<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 Identification No.)
     incorporation or organization)

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

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

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                          COMMON STOCK PURCHASE RIGHTS
                                (TITLE OF CLASS)

     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. Yes /x/ No / /

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant`s  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes / / No /x /

     The aggregate  market value of the common stock held by  non-affiliates  of
the registrant at March 31, 2003 was approximately  $19.1 million. The aggregate
market value was calculated by using the closing price of the stock on that date
on the Nasdaq National Market.

     Number of shares outstanding of the registrant`s  common stock, as of March
31, 2003: 7,391,363

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Certain sections of the  registrant`s  Proxy Statement to be filed pursuant
to Regulation 14A under the  Securities  Exchange Act of 1934 within 120 days of
the end of the registrant`s  fiscal year are incorporated by reference into Part
III of this Form 10-K.


<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                 PAGE

PART I

<S>                                                                                <C>
Item 1.    Business ............................................................    1

Item 2.    Properties ..........................................................    8

Item 3.    Legal Proceedings ...................................................    8

Item 4.    Submission of Matters to a Vote of Security Holders .................    9

PART II

Item 5.    Market for Registrant`s Common Equity and Related Stockholder Matters   10

Item 6.    Selected Financial Data .............................................   10

Item 7.    Management`s Discussion and Analysis of Financial Condition
              and Results of Operations ........................................   12

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk ..........   22

Item 8.    Financial Statements and Supplementary Data .........................   22

Item 9.    Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure .............................................   22

PART III

Item 10.   Directors and Executive Officers of the Registrant ..................   23

Item 11.   Executive Compensation ..............................................   23

Item 12.   Security Ownership of Certain Beneficial Owners

             and Management and Related Stockholder Matters ....................   23

Item 13.   Certain Relationships and Related Transactions ......................   23

Item 14.   Controls and Procedures .............................................   23

Part IV

Item 15.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K ....   25
</TABLE>

     Certain statements  contained in this report are forward-looking in nature.
These  statements  can be identified by the use of  forward-looking  terminology
such as "believes",  "expects", "may", "will", "should" or "anticipates", or the
negatives thereof, or comparable terminology, or by discussions of strategy. You
are cautioned that our business and operations are subject to a variety of risks
and uncertainties  and,  consequently,  our actual results may materially differ
from those projected by any  forward-looking  statements.  Certain of such risks
and   uncertainties   are   discussed   below   under  the   heading   "Item  1.
Business-Factors That May Affect Future Results."

     EasyBill(TM)  and  OncoPro(TM) are trademarks of our Endan IT Solutions Ltd
subsidiary.   Maingate(R)  is  a  registered  trademark  and  PowerCamp(TM)  and
Superstat(TM) are trademarks of our Comverge, Inc. subsidiary.



<PAGE>

                                     PART I

ITEM 1.  BUSINESS

OVERVIEW

     Through our subsidiaries in the United States and Israel, we are engaged in
the following businesses:

     o    Software Consulting and Development--Providing consulting and
          development services for computer software and systems, primarily
          through our dsIT subsidiary.

     o    Energy Intelligence Solutions--Developing and marketing load control,
          data communications and other energy intelligence solutions for
          electric utilities and their customers, through our Comverge
          subsidiary.

     o    Computer Hardware Sales--Serving as an authorized dealer and a
          value-added-reseller (VAR) of computer hardware, through our Databit
          subsidiary.

SALES BY ACTIVITY

     The following table shows, for the years  indicated,  the dollar amount and
the  percentage  of the  sales  attributable  to each of the  activities  of our
operations.

<TABLE>
<CAPTION>
                                           2000           2001            2002
                                      -------------   ------------   -------------
                                       Amount    %    Amount    %     Amount    %
                                      -------   ---   -------  ---   -------   ---
<S>                                   <C>       <C>   <C>      <C>   <C>       <C>
Software consulting and development   $18,977    33   $12,279   27   $14,202    25
Energy intelligence solutions .....    17,105    30    13,793   30    19,023    34
Computer hardware sales ...........    21,515    37    19,794   43    22,605    41
Other .............................       242    --        58   --        56    --
                                      -------   ---   -------  ---   -------   ---
          Total Sales .............   $57,839   100   $45,924  100   $55,886   100
                                      =======   ===   =======  ===   =======   ===
</TABLE>

SOFTWARE CONSULTING AND DEVELOPMENT

Services

     Through dsIT Technologies Ltd.  ("dsIT"),  we provide computer software and
systems consulting,  development and integration services. dsIT`s principal area
of technological expertise is state-of-the-art  hardware with embedded real-time
software    systems   in   a   wide   variety   of    applications,    primarily
telecommunications,   digital  signal  processing,  image  processing,  software
testing and validation, electronic warfare, simulation and electro-optics.  dsIT
combines the  characteristics  of a systems and software house with  significant
hardware  development  capabilities,  in a  wide  range  of  application  areas,
spanning from military and  aerospace  applications,  security and public safety
systems,  telecom and datacom  systems,  and  command and  control.  Through our
acquisition of Endan IT Solutions Ltd. ("Endan"),  dsIT now offers expertise and
solutions products for billing, healthcare and other IT applications.

     We provide  our  services  either on a  time-and-materials  or  fixed-price
basis. When working on a  time-and-materials  basis, our engineers are generally
sent to the  customer`s  premises to perform design and  development  activities
under the customer`s  direction.  In these engagements,  our personnel typically
have no specific  obligation for product  delivery.  During 2000, 2001 and 2002,
sales attributable to services provided on a time-and-materials basis were $14.2
million,   $7.9  million  and  $9.8  million,   respectively,   accounting   for
approximately 75%, 64% and 69% of segment sales for such years, respectively.

     When working on a fixed-price  basis,  we undertake to deliver  software or
hardware/software solutions to a customer`s specifications or requirements for a
particular     project,     accounting     for    these    services    on    the
percentage-of-completion  method. Since the profit margins on these projects are
primarily  determined by our success in controlling  project  costs,  margins on
these projects may vary substantially as a result of various factors,  including
underestimating   costs,   difficulties   associated   with   implementing   new
technologies  and economic  and other  changes that may occur during the term of
the contract.  During 2000, 2001 and 2002, sales from fixed-price contracts were
$4.8  million,  $4.4  million  and $3.7  million  respectively,  accounting  for
approximately 25%, 36% and 26% of segment sales for such years, respectively.


                                      -2-
<PAGE>

     Sales and  maintenance of our billing and healthcare  proprietary  software
from our Endan  subsidiary  provided  $0.7 million or 5% of segment sales during
2002.

Customers and Markets

     Israel has historically been the primary area of this segment`s operations,
accounting  for  82%,  88% and 95% of  segment  sales in  2000,  2001 and  2002,
respectively.  This trend will continue as a result of our  acquisition of Endan
and the  decline  in our  consulting  business  in the  United  States.  We have
developed a diverse customer base. In 2002, no customer  accounted for more than
9% of segment revenues.

Competition

     Our software  consulting and  development  segment faces  competition  from
numerous competitors,  both large and small, operating in the Israeli and United
States  markets,   some  with  substantially  greater  financial  and  marketing
resources.   We  believe  that  our  wide  range  of  experience  and  long-term
relationships  with large  corporations  in Israel and the  United  States  will
enable us to compete successfully and obtain future business.

Proprietary Rights

     As a result of the Endan acquisition,  we now own two proprietary  software
packages:  EasyBill(TM),  a  comprehensive  customer  service and billing system
aimed  at  the  low  to  middle  end  application market; and OncoPro(TM), which
manages  hospital  medical  files  and  has  advanced  applications for oncology
departments.  The intellectual property rights resulting from our consulting and
development  services  are generally owned by the customer for whom the services
are  performed. Other than EasyBill and OncoPro, we have no capitalized software
to  be  sold,  leased  or  otherwise  marketed.

ENERGY INTELLIGENCE SOLUTIONS

Overview

     Through  our  Comverge  subsidiary,  we design,  develop  and market a full
spectrum of products,  services and  solutions to electric  utilities and energy
service  companies and their  residential  and business  customers  that provide
energy  intelligence  - the  optimal  transfer  and  usage of  energy.  Comverge
provides  energy  intelligence  solutions  to energy  suppliers  in the U.S. and
around the world.  Comverge`s  energy  intelligence  solutions  brings to bear a
combination of hardware  development and manufacturing  capabilities and a suite
of  software  products  which,  together  or  separately,   help  investor-owned
utilities,  energy service companies and other providers of electricity, as well
as their  customers  address  energy usage issues  through  load  control,  data
communications  and  analysis,  real-time  pricing  and  integrated  billing and
reporting.  Our load control  solutions  allow our  customers to reduce usage or
"shed  load"  during  peak usage  periods,  such as the summer air  conditioning
season,  thereby reducing or eliminating the need to buy costly additional power
on the spot market, or invest in new peaking generation capacity.  This solution
is both cost-effective and  environmentally  superior to building new generation
capabilities.  Our two-way  data  communications  solutions  allow  utilities to
gather,  transmit,  verify and analyze real-time usage  information,  and can be
used for automated meter reading, support time-of-use metering, theft detection,
remote connect/disconnect and other value-added services.

    On  April 7, 2003, Comverge  announced  the  completion  of  its  previously
announced  Private  equity  financing  in  the  amount  of  $13  million and the
finalization  of  terms  for  a  new  credit  arrangement of $6.5 million with a
leading financial institution. See the discussion under "Recent Developments" in
"Item 7. Management`s Discussion and Analysis of Financial Condition and Results
of  Operations. "

History

     Since  1992,  we have been  designing,  developing  and  marketing  two-way
interactive  communications  solutions that provide real-time,  remote automated
meter reading and data management capabilities to utilities internationally.  We
developed  state-of-the-art,  high-speed,  power  line  carrier  technology  and
deployed pilot systems in Thailand,  Taiwan,  Venezuela,  Argentina,  Israel and
Mexico.

     In  January  1998,   Comverge  acquired  certain  assets  and  licenses  to
intellectual  property from Lucent  Technologies`  Utilities  Solution  business
division.  The licensed  technology relates to a product which had been deployed
by Lucent  using a  two-way  cable TV  system  and as well as an  Internet-based
wireless  network.  Comverge employs a number of the employees who were involved
in developing this product.

     In  August   1999,   Comverge   purchased   the  assets  and   business  of
Scientific-Atlanta`s  Control Systems  division,  acquiring its load control and
gateway product lines and hiring a number of employees from this division.


                                      -3-
<PAGE>

     Comverge has offices in Florham  Park,  New Jersey from which its sales and
marketing and PowerCAMP(TM) software groups operate. Comverge`s
administrative and
engineering personnel and principal product  manufacturing  facility are located
in Atlanta,  Georgia.  Comverge also maintains a small research and  development
center in Israel.

Products and Services

     Comverge offers data communications and load control product solutions that
address the  information  and control needs of global energy market  through our
power line  technology  and expertise we developed,  combined with our strategic
acquisitions of technology,  personnel,  contracts and customer base from Lucent
and   Scientific-Atlanta.   Our  technical   expertise  includes  load  control,
broadband,  wireless  and  powerline  communications,   and  Internet  and  home
networking and automation.

     Comverge currently offers products and services in four product lines:

     o    Real-time  usage  information  products;  o Load control  products;  o
          Gateway products, which combine real-time information and control; and

     o    PowerCAMP Software products that allow utilities to conserve, analyze,
          monitor and price electric usage.

     Real-Time Usage Information  Products.  We market the Comverge  Distributed
Connection,  also  referred  to as CDC,  which  is a  meter-reading  device  for
gathering and transmitting real-time usage information and providing distributed
generation monitoring and control for commercial and industrial  customers.  The
CDC uses  Internet-based  cellular digital packet data (CDPD)  communications to
transmit detailed  information  regarding  patterns of energy consumption and is
targeted at industrial and  commercial  customers,  an important  segment of the
user market for energy companies.  The use of CDPD for data communication  makes
our  product  easier to install and less  expensive  to run than  products  that
require a dedicated  telephone line. Our alliances with Verizon  Wireless,  AT&T
Wireless and GTE give us a national platform from which to market this product.

     Load  Control  Products.  Power  distribution  companies  use load  control
products  to reduce  peak  electrical  demand,  avoiding  the need to buy costly
electricity on the spot market or to build new generation facilities. Generators
and energy  marketers can use load control products to free capacity during high
cost  periods  for resale to others.  We offer our  customers  three  major load
control products:  digital control units,  also known as  DCUs,  SuperStats  and
Maingate.  The  DCU  is a switch that can be connected to any appliance, such as
an air conditioner or water heater, and that permits the user to turn appliances
on and  off  from a  remote  location  utilizing  wireless  communications.  Our
SuperStat   product   combines  a  programmable   thermostat   with  a  wireless
communication  module to provide cooling  systems direct load control,  allowing
customers  to choose when and how much energy to use,  while  giving the utility
the ability to control air  conditioning  systems through the thermostat  during
peak usage periods.

     Gateway  Products.  Maingate,  our gateway  product,  is a system  designed
around a communications  "gateway",  or bridge,  which permits two-way real-time
communications  between a local  area  network  (LAN),  such as a  "network"  of
appliances  and other devices  within a home, or a network of meters at multiple
users, and a wide area network (WAN), such as cable, telephone or CDPD. Maingate
provides  information  and load control  functionality  to both the  electricity
provider  and  its  customers  and  can  significantly   reduce  the  customer`s
electricity bills. When fully integrated with our PowerCAMP  software,  Maingate
provides our customers  with a  comprehensive  solution for their diverse energy
management requirements.

     Maingate  provides two-way real time metering,  time-of-use  pricing,  load
control and whole house surge suppression for residential  users. In the typical
configuration,  the central air conditioning  system,  controlled by a SuperStat
thermostat, the water heater and up to one additional appliance within the home,
are fitted with power line communication ("PLC") based load control devices. The
load  control  devices  and the  SuperStat  are  networked,  and  linked via the
Maingate  gateway to the WAN.  Maingate  allows the  customer  to  automatically
respond to energy price  variations  to minimize  their usage during high priced
periods.  Rollout of Maingate  Home is being  deployed for a major  Southeastern
utility  under a contract that


                                      -4-
<PAGE>

provides for the  installation of Maingate into 40,000 homes. As of December 31,
2002, we have provided approximately 14,000 units under this contract.

     PowerCAMP  Software  Products.  PowerCAMP is an extensive suite of software
developed by our engineers and deployed in several countries.  The software used
in  PowerCAMP  has  been  subject  to  extensive   field-testing   and  customer
interaction and has been the backbone for monitoring and analyzing utility meter
reading and load management programs using Comverge products. We have taken this
software and  packaged and  modularized  it as a suite of  stand-alone  software
editions  for  utilities  and  their  residential,   commercial  and  industrial
customers.  PowerCAMP  can  also  serve  those  customers  through  a  web-based
Application Service Provider, or ASP, model.

Customers and Markets

     Our energy intelligence  solutions business has over 500 customers in eight
countries  and we have an installed  base of  approximately  5,000,000 end point
installations  worldwide. The global market for energy intelligence solutions is
immature and still emerging.  Reliable information as to the current size of the
market we serve or its rate of growth is not readily  available.  We  anticipate
growth in our market will be driven by the following factors:

     o    Increasing   worldwide   demand  for  electricity  and  volatility  of
          electricity prices;

     o    Anticipated  market and  regulatory  incentives  to manage  peak usage
          periods in an  economically  efficient  and  environmentally  friendly
          manner; and

     o    Continued  deregulation of the electric utility industry in the United
          States and resulting  increased  competition  among  electric  service
          companies.

     Although the effects of the current trend toward deregulation in the United
States  and  overseas  are  not  certain,  we  anticipate  that  the  new,  more
competitive  environment,  combined  with  expected  government  incentives  and
mandates, will result in continued growth in the demand for products designed to
gather information and manage electricity usage.

     Comverge`s  customers are generally domestic electric  utilities,  electric
service  companies  or prime  contractors  that serve  electric  utilities.  Our
largest  customer is Florida`s  Gulf Power,  which  purchased over $4 million in
products  and  services  in 2002.  We have  proven  that  our CDC and  SuperStat
products work in  small-scale  deployments,  and as our track record  grows,  we
expect to expand our sales to our existing customers to full-scale  deployments.
In addition to expanding relationships with existing customers,  our strategy is
to take advantage of the relationships  with these customers to extend our sales
to their  affiliates,  many of whom are owned by large utility holding companies
with several owned utilities.  We have also formed joint marketing  partnerships
with  Verizon  Wireless,  Schlumberger  and  Honeywell,  and continue to plan to
expand on these relationships.

Competition

     Within  the  emerging  energy   intelligence   solutions  market,  we  face
competition from a variety of companies and products, each of which is trying to
garner a share the market. Key competitors include Itron, ABB,  Schlumberger and
Mainstreet Networks for our gateway products, CEPG for commercial and industrial
AMR  products,  and Cannon  Technologies  and Itron in the load control area. In
addition to these  companies,  there are many other  competitors  and  potential
competitors  vying for a piece of this as yet undefined  market. We believe that
our products offer significant competitive advantages because they:

     o    have been proven in the field;

     o    offer significant  technological  advantages over competing  products;
          and/or o cost less than many of our competitors` products.

     However,  some  of our  competitors  have  more  resources,  better  market
recognition,  a larger  sales  force or can offer  features  not  offered by our
products. In addition,  certain of our competitors manufacture and sell electric
meters or back-end  billing or other  software  systems to  utilities,  possibly
providing them an advantage in marketing  their utility  solution  products.  We
cannot be certain that our products  will win market  acceptance or that we will
be able to capture a significant segment of the market.


                                      -5-
<PAGE>

Proprietary Rights

     Comverge  holds 12 patents and has 13 patents  pending.  We try to take all
action  necessary to protect our proprietary  rights.  Certain  products that we
have developed and are developing  incorporate or are derived from  intellectual
property owned by third parties under license to us.

     In  our  product  development  activities,  we  rely  on a  combination  of
nondisclosure  agreements  and  technical  measures to establish and protect our
proprietary rights, if any, in our products. We believe that, as a result of the
rapid  pace  of  technological  change  in the  software  and  real-time  system
industries,  legal protection for our products, if any, will be less significant
to our prospects than the knowledge, ability and expertise of our management and
technical personnel.

COMPUTER HARDWARE SALES

Products and Services

     Through  our Databit  subsidiary,  we sell and  service  PC-based  computer
hardware,  software,  data  storage,   client/server  and  networking  solutions
principally  in the  greater  New York City  metropolitan  area.  Databit  is an
authorized  direct  seller,   value-added-reseller  and  an  authorized  service
provider for  equipment and software from such  well-known  industry  leaders as
Compaq, IBM, Microsoft, Oracle, 3Com,  Compaq/Hewlett-Packard,  NEC, Acer, Apple
and Dell. We offer our customers a full range of systems  integration  services,
including  design,   implementation,   hardware  and  software  selection,   and
implementation  of  local  and wide  area  networks.  In  addition,  we  provide
maintenance  and service to customers  under extended  service  agreements.  Our
equipment and software  sales and other  services are offered  under  separately
negotiated and priced agreements.

Customers and Markets.

     Computer  hardware  segment  sales  include  sales to two major  customers,
Montefiore Medical Center, which accounted for approximately 24%, 25% and 22% of
segment  sales in 2000, 2001 and 2002, respectively, and a large law firm, which
accounted for approximately 21% in 2002. Another law firm customer accounted for
5%  and  12%  of segment sales in 2000 and 2001, respectively. No other customer
accounted  for  more than 10% of segment sales. We reduced our dependence on the
NY metro market which accounted for 70% of segment revenues in 2002, compared to
84% in 2001. This is partially attributable to the sales office we opened on the
West  Coast,  which  we  are  enhancing  in  2003.


Competition

     The  market  for PCs and  related  peripheral  hardware  sales  in which we
operate is characterized by severe competition in price-performance,  breadth of
product line, financing capabilities,  technical expertise,  service and overall
reputation. Manufacturers have been increasing their direct sales efforts on the
Internet and  otherwise,  reducing  prices to end-users,  which  reduces  profit
margins  for  distributors  and  value-added-resellers   such  as  Databit.  Our
competitors  include  manufacturers,  other VAR`s,  large equipment  aggregators
(some of whom sell to us) and systems integrators.  Many of our competitors have
longer operating  histories,  greater  financial  resources and buying power and
larger, established customer bases. We compete by offering attractive prices and
flexible  payment terms,  and by helping our customers  evaluate their needs and
tailoring solutions by offering other value-added services such as configuration
and on site service.

BACKLOG

     As of January  1,  2003,  our  backlog  of work to be  completed  was $24.4
million,  $23.4  million of which related to our energy  intelligence  solutions
segment,  primarily under our contract with Gulf Power. We estimate that we will
perform $9.5 million of our backlog in 2003.

EMPLOYEES

     At December  31,  2002,  we employed a total of 297 people,  including  225
persons in engineering and technical support,  32 in marketing and sales, and 40
in management,  administration  and finance. A total of 206 of our employees are
based in Israel.

     We consider our relationship with our employees to be satisfactory.


                                      -6-
<PAGE>

     We have no  collective  bargaining  agreements  with any of our  employees.
However,  with  regard to our  Israeli  activities,  certain  provisions  of the
collective   bargaining   agreements  between  the  Israeli  Histadrut  (General
Federation of Labor in Israel) and the Israeli  Coordination  Bureau of Economic
Organizations (including the Industrialists Association) are applicable by order
of the Israeli Ministry of Labor.  These provisions concern mainly the length of
the  workday,  contributions  to a  pension  fund,  insurance  for  work-related
accidents,  procedures for dismissing employees,  determination of severance pay
and other conditions of employment.  We generally  provide our Israeli employees
with benefits and working conditions beyond the required  minimums.  Israeli law
generally  requires severance pay upon the retirement or death of an employee or
termination of employment without due cause. Furthermore,  Israeli employees and
employers  are  required  to pay  specified  amounts to the  National  Insurance
Institute,  which administers Israel`s social security programs. The payments to
the National Insurance Institute include health tax and are approximately 17% of
wages  (up  to  a  specified   amount),   of  which  the  employee   contributes
approximately 60% and the employer approximately 40%.

RESEARCH AND DEVELOPMENT (R&D)

     For  information on current  product  development and enhancement and their
costs,  see  "2002 Compared to 2001 - Research and development expenses ("R&D")"
in  "Item  7.  Management`s  Discussion  and Analysis of Financial Condition and
Results  of  Operations."

SEGMENT INFORMATION

     For  additional  financial  information  regarding our operating  segments,
foreign and domestic operations and sales, see "Item 7. Management`s  Discussion
and Analysis of Financial  Condition and Results of  Operations"  and Note 17 to
our Consolidated Financial Statements included in this Annual Report.

FACTORS WHICH MAY AFFECT FUTURE RESULTS

     We may from time to time  make  written  or oral  statements  that  contain
forward-looking  information.  However, our actual results may differ materially
from our  expectations,  statements  or  projections.  The  following  risks and
uncertainties  could  cause  actual  results  to differ  from our  expectations,
statements or projections.

GENERAL FACTORS

We have a  history  of  operating  losses  and  decreasing  cash  available  for
operations.

     We are experiencing and have in the past experienced  operating  losses. In
2000,  2001  and 2002, we had losses from continuing operations before provision
(benefit)  for  income  taxes  of  $3.9 million, $10.4 million and $8.2 million,
respectively.  Cash  used in operations in 2000, 2001 and 2002 was $5.9 million,
$8.8  million  and  $6.0  million,  respectively.

      Our Comverge  subsidiary incurred losses  of approximately $3.2
million,  $6.4  million and $2.2 million, in 2000, 2001, and 2002, respectively.
Of our net cash used in operating activities in 2002, approximately $5.0 million
was  used in the energy intelligence solutions segment, $1.5 million was used by
our  other  U.S.  operations,  while  $0.5  million  was provided by our Israeli
software  consulting  and  development  segment  operations.  Although  Comverge
achieved  profitability  in the fourth quarter of 2002, we are uncertain whether
Comverge  will  be  able  to  maintain  profitability  in the coming periods. As
described  under  the  caption  "Recent  Developments"  in "Item 7. Management`s
Discussion  and  Analysis  of Financial Condition and Results of Operations," in
April  2003,  Comverge successfully completed a private equity financing and new
credit  arrangements  which  should provide sufficient financing for Comverge to
independently  fund  its  activities.

     We believe that as a result of Comverge`s obtaining  independent financing,
the  release  of  previously restricted cash and anticipated improvement in
operating
results  in 2003 in our other U.S. and Israeli operating activities we currently
have  sufficient  liquidity  to fund all our activities for at least the next 12
months.  For  additional  discussion of our liquidity position and factors which
may  affect  our  future  liquidity  see  the  discussion  under


                                      -7-
<PAGE>

the captions  "Recent  Developments"  and "Liquidity  and Capital  resources" in
"Item 7. Management`s Discussion and Analysis of Financial Condition and Results
of Operations."

Loss of the services of a few key employees could harm our operations.

     We  depend  on our key  management  and  technical  employees.  The loss of
certain   managers   could   diminish   our  ability  to  develop  and  maintain
relationships  with  customers  and  potential  customers.  The loss of  certain
technical   personnel   could  harm  our   ability  to  meet   development   and
implementation  schedules.  Most  of our  significant  employees  are  bound  by
confidentiality and non-competition  agreements.  We do not maintain a "key man"
life insurance policy on any of our executives or employees.  Our future success
also depends on our continuing ability to identify, hire, train and retain other
highly qualified  technical and managerial  personnel.  If we fail to attract or
retain highly qualified  technical and managerial  personnel in the future,  our
business could be disrupted.

Our share  price may  decline  due to the large  number of shares of our  common
shares eligible for future sale in the public market.

     A  substantial  number  of shares of our  common  stock are or will  become
eligible for sale in the public market as described below.  Sales of substantial
amounts of our shares of common stock in the public market,  or the  possibility
of these sales, may adversely affect our stock price.

     Of our  currently  outstanding  shares, 365,210  shares  were issued in the
acquisition by our dsIT  subsidiary of Endan are eligible for sale on the public
market under a registration statement filed by us with respect to these shares.

     In connection  with a secured  revolving line of credit  provided by Laurus
Master Fund, Ltd. ("Laurus") to Comverge in December 2002, we agreed to file and
make effective a registration statement which would allow the sale on the public
market  of  400,000  shares  of  our  common stock issuable in connection with a
convertible  note.  In  April  2003, we sold 400,000 shares to Laurus in lieu of
Laurus`  conversion  of  the  note.  In  addition,  we  agreed  to file and make
effective  a  registration  statement,  which would allow the sale on the public
market  of  such  400,000 shares and 190,000 shares of our common stock issuable
upon  the  exercise  of a warrant. Prior to June 5, 2003, Laurus may sell shares
the  400,000  shares  which  it  has  already  purchased,  subject  to  a volume
limitation  equal  to 25% of the average daily trading volume for the 30 trading
days prior to the proposed sale, but may not sell any shares of our common stock
issuable  upon  the exercise of the warrant. After June 5, 2003, Laurus may sell
all  590,000  shares  without  any  restrictions.


     Pursuant to a registration  statement filed by us in July 2002,  Laurus may
also sell up to 125,000  additional shares of our common stock issuable upon the
exercise  of  a  warrant  and  171,920  shares that may be issued to Laurus upon
conversion  by  Laurus  of  the $600,000 balance of a convertible note issued to
Laurus  in  March  2002. The balance of the note is to be repaid in full in June
2003.


The recent  transfer  of our common  stock to The Nasdaq  SmallCap  Market may
affect the market for our shares.

Effective  March 3,  2003,  our  common  stock was  transferred  from The Nasdaq
National Market to The Nasdaq SmallCap Market pursuant to a decision of a Nasdaq
Listing Panel. We have requested a review of the Panel`s decision by the Nasdaq
Listing  Council  which has the  authority  to  reverse  or modify  the  Panel`s
decision  which  request is pending.  We do not know what affect the  transfer
will have on the trading or market price of our shares.

RISKS RELATED TO THE SOFTWARE CONSULTING AND DEVELOPMENT SEGMENT

Failure to accurately forecast costs of fixed-priced  contracts could reduce our
margins.

     When working on a fixed-price  basis,  we undertake to deliver  software or
integrated   hardware/software  solutions  to  a  customer`s  specifications  or
requirements  for a  particular  project.  The profits  from these  projects are
primarily  determined  by our success in  correctly  estimating  and  thereafter
controlling  project costs.  Costs may in fact vary substantially as a result of
various  factors,   including   underestimating  costs,  difficulties  with  new
technologies  and economic  and other  changes that may occur


                                      -8-
<PAGE>

during the term of the contract. If, for any reason, our costs are substantially
higher than expected, we may incur losses on fixed-price contracts.

Increased  hostilities in the Middle East region may further deepen the weakness
in the Israeli hi-tech market and may harm our Israeli  operations;  our Israeli
operations  may be negatively  affected by the  obligations  of our personnel to
perform military service.

     A substantial  part of our consulting and development  services  segment is
conducted in Israel. Accordingly, political, economic and military conditions in
Israel may  directly  affect  this  segment of our  business.  Over the past two
years,  the Israeli  hi-tech  market has  experienced  a  significant  downturn,
particularly in the software  consulting and development  market.  This weakness
has been  prolonged by the increase in unrest,  terrorist  activity and military
action  in and  around  Israel,  which  began in  September  2000 and  which has
continued   with  varying  levels  of  intensity  into  2003.  Any  increase  in
hostilities  in the Middle East  involving  Israel,  including  any  involvement
related to the current conflict in Iraq could further weaken the Israeli hi-tech
market,  which may result in a significant  deterioration  of the results of our
Israeli  operations.  In addition,  an increase in  hostilities  in Israel could
cause serious  disruption to our Israeli operations if acts associated with such
hostilities  result  in any  serious  damage  to our  offices  or  those  of our
customers or harm to our personnel.

     Many of our employees in Israel are obligated to perform  military  reserve
duty.  In the event of severe  unrest or other  conflict,  individuals  could be
required to serve in the military for  extended  periods of time.  Over the past
two years, there have been numerous call-ups of military  reservists,  and it is
possible that there will be additional call-ups in the future.

     Our Israeli  operations could be disrupted by the absence for a significant
period of time of one or more of our key  employees or a  significant  number of
our other  employees due to military  service.  Such  disruption  could harm our
Israeli operations.

Exchange rate fluctuations could increase the cost of our Israeli operations.

     Most of the sales in this  segment stem from our Israeli  operations  and a
significant  portion of those sales are in New Israeli Shekels ("NIS") linked to
the dollar.  Such  transactions  are  negotiated  in dollars;  however,  for the
convenience  of the  customer,  they are settled in NIS. The dollar value of the
revenues of our  operations in Israel will decrease if the dollar is devalued in
relation to the NIS during the period from the invoicing of a transaction to its
settlement.  In  addition,  a  significant  portion  of our  expenses  in  those
operations are in NIS, so that if the dollar is devalued in relation to the NIS,
the dollar value of these expenses will increase.

RISKS RELATED TO THE ENERGY INTELLIGENCE SOLUTIONS SEGMENT

     We have made a significant  investment in our energy intelligence solutions
segment,  which develops and markets load control  products and systems offering
two-way  automated  meter  reading and related  data  management  capability  to
utilities.  Revenues have fluctuated  significantly  from quarter to quarter and
until the fourth  quarter of 2002,  this  segment has  operated  at a loss.  The
activities of this segment are subject to many risks, including the following:

The  market  for  our  energy   intelligence   solutions  is  subject  to  rapid
technological  change;  if we  fail  to  keep  pace,  we  will  have  difficulty
developing and maintaining a market for our products and services.

     The market for our energy  intelligence  solutions segment is characterized
by  rapid  technological  change. Communications and networking technologies are
continuously  changing  and  we  will  need  to  invest  in  continued  product
development,  both  hardware  and  software,  in  order  to keep pace with these
changing  technologies.  Although  as  discussed  under "Recent Developments" in
"Item 7. Managements Discussion and Analysis of Financial Condition and Results
of  Operations, " Comverge  has  recently been successful in raising significant
financing, over the long term Comverge may not have adequate resources to invest
in  development  and  its  development  efforts  may  not  be  successful.

The  pace of  utility  deregulation  has  been  slow;  the  ultimate  regulatory
structure of the utility  industry  may not provide  mandates or  incentives  to
purchase our products.

     The electric utility industry is undergoing significant  deregulation.  The
pace  of  deregulation  appears  to have  slowed  due to the  uncertainty  about
deregulation  in the wake of the  energy  crisis in  California  in 2000 and the
recent Enron  reorganization.  Market observers  expect  deregulation to include
energy choice


                                       -9-
<PAGE>

and   time-of-use   pricing   requirements,   which  will   mandate,   or  favor
implementation  by utilities of, load control  programs and the use of automated
meter reading and data distribution.  However,  the pace of deregulation has not
been as rapid as expected and to date only a limited  number of  utilities  have
made  purchase  commitments  for automated  meter reading and data  distribution
systems. Many utilities have also deferred the purchase of load control systems,
pending resolution of broader industry and regulatory developments.  The results
of  deregulation  are uncertain and may not result in the mandates or incentives
for the types of services,  which require AMR systems.  If the state and federal
regulation does not provide these requirements or incentives, the market for our
products may not develop as we expect.

We must compete with other utility solution  providers for market acceptance and
customers.

     While we  believe  that the  systems  offered  by our  energy  intelligence
solutions  segment  offer  advantages  over  competing  load  control  and  data
communications solutions, there are alternative solutions, and we cannot predict
what share of the market we will obtain.  In addition,  some of our  competitors
have  more  sales and  marketing  resources,  better  brand  recognition  and/or
technologies that offer alternative  advantages.  If our potential  customers do
not adopt  our  solutions  or do so less  rapidly  than we  expect,  our  future
financial   results   and  our  ability  to  achieve   positive   cash  flow  or
profitability, will be harmed.

We may encounter  difficulties  in  implementing  our  technology,  products and
services.

     Problems may occur in the  implementation  of our  technology,  products or
services, and we may not successfully complete the commercial  implementation of
our  technology  on a wide  scale.  Future  advances  may render our  technology
obsolete or less cost effective than competitive systems.  Consequently,  we may
be unable to offer competitive services or offer appropriate new technologies on
a timely basis or on satisfactory terms.

Delays,  quality  control and price  problems could arise due to our reliance on
third-party manufacturers of certain components.

     We use a limited  number of outside  parties to  manufacture  components of
some of our products.  Our reliance on third party  manufacturers  exposes us to
risks relating to timeliness,  quality control and pricing.  We have experienced
certain delays and quality control  problems from  third-party  manufacturers in
the past and we may experience such problems with our current manufacturers.  In
addition,  to diversify our product  offerings,  in the third quarter of 2002 we
contracted  with a  third-party  manufacturer  to develop  and  manufacture  new
products and new features to existing  products.  Implementing these new product
offerings could cause some  transitional  delays and the  diversification  could
have a  negative  impact  on price  and  quality  control.  Such  delays,  price
increases and/or quality control problems at our third-party manufacturers could
harm our relationships with our customers, our operating results and cash flow.

RISKS RELATED TO THE COMPUTER HARDWARE SEGMENT

We face low margin, mass marketing competition.

     The  market  for PCs and  related  peripheral  hardware  sales  in which we
operate  is  characterized  by  severe  competition  in  price-performance   and
financing  capabilities.  Manufacturers  and on-line  Internet vendors have been
increasing  their direct sales efforts on the Internet and  otherwise,  reducing
prices to end-users,  which reduce  profit  margins for  distributors  and value
added resellers such as our Databit subsidiary.  Should this trend continue,  it
could  make our  method  of sales  uneconomical  and  bring  into  question  the
long-term viability of the business model used by Databit.

A large portion of our sales are concentrated in the greater New York city area.

     Computer  hardware  sales to the  greater New York City  metropolitan  area
represented  78%,  84% and 70% of the total  segment  sales for the years  ended
December 31, 2000, 2001 and 2002, respectively.  Furthermore,  most of the sales
force for the  segment  is based in  Manhattan  and  northern  New  Jersey.  The
decrease in percentage of sales centered in the New York City  metropolitan area
is partially attributable to the sales office we opened on the West Coast, which
we are  enhancing in 2003.  There can be no assurance  business will continue to
grow  outside our main area,  the New York City  metropolitan  area,  and if the
region suffers from an economic downturn, similar to that of 2001, our operating
results could deteriorate.


                                      -10-
<PAGE>

ITEM 2.  PROPERTIES

     Our corporate  headquarters and the principal offices for our U.S. software
consulting  and  development  and hardware sales segments are located in Mahwah,
New Jersey in  approximately  5,000 square feet of office  space,  under a lease
which  expires in  September  2003.  The rent for these  premises  currently  is
$85,000 per annum. We also rent offices in New York City of approximately  4,700
square feet, under a lease,  which expires in October 2005, at a current rent of
$184,000 per annum. In addition,  our Comverge  subsidiary  rents  approximately
11,500  square feet in Florham Park,  New Jersey,  at an annual rent of $126,000
under a lease which expires January 2004, and  approximately  31,600 square feet
of office and assembly space in Norcross, Georgia under a lease which expires in
May 2006,  at a current rent of $277,000 per annum.  Our West Coast sales office
for our  hardware  sales  segment is located in Los Angeles at an annual rent of
$11,000 in  approximately  500 square  feet of office  space  under a lease that
expires in April 2004.

     Our Israeli activities are conducted in approximately 18,000 square feet of
office  space in the Tel Aviv  metropolitan  area under a lease that  expires in
August 2009. The annual rent is  approximately  $290,000.  These  facilities are
used for the Israeli  operations  of the  software  consulting  and  development
segment and the energy intelligence  solutions segment. In addition,  as part of
our  acquisition of Endan,  we acquired their leased office space located in the
Tel Aviv  metropolitan  area under a lease that expires in July 2004. The annual
rent is approximately $103,000.

ITEM 3.  LEGAL PROCEEDINGS

     None.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On December 3, 2002, we had conducted our annual  meeting of  stockholders.
At  this  meeting,  the  stockholders  elected  the  following  persons  as  our
directors:  George  Morgenstern,  Robert Kuhn, Avi Kerbs, Susan Malley and Allen
Schiff.  The  stockholders  did  not  vote  on  any  other  matters.   Dr.  Kuhn
subsequently resigned from the Board effective January 21, 2003.


                                      -11-
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT`S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our Common Stock traded on the Nasdaq National  Market System  (NASDAQ/NNM)
under the symbol "DSSI" through February 28, 2003.  Beginning March 3, 2003, our
Common Stock is traded on The Nasdaq SmallCap  Market.  The following table sets
forth,  for the periods  indicated,  the high and low reported  sales prices per
share of our Common Stock on the Nasdaq National Market System.


                                                      High             Low
                                                      ----             ---
     2001:
     First Quarter ........................           $5.31           $3.31
     Second Quarter .......................            8.80            3.75
     Third Quarter ........................            7.11            5.30
     Fourth Quarter .......................            7.45            4.71

     2002:
     First Quarter ........................           $5.62           $3.83
     Second Quarter .......................            3.96            2.74
     Third Quarter ........................            3.04            1.04
     Fourth Quarter .......................            1.93            0.84

     As of March 31, 2003 there were 66 record  holders of our Common Stock. We
estimate  that  there are  approximately  1,600  beneficial  owners of our
Common
Stock.

     We paid no dividends in 2001 or 2002 and we do not intend to pay  dividends
in 2003.  We cannot  declare or pay any  dividends  without the prior consent of
Laurus,  pursuant to the  convertible  note issued by us to
Laurus in June 2002.

ITEM 6.  SELECTED FINANCIAL DATA

     The selected consolidated  statement of operations data for the years ended
December  31,  2000,  2001 and 2002 and  consolidated  balance  sheet data as of
December  31, 2001 and 2002,  have been  derived  from our audited  Consolidated
Financial  Statements included in this Annual Report. The selected  consolidated
statement of operations  data for the years ended December 31, 1998 and 1999 and
the consolidated  balance sheet data as of December 31, 1998, 1999 and 2000 have
been derived from our audited  Consolidated  Financial  Statements  not included
herein.

     This data should be read in  conjunction  with our  Consolidated  Financial
Statements and related notes and "Item 7.  Management`s  Discussion and Analysis
of Financial Condition and Results of Operations."


                                      -12-
<PAGE>

Selected Consolidated Statement of Operations Data
<TABLE>
<CAPTION>
                                                                          For  the Years Ended December  31,
                                                                          ----------------------------------
                                                                 1998        1999        2000        2001        2002
                                                               --------    --------    --------    --------    --------
                                                                       (in thousands, except per share data)
<S>                                                            <C>         <C>         <C>         <C>         <C>
Sales ......................................................   $ 36,710    $ 39,708    $ 57,839    $ 45,924    $ 55,886
Cost of sales ..............................................     28,814      31,615      45,606      37,558      42,906
                                                               --------    --------    --------    --------    --------
   Gross profit ............................................      7,896       8,093      12,233       8,366      12,980

Research and development expenses ..........................      1,605       1,269         928       2,284       1,526
Selling, general and administrative expenses ...............     12,549      12,471      16,340      16,671      16,754
Impairment of goodwill and investment ......................         --          --          --         227       2,850
Gain on sale of division \ subsidiary ......................         --          --       1,144         397          --
                                                               --------    --------    --------    --------    --------
   Operating loss ..........................................     (6,258)     (5,647)     (3,891)    (10,419)     (8,150)

Interest income ............................................        147          61       1,758       1,104         253
Interest expense ...........................................       (360)       (910)       (709)       (459)     (1,212)

Loss on early redemption of debt ...........................         --          --        (943)         --          --
Other income (loss), net ...................................     (2,172)       (306)        (50)        (32)        113
Minority interests .........................................        878        (275)         --          --         880
                                                               --------    --------    --------    --------    --------
   Loss from continuing operations before provision
      (benefit) for income taxes ...........................     (7,765)     (7,077)     (3,835)     (9,806)     (8,116)

Provision (benefit) for income taxes .......................         35          62         171         (11)         28
                                                               --------    --------    --------    --------    --------
   Loss from continuing operations .........................     (7,800)     (7,139)     (4,006)     (9,795)     (8,144)

Loss from discontinued operations, net of income taxes .....    (11,142)     (8,728)       (104)         --          --
Gain on sale of discontinued operations, net of income taxes      5,998          --       4,222          --
                                                               --------    --------    --------    --------    --------
   Net income (loss) .......................................   $(12,944)   $(15,867) $      112    $ (9,795)   $ (8,144)
                                                               ========    ========    ========    ========    ========
Basic and diluted net income (loss) per share:
    Loss from continuing operations ........................   $  (1.05)   $  (0.96)   $  (0.54)   $  (1.41)   $  (1.11)
    Discontinued operations ................................      (0.70)      (1.17)       0.56          --          --
                                                               --------    --------    --------    --------    --------
       Net income (loss) per share - basic and diluted .....   $  (1.75)   $  (2.13)   $   0.02    $  (1.41)   $  (1.11)
                                                               ========    ========    ========    ========    ========
Weighted average number of shares outstanding
 - basic and diluted .......................................      7,391       7,433       7,422       6,970       7,349
                                                               ========    ========    ========     ========  ====
</TABLE>

<TABLE>
<CAPTION>
Selected Consolidated Balance Sheet Data:
                                                                                    As of December 31,
                                                                                    ------------------
                                                                 1998        1999        2000        2001        2002
                                                               --------    --------    --------    --------    --------
                                                                                      (in thousands)
<S>                                                            <C>         <C>         <C>         <C>         <C>
Working capital ............................................   $  5,719    $ 20,030    $ 18,178    $  6,809    $  2,827
Total assets ...............................................     49,880      50,458      42,157      39,244      33,305
Short-term and long-term debt ..............................      1,661       9,007       6,606       8,681      10,033
Minority interests .........................................        294          10          40       2,530       1,609
Total shareholders` equity .................................     39,418      24,850      22,581      14,362       7,128
</TABLE>

(1)  Results for 1998 include the gain on the sale of our help desk segment. See
Notes  3  and 4 to the Consolidated Financial Statements included in this Annual
Report  for  a  description  of  our  various  acquisitions  and dispositions of
business  operations  and  segments  during  the  period  from  2000  to  2002.


(2)  Effective  July 1, 2002, we adopted Statement of Financial Standards (SFAS)
No.  141, "Business Combinations" and effective January 1, 2002 adopted SFAS No.
142,  "Goodwill and Other Intangibles". As a result, we have ceased amortization
of  all  goodwill beginning January 1, 2002. Had SFAS No. 142 been adopted by us
effective  January  1,  2000, net income (loss) and net income (loss) per share,
basic  and diluted, would been as follows (in thousands, except per share data):



                                      -13-
<PAGE>

                                                         Year ended December 31,
                                                            2000        2001
                                                          -------     -------

Net income (loss), as reported ........................   $   112     $(9,795)
Plus: Goodwill amortization, net of income taxes ......       657         502
                                                          -------     -------
Adjusted net income (loss) ............................   $   769     $(9,293)
                                                          =======     =======

Net income (loss) per share:
   Basic and diluted - as reported ....................   $  0.02     $ (1.41)
                                                          =======     =======
   Basic and diluted - as adjusted ....................   $  0.10     $ (1.33)
                                                          =======     =======


                                      -14-
<PAGE>

ITEM 7. MANAGEMENT`S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     RECENT DEVELOPMENTS

     Comverge Private Equity Financing

     On April 7, 2003, our majority-owned  subsidiary,  Comverge, Inc. (formerly
Comverge  Technologies,  Inc.),  completed  of  its previously announced private
equity  financing in the amount of $13 million and the finalization of terms for
a  new  credit arrangement of $6.5 million with a leading financial institution.

     Our  Participation  in the  Financing.  We purchased  $3.25  million of the
Series  A Convertible Preferred Stock issued by Comverge in the equity financing
announced in this Current Report. A syndicate of venture capital firms purchased
the  remaining  $7.75 million of the Series A Convertible Preferred Stock issued
by  Comverge,  and  one member of the syndicate also purchased $2.0 million of a
Series  A-1  Convertible Preferred Stock of Comverge. We still remain Comverge`s
largest shareholder, owning approximately 50.6% of the outstanding capital stock
of Comverge (42.6% on a fully diluted basis), treating all options and rights to
purchase Comverge stock as if they had been exercised. We hold approximately 26%
of  all  the preferred stock issued by Comverge in the private equity financing,
in  addition to our continued ownership  of approximately 8% of the outstanding
Comverge  common  stock.


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

     Agreements Related to the Series A Preferred Stock. We entered into various
agreements with Comverge, the syndicate of venture capital investors and certain
of  Comverge`s  common  stockholders.  These agreements provide for, among other
things,  restrictions  on  the  transfer  of  the  Series  A Preferred Stock and
Comverge  common  stock, the voting of our Series A Preferred Stock and Comverge
common  stock,  our right to receive quarterly and annual financial reports from
Comverge  and  registration rights for our Series A Preferred Stock and Comverge
common  stock.  Under  Comverge`s  Amended  and  Restated  Certificate  of
Incorporation,  the holders of Comverge common stock have the right to elect two
of  the  five directors on Comverge`s Board. Pursuant to a voting agreement, one
of the directors elected by the holders of Comverge common stock must be the CEO
of  Comverge.  Our chairman, George Morgenstern, and the Chief Executive Officer
of  Comverge,  Robert  Chiste,  were elected as directors by the Comverge common
stockholders.

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

     New Comverge  Credit  Arrangements.  In connection  with its private equity
financing,  Comverge  secured  a $6.5  million  credit  facility  with a leading
financial  institution.  In connection with this new credit  facility,  Comverge
paid  off  in full its $5.5 million loan outstanding (as of March 31, 2003) with
Bank  Leumi USA and its up to $2 million line of credit with Laurus Master Fund,
Ltd.,  which  line  was  also  terminated  releasing us from the security we had
pledged  to  secure  such  debt. The new credit facility includes a $1.5 million
term  loan  secured  by  our  pledge  of $1.5 million, which is being held in an
account  at  Comverge`s  new  lender,  and a $5 million revolving line of credit
secured  by  the  assets  of  Comverge.



                                      -15-
<PAGE>

     Release of our Long-term Deposit. Upon repayment of Comverge`s loan with
Bank  Leumi  USA,  $1.0  million  of the long-term deposit held at Bank Leumi as
security  for  Comverge`s  loan  became  unrestricted and is part of our working
capital.  We  also  agreed to pledge $1.5 million to secure Comverge`s term loan
with  its  new lender, which funds were deposited into an account in our name at
Comverge`s  new  lender. Comverge agreed to make certain prepayments on the term
loan  and the new lender agreed to the release of amounts equal to such payments
from  the  pledge  account,  subject  to  certain  conditions,  as  follows:

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

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

     o    If none of the other triggering events have occurred,  then we are not
          entitled  to the  release  of the $1.5  million  until  April 1, 2006,
          although  Comverge will use commercially  reasonable  efforts to cause
          the release of the money to us before that date.

     Our Option to Purchase Series A-2 Preferred Stock. Until December 31, 2003,
we have the option to purchase  from  Comverge up to $1.5  million of Series A-2
Convertible  Preferred  Stock.  The amount of Series A-2 Preferred Stock that we
may purchase from Comverge will be limited to the number of shares that could be
purchased  by the  principal  balance of the $1.5 million term loan with Silicon
Valley  Bank as of the date we give  notice of our  exercise  of the  Series A-2
option. The Series A-2 Preferred Stock has the same purchase price as the Series
A-1 Preferred  Stock,  but is junior in priority in liquidation  (which includes
the sale of Comverge) to both the Series A and Series A-1  Preferred  Stock.  In
all other  respects  the Series A-2  Preferred  Stock has the same rights as the
Series A Preferred Stock and the Series A-1 Preferred Stock.

     We  expect to record a non-cash gain of $4 million in the second quarter of
2003  in  connection  with  the  transaction.

     Sale  of  Shares  to  Laurus.  On  April 10, 2003, we received 600,000 from
Laurus  in connection with our sale of 400,000 shares of our Common Stock to
Laurus.  Such  sale  was  in lieu of the conversion by Laurus of $600,000 of the
credit line is afforded Comverge.


     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  at "Item 1.  Description  of  Business-Factors  That May
Influence Future Results."

     During 2002, we operated in three reportable segments:  software consulting
and development,  energy intelligence  solutions and computer hardware sales and
we are continuing our business activity in all three segments during 2003.

     Software Consulting and Development

     Revenues increased by approximately $1.9 million from $12.3 million for the
year ended  December 31, 2001 to $14.2  million for the year ended  December 31,
2002. This increase resulted from a $5.3 million increase in revenues due to the
acquisition of Endan in December 2001 and a decrease of $3.4 million in revenues
due to a slowing economy in general and in the hi-tech sector in particular. The
segment  loss  increased by approximately $2.4 million from $2.1 million for the
year  ended  December  31,  2001 to $4.5 million for the year ended December 31,
2002.  The continuing downward pressure on revenues resulted in an impairment of
goodwill,  acquired software and a cost investment of $2.8 million, $0.2 million
(included  in  cost  of sales) and $0.1 million,respectively, for the year ended
December  31, 2002 ($2.4 million net of minority interests). Excluding the above
impairment  charges  (net  of  minority  interests),  the  net loss decreased by
approximately

                                      -16-
<PAGE>

$0.5 million.  The  improvement in 2002 stemmed  primarily from the cost cutting
measures  taken during 2002,  which  resulted in a profitable  fourth quarter in
2002. Should the market`s negative trend continue, we may not be able to sustain
significant  profits in this  segment,  although  we believe the  improved  cost
structure will cause this segment to be at least break even in the future.

     Energy Intelligence Solutions

     In  2002,  new  management  reorganized  Comverge`s business to address the
evolving  needs  of  the  energy intelligence solutions market. This resulted in
increased  revenues  and  improved  productivity, including the first profitable
quarter  for  the  segment. Comverge`s  recent  private equity financing and new
credit  facility should give Comverge the capital it needs to finance and expand
its  business.

     Computer Hardware

     The  improved  results  in  this segment are due to the record sales in the
fourth  quarter  of 2002. Although we do not expect sales in the coming quarters
to be at a similar level, we expect sales for the year to exceed the 2002 level.
Sales  in  2002  were  also characterized by a greater dependence on a few large
customers, with 52% coming from the three largest customers in 2002, as compared
to  46%  in  2001.

     CRITICAL ACCOUNTING POLICIES

     The Securities and Exchange Commission ("SEC") defines "critical accounting
policies" as those that require  application  of  management`s  most  difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the  effect of matters  that are  inherently  uncertain  and may change in
subsequent periods.

     The following  discussion of critical  accounting  policies  represents our
attempt to bring to the  attention  of readers of this report  those  accounting
policies which we believe are critical to our consolidated  financial statements
and other financial disclosure. It is not intended to be a comprehensive list of
all of our significant  accounting  policies,  which are more fully described in
Note 2 of the Notes to the Consolidated  Financial  Statements  included in this
Annual  Report.  In  many  cases,  the  accounting  treatment  of  a  particular
transaction  is   specifically   dictated  by  generally   accepted   accounting
principles,  with no need for management`s judgment in their application.  There
are also areas in which the selection of an available  alternative  policy would
not produce a materially different result.

     We have  identified  the following as critical  accounting  policies to our
Company: revenue recognition;  foreign currency transactions;  inventory; income
taxes; and goodwill and other long-lived assets.

     Revenue recognition

     Our revenue  recognition  policies are  significant as our revenue is a key
component of our results of operations.  Revenue from time-and-materials service
contracts,  maintenance agreements and other services are recognized as services
are provided.  Revenue on the sale of products and software are recognized  when
persuasive   evidence  of  an  arrangement   exists,  the  price  is  fixed  and
determinable,  delivery  has  occurred  and  there is  reasonable  assurance  of
collection  of the  sales  proceeds.  Such  revenues  generally  do not  involve
difficult, subjective or complex judgments.

     We derived  $3.9  million of  revenues  from  fixed-price  contracts  ($3.7
million from our software and  consulting  development  segment and $0.2 million
from  our  energy  intelligence  segment),   representing  approximately  7%  of
consolidated sales in 2002 ($4.4 million and 10% and $4.8 million and 8% in 2001
and 2000,  respectively),  which  require the accurate  estimation  of the cost,
scope and duration of each  engagement.  Revenue and the related costs for these
projects  are  recognized  using  the  percentage-of-completion  method as costs
(primarily direct labor) are incurred,  with revisions to estimates reflected in
the period in which changes become known.  If we do not accurately  estimate the
resources  required or the scope of work to be  performed,  or do not manage our
projects  properly within the planned periods of time or satisfy our obligations
under  the  contracts,  then  future  revenue  and  consulting  margins  may  be
significantly and negatively  affected or losses on existing  contracts may need
to be  recognized.  Any such  resulting  changes in revenues and  reductions  in
margins or contract losses could be material to our results of operations.


                                      -17-
<PAGE>

     Foreign currency transactions

     We  have  several   foreign   subsidiaries   which  together   account  for
approximately  24% of our net revenues for the year ended December 31, 2002, and
31% of our assets and 23% of our total liabilities as of December 31, 2002.

     Under the relevant accounting  guidance,  the treatment of foreign currency
transactions  is dependent  upon our  management`s  determination  regarding the
functional  currency of each subsidiary.  The functional  currency is determined
based on management judgment and involves consideration of all relevant economic
facts and circumstances affecting the subsidiary. If any subsidiary`s functional
currency  would  be  deemed  to be the  local  currency,  then  any gain or loss
associated with the translation of that subsidiary`s  financial statements would
be included in cumulative  translation  adjustments on our consolidated  balance
sheets and as part of  comprehensive  income on our  consolidated  statements of
operations.  If a subsidiary is disposed,  any cumulative  translation  gains or
losses would be realized into our consolidated statement of operations. However,
because the  functional  currency of our  subsidiaries  is deemed to be the U.S.
dollar, then any gain or loss associated with transactions in the local currency
is included within our consolidated statement of operations.

     Inventories

     Inventories are stated at the lower of cost or market and have been reduced
by an  allowance  for excess and  obsolete  inventories  to establish a new cost
basis. The estimated allowance is based on management`s review of inventories on
hand compared to estimated  future usage and sales.  We evaluate the adequacy of
these reserves quarterly.

     Income taxes

     We have a history of  unprofitable  operations  from  losses  incurred in a
number of our operations.  These losses  generated  sizeable state,  federal and
foreign tax net operating loss ("NOL")  carryforwards,  of approximately  $18.8,
$15.0 and $12.3 million as of December 31, 2002, respectively.

     Generally accepted accounting principles require that we record a valuation
allowance  against  the  deferred  income  tax asset  associated  with these NOL
carryforwards and other deferred tax assets if it is "more likely than not" that
we will not be able to utilize them to offset future  income  taxes.  Due to our
history of unprofitable operations, we only recognize net deferred tax assets in
those  subsidiaries  that we believe are "more  likely than not" able to utilize
them to offset  future  income  taxes in the future.  We  currently  provide for
income  taxes  only to the  extent  that we expect to pay cash  taxes on current
income.

     It is  possible,  however,  that we could be  profitable  in the  future at
levels which cause  management  to conclude that it is more likely than not that
we will realize all or a portion of the NOL carryforwards and other deferred tax
assets.  Upon  reaching  such a  conclusion,  we would  immediately  record  the
estimated net realizable value of the deferred tax assets at that time and would
then provide for income taxes at a rate equal to our combined  federal and state
effective  rates or foreign  rates.  Subsequent  revisions to the  estimated net
realizable value of the deferred tax assets could cause our provision for income
taxes to vary significantly from period to period.

