FORM 10-QSB
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

              |X| Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                  For the quarterly period ended March 31, 2006

                                       OR

              |_| Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

        For the transition period from _______________ to _______________


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                        --------------------------------
             (Exact name of registrant as specified in its charter)


          Delaware                                              23-2770048
-------------------------------                           ----------------------
(State or other jurisdiction of                              (I.R.S. employer
 incorporation or organization)                           identification number)


                   2150 Highway 35, Sea Girt, New Jersey 08750
                   -------------------------------------------
               (Address of principal executive offices) (Zip Code)


       Registrant's Telephone number, including area code: (732) 359-0260

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 |_|

State the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.

                                                             Outstanding at
     Class of Common Stock                                     May 10, 2006
     ---------------------                                 --------------------
        $.001 par value                                    7,868,016,065 Shares


          TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT YES |_| NO |X|
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
                   Condensed Consolidated Financial Statements
          For the Three Months Ended March 31, 2006 and 2005 (Restated)
                                   (Unaudited)


Condensed Consolidated Unaudited Financial Statements:
     Condensed Consolidated Balance Sheets for the Three Months Ended
       March 31, 2006 and March 31, 2005 (restated)
     Condensed Consolidated Statements of Operations for the
       Three Months Ended March 31, 2006 and March 31, 2005 (restated)
     Condensed Consolidated Statement of Cash Flows for the
       Three Months Ended March 31, 2006 and March 31, 2005 (restated)

Notes to Condensed Consolidated Financial Statements


                                       1
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                           AT MARCH 31, 2006 AND 2005
                                   (UNAUDITED)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                              March 31       March 31
                                                                                2006           2005
                                                                            ------------   ------------
                                                                                           As Restated
<S>                                                                         <C>            <C>
Current Assets:
  Cash and cash equivalents                                                 $    100,709   $    823,485
  Restricted cash                                                                     --         50,000
  Accounts receivable, less allowances of $60,583 and 38,084, respectively       535,958         98,432
  Inventory                                                                      426,059        365,963
  Prepaid expenses                                                                 6,325          1,794
                                                                            ------------   ------------
      Total Current Assets                                                     1,069,051      1,339,674
Property and equipment, net                                                      374,071        410,901
                                                                            ------------   ------------
Other Assets
  Deposits                                                                         1,730          1,730
  Goodwill                                                                     4,054,998      4,054,998
  Intangible assets, net                                                         179,681        202,178
  Deferred financing costs, net                                                  227,213        376,113
                                                                            ------------   ------------
       Total Other Assets                                                      4,463,622      4,635,019
                                                                            ------------   ------------
TOTAL ASSETS                                                                $  5,906,744   $  6,385,594
                                                                            ============   ============
                 LIABILITIES AND STOCKHOLDERS' (DEFICIT)
LIABILITIES
Current Liabilities:
  Accounts payable                                                          $    285,213   $    202,193
  Accrued expenses                                                               316,598        305,634
  Accrued interest                                                               806,685        862,332
  Due to Officer and director                                                          0         20,115
  Deferred income                                                                188,968        169,204
  Convertible debentures, net of debt discount                                 2,042,124      1,608,250
  Derivative liabilities                                                       7,220,088      7,328,441
                                                                            ------------   ------------
     Total Current Liabilities                                                10,859,676     10,496,169
Long Term Liabilities
  Note payable                                                                 3,500,000      3,500,000
  Convertible debentures, net of debt discount                                 1,511,745      1,091,838
                                                                            ------------   ------------
      Total Long Term Liabilities                                              5,011,745      4,591,838

      Total Liabilities                                                       15,871,421     15,088,007

STOCKHOLDERS' (DEFICIT)
  Preferred stock, $.001 par value: authorized shares - 1,000,000;
           issued and outstanding shares - none
  Common stock, par value $.001; authorized 9,999,000,000 shares at;
          March 31,2006 and 9,999,000000 shares at March 31, 2005;
          5,454,943,898 issued and outstanding at March 31, 2006 and
          319,466,359 issued and outstanding at March 31, 2005                 5,454,944        319,466
  Additional paid in capital                                                  11,983,209     19,373,934
  Accumulated deficit                                                        (27,402,830)   (28,395,813)
                                                                            ------------   ------------
      Total Stockholders' (Deficit)                                           (9,964,677)    (8,702,413)
                                                                            ------------   ------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)                               $  5,906,744   $  6,385,594
                                                                            ============   ============
</TABLE>

          The accompanying notes are an integral part of the condensed
                       consolidated financial statements.


                                       2
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
                                     (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                                                                      MARCH 31,
                                                                 2006            2005
                                                            -------------   -------------
                                                                             As Restated
<S>                                                         <C>             <C>
INCOME
       Net Sales                                            $     870,964   $     148,875
       Cost of Revenue                                            293,342          44,702
                                                            -------------   -------------
           Gross Profit                                           577,622         104,173

OPERATING EXPENSES
       General and administrative                                 618,892         259,701
       Sales and marketing                                         44,806          25,332
       Research                                                    26,524           3,848
                                                            -------------   -------------
              Total Operating Expenses                            690,222         288,881

LOSS BEFORE OTHER INCOME (EXPENSE)                               (112,600)       (184,708)
OTHER  (EXPENSE)
       Interest                                                  (732,194)       (457,531)
       Amortization of deferred financing cost                    (37,225)        (37,225)
       Amortization of debt discount                             (323,029)       (440,755)
       Change in fair market value of derivative liability       (661,020)       (630,702)
       Other income and expenses                                  (31,804)           (780)
                                                            -------------   -------------
              Total Other (Expense)                         ($  1,785,272)  ($  1,566,993)

NET (LOSS) APPLICABLE TO COMMON SHARES                      ($  1,897,872)  ($  1,751,701)
                                                            =============   =============
NET (LOSS) PER BASIC AND DILUTED SHARES                     $       (0.00)  $       (0.01)
                                                            =============   =============
WEIGHTED AVERAGE NUMBER OF COMMON
       SHARES OUTSTANDING                                   3,943,573,535     251,049,692
                                                            =============   =============
</TABLE>

          The accompanying notes are an integral part of the condensed
                       consolidated financial statements.


                                       3
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                               2006             2005
                                                           -------------   -------------
                                                                            As Restated
<S>                                                        <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net (loss)                                              $  (1,897,872)  $  (1,751,701)
                                                           -------------   -------------
   Adjustments to reconcile net (loss) to net cash
     (used in) operating activities:
     Depreciation and amortization                                11,770              --
      Amortization of deferred financing cost                     37,225          37,225
      Amortization of debt discount                              323,029         440,755
      Amortization of benefical interest                         732,194        (217,126)
      Change in fair market value of derivatives                 661,020         630,702
      Bad debt expense                                             7,500              --
  Changes in operating assets and liabilities:
     Accounts receivable                                         (75,465)        (29,903)
     Inventory                                                   (11,908)        (31,211)
     Prepaid expense, deposits and other assets                   (2,435)         (1,794)
    Accounts payable                                              60,216          64,611
     Accured expenses                                            (64,594)         (4,140)
     Accured interest                                              7,723         182,265
     Deferred Income                                              16,495         (20,249)
                                                           -------------   -------------
        Total adjustments                                      1,702,770       1,051,135
                                                           -------------   -------------
     Net cash (used in) operating activities                    (195,102)       (700,566)
                                                           -------------   -------------
CASH FLOWS FROM INVESTING ACTIVITIES
      Acquisition of Business Assets                                  --      (1,500,000)
                                                           =============   =============
      Net cash provided by (used in) investing activities             --      (1,500,000)
                                                           -------------   -------------
</TABLE>

   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.


