September 8, 2005
Fax (201) 529-4564
Room 4561
Yacov Kaufman
Vice President,
Chief Financial Officer
Data Systems and Software Inc.
200 Route 17
Mahwah, NJ 07430
RE: Data Systems and Software Inc.
Form 10-K for Fiscal Year Ended December 31, 2004
Form 10-Q for Fiscal Quarters Ended March 31, 2005
and June 30, 2005
File No. 000-19771
Dear Mr. Kaufman:
We have reviewed the above referenced filings and have the
following comments. Please note that we have limited our review
to
the matters addressed in our comments below. We may ask you to
provide us with supplemental information so we may better
understand
your disclosure. Please be as detailed as necessary in your
explanation. After reviewing this information, we may raise
additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for Fiscal Year Ended December 31, 2004
Report of Independent Registered Public Accounting Firm, page F-2
1. We note that your audit report was signed by an audit firm
based
in Tel Aviv, Israel. Please tell us how you concluded that it is
appropriate to have an audit report issued by an auditor licensed
outside of the United States. In accordance with Article 2 of
Regulation S-X, we believe that the audit report of a registrant
(that is not a foreign private issuer) should ordinarily be
rendered
by an auditor licensed in the United States. Further guidance may
be
found in Section 5.K of "International Reporting and Disclosure
Issues in the Division of Corporation Finance" on the Commission`s
website at: http://www.sec.gov/divisions/corpfin/
internatl/cfirdissues1104.htm#P442_69217. Please tell us (1)
where
the majority of your revenues are earned, (2) where the majority
of
your assets are located, (3) where your management and accounting
records are located and (4) where the majority of the audit work
is
conducted. We may have further comments.
Notes to Consolidated Financial Statements
Revenue Recognition, page F-11
2. We note your disclosure that revenues from fixed-price
contracts
to design, develop, manufacture or modify complex equipment and
software to customer specifications are recognized using the
percentage-of-completion method. Tell us why you believe it is
appropriate to apply SOP 81-1 to service arrangements. In this
regard, Footnote 1 of SOP 81-1 indicates that SOP 81-1 is not
intended to apply to service transactions. Clarify whether these
services are part of a multiple element arrangement where
significant
software and services are being provided and whether you are
following SOP 97-2 for these arrangements. If so, address
paragraphs
65, 66, 70 and 71 of SOP 97-2 to support use of contract
accounting
for these arrangements.
3. We note your disclosure on page 2 that you offer customers a
full
range of systems integration services and maintenance with your
computer hardware sales. Other disclosures throughout your Form
10-K
suggest that your arrangements include multiple elements (e.g.,
software, hardware, consulting services, integration services,
implementation services, maintenance and extended service
agreements). Your revenue recognition policy should clearly
identify
each deliverable included in your multi-element arrangement and
how
you allocate the arrangement fee to each element. For
arrangements
where you apply SOP 97-2, demonstrate how you determine vendor
specific objective evidence of fair value for each element. While
we
note disclosure that your products and services are offered under
separately negotiated and priced agreements, note that separate
prices stated in a contract may not represent fair value and
should
not be used as a basis for allocating revenue to the elements of
an
arrangement. Refer to EITF 00-21 and SOP 97-2, as applicable.
4. We note that you are a reseller of computer hardware and
software
and, in certain circumstances, account for revenues on a gross
basis
under EITF 99-19. Please tell us the amount of 2004 revenues
recorded gross and describe how you considered each of the factors
listed in paragraphs 7 through 17 of EITF 99-19.
5. Disclosure on page 15 indicates that certain hardware you sell
contains integrated software. For such transactions, describe
your
consideration of paragraph 2 of SOP 97-2 with regards to any
software
bundled with hardware in your arrangements.
Note 18 - Subsequent Events, page F-34
6. We note your disclosure that in March 2005, the Company entered
into an agreement to in principle to sell your dsIT subsidiary.
We
further note that in your Forms 10-Q for the periods ended March
31,
2005 and June 30, 2005, the assets of dsIT are not separately
classified as assets held for sale in your balance sheets, and the
results of dsIT operations are not separately classified as
discontinued operations in your statements of operations.
Describe
your consideration of SFAS 144 with regard to the sale of your
dsIT
business at December 31, 2004, March 31, 2005 and June 30, 2005.
7. Tell us how you intend to account for the spin-off and
reorganization of dsIT`s project development services and
solutions
activities, subsequent to which you will own 80% of the entity
that
will continue these activities. Also address the accounting for
the
warrant Taldor will receive to purchase 10% of this entity. Refer
to
the appropriate authoritative accounting literature.
8. Tell us how the sale of dsIT will impact you future operating
results and financial position. Tell us how you considered the
MD&A
disclosure requirements in Item 303(A) of Regulation S-K for all
periods presented.
Comverge, Inc. and Subsidiaries
Report of Independent Auditors
9. We note that the signature of your auditor was omitted in the
report. Tell us the reasons for the omitted signature and why you
believe the report complies with Article 2-02 of Regulation S-X.
Form 10-Q for Fiscal Quarter Ended June 30, 2005
Item 4. Controls and Procedures, page 15
10. We note that "within 90 days prior to the date of filing this
report" you carried out an evaluation of the effectiveness of the
design and operation of your disclosure controls and procedures.
Tell us how you considered Section F of Release No. 33-8238, which
changed the evaluation date for disclosure controls to "as of the
end
of the period" covered by the annual or quarterly reports.
11. We also note that your officers have concluded that the
disclosure controls and procedures are effective for `gathering,
analyzing and disclosing the information we are required to
disclose
in the reports we file under the Securities Exchange Act of 1934,
within the time periods specified in the SEC`s rules and forms".
Tell
us how your officers considered Exchange Act Rule 13a-15(e) and
13d-
15(d) in concluding that your disclosure controls and procedures
are
"effective to ensure that information required to be disclosed by
you
in the reports that you file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time
periods
specified in the Commission`s rules and forms and to ensure that
information required to be disclosed by an issuer in the reports
that
it files or submits under the Exchange Act is accumulated and
communicated to your management, including its principal executive
and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding
required disclosure."
12. You disclose that there were no "significant changes" in your
internal controls or in other factors that could significantly
affect
those controls subsequent to the date of your evaluation. In this
regard, tell us how you considered Section F of Release No. 33-
8238
and whether there was "any change" that "has materially affected
or
was reasonably likely to materially affect," your internal
controls
over financial reporting.
13. Please be advised that the above comments related to Controls
and
Procedures are also applicable for the above-referenced Form 10-K
and
Form 10-Qs.
* * * * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. Please submit all correspondence and
supplemental
materials on EDGAR as required by Rule 101 of Regulation S-T. You
may wish to provide us with marked copies of any amendment to
expedite our review. Please furnish a cover letter with any
amendment that keys your responses to our comments and provides
any
requested information. Detailed cover letters greatly facilitate
our
review. Please understand that we may have additional comments
after
reviewing any amendment and your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information under the Exchange Act and that
they
have provided all information investors require for an informed
decision. Since the company and its management are in possession
of
all facts relating to a company`s disclosure, they are responsible
for the accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
You may contact David Edgar, Staff Accountant, at (202)-551-
3459
or Lisa Mitrovich, Assistant Chief Accountant, at (202) 551-3453
if
you have any questions regarding comments on the financial
statements
and related matters.
Sincerely,
Kathleen Collins
Accounting Branch Chief
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Yacov Kaufman
Data Systems and Software Inc.
September 8, 2005
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