AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON JANUARY ___, 2003
REGISTRATION NO. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
_____________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________
DATA SYSTEMS & SOFTWARE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2786081
(State of (I.R.S. Employer
incorporation) Identification No.)
200 ROUTE 17
MAHWAH, NJ 07430
(201) 529-2026
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
_____________
GEORGE MORGENSTERN
DATA SYSTEMS & SOFTWARE INC.
200 ROUTE 17
MAHWAH, NEW JERSEY 07430
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
SHELDON KRAUSE
EHRENREICH EILENBERG & KRAUSE LLP
11 EAST 44TH STREET
NEW YORK, NEW YORK 10017 (212) 986-9700
_____________
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this registration statement.
If the only securities being registered on this Form are to be offered pursuant
to dividend or interest reinvestment plans, please check the following box.
|_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
__________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
_____________
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED SHARE PRICE FEE
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Common Stock 400,000(1) $1.50 $600,000(2) $55.20
-------------------------------------------------------------------------------------------
Common Stock 190,000(3) $2.81 $534,400(4) $49.16
_
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Total 590,000 $104.36
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(1) Represents the number of shares that are issuable to the selling security
holder following the conversion of interest and/or principal of a
convertible note held by the selling security holder.
(2) Pursuant to Rule 457(g), calculated based upon the conversion price of a
convertible note held by the selling security holder.
(3) Represents the number of shares that may be sold by the selling security
holder following the exercise of a warrant.
(4) Pursuant to Rule 457(g), calculated based upon the weighted-average
exercise price of the warrant. The warrant is exercisable for (a) 30,000
shares at an exercise price of $2.00, (b) 60,000 shares at an exercise
price of $2.34 and (c) 100,000 shares at an exercise price of $3.34.
_____________
We hereby amend the registration statement on such date or dates as may be
necessary to delay its effective date until we shall file a further amendment
which specifically states that this registration statement shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of 1933
or until the registration statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. The
selling security holder may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS
(SUBJECT TO COMPLETION, DATED JANUARY 3, 2003)
DATA SYSTEMS & SOFTWARE INC.
COMMON STOCK
Shares That May be Offered
--------------------------
This prospectus covers the resale of a total of 590,000 shares of our
common stock that may be issued pursuant to a convertible note issued by our
subsidiary Comverge Technologies, Inc. and us, and a warrant issued by us. The
convertible note and the warrant were issued to the selling security holder in
consideration for a $2 million secured revolving line of credit extended to
Comverge by the selling security holder. See "Recent Transactions" on page 5
for additional details of this transaction. We are not offering any shares of
our common stock.
Method of Sale
--------------
The shares may be sold:
- through the Nasdaq Stock Market, in the over-the-counter market, in
privately negotiated transactions or otherwise;
- directly to purchasers or through agents, brokers, dealers or
underwriters; and
- at market prices prevailing at the time of sale, at prices related to
the prevailing market prices, or at negotiated prices.
Our common stock is listed on the Nasdaq National Market under the symbol
"DSSI." On January2, 2003, the closing price of our common stock was $0.91.
INVESTING IN OUR SECURITIES INVOLVES CERTAIN RISKS. YOU SHOULD CONSIDER THE
"RISK FACTORS" BEGINNING ON PAGE 1 IN DECIDING WHETHER TO BUY ANY COMMON STOCK.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus in truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is __________, 2003.
TABLE OF CONTENTS
PAGE
----
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recent Transactions. . . . . . . . . . . . . . . . . . . . . . . . . .. 5
Selling Security Holder. . . . . . . . . . . . . . . . . . . . . . . . 6
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . .. 7
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 8
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Where You Can Find More Information. . . . . . . . . . . . . . . .. 8
Information Incorporated by Reference. . . . . . . . . . . . . . . .. 9
RISK FACTORS
Investing in us entails substantial risk. You should consider the
following risks and other information contained in this prospectus, information
incorporated by reference, and information that we file with the Securities and
Exchange Commission from time to time. The information in this prospectus is
complete and accurate as of this date, but the information may change after the
date of this prospectus.
