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


                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF

                       THE SECURITIES EXCHANGE ACT OF 1934

  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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
                            May 12, 2004: 7,921,691
================================================================================

<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS

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

        Item 1. Unaudited Consolidated Financial Statements

           Consolidated Balance Sheets
                  as of December 31, 2003 and March 31, 2004..................................................     1

           Consolidated Statements of Operations and Comprehensive Loss
                  for the three month periods ended March 31, 2003 and 2004...................................     2

           Consolidated Statement of Changes in Shareholders' Equity
                  for the three month period ended  March 31, 2004............................................     3

           Consolidated Statements of Cash Flows
                  for the three month periods ended March 31, 2003 and 2004...................................     4

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

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

        Item 3.    Quantitative and Qualitative Disclosures about Market Risk.................................    13

                   Controls and Procedures....................................................................    13

PART II. OTHER INFORMATION

        Item 6.   Exhibits and Reports on Form 8-K............................................................    14

SIGNATURES        ............................................................................................    15
</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>


<TABLE>
                                      DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES

                                             CONSOLIDATED BALANCE SHEETS

                                      (in thousands, except share and per share data)


<CAPTION>
                                                                                                             AS OF
                                                                                     AS OF DECEMBER        MARCH 31,
                                      ASSETS                                            31, 2003              2004
                                                                                     ----------------    ---------------
Current assets:                                                                                            (unaudited)
<S>                                                                                     <C>               <C>
     Cash and cash equivalents ....................................................     $      1,213      $      1,101
     Restricted cash ..............................................................              241               241
     Accounts receivable, net .....................................................            7,053             6,013
     Inventory ....................................................................               88                42
     Other current assets .........................................................              661               655
                                                                                        ------------      ------------
         Total current assets .....................................................            9,256             8,052
                                                                                        ------------      ------------

Investment in Comverge, net .......................................................               68                --
Property and equipment, net .......................................................              814               727
Other assets ......................................................................              613               661
Funds in respect of employee termination benefits .................................            2,379             2,497
Goodwill ..........................................................................            4,430             4,269
Other intangible assets, net ......................................................              114               101
                                                                                        ------------      ------------
         Total assets .............................................................     $     17,674      $     16,307
                                                                                        ============      ============

                        LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

     Short-term bank credit and current maturities of long-term debt ..............     $      1,517      $      1,533
     Trade accounts payable .......................................................            2,586             1,902
     Accrued payroll, payroll taxes and social benefits ...........................            1,451             1,405
     Other current liabilities ....................................................            2,973             2,833
                                                                                        ------------      ------------
         Total current liabilities ................................................            8,527             7,673
                                                                                        ------------      ------------

Investment in Comverge, net .......................................................               --               285
                                                                                        ------------      ------------
Long-term liabilities:

     Long-term debt ...............................................................              632               451
     Other liabilities ............................................................              227               215
     Liability for employee termination benefits ..................................            3,721             3,857
                                                                                        ------------      ------------
            Total long-term liabilities ...........................................            4,580             4,523
                                                                                        ------------      ------------
Minority interests ................................................................            1,367             1,382
                                                                                        ------------      ------------
Shareholders' equity:

     Common stock - $0.01 par value per share:

         Authorized - 20,000,000 shares;
         Issued - 8,740,729 and 8,742,395 shares as of
            December 31, 2003 and March 31, 2004, respectively ....................               87                87
     Additional paid-in capital ...................................................           39,595            39,547
     Warrants .....................................................................              461               461
     Accumulated deficit ..........................................................          (33,069)          (33,664)
Treasury stock, at cost - 838,704 and 820,704 shares at December 31, 2003 and March
         31, 2004, respectively ...................................................           (3,874)           (3,791)
     Accumulated  other comprehensive loss ........................................               --              (196)
                                                                                        ------------      ------------
         Total shareholders' equity ...............................................            3,200             2,444
                                                                                        ------------      ------------
         Total liabilities and shareholders' equity ...............................     $     17,674      $     16,307
                                                                                        ============      ============
</TABLE>


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

                                                       - 1 -

<PAGE>


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


<CAPTION>
                                                                             THREE MONTHS ENDED MARCH 31,
                                                                             ----------------------------
                                                                                 2003             2004
                                                                             -----------      -----------
<S>                                                                          <C>              <C>
Sales:

     Products ..........................................................     $     8,976      $     4,033
     Services ..........................................................           2,881            2,460
     Projects ..........................................................           1,101              762
                                                                             -----------      -----------
           Total sales .................................................          12,868            7,255
                                                                             -----------      -----------
Cost of sales:

     Products ..........................................................           7,300            3,365
     Services ..........................................................           1,781            1,695
     Projects ..........................................................             718              645
                                                                             -----------      -----------
           Total cost of sales .........................................           9,799            5,705
                                                                             -----------      -----------
     Gross profit ......................................................           3,069            1,550
                                                                             -----------      -----------

Operating expenses:



   Research and development expenses ...................................             153               --
   Selling, general and administrative expenses ........................           4,302            1,830
                                                                             -----------      -----------
           Total operating expenses ....................................           4,455            1,830
                                                                             -----------      -----------
Operating loss .........................................................          (1,386)            (280)
Interest income ........................................................              22                2
Interest expense .......................................................            (354)             (57)
Other income (loss), net ...............................................             (14)             101
                                                                             -----------      -----------
     Loss before taxes on income .......................................          (1,732)            (234)
Taxes on income ........................................................             (12)               7
                                                                             -----------      -----------
Loss from operations of the Company and its consolidated subsidiaries ..          (1,744)            (227)
Share in losses of Comverge ............................................              --             (353)
Minority interests .....................................................             (17)             (15)
                                                                             -----------      -----------
     Net loss ..........................................................     $    (1,761)     $      (595)
                                                                             ===========      ===========

Other comprehensive loss, net of tax:

Differences from translation of financial statements of subsidiaries ...              --             (196)
       Comprehensive loss ..............................................     $    (1,761)     $      (791)
                                                                             ===========      ===========


Basic and diluted loss per share:

     Net loss per share - basic and diluted ............................     $     (0.24)     $     (0.08)
                                                                             ===========      ===========
       Weighted average number of shares outstanding - basic and diluted           7,345            7,920
                                                                             ===========      ===========
</TABLE>


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

                                      - 2 -


<PAGE>


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

<CAPTION>
                                                                                                           Accumulated
                                                       Additional                                            other
                                 Number of    Common     Paid-In                Accumulated   Treasury    comprehensive
                                  Shares      Stock      Capital     Warrants     Deficit      Stock         loss            Total
                                ----------- ----------- ----------- ----------------------- ----------- ----------------- ---------

Balances as of
<S>                                  <C>         <C>      <C>           <C>      <C>          <C>                  <C>     <C>
   December 31, 2003                 8,741       $  87    $39,595       $ 461    $(33,069)    $(3,874)             $   -   $3,200

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

Net loss                                 -           -          -           -        (595)           -                 -     (595)

Differences from translation
  of financial statements of
  subsidiaries                           -           -          -           -            -           -             (196)    (196)
                                ----------- ----------- ----------- ----------------------- ----------- ----------------- ---------

Balances as of

   March 31, 2004                    8,742  $       87    $39,547   $     461    $(33,664)    $(3,791)           $ (196)   $2,444
                                =========== =========== =========== ======================= =========== ================= =========


* Less than $1
</TABLE>

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

                                      - 3 -

<PAGE>


<TABLE>
                                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES

                                CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

                                             (dollars in thousands)

<CAPTION>
                                                                                     THREE MONTHS ENDED MARCH 31,
                                                                                  -------------------------------------
                                                                                       2003                  2004
                                                                                  ---------------        --------------
<S>                                                                                     <C>                     <C>
 Cash flows used in operating activities:

    Net loss.................................................................           $(1,761)                $(595)
    Adjustments to reconcile net loss to net cash
       provided by (used in) operating activities:
        Depreciation and amortization........................................                262                    62
           Minority interests................................................                 17                    15
           Share in losses of Comverge.......................................                 --                   353
           Change in allowance for doubtful accounts.........................                 29                   (1)
           Deferred taxes....................................................                 --                    24
        Increase (decrease) in liability for employee termination benefits...               (23)                   136
        Loss (gain) on disposition of property and equipment.................                  1                   (5)
           Stock and stock option compensation...............................                 52                    --
           Accretion of discount on convertible note and amortization
               of related costs and warrants.................................                169                    --
           Other.............................................................                  3                  (40)
        Change in operating assets and liabilities:

          Decrease in accounts receivable and other current and                            2,705
                    non-current assets.......................................                                      972
          Decrease in inventory..............................................                267                    46
          Decrease in accounts payable and other liabilities.................            (1,539)                 (879)
                                                                                  ---------------        --------------
          Net cash provided by operating activities..........................                182                    88
                                                                                  ---------------        --------------
 Cash flows provided by (used in) investing activities:

      Withdrawal of long-term deposit........................................              3,200                    --
       Amounts funded for employee termination benefits......................              (117)                 (106)
       Utilization of employee termination benefits..........................                102                  (12)
      Acquisitions of property and equipment.................................               (94)                  (22)
      Proceeds from sale of property and equipment...........................                 14                    30
                                                                                  ---------------        --------------
          Net cash provided by (used in) investing activities................              3,105                 (110)
                                                                                  ---------------        --------------
 Cash flows used in financing activities:

      Short-term debt borrowings (repayments), net...........................              (232)                    39
      Repayments of long-term debt...........................................            (3,258)                 (164)
      Exercise of options....................................................                 --                    35
      Purchase of treasury stock.............................................                (2)                    --
                                                                                  ---------------        --------------
          Net cash used in financing activities..............................            (3,492)                  (90)
                                                                                  ---------------        --------------
 Net decrease in cash and cash equivalents..................................               (205)                 (112)
 Cash and cash equivalents at beginning of period...........................               1,150                 1,213
                                                                                  ---------------        --------------
 Cash and cash equivalents at end of period.................................                $945                $1,101
                                                                                  ===============        ==============
 Supplemental cash flow information: Cash paid during the period for:

        Interest...........................................................                 $169                   $48
                                                                                  ===============        ==============
        Income taxes..........................................................               $41                    $8
                                                                                  ===============        ==============
 Non-cash investing and financing activities:

    Issuance of warrants for professional services............................               $97
                                                                                  ===============
    Adjustment of treasury stock and additional paid-in-capital with respect to
        options exercised......................................................                                   $83
                                                                                                         ==============
</TABLE>



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

                                     - 4 -


<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

                             (dollars in thousands)

NOTE 1: BASIS OF PRESENTATION

         The accompanying  unaudited  consolidated  financial statements of Data
Systems & Software Inc.  ("DSSI") and  subsidiaries  (the  "Company")  have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States  of  America  for  interim  financial  information  and  with the
instructions to Article 10 of Regulation S-X.  Accordingly,  they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United  States of America for  complete  consolidated  financial
statements.  In the opinion of management,  all adjustments considered necessary
for  a  fair  presentation  have  been  included.   Operating  results  for  the
three-month  period ended March 31, 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  with  the  current  period's
consolidated financial statement presentation.

NOTE 2: FINANCING OF OPERATIONS


         As of  March  31,  2004,  the  Company  had  working  capital  of $379,
including $1,101 in non-restricted  cash and cash equivalents.  Net cash used in
the first  quarter of 2004 was $112.  Net cash of $88 was  provided by operating
activities  during the first quarter of 2004.  The net loss for the  three-month
period  ended March 31,  2004 of $595 was  primarily  due to non-cash  expenses,
primarily the Company's share of unconsolidated  losses of Comverge of $353. The
primary source of the Company's cash provided by operating activities during the
first quarter of 2004 was  collections of trade accounts  receivables  and other
current and non-current  assets in excess of reductions in accounts  payable and
other  liabilities  of $93, net. Net cash of $110 used in investing  activities,
was used  primarily to fund employee  termination  benefits of $106. Net cash of
$90 used in financing  activities was primarily  utilized for payment of debt of
$125.


         Of the total working capital at March 31, 2004,  approximately $246 was
in the Company's majority owned dsIT subsidiary.  Due to Israeli tax and company
law  constraints,  as well as the  significant  minority  interest in dsIT, such
working capital and cash flows from dsIT's  operations are not readily available
to finance U.S. activities.

         dsIT is utilizing  approximately  $897 of its $1,100 lines of credit as
of March 31,  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 March 31, 2004 is 5.8%.

         As of April 30, 2004 the Company's  wholly owned US  operations  (i.e.,
excluding  dsIT)  had an  aggregate  of  $1,097  in  unrestricted  cash and cash
equivalents, reflecting a $98 decrease from the balance as of December 31, 2003.


                                      - 5 -


<PAGE>


NOTE 3: INVESTMENT IN COMVERGE

         Comverge's  summary  results of operations for the  three-months  ended
March 31, 2004 is as follows:

<TABLE>
<CAPTION>
                                                                                                      Three months
                                                                                                          ended
      RESULTS OF OPERATIONS                                                                          March 31, 2004
                                                                                                    ------------------
<S>                                                                                                           <C>
      Sales                                                                                                   $4,892
      Gross profit                                                                                            $1,854
      Net loss                                                                                               $(2,084)
</TABLE>

         The  change in the  Company's  Comverge  investment,  during  the three
months ended March 31, 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
       Equity loss in Comverge                                                 -            (353)              (353)
                                                                  --------------- ---------------- ------------------
       Balances as of March 31, 2004                                   $ (1,824)          $ 1,539            $ (285)
                                                                  =============== ================ ==================
</TABLE>


         In March 2004,  Comverge  signed and closed on an additional  agreement
for  private  equity  financing  in the  amount of $3.0  million.  This round of
financing   further   diluted  the  Company's   preferred   equity  holdings  to
approximately  15% and its total equity  investment in Comverge to approximately
37%.


