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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q
               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002     COMMISSION FILE NUMBER 0-19771
--------------------------------------------------------------------------------

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

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

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

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

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


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

                  |X| Yes                               |_| No

  Number of shares outstanding of the registrant's common stock, as of
  August 5, 2002:  7,353,163
================================================================================

<PAGE>
<TABLE>
<CAPTION>
                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES



                                TABLE OF CONTENTS

<S>                                                                                <C>
PART I.  FINANCIAL INFORMATION

Item 1.   Unaudited Consolidated Financial Statements

          Consolidated Balance Sheets
             as of December 31, 2001 and June 30, 2002  . . . . . . . . . . . . . .  1

          Consolidated Statements of Operations
             for the three and six month periods ended June 30, 2001 and 2002 . . .  2

          Consolidated Statement of Changes in Shareholders' Equity
             for the six month period ended June 30, 2002 . . . . . . . . . . . . .  3

          Consolidated Statements of Cash Flows
             for the six month periods ended June 30, 2001 and 2002 . . . . . . . .  4

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

Item 2.   Management's Discussion and Analysis of Financial Condition
             and Results of Operations   . . . . . . .  . . . . . . . . . . . . . .  11

PART II.  OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K  . . . . . . . . . . . . . . . . . . . .  16

SIGNATURES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17

Exhibits    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18


</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 per share data)

<TABLE>
<CAPTION>
<S>                                                                                          <C>          <C>


                                                                                            As of       As of
                                                                                           December    June 30,
ASSETS                                                                                     31, 2001     2002
                                                                                           ---------  ---------
                                                                                                     (unaudited)
Current assets:
 Cash and cash equivalents                                                                 $  4,025   $  3,054
 Short-term interest bearing bank deposits and debt securities                                1,828      1,898
 Restricted cash                                                                                317      6,345
 Trade accounts receivable, net                                                              10,197      9,630
 Inventory                                                                                      658      2,300
 Other current assets                                                                         1,858      1,206
                                                                                           ---------  ---------
   Total current assets                                                                      18,883     24,433
Investments                                                                                      90         90
Property and equipment, net                                                                   2,296      2,157
Goodwill, net of accumulated amortization of $2,677 at December 31, 2001                      7,737      7,689
Other intangible assets, net                                                                    909        709
Long-term deposits                                                                            6,000          -
Other assets                                                                                    676        602
Prepaid employee termination benefits                                                         2,653      2,589
                                                                                           ---------  ---------
   Total assets                                                                            $ 39,244   $ 38,269
                                                                                           =========  =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Short-term debt and current maturities of long-term debt,
net of discount of $638                                                                    $  2,499   $  9,408
 Trade accounts payable                                                                       4,010      5,328
 Accrued payroll, payroll taxes and social benefits                                           2,193      2,049
 Other current liabilities                                                                    3,372      3,533
                                                                                           ---------  ---------
    Total current liabilities                                                                12,074     20,318
                                                                                           ---------  ---------

Long-term liabilities:
 Long-term debt                                                                               6,182        645
 Other liabilities                                                                              285        308
 Liability for employee termination benefits                                                  3,811      3,746
                                                                                           ---------  ---------
        Total long-term liabilities                                                          10,278      4,699
                                                                                           ---------  ---------
Minority interests                                                                            2,530      2,279
                                                                                           ---------  ---------
Shareholders' equity:
 Common stock - $.01 par value per share:
   Authorized - 20,000,000 shares; Issued - 8,161,867 shares                                     82         82
 Additional paid-in capital                                                                  36,981     37,690
 Warrants                                                                                       114        114
 Deferred compensation                                                                          (14)       (11)
 Accumulated deficit                                                                        (18,643)   (22,744)
 Treasury stock, at cost - 808,704 shares                                                    (3,860)    (3,860)
 Shareholder's note                                                                            (298)      (298)
                                                                                           ---------  ---------
   Total shareholders' equity                                                                14,362     10,973
                                                                                           ---------  ---------
   Total liabilities and shareholders' equity                                              $ 39,244   $ 38,269
                                                                                           =========  =========


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

</TABLE>
                                      - 1 -
<PAGE>

                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
                      (in thousands, except per share data)
<TABLE>
<CAPTION>
                                               Six months ended    Three months ended
                                                   June 30,            June 30,
                                               ------------------  ------------------
                                                 2001      2002      2001      2002
                                               --------  --------  --------  --------
Sales:
<S>                                               <C>       <C>       <C>       <C>
 Products                                      $18,201   $17,661   $ 8,948   $ 8,960
 Services                                        7,597     7,930     3,621     3,823
                                               --------  --------  --------  --------
                                                25,798    25,591    12,569    12,783
                                               --------  --------  --------  --------
Cost of sales:
 Products                                       14,693    14,051     7,171     7,230
 Services                                        5,598     5,970     2,582     2,961
                                               --------  --------  --------  --------
                                                20,291    20,021     9,753    10,191
                                               --------  --------  --------  --------
 Gross profit                                    5,507     5,570     2,816     2,592
Research and development expenses                1,353     1,010       871       550
Selling, general and administrative expenses     8,386     8,752     4,203     4,452
                                               --------  --------  --------  --------
 Operating loss                                 (4,232)   (4,192)   (2,258)   (2,410)
Interest income                                    646       146       262        53
Interest expense                                  (267)     (293)      (78)     (199)
Other income (loss), net                            (5)       92        56        66
Minority interests                                   -       203         -       207
                                               --------  --------  --------  --------
 Loss before provision for income taxes         (3,858)   (4,044)   (2,018)   (2,283)
Provision for income taxes                         112        57        85        15
                                               --------  --------  --------  --------
 Net loss                                      $(3,970)  $(4,101)  $(2,103)  $(2,298)

