,982         2,168
                                                             --------      --------      --------      --------
Operating loss .........................................       (2,953)         (964)         (780)         (712)
Interest income ........................................           42            79            15             2
Interest expense .......................................         (714)         (125)          (68)          (39)
Other income (expense), net ............................         (408)          239          (243)            2
                                                             --------      --------      --------      --------
     Loss before taxes on income .......................       (4,033)         (771)       (1,076)         (747)
Taxes on income ........................................            7            17           (27)           37
                                                             --------      --------      --------      --------
Loss from operations of the Company and its consolidated
   subsidiaries ........................................       (4,040)         (788)       (1,049)         (784)
Share of losses in Comverge ............................       (1,161)       (1,066)         (611)         (382)
Gain on sale of shares in Comverge .....................           --           705            --           705
Minority interests .....................................          139           (59)           35           (11)
                                                             --------      --------      --------      --------
       Net loss from continuing operations .............       (5,062)       (1,208)       (1,625)         (472)
Net income (loss) from discontinued operations,
   net of tax ..........................................          (38)          348            (4)           --
                                                             --------      --------      --------      --------
       Net loss ........................................       (5,100)         (860)       (1,629)         (472)
                                                             --------      --------      --------      --------

Differences from translation of financial statements of
   subsidiaries ........................................           --          (159)           --            11
                                                             --------      --------      --------      --------
       Comprehensive loss ..............................     $ (5,100)     $ (1,019)     $ (1,629)     $   (461)
                                                             ========      ========      ========      ========

Basic and diluted net income (loss) per share:
  Loss per share from continuing operations ............     $  (0.66)     $  (0.15)     $  (0.21)     $  (0.06)
  Discontinued operations ..............................        (0.00)         0.04         (0.00)        (0.00)
                                                             --------      --------      --------      --------
  Basic and diluted net loss per share .................     $  (0.66)     $  (0.11)     $  (0.21)     $  (0.06)
                                                             ========      ========      ========      ========
Weighted average number of shares outstanding:
        Basic and diluted ..............................        7,680         7,927         7,894         7,936
                                                             ========      ========      ========      ========
</TABLE>

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

                                      - 2 -
<PAGE>

                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
                      NINE MONTHS ENDED SEPTEMBER 30, 2004
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                              Additional             Stock-Based                            Other
                          Number    Common     Paid-In                Deferred   Accumulated  Treasury  Comprehensive
                        of Shares    Stock     Capital    Warrants  Compensation  Deficit      Stock        Loss        Total
                        --------   --------    --------   --------    --------    --------    --------    --------    --------
<S>                     <C>        <C>        <C>         <C>        <C>          <C>         <C>        <C>          <C>
Balances as of
   December 31, 2003       8,741   $     87    $ 39,595   $    461    $     --    $(33,069)   $ (3,874)   $     --    $  3,200

Exercise of
  options ...........          1          *         (48)        --          --          --          83          --          35

Shares issued as
  compensation ......        100          1          70         --          --          --          --          --          71

Changes related
  to stock-based
  deferred
  compensation ......         --         --          68         --         (68)         --          --          --          --

Amortization of
  stock-based
  deferred
  compensation ......         --         --          --         --           4          --          --          --           4

Net loss ............         --         --          --         --          --        (860)         --          --        (860)

Differences from
  translation of
  subsidiaries'
  financial
  statements ........         --         --          --         --          --          --          --        (159)       (159)
                        --------   --------    --------   --------    --------    --------    --------    --------    --------

Balances as of
   September 30, 2004      8,842   $     88    $ 39,685   $    461    $    (64)   $(33,929)   $ (3,791)   $   (159)   $  2,291
                        ========   ========    ========   ========    ========    ========    ========    ========    ========
</TABLE>

*     Less than $1

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

                                      - 3 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                      Nine months ended September 30,
                                                                                      ------------------------------
                                                                                              2003         2004
                                                                                            -------      -------
<S>                                                                                         <C>          <C>
Cash flows used in operating activities:
     Net loss .........................................................................     $(5,100)     $  (860)
      Adjustments to reconcile net loss to net cash provided by  operating activities -
      Schedule A: .....................................................................       4,913          318
                                                                                            -------      -------
         Net cash used in operating activities ........................................        (187)        (542)
                                                                                            -------      -------
Cash flows provided by (used in) investing activities:
     Restricted cash ..................................................................       4,200           --
     Proceeds from sale of property and equipment .....................................          11           52
     Proceeds from sale of Comverge shares ............................................          --          975
     Acquisitions of property and equipment ...........................................        (193)         (99)
     Funding of termination benefits ..................................................        (243)        (257)
     Business disposition - see Schedule B ............................................      (3,527)          --
                                                                                            -------      -------
         Net cash provided by investing activities ....................................         248          671
                                                                                            -------      -------