GENERAL FACTORS
WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO HAVE AN OPERATING LOSS FOR
2002; OUR COMVERGE SUBSIDIARY MUST RAISE CAPITAL OR BECOME CASH FLOW NEUTRAL IN
ORDER TO AVOID CUTS IN ITS OPERATING BUDGET .
We are experiencing and have in the past experienced operating losses. In
the third quarter of 2002, we had an operating loss of approximately $4.6
million, and for the nine months ending September 30, 2002, we had an operating
loss of approximately $8.8 million, 2000 and 1999 we had operating losses of
approximately $10.3 million, $3.9 million and $5.6 million, respectively. We
expect to have an operating loss for the year ending December 31, 2002.
We believe that the expected net cash flow from all business segments along with
cost reductions and available lines of credit will be adequate to fund our US
operating and corporate activities for at least the next 12 months; although we
do not expect to be able to utilize cash generated from dsIT Technologies
operations to finance US operating or corporate activities in the foreseeable
future because of Israeli tax and company law constraints as well as the
significant minority interest in dsIT Technologies. We expect that our dsIT
Technologies and Databit subsidiaries will each have sufficient liquidity for
the next 12 months to finance their respective activities from cash flow from
their own operations. Provided that we reduce US corporate operating expenses
from the current level of an average of $710,000 per quarter in 2002 to less
than $500,000 per quarter, together with cash on hand, Databit's operations will
provide sufficient liquidity to finance US corporate activities for the next 12
months.
However, Comverge, which has been the primary consumer of our cash
resources, may not be able to finance its own operations without an increase in
sales, cuts in its operating budget and/or obtaining capital investment.
Comverge used $7.0 million of net cash in its operating activities in 2001 and
$3.3 million in the nine months ended September 30, 2002. Comverge decreased
its use of cash in the third quarter of 2002 to $786,000, compared to $2.5
million used in the first two quarters of 2002 combined. We anticipate that
Comverge will be cash flow positive for the fourth quarter of 2002. Although we
expect sales for the entire year of 2003 to increase over those projected for
2002, this increase in sales, and the prospects of raising of capital in 2003,
are uncertain. If Comverge's sales in 2003 are less than expected, Comverge
will have to raise capital and/or cut its expenses. To address its cash flow
situation, Comverge obtained a $2 million line of credit secured by its assets
and a corporate guarantee. In addition, Comverge prepared an alternate business
plan for 2003, focusing particularly on the first quarter, which details the
cost cutting measures that must be taken if Comverge sales projections do not
materialize as expected. The cost cutting measures would be implemented upon
Comverge's determination that sales are materially under budget, and are
expected to ensure Comverge is cash flow neutral and that its cost structure
reflects the decreased level of revenue. The alternate business plan for 2003
includes measures that could have a severely negative effect on Comverge's
business model and the current way it does business, and may include curtailing
research and development expenses, consolidating geographically distant
operations, reducing marketing efforts on new products as well as reducing
general administrative and marketing expenses. There are no assurances that
Comverge's sales in 2003 will increase over sales in 2002 or that the reduction
in costs in the alternate business plan will result in operations with breakeven
cash flow.
THE TIGHT PRIVATE EQUITY MARKET HAS MADE IT DIFFICULT FOR OUR COMVERGE
SUBSIDIARY TO RAISE CAPITAL.
During the past 12 months our Comverge subsidiary has had difficulty in
raising funds in the tight private equity market. Venture capital firms and
other institutional investors have been reluctant to make new investments, in
order to have cash to support companies in their investment portfolio. As a
result, Comverge has had to go through a much longer and more detailed due
diligence process with such investors, which has, so far, not resulted in
investment on reasonable terms.
1
EXCHANGE RATE FLUCTUATIONS COULD INCREASE THE COST OF OUR ISRAELI OPERATIONS.
A significant portion of the sales of our Israeli operations is 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 is in NIS, so that if the dollar is
devalued in relation to the NIS, the dollar value of these expenses will
increase.
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 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 SHARE PRICE MAY DECLINE DUE TO THE LARGE NUMBER OF SHARES OF OUR COMMON
SHARES ELIGIBLE FOR FUTURE SALE IN THE PUBLIC MARKET INCLUDING THE SHARES OF THE
SELLING SECURITY HOLDER.
