SECURITIES  AND  EXCHANGE  COMMISSION
                             WASHINGTON,  D.C.  20549

                                  SCHEDULE  14A
                                 (Rule  14a-101)

                    INFORMATION  REQUIRED  IN  PROXY  STATEMENT

                            SCHEDULE  14A  INFORMATION
                Proxy  Statement  Pursuant  to  Section  14(a)  of  the
               Securities  Exchange  Act  of  1934  (Amendment  No.   )

Filed  by  the  Registrant  [X]
Filed  by  a  Party  other  than  the  Registrant  [_]

Check  the  appropriate  box:

[_]  Preliminary  Proxy  Statement           [_]  Confidential, For Use of the
[X]  Definitive  Proxy Statement                  Commission Only (as permitted
[_]  Definitive  Additional  Materials            by  Rule  14a-6(e)(2))
[_]  Soliciting  Material  Pursuant  to
     Rule  14a-11(c)  or  Rule  14a-12

                          DATA  SYSTEMS  &  SOFTWARE  INC.
--------------------------------------------------------------------------------
                (Name  of  Registrant  as  Specified  In  Its  Charter)


--------------------------------------------------------------------------------
    (Name  of  Person(s)  Filing  Proxy Statement, if Other Than the Registrant)


Payment  of  Filing  Fee  (Check  the  appropriate  box):

[X]  No  fee  required.
[_]  Fee  computed  on  table below per Exchange Act Rules 14a-6(i)(1) and 0-11.


________________________________________________________________________________
1)   Title  of  each  class  of  securities  to  which  transaction  applies:


________________________________________________________________________________
2)   Aggregate  number  of  securities  to  which  transaction  applies:


________________________________________________________________________________
3)   Per unit price or other underlying value of transaction  computed  pursuant
     to Exchange  Act Rule 0-11 (set forth the amount on which the filing fee is
     calculated  and  state  how  it  was  determined):


________________________________________________________________________________
4)   Proposed  maximum  aggregate  value  of  transaction:


________________________________________________________________________________
5)   Total  fee  paid:

     [_]  Fee  paid  previously  with  preliminary  materials:


________________________________________________________________________________

     [_]  Check box if any part of the fee is offset as provided by Exchange Act
          Rule  0-11(a)(2)  and identify the filing for which the offsetting fee
          was paid  previously.  Identify  the previous  filing by  registration
          statement  number, or the form or schedule and the date of its filing.

          1)   Amount  previously  paid:

          2)   Form,  Schedule  or  Registration  Statement  No.:

          3)   Filing  Party:

          4)   Date  Filed:





                          DATA SYSTEMS & SOFTWARE INC.


                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                         TO BE HELD ON DECEMBER 8, 2003


         The Annual Meeting of Stockholders of Data Systems & Software Inc. (the
"Company") will be held at the DoubleTree Hotel, 180 Route 17 South, Mahwah, New
Jersey, on Monday, December 8, 2003, at 9:30 a.m., for the following purposes:

                  (1) To elect  four  directors  to hold  office  until the next
         annual meeting of  stockholders  and until their  successors  have been
         duly elected and qualified; and

                  (2) To consider and act upon such other and further matters as
         may  properly  come  before  the  meeting  or  any   postponements   or
         adjournments thereof.

         Only  stockholders  of record at the close of  business  on November 7,
2003, are entitled to notice of and to vote at the meeting or any  postponements
or adjournments thereof.

         Regardless  of how many  shares you own,  your vote is very  important.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING,  PLEASE  COMPLETE,  DATE
AND SIGN THE  ENCLOSED  PROXY CARD AND MAIL IT PROMPTLY IN THE  ENCLOSED  RETURN
ENVELOPE. No additional postage is required.

                                           BY ORDER OF THE BOARD OF DIRECTORS,

                                           SHELDON KRAUSE
                                           Secretary

November 14, 2003
Mahwah, New Jersey





                          DATA SYSTEMS & SOFTWARE INC.
                                  200 Route 17
                            Mahwah, New Jersey 07430

                                 PROXY STATEMENT

         This Proxy Statement is furnished in connection  with the  solicitation
of proxies on behalf of the Board of Directors of Data Systems & Software  Inc.,
a Delaware  corporation  (the  "Company"  or "DSSI"),  to be voted at the Annual
Meeting of Stockholders of the Company (the "Annual  Meeting") to be held at the
DoubleTree Hotel, 180 Route 17 South, Mahwah, New Jersey, on Monday, December 8,
2003, at 9:30 a.m., and any  postponements or adjournments  thereof.  This Proxy
Statement and the  accompanying  materials are being mailed on or about November
14, 2003, to holders of record of the Common Stock, par value $.01 per share, of
the Company (the "Common Stock") as of the record date.

         The  record  date (the  "Record  Date")  for  determining  stockholders
entitled to notice of, and to vote at, the Annual  Meeting has been  established
as the close of business on November 7, 2003. On that date,  7,902,025 shares of
Common Stock of the Company were  outstanding  and entitled to vote.  Holders of
record of Common  Stock on the Record Date will be entitled to one vote for each
share held on all matters properly brought before the Annual Meeting.

         The presence at the Annual Meeting,  in person or represented by proxy,
of a majority of the outstanding shares of Common Stock entitled to vote thereat
will constitute a quorum for the  transaction of business.  If a share is deemed
present at the Annual Meeting for any one matter,  it will be deemed present for
purposes of determining the presence of a quorum for all other matters presented
to the  meeting.  Votes  withheld  from any nominee for  election as a director,
abstentions,  and shares held by a nominee for a beneficial owner that are voted
on any matter  which may come  before the  meeting  will be deemed  present  for
purposes of determining the presence of a quorum.

         All properly executed proxies  delivered  pursuant to this solicitation
and not  revoked  will be voted at the  Annual  Meeting in  accordance  with the
directions  given.  With respect to the election of directors,  stockholders may
vote in favor of all  nominees,  withhold  their  votes  as to all  nominees  or
withhold their votes as to specific nominees.  Stockholders should specify their
choices on the accompanying  proxy card. If no specific  instructions are given,
the shares  represented  by a signed proxy will be voted FOR the election of all
management  nominees for election as directors,  except as otherwise required by
law. Directors will be elected at the Annual Meeting by a plurality of the votes
cast. Any stockholder of record returning the accompanying proxy card may revoke
such proxy at any time prior to its exercise by (i) giving written notice to the
Company of such revocation, (ii) voting in person at the Annual Meeting or (iii)
executing and delivering to the Company a later-dated proxy. Written revocations
and  later-dated  proxies  should be sent to Data Systems & Software  Inc.,  200
Route 17, Mahwah, New Jersey 07430, Attention: Secretary.

         A beneficial owner of Common Stock who hold his shares through a broker
or other  nominee in  "street  name" who wishes to vote his shares at the Annual
Meeting must contact his broker or nominee and obtain a legal proxy to vote such
shares  at the  Annual  Meeting.  This  legal  proxy  must be  presented  to the
Inspector of Voting at the Annual Meeting.  A beneficial owner who does not hold
a legal proxy will not be permitted to vote his shares at the Annual Meeting.

         Commencing  ten  days  before  the  date  of  the  Annual  Meeting,  an
alphabetical  list of the names and addresses of the  stockholders  of record of
the Company as of the Record Date will be available at the  principal  executive
offices of the Company,  200 Route 17, Mahwah,  New Jersey 07430, for inspection
by any  stockholder  during normal business hours for any purpose germane to the
Annual Meeting.





         STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table and the notes thereto set forth information,  as of
October 31, 2003 (except as otherwise set forth herein),  concerning  beneficial
ownership (as defined in Rule 13d-3 under the  Securities  Exchange Act of 1934)
of  Common  Stock by (i) each  director  of the  Company  and each  nominee  for
director,  (ii)  each of the  executive  officers  of the  Company  named in the
Summary  Compensation Table under "Executive and Director  Compensation,"  (iii)
all executive  officers and  directors of the Company as a group,  and (iv) each
holder of 5% or more of the Company's outstanding shares of Common Stock.



                 Name and Address                          Number of Shares of            Percentage of
                        of                                     Common Stock                Common Stock
              Beneficial Owner(1)(2)                      Beneficially Owned(2)           Outstanding(2)
              ----------------------                      ---------------------           --------------
                                                                                    
George Morgenstern                                              781,304(3)                     9.3%
Howard Gutzmer                                                  676,291(4)                     8.6%
    5550 Oberlin Drive
    San Diego, CA  92121
Dimensional Fund Advisors Inc.                                  492,100(5)                     6.2%
    1299 Ocean Avenue
    Santa Monica, CA  90401
Avi Kerbs                                                         7,500(6)                        *
Elihu Levine                                                     45,970(7)                        *
Shane Yurman                                                        -                             -
Shlomie Morgenstern                                              71,000(8)                        *
Yacov Kaufman                                                   205,000(9)                     2.5%
Robert M. Chiste                                                175,000(10)                    2.2%
Jacob Neuwirth                                                   60,870                           *
All executive officers and directors of the
Company as a group (8 people)                                 1,201,470                       13.8%


------------
*   Less than 1%

(1) Unless otherwise indicated, business address is in care of the Company.
(2) Unless otherwise indicated, each person has sole investment and voting power
    with respect to the shares  indicated.  For purposes of this table, a person
    or group of persons is deemed to have  "beneficial  ownership" of any shares
    as of a given date which such person has the right to acquire within 60 days
    after such  date.  Percentage  information  is based on the number of Shares
    outstanding as of November 7, 2003.
(3) Consists of (i) 261,854  shares held by Mr.  Morgenstern,  including  20,000
    shares  received by Mr.  Morgenstern  pursuant to a  restricted  stock grant
    which are not yet fully vested,  (ii) 497,250 options  exercisable within 60
    days of October 31, 2003 held by Mr.  Morgenstern  and (iii)  22,200  shares
    owned by Mr. Morgenstern's wife.
(4) Based on information in Amendment No. 2 to Schedule 13G filed on January 27,
    2003.  Consists of (i) 60,340 shares owned by Mr. Gutzmer  (including shares
    held in his IRA),  (ii) 508,125 shares owned by the Gutzmer Family Trust, of
    which Mr. Gutzmer is a co-trustee, (iii) 64,950 shares held in an IRA of Mr.
    Gutzmer's  wife;  (iv) 37,576  shares  owned by a  corporation  of which Mr.
    Gutzmer is an executive officer,  director and principal shareholder and (v)
    5,300 shares owned by a limited  partnership,  the corporate general partner
    of which Mr. Gutzmer is the sole director.
(5) Based on  information  in Amendment  No. 2 to Schedule 13G filed on February
    11, 2003.Consists of options exercisable within 60 days of October 31, 2003.
(7) Consists of (i) 40,000  shares  owned by Mr.  Levine and his wife in a joint
    account,  (ii) 1,180 shares held in an IRA of Mr. Levine, (iii) 3,000 shares
    owned  by Mr.  Levine's  wife and (iv)  1,790  shares  held in an IRA of Mr.
    Levine's wife.
(8) Consists of 1,000 shares and 70,000  options  exercisable  within 60 days of
    October 31, 2003 held by Mr. Shlomie Morgenstern.


                                      -2-


(9) Consists of options  exercisable  within 60 days of October 31, 2003 held by
    Mr. Kaufman.
(10)Consists of 100,000 shares and 75,000 options  exercisable within 60 days of
    October 31, 2003 held by Mr. Chiste.


                                   PROPOSAL 1

                              ELECTION OF DIRECTORS

         The whole Board of Directors  of the Company is currently  comprised of
five seats,  one of which is vacant.  The vacancy  initially  resulted  from the
death of one of our directors in June 2002. The Board of Directors has nominated
the four current  directors,  George  Morgenstern,  Avi Kerbs,  Elihu Levine and
Shane Yurman, for election as directors at the Annual Meeting. All nominees have
consented to be named and serve if elected.

         With respect to the  election of  directors,  stockholders  may vote in
favor of all nominees, withhold their votes as to all nominees or withhold their
votes as to specific nominees.  Stockholders  cannot vote for more than the four
nominees  named in this  proxy  statement.  Stockholders  should  specify  their
choices on the accompanying  proxy card. If no specific  instructions are given,
the shares  represented  by a signed proxy will be voted FOR the election of all
four management  nominees.  If any nominee becomes unavailable for any reason to
serve  as a  director  at the time of the  Annual  Meeting  (which  event is not
anticipated),  proxies  will be voted in the  discretion  of the persons  acting
pursuant  to the proxy for any nominee  who shall be  designated  by the current
Board of Directors as a substitute nominee. Only persons nominated in accordance
with the notice  requirements of the Company's By-laws are eligible for election
as directors of the Company.  All  nominations  for director that are not timely
delivered to the Company or that fail to comply with the  requirements set forth
in the Company's  By-laws will be excluded from the Annual Meeting,  as provided
in the  By-laws.  A copy of the  Company's  By-laws  can be  obtained  from  the
Secretary of the Company, 200 Route 17, Mahwah, New Jersey 07430. Directors will
be elected at the Annual  Meeting by a plurality  of the votes cast  (i.e.,  the
four  nominees  receiving  the  greatest  number  of votes  will be  elected  as
directors).



                                      -3-



Certain Information Regarding Directors and Officers

         Set forth below is certain  information  concerning  the  nominees  for
director and certain officers of the Company:



 Name                              Age    Position
 ----                              ---    --------

                                    
 George Morgenstern                70     Director, Chairman of the Board, President and Chief Executive
                                          Officer; Chairman of the Board of our dsIT Technologies Ltd.
                                          subsidiary (formerly Decision Systems Israel Ltd.) ("dsIT"); and
                                          director of our Comverge, Inc. subsidiary (formerly Comverge
                                          Technologies, Inc.) ("Comverge")

 Avi Kerbs                         56     Director

 Elihu Levine                      71     Director

 Shane Yurman                      55     Director

 Shlomie Morgenstern               41     Vice President-Operations

 Jacob Neuwirth                    56     Chief Executive Officer and President of dsIT

 Yacov Kaufman                     46     Vice President and Chief Financial Officer; and Vice President
                                          and Chief Financial Officer of dsIT

 Robert M. Chiste                  56     Chief Executive Officer and director of Comverge



         GEORGE  MORGENSTERN has been our Chairman of the Board since June 1993,
and has been our President and Chief Executive  Officer since our  incorporation
in 1986.  Mr.  Morgenstern  also serves as Chairman of the Board of dsIT, and as
director of Comverge.  Mr. Morgenstern was the Chairman of the Board of Comverge
from October 1997 to April 2003.

         AVI KERBS has served as one of our directors since December 2002. Since
1991,  Mr.  Kerbs has been the Chief  Executive  Officer and  President of Teuza
Management and Development 1991 Ltd., a company that manages a family of Israeli
venture  capital funds.  Mr. Kerbs is a director of Nova  Measuring  Instruments
Ltd.