NOTE 4--GOODWILL AND OTHER INTANGIBLE ASSETS

         The entire  balance of  goodwill  was in the  Software  Consulting  and
Development  segment.  There were no  acquisitions  or  impairments  of goodwill
recorded during the three-month period ended March 31, 2004.

         The  Company's  amortizable  intangible  assets  consisted  of software
licenses, with a gross carrying amount of $260, accumulated amortization of $106
and $114 and net  balances of $154 and $146,  as of March 31, 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  three  months  ended  March  31,  2003  and  2004  amounted  to $26 and $8,
respectively.  Amortization expense of the remaining balance of these assets, is
estimated  at; $32, $32, $28 and $14 for each of the years ended March 31, 2005,
2006, 2007 and 2008, 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.

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:

                                      - 6 -
<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                               Three Months Ended March 31,

                                                                                  2003                2004
                                                                                  ----                ----

<S>                                                                                <C>                   <C>
    Net loss as reported....................................................       $(1,761)              $(595)
    Plus: Stock-based employee and director compensation expense included                52
           in reported net loss.............................................                                 --
    Less: Total stock-based employee compensation expense determined under              109
           fair value based method for all awards...........................                                 15
                                                                               -------------       -------------
    Pro forma net loss......................................................       $(1,818)              $(610)
                                                                               =============       =============

       Net loss per share:
          Basic and diluted - as reported...................................        $(0.24)             $(0.08)
                                                                               =============       =============
          Basic and diluted - pro forma.....................................        $(0.25)             $(0.08)
                                                                               =============       =============
</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.

NOTE 7: SEGMENT INFORMATION

<TABLE>
<CAPTION>
                                                       SOFTWARE
                                                    CONSULTING         ENERGY
                                                          AND       INTELLIGENCE  COMPUTER
                                                     DEVELOPMENT   SOLUTIONS(*)   HARDWARE        OTHER (**)    TOTAL
                                                     -----------   ------------   --------        ------        -----
<S>                                                        <C>             <C>      <C>              <C>      <C>
Three months ended March 31, 2004:

   Revenues from external customers                        $2,910          $--      $4,339           $6       $7,255
   Intersegment revenues                                       --           --          --           --           --
   Segment gross profit                                       594           --         950            6        1,550
   Segment income (loss)                                       63         (353)        198           (3)         (95)

Three months ended March 31, 2003:

   Revenues from external customers                        $3,230       $4,700      $4,930           $8      $12,868
   Intersegment revenues                                        -          284          20            -          304
   Segment gross profit                                       863        1,313         885            8        3,069
   Segment income (loss)                                      (21)      (1,125)         50           (6)      (1,102)
</TABLE>

---------------
  (*)  Operating results of Comverge (the Energy Intelligence Solutions segment)
       are no longer consolidated  beginning the second quarter of 2003. Segment
       loss for the three months ended March 31, 2004  represents  the Company's
       share of Comverge's losses during that period.


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


RECONCILIATION OF SEGMENT LOSS TO CONSOLIDATED NET LOSS

<TABLE>
<CAPTION>
                                                                                     Three months ended March 31,
                                                                                  ------------------------------------
                                                                                       2003                 2004
                                                                                  ---------------       --------------
<S>                                                                                     <C>                    <C>
Total loss for reportable segments                                                      $(1,096)               $ (92)
Other operational segment income (loss)                                                      (6)                  (3)
                                                                                  ---------------       --------------
   Total operating loss                                                                  (1,102)                 (95)
Net loss of corporate headquarters                                                         (659)                (500)
                                                                                  ---------------       --------------
   Total consolidated net loss                                                          $(1,761)               $(595)
                                                                                  ===============       ==============
</TABLE>

                                      - 7 -


<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
                             (dollars in thousands)

NOTE 8: SUBSEQUENT EVENT

            On April 19, 2004, the Company signed an agreement in principle with
Kardan  Communications  Ltd.  ("Kardan"),  a subsidiary  of Kardan  N.V.,  for a
strategic  transaction  with Kardan or an  affiliate  thereof.  The  transaction
contemplates the purchase by the Company of certain  interests in a portfolio of
communication  and  technologies  companies  owned by Kardan in exchange for the
issuance by the Company of approximately 3.7 million shares of its common stock.
The agreement in principle also  contemplates  the issuance by the Company of an
additional  approximately  881,000  shares of its  common  stock to  Kardan  and
another minority  shareholder of the Company's dsIT Technologies Ltd. subsidiary
("dsIT") in exchange for the  approximately  32% of dsIT not currently  owned by
the Company.  It is contemplated  that upon  consummation of the transaction,  a
majority of the current  members of the Company's Board of Directors will resign
and be replaced by nominees of Kardan.