     Goodwill and other long-lived assets

     We review the carrying value of our long-lived assets held for use whenever
circumstances  indicate  there  may  be  an impairment. For all assets excluding
goodwill, the carrying value of a long-lived asset is considered impaired if the
sum of the undiscounted cash flows is less than the carrying value of the asset.
If  this  occurs,  an  impairment charge is recorded for the amount by which the
carrying value of the long-lived asset exceeds its fair value. Effective July 1,
2001  and  January  1,  2002 we adopted SFAS No. 141 "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". Under these new accounting
standards,  we  no  longer amortize our goodwill and are required to complete an
annual  impairment  test.  For  the purpose of implementing SFAS No. 142 we have
designated  the  fourth  quarter as the period of the annual test and determined
that  we  have three reporting units, which are the same as our three reportable
segments.  In the third quarter of this 2002, we came to the conclusion that due
to  the slow down in the hi-tech markets, we would probably record an impairment
in  the  fourth  quarter.  As  such,  in the third quarter of 2002 we recognized
expenses  for  the  impairment of goodwill and acquired software of $3.0 million
($2.4  million  net  of  minority  interests). In the fourth quarter of 2002, no
additional  adjustment  was  recorded,  when  performing  the annual evaluation.

     As of December 31,  2002,  we had an aggregate of $4.9 million of goodwill,
$4.4 million of which relates to our software consulting and development segment
and $0.5 million of which relates to our energy


                                      -18-
<PAGE>

intelligence solutions segment.  Additionally, at December 31, 2002, we had $0.4
million net book value of other identifiable intangible assets.

RESULTS OF OPERATIONS

The following  table sets forth  selected  consolidated  statement of operations
data as a percentage of our total sales.

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                                 -----------------------
                                                         1998     1999     2000     2001     2002
                                                         ----     ----     ----     ----     ----
<S>                                                      <C>      <C>      <C>      <C>      <C>
Sales                                                     100%     100%     100%     100%     100%
Cost of sales                                              78       80       79       81       77
                                                         ----     ----     ----     ----     ----

  Gross profit                                             22       20       21       19       23

Research and development expenses                           4        3        2        5        3
Selling, general and administrative expenses               34       31       28       37       30
Impairment of goodwill and investment                      --       --       --       --        5
Gain on sale of division                                   --       --        2        1       --
                                                         ----     ----     ----     ----     ----

  Operating loss                                          (16)     (14)      (7)     (22)     (15)

Interest income (expense), net                             (1)      (2)       2        1       (2)
Other loss, net                                            (6)      (1)      --       --       --

Loss on early redemption of debt                           --       --       (2)      --       --
Minority interests                                          2       (1)      --       --        2
                                                         ----     ----     ----     ----     ----

  Loss from continuing operations before
     provision (benefit) for income taxes                 (21)     (18)      (7)     (21)     (15)

Provision (benefit) for income taxes                       --       --       --       --       --
                                                         ----     ----     ----     ----     ----

  Loss from continuing operations                         (21)     (18)      (7)     (21)     (15)

Loss from discontinued operations, net of income taxes    (30)     (22)      --       --       --
Gain on sale of discontinued operations,
    net of income taxes                                    16       --        7       --       --
                                                         ----     ----     ----     ----     ----

Net income (loss)                                         (35)%    (40)%    --%      (21)%    (15)%
                                                         ====     ====     ====     ====     ====
</TABLE>


                                      -19-
<PAGE>

     The following table sets forth certain information with respect to revenues
and  profits  of our three  reportable  business  segments  for the years  ended
December  31,  2000,  2001 and  2002,  including  the  percentages  of  revenues
attributable to such segments.  The column marked "Other" aggregates information
relating  to  miscellaneous  operating  segments,  which  may  be  combined  for
reporting under applicable accounting principles.

<TABLE>
<CAPTION>
                                          Software         Energy
                                       Consulting and   Intelligence      Computer
                                         Development      Solutions       Hardware        Other    Total(*)
                                         -----------      ---------       --------        -----    --------
                                                                  (dollars in thousands)
<S>                                       <C>             <C>             <C>            <C>       <C>
Year ended December 31, 2002:
  Revenues from external customers        $ 14,202        $ 19,023        $ 22,605       $   56    $ 55,886
  Percentage of total revenues
    from external customers ......              25%             34%             41%          --         100%
  Gross profit ...................        $  2,673        $  6,087        $  4,164       $   56    $ 12,980
  Impairment of goodwill and
     Investments .................        $  2,850              --              --           --    $  2,850
  Segment income (loss) ..........        $(4, 503        $ (2,161)       $     15       $   (2)   $ (6,651)

Year ended December 31, 2001:
  Revenues from external customers        $ 12,279        $ 13,793        $ 19,794       $   58    $ 45,924
  Percentage of total revenues
    from external customers ......              27%             30%             43%          --         100%
  Gross profit ...................        $  2,104        $  2,652        $  3,552       $   58    $  8,366
  Impairment of goodwill, acquired
     software and investments ....        $    227              --              --           --    $    227
  Segment income (loss) ..........        $ (2,052)       $ (6,447)       $  1,006       $ (217)   $ (7,710)

Year ended December 31, 2000:
  Revenues from external customers        $ 18,977        $ 17,105        $ 21,515       $  204    $ 57,801
  Percentage of total revenues
    from external customers ......              33%             30%             37%          --         100%
  Gross profit ...................        $  4,821        $  3,926        $  3,244       $  204    $ 12,195
  Segment income (loss) ..........        $  1,530        $ (3,216)       $    726       $   41    $   (919)
</TABLE>

(*)  Our consolidated sales and gross profit for 2000 included $38 in management
     fees received from Tower Semiconductor Ltd. See Note 17 to the Consolidated
     Financial  Statements  included  in this report for  reconciliation  to our
     consolidated financial information.

2002 COMPARED TO 2001

     Sales.  Sales in 2002 were $55.9 million,  increasing by $10.0 million,  or
22%, from $45.9 million in 2001, due to sales increases in all segments.

     Energy  intelligence solution sales increased by $5.2 million, or 38%, from
$13.8  million in 2001, to $19.0 million in 2002. The increase in this segment`s
sales  was primarily attributable to fulfillment of a large contract to sell our
Maingate  C&I and PowerCAMP systems to a major utility and to a generally higher
level  of  business.

     Sales in the computer hardware segment continued to improve,  increasing by
$2.8  million,  or 14%,  from $19.8  million in 2001,  to $22.6 million in 2002.
Although sales in this segment were improving through the year, the increase was
primarily  attributable  to the $9.2  million in sales in the fourth  quarter of
2002. The increase in the fourth quarter of 2002 was primarily  attributable  to
sales of $4.5 million to a single customer.

     Software  consulting and development  sales  increased by $1.9 million,  or
16%, from $12.3 million in 2001, to $14.2 million in 2002.  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.


                                      -20-
<PAGE>

     Gross  profit.  Gross profit in 2002 was $12.9  million  increasing by $4.6
million, or 55%, compared to 2001, with gross profit margins improving, from 19%
in 2001,  to 23% in 2002.  The  increase in gross  profits was  attributable  to
improvements in all segments,  particularly in the energy intelligence solutions
segment.

     Gross profit in the energy intelligence  solution segment increased by $3.4
million,  or  130%, from $2.7 million, or 19% of sales, in 2001 to $6.1 million,
or  32%  of  sales,  in  2002.  The increase in gross profit margin is primarily
attributable  to a $0.7 million settlement with its former contract manufacturer
and  approximately  $2.7  million  to  increases  in sales of products of higher
margin  products.

     In the computer hardware segment gross profit increased by $0.6 million, or
17%, primarily due to the increase in sales.

     Gross  profit in the  software  consulting  and  development  segment  also
increased by $0.6 million,  or 27%, from $2.1 million, or 17% of sales, in 2001,
to $2.7  million,  or 19% of sales,  in 2002.  The increase in gross profits was
primarily  attributable  to the  increase  in sales,  as well as  improved  cost
structure.

     Research and development expenses ("R&D"). R&D expenses decreased from $2.3
million in 2001, to $1.5 million in 2002. This decrease was due to a decrease in
R&D expenditures in the energy intelligence  solution segment, as it shifted its
emphasis from R&D in 2001 to marketing and sales in 2002.

     Selling,   general  and  administrative  expenses  ("SG&A").   Despite  the
significant  increase in sales,  SG&A remained  relatively  stable increasing by
$0.1 million, from $16.7 million in 2001, to $16.8 million in 2002.

     Impairment of goodwill and investment.  The entire expense recorded was due
to our software  consulting and  development  segment.  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.  As a result,  in the third quarter of 2002, we recorded a goodwill
impairment charge of $2.8 million. We have made concerted efforts to offset this
negative  trend  with cost  cutting  measures  already  implemented.  As we look
forward to the 2003, the impairment charge 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 employed at the time of the Endan acquisition. We are confident
that  the  expected  revenue  levels  and  the  cost  cutting  measures  already
implemented  will provide for  breakeven and even  positive  performance  in the
coming  periods,  justifying  the remaining  goodwill and value attached to this
segment. In addition, in the fourth quarter of 2002, we recorded a write down of
$90,000 with respect to an investment in a start-up company.

     Interest  income  (expense).  To finance our  operations  we  utilized  our
investments  and capital  raised  through  issuing  convertible  debentures  and
obtaining  lines of  credit.  The  utilization  of our  investments  caused  the
decrease in interest income and we expect interest income to further decrease in
coming  periods.  We incurred  finance  expenses in connection  with the capital
raised  including  interest  and  amortization  of  costs  associated  with  the
convertible debt and warrants issued.  Although the interest associated with the
utilization of lines of credit is expected to continue at the current level, the
amortization  expenses are expected to decrease over the coming quarters. Of the
$1.2 million of interest  expense during the year ended December 31, 2002,  $0.7
million  was related to the  accretion  of  discounts  and the  amortization  of
related costs in connection with convertible debt and warrants.

     Minority  interests.  Minority  interests  reflects  primarily the minority
interests  in losses  generated  by our dsIT  subsidiary,  primarily  due to the
impairment of goodwill and acquired software in this segment as described above.

2001 COMPARED TO 2000

     Sales.  Sales  decreased by 21% to $45.9 million in 2001 from $57.8 million
in 2000,  due to a  decrease  in sales in all  segments.  Sales in the  software
consulting  and  development  segment  decreased by $6.7  million,  or 36%, as a
result of the  continued  downturn in the hi-tech  economy  generally and in the
demand for software consulting and development  services in particular,  as well
as a decrease in computer embedded  software sales.  Sales also decreased in the
energy intelligence solutions segment by $3.3 million, or 19%. This decrease was
primarily  attributable  to the  inclusion  in 2000 of  non-recurring  sales  of
component   inventory   and   order   backlog   purchased   as   part   of   the
Scientific-Atlanta  control  systems  division  ($1.2


                                      -21-
<PAGE>

million), and sales of a specialized load control product developed for a single
customer ($1.3 million).  In our computer hardware  segment,  sales decreased by
$1.7  million,  or 8%,  resulting  from the slowdown in the economy,  especially
since September 11th, and particularly in the greater New York City metropolitan
area,  which is the primary  market for the  segment.  Our sales in the computer
hardware  segment  decreased by 39% in the second half of 2001 to $7.3  million,
from $12.0 million in the second half of 2000.

     Gross  profit.  Gross profit  decreased by 32% to $8.4  million,  or 18% of
sales, in 2001, from $12.2 million,  or 21% of sales, in 2000. This decrease was
due to a $2.7  million,  or  56%,  decrease  in  gross  profit  of our  software
consulting and development segment and a $1.3 million, or 32%, decrease in gross
profit of our energy intelligence solutions segment,  partially offset by a $0.3
million, or 9%, increase in gross profit in our computer hardware sales segment.
The decrease in the software  consulting and development  segment was due to the
decrease  in  sales,  particularly  the  inclusion  in  2000 of  certain  highly
profitable   computer   embedded   software  sales  which   contributed  to  the
deterioration  in gross profit  margins from 25% in 2000 to 17% in 2001.  In our
energy intelligence solutions segment, the decrease in gross profit was due to a
combination of the decrease in sales and a decrease in gross profit margins from
23% in 2000 to 19% in 2001. In our computer hardware sales segment, the increase
in gross profit was entirely due to the  improvement in gross margin from 15% of
sales in 2000 to 18% in 2001 as result of a change in our customer mix.

     R&D. R&D expenses  more than doubled to $2.3 million in 2001 as compared to
$0.9  million in 2000.  This  increase was due to a  concentrated  effort in the
energy  intelligence  solutions  segment to complete the development of and make
available to customers a broader set of solutions, while refocusing our existing
products.   Among  the   technologies   developed  are  900  MHz   communication
capabilities  to enhance our DCU load control  product,  latest  generation CDPD
technology  upgrade  for our CDC product  and  upgrade  and  enhancement  of the
control system  software for our Maingate  system  currently  being installed at
Gulf Power.

     SG&A.  SG&A increased by 2% to $16.7 million in 2001, from $16.3 million in
2000. The increase was  attributable  to a $0.9 million,  or 15% increase in our
energy  intelligence  solutions  segment.  The  increase in SG&A in Comverge was
attributable  to the  increased  level of marketing  and  administrative  costs,
including costs associated with hiring a new CEO, CFO,  Executive Vice President
and other senior  staff for  Comverge.  Salaries  and related  costs in Comverge
increased  by $1.2  million in 2001 as  compared  to 2000,  due in large part to
these  hirings.  This increase was  partially  offset by a decrease in corporate
expenses primarily due to a non-recurring  bonus of $0.6 million paid to the CEO
in the first quarter of 2000.

     Interest  income.  Interest income  decreased to $1.1 million in 2001, from
$1.8 million in 2000. The decrease was primarily attributable to the decrease in
the amounts invested, as they were being utilized to finance our operations,  as
well as the decrease in interest rates over the year.

     Income taxes.  We recorded a small tax benefit in 2001 as compared to a tax
expense of $0.2  million in 2000.  We  establish  valuation  allowances  against
virtually all deferred tax assets, as we believe that it is more likely than not
that they will not be  realized.  For a  detailed  analysis  of the  income  tax
provision, see Note 15 to the Consolidated Financial Statements included in this
Annual Report.

LIQUIDITY AND CAPITAL RESOURCES

     As of  December  31, 2002 we had working  capital of $2.8,  including  $1.2
million  in non-restricted cash and cash equivalents. Net cash used in operating
activities  in the fourth quarter of 2002 was $1 million in addition to the $5.0
million net cash used in the first three quarters of this year. The primary uses
of  our net cash in 2002 were our loss, including the losses in comverge and all
corporate  expenses,  and  $1.6  million  investment  in  inventory  over. These
expenditures  were financed by the proceeds from sale and maturity of marketable
and  debt  securities  and  the  proceeds  from  issuance of a convertible note.

     In  December  2003 Comverge acquired a $2.0 million line of credit, secured
by  its  inventory,  Accounts  receivables, Databit`s accounts receivables and a
corporate  guarantee. As of December 31, 2002 Comverge had utilized $1.0 million
of  this  line  of  credit.


                                      -22-
<PAGE>

     As described above under the caption "Recent Developments" on April 7, 2003
Comverge  completed  of its previously announced private equity financing in the
amount  of  $13  million,  $3.25  million  of which was invested by us and $9.75
million  of  which  was  invested  by  a group of leading energy venture capital
investors.  At the same time, Comverge obtained a new credit arrangement of $6.5
million.  In connection with this new credit facility, Comverge paid off in full
its  $5.5  million  (as  at  March  31,  2003)  loan with Bank Leumi USA and the
outstanding  balance  its  $2 million line of credit with Laurus, which line was
also  terminated.  The  new  credit  facility  includes a $1.5 million term loan
secured  by  our  pledge of $1.5 million, which is being held in as a restricted
long-term deposit at Comverge`s new lender, and a $5.0 million revolving line of
credit  secured  by  the  assets  of  Comverge.  As  part  of  the  new  credit
arrangements,  $1.0  million  of  the  long-term  deposit  held at Bank Leumi as
security  for Comverge`s loan became unrestricted and is now freely available to
us  as  working  capital. Comverge has agreed to prepay the term loan and permit
release  of  our  long-term  deposit over the next 20 months, subject to certain
conditions.

     We believe that the proceeds of the financing  and new credit  arrangements
should  provide  sufficient  financing  for  Comverge  to independently fund its
activities. Due to the significant interest in Comverge held by others and other
restrictions,  working  capital and cash flows of Comverge will not be available
to  finance  other  U.S.  activities.

     Of  the total working capital at December 31, 2002, $0.4 million was in our
majority-owned  dsIT  subsidiary. Due to Israeli tax and company law constraints
as  well  as the significant minority interest in dsIT, such working capital and
cash  flows  from dsIT`s operations, which amounted to $0.5 million for the year
ended  December  31, 2002, are not available to finance U.S. activities. dsIT is
utilizing  $1.5  million  of  its  $2.0 million lines of credit. dsIT`s lines of
credit  are  denominated  in  NIS  and  bearing  an average interest rate of the
Israeli prime rate plus 0.4% per annum. The Israeli prime rate fluctuates and as
of  December  31,  2002  was  10.6%.  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 we have more than  sufficient  liquidity  to  finance  our
US-based  operating  activities  excluding Comverge and our corporate activities
for at least the 12 months following the date of this report. We expect Comverge
to  fund  its  activities  from  the proceeds of its recent fund raising and its
credit  lines.  We intend to finance our other U.S. activities from cash on hand
as  of  April 10, 2002 of $1.9 million, including $1 million released as part of
Comverge`s  bank  arrangements  and $0.60 million from the sale of shares of our
common  stock  to  Laurus  on  April 10, 2003, and from operating cash flow from
expected  profitable  operations  of  the  computer  hardware  segment.

Contractual Obligations and Commitments

     Our  contractual   obligations   and  commitments  at  December  31,  2002,
excluding  certain  severance  arrangements described below, principally include
obligations  associated  with  our  outstanding  indebtedness,  future  minimum
operating  lease obligations and contractual obligations to our CEO for payments
for  his post-retirement consulting services to us are as set forth in the table
below.

<TABLE>
<CAPTION>
                                               Cash Payments Due During Year Ending December 31,
                                               --------------------------------------------------------
                                                                (In Thousands)

      Contractual Obligations                        Total      2003      2004      2005   After 2005
      -----------------------                        -----      ----      ----      ----   ----------

<S>                                                 <C>       <C>       <C>       <C>       <C>
     Long-term debt related to US operations        $ 6,751   $ 5,746   $ 1,005   $    --   $    --

     Long-term debt related to Israeli operations       789       216       198       192       183

     Guarantees                                         558       558        --        --        --

     Operating leases                                 5,060     1,561     1,265     1,046     1,188

     Consulting agreement with CEO                    1,356        --       271       271       814
                                                    -------   -------   -------   -------   -------

     Total contractual cash obligations             $14,514   $ 3,381   $ 7,439   $ 1,509   $ 2,185
                                                    =======   =======   =======   =======   =======
</TABLE>

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

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


                                      -23-
<PAGE>

     Previously,  the Company accrued a loss for contingent  performance of bank
guarantees.  The  Company`s  remaining  commitment  under  these  guarantees  is
$558,000 at December 31 2002. The Company has  collateralized a portion of these
guarantees  by  means  of a  deposit  $241,000  as of  December  31,  2002.  The
obligation is presented as being due in 2003, though we are uncertain as to when
actual payment may be made.

     Under Israeli law and labor agreements,  dsIT and Comverge`s  subsidiary in
Israel are required to make  severance  payments to dismissed  employees  and to
employees leaving employment in certain other circumstances.  The obligation for
severance pay benefits, as determined by the Israeli Severance Pay Law, is based
upon length of service and last  salary.  These  obligations  are  substantially
covered by regular deposits with recognized  severance pay and pension funds and
by the purchase of insurance  policies.  As of December 31, 2002, we had a total
of $3.4 million in potential severance obligations,  of which approximately $2.4
million was funded  with cash to  insurance  companies  and  approximately  $1.0
million was unfunded. The entire $3.4 million was accrued for as of December 31,
2002.

     Under the terms of his employment  agreement with us, we have an obligation
to pay our Chief Executive Officer consulting fees over a seven year period upon
his retirement on December 31, 2003. Although we contemplate that those payments
will  begin  on  January  1,  2004,  our CEO has the  option  to  terminate  his
employment agreement and begin his consulting period on or prior to December 31,
2003. During the first four years of the consulting period, we would have to pay
our CEO 50% of his salary in effect at the time of  termination  and 25% of that
salary during the last three years of the consulting period,  plus contributions
to a  non-qualified  defined  contribution  retirement  plan equal to 25% of the
consulting fee. At the start of the consulting  period,  we are also required to
fund amounts payable for the term of the consulting  period,  by the purchase of
an annuity or similar investment product. The CEO`s salary for 2002 is $434,000.

     We also have severance  arrangements under an employment agreement with our
Chief Financial Officer to pay severance under certain circumstances. If our CFO
employment  agreement is  terminated  by us or by him for reasons other than for
cause,  we must pay him (i) an amount equal to 150% of his last  month`s  salary
multiplied by the number of years (including  partial years) that the CFO worked
for us, plus (ii) an amount equal to five times his last  month`s  salary or two
times such salary if the CFO  terminates  the  employment  agreement  other than
after a change in control  or a breach by us of his  employment  agreement.  Our
severance obligation would be reduced by the amount contributed by us to certain
Israeli pension and severance funds pursuant to the CFO`s employment  agreement.
As of December 31, 2002, the unfunded  portion of such severance  obligation was
$35,000.

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

     Under our  employment  agreement  with the Executive  Vice President of our
energy intelligence  solutions segment, if such officer`s  employment  agreement
were terminated  without cause, the subsidiary would have to pay to such officer
three  months of base salary  ($205,000  during  2002) for each year (or partial
year) of service to the  subsidiary  up to a maximum of one year of salary.  The
Executive Vice President`s employment commenced in March 2001.

     Our energy intelligence  solutions  subsidiary is not obligated to make any
severance  payments  under these  agreements  if the CEO or the  Executive  Vice
President voluntary terminates his employment agreement.

     We also have severance  arrangements under an employment agreement with the
Chief Executive Officer of dsIT to pay severance under certain circumstances. If
his  employment  agreement  is terminated by us or by him for reasons other than
for cause, we must pay him (i) an amount equal to last month`s salary multiplied
by  the  number  of years (including partial years) that he worked for Endan and
dsIT.  Our severance obligation would be reduced by the amount contributed by us
to  certain  Israeli  pension  and  severance  funds  pursuant to his employment
agreement.  As  of  December  31,  2002,  the unfunded portion of such severance
obligation  was  $34,000.


                                      -24-
<PAGE>

Impact of Inflation and Currency Fluctuations

     A majority of our sales are denominated in dollars.  The remaining  portion
is primarily  denominated in NIS, linked to the dollar.  Such sales transactions
are negotiated in dollars; however, for the convenience of the customer they are
settled in NIS. These  transaction  amounts are linked to the dollar between the
date the  transactions  are entered  into until the date they are  effected  and
billed.  From the time these  transactions are effected and billed,  through the
date of settlement, amounts are primarily unlinked. The majority of our expenses
in Israel are in NIS, while a portion is in dollars or dollar-linked NIS.

     The dollar cost of our  operations  in Israel may be adversely  affected in
the future by a revaluation  of the NIS in relation to the dollar,  should it be
significantly  different from the rate of inflation.  In 2002 the devaluation of
the NIS against the dollar was 7.3%,  whereas in 2001 the devaluation of the NIS
against the dollar was 9.3%.  Inflation in Israel was 6.5% and 1.4% during these
same  periods,  respectively.  During the first two months of 2003,  the NIS was
further devalued against the dollar by 1.5% and inflation during this period was
0.6%.

     As of  December  31,  2002,  virtually  all  of  our  monetary  assets  and
liabilities  that were not  denominated  in  dollars or  dollar-linked  NIS were
denominated in NIS, and the net amount of such monetary  assets and  liabilities
was not material.  In the event that in the future we have material net monetary
assets or liabilities  that are not denominated in  dollar-linked  NIS, such net
assets or liabilities would be subject to the risk of currency fluctuations.

Payments to Related Parties

     We paid an individual as a director and vice  president,  who is the son of
our Chief Executive Officer,  approximately $280,000,  $197,000 and $230,000 for
the years ending  December 31, 2000, 2001 and 2002,  respectively.  We also have
engaged  certain of our  directors and former  directors to render  professional
services to us. One of our former  directors,  who is also the son-in-law of our
Chief  Executive  Officer,  is principal of a law firm that we engage to perform
legal  services  for us.  We paid to this  firm  legal  fees  and  out-of-pocket
disbursements  (which includes fees and expenses of special counsel hired on our
behalf) of  approximately  $474,000,  $575,000  and $630,000 for the years ended
December  31,  2000,  2001 and  2002,  respectively.  We also  engaged  an asset
management  firm that is controlled by one of our directors.  This firm provided
discretionary  asset  management  services to us. In the year ended December 31,
2001 and 2002,  we paid fees of $13,000  and  $12,000  to this asset  management
firm. The engagement with the asset  management firm was terminated in September
2002. The chief executive officer of the Company`s Israeli subsidiary has a loan
from the  subsidiary  that was  acquired in 2001.  The loan  balance and accrued
interest at December  31, 2001 and 2002 was $47,000 and  $48,000,  respectively.
The loan has no defined  maturity  date, is denominated in NIS, is linked to the
Index and bears interest at 4% per annum. The Company`s Comverge  subsidiary has
made  loans of  $10,000  each to both  our  Chief  Executive  Office  and  Chief
Financial Officer. The loans had an initial maturity date of January 3, 2002 and
were extended at that time to mature on January 3, 2004. The loans bear interest
at 4.25% per annum.  The  balances of the loans and accrued interest at December
31,  2001  and  2002  were  $23,000  and  $25,000,  respectively.  The  Comverge
subsidiary   also   extended  a  loan  of  $14,000   to   Comverge`s   Executive
Vice-President  in 2001.  This loan bears  interest  at 6.5% per annum and is to
mature in July 2004.  The balance of the loan and  accrued  interest at December
31, 2001 and 2002 was $15,000 and $16,000, respectively.


                                      -25-
<PAGE>

SUMMARY QUARTERLY FINANCIAL DATA (UNAUDITED)

     The  following  table  sets  forth  certain  of  our  unaudited   quarterly
consolidated  financial  information  for the years ended  December 31, 2001 and
2002.  This  information  should be read in  conjunction  with our  Consolidated
Financial Statements and the notes thereto.

<TABLE>
<CAPTION>
                                                                     2001
                                                                     ----

                                                   First      Second      Third       Fourth
                                                  Quarter     Quarter     Quarter     Quarter
                                                 --------    --------    --------    --------

                                                    (in thousands, except per share amounts)
<S>                                              <C>         <C>         <C>         <C>
Sales                                            $ 13,229    $ 12,569    $ 10,359    $  9,767
Cost of sales                                      10,537       9,753       8,162       9,106
                                                 --------    --------    --------    --------

Gross profit                                        2,692       2,816       2,197         661
Research and development                              482         871         863          68
Selling, general and administrative                 4,184       4,203       4,242       4,042
Impairment of goodwill and investment .                --          --          --         227
Gain on sale of division/subsidiary                    --          --          --         397
                                                 --------    --------    --------    --------

Operating income (loss)                            (1,974)     (2,258)     (2,908)     (3,279)
Interest income (expense), net                        195         184         177          89
Other income (loss), net                              (61)         56          31         (58)
Minority interests                                     --          --          --          --
                                                 --------    --------    --------    --------

Income (loss) before provision (benefit)
   for income taxes                                (1,840)     (2,018)     (2,700)     (3,248)
Provision (benefit) for income taxes                   27          85         (94)        (29)
                                                 --------    --------    --------    --------
Net income (loss)                                $ (1,867)   $ (2,103)   $ (2,606)   $ (3,219)
                                                 ========    ========    ========    ========

Basic and diluted net income (loss) per share:
   Net income (loss) per share                   $  (0.27)   $  (0.30)   $  (0.37)   $  (0.46)
                                                 ========    ========    ========    ========

Weighted average number of shares
   outstanding - basic                              6,964       6,910       6,950       7,009
                                                 ========    ========    ========    ========

Weighted average number of shares
   outstanding - diluted                            6,964       6,910       6,950       7,009
                                                 ========    ========    ========    ========
</TABLE>
<TABLE>
<CAPTION>
                                                                    2002
                                                                    ----

                                                  First       Second      Third        Fourth
                                                  Quarter     Quarter     Quarter     Quarter
                                                 --------    --------    --------    --------

                                                    (in thousands, except per share amounts)
<S>                                              <C>         <C>         <C>         <C>
Sales                                            $ 12,808    $ 12,783    $ 11,269    $ 19,026
Cost of sales                                       9,830      10,191       8,906      13,979
                                                 --------    --------    --------    --------

Gross profit                                        2,978       2,592       2,363       5,047
Research and development                              460         550         256         260
Selling, general and administrative                 4,300       4,452       3,923       4,079
Impairment of goodwill and investment .                --          --       2,760          90
Gain on sale of division/subsidiary                    --          --          --          --
                                                 --------    --------    --------    --------

Operating income (loss)                            (1,782)     (2,410)     (4,576)        618
Interest income (expense), net                         (1)       (146)       (393)       (419)
Other income (loss), net                               27          66          56         (36)
Minority interests                                     (4)        207         649          28
                                                 --------    --------    --------    --------

Income (loss) before provision (benefit)
   for income taxes                                (1,760)     (2,283)     (4,264)        191
Provision (benefit) for income taxes                   42          15           7         (36)
                                                 --------    --------    --------    --------
Net income (loss)                                $ (1,802)   $ (2,298)   $ (4,271)   $    227
                                                 ========    ========    ========    ========

Basic and diluted net income (loss) per share:
   Net income (loss) per share                   $  (0.25)   $  (0.31)   $  (0.58)   $   0.03
                                                 ========    ========    ========    ========

Weighted average number of shares
   outstanding - basic                              7,353       7,353       7,353       7,335
                                                 ========    ========    ========    ========

Weighted average number of shares
   outstanding - diluted                            7,353       7,353       7,353       7,336
                                                 ========    ========    ========    ========
</TABLE>


                                      -26-
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     General

     We are  required  to  make  certain  disclosures  regarding  our  financial
instruments, including derivatives, if any.

     A  financial  instrument  is  defined  as cash,  evidence  of an  ownership
interest in an entity,  or a contract  that imposes on one entity a  contractual
obligation either to deliver or receive cash or another financial  instrument to
or from a second entity. Examples of financial instruments include cash and cash
equivalents,  trade  accounts  receivable,  loans,  investments,  trade accounts
payable, accrued expenses,  options and forward contracts. The disclosures below
include,  among other matters, the nature and terms of derivative  transactions,
information about significant  concentrations of credit risk, and the fair value
of financial assets and liabilities.

     In the  normal  course of  business,  we are  exposed  to  fluctuations  in
interest  rates on the $5.7  million of debt  incurred  to finance  our  capital
expenditures as well as  lines-of-credit  and long-term debt incurred to finance
our operations in Israel,  currently  $1.5 million and $786,000,  as well as the
Comverge line-of-credit of $1.0 million. Our convertible note, with a face value
of $1.4 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  $764,000) 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.

     Fair Value of Financial Instruments

     Fair values of financial instruments included in current assets and current
liabilities  are  estimated  to  approximate  their book values due to the short
maturity  of such  investments.  Fair  value for  long-term  debt and  long-term
deposits are  estimated  based on the current  rates  offered to us for debt and
deposits  with similar  terms and  remaining  maturities.  The fair value of our
long-term debt and long-term  deposits are not  materially  different from their
carrying amounts.

     Concentrations of Credit Risk

     Financial  instruments,  which potentially  subject us to concentrations of
credit  risk,  consist  principally  of cash and  cash  equivalents,  short  and
long-term bank deposits,  and trade receivables.  The counterparty to a majority
of our cash equivalent deposits as well as our short and long-term bank deposits
is a major  financial  institution  of high credit  standing.  We do not believe
there  is  significant  risk  of   non-performance   by  these   counterparties.
Approximately 12% of the trade accounts receivable at December 31, 2002  was due
from a U.S.  customer that pays its trade receivables over usual credit periods.
Credit  risk with  respect to the  balance  of trade  receivables  is  generally
diversified  due to the large  number of entities  comprising  the our  customer
base.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Furnished at the end of this report commencing on page F-1.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

     Not applicable.


                                      -27-
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information  relating to each of our directors and nominees for director and
the information relating to our executive officers, appearing under the captions
"Election of Directors - Certain  Information  Regarding Directors and Officers"
and  "Compliance  with Section 16(a) of the Securities and Exchange Act of 1934"
in our definitive proxy statement for the 2003 Annual Meeting of Stockholders to
be filed on or before  April 30,  2003 (the "2003 Proxy  Statement"),  is hereby
incorporated by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The  information  relating  to  compensation  of  directors  and  executive
officers,  appearing under the captions  "Executive and Director  Compensation -
Compensation of Directors",  "Executive and Director Compensation - Compensation
Committee  Interlocks  and  Insider  Participation",   "Executive  and  Director
Compensation - Employment Arrangements",  "Executive and Director Compensation -
Executive  Compensation" and "Compensation  Report of the Board of Directors" in
the 2003 Proxy Statement, is hereby incorporated by reference.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

     The information relating to security ownership, appearing under the caption
"Stock Ownership of Certain  Beneficial Owners and Management" in the 2003 Proxy
Statement  which the Company intends to file with the SEC no later than 120 days
after the end of the fiscal year covered by this report. is hereby  incorporated
by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  relating  to  certain  relationships  and  transactions,
appearing  under  the  caption  "Executive  and  Director Compensation - Certain
Related  Party Transactions" in the 2003 Proxy Statement, is hereby incorporated
by  reference.

ITEM 14.  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.


                                      -28-
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) EXHIBITS:

        3.1 Certificate of  Incorporation  of the  Registrant,  with  amendments
            thereto  (incorporated  herein by  reference  to Exhibit  3.1 to the
            Registrant`s  Registration Statement on Form S-1 (File No. 33-70482)
            (the "1993 Registration Statement")).
        3.2 By-laws  of the  Registrant  (incorporated  herein by  reference  to
            Exhibit 3.2 to the Registrant`s  Registration  Statement on Form S-1
            (File No. 33-44027) (the "1992 Registration Statement")).
        3.3 Amendments  to the By-laws of the  Registrant  adopted  December 27,
            1994  (incorporated  herein  by  reference  to  Exhibit  3.3  of the
            Registrant`s Current Report on Form 8-K dated January 10, 1995).
        4.1 Specimen  certificate for the Common Stock  (incorporated  herein by
            reference to Exhibit 4.2 to the 1992 Registration Statement).
        4.2 Securities  Purchase  Agreement  between the  Registrant  and Bounty
            Investors  LLC,  dated as of October  12,  1999,  including  Form of
            Warrant  (incorporated  herein  by  reference  to  Exhibit  1 to the
            Registrant`s  Current Report on Form 8-K dated October 12, 1999 (the
            "October 1999 8-K")).
        4.3 Form of  Registration  Rights  Agreement  between the Registrant and
            Bounty  Investors  LLC,  dated as of October 12, 1999  (incorporated
            herein by reference to Exhibit 1 to October 1999 8-K).
        4.4 Warrant to Purchase  Common Stock of the  Registrant,  dated October
            12, 1999  (incorporated  herein by  reference  to Exhibit 4.4 to the
            Registrant`s  Annual Report on Form 10-K for the year ended December
            31, 2000 (the "2000 10-K")).

        4.5 Securities  Purchase  Agreement,  dated as of June 11, 2002,  by and
            among the  Registrant,  Databit,  Inc. and Laurus Master Fund,  Ltd.
            ("Laurus")  (including  the forms of  convertible  note and warrant)
            (incorporated   herein  by   reference   to  Exhibit   10.1  to  the
            Registrant`s Current Report on Form 8-K dated June 11, 2002).
        4.6 Purchase and Security Agreement,  dated as of December 4, 2002, made
            by and between Comverge ("Comverge") and Laurus (incorporated herein
            by reference to Exhibit 10.1 to the  Registrant`s  Current Report on
            Form 8-K dated December 5, 2002 (the "December 2002 8-K")).
        4.7 Convertible  Note,  dated  December  4,  2002,  made  by  and  among
            Comverge,  Laurus and, as to Articles III and V only, the Registrant
            (incorporated  herein by  reference  to Exhibit 10.2 to the December
            2002 8-K).
        4.8 Common Stock Purchase Warrant, dated December 5, 2002, issued by the
            Registrant  to Laurus  (incorporated  herein by reference to Exhibit
            10.3 to the December 2002 8-K).
        4.9 Registration Rights Agreement,  dated as of December 4, 2002, by and
            between the Registrant and Laurus  (incorporated herein by reference
            to Exhibit 10.4 to the December 2002 8-K).
      *10.1 Employment  Agreement between the Registrant and George Morgenstern,
            dated as of January 1, 1997  (incorporated  herein by  reference  to
            Exhibit 10.1 to the Registrant`s  Annual Report on Form 10-K for the
            year ended December 31, 1997 (the "1997 10-K")).
      *10.2 Employment Agreement between the Registrant and Yacov Kaufman, dated
            as of January 1, 1999  (incorporated  herein by reference to Exhibit
            10.22 of the  Registrants  Annual  Report  on Form 10-K for the year
            ended December 31, 1999 (the "1999 10-K")).
      *10.3 1991 Stock Option Plan (incorporated  herein by reference to Exhibit
            10.4 to the 1992 Registration Statement). *10.4 1994 Stock Incentive
            Plan, as amended  (incorporated  herein by reference to Exhibit 10.4
            to the  Registrant`s  Form 10-K for the year ended December 31, 1995
            (the "1995 10-K")).
      *10.5 1994  Stock   Option   Plan  for  Outside   Directors,   as  amended
            (incorporated herein by reference to Exhibit 10.5 to the 1995 10-K).
       10.6 1995 Stock Option Plan for  Non-management  Employees  (incorporated
            herein by reference to Exhibit 10.6 to the 1995 10-K).
       10.7 Asset Purchase  Agreement,  dated as of August 2, 2000, by and among
            the Registrant,  International  Data  Operations,  Inc., and Eclipse
            Networks, Inc. (incorporated herein by reference Exhibit 10.1 to the
            Registrant`s  Quarterly  Report on Form 10-Q for the  quarter  ended
            September 30, 2000).
       10.8 Credit  Agreement dated as of February 7, 2000 between  Comverge and
            Bank Leumi USA (incorporated herein by reference to Exhibit 10.12 of
            the 1999 10-K).

       10.9 License  Agreement  between the Registrant  and Lucent  Technologies
            Inc. dated as of January 9, 1998  (incorporated  herein by reference
            to the  Registrant`s  Current  Report on Form 8-K dated February 17,
            1998).
      10.10 Warrant  Repurchase  Agreement,  dated September 25, 2000, among the
            Registrant,  Bank Leumi USA and Bank Leumi  le-Israel  (incorporated
            herein by reference to Exhibit 10.11 to the 2000 10-K).
      10.11 Agreement dated January 26, 2002,  between the Registrant and Bounty
            Investors LLC (incorporated  herein by reference to Exhibit 10.12 to
            the 2000 10-K).
      10.12 Lease Agreement,  dated February 5, 2002,  between Duke-Weeks Realty
            Limited Partnership and Comverge,


                                      -29-
<PAGE>

            (incorporated  herein  by  reference  to  Exhibit  10.13 to the 2000
            10-K).
     *10.13 Stock  Option  Agreements,  dated as of  October  1,  1999,  between
            Powercom Control Systems Ltd. and George Morgernstern, Yacov Kaufman
            and Harvey E. Eisenberg (and related promissory notes) (incorporated
            herein by reference to Exhibit 10.14 to the 2000 10-K).
      10.14 Share  Purchase  Agreement,  dated as of November 29,  2001,  by and
            among  the  Registrant,  Decision  Systems  Israel  Ltd.,  Endan  IT
            Solutions Ltd., Kardan  Communications  Ltd.,  Neuwirth  Investments
            Ltd.,  Jacob Neuwirth  (Noy) and Adv. Yossi Avraham,  as Trustee for
            Meir Givon (incorporated  herein by reference to Exhibit 10.1 to the
            Registrant`s Current Report on Form 8-K dated December 13, 2001).


                                      -30-
<PAGE>

      10.15 Registration Rights Agreement, dated as of December 13, 2002, by and
            among the  Registrant,  Kardan  Communications  Ltd. and Adv.  Yossi
            Avraham, as Trustee for Meir Givon (incorporated herein by reference
            to Exhibit 10.2 to the Registrant`s Current Report on Form 8-K dated
            December 13, 2002).
     *10.16 Employment Agreement,  dated as of September 1, 2002, by and between
            Comverge and Robert M. Chiste  (incorporated  herein by reference to
            Exhibit 10.1 to the  Registrant`s  Quarterly Report on Form 10-Q for
            the quarter ended September 30, 2002).
     *10.17 Restricted Stock Purchase Agreement,  dated as of September 1, 2002,
            by and between  the  Registrant  and Robert M. Chiste  (incorporated
            herein by reference to Exhibit  10.2 to the  Registrant`s  Quarterly
            Report on Form 10-Q for the quarter ended September 30, 2002).
     *10.18 Option  Agreement,  dated as of  September  1, 2002,  by and between
            Comverge and Robert M. Chiste  (incorporated  herein by reference to
            Exhibit 10.3 to the  Registrant`s  Quarterly Report on Form 10-Q for
            the quarter ended September 30, 2002).
      10.19 Contract for Asset  Management  Services  between the Registrant and
            Malley Associates Capital Management,  Inc.  (incorporated herein by
            reference to Exhibit 10.1 to the  Registrant`s  Quarterly  Report on
            Form 10-Q for the quarter ended March 31, 2002).
     *10.20 Employment Agreement dated as of March 30, 2002 between Comverge and
            Joseph D. Esteves  (incorporated herein by reference to Exhibit 10.1
            to the  Registrant`s  Quarterly  Report on Form 10-Q for the quarter
            ended June 30, 2002).
      10.21 Agreement,  dated as of January 31, 2002,  between Comverge and Bank
            Leumi USA (incorporated  herein by reference to Exhibit 10.21 to the
            Registrant`s  Annual Report on Form 10-K for the year ended December
            31, 2001 (the "2001 10-K").
      10.22 $6,000,000  Term Note of  Comverge  dated as of  January  31,  2002,
            payable  to Bank  Leumi USA  (incorporated  herein by  reference  to
            Exhibit 10.22 to the 2001 10-K).
     *10.23 First Amendment to Employment  Agreement,  dated as of May 17, 2002,
            by and between the Registrant and George  Morgenstern  (incorporated
            herein by reference to Exhibit 10.23 to the 2001 10-K).
     #10.24 Agreement,  dated as of January 31, 2003,  between Comverge and Bank
            Leumi USA (including  form of $6,000,000 Term Note of Comverge dated
            as of January 31, 2003, payable to Bank Leumi USA).
     #10.25 Agreement, dated as of February 25, 2003, between the Registrant and
            J.P. Turner & Company,  L.L.C. *10.26 Second Amendment to Employment
            Agreement,  dated as of March 12, 2002,  between the  Registrant and
            George Morgenstern (incorporated herein by reference to Exhibit 10.1
            to the  Registrant`s  Quarterly  Report on Form 10-Q for the quarter
            ended March 31, 2002).
     *10.27 Amendment to Employment Agreement, dated as of June 1, 2002, between
            the Registrant and Yacov Kaufman  (incorporated  herein by reference
            to Exhibit 10.1 to the  Registrant`s  Quarterly  Report on Form 10-Q
            for the quarter ended June 30, 2002).
      10.28 Guaranty, dated December 4, 2002, made by the Registrant in favor of
            Laurus  (incorporated  herein by  reference  to Exhibit  10.5 to the
            December 2002 8-K).
     #10.29 Preferred  Stock Purchase  Agreement,  dated as of April 7, 2003, by
            and among  Comverge,  the Registrant and the other  investors  named
            therein.
     #10.30 Investors` Rights Agreement, dated as of April 7, 2003, by and among
            Comverge,  the Registrant and the investors and Comverge  management
            named therein.
     #10.31 Co-Sale and First Refusal  Agreement,  dated as of April 7, 2003, by
            and  among   Comverge,   the   Registrant   and  the  investors  and
            stockholders named therein.
     #10.32 Voting Agreement,  dated as of April 7, 2003, by and among Comverge,
            the Registrant and the other investors named therein.
     #10.33 Letter  Agreement,  dated as of April 1, 2003,  by and  between the
            Registrant and Laurus.

      #21.1 List of subsidiaries.
      #23.1 Consent of KPMG LLP.
      #99.1 Certification  pursuant  to  18  U.S.C.  Section  1350,  as  adopted
            pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
      #99.2 Certification  pursuant  to  18  U.S.C.  Section  1350,  as  adopted
            pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

-----------
-
*    This  exhibit  includes  a  management   contract,   compensatory  plan  or
     arrangement  in which one or more  directors or  executive  officers of the
     Registrant participate.

#    This Exhibit is filed herewith.

(b) FINANCIAL STATEMENT SCHEDULES.


                                      -31-
<PAGE>

         None.

(c) REPORTS ON FORM 8-K.

     (i)    Report on Form 8-K,  dated  December  5, 2002,  filed on December 9,
            2002,  relating to the  closing by our  subsidiary,  Comverge,  of a
            three-year $2 million  secured  revolving line of credit from Laurus
            Master Fund, Ltd.

     (ii)   Amendment  No. 1 to Report on Form  8-K/A,  dated  December 5, 2002,
            filed  on  December  24,  2002,  relating  to  the  closing  by  our
            subsidiary,  Comverge,  of a three-year $2 million secured revolving
            line of credit from Laurus Master Fund, Ltd.

     (iii)  Report on Form 8-K, dated  December 19, 2002,  filed on December 24,
            2002,  relating to a Nasdaq Staff  Determination for  non-compliance
            with the minimum  stockholders`  equity  requirement  for  continued
            listing on the Nasdaq National Market.


                                      -32-
<PAGE>

                                    SIGNATURE

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  in the Township of
Mahwah, State of New Jersey, on April 14, 2003.

                                         DATA SYSTEMS & SOFTWARE INC.

                                         BY      /s/ GEORGE MORGENSTERN
                                            ----------------------------------

                                                   George Morgenstern
                                            Chairman of the Board, President
                                              and Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant,  in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
          SIGNATURE                                        TITLE                               DATE

<S>                                  <C>                                                  <C>
    /s/ GEORGE MORGENSTERN           Chairman of the Board; President; Chief Executive    April 14, 2003
-----------------------------        Officer; and Director
      George Morgenstern

      /s/ YACOV KAUFMAN              Vice President, Chief Financial Officer              April 14 , 2003
-----------------------------        (Principal Financial Officer and Principal
        Yacov Kaufman                Accounting Officer)

     /s/ ALLEN I. SCHIFF             Director                                             April 14, 2003
-----------------------------
       Allen I. Schiff

       /s/ SUSAN MALLEY              Director                                             April 14, 2003
-----------------------------
         Susan Malley

        /s/ AVI KERBS
-----------------------------        Director
          Avi Kerbs                                                                       April 14, 2003
</TABLE>


                                      -33-
<PAGE>

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

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

2.   Based on my  knowledge,  this  annual  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 annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual 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 annual 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
               annual 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 annual report (the "Evaluation Date"); and

          (c)  presented  in  this  annual  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  officer and  I have indicated in this
     annual  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:  April 14, 2003                        By:  \S\ GEORGE MORGENSTERN
                                                   -----------------------------
                                                       George Morgenstern
                                                       Chief Executive Officer


                                      -34-
<PAGE>

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

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

2.   Based on my  knowledge,  this  annual  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 annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual 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 annual 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:

          (d)  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
               annual report is being prepared;

          (e)  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 annual report (the "Evaluation Date"); and

          (f)  presented  in  this  annual  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

          (c)  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  officer and I have  indicated in this
     annual  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:   April 14, 2003                          By:  \S\ YACOV KAUFMAN
                                                      ---------------------
                                                         Yacov Kaufman
                                                         Chief Financial Officer


                                      -35-

<PAGE>
                          DATA SYSTEMS & SOFTWARE INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS OF DATA SYSTEMS & SOFTWARE INC.:

<TABLE>
<CAPTION>
<S>                                                                                  <C>
Report of KPMG LLP ...............................................................   F-1

Consolidated Balance Sheets
    as of December 31, 2001 and December 31, 2002 ................................   F-2

Consolidated Statements of Operations
   for the years ended December 31, 2000, December 31,  2001 and December 31, 2002   F-3

Consolidated Statements of Changes in Shareholders` Equity
   for the years ended December 31, 2000, December 31, 2001 and December 31, 2002    F-4

Consolidated Statements of Cash Flows
   for the years ended December 31, 2000, December 31, 2001 and December 31, 2002    F-5

Notes to Consolidated Financial Statements .......................................   F-8
</TABLE>


                                      F-1
<PAGE>

                          Independent Auditors` Report

The Board of Directors and Shareholders of
Data Systems & Software Inc.:

     We have  audited  the  accompanying  consolidated  balance  sheets  of Data
Systems & Software Inc. and  subsidiaries  as of December 31, 2001 and 2002, and
the related  consolidated  statements of  operations,  changes in  shareholders`
equity,  and cash  flows for each of the years in the  three-year  period  ended
December  31,   2002.   These   consolidated   financial   statements   are  the
responsibility of the Company`s management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the financial position of Data Systems
& Software  Inc.  and  subsidiaries  as of December  31, 2001 and 2002,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period  ended  December  31,  2002  in  conformity  with  accounting
principles generally accepted in the United States of America.

     As discussed in Notes 2 and 9 to the consolidated financial statements, the
Company adopted Statements of Financial  Accounting Standards No. 141, "Business
Combinations",  for  purchase  method business combinations completed after June
30,  2001,  and  No. 142, "Goodwill and Other Intangibles", effective January 1,
2002.

     As  discussed  in  Note 2,  the  Company  adopted  Statement  of  Financial
Accounting  Standard No. 145  "Rescission  of FASB  Statements No. 4, 44 and 64,
Amendment  of FASB  Statement  No. 13, and  Technical  Corrections"  in 2002 and
reclassified the 2000 loss on early redemption of debt.


                                                     /s/ KPMG LLP

Short Hills, New Jersey
March 7, 2003, except as to Notes 1(b) and 19, which are as of April 10, 2003


                                      F-2
<PAGE>

                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                         ASSETS                       As of December 31,
                                                                      ------------------
                                                                      2001        2002
                                                                      ----        ----
<S>                                                                 <C>         <C>
Current assets:
    Cash and cash equivalents ...................................   $  4,025    $  1,150
    Debt securities .............................................      1,828          --
    Restricted cash .............................................        317         241
    Trade accounts receivable, net ..............................     10,197      12,267
    Inventory ...................................................        658       2,217
    Other current assets ........................................      1,858       1,401
                                                                    --------    --------
          Total current assets ..................................     18,883      17,276
 Investments ....................................................         90          --
 Property and equipment, net ....................................      2,296       1,972
 Goodwill .......................................................      7,737       4,929
 Other intangible assets, net ...................................        909         404
 Long-term deposits .............................................      6,000       5,700
 Other assets ...................................................        676         669
 Prepaid employee termination benefits ..........................      2,653       2,355
                                                                    --------    --------
          Total assets ..........................................   $ 39,244    $ 33,305
                                                                    ========    ========
                          LIABILITIES AND SHAREHOLDERS` EQUITY
Current liabilities:
    Short-term debt and current maturities of long-term debt, net   $  2,499    $  3,755
    Trade accounts payable ......................................      4,010       5,185
    Accrued payroll, payroll taxes and social benefits ..........      2,193       2,098
    Other current liabilities ...................................      3,372       3,411
                                                                    --------    --------
          Total current liabilities .............................     12,074      14,449
                                                                    --------    --------
Long-term liabilities:
         Long-term debt .........................................      6,182       6,278
         Other liabilities ......................................        285         477
         Liability for employee termination benefits ............      3,811       3,364
                                                                    --------    --------
             Total long-term liabilities ........................     10,278      10,119
Commitments and contingencies (Note 13)
 Minority interests .............................................      2,530       1,609
                                                                    --------    --------
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      37,687
   Warrants .....................................................        114         364
   Deferred compensation ........................................        (14)         (7)
   Accumulated deficit ..........................................    (18,643)    (26,787)
   Treasury stock, at cost - 808,704 and 845,704 shares
            for 2001 and 2002, respectively .....................     (3,860)     (3,913)
   Shareholder`s note ...........................................       (298)       (298)
                                                                    --------    --------
  Total shareholders` equity ....................................     14,362       7,128
                                                                    --------    --------
          Total liabilities and shareholders` equity ............   $ 39,244    $ 33,305
                                                                    ========    ========
</TABLE>

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


                                      F-3
<PAGE>

                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                               --------------------------------
                                                                 2000        2001        2002
                                                               --------    --------    --------
<S>                                                            <C>         <C>         <C>
Sales:
   Products ................................................   $ 38,300    $ 32,717    $ 39,831
        Services ...........................................     19,539      13,207      16,055
                                                               --------    --------    --------
                                                                 57,839      45,924      55,886
                                                               --------    --------    --------
Cost of sales:
        Products ...........................................     31,415      27,122      30,994
        Services ...........................................     14,191      10,436      11,912
                                                               --------    --------    --------
                                                                 45,606      37,558      42,906
                                                               --------    --------    --------
           Gross profit ....................................     12,233       8,366      12,980
Research and development expenses ..........................        928       2,284       1,526
Selling, general and administrative expenses ...............     16,340      16,671      16,754
Impairment of goodwill and investment ......................         --         227       2,850
Gain on sale of subsidiary/division ........................      1,144         397          --
                                                               --------    --------    --------
     Operating loss ........................................     (3,891)    (10,419)     (8,150)
Interest income ............................................      1,758       1,104         253
Interest expense ...........................................       (709)       (459)     (1,212)
Loss on early redemption of debt ...........................       (943)         --          --
Other income (loss), net ...................................        (50)        (32)        113
Minority interests .........................................         --          --         880
                                                               --------    --------    --------
     Loss before provision (benefit) for income taxes ......     (3,835)     (9,806)     (8,116)
Provision (benefit) for income taxes .......................        171         (11)         28
                                                               --------    --------    --------
     Loss from continuing operations .......................     (4,006)     (9,795)     (8,144)
Loss from discontinued operations, net of income taxes .....       (104)         --          --
Gain on sale of discontinued operations, net of income taxes      4,222          --          --
                                                               --------    --------    --------
Net income (loss) ..........................................   $    112    $ (9,795)   $ (8,144)
                                                               ========    ========    ========

Basic and diluted net income (loss) per share:
        Loss from continuing operations ....................   $  (0.54)   $  (1.41)   $  (1.11)
   Discontinued operations .................................       0.56          --          --
                                                               --------    --------    --------
     Net income (loss) per share ...........................   $   0.02    $  (1.41)   $  (1.11)
                                                               ========    ========    ========
Weighted average number of shares
          outstanding - basic and diluted...................      7,422       6,970       7,349
                                                               ========    ========    ========
</TABLE>

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


                                      F-4
<PAGE>

                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS` EQUITY
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                       Treasury   Shareholder`s   Accumulated
                                                                         Stock        Note          Deficit       Total
                                                                         -----        ----          -------       -----

<S>                                                                    <C>           <C>           <C>          <C>
Balances as of December 31, 1999 ...............................       $ (2,365)     $   --        $ (8,925)    $ 24,850

Conversion of convertible debentures ...........................             --          --              --          260
Exercise of options ............................................             --          --              --           66
Amortization of restricted stock award compensation ............             --          --              --           73
Repurchase of outstanding warrants .............................             --          --              --         (375)
Purchase of treasury shares ....................................         (2,405)         --              --       (2,405)
Net income .....................................................             --          --             112          112
                                                                       --------      ------        --------     --------
Balances as of December 31, 2000 ...............................       $ (4,770)     $   --        $ (8,813)    $ 22,581

Exercise of options ............................................             73          --             (35)         231
Issuance of shares .............................................             --        (298)             --           --
Issuance of deferred compensation ..............................             --          --              --           --
Amortization of deferred compensation ..........................             --          --              --            2
Treasury shares issued in respect of acquisition at average cost          1,744          --              --        2,250
Purchase of treasury shares ....................................           (907)         --              --         (907)
Net loss .......................................................             --          --          (9,795)      (9,795)
                                                                       --------      ------        --------     --------
Balances as of December 31, 2001 ...............................       $ (3,860)     $ (298)       $(18,643)    $ 14,362

Grant and amortization of stock option compensation ............             --          --              --           25
Expiration of warrants .........................................             --          --              --           --
Value of 10% convertible note allocated to beneficial conversion
   feature and related warrants ................................             --          --              --          692
Value of convertible portion of line of credit allocated to
   beneficial conversion feature and related warrants ..........             --          --              --          246
Purchase of treasury shares ....................................            (53)         --              --          (53)
Net loss .......................................................             --          --          (8,144)      (8,144)
                                                                       --------      ------        --------     --------
Balances as of December 31, 2002 ...............................       $ (3,913)     $ (298)       $(26,787)    $  7,128
                                                                       ========      ======        ========     ========
</TABLE>

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


                                      F-5
<PAGE>

                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                   Year Ended December  31,
                                                                                 2000        2001        2002
                                                                                 ----        ----        ----

<S>                                                                           <C>         <C>         <C>
Cash flows used in operating activities:
   Net income (loss) ......................................................   $    112    $ (9,795)   $ (8,144)
   Adjustments to reconcile net income (loss) to net cash used in operating
      activities--see Schedule A ..........................................     (5,973)      1,024       2,136
                                                                              --------    --------    --------
   Net cash used in operating activities ..................................     (5,861)     (8,771)     (6,008)
                                                                              --------    --------    --------
Cash flows provided by investing activities:
Short-term bank deposits, net .............................................     (4,985)      5,994          --
Proceeds from (investment in) long-term deposits ..........................     (6,000)         --         300
Investment in debt securities .............................................         --      (3,215)       (154)
Proceeds from sale and maturity of marketable and debt securities .........         --       1,383       2,031
Proceeds from sale of investment held for sale ............................     30,889          --          --
Net proceeds from sale of division ........................................      1,838          --          --
Acquisitions of property and equipment and intangible assets ..............       (759)       (904)       (492)
Proceeds from sale of property and equipment ..............................        132          23          28
Business acquisitions -see Schedule C .....................................         --        (500)         --
                                                                              --------    --------    --------
   Net cash provided by investing activities ..............................     21,115       2,781       1,713
                                                                              --------    --------    --------
Cash flows provided by (used in) financing activities:
Purchase of treasury stock ................................................     (2,405)       (907)        (53)
Proceeds from stock options exercises .....................................         66         231          --
Proceeds from issuance of convertible note net of issuance costs ..........         --          --       1,749
Repurchase of outstanding warrants ........................................       (375)         --          --
Redemption of convertible debentures ......................................     (2,001)         --          --
Short-term debt borrowings (repayments), net ..............................     (6,971)        836        (510)
Proceeds from long-term debt ..............................................      6,021          --         679
Repayments of long-term debt and debt acquired in acquisition .............        (91)     (1,022)       (445)
                                                                              --------    --------    --------
   Net cash provided by (used in) financing activities ....................     (5,756)       (862)      1,420
                                                                              --------    --------    --------
Net increase (decrease) in cash and cash equivalents ......................      9,498      (6,852)     (2,875)
Cash and cash equivalents at beginning of year ............................      1,379      10,877       4,025
                                                                              --------    --------    --------
Cash and cash equivalents at end of year ..................................   $ 10,877    $  4,025    $  1,150
                                                                              ========    ========    ========
Supplemental cash flow information: Cash paid during the year for:
      Interest ............................................................   $    764    $    372    $    579
                                                                              ========    ========    ========
      Income taxes ........................................................   $  3,596    $    459    $    138
                                                                              ========    ========    ========
</TABLE>

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


                                      F-6
<PAGE>

                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
               SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
                                                                                           -----------------------
                                                                                          2000       2001       2002
                                                                                          ----       ----       ----
<S>                                                                                     <C>        <C>        <C>
A. Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization ....................................................   $ 1,628    $ 1,338    $ 1,155
   Minority interests and write-off of minority interest balance ....................        --         --       (921)
   Impairment of goodwill and acquired software .....................................        --         --      3,000
   Issuance of subsidiary shares to minority interests ..............................        30         --         --
   Gain on sale of investment held for sale .........................................    (4,989)        --         --
   Allowance for doubtful accounts ..................................................       254       (279)       (46)
   Deferred taxes ...................................................................       (20)        14       (107)
   Increase (decrease) in liability for employee termination benefits ...............       (13)       332       (447)
   Gain on sale of segment/subsidiary stock .........................................    (1,144)      (397)        --
   Loss (gain) on sale of marketable securities and debt securities, net ............        --          4        (49)
   Loss from write-down of investment ...............................................        --        227         90
   Write-down of inventory ..........................................................        --        391         --
   Loss (gain) on sale of property, plant and equipment, net ........................        (4)        33         (4)
   Amortization of restricted stock award and deferred compensation .................        73          2         25
   Loss on early redemption of debt .................................................       943         --         --
   Accretion of discount on convertible debt and amortization of related costs ......        37         --        679
   Other ............................................................................        --          7       (208)
   Receipt of investments for services rendered .....................................      (153)      (164)        --
   Changes in operating assets and liabilities, net of effect of acquisitions:
     Restricted cash ................................................................       234        (15)        76
     Funding of termination benefits ................................................        50        (36)       298
     Decrease (increase) in accounts receivable and other assets ....................      (304)     1,508     (1,181)
     Decrease (increase) in inventory ...............................................     1,257       (601)    (1,559)
     Increase (decrease) in accounts payable and other liabilities ..................    (3,852)    (1,340)     1,335
                                                                                        -------    -------    -------

                                                                                        $(5,973)   $ 1,024    $ 2,136
                                                                                        =======    =======    =======
B. Non-cash investing and financing activities:
   Adjustment of goodwill ...........................................................   $   682               $    48
                                                                                        =======               =======
   Issuance of shares for debt ......................................................   $   260    $   298
                                                                                        =======    =======
   Adjustment of fixed assets to other current liabilities ..........................   $    11
                                                                                        =======
   Issuance of deferred compensation ................................................              $    16
                                                                                                   =======
   Shares of subsidiary issued in respect of acquisition ............................              $ 2,938
                                                                                                   =======
   Issuance of treasury shares in respect of acquisition ............................              $ 2,250
                                                                                                   =======
   Reduction of goodwill from realization of acquired deferred tax asset ............              $   180
                                                                                                   =======
   Write-off of retired and fully depreciated property and equipment ................              $ 1,842
                                                                                                   =======
   Accounts payable incurred in acquisition of fixed assets .........................                         $    50
                                                                                                              =======
   Value of beneficial conversion feature and related warrants
        on issuance of convertible debt .............................................                         $   938
                                                                                                              =======
   Increase in deferred tax liability associated with adjustment of intangible assets                         $    17
                                                                                                              =======
C. Assets/liabilities acquired in acquisitions:
   Current assets ...................................................................               (2,124)
   Property and equipment and other assets ..........................................                 (995)
   Goodwill and intangibles .........................................................               (6,570)
   Current liabilities ..............................................................                1,958
   Long-term debt ...................................................................                1,319
   Other liabilities, minority interests and deferred taxes .........................                3,662
   Shareholders` Equity .............................................................                2,250
                                                                                                   -------
                                                                                                   $  (500)
                                                                                                   =======
</TABLE>

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


                                      F-7
<PAGE>

                  DATA SYSTEMS & SOFTWARE INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 1--NATURE OF OPERATIONS

     (a) Description of Business

          Data Systems & Software Inc., a Delaware corporation ("DSSI"), through
its subsidiaries (collectively, the "Company"), (i) provides software consulting
and   development    services,    (ii)   is   an   authorized   dealer   and   a
value-added-reseller   of  computer   hardware,   and  (iii)   provides   energy
intelligence  solutions  for  utilities  and  energy  companies.  The  Company`s
operations  are based in the United  States and in Israel.  DSSI`s  shares  were
transferred  from the Nasdaq  National  Market  effective  March 3, 2003 and are
currently traded on the Nasdaq SmallCap Market.