         ELIHU LEVINE has been one of our directors  since April 29, 2003.  From
1992 to his  retirement in January 1997,  Mr. Levine was an officer and employed
in various executive  capacities by International Data Operations,  Inc., one of
our  subsidiaries.  Mr. Levine also served as a director of Tower  Semiconductor
Ltd. from March 1997 to January 2000.

         SHANE YURMAN has been one of our  directors  since April 30, 2003.  Mr.
Yurman,  who is a  certified  public  accountant,  has been  engaged  in  public
accounting  since 1971.  Mr.  Yurman is a member of the  American  Institute  of
Certified Public  Accountants and the New York State Society of Certified Public
Accountants where he previously served as a member of the Auditing Standards and
Procedures Committee.

         SHLOMIE  MORGENSTERN  has  been  our  Vice  President-Operations  since
February  2000 and was one of our directors  from  November 2001 until  December
2002. Mr. Morgenstern also serves as President of our Databit subsidiary.  Since
1996,  Mr.  Morgenstern  has  been  employed  by  us in  various  administrative
capacities.  Mr. Morgenstern is the son of George  Morgenstern,  our Chairman of
the Board, President and Chief Executive Officer.



                                      -4-



         JACOB NEUWIRTH has been Chief  Executive  Officer and President of dsIT
since  December  2001.  From 1994 to 2001,  he was the founder and  President of
Endan IT  Solutions  Ltd.,  an Israeli IT  solutions  provider  specializing  in
billing and  healthcare  IT  solutions,  which was  acquired by dsIT in December
2001.

         YACOV KAUFMAN has been our Executive Vice President since December 2001
and our Chief Financial Officer since February 1996. Mr. Kaufman has also served
as a Vice President of dsIT from 1992 to 2001 and as Chief Financial  Officer of
dsIT since 1990, having served as Controller of dsIT since 1986.

         ROBERT M.  CHISTE was  appointed  Chief  Executive  Officer and elected
director of Comverge in September  2001.  Mr.  Chiste served as Vice Chairman of
Comverge from September 2001 to April 2003. From 1999 to 2001, Mr. Chiste served
as Chairman and Chief Executive officer of FuelONE,  Inc., a technology oriented
fuel and lubricant  wholesale  distribution  company that he co-founded,  and as
Chairman of FuelQuest Inc., a related e-commerce enterprise.  In 1998 Mr. Chiste
co-founded  Tri-Active Inc., a network and systems management company. From 1997
to 1998, Mr. Chiste served as Executive Vice President at Philip  Services Corp.
and as President of their Industrial Services/Utilities Management Division. Mr.
Chiste is also a director of Pentacon, Inc.

         On January 21,  2003,  Dr.  Robert L. Kuhn  resigned  from our Board of
Directors.  Dr. Kuhn had served as a director since 1986 and as Vice Chairman of
the Board of  Directors  since  1994.  On April 28,  2003,  Dr.  Allen I. Schiff
resigned from our Board of Directors.  Dr. Schiff had served as a director since
1992 and was  chairman of our Audit and  Compensation  Committees.  On April 29,
2003, Dr. Susan M. Malley  resigned from our Board of Directors.  Dr. Malley had
served as a director  since 1998 and was a member of our Audit and  Compensation
Committees.

         We have an  Audit  Committee  that  was  established  by our  Board  of
Directors for the purpose of overseeing our  accounting and financial  reporting
processes and audits of our financial  statements of the issuer.  The members of
the Audit Committee are Messrs. Yurman (Chairman), Kerbs and Levine. Each of the
members  of  the  Audit   Committee  meets  the   independence   and  experience
requirements of Marketplace Rule 4350(d)(2) of the NASDAQ Stock Market, Inc.

MEETINGS OF THE BOARD OF DIRECTORS

         During 2002, the Board of Directors of the Company met ten times.  Each
incumbent director who served as a director in 2002 attended at least 75% of the
aggregate  of (i) the total  number of meetings of the Board of  Directors  held
(during the 2002 period for which the director  served)and (ii) the total number
of meetings  held during 2002 by each  committee  of the Board of  Directors  on
which such director served (during the period for which such director served).

INFORMATION CONCERNING CERTAIN COMMITTEES OF THE BOARD OF DIRECTORS

         The Board of  Directors of the Company has a standing  Audit  Committee
comprised  of Mr.  Yurman,  who serves as Chairman,  Mr.  Kerbs and Mr.  Levine.
During 2002, the Audit Committee met four times.

         In  accordance  with  Nasdaq  rules,  the  Company has adopted a formal
written audit committee charter setting forth the  responsibilities of the Audit
Committee.  The Audit  Committee  is charged  with  assisting  the  directors in
fulfilling  their  responsibilities  to stockholders  and others relating to the
corporate  accounting and reporting practices of the Company and the quality and
integrity  of the  financial  reports of the  Company.  The Audit  Committee  is
responsible for selecting, evaluating and replacing the independent auditors and
with overseeing the  independence of the auditors.  The Audit Committee  reviews
with the Company's  independent  auditors the Company's accounting practices and
policies;  reviews  the  report of the  Company's  independent  auditors  on the
Company's  year-end  financial  statements;  examines  from  time  to  time,  in
consultation with the Company's financial officers and its


                                      -5-



independent  auditors,  the Company's overall accounting and financial controls;
and is available to the Company's  independent  auditors for  consultation.  The
Audit  Committee  must  have  at  least  three  members,  all of  whom  must  be
independent and must be financially  literate.  At least one member of the Audit
Committee  must have a background in finance or  accounting.  All the members of
the Audit Committee have the requisite  independence and financial  literacy and
at least one member has the requisite accounting or finance background.

         The Board of Directors has also  established a  Compensation  and Stock
Option Committee (the "Compensation Committee") which administered the Company's
stock-based  compensation  plans and approved  awards of stock options and other
stock-based  compensation,  and reviewed and approved the  employment  terms and
compensation of executive officers of the Company. During 2002, the Compensation
Committee  was  inactive  and  the  activities  previously  assumed  by it  were
performed by the full Board of  Directors.  The  Compensation  Committee did not
meet during 2002, and is currently inactive.

         The Board of Directors does not have a nominating committee.


                       EXECUTIVE AND DIRECTOR COMPENSATION

COMPENSATION OF DIRECTORS

         Each of our  directors  is  generally  paid  $1,000  for each  Board or
committee  meeting,  which he or she attends  (except if a committee  meeting is
held on the  same  day as a Board  meeting)  and is  reimbursed  for  associated
out-of-pocket expenses. Dr. Schiff was paid $24,000 per annum for his service as
Chairman of both the Audit  Committee and the  Compensation  Committee,  and was
paid a total of $27,000 in 2002 in  connection  with his service on the Board of
Directors and Board committees.  Dr. Kuhn was paid $39,580 in 2002 in connection
with his service on the Board and as our Vice  Chairman.  Dr.  Malley was paid a
total  of  $17,000  in 2002 in  connection  with  her  service  on the  Board of
Directors  and Board  committees.  Mr. Kerbs and Mr. Levine are each paid $6,000
per annum plus meeting fees in  connection  with their  service on the Board and
Audit Committee.  Mr. Yurman is paid $20,000 per annum plus meeting fees for his
service on the Board and as Chairman of the Audit Committee.