            As part of the  transaction,  Kardan  would invest $2 million in the
Company in exchange  for  approximately  631,000  shares of common  stock of the
Company  and  warrants,  exercisable  for two  years  from  the  closing  of the
transaction, to purchase an additional 500,000 shares of common stock at 120% of
the purchase price of the common stock  purchased at closing.  Kardan would also
be obligated to invest up to an additional $1 million in exchange for additional
shares of common stock in the event that the Company's  cash on hand falls below
a certain level. In addition,  the agreement in principle  contemplates  put and
call options for an additional  631,000 of the Company's  shares in exchange for
increased equity in one of the portfolio companies.

           The agreement in principle contains an exclusivity provision pursuant
to which  neither  DSSI nor Kardan may  solicit  or engage in  discussions  with
respect to any third party alternative  transaction for a period of 60 days from
the date of the letter  agreement,  except with respect to DSSI in the event and
to the extent that its fiduciary duties otherwise require.

         The agreement in principle and  consummation  of the  transactions  are
subject to completion of due diligence,  negotiation and execution of definitive
agreements, and various other agreements, conditions and terms.


                                      - 8 -
<PAGE>


                          DATA SYSTEMS & SOFTWARE INC.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

         The following  discussion  includes statements that are forward-looking
in nature.  Whether such statements ultimately prove to be accurate depends upon
a variety of factors  that may affect our business  and  operations.  Certain of
these factors are  discussed  below under  "Factors  That May  Influence  Future
Results"  and in Item 1.  Description  of  Business-Factors  That May  Influence
Future Results in our Annual Report on Form 10-K for the year ended December 31,
2003 (the "2003 10-K").

OVERVIEW AND TREND INFORMATION

         During the  periods  included  in this  report,  we  operated  in three
reportable  segments:  software consulting and development,  energy intelligence
solutions, and computer hardware. The following analysis should be read together
with  the  segment  information  provided  in  Note 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


         Segment  revenues  continued to decrease in the first  quarter of 2004,
primarily  as a result of the  decreasing  backlog  of fixed  price  development
projects.  This  decrease was  partially  offset by an increase in the number of
consultants and revenues on a cost-plus basis,  although this segment's revenues
are  still  below the  revenue  level in the first  quarter  of 2003.  There are
certain signs of a positive turn in the high-tech  market,  but we are unable to
project how and when this will affect us in this segment.


         Energy Intelligence Solutions


         In March 2004,  Comverge closed on an additional  agreement for private
equity financing in the amount of $3.0 million, bringing the aggregate amount of
financing  raised since April 2003 to $21.6  million,  including  $3.35  million
invested by DSSI.  This last round of financing  further  diluted our  preferred
equity investment holdings in Comverge to approximately 15% and our total equity
investment holdings in Comverge to approximately 37%.


         Comverge recently secured its third Virtual Peaking  CapacityTM ("VPC")
program. These programs, while requiring significant upfront cash investments in
marketing and  installation,  are expected to bring revenues  starting the third
quarter of this year.

         Computer Hardware

         Although  sales in the first  quarter of 2004 were  below  those of the
previous  quarter and those of the first  quarter of 2003,  gross  profits  were
higher due to the high profit  margins on the defense  projects bid jointly with
dsIT. We currently expect additional projects in this area but as of yet we have
not received any new similar  contracts and we cannot be certain that in fact we
will.

         Corporate


         Starting  the  beginning  of this  year,  our Chief  Executive  Officer
retired from full-time employment,  although at the Board's request he continues
to act as CEO as a  consultant,  under the terms  prescribed  by his  employment
agreement.  In the context of our continuing  evaluation of corporate  strategic
alternatives, on April 19, 2004, we signed an agreement in principle with Kardan
Communications  Ltd.  ("Kardan"),  a subsidiary of Kardan N.V.,  for a strategic
transaction with Kardan or an affiliate thereof. The transaction contemplates us
purchasing  certain  interests in a portfolio of communication  and technologies
companies owned by Kardan in exchange for our issuing  approximately 3.7 million
shares of common stock.


                                      - 9 -


<PAGE>



         The agreement in principle also  contemplates our issuing an additional
approximately  881,000  shares of common  stock to Kardan and  another  minority
shareholder of dsIT in exchange for the  approximately 32% of dsIT not currently
owned by us. It is contemplated  that upon  consummation of the  transaction,  a
majority of the  current  members of our Board of  Directors  will resign and be
replaced by nominees of Kardan.

         As part of the  transaction,  Kardan would invest in DSSI $2 million in
exchange for  approximately  631,000  shares of our common  stock and  warrants,
exercisable  for two years from the closing of the  transaction,  to purchase an
additional  500,000  shares of common stock at 120% of the purchase price of the
common stock  purchased at closing.  Kardan would also be obligated to invest up
to an additional $1 million in exchange for additional shares of common stock in
the event that our cash on hand falls below a certain  level.  In addition,  the
agreement  in  principle  contemplates  put and call  options for an  additional
631,000 of our shares in exchange for  increased  equity in one of the portfolio
companies.