Cash flows provided by (used in) financing activities:
     Short-term debt, net .............................................................        (503)          --
     Borrowings of long-term debt .....................................................         441           --
     Repayments of long-term debt .....................................................        (479)        (481)
     Investment in subsidiary by minority interest ....................................          22           --
     Exercise of options ..............................................................          17           35
     Purchase of treasury stock .......................................................          (2)          --
                                                                                            -------      -------
         Net cash used in financing activities ........................................        (504)        (446)
                                                                                            -------      -------
Net decrease in cash and cash equivalents .............................................        (443)        (317)
Cash and cash equivalents at beginning of period ......................................       1,150        1,213
                                                                                            -------      -------
Cash and cash equivalents at end of period ............................................     $   707      $   896
                                                                                            =======      =======
Supplemental cash flow information:
     Cash paid during period for interest .............................................     $   308      $   113
                                                                                            =======      =======
     Cash paid during period for income taxes .........................................     $   106      $    35
                                                                                            =======      =======
Non-cash investing and financing activities:
      Issuance of common stock in lieu of debt repayment ..............................     $   803
      Increase in investment in Comverge from issuance of common stock credited to
       additional paid in capital .....................................................     $ 1,085
</TABLE>

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

                                      - 4 -
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                           Nine months ended September 30,
                                                                                           ------------------------------
                                                                                               2003             2004
                                                                                            -----------       ----------
<S>                                                                                       <C>                <C>
Schedule A:
  Adjustments to reconcile net loss to net cash (used in) provided by operating
    activities:
     Depreciation and amortization.....................................................           $447             $177
     Stock and stock-based compensation................................................             55               75
       Accretion of discount on convertible note and amortization of
                related costs and warrants.............................................            493                -
     Minority interests................................................................          (139)               59
     Share of losses in Comverge.......................................................          1,161            1,066
     Loss on write-off of stockholder's note...........................................            298                -
     Increase in liability for employee termination benefits...........................            283              367
     Exchange adjustment on long-term debt.............................................             49             (33)
     Loss (gain) on disposition of property and equipment..............................              3              (4)
     Gain on sale of Comverge shares...................................................              -            (705)
     Change in deferred taxes..........................................................          (166)              (9)
     Change in operating assets and liabilities:
         Decrease in accounts receivable and other assets..............................          4,332              658
         Increase in inventory.........................................................            326                1
         Decrease in accounts payable and other liabilities............................        (2,229)          (1,334)
                                                                                            -----------      -----------
         Total.........................................................................         $4,913            $ 318
                                                                                            ===========      ===========

 Schedule B:
    Assets and liabilities disposed of in disposition of Comverge:
       Current assets...................................................................       $4,634
       Property, equipment and other assets.............................................        1,190
       Goodwill ........................................................................          499
       Intangibles......................................................................          214
       Short-term debt..................................................................      (3,880)
       Current liabilities..............................................................      (2,340)
       Other liabilities................................................................        (517)
       Cash investment in Comverge......................................................      (3,327)
                                                                                           -----------
                                                                                             $(3,527)
                                                                                           ===========
</TABLE>

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

                                      - 5 -

<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 nine-month
period ended  September 30, 2004 are not  necessarily  indicative of the results
that may be expected  for the year ending  December 31,  2004.  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,  2003.
Certain  reclassifications  have  been  made  to the  Company's  prior  period's
consolidated   financial   statements   to  conform  to  the  current   period's
consolidated financial statement presentation.

NOTE 2: FINANCING OF OPERATIONS

      As of  September  30,  2004,  the Company  had working  capital of $1,149,
including $896 in non-restricted cash and cash equivalents. Net cash used in the
nine months of 2004 was $317. Net cash of $542 was used in operating  activities
during the first three quarters of 2004. The net loss for the nine-month  period
ended  September  30, 2004 of $860,  was due  primarily to the net loss from the
Company's   investment  in  Comverge  of  $361  and  expenses  incurred  in  the
unsuccessful  transaction with Kardan Communications Ltd. of $342. The Company's
use of cash in  operating  activities  during the first nine  months of 2004 was
primarily  for payment of accounts  payable and other  liabilities  in excess of
collections  of  trade  accounts  receivables  of  $676,  net.  Net cash of $671
provided by investing  activities,  was primarily  from the net proceeds of $975
from  the  sale by the  Company  of  preferred  shares  of its  Comverge  equity
investment,  less  amounts  used to fund  employee  termination  benefits in the
Company's  majority-owned  dsIT  subsidiary  of $257.  Net cash of $446  used in
financing activities was primarily for payment of debt of $481.