     (b) Financing of Operations

     As  of  December  31,  2002  the  Company  had  working  capital of $2,827,
including  $1,150  in non-restricted cash and cash equivalents. Net cash used in
operating activities in the fourth quarter of 2002 was $1,057 in addition to the
$4,951  net  cash  used in the first three quarters of 2002. The primary uses of
the  Company`s net cash in 2002 were the Company`s loss, including the losses in
Comverge  and  corporate expenses, and a $1,563 investment in inventory over the
year.  These  expenditures  were  financed  by  the  proceeds  from the sale and
maturity  of  marketable  debt  securities  and  the proceeds from issuance of a
convertible  note.

     In December 2002, Comverge acquired a $2,000 line of credit, secured by its
inventory,  accounts receivables, Databit`s accounts receivables and a corporate
guarantee. As of December 31, 2002, Comverge had utilized $1,000 of this line of
credit.

On April 7, 2003 the Company completed a private equity financing of Comverge
in the amount of $13,000, $3,250 of which was invested by the Company and $9,750
of which was invested by a group of leading energy venture capital investors. At
the  same  time,  Comverge  obtained  a  new  credit  arrangement  of $6,500. In
connection  with  this new credit facility, Comverge paid off in full its $5,500
(as  at March 31, 2003) bank loan and the outstanding balance of its $2,000 line
of  credit,  which  line was also terminated. The new credit facility includes a
$1,500  term  loan secured by the Company`s pledge of $1,500 which is being held
in  a  restricted  long-term  deposit  at  Comverge`s  new  lender, and a $5,000
revolving  line  of credit secured by the assets of Comverge. As part of the new
credit  arrangements,  $1,000  of  the  long-term  deposit, held as security for
Comverge`s previous loan, became unrestricted and is now freely available to the
Company  as  working  capital.  Comverge  has agreed to prepay the term loan and
permit  release  of  the  long-term  deposit over the next 20 months, subject to
certain  conditions.

     The  Company  believes  that  the  proceeds of the financing and new credit
arrangements  should  provide sufficient financing for Comverge to independently
fund  its activities. Due to the significant interest in Comverge held by others
and  other  restrictions, working capital and cash flows of Comverge will not be
available  to  finance the Company`s  other  U.S.  activities.

     Of  the  total  working  capital  at  December  31,  2002,  $400 was in the
Company`s  majority-owned  dsIT  subsidiary.  Due to Israeli tax and company law
constraints,  as well as the significant minority interest in dsIT, such working
capital  and cash flows from dsIT`s operations are not available to finance U.S.
activities.  At  December 31, 2002,dsIT was utilizing $1,500 of its $2,000 lines
of  credit.  dsIT`s  lines  of credit are denominated in NIS and bear an average
interest  rate  of the Israeli prime rate plus 0.9% per annum. The Israeli prime
rate fluctuates and as of December 31, 2002 was 10.6%. 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
cost  reductions.

     The  Company believes that it has more than sufficient liquidity to finance
its U.S.-based operating activities, excluding,Comverge and corporate activities
for  at  least  the  12  months  following  the date of this report. The Company
intends  to  finance  its  other  U.S.  activities  from  cash  on hand and from
operating cash flow from expected profitable operations of the computer hardware
segement. As of April 10, 2002 cash on hand was $1,900 including $1,000 released
form the long-term deposit as part of Comverge`s bank arrangements and $600 from
the  sale  of  shares  to  Laurus.

     (c) Use of Estimates in Preparation of Financial Statements

          The  preparation of  consolidated  financial  statements in conformity
with accounting  principles  generally  accepted in the United States of America
requires  management to make estimates and assumptions  that affect the reported
amounts of assets and  liabilities  and the disclosure of contingent  assets and
liabilities as of the date of the financial statements, and the reported amounts
of  revenues  and  expenses  during  the  reporting  periods.  Some of the  more
significant   estimates   being  made  involve   percentage  of  completion  for
fixed-price  contracts and the  evaluation of the  recoverability  of inventory,
goodwill  and  deferred  tax  assets.  Actual  results  could  differ from those
estimates.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FOREIGN CURRENCY TRANSACTIONS

          The  currency  of  the  primary  economic  environment  in  which  the
operations of the Company are conducted is the United States dollar  ("dollar").
Accordingly,  the  Company and all of its  subsidiaries  use the dollar as their
functional  currency.  All exchange  gains and losses  denominated in non-dollar
currencies are reflected in other expense, net in the consolidated  statement of
operations when they arise.  Such foreign currency gains (losses),  net amounted
to $3,  $(3) and $154 for the years  ended  December  31,  2000,  2001 and 2002,
respectively.


                                      F-8
<PAGE>

PRINCIPLES OF CONSOLIDATION AND PRESENTATION

          The  consolidated  financial  statements  of the  Company  include the
accounts  of  all  majority-owned   subsidiaries.   The  consolidated  financial
statements have been prepared in conformity with accounting principles generally
accepted  in the  United  States  of  America.  All  intercompany  balances  and
transactions have been eliminated.  Minority  interests in net income (loss) are
limited  to the extent of their  equity  capital.  Losses in excess of  minority
interest equity capital are charged against the Company.

RECLASSIFICATIONS

         In 2002,  the Company  early  adopted the  provisions  of  Statement of
Financial  Accounting Standard ("SFAS") No. 145,  "Rescission of FASB Statements
No.  4,  44  and  64,   Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections." As a result the loss on the early  extinguishments of debt of $943
for the year ended December 31, 2000 has been reclassified from an extraordinary
item to the computation of loss from continuing  operations.  There is no effect
on net income as a result of this change in classification.

         Certain other  reclassifications  have been made to the Company`s prior
years`  consolidated  financial  statements  to conform with the current  year`s
consolidated financial statement presentation.

CASH AND CASH EQUIVALENTS

          Cash and cash equivalents consist of cash and demand deposits in banks
and short-term investments (primarily time deposits and certificates of deposit)
with original maturities of three months or less.

INVESTMENT IN DEBT SECURITIES

          The Company classifies its debt securities in one of three categories:
trading, available-for-sale, or held-to-maturity.  Trading securities are bought
and  held  principally  for  the  purpose  of  selling  them in the  near  term.
Held-to-maturity  securities  are those  securities in which the Company has the
ability and intent to hold the  security  until  maturity.  All  securities  not
included in trading or held-to-maturity, are classified as available-for-sale.

          Trading and available-for-sale  securities are recorded at fair value.
Held-to-maturity  securities  are recorded at amortized  cost,  adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading  securities  are included in  operations.  Unrealized  holding
gains and losses, net of the related tax effect on available-for-sale securities
are  excluded  from  operations  and are  reported  as a separate  component  of
accumulated other comprehensive income until realized. Realized gains and losses
from the sale of  available-for-sale  securities  are  determined  on a specific
identification basis.

          A  decline  in  the  market   value  of  any   available-for-sale   or
held-to-maturity security, below cost that is deemed to be other than temporary,
results in a reduction  in  carrying  amount to fair value.  The  impairment  is
charged to  operations  and a new cost basis for the  security  is  established.
Premiums and  discounts  are  amortized or accreted over the life of the related
held-to-maturity or available-for-sale  security as an adjustment to yield using
the effective interest method.  Dividend and interest income are recognized when
earned.  All  investments  in debt  securities  are  classified  as  trading  or
held-to-maturity  and are recorded in short-term  interest bearing bank deposits
and debt securities in the consolidated balance sheet.

DERIVATIVE INSTRUMENTS

          In June 1998 and June 2000, the Financial  Accounting  Standards Board
("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities",  and SFAS No. 138,  "Accounting for Certain Derivative  Instruments
and Certain  Hedging  Activities,  an amendment of SFAS No. 133",  respectively,
which   establish   accounting  and  reporting   standards  for  all  derivative
instruments  and  hedging  activities.  These  statements  require  an entity to
recognize all  derivatives  as either assets or liabilities in the balance sheet
and measure those  investments at fair value.  The Company has no derivatives or
embedded  derivatives  requiring separate  accounting and disclosure nor does it
engage in hedging activities of foreign currency.

INVENTORY

          Inventories  are  stated  at the  lower  of  cost or  market.  Cost is
determined  for raw  materials,  spare parts and  supplies  on the average  cost
method.  For finished goods and merchandise  inventories,  cost is determined on
the first-in, first-out method.


                                      F-9
<PAGE>

INVESTMENTS

          Investments  in less than 20% of the voting control of companies or in
other entities, over whose operating and financial policies the Company does not
have the power to exercise significant influence,  are accounted for by the cost
method.  The  carrying  values  of  investments  are  periodically  reviewed  to
determine  whether a decline  in value is other  than  temporary.  In the fourth
quarters  of 2001 and 2002,  the  Company  recorded writedowns  of $227 and $90,
respectively, with regard to investments in start-up companies.



PROPERTY AND EQUIPMENT

         Property and  equipment are presented at cost or fair value at the date
of  acquisition.  Depreciation  and  amortization  is  calculated  based  on the
straight-line  method over the estimated useful lives of the depreciable assets,
or in the case of  leasehold  improvements,  the lease  term.  Improvements  are
capitalized while repairs and maintenance are charged to operations as incurred.

GOODWILL AND ACQUIRED INTANGIBLE ASSETS

          Goodwill  represents  the  excess of cost  over the fair  value of net
assets  of  businesses  acquired. The Company adopted the provisions of SFAS No.
141,  "Business  Combinations",  as  of  July 1, 2001 and No. 142, "Goodwill and
Other  Intangible Assets", as of January 1, 2002. SFAS No. 141 requires that the
purchase  method  of  accounting  be  used  for  all  business  combinations and
specifies the criteria that intangible assets acquired in a business combination
must  meet to be recognized and reported separately from goodwill. In accordance
with SFAS No. 142, goodwill and acquired intangible assets determined to have an
indefinite  useful  life are not amortized, but instead tested for impairment at
least annually. SFAS No. 142 also requires that intangible assets with estimable
useful  lives be amortized over their respective estimated useful lives to their
estimated  residual  values, and reviewed for impairment in accordance with SFAS
No.  144,  "Accounting  for  Impairment  or  Disposal  of  Long-Lived  Assets".

          SFAS No. 142 requires the Company to assess annually  whether there is
an  indication  that  goodwill is  impaired,  or more  frequently  if events and
circumstances  indicate  that the asset might be impaired  during the year.  The
Company  performs its annual  impairment  test at the  conclusion  of its annual
budget  process,  generally in the fourth  quarter of each year (though in 2002,
the Company  recorded an  impairment  in the third quarter based on its judgment
that an  impairment  had occurred  with respect to its software  consulting  and
development  segment).  The Company has identified its operating segments as its
reporting  units for purposes of the  impairment  test and assigned its goodwill
and  intangible  assets to its software  consulting and  development  and energy
intelligence  solutions  segments.  The Company determines the carrying value of
each  reporting  unit by assigning  the assets and  liabilities,  including  the
existing  goodwill and intangible  assets, to those reporting units. The Company
then  determines  the fair value of each  reporting  unit and compares it to the
carrying  amount  of the  reporting  unit.  Calculating  the  fair  value of the
reporting units requires significant estimates and assumptions by management. To
the extent the carrying amount of a reporting unit exceeds the fair value of the
reporting  unit,  there is an indication that the reporting unit goodwill may be
impaired and a second step of the impairment  test is performed to determine the
amount of the impairment to be recognized, if any.

          In  accordance  with  SFAS  No.  141,   goodwill  from  the  Company`s
acquisition of Endan IT Solutions  Ltd.  ("Endan") in December 2001 (see Note 3)
is not amortized. Goodwill from other acquisitions prior to the adoption of SFAS
No. 141 and No. 142 was  amortized  on a  straight-line  basis over the expected
periods to be  benefited,  ranging  from five to seven  years,  and assessed for
recoverability  using a  methodology  consistent  with  that of  SFAS  No.  121,
"Accounting for Impairment of Long-Lived  Assets and for Long-Lived Assets to be
Disposed Of" (see "Impairment of Long-Lived Assets" below).

          Identifiable intangible  assets  deemed to have an indefinite life are
tested annually for impairment,  or more frequently if events and  circumstances
indicate that the asset might be impaired during the year. An impairment loss is
recognized to the extent that the carrying amount exceeds the asset`s fair value
as determined  based on discounted  cash flows  associated  with the asset.  The
Company has not identified any indefinite life intangible assets.

          The  costs of  licensed  technology  and  software  are  presented  at
estimated  fair  value at  acquisition  date.  These  costs are  amortized  on a
straight-line basis over the term of the license or estimated useful life of the
software, generally five years.


                                      F-10
<PAGE>

          The costs of  registered  patents and patents  pending  acquired  from
third  parties are  presented at estimated  fair value at  acquisition  date. In
addition,  registration  costs and fees for patents are capitalized.  Registered
patent  costs are  amortized  over the  estimated  remaining  useful life of the
patents,  from  four to  fourteen  years.  Costs  for  patents  pending  are not
amortized until they are issued.

IMPAIRMENT OF LONG-LIVED ASSETS

          Effective  January 1, 2002,  the Company  adopted  SFAS No. 144.  This
Statement  requires that long-lived  assets,  except those addressed by SFAS No.
142, 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 the asset.  If the  carrying  amount of an asset  exceeds its
estimated future  undiscounted cash flows, an impairment charge is recognized by
the amount by which the carrying  amount of the asset  exceeds the fair value of
the asset. SFAS No. 144 requires 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 did not have any  impact on the  Company`s  consolidated  financial
statements  because  the  impairment  assessment  under  SFAS No. 144 is largely
unchanged from the Company`s previous policy.

          Through  December 31, 2001, the carrying  values of long-lived  assets
and  goodwill  were  reviewed  for  impairment  whenever  events or  changes  in
circumstances  occurred that indicated that the net carrying amount would not be
recoverable.  The  review  was based on  comparing  the  carrying  amount of the
long-lived assets to the undiscounted  estimated cash flows over their remaining
useful lives. If the sum of the expected undiscounted future cash flows was less
than  the  carrying  amount  of the  assets,  the  Company  would  recognize  an
impairment  loss. The impairment  loss, if determined to be necessary,  would be
measured  as the amount by which the  carrying  amount of the asset  exceeds the
fair value of the asset.  Assets to be disposed of were reported at the lower of
the carrying amount or fair value, less cost to sell.

REVENUE RECOGNITION

          Revenue  from   time-and-materials   service  contracts,   maintenance
agreements and other services are recognized as services are provided.

          Revenues  from  fixed-price   service   contracts  to  design  develop
manufacture  or modify  complex load control or other  equipment and software to
customer  specifications  are  recognized  as services  are  provided  using the
percentage-of-completion  method as costs (primarily direct labor) are incurred,
in the  proportion  that actual costs  incurred bear to total  estimated  costs.
Percentage-of-completion   estimates   are   reviewed   periodically,   and  any
adjustments  required  are  reflected  in the  period  when such  estimates  are
revised.  Losses on contracts, if any, are recognized in the period in which the
loss is determined.  Fixed price projects in which the Company  receives  equity
shares as compensation  for services  rendered are recorded at the fair value of
the  services   provided,   or  equity  received,   whichever  is  more  readily
determinable.

          Revenues  from the sale of software  licenses  are  recognized  when a
license agreement is in force, the product has been shipped,  the license fee is
fixed or determinable, and collectibility is reasonably assured. Maintenance and
subscription revenue is recognized ratably over the contract period.

          Revenues  from  the  sale  of  software  are   recognized   under  the
percentage-of-completion method when the Company`s software requires significant
modification and customization.

          Revenues on the sale of products, which are shipped from the Company`s
stock of inventory,  are recognized when the products are shipped. In accordance
with Emerging  Issues Task Force  ("EITF")  Issue No. 99-19  "Recording  Revenue
Gross as a Principal  Versus Net as an Agent",  revenue  from drop  shipments of
third-party  hardware and  software  sales are  recognized  upon  delivery,  and
recorded at the gross amount when the Company is responsible  for fulfillment of
the  customer  order,  has  latitude in pricing,  customizes  the product to the
customer`s  specifications  and has discretion in the selection of the supplier.
Revenue  from  drop  shipment  third-party  software  sales is  recognized  upon
delivery,  and  recorded net of costs when the Company  acts  principally  as an
agent or broker in the transaction.

RESEARCH AND DEVELOPMENT EXPENSES

          Research and development  costs are charged to operations as incurred.
Research and development


                                      F-11
<PAGE>

expenses consist primarily of labor and related costs.

WARRANTY PROVISION

          The  Company   generally   warrants  its  products   against   certain
manufacturing  and other  defects.  These  product  warranties  are provided for
specific periods of time and/or usage of the product  depending on the nature of
the  product,  the  geographic  location  of its sale and other  factors.  As of
December 31, 2001 and 2002, the Company has accrued $302 and $52,  respectively,
for  estimated  product  warranty  claims,  which is included  in other  current
liabilities.   The  accrued  product  warranty  costs  are  based  primarily  on
historical  experience of actual warranty claims as well as current  information
on repair costs.  Warranty claims expense for each of the years 2000,  2001, and
2002 were: $0, $302, and $(250), respectively.

The following table provides the changes in the Company`s product warranties for
the year ended December 31, 2002:

     Warranty provision as of December 31, 2001 ........................  $302
     Liabilities accrued for warranties issued during the period .......    87
     Warranty claims paid during the period ............................    (2)
     Changes in liability for pre-existing warranties during the period,  (335)
         including expirations
     Warrant provision as of December 31, 2002 .........................   $52

SALE OF STOCK OF SUBSIDIARY

          The Company  recognizes  gains and losses from the sale of  subsidiary
stock through the consolidated statement of operations.

STOCK-BASED COMPENSATION

     At  December  31,  2002,  the  Company  has  various  stock-based  employee
compensation  plans,  which are  described  more fully in Note 14.  The  Company
accounts for those plans under the  recognition  and  measurement  provisions of
Accounting  Principles  Board  Opinion No. 25  "Accounting  for Stock  Issued to
Employees" and related  interpretations.  Stock-based employee compensation cost
of $73, $2, and $25 is reflected in net income  (loss) for 2000,  2001 and 2002,
respectively,  as certain  options  granted had an exercise  price less than the
market value of the underlying  common stock on the date of grant. SFAS No. 123,
"Accounting for Stock-Based Compensation", established accounting and disclosure
requirements  using a fair-value  based  method of  accounting  for  stock-based
employee compensation plans. As allowed by SFAS No. 123, the Company has elected
to  adopt  the  disclosure  requirements  of  SFAS  No.  123  and  SFAS No. 148,
"Accounting  for  Stock  Based  Compensation  -  Transition  and  Disclosure, an
amendment to FASB Statement No. 123". Awards under the Company`s plans vest over
periods  ranging  from  three  to  five  years.  Therefore,  the cost related to
stock-based  employee compensation included in the determination of net loss for
2000,  2001  and  2002 is less than that which would have been recognized if the
fair  value  based  method  had  been  applied  to all awards since the original
effective  date  of Statement 123. The following table illustrates the effect on
net income (loss) and net income (loss) per share if the fair-value-based method
had been applied to all outstanding and unvested awards in each period using the
Black-Scholes  option pricing model and the assumptions discussed in Note 14(a).

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                             -----------------------
                                                                          2000        2001         2002
                                                                          ----        ----         ----

<S>                                                                     <C>        <C>         <C>
     Net income (loss) as reported ..................................   $   112    $ (9,795)   $  (8,144)
     Plus: Stock-based employee compensation expense included in ....        73                        2
            reported net income, net of related tax effects .........        25
     Less: Total stock-based employee compensation expense determined     1,112                      718
            under fair value based method for all awards, net of
            related tax effects .....................................     1,199
                                                                        -------    --------    ---------
     Pro forma net loss .............................................   $  (927)   $(10,511)   $  (9,318)
                                                                        =======    ========    =========
</TABLE>


                                      F-12
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                     <C>        <C>         <C>
        Net income (loss) per share:
           Basic and diluted - as reported ..........................   $  0.02    $  (1.41)   $   (1.11)
                                                                        =======    ========    =========
           Basic and diluted - pro forma ............................   $ (0.12)   $  (1.51)   $   (1.27)
                                                                        =======    ========    =========
</TABLE>

     The pro forma  information  in the above  table  also  gives  effect to the
application  of  SFAS  No.  123 on  the  share  option  plans  of the  Company`s
subsidiaries.

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

INCOME TAXES

     Deferred income taxes reflect the net tax effects of temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes  and the amounts  used for income tax  purposes,  as well as  operating
loss,  capital  loss and tax  credit  carryforwards.  Deferred  tax  assets  and
liabilities are classified as current or noncurrent based on the  classification
of the related assets or liabilities  for financial  reporting,  or according to
the  expected  reversal  dates of the  specific  temporary  differences,  if not
related to an asset or liability for financial  reporting.  Valuation allowances
are established  against  deferred tax assets if it is more likely than not that
they will not be  realized.  Deferred  tax assets and  liabilities  are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary  differences are expected to be recovered or settled.  The
effect on deferred tax assets and  liabilities  of a change in tax rates or laws
is recognized in operations in the period that includes the enactment date.

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE

     The  Company  presents  basic net income  (loss) per share and  diluted net
income  (loss) per  share.  Basic net income  (loss)  per share is  computed  by
dividing net income (loss) by the weighted average number of shares  outstanding
for each period  presented.  Diluted net income  (loss) per share is computed by
dividing net income (loss) by the weighted average number of shares  outstanding
plus the  dilutive  potential  of common  shares  which  would  result  from the
exercise of stock options and warrants or conversion of convertible  securities.
However,  the  dilutive  effects  of stock  options,  warrants  and  convertible
securities  are excluded from the  computation  of diluted net income (loss) per
share if doing so would be antidilutive.

RECENTLY ISSUED ACCOUNTING PRINCIPLES

     In June  2001,  the  FASB  issued  SFAS  No.  143,  "Accounting  for  Asset
Retirement  Obligations".  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.  The Company is
required to adopt SFAS No. 143,  effective January 1, 2003. The Company does not
expect  that the  adoption  of SFAS No. 143 will have a  material  effect on its
consolidated financial statements.

     In July  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal  Activities".  SFAS No. 146 addresses financial
accounting and reporting for costs  associated with exit or disposal  activities
and nullifies 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  provisions  of this  Statement  are
effective for exit or disposal  activities that are initiated after December 31,
2002.  SFAS No.  146 will be  applied  prospectively  and will  depend on future
actions taken by the Company.

     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor`s
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness to Others,  an  interpretation of FASB Statements No.
5,  57  and  107  and  a  rescission  of  FASB   Interpretation  No.  34".  This
interpretation  elaborates  on the  disclosures  to be  made by a  guarantor  in
interim and annual financial  statements about its obligations  under guarantees
issued.  The  Interpretation  also  clarifies  that a  guarantor  is required to
recognize,  at inception of a guarantee,  a liability  for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation  are  applicable to guarantees  issued or modified after December
31,  2002  and are not  expected  to have a  material  effect  on the  Company`s
financial  statements.  The disclosure


                                      F-13
<PAGE>

requirements  are  effective  for  financial  statements  of interim  and annual
periods ending after December 15, 2002 and such  disclosures are included in the
notes to these consolidated financial statements.

     In January  2003,  the FASB issued FASB  Interpretation  No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities and  Interpretation of ARB No. 51".
FIN 46 requires  certain  variable  interest  entities to be consolidated by the
primary  beneficiary of the entity if the equity  investors in the entity do not
have the  characteristics  of a  controlling  financial  interest or do not have
sufficient  equity at risk for the  entity to  finance  its  activities  without
additional  subordinated  financial  support  from  other  parties.  FIN  46  is
effective  for all new  variable  interest  entities  created or acquired  after
January 31, 2003. For variable  interest  entities  created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period  beginning after June 15, 2003. The Company does not expect FIN
46 to have a material effect on its consolidated financial statements.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  - Transition  and  Disclosure,  an amendment of FASB Statement No.
123".  This Statement  amends FASB Statement No. 123 "Accounting for Stock-Based
Compensation",  to provide  alternative  methods of  transition  for a voluntary
change to the fair value method of accounting for stock-based  compensation.  In
addition, this Statement amends the disclosure requirements of Statement No. 123
to  require   prominent   disclosures  to  both  annual  and  interim  financial
statements.  Certain of the  disclosure  modifications  are  required for fiscal
years  ending  after  December  15,  2002 and are  included  in the notes to the
Company`s 2002 consolidated  financial statements.  The other provisions of SFAS
No.  148 are  not  expected  to be  applicable  to the  Company  as we have  not
expressed to change the Company`s accounting for stock-based compensation.

     In October of 2002,  the  Emerging  Issues  Task Force  (EITF)  issued EITF
00-21,  "Multiple  Element  Arrangements".  The EITF will require the Company to
determine  whether to divide a revenue  arrangement  with multiple  deliverables
into separate units of  accounting.  We will be required to adopt this consensus
for  arrangements  entered into  beginning July 1, 2003. The Company has not yet
determined  the  impact  that  this  consensus  will  have  on its  consolidated
financial position and results of operations.

NOTE 3--ACQUISITIONS

     In December  2001, a subsidiary of the Company  acquired 100% of the shares
of Endan in a transaction  accounted for as a purchase business  combination and
partial sale of a subsidiary.  Endan was a  privately-held  Israeli  information
technology  software  and  consulting  firm and as a result  of the  acquisition
became an integral part of the Company`s  software  consulting  and  development
segment.  The  acquisition  was  consummated  in order to broaden the  Company`s
markets into information  technology and to take advantage of economies of scale
and synergistic cost savings.  Endan`s results of operations are included in the
Company`s  consolidated  statement  of  operations  beginning  January  1, 2002.
Results for the period from  acquisition  to December 31, 2001 were not included
in the Company`s  consolidated  statement of operations as they were immaterial.
The  aggregate  purchase  price for Endan was  $5,788,  comprised  of (i) $2,250
representing the issuance of 365,210 shares of DSSI common stock valued at $6.16
per  share,  (ii)  $2,912  representing  the  estimated  value  of  32%  of  the
outstanding  ordinary shares of dsIT, (iii) $500 of cash, (iv) $100 of estimated
closing  costs and (v) $26  representing  the fair value of options to  purchase
dsIT ordinary shares in exchange for the cancellation of outstanding Endan stock
options.  The  Company  recognized  a gain of $397 on the  issuance  of ordinary
shares representing a 32% interest in dsIT connection with this transaction.  In
addition to the purchase  consideration  mentioned  above, in December 2001, the
Company also repaid a $1,000 loan previously made by Kardan  Communications Ltd.
("Kardan"), Endan`s majority shareholder prior to the acquisition.

     The  following  table  summarizes  the  estimated  fair value of the assets
acquired and liabilities assumed at December 31, 2001 adjusted for valuations of
intangible assets received in 2002, the effective date of acquisition before the
repayment of the Kardan debt.

          Current assets                                        $2,075
          Property and equipment                                   609
          Intangible assets                                        620
          Goodwill                                               6,039
          Other assets                                             314
                                                                ------
                 Total assets acquired                           9,657
                                                                ------


                                      F-14
<PAGE>

          Current liabilities                                    1,858
          Long-term debt                                         1,319
          Other liabilities                                        495
          Deferred tax liability created in acquisition            197
                                                                ------
                 Total liabilities assumed                       3,869
                                                                ------

                 Net assets acquired                            $5,788
                                                                ======

     The  intangible  assets  represent  the  fair  value of  software  licenses
acquired (five-year useful life). The goodwill resulting from the acquisition is
not  deductible  for income tax purposes and will not be amortized for financial
statement purposes in accordance with SFAS No. 142. The entire goodwill acquired
was assigned to the software consulting and development segment.

     The  following  unaudited  pro forma  information  presents  a  summary  of
consolidated  results of  operations of the Company as if this  acquisition  had
occurred  at the  beginning  of each of the  periods  presented,  with pro forma
adjustments to give effect to the  amortization  of acquired  intangibles  and a
reduction of interest expense resulting from Endan`s repayment of a $1,000 loan.
The  unaudited  pro forma  information  does not  include  the  amortization  of
goodwill  acquired,  as it is not required to be amortized  pursuant to SFAS No.
142. The gain on the partial sale of 32% of dsIT is excluded  from the unaudited
pro  forma  consolidated  results  of  operations  as it is  non-recurring.  The
unaudited  pro  forma  consolidated  results  of  operations  are  provided  for
illustrative  purposes  only and do not purport to represent  what the Company`s
results of operations  would  actually have been, nor do they purport to project
the Company`s results of operations for any future period.

<TABLE>
<CAPTION>
                                                                    Year Ended December  31,
                                                                       2000        2001
                                                                     --------    --------
<S>                                                                  <C>         <C>
     Net sales ...................................................   $ 63,408    $ 52,355
     Net loss from continuing operations .........................   $ (3,894)   $ (9,884)
     Loss per share from continuing operations - basic and diluted   $  (0.50)   $  (1.35)
</TABLE>

     Upon receipt of third-party valuation  information,  it was determined that
the fair value of software  licenses  acquired  (five-year useful life) was $500
and that the fair value of backlog acquired (one-year useful life) was $120. The
acquired goodwill resulting from the acquisition was $5,387. The entire goodwill
acquired was assigned to the software  consulting and development  segment.  The
goodwill  resulting  from the  acquisition  is not  deductible  for  income  tax
purposes  and  will  not  be  amortized  for  financial  statement  purposes  in
accordance with SFAS No. 142.

NOTE 4--DISPOSITIONS

     (a) In 1999, DSSI owned 60% of the shares of Tower  Semiconductor  Holdings
1993 Ltd.  ("Holdings").  Holdings`  only asset was its  investment  in 45.3% of
Tower Semiconductor Ltd.  ("Tower").  In December 1999, Holdings entered into an
agreement to sell its  interest in Tower to the  minority  owner of Holdings for
$30,889.  Closing of the  agreement  was subject to  third-party  administrative
approvals,  which were  received  in  January  2000.  As part of the  agreement,
Holdings  declared a dividend of $39,515 of which the Company  received  $23,709
(less  withholding  taxes of $2,964) in January 2000. The Company`s  interest in
Holdings was treated as a discontinued operation in the consolidated  statements
of operations  and  comprehensive  income (loss) for all periods  presented.  In
addition,  the  Company  accrued  all  taxes  with  respect  to the  anticipated
repatriation of Tower`s accumulated earnings.

     Upon  receipt of the  administrative  approvals,  the Company  received the
proceeds from the sale, net of the Israeli  dividend  withholding  tax. In 2000,
the  Company  recorded a gain of $4,222 (net of  applicable  taxes of $767) with
respect to this transaction.

     (b) In September 2000, the Company  completed the sale of substantially all
the assets of its CinNetic  division,  included in the software  development and
consulting  segment,  for a total of $1,838  resulting in a gain of $1,144.  The
CinNetic division had an operating loss of approximately $315 for the year ended
December 31, 2000.

     (c) In 2000,  the  Company  recorded  a  provision  of $104 for a loss from
discontinued  operations  with  respect to  additional  expenses  related to its
discontinued help desk software segment that was sold in 1998.


                                      F-15
<PAGE>

NOTE 5--ACCOUNTS RECEIVABLE, NET

     Accounts receivable, net consists, of the following:  As of December 31,
                                                           ------------------
                                                             2001        2002
                                                          ---------   --------
     Trade accounts receivable .......................    $  9,095    $ 11,341
     Unbilled work-in-process ........................       1,362       1,140
     Allowance for doubtful accounts .................        (260)       (214)
                                                          --------    --------
     Accounts receivable, net ........................    $ 10,197    $ 12,267
                                                          ========    ========

     Unbilled  work-in-process  represents direct labor and expenses incurred on
consulting contracts that has not been invoiced to the customer as of the end of
the period.  Such amounts are generally  billed upon the completion of a project
milestone.

     Bad debt expense  related to trade  accounts  receivable  was $262, $71 and
$194 for the years ended December 31, 2000, 2001 and 2002, respectively.

NOTE 6--INVENTORY

     Inventory consists of the following:                 As of December 31,
                                                           2001       2002
                                                          ------     ------
     Raw materials, spare parts and supplies ........     $  409     $1,396
     Work-in-process ................................         --        161
     Finished goods and merchandise .................        249        660
                                                          ------     ------
                                                          $  658     $2,217
                                                          ======     ======

NOTE 7--OTHER CURRENT ASSETS

     Other current assets consist of the following:       As of December 31,
                                                          ------------------
                                                             2001     2002
                                                            ------   ------
     Prepaid expenses ...................................   $  391   $  355
     Interest receivable ................................      817       41
     Income tax receivable and deferred income taxes ....      385      420
     Other ..............................................      265      585
                                                            ------   ------
                                                            $1,858   $1,401
                                                            ======   ======

NOTE 8--PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following:

                                                             As of December  31,
                                     Estimated Useful Life   -------------------
                                                (in years)       2001       2002
                                                ----------       ----       ----
Cost:
   Computer hardware and software ......                 3     $2,568     $2,727
   Office furniture and equipment ......              4-10      2,276      2,530
   Motor vehicles ......................               4-7        561        592
   Leasehold improvements ..............     Term of Lease        279        316
                                                               ------     ------
                                                                5,684      6,165
                                                               ------     ------
Accumulated depreciation and amortization:
   Computer hardware and software ........................       2,052     2,573
   Office furniture and equipment ........................       1,099     1,288
   Motor vehicles ........................................         146       221
   Leasehold improvements ................................          91       111
                                                                ------    ------
                                                                 3,388     4,193
                                                                ------    ------

Property and equipment, net ..............................      $2,296    $1,972
                                                                ======    ======


                                      F-16
<PAGE>

     Depreciation and amortization in respect of property and equipment amounted
to $834,  $687  and  $831  for  2000,  2001  and  2002,  respectively.  In 2001,
approximately  $1,842 of fully depreciated  assets was written off the Company`s
books.

NOTE 9--GOODWILL AND OTHER INTANGIBLE ASSETS

     Effective  July 1,  2001 and  January  1,  2002  the  Company  adopted  the
provisions of SFAS No. 141 and No. 142,  respectively.  In  connection  with the
initial  adoption  of  SFAS  No.  142,  the  Company  performed  a  transitional
impairment  evaluation of goodwill and concluded that there was no indication of
impairment  as of January 1, 2002.  Upon  adoption of SFAS No. 142,  the Company
evaluated its existing  intangible  assets and goodwill and  determined  that no
reclassifications  were  necessary in order to conform  with the  classification
criteria in SFAS No. 141 for  recognition  separate from  goodwill.  The Company
also assessed the useful lives and residual values of all amortizable intangible
assets and determined that no adjustments were necessary.

     Amortization  expense  related to goodwill  was $657 and $502 for the years
ended December 31, 2000 and 2001, respectively. In accordance with SFAS No. 142,
goodwill  arising from the Company`s  acquisition  of Endan in December 2001 has
not been  amortized.  Net income  (loss) and basic and diluted net income (loss)
per share,  adjusted to exclude goodwill  amortization,  as if the provisions of
SFAS No. 142 had been adopted on January 1, 2000 are as follows:

                                                      Year ended December 31,
                                                        2000         2001
                                                        ----         ----

     Net income (loss), as reported ..............     $   112     $(9,795)
     Plus: Goodwill amortization .................         657         502
                                                       -------     -------
     Adjusted net income (loss) ..................     $   769     $(9,293)
                                                       =======     =======

     Net income (loss) per share:
        Basic and diluted  - as reported .........     $  0.02     $ (1.41)
                                                       =======     =======
        Basic and diluted - as adjusted ..........     $  0.10     $ (1.33)
                                                       =======     =======

     At the end of the third quarter of 2002, management believed that there was
an other than  temporary  decline in the hi-tech  market in general,  and in the
software consulting market in Israel in particular. As required by SFAS No. 142,
the Company evaluated its goodwill for impairment as of September 30, 2002 which
indicated that its software  consulting and development  segment`s  goodwill was
impaired.  The fair value of the software consulting and development segment was
determined by applying a market-rate  multiple to the estimated near-term future
revenue  stream  expected to be produced by the segment  (the method used at the
time of the Endan acquisition).  As a result, the Company recognized a provision
for goodwill  impairment of $2,760 in 2002. In the fourth  quarter,  the Company
performed its annual  impairment test and no additional  indications of goodwill
impairment were noted.

The table below  reconciles the changes in the carrying  amount of goodwill,  by
segment, for the period from December 31, 2001 to December 31, 2002:
<TABLE>
<CAPTION>

                                                  Software
                                                 Consulting            Energy
                                                    and            Intelligence
                                                 Development         Solutions
                                                   Segment            Segment               Total
                                             ------------------- -------------------  ------------------


<S>                    <C> <C>                   <C>                   <C>                  <C>
Balance as of December 31, 2001                   $    7,238            $        499         $    7,737
Goodwill acquisition adjustment                          (48)                      -                (48)
Impairment charge                                     (2,760)                      -             (2,760)
                                                  -----------           ------------        ------------
Balance as of December 31, 2002
                                                  $    4,430            $        499         $    4,929
                                                  ===========           ============        ============
</TABLE>

The following  table presents  certain  information on the Company`s  intangible
assets as of  December  31,  2002 and 2001.  All  intangibles  assets  are being
amortized  over their  estimated  useful  lives,  as  indicated  below,  with no
estimated residual values.


                                      F-17
<PAGE>

<TABLE>
<CAPTION>
                                                                          AS OF DECEMBER 31, 2002
                                                              ------------------------------------------------
                                                 WEIGHTED
                                                 AVERAGE           GROSS                             NET
                                               AMORTIZATION      CARRYING        ACCUMULATED       CARRYING
                                                  PERIOD          AMOUNT        AMORTIZATION        AMOUNT
                                             -----------------  ------------  -----------------  -------------

<S>                                                   <C>             <C>           <C>              <C>
      Amortizing intangible assets:
          Licenses                                    5.0 yrs         $568          $563             $    5
          Patents                                    15.0 yrs          288            70                218
          Software licenses                           4.6 yrs          260            79                181
                                                                ------------  -----------------  -------------

                    Total                                           $1,116          $499               $404
                                                                ============  =================  =============
</TABLE>


<TABLE>
<CAPTION>

                                                                          AS OF DECEMBER 31, 2001
                                                              ------------------------------------------------
                                                 WEIGHTED
                                                 AVERAGE           GROSS                             NET
                                               AMORTIZATION      CARRYING        ACCUMULATED       CARRYING
                                                  PERIOD          AMOUNT        AMORTIZATION        AMOUNT
                                             -----------------  ------------  -----------------  -------------

<S>                                                   <C>             <C>           <C>              <C>
      Amortizing intangible assets:
          Licenses                                     5.0 yrs         $568          $457            $   111
          Patents                                     15.0 yrs          279            53                226
          Software licenses                            4.6 yrs          572             -                572
                                                                ------------  -----------------  -------------

                    Total                                            $1,416          $510               $909
                                                                ============  =================  =============

</TABLE>



         Amortization  in respect of  license,  patents  and  software  licenses
intangible  amounted to $137,  $147 and $321 (of which $120 represents 12 months
of acquired backlog amortization  recorded and amortized in 2002) for 2000, 2001
and 2002, respectively.  In 2002, in connection with the Company`s evaluation of
the software consulting and development segment goodwill, the Company recognized
an impairment charge of $240 for software licenses, which is included in cost of
sales - services.

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

                        Year ended December 31,
                        -----------------------
                                  2003                                     $83
                                  2004                                      49
                                  2005                                      48
                                  2006                                      48
                                  2007                                      30
                               Thereafter                                  146
                                                                    -----------

                                                                          $404
                                                                    ===========




                                      F-18
<PAGE>

NOTE 10--DEBT

<TABLE>
<CAPTION>
Debt consists of the following:
                                                                             As of December 31,
                                                                             -------------------
                                                                            2001              2002
                                                                         ------------      -----------

<S>                                                                           <C>              <C>
          Bank debt (a)..................................................     $6,254           $6,486
          Lines of credit, net of discount (b)...........................      2,416            2,315
          Convertible note, net of discount (c)..........................          -            1,224
          Capital lease obligations (d)..................................         11                8
                                                                         ------------      -----------
                                                                               8,681           10,033

          Less current portion...........................................      2,499            3,755
                                                                         ------------      -----------

                                                                              $6,182           $6,278
                                                                         ============      ===========
</TABLE>

(a) Bank debt

         Bank debt as of December  31,  2002  includes a $5,700  loan,  which is
payable in a single installment upon maturity in February 2003 (in January 2003,
the lender agreed to extend the maturity to February 2004) and $786 with respect
to various  loans from Israeli  banks.  The $5,700 loan bears  interest at LIBOR
plus 0.75% (adjusted  quarterly),  payable quarterly (LIBOR at December 31, 2001
and 2002:  1.88% and 1.75%,  respectively).  In connection  with this loan,  the
Company is required to deposit  $5,700  ($6,000 at December  31,  2001) with the
lender as  collateral  for the loan.  The  deposit is held in a  one-month  time
deposit  bearing  interest at 1.3%.  The deposit will  continue to be renewed at
market rates so long as the loan is outstanding.  As the compensating balance is
required for the term of the loan, the deposit is shown as a non-current asset.

         The loans from Israeli banks are in New Israeli  Shekels (NIS) of which
$81 are linked to the U.S. dollar, $104 are linked to the Israeli Consumer Price
Index (the  Index) and $601 are  unlinked at  December  31, 2002 ($158,  $96 and
zero, respectively,  at December 31, 2001). At December 31, 2002, the loans bear
a weighted average interest rate of 7.8% (6.3% at December 31, 2001). During the
year ended December 31, 2002, the Index increased by 6.5% (1.4% in 2001) and the
NIS was devalued  against the U.S.  dollar by 7.3% (9.3% in 2001). In connection
with these  loans,  a lien in favor of the  Israeli  banks was placed on some of
dsIT`s assets.

(b) Lines of credit

         (i) At December  31,  2002,  the Company  had  approximately  $2,000 in
Israeli credit lines available to dsIT, of which  approximately  $1,500 was then
being used and $500 was  available  for future  draws.  These  credit  lines are
generally  for a term of one year,  denominated  in NIS and bear  interest  at a
weighted  average  rate of the  Israeli  prime  rate per  annum  plus  0.87% (at
December 31, 2001, the Israeli prime).  The Israeli prime rate fluctuates and as
of December 31, 2002 was 10.56%  (6.85% at December 31,  2001).  The Company has
provided guarantees of up to $922 with respect to dsIT`s lines of credit.

         (ii) In  December  2002,  the  Company`s  subsidiary  Comverge  , Inc.,
secured a  three-year  $2 million  revolving  line of credit from Laurus  Master
Fund, Ltd.  ("Laurus") of which $1 million was outstanding at December 31, 2002.
The available  line of credit is based on Comverge`s  accounts  receivables  and
inventory,  and is secured by all of the assets of Comverge  and by the accounts
receivables  of  the  Company`s  subsidiary  Databit  Inc.,  from  the Company`s
computer  hardware  segment.  At December 31, 2002, the carrying value of assets
securing  the line of credit  and  convertible  note (see (c)  below)  was $12.3
million. The Company has guaranteed the repayment of any advances and payment of
fees  under  the line of  credit.  On the first and  second  anniversary  of the
closing date, Comverge will pay Laurus an annual fee of $20. In addition, during
the term of the line of credit, Comverge will pay Laurus (and/or its affiliates)
(i) a monthly unused line fee equal to 0.5% of the unused portion of the line of
credit and (ii) a monthly  collateral  management fee (paid in arrears) equal to
0.65% of any new accounts  receivable of Comverge created during the month which
(A) qualify as "eligible  accounts` for Comverge to borrow and (B) against which
there are outstanding advances (either previously  outstanding or resulting from
a new borrowing during such month).

         In addition,  Laurus may convert up to an aggregate of $600 of the line
of credit into shares of the Company`s  common stock at a fixed conversion price
of $1.50. The Company also issued a five-year warrant to purchase 190,000 shares
of the Company`s common stock,  exercisable in three tranches at exercise prices
ranging from $2.00 to $3.34 per share, all of which are immediately exercisable.
Except in the event of  default  under the  convertible  note (see (c) below) or
upon 75 days prior notice,  Laurus cannot own, in the aggregate,  more the 4.99%
of the Company`s  common stock as a result of shares issued upon the  conversion
of the convertible note and the exercise of the warrant.

         Under the terms of the warrant, Laurus may sell shares of the Company`s
common stock  issuable  upon  exercise of the warrants  only after June 5, 2003.
Additionally,  prior to June 5, 2003,  Laurus may sell  shares of the  Company`s
common stock issuable upon  conversion of the line of credit subject to a volume
limitation  equal to 25% of the average  daily  trading  volume of the  calendar

                                      F-19
<PAGE>

month in which the sale is to be made (as determined on a rolling basis).

         The Company  used the  Black-Scholes  valuation  method to estimate the
fair value of the  warrants to purchase  190,000  shares of common  stock of the
Company,  using a risk free interest rate of 3.1%, its contractual  life of five
years,  an annual  volatility  of 82% and no  expected  dividends.  The  Company
estimated  the fair  value of the  beneficial  conversion  feature  and  related
warrants at the issuance of the convertible  line of credit to be  approximately
$246. Such amount was credited to additional paid-in capital and $63 was charged
to  interest  expense  immediately  with  respect to the  beneficial  conversion
feature and the  remaining  $183 is being  charged to interest  expense over the
three-year life of the credit line on a straight-line  basis with respect to the
warrants. The unamortized debt discount from the related warrants is included in
short-term  debt and current  maturities of long-term debt, net, at December 31,
2002. In addition,  debt  issuance  costs of $86 with respect to the issuance of
the line of credit will be amortized over the credit line life of three years.

(c) Convertible note

         (i) In June 2002,  the Company  completed a  transaction  with  Laurus,
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
the Company`s  common stock at an exercise  price of $4.20 per share.  Under the
10%  convertible  note,  the Company made  interest-only  payments for the first
three months and  thereafter  ten payments of $200 plus accrued  interest on the
outstanding balance.

         Laurus may convert the unpaid  balance of the  convertible  note at any
time into shares of the Company`s  common stock at a fixed  conversion  price of
$3.49 per share, 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 common stock,  or a combination of cash and stock,  at
the  Company`s  option.  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 per
share 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  used the  Black-Scholes  valuation  method to estimate the
fair value of the  125,000  warrants to purchase  common  stock of the  Company,
using a risk free interest rate of 3.0%, its contractual life of three years, an
annual  volatility of 73% and no expected  dividends.  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 term of the note
(with respect to the warrants),  using the effective interest method. During the
year ended December 31, 2002, the Company  recorded $517 of the interest expense
with respect to the beneficial  conversion feature and warrants.  The face value
debt of $1,400,  less $176 of  unamortized  debt  discount,  from the beneficial
conversion feature and the related warrants, was included in short-term debt and
current  maturities of long-term  debt,  net, at December 31, 2002. In addition,
the  Company  incurred  other debt  issuance  costs of $167 with  respect to the
issuance of the  convertible  note.  These costs are being amortized to interest
expense using the effective interest method over the life of the note.

         (ii) In October 1999, the Company  completed a $2,000 private placement
of a 0% Convertible Subordinated Debenture (the "Debenture"), payable in October
2001, and 100,000 warrants with an exercise price of $3.06625 to purchase common
stock of the Company.  In addition,  the Company issued 20,000  warrants with an
exercise price of $3.06625,  as partial  compensation  to a finder in connection
with the private placement, which expired in October 2002.

         The Company  used the  Black-Scholes  valuation  method to estimate the
fair value of the  120,000  warrants to purchase  common  stock of the  Company,
using a risk free interest rate of 6%, an expected life of three years (which is
equal  to its  contractual  life),  expected  annual  volatility  of 63%  and no
expected  dividends.  The warrants`  value of $114 reduced the carrying value of
the debt and was amortized as additional  interest  expense over the term of the
Debentures ($9 in 2000).

          Imputed  interest on the Debenture,  totaling $377, based on a rate of
10%, was to be  amortized  over the life of the  Debenture.  For the year ending
December 31, 2000, $19 was amortized to interest expense. The effective interest
rate on the Debenture after  consideration  of the imputed interest and warrants
issued was approximately 12%.


                                      F-20
<PAGE>

         In February 2000, the Company  extinguished a portion of the Debentures
for an aggregate redemption price of $2,001. The Company recorded a loss in 2000
of $753 due to the early  redemption  (In 2000, the Company also recorded a loss
of $190 with respect to the refinancing of a loan whereby the Company  wrote-off
of an  unamortized  premium  associated  with a warrant  issued to a lender.) No
income  tax  benefit  was  recognized  as  the  Company  establishes   valuation
allowances  against its  deferred  tax assets as it is more likely than not that
they  will  not be  realized.  In  2000,  the  $260  unredeemed  balance  of the
convertible  debenture was  converted  into 84,794 shares of common stock of the
Company in accordance with the terms of the Debenture.

(d) Capital lease obligations

         The Company`s capital lease obligations are payable through 2004.

(e) The aggregate  maturities  of debt for each of the five years  subsequent to
December 31, 2002 are as follows:
<TABLE>
<CAPTION>

                   Year ending
                  December  31,
<S>                  <C>                                                    <C>
                     2003...............................................    $3,755
                     2004...............................................     5,903
                     2005...............................................       192
                     2006...............................................       160
                     2007...............................................        23
                                                                        -------------
                                                                           $10,033
                                                                        =============
</TABLE>

NOTE 11--OTHER CURRENT LIABILITIES

Other current liabilities consists of the following:
<TABLE>
<CAPTION>
                                                                            As of December 31,
                                                                            ------------------
                                                                            2001          2002
                                                                          ----------    ----------

<S>                                                                            <C>           <C>
                  Taxes payable.........................................       $805          $827
                  Lien allowance........................................        558           558
                  Deferred revenue......................................        169           224
                  Warranty provision....................................        302            52
                  Other.................................................      1,538         1,750
                                                                          ----------    ----------

                                                                             $3,372        $3,411
                                                                          ==========    ==========
</TABLE>


NOTE 12--LIABILITY FOR EMPLOYEE TERMINATION BENEFITS

         Under Israeli law and labor agreements,  the Company`s  subsidiaries in
Israel are required to make  severance  payments to dismissed  employees  and to
employees leaving employment in certain other circumstances.  The obligation for
severance pay benefits, as determined by the Israeli Severance Pay Law, is based
upon length of service and last  salary.  These  obligations  are  substantially
covered by regular deposits with recognized  severance pay and pension funds and
by the purchase of insurance policies.  The pension plans are multi-employer and
independent of the Company.  Pension and severance pay costs for 2000,  2001 and
2002 of approximately $1,276, $1,394 and $1,280,  respectively,  are included in
cost of sales (services), research and development expenses and selling, general
and administrative expenses.

NOTE 13--COMMITMENTS AND CONTINGENCIES

(a) Leases of Property and Equipment

         Office rental and automobile leasing expenses, for 2000, 2001 and 2002,
were $1,326, $1,521 and $2,171,  respectively.  Future minimum lease payments on
non-cancelable operating leases as of December 31, 2002 are as follows:

<TABLE>
<CAPTION>
        Year ending
        December  31,
        -------------
<S>        <C>                                                                   <C>
           2003.........................................................         $1,561
           2004.........................................................          1,265
           2005.........................................................          1,046
           2006.........................................................            418
           2007.........................................................            289
           Thereafter...................................................            481
                                                                                -------
                                                                                 $5,060
                                                                                =======
</TABLE>

                                      F-21
<PAGE>
(b) Employee Retirement Savings Plan

         The  Company  sponsors  a tax  deferred  retirement  savings  plan that
permits  eligible U.S.  employees to  contribute  varying  percentages  of their
compensation up to the limit allowed by the Internal Revenue Service.  This plan
also provides for discretionary Company  contributions,  of which none were made
for the years ended December 31, 2000, 2001 and 2002.

(c) Guarantees

         Previously,  the Company  accrued a loss for contingent  performance of
bank  guarantees.  The Company`s  remaining  commitment  under these  guarantees
(included in other current  liabilities)  is $558 at December 31, 2001 and 2002.
The  Company  has  collateralized  a portion of these  guarantees  by means of a
deposit (classified as restricted cash) of $238 and $241 as of December 31, 2001
and 2002, respectively.

