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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 SEPTEMBER 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 November
14, 2002:    7,341,363
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<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
================================================================================

<TABLE>
<CAPTION>

                                                        TABLE OF CONTENTS


PART I.  FINANCIAL INFORMATION
<S>                                                                                                   <C>
Item 1.    Unaudited Consolidated Financial Statements

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

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

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

           Consolidated Statements of Cash Flows
                  for the nine month periods ended September 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......................................................... 13

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.................................. 18

Item 4.  Controls and Procedures..................................................................... 18


PART II. OTHER INFORMATION

        Item 6.   Exhibits and Reports on Form 8-K................................................... 19


SIGNATURES        ................................................................................... 20


CERTIFICATIONS    ................................................................................... 21


Exhibits          ................................................................................... 23
</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>

                          PART I FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

                                                                                  AS OF           AS OF
                                                                               DECEMBER 31,     SEPTEMBER
                                         ASSETS                                   2001          30, 2002
                                                                             --------------  --------------
                                                                                               (unaudited)

Current assets:
<S>                                                                             <C>              <C>
     Cash and cash equivalents .........................................        $  4,025         $  1,634
     Short-term interest bearing bank deposits and debt securities .....           1,828              473
     Restricted cash ...................................................             317            7,159
     Trade accounts receivable, net ....................................          10,197            8,585
     Inventory .........................................................             658            3,225
     Other current assets ..............................................           1,858            1,048
                                                                                --------         --------
         Total current assets ..........................................          18,883           22,124
Investments ............................................................              90               90
Property and equipment, net ............................................           2,296            2,041
Goodwill, net of accumulated amortization of $2,677 at December 31, 2001
  and $576 at September 30, 2002 .......................................           7,737            4,929
Other intangible assets, net ...........................................             909              421
Long-term deposits .....................................................           6,000             --
Other assets ...........................................................             676              584
Prepaid employee termination benefits ..................................           2,653            2,228
                                                                                --------         --------
         Total assets ..................................................        $ 39,244         $ 32,417
                                                                                ========         ========

                          LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Short-term debt and current maturities of long-term debt,
         net of discount of $381 at September 30, 2002 .................        $  2,499         $  9,390
     Trade accounts payable ............................................           4,010            5,235
     Accrued payroll, payroll taxes and social benefits ................           2,193            1,765
     Other current liabilities .........................................           3,372            3,375
                                                                                --------         --------
         Total current liabilities .....................................          12,074           19,765
                                                                                --------         --------
  Long-term liabilities:
     Long-term debt ....................................................           6,182              595
     Other liabilities .................................................             285              328
     Liability for employee termination benefits .......................           3,811            3,395
                                                                                --------         --------
            Total long-term liabilities ................................          10,278            4,318
                                                                                --------         --------
Minority interests .....................................................           2,530            1,630
                                                                                --------         --------
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)              (9)
     Accumulated deficit ...............................................         (18,643)         (27,015)
     Treasury stock, at cost - 808,704 shares ..........................          (3,860)          (3,860)
      Shareholder's note ...............................................            (298)            (298)
                                                                                --------         --------
         Total shareholders' equity ....................................          14,362            6,704
                                                                                --------         --------
         Total liabilities and shareholders' equity ....................        $ 39,244         $ 32,417
                                                                                ========         ========
</TABLE>

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

                                      - 1 -

<PAGE>


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

<TABLE>
<CAPTION>

                                                          NINE MONTHS ENDED                THREE MONTHS ENDED
                                                            SEPTEMBER 30,                    SEPTEMBER 30,
                                                    ------------------------------    -----------------------------
                                                        2001            2002              2001            2002
                                                    -------------  ---------------    --------------  -------------
Sales:

<S>                                                  <C>              <C>              <C>              <C>
     Products ...............................        $ 25,436         $ 24,868         $  7,235         $  7,207
     Services ...............................          10,721           11,992            3,124            4,062
                                                     --------         --------         --------         --------
                                                       36,157           36,860           10,359           11,269
                                                     --------         --------         --------         --------
   Cost of sales:

     Products ...............................          20,446           19,749            5,753            5,698
     Services ...............................           8,007            9,178            2,409            3,208
                                                     --------         --------         --------         --------
                                                       28,453           28,927            8,162            8,906
                                                     --------         --------         --------         --------
     Gross profit ...........................           7,704            7,933            2,197            2,363

Research and development expenses ...........           2,216            1,266              863              256
Selling, general and administrative expenses           12,628           12,675            4,242            3,923
Impairment of goodwill ......................            --              2,760             --              2,760
                                                     --------         --------         --------         --------
     Operating loss .........................          (7,140)          (8,768)          (2,908)          (4,576)
Interest income .............................             917              203              271               57
Interest expense ............................            (361)            (743)             (94)            (450)
Other income, net ...........................              26              148               31               56
Minority interests ..........................            --                852             --                649
                                                     --------         --------         --------         --------
     Loss before provision for income taxes .          (6,558)          (8,308)          (2,700)          (4,264)
Provision (benefit) for income taxes ........              18               64              (94)               7
                                                     --------         --------         --------         --------
     Net loss ...............................        $ (6,576)        $ (8,372)        $ (2,606)        $ (4,271)
                                                     ========         ========         ========         ========

Basic and diluted net loss per share:
     Net loss per share .....................        $  (0.95)        $  (1.14)        $  (0.37)        $  (0.58)
                                                     ========         ========         ========         ========
 Weighted average number of shares
              outstanding - basic and diluted           6,943            7,353            6,950            7,353
                                                     ========         ========         ========         ========
</TABLE>









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

                                      - 2 -

<PAGE>


                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
                      Nine Months Ended September 30, 2002
                                 (in thousands)
<TABLE>
<CAPTION>
                                             Additional
                        Number      Common    Paid-In      Deferred             Treasury Shareholder's Accumulated
                      of Shares      Stock    Capital   Compensation  Warrants   Stock        Note       Deficit      Total
                    -------------------------------------------------------------------------------------------------------

<S>                      <C>      <C>        <C>        <C>        <C>         <C>         <C>         <C>         <C>
Balances as of
   December 31, 2001      8,162   $     82   $ 36,981   $    (14)   $    114   $ (3,860)   $   (298)   $(18,643)   $ 14,362

Grant and
  recognition of
  stock option
  compensation .....       --         --           17          5        --         --          --          --            22

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

Net loss ...........       --         --         --         --          --         --          --        (8,372)     (8,372)
                          -------------------------------------------------------------------------------------------------

Balances as of
   September 30,
   2002                   8,162   $     82   $ 37,690   $     (9)   $    114   $ (3,860)   $   (298)   $(27,015)   $  6,704
                          =================================================================================================