Basic and diluted net loss per share:
 Net loss per share                            $ (0.57)  $ (0.56)  $ (0.30)  $ (0.31)
                                               ========  ========  ========  ========
Weighted average number of shares
              outstanding - basic and diluted    6,937     7,353     6,910     7,353
                                               ========  ========  ========  ========

     The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                      - 2 -
<PAGE>

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

<TABLE>
<CAPTION>


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

Grant and recognition
 of stock option
 compensation                  -       -        17              3           -        -            -             -        20

Value of 10%
 convertible note
 allocated to beneficial
 conversion feature and
 related warrants              -       -       692              -           -        -            -             -       692

Net loss                       -       -         -              -           -        -            -        (4,101)   (4,101)
                       ---------- ------- ----------- ------------- ---------- --------- ------------- ------------ --------
Balances as of
  June 30, 2002            8,162  $   82  $ 37,690     $      (11)  $     114  $(3,860)       $(298)     $(22,744)  $10,973
                       ========== ======= =========== ============= ========== ========= ============= ============ ========


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

</TABLE>
                                      - 3 -

<PAGE>
                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                                                           Six months ended June 30,
                                                                                          -------------------------
                                                                                                2001      2002
                                                                                              --------  --------
<S>                                                                                              <C>       <C>
Cash flows used in operating activities:
 Net loss                                                                                     $(3,970)  $(4,101)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 Depreciation and amortization                                                                    651       676
 Allowance for doubtful accounts                                                                   23       (87)
 Stock option compensation                                                                          -        20
       Accretion of discount on convertible note                                                    -        54
 Minority interest                                                                                  -      (203)
 Write-off of minority interest balance                                                             -       (40)
 Unrealized gain on debt securities                                                                 -       (13)
 Increase (decrease) in liability for employee termination benefits                               201       (65)
 Exchange adjustment on long-term debt                                                              -       (27)
 Loss on disposition of property and equipment                                                     37        14
 Write-off of inventory                                                                            26         -
 Receipt of investments for services rendered                                                    (130)        -
 Change in operating assets and liabilities:
   Decrease (increase) in accounts receivable and other current assets                           (577)    1,473
   Increase in inventory                                                                         (187)   (1,642)
   Decrease in other assets                                                                        35        91
   Increase in accounts payable and other liabilities                                             848     1,233
                                                                                              --------  --------
   Net cash used in operating activities                                                       (3,043)   (2,617)
                                                                                              --------  --------
Cash flows provided by (used in) investing activities:
 Short-term bank deposits, net                                                                    696         -
 Restricted cash                                                                                   (5)      (28)
 Proceeds from sale and maturity of debt securities                                               400       411
 Investment in debt securities                                                                 (1,865)     (468)
 Acquisitions of property and equipment                                                          (600)     (201)
 Funding of termination benefits                                                                  (90)       64
 Acquisition of intangible assets                                                                  (4)       (2)
                                                                                              --------  --------
   Net cash used in investing activities                                                       (1,468)     (224)
                                                                                              --------  --------
Cash flows provided by (used in) financing activities:
 Short-term debt, net                                                                             (10)     (572)
 Proceeds from issuance of convertible note                                                         -     2,000
 Borrowings of long-term debt                                                                       -       646
 Repayments of long-term debt                                                                      (5)      (37)
 Convertible note issuance costs                                                                    -      (167)
 Proceeds from stock options exercises                                                            186         -
 Purchase of treasury stock                                                                      (779)        -
                                                                                              --------  --------
   Net cash  (used in) provided by financing activities                                          (608)    1,870
                                                                                              --------  --------
Net decrease in cash and cash equivalents                                                      (5,119)     (971)
Cash and cash equivalents at beginning of period                                               10,877     4,025
                                                                                              --------  --------
Cash and cash equivalents at end of period                                                    $ 5,758   $ 3,054
                                                                                              --------  --------
Supplemental cash flow information:
 Cash paid during period for interest                                                         $   230   $   192
                                                                                              ========  ========
 Cash paid during period for income taxes                                                     $   437   $    67
                                                                                              ========  ========
Non-cash investing and financing activities:
 Accounts payable incurred in acquisition of fixed assets                                               $   100
 Value of beneficial conversion feature and related warrants on issuance of convertible
 note                                                                                                   $   692
                                                                                                        ========
 Adjustment of goodwill and intangible assets                                                           $    48
                                                                                                        ========
 Increase in deferred tax liability associated with adjustment of intangible assets                     $    17
                                                                                                        ========


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

</TABLE>
                                      - 4 -
<PAGE>
                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
                  (dollars in thousands, except per share data)

