U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

     For the quarterly period ended March 31, 1997


     Commission file number 0-26604


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
        (Exact Name of Small Business Issuer as Specified in Its Charter)


          Delaware                                              23-2770048
(State or Other Jurisdiction of                              (I.R.S. Employer
Incorporation or Organization)                              Identification No.)

              2010-F Cabot Boulevard, Langhorne, Pennsylvania 19047
                    (Address of Principal Executive Offices)

                                 (215) 752-0963
                (Issuer's Telephone Number, Including Area Code)

     Check  whether  the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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 [ ]

     The number of shares  outstanding of each of the issuer's classes of common
equity as of May 1, 1997:

         Title of Each Class                 Number of Shares Outstanding
         -------------------                 ----------------------------
         Common Stock                                 2,468,750
         ($.001 par value)

Transitional Small Business Disclosure Format (check one):

Yes [ ]     No [X]

<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

Item 1.  Financial Statements

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                                 BALANCE SHEETS

                                                           31-Dec      31-Mar
                            ASSETS                          1996        1997
                                                          --------    --------
                                                          audited    (unaudited)
Current assets:
Cash                                                       494,091      130,249
Restricted cash                                            150,000       82,000
Short-term Investments                                     120,376      270,790
Accounts receivable, net of allowance for
doubtful accounts $187,019 in 1996 and                     408,803      756,089
$183,353 in 1997
Accounts receivable - other                                  2,000        2,000
Inventories                                                145,036       40,411
Prepaid expenses                                            85,765       74,514
Other                                                       16,981       20,231
                                                        ----------   ----------
Total current assets                                     1,423,052    1,376,284
Accounts receivable-officers                               125,000      125,000
Deposits                                                     7,059        7,059
Furniture and equipment, net                               274,697      252,529
Purchase Software, net                                     100,000       87,500
                                                        ----------   ----------
                                                         1,929,808    1,848,372
                                                        ==========   ==========

             LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable                                           202,082      287,836
Notes Payable                                               50,000       50,000
Deferred income                                            446,844      439,801
Accrued expenses                                            84,846       45,671
Total current liabilities                                  783,772      823,308

Notes Payable (excluding current portion)                   37,500       25,000

Shareholders' equity:
Common stock, $.001 par value, 10,000,000
shares authorized; 2,468,750
 issued and outstanding 03/31/97 and 12/31/96                2,469        2,469
Additional paid-in capital                              10,148,528   10,148,528
Unearned compensation                                      (86,000)     (80,000)
Accumulated deficit                                     (8,956,461)  (9,070,933)
                                                        ----------   ----------
Total shareholder's equity                               1,108,536    1,000,064
                                                        ----------   ----------
                                                         1,929,808    1,848,372
                                                        ==========   ==========

<PAGE>

                         DIGITAL DESCRIPTOR SYTEMS, INC.
                             STATEMENT OF OPERATIONS

                                                         Three months ended
                                                      31-Mar           31-Mar
                                                       1996             1997
                                                    ---------         ---------
                                                   (unaudited)       (unaudited)

Sales                                                  910,057          950,202
Cost of sales                                          518,375          314,590
                                                    ----------       ----------
Gross profit                                           391,682          635,612
                                                    ----------       ----------
Operating expenses:
  Sales and marketing                                  262,341          224,492
  Research and development                             166,427          102,911
  Depreciation and amortization                         75,559           51,111
  General and administrative                           590,167          379,783
                                                    ----------       ----------
Total Operating expenses                             1,094,494          758,297
                                                    ----------       ----------
Loss from operations                                  (702,812)        (122,685)

Interest income                                         41,349            9,757
Interest expense                                        (2,496)          (1,544)

Net loss                                              (663,959)        (114,472)
                                                    ==========       ==========
Net loss per share                                       (0.28)          (0.050)

Weighted average shares outstanding                  2,408,750        2,468,750

<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                            STATEMENTS OF CASH FLOWS