         In addition to the directors' fees described  above, at the last Annual
Meeting of Stockholders each member of the Board of Directors who was not one of
our employees and who met certain other  eligibility  criteria (Mr.  Kerbs,  Dr.
Malley and Dr.  Schiff) was  granted  options to  purchase  7,500  shares of our
common  stock at an exercise  price of $1.77 per share (the fair market value of
our common stock on such date).  These options were granted pursuant to our 1994
Stock Option Plan for Outside Directors described below.


         Our 1994 Stock Option Plan for Outside Directors provides for awards of
non-qualified  options to our directors who are not employed by us or any of our
affiliates  and who meet certain  other  eligibility  criteria.  Pursuant to the
plan, (i) upon first  election or  appointment  to the Board of Directors,  each
newly  elected or appointed  eligible  director is granted an option to purchase
7,500  shares of our common  stock and (ii)  immediately  following  each of our
Annual Meeting of Stockholders, each eligible director will generally be granted
an option to purchase  7,500 shares of our common stock.  Options  granted under
the plan have an exercise  price per share equal to the fair market value of our
common stock on the date of issuance and are exercisable  beginning on the first
anniversary  of the date of the grant  until the  earliest of (i) ten years from
the date of grant, (ii) one year from the date on which an optionee ceases to be
an  eligible  director  and (iii) 90 days  after the date on which the  optionee
ceases to be a  director.  The maximum  number of shares of our common  stock in
respect  of which  awards  may be granted  under the plan is  400,000,  of which
22,500  non-expired  options have been granted to date.


                                      -6-



COMPENSATION  COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION


         All  matters  related  to  the  compensation  of  executive   officers,
including  the Chief  Executive  Officer,  are acted  upon by the full  Board of
Directors.  The mandate of our Compensation Committee of the Board of Directors,
which  has  been  inactive  since  2002,  encompasses  all  matters  related  to
compensation,  including  determination  of stock  option and other  stock-based
compensation  and  review of  employment  terms and  compensation  of  executive
officers.

         The following  persons served both as members of our Board of Directors
and as our officers or employees in 2002:  George  Morgenstern  (Chairman of the
Board,  President and Chief Executive  Officer),  Mr. Sheldon Krause (Secretary)
and Mr. Shlomie Morgenstern (Vice President-Operations). Both Mr. Krause and Mr.
Shlomie  Morgenstern served as directors until our annual meeting on December 3,
2002. Dr. Kuhn, who resigned as director on January 21, 2003, also served as our
Vice Chairman of the Board. During 2002, no member of the Board of Directors who
was also one of our officers  participated in any  deliberations of the Board of
Directors or any committee  thereof  relating to his own  compensation or to the
compensation  of any person to whom he is related.  Except as  described  above,
each member of the Board of Directors  participated in 2002 in  deliberations of
the Board of Directors concerning executive officer  compensation.  During 2002,
Mr. George  Morgenstern,  Dr. Malley and Mr. Krause engaged in transactions with
us in which they were deemed to have an interest.  For further information,  see
"Certain Related Party Transactions" below.

EMPLOYMENT ARRANGEMENTS

         George Morgenstern  serves as our Chairman of the Board,  President and
Chief Executive  Officer  pursuant to an employment  agreement that commenced on
January 1, 1997 and was  amended in March 2002 to extend  through  December  31,
2003 (the "Employment Agreement").  The Employment Agreement provides for a base
salary  of  $420,000  per  annum  (currently  $470,000  due to  cost  of  living
adjustments), subject to annual review by the Board and an annual cost of living
adjustment, plus contributions to a nonqualified retirement fund equal to 25% of
his base  salary.  Mr.  Morgenstern's  compensation  pursuant to the  Employment
Agreement also includes the use of two company automobiles,  premium payments on
a life insurance policy owned by Mr. Morgenstern and other fringe benefits.

         Pursuant to the Employment Agreement, Mr. Morgenstern may at any time
prior to December 31, 2003, elect to terminate his employment with us and
thereafter to continue to serve us as a consultant for a period (the "Consulting
Period") ending on December 31 of the seventh year following the year in which
he first commences to serve as a consultant. During the Consulting Period, Mr.
Morgenstern would be entitled to receive an annual consulting fee plus
contributions to a nonqualified retirement fund and fringe benefits on the same
basis as during the term of his employment as described above. Mr. Morgenstern's
annual consulting fee during the Consulting Period would be equal to 50% of his
annual salary in effect immediately prior to the Consulting Period through the
end of the fourth full calendar year of the Consulting Period, and 25% of such
annual salary for the remainder of the Consulting Period (subject in all cases
to an annual cost of living adjustment). However, if Mr. Morgenstern elects to
become a consultant following a breach by the Company of its obligations under
the Employment Agreement or following a change in control of the Company (as
defined in the Employment Agreement), Mr. Morgenstern would be entitled to
receive his full annual salary until December 31, 2003, and thereafter to
receive an annual consulting fee as described above for the balance of the
Consulting Period. We are obligated under the Employment Agreement to fund at
the beginning of the Consulting Period all amounts to become payable to Mr.
Morgenstern for consulting services and to fund upon his death all amounts
payable to his estate. During the term of the Employment Agreement (including
any Consulting Period), Mr. Morgenstern may not engage in a business that is in
substantial and direct competition with our business or any of our subsidiaries.


                                      -7-



         In  addition  to the  compensation  provided  for under the  Employment
Agreement,  in  January  2000 the  Board  approved  a bonus of  $150,000  if Mr.
Morgenstern remained employed full-time as President and Chief Executive Officer
of the Company  through  December 31, 2001,  which bonus was paid in 2001, and a
$150,000  bonus if an equity  financing  of Comverge of at least $10 million was
completed by December 31, 2000, which bonus was not paid as no qualifying equity
financing was completed by the end of 2000.

         Yacov Kaufman serves as Vice President and Chief  Financial  Officer of
the Company and as Executive Vice President and Chief Financial  Officer of dsIT
pursuant to an employment  agreement entered into with the Company on January 1,
1999,  and  amended in June 2002.  The  amendment  to Mr.  Kaufman's  employment
agreement  provides  for  an  increase  in  Mr.  Kaufman's  salary  to  $200,000
retroactive to January 1, 2002.

         We  make  certain  payments  to  fund  in  part  our  future  severance
obligations  to  Mr.  Kaufman.  If  Mr.  Kaufman's   employment  is  voluntarily
terminated or is terminated by us for reasons other than for cause,  we must pay
him an amount equal to 150% of his last month's salary  multiplied by the number
of  years  (including  partial  years)  that Mr.  Kaufman  worked  for us.  This
severance  obligation,  which is customary for executives of Israeli  companies,
would be reduced by the amount  contributed by us to certain Israeli pension and
severance funds pursuant to Mr. Kaufman's employment  agreement.  As of December
31, 2002,  the unfunded  portion of our  severance  obligation  was $71,000.  In
addition,  the agreement  with Mr.  Kaufman  provides for an additional  payment
equal to six times his last month's  total  compensation,  payable at the end of
his employment with us, unless he is terminated by us for cause.

         In  addition  to  the  compensation   provided  for  by  Mr.  Kaufman's
employment  agreement,  in November 2001, the Board approved a $50,000 bonus and
the grant of  options  to  purchase  15,000  shares of our  common  stock to Mr.
Kaufman in connection  with his efforts with respect to the  acquisition  by our
Israeli  subsidiary,  dsIT, of Endan IT Solutions  Ltd. The payment of the bonus
and the grant of the options were both  contingent upon the closing of the Endan
acquisition, which occurred in December 2001.