NOTE  1:  BASIS  OF  PRESENTATION

     The  accompanying  unaudited  consolidated  financial  statements  of  Data
Systems  &  Software Inc. and subsidiaries (the "Company") have been prepared in
accordance with accounting principles generally accepted in the United States of
America  for  interim financial information and with the instructions to Article
10  of  Regulation  S-X. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete consolidated financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included.  Operating results for the three and six-month periods ended June
30,  2002 are not necessarily indicative of the results that may be expected for
the  year  ending  December  31,  2002.  These  unaudited consolidated financial
statements  should  be  read  in  conjunction  with  the  consolidated financial
statements  and  footnotes thereto for the year ended December 31, 2001 included
in  the  Company's  Annual  Report  on  Form  10-K filed with the Securities and
Exchange  Commission.  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  June  30,  2002  the  Company  had working capital of approximately
$4,115,  including  $4,952  in  nonrestricted  cash,  cash  equivalents and debt
security  investments.  Of  the total working capital, $802 was in the Company's
majority-owned  Israeli  subsidiary dsIT and, due to Israeli tax and company law
constraints  as  well as the significant minority interest in dsIT, such working
capital  is  not  available to finance US activities. Net cash used in operating
activities  during the second quarter of 2002 was $3,039 as compared to $422 net
cash  provided  during  the  first quarter of 2002.  The primary factors for the
Company's net cash usage during the second quarter of 2002, was its loss for the
period  of  $2,298 and a $1,473 investment in inventory by Comverge.  These uses
of  cash  were  offset  in  part by a decrease of $433 in the Company's accounts
receivable  and  other  current asset balances and $332 of non-cash depreciation
and  amortization  expense  included in the Company's net loss during the second
quarter.  Additional  liquidity  for  the  US operations was provided during the
second quarter of 2002 through the issuance of a $2,000 convertible note, due on
various  dates  through  June  2003  (see  Note  3).

     As  of  July  31,  2002  the  Company's  US  operations had an aggregate of
approximately  $3,900  in cash, cash equivalents and short-term debt securities.
The  Company believes that these funds together with expected net cash flow from
operations  will be sufficient to fund its US operating and corporate activities
for  at  least  the next 12 months.  This outlook reflects the following trends:

-    Except  for  the  significant  investment  in  raw material inventory noted
     above,  Comverge's  operating  cash flow continued to improve in the second
     quarter  of  2002,  a trend which the Company expects will continue through
     the rest of the year. The Company expects Comverge to use less than $500 of
     additional  cash  before  turning cash flow positive in the fourth quarter.
     The anticipated improvement in operating cash flow in the fourth quarter of
     this  year results from (i) expected increases sales from contracts in hand
     and  new business currently being negotiated, (ii) expected improved profit
     margins  on these sales and (iii) planned decreases in selling, general and
     administrative expenses. Cash flow for the second half of 2002 will also be
     positively  impacted  by expected utilization of the increased raw material
     inventory  purchased by Comverge in the second quarter. Although visibility
     regarding sales, and therefore profits and cash flow, for the first half of
     2003 is still limited, the negative cash flow in Comverge for the entire 12
     month  period  ending  June  30,  2003  is  not  expected to exceed $1,000.
                                      - 5 -

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

-    Results of the Company's domestic operations other than Comverge (i.e., the
     computer  hardware  sales  segment  and  the  US operations of the software
     consulting  and development segment), improved during the quarter, although
     they  were  still marginally negative. The Company expects these activities
     to  operate at or better than cash flow neutral during the remainder of the
     year  and  the  first  half  of  2003.

-    The Company's corporate expenses have been reduced over the recent quarters
     and  management  has  recently  taken  steps to further reduce these costs.

-    The  Company  intends  to  pay  most  or the entire principal amount of its
     convertible  note  described  in  Note 3 by delivering shares of its common
     stock,  thereby  conserving  cash.

     While the Company has not been successful in attracting outside funding for
Comverge  to date, and the current state of the capital markets is not favorable
for  raising  such  funds, the Company's long-term strategy remains to establish
independent  outside  funding  to  finance  its  activities.  As  planned,  such
financing  would  allow  the  Company  to utilize the $6,000 restricted deposit,
currently  pledged  to guarantee the Comverge bank loan, to finance its other US
activities  over  the  longer  term.  The  Company  may  also pursue alternative
asset-based  financing  to provide additional liquidity for its US operating and
corporate  activities.  However,  there  are  no  assurances that the Company or
Comverge  will  be  able  to  raise  additional  capital  or  secure alternative
financing  or  raise  amounts  sufficient  to  meet  the  long-term needs of the
business.

     dsIT  is fully utilizing its line of credit of $2,000. 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, improved operating results stemming
from  continued  cost  reduction,  and  payment  cycle  on  receivables.

     The Company believes that its plans to finance its operations over the next
12  months  can  be successfully implemented on a timely basis in a manner which
will  not  impede  the  Company's  ability  to  implement  its  current business
strategy. However, successful execution of these plans is subject to significant
risks  and uncertainties, including those associated with (i) timely manufacture
and  delivery  of  products, (ii) obtaining additional business from current and
prospective  customers,  and  (iii)  effective  and timely implementation of the
Company's  planned  reductions  in  direct  costs  and  expenses.

     Should  the Company be unsuccessful in implementing, on a timely basis, its
plan  to  finance its operations for the next 12 months, the Company may need to
take  additional  and  more drastic measures to reduce costs and expenses. These
measures,  should  they  prove  necessary, could negatively affect the Company's
ability  to  execute  its  business  strategy.

NOTE  3:  CONVERTIBLE  NOTE

     On  June  11,  2002, the Company completed a transaction with Laurus Master
Fund,  Ltd., pursuant to which Laurus made a $2,000 investment in the Company in
exchange  for  a 10% convertible note due on various dates through June 30, 2003
and  a  three-year warrant to purchase 125,000 shares of DSSI common stock at an
exercise  price  of  $4.20  per  share.

