SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 ON FORM 10-K/A
TO ANNUAL REPORT ON FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
COMMISSION FILE NUMBER: 0-19771
DATA SYSTEMS & SOFTWARE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 22-2786081
(State or other jurisdiction of ) (I.R.S. Employer
incorporation or organization Identification No.)
200 ROUTE 17, MAHWAH, NEW JERSEY 07430
(Address of principal executive offices) (Zip Code)
(201) 529-2026
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
COMMON STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the common stock held by non-affiliates
of the registrant at March 29, 2004 was approximately $23.7 million. The
aggregate market value was calculated by using the closing price of the stock on
that date on the Nasdaq SmallCap Market.
Number of shares outstanding of the registrant's common stock, as of
March 29, 2004: 7,902,025.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
DATA SYSTEMS & SOFTWARE INC.
AMENDMENT NO. 1 ON FORM 10-K/A
TO ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
----
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................................1
ITEM 11. EXECUTIVE AND DIRECTOR COMPENSATION.....................................................................3
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS..........7
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................................9
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.................................................................10
SIGNATURES.....................................................................................11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS, EXECUTIVE OFFICERS AND KEY MANAGERS
Set forth below is certain information concerning our directors,
executive officers and key managers:
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 Comverge, Inc. ("Comverge")
Avi Kerbs 56 Director
Elihu Levine 71 Director
Shane Yurman 56 Director
Shlomie Morgenstern 41 Vice President-Operations
Jacob Neuwirth 57 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
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 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 2003. Mr.
Yurman, 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.
JACOB NEUWIRTH has been Chief Executive Officer and President of dsIT
since December 2001. From 1994 to 2001, he was the President and the founder 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.
1
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 since 1992 and as Chief Financial Officer of dsIT
since 1990, having served as Controller of dsIT since 1986.
AUDIT COMMITTEE
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 by our independent auditors.
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.
AUDIT COMMITTEE FINANCIAL EXPERT
Our Board has determined that Mr. Shane Yurman, the Chairman of our
Audit Committee, is an "audit committee financial expert" as defined in Item 401
of Regulation S-K. Mr. Yurman is independent in accordance with SEC and Nasdaq
listing standards applicable to our company.
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 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 2003 all applicable filing requirements were complied with
by its executive officers and directors.
Mr. Kerbs failed to timely file one Form 4 covering the acquisition of
7,500 stock options granted by the Company to Mr. Kerbs pursuant to an annual
formula grant in December 2003.
CODE OF ETHICS
We have adopted a code of ethics that applies to our principal
executive officer, principal financial officer, and principal accounting officer
or controller, and/or persons performing similar functions. Our code of ethics
has previously been filed as an exhibit to this Annual Report.
ITEM 11. EXECUTIVE AND DIRECTOR COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth for the periods indicated information
concerning the compensation of our Chief Executive Officer and the four other
officers who received in excess of $100,000 in salary and bonus during 2003 (the
"named executive officers"):
2
SUMMARY COMPENSATION TABLE
Long Term All Other
Annual Compensation Compensation Awards Compensation ($)
------------------- ------------------- ----------------
Securities
Name and Restricted Stock Underlying
Principal Position Year Salary ($) Bonus ($) Awards ($) Options (#)
- ------------------ ---- ---------- --------- ---------- -----------
George Morgenstern 2003 464,250 -- -- 177,825(1)
Chief Executive Officer 2002 465,700 -- -- -- 182,860
2001 446,351 150,000 -- -- 187,721
Yacov Kaufman 2003 182,942 -- -- -- 49,901(2)
Chief Financial Officer 2002 170,294 -- -- -- 37,899
2001 158,403 50,000 -- -- 48,400
Shlomie Morgenstern 2003 210,800 50,000 -- -- 14,045(3)
Vice President 2002 204,345 15,000 -- -- 7,440
2001 193,500 -- -- -- --
Jacob Neuwirth 2003 154,963 83,694 -- -- 44,290(2)
Chief Executive Officer 2002 174,512 -- -- -- 39,788
and President of dsIT 2001 -- -- -- -- --
- -------------
(1) Consists of (i) $118,560 in contributions to a non-qualified retirement
fund, (ii) $28,000 in life insurance premiums, (iii) $18,200 paid for
accrued vacation, (iv) $5,000 in director's fees and (v) $8,065 imputed
value of automobile fringe benefits.