         The agreement in principle  contains an exclusivity  provision pursuant
to which  neither  DSSI nor Kardan may  solicit  or engage in  discussions  with
respect to any third party alternative  transaction for a period of 60 days from
the date of the letter agreement, except, with respect to DSSI, in the event and
to the extent that its fiduciary duties otherwise require.

         The agreement in principle and  consummation  of the  transactions  are
subject to completion of due diligence,  negotiation and execution of definitive
agreements, and various other agreements, conditions and terms.


RESULTS OF OPERATIONS


         The following table sets forth certain  information with respect to the
consolidated  results of  operations  of the Company for the three  months ended
March 31, 2003 and 2004,  including the percentage of total revenues during each
period attributable to selected components of the operations  statement data and
for the period to period percentage changes in such components. Since commencing
with the second quarter of 2003, we do not fully consolidate  Comverge's results
of operations,  but rather  include them on an equity basis,  the results of the
periods presented are not fully comparable.


<TABLE>
<CAPTION>
                                                               Three months ended March 31,
                                                   ------------------------------------------------------  Change from
                                                              2003                        2004               2003 to
                                                                                                               2004
                                                   ---------------------------  -------------------------  -------------
                                                     ($,000)     % of sales       ($,000)    % of sales     % of 2003
                                                   ------------ --------------  ------------ ------------  -------------
<S>                                                   <C>           <C>            <C>          <C>           <C>
    Sales                                             $12,868       100%           $ 7,255      100%          (44)%
    Cost of sales                                       9,799       76               5,705      79             (42)
                                                   ------------ --------------  ------------ ------------
        Gross profit                                    3,069       24               1,550      21             (49)
    R&D expenses                                          153       1                    -      -             (100)
    SG&A expenses                                       4,302       33               1,830      25             (57)
                                                   ------------ --------------  ------------ ------------
        Operating loss                                 (1,386)     (11)               (280)     (4)            (80)
    Interest expense, net                                (332)     (3)                 (55)    (1)             (83)
    Other income (expense), net                           (14)      0                   101     1             (821)
                                                   ------------ --------------  ------------ ------------
    Loss before taxes on income                        (1,732)     (13)               (234)    (3)             (86)
    Taxes on income                                       (12)      0                     7     0             (158)
                                                   ------------ --------------  ------------ ------------
    Loss from operations of the Company and its
      consolidated subsidiaries                        (1,744)     (14)               (227)    (3)             (87)
    Share in losses of Comverge                             --      --                (353)    (5)              --
    Minority interest                                     (17)      0                  (15)     0              (12)
                                                   ------------ --------------  ------------ ------------
        Net loss                                      $(1,761)      (14)%            $(595)      (8)          (66)%
                                                   ============ ==============  ============ ============
</TABLE>


                                     - 10 -
<PAGE>



         Sales.  Of the $5.6 million  decrease in sales in the first  quarter of
2004  compared to the first  quarter of 2003,  $4.7 million was due to Comverge,
which since the second quarter of 2003, is no longer fully  consolidated.  Sales
decreased in the computer hardware sales segment by $0.6 million,  primarily due
to a weak hardware market. In the software  consulting and development  segment,
sales decreased by $0.3 million. This decrease is primarily  attributable to the
decrease in fixed price project development backlog as a result of the prolonged
downturn in the  high-tech  market in general and the  software  consulting  and
development market in particular.

         Gross  profit.  The decrease in gross profit and gross profit margin in
2004  as  compared  to  2003  was  also  primarily  due  to us no  longer  fully
consolidating  Comverge's  operations  since the second  quarter  of 2003.  This
accounted  for $1.3  million  of the $1.5  million  decrease.  In  addition,  as
Comverge's gross profit margin was higher than the average in the group, ceasing
to consolidate its operations caused a decrease in our consolidated gross profit
margin.  Gross profit in the computer  hardware  segment  increased in the first
quarter  of 2004 by $0.1  million,  primarily  due to the  higher  margins  with
respect to Israeli  defense  sales  marketed  jointly with dsIT. In the software
consulting and  development  segment,  as we expected an increase in fixed price
project  sales,  the decrease in such sales in the past quarter was not followed
with a commensurate  decrease in engineers and labor expenses,  and as a result,
the gross profit margin  decreased in this segment from 27% in the first quarter
of 2003 to 21% in the first quarter of 2004.


         Research and development expenses ("R&D"). The decrease in R&D expenses
was due to our no longer  consolidating  Comverge's  operations since the second
quarter of 2003.