</TABLE>





























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



                                      - 3 -

<PAGE>
                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                                                                    NINE MONTHS ENDED
                                                                                                      SEPTEMBER 30,
                                                                                                   -------------------
                                                                                                   2001           2002
                                                                                                   ----           ----
Cash flows used in operating activities:
<S>                                                                                             <C>              <C>
     Net loss ..........................................................................        $ (6,576)        $ (8,372)
   Adjustments to reconcile net loss to net cash provided by (used in) operating
      activities:
     Depreciation and amortization .....................................................             986              938
     Allowance for doubtful accounts ...................................................             (17)            --
     Stock option compensation .........................................................            --                 22
     Accretion of discount on convertible note and amortization of related costs .......            --                355
     Impairment of goodwill and acquired software ......................................            --              3,000
     Minority interest .................................................................            --               (852)
     Write-off of minority interest balance ............................................            --                (40)
     Unrealized gain on debt securities ................................................            --                (10)
     Deferred income taxes .............................................................            --                  7
     Increase (decrease) in liability for employee termination benefits ................             354             (416)
     Exchange adjustment on long-term debt .............................................            --                (29)
     Loss on disposition of property and equipment .....................................              32               15
     Settlement of payable to contract manufacturer......................................            --               (189)
     Write-off of inventory ............................................................              60             --
     Receipt of investments for services rendered ......................................            (130)            --
     Change in operating assets and liabilities:
         Funding of employee termination benefits ......................................            (100)             425
         Restricted cash ...............................................................              (7)            (842)
         Decrease (increase) in accounts receivable and other current assets ...........            (289)           2,542
         Increase in inventory .........................................................            (547)          (2,567)
         Decrease in other assets ......................................................              61              105
         Increase (decrease) in accounts payable and other liabilities .................            (191)             957
                                                                                                --------         --------
         Net cash used in operating activities .........................................          (6,364)          (4,951)
                                                                                                --------         --------
 Cash flows provided by (used in) investing activities:
     Short-term bank deposits, net .....................................................             994             --
     Proceeds from sale and maturity of debt securities ................................           1,081            1,519
     Investment in debt securities .....................................................          (2,810)            (154)
     Acquisitions of property and equipment ............................................            (774)            (344)
     Proceeds from sale of property and equipment ......................................              23             --
     Acquisition of intangible assets ..................................................              (7)              (8)
                                                                                                --------         --------
         Net cash provided by (used in) investing activities ...........................          (1,493)           1,013
                                                                                                --------         --------
Cash flows provided by (used in) financing activities:
     Short-term debt, net ..............................................................             606             (863)
     Proceeds from issuance of convertible note ........................................            --              2,000
     Borrowings of long-term debt ......................................................            --                646
     Repayments of long-term debt ......................................................             (19)             (69)
     Convertible note issuance costs ...................................................            --               (167)
     Proceeds from stock options exercises .............................................             231             --
     Purchase of treasury stock ........................................................            (907)            --
                                                                                                --------         --------
         Net cash  (used in) provided by financing activities ..........................             (89)           1,547
                                                                                                --------         --------
Net decrease in cash and cash equivalents ..............................................          (7,946)          (2,391)
Cash and cash equivalents at beginning of period .......................................          10,877            4,025
                                                                                                --------         --------
Cash and cash equivalents at end of period .............................................        $  2,931         $  1,634
                                                                                                ========         ========
Supplemental cash flow information:
     Cash paid during period for interest ..............................................        $    339         $    332
                                                                                                ========         ========
     Cash paid during period for income taxes ..........................................        $    463         $     92
                                                                                                ========         ========
Non-cash investing and financing activities:
      Issuance of deferred compensation ................................................        $     90
                                                                                                ========         ========
      Accounts payable incurred in acquisition of fixed assets .........................                         $     50
                                                                                                                 ========
      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
                                                                                                                 ========
</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, 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  nine-month  periods ended
September  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 September 30, 2002 the Company had working  capital of  approximately
$2,359,  including  $2,107 in  non-restricted  cash,  cash  equivalents and debt
security  investments.  Of the total working capital,  $462 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 third quarter of 2002 was $2,334 in addition to $2,617 net
cash used in the first half of this year. The primary  factors for the Company's
net cash usage during the third quarter of 2002, were (i) Comverge's  additional
investment in inventory of $855, (bringing its total inventory to $3,074),  (ii)
Comverge's loss for the period of $597 (iii) a reduction of non-restricted cash,
due to the deposit of $900 which  secured a deferred  payment  obligation in the
financing  of  Comverge's  additional  inventory  purchases  and  (iv)  the $276
decrease in  accounts  payable  and other  liabilities.  These uses of cash were
offset in part by a decrease of $1,069 in the Company's accounts  receivable and
other current asset balances during the third quarter of 2002.

     As of October 31, 2002 the  Company's  US  operations  had an  aggregate of
approximately  $1,900 in cash, cash  equivalents and short-term debt securities,
reflecting a $2,000  decrease  from the balance as July 31, 2002.  This decrease
resulted from the following cash payments by the Company: (i) making the October
payment on account of the Laurus convertible  debenture for $215 in cash, (ii) a
final payment of $193 pursuant to the settlement agreement with Bounty Investors
, (iii) a  payment  of $650 for  Comverge's  settlement  with  its  former  main
contract  manufacturer  for inventory and accounts  payable and (v) $942 to fund
other  Comverge  and  corporate  activities.  During this  period the  Company's
computer  hardware  and  domestic  software  consulting  activity  was  close to
breakeven,  and  consequently  did not provide any funds to support US corporate
activity.  Since  October 31,  2002 the Company  paid in cash to Laurus also the
second principal and interest payment of $215 , under the convertible debenture.

     The  Company's  liquidity  and  ability to  continue  to finance as a going
concern is contingent on a number of factors:

                                      - 5 -


<PAGE>


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


     o    Need to achieve positive cash flow in computer  hardware  segment:  In
          the last four quarters the computer  hardware segment  operations have
          been  breakeven,  not  providing  any  cash to  support  US  corporate
          activities.  The Company believes this segment will increase its sales
          significantly  as a result of a couple of large  transactions  already
          completed and others  currently  being  negotiated.  As a result,  the
          level  of  sales in the  computer  hardware  segment  is  expected  to
          increase  from an average of $4,300 in the last four  quarters to over
          $7,000 in the fourth  quarter  and an average of more than  $6,000 per
          quarter in 2003.  This increase in sales  together with  reductions in
          overhead expenses in the segment are expected to generate over $700 of
          cash flow in the fourth quarter of this year and an average of $320 in
          each quarter of 2003.