                                       4
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                              2006             2005
                                                          -------------   -------------
                                                                           As Restated
<S>                                                       <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITES
   Due to officers and directors                                     --          (6,285)
     Net cash provided by (used in) financing activities             --          (6,285)
                                                          -------------   -------------
NET (DECREASE) IN
   CASH AND CASH EQUIVALENTS                                   (195,102)     (2,206,851)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                 295,811       3,080,336
                                                          -------------   -------------
CASH AND CASH EQUIVALENTS - END OF PERIOD                 $     100,709         873,485
                                                          =============   =============
</TABLE>

   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.


                                       5
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
      Notes to the Condensed Consolidated Financial Statements (Unaudited)
          For the Three Months Ended March 31, 2006 and 2005 (Restated)

Note 1 - Description of Business

Digital Descriptor Systems, Inc., incorporated in Delaware in 1994, develops,
assembles and markets computer installations consisting of hardware and
software, which capture video and scanned images, link the digitized images to
test and store the images and text on a computer database and transmit this
information to remote locations. The principal product of the Company is the
Compu-Capture Law Enforcement Program, which is marketed to law enforcement
agencies and jail facilities and generates the majority of the Company's
revenues. Substantially all of the Company's revenues are derived from
governmental agencies in the United States.
CGM is a manufacturer and distributor of indicative and barrier security seals,
security tapes and related packaging security systems, protective security
products for palletized cargo, physical security systems for tractors, trailers
and containers as well as a number of highly specialized authentication
products.

Note 2 - Summary of Significant Accounting Policies

Significant accounting policies followed by the Company in the preparation of
the accompanying financial statements are summarized below:

Use of Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.

Revenue Recognition

The Company derives revenue from the sale of hardware, software, post customer
support, and other related services. Post customer support includes telephone
support, bug fixes, and rights to upgrades. Other related services include basic
training.

The Company recognizes revenue upon delivery of the product to the end-user,
when the fee is determinable and collectibility is probable. Revenue allocable
to post customer support is recognized on a straight-line basis over the period
which the service is to be provided. Revenue collected for future services is
recorded as deferred income and totaled $ 188,968 and $ 169,204 , respectively,
for the three months ended March 31, 2006 and 2005. Revenue allocable to other
services is recognized as the services are provided.

Software Development Costs

All costs incurred in the research and development of new software products and
costs incurred prior to the establishment of a technologically feasible product
are expensed as incurred. Research and development of software costs were $
26,524 and $3,848, respectively, for the three months ended March 31, 2006 and
2005.

Cash and Cash Equivalents

For the purpose of the statement of cash flows, cash and cash equivalents
include time deposits, certificates of deposits, restricted cash, and all highly
liquid debt instruments with original maturities or three months or less.

Accounts Receivable

Accounts receivable are uncollateralized customer obligations due under normal
trade terms requiring payment within 30 days from the invoice date. No interest
is charged on any past due accounts. Accounts receivable are stated at the
amount billed to the customer. Accounts receivable was $ 535,958 and $ 98,432,
respectively, for the three months ended March 31, 2006 and 2005 .


                                       6
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
      Notes to the Condensed Consolidated Financial Statements (Unaudited)
          For the Three Months Ended March 31, 2006 and 2005 (Restated)

The carrying amount of accounts receivable is reduced by a valuation allowance
that reflects management's best estimate of the amount that will not be
collected. Management reviews all accounts receivable balances that exceed 90
days from invoice date and based on assessment of current creditworthiness,
estimates the portion, if any, of the balance that will not be collected. The
allowance for doubtful accounts was $ 60,583 and $38,084, respectively, for the
three months ended March 31, 2006 and 2005.

Income Taxes

The Company provides for income taxes under the liability method. Deferred
income taxes reflect the net tax effects of temporary differences between
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Such differences result from
differences in the timing of recognition by the Company of net operating loss
carry forwards, certain expenses, and differences in the depreciable lives and
depreciation methods for certain assets.

Accounting for Stock Options

Financial Accounting Standards Board issued Statement No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation" which provides companies with a choice
to follow the provisions of SFAS 123 in determination of stock-based
compensation expense or to continue with the provisions of Accounting Principles
Board Opinion No. 25 (APB 25). The Company has elected to follow the provisions
of APB 25. Under APB 25, if the exercise price of the Company stock options
equals or exceeds the market price of the underlying Common Stock on the date of
grant, no compensation expense is recognized. The effect of applying SFAS 123 to
the Company's stock-based awards results in net loss and net loss per common
share that are disclosed on a pro forma basis in Note 8.

Net Loss Per Common Share

Basic loss per share is calculated by dividing the net loss by the weighted
average common shares outstanding for the period. Diluted loss per share is
calculated by dividing the net loss by the weighted average common shares
outstanding of the period plus the dilutive effect of common stock equivalents.
No exercises of common stock equivalents were assumed during any period because
the assumed exercise of these securities would be anti-dilutive.

Concentration of Credit Risk

Financial instruments which potentially subject the company to a concentration
of credit risk principally consist of cash and accounts receivable.
Concentration of credit risk, with respect to accounts receivable, is limited
due to the Company's credit evaluation process. The Company does not require
collateral from its customers. The Company sells its principal products to end
users and distributors principally in the United States.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and convertible debentures approximates their fair
value based on the liquidity of these financial instruments and based on their
short-term nature.

Reclassification

Certain amounts at March 31, 2005 have been reclassified to conform to the March
31, 2006 statements.


                                       7
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
      Notes to the Condensed Consolidated Financial Statements (Unaudited)
          For the Three Months Ended March 31, 2006 and 2005 (Restated)

Note 3 - Impact of Recent Accounting Pronouncements

In December of 2004 the FASB issued a revision to Statement No. 123, Accounting
for Stock-Based Compensation. This Statement supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for good or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. This Statement does not change the accounting guidance for
share-based payment transactions with parties other than employees as provided
in Statement 123 as originally issued and EITF Issue No. 96-18, "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with selling, Goods or Services." This Statement does not address
the accounting for employee share ownership plans, which are subject to AICPA
Statement of Position 93-6, Employers Accounting for Employee Stock Ownership
Plans. The revisions of this statement did not have a material impact upon the
Company's financial statements. The Company reviews the carrying value of
intangibles and other long-lived assets for impairment at least annually or
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.

Recoverability of long-lived assets is measured by comparison of its carrying
amount to the undiscounted cash flows that the asset or asset group is expected
to generate. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
property, if any, exceeds its fair market value.