         Selling,    general   and   administrative   expenses   ("SG&A").   The
discontinuation of full consolidation of Comverge's  operations since the second
quarter of 2003 accounted for $2.2 million of the $2.5 million  decrease in SG&A
expenses in the first  quarter of 2004 as compared to the first quarter of 2003.
However,  corporate  SG&A and SG&A in our software  consulting  and  development
segment decreased as well. In the software  consulting and development  segment,
SG&A  decreased by $0.2  million,  or 15%, as a result of cost cutting  measures
continuously being implemented.  Corporate SG&A also decreased  primarily due to
reduced  compensation  expenses  resulting  from our Chief  Executive  Officer's
retirement  from  full-time  employment.  The  change  in  auditors,   increased
correspondence   with  regulatory   authorities  and  expenses  related  to  the
exploration of strategic  alternatives  have caused an increase in  professional
fee expenditures, this is expected to continue to negatively impact the next two
quarters.


         Interest  income  (expense).  The  decrease in net finance  expenses is
attributable  to completing the accretion of discounts and the  amortization  of
related costs in connection with  convertible debt and warrants in the first few
months of 2003,  which accounted for a significant  portion of these expenses in
the first quarter of 2003.


         Equity loss in unconsolidated  subsidiary. The equity loss in the first
quarter of 2004 was attributable to Comverge, whose results we account for on an
equity  basis as of the second  quarter of 2003.  Our share of  Comverge's  $2.1
million of net losses during this quarter was $0.4 million. Comverge's increased
losses  in the  first  quarter  of 2004  was  primarily  due to  increased  SG&A
expenses,  primarily  attributable to the marketing expenses associated with its
new VPC programs as well as  severance  and vacation  expenses  associated  with
staff reductions.

LIQUIDITY AND CAPITAL RESOURCES

         As of March 31, 2004, we had working capital of $0.4 million, including
$1.1 million in non-restricted  cash and cash equivalents.  Net cash used in the
first  quarter of 2004 was $0.1  million.  Net cash of $0.1 million was provided
from operating activities during the first quarter of 2004. The net loss for the
three-month  period  ended  March 31,  2004 of $0.6  million  included  non-cash
expenses primarily  including our share of unconsolidated  losses of Comverge of
$0.4 million. The primary source of cash provided by operating activities during
2003 was our  collections  of trade accounts  receivables  and other current and
non-current  assets  in excess  of  reductions  in  accounts  payable  and other
liabilities  of $0.1  million,  net.  Net cash of $0.1 million used in investing
activities was primarily for funding employee termination benefits.  Net cash of
$0.1 million used in financing  activities  was primarily due to net payments of
debt.



                                     - 11 -
<PAGE>


         Of the total working capital at March 31, 2004, $0.2 million was in our
majority owned dsIT  subsidiary.  Due to Israeli tax and company law constraints
as well as the significant  minority  interest in dsIT, such working capital and
cash flows from dsIT's  operations  are not readily  available  to finance  U.S.
activities.

         As of April 30, 2004 the Company's  wholly owned US  operations  (i.e.,
excluding  dsIT and Comverge)  had an aggregate of $1.1 million in  unrestricted
cash and cash  equivalents,  reflecting a $0.1 million decrease from the balance
as of December 31, 2003.


         We  believe  we have  sufficient  liquidity  to  finance  our  US-based
operating  activities  and our corporate  activities  for at least the 12 months
following the date of this report, utilizing the cash on hand of $0.8 million as
of May 10, 2004 and operating cash flow from expected  profitable  operations of
the  computer  hardware  segment.  However,  due  to our  liquidity,  successful
implementation  of our  plan to fund  our  activities  is  subject  to risk  and
uncertainties,  including  those  associated  with (i)  increasing  the level of
computer  hardware segment revenues from the level achieved in the first quarter
of 2004, and (ii) effective and timely implementation of cost reductions already
begun.  Our  long-term  liquidity is  contingent  on our ability to increase our
revenue and profit base, become cash flow neutral in our US-based activities and
attract equity investments to the extent required.


         For  further  detail,  see  Notes  2 and  8 to  the  interim  unaudited
consolidated financial statements included in this quarterly report.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS


         Our  contractual   obligations  and  commitments  at  March  31,  2004,
excluding certain severance  arrangements  described below,  principally include
obligations  associated  with  our  outstanding  indebtedness,   future  minimum
operating lease obligations and contractual  obligations to our CEO for payments
for his  post-retirement  consulting services to us, and are as set forth in the
table below.