          Although these sales objectives reflect an increase of almost 50% over
          average per quarter  sales in the last four  quarters,  the Company is
          reasonably  confident  that  it  will  meet  these  projections,  as a
          substantial  portion of the orders projected for the fourth quarter of
          2002 and the first quarter of 2003 have already been received.

     o    Need to implement additional reduction of corporate expenses: Over the
          last four  quarters,  the  Company  has been  successful  in  reducing
          corporate  overhead  expenses by more than 20% from an average of $846
          per quarter in 2001 to $651 in the third quarter of 2002.  The Company
          achieved this decrease in costs  primarily by reducing salary expenses
          and  professional  fees,  including a 10% cut in  management  salaries
          since August 2002,  negotiation  of reduced legal billing rates and a
          cap on  quarterly  legal  expenses.  In order to  maintain  sufficient
          liquidity  for the  coming 12  months,  the  Company  wishes to reduce
          corporate  expenses by an additional  10%, from the level in the third
          quarter of 2002, to less than $600 per quarter.

     o    Need to minimize investment in by the Company in Comverge:  Except for
          the  additional  investment  in raw  material  inventory  noted above,
          Comverge's  operating  cash flow  continued  to  improve  in the third
          quarter of 2002.  As projected in the past,  the Company  expects that
          Comverge will be cash flow positive in the fourth quarter of 2002. The
          expected  improvement  in operating cash flow in the fourth quarter of
          this year results primarily from (i) increases in sales from contracts
          in hand,  resulting also from shipments delayed from the third quarter
          and (ii) expected  utilization of the raw material inventory purchased
          by Comverge in the second and third quarters.  However, if Comverge is
          unable to reach an agreement to amend the contract discussed in Note 8
          and shipments are as a result suspended or the contract is terminated,
          sales in the fourth quarter of 2002 would be significantly  lower than
          currently  expected  having a materially  adverse impact on Comverge's
          cash flow, financial condition and its operations in that quarter.

          The Company does not currently  expect  Comverge's sales in 2003 to be
          as high as those  projected  for the  fourth  quarter  of  2002,  and,
          consequently,  Comverge's  current  cost  structure  would  result  in
          negative cash flow in 2003. To address Comverge's cash flow situation,
          the  Company  has  prepared  a  business   plan  for  2003,   focusing
          particularly  on the first  quarter,  which  details the cost  cutting
          measures that must be taken before the end of 2002, to ensure Comverge
          is cash flow neutral and that its cost structure reflects the exepcted
          level of revenues. Should the revenue level expected be as low as that
          experienced  this year,  the  instituted  business  plan would include
          measures  that  could have a severely  negative  effect on  Comverge's
          business model and the current way it does business.

                                       -6-


<PAGE>


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


          Comverge  is in the  process of  negotiating  a $2,000 line of credit,
          secured by its accounts  receivables and inventory,  guaranteed by the
          Company.  The line of credit,  if  obtained,  will  provide  temporary
          relief to Comverge's cash flow concerns but will not solve  Comverge's
          longer term  liquidity  needs.  In addition,  the amount  available to
          Comverge  under this  facility  would be  negatively  impacted  if its
          customer suspends or terminates its agreement (see Note 8).

          The Company  has not been  successful  in  attracting  outside  equity
          funding  for  Comverge to date,  and the current  state of the capital
          markets  is  not  favorable  for  raising  such  funds.  However,  the
          Company's long-term strategy remains to establish  independent outside
          funding to finance its activities.  There can be no assurance 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;  it is therefore  not including the
          proceeds  of any such  possible  financing  in its  current  liquidity
          projections.

     o    Payments under the Laurus  Convertible Note: Since September 30, 2002,
          in addition to the interest  payments,  the Company has made the first
          two principal payments on the convertible note described in Note 3, in
          cash. Unless cash flow improves substantially,  the remaining payments
          will  be  made by  delivering  shares  of its  common  stock,  thereby
          conserving cash.  Payments using the Company's common stock,  however,
          would involve substantial dilution and could have a negative impact on
          the price of the Company's common stock.

     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 and improved  operating  results stemming from
continued cost reductions.

     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 that
will not  impede  the  Company's  ability  to  implement  its  current  business
strategy. However, due to the Company's liquidity, 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  its plans on a timely
basis,  the  Company may not have  sufficient  liquidity  to  continue  with its
operations as currently conducted


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 and a three-year warrant to purchase 125,000
shares of DSSI common stock at an exercise  price of $4.20 per share.  Under the
10%  convertible  note, the Company makes  interest-only  payments for the first
three months and  thereafter the Company makes ten payments of $200 plus accrued
interest on the outstanding balance.

     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.

                                      - 7 -


<PAGE>


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

     Although  the  first  two  principal  payments  on this  note,  made  since
September 30, 2002, have been in cash,  based on its current  liquidity  status,
unless cash flow improves  substantially,  the Company  currently expects to pay
most or the entire remaining principal and interest payments in shares of common
stock.  Should the Company  elect to make such payments in stock (in whole or in
part),  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's  Databit  subsidiary  granted Laurus a
security interest in Databit's accounts receivable.

     The Company estimated the fair value of the beneficial  conversion  feature
and related warrant at the issuance of the convertible  note to be approximately
$692.  Such  amount was  credited  to  additional  paid-in  capital and is being
charged to interest  expense over the  conversion  period  (with  respect to the
note)  and the  exercise  period  (with  respect  to the  warrants),  using  the
effective  interest method  (approximately  $256 and $311 for the three and nine
months ended September 30, 2002,  respectively).  The face value debt of $2,000,
less $381 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 September 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 consists of the
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).  Interest  expense  was $307 and $371,  for the three and nine
months ended September 30, 2002, respectively,  and is expected to be recognized
in the consolidated statement of operations as follows:

              Quarter ending December 31, 2002                         $246
              Quarter ending March 31, 2003                            $150
              Quarter ending June 30, 2003                              $61

NOTE 4: IMPACT OF RECENTLY ISSUED 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 the purchase of
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.

                                      - 8 -


<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 the primary  portion of its software  consulting and
development reporting unit, subsequent to the Endan acquisition in the beginning
of 2002, by using third-party valuations.

     At the end of the third quarter,  management began to prepare the Company's
annual  financial  operating  plan  for  2003.  As a  result  of  this  process,
management believes that, since the acquisition of Endan in December 2001, there
has been an other than  temporary  decline in the hi-tech  market in general and
the software  consulting  market in Israel in particular.  The Company began the
process  of  evaluating  the  carrying  value of the  goodwill  of its  software
consulting and development  segment.  The preliminary  evaluation  indicates the
software  consulting  and  development  segment's  goodwill is impaired  and the
Company has recognized a goodwill  impairment charge of approximately  $2,760 in
the three months ended September 30, 2002. The estimate of the fair value of the
segment was  determined  by  applying a  market-rate  multiple to the  estimated
near-term  future  revenue  stream  expected  to be  produced  by  the  software
consulting  and  development  segment  (the method used at the time of the Endan
acquisition).  The Company will perform its annual impairment test in the fourth
quarter  of 2002 for all its  reporting  units  (segments)  and may  adjust  the
impairment  recorded this quarter for the software  consulting  and  development
segment.