         Robert Chiste serves as Chief Executive Officer of Comverge pursuant to
an  employment  agreement  that  commenced on September 1, 2001.  Under a voting
agreement entered into by us and other investors in Comverge,  Mr. Chiste serves
as a director of Comverge. Mr. Chiste's employment agreement provides for a base
salary of  $250,000  per  annum,  plus an annual  bonus of up to 75% of his base
salary contingent upon achieving performance objectives established each year by
the Board of Directors of Comverge.

         In connection with the signing of his employment agreement,  Mr. Chiste
also  received  an  option  to  purchase   shares  of  Comverge   common  stock,
representing 6% of the  outstanding  Comverge shares (on a fully diluted basis),
at an exercise price of $1.20 per share. The exercise price was determined based
upon a valuation  of Comverge as of July 31, 2001,  performed by an  independent
appraiser.  Mr.  Chiste's  Comverge  option will be adjusted to protect  against
dilution from issuances of common stock until  Comverge's  paid in capital is at
least $15 million.  Under the agreement,  Mr. Chiste also received a grant under
our 1994 Stock Incentive Plan of a stock option to purchase 75,000 shares of our
common stock at an exercise price of $5.95. In addition to the options, pursuant
to his  employment  agreement,  Mr. Chiste entered into an agreement with us for
the purchase of 50,000 shares of our common stock at a price of $5.95 per share.
Mr.  Chiste paid for the common  stock by  assigning  and  endorsing  to us a 6%
subordinated note of a publicly traded company, due April 2010, in the principal
amount of $297,500.  The subordinated  note,  which is assignable,  is due April
2010; pays interest semi-annually (in cash or by an additional promissory note);
and is subject to repayment in four annual payments beginning in April 2006. The
issuer of the note subsequently  declared bankruptcy and the Company has written
off the recorded value of the note.


                                      -8-




         Mr. Chiste will receive retirement payments from Comverge if, after his
60th birthday,  his employment  agreement is terminated without cause or because
of Mr. Chiste's death or disability.  Mr. Chiste will not receive any retirement
payment if his employment is terminated prior to his 60th birthday. Mr. Chiste's
retirement  payments  will be made over seven  years  commencing  on the date of
termination.  During the first four years, Mr. Chiste's retirement payments will
be equal to 50% of his base salary in effect at the time of his termination, and
during the last three years the retirement  payments will be equal to 25% of the
base salary.

         Mr. Chiste may in certain circumstances receive severance payments from
Comverge.  Under  his  employment  agreement,  if  Mr.  Chiste's  employment  is
terminated without cause, Comverge would have to pay Mr. Chiste one year of base
salary,  or if there has been an IPO for  Comverge,  three  years of base salary
plus up to 15% of any excess  parachute  payment,  plus, if such  termination is
before  December 31, 2002, his base salary through  December 31. Mr. Chiste will
not be entitled to any severance  payments under his employment  agreement if he
voluntarily terminates his employment agreement.

         The stock  option  agreements  with our  executive  officers  generally
provide for accelerated vesting in the event we have a change in control.

         Jacob Neuwirth serves as President and Chief Executive  Officer of dsIT
pursuant to an employment  agreement  that  commenced on December 16, 2001.  Mr.
Neuwirth's  employment agreement provides for a base salary which is denominated
in linked NIS equivalent to $165,000 per annum,  linked to the Israeli  Consumer
Price Index, plus an annual bonus of 10%, should dsIT's annual net profit exceed
the NIS  equivalent  of  $317,000  and a 20%  bonus  should  it  exceed  the NIS
equivalent of $633,000.  In addition,  the agreement with Mr. Neuwirth  provides
for six months  advance  notice of termination of employment by either side, and
an additional  payment  equal to six times his last month's total  compensation,
payable upon any termination of his employment.

         Under his employment  agreement,  Mr. Neuwirth is entitled to a loan of
up to $100,000 from dsIT. As of December 31, 2002 the loan, which is denominated
in linked NIS,  bears  interest  at 4% and has no fixed  maturity  date,  had an
outstanding  balance of $48,000. No amounts have been drawn upon under this loan
during the last two fiscal years,  and variations in the  outstanding  principal
amount  between  periods  have  solely  been  due  to  currency   exchange  rate
fluctuations.


                                      -9-



EXECUTIVE COMPENSATION


         The following  table sets forth for the periods  indicated  information
concerning the compensation of our Chief Executive Officer and the four other of
our officers who received in excess of $100,000 in salary and bonus during 2002.


                           SUMMARY COMPENSATION TABLE





                                                                        Long Term                   All Other
                                    Annual Compensation           Compensation Awards            Compensation ($)
                                                                  -------------------            ----------------
                                                                                 Securities
        Name and                                            Restricted Stock     Underlying
   Principal Position      Year   Salary ($)   Bonus ($)       Awards ($)        Options (#)
   ------------------      ----   ----------   ---------       ----------        -----------
                                                                                 
George Morgenstern         2000    446,600      550,000            -                  -              193,900
Chief Executive            2001    446,351      150,000            -                  -              187,721
Officer                    2002    465,700(1)      -               -                  -              182,860(2)


Yacov Kaufman              2000    150,000      32,000             -                  -               27,400
Chief Financial Officer    2001    158,403      50,000             -                  -               48,400
                           2002    170,294         -               -                  -               37,899(3)

Shlomie Morgenstern        2000    160,000      100,000            -                  -                  -
Vice President             2001    193,500         -               -                 (4)                 -
                           2002    204,345      15,000             -                  -                7,440(5)

Jacob Neuwirth             2000       -            -               -                  -                  -
Chief Executive Officer    2001       -            -               -                  -                  -
and President of dsIT      2002    174,512         -               -                  -               39,788(3)

Robert M. Chiste           2000       -            -               -                  -                  -
Chief Executive Officer    2001      (6)           -               -                  -                  -
of                         2002    250,000         -               -                  -              $32,359(7)
Comverge, Inc.


-------------
(1) Includes  a catch up of  contractual  cost of living  adjustments  for prior
    years that had not been taken in the amount of $21,200.

(2) Consists of (i)  $120,800 in  contributions  to a  non-qualified  retirement
    fund,  (ii)  $28,000 in life  insurance  premiums,  (iii)  $22,600  paid for
    accrued  vacation,  (iv) $3,000 in  director's  fees and (v) $8,460  imputed
    value of automobile fringe benefits.

(3) Represents  primarily  contributions  to  severance  and  pension  funds and
    automobile fringe benefits. Contributions to severance and pension funds are
    made on substantially  the same basis as those made on behalf of all Israeli
    executives.

(4) In 2001, Mr. Shlomie  Morgenstern  was awarded options to purchase shares of
    Comverge  representing  0.5% of the  outstanding  stock of  Comverge,  at an
    aggregate  exercise price of $35,340.  Mr. Shlomie  Morgenstern  served as a
    director of Comverge from June 1999 until April 2003.

(5) Consists of $3,000 in director's fees and $4,400 imputed value of automobile
    fringe benefits.

(6) Mr. Chiste joined Comverge in September 2001.

(7) Consists of rental and travel allowances.


                                      -10-



         The following  tables  summarize (i) the options granted in 2002 to the
executive  officers  named in the Summary  Compensation  Table  above,  (ii) the
potential value of these options at the end of the option term assuming  certain
levels of appreciation of our common stock,  (iii) the number of shares acquired
by such named  executive  officers  upon the exercise of options in 2002 and the
value  realized  thereon,  and (iv) the number and value of all options  held by
such executive officers at the end of 2002.