Goodwill represents the excess of the cost of the Company's acquired
subsidiaries or assets over the fair value of their net assets at the date of
acquisition. Under Statement of Financial Accounting Standards ("SFAS") No. 142,
goodwill is no longer subject to amortization over its estimated useful life;
rather, goodwill is subject to at least an annual assessment for impairment
applying a fair-value based test.

Note 4 - Convertible Debentures

Based on the guidance in SFAS133 and EITF00-19, the Company concluded that the
conversion features of it convertible debentures were required to be accounted
for as derivatives. The imbedded derivative feature was bi-furcated and the fair
market value was determined using a convertible bond valuation model. The
derivative instruments are recorded at fair market value with changes in value
recognized during the period of change. For further discussion, see footnote #12
regarding restatement.

During May 2001, the Company issued three convertible notes for an aggregate
amount of $20,000. The debentures are collateralized by substantially all of the
company's assets. The debentures accrue interest at the rate of 10% per annum.

The holders have the right to convert the principal amount plus accrued interest
into shares of the Company's common stock. The conversion price in effect on any
Conversion Date shall be an amount equal to 50% of the mean average price of the
common stock for the ten trading days prior to notice of conversion.

We recorded a derivative liability related to this convertible debenture. The
initial fair market value of the conversion option in the amount of $ 4,992 was
recorded as a debt discount and is being amortized over the stated maturities of
the notes using the effective interest method. The fair market value of the
conversion feature is also shown as a derivative liability on the company's
balance sheet and is being adjusted to fair market value each reporting period
with the change being reported as "other income and expenses" in the statement
of operations.


                                       8
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
      Notes to the Condensed Consolidated Financial Statements (Unaudited)
          For the Three Months Ended March 31, 2006 and 2005 (Restated)

During September 2001, the Company issued two convertible debentures for an
aggregate amount of $400,000. The debentures are collateralized by substantially
all of the company's assets. These debentures are in default as they were due on
September 30, 2002. The debentures accrue interest at the rate of 12% per annum.
A late fee equal to 15% of the accrued and unpaid interest is also assessed
during the default period. Interest on the debentures was not paid quarterly,
and accordingly accrued interest and late fees payable related to the notes
totaling $187,600 is included in the accompanying financial statements.

The holders have the right to convert the principal amount plus accrued interest
into shares of the Company's common stock at anytime after issuance. The
conversion price in effect on any Conversion Date shall be the lesser of $.08
per share or 50% of the average of the lowest three inter-day sales prices
during the ten trading days immediately preceding the applicable Conversion
Date.

The Company also issued common stock purchase warrants for the right to purchase
800,000 shares of common stock of the Company at an exercise price per share
equal to the lesser of $.36 or the average of the lowest three closing sales
prices for the common stock during the twenty Trading Days immediately prior to
exercise. The estimated fair value of the warrants of $48,000 was allocated to
paid-in capital. This resulting debt discount plus $90,000 of financing charges
were amortized on a straight-line basis over the term of the debentures, and
were fully amortized at December 31, 2002.

In addition, we recorded a derivative liability related to this convertible
debenture. The initial fair market value of the conversion option in the amount
of $ 59,407 was recorded as a debt discount and is being amortized over the
stated maturities of the notes using the effective interest method. The fair
market value of the conversion feature is also shown as a derivative liability
on the company's balance sheet and is being adjusted to fair market value each
reporting period with the change being reported as "other income and expenses"
in the statement of operations.

During 2004, $10,500 of the debenture was converted into 35,000,000 shares of
common stock and during 2003, $3,164 of the debenture was converted into
15,818,010 shares of common stock.

In December, 2001 the Company issued three convertible debentures for an
aggregate amount of $500,000. The debentures are collateralized by substantially
all of the company's assets. The debentures are in default as they were due
December 31, 2002. Interest accrues at the rate of 12% per annum through
maturity, and increased to 15% per annum during the default period. Quarterly
interest payments were not made, and accordingly accrued interest payable
related to the notes totaling $210,000 is included in the accompanying financial
statements.

The holders have the right to convert the principal amount plus accrued interest
into shares of the Company's common stock at any time. The conversion price in
effect on any Conversion Date shall be the lesser of $.043 per share or 50% of
the average of the lowest three inter-day sales prices during the twenty Trading
Days immediately preceding the applicable Conversion Date.

The Company also issued common stock purchase warrants for the right to purchase
1,500,000 shares of common stock of the Company at an exercise price per share
equal to the lesser of $.02 or the average of the lowest three inter-day sales
prices during the twenty Trading Days immediately prior to exercise. The
estimated fair value of the warrants of $90,000 was allocated to paid-in
capital. This resulting debt discount plus $77,500 of financing charges were
amortized on a straight-line basis over the term of the debentures, and were
fully amortized at December 31, 2002.

In addition, we recorded a derivative liability related to this convertible
debenture. The initial fair market value of the conversion option in the amount
of $ 388,800 was recorded as a debt discount and is being amortized over the
stated maturities of the notes using the effective interest method. The fair
market value of the conversion feature is also shown as a derivative liability
on the company's balance sheet and is being adjusted to fair market value each
reporting period with the change being reported as "other income and expenses"
in the statement of operations.


                                       9
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
      Notes to the Condensed Consolidated Financial Statements (Unaudited)
          For the Three Months Ended March 31, 2006 and 2005 (Restated)

In June 2002, a 12% convertible promissory note for $75,000 was issued to two
investors. The debentures are collateralized by substantially all of the
company's assets. The debentures are in default as they were due in August 2003.
The debentures accrue interest at the rate of 12% per annum. A late fee equal to
15% of the accrued and unpaid interest is also assessed during the default
period. Quarterly interest on the debentures was not paid, and accordingly
accrued interest and late fees payable related to the notes totaling $29,071 is
included in the accompanying financial statements.

The holders have the right to convert the principal amount plus unpaid accrued
interest into shares of the Company's common stock at any time through
repayment. The conversion price is equal to fifty percent of the average of the
lowest three (i) inter-day trading prices, or (ii) if the common stock is traded
on the OTC Bulletin Board or Pink Sheets, the prices asked by any person or
entity acting as a market maker in the common stock during the twenty trading
days immediately preceding the relevant date upon which a conversion is
effected.

In addition, we recorded a derivative liability related to this convertible
debenture. The initial fair market value of the conversion option in the amount
of $ 59,430 was recorded as a debt discount and is being amortized over the
stated maturities of the notes using the effective interest method. The fair
market value of the conversion feature is also shown as a derivative liability
on the company's balance sheet and is being adjusted to fair market value each
reporting period with the change being reported as "other income and expenses"
in the statement of operations.

In September 2002, the Company issued secured convertible debentures in the
aggregate principal amount of $100,000. The debentures are collateralized by
substantially all of the company's assets. The debentures are in default as they
were due on September 30, 2003. The debentures accrue interest at the rate of
12% per annum. A late fee equal to 15% of the accrued and unpaid interest is
also assessed during the default period. Quarterly interest on the debentures
was not paid, and accordingly accrued interest and late fees payable related to
the notes totaling $30,000 are included in the accompanying financial
statements.