     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 nine and three  months ended  September
30,  2001,  adjusted to exclude  goodwill  amounts no longer  amortized,  are as
follows:
<TABLE>
<CAPTION>
                                                Nine months ended        Three months ended
                                               SEPTEMBER 30, 2001        SEPTEMBER 30, 2001
                                               ------------------        ------------------
Net loss:
<S>                                                 <C>                      <C>
   As reported ......................               $  (6,576)               $  (2,606)
   Add back: Goodwill amortization ..                     378                      125
                                                    ---------                ---------
         Pro forma net loss .........               $  (6,198)               $  (2,481)
                                                    =========                =========
Basic and diluted net loss per share:
   As reported ......................               $   (0.95)            $      (0.37)
   Add back: Goodwill amortization ..                    0.06                     0.01
                                                    ---------                ---------
         Pro forma net loss per share               $   (0.89)            $      (0.36)
                                                    =========                =========
</TABLE>

     Amortization  of intangible  assets for the nine months ended September 30,
2002  was  $305.  Amortization  expense  for  each of the next  five  years  and
thereafter is estimated as follows:

            YEAR ENDING DECEMBER 31,
           2002                                                           $366
           2003                                                            117
           2004                                                             91
           2005                                                             56
           2006                                                             46
           Thereafter                                                       41
                                                                        ------
                                                                          $717
                                                                        ======


                                      - 9 -
<PAGE>


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


         Other intangible assets consist of:
                                              As of                  As of
                                         DECEMBER 31, 2001    SEPTEMBER 30, 2002
                                         -----------------    ------------------
Cost:
  License ......................               $  567               $  567
  Patents ......................                  279                  288
  Software and software licenses                  572                  260
  Backlog ......................                 --                    120
                                               ------               ------
                                               $1,418               $1,235
                                               ------               ------
Less: Accumulated Amortization:
  License ......................               $  456               $  544
  Patents ......................                   53                   82
  Software licenses ............                 --                     80
  Backlog ......................                 --                    108
                                               ------               ------
                                               $  509               $  814
                                               ------               ------

Other intangible assets, net ...               $  909               $  421
                                               ======               ======

     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 the  undiscounted  future net cash flows expected to be generated,  by
that 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 the Company 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.

     During the quarter  ended  September  30,  2002,  the  Company  recorded an
impairment  charge  of $240 to cost of sales -  services,  related  to  acquired
software used by its software consulting and development segment.

     In June 2001,  the FASB  issued  Statement  No. 143,  ACCOUNTING  FOR ASSET
RETIREMENT OBLIGATIONS ("SFAS 143"). SFAS 143 addresses financial accounting and
reporting for obligations  associated with the retirement of tangible long-lived
assets  and  the  associated  asset  retirement   costs.  It  applies  to  legal
obligations associated with the retirement of long-lived assets that result from
the  acquisition,  construction,  development and (or) the normal operation of a
long-lived  asset,  except for certain  obligations  of lessees.  This Statement
amends FASB Statement No. 19, FINANCIAL  ACCOUNTING AND REPORTING BY OIL AND GAS
PRODUCING COMPANIES,  and it applies to all entities. The Company is required to
adopt SFAS 143,  effective for calendar  year 2003.  The Company does not expect
the  adoption of SFAS 143 to have a material  impact on its future  consolidated
operations or financial position, as it is now constituted.



                                     - 10 -


<PAGE>


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


     In July 2002, the FASB issued Statement of Financial  Accounting  Standards
No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES ("SFAS
146").  SFAS  146  addresses  financial   accounting  and  reporting  for  costs
associated with exit or disposal  activities and nullifies  Emerging Issues Task
Force  ("EITF")  Issue No. 94-3,  "Liability  Recognition  for Certain  Employee
Termination  Benefits  and Other Costs to Exit an Activity"  (including  Certain
Costs  Incurred in a  Restructuring).  The Company is required to adopt SFAS 146
effective  January 1, 2003. The Company does not expect  adoption of SFAS 146 to
have a  material  impact on its  future  consolidated  operations  or  financial
position, as it is now constituted.

NOTE 5: INVENTORY
                                                   As of            As of
Inventory consists of the following:        DECEMBER 31, 2001 SEPTEMBER 30, 2002
                                            ----------------- ------------------
Raw materials, spare parts and supplies           $  409           $2,862
Work-in-process .......................             --                175
Finished goods and merchandise ........              249              188
                                                  ------           ------
                                                  $  658           $3,225
                                                  ======           ======

NOTE 6: ACQUISITIONS

     (a) In December  2001,  the  Company's  dsIT  subsidiary  acquired  all the
outstanding  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.

     The entire  goodwill  acquired was assigned to the software  consulting and
development  segment.  In accordance with SFAS No. 142, the Company  recorded in
the  third  quarter  of 2002 an  impairment  of  $2,760,  against  the  software
consulting and  development  segment  goodwill,  which includes a portion of the
Endan goodwill.  In connection with the  acquisition,  the Company  continues to
evaluate  the  status  of  the  litigation   described  in  Note  15(e)  to  our
consolidated  financial  statements for the year ended December 31, 2001.  While
the  Company  does not expect an adverse  ruling,  any  amounts  awarded or paid
during 2002 will be credited or charged to operations.

     Upon receipt of third-party valuation  information,  it was determined that
the fair value of software 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. During the
third quarter of 2002, an impairment of software acquired was recorded, reducing
the remaining net book value by $240 (for more information see Note 4).

     (b) 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.

NOTE 7: OTHER MATERIAL TRANSACTIONS.

     In  September  2002,   Comverge   reached  a  settlement  with  a  contract
manufacturer to resolve a dispute regarding  outstanding  accounts payables owed
by Comverge and breach of contract by the contract manufacturer. Pursuant to the
settlement,  Comverge agreed to pay $1,350 to the contract  manufacturer for the
purchase of $536 of raw  materials in full  settlement of the $1,538 of payables
originally owed by Comverge,  allowing Comverge to record a $724 decrease in the
cost of sales in the third quarter.  The terms of the settlement provides for an
initial payment at closing of $450 and three  installment  payments of $300 each
payable on October 4,  November 4, and  December 4. The  deferred  payments  are
backed  by a letter  of  credit,  which is  secured  by the  Company  with  cash
collateral.  Comverge  plans  to  resell  approximately  $388  of  the  acquired
inventory to unrelated  contract  manufacturers and consume the remainder in its
internal manufacturing operations.

                                     - 11 -
<PAGE>
                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
                  (dollars in thousands, except per share data)


NOTE 8: SUBSEQUENT EVENTS.

     In October 2002, Comverge was notified by a customer to temporarily suspend
the  work  Comverge  was  then  performing  under a major  contract  and due for
completion  in the  fourth  quarter  of  2002  due to  the  customer's  concerns
regarding  one of  Comverge's  technology  vendors.  Subsequently,  the customer
agreed to allow  Comverge to resume work  pending an  amendment  to the contract
that  has been  agreed  to in  principle  and will  satisfactorily  address  the
customer's  concerns that led to the suspension.  If Comverge is unsuccessful in
receiving  a signed  amendment  to the  contract  and the  customer  attempts to
exercise its rights to suspend or terminate the contract, such action could have
a materially adverse impact on Comverge's financial condition and its operations
in the fourth quarter.