     Laurus  may  convert  the  convertible note at any time into shares of DSSI
common  stock  at  a  fixed  conversion  price  of  $3.49,  subject  to  certain
restrictions  in  the agreement.  The Company may pay the principal and interest
on  the  convertible  note,  which  has a one-year term, in cash, shares of DSSI
common  stock,  or  a  combination  of  cash and stock, at the Company's option.


                                       -6-

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

     Based  on  its  current liquidity status,  the Company currently expects to
pay  most or all of the principal in shares of common stock.  Should the Company
so  choose, the conversion price will be the lesser of (i) $3.49 and (ii) 83% of
the  average of the 10 lowest closing prices during the 30 trading days prior to
the  date  of  notice  of payment.  The Company will make interest-only payments
until October 1, 2002, at which time the Company will pay interest and one-tenth
of  the  principal.  Laurus  was  granted  a  security interest in the Company's
Databit  subsidiary's  accounts  receivable.

     The  Company  estimated the fair value of the beneficial conversion feature
and related warrants at the issuance of the convertible note to be approximately
$692.  Such  amount  was  credited  to  additional  paid-in  capital and will be
charged  to  interest  expense  over the conversion periods, using the effective
interest  method  (approximately $54 for the three and six months ended June 30,
2002).  The  face  value  debt of $2,000, less $638 of unamortized debt discount
from  the beneficial conversion feature and the related warrants, is included in
short-term  debt and current maturities of long-term debt, net at June 30, 2002.
In  addition,  the  Company incurred debt issuance costs of $167 with respect to
the issuance of the convertible note.  These costs will be amortized to interest
expense  using  the  effective  interest  method  over  the  life  of  the note.

     The  interest  expense  with  respect to the convertible note consisting of
interest  payments at a rate of 10%, the amortization of debt issuance costs and
the  accretion  of  the carrying value of the convertible note to its face value
(debt  discount)  are expected to be recognized in the consolidated statement of
operations  as  follows:

          Quarter  ended  June  30,  2002             $64
          Quarter  ending  September  30,  2002      $307
          Quarter  ending  December  31,  2002       $246
          Quarter  ending  March  31,  2003          $150
          Quarter  ending  June  30,  2003            $61

NOTE  4:  NEWLY  ADOPTED  ACCOUNTING  PRINCIPLES

     The  Company  adopted  the  remaining  provisions of Statement of Financial
Accounting  Standards  (SFAS)  No.  141,  "Business Combinations" and all of the
provisions  of  SFAS  No. 142, "Goodwill and Other Intangible Assets", effective
January  1,  2002.  Upon  adoption  of  SFAS  No. 142, the Company evaluated its
existing  intangible assets and goodwill that were acquired in purchase business
combinations,  so as to make any necessary reclassifications in order to conform
with  the  new  classification criteria in SFAS No. 141 for recognition separate
from  goodwill.  Additionally, the Company has identified its reporting units to
be  its  operating  segments  and  allocated  the goodwill at January 1, 2002 as
follows:  software  consulting and development - $7,190, and energy intelligence
solutions - $499. The Company reassessed the useful lives and residual values of
all  intangible  assets  acquired,  in  order to make any necessary amortization
period  adjustments.  If  an  intangible  asset  is  identified  as  having  an
indefinite useful life, the Company is required to test the intangible asset for
impairment  in  accordance  with  the  provisions  of  SFAS  No.  142.

     Impairment  is measured as the excess of carrying value over the fair value
of an intangible asset with an indefinite life.  Any impairment loss is measured
as  of  January  1, 2002 and is recognized as a cumulative effect of a change in
accounting  principle.  In  connection  with  the  adoption of SFAS No. 142, the
Company evaluated its intangible assets and determined that it has no indefinite
useful  life  intangibles.  The  Company has also evaluated the remaining useful
lives of its intangible assets that will continue to be amortized and determined
that  no  revision  to  the  useful  lives  is  required.

                                      - 7 -
<PAGE>
                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
                  (dollars in thousands, except per share data)

     The  Company  was  required  to  perform a transitional goodwill impairment
assessment within six months of adoption of SFAS No. 142.  The Company completed
its  transitional  goodwill  impairment  assessment,  with  no adjustment to the
carrying  value  of its goodwill as of January 1, 2002.  The goodwill impairment
assessment  involves  estimating  the  fair  value  of  the  reporting  unit and
comparing  it  with its carrying amount. If the fair value of the reporting unit
exceeds  its  carrying  amount,  additional  steps  are  followed to recognize a
potential  impairment  loss.  Calculating  the fair value of the reporting units
requires  significant  estimates  and  assumptions  by  management.  The Company
estimated  the fair value of its reporting units by using third-party valuations
of  the  reporting  units.  The annual impairment test is to be performed in the
fourth  quarter.