The holders have the right to convert the principal amount and interest due
under the debentures into shares of common stock. The conversion price in effect
on any Conversion Date shall be the lesser of (1) $0.005 or (2) 40% of the
average of the lowest three inter-day sales prices of the common stock during
the twenty Trading Days immediately preceding the applicable conversion date.

The Company also issued common stock purchase warrants for the right to purchase
300,000 shares of common stock of the Company at an exercise price per share
equal to $.01. The estimated fair value of the warrants was zero. Debt issuance
costs of $27,500 were also amortized on a straight-line basis over the term of
the debentures and were fully amortized at December 31, 2003.

In addition, we recorded a derivative liability related to this convertible
debenture. The initial fair market value of the conversion option in the amount
of $ 79,190 was recorded as a debt discount and is being amortized over the
stated maturities of the notes using the effective interest method. The fair
market value of the conversion feature is also shown as a derivative liability
on the company's balance sheet and is being adjusted to fair market value each
reporting period with the change being reported as "other income and expenses"
in the statement of operations.

In January, 2003 the Company issued three convertible debentures for an
aggregate amount of $250,000, with simple interest accruing at the annual rate
of 10%. The debentures are collateralized by substantially all of the company's
assets. These debentures are in default as they were due January 10, 2004.
Quarterly interest was not paid and accordingly, accrued interest of $61,415 is
included in the financial statements.


                                       10
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
      Notes to the Condensed Consolidated Financial Statements (Unaudited)
          For the Three Months Ended March 31, 2006 and 2005 (Restated)

The holders have the right to convert the principal amount and interest due
under the debentures into shares of common stock. The conversion price in effect
on any Conversion Date shall be the lesser of (1) $0.005 or (2) 40% of the
average of the lowest three inter-day sales prices of the common stock during
the twenty Trading Days immediately preceding the applicable Conversion Date.

The Company also issued common stock purchase warrants for the right to purchase
750,000 shares of common stock of the Company at an exercise price per share
equal to $0.01. The estimated fair value of the warrants was zero. Financing
costs incurred of $56,750 were fully amortized at December 31, 2003.

In addition, we recorded a derivative liability related to this convertible
debenture. The initial fair market value of the conversion option in the amount
of $ 92,225 was recorded as a debt discount and is being amortized over the
stated maturities of the notes using the effective interest method. The fair
market value of the conversion feature is also shown as a derivative liability
on the company's balance sheet and is being adjusted to fair market value each
reporting period with the change being reported as "other income and expenses"
in the statement of operations.

In February, 2003, the Company issued three convertible debentures for an
aggregate amount of $125,000, with simple interest accruing at the annual rate
of 10%. The debentures are collateralized by substantially all of the company's
assets. The debentures are in default as they were due February 27, 2004.
Quarterly interest due was not paid and accordingly accrued interest of $28,125
is included in the financial statements.

The holders have the right to convert the principal amount and interest due
under the debentures into shares of common stock. The conversion price in effect
on any Conversion Date shall be the lesser of (1) $0.005 or (2) 40% of the
average of the lowest three inter-day sales prices of the common stock during
the twenty Trading Days immediately preceding the applicable Conversion Date.

The Company also issued common stock purchase warrants for the right to purchase
375,000 shares of common stock of the Company at an exercise price per share
equal to $0.01. The estimated fair value of the warrants was zero. Debt issuance
costs of $10,843 were also amortized on a straight-line basis over the term of
the debentures. Amortization expense during 2004 was $24,307 and the costs were
fully amortized as of December31, 2004.

In addition, we recorded a derivative liability related to this convertible
debenture. The initial fair market value of the conversion option in the amount
of $ 47,850 was recorded as a debt discount and is being amortized over the
stated maturities of the notes using the effective interest method. The fair
market value of the conversion feature is also shown as a derivative liability
on the company's balance sheet and is being adjusted to fair market value each
reporting period with the change being reported as "other income and expenses"
in the statement of operations.

In April, 2003, The Company issued three convertible debentures for an aggregate
amount of $125,000, with simple interest accruing at the annual rate of 10%. The
debentures are collateralized by substantially all of the company's assets. The
debentures are in default as they were due March 31, 2004. Quarterly interest
was not paid and accordingly accrued interest of $15,834 is included in the
financial statements.

The holders have the right to convert the principal amount and interest due
under the debentures into shares of common stock. The conversion price in effect
on any Conversion Date shall be the lesser of (1) $0.005 or (2) 40% of the
average of the lowest three inter-day sales prices of the common stock during
the twenty Trading Days immediately preceding the applicable Conversion Date.


                                       11
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
      Notes to the Condensed Consolidated Financial Statements (Unaudited)
          For the Three Months Ended March 31, 2006 and 2005 (Restated)

The Company also issued common stock purchase warrants for the right to purchase
375,000 shares of common stock of the Company at an exercise price per share
equal to $0.01. The estimated fair value of the warrants was zero. Debt issuance
costs of $20,844 were also amortized on a straight-line basis over the term of
the debentures. Amortization expense during 2004 was $38,591 and the costs were
fully amortized as of December31, 2004.

In addition, we recorded a derivative liability related to this convertible
debenture. The initial fair market value of the conversion option in the amount
of $ 68,250 was recorded as a debt discount and is being amortized over the
stated maturities of the notes using the effective interest method. The fair
market value of the conversion feature is also shown as a derivative liability
on the company's balance sheet and is being adjusted to fair market value each
reporting period with the change being reported as "other income and expenses"
in the statement of operations.

In October, 2003, the Company issued two convertible debentures for an aggregate
amount of $165,000, with simple interest accruing at the annual rate of 12%. The
debentures are collateralized by substantially all of the company's assets. The
debentures are in default as they were due October 1, 2004. Quarterly interest
was not paid and accordingly accrued interest of $25,988 is included in the
financial statements.

The holders have the right to convert the principal amount and interest due
under the debentures into shares of the Company's common stock. The conversion
price in effect on any Conversion Date shall be the lesser of (1) $.005 or (2)
40% of the average of the lowest three inter-day sales prices of the common
stock during the twenty Trading Days immediately preceding the applicable
Conversion Date.

The debenture holders also received warrants to purchase 1,505,000 shares at an
exercise price of $0.01 per share. The estimated fair value of the warrants was
zero. Amortization expense during 2004 was $147,469 and the costs were fully
amortized as of December31, 2004.

In addition, we recorded a derivative liability related to this convertible
debenture. The initial fair market value of the conversion option in the amount
of $ 326,733 was recorded as a debt discount and is being amortized over the
stated maturities of the notes using the effective interest method. The fair
market value of the conversion feature is also shown as a derivative liability
on the company's balance sheet and is being adjusted to fair market value each
reporting period with the change being reported as "other income and expenses"
in the statement of operations.

In November, 2003, the Company issued two convertible debentures for an
aggregate amount of $45,000, with simple interest accruing at the annual rate of
10%. The debentures are in default as they were due November 27, 2004. Quarterly
interest was not paid and accordingly accrued interest of $9,453 is included in
the financial statements.