NOTE 9: SEGMENT INFORMATION
<TABLE>
<CAPTION>
                                                SOFTWARE
                                               CONSULTING         ENERGY
                                                   AND         INTELLIGENCE        COMPUTER
                                               DEVELOPMENT      SOLUTIONS          HARDWARE              OTHER           TOTAL
                                                -----------    ------------        --------              -----           -----
Nine months ended September 30, 2002:
<S>                                            <C>               <C>               <C>              <C>               <C>
   Revenues from external customers ..         $ 10,636          $ 12,683          $ 13,415         $    126          $ 36,860
   Intersegment revenues .............               72               870                73             --               1,015
   Segment gross profit ..............            1,704             3,918             2,260               51             7,933
   Segment income (loss)* ............           (3,553)           (2,465)               36               (2)           (5,984)

Nine months ended September 30, 2001:
   Revenues from external customers ..         $  9,647          $ 10,391          $ 16,005         $    114          $ 36,157
   Intersegment revenues .............              275               836                75             --               1,186
   Segment gross profit ..............            1,743             2,971             2,964               26             7,704
   Segment income (loss) .............           (1,469)           (4,481)              980               (8)           (4,978)

Three months ended September 30, 2002:
   Revenues from external customers ..         $  3,339          $  3,259          $  4,638         $     33          $ 11,269
   Intersegment revenues .............               53               391                27             --                 471
   Segment gross profit ..............              412             1,144               801                6             2,363
   Segment income (loss)* ............           (2,862)             (597)               61               (7)           (3,405)

Three months ended September 30, 2001:
   Revenues from external customers ..         $  2,527          $  4,283          $  3,519         $     30          $ 10,359
   Intersegment revenues .............              185               233                18             --                 436
   Segment gross profit ..............              179             1,267               778              (27)            2,197
   Segment income (loss) .............             (807)           (1,458)              174             --              (2,091)
</TABLE>

     *    Segment loss for the nine and three month periods ended  September 30,
          2002 in the software  consulting  and  development  segment  include a
          charge  of  $3,000   for   impairment   of   goodwill   and   acquired
          software reduced by $528 for minority interests.

RECONCILIATION OF SEGMENT INCOME (LOSS) TO NET LOSS:
<TABLE>
<CAPTION>
                                                         Nine months ended                Three months ended
                                                            September 30,                   September 30,
                                                     --------------------------        -----------------------
                                                       2001            2002             2001             2002
                                                     ------------   -----------        ----------- -----------
<S>                                                  <C>              <C>              <C>              <C>
Total loss for reportable segments .........         $(4,970)         $(5,982)         $(2,091)         $(3,398)
Other operational segment loss .............              (8)              (2)            --                 (7)
                                                     -------          -------          -------          -------
     Total operating loss ..................          (4,978)          (5,984)          (2,091)          (3,405)
Net income (loss) of corporate headquarters*          (1,598)          (2,388)            (515)            (866)
                                                     -------          -------          -------          -------
Total net loss .............................         $(6,576)         $(2,606)         $(4,271)         $(8,372)
                                                     =======          =======          =======          =======
</TABLE>
     *    Net loss of corporate headquarters for the nine and three months ended
          September 30, 2002 includes $311 and $256 of interest  expense related
          to the  amortization  of the fair value of the  beneficial  conversion
          feature and related  warrants at the issuance of the convertible  note
          in June of 2002.

                                     - 12 -
<PAGE>


ITEM 2. 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 9 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

     With the expanded  product  offerings and revenue base  resulting  from the
acquisition of Endan in December 2001, our software  consulting and  development
segment has been able to partially offset the drop in revenues,  compared to the
immediately  preceding  quarter,  due to the  continued  weakness in the hi-tech
sector  in  general  and the  software  consulting  and  development  market  in
particular.  Revenues for this segment in the third quarter of 2002 continued to
decline,  albeit  at  slower  rate than it would  have  been  without  the Endan
acquisition.  We expect  that these  market  conditions  will cause  revenues to
continue to decline in the fourth  quarter of 2002,  and will stay at  depressed
levels for the foreseeable future. In light of this other than temporary decline
in the high tech markets and in preparing  its financial  projections  for 2003,
the Company  recorded a non-cash  charge of $3 million  from  impairment  of the
segment's  goodwill and  software.  However,  we expect to reduce losses and the
results from operations to continue to improve, as they did this quarter, due to
the  continued  efforts to improve the cost  structure  at dsIT both in terms of
personnel and efficiency of operations.

     It is difficult to discern the effect of the general  downward trend in the
hi-tech  markets from the effect of the turmoil in Israel over the last year and
the negative effect on the Israeli economy.  Should the unrest  continue,  it is
unclear how our business there will be effected in the future.

     ENERGY INTELLIGENCE SOLUTIONS

Comverge  sales  decreased  in  the  third  quarter  of  2002,  compared  to the
immediately  preceding  quarter and the third quarter of 2001,  primarily due to
fewer  product  shipments  caused  by  production  delays  that  were due to the
replacement  of its  main  contract  manufacturer,  start-up  problems  with new
product  lines and  delayed  shipments  under a major  contract  due to customer
concerns  regarding  one of  Comverge's  technology  vendors.  In October  2002,
Comverge was notified by a customer to temporarily suspend the work Comverge was
then  performing  under a major  contract and due for  completion  in the fourth
quarter  of 2002 due to the  customer's  concerns  regarding  one of  Comverge's
technology  vendors.  Subsequently,  the  customer  agreed to allow  Comverge to
resume work  pending an  amendment  to the  contract  that has been agreed to in
principle and will  satisfactorily  address the customer's  concerns that led to
the  suspension.  As a result of our expectation to fulfill this major contract,
the  shift of  product  shipments  to the  fourth  quarter  of 2002 and  general
improvement in business,  we expect Comverge sales to increase  significantly in
the fourth  quarter,  compared to the third  quarter.  Comverge  recorded a $724
non-recurring  credit to cost of sales in the third  quarter of 2002 as a result
of a settlement  with its former main contract  manufacturer.  Gross profit from
its  ongoing  operations,  not  including  the  non-recurring  credit  decreased
primarily  as a result of a decrease  in sales  with  relatively  higher  profit
margins, partially being deferred to the next quarter. In addition,  Comverge is
continuously  working on  improving  its cost  structure  and  employee  related
expenses and these are expected to decline in the coming  quarters as the result
of cost saving  initiatives  implemented  in, and prior to, the third quarter of
2002. As a result of the expected  increases in sales,  improved cost  structure
and expected decreases in inventory levels, cash flows from operating activities
are expected to continue to improve in the fourth quarter of 2002.

                                     - 13 -


<PAGE>


     COMPUTER HARDWARE

     Databit  sales in the third  quarter of 2002  continued  to improve for the
fourth consecutive quarter and were 3% above the preceding quarter and 32% above
sales in the third quarter of 2001. We expect a more marked increase in sales in
the fourth  quarter and to  generally  maintain  the current  level of sales for
2003.