(2) 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
Israeli executives.
(3) Consists of $12,115 paid for accrued vacation and $1,930 imputed value of
automobile fringe benefits.
3
OPTION/SAR GRANTS IN 2003
We did not grant any stock options or stock appreciation rights (SARs) in
2003 to any of the named executive officers.
AGGREGATED OPTION EXERCISES IN 2003
AND FISCAL YEAR END STOCK OPTION VALUES
Number of
Shares Number of Securities Underlying
Acquired Unexercised Options Value of Unexercised
Upon Value At Year End (#) In-the-money Options ($) (1)
Exercise Realized ----------------- ----------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------- -------- ----------- ------------- ----------- -------------
George Morgenstern -- -- 497,250 -- -- --
Yacov Kaufman -- -- 205,000 -- 112,550 --
Shlomie Morgenstern -- -- 55,000 -- 18,525 --
- -------------
(1) Based on the closing price for our common stock on December 31, 2003 of
$3.43 per share.
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. 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 2003, Mr. Kerbs
was paid a total of $11,000, Mr. Yurman was paid a total of $21,333, Mr. Levine
was paid a total of $6,000, and Mr. Morgenstern was paid a total of $5,000 in
connection with their respective service on the Board and/or Audit Committee.
Our 1994 Stock Option Plan for Outside Directors provides for awards of
non-qualified options to our directors who are not one of our employees 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
40,000 non-expired options are outstanding to date.
In addition to the directors' fees described above, at the last Annual
Meeting of Stockholders, Mr. Kerbs was granted options to purchase 7,500 shares
of our common stock at an exercise price equal to the fair market value of our
common stock on the date of grant (i.e., $2.74 per share). Finally, in April
2003, Mr. Yurman and Mr. Levine were each granted options to purchase 7,500
shares of our common stock at an exercise price equal to the fair market value
of our common stock on the date of grant (i.e., $1.90 and $2.02 per share,
respectively). These options were granted pursuant to our 1994 Stock Option Plan
for Outside Directors described above.
4
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 following person served both as a member of our Board of Directors
and as an officer or employee in 2003: George Morgenstern (Chairman of the
Board, President and Chief Executive Officer). During 2003, 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
2003 in deliberations of the Board of Directors concerning executive officer
compensation. During 2003, George Morgenstern engaged in transactions with us in
which he was deemed to have an interest. For further information, see "Certain
Relationships and Related 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, was amended in March 2002 to extend through December 31, 2003,
and provides for a period of consultancy thereafter as set forth below (the
"Employment Agreement"). Through December 31, 2003, the Employment Agreement
provided for a base salary of $420,000 per annum (which was $470,000 due to cost
of living adjustments as of December 31, 2003), 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 terms of the Employment Agreement, on December 31,
2003, Mr. Morgenstern elected 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, 2010. At the request of the Board, Mr. Morgenstern has
continued on as our Chairman of the Board, President and Chief Executive
Officer. During the Consulting Period, Mr. Morgenstern receives 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 is
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).
Under the terms of the Employment Agreement, the Company agrees to take
appropriate action to fund the payment of all consulting fees to become payable
to Mr. Morgenstern throughout the entire Consulting Period, by purchase of an
annuity from a reputable insurance company, deposit of funds or U.S. Treasury
Securities having maturities of less than one year in a bank acceptable to Mr.