<TABLE>
<CAPTION>
                                                                 Cash Payments Due During Year Ending March 31,
                                                            ----------------------------------------------------------
                                                                             (amounts in thousands)

      Contractual Obligations                                 Total       2005      2006      2007       After 2007
      -----------------------                                 -----       ----      ----      ----       ----------

<S>                                                             <C>         <C>       <C>        <C>              <C>
      Long-term debt related to Israeli operations              $1,087      $636      $305       $146             $--

      Guarantees                                                   558       558        --         --              --

      Operating leases                                           2,515     1,238       671        280             326

      Consulting agreement with CEO                              1,304        --     1,304         --              --
                                                                ------    ------    ------       ----            ----

      Total contractual cash obligations                        $5,464    $2,432    $2,280       $426            $326
                                                                ======    ======    ======       ====            ====
</TABLE>

         We expect to finance these  contractual  commitments  from cash on hand
and cash generated from operations.

         Previously,  we  accrued  a loss  for  contingent  performance  of bank
guarantees.  Our remaining  commitment under these guarantees is $0.6 million at
March 31 2004. We have  collateralized a portion of these guarantees by means of
a deposit of $0.2 million as of March 31, 2004. The obligation is presented as a
current liability, though it is uncertain as to when actual payment may be made.


         Under  Israeli  law and  labor  agreements,  dsIT is  required  to make
severance payments to dismissed employees and to employees leaving employment in
certain other  circumstances.  The  obligation  for  severance pay benefits,  as
determined by the Israeli Severance Pay Law, is based upon length of service and
last salary.  These  obligations are  substantially  covered by regular deposits
with recognized severance pay and pension funds and by the purchase of insurance
policies.  As of March 31,  2004,  we had a total of $3.9  million in  potential
severance obligations,  of which approximately $2.5 million was funded with cash
to insurance  companies and approximately $1.4 million was unfunded.  The entire
$3.9 million was accrued for as of March 31, 2004.



                                     - 12 -
<PAGE>



         Under  the  terms  of his  employment  agreement  with  us,  we have an
obligation to pay our Chief Executive Officer  consulting fees over a seven-year
period starting  January 1, 2004.  During the first four years of the consulting
period,  we have to pay our CEO $237,000 per year, equal to 50% of his salary in
effect as of December  31, 2003.  During the last three years of the  consulting
period, we must pay $119,000 per year, equal to 25% of that salary. In addition,
we must make contributions to a non-qualified  defined  contribution  retirement
plan  equal to 25% of the  consulting  fee.  Under the  terms of the  employment
agreement,  we are  obliged  to fund  the  amounts  payable  for the term of the
consulting period by the purchase of an annuity or similar investment product at
the  beginning  of the  consulting  period.  The CEO has  agreed  to  forgo  the
commitment  of immediate  funding for the next twelve months or until we acquire
additional funding.  When and if we successfully  conclude the negotiations with
Kardan,  including their equity investment of $2 million,  a portion of this sum
would be utilized to fund our obligation under this agreement.


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

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         In the normal  course of business,  we are exposed to  fluctuations  in
interest  rates on  lines-of-credit  and long-term  debt incurred to finance our
operations  in  Israel,   currently   $897,000  and  $1,087,000,   respectively.
Additionally,   our  monetary   assets  and   liabilities   (net   liability  of
approximately $930,000) in Israel are exposed to fluctuations in exchange rates.
We do not employ specific strategies,  such as the use of derivative instruments
or  hedging,  to manage our  interest  rate or foreign  currency  exchange  rate
exposures.

ITEM 4.    CONTROLS AND PROCEDURES

EVALUATION OF CONTROLS AND PROCEDURES


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


CHANGES IN CONTROLS AND PROCEDURES

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


                                     - 13 -
<PAGE>


                           PART II - OTHER INFORMATION

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

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

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

         (b) Reports on Form 8-K



(i)   Report on Form 8-K, dated January 14, 2004, filed on January 15, 2004,
      changing DSSI's certifying accountant and engaging Kesselman & Kesselman,
      a member of PricewaterhouseCoopers International Limited.

(ii)  Report on Form 8-K, dated February 26, 2004, filed on March 5, 2004,
      changing our symbol to "DSSCE" pursuant to a decision of a Nasdaq Listing
      Qualification Panel.



                                     - 14 -
<PAGE>




                                   SIGNATURES

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

                                  DATA SYSTEMS & SOFTWARE INC.

Dated:  May 12, 2004


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


                                     - 15 -
<PAGE>


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

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

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

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

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

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

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

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

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

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

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

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

Dated:  May 12, 2004                                By:  \s\ GEORGE MORGENSTERN
                                                       ------------------------
                                                         George Morgenstern
                                                         Chief Executive Officer


                                     - 16 -
<PAGE>


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

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

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

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

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

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

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

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

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

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

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

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

Dated:  May 12, 2004                                 By: \s\ YACOV KAUFMAN
                                                         -----------------------
                                                         Yacov Kaufman
                                                         Chief Financial Officer

                                     - 17 -