RESULTS OF OPERATIONS

     The  following  table sets forth  certain  information  with respect to the
results of our operations for the three and nine months ended September 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>

                                     Nine months ended September 30,                      Three months ended September 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 ....................   $ 36,157     100%    $ 36,860       100%        2%   $ 10,359       100%  $ 11,269      100%       9%
Cost of sales ............     28,453      79       28,927        78         1       8,162        79      8,906       79        6
                             --------    -----    --------    -------             --------     -----    -------     -----
   Gross profit ..........      7,704      21        7,933        22         3       2,197        21      2,363       21        8
R&D expenses .............      2,216       6        1,266         3       (43)        863         8        256        2      (70)
SG&A expenses ............     12,628      35       12,675        34         0       4,242        41      3,923       35       (8)
Impairment of goodwill ...       --        --        2,760         7                  --         --       2,760       24
                             --------    -----    --------    -------             --------     -----    -------     -----
   Operating loss ........     (7,140)    (20)      (8,768)      (24)       23      (2,908)      (28)    (4,576)     (41)      57
Interest income
(expense), net ...........        556       2         (540)       (1)     (197)        177         2       (393)      (3)    (322)
Other income, net ........         26       0          148         0       469          31         0         56        0       81
Minority interests .......       --        --          852         2                  --         --         649        6
                             --------    -----    --------    -------             --------     -----    -------     -----
   Loss before provision .     (6,558)    (18)      (8,308)      (23)       27      (2,700)      (26)    (4,264)     (38)      58
     for income taxes
Provision for income taxes         18       0           64         0       256         (94)       (1)         7        0     (107)
                             --------    -----    --------    -------             --------     -----    -------     -----
   Net loss ..............   $ (6,576)    (18)%   $ (8,372)      (23)%      27%   $ (2,606)      (25)% $ (4,271)     (38)%     64%
                             ========    =====    ========    =======             ========     =====    =======     =====
</TABLE>

     SALES.  Sales in the third quarter and first nine months of 2002 were $11.3
million and $36.9  million,  respectively,  increasing  over the same periods in
2001 by 9% and 2%,  respectively.  Sales in the third  quarter  of 2002 were 12%
below those of the immediately  preceding quarter.  The increase compared to the
third  quarter of 2001 was  primarily  due to increased  sales in both  software
consulting and development and computer hardware segments, partially offset by a
decrease in energy  intelligence  solution sales.  That decrease was the primary
reason  for the  decrease  in sales in the  third  quarter  as  compared  to the
immediately  preceding  quarter,  while  sales in the  other  segments  remained
relatively stable during the period.

     Energy  intelligence  solution sales in the third quarter of 2002 were $3.3
million, 24% below sales in the third quarter of 2001 and 32% below sales in the
immediately  preceding  quarter.  Segment sales in the first nine months of this
year were $12.7  million,  22% above sales in the first nine months in 2001. The
decrease in this segment's sales in the third quarter was primarily attributable
to fewer product shipments caused by production  delays,  due to the replacement
of  Comverge's  main  contract  manufacturer  and  start-up  problems  with  the
introduction of new products.

     Sales in the computer  hardware segment  continued to improve and were $4.6
million  and $13.4  million in the third  quarter and first nine months of 2002,
respectively.  This  reflects a 32% increase  over sales in the third quarter of
2001,  though  still 16%  below  sales of the first  nine  months of 2001.  This
segment's  third quarter sales were 3% over sales in the  immediately  preceding
quarter.

     Software  consulting  and  development  sales were $3.3  million  and $10.6
million  in the third  quarter  and  first  nine  months of 2002,  respectively,
increasing by 32% and 10%,  compared to the same periods of 2001,  respectively.
This  improvement in sales,  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.  This continued
weakness  in the hi-tech  markets is the  primary  reason for the 3% decrease in
sales in the third quarter of 2002 compare to the immediately preceding quarter.

                                     - 14 -


<PAGE>

     GROSS  PROFIT.  Gross profit in the third  quarter of 2002 was $2.4 million
increasing  8%  compared  to the third  quarter of 2001,  although  9% below the
immediately preceding quarter. Gross profit in the first nine months of 2002 was
$7.9 million increasing by 3% compared to the first nine months of 2001.

     The increase in gross profit in the third  quarter and first nine months of
2002, compared to the same periods in 2001, was primarily due to a non-recurring
$724  credit to cost of sales  resulting  from  Comverge's  settlement  with its
former  contract  manufacturer.  This  credit  was  partially  offset  by  other
non-recurring  charges of $240 for the impairment of acquired  software and $125
one time warranty  accrual.  In addition,  gross profit margins from operations,
excluding  non-recurring  expenses,  improved  in our  software  consulting  and
development  segment  from  11% in the  third  quarter  of 2001 to 19% in  third
quarter of 2002,  while  remaining  stable in comparing the nine-month  periods.
This  improvement  in  gross  profit  margins  in the  software  consulting  and
development  segment, was partially offset by a decrease in gross profit margins
in the computer hardware segment from 22% in the third quarter of 2001 to 17% in
the third  quarter of 2002.  In addition,  the gross profit margin in the energy
intelligence  solutions  segment  in the third  quarter of 2002,  excluding  the
non-recurring  credit and  debit,  decreased  as a result of a  decrease  higher
profit margin sales, which were partially being deferred to the next quarter.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"). In the third quarter
of 2002  SG&A  was  $3.9  million,  decreasing  by 12% and 8%,  compared  to the
immediately  preceding  quarter and third  quarter of 2001,  respectively.  This
decrease  primarily  reflects  decreases  in  overhead  expenses  in the utility
solutions segment as well as a continued decrease in corporate expenses. SG&A in
the first nine months of 2002 was at a level  similar to that of the same period
of 2001.

     IMPAIRMENT  OF  GOODWILL.  With  the  acquisition  of  Endan  by  our  dsIT
subsidiary in December 2001, we recognized goodwill and acquired software valued
at a total of $6.4 million.  This value was supported by third party  valuations
prepared at the time of the acquisition, based on sales and business projections
made at that  time.  Since  then,  the  hi-tech  market in  general  and that of
software  consulting in particular have continued to  deteriorate.  We have made
concerted  efforts to offset  this  negative  trend with cost  cutting  measures
already implemented. As we look forward to the coming year, the expense recorded
reflects our reassessment of the values then recorded with respect to the entire
software  consulting  and  development  segment to  reflect  our  current  sales
projections,  based on the same valuation models then employed. We are confident
that the cost cutting measures already  implemented,  will provide for breakeven
and even positive  performance in the coming quarters,  justifying the remaining
goodwill and value attached to this segment.

     INTEREST EXPENSE.  The net interest expense in the 2002 periods, as opposed
to net  interest  income  in the  2001  periods,  as well as the  increase  over
interest expense in the immediately  preceding quarter,  resulted primarily from
the $307  finance  expense  incurred  in the  third  quarter  of  2002,  for the
amortization of costs  associated with the convertible  debenture issued towards
the end of the second quarter of 2002. In addition, interest income decreased as
a result of  decreasing  funds  invested,  as they are  utilized  to finance our
domestic  operations,  as well as a decrease in interest  rates.  The  financial
expenses  associated  with the  convertible  debenture will continue in the next
three quarters, at a decreasing rate.