Morgenstern, or other arrangements acceptable to Mr. Morgenstern. In March 2004,
Mr. Morgenstern agreed to waive this obligation, except in the event of (i) his
death or disability, (ii) the Company entering into a definitive agreement(s)
concerning a transaction or series of transactions, the consummation of which
will result in the receipt by the Company of gross proceeds equal to or in
excess of $1 million or (iii) his termination as Chief Executive Officer of the
Company for any reason other than his voluntary resignation. Upon the occurrence
of any of these events, the Company would be obligated to fund all consulting
fees as provided in the Employment Agreement. 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 the
business of any of our subsidiaries.
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.
5
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. 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. As of December 31, 2003, the
unfunded portion of these payments was $57,000.
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 ("Index"). 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. As of December 31, 2003, the
unfunded portion of these payments was $115,000.
Under his employment agreement, Mr. Neuwirth is entitled to a loan of
up to $100,000 from dsIT. As of December 31, 2003 the loan, which is denominated
in linked NIS, bears interest at 4% and has no fixed maturity date, had an
outstanding balance of $54,000.
6
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table and the notes thereto set forth information, as of
April 26, 2004 (except as otherwise noted), concerning beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of our common
stock by (i) each of our directors, (ii) each of the "named executive officers,"
(iii) all of our executive officers and directors as a group, and (iv) each
holder of 5% or more of our outstanding common stock:
Number of Shares of Percentage of
Name and Address of Common Stock Common Stock
Beneficial Owner(1)(2) Beneficially Owned(2) Outstanding(2)
---------------------- --------------------- --------------
George Morgenstern 464,637(3) 5.6%
Howard A. Gutzmer 676,291(4) 8.6%
5550 Oberlin Drive
San Diego, CA 92121
Dimensional Fund Advisors Inc. 403,600(5) 5.1%
1299 Ocean Avenue
Santa Monica, CA 90401
Laurus Master Fund, Ltd. 315,000(6) 3.8%
c/o Ironshore Corporate Services Ltd.
P.O. Box 1234 G.T
Queensgate House
South Church Street
Grand Cayman, Cayman Islands
Avi Kerbs 7,500(7) *
Elihu Levine 78,470(8) 1.0%
Shane Yurman 7,500(7) *
Shlomie Morgenstern 56,000(9) *
Yacov Kaufman 205,000(7) 2.5%
Jacob Neuwirth 57,870 *
All executive officers and directors of the
Company as a group (7 people) 876,977 10.2%
- -----------------
* Denotes less than 1% of the issued and outstanding common stock.
(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 April 20, 2004.
(3) Consists of (i) 61,854 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) 380,583 currently exercisable options
held by Mr. Morgenstern, and (iii) 22,200 shares owned by Mr. Morgenstern's
wife.
(4) As of December 31, 2003, 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;
(iv) 64,950 shares held in an IRA of Mr. Gutzmer's wife; (v) 37,576 shares
owned by a corporation of which Mr. Gutzmer is an executive officer,
director and principal shareholder; and (vi) 5,300 shares owned by a
limited partnership, the corporate general partner of which Mr. Gutzmer is
the sole director.
(5) As of December 31, 2003, based on information in an amendment to Schedule
13G filed on February 6, 2004. The securities are owned by four investment
company funds to which Dimensional Fund Advisors Inc. ("Dimensional")
furnishes investment advice and/or serves as investment manager. In its
role as investment advisor or manager, Dimensional possesses voting and/or
investment power over the securities. Dimensional disclaims beneficial
ownership of these securities.
7
(6) As of April 21, 2004, based on information known to us. Consists of a (i)
three-year warrant issued in June 2002 exercisable to purchase 125,000
shares of our common stock at an exercise price of $4.20 per share and (ii)
five-year warrant issued in December 2002 exercisable to purchase 190,000
shares of our common stock of which 30,000 shares are exercisable at $2.00
per share, 60,000 shares are exercisable at $2.34 per share and 100,000
shares are exercisable at $3.34 per share. Laurus has contractually agreed
to restrict its ability to exercise its warrants if such exercise would
result in Laurus and its affiliates beneficially owning more than 4.99% of
the then issued and outstanding shares of common stock.