         The Company`s  subsidiaries have provided various performance,  advance
and tender guarantees as required in the normal course of its operations.  As at
December 31, 2002, such guarantees  totaled  approximately  $410 and were due to
expire through April 2004.

         See Notes 10(b) and 10(c) with respect to  guarantees  on the Company`s
lines of credit and convertible note.

(d) Royalties

         The Company is committed to pay  royalties to the  Government of Israel
on proceeds from the sale of certain  products in which the Government of Israel
participated  in the research and  development  by way of grants.  Royalties are
currently  payable at a rate of 4% of the annual  sales of the  product,  though
limited to $630,  the amount of the original  grant.  The  Company`s  future net
royalty  obligation in respect of these grants is not to exceed $433 at December
31, 2002.

(e) Litigation

         In January  2003,  an  arbitrator  ruled  against a  subsidiary  of the
Company  in an  arbitration  proceeding  against a  customer  for  payment.  The
arbitrator ruled that the subsidiary must pay the customer damages, expenses and
interest  of $210,  which is included  in  selling,  general and  administrative
expense for the year ended December 31, 2002.

         The  Company is  involved  in various  other  legal  actions and claims
arising in the ordinary  course of business.  In the opinion of management,  the
ultimate disposition of these matters will not have a material adverse effect on
the  Company`s  consolidated  financial  position,   results  of  operations  or
liquidity.

NOTE 14--SHAREHOLDERS` EQUITY

(a) Stock Option Plans
         The Company`s  stock option plans provide for the granting to officers,
directors and other key employees of options to purchase  shares of common stock
at not less than 85% of the market  value of the  Company`s  common stock on the
date of grant. The purchase price must be paid in cash. To date, the Company has
issued  options under the plans at exercise  prices equal to the market value of
the Company`s  common stock of the date of the grant.  All options expire within
five to ten years from the date of the grant,  and generally  vest over a two to
three  year  period  from the date of the grant. At December 31, 2002, the total
authorized  number  of  options  or other equity instruments available for grant
under  the  various  plans  was  2,920,225.

                                      F-22
<PAGE>

         A summary status of the Company`s option plans as of December 31, 2000,
2001 and 2002,  as well as  changes  during  each of the years  then  ended,  is
presented below:

<TABLE>
<CAPTION>
                                               2000                     2001                     2002
                                               ----                     ----                     ----
                                                         Weighted                   Weighted                    Weighted
                                                          Average                    Average                     Average
                                           Number of     Exercise    Number of      Exercise    Number of       Exercise
                                            Options        Price      Options         Price      Options          Price
                                            -------        -----      -------         -----      -------          -----
                                          (in shares)               (in shares)                (in shares)
<S>                                        <C>             <C>       <C>               <C>       <C>               <C>
Outstanding at beginning of year.........  1,723,850       $5.32     1,554,775         $5.01     1,568,442         $5.11
   Granted...............................    412,275        5.36       273,500          5.38       236,000          5.38
   Exercised.............................    (27,000)       2.46       (91,866)         2.51            --
   Forfeited or expired..................   (554,350)       6.38      (167,967)         6.04       (65,675)         4.26
                                           ---------                 ---------                    --------

Outstanding at end of year...............  1,554,775        5.01     1,568,442          5.11     1,738,767          5.18
                                           =========                 =========                   =========

Exercisable at end of year...............  1,121,406        4.95     1,102,404          4.85     1,557,395          5.21
                                           =========                 =========                   =========
</TABLE>

<TABLE>
<CAPTION>

                                         Outstanding as of December 31, 2002      Exercisable as of December 31, 2002
                                         -----------------------------------      -----------------------------------
                                                Weighted Average       Weighted                   Weighted
                                    Number         Remaining            Average       Number       Average
    Range of Exercise Prices     Outstanding     Contractual Life    Exercise Price Exercisable  Exercise Price
    ------------------------     -----------     ----------------    -------------- -----------  --------------
                                 (in shares)       (in years)                       (in shares)
<S>        <C>                     <C>                <C>               <C>          <C>             <C>
   $1.15 - 2.00...............     231,000            3.81              $1.81        214,000         $1.82
   $2.44 - 4.00...............     250,500            3.74               3.23        211,764          3.14
   $4.50 - 6.00...............     528,967            3.57               5.37        444,997          5.40
   $6.06 - 7.88...............     705,800            2.08               6.65        664,134          6.64
      $11.13..................      22,500            1.88              11.13         22,500         11.13
                                 ---------                                         ---------
                                 1,738,767                                         1,557,395
                                 =========                                         =========
</TABLE>

    The weighted  average  grant-date  fair value of the options  granted during
2000,  2001  and  2002,   amounted  to  $2.85,   $3.27  and  $2.46  per  option,
respectively.  The Company  utilized the  Black-Scholes  option pricing model to
estimate  fair value,  utilizing the following  assumptions  for the  respective
years (all in weighted averages):

<TABLE>
<CAPTION>
                                                                                      2000          2001          2002
                                                                                      ----          ----          ----
<S>                                                                                   <C>           <C>           <C>
    Risk-free interest rate....................................................       5.0%          4.9%          4.2%
    Expected life of options, in years.........................................       5.9           6.1           5.3
    Expected annual volatility.................................................        82%           60%           78%
    Expected dividend yield....................................................       None          None          None
</TABLE>

 (b) Warrants

         The Company has issued  warrants at exercise prices equal to or greater
than market  value of the  Company`s  common  stock at the date of  issuance.  A
summary of warrant activity follows:

<TABLE>
<CAPTION>
                                                  2000                         2001                         2002
                                                  ----                         ----                         ----
                                                      Weighted                   Weighted                     Weighted
                                        Number of      Average     Number of        Average      Number of      Average
                                        Warrants   Exercise Price  Warrants     Exercise Price   Warrants   Exercise Price
                                        --------   --------------  ---------    --------------   --------   --------------
                                       (in shares)                (in shares)                   (in shares)
<S>                                     <C>           <C>           <C>             <C>          <C>          <C>
    Outstanding at beginning of year     370,000      $3.23         120,000         $3.07        120,000      $ 3.07
    Granted.........................         --          --              --            --        315,000        3.36
    Repurchased by Company..........    (250,000)      3.31              --            --             --          --
    Forfeited.......................          --         --              --            --        120,000        3.07
                                        --------                   --------                      --------

    Outstanding at end of year......     120,000      $3.07         120,000         $3.07        315,000       $3.36
                                         =======                   ========                      ========
</TABLE>

         In August  1999,  the  Company  granted a lender  250,000  warrants  to
purchase common stock with an exercise price of $3.31 per share, the fair market
value of the Company`s  common stock at the date of the grant. The warrants were
to expire on August 31, 2002. In September  2000,  the Company  repurchased  the
250,000 warrants outstanding from the lender for $1.50 per warrant.

(c) Stock Awards

         In August 1998, the Company  granted  155,000 shares of common stock to
its Chief Executive  Officer.  The shares generally vest over a two-year period,
except  that the  vesting of 20,000 of the shares may be delayed  until  certain
performance goals have been met. These performance goals have not been met since
the date of grant.  Deferred compensation in the aggregate amount of $436, equal
to the  shares`  fair  value  on the date of the  grant,  was  recorded  against
additional  paid-in  capital  at the date of  grant,  of which  $254 and $73 was
amortized to compensation expense during 2000 and 2001, respectively.

                                      F-23
<PAGE>

         In September 2001, the Company entered into a restricted stock purchase
agreement  with the newly hired Chief  Executive  Officer (CEO) of the Company`s
energy intelligence  solutions segment  subsidiary.  Pursuant to this agreement,
the Company  issued to the segment  CEO 50,000  shares of its common  stock at a
purchase  price of $5.95 per share.  The common  stock was paid for by assigning
and endorsing to the Company a 6% subordinated  note, due April 15, 2010, in the
principal  amount  of  $297,500.  The  subordinated  note was  issued  by Philip
Services  Corp.  (NasdaqNM:  PSCD)  in favor of the  segment  CEO  under a trust
indenture with Wilmington Trust Company.  The  subordinated  note is assignable,
pays  interest  semi-annually,  is subject to a sinking  fund for the  mandatory
redemption  of the  subordinated  note by no more  than  four  annual  payments,
beginning in April 15, 2006 and is  reflected  as a reduction  in  shareholders`
equity until paid.

(d) Stock Repurchase Program

         In September  2000,  the Company`s  Board of Directors  authorized  the
purchase of up to 500,000 shares of the Company`s  common stock. In August 2002,
the Company`s  Board of Directors  authorized the purchase of up to 300,000 more
shares  of the  Company`s  common  stock.  During  2001 and  2002,  the  Company
purchased 198,600 and 37,000 of its common stock, respectively,  and at December
31, 2002 owned in the aggregate 845,704 of its own shares.

(e) Other

         In March 1996, the Company`s  Board of Directors  adopted a stockholder
rights plan providing for the  distribution  of common stock purchase  rights at
the rate of one right  for each  share of the  Company`s  common  stock  held by
shareholders  of record as of the close of business on April 1, 1996. The rights
plan is designed to deter coercive takeover tactics,  including the accumulation
of shares in the open market or through private transactions,  and to prevent an
acquirer from gaining  control of the Company  without  offering a fair price to
all of the Company`s shareholders. Each right initially entitles shareholders to
buy one-half of a share of common stock of the Company for $15.  Generally,  the
right  will be  exercisable  only  if a  person  or  group  acquires  beneficial
ownership of 15% or more of the Company`s  common stock or commences a tender or
exchange  offer  upon   consummation   of  which  such  person  or  group  would
beneficially own 15% or more of the Company`s common stock.

         If any person ("Acquiring  Person") becomes the beneficial owner of 15%
or more of the  Company`s  common  stock,  other  than  pursuant  to a tender or
exchange offer for all outstanding  shares of the Company approved by a majority
of the Company`s independent directors,  then, subject to certain exceptions set
forth in the  rights  plan,  each  right  not owned by the  Acquiring  Person or
related parties will entitle its holder to purchase, at the right`s then current
exercise   price,   shares  of  the  Company`s   common  stock  (or  in  certain
circumstances,  as determined by the Board of Directors, cash, other property or
other  securities)  having a value of twice the right`s  then  current  exercise
price.  The Company will  generally be entitled to redeem the rights at one half
of one cent per right at any time until 10 days (subject to extension) following
a public  announcement  that a 15% position has been  acquired.  The rights plan
will expire in March 2006.

         In  September  2001,  the  Company  granted  the newly hired CEO of its
energy  intelligence  solutions segment subsidiary an option to purchase 357,200
shares of stock in the energy intelligence  solutions segment subsidiary,  which
is equal to 6% of the  outstanding  capital  stock of the  subsidiary on a fully
diluted basis,  at the fair value of the  subsidiary`s  stock at the date of the
grant.  The options  vest in three equal  tranches on January 1, 2002,  2003 and
2004 and  terminate  on December 31,  2006.  The fair value of the  subsidiary`s
stock at grant date was  determined  by an  independent  appraiser  of $1.20 per
share.


NOTE 15--INCOME TAXES
(i) Composition of loss before income taxes is as follows:
<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                                      -----------------------
                                                                               2000             2001            2002
                                                                               ----             ----            ----

<S>                                                                            <C>              <C>             <C>
         Domestic ...........................................................  $(4,181)         $(6,767)        $(3,925)
         Foreign.............................................................      346           (3,039)         (4,191)
                                                                             -----------      -----------     -----------
                                                                               $(3,835)         $(9,806)        $(8,116)
                                                                             ===========      ===========     ===========
</TABLE>

                                      F-24
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                             <C>              <C>
        Income tax expense (benefit) consists of the following:
                                                                                       Year Ended December 31,
                                                                                       -----------------------
                                                                                2000             2001             2002
                                                                                ----             ----             ----

        Current:
           Federal........................................................           $--            $(29)            $--
           State and local................................................            46             (56)              24
           Foreign........................................................           145              60               80
                                                                              -----------      -----------       ---------
                                                                                     191             (25)             104
                                                                              -----------      -----------       ---------

        Deferred:
           Federal........................................................           $--             $--              $--
           State and local................................................           (20)             14              (13)
           Foreign........................................................            --              --              (63)
                                                                              -----------      -----------       ---------
                                                                                     (20)             14              (76)
                                                                              -----------      -----------       ---------
               Income tax expense (benefit) from continuing operations.....          171             (11)              28
                                                                              -----------      -----------       ---------

        Income tax expense from gain on sale of discontinued operations              767              --               --
                                                                              -----------      -----------       ---------

        Total income tax expense (benefit).................................         $938            $(11)             $28
                                                                              ===========      ===========       =========

</TABLE>


    (c) Effective Income Tax Rates

Set  forth  below  is a  reconciliation  between  the  federal  tax rate and the
Company`s effective income tax rates:
<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                                                    -----------------------
                                                                                    2000      2001     2002
                                                                                    ----      ----     ----
<S>                                                                                   <C>      <C>      <C>
         Statutory Federal rates..................................................    34%      34%      34%
         Increase (decrease) in income tax rate resulting from:
         Non-deductible expenses...............................................      (7)        (4)    (12)
         State and local income taxes, net.....................................       7          5       4
         Net operating loss carryforward.......................................      16         --      --
         Other.................................................................      (6)        (1)      1
         Valuation allowance...................................................     (48)       (34)    (27)
                                                                                    ----       ----    ----

         Effective income tax rates............................................      (4)%        0%      0%
                                                                                    ====       ====    ====
</TABLE>

    (d) Analysis of Deferred Tax Assets (Liabilities)
<TABLE>
<CAPTION>

Deferred tax assets consist of the following:                                      As of December  31,
                                                                                   -------------------
                                                                                  2001            2002
                                                                                  ----            ----
<S>                                                                              <C>           <C>
    Accelerated depreciation for tax purposes.................................   $    35       $    13
    Intangible asset basis differences........................................        23            77
    Other temporary differences...............................................     1,012         1,434
    Net operating and capital loss carryforwards..............................     9,157        11,630
                                                                                  ------        ------
                                                                                  10,227        13,154
    Valuation allowance.......................................................   (10,041)      (12,634)
                                                                                 --------       -------

    Net deferred tax assets...................................................  $    186       $   520
                                                                                ========       =======
</TABLE>

<TABLE>
<CAPTION>

Deferred tax liabilities consist of the following:                                 As of December  31,
                                                                                   -------------------
                                                                                    2001          2002
                                                                                    ----          ----
<S>                                                                                 <C>           <C>
Other temporary differences...................................................      $ --          $210
Intangible asset basis differences............................................       180           197
                                                                                    ----          ----

    Total deferred tax liabilities............................................      $180          $407
                                                                                    ====          ====
</TABLE>

                                      F-25
<PAGE>

<TABLE>
<CAPTION>
Net deferred tax assets consist of the following:                                  As of December  31,
                                                                                   -------------------
                                                                                   2001           2002
                                                                                   ----           ----
<S>                                                                               <C>             <C>
    Deferred tax assets - current.............................................    $   3           $205
    Deferred tax assets - non-current.........................................      183            315
    Deferred tax liabilities - non-current....................................     (180)          (407)
                                                                                  ------        -------

    Net deferred tax assets...................................................    $   6           $113
                                                                                  ======        =======
</TABLE>

    No valuation allowance is established for the Company`s operations which are
reasonably expected to utilize their deferred tax assets.  Valuation  allowances
relate  principally  to net operating  loss and capital loss  carryforwards  and
foreign tax credit carryforwards.  The change in the valuation allowance in 2001
and 2002 was an increase of $2,845 and $2,593, respectively.

    (e) Summary of Tax Loss Carryforwards

As  of  December  31,  2002,   the  Company  had  various  net  operating   loss
carryforwards, which expire as follows:

<TABLE>
<CAPTION>
                  Expiration                                                      Federal      State     Foreign
                  ----------                                                      -------      -----     -------

<S>               <C>  <C>                                                           <C>        <C>          <C>
                  2003-2004.....................................................     $--        $47          $--
                  2005-2006.....................................................      --      4,076           --
                  2007-2008.....................................................      --      9,717           --
                  2009..........................................................      --      4,929           --
                  2019-2022.....................................................  15,045         --           --
                  Unlimited.....................................................      --         --       12,284
                                                                                ---------   -------      -------

                  Total......................................................... $15,045    $18,769      $12,284
                                                                                 =======    =======      =======
</TABLE>


NOTE 16--RELATED PARTY BALANCES AND TRANSACTIONS

         The Company paid consulting and other fees to directors of $5, $109 and
$98 for the years ended December 31, 2000,  2001 and 2002,  respectively,  which
are included in selling,  general and administrative  expenses. The Company paid
legal fees for services  rendered and  out-of-pocket  disbursements to a firm in
which a principal is a former  director and is the  son-in-law  of the Company`s
Chief  Executive  Officer,  of  approximately  $474, $575 and $630 for the years
ended December 31, 2000, 2001 and 2002, respectively. Approximately $36 and $90,
owed to this firm as of December 31, 2001 and 2002, respectively, is included in
other current liabilities. The Company paid a director and vice president of the
Company, who is the son of the Company`s Chief Executive Officer,  approximately
$280,  $197 and $230 for the years  ending  December  31,  2000,  2001 and 2002,
respectively.  An asset  management firm that is controlled by a director of the
Company provided  discretionary  asset management  services to the Company.  The
Company  paid $13 and $12 for these  services  for the years ended  December 31,
2001 and 2002,  respectively.  The Company  received  $35 of rent from a company
controlled by the Chief Executive  Officer for the year ended December 31, 2002.
The chief executive officer of the Company`s Israeli  subsidiary has a loan from
the subsidiary that was acquired in 2001. The loan balance and accrued  interest
at  December  31, 2001 and 2002 was $47 and $48,  respectively.  The loan has no
defined  maturity  date, is denominated in NIS, is linked to the Index and bears
interest at 4%. The Company`s Comverge subsidiary has extended loans of $10 each
to both the Company`s Chief Executive Officer and Chief Financial  Officer.  The
loans had an initial  maturity date of January 3, 2002 and were extended at that
time to mature on January 3, 2004.  The loans bear  interest at 4.25% per annum.
The balances of the loan and accrued interest at December 31, 2001 and 2002 were
$23 and $25,  respectively.  The Comverge subsidiary also extended a loan of $14
to Comverge`s Executive Vice-President in 2001. This loan bears interest at 6.5%
per annum and is to mature in July 2004.  The  balance  of the loan and  accrued
interest at December 31, 2001 and 2002 was $15 and $16, respectively.



NOTE 17--SEGMENT REPORTING AND GEOGRAPHIC INFORMATION

(a) General Information

         The Company has three  reportable  segments:  software  consulting  and
development, computer hardware sales and energy intelligence solutions.

         (i) The software  consulting and development  segment provides computer
         software and systems consulting and development services


                                      F-26
<PAGE>

         (ii)  The  computer  hardware  segment  is  an  authorized  dealer  and
         value-added reseller of computer hardware.

(iii) The energy  intelligence  solutions segment develops load control and data
communication solutions for utilities.

         The Company`s  reportable  segments are strategic  business  units that
offer different products and services.  They are managed separately because each
business  requires  different  technology  and  marketing  strategies.   Similar
operating  segments that operate in different  countries are aggregated into one
reportable segment.

(b) Information about Profit or Loss and Assets

         The accounting  policies of all the segments are those described in the
summary of significant  accounting policies.  The Company evaluates  performance
based on the profit or loss from  operations  before  income taxes not including
nonrecurring gains and losses.

         The Company  accounts for  intersegment  sales and  transfers as if the
sales or transfers were to third parties, that is, at current market prices. The
Company  does  not  systematically  allocate  assets  to  the  divisions  of the
subsidiaries   constituting   its  consolidated   group,   unless  the  division
constitutes  a  significant  operation.  Accordingly,  where  a  division  of  a
subsidiary constitutes a segment that does not meet the quantitative  thresholds
of SFAS No. 131, depreciation expense is recorded against the operations of such
segment,  without  allocating  the related  depreciable  assets to that segment.
However,  where a division of a subsidiary  constitutes a segment that does meet
the quantitative  thresholds of SFAS No. 131, related depreciable assets,  along
with other identifiable assets, are allocated to such division.




                                      F-27
<PAGE>




The following tables  represent  segmented data for the years ended December 31,
2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                                            Software         Energy
                                                         Consulting and   Intelligence   Computer
                                                           Development      Solutions     Hardware    Other(*)     Total
                                                           -----------      ---------     --------    --------     -----

<S>                                                             <C>           <C>         <C>            <C>     <C>
Year ended December 31, 2002:
Revenues from external customers..........................      $14,202       $19,023     $22,605        $56     $55,886
Intersegment revenues.....................................           19         1,125          87         --       1,231
Interest revenue..........................................            8             5       --            --          13
Interest expense..........................................          323           201         464--                  988
Depreciation and amortization.............................          580           552          17         --       1,149
Gross profit..............................................        2,673         6,087       4,164         56      12,980
Segment income (loss).....................................       (4,503)       (2,161)         15         (2)     (6,651)
Minority interests........................................          880            --          --         --         880
Income tax expense (benefit)..............................           11             6          11         --          28
Segment assets............................................       12,614         7,872       5,651         --      26,137
Expenditures for segment assets...........................          112           407          14         --         533

Year ended December 31, 2001:
Revenues from external customers..........................      $12,279       $13,793     $19,794        $58     $45,924
Intersegment revenues.....................................          283         1,164         107         --       1,554
Interest revenue..........................................           18             3          --         --          21
Interest expense..........................................          154           311          --         --         465
Depreciation and amortization.............................          281           706          22         --       1,009
Gross profit..............................................        2,104         2,652       3,552         58       8,366
Segment income (loss).....................................       (2,052)       (6,447)      1,006       (217)     (7,710)
Minority interests........................................            -             -           -          -           -
Income tax expense (benefit)..............................           57            10          21         --          88
Segment assets............................................       16,297         5,537       2,886         --      24,720
Expenditures for segment assets...........................          361           512          20         --         893

Year ended December 31,  2000:
Revenues from external customers**                              $18,977       $17,105     $21,515       $204     $57,801
Intersegment revenues.....................................           58         1,507         215         --       1,780
Interest revenue..........................................           59             3          --         --          62
Interest expense..........................................          136           412          --         --         548
Depreciation and amortization.............................          362           833          38          6       1,239
Gross Profit**............................................        4,821         3,926       3,244        204      12,195
Segment income (loss).....................................        1,530        (3,216)        726         41        (919)
Minority interests........................................            -             -           -          -           -
Income tax expense (benefit)..............................          107             9        (13)         --         103
Segment assets.............................................       7,324         4,534       4,937         64      16,859
Expenditures for segment assets...........................          358           361          17         --         736
</TABLE>

*  Represents  segments  below the  quantitative  thresholds of SFAS No. 131, as
   follows:  in 2002, a VAR software  operation in Israel and a holding company;
   in 2001, a VAR software  operation in Israel,  a holding company and residual
   operations from the Company`s multimedia software segment; and in 2000, a VAR
   software  operation in Israel and  residual  operations  from the  multimedia
   software segment.

**Revenues from  external  customers  and gross  profit in 2000  excludes $38 in
   management fees received from Tower Semiconductor Ltd.

                                      F-28
<PAGE>

The  following  tables  represent  a  reconciliation  of  the  segment  data  to
consolidated  statement of operations and balance sheet data for the years ended
December 31, 2000, 2001 and 2002:
<TABLE>
<CAPTION>

                                                                                   For the years ending December  31,
                                                                                   ----------------------------------
                                                                                        2000            2001        2002
                                                                                        ----            ----        ----
<S>                                                                                  <C>             <C>         <C>
Revenues:
Total revenues for reportable segments                                               $57,597         $45,866     $55,830
Other operational segment revenues                                                       204              58          56
                                                                                    --------        --------     -------
Total operating revenues                                                              51,801          45,924      55,886
Revenue from management fee derived by
   non-operating segment (corporate headquarters)                                         38              --          --
                                                                                    --------        --------     -------

Total consolidated revenues                                                          $57,839         $45,924     $55,886
                                                                                     =======         =======     =======

Income (loss):
Total loss for reportable segments                                                    $(960)        $(7,493)    $(6,649)
Other operational segment operating income (loss)                                        41            (217)         (2)
                                                                                   ---------        --------    --------
Total operating loss                                                                   (919)         (7,710)     (6,651)
Net loss of corporate headquarters                                                   (3,123)         (2,085)     (1,493)
Loss from discontinued operations included in reportable segments                       104              --          --
Income tax expense (benefit) included in reportable segments                            103             (11)         28
                                                                                    -------          ------        ----

Consolidated loss from continuing operations
   before provision for income taxes                                                $(3,835)        $(9,806)    $(8,116)
                                                                                    ========        ========    ========
</TABLE>


<TABLE>
<CAPTION>

                                                                                                      As of December  31,
                                                                                                      -------------------
                                                                                                        2001        2002
                                                                                                        ----        ----
Assets:
<S>                                                                                                  <C>         <C>
Total assets for reportable segments                                                                 $24,720     $26,137
Other operational segment assets                                                                          --          --
                                                                                                     -------     -------
                                                                                                      24,720      26,137
Unallocated amounts: Net assets of corporate headquarters *                                           14,524       7,168
                                                                                                      ------      ------

Total consolidated assets                                                                            $39,244     $33,305
                                                                                                     =======     =======
</TABLE>

  * Unallocated assets in 2002 include cash and cash equivalents of $897 as well
  as long-term bank deposits of $5,700.  Unallocated assets in 2001 include cash
  and cash  equivalents of $3,745 as well as investments in debt  securities and
  long-term bank deposits of $7,828.
<TABLE>
<CAPTION>

                                                                                    Segment                Consolidated
                                                                                     Totals     Adjustments     Totals
                                                                                     ------     -----------     ------
<S>                                                                                 <C>               <C>     <C>
Other Significant Items
Year ended December 31, 2002
Depreciation and amortization...................................................    $1,149            $6      $1,155
Expenditures for assets.........................................................       533             1         534
Interest expense................................................................       988           224       1,212

Year ended December 31, 2001
Depreciation and amortization...................................................    $1,009          $329      $1,338
Expenditures for assets.........................................................       893             4         897
Income tax expense..............................................................        88           (99)        (11)
</TABLE>

The  reconciling  items  are all  corporate  headquarters  data,  which  are not
included  in  the  segment  information.  None  of  the  other  adjustments  are
significant.
                                      F-29

<PAGE>

<TABLE>
<CAPTION>


                                                                                        Year Ended December  31,
                                                                                        ------------------------
                                                                                      2000           2001          2002
                                                                                      ----           ----          ----
<S>                                                                                <C>             <C>           <C>
Revenues based on location of customer:
    United States................................................................  $41,659         $33,800       $41,622
    Israel.......................................................................   15,431          10,382        13,700
    Far East.....................................................................      226             540            51
    Other........................................................................      523           1,202           513
                                                                                 ---------        --------   -----------

                                                                                   $57,839         $45,924       $55,886
                                                                                   =======         =======       =======

                                                                                                   As of December  31,
                                                                                                 2001              2002
                                                                                                 ----              ----
Long-lived assets located in the following countries:
    Israel...................................................................................   $1,373           $1,016
    United States............................................................................      923              956
</TABLE>


(e) Major Customers

<TABLE>
<CAPTION>
        Revenues from Major Customers:                                  Consolidated Sales
                                                                      Year Ended December  31,

Customer        Segment                               2000                       2001                        2002
--------        -------                               ----                       ----                        ----

                                                      % of Total                  % of Total                  % of Total
                                           Revenues    Revenues      Revenues      Revenues      Revenues      Revenues

<S>                                           <C>           <C>        <C>           <C>          <C>            <C>
    A            Computer hardware            $5,084        8.8        $4,894        10.7         $4,910         8.8
                                               -----        ---         -----        ----          -----         ---
</TABLE>


NOTE 18--FINANCIAL INSTRUMENTS

(a) Fair Value of Financial Instruments

         Fair values of  financial  instruments  included in current  assets and
current  liabilities are estimated to approximate their book values,  due to the
short maturity of such instruments. Fair values for long-term debt and long-term
deposits are  estimated  based on the current  rates  offered to the Company for
debt and deposits  with the similar  terms and  remaining  maturities.  The fair
value of the Company`s  long-term debt and long-term deposits are not materially
different from their carrying amounts.

(b) Concentrations of Credit Risk

         Financial  instruments,   which  potentially  subject  the  Company  to
concentrations of credit risk, consist principally of cash and cash equivalents,
short and long-term bank deposits and trade  receivables.  The counterparty to a
majority  of the  Company`s  cash  equivalent  deposits as well as its short and
long-term  bank  deposits  is a  major  financial  institution  of  high  credit
standing. The counterparties to the Company`s debt securities consist of various
major  corporations of high credit standing.  The Company does not believe there
is significant risk of  non-performance by these  counterparties.  Approximately
12% of the trade  accounts  receivable at December 31, 2002 were due from a U.S.
customer that pays its trade receivables over usual credit periods.  Credit risk
with respect to the balance of trade receivables is generally diversified due to
the large number of entities comprising the Company`s customer base.



NOTE 19--SUBSEQUENT EVENTS

(a) Comverge equity financing

         On April 7, 2003,  the Company and its  Comverge  subsidiary  reached a
definitive  agreement  with  a  syndicate  of  venture  capital firms raising an
aggregate  of  $13,000  in  capital funding. The Company purchased $3,250 of the
Series A Convertible Preferred Stock issued by Comverge in the equity financing.
A  syndicate  of  venture  capital  firms  purchased the remaining $7,750 of the
Series  A  Convertible Preferred Stock issued by Comverge, and one member of the
syndicate  also  purchased $2,000 of a Series A-1 Convertible Preferred Stock of
Comverge.  The  Company  remains  Comverge`s  largest  shareholder,  owning
approximately  50.6%  of  the  outstanding  capital  stock  of  Comverge.


                                      F-30
<PAGE>

The  Company  holds  approximately  26%  of  all  the  preferred stock issued by
Comverge  in  the  private equity financing, in addition to owning approximately
80%  of Comverge`s common stock. The Company`s investment was primarily financed
by  $3,000  of  cash previously restricted (classified as a long-term deposit at
December  31,  2002).  Concurrent with the sale, Comverge has received a line of
credit  of  up  to  $6,500  to  replace the Laurus line of credit and to provide
additional  working  capital.

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

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

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

       In  connection  with the  agreement,  Comverge  secured a $6,500  credit
facility  with  a  leading  financial  institution.  In connection with this new
credit  facility, Comverge paid off in full the $5,500 bank loan outstanding (as
of  March 31, 2003) and the $2,000 line of credit with Laurus Master Fund, Ltd.,
which  line was also terminated, thereby releasing the Company from the security
obligations related to them. The new credit facility includes a $1,500 term loan
secured  by the Company`s pledge of $1,500, which is being held in an account at
Comverge`s  new  lender,  and  a  $5,000 revolving line of credit secured by the
assets  of  Comverge.


         Upon  the  Repayment of Comverge`s bank loan, $1.0 million of the long-
term  deposit held as security for Comverge`s loan became unrestricted. Comverge
agreed to make certain prepayments on the term loan and the new lender agreed to
the  release  of amounts equal to such payments from the pledge account, subject
to  certain  conditions,  as  follows:

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


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


                                      F-31
<PAGE>

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

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

         The  Company  expects  to  record  a  gain the sale of a portion of its
Holdings in  Comverge  of  approximately  $4,000.

(b) Sale of shares to Laurus

         On April 10, 2003, the Company received $600  from Laurus in connection
with the sale to them of 400,000 shares of the Company`s common stock. Such sale
was  in  lieu of the conversion by Laurus of $600 of the credit line it afforded
Comverge.


                                      F-32
<PAGE>


EXHIBIT 10.24

                         [LETTERHEAD OF BANK LEUMI USA]


                                                          As of January 31, 2003

Comverge Technologies, Inc.
23 Vreeland Road
Florham Park, New Jersey

Gentlemen:

Reference is made to that certain Credit Agreement, dated as of February 7,
2000, as amended by an amendment dated as of January 31, 2002 (as so amended,
the "Agreement") by and between Bank Leumi USA (the "Bank") and Comverge
Technologies, Inc, (the "Borrower"). Capitalized terms used in this letter
agreement (the "Amendment"), and not otherwise defined herein, shall have the
meanings defined in the Agreement.

Pursuant to the Agreement, the Bank agreed to make a Term Loan to the Borrower,
until the Maturity Date, in the aggregate amount of $6,000,000. The principal
balance of the Term Loan has been reduced to $5,500,000 by prepayments made by
the Borrower. The Bank and the Borrower have agreed to amend the Agreement to
extend the Maturity Date.

Accordingly, the Borrower and the Bank agree as follows:

A. AMENDMENTS TO FINANCING.

A.1 Section 2.1 of the Agreement is hereby amended and restated as follows:

"2.1 Term Loan. As of February 7, 2000 the Bank made a Term Loan to the Borrower
in the principal amount of $6,000,000. The principal balance of the Term Loan
has been reduced to $5,500,000 by prepayments made by the Borrower. The Term
Loan will mature on February 1, 2004 (the "Maturity Date"). The principal of the
Term Loan may be prepaid in whole or in part as provided in Section 2.3.
Concurrently with the execution and delivery of this Amendment, the Borrower is
evidencing its obligation to pay the principal of, and interest on, the Term
Loan by executing and delivery an amended and restated term note, in the form of
Exhibit A annexed (the "Note"), to the Bank in the principal sum of $5,500.000"

A.2 Section 2.5.3 of the Agreement is hereby amended and restated as follows:

"2.5.3 Cash Collateral. On February 7, 2000, as collateral under its Security
Agreement, DSSI pledged a Certificate of Deposit to the Bank (the "Cash
Collateral") in the aggregate principal amount of $6,000,000, as collateral
security for payments of the Term Loan and the other Obligations. Subsequently,
and upon the reduction of the principal amount of the Term Loan, the amount of
the Cash Collateral was reduced by a like amount. Until the Term Loan and the
other Obligations are fully satisfied, the Cash Collateral pledged to the Bank
shall not be less than the principal balance of the Term Loan, and the
Certificate of Deposit in which the Cash Collateral is held shall have a
maturity date which is not earlier than ten (10) days after the Maturity Date."

B. CONDITIONS PRECEDENT. The obligation of the Bank to execute and deliver this
Amendment is subject to the conditions precedent that:


<PAGE>


B.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties
contained in the Agreement, or otherwise made to the Bank pursuant to or in
connection with any of the Financing Agreement, shall be correct and complete in
all material respects.

B.2 NOTE. The Borrower shall have executed and delivered the Note
evidencing the Term Loan to the Bank.

B.3 SUPPORTING DOCUMENTS. Thee Bank shall have received the following: (a) a
certificate of the Secretary or an Assistant Secretary of the Borrower, dated as
of even date herewith, certifying as to (i) the Certification of Incorporation
and By-Laws of the Borrower as then in effect; (ii) the resolutions of the Board
of Directors of the Borrower authorizing the execution, delivery and performance
of this Amendment and the Note, and the Loan; (iii) the full force and effect of
such resolutions on the date hereof; and (iv) the incumbency and signature of
each of the officers of the Borrower signing this Amendment and the Note; (b)
such additional supporting documents as the Bank may reasonably request.

B.4 CONFIRMATION OF GUARANTOR. DSSI shall have executed and delivered a
confirmation of its Guarantee and Security Agreement, in the form of Exhibit B
annexed, and renewed the time deposit provided to the Bank pursuant thereto.

B.5 OPINION. The Bank shall have received a written opinion of legal counsel to
the Borrower and DSSI, in form and substance satisfactory to the Bank and its
counsel.

B.6 FEES. The Borrower shall have paid (i) the reasonable attomeys` fees of
counsel for the Bank, and (ii) all other charges and disbursements incurred in
connection with the tramactions contemplated by the Amendment.

C. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into the
Amendment, the Borrower represents and warrants to the Bank that:

C.1 AUTHORITY, ENFORCEABILITY. The Borrower has all requisite legal right, power
and authority to execute, deliver an perform this Amendment. The Agreement, this
Amendment and the Financing Agreement are legal, valid and binding obligations
of such of the Borrower as are parties thereto, and are enforceable in
accordance with their terms, except as such enforcement may be limited by
bankruptcy, insolvency, moratorium or other simillar laws presently or hereafter
in effect affecting the enforcement of creditors` rights generally or the
availability of equitable remedies.

C.2 EXECUTION. The execution, delivery and performance by the Borrower of this
Amendment and the Note (a) have been authorized by all requisite corporate
action, (b) will not violate (i) the Certificate of Incorporiation or By-laws of
the

                                        2

<PAGE>


Borrower, (ii) any agreement or contract to which the Borrower is a party, or by
which it or any of its property is bound, or any order, decree or judgment, or
the provisions of any statute, rule or regulation, domestic or foreign, or (c)
result in the creation of any lien, charge or encumbrance of any nature
whatsoever upon any property or assets of the Borrower.

D. MISCELLANEOUS.

D.1 EXTANT NOTE. As soon after execution and delivery by the Borrower of the
Note as is practical, the Bank will return to the Borrower the note evidencing
the Term Loan which was extant prior to the execution and delivery of the Note.

D.2 ENTIRE AGREEMENT. This Amendment is intended by the parties as the final
expression of their agreement, and therefore incorporates all negotiations of
the parties hereto, and together with the Agreement and other Financing
Agreements set forth in the entire agreement of the parties hereto.

D.3 COUNTERPARTS. This Amendment may be executed in one or more counterparts,
each of which shall constitute an original, but all of which taken together
shall constitute one and the same instrument.

If the foregoing correctly sets forth our understanding and agreement, kindly
indicate your acceptance thereof by signing below.


                                                Very truly yours,

                                                BANK LEUMI USA

                                                By: /s/ Michaela Klein

                                                --------------------------------
                                                Michaela Klein
                                                Senior Vice President

                                                By: /s/ Shirly Yechilevich

                                                --------------------------------
                                                Shirly Yechilevich
                                                Assistant Vice President

AGREED TO:

COMVERGE TECHNOLOGIES, INC.

By: /s/ Robert M. Chiste

------------------------------------
Robert M. Chiste
Chief Executive Officer

                                        3


<PAGE>


                                                                       EXHIBIT A


                                    TERM NOTE

$5,500,000

New York, New York

                                                          As of January 31, 2003

A. GENERAL; TERMS OF PAYMENT

1. COMVERGE TECHNOLOGIES, INC., a Delaware corporation (the"Borrower"), promises
to pay to the order of BANK LEUMI USA (the "Bank"), at its offices at 564 Fifth
Avenue, New York, New York 10036, or at such other place as may be desiguated by
the holder hereof in writing, in immediately available funds, the principal sum
of Five Million Five Hundred Thousand ($5,500,000) Dollars on February 1, 2004,
or sooner as provided in the Credit Agreement (as hereinafter defined).

This note is the Note referred to in that certain Credit Agreement between the
Borrower and the Bank, dated as of February 7, 2000, as amended by an amendment
dated as of January 31, 2002, and as further amended by a letter agreement dated
as of even date herewith, and as such agreement may be further amended from time
to time (the "Credit Agreement"), and is subject to prepayment and its maturity
is subject to acceleration upon the terms contained in the Credit Agreement.
Capitalized terms used herein shall be defined as in the Credit Agreement.

The Borrower will pay interest on the unpaid principal amount of the Term Loan
from time to time outstanding, computed on the basis of a 360-day year. The
charging of interest on the basis of a 360-day year results in the payment of
more interest than would be required if interest were charged on the actual
number of days in the year. Interest shall be at the rate determined in the
Credit Agreement and be payable as is therein provided. In no event shall
interest exceed the maximum legal rate permitted for the Borrower.

2. MANNER OF PAYMENT. All payments by the Borrower on account of principal,
interest or fees hereunder shall be made in lawful money of the United States of
America, in immediately available funds. The Borrower authorizes (but shall not
require) the Bank to debit any account maintained by the Borrower with the Bank,
at any date on which a payment is due under this Note, in an amount equal to any
unpaid portion of such payment. If any payment of principal or interest becomes
due on a day on which the Bank is closed (as required or permitted by law or
otherwise), such payment shall be made not later than the next succeeding
business day, and such extension shall be included in computing interest in
connection with such payment.


<PAGE>


B. DEFAULT

Upon the occurrence of an Event of Default, as defined in the Credit Agreement,
the Bank may declare the entire unpaid principal amount of this Note and all
interest and fees accrued and unpaid hereon to be forthwith due and payable,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by the Borrower.

C. MISCELLANEOUS

1. NO WAVIER: RIGHTS AND REMEDIES CUMULATIVE. No failure on the part of the Bank
to exercise, and no delay in exercising any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Bank of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The rights and remedies herein provided are cumulative and
not exclusive of any remedies or rights provided by law or by any other
agreement between the Borrower and the Bank.

2. COSTS AND EXPENSES. The Borrower shall reimburse the Bank for all costs and
expenses incurred by it and shall pay the reasonable fees and disbursements of
counsel to the Bank in connection with the enforcement of the Bank`s rights
hereunder.

3. AMENDMENTS. No amendment, modification or waiver of any provision of this
Note nor consent to any departure by the Borrower therefrom shall be effective
unless the same shall be in writing and signed by the Bank and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.

4. CONSTRUCTION. This Note shall be governed by the laws of the State of New
York, without giving effect to its choice of law principles.

5. SUCCESSORS AND ASSIGNS This Note shall be binding upon the Borrower and its
successors and assigns, and the terms hereof shall inure to the benefit of the
Bank and its successors and assigns, including subsequent holders hereof.

6. SEVERABILITY. The provisions of this Note are severable, and if any provision
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
then such invalidity or unenforceability shall not in any manner affect such
provision in any other jurisdiction or any other provision of this Note in any
jurisdiction.

7. RESTATEMENT. This Note amends and restated the Term Note, dated as of January
31, 2002, heretofore made and delivered by the Borrower to the Bank.

8. WAIVER OF NOTICE; SET-OFF. The Borrower hereby waives presentment, demand for
payment, notice of protest and all other demands in connection with the
delivery, acceptance, performance, default or enforcement of this Note. The
balance of every account


<PAGE>


of the Borrower with, and each claim of the Borrower against, the Bank existing
from time to time shall be subject to a lien and subject to be set-off against
any and all liabilities of the Borrower to the Bank, including those hereunder.

9. WAIVER OF TRIAL BY JURY. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH OR ARISING OUT OF
THIS NOTE OR ANY AGREEMENT, INSTRUMENT, DOCUMENT OR GUARANTEE DELIVERED PURSUANT
HERETO OR PURSUANT TO THE CREDIT AGREEMENT, OR THE VALIDITY, PROTECTION,
INTERPRETATION, ADMINISTRATION, COLLECTION OR ENFORCEMENT HEREOF OR THEREOF OR
ANY OTHER CLAIM OR DISPUTE HEREUNDER OR THEREUNDER.

10. JURISDICTION, SERVICE OF PROCESS. THE BORROWER HEREBY IRREVOCABLY CONSENTS
TO THE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK FOR THE COUNTY
OF NEW YORK AND THE UNITED STATE DISTRICT FOR THE SOUTHERN DISTRICT OF NEW YORK
IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
NOTE OR ANY DOCUMENT, INSTRUMENT OR GUARANTEE DELIVERED PURSUANT HERETO OR
PURSUANT TO THE AGREEMENT. IN ANY SUCH LITIGATION, THE BORROWER WAIVES PERSONAL
SERVICE OF A SUMMONS, COMPLAINT OR OTHER PROCESS AND AGREES THAT THE SERVICE
THEREOF MAY BE MADE IN ANY OTHER MANNER PERMITTED BY THE RULES OF EITHER OF SAID
COURTS.

                                              COMVERGE TECHNOLOGIES, INC.

                                              ------------------------------
                                              Robert M. Chiste
                                              Chief Executive Officer
                                              23 Vreeland Road
                                              Florham Park, New York 07932


<PAGE>

                                                                       EXHIBIT B


                            CONFIRMATION OF GUARANTY

         The undersigned hereby confirms (i) its Unlimited Guaranty, dated as of
February 7, 2000, of the liabilities of Comverge Technologies, Inc., to Bank
Leumi USA and (ii) that it has been advised that Bank Leumi USA has extended the
maturity of a Term Loan made by it to Comverge Technologies, Inc., in the
principal amount of $5,500,000 to February 1, 2004.

Dated:   As of January 31, 2003
         Mahwah, New Jersey

                                          DATA SYSTEMS & SOFTWARE INC.


                                          By:______________________________
                                             George Morgenstern, President




<PAGE>

EXHIBIT 10.25


[LOGO]
J.P. TURNER & COMPANY, L.L.C.

                                                               February 25, 2003



George Morgenstern
Chairman and CEO
Data Systems & Software, Inc.
200 Route 17
Mahwah, NJ 07430
Phone: (201) 529-2026
Facsimile: (201) 529-3163

         RE:      INVESTMENT BANKING AGREEMENT WITH J. P. TURNER & COMPANY, LLC

Dear Mr. Morgenstern,

         This letter (the "AGREEMENT") shall confirm the engagement of J.P.
Turner & Company, LLC ("TURNER") by Data Systems & Software, Inc. [Nasdaq: DSSI]
(the "COMPANY") for purposes of providing, on a non-exclusive basis, investor
awareness and business advisory services as set forth below in consideration for
the fees and compensation described hereinafter:

1. The Agreement shall be effective as of the date set forth above.

2. The Company agrees to provide Turner such information, historical financial
data, projections, proformas, business plans, due diligence documentation, and
other information (collectively the "INFORMATION") in the possession of the
Company or its agents that Turner may reasonably request or require to perform
the Services (as hereinafter defined) set forth herein. The Information provided
by the Company to Turner shall be true, complete and accurate in all material
respects as of the date specified therein and shall not set forth any untrue
statements nor omit any fact required or necessary to make the Information
provided not misleading. The Company acknowledges that Turner may rely on the
accuracy and completeness of all Information provided by the Company without
independent verification. The Company authorizes Turner to use such Information
in connection with its performance of the Services. Turner shall use its
reasonable best efforts to preserve the confidentiality of Information expressly
designated as confidential by the Company.

3. Turner will use its best efforts to furnish ongoing investor awareness and
business advisory services (the "SERVICES") as the Company may from time to time
reasonably request. The Services may include without limitation the following:
preparation and assistance with investor presentations; introduction to capital
conferences; the identification and evaluation of financing transactions; and
introductions to broker dealers, research analysts, and investment companies
that Turner believes to be in the best interest of the Company.

4. The term of this Agreement shall be 12 months from the effective date (as set
forth in paragraph 1) of this Agreement (the "TERM"). In the event that the
Company desires to terminate this Agreement, it shall provide Turner written
notice of its intention to terminate this Agreement which shall be effective
upon the delivery thereof to Turner (the "TERMINATION DATE"), without any
further responsibility for either party; provided, however, that Turner shall be
entitled to receive all accrued but unpaid


<PAGE>


Data Systems & Software, Inc.
Investment Banking Agreement
February 25, 2003
Page 2 of 7

compensation, including any unpaid cash compensation, all vested Warrants (as
set forth below), and un-reimbursed expenses, if any, outstanding as of the
Termination Date. Notwithstanding the foregoing, if the Termination Date occurs
during the 90-day period from the effective date of this Agreement (the "Trial
Period"), Turner shall be entitled to payment of the remaining Monthly Advisory
Fees that it would have received during such 90 day period (paid in accordance
with paragraph 5 below).

5. In consideration for the services described herein, the Company shall pay to
Turner a monthly advisory fee of seven thousand five hundred dollars ($7,500)
per month (the "MONTHLY ADVISORY FEE"). The first month advisory fee shall be
paid to Turner upon the execution of this Agreement and continuing each month
for the length of the Agreement. The Monthly Advisory Fee shall be earned and
payable each month and may not be deferred by the Company unless the Company
submits a written request to the Turner and Turner approves such request in
writing. Any fees that are deferred shall accumulate interest at a compound
interest rate of 12.0% per annum on the aggregate balance of deferred Monthly
Advisory Fees. The Monthly Advisory Fee shall be directed to Turner in
accordance with the following wiring instructions:

                  Bank:            Wachovia Bank of Georgia
                  Phone:           404-995-8740
                  Fax:             404-995-8755
                  Address:         4465 Buckhead Loop, Atlanta, GA  30326
                  ABA Routing #:   061-000-010
                  Account Name:    J.P. Turner & Company, L.L.C.
                  Account #:       186-834-16


6. (a) Simultaneously with the execution of this Agreement, the Company shall
issue and deliver to Turner a common stock purchase warrant (the "INVESTMENT
BANKING WARRANT") for the purchase of one hundred twenty thousand (120,000)
shares of the Company`s common stock. The Investment Banking Warrant shall have
60,000 warrants exercisable at $2.00 and 60,000 exercisable at $2.50 per share
and upon issuance, be fully paid, non-assessable, and free of any restrictions
on transfer, but for those restrictions that are the result of state or federal
securities law. The Warrant shall vest and become exercisable on the day after
the Trial Period unless this Agreement has been terminated prior to such date.
Notwithstanding the foregoing, during the Trial Period the Warrant shall
immediately and completely vest in favor of Turner, and shall become immediately
exercisable, in the event of the consummation of (i) sale of the Company (or all
or substantially all of the assets thereof) or (ii) the acquisition (or merger)
transaction of the Company by or into another entity. The Warrant shall be
issued to Turner in the form of a warrant agreement (the "WARRANT AGREEMENT"),
which shall be in form and content satisfactory to Turner and its counsel.

     (b) The Warrant Agreement shall provide for, among other provisions, the
above terms and the following:

               (i)  The  Warrant  shall vest on the day after the Trial  Period.
                    The Warrant  shall  expire two (2) years from the  effective
                    date of this Agreement.

               (ii) anti-dilution   provisions  for  stock  dividends,   splits,
                    mergers, sale of


<PAGE>

Data Systems & Software, Inc.
Investment Banking Agreement
February 25, 2003
Page 3 of 7

                    substantially all of the Company`s  assets,  except for sale
                    of stock pursuant to the Company`s  Stock Option Plan(s) and
                    other customary exceptions.

               (iii)in  lieu  of  any  cash   payment   required  by  Turner  in
                    connection  with the exercise of the Warrant,  the holder(s)
                    of the  Warrant  shall  have the  right at any time and from
                    time to time,  to exercise the Warrant in full or in part by
                    surrendering  the  Warrant   Agreement  as  payment  of  the
                    aggregated  Strike Price. The number of shares of Underlying
                    Common Stock to be issued upon exercise  shall be determined
                    by  multiplying  the  number of the  shares of common  stock
                    within the Warrant to be exercised by an amount equal to the
                    market  price  per share  less the  Strike  Price,  and then
                    dividing the product  thereof by the market price per share.
                    Solely for the  purposes  of this  paragraph,  market  price
                    shall be  calculated  as the average of the closing price of
                    the Company`s  Common Stock for each of the five (5) trading
                    days  preceding  the date notice is given that the holder(s)
                    intend(s) to exercise the Warrant.

               (iv) the Company shall reserve,  and at all times have available,
                    a  sufficient  number of shares  of its  common  stock to be
                    issued upon the  exercise of the Warrant.  Furthermore,  the
                    Company  shall  accept,  and shall so instruct  its transfer
                    agent to accept, an appropriate Rule 144 opinion letter from
                    any qualified  securities  attorney  (provided  such opinion
                    provides  that  the  Company`s  counsel  may  rely  thereon)
                    representing  Turner or any of its  employees or agents that
                    are holders of the Warrant.

               (v)  the Company shall,  subject to the conditions  listed below,
                    grant unlimited  "piggy back"  registration  rights,  at the
                    Company`s  expense,  to include the shares of the Underlying
                    Common Stock in any registration  statement (except for Form
                    S-4 or S-8 filings,  or any equivalent thereto) filed by the
                    Company  under the  Securities  Act of 1933  relating  to an
                    underwriting  of the sale of shares of common stock or other
                    security of the Company, subject to customary and reasonable
                    underwriter  imposed lock-up  requirements and the Company`s
                    existing  contractual  limitations  regarding  "piggy  back"
                    registration rights.

               (vi) the Warrant shall be  non-transferable  except to affiliates
                    of Turner.

7. The Investment  Banking  Warrant shall be assigned to J.P.  Turner & Company,
L.L.C. and mailed to the following address:

                    J.P. Turner & Company, L.L.C.

                    Attention: Patrick J. Power,
                               Managing Director or Investment Banking
                               3340 Peachtree Road
                               Suite 2300
                               Atlanta, GA 30326
                               Phone: 404-479-8300


<PAGE>

Data Systems & Software, Inc.
Investment Banking Agreement
February 25, 2003
Page 4 of 7


                               Fax: 404-479-8345

8. The Company represents and warrants that it has provided Turner access to all
Information  available to the Company  concerning its  condition,  financial and
otherwise,  its  management,  its business,  and its prospects (the  "DISCLOSURE
DOCUMENTS"). The Company represents that it will continue to provide Turner with
any Information or documentation  necessary to verify and update the accuracy of
the Information  contained in the Disclosure  Documents and will promptly notify
Turner  in  writing  upon the  filing  of any  registration  statement  or other
periodic reporting  documents filed pursuant to the rules and regulations of the
Securities Act of 1933, as amended,  or the Securities  Exchange Act of 1934, as
amended.

9. The Company  recognizes  that  Turner now renders and may  continue to render
financial consulting, management, investment banking and other services to other
companies that may or may not conduct  business and activities  similar to those
of the Company.  Turner  shall be free to render such advice and other  services
and the Company hereby consents thereto.  Turner shall not be required to devote
its full  time  and  attention  to the  performance  of its  duties  under  this
Agreement,  but shall devote only so much of its time and  attention as it deems
reasonable or necessary to fulfill its obligation hereunder.

10. During the Term of this Agreement the Company covenants, promises and agrees
that:

     (a)  Company shall  immediately  notify Turner if it is contacted by NASDAQ
          for  failing to maintain  certain  listing  requirements  or any other
          reason.

     (b)  Company shall furnish Turner with copies of its annual,  quarterly and
          proxy  filings with the SEC,  within thirty (30) days of the Company`s
          filing thereof.

     (c)  Company shall furnish  Turner all press releases and any copies of any
          communication to the general public and its shareholders.

     (d)  Company  shall  immediately  notify Turner if it is the subject of any
          investigation or material litigation.

     (e)  At least three (3)  business  days prior to the  dissemination  of any
          public  announcement  regarding this Agreement,  including the fact of
          its existence,  the Company shall submit to Turner, for its review and
          comment,  the proposed public  announcement.  Turner shall  thereafter
          have three (3)  business  days  within  which to submit  its  proposed
          amendments  to the public  announcement  for  inclusion  therein.  The
          proposed  amendments  shall be incorporated in the final version to be
          disseminated  by the Company,  unless,  in the reasonable  judgment of
          counsel to the Company, such amendments should not be incorporated.

11. This Agreement shall be governed by and construed under the laws of the
State of Georgia without regard to principals of conflicts of laws provisions.
In the event of any dispute between Borrower and Agent arising under or pursuant
to the terms of this Agreement, or any matters arising under the terms of this
Agreement, the same shall be settled only by arbitration through NASD Dispute
Resolution in Fulton


<PAGE>


Data Systems & Software, Inc.
Investment Banking Agreement
February 25, 2003
Page 5 of 7


County,  City of  Atlanta,  State of  Georgia,  in  accordance  with the Code of
Arbitration Procedure published by NASD Dispute Resolution. The determination of
the  arbitrators  shall be final and binding upon the Company and Turner and may
be enforced in any court of appropriate  jurisdiction.  This Agreement  shall be
construed  by and governed  exclusively  under the laws of the State of Georgia,
without regard to its conflicts of law provisions.  The venue shall be in Fulton
County, GA.

12. The Company shall reimburse Turner for all reasonable out of pocket expenses
up to $500 per month, including without limitation acceptable travel and
lodging, printing, legal, and mailing cost that Turner may incur in performance
of the Services under this Agreement. Turner shall obtain the prior written
consent of the Company for any individual expense in excess of $500 or monthly
expenses, in the aggregate, in excess of $500. Turner shall submit expense
statements along with reasonable documentation of such expenses to the Company
from time to time and the Company shall reimburse such expenses promptly
thereafter.

13. (a) The Company shall  indemnify and hold harmless Turner and its directors,
officers,  employees, agents, attorneys and assigns from and against any and all
losses, claims, costs, damages or liabilities (including the reasonable fees and
expenses of legal counsel) to which any of them may become subject in connection
with the  investigation,  defense or  settlement  of any actions or claims:  (i)
caused by any untrue  statement or alleged untrue statement of any material fact
contained  in any of the  Company`s  Disclosure  Documents  or the  omission  or
alleged  omission  to state a material  fact  required  to be stated in any such
Disclosure  Document or necessary to make the statements in any such  Disclosure
Document not misleading, provided such Disclosure Document was used by Turner in
rendering  any  Service  hereunder;  (ii)  arising  in any  manner  out of or in
connection  with  the  rendering  of  Services  by  Turner  hereunder;  or (iii)
otherwise in connection with this Agreement; provided, however, that the Company
will not be  liable in any such case if and to the  extent  that any such  loss,
claim,  cost,  damage or liability arises out of any breach of this Agreement by
Turner.

     (b) Promptly  after  receipt of notice of the  commencement  of any action,
Turner  shall,  if a claim is also being made  against the  Company,  notify the
Company in  writing of such  action.  In case any such  action  shall be brought
against Turner it shall notify the Company of the  commencement  of such action,
and the Company shall be entitled to  participate in and, to the extent it shall
wish,  to assume and  undertake  the defense  thereof  with  counsel  reasonably
satisfactory  to Turner,  and,  after  notice  from the Company to Turner of its
election  so to assume and  undertake  the defense of such  action,  the Company
shall not be liable to Turner  under this  paragraph  13 for any legal  expenses
subsequently  incurred by Turner in connection  with the defense of such action;
if Turner  retains its own counsel,  then Turner  shall pay all fees,  costs and
expenses of such counsel, provided, however, that, if the defendants in any such
action  include  both Turner and the Company  and Turner  shall have  reasonably
concluded  that  there  may be  reasonable  defenses  available  to it which are
different  from or  additional  to  those  available  to the  Company  or if the
interests of Turner  reasonably  may be deemed to conflict with the interests of
the Company,  the Company and Turner shall have the right to select one separate
counsel to assume  such legal  defenses  and  otherwise  to  participate  in the
defense of such action,  with the reasonable  expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
Company as incurred.