      Approximately $287 of the total working capital at September 30, 2004, was
in  dsIT.  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.

      dsIT was utilizing  approximately $859 of its $1,100 lines of credit as of
September 30, 2004.  dsIT's lines of credit are  denominated  in NIS and bear an
average interest rate of the Israeli prime rate plus 1.4% per annum. The Israeli
prime rate fluctuates and as of September 30, 2004 was 5.6%.

      The Company  intends to fund its US activities with the cash available and
anticipated  profits  from  its  US  operations.  The  Company  is  seeking  and
considering  various  restructuring,  merger  or  acquisition  and/or  financing
transactions.  Should the Company  need  additional  liquidity to finance its US
activities  and should it be  unsuccessful  in  completing a timely  transaction
providing the necessary  liquidity,  it may not have sufficient funds to finance
its US  activities.  In such event,  the Company  might need to sell  additional
Comverge shares.

                                      - 6 -

<PAGE>

                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                      (in thousands, except per share data)


Note 3: Investment in Comverge

      Comverge's  summary  results  of  operations  for the three and nine month
periods ended September 30, 2004 are as follows:

                                                 Nine months        Three months
                                                    ended              ended
                                                September 30,      September 30,
      Results of Operations                          2004               2004
                                                -------------      -------------
      Sales                                          $12,375            $ 3,774
      Gross profit                                   $ 5,057            $ 1,534
      Net loss                                       $(6,947)           $(2,707)

      The change in the Company's  Comverge  investment,  during the nine months
ended September 30, 2004 is as follows:


<TABLE>
<CAPTION>
                                                Comverge         Comverge    Net investment
                                              common stock   preferred stock   in Comverge
                                              ------------   ---------------   -----------
<S>                                           <C>            <C>               <C>
        Balances as of December 31, 2003         $(1,824)        $ 1,892         $    68
        Shares sold                                   --            (270)           (270)
        Equity loss in Comverge                       --          (1,066)         (1,066)
                                                 -------         -------         -------

        Balances as of September 30, 2004        $(1,824)        $   556         $(1,268)
                                                 =======         =======         =======
</TABLE>


      In September  2004,  the Company  signed an agreement  with certain  other
shareholders of Comverge's  Series A Preferred Stock for the sale by the Company
to other  shareholders  of  shares  of  Comverge  Series A  Preferred  Stock for
approximately  $1,000,  resulting in a gain of $705. After giving effect to this
transaction,  the Company held approximately 11% of Comverge's  preferred equity
and approximately 34% of its total equity.


      In  October  2004  Comverge  completed  the  sale of  preferred  stock  to
investors. For more detail see Note 9 - Subsequent Event.

Note 4: Goodwill

      The  entire  balance  of  goodwill  was in  the  software  consulting  and
development  segment.  There were no  acquisitions  or  impairments  of goodwill
recorded during the nine-month period ended September 30, 2004.

      The  Company's   amortizable   intangible  assets  consisted  of  software
licenses, with a gross carrying amount of $253, accumulated amortization of $163
and $139 and net balances of $90 and $114, as of September 30, 2004 and December
31, 2003,  respectively.  All intangibles  assets are being amortized over their
estimated useful lives, which averaged 5 years and the amortization  expense for
the nine  months  ended  September  30,  2003 and 2004  amounted to $59 and $24,
respectively.

Note 5: Warranty Provision

      The Company grants its customers  one-year product warranty.  No provision
was made in respect of warranties based on the Company's previous history.


                                       -7-

<PAGE>

                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                      (in thousands, except per share data)


Note 6: Stock-Based Compensation

      The Company applies  Accounting  Principles  Board Opinion ("APB") No. 25,
"Accounting  for Stock Issued to Employees" and the related  interpretations  in
accounting  for its stock option  grants to employees  and  directors,  with the
disclosure   provisions   of  SFAS  No.   123,   "Accounting   for   Stock-Based
Compensation".  Under APB No. 25,  compensation  expense is  computed  under the
intrinsic  value method of  accounting  to the extent that the fair value of the
underlying  shares on the date of the grant  exceed  the  exercise  price of the
share option, and thereafter  amortized on a straight-line  basis against income
over the expected service period.