     MINORITY  INTERESTS.  Minority  interests,  reflects primarily the minority
interests in our dsIT subsidiary,  since the Endan acquisition in December 2001.
The  increase in  minority  interests  reflects  their  participation  in losses
generated  by dsIT in the third  quarter  of 2002  including  a  portion  of the
impairment of goodwill and acquired software in this segment as described above.

     NET LOSS.  The net loss in the third  quarter and first nine months of 2002
increased  to $4.3  million  and $8.4  million,  respectively,  compared to $2.6
million and $6.6  million,  in the same periods of 2001.  These  increases  were
principally  due to the  aforementioned  impairment  of  goodwill  and  acquired
software.










                                     - 15 -
<PAGE>



LIQUIDITY AND CAPITAL RESOURCES

     As of September 30, 2002 we had working capital of approximately $2,359,000
including  $2,107,000 in non-restricted cash, cash equivalents and debt security
investments.  Of the total working capital,  $462,000 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 third quarter of 2002 was $2,334,000 in addition to $2,617,000 net cash used
in the first  half of this  year.  The  primary  factors  for our net cash usage
during the third quarter of 2002, were (i) Comverge's  additional  investment in
inventory  of  $855,000  (bringing  its total  inventory  to  $3,074,000),  (ii)
Comverge's  loss for the period of $597,000 (iii) a reduction of  non-restricted
cash, due to the deposit of $900,000 which secured a deferred payment obligation
in the  financing of  Comverge's  additional  inventory  purchases  and (iv) the
$276,000 decrease in accounts payable and other liabilities.  These uses of cash
were offset in part by a decrease of $1,069,000 in our accounts  receivable  and
other current asset balances during the third quarter of 2002.

     As of October 31, 2002 our US operations had an aggregate of  approximately
$1,900,000 in cash, cash equivalents and short-term debt securities,  reflecting
a $2,000,000  decrease from the balance as July 31, 2002. This decrease resulted
from the  following  cash  payments  by us: (i) making  the  October  payment on
account of the Laurus  convertible  debenture for $215,000 in cash, (ii) a final
payment of $193,000 pursuant to the settlement  agreement with Bounty Investors,
(iii) a payment of  $650,000  for  Comverge's  settlement  with its former  main
contract  manufacturer  for inventory  and accounts  payable and (v) $942,000 to
fund other  Comverge and corporate  activities.  During this period our computer
hardware and domestic software consulting  activity was close to breakeven,  and
consequently did not provide any funds to support US corporate  activity.  Since
October  31,  2002 we paid in cash to  Laurus  also  the  second  principal  and
interest payment of $215,000 under the convertible debenture.

     Our liquidity and ability to continue as a going concern is contingent on a
number of factors:

     o    Need to achieve positive cash flow in computer  hardware  segment:  In
          the last four quarters the computer  hardware segment  operations have
          been  breakeven,  not  providing  any  cash to  support  US  corporate
          activities.   We  believe  this   segment  will   increase  its  sales
          significantly  as a result of a couple of large  transactions  already
          completed and others  currently  being  negotiated.  As a result,  the
          level  of  sales in the  computer  hardware  segment  is  expected  to
          increase  from an average of  $4,300,000  in the last four quarters to
          over  $7,000,000  in the  fourth  quarter  and an average of more than
          $6,000,000  per quarter in 2003.  This increase in sales together with
          reductions  in  overhead  expenses  in the  segment  are  expected  to
          generate over $700,000 in cash flow in the fourth quarter of this year
          and an average of $320,000 in each quarter of 2003.

          Although these sales objectives reflect an increase of almost 50% over
          average per quarter sales in the last four quarters, we are reasonably
          confident  that it  will  meet  these  projections,  as a  substantial
          portion of the orders projected for the fourth quarter of 2002 and the
          first quarter of 2003 have already been received.

     o    Need to implement additional reduction of corporate expenses: Over the
          last four  quarters,  we have been  successful  in reducing  corporate
          overhead  expenses  by more than 20% from an average of  $846,000  per
          quarter in 2001 to $651,000 in the third  quarter of 2002. We achieved
          this  decrease in costs  primarily  by reducing  salary  expenses  and
          professional  fees,  including a 10% cut in management  salaries since
          August 2002,  negotiation  of reduced legal billing rates and a cap on
          quarterly legal expenses.  In order to maintain  sufficient  liquidity
          for the coming 12 months,  we wish to reduce corporate  expenses by an
          additional  10%,  from the level in the third quarter of 2002, to less
          than $600,000 per quarter.

     o    Need to minimize our investment in Comverge: Except for the additional
          investment in raw material inventory noted above, Comverge's operating
          cash flow continued to improve in the third quarter of 2002.

                                      -16 -



<PAGE>



          As projected in the past,  we expect that  Comverge  will be cash flow
          positive in the fourth  quarter of 2002.  The expected  improvement in
          operating  cash  flow  in the  fourth  quarter  of this  year  results
          primarily  from  (i)  increases  in  sales  from  contracts  in  hand,
          resulting also from shipments  delayed from the third quarter and (ii)
          expected  utilization  of the  raw  material  inventory  purchased  by
          Comverge  in the second and third  quarters.  However,  if Comverge is
          unable to reach an agreement to amend the contract discussed in Note 8
          and shipments are as a result suspended or the contract is terminated,
          sales in the fourth quarter of 2002 would be significantly  lower than
          currently  expected  having a materially  adverse impact on Comverge's
          cash flow, financial condition and its operations in that quarter.

          We do not currently  expect  Comverge's sales in 2003 to be as high as
          those  projected for the fourth  quarter of 2002,  and,  consequently,
          Comverge's  current cost structure  would result in negative cash flow
          in 2003. To address Comverge's cash flow situation, we have prepared a
          business plan for 2003,  focusing  particularly  on the first quarter,
          which details the cost cutting  measures that must be taken before the
          end of 2002, to ensure Comverge is cash flow neutral and that its cost
          structure  reflects the expected level of revenue.  Should the revenue
          level expected be as low as that experienced this year, the instituted
          business  plan  would  include  measures  that  could  have a severely
          negative  effect on Comverge's  business  model and the current way it
          does business.

          Comverge is in the process of negotiating a $2,000,000 line of credit,
          secured by its accounts  receivables and inventory,  guaranteed by us.
          The line of credit,  if  obtained,  will provide  temporary  relief to
          Comverge's  cash flow  concerns but will not solve  comverge's  longer
          term liquidity  needs. In addition,  the amount  available to Comverge
          under this  facility  would be  negatively  impacted  if its  customer
          suspends or terminates its agreement (see Note 8).