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.
- 365,210 shares of our common stock are eligible for sale on the public
market under a registration statement filed by us with respect to
shares of our common stock that were issued in the acquisition by our
dsIT Technologies subsidiary of Israeli information technology
solutions provider Endan IT Solutions Ltd.
- The selling security holder under this registration statement may,
subject to certain restrictions, sell up to 590,000 shares of our
common stock, including 400,000 shares of our common stock that may be
issued by us upon the conversion by the selling security holder of up
to $600,000 of the secured revolving line of credit made available to
Comverge and 190,000 shares of our common stock issuable upon the
exercise of a warrant. Prior to June 5, 2003, the selling security
holder may sell shares of our common stock issuable upon the
conversion of the line of credit 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,
the selling security holder may sell, without any restrictions, the
190,000 shares of our common stock issuable upon the exercise of the
warrant and the 400,000 shares of common stock issuable upon the
conversion of the Comverge line of credit. See "Recent Transactions"
for the discussion of the transaction in which the selling security
holder acquired the warrant and convertible note.
- Pursuant to a registration statement filed by us in July 2002, the
selling security holder may also sell up to 973,417 shares of our
common stock, including 125,000 shares of our common stock issuable
upon the exercise of a warrant and an estimated 848,417 shares of our
common stock that may be issued by us upon conversion by the selling
security holder of a convertible note or payment by us of interest
and/or principal of the convertible note. The shares issuable upon
conversion or payment of the convertible note would be issued, if at
all, from the date of this prospectus until June 30, 2003. As a result
of the significant decline in our stock price since July 2002, we
would have to register additional shares if we elected to pay the
balance of the convertible note only with shares of our common stock.
2
OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET, AND THE
LISTING TRANSFERRED TO THE NASDAQ SMALLCAP MARKET.
On December 19, 2002, we received a Nasdaq Staff Determination notifying us
that we are not in compliance with the minimum stockholders' equity requirement
of $10 million for continued listing, and that our common stock is, therefore,
subject to delisting from the Nasdaq National Market. We have a hearing
scheduled for January 23, 2003, before the Nasdaq Listing Qualifications Panel
to review the Staff Determination. In order to reverse the Staff Determination,
we must demonstrate, to the Panel's satisfaction, our ability to regain
compliance with the Nasdaq stockholders' equity requirement for the Nasdaq
National Market as well as to comply with all other applicable maintenance
criteria, on both a short-term and a long-term basis. Our stock will continue
to trade on the Nasdaq National Market pending the Panel's decision.
If the Panel upholds the Staff Determination, our stock will be delisted
from the Nasdaq National Market, which may have an adverse effect on the price
of our common stock. We currently meet all the requirements for listing on The
Nasdaq SmallCap Market and would transfer our listing to The Nasdaq SmallCap
Market if our appeal to the Panel is unsuccessful. There can be no assurance
that we will be able to convince the Panel to reverse the Staff Determination
and allow the continued listing of our common stock on the National Market
listing or that we will be able to transfer our listing to The Nasdaq SmallCap
Market and maintain such listing.
RISKS RELATED TO THE CONSULTING AND DEVELOPMENT SERVICES 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 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 severity into 2003. Any increase
in hostilities in the Middle East involving Israel 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.
3
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
to date this segment has operated at a loss and negative cash flows from
operations. 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 segmentis 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. We may not have adequate resources to invest in
development if our Comverge subsidiary does not raise additional capital, and/or
secure additional new business, and our 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 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.
4
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 84%, 78% and 83% of the total segment sales for the years ended
December 31, 2001, 2000 and 1999, respectively. Furthermore, all of the sales
force for the segment is based in Manhattan and northern New Jersey. Sales in
the New York City metropolitan area are significantly lower in 2002 than sales
in 2001. The downturn in sales was significantly exacerbated by the September
11th events. Although we expect strong sales for the fourth quarter of 2002 and
the first quarter of 2003, if the region does not continue to recover from the
prolonged economic downturn, or recover in a manner commensurate with our
expectations, our sales would decrease and, in such event, our operating results
could deteriorate.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in, or incorporated by reference in, this
prospectus 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 these risks and uncertainties are
discussed above under the heading "Risk Factors." We make no commitment to
revise or update any forward-looking statements in order to reflect events or
circumstances after the date any such statement is made.