<PAGE>

Data Systems & Software, Inc.
Investment Banking Agreement
February 25, 2003
Page 6 of 7


14. The Company acknowledges that Turner has made no guarantees that its
performance hereunder will achieve any particular result with respect to the
Company`s business, stock price, trading volume, market capitalization or
otherwise.

15. All notices hereunder shall be in writing and shall be validly given, made
or served if in writing and delivered in person or when received by facsimile
transmission, or five days after being sent first class certified or registered
mail, postage prepaid, or one day after being sent by nationally recognized
overnight carrier to the party for whom intended at the address set forth after
each parties signatures.

16. If any clause or provision of this Agreement is illegal, invalid or
unenforceable under applicable present or future Laws effective during the Term,
the remainder of this Agreement shall not be affected. In lieu of each clause or
provision of this Agreement that is illegal, invalid or unenforceable, there
shall be added as a part of this Agreement a clause or provision as nearly
identical as may be possible and as may be legal, valid and enforceable. In the
event any clause or provision of this Agreement is illegal, invalid or
unenforceable as aforesaid and the effect of such illegality, invalidity or
unenforceability is that either party no longer has the substantial benefit of
its bargain under this Agreement and a clause or provision as nearly identical
as may be possible cannot be added, then, in such event, such party may in its
discretion cancel and terminate this entire Agreement provided such party
exercises such right within a reasonable time after such occurrence.

17. The parties agree and acknowledge that they have jointly participated in the
negotiation and drafting of this Agreement and that this Agreement has been
fully reviewed and negotiated by the parties and their respective counsel. In
the event of an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumptions or burdens of proof shall arise favoring any party by virtue of the
authorship of any of the provisions of this Agreement.

18. This Agreement shall be governed by and construed under the laws of the
State of Georgia without regard to principals of conflicts of laws provisions.

19. This Agreement may not be modified, amended, supplemented, canceled or
discharged, except by written instrument executed by all parties. No failure to
exercise, and no delay in exercising, any right, power or privilege under this
Agreement shall operate as a waiver, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude the exercise of any other
right, power or privilege. No waiver of any breach of any provision shall be
deemed to be a waiver of any preceding or succeeding breach of the same or any
other provision, nor shall any waiver be implied from any course of dealing
between the parties. To be effective, all waivers must be in writing, signed by
both parties. The rights and remedies of the parties under this Agreement are in
addition to all other rights and remedies, at law or equity, that they may have
against each other except as may be specifically limited herein.

20. This Agreement contains the entire understanding of the parties in respect
of its subject matter and supersedes all prior agreements and understandings
(oral or written) between or among the parties with respect to such subject
matter. The parties agree that prior drafts of this Agreement shall not be
deemed to provide any evidence as to the meaning of any provision hereof or the
intent of the parties with respect thereto. Any amendment or modification to the
Agreement shall be by written instrument only and must be executed by a
representative, with complete authority, from the Company and Turner.


<PAGE>


Data Systems & Software, Inc.
Investment Banking Agreement
February 25, 2003
Page 7 of 7

21. This Agreement may be executed in any number of counterparts, each of which
shall be an original but all of which together shall constitute one and the same
instrument. A telecopy signature of any party shall be considered to have the
same binding legal effect as an original signature.

22. In the event that any dispute among the parties to this Agreement should
result in litigation, the substantially prevailing party in such dispute shall
be entitled to recover from the losing party all fees, costs and expenses of
enforcing any right of such substantially prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals and collection.

         If the foregoing is in accordance with your understanding, kindly
confirm your acceptance and agreement by signing and returning the enclosed
duplicate of this Agreement that will thereupon constitute an agreement between
us.

                                          Yours very truly,


                                          /s/ Patrick J. Power

                                          Patrick J. Power

                                          Managing Director, Investment Banking
                                          J. P. Turner  & Company, LLC
                                          3340 Peachtree Road, Suite 2300
                                          Atlanta, GA  30326
                                          Phone:   404-479-8192  or 888-JPTURNER
                                          Facsimile 404-479-8345





Accepted and approved this  25th  day of  February, 2003.
                           ------        ---------



By:       /s/Shlomie Morgenstern

NAME:        SHLOMIE MORGENSTERN
TITLE:       VICE PRESIDENT
COMPANY:     DATA SYSTEMS & SOFTWARE, INC.
ADDRESS:     200 ROUTE 17
             MAHWAH, NJ 07430
PHONE:       (201) 529-2026
FACSIMILE:   (201) 529-3163




<PAGE>

EXHIBIT 10.29


                                                                  EXECUTION COPY

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


                                 COMVERGE, INC.


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






                       PREFERRED STOCK PURCHASE AGREEMENT






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






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

                                  April 7, 2003

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



<PAGE>



                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>   <C>
1.    Purchase and Sale of Stock..................................................................................1

         1.1      Sale and Issuance of Preferred Stock............................................................1

         1.2      Closing ........................................................................................2

         1.3      Subsequent Sale of Series A Preferred Stock.....................................................2

         1.4      Delivery .......................................................................................2

         1.5      Use of Proceeds.................................................................................3

2.    Representations and Warranties of the Company...............................................................3

         2.1      Organization, Good Standing and Qualification...................................................3

         2.2      Capitalization and Voting Rights................................................................3

         2.3      Subsidiaries....................................................................................4

         2.4      Authorization...................................................................................4

         2.5      Valid Issuance of Preferred and Common Stock....................................................4

         2.6      Governmental Consents...........................................................................5

         2.7      Offering .......................................................................................5

         2.8      Litigation......................................................................................5

         2.9      Proprietary Information and Inventions Agreements...............................................5

         2.10     Patents and Trademarks..........................................................................6

         2.11     Compliance with Other Instruments...............................................................7

         2.12     Agreements; Action..............................................................................7

         2.13     Related Party Transactions......................................................................8

         2.14     Permits ........................................................................................9

         2.15     Environmental and Safety Laws...................................................................9

         2.16     Development and Marketing Rights................................................................9

         2.17     Registration Rights.............................................................................9
</TABLE>

                                       i

<PAGE>

<TABLE>
<CAPTION>
<S>   <C>
         2.18     Corporate Documents.............................................................................9

         2.19     Title to Property and Assets....................................................................9

         2.20     Financial Statements...........................................................................10

         2.21     Changes .......................................................................................10

         2.22     Employee Benefit Plans.........................................................................11

         2.23     Tax Returns, Payments and Elections............................................................13

         2.24     Minute Books...................................................................................13

         2.25     Real Property Holding Company..................................................................13

         2.26     Employees......................................................................................13

         2.27     Obligations of Management......................................................................14

         2.28     Executive Officers.............................................................................14

         2.29     Insurance......................................................................................14

         2.30     Outstanding Borrowing..........................................................................14

         2.31     Small Business Concern.........................................................................14

         2.32     Pacficorp Agreement............................................................................15

         2.33     Disclosure.....................................................................................15

3.    Representations and Warranties of the Investors............................................................15

         3.1      Authorization..................................................................................15

         3.2      Purchase Entirely for Own Account..............................................................15

         3.3      Disclosure of Information......................................................................15

         3.4      Investment Experience..........................................................................16

         3.5      Accredited Investor............................................................................16

         3.6      Foreign Purchasers.............................................................................16

         3.7      English Construction...........................................................................16

         3.8      Restricted Securities..........................................................................16
</TABLE>

                                       ii

<PAGE>

<TABLE>
<CAPTION>
<S>   <C>
         3.9      Further Limitations on Disposition.............................................................17

         3.10     Legends .......................................................................................17

4.    Conditions to Obligations at the Closing...................................................................18

         4.1      Conditions to Investor`s Obligations...........................................................18

         4.2      Conditions to the Company`s Obligations........................................................19

5.    Covenants of the Company...................................................................................20

         5.1      Release of Funds...............................................................................20

         5.2      Repayment and Termination of Credit Facility...................................................21

6.    Miscellaneous..............................................................................................21

         6.1      Survival of Warranties.........................................................................21

         6.2      Successors and Assigns.........................................................................21

         6.3      Governing Law..................................................................................21

         6.4      Counterparts...................................................................................21

         6.5      Titles and Subtitles...........................................................................21

         6.6      Notices .......................................................................................21

         6.7      Finder`s Fee...................................................................................22

         6.8      Expenses ......................................................................................22

         6.9      Attorneys` Fees................................................................................22

         6.10     Amendments and Waivers.........................................................................23

         6.11     Severability...................................................................................23

         6.12     Aggregation of Stock...........................................................................23

         6.13     Exculpation Among Investors....................................................................23

         6.14     Like Treatment of Holders......................................................................23

         6.15     Entire Agreement...............................................................................23

         6.16     California Corporate Securities Law............................................................24
</TABLE>

                                      iii

<PAGE>


ANNEX A           Omnibus Signature Page

                  SCHEDULE A - Schedule of Investors

                  SCHEDULE B - Disclosure Schedule

EXHIBIT A         -        Amended and Restated Certificate of Incorporation
EXHIBIT B         -        Investors` Rights Agreement
EXHIBIT C         -        Co-Sale and First Refusal Agreement
EXHIBIT D         -        Voting Agreement
EXHIBIT E         -        Form of Opinion of Company Counsel
EXHIBIT F         -        Form of Asset Purchase Agreement
EXHIBIT G         -        Form of Put-Call Agreement


                                       iv

<PAGE>


                       PREFERRED STOCK PURCHASE AGREEMENT

                  THIS PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is
made as of April 7, 2003, by and among Comverge, Inc., a Delaware corporation
(the "COMPANY"), and the investors listed on Schedule A hereto (each, an
"INVESTOR," and collectively, the "INVESTORS").

                                R E C I T A L S:

                  WHEREAS, the Company desires to sell, and the Investors desire
to purchase, the number of shares and the series of the Company`s Preferred
Stock, par value $0.001 per share (the "PREFERRED STOCK"), as set forth on
Schedule A hereto;

                  WHEREAS, the Company`s Board of Directors has approved the
Company`s sale and issuance of up to 7,677,175 shares of Series A Convertible
Preferred Stock (the "SERIES A PREFERRED STOCK") and 721,527 shares of Series
A-1 Convertible Preferred Stock (the "SERIES A-1 PREFERRED STOCK" and, together
with the Series A Preferred Stock, the "SHARES"); and

                  WHEREAS, the Company and the Investors desire to set forth
certain agreements and certain terms and conditions regarding the sale and
purchase of the Preferred Stock and the relationship between the Company and the
Investors.

                                A G R E E M E N T

                  NOW, THEREFORE, in consideration of the foregoing premises,
the respective representations, warranties and covenants contained herein, and
certain other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:

         1. PURCHASE AND SALE OF STOCK

         1.1 Sale and Issuance of Preferred Stock

         (a) The Company  shall adopt and file with the  Delaware  Secretary  of
State,  before the Initial Closing (as defined below),  the Amended and Restated
Certificate  of  Incorporation  of the  Company in the form  attached  hereto as
Exhibit A (the "RESTATED CERTIFICATE").

         (b)  On or  prior  to the  Initial  Closing,  the  Company  shall  have
authorized (i) the sale and issuance to the Investors of the Shares and (ii) the
issuance  of the shares of Common  Stock (as  defined  below) to be issued  upon
conversion of the Shares (the "CONVERSION  SHARES" and together with the Shares,
the "SECURITIES"). The Securities shall have the rights, preferences, privileges
and restrictions set forth in the Restated Certificate.

         (c)  Subject  to the terms and  conditions  of this  Agreement,  at the
Closing (as defined below) each Investor severally agrees to purchase, severally
and not jointly,  and the Company  agrees to sell and issue to each  Investor at
the Closing or pursuant to Section 1.3,  that number of shares of the  Company`s
Series A Preferred Stock or Series A-1 Preferred Stock, as


<PAGE>


applicable, set forth opposite each Investor`s name on Schedule A hereto for the
aggregate purchase price set forth opposite such Investor`s name thereon.

         1.2  Closing.  The  first  closing  of the  purchase  and  sale  of the
Preferred  Stock (the  "INITIAL  CLOSING")  and,  subject to  Section  1.3,  one
subsequent closing of the purchase and sale of authorized but unissued shares of
Series A  Preferred  Stock (the  "SUBSEQUENT  CLOSING")  shall take place at the
offices of Andrews & Kurth  L.L.P.,  111 Congress  Avenue,  Suite 1700,  Austin,
Texas 78701.  The Initial  Closing will take place at 1:00 p.m.  Central time on
April 7, 2003;  provided  that the Initial  Closing and the  Subsequent  Closing
(each a  "CLOSING")  may be held at such other time and place as the Company and
Investors  acquiring  in the  aggregate  more than half the shares of  Preferred
Stock sold at the Initial Closing  pursuant hereto mutually agree upon orally or
in writing.

         1.3 Subsequent Sale of Series A Preferred  Stock.  The Company may sell
up to the balance of the authorized number of shares of Series A Preferred Stock
to be sold  hereunder  and not sold at the  Initial  Closing to such  purchasers
(each,  an  "ADDITIONAL  INVESTOR")  as it  shall  select,  upon the  terms  and
conditions  contained  herein,  at a price  not less  than  $2.0841  per  share,
provided the agreement for sale is executed at the Subsequent  Closing not later
than 90 days from the date of the Initial Closing.  Any such Additional Investor
shall, upon execution of an appropriate  counterpart signature page, the form of
which is  attached  as Annex A hereto,  become a party to this  Agreement  as an
Investor  and  the  Company  shall  prepare  and  distribute  to  the  Investors
(including the Additional  Investors) a revised  Schedule A, which shall include
the name and address of each Additional Investor, the number of shares of Series
A Preferred Stock to be purchased by each Additional  Investor and the price per
share to be paid by each Additional Investor.  Upon the Subsequent Closing, each
Additional  Investor shall, as evidenced by the executed  counterpart  signature
page attached as Annex A hereto,  become a party to (i) that certain  Investors`
Rights  Agreement dated as of the date hereof,  by and among the Company and the
parties named  therein,  the form of which is attached  hereto as Exhibit B (the
"INVESTORS`  RIGHTS  AGREEMENT"),  (ii) that certain  Co-Sale and First  Refusal
Agreement dated as of the date hereof,  by and among the Company and the parties
named therein,  the form of which is attached  hereto as Exhibit C (the "CO-SALE
AND FIRST REFUSAL AGREEMENT"),  and (iii) that certain Voting Agreement dated as
of the date hereof, by and among the Company and the parties named therein,  the
form of which is  attached  hereto as Exhibit D (the  "VOTING  AGREEMENT"),  and
shall have the rights and obligations hereunder and thereunder.  For purposes of
any sale of shares of Series A Preferred  Stock  pursuant to this  Section  1.3,
references  to the  "date of  Closing"  shall  mean  the date of the  Subsequent
Closing.  Notwithstanding the foregoing,  the Company may not, without the prior
written consent of the holders of a majority of the Shares issued at the Initial
Closing,  issue or sell any additional  securities at the Subsequent  Closing to
any Investor that purchases any Shares at the Initial Closing.

         1.4  Delivery.  At the  Closing,  the  Company  shall  deliver  to each
Investor a certificate  representing  the shares of Series A Preferred  Stock or
Series A-1  Preferred  Stock,  as  applicable,  that such Investor is purchasing
against  payment  of the  purchase  price  therefor  by wire  transfer  or other
transfer of same-day funds, or any combination thereof, as more specifically set
forth on Schedule A hereto.



                                       2
<PAGE>


         1.5 Use of Proceeds.  A portion of the proceeds to the Company from the
sale of Preferred Stock equal to $1,500,000 shall be used to secure indebtedness
of the Company  pursuant to that certain Loan and Security  Agreement  (the "SVB
LOAN  AGREEMENT")  dated  April 1, 2003,  by and between the Company and Silicon
Valley Bank;  provided that such $1,500,000  shall be released to the Company by
Silicon  Valley Bank within 30 days following the Initial  Closing.  The Company
may use the remaining proceeds for general corporate purposes;  provided further
that any  proceeds  used to release the Cash  Collateral  (as defined in Section
5.1(b)  below) shall be paid only in  accordance  with the schedule set forth in
Section 5.1(b).

         2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company hereby  represents and warrants to each Investor that as of
the date hereof, except as set forth on the Disclosure Schedule (the "DISCLOSURE
SCHEDULE") attached hereto as Schedule B, which exceptions shall be deemed to be
representations and warranties as if made hereunder:

         2.1  Organization,  Good Standing and  Qualification.  The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite  corporate power and authority to
own and operate  its  assets,  carry on its  business  as now  conducted  and as
proposed to be conducted. The Company is duly qualified to transact business and
is in good  standing  in each  jurisdiction  in which the  failure to so qualify
would have a material adverse effect on its business or properties.

         2.2  Capitalization  and Voting Rights. The authorized capital stock of
the Company consists,  or will consist immediately prior to the Initial Closing,
of:

         (a) Preferred Stock.  8,939,847 shares of Preferred Stock, 7,677,175 of
which have been  designated as "Series A Convertible  Preferred  Stock," some or
all of which may be purchased  hereunder and none of which are outstanding prior
to the Initial  Closing;  721,527 of which have been  designated  as "Series A-1
Convertible  Preferred  Stock," some or all of which may be purchased  hereunder
and none of which are outstanding  prior to the Initial Closing;  and 541,145 of
which have been  designated  as "Series A-2  Convertible  Preferred  Stock" (the
"SERIES  A-2  PREFERRED  STOCK"),  none of which  are  outstanding  prior to the
Initial Closing.

         (b) Common Stock.  18,014,060  shares of common stock, par value $0.001
per share  ("COMMON  STOCK"),  of which (i)  4,937,743  shares  are  issued  and
outstanding,  which  includes  no shares  issued  upon the  exercise  of options
granted  under the Company`s  2000 Stock Option Plan (the "PLAN"),  (ii) 877,000
shares to be issued to Sixth Dimension,  Inc. in connection with the purchase of
certain assets of Sixth Dimension, (iii) 1,621,750 shares have been reserved for
issuance  pursuant to the exercise of options under the Plan,  including 307,750
shares subject to outstanding option grants, (iv) 637,780 have been reserved for
issuance  pursuant to the  exercise  of options  granted  outside the Plan,  (v)
7,677,175  shares have been reserved for issuance  pursuant to the conversion of
the Series A  Preferred  Stock,  (vi)  721,527  shares  have been  reserved  for
issuance  pursuant to the conversion of the Series A-1 Preferred Stock and (vii)
541,145 have been reserved for issuance pursuant to the conversion of the Series
A-2 Preferred Stock.


                                       3
<PAGE>


         (c) The  outstanding  shares  of  Common  Stock  are duly  and  validly
authorized  and  issued,  fully  paid  and  nonassessable,  and were  issued  in
accordance with the registration or  qualification  provisions of the Securities
Act of  1933,  as  amended  (the  "SECURITIES  ACT"),  and  any  relevant  state
securities laws or pursuant to valid exemptions therefrom.

         (d) Except for (i) the  conversion  privileges of the Preferred  Stock,
(ii)  options to purchase  307,750  shares of Common Stock that have been issued
pursuant to the Plan and which have not been exercised and the remaining  shares
reserved for issuance  thereunder,  (iii) options to purchase  637,780 shares of
Common  Stock  that  have  been  issued  outside  of the  Plan and have not been
exercised,  (iv) the rights  provided in the Investors`  Rights  Agreement,  (v)
shares of Series A Preferred  Stock that may be issued at a Subsequent  Closing,
and (vi) the  shares of Series  A-2  Preferred  Stock that may be issued to Data
Systems & Software Inc.  ("DSSI")  pursuant to Section 4.10 of Investors` Rights
Agreement  there  are  no  outstanding  options,   warrants,  rights  (including
conversion rights, preemptive rights, rights of first refusal or rights of first
offer) or  agreements  for the purchase or  acquisition  from the Company of any
shares of its capital  stock.  Other than the Voting  Agreement  and the Co-Sale
Agreement,  the  Company  is  not  a  party  or  subject  to  any  agreement  or
understanding,  and,  to the  Company`s  knowledge,  there  is no  agreement  or
understanding  between any persons and/or entities,  which affects or relates to
the voting or giving of written  consents  with  respect to any  security of the
Company.

         2.3 Subsidiaries. Schedule 2.3 of the Disclosure Schedule lists each of
the  Company`s  subsidiaries.  The Company owns all of the  outstanding  capital
stock of each such  subsidiary.  The Company does not  presently own or control,
directly or indirectly,  any interest in any other  corporation,  association or
other  business  entity.  The Company is not a participant in any joint venture,
partnership or similar arrangement.

         2.4 Authorization. The Company has the requisite power and authority to
enter into the Transaction  Agreements (as defined below).  All corporate action
on the  part  of the  Company  and  its  officers,  directors  and  stockholders
necessary  for  the  authorization,  execution  and  delivery  of  each  of this
Agreement,  the  Investors`  Rights  Agreement,  the Co-Sale  and First  Refusal
Agreement and the Voting Agreement (collectively, the "TRANSACTION AGREEMENTS"),
the performance of all  obligations of the Company  hereunder and thereunder and
the authorization,  issuance (or reservation for issuance), sale and delivery of
the Shares  being sold  hereunder  and the  Conversion  Shares  pursuant  to the
Restated  Certificate  have  been  taken or will be taken  prior to the  Initial
Closing,  and this  Agreement and the other  Transaction  Agreements  constitute
valid and legally binding obligations of the Company,  enforceable in accordance
with their  respective  terms,  except (a) as limited by applicable  bankruptcy,
insolvency,  reorganization,  moratorium  and other laws of general  application
affecting  enforcement of creditors`  rights  generally,  (b) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies,  and (c) to the extent that the  indemnification  provisions
contained  in the  Investors`  Rights  Agreement  may be limited  by  applicable
federal or state securities laws.

         2.5 Valid Issuance of Preferred and Common Stock.  The Preferred  Stock
being  purchased by the Investors  hereunder when issued,  sold and delivered in
accordance  with the terms of this  Agreement  for the  consideration  expressed
herein,  will be duly and validly issued,  fully paid and nonassessable and will
be free of  restrictions  on transfer other than



                                       4
<PAGE>


restrictions  on  transfer  under  this  Agreement  and  the  other  Transaction
Agreements  and  under  applicable  state  and  federal   securities  laws.  The
Conversion  Shares have been duly and validly  reserved for issuance  and,  upon
issuance in accordance with the terms of the Restated Certificate,  will be duly
and  validly  issued,   fully  paid  and  nonassessable  and  will  be  free  of
restrictions  on  transfer  other  than  restrictions  on  transfer  under  this
Agreement and the other  Transaction  Agreements and under  applicable state and
federal securities laws.

         2.6  Governmental  Consents.  Other than  filings  that are required or
permitted to be made pursuant to Section 1.1(a) hereof or pursuant to federal or
state  securities  laws after a Closing,  which filings will be made in a timely
manner,  no  consent,  approval,  order or  authorization  of, or  registration,
qualification,  designation,  declaration or filing with, any federal,  state or
local  governmental  authority  on  the  part  of the  Company  is  required  in
connection  with  the  consummation  of the  transactions  contemplated  by this
Agreement and the other Transaction Agreements.

         2.7  Offering.  Subject  in  part to the  truth  and  accuracy  of each
Investor`s  representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Preferred  Stock as  contemplated by this Agreement are
exempt from the registration requirements of the Securities Act, and neither the
Company nor any authorized agent acting on its behalf has taken or will take any
action hereafter that would cause the loss of such exemption.

         2.8 Litigation.  There is no action, suit,  proceeding or investigation
pending or, to the Company`s knowledge, currently threatened against the Company
that  questions  the  validity  of  this  Agreement  or  the  other  Transaction
Agreements,  or the right of the  Company to enter into such  agreements,  or to
consummate  the  transactions  contemplated  hereby or  thereby,  or that  might
result, either individually or in the aggregate, in any material adverse changes
in the assets,  condition,  affairs or prospects of the Company,  financially or
otherwise,  or any change in the current equity ownership of the Company, nor is
the  Company  aware that  there is any basis for the  foregoing.  The  foregoing
includes,  without  limitation,  actions,  suits,  proceedings or investigations
pending or threatened (or any basis therefor known to the Company) involving the
prior employment of any of the employees of the Company, their use in connection
with the  business of the Company of any  information  or  techniques  allegedly
proprietary to any of their former  employers,  or their  obligations  under any
agreements  with prior  employers.  The Company is not a party or subject to the
provisions of any order,  writ,  injunction,  judgment or decree of any court or
government agency or instrumentality.  There is no action,  suit,  proceeding or
investigation  by the Company  currently  pending or that the Company intends to
initiate.

         2.9 Proprietary Information and Inventions Agreements.  Each former and
current  employee,  officer  and  consultant  of  the  Company  has  executed  a
Proprietary  Information  and  Inventions  Agreement  substantially  in the form
provided to special  counsel to the  Investors.  No former or current  employee,
officer or consultant of the Company has excluded works or inventions made prior
to his or  her  employment  with  the  Company  from  his or her  assignment  of
inventions pursuant to such current or former employee,  officer or consultant`s
Proprietary Information and Inventions Agreement.  The Company is not aware that
any of its employees, officers or consultants are in violation thereof.



                                       5
<PAGE>


         2.10 Patents and Trademarks

         (a) The Company has  sufficient  title and  ownership  of all  patents,
trademarks,  service marks, trade names, copyrights, all applications for any of
the  foregoing,  trade secrets,  information  and other  proprietary  rights and
processes  necessary  for its  business as now  conducted  and as proposed to be
conducted.  Except  for  licenses  of  "pre-packaged"  software,  there  are  no
outstanding  options,  licenses  or  agreements  of  any  kind  relating  to the
foregoing,  nor is the Company  bound by or a party to any options,  licenses or
agreements of any kind with respect to the patents,  trademarks,  service marks,
trade  names,  copyrights,  trade  secrets,  licenses,   information  and  other
proprietary  rights and processes of any other person or entity.  To the best of
the  Company`s  knowledge,  the Company has not violated,  or by conducting  its
business as proposed would not violate, any of the patents, trademarks,  service
marks,  trade names,  copyrights or trade secrets or other proprietary rights of
any other person or entity.  The Company is not aware that any of its  employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement,  or subject to any judgment,  decree or order of
any court or administrative  agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would  conflict
with the  business  of the  Company as  proposed  to be  conducted.  Neither the
execution nor delivery of this  Agreement or the other  Transaction  Agreements,
nor the  carrying  on of the  business of the  Company by the  employees  of the
Company,  nor the conduct of the business of the Company as proposed,  will,  to
the  Company`s  knowledge,  conflict  with or result  in a breach of the  terms,
conditions  or  provisions  of, or  constitute a default  under,  any  contract,
covenant or instrument  under which any of such employees is now obligated.  The
Company does not believe it is or will be necessary to utilize any inventions of
any of its  employees  (or people they  currently  intend to hire) made prior to
their employment by the Company.

         (b) The  Company  owns and has the  unrestricted  right  to use,  sell,
license or dispose of all product rights,  manufacturing  rights, trade secrets,
including  know-how,  formulas,  patterns,   compilations,   programs,  devices,
methods, techniques, processes, inventions, designs, technical data, mask works,
computer   software  (in  both  source  code  and  object  code  forms  and  all
documentation therefor) (all of the foregoing of which are collectively referred
to  herein  as  "PROPRIETARY  INFORMATION")  required  for  the  conduct  of the
Company`s  business,  as it is currently  conducted  and as it is proposed to be
conducted, in each case free and clear of any right, lien or claim of others.

         (c) The Company has taken commercially  reasonable security measures to
protect the secrecy and  confidentiality of all Proprietary  Information and all
Inventions  (as  defined  below).  As  used  herein,   "Inventions"   means  all
inventions, developments and discoveries that during the period of an employee`s
or other person`s  service (which  inventions,  developments and discoveries are
made or conceived of in the scope of such  employee`s or other person`s  service
to the Company or are  otherwise  assigned to the  Company) to the Company he or
she makes or conceives of, either solely or jointly with others,  that relate to
any subject  matter with which his or her work for the Company may be concerned,
or directly  relate to or are directly  connected  with the business,  products,
services or projects of the  Company,  or related to the actual or  demonstrably
anticipated  research  or  development  of the Company or involve the use of the
Company`s time, material, facilities or trade secret information.

                                       6
<PAGE>


         (d) The  Company  has not  sold,  transferred,  assigned,  licensed  or
subjected to any lien,  any  Proprietary  Information,  trade secret,  know-how,
invention, design, process, computer software or technical data, or any interest
therein, necessary for the development,  manufacture,  use, operation or sale of
any product or service  presently  under  development or  manufactured,  sold or
rendered by the Company.

         (e)  No  current  or  former  director,  officer,  employee,  agent  or
stockholder of the Company owns or has any right in the Proprietary  Information
of  the  Company,  or any  patents,  trademarks,  service  marks,  trade  names,
copyrights,  any applications for any of the foregoing,  licenses or rights with
respect  to  the  foregoing,  or any  inventions,  developments  or  discoveries
necessary for the conduct of the Company`s business as it is currently conducted
or as it is proposed to be conducted.

         (f) To the knowledge of the Company,  no person or entity is infringing
upon or otherwise  violating the Proprietary  Information or other  intellectual
property rights of the Company.

         (g) The Company has avoided every condition,  and has not performed any
act,  the  occurrence  of which  would  result in the loss by the Company of any
patent, patent application, or right granted under any license,  distribution or
other agreement that is material to its business.

         2.11 Compliance with Other Instruments. The Company is not in violation
or default of any provision of the Restated Certificate or the Company`s Bylaws;
and the Company is not in violation or default,  in any material respect, of any
provision of any instrument,  judgment,  consent, permit, order, writ, decree or
contract  to which it is a party or by which it is bound or to which  any of its
assets are  subject,  or of any  federal or state  statute,  rule or  regulation
applicable  to the Company.  The  execution,  delivery and  performance  of this
Agreement and the other  Transaction  Agreements,  and the  consummation  of the
transactions contemplated hereby and thereby, including the issuance and sale of
the Shares and the  issuance of the  Conversion  Shares,  will not result in any
such violation or be in conflict with or constitute, with or without the passage
of time and  giving  of  notice,  either a  default  under  any such  provision,
instrument,  judgment,  consent,  permit,  order, writ, decree or contract or an
event that results in the creation of any lien,  charge or encumbrance  upon any
of  the  assets  of  the  Company  or the  suspension,  revocation,  impairment,
forfeiture or  nonrenewal  of any material  permit,  license,  authorization  or
approval  applicable  to the Company or its business or operations or any of its
assets or properties,  except as would not have a material adverse effect on the
business, financial condition, prospects or results of operations of the Company
taken as a whole.

         2.12 Agreements; Action

         (a) Except for  agreements  explicitly  contemplated  hereby and by the
Transaction  Agreements,  there are no  agreements,  understandings  or proposed
transactions  between the Company, on the one hand, and any of the stockholders,
officers,  directors or affiliates, or any affiliate thereof, of the Company, on
the other hand.



                                       7
<PAGE>


         (b) There are no agreements,  understandings,  instruments,  contracts,
proposed transactions,  judgments, orders, writs or decrees to which the Company
is a party or by  which it is bound  (each,  a  "MATERIAL  AGREEMENT")  that may
involve (i) obligations (contingent or otherwise) of, or payments to the Company
in excess of $50,000  and to the  Company`s  knowledge,  there is not an uncured
breach or default  continuing  under the  provisions of any Material  Agreement,
(ii) the  transfer or license of any patent,  copyright,  trade  secret or other
proprietary  right to or from  the  Company,  (iii)  provisions  restricting  or
affecting the development, manufacture or distribution of the Company`s products
or  services,   or  (iv)   indemnification   by  the  Company  with  respect  to
infringements of proprietary rights.

         (c)  The  Company  has not  (i)  declared  or  paid  any  dividends  or
authorized or made any distribution  upon or with respect to any class or series
of its capital stock,  (ii) incurred any  indebtedness for money borrowed or any
other  liabilities  individually  in  excess  of  $10,000  or,  in the  case  of
indebtedness  and/or  liabilities  individually less than $10,000,  in excess of
$50,000 in the aggregate,  (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of inventory in the
ordinary course of business. To the best of the Company`s knowledge, the Company
has no material contingent  liabilities,  except current liabilities incurred in
the ordinary  course of business  which have not been,  either in any individual
case or in the aggregate, materially adverse.

         (d)  For  the  purposes  of   subsections   (b)  and  (c)  above,   all
indebtedness,  liabilities, agreements,  understandings,  instruments, contracts
and proposed transaction  involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the  individual  minimum dollar amounts of
such subsections.

         (e) The  Company  is not a party to nor is it  bound  by any  contract,
agreement  or  instrument,  or subject  to any  restriction  under its  Restated
Certificate or Bylaws that adversely affects its ability to conduct its business
as now conducted or as proposed to be conducted.

         (f) The  Company  has not  engaged  in the  past  three  months  in any
discussion  (i) with any  representative  of any person or entity  regarding the
consolidation  or merger of the Company  with or into any such person or entity,
(ii) with any corporation,  partnership, association or other business entity or
any individual regarding the sale, conveyance,  license or disposition of all or
substantially  all of the assets of the  Company or a  transaction  or series of
related  transactions  in which more than 50% of the voting power of the Company
is disposed of, or (iii) regarding any other form of  acquisition,  liquidation,
dissolution, reorganization or winding up of the Company.

         2.13 Related  Party  Transactions.  No employee,  officer,  director or
stockholder  of the  Company,  or  member  of his or her  immediate  family,  is
indebted to the Company, nor is the Company indebted (or committed to make loans
or extend or guarantee credit) to any of them. To the Company`s knowledge,  none
of such  persons  has any direct or indirect  ownership  interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business  relationship,  or any  firm or  corporation  that  competes  with  the


                                       8
<PAGE>


Company,  except that  employees,  officers,  directors or  stockholders  of the
Company  and  members of their  immediate  families  may own less than 1% of the
outstanding capital stock in publicly traded companies that may compete with the
Company.  No member of the  immediate  family of any  officer or director of the
Company is directly or indirectly  interested in any material  contract with the
Company.

         2.14 Permits. The Company has all franchises, permits, licenses and any
similar  authority  necessary for the conduct of its respective  business as now
being conducted by it, the lack of which could  materially and adversely  affect
the business,  properties,  prospects or financial condition of the Company, and
the Company  believes it can obtain,  without  material  burden or expense,  any
similar  authority  for the conduct of its business as planned to be  conducted.
The Company is not in default under any of such franchises, permits, licenses or
other similar authority.

         2.15  Environmental  and Safety Laws. To the Company`s  knowledge,  the
Company  is not  in  violation  of any  applicable  statute,  law or  regulation
relating to the environment or occupational  health and safety that could have a
material  adverse effect on the Company,  and, to the best of its knowledge,  no
material  expenditures  are or will be required in order to comply with any such
existing statute, law or regulation.

         2.16  Development  and  Marketing  Rights.  The Company has not granted
rights to develop,  produce,  assemble,  license,  market or sell its respective
products to any other  person or entity and is not bound by any  agreement  that
affects the Company`s exclusive right to develop, produce, assemble, distribute,
market or sell its respective products.

         2.17 Registration  Rights.  Except as provided in the Investors` Rights
Agreement,  the Company  has not  granted  nor agreed to grant any  registration
rights, including piggyback rights, to any person or entity.

         2.18  Corporate  Documents.  The  Restated  Certificate  is in the form
attached  hereto as  Exhibit A and the  Bylaws  of the  Company  are in the form
previously provided to special counsel to the Investors.

         2.19 Title to Property  and Assets.  The Company  owns its property and
assets free and clear of all mortgages,  liens,  loans and encumbrances,  except
such encumbrances and liens that arise in the ordinary course of business and do
not materially impair the Company`s ownership or use of such property or assets.
To the Company`s  knowledge,  all facilities,  machinery,  equipment,  fixtures,
vehicles and other  properties  owned,  leased or used in the ordinary course of
business  by the  Company  are in good  operating  condition  and repair and are
reasonably  fit and usable for the purposes for which they are being used.  With
respect to the  property  and assets  leased by the  Company,  the Company is in
material  compliance with such leases and, to the Company`s  knowledge,  holds a
valid leasehold interest free of any liens, claims or encumbrances,  except such
encumbrances  and liens that arise in the ordinary course of business and do not
materially  impair the  Company`s  rights in or use of such  property or assets.
With respect to property and assets  licensed to the Company from third parties,
such  licenses  necessary to operate the  Company`s  business as it is currently
conducted  are valid and binding and in full force and effect,  and shall remain
in full force and effect for a period of twelve (12)



                                       9
<PAGE>


months  from the date hereof (or,  in the  alternative,  the Company  reasonably
believes  it can  obtain  substantially  similar  licenses  under  substantially
similar terms).

         2.20 Financial  Statements.  The Company has delivered to each Investor
its  unaudited  financial   statements  (balance  sheet,  income  statement  and
statement of cash flows),  for the year ended December 31, 2002 (the  "FINANCIAL
STATEMENTS").  The  Financial  Statements  have been prepared from the books and
records  of  accounts  of the  Company  and in  accordance  with  United  States
Generally Accepted  Accounting  Principals  ("GAAP") (except that the Financials
Statements do not have notes thereto)  applied on a consistent  basis throughout
the  periods  indicated  and with each other and  present  fairly the  financial
condition  of the Company as of the date  indicated.  Except as set forth in the
Financial  Statements,  the Company has no material  liabilities,  contingent or
otherwise,  other  than (i)  liabilities  incurred  in the  ordinary  course  of
business  subsequent to December 31, 2002, and (ii) obligations  under contracts
and  commitments  incurred in the  ordinary  course of business and not required
under GAAP to be reflected in the Financial  Statements,  which,  in both cases,
individually  or in the aggregate,  are not material to the assets,  properties,
financial condition or operating results of the Company.

         2.21 Changes.  Since  December 1, 2002,  other than as set forth in the
Transaction Agreements, there has not been:

         (a) any  change in the  assets,  liabilities,  financial  condition  or
operating  results of the  Company,  except  changes in the  ordinary  course of
business that have not been, in the aggregate, materially adverse;

         (b)  any  damage,  destruction  or  loss,  whether  or not  covered  by
insurance, materially and adversely affecting the assets, properties,  financial
condition,  operating  results,  prospects  or  business of the Company (as such
business is presently conducted and as it is proposed to be conducted);

         (c) any waiver by the Company of a valuable right or of a material debt
owed to it;

         (d) any  satisfaction or discharge of any lien, claim or encumbrance or
payment of any  obligation  by the  Company,  except in the  ordinary  course of
business  and  that  is  not  material  to  the  assets,  properties,  financial
condition,  operating  results or business  of the Company (as such  business is
presently conducted and as it is proposed to be conducted);

         (e)  any  material  change  or  amendment  to a  material  contract  or
arrangement  by which the Company or any of its assets or properties is bound or
subject;

         (f) any material  change in any  compensation  arrangement or agreement
with any employee, officer, director or stockholder of the Company;

         (g) any  resignation  or  termination  of any officer,  key employee or
group of employees;



                                       10
<PAGE>


         (h) any  sale,  assignment  or  transfer  of any  patents,  trademarks,
copyrights,  trade secrets or other intangible assets of the Company, other than
pursuant to standard, non-exclusive licenses entered into in the ordinary course
of business consistent with past practices;

         (i) any mortgage,  pledge, transfer of a security interest in, or lien,
created by the  Company,  with  respect  to any of its  material  properties  or
assets, except liens for taxes not yet due or payable;

         (j) any loans or  guarantees  made by the Company to or for the benefit
of its  employees,  officers or  directors,  or any  members of their  immediate
families,  other than travel  advances and other  advances  made in the ordinary
course of business;

         (k) any declaration,  setting aside of payment or other distribution in
respect  to any of the  Company`s  capital  stock,  or any  direct  or  indirect
redemption, purchase or other acquisition of any of such stock by the Company;

         (l) to the  Company`s  knowledge,  any other event or  condition of any
character that would  reasonably be expected to materially and adversely  affect
the assets,  properties,  financial condition,  operating results or business of
the Company (as such business is presently conducted and as it is proposed to be
conducted);

         (m) any labor organization activity related to the Company;

         (n) any  agreement or commitment by the Company to do any of the things
described in this Section 2.21;or

         (o) receipt of notice that there has been a loss of, or material  order
cancellation  by, any material  customer of the Company or, to the  knowledge of
the Company, any threatened  termination,  cancellation or limitation of, or any
adverse  modifications or change in the business relationship of the Company, or
the business of the Company,  with any  material  customer or material  supplier
and, to the knowledge of the Company, there exists no present condition or state
of fact or circumstances that would materially adversely affect the condition of
the Company or prevent the Company from conducting  such business  relationships
or such  business with any such  material  customer or material  supplier in the
same manner as heretofore conducted by the Company.

         2.22 Employee Benefit Plans.

         (a) As used  herein,  the term  "COMPANY  EMPLOYEE  PLAN"  includes any
domestic or foreign pension, retirement,  savings, disability,  medical, dental,
health,  life,  death  benefit,  group  insurance,   profit  sharing,   deferred
compensation,  stock option,  stock purchase,  bonus,  incentive,  vacation pay,
tuition  reimbursement,  severance  pay,  supplemental  unemployment,  or  other
employee  benefit  plan,  trust,  agreement,   contract,  policy  or  commitment
(including,  without limitation, any pension plan, as defined in Section 3(2) of
the Employee  Retirement  Income  Security Act of 1974, as amended and the rules
and regulations  promulgated  thereunder ("ERISA") ("PENSION PLAN"), any welfare
plan as defined in Section 3(1) of ERISA ("WELFARE PLAN") and any cafeteria plan
or  flexible  spending  arrangement  established  pursuant to Section 125 of the
Internal  Revenue  Code of 1986,  as amended  (the  "CODE")  whether  any of the


                                       11
<PAGE>


foregoing is funded,  insured or self-funded,  written or oral, (i) sponsored or
maintained  by  the  Company,  or  any of its  affiliates,  to the  extent  such
affiliate  is  described  in  Section  414  (b),  (c) or (m)  of  the  Code  and
corresponding  Treasury  Regulations (each a "COMPANY  CONTROLLED GROUP MEMBER")
and covering any Company  Controlled  Group Member`s active or former  employees
(or their beneficiaries), (ii) to which any Company Controlled Group Member is a
party or by which any  Company  Controlled  Group  Member (or any of the rights,
properties  or assets  thereof)  is bound,  or (iii)  with  respect to which any
Company  Controlled  Group  Member  has  made  any  payments,  contributions  or
commitments  or may otherwise  have any  liability  (whether or not such Company
Controlled  Group  Member still  maintains  such Company  Employee  Plan).  Each
Company Employee Plan is listed on Schedule 2.22 to the Disclosure Schedule.

         (b) The Company has performed in all material  respects all obligations
required  to be  performed  by it under each  Company  Employee  Plan  including
without limitation the requirements of ERISA, the Code, COBRA, the FMLA, and the
Health Insurance  Portability and Accountability Act. Each Company Employee Plan
has been established and maintained in all material  respects in accordance with
applicable law.

         (c) Each Company Employee Plan intended to qualify under Section 401(a)
of the Code and each trust  intended to qualify under Section 501(a) of the Code
either (i) has received a favorable determination or opinion letter from the IRS
or (ii) a request for favorable  determination or opinion letter has been timely
filed, and the Company will cause to be made any amendments to the plan that are
necessary to cause such favorable determination or opinion letter to be issued.

         (d) No Company Controlled Group Member sponsors, maintains or otherwise
contributes  to or has any  liability  with respect to (i) any Company  Employee
Plan or (ii) any "employee  pension benefit plan" (as defined in Section 3(2) of
ERISA)  which  is  or  was  subject  to  Title  IV  of  ERISA,   including   any
"multi-employer plan" (as defined in Section 4001(a)(3) of ERISA), or subject to
Section 412 of the Code.

         (e) No Company  Controlled  Group  Member  sponsors,  maintains  or has
established any Welfare Plan which provides for continuing  benefits or coverage
for any participant or any beneficiary of a participant after such participant`s
termination  of  employment,  except as may be required by Section  4980B of the
Code or Section 601 (et seq.) of ERISA,  or under any applicable  state law, and
at the expense of the participant or the beneficiary of the participant.

         (f) No assets of, and no assets  managed  by,  the  Company  constitute
"plan  assets"  as  defined  in 29 C.F.R.  Section  2510.3-101,  and none of the
transactions  contemplated  by this  Agreement  will  constitute  a  "prohibited
transaction" within the meaning of Section 4975(c) of the Code or Section 406 of
ERISA,  which  transaction  is not exempt under  Section  4975(d) of the Code or
Section 408 of ERISA.

         (g) Neither the Company,  any Company  Controlled Group Member,  any of
the Employee  Benefit  Plans,  any trust created  thereunder  nor any trustee or
administrator  thereof  has engaged in a  transaction  or has taken or failed to
take any action in  connection  with which the Company,  any Company  Controlled
Group Member,  any of the Employee Benefit



                                       12
<PAGE>


Plans,  any such  trust,  any  trustee or  administrator  thereof,  or any party
dealing with the Employee  Benefit Plans or any such trust that could be subject
to either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or
a tax imposed pursuant to Section 4975, 4976 or 4980B of the Code.

         (h) Neither the  execution  and  delivery  of this  Agreement,  nor the
performance  by the Company of its  obligations  hereunder,  will  constitute an
event  under any Company  Employee  Plan which will or may result in any payment
(severance  or  otherwise),   acceleration,   forgiveness   of  debt,   vesting,
distribution,  increase in benefits or  obligation to fund benefits with respect
to any employee of the Company Controlled Group Members.

         2.23 Tax Returns,  Payments and  Elections.  The Company has either (i)
filed its tax returns and reports as required by law as and when due or (ii) has
timely filed for an extension to file its tax returns and reports as required by
law and has  subsequently  filed  such tax  returns  and  reports  that were the
subject of any such extension. These returns and reports are true and correct in
all material respects. The Company has paid all taxes and other assessments due,
except for those contested in good faith. The provision for taxes of the Company
as shown in the Financial  Statements is adequate for taxes due or accrued as of
the date  thereof.  The  Company has not  elected  pursuant  to the Code,  to be
treated as a Subchapter S corporation or a collapsible  corporation  pursuant to
Section  1362(a)  or  Section  341(f)  of the  Code,  nor has it made any  other
elections  pursuant  to the Code  (other than  elections  that relate  solely to
methods of accounting,  depreciation or amortization) that would have a material
adverse  effect on the  Company,  its  business,  properties,  material  assets,
financial  condition or results of operations.  No audit by the Internal Revenue
Service  is in  progress  with  respect to any tax  return of the  Company.  The
Company has no knowledge of any tax to be imposed upon its  properties or assets
as of the date of this Agreement that is not adequately provided for.

         2.24 Minute Books.  The copy of the minute book of the Company provided
to the  Investors  contains a complete and  accurate  summary of all meetings of
directors and all  committees of the Board of Directors and of the  stockholders
since the time of its incorporation,  as well as complete and accurate copies of
all actions by written  consent taken by the Board of Directors,  all committees
of the Board of Directors or by the stockholders.

         2.25 Real Property Holding Company. The Company is not a "real property
holding company" within the meaning of Section 897 of the Code.

         2.26 Employees. To the Company`s knowledge, no employee of the Company,
nor any consultant with whom the Company has contracted,  is in violation of any
term of any employment contract,  proprietary information agreement or any other
agreement  relating to the right of any such individual to be employed by, or to
contract  with,  the  Company;  and to the  Company`s  knowledge  the  continued
employment by the Company of its present  employees,  and the performance of the
Company`s contracts with its contractors, will not result in any such violation.
The Company has  received no notice  that such a  violation  has  occurred.  The
Company is not aware that any officer or key employee,  or that any group of key
employees,  intends to terminate his, her or their  employment with the Company.
Each former  employee of the Company  whose  employment  terminated  on or after
January 1, 2002,  has entered into an agreement  with the Company that  provides
for the full release of claims  against the Company or



                                       13
<PAGE>


any related party arising out of such  employment.  There are no actions pending
or  threatened  by any  former or  current  employee  concerning  such  person`s
employment by the Company.

         2.27  Obligations  of  Management.  To the  Company`s  knowledge,  each
officer of the Company is  currently  devoting  substantially  all of his or her
business time to the conduct of the business of the Company.  The Company is not
aware that any  officer or key  employee of the Company is planning to work less
than full time at the  Company in the future.  To the  Company`s  knowledge,  no
officer  is  currently  working or plans to work for a  competitive  enterprise,
whether or not such  officer or key employee is or will be  compensated  by such
enterprise.

         2.28  Executive  Officers.  To the  Company`s  knowledge,  no executive
officer or person  nominated to become an  executive  officer of the Company (i)
has been  convicted in a criminal  proceeding or is a named subject of a pending
criminal proceeding  (excluding minor traffic violations) or (ii) is or has been
subject  to any  judgment  or order of,  the  subject  of any  pending  civil or
administrative  action by the Securities and Exchange  Commission (the "SEC") or
any self-regulatory organization.

         2.29  Insurance.  The  Company  is insured by  insurers  of  recognized
financial  responsibility  against  such losses and risks and in such amounts as
are prudent and  customary  in the  businesses  in which they are  engaged;  the
Company has not been refused any  insurance  coverage  sought or applied for and
the  Company  has no  reason  to  believe  that it will not be able to renew its
existing  insurance  coverage  as and when such  coverage  expires  or to obtain
similar  coverage  from  similar  insurers  as may be  necessary  to continue to
conduct its  business  substantially  as it is  currently  being  conducted at a
reasonable cost.

         2.30 Outstanding  Borrowing.  Schedule 2.30 of the Disclosure  Schedule
sets forth as of January 31,  2003,  (a) the amount of all  indebtedness  (which
shall be defined as any obligation,  contingent or otherwise, including declared
but  unpaid  dividends,  that  would,  in  accordance  with  generally  accepted
accounting  principles  consistently  applied,  be  classified  on the Company`s
balance  sheet as either  short-term  or long-term  indebtedness,  but,  without
limiting the generality of the foregoing,  shall exclude accrued expenses, trade
payables and other  obligations  incurred in the ordinary  course of business in
exchange  for goods or  services)  with  respect  to the  Company as of the date
hereof,  (b) the liens that relate to such  indebtedness  and that  encumber the
Company`s assets and (c) the name of each lender thereof.

         2.31 Small Business Concern. The Company together with its "affiliates"
(as that term is defined  in Section  121.103 of Title 13 of the Code of Federal
Regulations  (the "FEDERAL  REGULATIONS")),  is a "small business  concern" or a
"smaller  business"  within the meaning of the Small Business  Investment Act of
1958, as amended (the "SMALL  BUSINESS ACT"),  and the  regulations  promulgated
thereunder,  including Section 121.301 of Title 13 of the Federal Regulations or
including  Section  107.710  of  Title  13  of  the  Federal  Regulations.   The
information  delivered  to each  Purchaser  that is a  licensed  Small  Business
Investment  Company  (an  "SBIC  PURCHASER")  on SBA  Forms  480,  652 and  1031
delivered  in  connection  herewith  is true and  correct.  The  Company  is not
ineligible  for financing by any SBIC Purchaser  pursuant to Section  107.720 of
Title 13 of the Federal  Regulations.  The Company  acknowledges  that each SBIC
Purchaser is a Federal licensee under the Small Business Act.



                                       14
<PAGE>


         2.32 Pacficorp  Agreement.  Conditioned on the Investors` execution and
delivery to the Company,  and the Company`s delivery to Pacificorp,  of a letter
regarding the consummation of the Initial Closing, the condition relating to the
Company`s  closing of its Series A  Preferred  financing  in Section 4.1 of that
certain Contract Between Pacificorp and the Company shall be satisfied.

         2.33  Disclosure.  The Company has provided  each Investor with all the
information  reasonably available to it without undue expense that such Investor
has requested for deciding  whether to purchase the Preferred Stock. To the best
of  the  Company`s  knowledge  after  reasonable  investigation,   neither  this
Agreement, the other Transaction Agreements nor any other agreements, schedules,
written statements or certificates made or delivered by the Company,  any of its
employees  or agents in  connection  herewith or  therewith  contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.  Notwithstanding the foregoing,
the Business  Plan provided to each Investor was prepared in a good faith effort
to describe  the  Company`s  presently  proposed  business  and products and the
markets  therefor.  The  assumptions  applied  to  the  Business  Plan  appeared
reasonable as of the date thereof and as of the date hereof;  however,  there is
no  assurance  that  these  assumptions  will  prove  to be  valid  or that  the
objectives set forth in the Business Plan will be achieved.

         3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.

         Each Investor severally represents and warrants to the Company that:

         3.1 Authorization.  Such Investor has full power and authority to enter
into  this  Agreement  and the  other  Transaction  Agreements,  and  each  such
agreement  constitutes its valid and legally binding obligation,  enforceable in
accordance  with its terms,  except (a) as  limited  by  applicable  bankruptcy,
insolvency,  reorganization,  moratorium  and other laws of general  application
affecting  enforcement of creditors`  rights  generally,  (b) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable  remedies  and  (c)  to  the  extent  the  indemnification  provisions
contained  in the  Investors`  Rights  Agreement  may be limited  by  applicable
federal or state securities laws.

         3.2 Purchase Entirely for Own Account. This Agreement is made with such
Investor in reliance upon such Investor`s  representation to the Company,  which
by such Investor`s  execution of this Agreement such Investor  hereby  confirms,
that the  Securities  will be acquired for  investment  for such  Investor`s own
account,  not as a  nominee  or  agent  and  not  with a view to the  resale  or
distribution  of any  part  thereof,  and  that  such  Investor  has no  present
intention of selling,  granting any  participation in or otherwise  distributing
the same. By executing this  Agreement,  such Investor  further  represents that
such Investor does not have any contract, undertaking,  agreement or arrangement
with any person to sell,  transfer or grant  participation  to such person or to
any third person, with respect to any of the Securities.

         3.3 Disclosure of Information. Such Investor represents that it has had
an opportunity to ask questions and receive  answers from the Company  regarding
the terms and  conditions  of the offering of the  Securities  and the business,
properties,  prospects  and  financial  condition of the Company.  Such Investor
further  represents  that it has  received  all  the



                                       15
<PAGE>


information  it considers  necessary  or  appropriate  for  deciding  whether to
purchase the Securities.  The foregoing,  however,  does not limit or modify the
representations  and warranties of the Company in Section 2 of this Agreement or
the right of the Investors to rely thereon.

         3.4 Investment  Experience.  Such Investor is an investor in securities
of companies in the development  stage and acknowledges  that it is able to fend
for itself,  can bear the economic risk of its investment and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the  merits  and risks of the  investment  in the  Securities.  If other than an
individual,  Investor also  represents it has not been organized for the purpose
of acquiring the  Securities;  provided that if such Investor has been organized
for such  purpose,  each  interest  holder  in such  Investor  is an  Accredited
Investor (as defined below).

         3.5  Accredited  Investor.  Such Investor is an  "Accredited  Investor"
within  the  meaning  of SEC Rule 501 of  Regulation  D  promulgated  under  the
Securities Act, as presently in effect.

         3.6 Foreign  Purchasers.  If an Investor is not a United States person,
such Investor  hereby  represents  that it has  satisfied  itself as to the full
observance of the laws of its  jurisdiction in connection with any invitation to
subscribe  for the  Securities or any use of this  Agreement,  including (i) the
legal  requirements  within its jurisdiction for the purchase of the Securities,
(ii) any foreign exchange  restrictions  applicable to such purchase,  (iii) any
governmental or other consents that may need to be obtained, and (iv) the income
tax and other tax  consequences,  if any,  that may be relevant to the purchase,
holding,  redemption,  sale,  or transfer  of the  Securities.  Such  Investor`s
subscription  and  payment  for,  and  continued  beneficial  ownership  of, the
Securities  will not  violate  any  applicable  securities  or other laws of its
jurisdiction.

         3.7  English  Construction.  Each  Investor  whose  native  or  primary
language is not English hereby  represents  that it has  sufficient  command and
fluency of the English language when used in the legal, commercial and financial
context  or,  if  not,  has  relied  on its own  advisors  with  respect  to the
interpretation  and/or  translation of this Agreement and any other documents or
instruments  delivered in  connection  herewith into such  Investor`s  native or
primary  language.  Each such Investor  acknowledges and agrees that the Company
has no duty to translate these  documents,  and if there exists a discrepancy in
the interpretation of any term of any of this Agreement or any other Transaction
Agreements  due to the  translation  of such  agreement(s),  or the  explanation
thereof provided by Investor`s  advisors,  then the English construction of such
agreement(s) shall control.

         3.8 Restricted  Securities.  Such Investor understands that immediately
following its purchase of the  Securities  hereunder,  such  Securities  will be
characterized  as  "restricted  securities"  under the federal  securities  laws
inasmuch  as they are being  acquired  from the  Company  in a  transaction  not
involving a public offering and that under such laws and applicable  regulations
such  Securities may be resold without  registration  under the Securities  Act,
only in  certain  limited  circumstances.  In  this  connection,  such  Investor
represents that it is familiar with Rule 144 as promulgated by the SEC under the
Securities Act, as presently in effect,  and understands the resale  limitations
imposed thereby and by the Securities Act.



                                       16
<PAGE>


         3.9 Further Limitations on Disposition. Without in any way limiting the
representations  set forth above,  such Investor  further agrees not to make any
disposition  of all or any  portion  of the  Securities  unless  and  until  the
transferee  has agreed in writing  for the benefit of the Company to be bound by
this Section 3 and the other Transaction  Agreements  provided and to the extent
this Section and such agreement are then applicable, and:

         (a)  There  is  then in  effect  a  Registration  Statement  under  the
Securities Act covering such proposed  disposition and such  disposition is made
in accordance with such Registration Statement; or

         (b) (i) Such  Investor  shall have notified the Company of the proposed
disposition  and shall have  furnished the Company with a detailed  statement of
the  circumstances  surrounding the proposed  disposition and (ii) if reasonably
requested by the Company, such Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company that such disposition
will not require  registration  of such shares under the  Securities  Act. It is
agreed that the Company  will not require  opinions of counsel for  transactions
made pursuant to Rule 144 except in unusual circumstances.

         Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration  statement or opinion of counsel  shall be necessary for a transfer
either (a) by an Investor to an  affiliate  (as such term is defined  under Rule
405 of the  Securities  Act,  (an  "AFFILIATE")  of such  Investor  or (b) by an
Investor  that is a  partnership  or limited  liability  company to a partner or
member of such partnership or limited  liability company or a retired partner or
member of such  partnership or limited  liability  company who retires after the
date hereof,  or to the estate of any such partner or member or retired  partner
or member or the transfer by gift,  will or intestate  succession of any partner
or  member  to his or her  spouse  or to the  siblings,  lineal  descendants  or
ancestors  of such  partner or member or his or her  spouse,  if the  transferee
agrees in writing to be subject to the terms  hereof to the same extent as if he
or she were an original Investor hereunder.

         3.10 Legends.  It is understood  that the  certificates  evidencing the
Securities may bear one or all of the following legends:

         (a)  "The  securities  represented  by this  certificate  have not been
registered under the Securities Act of 1933, as amended, or any state securities
laws  (collectively,   the  "ACTS").  The  securities  have  been  acquired  for
investment and may not be sold, offered for sale, pledged or hypothecated in the
absence of a  registration  statement in effect with  respect to the  securities
under such Acts or an exemption therefrom."

         (b)  Any  legend  required  by  state  securities  laws  or  any  other
applicable jurisdiction.

         (c) Any legend required by the Transaction Agreements.


                                       17
<PAGE>


         4. CONDITIONS TO OBLIGATIONS AT THE CLOSING

         4.1  Conditions  to Investor`s  Obligations.  The  obligations  of each
Investor under Section  1.1(c) of this Agreement are subject to the  fulfillment
on or before each  Closing of each of the  following  conditions,  the waiver of
which  shall not be  effective  against  any  Investor  who does not  consent in
writing thereto:

         (a) Representations and Warranties.  The representations and warranties
of the Company  contained in Section 2 shall be true in all material respects on
and as of the Closing  with the same effect as though such  representations  and
warranties had been made on and as of the date of the Closing.

         (b)  Performance.  The Company shall have performed and complied in all
material respects with all agreements,  obligations and conditions  contained in
this  Agreement  that are required to be performed or complied  with by it on or
before the  Closing.  The Company  shall have  obtained all consents and waivers
necessary to complete the transactions contemplated by this Agreement.

         (c)  Certificate  of  Incorporation.  The Company  shall have filed the
Restated  Certificate  with the Delaware  Secretary of State,  and such Restated
Certificate shall be in full force and effect.

         (d) Reservation of Conversion  Shares.  The Conversion  Shares issuable
upon  conversion of the Shares shall have been duly  authorized and reserved for
issuance upon such conversion.

         (e) Secretary`s  Certificate.  The Company shall have delivered to each
Investor at the Closing a  certificate  executed by the Secretary of the Company
certifying  (i) the names and true  signatures  of the  officer  executing  this
Agreement,  (ii)  the  resolutions  of the  Company`s  Board  of  Directors  and
stockholders  approving the transactions  contemplated by this Agreement,  (iii)
the Company`s Bylaws and (iv) the Restated Certificate.

         (f) Compliance Certificate.  The Chief Financial Officer of the Company
shall  deliver to each  Investor at the Closing a  certificate  stating that the
conditions specified in Sections 4.1(a) and (b) have been fulfilled.

         (g) Qualifications.  All authorizations,  approvals or permits, if any,
of any governmental  authority or regulatory body of the United States or of any
state that are required in connection  with the lawful  issuance and sale of the
Securities pursuant to this Agreement shall be duly obtained and effective as of
the Closing.

         (h) Proceedings and Documents.  All corporate and other  proceedings in
connection with the  transactions  contemplated at the Closing and all documents
incident  thereto  shall be  reasonably  satisfactory  in form and  substance to
Investors`  special  counsel,  and they shall have received all such counterpart
original and certified or other copies of such  documents as they may reasonably
request executed by the Company.



                                       18
<PAGE>


         (i) Investors`  Rights  Agreement.  The Company and the Investors shall
have entered into the Investors` Rights Agreement.

         (j) Co-Sale and First Refusal Agreement.  The Company and the Investors
shall have entered into the Co-Sale and First Refusal Agreement.

         (k) Voting Agreement.  The Company and the Investors shall have entered
into the Voting Agreement.

         (l) Opinion of Company Counsel.  Each Investor shall have received from
Andrews & Kurth L.L.P.,  counsel for the Company,  an opinion addressed to them,
dated as of the Closing, in the form attached hereto as Exhibit E. ---------

         (m) Board of  Directors.  The  directors  of the  Company  shall be (i)
Robert  M.  Chiste,   the  Company`s  Chief  Executive   Officer,   (ii)  George
Morgenstern,  (iii)  effective  as of, but in any event  conditioned  upon,  the
Initial  Closing,  Tim  Woodward,  (iv)  effective  as  of,  but  in  any  event
conditioned upon, the Initial Closing,  Ramin Mokhtari, and (v) effective as of,
but in any event conditioned upon, the Initial Closing, Richard Schneider.

         (n) Compensation Committee.  The Board of Directors shall have formed a
Compensation  Committee  of three  members,  which  members  shall be,  upon the
Initial Closing, Tim Woodward, Richard Schneider and George Morgenstern.

         (o) Sixth Dimension Asset Purchase.  The Company,  6D Acquisition  Sub,
Inc., a wholly owned subsidiary of the Company, and Sixth Dimension,  Inc. shall
have entered into an Asset Purchase Agreement substantially in the form attached
hereto as  Exhibit  F;  provided;  however,  for  purposes  of Section 2 of this
Agreement,  the Asset Purchase  Agreement  shall be deemed to be effective after
the Initial Closing.

         (p) Put-Call  Agreement.  The Company and Easton Hunt Capital Partners,
L.P.  ("EASTON  HUNT") shall have entered into that certain  Put-Call  Agreement
(the "PUT-CALL  AGREEMENT") in substantially the form attached hereto as Exhibit
G.

         (q) SBA  Letter  Agreement.  The  Company  and  Easton  Hunt shall have
entered into a letter agreement  relating to Small Business  Investment  Company
matters.

         4.2  Conditions to the Company`s  Obligations.  The  obligations of the
Company to each Investor under this Agreement are subject to the  fulfillment or
waiver in writing on or before the Initial Closing or each  Subsequent  Closing,
as the case may be, of each of the following conditions by that Investor:

         (a) Representations and Warranties.  The representations and warranties
of the Investor contained in Section 3 shall be true in all material respects on
and as of the Closing  with the same effect as though such  representations  and
warranties had been made on and as of the date of the Closing.

         (b) Payment of Purchase  Price.  The Investor  shall have delivered the
purchase price specified for such Investor on Schedule A.



                                       19
<PAGE>


         (c) Qualifications.  All authorizations,  approvals or permits, if any,
of any governmental  authority or regulatory body of the United States or of any
state that are required in connection  with the lawful  issuance and sale of the
Securities pursuant to this Agreement shall be duly obtained and effective as of
the Closing.

         (d) Put-Call Agreement.  The Company and Easton Hunt shall have entered
into the Put-Call Agreement in substantially the form attached hereto as Exhibit
G.

         (e) Pacificorp Letter.  Each Investor shall have executed and delivered
to the Company a letter regarding the consummation of the Initial Closing.

         5. COVENANTS OF THE COMPANY

         5.1 Release of Funds.

         (a) Promptly following the Initial Closing, the Company shall cause the
release  to DSSI from Bank Leumi USA of  $1,000,000  of the funds  securing  the
obligations of the Company under the Credit Agreement.

         (b) The Company  shall cause the  release to DSSI from  Silicon  Valley
Bank of  $1,500,000  (the "CASH  Collateral")  securing the  obligations  of the
Company under the SVB Loan Agreement, in the following manner:

         (i)      In the event (1) the Company  receives  gross cash proceeds of
                  at least  $2,000,000 in a sale of Series A Preferred  Stock in
                  the  Subsequent  Closing or (2) the put option  held by Easton
                  Hunt pursuant to the Put-Call Agreement (the "PUT OPTION") has
                  not been  exercised by April 18, 2004,  then the Company shall
                  cause the  release  of the Cash  Collateral  according  to the
                  following  schedule:  (A)  $500,000 on or before  December 31,
                  2003 (or,  April 28, 2004,  in the event  payment is triggered
                  pursuant to clause (2) of this subsection), (B) $500,000 on or
                  before  June 30, 2004 and (C)  $500,000 on or before  December
                  31, 2004.

         (ii)     In the event (1) the Company  receives  gross cash proceeds of
                  more than  $5,000,000 in a sale of Series A Preferred Stock in
                  the Subsequent  Closing or (2) (x) the Put Option has not been
                  exercised by April 18, 2004 and (y) the Company received gross
                  cash  proceeds  of at least  $3,000,000  in a sale of Series A
                  Preferred  Stock in the Subsequent  Closing,  then the Company
                  shall cause the release of the Cash  Collateral  according  to
                  the following schedule: (A) $750,000 on or before December 31,
                  2003  (or,  $250,000  on April  28,  2004 in  addition  to the
                  $500,000 released on or before December 31, 2003,  pursuant to
                  subsection  (i)(A)  above) and (B)  $750,000 on or before June
                  30, 2004.

         (iii)    In the event the Company does not sell at least  $2,000,000 in
                  Series A Preferred Stock in the Subsequent Closing and the Put
                  Option is exercised by Easton Hunt,  the Company will not have
                  an  absolute  obligation  to  cause  the  release  of the Cash
                  Collateral  prior to April 1, 2006,  although



                                       20
<PAGE>


                  the Company will use commercially  reasonable efforts to cause
                  the release of the Cash Collateral prior to that date.

         5.2 Repayment and Termination of Credit Facility.  Within 30 days after
the Initial Closing, the Company shall (i) pay the principal amount, accrued and
unpaid  interest,  any  and  all  unpaid  fees  and  penalties,  and  any  early
termination  fee owed to Laurus  Master  Fund,  Ltd.  pursuant  to that  certain
Purchase and Security Agreement (the "LAURUS AGREEMENT") dated as of December 4,
2002, by and between the Company and Laurus Master Fund,  Ltd.,  (ii)  terminate
the Laurus  Agreement and (iii) cause the  termination of DSSI`s guaranty of the
Company`s obligations under the Laurus Agreement or related thereto.

         6. MISCELLANEOUS

         6.1  Survival  of  Warranties.  The  warranties,   representations  and
covenants of the Company and  Investors  contained  in or made  pursuant to this
Agreement  shall  survive  for one year  following  the  Closing  except for the
covenant in Section 5.1, which shall survive until January 1, 2005, and shall in
no way be affected by any investigation of the subject matter thereof made by or
on behalf of the Investors or the Company.

         6.2 Successors and Assigns.  Except as otherwise  provided herein,  the
terms and  conditions  of this  Agreement  shall  inure to the benefit of and be
binding upon the  respective  successors  and assigns of the parties  (including
transferees of any Securities).  Nothing in this Agreement,  express or implied,
is intended  to confer  upon any party  other than the  parties  hereto or their
respective  successors  and  assigns  any  rights,   remedies,   obligations  or
liabilities under or by reason of this Agreement,  except as expressly  provided
in this Agreement.

         6.3 Governing  Law. This  Agreement  shall be governed by and construed
under the laws of the State of  Delaware,  without  regard to  conflicts  of law
principles.

         6.4  Counterparts.  This  Agreement  may be  executed  in  two or  more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

         6.5  Titles  and  Subtitles.  The  titles  and  subtitles  used in this
Agreement  are  used  for  convenience  only  and  are not to be  considered  in
construing or interpreting this Agreement.

         6.6 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given (i) if delivered personally, (ii) one business
day after deposit with a nationally  recognized  overnight  commercial  delivery
service,  (iii) five  business  days after having been mailed by  registered  or
certified mail (return receipt requested) to U.S addressees; (iv) seven business
days after having been mailed by  registered or certified  mail (return  receipt
requested)  to non-U.S.  addressees;  or (v) one day after  having been sent via
facsimile (with  confirmation of receipt) to the parties at the address for such
party set forth beneath such party`s name on Schedule A hereto (or at such other
address for a party as shall be  specified  by like  notice) and, in the case of
the Company:


                                       21
<PAGE>


                           Comverge, Inc.
                           23 Vreeland Road, Suite 160
                           Florham Park, NJ 07932
                           Fax:  (973) 360-2220
                           Attn: Chief Executive Officer

                           with a copy to

                           Andrews & Kurth L.L.P.
                           111 Congress Avenue, Suite 1700
                           Austin, Texas 78701
                           Fax:  (512) 320-9292
                           Attn: Carmelo M. Gordian

         Notice given by facsimile shall be confirmed by appropriate answer back
and shall be effective  upon actual receipt if received  during the  recipient`s
normal business hours, or at the beginning of the recipient`s  next business day
after receipt if not received during the recipient`s  normal business hours. All
notices by facsimile shall be confirmed  promptly after  transmission in writing
by  certified  mail or  personal  delivery.  Any party may change any address to
which  notice is to be given to it by giving  notice as  provided  above of such
change of address.

         6.7  Finder`s  Fee.  Other  than as set  forth on  Schedule  6.7 of the
Disclosure  Schedule,  each  party  represents  that it  neither  is nor will be
obligated  for  any  finders`  fee  or   commission  in  connection   with  this
transaction.  Each Investor agrees to indemnify and to hold harmless the Company
from any  liability  for any  commission  or  compensation  in the  nature  of a
finders` fee (and the costs and expenses of defending  against such liability or
asserted  liability)  for which such Investor or any of its officers,  partners,
employees or representatives is responsible. The Company agrees to indemnify and
hold  harmless   each  Investor  from  any  liability  for  any   commission  or
compensation  in the nature of a  finders`  fee (and the costs and  expenses  of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.

         6.8  Expenses.  Irrespective  of whether the Closing is  effected,  the
Company and the Investors  will each bear their own  respective  legal and other
expenses with respect to the negotiation, execution, delivery and performance of
this Agreement and the other Transaction Agreements. If the Closing is effected,
the Company  shall  reimburse:  (i) the  reasonable  fees and expenses of Cooley
Godward, LLP, special counsel to the Investors (not to exceed $45,000), (ii) the
reasonable expenses incurred by the Investors to a single independent accounting
firm in connection  with the Investors`  financial due diligence of the Company,
and  (iii) up to  $7,000  in  legal  expenses  incurred  by each  Investor  that
purchases at least  $2,000,000  of Series A Preferred  Stock  and/or  Series A-1
Preferred Stock, excluding Nth Power.

         6.9 Attorneys` Fees. In the event that any suit or action is instituted
under or in relation to this Agreement,  including without limitation to enforce
any provision in this Agreement,  the prevailing  party in such dispute shall be
entitled  to  recover  from the losing  party all fees,  costs and  expenses  of
enforcing  any right of such  prevailing  party  under or with  respect



                                       22
<PAGE>


to this  Agreement,  including  without  limitation,  such  reasonable  fees and
expenses of attorneys and accountants,  which shall include, without limitation,
all fees, costs and expenses of appeals.

         6.10 Amendments and Waivers.  Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular  instance and either  retroactively or  prospectively),  only
with the  written  consent of the Company and the holders of at least a majority
of the Common Stock that is issued or issuable upon  conversion of the Preferred
Stock  purchased  hereunder,  voting or acting,  as the case may be, as a single
class.  Any amendment or waiver effected in accordance with this paragraph shall
be binding upon each holder of any securities  purchased under this Agreement at
the time  outstanding  (including  securities  into  which such  securities  are
convertible), each future holder of all such securities, and the Company.

         6.11 Severability. If one or more provisions of this Agreement are held
to be unenforceable  under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement  shall be interpreted as if such
provision  were so excluded  and shall be  enforceable  in  accordance  with its
terms.

         6.12  Aggregation of Stock.  All shares of the Preferred  Stock held or
acquired by Affiliate  entities or persons shall be aggregated  together for the
purpose of determining the availability of any rights under this Agreement.

         6.13 Exculpation Among Investors. Each Investor acknowledges that it is
not relying upon any person,  firm or corporation  (including without limitation
any other  Investor),  other than the Company  and its  officers  and  directors
(acting in their  capacity as  representatives  of the Company),  in deciding to
invest and in making its investment in the Company. Each Investor agrees that no
other  Investor nor the respective  controlling  persons,  officers,  directors,
partners,  agents or  employees  of any other  Investor  shall be liable to such
Investor  for any  losses  incurred  by such  Investor  in  connection  with its
investment in the Company.

         6.14 Like  Treatment  of  Holders.  Neither  the Company nor any of its
affiliates  shall,  directly  or  indirectly,  pay  or  cause  to  be  paid  any
consideration,  whether by way of interest,  fee, payment for the redemptions or
exchange of Preferred Stock, or otherwise,  to any holder of Preferred Stock for
or as an inducement  to, or in  connection  with  solicitation  of, any consent,
waiver or amendment of any terms or provisions  of the  Preferred  Stock or this
Agreement,  the  Investors`  Rights  Agreement or the Co-Sale and First  Refusal
Agreement,  unless such  consideration is paid to all holders of Preferred Stock
bound by such consent, waiver or amendment.

         6.15  Entire  Agreement.  This  Agreement  and  the  other  Transaction
Agreements  referred to herein,  and the exhibits and schedules  attached hereto
and  thereto  and the other  documents  delivered  pursuant  to the  Transaction
Agreements,  constitute the entire  agreement  among the parties with respect to
the  subject  matter  hereof or thereof and no party shall be liable or bound to
any  other  party  in  any  manner  with  respect  thereto  by  any  warranties,
representations or covenants except as specifically set forth herein or therein.



                                       23
<PAGE>


         6.16  California  Corporate  Securities Law. THE SALE OF THE SECURITIES
THAT  ARE THE  SUBJECT  OF  THIS  AGREEMENT  HAS NOT  BEEN  QUALIFIED  WITH  THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE  CONSIDERATION  THEREFOR
PRIOR  TO  SUCH  QUALIFICATION  OR IN THE  ABSENCE  OF AN  EXEMPTION  FROM  SUCH
QUALIFICATION  IS UNLAWFUL.  PRIOR TO  ACCEPTANCE OF SUCH  CONSIDERATION  BY THE
COMPANY,  THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY  CONDITIONED
UPON SUCH  QUALIFICATION  BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION
BEING AVAILABLE.

                            [Signature Pages Follow]



                                       24
<PAGE>



         IN WITNESS  WHEREOF,  the parties have  executed this  Preferred  Stock
Purchase Agreement as of the date first above written.

                                    COMPANY:

                                    COMVERGE, INC.

                                    By:
                                        ---------------------------------------
                                        Robert M. Chiste
                                        Chief Executive Officer



      [Signature Page to Comverge, Inc. Preferred Stock Purchase Agreement]

<PAGE>


                                    INVESTORS:

                                    DATA SYSTEMS & SOFTWARE INC.

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------

                                    EASTON HUNT CAPITAL PARTNERS, L.P.

                                    By:  EHC GP, L.P.
                                    Its:  General Partner
                                    By:  EHC, Inc.
                                    Its:  General Partner

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------

                                    ENERTECH CAPITAL PARTNERS II L.P.

                                    By:  ECP II Management L.P.,
                                         Its General Partner

                                    By:  ECP II Management L.L.C.,
                                         Its General Partner

                                    By:
                                        ---------------------------------------
                                        David F. Lincoln
                                        Managing Director


                                    ECP II INTERFUND L.P.

                                    By:  ECP II Management L.L.C.,
                                         Its General Partner

                                    By:
                                        ---------------------------------------
                                        David F. Lincoln
                                        Managing Director


      [Signature Page to Comverge, Inc. Preferred Stock Purchase Agreement]

<PAGE>

                                    E.ON VENTURE PARTNERS

                                    By:
                                        ---------------------------------------
                                         Peter Bachsleitner
                                         Managing Director

                                    By:
                                        ---------------------------------------
                                        Steffen Hasselwander
                                        Managing Director


                                    NTH POWER TECHNOLOGIES FUND II, L.P.,
                                    NTH POWER TECHNOLOGIES FUND II-A, L.P.

                                    BY: NTH POWER MANAGEMENT II, L.P.
                                        AND
                                        NTH POWER MANAGEMENT II-A, L.L.C.

                                    BY: NTH POWER L.L.C.
                                        THEIR MANAGEMENT AGENT

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------

                                    SHELL INTERNET VENTURES B.V.

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------


      [Signature Page to Comverge, Inc. Preferred Stock Purchase Agreement]

<PAGE>

                                     ANNEX A

                             OMNIBUS SIGNATURE PAGE
                                       TO

                                 COMVERGE, INC.

                       PREFERRED STOCK PURCHASE AGREEMENT
                           INVESTORS` RIGHTS AGREEMENT
                       CO-SALE AND FIRST REFUSAL AGREEMENT
                                VOTING AGREEMENT


         In connection with the sale by Comverge,  Inc., a Delaware  corporation
(the  "COMPANY"),  of the number of shares of its Series A Preferred  Stock, par
value $0.001 per share (the "SERIES A PREFERRED  STOCK"),  set forth beneath the
undersigned`s  signature below pursuant to Section 1.3 of the Purchase Agreement
(as defined below), the undersigned hereby executes and delivers,  and agrees to
become a party in the following capacities, with all of the attendant rights and
obligations and making all applicable representations, warranties and agreements
in such  capacities:  (i) as an "Investor"  under the Preferred  Stock  Purchase
Agreement  dated  April 7,  2003  (the  "PURCHASE  AGREEMENT")  by and among the
Company and the Investors named on Schedule A thereto as of the Initial Closing;
(ii) as an "Investor" under the Investors` Rights Agreement dated April 7, 2003,
by and  among the  Company  and  certain  of the its  stockholders;  (iii) as an
"Investor" under the Co-Sale and First Refusal Agreement dated April 7, 2003, by
and among the Company and certain of its  stockholders;  and (iv) as a "Series A
Preferred  Stockholder"  under the Voting  Agreement dated April 7, 2003, by and
among the Company and certain of its  stockholders.  Schedule A to the  Purchase
Agreement  is hereby  amended to read as Schedule A attached  hereto in order to
reflect the sale made hereby.


                                        ---------------------------------------
                                        [Name]

                                    By:
                                       -----------------------------------------
                                    Name:
                                    Title:

                                    Dated: ________________, 2003


                                    Number of shares of Series A Preferred
                                    Stock being purchased: _____________________

Acknowledged and accepted:
COMVERGE, INC.

By:_____________________________________
Name:___________________________________
Title:__________________________________

Dated: ________________, 2003





<PAGE>


EXHIBIT 10.30


                                                                  EXECUTION COPY


                                 COMVERGE, INC.

                           INVESTORS` RIGHTS AGREEMENT

                                  APRIL 7, 2003


<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                                 Page
<S>                                                                                                              <C>
ARTICLE I Definitions.............................................................................................1

ARTICLE II Transfers..............................................................................................2

         Section 2.1     Restrictive Legend.......................................................................2

         Section 2.2     Notice of Proposed Transfer..............................................................3

ARTICLE III Registration..........................................................................................3

         Section 3.1     Required Registration....................................................................3

         Section 3.2     Company Registration.....................................................................5

         Section 3.3     Registration on Form S-3.................................................................5

         Section 3.4     Registration Procedures..................................................................6

         Section 3.5     Expenses.................................................................................7

         Section 3.6     Indemnification and Contribution.........................................................8

         Section 3.7     Changes in Common Stock or Preferred Stock..............................................11

         Section 3.8     Rule 144 Reporting......................................................................11

         Section 3.9     Future Registration Rights..............................................................11

         Section 3.10      Market Stand-Off......................................................................11

         Section 3.11      Termination of Registration Rights....................................................12

ARTICLE IV Additional Covenants..................................................................................12

         Section 4.1     Financial Statements, Reports, Etc......................................................12

         Section 4.2     Reservation of Conversion Shares........................................................13

         Section 4.3     Inspection, Consultation and Advice.....................................................13

         Section 4.4     Director and Officer Insurance..........................................................13

         Section 4.5     Proprietary Information Agreement.......................................................14

         Section 4.6     Bank Leumi Payment......................................................................14

         Section 4.7     First Refusal Right.....................................................................14
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                                             <C>
         Section 4.8     Expenses of Directors...................................................................14

         Section 4.9     Indemnification and Advancement.........................................................14

         Section 4.10      DSSI Option...........................................................................15

         Section 4.11      Termination or Waiver of Covenants....................................................15

ARTICLE V Right of First Offer...................................................................................15

         Section 5.1     Right of First Offer....................................................................15

         Section 5.2     Procedure for Exercise..................................................................16

         Section 5.3     Excluded Issuances......................................................................16

         Section 5.4     Sales to Third Parties..................................................................16

         Section 5.5     Assignment of Rights of First Offer.....................................................16

         Section 5.6     Termination of Rights of First Offer....................................................17

ARTICLE VI Miscellaneous.........................................................................................17

         Section 6.1     Assigns.................................................................................17

         Section 6.2     Notices.................................................................................17

         Section 6.3     Governing Law...........................................................................17

         Section 6.4     Amendments..............................................................................17

         Section 6.5     Counterparts; Facsimile Signatures......................................................18

         Section 6.6     Severability............................................................................18

         Section 6.7     Aggregation.............................................................................18
</TABLE>


Schedule A        Investors
Schedule B        Principal Stockholders
Schedule C        Key Management


                                       ii

<PAGE>

                           INVESTORS` RIGHTS AGREEMENT

         THIS INVESTORS`  RIGHTS  AGREEMENT (the  "AGREEMENT") is made as of the
7th day of April, 2003, by and among Comverge, Inc., a Delaware corporation (the
"COMPANY")  and the  holders  of shares of the  Company`s  Preferred  Stock (the
"PREFERRED STOCK") listed on Schedule A (the  "INVESTORS"),  the stockholders of
the Company  listed on Schedule B (the  "PRINCIPAL  STOCKHOLDERS"),  and certain
members of the  Company`s  management  listed on  Schedule C, as the same may be
amended from time to time (the "KEY MANAGEMENT").

                                    RECITALS

         WHEREAS, the Company and the Investors are parties to a Preferred Stock
Purchase Agreement (the "PURCHASE  AGREEMENT") pursuant to which the Company has
agreed  to sell,  and the  Investors  have  agreed  to  purchase,  shares of the
Company`s Preferred Stock (the "SHARES");

         WHEREAS,  the parties  hereto  desire to enter into this  Agreement  in
order to induce the Investors to invest in the Company  pursuant to the Purchase
Agreement.

                                    AGREEMENT

         NOW, THEREFORE,  in consideration of the foregoing premises, the mutual
promises  and  covenants  set forth  herein and certain  other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:

                                   ARTICLE I

                                   DEFINITIONS

         As used in this Agreement, the following terms shall have the following
respective meanings:

                  "AFFILIATE", as applied to any person or entity, shall mean a
         person or entity directly or indirectly (through one or more
         intermediaries) controlling, controlled by or under common control with
         the first person or entity, including affiliated venture capital funds.

                  "COMMISSION" shall mean the Securities and Exchange
         Commission, or any other federal agency at the time charged with
         primary responsibility for administering the Securities Act (or any
         successor legislation).

                  "COMMON STOCK" shall mean the Common Stock, $0.001 par value,
         of the Company, as constituted as of the date of this Agreement.

                  "CONVERSION SHARES" shall mean shares of Common Stock issued
         or issuable upon conversion of the Preferred Stock.


                                       1
<PAGE>

                  "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
         as amended, or any similar federal statute, and the rules and
         regulations of the Commission thereunder, all as the same shall be in
         effect at the time.

                  "REGISTRATION EXPENSES" shall mean the expenses so described
         in Section 3.5.

                  "REGISTRABLE SECURITIES" shall mean (i) shares of the Common
         Stock issued or issuable upon conversion of the Shares; (ii) shares of
         Common Stock now held or hereafter acquired by the Principal
         Stockholders; provided, however, that such shares of Common Stock held
         by the Principal Stockholders shall not be deemed Registrable
         Securities for the purposes of Sections 3.1, 3.3 and 3.9 and Section
         5.4 (subject to the first proviso of the first sentence thereof); (iii)
         shares of Common Stock now held or hereafter acquired by Key
         Management; provided, however, that such shares of Common Stock held by
         Key Management shall not be deemed Registrable Securities for the
         purposes of Sections 3.1, 3.3 and 3.9 and Section 5.4 (subject to the
         first proviso of the first sentence thereof); and (iv) any Common Stock
         issued as a dividend or other distribution with respect to or in
         exchange for or in replacement of the shares referenced in (i), (ii)
         and (iii) above, in each case with the same limitation thereon;
         provided further that Registrable Securities shall not include any
         shares of Common Stock (a) that have been registered under the
         Securities Act pursuant to an effective registration statement filed
         thereunder and disposed of in accordance with the registration
         statement covering them or (b) that have otherwise been sold to the
         public.

                  "SECURITIES" shall mean the Preferred Stock and the Conversion
         Shares.

                  "SECURITIES ACT" shall mean the Securities Act of 1933, as
         amended, or any similar federal statute, and the rules and regulations
         of the Commission thereunder, all as the same shall be in effect at the
         time.

                  "SELLING EXPENSES" shall mean the expenses so described in
         Section 3.5.

                                   ARTICLE II

                                    TRANSFERS

         SECTION  2.1  RESTRICTIVE   LEGEND.   Each   certificate   representing
Securities shall, except as otherwise provided in this Section 2.1 or in Section
2.2,  be stamped  or  otherwise  imprinted  with a legend  substantially  in the
following form:

                  "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
                  ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE
                  TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
                  REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE LAWS OR AN
                  EXEMPTION FROM REGISTRATION IS AVAILABLE."

                                       2
<PAGE>


                  "THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE
                  PROVISIONS OF AN INVESTORS` RIGHTS AGREEMENT DATED AS OF APRIL
                  7, 2003, WHICH INCLUDES CERTAIN RESTRICTIONS ON TRANSFER.
                  COMPLETE AND CORRECT COPIES OF THE AGREEMENT ARE AVAILABLE FOR
                  INSPECTION AT THE PRINCIPAL OFFICES OF THE COMPANY AND WILL BE
                  FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE."

A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company the securities represented thereby may be publicly
sold without registration under the Securities Act and any applicable state
securities laws.

         SECTION 2.2 NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer
of any Registrable  Securities (other than under the circumstances  described in
Sections 3.1, 3.2 or 3.3),  (a) the holder  thereof must give written  notice to
the Company of its intention to effect such transfer and (b) the transferee must
agree in writing to be bound by the terms of this  Agreement.  Each such  notice
shall  describe  the manner of the  proposed  transfer  and, if requested by the
Company,  shall be  accompanied  by an opinion of  counsel  satisfactory  to the
Company  to the  effect  that the  proposed  transfer  may be  effected  without
registration  under the Securities Act and any applicable  state securities laws
pursuant to an exemption from the registration  requirements thereof,  whereupon
the holder of such stock  shall be  entitled  to  transfer  such  Securities  in
accordance with the terms of its notice; provided, however, that no such opinion
of counsel shall be required for a transfer to one or more partners,  members or
shareholders  of  the  transferor  (in  the  case  of  a  transferor  that  is a
partnership, limited liability company or a corporation,  respectively) or to an
Affiliate of the  transferor  or for routine  sales  pursuant to Rule 144.  Each
certificate for Securities  transferred as above provided shall bear the legends
set forth in  Section  2.1,  except  that such  certificate  shall not bear such
legends if (i) such  transfer is in accordance  with the  provisions of Rule 144
(or any  other  rule  permitting  public  sale  without  registration  under the
Securities  Act) or (ii) the  opinion  of  counsel  referred  to above is to the
further effect that the transferee and any subsequent  transferee (other than an
Affiliate of the Company)  would be entitled to transfer  such  securities  in a
public  sale  without  registration  under the  Securities  Act  pursuant  to an
exemption from the registration  requirements thereof. The restrictions provided
for in this Section 2.2 shall not apply to securities  which are not required to
bear the legends  prescribed by Section 2.1 in accordance with the provisions of
that Section.

                                  ARTICLE III

                                  REGISTRATION

         SECTION 3.1 REQUIRED REGISTRATION

         (a) At any time after  April 7, 2006,  the holders of a majority of the
Shares,  including  the Common  Stock  issued on  conversion  of the Shares (the
"PREFERRED  REGISTRABLE  SECURITIES"),  calculated on an as-converted basis, may
request  the  Company to  register  some or all of their  Preferred  Registrable
Securities  under the Securities Act if the  anticipated  aggregate price to the
public is not less than $8,000,000. Any request for registration  ("REGISTRATION



                                       3
<PAGE>


REQUEST")  shall  specify  (A) the  approximate  number of  shares of  Preferred
Registrable Securities requested to be registered and (B) the intended method of
distribution of such shares.

         (b) Within 10 days after the  receipt of a  Registration  Request,  the
Company shall immediately notify all holders of Registrable Securities from whom
notice has not been  received  and shall,  subject  to the  limitations  of this
Section 3.1, effect, as expeditiously as is reasonably possible the registration
under the  Securities  Act,  for public  sale in  accordance  with the method of
disposition  specified  in such notice from  requesting  holders,  the number of
shares of Preferred Registrable  Securities specified in such notice (and in all
notices received by the Company from other holders within fifteen days after the
giving  of  such  notice  by the  Company);  provided,  that  in the  case of an
underwritten  public  offering,  if the managing  underwriter  determines  that,
because of marketing factors all of the Registrable  Securities  requested to be
registered  may not be included in the  offering,  the Company  shall include in
such registration (i) first, the Preferred  Registrable  Securities requested to
included  in such  registration  by the  Investors,  pro rata among the  holders
thereof on the basis of the number of shares of Preferred Registrable Securities
such Investors  requested to be included in such registration,  and (ii) second,
the Registrable  Securities requested to be included in such registration by the
Principal   Stockholders   and  Key   Management   pursuant  to  the  incidental
registration  provisions  of Section  3.2 hereof,  pro rata among the  Principal
Stockholders  and such members of Key  Management  on the basis of the number of
shares of Registrable  Securities the Principal Stockholders and such members of
Key Management requested to be included in such registration.

         (c) The Company will have the right to select one or more  underwriters
to manage the offering,  subject to the reasonable satisfaction of a majority in
interest of the Investors initially requesting registration,  which approval, if
any be required,  shall not be unreasonably withheld or delayed;  provided, that
if the  managing  underwriter  or  underwriters  shall be the firm or firms that
managed the Company`s most recently  completed  underwritten  public offering of
Common  Stock,  such  firms  shall be deemed  acceptable  unless a  majority  in
interest of the Investors initially requesting such registration shall object to
such firm or firms for  reasons  related to the ability of such firm or firms to
effectively manage the offering.

         (d) The Company shall be obligated to effect a registration pursuant to
this Section 3.1 on two  occasions  only,  and shall not be required to effect a
registration  (i) during the 180-day period  following the effective date of the
registration  statement  pertaining to the Company`s  initial public offering or
(ii) if the Company  delivers  notice in writing to the  holders of  Registrable
Securities within 30 days of any Registration Request of the Company`s intent to
file a registration statement within 90 days.

         (e) The  Company  shall be  entitled  to  include  in any  registration
statement  referred to in this  Section  3.1,  for sale in  accordance  with the
method of disposition specified by requesting holders, shares of Common Stock to
be sold by the  Company  for its own  account  but only to the extent  that such
inclusion will not adversely  affect the offering for the account of the holders
of Registrable  Securities.  Except for registration statements on Form S-4, S-8
or any  successors  thereto,  the Company will not file with the  Commission any
other registration  statement with respect to its Common Stock,  whether for its
own account or that of other stockholders,  from the date of receipt of a notice
from requesting holders pursuant to this Section 3.1 until the completion of the
period of distribution of the registration contemplated thereby.



                                       4
<PAGE>


         SECTION  3.2  COMPANY  REGISTRATION.  If the Company at any time (other
than pursuant to the Company`s initial public offering) proposes to register any
of its securities  under the Securities Act for sale to the public,  whether for
its own account or for the  account of other  security  holders or both  (except
with respect to  registration  statements  on Forms S-4, S-8 or another form not
available for registering  the  Registrable  Securities for sale to the public),
each  such time it will  give  written  notice  to all  holders  of  outstanding
Registrable  Securities of its  intention so to do. Upon the written  request of
any such holder,  received by the Company within 15 days after the giving of any
such notice by the Company, to register any of its Registrable  Securities,  the
Company will use reasonable best efforts to cause such Registrable Securities to
be included in the registration  statement  proposed to be filed by the Company.
In the event that any  registration  pursuant  to this  Section 3.2 shall be, in
whole or in part,  an  underwritten  public  offering of Common  Stock,  and the
managing  underwriters  advise the Company in their  opinion  that the number of
securities  to be included in such  registration  exceeds the number that can be
sold in an orderly manner in such offering within the price range  acceptable to
the parties initially requesting such registration,  the Company will include in
such  registration (i) first, the securities  proposed to be included therein by
the Company if the Company has  initiated  the  registration,  (ii) second,  the
Registrable  Securities  requested  to  included  in  such  registration  by the
Investors,  pro rata  among the  holders  thereof  on the basis of the number of
shares of Registrable  Securities requested to be included in such registration,
and (iii) third,  the  Registrable  Securities  requested to be included in such
registration by the Principal  Stockholders  and Key Management,  pro rata among
the Principal  Stockholders  and such members of Key  Management on the basis of
the number of shares of Registrable  Securities the Principal  Stockholders  and
such members of Key  Management  requested to be included in such  registration;
provided,  however,  that in the case of any underwritten  public offering,  the
number of shares of Preferred  Registrable  Securities included in such offering
shall not be reduced  below an amount equal to 25% of the total number of shares
to be included  unless such  offering is the initial  public  offering  and such
registration does not include shares of any other selling stockholders, in which
event any or all of the  Preferred  Registrable  Securities  may be  excluded in
accordance with the immediately preceding clause.  Notwithstanding the foregoing
provisions,  the Company may withdraw any registration  statement referred to in
this  Section 3.2 without  thereby  incurring  any  liability  to the holders of
Registrable Securities.

         SECTION  3.3  REGISTRATION  ON FORM S-3. If at any time (i) a holder or
holders of  Preferred  Registrable  Securities  request  that the Company file a
registration  statement  on  Form  S-3 or any  successor  thereto  for a  public
offering of all or any portion of their Preferred  Registrable  Securities,  the
reasonably  anticipated  aggregate  price to the  public of which  would  exceed
$2,000,000, and (ii) the Company is a registrant entitled to use Form S-3 or any
successor  thereto to register such shares,  then the Company shall,  as soon as
practicable,  use reasonable best efforts to effect such registration  under the
Securities  Act on  Form  S-3 or any  successor  thereto,  for  public  sale  in
accordance  with  the  method  of  disposition  specified  in such  notice,  the
Preferred Registrable Securities specified in such notice.  Whenever the Company
is required by this  Section 3.3 to use  reasonable  best  efforts to effect the
registration  on  behalf  of  a  holder  or  holders  of  Preferred  Registrable
Securities, the Company shall notify all other holders of Registrable Securities
and  provide  them  with the  opportunity  to  participate  in the  offering  in
accordance with Section 3.2 hereof (with any exclusion by underwriters to be pro
rata on the basis of the number of shares of Registrable Securities requested to
be included),  and the provisions of paragraphs (c) and (e) of Section 3.1 shall
apply to such  registration.  The



                                       5
<PAGE>


Company shall not be required to effect more than two such registration pursuant
to this Section 3.3 in any 12-month period.  Registrations  effected pursuant to
this Section 3.3 shall not be counted as demand registrations  effected pursuant
to Section 3.1.

         SECTION 3.4  REGISTRATION  PROCEDURES  If and  whenever  the Company is
required by the  provisions  of Section 3.1, 3.2 or 3.3 to use  reasonable  best
efforts to effect  the  registration  of any  Registrable  Securities  under the
Securities Act, the Company will, as expeditiously as possible:

         (a)  prepare  and file with the  Commission  a  registration  statement
(which, in the case of an underwritten  public offering pursuant to Section 3.1,
shall be on Form S-1 or other form of general applicability  satisfactory to the
managing  underwriter  selected  as  therein  provided)  with  respect  to  such
securities and use reasonable best efforts to cause such registration  statement
to become and remain effective for the period of the  distribution  contemplated
thereby  (determined  as hereinafter  provided);  provided,  however,  that that
Company`s   obligation  to  file  a  registration   statement,   or  cause  such
registration statement to become and remain effective,  shall be suspended for a
period  not to  exceed  ninety  (90)  days  in  any  12-month  period  if in the
reasonable  good faith judgment of the Company`s  Board of Directors it would be
seriously detrimental to the Company to effect a registration at such time;

         (b)  prepare  and  file  with  the  Commission   such   amendments  and
supplements to such registration  statement and the related prospectus as may be
necessary to keep such registration statement effective for the period specified
in paragraph (a) above and comply with the provisions of the Securities Act with
respect  to the  disposition  of all  Registrable  Securities  covered  by  such
registration  statement  in  accordance  with the  sellers`  intended  method of
disposition set forth in such registration statement for such period;

         (c)  furnish  to each  seller  of  Registrable  Securities  and to each
underwriter  such  number  of  copies  of the  registration  statement  and  the
prospectus  included  therein  (including each  preliminary  prospectus) as such
persons  reasonably  may request in order to facilitate the public sale or other
disposition  of  the  Registrable   Securities   covered  by  such  registration
statement;

         (d) use reasonable  best efforts to register or qualify the Registrable
Securities covered by such registration  statement under the securities or "blue
sky" laws of such jurisdictions as the sellers of Registrable  Securities or, in
the case of an underwritten public offering, the managing underwriter reasonably
shall  request;  provided,  however,  that the  Company  shall  not for any such
purpose be  required  to qualify  generally  to  transact  business as a foreign
corporation  in any  jurisdiction  where it is not so qualified or to consent to
general service of process in any such jurisdiction;

         (e)  list  the  Registrable  Securities  covered  by such  registration
statement with any securities exchange (or quotation system) on which the Common
Stock of the Company is then listed (or qualified for inclusion);

         (f)  immediately  (i) notify each seller of Registrable  Securities and
each  underwriter  under  such  registration  statement,  at  any  time  when  a
prospectus  relating  thereto


                                       6
<PAGE>


is required to be delivered  under the  Securities  Act, of the happening of any
event of which the Company  has  knowledge  as a result of which the  prospectus
contained in such registration  statement, as then in effect, includes an untrue
statement of a material  fact or omits to state a material  fact  required to be
stated  therein or necessary to make the  statements  therein not  misleading in
light of the  circumstances  then existing and (ii) use commercially  reasonable
efforts to amend or supplement such prospectus in order to cause such prospectus
not to  include  any  untrue  statement  of a  material  fact or omit to state a
material fact required to be stated  therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;

         (g) if the offering is underwritten and at the request of any seller of
Registrable Securities,  use reasonable best efforts to furnish on the date that
Registrable  Securities  is delivered to the  underwriters  for sale pursuant to
such  registration:  (i) an opinion dated such date of counsel  representing the
Company for the purposes of such registration, addressed to the underwriters and
to such seller, in form and substance as is customarily given in an underwritten
public offering;  and (ii) a letter dated such date from the independent  public
accountants  retained by the Company,  addressed to the underwriters and to such
seller, in form and substance as is customarily given in an underwritten  public
offering; and

         (h)  make  available  for  inspection  by each  seller  of  Registrable
Securities,  any underwriter  participating in any distribution pursuant to such
registration  statement,  and any attorney or accountant retained by such seller
or underwriter,  all financial and other records,  pertinent corporate documents
and properties of the Company,  and cause the Company`s officers,  directors and
employees  to supply all  information  reasonably  requested by any such seller,
underwriter,  attorney  or  accountant  in  connection  with  such  registration
statement.

         (i)  For  purposes  of  Section  3.4(a)  and  3.4(b),   the  period  of
distribution of Registrable Securities in a firm commitment  underwritten public
offering  shall be deemed to extend until each  underwriter  has  completed  the
distribution  of all securities  purchased by it, and the period of distribution
of Registrable  Securities in any other  registration  shall be deemed to extend
until the earlier of the sale of all Registrable  Securities covered thereby and
one hundred twenty (120) days after the effective date thereof.

         (j) It shall be a condition precedent to the obligations of the Company
to take any action in  connection  with each  registration  pursuant to Sections
3.1, 3.2 or 3.3 hereof,  that the sellers of Registrable  Securities  furnish to
the Company in writing  such  information  with  respect to  themselves  and the
proposed  distribution  by them as  reasonably  shall be  necessary  in order to
assure compliance with federal and applicable state securities laws.

         (k) In connection with each registration  pursuant to Sections 3.1, 3.2
or 3.3  covering an  underwritten  public  offering,  the  Company  shall not be
required to include any Registrable  Securities in such underwriting  unless the
holders of such Registrable  Securities  accept the terms of the underwriting as
agreed upon between the Company and the underwriters selected by it (or by other
persons entitled to select the underwriters).

         SECTION 3.5 EXPENSES. All expenses incurred by the Company in complying
with Sections 3.1, 3.2 and 3.3, including,  without limitation, all registration
and filing  fees,  printing



                                       7
<PAGE>


expenses,  fees and disbursements of counsel and independent  public accountants
for the  Company,  fees  and  expenses  (including  counsel  fees)  incurred  in
connection with complying with state  securities or "blue sky" laws, fees of the
National  Association  of Securities  Dealers,  Inc.,  transfer  taxes,  fees of
transfer agents and registrars and the reasonable fees and  disbursements of one
counsel for the sellers of  Registrable  Securities not to exceed  $25,000,  but
excluding  any  Selling  Expenses,  are  called  "REGISTRATION   EXPENSES".  All
underwriting  discounts  and  selling  commissions  applicable  to the  sale  of
Registrable Securities are called "SELLING EXPENSES."

                  The Company will pay all Registration Expenses in connection
with each registration statement under Section 3.1, 3.2 or 3.3; provided,
however, that the Company shall not be required to pay for any Registration
Expenses of any registration proceeding begun pursuant to Section 3.1 if the
registration request is subsequently withdrawn on the written request of the
holders of a majority of the Preferred Registrable Securities to be registered
(in which case all participating holders of Preferred Registrable Securities
shall bear such expenses pro rata), unless the holders of a majority of the
Preferred Registrable Securities agree to forfeit their right to one (1) demand
registration pursuant to Section 3.1; provided, further that if at the time of
such withdrawal, such holders of Preferred Registrable Securities have learned
of a material adverse change in the Company from that known to such holders at
the time of the request and have withdrawn the request with reasonable
promptness following disclosure by the Company of or such holders` otherwise
having learned of such material adverse change, then the Company shall pay the
Registration Expenses of such holders, and such holders shall not be required to
pay any of such expenses and shall not forfeit their right to a demand
registration pursuant to Section 3.1. All Selling Expenses in connection with
each such registration statement shall be borne by the participating sellers.

         SECTION 3.6 INDEMNIFICATION AND CONTRIBUTION

         (a) In the event of a registration of any of the Registrable Securities
under the  Securities  Act pursuant to Section 3.1, 3.2 or 3.3, the Company will
indemnify  and  hold  harmless  each  seller  of  such  Registrable   Securities
thereunder,  each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such seller or underwriter within the meaning
of the Securities Act, against any losses, claims, damages or liabilities, joint
or several,  to which such seller,  underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, any state securities laws or
any rule or regulation promulgated under the Securities Act, Exchange Act or any
state securities laws or otherwise,  insofar as such losses,  claims, damages or
liabilities  (or actions in respect  thereof) (i) arise out of or are based upon
any untrue  statement or alleged untrue statement of any material fact contained
in any  registration  statement  under  which such  Registrable  Securities  was
registered  under  the  Securities  Act,  any  preliminary  prospectus  or final
prospectus contained therein, or any amendment or supplement thereof, (ii) arise
out of or are based upon the  omission or alleged  omission  to state  therein a
material fact required to be stated  therein or necessary to make the statements
therein not  misleading  or (iii) arise out of or are based on any  violation or
alleged  violation by the Company of the  Securities  Act, the Exchange Act, any
state securities laws or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities laws, and will reimburse each such
seller,  each such underwriter and each such controlling person for any legal or
other expenses  reasonably  incurred by them in connection



                                       8
<PAGE>


with  investigating  or defending  any such loss,  claim,  damage,  liability or
action;  provided,  however,  that the  Company  will not be  liable to any such
indemnitee  (i) for any  amounts  paid in  settlement  of any such loss,  claim,
damage,  liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld, conditioned or
delayed),  (ii) if and to the  extent  that  any such  loss,  claim,  damage  or
liability  arises out of or is based upon an untrue  statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished  by  such  indemnitee  in  writing   specifically   for  use  in  such
registration statement or prospectus, or (iii) if and to the extent that, in the
case of a sale directly by such holder of  Registrable  Securities  (including a
sale of such  Registrable  Securities  through any underwriter  retained by such
holder of Registrable Securities to engage in a distribution solely on behalf of
such holder of Registrable Securities),  such untrue statement or alleged untrue
statement  or  omission  or alleged  omission  was  contained  in a  preliminary
prospectus  and corrected in a final or amended  prospectus,  and such holder of
Registrable  Securities  failed  to  deliver  a copy  of the  final  or  amended
prospectus  at or  prior  to the  confirmation  of the  sale of the  Registrable
Securities to the Person asserting any such loss, claim,  damage or liability in
any case where such  delivery  is required  by the  Securities  Act or any state
securities laws.

         (b) In the event of a registration of any of the Registrable Securities
under the  Securities  Act pursuant to Section  3.1, 3.2 or 3.3,  each seller of
such  Registrable  Securities  thereunder,   severally  and  not  jointly,  will
indemnify and hold harmless the Company,  each person,  if any, who controls the
Company  within the meaning of the  Securities  Act, each officer of the Company
who signs  the  registration  statement,  each  director  of the  Company,  each
underwriter and each person who controls any  underwriter  within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint or
several,  to  which  the  Company  or such  officer,  director,  underwriter  or
controlling  person may become  subject under the  Securities  Act, the Exchange
Act, any state securities laws or any rule or regulation  promulgated  under the
Securities  Act or any  state  securities  laws or  otherwise,  insofar  as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue  statement  or alleged  untrue  statement of any
material  fact  contained  in  the  registration   statement  under  which  such
Registrable  Securities was registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof,  or arise out of or are based upon the omission or alleged  omission to
state therein a material fact required to be stated therein or necessary to make
the statements  therein not misleading,  and will reimburse the Company and each
such officer,  director,  underwriter  and  controlling  person for any legal or
other expenses  reasonably  incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,  however,
that such  seller will be liable  hereunder  in any such case if and only to the
extent that any such loss, claim,  damage or liability arises out of or is based
upon an untrue  statement  or alleged  untrue  statement  or omission or alleged
omission made in reliance upon and in conformity with information  pertaining to
such  seller,  as such,  furnished  in  writing to the  Company  by such  seller
specifically for use in such registration statement or prospectus; and provided,
further,  however,  that the liability of each seller hereunder shall be limited
to the proportion of any such loss, claim, damage, liability or expense which is
equal to the  proportion  that the public  offering  price of the shares sold by
such seller under such registration statement bears to the total public offering
price of all securities sold thereunder,  but not in any event to exceed the net
proceeds (after deduction of underwriting



                                       9
<PAGE>


discounts  and  other  Selling  Expenses)  to  such  seller  from  the  sale  of
Registrable Securities covered by such registration statement.

         (c) Promptly after receipt by an indemnified  party hereunder of notice
of the commencement of any action,  such indemnified  party shall, if a claim in
respect thereof is to be made against the indemnifying  party hereunder,  notify
the  indemnifying  party in writing  thereof,  but the omission so to notify the
indemnifying  party shall not relieve it from any liability which it may have to
such indemnified  party other than under this Section 3.6 and shall only relieve
it from any  liability  which it may have to such  indemnified  party under this
Section 3.6 if and to the extent the  indemnifying  party is  prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the  indemnifying  party of the  commencement  thereof,  the
indemnifying  party shall be entitled  to  participate  in and, to the extent it
shall wish, to assume and undertake  the defense  thereof with counsel  mutually
satisfactory to the parties,  and, after notice from the  indemnifying  party to
such  indemnified  party of its election so to assume and  undertake the defense
thereof,  the indemnifying  party shall not be liable to such indemnified  party
under this  Section  3.6 for any legal  expenses  subsequently  incurred by such
indemnified  party in connection  with the defense thereof other than reasonable
costs of  investigation  and of  liaison  with  counsel so  selected;  provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded  that  there  may be  reasonable  defenses  available  to it which are
different from or additional to those available to the indemnifying  party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying  party,  the indemnified  party shall have the
right to  select a  separate  counsel  and to assume  such  legal  defenses  and
otherwise to  participate  in the defense of such action,  with the expenses and
fees of such separate counsel and other expenses  related to such  participation
to be reimbursed by the indemnifying party as incurred.

         (d) In order to provide for just and  equitable  contribution  to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable   Securities   exercising  rights  under  this  Agreement,   or  any
controlling  person  of any  such  holder,  makes  a claim  for  indemnification
pursuant to this Section 3.6 but it is judicially  determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to  appeal  or the  denial  of the  last  right  of  appeal)  that  such
indemnification  may not be enforced in such case  notwithstanding the fact that
this Section 3.6 provides for indemnification in such case, or (ii) contribution
under the  Securities Act may be required on the part of any such selling holder
or any such controlling  person in circumstances  for which  indemnification  is
provided  under this Section 3.6;  then,  and in each such case, the Company and
such  holder  will  contribute  to the  aggregate  losses,  claims,  damages  or
liabilities  to which they may be subject  (after  contribution  from others) in
such  proportion  as is  appropriate  to  reflect  the  relative  fault  of  the
indemnifying party on the one hand and of the indemnified party on the other, as
well as any other relevant equitable  considerations.  The relative fault of the
parties shall be  determined  by reference  to, among other things,  whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information  supplied by the  indemnifying  party or by
the indemnified  party and the parties`  relative intent,  knowledge,  access to
information  and  opportunity  to correct or prevent such statement or omission;
provided,  however,  that, in any such case, (A) no such holder will be required
to  contribute,  when added to any amounts paid pursuant to Section  3.6(c),  an
amount in excess of the net proceeds (after deduction of



                                       10
<PAGE>


underwriting  discounts and other selling expenses) to such seller from the sale
of Registrable  Securities  covered by such registration  statement;  and (B) no
person or entity guilty of fraudulent  misrepresentation  (within the meaning of
Section 11(f) of the Securities Act) will be entitled to  contribution  from any
person or entity who was not guilty of such fraudulent misrepresentation.

         SECTION  3.7 CHANGES IN COMMON  STOCK OR  PREFERRED  STOCK.  If, and as
often as, there is any change in the Common Stock or the Preferred  Stock by way
of a stock split, stock dividend, combination or reclassification,  or through a
merger,  consolidation,  reorganization  or  recapitalization,  or by any  other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and  privileges  granted hereby shall continue with respect to the Common
Stock or the Preferred Stock as so changed.

         SECTION 3.8 RULE 144  REPORTING.  With a view to making  available  the
benefits of certain rules and  regulations  of the  Commission  which may at any
time  permit  the  sale of the  Registrable  Securities  to the  public  without
registration,  at all times after any registration  statement  covering a public
offering of securities of the Company under the Securities Act shall have become
effective, the Company agrees to:

         (a) make and keep  public  information  available,  as those  terms are
understood and defined in Rule 144 under the Securities Act;

         (b) file with the  Commission  in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and

         (c) furnish to each holder of  Registrable  Securities  forthwith  upon
request  a  written  statement  by the  Company  as to its  compliance  with the
reporting  requirements  of  such  Rule  144 and of the  Securities  Act and the
Exchange  Act,  a copy of the most  recent  annual  or  quarterly  report of the
Company,  and such other  reports and  documents so filed by the Company as such
holder may  reasonably  request in availing  itself of any rule or regulation of
the Commission  allowing such holder to sell any Registrable  Securities without
registration.

         SECTION  3.9  FUTURE  REGISTRATION  RIGHTS.  In  addition  to any other
restrictions  imposed hereby,  the Company shall not, except with the consent of
the Investors holding a majority of the Preferred Registrable Securities held by
the Investors,  enter into any agreement  with any holder or prospective  holder
(each, an "OTHER HOLDER") of any securities of the Company that would grant such
Other Holder  registration  rights that would (i) reduce the amount of Preferred
Registrable  Securities  that may be registered  pursuant to Section 3.1, 3.2 or
3.3 hereof, or (ii) otherwise provide any Other Holder the right to register any
securities.

         SECTION  3.10  MARKET  STAND-OFF.   If  requested  in  writing  by  the
underwriters  for  the  Company`s  first  firm  commitment  underwritten  public
offering of securities  of the Company,  each holder of  Registrable  Securities
shall agree not to directly or indirectly sell, offer to sell, contract to sell,
make any short sale of,  grant any option for the purchase of, or enter into any
hedging or similar  transaction  with the same  economic  effect as a sale,  any
Common Stock (or other  securities)  of the Company  held by such holder  (other
than those included in the registration statement),  without the consent of such
underwriters,  for a period of not more than 180 days  following  the  effective
date of the registration statement relating to such offering;



                                       11
<PAGE>


provided, however, that all other persons selling shares of Common Stock in such
offering and all  executive  officers,  and  directors  of the Company,  and all
holders  of at  least  1% of  the  Company`s  outstanding  Common  Stock  (on an
as-converted basis), agree to be similarly restricted and that any early release
of such restrictions  applicable to securities held by any officer,  director or
holder  of at  least  1% of  the  Company`s  outstanding  Common  Stock  (on  an
as-converted basis) will apply to a corresponding  proportion of the Registrable
Securities.  In order to enforce the foregoing covenant,  the Company may impose
stop transfer instructions with respect to holders of the Registrable Securities
(and the shares or  securities  of every other person  subject to the  foregoing
restriction) until the end of such period.