          We have has not been  successful in attracting  outside equity funding
          for Comverge to date, and the current state of the capital  markets is
          not favorable for raising such funds.  However, our long-term strategy
          remains to  establish  independent  outside  funding  to  finance  its
          activities. There can be no assurance 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; we are
          therefore not including proceeds of any such possible financing in our
          current liquidity projections.

     o    Payments under the Laurus  Convertible Note: Since September 30, 2002,
          we have made the first two principal  payments on the convertible note
          described in Note 3, in cash. Unless cash flow improves substantially,
          the remaining payments will be made by delivering shares of its common
          stock,  thereby  conserving cash.  Payments using the Company's common
          stock,  however,  would involve substantial  dilution and could have a
          negative impact on the price of our common stock.

     dsIT is fully  utilizing its line of credit of $2,000,000.  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 and improved  operating  results stemming from
continued cost reductions.

     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  that will not
impede our ability to implement its current business strategy.  However,  due to
our  liquidity,  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  our plans on a timely basis, we
may not have  sufficient  liquidity to continue with our operations as currently
conducted.


                                      -17 -



<PAGE>



NEW ACCOUNTING PRONOUNCEMENTS

     In June 2001,  the FASB  issued  Statement  No. 143,  ACCOUNTING  FOR ASSET
RETIREMENT OBLIGATIONS ("SFAS 143"). SFAS 143 addresses financial accounting and
reporting for obligations  associated with the retirement of tangible long-lived
assets  and  the  associated  asset  retirement   costs.  It  applies  to  legal
obligations associated with the retirement of long-lived assets that result from
the  acquisition,  construction,  development and (or) the normal operation of a
long-lived  asset,  except for certain  obligations  of lessees.  This Statement
amends FASB Statement No. 19, FINANCIAL  ACCOUNTING AND REPORTING BY OIL AND GAS
PRODUCING  COMPANIES,  and it applies to all entities.  We are required to adopt
SFAS 143,  effective  for calendar  year 2003.  We do not expect the adoption of
SFAS 143 to have a material  impact on our  future  consolidated  operations  or
financial position, as we are now constituted.

     In July 2002, the FASB issued Statement of Financial  Accounting  Standards
No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES ("SFAS
146").  SFAS  146  addresses  financial   accounting  and  reporting  for  costs
associated with exit or disposal  activities and nullifies  Emerging Issues Task
Force  ("EITF")  Issue No. 94-3,  "Liability  Recognition  for Certain  Employee
Termination  Benefits  and Other Costs to Exit an Activity"  (including  Certain
Costs Incurred in a Restructuring). We are required to adopt SFAS 146, effective
January 1, 2003.  We do not expect the  adoption  of SFAS 146 to have a material
impact on our future consolidated  operations or financial  position,  as we are
now constituted.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     In the  normal  course of  business,  we are  exposed  to  fluctuations  in
interest  rates on the $6.0  million of debt  incurred  to finance  our  capital
expenditures  as well as short-term and long-term  debt,  currently $1.8 million
and $590,000, respectively, to finance our operations in Israel. Our convertible
note,  with a face value of $2  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  $855,000) 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 $411,000  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.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF CONTROLS AND PROCEDURES

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

CHANGES IN CONTROLS AND PROCEDURES

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






                                     - 18 -




<PAGE>



                           PART II - OTHER INFORMATION



ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K


         (a) Exhibits

     10.1 Amendment to Employment  Agreement,  dated as of June 1, 2002, between
          the registrant and Yacov Kaufman.

     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




































                                     - 19 -



<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:  November 14, 2002

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






































                                     - 20 -


<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:  November 14, 2002             By:  \S\ GEORGE MORGENSTERN
                                           ------------------------------
                                           George Morgenstern
                                           Chief Executive Officer










                                     - 21 -

<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:  November 14, 2002        By:  \S\ YACOV KAUFMAN
                                      ----------------------
                                      Yacov Kaufman
                                      Chief Financial Officer






                                     - 22 -

<PAGE>


                                  EXHIBIT 10.1

                        AMENDMENT TO EMPLOYMENT AGREEMENT

AMENDMENT TO EMPLOYMENT AGREEMENT dated as of June 1, 2002 between DATA SYSTEMS
& SOFTWARE INC., a Delaware corporation (the "Company"), and YACOV KAUFMAN (the
"Executive"),


                              W I T N E S S E T H:

WHEREAS, the Executive and the Company signed an employment agreement on January
1, 1999 and wish to extend it and amend certain terms; and

WHEREAS,  the Executive has successfully  fulfilled the  responsibilities of his
positions in the Company and its subsidiaries; and

WHEREAS, the Company desires to assure itself of the Executive's continued
services, and the Executive is willing to continue to provide such services to
the company, all upon the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the promises hereinafter set forth, the
parties hereto, intending to be legally bound, hereby agree as follows:

     EMPLOYMENT.

To extend the Employment Period as defined in the Employment Agreement.

     COMPENSATION.

To amend Paragraph 2(a) in the Employment Agreement so as to reflect the salary
previously approved and pay the Executive a salary at the rate of $13,333 per
month, retroactive to January1, 2001. In addition, commencing on January 1, 2002
an additional sum of $3,334 per month.

     TERMINATION.

Replace Paragraph 4(c) of the Employment Agreement with;

(c) In addition to the severance payment pursuant to Paragraph 4(b), upon the
termination of the Executive's employment, the Company shall pay the Executive a
termination payment equal to six times his last month's total compensation.

This payment is in addition to any other rights and payments owing to the
Executive under this Agreement."

     COUNTERPARTS.

This Agreement may be executed in counterparts, each of which shall constitute
an original and which together shall constitute one and the same agreement.

     IN WITNESS WHEREOF the parties hereto have executed this Agreement, as of
the day and year first above written.

                                         DATA SYSTEMS & SOFTWARE INC.

   \S\ YACOV KAUFMAN                     By:\S\ GEORGE MORGENSTERN
   ------------------------                 ------------------------
   Yacov Kaufman                                George Morgenstern
                                                CEO and President

                                         By:\S\ SHELDON KRAUSE
                                            --------------------
                                                Sheldon Krause
                                                Secretary

                                     - 23 -


<PAGE>


                                  EXHIBIT 99.1
                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In  connection  with the  Quarterly  Report of Data Systems & Software Inc. (the
"Company") on Form 10-Q for the three and nine month periods ended September 30,
2002 as filed with the  Securities  and Exchange  Commission  on the date hereof
(the "Report"),  I, George Morgenstern,  Chief Executive Officer of the Company,
certify,  pursuant to 18 U.S.C.  ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities  Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.

  /S/ GEORGE MORGENSTERN
------------------------
George Morgenstern
Chief Executive Officer
November 14, 2002


























                                     - 24 -


<PAGE>



                                  EXHIBIT 99.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In  connection  with the  Quarterly  Report of Data Systems & Software Inc. (the
"Company") on Form 10-Q for the three and nine month periods ended September 30,
2002 as filed with the  Securities  and Exchange  Commission  on the date hereof
(the  "Report"),  I, Yacov  Kaufman,  Chief  Financial  Officer of the  Company,
certify,  pursuant to 18 U.S.C.  ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities  Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.

  /S/ YACOV KAUFMAN
-------------------
Yacov Kaufman
Chief Financial Officer
November 14, 2002
























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