                                                          Three months ended
                                                         31-Mar         31-Mar
                                                          1996          1997
                                                        ---------     ---------
                                                       (unaudited)   (unaudited)
Cash flows from operating activities:
Net loss                                                (663,959)      (114,472)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Provision for doubtful accounts receivable                (3,015)        (3,666)
Depreciation and amortization                             75,559         51,111
Amortizaton of unearned compensation                       6,000          6,000
Changes in assets and liabilities:
Receivables                                             (125,760)      (343,620)
Inventories                                               16,159        104,625
Prepaid expenses and other                                69,759          8,001
Accounts payable                                        (143,291)        85,754
Accrued expenses and other liabilities                   171,386        (39,175)
Deferred revenue                                        (185,588)        (7,043)
Other noncurrent assets                                     (852)             0
Due to affiliates                                        (71,913)             0
                                                      ----------     ----------
Net cash used in operating activities                   (855,515)      (252,485)
                                                      ----------     ----------
Cash flows from investing activities:
Equipment purchases                                      (45,190)       (16,443)
Purchase Software Acquisition                           (137,500)             0
Increase in short term investments, including
restricted cash                                                0        (82,414)
                                                      ----------     ----------
Net cash used in investing activities                   (182,690)       (98,857)
                                                      ----------     ----------
Cash flows from financing activities:
Repayment of note payable                                (12,500)       (12,500)
                                                      ----------     ----------
Net cash used in financing activities                    (12,500)       (12,500)
                                                      ----------     ----------
Decrease in cash                                      (1,050,705)      (363,842)
Cash at beginning of period                            2,778,185        494,091
                                                      ----------     ----------
Cash at end of period                                  1,727,480        130,249
                                                      ----------     ----------

<PAGE>

                         NOTES TO FINANCIAL STATEMENTS

NOTE A-BASIS OF PRESENTATIONS

The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997.

<PAGE>

Item 2.  Management's Discussion and Analysis

Management's Discussion and Analysis or Plan of Operation

     The  Company  develops,   assembles  and  markets  computer  installations,
consisting of hardware and software for law enforcement agencies,  tax assessors
and  businesses.  The system  captures video and scanned  images,  digitizes the
images and links the digitized images to text to build a computer database.  The
data is stored in the  computer  and can be  retrieved on demand and viewed on a
computer or  transmitted  over a computer  network,  telephone  line or by radio
frequency to remote locations within seconds.

     The principal product of the company is the Compu-Capture  system, which is
marketed to law enforcement agencies,  jails, and correctional  facilities.  The
Compu-Capture  system  produces and stores a digitized video image or "mug shot"
of the subject along with the record,  physical  description and other pertinent
information about the subject. The image can then be produced in the appropriate
format,  such as a full-color picture or identification  badge or wristband when
the subject is booked.

     Since  the  introduction  of   Compu-Capture   the  Company  has  installed
approximately  250  systems  in 46  states  in the  United  States  as  well  as
jurisdictions  in  Europe,  South  America,  Canada,  Mexico  and  the  Bahamas.
Management believes there is significant growth potential for this product since
only a small percentage of the approximately  17,000 law enforcement agencies in
the United States use a digitized computer imaging system. The NCIC requirements
include electronic imaging in all jurisdictions by the year 2006

     The  Compu-Color  system  digitizes  videotape and  photographs of improved
properties (buildings and other property improvements). Compu-Color stores these
images  along  with the  relevant  record  card  information  for the  local tax
assessors and  revaluation  companies.  The system allows the assessor to access
full-color  images of improved  properties  and related  information  to compare
properties and to review property  assessments  within seconds.  During 1996 and
1995,  the  system  accounted  for  approximately   16.2%  and  7.7%  of  sales,
respectively.  For the first quarter of 1997  Compu-Color  (assessor) sales were
11.2% of total revenue.

     The  Company  recognizes  revenue  in  accordance  with the  guidelines  of
Statement  of  Position  91-1 of the  American  Institute  of  Certified  Public
Accounts,  Software  Revenue  Recognition  (SOP  91-1).  Revenue  from  software
licenses is recognized when the Company has satisfied all  significant  contract
obligations, which generally occurs when installation of the system is complete.
Revenue from consulting or other software-related  services is recognized as the
services are rendered.  Revenue from post-contract  support (PCS or maintenance)
agreements is recognized ratably over the term of the agreements.

     Management is committed to raising funds for research and development of an
inkless  fingerprint  imaging  storing and retrieval  system that is expected to
enhance in particular the law enforcement and business products.

Results of Operations

     Sales for the three months ended March 31, 1997 of $950,202 increased by 4%
from sales of $910,057 for the three months ended March 31, 1996.  This increase
is  attributed  to an  increase  in the amount of  installations  and  contracts
awarded to the Company.  The Company's  deferred  revenue  increased  $98,049 to
$439,801 as of March 31, 1997 from $341,752 as of March 31, 1996.  Additionally,
the  Company's  backlog  of orders  to be  installed  as of March  31,  1997 was
approximately $1,100,000. The Company anticipates that both the deferred revenue
and backlog amounts will be recognized as revenue during fiscal year 1997.