                            OPTION/SAR GRANTS IN 2002




                                                                                           Potential Realizable Value
                                                                                             at Assumed Annual Rates
                                                                                          of Stock Price Appreciation
                                                Individual Grants(1)                           for Option Terms(2)
                             -----------------------------------------------------------  -----------------------------
                                              % of Total
                               Number of        Options
                              Securities      Granted to
                              Underlying       Employees                    Exercise or
                                Options        in Fiscal      Base Price    Expiration
     Name                     Granted (#)      Year (%)       ($/Share)        Date           5% ($)         10% ($)
     ----                     -----------      --------       ---------     ----------        ------         -------
                                                                                           
     Yacov Kaufman(3)           25,000           100%           $5.25         7/31/07         41,846         94,221


-------------
(1) We did not grant any stock appreciation rights (SARs) in 2002.
(2) The dollar amounts under these columns are the result of calculations at the
    5% and 10% compounded annual  appreciation  rates prescribed by the SEC and,
    therefore,  are not intended to forecast possible future price appreciation,
    if any, of our common stock.
(3) Represents extension of expiring options at their original exercise price.


                       AGGREGATED OPTION EXERCISES IN 2002
                     AND FISCAL YEAR END STOCK OPTION VALUES



                            Number of
                              Shares
                             Acquired       Value        Number of Securities
                               Upon       Realized      Underlying Unexercised            Value of Unexercised
Name                       Exercise (#)      ($)        Options at Year End (#)       In-the-Money Options ($) (1)
----                       ------------   --------   ----------------------------    -----------------------------
                                                     Exercisable    Unexercisable    Exercisable     Unexercisable
                                                     -----------    -------------    -----------     -------------
                                                                                   
                                -             -        380,583         116,667            -                -
Yacov Kaufman                   -             -        185,666         19,334             -                -
Robert Chiste                   -             -         50,000         25,000             -                -
Shlomie Morgenstern             -             -         60,833          9,167             -                -


-------------
(1) Based on the  closing  price for our common  stock on  December  31, 2002 of
    $0.85 per share.



                                      -11-



CERTAIN RELATED PARTY TRANSACTIONS


         During 2002, we paid approximately $630,000 for legal services rendered
and  reimbursement  of out-of-pocket  expenses to Ehrenreich  Eilenberg & Krause
LLP, a law firm in which Sheldon Krause, a former director and our Secretary, is
a member. Such fees related to services rendered by Mr. Krause and other members
and employees of his firm, as well as certain special and local counsel retained
and supervised by his firm who performed  services on our behalf.  Mr. Krause is
the  son-in-law  of  George  Morgenstern,  our  Chairman,  President  and  Chief
Executive Officer.

         As  reported  on  the  Summary   Compensation   Table  above,   Shlomie
Morgenstern,  the son of George Morgenstern,  our Chairman,  President and Chief
Executive  Officer,  received  compensation  during 2002 in connection  with his
position as Vice President-Operations.

         In March 2001, we retained Malley  Associates  Capital  Management,  an
asset  management  firm that is controlled  by Susan L. Malley,  then one of our
directors, to provide discretionary asset management services to us with respect
to $2 million of our funds.  The agreement  provided for a management  fee of 1%
per annum of the amount under management. In September 2002, the arrangement was
terminated.  Malley  Associates no longer provides any asset management or other
services to us. The  aggregate  fees paid to Malley  Associates  from March 2001
through September 2002 were $25,407.  Dr. Malley resigned as a director on April
29, 2003.

         In  July  2001,  we  entered  in  an  arrangement  with  a  corporation
wholly-owned by George Morgenstern,  our Chairman, President and Chief Executive
Officer,  for use by such corporation of approximately  400 of the approximately
4,650 square feet leased by us in New York City.  Based on our lease for our New
York City premises, the pro rata full rental cost (including electricity) of the
portion of the premises utilized by the corporation was approximately $1,450 per
month.   In  October  2002,  we  entered  into  a  written   agreement  for  the
corporation's use of its portion of the premises. The agreement provided for the
payment to us of $2,000 per month and was  terminable by either party on 60 days
written notice to the other. As of February 2002, the corporation gave us notice
of its intent to vacate the space in April 2002. During 2002 we received $35,000
of rent from this corporation.

         In January 2000, our Comverge  subsidiary extended loans of $9,925 each
evidenced by a  promissory  note to both our Chief  Executive  Officer and Chief
Financial  Officer to finance the purchase of Comverge  common stock.  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,
payable at maturity.


                  COMPENSATION REPORT OF THE BOARD OF DIRECTORS

COMPENSATION POLICIES FOR EXECUTIVE OFFICERS

         The Company's  compensation package for its executive officers consists
of three components:  (i) base salary; (ii) cash bonus; and (iii) options and/or
stock grants. Under guidelines previously adopted by the Compensation Committee,
the compensation  decisions with respect to the Company's executive officers are
generally to be made at the first regularly scheduled Board or Committee meeting
(which ever is earlier) in each fiscal year.  Prior to that Board  meeting,  the
chief  executive  officer of the Company is to submit to the Board or  Committee
recommendations for the compensation  package of executive  officers.  The chief
executive officer's recommendations are to include bonus recommendations for the
preceding  fiscal year. The independent  directors  evaluate the chief executive
officer's  recommendations,  considering the following factors:  (i) stock price
performance over the previous 12 months; (ii) corporate  performance as measured
primarily  by cash flow  from  operations;  and  (iii)  the  extent to which the
executive  officer has  achieved  performance  goals  established  for that year
(whether  established by an employment agreement or by the Board). The Committee
has established a target cap on the annual grant



                                      -12-



of options  and/or  restricted  stock grants to executive  officers of 2% of the
then  outstanding  Common  Stock.  During 2002,  the role of the  Committee  was
performed by the full Board of Directors.

         In July 2002 the Board extended to July 31, 2007 the expiration date of
options to  purchase  25,000  shares of Common  Stock that had  previously  been
granted  to Mr.  Kaufman  in July 1997  pursuant  to the  Company's  1994  Stock
Incentive Plan. All other terms of the option,  including the original  exercise
price  of  $5.25  per  share,  remained  the  same.  The  extension  was made in
recognition  of Mr.  Kaufman's  dedication and efforts on behalf of the Company.
Mr. Kaufman's base salary continued at the prior year's level of $160,000.

         In 2002, the Company raised Mr. Shlomie  Morgenstern's base salary from
$195,000 to $205,000,  in  recognition  of his services and as an incentive  for
continued  employment.  In April 2003 the Company granted a $50,000 bonus to Mr.
Morgenstern to recognize Mr.  Morgenstern's  management of the Company's Databit
subsidiary and the performance of his duties at Comverge during 2002 and to that
date in 2003, and as an incentive for his continued employment with the Company.

         In September 2001, the Company's  Comverge  subsidiary  entered into an
employment  agreement  with Robert Chiste.  Mr.  Chiste's  employment  agreement
provides for a base salary of $250,000, an annual bonus of up to 75% of his base
salary  based upon  achieving  performance  goals set each year by the  Comverge
Board,  severance  payments upon certain  termination  events, and reimbursement
through March 1, 2003,  of up to $3,500 per month for auto,  living and personal
travel  expenses.  The employment  agreement was entered into after an extensive
search for a CEO for  Comverge  to build  Comverge's  business,  benefiting  the
Company and its stockholders.  In December 2002, the Company  authorized a grant
of 50,000 shares of Common Stock to Mr. Chiste, to reward him for his efforts on
behalf of Comverge,  particularly its fundraising  activities,  and to align his
interests with those of the Company's shareholders.  No bonus was awarded to Mr.
Chiste for 2002.