     The  Company  ceased amortization of goodwill acquired in purchase business
combinations, completed prior to July 1, 2001.  Pro forma net loss and pro forma
basic  and  diluted  loss  per share for the six and three months ended June 30,
2001,  adjusted to exclude goodwill amounts no longer amortized, are as follows:
<TABLE>
<CAPTION>
                                          Six months ended    Three months ended
                                           June 30, 2001        June 30, 2001
                                         ------------------  --------------------
<S>                                              <C>                 <C>

 Net loss:
     As reported                         $          (3,970)  $            (2,103)
     Add back: Goodwill amortization                   253                   126
                                         ------------------  --------------------
    Pro forma net loss                   $          (3,717)  $            (1,977)
                                         ==================  ====================
  Basic and diluted net loss per share:
     As reported                         $           (0.57)  $             (0.30)
     Add back: Goodwill amortization                  0.03                  0.01
                                         ------------------  --------------------
        Pro forma net loss per share     $           (0.54)  $             (0.29)
                                         ==================  ====================
</TABLE>

     Amortization  of  intangible  assets for the six months ended June 30, 2002
was $250. Amortization expense for each of the next five years and thereafter is
estimated  as  follows:

Year  ending  December  31,
---------------------------

     2002                         $447
     2003                          217
     2004                          180
     2005                           36
     2006                           36
     Thereafter                     41
                                 ------
                                  $957
                                 ======
<TABLE>
<CAPTION>
Other intangible assets consists of:      As of        As of
                                      December 31,   June 30,
                                         2001         2002
                                      -------------  ---------
<S>                                      <C>            <C>
Cost:
    License                           $         567  $     567
    Patents                                     279        281
    Software and software licenses              572        500
    Backlog                                       -        120
                                      -------------  ---------
                                      $       1,418  $   1,468
                                      -------------  ---------
  Less: Accumulated Amortization:
    License                           $         456  $     514
    Patents                                      53         72
    Software licenses                             -         89
    Backlog                                       -         84
                                      -------------  ---------
                                      $         509  $     759
                                      -------------  ---------
  Other intangible assets, net        $         909  $     709
                                      =============  =========
</TABLE>
                                      - 8 -
<PAGE>

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

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

NOTE  5:  INVENTORY

    Inventory  consists  of  the  following:        As of           As of
                                                 December 31,      June 30,
                                                     2001            2002
                                                   --------        --------
     Raw  materials,  spare  parts  and  supplies     $409          $2,115
     Work-in-process                                    -              105
     Finished  goods  and  merchandise                249               80
                                                   --------        --------

                                                     $658           $2,300
                                                   ========        ========

NOTE  6:  ACQUISITIONS

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

     During  the  second  quarter  of  2002,  the  Company's Comverge subsidiary
purchased certain assets to be used in a 70MW energy conservation program in the
greater  Houston,  Texas  area  for  $100.
                                      - 9 -

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

NOTE  7:  SEGMENT  INFORMATION


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
                  (dollars in thousands, except per share data)
NOTE  7:  SEGMENT  INFORMATION
<TABLE>
<CAPTION>
                                        Software          Energy
                                     Consulting and    Intelligence    Computer
                                      Development       Solutions      Hardware    Other    Total
                                    ----------------  --------------  ----------  -------  --------
<S>                                         <C>            <C>            <C>        <C>      <C>
Six months ended June 30, 2002:
 Revenues from external customers    $         7,297   $       9,424   $   8,777   $   93   $25,591
 Intersegment revenues                            19             479          46        -       544
 Segment gross profit                          1,292           2,774       1,459       45     5,570
 Segment income (loss)                          (894)         (1,868)        (25)       5    (2,782)
Six months ended June 30, 2001:
 Revenues from external customers    $         7,120   $       6,108   $  12,486   $   84   $25,798
 Intersegment revenues                            90             603          57        -       750
 Segment gross profit                          1,563           1,705       2,186       53     5,507
 Segment income (loss)                          (662)         (3,023)        806       (8)   (2,887)
Three months ended June 30, 2002:
 Revenues from external customers    $         3,462   $       4,770   $   4,521   $   30   $12,783
 Intersegment revenues                             -             208          29        -       237
 Segment gross profit                            503           1,334         745       10     2,592
 Segment income (loss)                          (720)         (1,017)          1      (15)   (1,751)
Three months ended June 30, 2001:
 Revenues from external customers    $         3,340   $       2,719   $   6,472   $   38   $12,569
 Intersegment revenues                            87             289          32        -       408
 Segment gross profit                            827             706       1,255       28     2,816
 Segment income (loss)                          (284)         (1,901)        549        -    (1,636)

</TABLE>

RECONCILIATION  OF  SEGMENT  INCOME  (LOSS)  TO  NET  LOSS:

<TABLE>
<CAPTION>

                                         Six months ended    Three months ended
                                              June 30,          June 30,
                                         ------------------  ------------------
                                           2001      2002      2001      2002
                                         --------  --------  --------  --------
<S>                                        <C>       <C>       <C>       <C>
Total loss for reportable segments       $(2,879)  $(2,787)  $(1,636)  $(1,736)
Other operational segment income (loss)       (8)        5         -       (15)
                                         --------  --------  --------  --------
     Total operating loss                 (2,887)   (2,782)   (1,636)   (1,751)
Net loss of corporate headquarters        (1,083)   (1,319)     (467)     (547)
                                         --------  --------  --------  --------
Total net loss                           $(3,970)  $(4,101)  $(2,103)  $(2,298)
                                         ========  ========  ========  ========

</TABLE>
                                      -10-

<PAGE>

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

OVERVIEW  AND  TREND  INFORMATION

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

     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 7 to the interim unaudited consolidated
financial  statements  included  in  this quarterly report, which information is
hereby  incorporated  by  reference  into  this  Item  2.