RECENT TRANSACTIONS
On December 5, 2002, our subsidiary, Comverge Technologies, Inc., closed a
three-year $2 million secured revolving line of credit from Laurus Master Fund,
Ltd. The available line of credit will be based on Comverge's accounts
receivables and inventory, and will be secured by all of the assets of Comverge
and by the accounts receivables of our subsidiary, Databit, Inc. We have
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 (December 5,
2003 and 2004), Comverge will pay Laurus an annual fee of $20,000. 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 $600,000 of the line
of credit into 400,000 shares of our common stock at a fixed conversion price of
$1.50We also issued a five-year warrant, exercisable for 190,000 shares of our
common stock, which is exercisable as follows: (i) 30,000 shares at an exercise
price of $2.00, (ii) 60,000 shares at an exercise price of $2.34 and (iii)
100,000 shares at an exercise price of $3.34 per share. The warrant is
immediately exercisable as to all 190,000 shares. We expect to take a non-cash
charge in the fourth quarter of 2002 for the beneficial conversion feature of
the line of credit and the related warrant Except in the event of default
under the convertible note or upon 75 days prior notice, Laurus cannot own, in
the aggregate, more the 4.99% of our common stock as a result of shares issued
upon the conversion of the convertible line of credit and the exercise of the
related warrant.
5
Under the terms of the warrant, Laurus cannot sell any of the 190,000
shares of our common stock issuable upon exercise of the warrants before June 5,
2003. Additionally, prior to June 5, 2003, Laurus may sell the shares of our
common stock issuable upon conversion of the line of credit subject to a volume
limitation equal to 25% of the average daily trading volume for the 30 trading
days prior to the proposed sale.
On and after June 5, 2003, Laurus may sell, without any restriction or
volume limitation, the 190,000 shares of our common stock issuable upon the
exercise of the warrant and the 400,000 shares of our common stock issuable upon
the conversion of the Comverge line of credit.
We have agreed to file with the Securities and Exchange Commission, and
have declared effective by April 4, 2003, a registration statement registering
the resale of the shares of our common stock issuable upon conversion of the
line of credit and exercise of the warrant. If we do not have the registration
statement declared effective by April 4, 2003, then, until we get the
registration statement effective, we will have to pay Laurus a fee equal to 1%
of the amount of the line of credit then eligible to be converted into shares of
our common stock, which fee will increase to 2% after May 5, 2003.
Comverge intends to use the proceeds from the line of credit for general
corporate purposes.
SELLING SECURITY HOLDER
One of our security holders may sell, from time to time, 590,000 shares of
our common stock pursuant to this prospectus, including 190,000 shares of our
common stock issuable upon the exercise of a warrant and 400,000 shares of our
common stock which may be issued to the selling security holder upon the
conversion of an aggregate of $600,000 of a secured revolving line of credit
made available to Comverge by the selling security holder. The table below
identifies the selling security holder and indicates the number of shares that
the selling security holder may sell pursuant to this prospectus.
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY OWNED BENEFICIALLY
NAME OF SELLING SECURITY HOLDER PRIOR TO SALE OWNED AFTER SALE
------------------------------------- ---------------------- --------------------
Laurus Master Fund, Ltd. (1) 1,129,476(2) 539,476
____________________
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Laurus Capital Management, L.L.C., a Delaware limited liability company,
may be deemed a control person of the shares owned by Laurus Master Fund,
Ltd. David Grin and Eugene Grin are the principals of Laurus Capital
Management, L.L.C.