BASIS FOR CHIEF EXECUTIVE OFFICER'S COMPENSATION

         During  2002,  George  Morgenstern,   Chairman,   President  and  Chief
Executive Officer of the Company, had no increase in salary,  receiving $465,700
pursuant to an employment  agreement  previously  entered into with the Company,
which was extended by the Board in May 2001 and again in March 2002 and now runs
through December 31, 2003.  Effective August 2002, Mr.  Morgenstern,  along with
other senior management,  voluntarily  reduced his base salary by 10% as part of
cost-cutting measures. His compensation for 2002 also included payments totaling
$21,200  for prior year cost of living  adjustments  that he had not taken.  Mr.
Morgenstern received no bonus for 2002.


                                                            BOARD OF DIRECTORS*

                                                            George Morgenstern
                                                            Avi Kerbs



-------------
* Includes only names of current directors who served during the period in which
  matters  covered  by this  Report  were  discussed.  Mr.  Kerbs'  service as a
  director began in December 2002.


                                      -13-



                             AUDIT COMMITTEE REPORT

         The  Audit  Committee  is  composed  of three  directors,  each of whom
qualifies  as an  "independent  director"  as  such  term  is  defined  in  Rule
4200(a)(14)  of the  National  Association  of  Securities  Dealers.  The  Audit
Committee operates under a written charter adopted by the Board.

         Management  is  responsible  for the  Company's  internal  controls and
financial   reporting  process.   The  external  auditors  are  responsible  for
performing  an  independent  audit  of  the  Company's   consolidated  financial
statements in accordance with generally accepted auditing standards and to issue
a report thereon. The Audit Committee's responsibility is to monitor and oversee
these processes.

         In this context,  the Audit Committee has met and held discussions with
management  and KPMG LLP  ("KPMG"),  the  external  auditors  for the year ended
December  31,  2002.  Management  represented  to the Audit  Committee  that the
Company's  consolidated  financial  statements  were prepared in accordance with
accounting  principles  generally accepted in the United States of America,  and
the Audit Committee reviewed and discussed the consolidated financial statements
with management and KPMG prior to their issuance.  The Audit Committee discussed
with KPMG matters  required to be  discussed by Statement on Auditing  Standards
No. 61 (Communication with Audit Committees).

         KPMG also provided to the Audit Committee the  disclosures  required by
Independent Standards Board Standard No. 1 (Independence  Discussions with Audit
Committees),   and  the  Audit   Committee   discussed  with  KPMG  that  firm's
independence.

         Based on the Audit Committee's  discussion with management and KPMG and
the Audit Committee's review of the representation of management and KPMG to the
Audit  Committee,  the Audit Committee  recommended to the Board,  and the Board
approved,  the inclusion of the audited consolidated financial statements in the
Company's  Annual  Report on Form 10-K for the year ended  December 31, 2002. In
October 2003,  KPMG  resigned as the Company's  auditors and, as of November 12,
2003, the Company had not retained new auditors for the year ending December 31,
2003.

                                                            AUDIT COMMITTEE

                                                            Avi Kerbs*



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

* Mr.  Kerbs is the only  current  director  who  served on the Audit  Committee
  during the period in which matters covered by this Report were discussed.


                                      -14-



                          STOCK PRICE PERFORMANCE GRAPH

         The following  stock price  performance  graph  compares the cumulative
total return of the Company's Common Stock,  during the period December 31, 1997
to December 31, 2002, to the  cumulative  total return during such period of (i)
the Nasdaq Stock Market  Index  (United  States and Foreign) and (ii) the Nasdaq
Computer & Data Processing Stock Index.

                     COMPARISION OF CUMULATIVE TOTAL RETURNS






                            [LINE GRAPH APPEARS HERE]





                              12/31/1997      12/31/1998      12/31/1999      12/31/2000      12/29/2001      12/31/2002
                                                                                            
DSSI                             100            61.77            79.41           98.54         114.09             20

Nasdaq Computer & Data           100           178.39           392.44          180.62         145.45           100.03
Processing Stock Index

Nasdaq Stock Market Index        100           138.48           258.17            155          123.09            84.7




      COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section  16(a) of the  Securities  Exchange Act of 1934 (the  "Exchange
Act") requires our executive  officers and  directors,  and persons who own more
than 10% of a  registered  class of our  equity  securities  to file  reports of
ownership and changes in ownership with the  Securities and Exchange  Commission
("SEC").  These persons are also  required by SEC  regulation to furnish us with
copies of all Section 16(a) forms they file.  Based solely on its review of such
forms received by us or written  representations from certain reporting persons,
except as  described  below we believe  that during 2002 all  applicable  filing
requirements were complied with by its executive officers and directors.

         In 2002, Mr. Morgenstern failed to timely file four Form 4s covering
ten purchases totaling 10,200 shares of Common Stock by his wife during October
of that year.



                                      -15-



                   INDEPENDENT PUBLIC ACCOUNTANTS AND AUDITORS

CHANGE IN ACCOUNTANT

         On October 9, 2003, KPMG LLP ("KPMG")  notified us that as of that date
it had resigned as our independent accountant.

         KPMG audited the  Company's  financial  statements  for the years ended
December 31, 2000, December 31, 2001 and December 31, 2002, and provided reviews
relating  to the  Company's  quarterly  reports  on Form  10-Q for the first two
quarters  of 2003.  The  audit  reports  of KPMG on the  Company's  consolidated
financial  statements  for the past two fiscal  years did not contain an adverse
opinion or  disclaimer  of  opinion,  and were not  qualified  or modified as to
uncertainty,  audit scope or accounting  principles,  except the reports of KPMG
refer to the Company's adoption of Statements of Financial  Accounting Standards
No. 141,  "Business  Combinations",  for purchase method  business  combinations
completed after June 30, 2001, No. 142, "Goodwill and Other Intangible  Assets",
effective January 1, 2002, and No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections," in 2002.

         During the two most recent  fiscal  years and through  October 9, 2003,
there were no  disagreements  between  the  Company and KPMG as to any matter of
accounting  principles or practices,  financial statement  disclosure,  or audit
scope or procedure,  which disagreement,  if not resolved to the satisfaction of
KPMG,  would  have  caused it to make  reference  to the  subject  matter of the
disagreement in its reports on the financial  statements for such periods within
the meaning of Item 304(a)(1)(iv) of Regulation S-K.

         As a  result  of  its  resignation,  we do not  anticipate  that a KPMG
representative  will attend the meeting.  Should the Company engage  independent
accountants for the current fiscal year prior to the date of the Annual Meeting,
the new accountants will be invited to attend the Annual Meeting.

AUDIT FEES

         The aggregate fees billed by KPMG for  professional  services  rendered
for the audit of the Company's annual  financial  statements for the years ended
December 31, 2001 and 2002 and the reviews of the Company's  quarterly financial
statements for those fiscal years,  as well as for any other  services  normally
provided by the principal  accountant in connection with statutory or regulatory
filings or engagements for those years (primarily relating to fees in connection
with SEC filings), totaled $228,900 and $207,900, respectively.

AUDIT-RELATED FEES

         No fees were billed in 2001 or 2002 for assurance and related  services
by KPMG that were  reasonably  related to the performance of its audit or review
of the Company's financial statements.

TAX FEES

         No fees were billed in 2001 for professional  services rendered by KPMG
for tax compliance,  tax advice, and tax planning. In 2002, fees totaling $5,000
were billed by KPMG for such services.