     Software  Consulting  and  Development

     The  acquisition of Endan, in December 2001, expanded our revenue base with
little  incremental  overhead  by  utilizing economies of scale which offset the
continued  weakness in the hi-tech sector in general and the software consulting
and development market in particular.  As a result of the continuing weakness in
the market, the revenues and results of operations in the second quarter of 2002
were  below  those  of  the immediately preceding quarter.  We expect that these
market  conditions and seasonal factors will cause revenues in the third quarter
of 2002 to be below those of the second quarter.  In the second quarter of 2002,
dsIT  continued  to  work  on  improving its cost structure while increasing its
marketing  efforts to further expand its revenue base.  The continuing effort to
reduce  costs  and  the investment in marketing are expected to provide improved
operating results in the last quarter of this year.  The recent unrest in Israel
has  not had a direct material effect on our business there, although it has had
a  negative  effect  on  the Israeli economy.  Should the unrest continue, it is
unclear  how  our  business  there  will  be  affected  in  the  future.

     Energy  Intelligence  Solutions

     In  the  second quarter of 2002, sales continued to increase, primarily due
to  two  new  pilot  projects  for  MaingateTM  and  SuperStatsTM products and a
significant  increase  in  MaingateTM  shipments  to  Gulf  Power.

     Although  we  expect  sales  in  the third quarter of this year to be below
those of the second quarter, we expect generally to increase sales in the fourth
quarter, and continue to improve our operating results. This improvement will be
based  in  part  on  new business, including our recently announced $3.2 million
contract  for  an  integrated  deployment of our MaingateTM wireless web gateway
system,  combined  with  the  sale  of  our  PowerCAMPTM  End-to-End  Energy
IntelligenceTM  software  solution  for  PPL  Electric  Utilities  (PPL).

     In  the  second  quarter  of 2002, Comverge increased its investment in raw
material  inventory  by  $1.4  million  in  order  to  (i) facilitate an orderly
transfer  of  manufacturing  operations  to  two  new  manufacturers,  (ii) meet
increased  third  and  fourth  quarter  production  requirements  and (iii) take
advantage  of  favorable  pricing and extended terms of payment received.  It is
anticipated  that  this  additional investment in inventory will be absorbed and
generate  cash from sales over the next 12 months, with most of it by the end of
the  year.

     Aside  from  this  investment,  which  is  temporary  in nature, Comverge's
operating  cash flow continued to improve in the second quarter of 2002, a trend
which  the  Company  expects  will  continue  through  the  year.
                                     - 11 -

<PAGE>

     We  expect  that Comverge's net negative cash flow for the remainder of the
third  quarter  will  not  exceed  $500,000  and that Comverge will be cash flow
positive  in  the last quarter of 2002. The anticipated improvement in operating
cash flow in the fourth quarter of this year results from (i) expected increases
in  sales  from  contracts  in hand and new business currently being negotiated,
(ii) expected improved profit margins on these sales and (iii) planned decreases
in  selling,  general  and  administrative  expenses.  Going  forward into 2003,
although  we  lack  sufficient visibility regarding sales, and therefore profits
and  cash  flow, we expect to improve Comverge's cost structure and gross profit
margins.

     During  the  second  quarter  of  2002,  Comverge  purchased  a 70MW energy
conservation  program,  managed  by  a  wholly  owned  subsidiary,  Texas Energy
Partners,  formed  for  this  purpose.  The new operation has 50,000 residential
customers  in  the  greater Houston area and accounts for up to 160 megawatts of
Virtual  Peaking  Capacity (TM),  under  emergency  conditions.

     The current state of the capital markets has not been favorable for raising
outside  funding for Comverge.  Although this remains our long-term strategy, in
the  short-term  Comverge  will  fund  its  growth  internally.

Computer  Hardware

     Although Databit's sales in the second quarter and six moths ended June 30,
2002  were  below  sales  in the comparable periods last year, they continued to
improve for the third consecutive quarter, and while we expect the third quarter
to  be  lower  than the second quarter of this year, we expect sales to increase
again in the fourth quarter and to generally maintain the current level of sales
for  the  remainder  of  the  year.

RESULTS  OF  OPERATIONS

     The  following  table  sets  forth  certain information with respect to the
results  of  our operations for the three and six months ended June 30, 2001 and
2002, including the percentage of total revenues during each period attributable
to selected components of operations statement data and for the period to period
percentage  changes  in  such  components.
<TABLE>
<CAPTION>
                                                   Six months ended June 30,              Three months ended June 30,
                                        -----------------------------------------  -----------------------------------------
                                                  2001          2002       Change        2001             2002       Change
                                        ----------------  ---------------- ------  ----------------  ---------------- ------
                                                  % of              % of   % of              % of               % of   % of
                                        ($,000)   sales   ($,000)   sales   2001   ($,000)   sales   ($,000)   sales   2001
                                        --------  ------  --------  ------  -----  --------  ------  --------  ------  -----
<S>                                     <C>       <C>     <C>       <C>     <C>    <C>       <C>     <C>       <C>     <C>
Sales                                   $25,798     100%  $25,591     100%   (1)%  $12,569     100%  $12,783     100%     2%
Cost of sales                            20,291      79    20,021      78    (1)     9,753      78    10,191      80      4
                                        --------  ------  --------  ------        --------  ------  --------  ------
 Gross profit                             5,507      21     5,570      22     1      2,816      22     2,592      20     (8)
R&D expenses                              1,353       5     1,010       4   (25)       871       7       550       4    (37)
SG&A expenses                             8,386      33     8,752      34     4      4,203      33     4,452      35      6
                                        --------  ------  --------  ------         --------  ------  --------  ------
 Operating loss                          (4,232)    (16)   (4,192)    (16)   (1)    (2,258)    (18)   (2,410)    (19)     7
Interest income (expense), net              379       1      (147)     (1) (139)       184       1      (146)     (1)  (179)
Other income (loss), net                     (5)      0        92       0               56       0        66       1      18
Minority interests                            -       -       203       1                -       -       207       2
                                        --------  ------  --------  ------         --------  ------  --------  ------
 Loss before provision for
  income taxes                           (3,858)    (15)   (4,044)    (16)    5     (2,018)    (16)   (2,283)    (18)    13
Provision for income taxes                  112       0        57       0   (49)        85       1        15       0    (82)
                                        --------  ------  --------  ------        --------  ------  --------  ------
 Net loss                               $(3,970)   (15)%  $(4,101)   (16)%    3%   $(2,103)  (17) %  $(2,298)   (18)%     9%
                                        ========  ======  ========  ======        ========  ======  ========  ======