The holders have the right to convert the principal amount and interest due
under the debentures into shares of the Company's common stock. The conversion
price in effect on any Conversion Date shall be the lesser of (1) $.005 or (2)
40% of the average of the lowest three inter-day sales prices of the common
stock during the twenty Trading Days immediately preceding the applicable
Conversion Date.

The Company also issued common stock purchase warrants for the right to purchase
315,000 shares of common stock of the Company at an exercise price per share
equal to $0.01. The estimated fair value of the warrants was zero. Amortization
expense during 2004 was $47,469 and the costs were fully amortized as of
December 31, 2004.


                                       12
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
      Notes to the Condensed Consolidated Financial Statements (Unaudited)
          For the Three Months Ended March 31, 2006 and 2005 (Restated)

In addition, we recorded a derivative liability related to this convertible
debenture. The initial fair market value of the conversion option in the amount
of $ 72,572 was recorded as a debt discount and is being amortized over the
stated maturities of the notes using the effective interest method. The fair
market value of the conversion feature is also shown as a derivative liability
on the company's balance sheet and is being adjusted to fair market value each
reporting period with the change being reported as "other income and expenses"
in the statement of operations.

In December, 2003, the Company issued three convertible debentures for an
aggregate amount of $45,000, with simple interest accruing at the annual rate of
12%. The debentures are collateralized by substantially all of the company's
assets. These debentures are in default as they were due by December 3, 2004.
Quarterly interest was not paid and accordingly accrued interest of $5,694 is
included in the financial statements.

The holders have the right to convert the principal amount and interest due
under the debentures into shares of the Company's common stock. The conversion
price in effect on any Conversion Date shall be the lesser of (1) $.005 or (2)
40% of the average of the lowest three inter-day sales prices of the common
stock during the twenty Trading Days immediately preceding the applicable
Conversion Date.

The Company also issued common stock purchase warrants for the right to purchase
750,000 shares of common stock of the Company at an exercise price per share
equal to $0.01. The estimated fair value of the warrants was zero. .
Amortization expense during 2004 was $42,349 and the costs were fully amortized
as of December31, 2004.

In addition, we recorded a derivative liability related to this convertible
debenture. The initial fair market value of the conversion option in the amount
of $ 72,527 was recorded as a debt discount and is being amortized over the
stated maturities of the notes using the effective interest method. The fair
market value of the conversion feature is also shown as a derivative liability
on the company's balance sheet and is being adjusted to fair market value each
reporting period with the change being reported as "other income and expenses"
in the statement of operations.

In February, 2004, the Company issued two convertible debentures for an
aggregate amount of $45,000, with simple interest accruing at the annual rate of
12%. The debentures are collateralized by substantially all of the company's
assets. These debentures are due in February, 2005. Quarterly interest was not
paid and accordingly accrued interest of $4,906 is included in the financial
statements.

The holders have the right to convert the principal amount and interest due
under the debentures into shares of the Company's common stock. The conversion
price in effect on any conversion date shall be the lesser of (1) $.005 or (2)
67% of the average of the lowest three inter-day sales prices of the common
stock during the twenty trading days immediately preceding the applicable
conversion date. In addition the debenture holders also received warrants to
purchase 315,000 shares at an exercise price of $0.005 per share anytime before
February 28, 2009. The estimated fair value of the warrants was $504, which was
also recorded as a debt discount. The total debt discount is being amortized on
a straight line basis which approximates the effective interest method, over the
life of the note. $20,317 of this amount was charged to interest expense during
2004. Additional costs of $12,819 incurred with the issuance of the convertible
debentures were recorded as deferred financing cost and are being amortized on a
straight-line basis, which approximates the effective interest method, over the
term of the debentures. Unamortized costs as of December 31, 2004 amounted to
$1,068.


                                       13
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
      Notes to the Condensed Consolidated Financial Statements (Unaudited)
          For the Three Months Ended March 31, 2006 and 2005 (Restated)

In addition, we recorded a derivative liability related to this convertible
debenture. The initial fair market value of the conversion option in the amount
of $172,265 was recorded as a debt discount and is being amortized over the
stated maturities of the notes using the effective interest method. The fair
market value of the conversion feature is also shown as a derivative liability
on the company's balance sheet and is being adjusted to fair market value each
reporting period with the change being reported as "other income and expenses"
in the statement of operations.

In May, 2004, the Company issued four convertible debentures for an aggregate
amount of $250,000, with simple interest accruing at the annual rate of 12%. The
debentures are collateralized by substantially all of the company's assets.
These debentures are due in May 2005. Quarterly interest was not paid and
accordingly accrued interest of $19,555 is included in the financial statements.

The holders have the right to convert the principal amount and interest due
under the debentures into shares of the Company's common stock. The conversion
price in effect on any conversion date shall be the lesser of (1) $.005 or (2)
67% of the average of the lowest three inter-day sales prices of the common
stock during the twenty trading days immediately preceding the applicable
conversion date. In addition the debenture holders also received warrants to
purchase 750,000 shares at an exercise price of $0.005 per share anytime before
May 31, 2009. The estimated fair value of the warrants was $5,175, which was
also recorded as a debt discount. The total debt discount is being amortized on
a straight line basis which approximates the effective interest method, over the
life of the note. $35,911 of this amount was charged to interest expense during
2004.

Additional costs of $55,244 incurred with the issuance of the convertible
debentures were recorded as deferred financing cost and are being amortized on a
straight-line basis, which approximates the effective interest method, over the
term of the debentures. Unamortized costs as of December 31, 2004 amounted to
$36,829.

In addition, we recorded a derivative liability related to this convertible
debenture. The initial fair market value of the conversion option in the amount
of $327,750 was recorded as a debt discount and is being amortized over the
stated maturities of the notes using the effective interest method. The fair
market value of the conversion feature is also shown as a derivative liability
on the company's balance sheet and is being adjusted to fair market value each
reporting period with the change being reported as "other income and expenses"
in the statement of operations.

In November, 2004, the Company issued four convertible debentures for an
aggregate amount of $3,500,000, with simple interest accruing at the annual rate
of 12%. The debentures are collateralized by substantially all of the company's
assets. These debentures are due in November, 2005. Quarterly interest was not
paid and accordingly accrued interest of $36,151 is included in the financial
statements.

The holders have the right to convert the principal amount and interest due
under the debentures into shares of the Company's common stock. The conversion
price in effect on any conversion date shall be the lesser of (1) $.0005 or (2)
67% of the average of the lowest three inter-day sales prices of the common
stock during the twenty trading days immediately preceding the applicable
conversion date.. In addition the debenture holders also received warrants to
purchase 10,500,000 shares at an exercise price of $0.005 per share anytime
before November 30, 2009. The estimated fair value of the warrants was $5,250,
which was also recorded as a debt discount. The total debt discount is being
amortized on a straight line basis which approximates the effective interest
method, over the life of the note $71,828 of this amount was charged to interest
expense during 2004.


                                       14
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
      Notes to the Condensed Consolidated Financial Statements (Unaudited)
          For the Three Months Ended March 31, 2006 and 2005 (Restated)

Additional costs of $391,569 with the issuance of the convertible debentures
were recorded as deferred financing cost and are being amortized on a
straight-line basis which approximates the effective interest method, over the
term of the debentures. Unamortized costs as of December 31, 2004 amounted to
$376,509.