         SECTION 3.11 TERMINATION OF REGISTRATION RIGHTS. The obligations of the
Company to register  Registrable  Securities under Section 3.1, 3.2 or 3.3 for a
holder of Registrable Securities shall terminate on the earliest to occur of (i)
the fifth anniversary of the consummation of the Company`s first firm commitment
underwritten  public  offering of its securities and (ii) the date on which such
holder can, in the reasonable opinion of counsel to the Company, sell all shares
of his Registrable Securities in a three-month period without registration under
the  Securities  Act pursuant to Rule 144 under the  Securities  Act;  provided,
however,  that the provisions of this Section 3.11 shall not apply to any holder
while such holder owns more than 1% of the  Company`s  outstanding  Common Stock
(as calculated for purposes of paragraph (e) of Rule 144).

                                   ARTICLE IV

                              ADDITIONAL COVENANTS

         The Company covenants and agrees with each of the Investors that:

         SECTION 4.1  FINANCIAL  STATEMENTS,  REPORTS,  ETC.  The  Company  will
maintain  true books and  records of account in which full and  correct  entries
will be made of all its business transactions pursuant to a system of accounting
established and  administered in accordance with generally  accepted  accounting
principles consistently applied (except as noted therein), and will set aside on
its books all such proper  accruals  and  reserves  as shall be  required  under
generally accepted accounting principles consistently applied. The Company shall
furnish to each  Investor who (alone or together with its  Affiliates)  holds at
least  250,000  shares of Common Stock and/or  Preferred  Stock (as adjusted for
stock splits, stock dividends, recapitalizations or the like):

         (a) within  ninety  (90) days after the end of each  fiscal year of the
Company,  a consolidated  balance sheet of the Company and its subsidiaries,  if
any, as of the end of such fiscal year and the related  consolidated  statements
of income and cash flows for the fiscal year then ended,  prepared in accordance
with  generally  accepted  accounting  principles  and  certified  by a firm  of
independent public accountants selected by the Board of Directors of the Company
and acceptable to the directors designated by the holders of Preferred Stock;

         (b) within  forty-five  (45) days after the end of each quarter in each
fiscal year, a consolidated  balance sheet of the Company and its  subsidiaries,
if any,  and the  related  consolidated  statements  of income  and cash  flows,
unaudited  but  prepared  in  accordance  with  generally  accepted   accounting
principles  (subject  to  year-end  adjustments  and  excluding



                                       12
<PAGE>


footnotes) and certified by an officer of the Company, such consolidated balance
sheet to be as of the end of such quarter and such  consolidated  statements  of
income  and cash  flows  to be for  such  quarter  and for the  period  from the
beginning  of the  fiscal  year to the  end of such  month,  in each  case  with
comparative  statements for the prior fiscal year and comparing the  information
presented to the Company`s  plan, and  accompanied by an updated  capitalization
table; and

         (c) no later than  thirty  (30) days prior to the start of each  fiscal
year,  consolidated capital and operating expense budgets, cash flow projections
and income and loss  projections for the Company and its subsidiaries in respect
of such fiscal year, all itemized in reasonable detail and prepared on a monthly
basis, and, promptly after preparation, any revisions to any of the foregoing.

         SECTION 4.2 RESERVATION OF CONVERSION  SHARES. The Company shall at all
times reserve and keep available out of its  authorized  but unissued  shares of
Common Stock, for the purpose of effecting the conversion of the Preferred Stock
and otherwise  complying  with the terms of this  Agreement,  such number of its
duly  authorized  shares of Common  Stock as shall be  sufficient  to effect the
conversion of the Preferred Stock from time to time outstanding.  If at any time
the  number of  authorized  but  unissued  shares of Common  Stock  shall not be
sufficient  to effect the  conversion  of the  Preferred  Stock or  otherwise to
comply with the terms of this  Agreement,  the Company will  forthwith take such
corporate  action as may be necessary to increase  its  authorized  but unissued
shares of Common Stock to such number of shares as shall be sufficient  for such
purposes. The Company will obtain any authorization,  consent, approval or other
action by or make any filing with any court or  administrative  body that may be
required under  applicable state securities laws in connection with the issuance
of the Conversion Shares.

         SECTION 4.3  INSPECTION,  CONSULTATION  AND ADVICE.  The Company  shall
permit and cause each of its  subsidiaries  (if any) to permit each Investor and
such  persons  as  it  may  designate  (provided  that  such  Investor  provides
satisfactory  assurances  (as  determined  by the  Company in good faith) to the
Company with respect to the confidentiality of all information received from the
Company), at such Investor`s expense, to visit and inspect any of the properties
of the Company  and its  subsidiaries,  examine  their books and take copies and
extracts  therefrom,  discuss the affairs,  finances and accounts of the Company
and its subsidiaries with their officers,  employees and public accountants (and
the Company hereby authorizes said accountants to discuss with such Investor and
such designees such affairs, finances and accounts), and consult with and advise
the management of the Company and its subsidiaries as to the Company`s  affairs,
finances and  accounts,  all at  reasonable  times and upon  reasonable  notice;
provided,  however,  that the Company  shall not be  obligated  pursuant to this
Section 4.4 to provide access to any information  that they reasonably  consider
to be a trade secret or similar confidential information,  or if, upon advice of
counsel,  the Company  believes in good faith that such disclosure would destroy
the attorney-client privilege with regard to such information.

         SECTION 4.4 DIRECTOR AND OFFICER  INSURANCE.  The Company  shall obtain
and keep in effect a director  and  officer  insurance  policy in the  aggregate
amount of $2,000,000;  provided,  however, that any reduction in coverage under,
or  termination  of, such insurance  policy that is unanimously  approved by the
Company`s board of directors shall not be a breach of this Section 4.4.



                                       13
<PAGE>


         SECTION  4.5  PROPRIETARY  INFORMATION  AGREEMENT.  The  Company  shall
require all  employees  and  consultants  to execute  and deliver a  Proprietary
Information and Inventions  Agreement  substantially in the form attached to the
Purchase  Agreement,  as such form may be amended hereafter from time to time by
the Board of Directors.

         SECTION  4.6 BANK  LEUMI  PAYMENT.  As soon as  practicable  after  the
Initial Closing (as defined in the Purchase Agreement),  the Company shall cause
(i) the  repayment of the  Company`s  indebtedness  to Bank Leumi USA under that
certain Credit  Agreement dated February 7, 2000, by and between the Company and
Bank Leumi USA and (ii) the release of Data Systems & Software Inc.  ("DSSI") as
a guarantor of such indebtedness.

         SECTION 4.7 FIRST  REFUSAL  RIGHT.  The  Company  shall  require,  as a
condition to the issuance of equity  securities  of the Company as  compensation
for services  rendered to the Company,  that each future  officer of the Company
become a party to the Company`s Co-Sale and First Refusal Agreement of even date
herewith.

         SECTION 4.8 EXPENSES OF DIRECTORS. The Company shall promptly reimburse
in full, upon presentation of reasonably satisfactory supporting  documentation,
each  director  of the  Company who is not an employee of the Company for all of
his or her reasonable  out-of-pocket expenses incurred in attending each meeting
of the Board of Directors of the Company or any committee thereof or undertaking
any activities at the behest of the Company.

         SECTION 4.9 INDEMNIFICATION AND ADVANCEMENT.

         (a) The  Company  hereby  agrees to hold  harmless  and  indemnify  the
Investors, the Investors` direct and indirect subsidiaries,  affiliated entities
and  corporations,  and each of their partners,  members,  officers,  directors,
employees, stockholders, agents, and representatives (collectively,  referred to
as  the  "INVESTOR   INDEMNITEES")  against  any  and  all  expenses  (including
attorneys` fees), damages, judgments, fines, amounts paid in settlements, or any
other  amounts  that an Investor  Indemnitee  incurs as a result of any claim or
claims made against it in connection with any  threatened,  pending or completed
action, suit, arbitration,  investigation or other proceeding arising out of, or
relating  to the  Investors`  actions in  connection  with the  purchase  by the
Investors  of  the  Company`s  Preferred  Stock  (a  "FINANCING-BASED   CLAIM");
provided,  however,  that no  Investor  Indemnitee  shall be entitled to be held
harmless or  indemnified  by the Company for acts,  conduct or  omissions  as to
which there has been a final adjudication that such Investor  Indemnitee engaged
in intentional misconduct or in knowing and culpable violation of the law.

         (b) The Company shall reimburse,  promptly  following request therefor,
all reasonable  expenses  incurred by an Investor  Indemnitee in connection with
any threatened, pending or completed action, suit, arbitration, investigation or
other  proceeding  arising  out of, or  relating  to, a  Financing-Based  Claim,
provided,   however,   that  no  Investor   Indemnitee   shall  be  entitled  to
reimbursement  in connection  with acts,  conduct or omissions as to which there
has  been  a  final  adjudication  that  such  Investor  Indemnitee  engaged  in
intentional misconduct, in knowing and culpable violation of the law.



                                       14
<PAGE>


         (c) The Company`s indemnity  obligations set forth above are subject to
the Investors  providing  prompt  written  notice of a claim.  The Company shall
control the defense of any such action and, at its discretion,  may enter into a
stipulation of discontinuance or settlement  thereof;  provided that the Company
may not  discontinue  any action or settle  any claim in a manner  that does not
unconditionally  release the  Investors  without the  Investors`  prior  written
approval.  The Investors shall, at the Company`s expense and reasonable request,
cooperate  with the Company in any such defense and shall make  available to the
Company  at the  Company`s  expense  all  those  persons,  documents  (excluding
attorney/client or attorney work product materials)  reasonably  required by the
Company in the defense of any such action.  The Investors may, at their expense,
assist in such defense.

         SECTION 4.10 DSSI OPTION.  (a) DSSI shall have the right to purchase at
a purchase price per share of $2.7719,  up to the number of shares of Series A-2
Convertible  Preferred Stock of the Company that is equal to the quotient of (x)
the lesser of (A) $1,500,000 or (B) the  then-current  amount of indebtedness of
the Company  outstanding  to Silicon Valley Bank under the Term Loan (as defined
in that certain Loan and Security  Agreement dated April 7, 2003, by and between
the  Company  and  Silicon  Valley  Bank (the "SVB TERM  LOAN"))  divided by (y)
$2.7719;  provided that it shall be a condition to such  transaction that all of
the  proceeds  from such  transaction  be used by the  Company to repay  amounts
outstanding  under the SVB Term Loan. The foregoing right to purchase Series A-2
Preferred  Stock of the Company shall be  exercisable  from time to time only by
written  notice to the  Company  actually  received  by the Company on or before
December 31, 2003.

         SECTION 4.11  TERMINATION OR WAIVER OF COVENANTS.  All of the covenants
set forth in this  Article  IV shall  terminate  and be of no  further  force or
effect  upon the  earlier to occur of (i) the sale of  securities  pursuant to a
registration  statement  filed  by  the  Company  under  the  Securities  Act in
connection with the firm commitment  underwritten  offering of its securities to
the general public is  consummated or when the Company first becomes  subject to
the periodic reporting  requirements of Sections 13 or 15(d) of the Exchange Act
and (ii) upon the closing of any  merger,  recapitalization,  reorganization  or
sale of all or substantially  all of the assets of the Company which will result
in the  stockholders  of the Company as  constituted  immediately  prior to such
transaction  not holding,  directly or  indirectly,  immediately  following such
transaction,  at least 50% of the voting power of the  surviving,  continuing or
purchasing entity (a "CHANGE OF CONTROL"). Compliance with any of such covenants
(excluding  Section  4.10) can be waived by the  holders  of a  majority  of the
Preferred Registrable Securities held by the Investors.

                                   ARTICLE V

                              RIGHT OF FIRST OFFER

         SECTION 5.1 RIGHT OF FIRST OFFER.  Subject to the terms and  conditions
specified in this section,  the Company hereby grants to each Investor who holds
at least 350,000  shares of Preferred  Stock  (adjusted for stock splits,  stock
dividends,  recapitalizations  or  the  like)  (each  a  "MAJOR  INVESTOR"  and,
collectively,  the "MAJOR  INVESTORS")  a right of first  offer with  respect to
future  sales by the Company of its Shares (as  hereinafter  defined);  provided
that such right shall  apply only to the extent  that such Major  Investor is an
"accredited  investor"  within the  meaning of Rule 501 of  Regulation  D of the
Securities  Act. For purposes of this Article V, "Major



                                       15
<PAGE>


Investor"  includes any general  partners and Affiliates of a Major Investor.  A
Major  Investor  shall be entitled to apportion the rights of first offer hereby
granted it among itself and its partners and  Affiliates in such  proportions as
it deems  appropriate.  Subject to  Section  5.3  below,  each time the  Company
proposes to offer any shares of, or securities  convertible  into or exercisable
for any shares of, any class of its capital stock ("SHARES"),  the Company shall
first make an offering to each Major Investor to purchase such Major  Investor`s
pro-rata share of such offering in accordance with the following provisions:

         SECTION 5.2 PROCEDURE FOR  EXERCISE.  The Company shall deliver  notice
(the  "OFFER  NOTICE")  to the Major  Investor  stating (i) the number of Shares
offered in the  applicable  offering and (ii) the price and terms,  if any, upon
which it proposes to offer such Shares. Within 45 days after giving of the Offer
Notice, each Major Investor may elect to purchase or obtain, at the price and on
the terms  specified  in the Notice,  up to that  portion of such  Shares  which
equals the proportion that the number of Preferred  Registrable  Securities then
held by such Major  Investor bears to the total number of shares of Common Stock
of the Company then  outstanding  (assuming full  conversion and exercise of all
convertible or exercisable  securities then  outstanding) by paying the purchase
price therefor at the principal office of the Company. Each Major Investor shall
have an  over-allotment  option  with  respect  to any shares  that other  Major
Investors  elect not to purchase and may exercise such option in the same manner
provided  above within 15 days after  receipt of notice from the Company of such
over-allotment  shares,  which notice shall be delivered within five days of the
expiration of the initial 45-day period.

         SECTION 5.3 EXCLUDED ISSUANCES.  The rights of first offer set forth in
this  section  shall not be  applicable  to (i) shares of Common Stock issued or
issuable solely for compensatory purposes, to directors,  officers, employees or
consultants  of the  Company,  whether  directly (as Common Stock or options) or
pursuant  to a stock  option  plan or a  restricted  stock  plan,  in each  case
approved by the Board of Directors;  (ii) shares of Common Stock issued upon the
conversion of shares of the Company`s  Preferred Stock;  (iii) securities issued
in connection with a bona fide business  acquisition or license of technology of
or by the Company,  whether by license, merger,  consolidation,  sale of assets,
sale or exchange of stock or otherwise that are not issued  primarily for equity
financing  purposes,  in each case as approved by the Board of  Directors;  (iv)
securities issued in connection with bona fide commercial borrowing, real estate
leases,  capital  equipment  leases,   licensing,   distribution,   development,
corporate partnering or similar transactions, in each case approved by the Board
of Directors of the Company that are not issued  primarily for equity  financing
purposes;  and (v)  securities  issued  as  dividends  or  distributions  on the
Preferred Stock.

         SECTION 5.4 SALES TO THIRD PARTIES.  The Company shall, after complying
with its obligations under Sections 5.1 and 5.2, be free at any time prior to 90
days after the date of the Offer Notice, to offer and sell to any third party or
parties the remainder of such securities proposed to be issued by the Company at
a price  and on  payment  terms no less  favorable  to the  Company  than  those
specified in the Offer  Notice.  However,  if such third party sale or sales are
not  consummated  within  such 90 day period,  the  Company  shall not sell such
securities  as shall not have been  purchased  within such period  without again
complying with this Article V.

         SECTION 5.5 ASSIGNMENT OF RIGHTS OF FIRST OFFER. Except as set forth in
Section  5.1,  the rights of first  offer set forth in this  section  may not be
assigned or transferred.



                                       16
<PAGE>


         SECTION 5.6  TERMINATION OF RIGHTS OF FIRST OFFER.  The rights provided
in this Article V shall  terminate  upon the earlier to occur of (i) a Qualified
Public Offering (as defined in the Company`s  Certificate of  Incorporation,  as
the same may be amended and restated from time to time),  and these rights shall
not be applicable to a Qualified Public Offering or (ii) a Change of Control.

                                   ARTICLE VI

                                  MISCELLANEOUS

         SECTION 6.1 ASSIGNS.  All  covenants and  agreements  contained in this
Agreement  by or on behalf of any of the parties  hereto shall bind and inure to
the benefit of the  respective  successors  and  assigns of the parties  hereto,
including,  without  limitation,  transferees  of  any  Securities,  whether  so
expressed or not, each of whom as a condition to such transfer  shall execute an
Adoption Agreement in the form attached hereto as Exhibit A; provided,  however,
that rights to register  Registrable  Securities  pursuant to Article III may be
transferred only to (i) any then-current holder of Registrable Securities,  (ii)
any partner,  member or Affiliate of a holder of Registrable  Securities,  (iii)
any family member or trust of any individual holder of Registrable Securities or
(iv)  a  transferee   who  acquires  at  least  250,000  shares  of  Registrable
Securities.

         SECTION 6.2 NOTICES. Any notice required or permitted by this Agreement
shall be in  writing  and shall be deemed  effectively  given:  (1) upon  actual
delivery,  when  delivered  personally;  (b) upon receipt when sent by confirmed
telegram or fax if sent during normal  business  hours,  and if not, then on the
next  business  day;  (c) one day after  deposit  with a  nationally  recognized
overnight courier,  specifying next day delivery,  with written  verification of
receipt;  (d) five  business  days after being  deposited in the U.S.  mail,  as
certified or registered  mail,  return  receipt  requested,  postage  prepaid if
addressed to U.S. addressees or (e) seven business days after being deposited in
the U.S.  mail,  as certified or  registered  mail,  return  receipt  requested,
postage prepaid if addressed to non-U.S. addressees. All communications shall be
sent to the  Company  and to the  Investors  at the  addresses  as set  forth on
Schedule A or at such other  addresses as the Company or Investors may designate
by ten (10) days` advance written notice to the other parties hereto;  and if to
the Company,  with a copy to Carmelo M.  Gordian,  Andrews & Kurth  L.L.P.,  111
Congress Avenue, Suite 1700, Austin, TX 78701, facsimile: (512) 320-9292.

                  (i) if to the Company, at its principal place of business;

                  (ii) if to any holder of  Securities,  at such  address as may
         have been furnished to the Company in writing by such holder.

         SECTION 6.3  GOVERNING  LAW.  This  Agreement  shall be governed by and
construed in accordance  with the laws of the State of Delaware  without  giving
effect to principles of conflicts of laws.

         SECTION 6.4 AMENDMENTS.  This Agreement may not be amended or modified,
and no  provision  hereof  may be waived,  without  the  written  consent of the
Company and the holders of



                                       17
<PAGE>


a  majority  of the  Preferred  Registrable  Securities  held by the  Investors;
provided,  however, that in the event such amendment or waiver adversely affects
the rights and/or obligations of the Principal Stockholders or Key Management in
a different  manner than the  Investors,  such  amendment  or waiver  shall also
require  the written  consent of the  holders of a majority of the Common  Stock
then held by the  Principal  Stockholders  or the  holders of a majority  of the
Common Stock then held by Key Management who are then providing  services to the
Company as an employee,  officer or  director,  as the case may be; and provided
further that the Board of Directors  shall have the right to amend or modify the
list of Key  Management on Schedule C hereto from time to time to remove certain
individuals who are no longer  employees,  officers or directors of the Company.
In the event of any addition of a member of Key  Management  who shall have been
approved by the Board of Directors, such member of Key Management shall become a
party to this Agreement upon receipt from such new member of Key Management of a
fully  executed  signature  page hereto.  Any  amendment  or waiver  effected in
accordance  with this Section  shall be binding upon each holder of  Registrable
Securities  then  outstanding,  each  future  holder  of  all  such  Registrable
Securities and the Company.

         SECTION 6.5 COUNTERPARTS;  FACSIMILE SIGNATURES.  This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall  constitute  one and the same  instrument.  This
Agreement may be executed by facsimile signatures.

         SECTION 6.6  SEVERABILITY.  If any provision of this Agreement shall be
held to be illegal,  invalid or  unenforceable,  such illegality,  invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal,  invalid or unenforceable  any other provision of this
Agreement,  and this  Agreement  shall be  carried  out as if any such  illegal,
invalid or unenforceable provision were not contained herein.

         SECTION 6.7 AGGREGATION. All shares held or acquired by an Investor and
its Affiliates and the partners, members and shareholders of the Investor or its
Affiliates  shall be  aggregated  together  for the purpose of  determining  the
availability of any rights under this Agreement.

                            [Signature pages follow]



                                       18
<PAGE>


         IN WITNESS WHEREOF, the undersigned party has executed this counterpart
signature page to the Investors`  Rights  Agreement as of the date first written
above.


                                    COMPANY:

                                    COMVERGE, INC.

                                    By:
                                        ---------------------------------------
                                        Robert M. Chiste
                                        Chief Executive Officer



         [SIGNATURE PAGE TO COMVERGE, INC. INVESTORS` RIGHTS AGREEMENT]

<PAGE>


                                    INVESTORS:

                                    DATA SYSTEMS & SOFTWARE INC.

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------

                                    EASTON HUNT CAPITAL PARTNERS, L.P.

                                    By:  EHC GP, L.P.
                                    Its:  General Partner
                                    By:  EHC, Inc.
                                    Its:  General Partner

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------

                                    ENERTECH CAPITAL PARTNERS II L.P.

                                    By:  ECP II Management L.P.,
                                         Its General Partner

                                    By:  ECP II Management L.L.C.,
                                         Its General Partner

                                    By:
                                        ---------------------------------------
                                        David F. Lincoln
                                        Managing Director


                                    ECP II INTERFUND L.P.

                                    By:  ECP II Management L.L.C.,
                                         Its General Partner

                                    By:
                                        ---------------------------------------
                                        David F. Lincoln
                                        Managing Director


         [SIGNATURE PAGE TO COMVERGE, INC. INVESTORS` RIGHTS AGREEMENT]

<PAGE>

                                    E.ON VENTURE PARTNERS

                                    By:
                                        ---------------------------------------
                                         Peter Bachsleitner
                                         Managing Director

                                    By:
                                        ---------------------------------------
                                        Steffen Hasselwander
                                        Managing Director


                                    NTH POWER TECHNOLOGIES FUND II, L.P.,
                                    NTH POWER TECHNOLOGIES FUND II-A, L.P.

                                    BY: NTH POWER MANAGEMENT II, L.P.
                                        AND
                                        NTH POWER MANAGEMENT II-A, L.L.C.

                                    BY: NTH POWER L.L.C.
                                        THEIR MANAGEMENT AGENT

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------

                                    SHELL INTERNET VENTURES B.V.

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------


         [SIGNATURE PAGE TO COMVERGE, INC. INVESTORS` RIGHTS AGREEMENT]



<PAGE>


                                    PRINCIPAL STOCKHOLDERS

                                    DATA SYSTEMS & SOFTWARE INC.


                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------

         [SIGNATURE PAGE TO COMVERGE, INC. INVESTORS` RIGHTS AGREEMENT]

<PAGE>


                                    KEY MANAGEMENT:



                                    ---------------------------------------
                                    Robert Chiste


                                    ---------------------------------------
                                    T. Wayne Wren


                                    ---------------------------------------
                                    Joseph Esteves


                                    ---------------------------------------
                                    John Rossi


                                    ---------------------------------------
                                    Richard Preston


                                    ---------------------------------------
                                    Frank Magnotti


                                    ---------------------------------------
                                    Coral Almog



<PAGE>

EXHIBIT 10.31

                                                                  EXECUTION COPY


                       CO-SALE AND FIRST REFUSAL AGREEMENT

         THIS CO-SALE AND FIRST REFUSAL AGREEMENT (this "AGREEMENT"), is made as
of April 7, 2003,  by and among  Comverge,  Inc.,  a Delaware  corporation  (the
"COMPANY"),  each of the  individuals and entities listed on Schedule A attached
hereto (the  "INVESTORS")  and each of the  individuals  and entities  listed on
Schedule B attached  hereto (the  "STOCKHOLDERS").  This Agreement  shall become
effective as of the Closing as defined in that certain  Preferred Stock Purchase
Agreement  (the  "PURCHASE  AGREEMENT")  of even date  herewith by and among the
Company and the Investors  named therein.  Capitalized  terms not defined herein
shall have the meanings given such terms in the Purchase Agreement.

                                 R E C I T A L S

         WHEREAS,  the Company is a party to the Purchase  Agreement pursuant to
which certain of the Investors are purchasing shares of the Company`s  Preferred
Stock; and

         WHEREAS,  the parties  hereto desire to restrict the sale,  assignment,
transfer,  encumbrance or other disposition of the shares of Common Stock of the
Company that the Stockholders own as of the date hereof,  or any other shares of
Common   Stock  of  the  Company  the   Stockholders   may   hereafter   acquire
(collectively,  the "STOCK"),  and to provide for certain rights and obligations
in respect thereto as hereinafter provided.

                                A G R E E M E N T

         NOW,  THEREFORE,  in  consideration  of the  premises,  and the  mutual
promises and agreements contained herein, the parties hereby agree as follows:

         1. RESTRICTIONS ON TRANSFERS

         1.1 General Prohibition on Transfers; Permitted Transfers

         (a) Except as otherwise permitted hereby, no Stockholder shall directly
or  indirectly  sell,  assign,  pledge or encumber or otherwise  transfer to any
person or entity (a  "TRANSFEREE")  any shares of Stock unless such  Stockholder
has  complied  with all of the  terms of this  Agreement.  Any  purported  sale,
assignment,  pledge, encumbrance or other transfer in violation of any provision
of this  Agreement  shall be void and  ineffectual  and  shall  not  operate  to
transfer any interest or title to the purported Transferee.

         (b) The  restrictions  contained  in this  Agreement  with  respect  to
transfers  by each  Stockholder  of shares of Stock  shall not apply to: (i) any
transfer of Stock by the Stockholder to any spouse, parents, siblings (by blood,
marriage or adoption) or lineal  descendants  (by blood,  marriage or adoption);
(ii)  any  transfer  of  Stock  by  the  Stockholder  to a  trust,  partnership,
corporation,  limited  liability company or other similar entity for the benefit
of the  Stockholder or the  Stockholder`s  spouse,  parents,  siblings or lineal
descendants;   (iii)  any  transfer  of  Stock  by  the  Stockholder,  upon  the
Stockholder`s death, to the executors,  administrators,  testamentary  trustees,
legatees or beneficiaries of the Stockholder;  (iv) any


                                       1

<PAGE>


transfer of Stock by the  Stockholder to any person who controls,  is controlled
by or is under common  control with the  Stockholder  (within the meaning of the
Securities Act of 1933, as amended) (an "AFFILIATE");  (v) any transfer of stock
by the Stockholder (A) pursuant to a merger or consolidation of the Company with
or into another  corporation or  corporations,  (B) pursuant to the liquidation,
dissolution  or winding up of the Company,  (C) at, and pursuant to, a Qualified
Public  Offering  as  defined  in  the  Company`s  then-current  Certificate  of
Incorporation,  or (D) in connection  with a  transaction  in which stock of the
Company  having  more than 50% of the voting  power of all the then  outstanding
stock  of the  Company  is  transferred;  provided,  that in  each of the  cases
referred to in clauses (i) through (iv) above,  each transferee,  donee, heir or
distributee shall, as a condition precedent to such transfer,  become a party to
this  Agreement  by executing an Adoption  Agreement  substantially  in the form
attached  as Annex A and shall  have all of the rights  and  obligations  of the
Stockholder hereunder;  and provided further, that in each of the cases referred
to  in  subclauses  (A),  (B)  and  (D)  of  clause  (v)  above,  the  Company`s
stockholders  of record as  constituted  immediately  prior to such event  will,
immediately  after such event,  hold less than a majority of the voting power of
the surviving or acquiring entity.

         1.2 Right of First Refusal

         (a) Except as otherwise  permitted in Section  1.1(b) of this Agreement
or as  required  by Section 1.5 of this  Agreement,  transfers  of shares of the
Stock by each  Stockholder  shall not be permitted  unless the  Stockholder  has
complied  with this Section 1.2. If the  Stockholder  intends to sell any of its
shares of Stock (the  "PROPOSED  SELLER"),  it shall give  written  notice  (the
"SELLER`S  NOTICE") to the Company and each of the  Investors  stating  that the
Proposed  Seller intends to make such a sale or transfer,  identifying the party
who made the offer (the "PROPOSED TRANSFEREE"),  specifying the number of shares
of Stock proposed to be purchased or acquired  pursuant to the offer (the "FIRST
REFUSAL SHARES"), the nature of such sale or transfer, all material terms of the
proposed  sale,  including  the per share  purchase  price  which  the  Proposed
Transferee  has offered to pay for the First  Refusal  Shares (the "SALE PRICE")
and the name and address of each Proposed  Transferee.  A copy of the offer,  if
available, and a statement of the number of shares held by each of the Investors
shall be attached to the Seller`s Notice.

         (b) (i) Upon receipt of the Seller`s Notice, the Company shall have the
irrevocable  and  exclusive  option to purchase,  upon  delivery to the Proposed
Seller within  fifteen (15) days of its receipt of the Seller`s  Notice,  all or
any portion of the First Refusal Shares. The Company shall deliver a notice (the
"COMPANY  NOTICE")  to the  Proposed  Seller  and each of the  Investors  of its
election to purchase or not to purchase  such First  Refusal  Shares within such
fifteen (15) day period,  together  with  payment to the Proposed  Seller of the
Sale Price  therefor.  To the extent that the Company does not elect to purchase
all of the First Refusal  Shares,  each Investor shall have the  irrevocable and
exclusive  option to purchase up to that number of the  remaining  First Refusal
Shares at the Sale  Price as equals the  product of (A) the number of  remaining
First Refusal Shares multiplied by (B) a fraction,  the numerator of which shall
be the number of shares of Common Stock issued or issuable  upon  conversion  of
the  Preferred  Stock held by such  Investor  and any Common  Stock  issued as a
dividend  or  other  distribution  with  respect  to or in  exchange  for  or in
replacement of such Common Stock  (collectively,  the "INVESTOR SHARES") and the
denominator of which shall be the number of Investor  Shares owned by all of the
Investors (the  "PROPORTIONATE  SHARE").  Within twenty (20) calendar days after
delivery of the Company  Notice,  each Investor shall deliver to the Company


                                       2
<PAGE>


and the Proposed  Seller a written notice stating  whether it elects to exercise
its option  under this Section  1.2(b) and the maximum  number of shares (not to
exceed  all of  such  Investor`s  Proportionate  Share)  that it is  willing  to
purchase,  and such notice shall  constitute an  irrevocable  commitment by such
Investor to purchase such shares.

         (ii) If an Investor  does not elect to purchase its full  Proportionate
Share,  the Proposed  Seller shall deliver another written notice to the Company
and each Investor that has elected to purchase its full  Proportionate  Share (a
"FULLY  EXERCISING  INVESTOR")  stating the number of unpurchased  shares.  Each
Fully Exercising Investor shall be entitled, by delivering written notice to the
Company  and the  Proposed  Seller  within five  calendar  days  following  such
Investor`s receipt of such notice, to purchase up to all of the remaining shares
at the Sale  Price.  In the  event of an  oversubscription,  the  oversubscribed
amount shall be allocated among such Fully  Exercising  Investors pro rata based
on the number of  Investor  Shares  owned by each of them.  The  delivery of the
notice  of  election  under  this  paragraph  shall  constitute  an  irrevocable
commitment to purchase such shares.

         (iii) Each Investor shall be entitled to assign its rights  pursuant to
Section 1.2 to any of its Affiliates.

         (iv) If any of the First Refusal Shares are not elected to be purchased
pursuant to this Section 1.2, then,  subject to Section 1.3 hereof, the Proposed
Seller shall be free,  for a period of sixty (60) calendar days from the date of
the Seller`s Notice,  to sell the remaining First Refusal Shares to the Proposed
Transferee, at a price equal to or greater than the Sale Price and upon terms no
more favorable to the Proposed  Transferee  than those  specified in the Notice.
Any transfer of the remaining  First Refusal Shares by the Proposed Seller after
the end of such  sixty (60) day period or any change in the terms of the sale as
set forth in the  Seller`s  Notice  which  are more  favorable  to the  Proposed
Transferee  shall  require a new notice of intent to transfer to be delivered to
the  Investors  and shall give rise anew to the rights  provided in this Section
1.2.

         (c) If the Company and/or the Investors elect to purchase any or all of
the First Refusal Shares  mentioned in the Seller`s  Notice,  the Company and/or
such  Investor(s)  shall have the right to purchase the First Refusal Shares for
cash consideration whether or not part or all of the consideration  specified in
the Seller`s Notice is other than cash. If part or all of the  consideration  to
be paid for the First Refusal  Shares as stated in the Seller`s  Notice is other
than cash,  the price stated in such  Seller`s  Notice shall be deemed to be the
sum of the cash  consideration,  if any, specified in such Seller`s Notice, plus
the fair market  value of the non-cash  consideration.  The fair market value of
the non-cash  consideration shall be determined by the Board of Directors of the
Company  (without  the  participation  of any member who has any interest in the
Proposed  Transferee  or the Proposed  Seller),  and its judgment as to the fair
market value of such non-cash  consideration  shall be binding upon the Proposed
Seller and the other Investors.

         1.3 Right of Co-Sale. In the event that all of the First Refusal Shares
are not  purchased  by the Company or the  Investors  as provided in Section 1.2
hereof,  the Proposed Seller shall deliver a notice to each of the Investors who
did not purchase shares  pursuant to Section 1.2(b) above (a  "NON-PARTICIPATING
INVESTOR")  informing  it of the number of shares not



                                       3
<PAGE>


elected to be purchased by the other  Investors  and the number of First Refusal
Shares it still holds (the "CO-SALE SHARES") and intends to sell to the Proposed
Transferee.   Each  such  Non-Participating   Investor  shall  have  the  right,
exercisable  upon written  notice to the Company and the Proposed  Seller within
five (5) calendar  days after the giving of such notice by the Proposed  Seller,
to participate in the Proposed Seller`s sale of Co-Sale Shares at the Sale Price
and upon the terms  specified  in the  Notice.  The  delivery  of the  notice of
election under Section 1.3 shall  constitute an  irrevocable  commitment by such
Non-Participating Investor to sell the number of shares specified in such notice
pursuant to this Section 1.3. To the extent one or more of the Non-Participating
Investors  exercise such right of participation in accordance with the terms and
conditions  set forth  below,  the number of shares of Stock which the  Proposed
Seller may sell to the Proposed Transferee shall be correspondingly reduced. The
right  of  participation  of each of the  Non-Participating  Investors  shall be
subject to the following terms and conditions:

         (a) Each  Non-Participating  Investor may elect to sell all or any part
of  that  number  of  shares  of  Common  Stock  of the  Company  held  by  such
Non-Participating  Investor equal to the product obtained by multiplying (i) the
aggregate number of Co-Sale Shares by (ii) a fraction, the numerator of which is
the  number  of  Investor  Shares  at the time  owned by such  Non-Participating
Investor  and the  denominator  of which is the sum of the  number  of shares of
Common  Stock of the  Company  (assuming  full  conversion  and  exercise of all
convertible and  exercisable  securities into Common Stock) at the time owned by
the  Proposed  Seller  and the  number of  Investor  Shares  owned by all of the
Non-Participating Investors (the "CO-SALE PROPORTIONATE SHARE").

         (b) If a  Non-Participating  Investor  does not  elect to sell his full
Co-Sale  Proportionate  Share, the Proposed Seller shall deliver another written
notice to the Company  and each  Non-Participating  Investor  who has elected to
sell  its  full  Co-Sale   Proportionate  Share  (a  "FULLY-EXERCISING   CO-SALE
INVESTOR") stating the number of unsold shares.  Each  Fully-Exercising  Co-Sale
Investor shall be entitled,  by delivering written notice to the Company and the
Proposed  Seller within five calendar days following such notice,  to sell up to
all of the shares not sold by the  Non-Participating  Investors above and beyond
its Co-Sale  Proportionate  Share. Such election shall constitute an irrevocable
commitment  by such  Fully-Exercising  Co-Sale  Investor  to sell the  number of
shares  specified in such notice  pursuant to this Section 1.3. In the event the
number of shares requested to be sold by all Fully-Exercising  Co-Sale Investors
exceeds  the  aggregate  Co-Sale  Shares  available  for  sale  by  all  of  the
Fully-Exercising  Co-Sale  Investors,  the remaining  shares to be sold shall be
allocated pro rata among such Fully-Exercising  Co-Sale Investors (including the
Proposed Seller) based on the number of Investor Shares owned by each.

         (c) Each of the exercising Non-Participating Investors shall effectuate
the sale by  promptly  delivering  to the  Proposed  Seller for  transfer to the
Proposed Transferee one or more certificates, properly endorsed for transfer (or
accompanied by duly executed stock powers), which represent the number of shares
of Common Stock which the Non-Participating Investor elects to sell.

         (d) The  stock  certificates  which  the  exercising  Non-Participating
Investors  deliver to the Proposed  Seller shall be  transferred by the Proposed
Seller  to the  Proposed  Transferee  in  consummation  of the sale of the Stock
pursuant to the terms and



                                       4
<PAGE>


conditions  specified in the  Seller`s  Notice,  and the  Proposed  Seller shall
promptly  thereafter  remit to each exercising  Non-Participating  Investor that
portion of the sale proceeds to which the exercising  Non-Participating Investor
is entitled by reason of its  participation in such sale. To the extent that any
prospective  purchaser or  purchasers  prohibits  such  assignment  or otherwise
refuses  to  purchase  shares  or other  securities  from any  Non-Participating
Investor  exercising its rights of co-sale hereunder,  the Proposed Seller shall
not sell to such prospective purchaser or purchasers any Stock unless and until,
simultaneously with such sale, the Proposed Seller shall purchase such shares or
other securities from such Non-Participating Investor for the same consideration
and on the same terms and conditions as the proposed  transfer  described in the
Seller`s Notice.

         1.4 Additional Transactions. The exercise or non-exercise of the rights
of an Investor  hereunder to  participate  in one or more sales of Stock made by
the Proposed  Seller shall not adversely  affect their rights to  participate in
subsequent sales by the Stockholder.

         1.5 Ownership.  The Stockholders represent and warrant that each is the
sole  legal  and  beneficial  owner of those  shares of Stock  such  Stockholder
currently  holds  subject  to this  Agreement  and that no other  person has any
interest (other than community property interest) in such shares.

         1.6 Drag-Along Rights.

         (a)  Applicability.  In the event the holders of a majority of the then
outstanding  Preferred  Stock  of the  Company  (the  "PROPOSING  STOCKHOLDERS")
approve  a sale  of the  Company  or a sale of all or  substantially  all of the
Company`s  assets,  in a bona fide  transaction,  whether  by means of a merger,
consolidation,  sale of stock or assets or otherwise, in a single,  simultaneous
or related series of transactions (an "APPROVED  SALE"),  then the Investors and
the Stockholders (collectively,  the "REMAINING HOLDERS") shall each consent to,
vote for and raise no objections to the Approved Sale. If the proposed  acquiror
is an affiliate of any stockholder of  then-outstanding  Preferred  Stock,  then
this Section  1.6(a) shall only apply to the Approved  Sale if the Approved Sale
is approved by the holders of a majority of the then-outstanding Preferred Stock
held of record by holders that are not affiliates of such proposed acquiror.  If
the Approved Sale will take the form of an asset sale,  merger or consolidation,
the Remaining  Holders shall vote in favor of such  transaction  and shall waive
any appraisal rights or dissenters`  rights in connection with such transaction.
If the Approved Sale is  structured as a sale of the stock of the Company,  each
Remaining  Holder shall agree to sell all capital stock in the Company then held
by such Remaining  Holder on the terms and conditions  approved by the Proposing
Stockholders.  A Remaining  Holder shall have no obligations  under this Section
1.6 to the  extent  that the  terms  of the  Approved  Sale  provide  that  such
Remaining Holder would receive less than the amount that would be distributed to
such  Remaining  Holder in the  event  that the  proceeds  were  distributed  in
accordance with the Company`s  then-current  Certificate of  Incorporation.  All
capital stock  transferred by the Remaining Holders pursuant to this Section 1.6
shall be sold at the same  price  and  otherwise  treated  identically  with the
capital  stock  of the  same  class  and  series  being  sold  by the  Proposing
Stockholders in all respects. The Remaining Holders shall each take such actions
as may be  reasonably  required and  otherwise  cooperate in good faith with the
Proposing  Stockholders  in  connection  with  consummating  the Approved  Sale,
including  the  execution  of such  agreements  and such  instruments  and other


                                       5
<PAGE>

actions  reasonably  necessary  to (i) provide  reasonable  representations  and
warranties and other  provisions  and agreements  relating to such Approved Sale
and  (ii)   effectuate  the  allocation  and   distribution   of  the  aggregate
consideration upon the Approved Sale.

         (b) Notice of Sale. The Proposing Stockholders shall give the Remaining
Holders at least ten (10) days prior  written  notice of any Approved Sale as to
which the  Proposing  Stockholders  intend to exercise  their  rights under this
Section 1.6.

         (c) Notwithstanding any other provision of this Agreement,  no Investor
or group of  Investors  (the  "OFFERING  STOCKHOLDERS")  shall be a party to any
transaction  or series of  transactions  that involves a transfer to any person,
persons acting in concert or entity (a "PROSPECTIVE  ACQUIROR") of shares of the
Company if such sale would result in the Prospective Acquiror, together with its
Affiliates, holding 50% or more by voting power of all outstanding capital stock
of the Company,  unless the  Prospective  Acquiror offers to purchase all of the
capital  stock  of the  Company  for the  same  consideration  per  share  (with
appropriate  adjustment to reflect the conversion of convertible  securities and
the preference  and  priorities of any preferred  stock) and upon the same terms
and conditions for securities of the same type,  class and series as are offered
to the Offering Stockholder(s).

         2. LEGENDED CERTIFICATES

         2.1 Legend on the Stockholders`  Stock.  Each certificate  representing
shares of the Stock now or hereafter owned by each  Stockholder or its permitted
Transferees  pursuant  to clauses (i) through  (iv) of Section  1.1(b)  shall be
endorsed with the following legend:

         "THIS  CERTIFICATE AND THE SHARES  REPRESENTED  HEREBY MAY NOT BE SOLD,
ASSIGNED,  TRANSFERRED,  ENCUMBERED,  OR IN ANY  MANNER  DISPOSED  OF  EXCEPT IN
CONFORMITY  WITH THE  TERMS  AND  CONDITIONS  OF A  CO-SALE  AND  FIRST  REFUSAL
AGREEMENT AMONG THE HOLDER (OR THE  PREDECESSOR IN INTEREST TO THE SHARES),  THE
CORPORATION  AND CERTAIN OTHER  STOCKHOLDERS OF THE  CORPORATION.  ADDITIONALLY,
THIS  CERTIFICATE  AND THE  SHARES  REPRESENTED  HEREBY  ARE  SUBJECT TO CERTAIN
DRAG-ALONG PROVISIONS SET FORTH IN THE CO-SALE AND FIRST REFUSAL AGREEMENT.  THE
CORPORATION  WILL UPON WRITTEN  REQUEST  FURNISH A COPY OF SUCH AGREEMENT TO THE
HOLDER HEREOF WITHOUT CHARGE.  THE CORPORATION WILL NOT REGISTER THE TRANSFER OF
SUCH  SECURITIES ON THE BOOKS OF THE  CORPORATION  UNLESS AND UNTIL THE TRANSFER
HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT."

         2.2 The legend  required under Section 2.1 hereof shall be removed upon
termination of this Agreement in accordance with the provisions of Section 4.1.

         3. PROHIBITED TRANSFERS

         3.1 Grant. In the event that any  Stockholder  should sell any Stock in
contravention of the  participation  rights of the  Non-Participating  Investors
under   Section  1.3  of



                                       6
<PAGE>


this Agreement (a "PROHIBITED TRANSFER"), the Non-Participating  Investors shall
have the put option provided in Section 3.2.

         3.2  Put  Option.   In  the  event  of  a  Prohibited   Transfer,   the
Non-Participating Investors shall have the option to sell to the Proposed Seller
a number of shares of Common  Stock of the Company  (either  directly or through
conversion  and  delivery  of Series A Preferred  Stock)  equal to the number of
shares that the Non-Participating Investors would have been entitled to sell had
such Prohibited Transfer been effected in accordance with Section 1.3 hereof, on
the following terms and conditions:

         (a) The  price  per  share at which  the  shares  are to be sold to the
Proposed  Seller  shall be equal to the  price per  share  paid to the  Proposed
Seller by the third party  purchaser  or  purchasers  of the  Proposed  Seller`s
Stock. The Proposed Seller shall also reimburse the Non-Participating  Investors
exercising  the  put  option  for  any  and all  fees  and  expenses,  including
reasonable  out-of-pocket  legal  fees and  expenses  incurred  pursuant  to the
exercise or attempted exercise of rights under this Section 3.

         (b) The  Non-Participating  Investors  shall  deliver  to the  Proposed
Seller,  within  thirty  (30) days  after  they have  received  notice  from the
Proposed  Seller or  otherwise  become  aware of the  Prohibited  Transfer,  the
certificate or certificates  representing shares to be sold, each certificate to
be properly  endorsed  for  transfer  (or  accompanied  by duly  executed  stock
powers).

         (c) The Proposed Seller shall, upon receipt of the certificates for the
repurchased  shares,  pay the aggregate  purchase price therefor provided for in
this  Article 3, by delivery  of  consideration  in the same form such  Proposed
Seller  received  for  the  Stock  sold in the  Prohibited  Transfer  and  shall
reimburse the Non-Participating Investors for any additional expenses, including
legal fees and expenses, incurred in effecting such purchase and resale.

         3.3  Company  Expenses.  In the  event of a  Prohibited  Transfer,  the
Proposed  Seller in the Prohibited  Transfer shall reimburse the Company for any
and all fees and expenses,  including  reasonable  out-of-pocket  legal fees and
expenses, incurred by the Company in connection with such Prohibited Transfer.

         4. GENERAL

         4.1  Termination.  The rights and obligations of an Investor under this
Agreement  shall  terminate at such time as that Investor shall no longer be the
owner of at least 1,000 shares,  or rights to acquire shares,  (as appropriately
adjusted   for   any   stock   splits,   stock   dividends,   combinations   and
recapitalizations)  of Common Stock (as  determined on an  as-converted  basis).
Unless  sooner  terminated  with respect to a particular  Investor in accordance
with the preceding sentence,  this Agreement shall terminate upon the occurrence
of any of the following events:

         (a)  the  liquidation,  dissolution  or  indefinite  cessation  of  the
business operations of the Company, or the acquisition of the Company by another
entity (or group of  affiliated  entities or entities  operating  as a group) by
means of any transaction or series of related transactions  (including,  without
limitation,  any reorganization,  merger or consolidation)  unless



                                       7
<PAGE>


the Company`s  stockholders of record as constituted  immediately  prior to such
acquisition or sale will,  immediately after such acquisition or sale (by virtue
of securities issued as consideration  for the Company`s  acquisition or sale or
otherwise)  hold at least 50% of the voting power of the  surviving or acquiring
entity  (except  that the sale by the Company of shares of its capital  stock to
investors  in bona  fide  financing  transactions  shall  not be deemed to be an
acquisition for this purpose);

         (b) the  consummation of a Qualified Public Offering (as defined in the
Company`s Certificate of Incorporation,  as the same may be amended and restated
from time to time); or

         (c) upon the  execution and delivery of a written  agreement  signed by
the holders of a majority of the Series A Preferred Stock, voting or acting as a
separate class.

         Notwithstanding  this  Section  4.1,  Section  1.6  shall  survive  any
termination of this Agreement  pursuant to Section 4.1(a) until such transaction
has closed and all proceeds of such transaction  (including  without  limitation
any  earn-out  or  escrowed   proceeds)  have  been  fully  distributed  to  all
stockholders of the Company in accordance with the terms of such transaction.

         4.2 Notices. All notices and other communications hereunder shall be in
writing  and shall be deemed  given if  delivered  personally  or by  commercial
delivery  service,  or mailed by  registered or certified  mail (return  receipt
requested) or sent via facsimile  (with  confirmation of receipt) to the parties
at the address for such party set forth  beneath such party`s name on Schedule A
hereto  (or at such  other  address  for a party as shall be  specified  by like
notice) and, in the case of the Company:


                   Comverge, Inc.
                   23 Vreeland Road, Suite 160
                   Florham Park, NJ  07932
                   Fax:  (973) 360-2220
                   Attn:  Chief Executive Officer

                   with a copy to

                   Andrews & Kurth L.L.P.
                   111 Congress Ave., Suite 1700
                   Austin, Texas 78701
                   Fax:  (512) 320-9292
                   Attn:  Carmelo M. Gordian

         Notice given by facsimile shall be confirmed by appropriate answer back
and shall be effective  upon actual receipt if received  during the  recipient`s
normal business hours, or at the beginning of the recipient`s  next business day
after receipt if not received during the recipient`s  normal business hours. All
notices by facsimile shall be confirmed  promptly after  transmission in writing
by  certified  mail or  personal  delivery.  Any party may change any address to
which  notice is to be given to it by giving  notice as  provided  above of such
change of address.



                                       8
<PAGE>


         4.3  Assignments  and  Transfers.  This  Agreement  and the  rights and
obligations  of the  parties  hereunder  shall  inure to the  benefit of, and be
binding upon, their respective  successors,  assigns and legal  representatives;
provided,  however, and other than as set forth in Section 1.1(b) hereunder, the
first refusal and co-sale  rights  hereunder may be assigned only by an Investor
to a transferee or assignee of such Investor`s  shares of Preferred Stock of the
Company who, after such  assignment or transfer,  holds such number of shares of
Preferred  Stock that is convertible  into at least 250,000 shares of the Common
Stock of the Company (subject to appropriate adjustments for stock splits, stock
dividends,  combinations  and  other  recapitalizations)  and  who  executes  an
Adoption Agreement in the form attached as Annex A. By their execution hereof or
of an Adoption  Agreement,  each party hereto hereby appoints the Company as its
attorney-in-fact  for the sole purpose of executing Adoption Agreements with any
subsequent permitted transferees.

         4.4 Optional Escrow. At the request of any Investor, an escrow shall be
set up to effect the transfer of any certificates or funds  hereunder.  Costs of
such escrow shall be borne by all of the parties  participating therein based on
the aggregate value of the shares held by them which are to be purchased or sold
thereunder.

         4.5  Severability.  In the event one or more of the  provisions of this
Agreement   should,   for  any  reason  be  held  to  be  invalid,   illegal  or
unenforceable,  such  provisions  shall be excluded from this  Agreement and the
balance of this  Agreement  shall be  interpreted as if such provision had never
been contained herein.

         4.6  Amendments  and Waivers.  Other than with respect to amendments to
Schedule A or Schedule B hereto,  which may be amended by the Company to reflect
additional  Investors  or  Stockholders  or  their  permitted  transferees,  any
amendment or modification of this Agreement shall be effective only if evidenced
by a written  instrument  executed by the holders of a majority of the shares of
Common Stock  (determined  on an  as-converted  basis) held by all the Investors
hereunder.  Any waiver  hereunder  shall be  effective  only if  evidenced  by a
written instrument executed by the holders of a majority of the shares of Common
Stock held by all the Investors  (determined on an as-converted basis) or by the
Stockholders  (determined on an as-converted  basis),  as the case may be, whose
rights are being waived.

         4.7 Governing Law. This Agreement shall be governed by and construed in
accordance  with the laws of the State of Delaware,  without regard to conflicts
of law principles.

         4.8  Counterparts.  This  Agreement  may be  executed  in  two or  more
counterparts,  each of which shall be deemed an original but all of which,  when
taken together, shall constitute one and the same instrument.

         4.9 Remedies.  The parties hereto shall have all remedies for breach of
this Agreement available to them as provided by law or equity.  Without limiting
the generality of the foregoing, the parties agree that in addition to any other
rights and remedies available at law or in equity, the parties shall be entitled
to  obtain  specific  performance  of the  obligations  of  each  party  to this
Agreement and immediate  injunctive  relief and that, in the event any action or
proceeding is brought in equity or to enforce the same, no party will urge, as a
defense, that there is an adequate remedy at law.



                                       9
<PAGE>


         4.10  Conflict  with  Other  Rights of First  Refusal.  Certain  of the
Stockholders  have entered  into a stock  purchase  agreement  with the Company,
which  agreement  contains a right of first  refusal  provision  in favor of the
Company.  The right of first refusal provision contained in this Agreement shall
supersede  and replace the right of first  refusal  provision  contained  in the
Stockholder`s  stock  purchase  agreement;  provided,  however,  that the  other
provisions  contained in the Stockholder`s stock purchase agreement shall remain
in full force and effect and, provided  further,  that this Agreement is subject
to,  and  shall in no  manner  limit  the  right  that the  Company  may have to
repurchase  securities  from any Stockholder  pursuant to any stock  restriction
agreement or other agreement between the Company and the Stockholder.

         4.11 Aggregation of Stock. All shares of Common Stock owned or acquired
by an Investor or its Affiliates  (assuming full  conversion and exercise of all
convertible  and  exercisable  securities into Common Stock) shall be aggregated
together for the purpose of  determining  the  availability  of any rights under
this Agreement.

         4.12 Entire Agreement.  This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof.



                            [Signature Pages Follow]


                                       10
<PAGE>



         IN WITNESS  WHEREOF,  the parties have  executed this Co-Sale and First
Refusal Agreement on the day and year indicated above.


                                    COMPANY:

                                    COMVERGE, INC.

                                    By:
                                        ---------------------------------------
                                        Robert M. Chiste
                                        Chief Executive Officer



<PAGE>


                                    INVESTORS:

                                    DATA SYSTEMS & SOFTWARE INC.

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------

                                    EASTON HUNT CAPITAL PARTNERS, L.P.

                                    By:  EHC GP, L.P.
                                    Its:  General Partner
                                    By:  EHC, Inc.
                                    Its:  General Partner

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------

                                    ENERTECH CAPITAL PARTNERS II L.P.

                                    By:  ECP II Management L.P.,
                                         Its General Partner

                                    By:  ECP II Management L.L.C.,
                                         Its General Partner

                                    By:
                                        ---------------------------------------
                                        David F. Lincoln
                                        Managing Director


                                    ECP II INTERFUND L.P.

                                    By:  ECP II Management L.L.C.,
                                         Its General Partner

                                    By:
                                        ---------------------------------------
                                        David F. Lincoln
                                        Managing Director


<PAGE>

                                    E.ON VENTURE PARTNERS

                                    By:
                                        ---------------------------------------
                                         Peter Bachsleitner
                                         Managing Director

                                    By:
                                        ---------------------------------------
                                        Steffen Hasselwander
                                        Managing Director


                                    NTH POWER TECHNOLOGIES FUND II, L.P.,
                                    NTH POWER TECHNOLOGIES FUND II-A, L.P.

                                    BY: NTH POWER MANAGEMENT II, L.P.
                                        AND
                                        NTH POWER MANAGEMENT II-A, L.L.C.

                                    BY: NTH POWER L.L.C.
                                        THEIR MANAGEMENT AGENT

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------

                                    SHELL INTERNET VENTURES B.V.

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------


<PAGE>


                                    STOCKHOLDERS:

                                    DATA SYSTEMS & SOFTWARE INC.


                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------




                                    ---------------------------------------
                                    Robert Chiste


                                    ---------------------------------------
                                    T. Wayne Wren


                                    ---------------------------------------
                                    Joseph Esteves


                                    ---------------------------------------
                                    Frank Magnotti


                                    ---------------------------------------
                                    Coral Almog


                                    ---------------------------------------
                                    Dick Preston


                                    ---------------------------------------
                                    John Rossi




<PAGE>

EXHIBIT 10.32


                                                                  EXECUTION COPY


                                VOTING AGREEMENT

         THIS VOTING  AGREEMENT (this  "AGREEMENT") is made as of April 7, 2003,
by and among Comverge, Inc., a Delaware corporation (the "COMPANY"), the holders
of Series A Preferred Stock listed on Schedule A hereto (the "SERIES A PREFERRED
STOCKHOLDERS"),  the holders of Series A-1 Preferred  Stock listed on Schedule B
hereto (the "SERIES A-1 PREFERRED STOCKHOLDERS") and the holders of Common Stock
of the  Company  listed on  Schedule C hereto (the  "COMMON  STOCKHOLDERS"  and,
together  with  the  Series  A  Preferred  Stockholders,  Series  A-1  Preferred
Stockholders and their respective  permitted  transferees,  the "STOCKHOLDERS").
Capitalized  terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Preferred Stock Purchase Agreement of even date herewith
(the  "PURCHASE  AGREEMENT")  by and among the Company and the  Investors  named
therein.

                                 R E C I T A L S

         WHEREAS,  on the date  hereof the Series A Preferred  Stockholders  and
Series A-1 Preferred Stockholders (together,  the "PREFERRED  STOCKHOLDERS") are
purchasing  from the Company shares of its Preferred Stock pursuant to the terms
of the Purchase Agreement; and

         WHEREAS,  the execution  and delivery of this  Agreement by the Company
and certain of the  Stockholders  is a condition to the closing of the issuance,
sale and purchase of the Preferred Stock pursuant to the Purchase Agreement.

                                A G R E E M E N T

         NOW, THEREFORE,  in consideration of the foregoing premises and certain
other good and valuable consideration,  the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:

         1.  Definitions.   For  purposes  of  this  Agreement,   the  following
definitions shall apply:

                  (a) "Stock" shall mean any and all shares of the capital stock
         of the Company  which a  Stockholder  currently  holds as a "beneficial
         owner"  (determined in accordance with Rule 13d-3 promulgated under the
         Securities  Exchange Act of 1934, as amended) or may hereafter  acquire
         or beneficially own,  including any and all shares of Common Stock, any
         and all  Preferred  Shares (as defined in Section 1(b) below),  and any
         and all other  shares of the capital  stock of the Company  issued as a
         distribution with respect to or in replacement of any of the foregoing.