</TABLE>

     Sales.  Sales  in the second quarter of 2002 were $12.8 million, similar to
sales  of  the  immediately preceding quarter and 2% above the second quarter of
2001.  This  reflects  an  increase in energy intelligence solution sales by our
Comverge  subsidiary,  offset  by  a  similar  decrease in sales in our computer
hardware  segment.  Sales in the first six months of 2002 were $25.6 million, 1%
below  sales in the same period in 2001, primarily due to a decrease in computer
hardware  sales,  as  well  as  a  small  decrease  in  software  consulting and
development  sales, mostly offset by the increase in Comverge sales, during this
period.

                                     - 12 -

<PAGE>
     Sales  in  Comverge  in the second quarter of 2002 were $4.8 million and in
the  first six months of this year were $9.4 million, increasing by 76% and 54%,
compared  to the same periods in 2001, respectively. This increase was primarily
attributable  to  the  aforementioned  new  pilot  projects for our Maingate and
SuperStat  products  and  increased  Maingate  shipments  to  Gulf  Power.

     Sales  in  the computer hardware segment continued to improve and were $4.5
million  and  $8.8  million  in the second quarter and first six months of 2002,
respectively.  Although still 30% below sales in the same periods of 2001 due to
the  downturn  in  the  economy,  particularly  since  9/11, sales continued the
improvement  shown in the first quarter of 2002, increasing by  6% over sales in
the  first  quarter  of  2002.

     Software  consulting  and  development  sales  were  $3.5  million and $7.3
million  in  the  second  quarter  and  first  six months of 2002, respectively,
increasing by 3% compared to the same periods of 2001.  This improvement, albeit
small,  was  entirely  attributable  to  the expanded revenue base achieved as a
result of the Endan acquisition by dsIT in December 2001, which more than offset
the  general  weakness  in  the  global  hi-tech  markets  and  in  the software
consulting  and  development  market  in  particular.

     Gross profit.  Gross profit in the second quarter of 2002 was $2.6 million,
decreasing  by  8%  compared to the second quarter of 2001.  Gross profit in the
first  six  months of 2002 was $5.6 million, similar to the same period in 2001.
The  decrease  in  the  second quarter of 2002 was primarily attributable to the
aforementioned  decrease  in  computer  hardware sales and the lost gross profit
from  those  sales.  The  gross  profit  from  the  increase  in  Comverge sales
partially  offset  the  decrease  in  the  other  segments.

     Selling,  general  and  administrative  expenses  ("SG&A").  In  the second
quarter  and  first  six months of 2002, SG&A was $4.5 million and $8.8 million,
respectively,  increasing  marginally  over  the  same  periods  in  2001.  This
reflects increases in all the operating segments, partially offset by a decrease
in  corporate  expenses.

     Interest  expense.  We had net interest expense in both the three month and
six  month  periods  in  2002,  as  compared  to net interest income in the 2001
periods, due primarily to the decrease in funds invested as they are utilized to
finance  our  domestic operations, as well as the decrease in interest rates and
return  on  our investments. The convertible debenture issued at the end of June
2002  did not have a material affect on the results of the periods reported. The
financial  expense associated with this debenture will be recorded over the next
four  quarters,  weighted  towards  the  third  and  fourth  quarters  of  2002.

LIQUIDITY  AND  CAPITAL  RESOURCES

     As  of  June 30, 2002 we had working capital of approximately $4.1 million,
including $5.0 million in nonrestricted cash, cash equivalents and debt security
investments.  Of  the  total working capital, $802,000 was in our majority-owned
Israeli  subsidiary  dsIT and, due to Israeli tax and company law constraints as
well  as  the significant minority interest in dsIT, such working capital is not
available  to  finance  US  activities.  Net  cash  used in operating activities
during  the  second quarter of 2002 was $3.0 million as compared to $422,000 net
cash  provided during the first quarter of 2002. The primary factors for our net
cash usage during the second quarter of 2002 was our loss for the period of $2.3
million  and  a $1.4 million investment in inventory by Comverge.  These uses of
cash  were  offset  in part by a decrease of $433,000 in our accounts receivable
and  other  current  asset  balances  and  $332,000 of non-cash depreciation and
amortization  expense  included  in  our  net  loss  during  the second quarter.
Additional  liquidity  for  the  US  operations  was  provided during the second
quarter  of 2002 through the issuance of a $2.0 million convertible note, due on
various  dates  through  June  2003  (see  Note  3).