(2) Includes 400,000 shares of our common stock issuable upon the conversion of
the line of credit made available to Comverge, 190,000 shares of our common
stock issuable upon the conversion of the related warrant, 125,000 shares
of our common stock issuable upon the exercise of a warrant issued by us to
the selling security holder in June 2002, and 414,476 shares of our common
stock issuable upon the conversion by the selling security holder of the
outstanding principal and remaining interest payments under a convertible
note issued by us to the selling security holder in June 2002. The number
and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 of the Securities Exchange Act of 1934, and the information
is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to
which the selling security holder has sole or shared voting power or
investment power and also any shares, which the selling stockholder has the
right to acquire within 60 days. The actual number of shares of common
stock issuable upon the conversion or payment of the convertible note is
subject to the future market price of our common stock, and could be
materially less or more than the number estimated in the table. However the
selling stockholder has contractually agreed to restrict its ability to
convert the convertible note and the line of credit or exercise all of its
warrants and receive shares of our common stock such that the number of
shares of common stock held by it and its affiliates after such conversion
or exercise does not exceed 4.99% of the then issued and outstanding shares
of common stock, subject to certain exceptions.
6
USE OF PROCEEDS
The shares covered by this prospectus are being offered by selling security
holders and not by us. Therefore, we will not receive proceeds from the sale of
shares.
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION
On and after the date of this prospectus (and with respect to shares of
our common stock issuable upon the exercise of the warrant, on and after June 5,
2003), the selling security holder 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 shares of our common stock are traded or in private transactions. These
sales may be at fixed or negotiated prices. The selling security holder may use
any one or more of the following methods when selling shares:
- ordinary brokerage transactions and transactions in which the
broker-dealer solicits a purchaser;
- 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;
- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
- an exchange distribution in accordance with the rules of the
applicable exchange;
- privately negotiated transactions;
- short sales;
- broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
- a combination of any such methods of sale; and
- any other method permitted pursuant to applicable law.
The selling security holder may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling security holder may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling security holder (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling security holder does not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling security holder and any broker-dealers or agents that are
involved in selling the shares of our common stock 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 of our common stock purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act. The selling security holder has informed us that it does not have any
agreement or understanding, directly or indirectly, with any person to
distribute our common stock.
We are required to pay all fees and expenses incident to the registration
of the shares of our common stock issuable upon the conversion of the
convertible note and the exercise of the warrant. We have agreed to indemnify
the selling security holder against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act, that arise out of
or are based upon an untrue statement or alleged untrue statement or omission or
alleged omission in this registration statement (or any supplement or amendment)
except if the untrue statement or omission is from information furnished to us
by selling security holder in writing specifically for use in this registration
statement (or any supplement or amendment).
7
LEGAL MATTERS
Certain legal matters relating to the shares of common stock that may be
offered pursuant to this prospectus have been passed upon for us by Ehrenreich
Eilenberg & Krause LLP, counsel to our company. Sheldon Krause, a partner of
Ehrenreich Eilenberg & Krause LLP, is our Secretary and the son-in-law of George
Morgenstern, the Chairman of our Board of Directors, President and Chief
Executive Officer. During 2002, we paid approximately [$546,000] for legal
services rendered and reimbursement of out-of-pocket expenses to Ehrenreich
Eilenberg & Krause LLP. These 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.
EXPERTS
The consolidated financial statements of Data Systems & Software Inc. and
subsidiaries as of December 31, 2000 and 2001, and for each of the years in the
two year-period ended December 31, 2001 have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent accountants, incorporated by reference herein and in the
registration statement, and upon the authority of KPMG LLP as experts in
accounting and auditing. The audit report covering the December 31, 2001
consolidated financial statements refers to a change in accounting for purchase
method business combinations completed after June 30, 2001.
The consolidated statements of operations and comprehensive income (loss),
changes in shareholders' equity and cash flows for the year ended December 31,
1999 incorporated in this prospectus by reference from Data Systems & Software
Inc.'s annual report on Form 10-K have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and has been so incorporated in reliance upon the report of such
firm, given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934. Accordingly, we file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document that we file at the SEC's public reference room in Washington, D.C.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. You can obtain copies of our SEC filings at prescribed rates
from the SEC Public Reference Section at 450 Fifth Street, N.W., Washington,
D.C. 20549. Our SEC filings are also available to you free of charge at the
SEC's web site at http://www.sec.gov.
Shares of our common stock are traded on the Nasdaq National Market.
Documents we file can be inspected at the offices of the National Association of
Securities Dealers, Inc., Reports Section, 1735 K Street, N.W., Washington, D.C.
20006.