      Had compensation cost for the Company's option plans been determined based
on the fair  value at the grant  dates of  awards,  consistent  with the  method
prescribed in SFAS No. 123, the Company's net loss and loss per share would have
been changed to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                          Nine months ended           Three months ended
                                                           September 30,                 September 30,
                                                           -------------                 -------------
                                                      2003            2004            2003            2004
                                                     -------         -------         -------         -------
<S>                                                  <C>             <C>             <C>             <C>
Net loss as reported ........................        $(5,100)        $  (860)        $(1,629)        $  (472)
Plus: Stock-based employee and director
       compensation expense included in
       reported net loss ....................             55              75               2              75
Less: Total stock-based employee compensation
       expense determined under fair value
       based method for all awards ..........            186             136               2              75
                                                     -------         -------         -------         -------

Pro forma net loss ..........................        $(5,231)        $  (921)        $(1,629)        $  (472)
                                                     =======         =======         =======         =======

   Net loss per share:
      Basic and diluted - as reported .......        $ (0.66)        $ (0.11)        $ (0.21)        $ (0.06)
                                                     =======         =======         =======         =======
      Basic and diluted - pro forma .........        $ (0.68)        $ (0.12)        $ (0.21)        $ (0.06)
                                                     =======         =======         =======         =======
</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.

      The Company accounts for stock-based  compensation issued to non-employees
on a fair value basis in accordance  with SFAS No. 123 and EITF Issue No. 96-18,
"Accounting for Equity  Instruments  That Are Issued to Other Than Employees for
Acquiring,  or in  Conjunction  with  Selling,  Goods or  Services"  and related
interpretations.


                                       -8-

<PAGE>

                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                      (in thousands except per share data)

Note 7: Segment Information

<TABLE>
<CAPTION>
                                             Software           Energy
                                           consulting and    intelligence
                                            development       solutions        Computer
                                                (*)              (**)           hardware       Other (***)         Total
                                              --------         --------         --------         --------         --------
<S>                                        <C>               <C>               <C>              <C>              <C>
Nine months ended September 30, 2004:
   Revenues from external customers           $  8,676         $     --         $ 13,335         $     26         $ 22,037
   Intersegment revenues                            --               --               --               --               --
   Segment gross profit                          2,056               --            2,450               26            4,532
   Segment income (loss)                           208             (361)             231                6               84

Nine months ended September 30, 2003:
   Revenues from external customers           $  8,966         $  4,700         $ 12,974         $     25         $ 26,665
   Intersegment revenues                            --              284               20               --              304
   Segment gross profit                          1,931            1,313            2,276               25            5,545
   Segment loss                                   (455)          (2,772)            (247)             (17)          (3,491)

Three months ended September 30, 2004:
   Revenues from external customers           $  2,675         $     --         $  4,806         $      1         $  7,482
   Intersegment revenues                            --               --               --               --               --
   Segment gross profit                            562               --              893                1            1,456
   Segment income (loss)                            23              323              (60)              (1)             285

Three months ended September 30, 2003:
   Revenues from external customers           $  2,813         $     --         $  3,856         $      1         $  6,670
   Intersegment revenues                            --               --               --               --               --
   Segment gross profit                            548               --              653                1            1,202
   Segment loss                                    (24)            (909)            (156)             (11)          (1,100)
</TABLE>

-----------

(*)   Excludes the discontinued results of the US-based consulting  activities -
      see Note 8.

(**)  Operating  results  of  Comverge  (in the  energy  intelligence  solutions
      segment) are no longer consolidated beginning the second quarter of 2003.

(***) 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

<TABLE>
<CAPTION>
                                                       Nine months ended             Three months ended
                                                         September 30,                  September 30,
                                                   -----------------------         -----------------------
                                                    2003            2004            2003            2004
                                                   -------         -------         -------         -------
<S>                                                <C>             <C>             <C>             <C>
Total income (loss) for reportable segments        $(3,474)        $    78         $(1,089)        $   286
Other operational segment income (loss)                (17)              6             (11)             (1)
                                                   -------         -------         -------         -------
Total operating income (loss)                       (3,491)             84          (1,100)            285

Net loss of corporate headquarters                  (1,571)         (1,292)           (525)           (757)
Discontinued operations income (loss)                  (38)            348              (4)             --
                                                   -------         -------         -------         -------
Total consolidated net loss                        $(5,100)        $  (860)        $(1,629)        $  (472)
                                                   =======         =======         =======         =======
</TABLE>

                                       -9-

<PAGE>

                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                      (in thousands except per share data)

Note 8: Discontinued Operations

      Since the latter part of 2003, the Company has not recorded  revenues from
its US-based consulting business. During the second quarter of 2004, the Company
decided to  discontinue  its  efforts to  reestablish  this  business  as it was
previously conducted. As a result, the Company recorded a gain from discontinued
operations of $348, net of tax.