     As  of  July  31,  2002  we  had an aggregate of $3.9 million in cash, cash
equivalents  and  short-term  debt  securities.   We  believe  that  these funds
together  with expected net cash flow from operations will be sufficient to fund
our US operating and corporate activities for at least the next 12 months.  This
outlook  reflects  the  following  trends:

                                     - 13 -
<PAGE>

-    Except  for  the  significant  investment  in  raw material inventory noted
     above,  Comverge's  operating  cash flow continued to improve in the second
     quarter  of 2002, a trend which we expect will continue through the rest of
     the  year.  We expect Comverge to use less than $500,000 of additional cash
     before  turning  cash  flow positive in the fourth quarter. The anticipated
     improvement  in  operating  cash  flow  in  the fourth quarter of this year
     results  from  (i)  expected increases sales from contracts in hand and new
     business  currently being negotiated, (ii) expected improved profit margins
     on  these  sales  and  (iii)  planned  decreases  in  selling,  general and
     administrative expenses. Cash flow for the second half of 2002 will also be
     positively  impacted  by expected utilization of the increased raw material
     inventory  purchased by Comverge in the second quarter. Although visibility
     regarding sales, and therefore profits and cash flow, for the first half of
     2003 is still limited, the negative cash flow in Comverge for the entire 12
     month  period  ending June 30, 2003 is not expected to exceed $1.0 million.

-    Results  of our domestic operations other than Comverge (i.e., the computer
     hardware sales segment and the US operations of the software consulting and
     development segment), improved during the quarter, although they were still
     marginally  negative.  We  expect  these activities to operate at or better
     than  cash flow neutral during the remainder of the year and the first half
     of  2003.

-    Our  corporate  expenses  have  been  reduced  over the recent quarters and
     management  has  recently  taken  steps  to  further  reduce  these  costs.

-    We  intend  to  pay  most or the entire principal amount of our convertible
     note  described in Note 3 by delivering shares of our common stock, thereby
     conserving  cash.

     While  we  have  not  been  successful  in  attracting  outside funding for
Comverge  to date, and the current state of the capital markets is not favorable
for  raising such funds, our long-term strategy remains to establish independent
outside  funding  to  finance Comverge's activities.  As planned, such financing
would allow us to utilize the $6.0 million restricted deposit, currently pledged
to guarantee the Comverge bank loan, to finance our other US activities over the
longer  term.  We  may  also pursue alternative asset-based financing to provide
additional  liquidity  for  our US operating and corporate activities.  However,
there  are  no  assurances  that we or Comverge will be able to raise additional
capital  or secure alternative financing or raise amounts sufficient to meet the
long-term  needs  of  the  business.

     dsIT is fully utilizing its line of credit of $2.0 million. We believe 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, improved, operating results stemming from
continued  cost  reduction,  and  payment  cycle  on  receivables.

     We believe that our plans to finance our operations over the next 12 months
can  be  successfully  implemented  on a timely basis in a manner which will not
impede  our  ability  to  implement  our  current  business  strategy.  However
successful  execution  of  these  plans  is  subject  to  significant  risks and
uncertainties,  including  those  associated  with  (i)  timely  manufacture and
delivery  of  products,  (ii)  obtaining  additional  business  from current and
prospective  customers,  and  (iii)  effective  and timely implementation of our
planned  reductions  in  direct  costs  and  expenses.

     Should  we  be unsuccessful in implementing, on a timely basis, our plan to
finance  our  operations  for the next 12 months, we may need to take additional
and  more drastic measures to reduce costs and expenses.  These measures, should
they  prove  necessary,  could  negatively  affect  our  ability  to execute our
business  strategy.
                                     - 14 -

<PAGE>

QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

     In  the  normal  course  of  business,  we  are  exposed to fluctuations in
interest  rates  on  the  $6.0  million  of debt incurred to finance our capital
expenditures  as  well  as short-term and long-term debt, currently $2.0 million
and  $645,000,  respectively,  to  finance  our  operations  in  Israel.  Our
convertible  note,  with  a  face  value  of  $2.0  million, 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 $590,000) in
Israel  are exposed to fluctuations in exchange rates. We do not employ specific
strategies,  such as the use of derivative instruments or hedging, to manage our
interest  rate  or exchange rate exposures.  In addition, we currently have $1.6
million invested in debt securities with maturities in excess of one year. These
debt  securities  are classified as trading securities and expose us to interest
rate  risk with respect to the effect fluctuations of market interest rates have
on  the  valuation  of  these  securities.  Our investment in debt securities is
managed  by  a  company  controlled  by  one  of  our  directors.





                                      -15 -

<PAGE>
                           PART II - OTHER INFORMATION

ITEM  6:  EXHIBITS  AND  REPORTS  ON  FORM  8-K
          -------------------------------------
(a)  Exhibits

10.1 Securities  Purchase  Agreement  relating  to  the purchase and sale of the
     convertible  note  and  the warrant, including the forms of the convertible
     note  and  the warrant (incorporated herein by reference to Exhibit 10.1 to
     our  Current  Report  on  Form  8-K,  dated  June  11,  2002).

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 June 11, 2002, filed on June 12, 2002, relating to the
$2  million  investment  in  us  by  Laurus  Master  Fund, Ltd.





                                     - 16 -

<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:  August  9,  2002

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








                                   -     17 -

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