     The  Company's  gross  profit in  absolute  dollars  for the first  quarter
increased 62% from 1996 to 1997 due to an increase in total revenue and a higher
gross  margin  per sale  generated  by the  Company.  Overall  the gross  profit
percentage  per sale  increased  to 67%  from an  average  of 43% in 1996.  This

<PAGE>

increase is attributed  to the fact that the Company had a higher  percentage of
software sales, which are extremely high margin.

     Operating  expenses decreased 31% for the three months ended March 31, 1997
from the  prior  year  same  quarter  due to the cost  cutting  and  containment
measures  implemented  by the Company in the last  quarter of 1996.  The primary
decreases  were  due to a  decrease  in  personnel  and  strict  control  on all
operating expenses incurred by the Company.

     The net loss from  operations  for the Company  decreased 83% for the three
months ending March 31, 1997 to ($114,472)  from ($663,959) for the three months
ended March 31, 1996.

Liquidity and Capital Resources

     The  Company's  primary  source of funds to date has been the proceeds from
the sale of its  securities.  The Company will require  additional  funds in the
immediate  future  to  continue  its  operations.  The  Company  is  considering
obtaining  such  funds  through  venture  capital  or other  private  or  public
financing, joint ventures or merger transactions, the sale of certain assets and
research  and  development  partnership  financing.  The  Company  has engaged a
consultant to assist in obtaining additional funding.

     As of March 31,  1997 the  Company  had  working  capital of  approximately
$565,476 which decreased  $639,280 from March 31, 1996. During the quarter ended
March 31, 1997 the Company incurred net losses of $114,472.

     Net cash used in  operating  activities  was  $252,485 and $855,515 for the
quarters ended March 31, 1997 and 1996. The use of cash in operating  activities
for the quarters ended March 31, 1997 and 1996, resulted largely from continuing
losses

Asset Management

     The Company manages its inventory by ordering specific hardware for just in
time delivery for each installation. The hardware is received, checked, modified
and shipped to each jurisdiction for installation within a short period of time.
Therefore,  the Company usually maintains in inventory only the equipment needed
for programming and testing.  Inventory may also include the hardware needed for
a customer's  installation that may already be shipped.  During the three months
ending March 31, 1997,  inventories decreased $104,625, due to increased control
and better scheduling of installations.

     As of March  31,  1997  most of the  Company's  receivables  are due  under
contracts  with county and city  jurisdictions.  The balance is with third party
vendors.  Once the contract has been awarded and the purchase  order issued by a
jurisdiction,  the  jurisdiction  must  encumber  the funds for  payment  of the
purchase order. The encumbered funds are typically paid to the Company after the
satisfactory completion of the installation. Accounts receivable as of March 31,
1997 were $939,442, with an allowance for doubtful accounts of $183,353.

General Risk Factors Affecting Results

     Rapid technological change as well as changes in customer  requirements and
preferences  characterizes  the software industry The Company believes that it's
future  quarterly  results  will  depend in large part upon its ability to offer
products  that compete  favorably  with respect to price,  product  reliability,
performance,   range  of  useful  features,   ease-of-use,   continuing  product
enhancements,  reputation,  support and training. Further, increased competition
in the market for digital  imaging could have a negative effect on the Company's
results of operations.

<PAGE>

     Due to the factors  noted above,  the Company's  future  earnings and stock
price may be subject to  significant  volatility,  particularly  on a  quarterly
basis.  Any  shortfall  in  revenues  or earnings  could have an  immediate  and
significant  adverse  effect on the  trading  price of the  Company's  stock and
warrants.

<PAGE>

                                     PART II
                                OTHER INFORMATION

Item 1.  Legal Proceedings

     The   information   required  by  this  Item  is  set  forth  under  "Legal
Proceedings"  in the Company's  Form 10-KSB for the year ended December 31, 1997
filed pursuant to the Securities Exchange Act of 1934 and is incorporated herein
by reference.

Item 6.  Exhibits and Reports on Form 8-K

     (b) Reports on Form 8-K

     The  Company  was not  required  to and did not file a Form 8-K  during the
quarter ended March 31, 1997.

<PAGE>

                                 SIGNATURE PAGE

     In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                       DIGITAL DESCRIPTOR SYSTEMS, INC.


Date:  May 9, 1997                     By:  /s/ Garrett U. Cohn
                                           -----------------------------------
                                            Garrett U. Cohn, President and
                                            Chief Executive Officer




Date:  May 9, 1997                     By:  /s/ Michael Pellegrino
                                           -----------------------------------
                                            Michael Pellegrino, Vice President
                                            Finance and Chief Financial Officer