You can read and print press releases, financial statements and additional
information about us, free of charge, at our web site at http://www.dssiinc.com.
This prospectus is a part of a registration statement on Form S-3 filed by
us with the SEC under the Securities Act of 1933. This prospectus does not
contain all of the information set forth in the registration statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to us and the shares of our common
stock offered hereby, please refer to the registration statement. The
registration statement may be inspected at the public reference facilities
maintained by the SEC at the addresses set forth above. Statements in this
prospectus about any document filed as an exhibit are not necessarily complete
and, in each instance, you should refer to the copy of such document filed with
the SEC. Each such statement is qualified in its entirety by such reference.
8
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede previously filed
information, including information contained in this prospectus.
We incorporate by reference into this prospectus the documents listed below
and any future filings we will make with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act until this offering has been completed:
(1) Our Annual Report on Form 10-K for the fiscal year ended December 31,
2001 filed on March 27, 2002, as amended by Amendment No.1 on Form
10-K/A filed on April 30, 2002;
(2) Our Quarterly Report on Form 10-Q for the three months ended March 31,
2002, filed on May 15, 2002;
(3) Our Quarterly Report on Form 10-Q for the three months ended June 30,
2002, filed on August 13, 2002;
(4) Our Quarterly Report on Form 10-Q for the three months ended September
30, 2002, filed on November 14, 2002;
(5) Our Current Report on Form 8-K, dated June 11, 2002, filed on June 12,
2002;
(6) Our Current Report on Form 8-K, dated December 5, 2002, filed on
December 9, 2002;
(7) Amendment No. 1 to our Current Report on Form 8-K/A, dated December 5,
2002, filed on December 24, 2002;
(8) Our Current Report on Form 8-K, dated December 19, 2002, filed on
December 24, 2002;
(9) The description of our common stock contained in our Registration
Statement on Form 8-A, declared effective by the SEC on February 11,
1992, which was filed pursuant to Section 12 of the Exchange Act, and
any amendment or report filed for the purpose of updating such
description; and
(10) The description of our Common Stock Purchase Rights contained in our
Registration Statement on Form 8-A, dated March 22, 1996, which was
filed pursuant to Section 12 of the Exchange Act, and any amendment or
report filed for the purpose of updating such description.
You may request a free copy of these documents by writing to Investor
Relations, Data Systems & Software Inc., 200 Route 17, Mahwah, New Jersey 07430,
or by calling Investor Relations at (201) 529-2026.
You should rely only on the information incorporated by reference or provided in
this prospectus or a prospectus supplement or amendment. We have not authorized
anyone to provide you with different information. This prospectus does not
offer these securities in any state where the offer is not permitted. Also,
this prospectus does not offer to sell any securities other than the securities
covered by this prospectus. You should not assume that the information in this
prospectus or a prospectus supplement or amendment is accurate as of any date
other than the date on the front of the document.
9
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant will pay all expenses incident to the offering and sale to
the public of the shares being registered other than any commissions and
discounts of underwriters, dealers or agents and any transfer taxes. Such
expenses are set forth in the following table. All of the amounts shown are
estimates except the SEC registration fee.
SEC registration fee . . . . . . . . . . . . . . .. $ 104
Legal fees and expenses. . . . . . . . . . . . . . 7,500
Accounting fees and expenses . . . . . . . . . . . 10,000
Miscellaneous expenses. . . . . . . . . . . . . . .. 1,000
----------
Total.. . . . . . . . . . . . . . . . . . . . . . . . $ 18,504
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation, as amended, and the Amended Bylaws of the
Registrant provide that the Registrant shall indemnify its officers, directors
and certain others to the fullest extent permitted by the General Corporation
Law of Delaware ("DGCL"). Section 145 of the DGCL provides that the Registrant,
as a Delaware corporation, is empowered, subject to certain procedures and
limitations, to indemnify any person against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any threatened, pending or completed action,
suit or proceeding (including a derivative action) in which such person is made
a party by reason of his being or having been a director, officer, employee or
agent of the Registrant (each, an "Indemnitee"); provided that the right of an
Indemnitee to receive indemnification is subject to the following limitations:
(i) an Indemnitee is not entitled to indemnification unless he acted in good
faith and in a manner that he reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such conduct was unlawful and
(ii) in the case of a derivative action, an Indemnitee is not entitled to
indemnification in the event that he is judged to be liable to the Company
(unless and only to the extent that the court determines that the Indemnitee is
fairly and reasonably entitled to indemnification for such expenses as the court
deems proper). The statute provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a person
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
Pursuant to Section 145 of the DGCL, the Registrant has purchased insurance
on behalf of its present and former directors and officers against any liability
asserted against or incurred by them in such capacity or arising out of their
status as such.