                  (b)  "Preferred  Shares"  shall mean the  shares of  Preferred
         Stock and any  hereafter  acquired  shares of the  Company`s  Preferred
         Stock,  regardless  of  series,  and any  shares of Stock  issued  upon
         conversion of any such series of Preferred Stock.

         2. Size and Composition of Board of Directors.  The Stockholders  agree
that,  in any election of  directors of the Company,  they shall vote all shares
owned or controlled by them, including all shares that they are entitled to vote
under any voting trust,  voting agreement

<PAGE>

or proxy, or to consent  pursuant to an action by written consent of the holders
of capital stock of the Company,  to elect,  members of the  Company`s  Board of
Directors initially comprised of five directors, designated as follows:

                  (a) At each  election  of  directors  in which the  holders of
         Series A Preferred  Stock,  voting as a separate class, are entitled to
         elect  directors  of the Company,  the Series A Preferred  Stockholders
         shall vote all of their  respective  shares of Series A Preferred Stock
         so  as to  elect:  (i)  one  representative  designated  by  Nth  Power
         Technologies Fund II, L.P. so long as it, together with its affiliates,
         holds not less than  250,000  Preferred  Shares (as  adjusted for stock
         splits,  dividends and the like),  which  individual shall initially be
         Tim Woodward  and (ii) one  representative  designated  by E.ON Venture
         Partners so long as it,  together with its  affiliates,  holds not less
         than 250,000 Preferred Shares (as adjusted for stock splits,  dividends
         and  the  like),   which   individual   shall   initially   be  Steffen
         Hasselwander. Any vote taken to remove any director elected pursuant to
         this Section 2(a), or to fill any vacancy  created by the  resignation,
         removal or death of a director  elected  pursuant to this Section 2(a),
         shall also be subject to the provisions of this Section 2(a).

                  (b) At each  election  of  directors  in which the  holders of
         Series A-1 Preferred Stock, voting as a separate class, are entitled to
         elect directors of the Company,  the Series A-1 Preferred  Stockholders
         shall vote all of their respective shares of Series A-1 Preferred Stock
         so as to elect one  representative  designated  by Easton Hunt  Capital
         Partners,  L.P. so long as it, together with its affiliates,  holds not
         less than  250,000  Preferred  Shares (as  adjusted  for stock  splits,
         dividends and the like),  which  individual  shall initially be Richard
         Schneider.  In the event that no shares of Series A-1  Preferred  Stock
         shall be  outstanding  and shares of Series A  Preferred  Stock  remain
         outstanding,  the director to be elected  pursuant to this Section 2(b)
         shall be elected by the holders of a majority of the Series A Preferred
         Stock.  Any vote taken to remove any director  elected pursuant to this
         Section  2(b),  or to fill  any  vacancy  created  by the  resignation,
         removal or death of a director  elected  pursuant to this Section 2(b),
         shall also be subject to the provisions of this Section 2(b).

                  (c) At each  election  of  directors  in which the  holders of
         Common  Stock,  voting  as a  separate  class,  are  entitled  to elect
         directors of the  Company,  the Common  Stockholders  shall vote all of
         their  respective Stock so as to elect: (i) the person serving as Chief
         Executive  Officer of the Company,  which individual shall initially be
         Robert M. Chiste, and (ii) one (1) individual  nominated by the holders
         of a majority in interest of the Common Stock,  which  individual shall
         initially be George Morgenstern.  Any vote taken to remove any director
         elected  pursuant to this Section 2(c), or to fill any vacancy  created
         by the resignation,  removal or death of a director elected pursuant to
         this  Section  2(c),  shall also be subject to the  provisions  of this
         Section 2(c).

                  (d)  After  December  31,  2003,  the  authorized   number  of
         directors  may be increased to seven  members by the vote of a majority
         of the directors then in office. The vacancies created by such increase
         shall  be  filled  by  two  independent   directors  (the  "INDEPENDENT
         DIRECTORS")  unanimously  elected by the directors  then in office.  At
         each



                                       2
<PAGE>


         election of directors in which the  Stockholders  are entitled to elect
         any directors of the Company in addition to those set forth in Sections
         2(a),  (b) and (c)  above,  the  Stockholders  shall  vote all of their
         respective Stock so as to elect the Independent Directors.

         3.  Vacancies:  Removal.  In the event of any  vacancy  in the Board of
Directors,  the Stockholders agree to vote all outstanding shares of Stock owned
or  controlled  by them and to  otherwise  use their  best  efforts to fill such
vacancy so that the Board of  Directors  of the  Company  will be  comprised  of
directors  designated as provided in Section 2. The  Stockholders  agree to vote
all outstanding shares of Stock owned or controlled by them for the removal of a
director  whenever (but only whenever)  there shall be presented to the Board of
Directors the written direction that such director be removed, signed by (a) Nth
Power,  in the case of the director  designated by Nth Power pursuant to Section
2(a)(i)  of this  Agreement,  (b)  Easton  Hunt,  in the  case  of the  director
designated by Easton Hunt pursuant to Section 2(b) of this  Agreement;  provided
that if no shares of Series A-1 Preferred Stock remain outstanding,  then by the
holders  of a  majority  of the  Series A  Preferred  Stock,  (c)  E.ON  Venture
Partners,  in the  case of the  director  designated  by E.On  Venture  Partners
pursuant to Section 2(a)(ii) of this Agreement, (d) by the holders of a majority
of the capital  stock of the Company (on an  as-converted  basis) in the case of
the  Independent  Directors or (e) the holders of a majority of the Common Stock
held by  Common  Stockholders,  in the case of any of the  directors  designated
pursuant to Section 2(c) of this Agreement.

         4. No  Liability  for  Election of  Recommended  Director.  None of the
parties hereto and no officer, director, stockholder, partner, employee or agent
of  any  party  makes  any  representation  or  warranty  as to the  fitness  or
competence  of the  nominee  of any  party  hereunder  to serve on the  Board of
Directors by virtue of such party`s execution of this Agreement or by the act of
such party in voting for such nominee pursuant to this Agreement.

         5.  Legend.  During  the  term  of  this  Agreement,  each  certificate
representing  shares of capital stock held by parties  hereto will bear a legend
in substantially the following form:

         "THE SHARES  REPRESENTED  HEREBY AND THE VOTING  THEREOF ARE SUBJECT TO
CERTAIN  RESTRICTIONS  AND AGREEMENTS  CONTAINED IN A VOTING AGREEMENT AMONG THE
HOLDER (OR THE  PREDECESSOR IN INTEREST TO THE SHARES),  THE COMPANY AND CERTAIN
OTHER  STOCKHOLDERS  OF THE COMPANY.  ANY PERSON  ACCEPTING ANY INTEREST IN SUCH
SHARES SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE  PROVISIONS
OF SUCH  AGREEMENT.  THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF THE
VOTING AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE."

         The Company  shall make a notation on its record and give  instructions
to any  transfer  agent  of  such  capital  stock  in  order  to  implement  the
restrictions and agreements contained in this Agreement.



                                       3
<PAGE>


         6. Termination.  This Agreement shall terminate upon the earlier of (i)
the  consummation  of a Qualified  Public  Offering (as defined in the Company`s
Certificate of Incorporation,  as the same may be amended and restated from time
to time), (ii) upon the closing of any merger, recapitalization,  reorganization
or sale of all or  substantially  all of the  assets of the  Company  which will
result in the  stockholders of the Company not holding,  directly or indirectly,
at least 50% of the voting  power of the  surviving,  continuing  or  purchasing
entity, or (iii) the execution and delivery of a written agreement signed by (a)
the  holders  of a  majority  of the  shares of  Common  Stock  subject  to this
Agreement  and (b) the holders of a majority of the Preferred  Stock,  voting or
acting as a separate class.

         7. Representations and Warranties of Each Stockholder. Each Stockholder
represents and warrants that such Stockholder (i) is the beneficial owner of the
Stock  free  and  clear  of  any  liens,  claims,  options,   charges  or  other
encumbrances,  and (ii) has full  authority to vote and direct the voting of the
Stock  with  respect  to  matters  contemplated  hereby  and has full  power and
authority to make, enter into and carry out the terms of this Agreement.

         8. Miscellaneous.

                  (a)  Equitable   Relief.   The  parties   recognize  that  the
         enforcement of this Agreement is necessary to ensure  continuity in the
         management of the Company, and that the ascertainment of damages in the
         event of its breach would be  difficult.  The parties  therefore  agree
         that, in addition to any other available remedies, the parties shall be
         entitled to injunctive relief in the event of a breach hereof.

                  (b) Binding Effect. In addition to any restriction or transfer
         that may be imposed by any other  agreement  by which any party  hereto
         may be bound,  this Agreement shall be binding upon, and shall inure to
         the benefit of, the Stockholders and their respective heirs, successors
         and assigns. As a condition precedent to any sale, assignment,  pledge,
         encumbrance  or other  transfer of any shares of Stock  subject to this
         Agreement,  such heir,  successor or assignee shall execute and deliver
         an Adoption  Agreement  substantially  in the form  attached  hereto as
         Annex  A.  Upon the  execution  and  delivery  of an  Adoption  -------
         Agreement by any transferee,  such  transferee  shall be deemed to be a
         party  hereto  as  if  such  transferee`s  signature  appeared  on  the
         signature  pages  hereto.  By their  execution  hereof or any  Adoption
         Agreement,  each of the  parties  hereto  appoints  the  Company as its
         attorney-in-fact  for the purpose of executing  any Adoption  Agreement
         which may be required to be delivered hereunder.

                  (c)  Governing  Law. This  Agreement  shall be governed by and
         construed in accordance with the laws of the State of Delaware, without
         regard to conflicts of law principles thereof.

                  (d) Severability. If any provision of this Agreement should be
         held to be invalid,  illegal or  unenforceable,  the parties intend the
         remaining  provisions of this  Agreement to be  constructed  as if such
         invalid,  illegal or  unenforceable  provision had never been contained
         herein.



                                       4
<PAGE>


                  (e)  Amendments.  Other  than with  respect to  amendments  to
         Schedule A,  Schedule B and Schedule C hereto,  which may be amended by
         the  Company to reflect  additional  Series A  Preferred  Stockholders,
         Series  A-1  Preferred  Stockholders  or Common  Stockholders  or their
         permitted  transferees,  this  Agreement  may be  altered,  amended  or
         modified at any time only upon approval of such  alteration,  amendment
         or  modification  (each,  an "AMENDMENT") by written consent of (i) the
         holders of a majority  of the  shares of Common  Stock  subject to this
         Agreement  and (ii) the holders of at least a majority of the Preferred
         Shares.  The Company shall promptly notify the holders of each class of
         the  Company`s  voting  stock that an  Amendment  has been  approved in
         accordance with the terms of this paragraph.

                  (f) Notices.  All notices and other  communications  hereunder
         shall be in writing and shall be deemed given if  delivered  personally
         or by commercial delivery service, or mailed by registered or certified
         mail  (return   receipt   requested)  or  sent  via   facsimile   (with
         confirmation  of  receipt) to the parties at the address for such party
         set forth  beneath  such  party`s  name on  Schedule  A,  Schedule B or
         Schedule  C hereto (or at such  other  address  for a party as shall be
         specified by like notice) and, in the case of the Company:

                  Comverge, Inc.
                  23 Vreeland Road, Suite 160
                  Florham Park, NJ  07932
                  Fax:  (973) 360-2220
                  Attn:  Chief Executive Officer

                  with a copy to

                  Andrews & Kurth L.L.P.
                  111 Congress Ave., Suite 1700
                  Austin, Texas 78701
                  Fax:  (512) 320-9292
                                    Attn:  Carmelo M. Gordian

                  Notice  given by facsimile  shall be confirmed by  appropriate
         answer  back and shall be  effective  upon  actual  receipt if received
         during the  recipient`s  normal  business hours, or at the beginning of
         the recipient`s  next business day after receipt if not received during
         the recipient`s  normal business hours.  All notices by facsimile shall
         be confirmed  promptly after  transmission in writing by certified mail
         or personal delivery.  Any party may change any address to which notice
         is to be given to it by giving notice as provided  above of such change
         of address.

                  (g) Board  Expenses.  The Company will bear all reasonable and
         documented  travel  expenses  incurred by directors in connection  with
         their  attendance  at board  and  board  committee  meetings  and other
         expenses  as may be  authorized  from  time  to time  by the  board  of
         directors.

                                       5
<PAGE>

                  (h)  Counterparts.  This  Agreement  may be executed in one or
         more counterparts,  each of which shall be deemed an original,  but all
         of which shall be one and the same document.

                  (i)  Headings.   The  headings  of  this   Agreement  are  for
         convenience only and do not constitute a part of this Agreement.

                  (j)  Share  Numbers.  All  share  numbers  set  forth  in this
         Agreement  shall be determined on an  as-adjusted  basis to reflect any
         stock dividends, stock splits,  combinations,  recapitalizations or the
         like after the date hereof.

                  (k)  Entire  Agreement.   This  Agreement  and  the  schedules
         attached  hereto is intended to be the sole agreement of the parties as
         it relates to the subject  matter hereof and does hereby  supersede all
         other  agreements of the parties relating to the subject matter hereof,
         including, but not limited to the Prior Agreement.



                            [Signature Pages Follow]


                                       6
<PAGE>


         IN WITNESS WHEREOF, the parties execute this Voting Agreement as of the
date first set forth above.



                                    COMPANY:

                                    COMVERGE, INC.

                                    By:
                                        ---------------------------------------
                                        Robert M. Chiste
                                        Chief Executive Officer



               [Signature Page to Comverge, Inc. Voting Agreement]

<PAGE>


                                    SERIES A PREFERRED STOCKHOLDERS:


                                    DATA SYSTEMS & SOFTWARE INC.

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------

                                    EASTON HUNT CAPITAL PARTNERS, L.P.

                                    By:  EHC GP, L.P.
                                    Its:  General Partner
                                    By:  EHC, Inc.
                                    Its:  General Partner

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------

                                    ENERTECH CAPITAL PARTNERS II L.P.

                                    By:  ECP II Management L.P.,
                                         Its General Partner

                                    By:  ECP II Management L.L.C.,
                                         Its General Partner

                                    By:
                                        ---------------------------------------
                                        David F. Lincoln
                                        Managing Director


                                    ECP II INTERFUND L.P.

                                    By:  ECP II Management L.L.C.,
                                         Its General Partner

                                    By:
                                        ---------------------------------------
                                        David F. Lincoln
                                        Managing Director


               [Signature Page to Comverge, Inc. Voting Agreement]

<PAGE>

                                    E.ON VENTURE PARTNERS

                                    By:
                                        ---------------------------------------
                                         Peter Bachsleitner
                                         Managing Director

                                    By:
                                        ---------------------------------------
                                        Steffen Hasselwander
                                        Managing Director


                                    NTH POWER TECHNOLOGIES FUND II, L.P.,
                                    NTH POWER TECHNOLOGIES FUND II-A, L.P.

                                    BY: NTH POWER MANAGEMENT II, L.P.
                                        AND
                                        NTH POWER MANAGEMENT II-A, L.L.C.

                                    BY: NTH POWER L.L.C.
                                        THEIR MANAGEMENT AGENT

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------

                                    SHELL INTERNET VENTURES B.V.

                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------


               [Signature Page to Comverge, Inc. Voting Agreement]

<PAGE>


                                    SERIES A-1 PREFERRED STOCKHOLDERS:


                                    EASTON HUNT CAPITAL PARTNERS, L.P.

                                         By:  EHC GP, L.P.
                                         Its:  General Partner
                                         By:  EHC, Inc.
                                         Its:  General Partner


                                    By:
                                        ---------------------------------------

                                    Name:
                                         --------------------------------------

                                    Title:
                                          -------------------------------------


<PAGE>

                                    COMMON STOCKHOLDERS:

                                    DATA SYSTEMS & SOFTWARE INC.

                                    By:
                                        ----------------------------------------

                                    Name:
                                        ----------------------------------------

                                    Title:
                                          --------------------------------------





<PAGE>

EXHIBIT 10.33


                            LAURUS MASTER FUND, LTD.
                       C/O LAURUS CAPITAL MANAGEMENT, LLC
                         152 WEST 57TH STREET, 4TH FLOOR
                            NEW YORK, NEW YORK 10019

                                                             As of April 1, 2003

Data Systems & Software Inc.
200 Route 17 South
Mahwah, New Jersey 07430

Gentlemen:

Reference is made to that certain  Registration Rights Agreement  ("Registration
Rights  Agreement"),  dated as of December 5, 2002, by and between Laurus Master
Fund,  Ltd.  ("Laurus")  and Data  Systems & Software  Inc.  ("DSSI"),  and that
certain Convertible Note (the "Note"), dated December 4, 2002, made by and among
DSSI, Comverge  Technologies,  Inc.  ("Comverge") and Laurus.  Capitalized terms
used in this letter  agreement  (this  "Agreement"),  and not otherwise  defined
herein, shall have the meanings defined in the Registration Rights Agreement.

Pursuant to the Registration Rights Agreement,  DSSI agreed to register by April
4, 2003 the shares of DSSI common  stock,  $.01 par value (the "Common  Stock"),
issuable upon the conversion of up to $600,000 of the  outstanding  principal of
the Note (the "Note  Shares") and the shares of Common Stock  issuable  upon the
exercise  of a warrant  purchased  by Laurus  from DSSI in  connection  with the
purchase of the Note (the "Warrant Shares").

On January 3, 2003, DSSI filed a registration statement covering the Note Shares
and the Warrant  Shares.  On January  28,  2003,  the  Securities  and  Exchange
Commission  (the "SEC")  informed DSSI that because the Note Shares are issuable
upon the  conversion of a revolving  credit  facility,  such shares could not be
registered until issued.

To address the SEC`s comments on the registration  statement and the pending pay
off and termination of the Note by Comverge,  Laurus has agreed to purchase from
DSSI, and DSSI has agreed to sell to Laurus, 400,000 shares of Common Stock (the
"Shares"),  at a purchase of $1.50 per share, for an aggregate purchase price of
$600,000 (the "Purchase Price").  DSSI has also agreed to register the Shares as
promptly as possible.

In consideration  of the foregoing  premises and certain other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:

      1.  Purchase  of Stock.  Subject  to the terms  and  conditions  set forth
herein,  Laurus hereby  subscribes  for and agrees to purchase,  and DSSI hereby
agrees to sell to Laurus,  the Shares in  consideration of the payment by Laurus
of the Purchase Price.


<PAGE>


      2. Delivery.  At the Closing (as defined  below),  Laurus shall deliver to
DSSI the  Purchase  Price in  immediately  available  funds  wired to an account
designated  in writing by DSSI,  and a duly and  validly  executed  registration
rights  agreement,  substantially  in the form annexed hereto on Schedule A (the
"Registration Rights Agreement"), and DSSI shall deliver to Laurus a certificate
representing  the Shares and a duly and  validly  executed  Registration  Rights
Agreement.

      3  Closing.  The  closing  of the  purchase  and sale of the  Shares  (the
"Closing") shall take place on such date and time as shall be mutually agreed to
by the  parties  hereto,  but no later  than two (2)  business  days  after  the
outstanding  principal  of the  Note has been  paid in full  and  terminated  by
Comverge,  and at such  place as  shall be  mutually  agreed  to by the  parties
hereto. The date and time of the Closing is referred to as the "Closing Date."

      4. Representations of Laurus.  Laurus makes the following  representations
and  warranties  to DSSI,  each and all of which shall survive the execution and
delivery of this Agreement and the Closing hereunder:

      (a) Requisite  Power and  Authority.  Laurus has all  necessary  power and
authority  under all  applicable  provisions  of law to execute and deliver this
Agreement and the related registration rights agreement,  and to carry out their
provisions.  All  corporate  action on  Laurus`s  part  required  for the lawful
execution and delivery of this Agreement and the Registration  Rights Agreements
have  been or  will be  effectively  taken  prior  to the  Closing.  Upon  their
execution and delivery,  this Agreement and the  Registration  Rights  Agreement
will be valid and binding obligations of Laurus,  enforceable in accordance with
their  terms,  except  (a) as  limited  by  applicable  bankruptcy,  insolvency,
reorganization,  moratorium  or  other  laws of  general  application  affecting
enforcement of creditors`  rights,  and (b) as limited by general  principles of
equity that restrict the availability of equitable and legal remedies.

      (b) Investment  Representations.  Laurus  understands  that the Shares are
being offered and sold pursuant to an exemption from  registration  contained in
the Securities Act of 1933, as amended (the "Securities Act") based in part upon
Laurus`s  representations  contained  in  the  Agreement,   including,   without
limitation,  that  Laurus is an  "accredited  investor"  within  the  meaning of
Regulation  D under the  Securities  Act.  Laurus has  received  or has had full
access to all the  information it considers  necessary or appropriate to make an
informed  investment  decision  with respect to the Shares to be purchased by it
under this Agreement. Laurus further has had an opportunity to ask questions and
receive answers from DSSI regarding  DSSI`s  business,  management and financial
affairs and the terms and  conditions of the offer and sale of the Shares and to
obtain additional  information (to the extent DSSI possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to Laurus or to which Laurus had access.

      (c) Laurus Bears  Economic  Risk.  Laurus has  substantial  experience  in
evaluating  and  investing in private  placement  transactions  of securities in
companies  similar to DSSI so that it is capable  of  evaluating  the merits and
risks  of its  investment  in DSSI  and  has the  capacity  to  protect  its own
interests.  Laurus  must bear the  economic  risk of this  investment  until the
Shares are sold pursuant to (i) an effective  registration  statement  under the
Securities Act, or (ii) an exemption from registration is available.

      (d)  Acquisition  for Own Account.  Laurus is acquiring the Shares for its
own account for  investment  only,  and not as a nominee or agent and not with a
view towards or for resale in connection with their distribution.


                                       2
<PAGE>

      (e) Laurus Can Protect Its Interest.  Laurus  represents that by reason of
its, or of its management`s,  business and financial experience,  Laurus has the
capacity to evaluate the merits and risks of its investment in the Shares and to
protect its own interests in connection  with the  transactions  contemplated in
this Agreement and the Registration Rights Agreement.  Further,  Laurus is aware
of no  publication  of any  advertisement  in connection  with the  transactions
contemplated in the Agreement or the Registration Rights Agreement.

      (f)  Accredited  Investor.  Laurus  represents  that  it is an  accredited
investor within the meaning of Regulation D under the Securities Act.

      (g) Legends. The Shares shall bear a legend that shall be in substantially
the  following  form until such shares are covered by an effective  registration
statement filed with the SEC:

            "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
            UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED,  OR IF  APPLICABLE,
            STATE  SECURITIES  LAWS.  THESE SHARES MAY NOT BE SOLD,  OFFERED FOR
            SALE,  PLEDGED  OR  HYPOTHECATED  IN  THE  ABSENCE  OF AN  EFFECTIVE
            REGISTRATION  STATEMENT  UNDER SUCH  SECURITIES  ACT AND  APPLICABLE
            STATE LAWS OR AN OPINION OF COUNSEL REASONABLY  SATISFACTORY TO DATA
            SYSTEMS & SOFTWARE INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

      5.  DSSI`s  Representations  and  Warranties.  DSSI  makes  the  following
representations and warranties to Laurus:

      (a)  Organization  and  Corporate  Power.   DSSI  is  a  corporation  duly
organized,  validly existing and in good standing under the laws of the State of
Delaware.  DSSI has all required  corporate  power and authority to carry on its
business as presently  conducted,  to enter into and perform this  Agreement and
the  Registration   Rights   Agreement,   and  to  carry  out  the  transactions
contemplated hereby and thereby, including the issuance and sale of the Shares.

      (b)  Authorization.  DSSI has all requisite  power and authority to issue,
sell and deliver the Shares in accordance with and upon the terms and conditions
set  forth  in  this  Agreement  and to  register  the  Shares  pursuant  to the
Registration Rights Agreement,  and all corporate action required to be taken by
DSSI for the due and proper  authorization,  issuance and delivery of the Shares
will, upon delivery thereof, have been taken. The Shares, when sold and paid for
as  contemplated  in this Agreement,  will be duly  authorized,  validly issued,
fully paid and  non-assessable  and, except as otherwise  provided by applicable
law, free of all liens, claims and encumbrances.

      (c) Binding Obligation;  No Violation;  No Consent. This Agreement and the
Registration Rights Agreement each constitutes a valid and binding obligation of
DSSI,  enforceable  against  DSSI in  accordance  with its terms,  except (a) as
limited by  applicable  bankruptcy,  insolvency,  reorganization,  moratorium or
other laws of general  application  affecting  enforcement of creditors` rights,
and  (b)  as  limited  by  general   principles  of  equity  that  restrict  the
availability of equitable and legal remedies. The execution and delivery by DSSI
of this Agreement and the  Registration  Rights Agreement and the performance by
DSSI of the transactions contemplated hereby and thereby, including the issuance
and delivery of the Shares,



                                       3
<PAGE>


do not and will not: (A) violate,  conflict with or result in a default (whether
after the giving of notice,  lapse of time or both) under any material  contract
or  obligation  to which  DSSI is a party or by which it or its assets are bound
and  which  have  not  been  waived,   or  any  provision  of  the  articles  of
incorporation or bylaws of DSSI; (B) to DSSI`s knowledge, violate or result in a
violation of, or constitute a default under,  any provision of any material law,
regulation or rule, or any order of, or any restriction imposed by, any court or
governmental  agency  applicable  to DSSI;  (C) require from DSSI any notice to,
declaration or filing with, or consent or approval of any governmental authority
or third  party  other  than as may be  required  to  secure an  exemption  from
registration  or  qualification  of the offer and sale of the  Shares  under the
Securities Act and applicable state or foreign  securities and blue sky laws; or
(D) accelerate any obligation  under, or give rise to a right of termination of,
any material  agreement,  permit,  license or  authorization  to which DSSI is a
party or by which DSSI is bound.

      (d)  Securities  Laws. In reliance on the  investment  representations  of
Laurus contained in Section 4 hereof, the offer, issuance,  sale and delivery of
the  Shares,  as provided in this  Agreement,  are exempt from the  registration
requirements of the Securities Act and all applicable state securities laws, and
are otherwise in  compliance  with such laws in all material  respects.  Neither
DSSI nor any person acting on its behalf has taken or will take any action which
might subject the offering,  issuance or sale of the Shares to the  registration
requirements of Section 5 of the Securities Act.

      6.  Registration of the Shares;  Restrictions  on Transfer of Shares.  The
Shares will be registered in accordance with the Registration  Rights Agreement.
Commencing on the date hereof and ending on June 5, 2003,  Laurus shall not sell
or otherwise  dispose of, on a monthly basis,  the number of Shares that exceeds
25% of the average  daily  trading  volume of the shares of Common  Stock on the
Nasdaq SmallCap Market (or any successor exchange) for such month (as determined
on a rolling basis).

      7. Miscellaneous.

      (a) Notices. All notices and other communications provided herein shall be
in writing and delivered to each party`s  address set forth above.  Notice shall
be deemed  delivered  (i) three (3) days after the deposit in the U.S. mail of a
writing addressed as above and sent first class mail, certified,  return receipt
requested,  (ii) upon hand  delivery,  (iii) one business day after deposit with
Federal Express or other recognized  over-night  courier  service,  or (iv) when
actually  received.  Either party may change the address for notice by notifying
the other party of such change in accordance with this Section 7(a).

      (b)  Counterparts;  Entire  Agreement.  This  Agreement may be executed in
counterparts.  This  Agreement  constitutes  the entire  agreement  between  the
parties hereto with respect tot he subject matter hereof.

      (c) Binding Effect. The provisions of this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns.

      (d)  Amendment;  Waiver.  This  Agreement may be amended only by a written
instrument  signed by the parties  hereto which  specifically  states that it is
amending this  Agreement,  and no term of this Agreement may be waived except in
writing  signed by the party waiving such term. No waiver by the parties  hereto
of any default or breach of any term,



                                       4
<PAGE>


condition  or covenant of this  Agreement  shall be deemed to be a waiver of any
subsequent  default  or  breach  of the same or any  other  term,  condition  or
covenant contained herein.

      (e) Applicable Governing Law; Jurisdiction.  This Agreement and the rights
and  obligations of the parties hereto shall be governed by and  constructed and
enforced  in  accordance  with,  the laws of the State of New York.  Each  party
hereby  irrevocably  consents and agrees that any legal or  equitable  action or
proceeding  based upon,  arising  under or relating to this  Agreement  shall be
brought  exclusively  in any  Federal or state  court in the County of New York,
State of New York.  Each  party  hereby  irrevocably  consents  to the  personal
jurisdiction of each such court.

      (f) Headings.  The headings  herein are for convenience of reference only,
do not  constitute a part of this  Agreement,  and shall not be deemed to limit,
expand or otherwise affect any of the provisions hereof.



                        [SIGNATURES APPEAR ON NEXT PAGE]


                                       5
<PAGE>




      If the foregoing  accurately  reflects your  understanding,  please sign a
copy of this letter and return it to the undersigned.



                                               Very truly yours,

                                               LAURUS MASTER FUND, LTD.


                                               By: /s/David Grin
                                                   -----------------------------
                                                   Name:  David Grin
                                                   Title:  Partner

AGREED AND ACCEPTED:

DATA SYSTEMS & SOFTWARE INC.


By: /s/ George Morgenstern
    --------------------------------
    Name:  George Morgenstern
    Title: Chief Executive Officer
           and President



                                       6
<PAGE>


                   SCHEDULE A - REGISTRATION RIGHTS AGREEMENT

                          REGISTRATION RIGHTS AGREEMENT

      This Registration  Rights Agreement (this "Agreement") is made and entered
into as of April 1,  2003,  by and  between  Data  Systems &  Software  Inc.,  a
Delaware  corporation  (the  "Company"),  and Laurus Master Fund, Ltd., a Cayman
Islands company (the "Purchaser").

      This Agreement is made pursuant to that certain letter agreement, dated as
of the  date  hereof,  between  the  Purchaser  and  the  Company  (the  "Letter
Agreement"),  and  pursuant to the Note.  The Company and the  Purchaser  hereby
agree as follows:

      1. Definitions.  As used in this Agreement, the following terms shall have
the following meanings:

         "Closing Date" means the Closing Date under the Letter Agreement.

         "Effectiveness  Date"  means the 30th day  following  the Filing  Date.

         "Effectiveness  Period"  shall  have the  meaning  set forth in Section
2(a).

         "Filing  Date"  means,  with  respect  to  the  Registration  Statement
required to be filed hereunder,  the seventh day following the date on which the
Company filed its annual report on Form 10-K for the fiscal year ended  December
31, 2002.

         "Holder" or "Holders"  means the Purchaser or any of its  affiliates to
the extent any of them hold Registerable Securities.

         "Indemnified  Party" shall have the meaning set forth in Section  5(c).

         "Indemnifying  Party" shall have the meaning set forth in Section 5(c).

         "Losses" shall have the meaning set forth in Section 5(a).

         "Proceeding" means an action, claim, suit,  investigation or proceeding
(including,  without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

         "Prospectus" means the prospectus included in a Registration  Statement
(including,  without  limitation,  a prospectus  that  includes any  information
previously omitted from a prospectus filed as part of an effective  registration
statement in reliance upon Rule 430A  promulgated  under the Securities Act), as
amended or supplemented by any prospectus supplement,  with respect to the terms
of the  offering of any  portion of the  Registrable  Securities  covered by the
Registration  Statement,  and  all  other  amendments  and  supplements  to  the
Prospectus,  including post-effective  amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.

         "Registrable  Securities"  means  the  shares of  Common  Stock  issued
pursuant to the Letter Agreement.

         "Registration  Statement" means the registration  statement required to
be filed hereunder, including the Prospectus, amendments and supplements to such
registration   statement  or  Prospectus,



                                       7
<PAGE>


including pre- and  post-effective  amendments,  all exhibits  thereto,  and all
material  incorporated by reference or deemed to be incorporated by reference in
such registration statement.

         "Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities  Act, as such Rule may be amended  from time to time,  or any similar
rule or regulation  hereafter adopted by the Commission having substantially the
same effect as such Rule.

         "Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities  Act, as such Rule may be amended  from time to time,  or any similar
rule or regulation  hereafter adopted by the Commission having substantially the
same effect as such Rule.

         "Rule 424" means Rule 424 promulgated by the Commission pursuant to the
Securities  Act, as such Rule may be amended  from time to time,  or any similar
rule or regulation  hereafter adopted by the Commission having substantially the
same effect as such Rule.

         2. Registration.

         (a) On or prior to the Filing Date,  the Company shall prepare and file
with the Commission a Registration Statement covering the Registrable Securities
for an  offering to be made on a  continuous  basis  pursuant  to Rule 415.  The
Registration  Statement  shall be on Form S-3 (except if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3, in which
case  such  registration  shall be on  another  appropriate  form in  accordance
herewith) and shall contain (except if otherwise required by the Commission) the
"Plan of Distribution"  attached hereto as Annex A. The Holders acknowledge that
the  Registerable   Securities  are  subject  to  a  six-month   restriction  on
transferability  as set forth in the Note and the  Warrant.  The  Company  shall
cause the  Registration  Statement to become  effective and remain  effective as
provided  herein.  The Company shall use its  reasonable  commercial  efforts to
cause the Registration  Statement to be declared  effective under the Securities
Act as promptly as possible after the filing thereof,  but in any event no later
than  the  Effectiveness  Date,  and  shall  keep  the  Registration   Statement
continuously  effective  under the  Securities  Act until the date  which is the
earlier date of when (i) all  Registrable  Securities have been sold or (ii) all
Registrable  Securities may be sold immediately  without  registration under the
Securities  Act and without  volume  restrictions  pursuant to Rule  144(k),  as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect,  addressed and  acceptable to the Company`s  transfer agent and the
affected Holders (the "Effectiveness Period").

         (b) If: (i) any Registration  Statement is not filed on or prior to the
Filing  Date;  (ii) a  Registration  Statement  filed  hereunder is not declared
effective  by  the  Commission  by  the   Effectiveness   Date;  (iii)  after  a
Registration  Statement is filed with and declared  effective by the Commission,
such Registration  Statement ceases to be effective (by suspension or otherwise)
as to all  Registrable  Securities to which it is required to relate at any time
prior to the expiration of the  Effectiveness  Period  (without being  succeeded
immediately  by  an  additional   registration   statement  filed  and  declared
effective)  for a period of time which shall exceed 30 days in the aggregate per
year but not more than 20 consecutive  calendar days (defined as a period of 365
days commencing on the date the Registration  Statement is declared  effective);
or (iv) the Common Stock is not listed or quoted,  or is suspended  from trading
on any  Trading  Market  for a period  of three  (3)  consecutive  Trading  Days
(provided the Company  shall not have been able to cure such trading  suspension
within 60 days of the notice thereof or list the Common Stock on any of the Pink
Sheets, the NASD OTC Bulletin Board, NASDAQ SmallCap Market, the Nasdaq National
Market,  American  Stock  Exchange  or New York  Stock  Exchange  (the  "Trading
Market"))(any  such failure or breach  being  referred to as an "Event," and for
purposes of clause (i), (ii) or (v) the date on which such Event occurs,  or for
purposes of clause (iii) the date which such 30 day or 20 consecutive day period
(as the case may be) is  exceeded,  or for  purposes  of clause (iv) the date on
which such 60 day period is exceeded, being referred to as "Event Date"), then


                                       8
<PAGE>


until the  applicable  Event is cured,  the Company  shall pay to each Holder an
amount in cash,  as liquidated  damages and not as a penalty,  of $2,500 for the
first two thirty  (30) day  periods  and $5,000 for each  thirty (30) day period
thereafter  (prorated for partial  periods).  Such liquidation  damages shall be
paid not less than each thirty  (30) days  during an Event and within  three (3)
days following the date on which such Event has been cured by the Company

         3.  Registration  Procedures If and whenever the Company is required by
the provisions  hereof to effect the registration of the Registrable  Securities
under the Act, the Company will, as expeditiously as possible:

         (a) prepare and file with the SEC a registration statement with respect
to such securities and use its best efforts to cause such registration statement
to become and remain effective for the period of the  distribution  contemplated
thereby  (determined as herein provided),  and promptly provide to the Purchaser
copies of all filings and SEC letters of comment;

         (b) prepare and file with the SEC such  amendments  and  supplements to
such registration  statement and the prospectus used in connection  therewith as
may be necessary to keep such registration statement effective until the earlier
of: (i) six months after the latest  exercise  period of the Warrant;  (ii) four
years  after the  Closing  Date,  or (iii) the date on which the  Purchaser  has
disposed  of all of the  Registrable  Securities  covered  by such  registration
statement in accordance with the Purchaser`s  intended method of disposition set
forth in such registration statement for such period;

         (c) furnish to the Purchaser such number of copies of the  registration
statement  and the  prospectus  included  therein  (including  each  preliminary
prospectus)  as the Purchaser  reasonably  may request to facilitate  the public
sale or disposition of the securities covered by such registration statement;

         (d) use its commercially  reasonable efforts to register or qualify the
Purchaser`s  Registrable Securities covered by such registration statement under
the  securities  or "blue  sky"  laws of such  jurisdictions  as the  Purchaser,
provided,  however,  that the Company shall not for any such purpose be required
to qualify  generally  to  transact  business  as a foreign  corporation  in any
jurisdiction  where it is not so qualified  or to consent to general  service of
process in any such jurisdiction;

         (e)  list  the  Registrable  Securities  covered  by such  registration
statement with any securities  exchange on which the Common Stock of the Company
is then listed;

         (f)  immediately  notify the  Purchaser  at any time when a  prospectus
relating  thereto is required to be delivered  under the Securities  Act, of the
happening  of any event of which the Company has  knowledge as a result of which
the  prospectus  contained in such  registration  statement,  as then in effect,
includes  an untrue  statement  of a material  fact or omits to state a material
fact required to be stated therein or necessary to make the  statements  therein
not misleading in light of the circumstances then existing; and

         (g) make  available  for  inspection by the Purchaser and any attorney,
accountant or other agent  retained by the  Purchaser,  all publicly  available,
non-confidential  financial and other records, pertinent corporate documents and
properties  of the Company,  and cause the  Company`s  officers,  directors  and
employees  to  supply  all  publicly  available,   non-confidential  information
reasonably requested by the attorney, accountant or agent of the Purchaser.



                                       9
<PAGE>


         4.  Registration  Expenses.  All  expenses  incurred  by the Company in
complying  with  Sections 2 and 3 hereof,  including,  without  limitation,  all
registration  and filing fees,  printing  expenses,  fees and  disbursements  of
counsel and independent  public  accountants for the Company,  fees and expenses
(including  reasonable  counsel fees) incurred in connection with complying with
state securities or "blue sky" laws, fees of the NASD,  transfer taxes,  fees of
transfer  agents and  registrars,  fees of, and  disbursements  incurred by, one
counsel  for the  Holders,  whose  fees shall not  exceed  $1,000,  and costs of
insurance are called  "REGISTRATION  EXPENSES".  All underwriting  discounts and
selling commissions applicable to the sale of Registrable Securities,  including
any fees and  disbursements  of any special  counsel to the Holders beyond those
included in Registration Expenses, are called "SELLING EXPENSES."

         5.  Indemnification.  (a)  In  the  event  of  a  registration  of  any
Registrable Securities under the Securities Act pursuant to this Agreement,  the
Company will  indemnify  and hold  harmless  the  Purchaser,  and its  officers,
directors and each other person,  if any, who controls the Purchaser  within the
meaning  of  the  Securities  Act,  against  any  losses,   claims,  damages  or
liabilities,  joint or  several,  to which the  Purchaser,  or such  persons may
become subject under the  Securities  Act or otherwise,  insofar as such losses,
claims,  damages or liabilities (or actions in respect  thereof) arise out of or
are based upon any untrue  statement or alleged untrue statement of any material
fact  contained  in any  registration  statement  under  which such  Registrable
Securities were registered  under the Securities Act pursuant to this Agreement,
any  preliminary  prospectus  or  final  prospectus  contained  therein,  or any
amendment or supplement  thereof, or arise out of or are based upon the omission
or alleged  omission  to state  therein a material  fact  required  to be stated
therein or necessary to make the  statements  therein not  misleading,  and will
reimburse the Purchaser,  and each such person for any reasonable legal or other
expenses incurred by them in connection with investigating or defending any such
loss, claim, damage,  liability or action;  provided,  however, that the Company
will not be  liable in any such case if and to the  extent  that any such  loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue  statement or omission or alleged  omission so made in conformity
with  information  furnished  by the  Purchaser  or any such  person in  writing
specifically for use in any such document.

         (b) In the event of a registration of the Registrable  Securities under
the Securities Act pursuant to this Agreement,  the Purchaser will indemnify and
hold harmless the Company, and its officers, directors and each other person, if
any, who controls the Company within the meaning of the Securities Act,  against
all losses,  claims,  damages or  liabilities,  joint or  several,  to which the
Company  or  such  persons  may  become  subject  under  the  Securities  Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect  thereof) arise out of or are based upon any untrue statement or alleged
untrue  statement of any material fact contained in the  registration  statement
under which such Registrable Securities were registered under the Securities Act
pursuant to this  Agreement,  any  preliminary  prospectus  or final  prospectus
contained therein,  or any amendment or supplement  thereof,  or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated  therein or necessary to make the  statements  therein not
misleading,  and will  reimburse  the  Company  and  each  such  person  for any
reasonable  legal  or  other  expenses  incurred  by  them  in  connection  with
investigating or defending any such loss,  claim,  damage,  liability or action,
provided,  however,  that the  Purchaser  will be liable in any such case if and
only to the extent that any such loss, claim,  damage or liability arises out of
or is based upon an untrue  statement or alleged untrue statement or omission or
alleged omission so made in conformity with information  furnished in writing to
the Company by the Purchaser specifically for use in any such document.

         (c) Promptly after receipt by an indemnified  party hereunder of notice
of the commencement of any action,  such indemnified  party shall, if a claim in
respect thereof is to be made against the indemnifying  party hereunder,  notify
the  indemnifying  party in writing  thereof,  but the omission so to notify the
indemnifying  party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 5(c) and shall only relieve
it from any  liability  which it may have to such  indemnified  party under this
Section 5(c) if and to the extent the



                                       10
<PAGE>


indemnifying party is prejudiced by such omission. In case any such action shall
be brought  against any indemnified  party and it shall notify the  indemnifying
party of the commencement  thereof,  the indemnifying party shall be entitled to
participate  in and, to the extent it shall wish,  to assume and  undertake  the
defense thereof with counsel  satisfactory to such indemnified party, and, after
notice from the indemnifying  party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified  party under this Section 5(c) for any legal expenses
subsequently  incurred by such indemnified  party in connection with the defense
thereof; if the indemnified party retains its own counsel,  then the indemnified
party shall pay all fees, costs and expenses of such counsel, provided, however,
that, if the  defendants in any such action include both the  indemnified  party
and the  indemnifying  party and the  indemnified  party  shall have  reasonably
concluded  that  there  may be  reasonable  defenses  available  to it which are
different from or additional to those available to the indemnifying  party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying  party, the indemnified parties shall have the
right to select one  separate  counsel  and to assume  such legal  defenses  and
otherwise  to  participate  in the defense of such action,  with the  reasonable
expenses and fees of such separate  counsel and other  expenses  related to such
participation to be reimbursed by the indemnifying party as incurred.

         (d) In order to  provide  for just and  equitable  contribution  in the
event of joint  liability  under the  Securities Act in any case in which either
(i) the Purchaser, or any controlling person of the Purchaser, makes a claim for
indemnification  pursuant to this Section 5(c) but it is  judicially  determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the  expiration of time to appeal or the denial of the last right of appeal)
that such  indemnification may not be enforced in such case  notwithstanding the
fact that this Section 5(c) provides for  indemnification  in such case, or (ii)
contribution  under  the  Securities  Act  may be  required  on the  part of the
Purchaser or  controlling  person of the  Purchaser in  circumstances  for which
indemnification  is provided  under this Section  5(c);  then,  and in each such
case,  the Company and the Purchaser  will  contribute to the aggregate  losses,
claims,  damages or liabilities to which they may be subject (after contribution
from others) in such  proportion so that the Purchaser is  responsible  only for
the portion  represented by the percentage that the public offering price of its
securities  offered by the  registration  statement bears to the public offering
price  of all  securities  offered  by such  registration  statement,  provided,
however,  that,  in any such case,  (A) the  Purchaser  will not be  required to
contribute  any  amount  in  excess  of the  public  offering  price of all such
securities  offered by it pursuant to such  registration  statement;  and (B) no
person or entity guilty of fraudulent  misrepresentation  (within the meaning of
Section  10(f) of the Act) will be entitled to  contribution  from any person or
entity who was not guilty of such fraudulent misrepresentation.

         6. Representations and Warranties

         The Common Stock of the Company is registered pursuant to Section 12(b)
or  12(g) of the  Exchange  Act and the  Company  has  timely  filed  all  proxy
statements,  reports,  schedules, forms, statements and other documents required
to be filed by it under the  Exchange  Act. The Company has filed (i) its Annual
Report on Form 10-K for the fiscal  year ended  December  31,  2002 and (ii) its
Quarterly  Reports on Form 10-Q for the fiscal  quarters  ended March 31,  2002,
June 30, 2002 and  September 30, 2002  (collectively,  the "SEC  Reports").  The
Company is eligible to file with the Commission a registration statement on Form
S-3 pursuant to Instruction  I.B.3 thereof.  Each SEC Report was, at the time of
its filing,  in substantial  compliance with the  requirements of its respective
form and none of the SEC Reports,  nor the financial  statements  (and the notes
thereto)  included in the SEC  Reports,  as of their  respective  filing  dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements  therein,
in light of the  circumstances  under which they were made, not misleading.  The
financial  statements  of the Company  included in the SEC Reports  comply as to
form in all material  respects with applicable  accounting  requirements and the
published rules and regulations of the Commission or other  applicable rules and
regulations with respect thereto.  Such financial  statements have been prepared
in accordance with



                                       11
<PAGE>


generally accepted accounting  principles ("GAAP") applied on a consistent basis
during the periods  involved  (except (i) as may be otherwise  indicated in such
financial  statements  or the  notes  thereto  or (ii) in the case of  unaudited
interim  statements,  to the extent  they may not  include  footnotes  or may be
condensed) and fairly present in all material respects the financial  condition,
the  results  of  operations   and  the  cash  flows  of  the  Company  and  its
subsidiaries,  on a consolidated basis, as of, and for, the periods presented in
each such SEC Report.

         The Company  Common Stock is listed for trading on the Nasdaq  SmallCap
Market and satisfies all requirements for the continuation of such listing.  The
Company has not received any notice that its Common Stock will be delisted  from
the  Nasdaq  SmallCap  Market  or that  the  Common  Stock  does  not  meet  all
requirements for the continuation of such listing.  Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has directly or
indirectly  made any offers or sales of any security or solicited  any offers to
buy any security under circumstances that would cause the offering of the Shares
pursuant to this Agreement to be integrated  with prior offerings by the Company
for purposes of the  Securities Act which would prevent the Company from selling
the  Common  Stock  pursuant  to Rule  506  under  the  Securities  Act,  or any
applicable  exchange-related  stockholder  approval  provisions.  Nor  will  the
Company or any of its affiliates or  subsidiaries  take any action or steps that
would  cause  the  offering  of  the  Securities  to be  integrated  with  other
offerings.

         The  Registrable   Securities  are  restricted   securities  under  the
Securities Act as of the date of this Agreement.  The Company will not issue any
stop transfer  order or other order impeding the sale and delivery of any of the
Registrable Securities at such time as the Registrable Securities are registered
for public  sale or an  exemption  from  registration  is  available,  except as
required by federal or state securities laws or except for  restrictions  agreed
upon in writing by the Company and the Purchaser.

         The Company understands the nature of the Registrable Securities issued
to the Purchaser and  recognizes  that the  Registerable  Securities  may have a
potential  dilutive  effect.  The  Company  specifically  acknowledges  that its
obligation to issue the  Registrable  Securities is binding upon the Company and
enforceable  regardless  of the dilution such issuance may have on the ownership
interests of other  shareholders  of the Company.  Except for agreements made in
the ordinary  course of business,  there is no agreement that has not been filed
with the SEC as an exhibit to a registration  statement or to a form required to
be filed by the Company  under the  Securities  Exchange Act the breach of which
could have a material and adverse effect on the Company and its subsidiaries, or
would  prohibit or otherwise  interfere with the ability of the Company to enter
into and perform any of its  obligations  under this  Agreement  in any material
respect.

         7. Miscellaneous

         (a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.

         (b) No Piggyback on Registrations. Neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right for inclusion of shares in the
Registration Statement to any of its security holders. The Company has not
previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person (other than to the Purchaser)
which has not been fully satisfied.



                                       12
<PAGE>


         (c) Compliance. Each Holder covenants and agrees that it will comply
with the prospectus delivery requirements of the Securities Act as applicable to
it in connection with sales of Registrable Securities pursuant to the
Registration Statement.

         (d) Discontinued Disposition. Each Holder agrees by its acquisition of
such Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of a Discontinuation Event, such Holder will forthwith
discontinue disposition of such Registrable Securities under the Registration
Statement until such Holder`s receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement or until it is advised in
writing (the "Advice") by the Company that the use of the applicable Prospectus
may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement. The Company may provide
appropriate stop orders to enforce the provisions of this paragraph. For
purposes of this Section 7(d), a "Discontinuation Event" shall mean (i) when a
Prospectus or any Prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed; (ii) when the Commission
notifies the Company whether there will be a "review" of such Registration
Statement and whenever the Commission comments in writing on such Registration
Statement (the Company shall provide true and complete copies thereof and all
written responses thereto to each of the Holders); (iii) any request by the
Commission or any other Federal or state governmental authority for amendments
or supplements to the Registration Statement or Prospectus or for additional
information; (iv) the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement covering any or all of the
Registrable Securities or the initiation of any Proceedings for that purpose;
(v) the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (vi) the occurrence of any
event or passage of time that makes the financial statements included in the
Registration Statement ineligible for inclusion therein or any statement made in
the Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.

         (e) Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen days after receipt of such notice, any such
Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights and subject to the consent of
any selling stockholder(s) under such registration statement.

         (f) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and the
Holders of the then outstanding Registrable Securities. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of certain Holders and that
does not directly or indirectly affect the rights of other Holders



                                       13
<PAGE>


may be given by Holders of at least a majority of the Registrable  Securities to
which such waiver or consent relates; provided,  however, that the provisions of
this sentence may not be amended, modified, or supplemented except in accordance
with the provisions of the immediately preceding sentence.

         (G)  NOTICES.  ANY  NOTICE  OR  REQUEST  HEREUNDER  MAY BE GIVEN TO THE
COMPANY OR  PURCHASER  AT THE  RESPECTIVE  ADDRESSES  SET FORTH  BELOW OR AS MAY
HEREAFTER BE SPECIFIED IN A NOTICE  DESIGNATED AS A CHANGE OF ADDRESS UNDER THIS
SECTION 7(G).  ANY NOTICE OR REQUEST  HEREUNDER  SHALL BE GIVEN BY REGISTERED OR
CERTIFIED  MAIL,  RETURN RECEIPT  REQUESTED,  HAND  DELIVERY,  OVERNIGHT MAIL OR
TELECOPY  (CONFIRMED  BY MAIL).  NOTICES AND  REQUESTS  SHALL BE, IN THE CASE OF
THOSE BY HAND DELIVERY,  DEEMED TO HAVE BEEN GIVEN WHEN DELIVERED TO ANY OFFICER
OF THE PARTY TO WHOM IT IS ADDRESSED,  IN THE CASE OF THOSE BY MAIL OR OVERNIGHT
MAIL, DEEMED TO HAVE BEEN GIVEN WHEN DEPOSITED IN THE MAIL OR WITH THE OVERNIGHT
MAIL CARRIER,  AND, IN THE CASE OF A TELECOPY,  WHEN CONFIRMED.  THE ADDRESS FOR
SUCH NOTICES AND COMMUNICATIONS SHALL BE AS FOLLOWS:



If to the Company:     Data Systems & Software Inc.
                       200 Route 17 South
                       Mahwah, New Jersey 07430
                       Attention:  Mr. George Morgenstern
                       Facsimile: 201-529-3163

                       With a copy to:

                       Sheldon Krause, Esq.
                       Ehrenreich Eilenberg & Krause LLP
                       11 East 44th Street
                       New York, New York 10017
                       Facsimile:  212-986-2399

                  If to a  Purchaser:  To  the  address  set  forth  under  such
                  Purchaser name on the signature pages hereto.

If to any other Person who is then the registered Holder:

         To the address of such Holder as it appears in the stock transfer books
of the Company or such other address as may be designated in writing  hereafter,
in the same manner, by such Person.

         (h) Successors and Assigns.  This Agreement  shall inure to the benefit
of and be  binding  upon the  successors  and  permitted  assigns of each of the
parties  and shall  inure to the  benefit of each  Holder.  The  Company may not
assign its rights or obligations  hereunder without the prior written consent of
each Holder.  Each Holder may assign their  respective  rights  hereunder in the
manner and to the Persons as permitted under the Note.

         (i) Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or



                                       14
<PAGE>


on whose behalf such  signature  is  executed)  the same with the same force and
effect as if such facsimile signature were the original thereof.

         (j) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement shall be commenced
exclusively in the state and federal courts sitting in the City of New York,
Borough of Manhattan. Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, Borough of Manhattan for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any
Proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such Proceeding is improper. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document, then
the prevailing party in such Proceeding shall be reimbursed by the other party
for its reasonable attorneys fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.

         (k) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.

         (l) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.

         (m) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.



                                       15
<PAGE>



         IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.



                                    DATA SYSTEMS & SOFTWARE INC.

                                    By:
                                        ----------------------------------------
                                    Name: George Morgenstern
                                    Title: President and Chief Executive Officer





                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGES OF PURCHASER TO FOLLOW]



                                       16
<PAGE>


        IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.



                                    LAURUS MASTER FUND, LTD.

                                    By:
                                        ----------------------------------------
                                        Name:
                                        Title:

                                    Address for Notice:

                                    c/o Laurus Capital Management, LLC
                                    152 West 57th Street, 4th Floor
                                    New York, New York 10019
                                    Attention: David Grin



                                       17
<PAGE>



Annex A

Plan of Distribution

        On and after June 5, 2003, the selling stockholder may, from time to
time, sell any or all of its shares of common stock on any stock exchange,
market or trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. The selling
stockholder may use any one or more of the following methods when selling
shares:

            o     ordinary brokerage  transactions and transactions in which the
                  broker-dealer solicits Purchaser;
            o     block trades in which the  broker-dealer  will attempt to sell
                  the shares as agent but may  position  and resell a portion of
                  the block as principal to facilitate the transaction;
            o     purchases by a  broker-dealer  as principal  and resale by the
                  broker-dealer for its account;
            o     an exchange  distribution  in accordance with the rules of the
                  applicable exchange;
            o     privately   negotiated   transactions;
            o     short  sales
            o     broker-dealers may agree with the selling stockholders to sell
                  a specified  number of such shares at a  stipulated  price per
                  share;
            o     a  combination  of any such  methods of sale;  and
            o     any other method permitted pursuant to applicable law.


         The selling stockholder may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.

         Broker-dealers engaged by the selling stockholder may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholder (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholder does not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.

         The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The selling stockholder hase
informed the Company that it does not have any agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock.

         The Company is required to pay all fees and expenses incident to the
registration of the shares. The Company has agreed to indemnify the selling
stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.



                                       18



<PAGE>

EXHIBIT 21.1



                         SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>

SUBSIDIARY                                                                       JURISDICTION
----------                                                                       ------------
<S>                                                                              <C>
Comverge, Inc. (formerly known as Comverge Technologies, Inc.) .................   Delaware

Cornell Design Company Inc. ....................................................   New Jersey

Databit Inc. ...................................................................   Delaware

dsIT Technologies Ltd. (formally known as Decision Systems Israel Ltd.) ........   Israel

International Data Operations, Inc. (d/b/a Databit Solutions) ..................   Delaware

Comverge Ltd. ..................................................................   Israel

StarTech Ltd.  .................................................................   Delaware
</TABLE>





<PAGE>

EXHIBITS 23.1



                          Independent Auditors` Consent


The Board of Directors and Shareholders of
Data Systems & Software Inc.:

We  consent  to the incorporation by reference in the registration statements on
Form S-8 (Nos. 33-88442, 33-99196, 33-94974, 333-65799, 333-36159, 333-82418 and
333-82416)  and  on  Form  S-3  (File  Nos.  333-90017, 333-76614, 333-92174 and
333-102334)  of  Data Systems & Software Inc. of our report dated March 7, 2003,
except  as to Notes 1(b) and 19, which are as of April 10, 2003, with respect to
the consolidated balance sheets of Data Systems & Software Inc. and subsidiaries
as  of  December  31,  2001 and 2002, and the related consolidated statements of
operations, changes in shareholders` equity and cash flows for each of the years
in  the  three-year  period ended December 31, 2002, which report appears in the
December 31, 2002 annual report on Form 10-K of Data Systems & Software Inc. and
Subsidiaries.  Our  report  refers  to changes in accounting for purchase method
business  combinations  completed  after  June  30,  2001  and  for goodwill and
intangible  assets  beginning  January  1,  2002,  and  for  reclassification of
extraordinary  loss  on  early  redemption  of  debt.



/s/KPMG LLP


Short Hills, New Jersey
April 14, 2003



<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 Annual Report of Data Systems & Software Inc. (the
"Company") on Form 10-K for the year ending December 31, 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
April 14, 2002




<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 Annual Report of Data Systems & Software Inc. (the
"Company") on Form 10-K for the year ending December 31, 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
April 14, 2002

<PAGE>