In addition, we recorded a derivative liability related to this convertible
debenture. The initial fair market value of the conversion option in the amount
of $ 2,519,300 was recorded as a debt discount and is being amortized over the
stated maturities of the notes using the effective interest method. The fair
market value of the conversion feature is also shown as a derivative liability
on the company's balance sheet and is being adjusted to fair market value each
reporting period with the change being reported as "other income and expenses"
in the statement of operations.

In 2005 the Company converted $643,340 of accrued interest into convertible
debentures, $97,402 was recorded as debt discount. In March 2005, $513,431 was
repaid on convertible debentures.

Note 5 - Deferred Financing Costs

Deferred financing costs represent cost incurred in connection with the issuance
of the convertible debentures. Deferred financing costs are being amortized over
the life of the convertible debentures on the straight-line basis, which
approximates the effective interest method. The net financing costs were
$227,213 and $376,113 for the three months ended March 31, 2006 and 2005,
respectively.

Note 6 - Commitments and Contingencies

Operating Lease
The Company rents office facilities under a rental agreement that is
automatically renewable every four months. The most recent renewal period
expired on December 31, 2005.

CGM leases two facilities, one in Somerset NJ and the other in Staten Island New
York under non-cancelable lease agreements that end in December 2007 and
December 2008, respectively.

Employment Agreements

Anthony R. Shupin, Chairman, President and Chief Executive Officer. Mr. Shupin
was re-appointed as Chairman, President and Chief Executive Officer effective
February, 2005. On February 25, 2005, DDSI entered into a five-year employment
agreement with Mr. Shupin, which entitled him to a base salary of $215,000 per
year, which may at the Board of Directors discretion adjust his base salary (but
not below $215,000 per year). Mr. Shupin is also entitled to participate in the
Annual Management Bonus Plan. As a participant in the Annual Management Bonus
Plan, Mr. Shupin will be eligible to receive bonuses, based on performance, in
any amount from 10% to 200% of the Base Salary. In addition, Mr. Shupin shall
participate in the Management Equity Incentive Plan. As a participant in the
Management Equity Plan, Mr. Shupin will be eligible to receive options, which
vest over a period of time from the date of the option's issue, to purchase
common shares of DDSI. The Company may grant Mr. Shupin, following the first
anniversary of the date hereof and at the sole discretion of the Board of
Directors, options to purchase common shares of the Company (subject to the
vesting and the satisfaction of the other terms and conditions of such options).
Mr. Shupin will be entitled to 25 vacations days per year at such times as may
be mutually agreed with the Board of Directors. DDSI will provide Mr. Shupin a
monthly car allowance of Six Hundred Dollars ($600.00) along with related car
expenses.


                                       15
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
      Notes to the Condensed Consolidated Financial Statements (Unaudited)
          For the Three Months Ended March 31, 2006 and 2005 (Restated)

Michael J. Pellegrino, Senior Vice President and Chief Financial Officer. Mr.
Pellegrino was appointed as Senior Vice President and Chief Financial Officer
effective February 25, 2005. On February 25, 2005, DDSI entered into a five-year
employment agreement with Mr. Pellegrino, which entitled him to a base salary of
$175,000 per year which may at the Board of Directors discretion adjust his base
salary (but not below $175,000 per year). Mr. Pellegrino is also entitled to
participate in the Annual Management Bonus Plan. As a participant in the Annual
Management Bonus Plan, Mr. Pellegrino will be eligible to receive bonuses, based
on performance, in any amount from 10% to 200% of the Base Salary. In addition,
Mr. Pellegrino shall participate in the Management Equity Incentive Plan. As a
participant in the Management Equity Incentive Plan, Mr. Pellegrino will be
eligible to receive options, which vest over a period of time from the date of
the option's issue, to purchase common shares of DDSI. DDSI may also grant to
the Employee, following the first anniversary of the date of the Agreement and
at the sole discretion of the Board of Directors, options to purchase common
shares of the Company (subject to the vesting and the satisfaction of the other
terms and conditions of such options). Mr. Pellegrino will be entitled to 25
vacation days per year at such times as may be mutually agreed with the Board of
Directors. DDSI shall also furnish Mr. Pellegrino with monthly car allowance of
Six Hundred Dollars ($600.00) and related car expenses.

DDSI has an employment agreement with Erik Hoffer, pursuant to which Mr. Hoffer
will be employed as Executive Vice President of the Company for an initial term
of three years, which may be extended, and President of CGM Sub for an initial
term of one year, which may be renewed for successive one-year terms. Pursuant
to the Employment Agreement, Mr. Hoffer will receive a base salary of $200,000,
a bonus of 5% of the gross margin sales increase over the prior year's gross
margin sales of CGM products and customary benefits and reimbursements.

Note 7 - Stock Option and Other Plans

The Company maintains the 1994 Restated Stock Option Plan (the 1994 Plan)
pursuant to which the Company reserved 5,000,000 shares of common stock. The
options granted have a term of ten years and are issued at or above the fair
market value of the underlying shares on the grant date. The Company also
maintains the 1996 Director Option Plan (the Director Plan) pursuant to which
the Company reserved 200,000 shares of common stock. Options granted under the
Director Plan are issued at or above the fair market value of the underlying
shares on the grant date. A portion of the first option vests at the six-month
anniversary of the date of the grant and continues over a four-year period.
Subsequent options vest on the first anniversary of the grant date. The options
expire ten years from the date of the grant or 90 days after termination of
employment, whichever comes first.

The following is a summary of option activity under all plans:

<TABLE>
<CAPTION>
                                                                                        Weighted
                                                1996                      Total          Average
                                              Director                   Number of      Exercise
                                  1994 Plan     Plan      Nonqualified    Options        Price
                                  ---------   ---------   ------------   ----------   ------------
<S>                               <C>         <C>         <C>            <C>          <C>
Outstanding at March 31, 2005        33,000          --             --       33,000   $.10 - $.365
                                  =========   =========   ============   ==========   ============

Outstanding at March 31, 2006        33,000                                  33,000   $.10 - $.365
                                  =========   =========   ============   ==========   ============
</TABLE>

Net loss and net loss per common share determined as if the Company accounted
for stock options granted under the fair value method of SFAS 123 would result
in the same amounts reported.


                                       16
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
      Notes to the Condensed Consolidated Financial Statements (Unaudited)
          For the Three Months Ended March 31, 2006 and 2005 (Restated)

Note 8 - Contingency

There were two holders of convertible notes dated December 31, 2001 who could
potentially seek similar damages from the Company. Should they seek these
damages, the Company could incur additional expense of $71,668. Management feels
however, that the likelihood that the other holders will seek the damages is
remote, and therefore, no provision for this expense has been made in the
accompanying financial statements.

On October 16, 2003, a judgment was entered against the Company by its landlord,
BT Lincoln L.P. for breach of lease in the amount of $184,706.76. The Company
intends to negotiate a settlement.

