RULE NO. 424(b)(3) REGISTRATION NO. 333-76614 Prospectus Supplement No.1, dated May 31, 2002, to the Prospectus (the "Prospectus") of Data Systems & Software Inc. (the "Company"), dated January 25, 2002 (included in Registration Statement on Form S-3, Registration No. 333-76614) ================================================================================ The Prospectus indicates under the caption "Selling Security Holders" that Kardan Communications Ltd. is a selling security holder with respect to 354,217 shares of our common stock. Kardan Communications has transferred 60,870 shares of our common stock and, as a result, the persons listed below are now selling security holders for purposes of the Prospectus with respect to the number of shares of our common stock indicated: Number of Number of Shares Shares Name of Selling Security Holder Prior to Sale After Sale ------------------------------- ------------- ---------- Kardan Communications Ltd. (1) 293,347 0 Adv. Yossi Avraham, as Trustee for Meir Givon (2) 10,993 0 Neuwirth Investments Ltd. (3) 60,870 0 ---------- (1) Kardan Communications Ltd. is a wholly owned subsidiary of Kardan Ltd., a holding company traded on the Tel-Aviv Stock Exchange. Through holding companies, Mr. Yosef Grunfeld controls 36.11% and Mr. Avner Shnur controls 30.21% of the outstanding stock of Kardan Ltd. (2) Pursuant to Israeli tax laws relating to employee incentive plans, a trustee is the nominal owner of Meir Givon's shares of our common stock. Israeli law governs this trust arrangement. (3) Neuwirth Investments Ltd. is wholly-owned by Jacob Neuwirth, the Chief Executive Officer of our subsidiary DSIT Technologies Ltd. (formerly Decisions Systems Israel Ltd.).