      Assets and liabilities of the discontinued operation were as follows:

<TABLE>
<CAPTION>
                                                  December 31, 2003   September 30, 2004
                                                  -----------------   ------------------
<S>                                               <C>                 <C>
Current assets .............................            $  2                $ --
                                                        ====                ====
Fixed assets ...............................            $  2                $ --
                                                        ====                ====
Current liabilities ........................            $729                $ --
                                                        ====                ====
</TABLE>

      Profit and loss of the discontinued  operations within consulting  segment
were as follows:

<TABLE>
<CAPTION>
                                            Nine months ended          Three months ended
                                               September 30,              September 30,
                                               -------------              -------------
                                            2003          2004         2003           2004
                                            ----          ----         ----           ----
                                          Restated                   Restated
                                          --------                   --------
<S>                                        <C>           <C>           <C>           <C>
Sales ...............................      $ 172         $  --         $  14         $--
Cost of sales .......................        154            --            13          --
                                           -----         -----         -----         ---
Gross profit ........................         18            --             1          --
                                           -----         -----         -----         ---
Loss from operations ................        (31)           (2)           (1)         --
Interest expense ....................          7             4             3          --
                                           -----         -----         -----         ---
Net income (loss) from discontinued
    operations ......................      $ (38)        $ 348         $  (4)        $--
                                           =====         =====         =====         ===
</TABLE>


Note 9: Subsequent Event

      In  October  2004,  Comverge  closed on the sale of  additional  preferred
equity financing in the amount of $13,600. The preferred equity is senior to the
preferred  stock of  Comverge  owned by the  Company.  This  round of  financing
diluted the  Company's  holdings to  approximately  7% of  Comverge's  preferred
equity and approximately 25% of its total equity.

                                     - 10 -
<PAGE>

                           PART II - Other information

Item 6: Exhibits and Reports on Form 8-K

      (a)   Exhibits

            10.1  Employment Agreement executed on August 19, 2004 and effective
                  as  of  January  1,  2004  between   Databit   Inc.,   Shlomie
                  Morgenstern and the Registrant.*

            10.2  Restricted Stock Award Agreement, dated as of August 19, 2004,
                  between the Registrant and Shlomie Morgenstern.*

            10.3  Stock Option  Agreement  dated as of August 19, 2004,  between
                  the Registrant and Shlomie Morgenstern.*

            10.4  Second   Amended  and  Restated   Co-Sale  And  First  Refusal
                  Agreement dated as of October 26, 2004, by and among Comverge,
                  Inc., the Registrant, and other persons party thereto.*

            31(a) Rule 13a-14(a) Certification by Chief Executive Officer

            31(b) Rule 13a-14(a) Certification by Chief Financial Officer

            32(a) Section 1350 Certification by Chief Executive Officer **

            32(b) Section 1350 Certification by Chief Financial Officer **

-----------------
*  Previously filed.
** A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.


(b)   Reports on Form 8-K

      (i) Report on Form 8-K,  filed on July 28, 2004  (earliest  event reported
      July 26, 2004): Item 5 was reported.

      (ii) Report on Form 8-K, filed on August 13, 2004 (earliest event reported
      August 13, 2004): Item 2 was reported.

      (iii)  Report  on Form 8-K,  filed on  August  17,  2004  (earliest  event
      reported August 13, 2004): Item 7 was reported.

      (iv) Report on Form 8-K, filed on August 19, 2004 (earliest event reported
      August 18, 2004): Item 5 was reported.

      (v)  Report on Form 8-K,  filed on  September  10,  2004  (earliest  event
      reported September 9, 2004): Item 1.01 was reported.


                                     - 11 -

<PAGE>

                                   SIGNATURES

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



                                         DATA SYSTEMS & SOFTWARE INC.

Dated:  November 16, 2004

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


                                     - 12 -