Note 9 - Related Parties

A Director of the Company provided consulting services during 2006 and 2005 that
amounted to $0 and $4,000 respectively. As of March 31, 2006, the Company owes
this Director $0.

Note 10 - Purchase of CGM Applied Security Technology, Inc.

On March 1, 2005, the Company acquired substantially all of the assets of CGM
Security Solutions, Inc., a Florida corporation ("CGM"), for (i) $1,500,000 in
cash and (ii) a 2.86% promissory note (the "Note") in the principal amount of
$3,500,000, subject to adjustment (the "Acquisition"). The assets of CGM were
acquired pursuant to an Asset Purchase Agreement among the Company and CGM dated
as of February 25, 2005. In connection with the acquisition, the Company and
CGM, each entered into an employment agreement with Erik Hoffer (the "Employment
Agreement"). CGM is a manufacturer and distributor of barrier security seals,
security tapes and related packaging security systems, protective security
products for palletized cargo, physical security systems for tractors, trailers
and containers.

The principal amount of the Note is subject to adjustment based upon the average
of (i) the gross revenues of CGM for the fiscal year ending December 31, 2007
and (ii) an independent valuation of CGM Sub based upon the consolidated audited
financial statements of the Company and CGM Sub for the fiscal years ending
December 31, 2006 and 2007. In addition, the Company has granted CGM a secondary
security interest in substantially all of its assets and intellectual property.

In connection with the Acquisition, the Company entered into a letter agreement
with certain of its investors (the "Investors") which extended the maturity date
of debt instruments issued on November 30, 2004 until March 1, 2008, and amended
the conversion price of the debt that is held by the Investors to the lower of
(i) $0.0005 or (ii) 40% of the average of the three lowest intraday trading
prices for the Company's common stock during the 20 trading days before, but not
including, the conversion date. In addition, the exercise price of the warrants
held by the Investors was amended to $.001 per share.


                                       17
<PAGE>

                 Digital Descriptor Systems, Inc. and Subsidiary
      Notes to the Condensed Consolidated Financial Statements (Unaudited)
          For the Three Months Ended March 31, 2006 and 2005 (Restated)

Note 11 - Restatement

We have restated the Financial Statements for the three months ended March 31,
2005. and. Based upon the guidance in SFAS133 and EITF00-19, the Company
concluded that the conversion features of it convertible debentures were
required to be accounted for as derivatives. The imbedded derivative feature was
bi-furcated and the fair market value was determined using a convertible bond
valuation model. The derivative instruments are recorded at fair market value
with changes in value recognized during the period of change.

The impact on the financial statements is summarized below.

                                                         March 31, 2005
                                                  ----------------------------
                                                   As Reported     As Restated
                                                  ------------     -----------
Debt discount and deferred financing costs, net   $    889,544         376,113
Total Assets                                         6,899,025       6,385,594
Accumulated deficit                                (21,964,299)    (28,395,813)
Total Liabilities and Shareholders Deficit           6,899,025       6,385,594

Interest and amortization of
  deferred debt costs                                  457,531         898,286
Total Expenses                                         747,191       1,855,874
Net Loss                                              (643,019)     (1,751,701)

Net loss per
share                                                     (.01)           (.01)


                                       18
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following is management's discussion and analysis of certain significant
factors that will have affected our financial condition and results of
operations. Certain statements under this section may constitute
"forward-looking statements". The following discussion should be read in
conjunction with our financial statements and notes thereto included in this
report.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THREE MONTHS ENDED MARCH 31, 2005

Revenues for the three months ended March 31, 2006 of $870,964 increased
$722,089 or 485% from the three months ended March 31, 2005 (restated). DDSI
generates its revenues through software licenses, hardware, post customer
support arrangements and other services. The increase in DDSI's revenue is
attributed to the purchase of CGM Applied Security Technology, Inc in March,
2005.

Cost of revenue for the three months ended March 31, 2006 was $293,342 an
increase of $248,640 or 556% from the three months ended March 31, 2005
(restated). The increase was attributable to the purchase of CGM Applied
Security Technology, Inc in March 2005. Cost of revenue sold as a percentage of
revenue for the three months ended March 31, 2006 was 34% of total revenues.

Operating expenses increased $401,341 or 139% during the three months ended
March 31, 2006 versus the three months ended March 31, 2005 (restated). This
increase was mainly attributable to the purchase of CGM Applied Security
Technology, Inc in March 2005.

General and Administrative expenses for the three months ended March 31, 2006
were $618,892 compared $259,701 for the months ended March 31, 2005 (restated)
for an increase of $359,191 or 138%. This increase was mainly attributable to
the purchase of CGM Applied Security Technology, Inc in March 2005.

Sales and Marketing expenses increased $19,474 for the three months ended March
31, 2006 from $25,332 in 2005 to 44,806 in 2006 or a 77% increase. This increase
was mainly attributable to the purchase of CGM Applied Security Technology, Inc
in March 2005.

Research and development for the three months ended March 31, 2006 was $26,524
compared to $3,848 for the same period prior year for an increase of $22,676 or
a 589% increase, which was due in part to the purchase of CGM Applied Security
Technology, Inc in March 2005.

The net (loss) for DDSI increased 8% for the three months ended March 31, 2006
to $(1,897,872) from $(1,751,701) for the three months ended March 31, 2005
(restated). This was primarily due to the increase in operating expenses.

Net cash (used in) operating activities for the three months ended March 31,
2006 and the three months ended March 31, 2005 (restated) was ($195,102) and
($700,566), respectively. The increase in cash (used in) operating activities
for the three months ended March 31, 2006 of $505,464. This increase was due in
part to the purchase of CGM Applied Security Technology, Inc. in March 2005.

Net cash provided by investing activities was $0 and ($1,500,000) for the three
months ended March 31, 2006 and March 31, 2005 (restated), respectively. This
increase was due in part to the purchase of CGM Applied Security Technology,
Inc. in March 2005.

Net cash provided by (used in) financing activities was $(0) and $(6,285) for
the three months ended March 31, 2006 and the three months ended March 31, 2005,
respectively. The increase in net cash provided by financing activities for the
three months ended March 31, 2006 was $6,285.


                                       19
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

DDSI's revenues have been insufficient to cover the cost of revenues and
operating expenses. Therefore, DDSI has been dependent on private placements of
its common stock and issuance of convertible notes in order to sustain
operations. In addition, there can be no assurances that the proceeds from
private or other capital will continue to be available, or that revenues will
increase to meet DDSI's cash needs, or that a sufficient amount of DDSI's common
stock or other securities can or will be sold or that any common stock purchase
options/warrants will be exercised to fund the operating needs of DDSI.

Over the next twelve months, management is of the opinion that sufficient
working capital will be obtained from operations and external financing to meet
DDSI's liabilities and commitments as they become payable. DDSI has in the past
relied on private placements of common stock securities, and loans from private
investors to sustain operations. However, if DDSI is unable to obtain additional
funding in the future, it may be forced to curtail or terminate operations. At
March 31, 2006, DDSI had assets of $5,906,944 compared to $6,385,594 on March
31, 2005 a decrease of ($478,650) and shareholder (deficit) of $(9,964,677) on
March 31, 2006 compared to shareholder (deficiet) of $(8,702,413) on March 31,
2005, an increase of ($1,262,264). This increase in shareholder (deficit) for
the three months ended March 31, 2006 resulted from the net loss for the three
months ended March 31, 2006.