In accordance with Section 102(b)(7) of the DGCL, the Certificate of
Incorporation of the Registrant eliminates personal liability of the
Registrant's directors to the Registrant or its stockholders for monetary
damages for breach of their fiduciary duties as a director, with certain limited
exceptions set forth in Section 102(b) (7) of the DGCL.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM 16. EXHIBITS.
Please see Index of Exhibits on Page II-4 below.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
II-1
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) Securities Act of
1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; PROVIDED,
HOWEVER, that paragraphs A(1)(i) and A(1)(ii) do not apply if the Registration
Statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 (the "Exchange Act") that are
incorporated by reference in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
this offering.
B. UNDERTAKING REGARDING FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS
BY REFERENCE.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Mahwah, New Jersey, on this 3rd day of January,
2003.
DATA SYSTEMS & SOFTWARE INC.
By: /s/George Morgenstern
--------------------------------
George Morgenstern
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints George
Morgenstern and Sheldon Krause, jointly and severally, as attorneys-in-fact,
each with the power of substitution, in any and all capacities, to sign any
amendment to this Registration Statement and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting to sale attorneys-in-fact, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes they might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact or any of them, or their, his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons on the dates indicated
in the capacities indicated.
SIGNATURE TITLE
/s/George Morgenstern Chairman, President, CEO and Director January 3, 2003
_________________________
George Morgenstern (Principal Executive Officer)
/s/Yacov Kaufman Vice President, Chief Financial Officer January 3, 2003
_________________________
Yacov Kaufman (Principal Financial Officer, Principal
Accounting Officer)
/s/Robert Kuhn Director January 3, 2003
_________________________
Robert Kuhn
/s/Allen I. Schiff Director January 3, 2003
_________________________
Allen I. Schiff
/s/Susan L. Malley Director January 3, 2003
_________________________
Susan L. Malley
Director January 3, 2003
_________________________
Avi Kerbs
II-3
INDEX OF EXHIBITS
Exhibit
Number Description
--------------------------------------------------------------------------------
2.3 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)).
2.4. 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)).
2.5 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).
5.1 Opinion of Ehrenreich Eilenberg & Krause LLP.
10.1 Purchase and Security Agreement, dated as of December 4, 2002, by and
between Comverge Technologies, Inc. ("Comverge") and Laurus Master
Fund, Ltd. ("Laurus") (incorporated herein by reference to Exhibit
10.1 to the Registrant's Current Report on Form 8-K, dated December 5,
2002, filed on December 10, 2002 ("December 2002 Form 8-K")).
10.2 Convertible Note, dated December 4, 2002, by and among Comverge,
Laurus and, as to Articles III and V only, Data Systems & Software
Inc. ("DSSI") (incorporated herein by reference to Exhibit 10.2 to the
December 2002 Form 8-K).
10.3 Common Stock Purchase Warrant, dated December 4, 2002, issued by DSSI
to Laurus (incorporated herein by reference to Exhibit 10.2 to the
December 2002 Form 8-K).
10.4 Registration Rights Agreement, dated as of December 4, 2002, by and
between DSSI and Laurus (incorporated herein by reference to Exhibit
10.4 to the December 2002 Form 8-K).
10.5 Guaranty, dated December 4, 2002, made by DSSI in favor of Laurus
(incorporated herein by reference to Exhibit 10.5 to the December 2002
Form 8-K).
23.1 Consent of KPMG LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Ehrenreich Eilenberg & Krause LLP (included in Exhibit
5.1).
24.1 Power of Attorney (included in signature page of this Registration
Statement).
II-4