(7) Consists of currently exercisable options.
(8) 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) 8,000 shares
owned by Mr. Levine's wife, (iv) 1,790 shares held in an IRA of Mr.
Levine's wife and (v) 27,500 currently exercisable options held by Mr.
Levine.
(9) Consists of 1,000 shares and 55,000 currently exercisable options.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
------------------- ------------------- -----------
Plan category (a) (b) (c)
--------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security
holders 817,750 $5.32 2,421,325
Equity compensation plans
not approved by security
holders 488,301 $4.00 929,616
-------------------------- --------------------------
TOTAL 1,308,051 $4.83 3,350,941
-------------------------- --------------------------
Our equity compensation plan that has not been approved by our
stockholders is the 1995 Stock Option Plan for Nonmanagement Employees, which we
adopted in April 1995. The 1995 Plan provides for the awarding of options to
purchase our common stock to certain of our employees and officers (other than
executive officers and directors) and others who render services to us. The
maximum number of shares of common stock that can be issued under the 1995 Plan
is 1,417,917. As of December 31, 2003, 456,401 options had been awarded under
this plan. No shares may be awarded under the 1995 plan after April 18, 2005.
The exercise price of each option, the period during which each option may be
exercised and other terms and conditions of each option are determined by the
Board (or by a committee appointed by the Board). The 1995 Plan also provides
that our Chief Executive Officer may award up to 75,000 options and act as the
committee with respect to those options to determine the exercise price, the
exercise period and other terms and conditions of options he grants. As of
December 31, 2003, our Chief Executive Officer has granted a total of 48,000
options under the 1995 Plan.
8
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2003, we paid approximately $403,000 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 2003 in connection with his
position as Vice President-Operations.
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. Upon notice provided to us in February 2003, the
corporation vacated the space in April 2003. During 2003 we received $6,000 of
rent from this corporation.
In January 2000, Comverge 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. In April 2004, the Board approved a bonus to each of the Chief
Executive Officer and Chief Financial Officer in the amount of $13,000. In April
2004, the loans were paid off in full by the Chief Executive Officer and Chief
Financial Officer.
dsIT's Chief Executive Officer has a loan outstanding from dsIT that
originated in 2001. The loan balance and accrued interest at December 31, 2003
was $54,000. The loan has no defined maturity date, is denominated in NIS, is
linked to the Index and bears interest at 4%.
9
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ACCOUNTING FEES
Aggregate fees billed by our principal accountant during the last two
fiscal years are as follows:
2002 2003
------------- -------------
Audit Fees $143,000 $146,000
Audit- Related Fees 60,000 58,000
Tax Fees 7,000 7,000
Other Fees -- --
------------- -------------
Total $210,000 $211,000
============= =============
AUDIT FEES for the years ended December 31, 2003 and 2002 were for
professional services rendered for the audits of the consolidated financial
statements of the Company, statutory and subsidiary audits, assistance with
review of documents filed with the SEC, consents, and other assistance required
to be performed by our independent accountants.
AUDIT RELATED FEES for the years ended December 31, 2003 and 2002 were
for assurance and related services, internal control reviews and attestation
services.
TAX FEES for the years ended December 31, 2003 and 2002 were for
services related to tax compliance, tax planning and tax advice for our dsIT
subsidiary.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee's current policy is to pre-approve all audit and
non-audit services that are to be performed and fees to be charged by our
independent auditor to assure that the provision of these services does not
impair the independence of the auditor. The Audit Committee was in compliance
with the requirements of the Sarbanes-Oxley Act of 2002 regarding the
pre-approval of all audit and non-audit services and fees by the mandated
effective date of May 6, 2003.
10
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Township of
Mahwah, State of New Jersey, on April 29, 2004.
DATA SYSTEMS & SOFTWARE INC.
By: /S/ GEORGE MORGENSTERN
-----------------------------------
George Morgenstern,
Chief Executive Officer and President