                                      -16-




ALL OTHER FEES

         For the years ended  December 31, 2001 and  December 31, 2002,  no fees
were billed by KPMG for services other than those referred to above.


                STOCKHOLDER PROPOSALS FOR THE 2004 ANNUAL MEETING

         Stockholders may present  proposals for inclusion in the Company's 2004
proxy  statement  provided that (in addition to other  applicable  requirements)
such proposals are received by the Company in writing at its principal executive
offices no later than July 17, 2004.

         Pursuant  to the  By-laws  of the  Company,  stockholders  who  wish to
nominate  any person for  election to the Board of  Directors or bring any other
business  before the 2004 Annual  Meeting must  generally give notice thereof to
the Company at its  principal  executive  offices not less than 60 days nor more
than 90 days before the date of the  meeting.  All  nominations  for director or
other  business  sought to be  transacted  that are not timely  delivered to the
Company or that fail to comply with the  requirements set forth in the Company's
By-laws will be excluded from the Annual Meeting,  as provided in the By-laws. A
copy of the By-laws of the Company is available  upon request from the Secretary
of the Company, 200 Route 17, Mahwah, New Jersey 07430.


                                  OTHER MATTERS

         The  Board of  Directors  of the  Company  does  not know of any  other
matters to be presented for action at the Annual Meeting other than those listed
in the accompanying  Notice of Annual Meeting and described herein. If any other
matters  not  described  herein  should  properly  come  before the  meeting for
stockholder action, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in respect thereof in accordance with the Board
of Directors' recommendations.

                                  ANNUAL REPORT

         A copy of the Company's  Annual Report,  covering the fiscal year ended
December 31, 2002, including audited financial statements, is enclosed with this
Proxy Statement.  Such report is not incorporated in this Proxy Statement and is
not a part of the proxy soliciting material.

                             SOLICITATION OF PROXIES

         The cost of soliciting  proxies for the Annual Meeting will be borne by
the  Company.  In addition  to use of the mails,  proxies  may be  solicited  by
personal  interview,  telephone,  telex or  facsimile.  The Company  will,  upon
request and in accordance with applicable regulation,  reimburse brokerage firms
and others for their reasonable expenses in forwarding  solicitation material to
the beneficial owners of stock.


                                            BY ORDER OF THE BOARD OF DIRECTORS,

                                            SHELDON KRAUSE
                                            Secretary

November 14, 2003
Mahwah, New Jersey




                                      -17-


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

                          DATA SYSTEMS & SOFTWARE INC.


               PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned  hereby appoints  George  Morgenstern,  Shane Yurman and Sheldon
Krause, and each of them, with full power of substitution,  as proxies,  to vote
at the Annual Meeting of Stockholders of Data Systems & Software Inc. to be held
at The Double Tree Hotel,  180 Route 17 South,  Mahwah,  New Jersey,  on Monday,
December 8, 2003, at 9:30 a.m., and any adjournments and postponements  thereof,
hereby revoking all proxies heretofore given, to vote all shares of Common Stock
of the Company held or owned by the undersigned as directed on the reverse, and,
in their  discretion,  upon such other matters as may properly be brought before
the meeting. This proxy revokes all prior proxies given by the undersigned.

                (Continued and to be signed on the reverse side)
--------------------------------------------------------------------------------


                                       18


                         ANNUAL MEETING OF STOCKHOLDERS
                          DATA SYSTEMS & SOFTWARE INC.

                                December 8, 2003

                        Please date, sign and mail your
            proxy card in the envelope provided as soon as possible.


   / Please detach along perforated line and mail in the envelope provided. /
--------------------------------------------------------------------------------

PLEASE SIGN,  DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE[X]
--------------------------------------------------------------------------------



                                                                  
1. Election of                                                           2. Act upon such other matters as may come
   Directors                           Nominees:  George  Morgenstern      before the  meeting
                                                  Avi Kerbs
/  / FOR ALL NOMINEES                             Elihu Levine           This  proxy,  when  properly  executed,  will  be  voted
                                                  Shane Yurman           as directed  herein  by  the  undersigned  stockholder.
/  / WITHHOLD AUTHORITY                                                  If no  direction  is  indicated,  the  proxy  will   be
     FOR ALL NOMINEES                                                    voted  for  the  election  of  the  directors indicated
                                                                         and  for  approval  of  the  proposals  presented.
/  / FOR ALL EXCEPT
     (See instructions below)

INSTRUCTION:  To withhold authority to vote for any individual nominee(s),
              mark "FOR ALL EXCEPT" and fill in the circle next to each
              nominee you wish to withhold, as shown here:
-------------------------------------------------------------------------









-------------------------------------------------------------------------
To change the address on your account, please check the box at right and
indicate you new address in the address space above. Please note that     /  /
changes to the registered name(s) on the account may not be submitted via
this method.

SIGNATURE OF STOCKHOLDER_________________DATE ____________  SIGNATURE OF STOCKHOLDER________________DATE_____________
Note: Please sign exactly as name or names appear on this proxy. When shares are held jointly, each holder should sign.
When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer
is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.







                                                         CORPORATE INFORMATION

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



                                                                                 
HEADQUARTERS                                 SUBSIDIARIES                              Frank A. Magnotti
                                                                                       President, Global Sales and Marketing
Data Systems & Software Inc.                 dsIT Technologies Ltd.
200 Route 17                                 11 Ben Gurion Avenue                      Joseph D. Esteves
Mahwah, New Jersey 07430                     Givat Shmuel 54017 Israel                 Executive Vice President
www.dssiinc.com                              www.dsit.co.il
                                                                                       Wayne Wren
                                             Jacob Neuwirth (Noy)                      Executive Vice President and Chief Financial
DIRECTORS & OFFICERS                         President and Chief Executive Officer     Officer

George Morgenstern                           Yacov Kaufman                             Itzchak Almog
Chairman of the Board, President and Chief   Executive Vice President and Chief        Executive Vice President, Engineering
Executive Officer                            Financial Officer

Avi Kerbs                                    Benny Sela                                LEGAL COUNSEL
Director and Member of Audit Committee       Executive Vice President
                                                                                       Ehrenreich Eilenberg & Krause LLP
Elihu Levine                                 Yoel Olansky                              11 East 44th Street
Director and Member of Audit                 Vice President--IT Division                New York, New York 10017
Committee                                                                              www.eeklaw.com
                                             Gilad Landau
Shane Yurman                                 Vice President--Health Care
Director and Chairman of Audit Committee                                               REGISTRAR AND
                                             Databit Inc./Databit Solutions            TRANSFER AGENT
Shlomie Morgenstern                          200 Route 17
Vice President--Operations                    Mahwah, New Jersey 07430                  American Stock Transfer &
                                             databit-nj.com                            Trust Co.
Yacov Kaufman                                                                          59 Maiden Lane
Vice President and Chief Financial Officer   Shlomie Morgenstern                       New York, New York 10005
                                             President                                 www.amstock.com
Sheldon Krause
Secretary
                                             AFFILIATE                                 ADDITIONAL INFORMATION

                                             Comverge, Inc.                            For additional information regarding DSSI,
                                             23 Vreeland Road, Suite 160               please write to:
                                             Florham Park, New Jersey 07932
                                             www.comverge.com                          Investor Relations
                                                                                       Data Systems & Software Inc.
                                             Robert M. Chiste                          200 Route 17
                                             Chairman of the Board and Chief           Mahwah, New Jersey 07430
                                             Executive Officer                         ir@dssiinc.com