Plan of Operations

Acquisition of CGM

On March 1, 2005, DDSI and CGM Sub acquired substantially all of the assets of
CGM, for (i) $1,500,000 in cash and (ii) a 2.86% promissory note (the "Note") in
the principal amount of $3,500,000, subject to adjustment (the "Acquisition").
The assets of CGM were acquired pursuant to an Asset Purchase Agreement among
DDSI, CGM Sub and CGM dated as of February 25, 2005.

The principal amount of the Note is subject to adjustment based upon the average
of (i) the gross revenues of CGM Sub for the fiscal year ending December 31,
2007 and (ii) an independent valuation of CGM Sub based upon the consolidated
audited financial statements of the Company and CGM Sub for the fiscal years
ending December 31, 2006 and 2007. In addition, the Company has granted CGM a
secondary security interest in substantially all of its assets and intellectual
property.

In connection with the Acquisition, the Company entered into a letter agreement
with certain of its investors (the "Investors") which extended the maturity date
of debt instruments issued on November 30, 2004 until March 1, 2008, and amended
the conversion price of the debt that is held by the Investors to the lower of
(i) $0.0005 or (ii) 60% of the average of the three lowest intraday trading
prices for the Company's common stock during the 20 trading days before, but not
including, the conversion date. In addition, the exercise price of the warrants
held by the Investors was amended to $.001 per share.

The short-term objective of DDSI is the following:

The Company plans to spend the majority of it's time and efforts on increasing
the revenue and marketplace of its wholly owned subsidiary, CGM Applied Security
Technologies, as it feels that there is a much greater potential for growth of
the product line of CGM. In order to accomplish this, the Company has hired
additional sales people and is increasing its marketing budget in order to
expand the awareness of CGM's product line. In addition, the Company has begun a
complete revamping of the company's infrastructure in order to make it better
able to respond to the need of its customers and to give management the
reporting it needs on a timely basis.

To continue to expand the sale and acceptance of its core solutions by offering
new and synergistic biometric (a measurable, physical characteristic or personal
behavioral trait used to recognize the identity, or verify the claimed identity,
of an individual) (i.e. FMS) security products to its installed base in the
criminal justice market. DDSI's objective is to expand with these, and
additional products, into much larger commercial and federal markets.

Additionally, DDSI plans to execute an acquisition strategy based upon the
availability of financing.

We also plan to add additional product lines as a Value Added Reseller.
Technologies related to DDSI's core business can bring additional cash flow with
relatively small internal development capital outlay.


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<PAGE>

DDSI's long-term objective is as follows:

To enhance its sales of the product line acquired with the acquisition of CGM
both domestically and internationally, though the addition of sales
representative and distributors

To seek additional products to sell into its basic business market - Criminal
Justice - so that DDSI can generate sales adequate enough to allow for profits.
New products include biometric devices such as FMS (Fingerprint Matching System)
and our integrated digital image and fingerprint package, Identify on Demand.

DDSI believes that it will not reach profitability until the year 2006. Over the
next twelve months, management is of the opinion that sufficient working capital
will be obtained from operations and external financing to meet DDSI's
liabilities and commitments as they become payable. DDSI has in the past
successfully relied on private placements of common stock securities, bank debt,
loans from private investors and the exercise of common stock warrants in order
to sustain operations. If DDSI is unable to obtain additional funding in the
future, it may be forced to curtail or terminate operations.

DDSI is doing the following in its effort to reach profitability:

o     The Company is putting a great deal of effort to increase the sales of the
      CGM subsidiary. The Company believes at this time that the most
      significant growth in revenue will come from CGM and its product lines.
o     Cutting costs in areas that add the least value to DDSI.
o     Deriving funds through investigating business alliances with other
      companies who may wish to license the FMS SDK (software developer's kit).
o     Increasing revenues through the introduction of Compu-Capture(R),
      specifically towards kindergarten through twelfth grades, for the creation
      of ID cards.
o     Increasing revenues through the introduction of a scaled down version of
      our Compu-Capture(R) product.
o     Increasing revenues through the addition of innovative technologies as a
      Value Added Seller.
o     Acquiring and effectively adding management support to profitable
      companies complementary to its broadened target markets.

Liquidity and Capital Resources

We had net losses of ($1,897,872) and ($1,751,701) during the three months ended
March 31, 2006 and 2005, respectively. As of March 31, 2006, we had a cash
balance in the amount of $100,709 and current liabilities of $10,859,676. The
total amount of notes payable and debentures is $7,053,869. We may not have
sufficient cash or other assets to meet our current liabilities. In order to
meet these obligations, we may need to raise cash from the sale of securities or
from borrowings.

The Company's revenues have been insufficient to cover the cost of revenues and
operating expenses. Therefore, the Company has been dependent on private
placements of its Common Stock and issuance of convertible notes in order to
sustain operations. In addition, there can be no assurances that the proceeds
from private placements or other capital will continue to be available, or that
revenues will increase to meet the Company's cash needs, or that a sufficient
amount of the Company's Common Stock or other securities can or will be sold or
that any Common Stock purchase options/warrants will be exercised to fund the
operating needs of the Company.

The Company has contractual obligations of $8,436,605 as of March 31, 2006.
These contractual obligations, along with the dates on which such payments are
due are described below:

                                                      One Year       More Than
Contractual Obligations                   Total        or Less        One Year
-----------------------               ------------   ------------   ------------
Due to Related Parties                $          0   $          0   $          0
Accounts Payable and
 Accrued Expenses                          576,051        576,051              0
Accrued interest on loans                  806,685        806,685              0
Note payable                             3,500,000              0      3,500,000
Convertible Debentures                   3,553,869      2,042,124      1,511,745
Total Contractual Obligations         $  8,436,605   $  3,424,860   $  5,011,745


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<PAGE>

The Company is currently in default on several of the convertible debentures
that are included in current liabilities. Below is a discussion of our sources
and (uses) of funds for the three months ended March 31, 2006 and 2005
(restated), respectively.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements as of March 31, 2006 or as of
the date of this report.

Item 3. Control and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of March 31, 2006, we carried out an evaluation, under the supervision and
with the participation of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on this evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures were effective in ensuring that information required to be disclosed
by us in our periodic reports is recorded, processed, summarized and reported,
within the time periods specified for each report and that such information is
accumulated and communicated to our management, including our principal
executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.

(b) Changes in Internal Controls.

There was no change in our internal controls over financial reporting that has
materially affected, or is reasonable likely to materially affect, our internal
control over financial reporting during the quarter covered by this Report.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities:

The Company is in default of $1,733,478 of outstanding debentures. Although the
debenture holders have not pursued their rights under such debentures, there can
be no assurances that such rights will not be exercised.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

   4.1   Security Agreement dated February 25, 2005 by and between CGM Applied
         Security Technologies, Inc. and CGM Security Solutions, Inc.
         (incorporated herein by reference to the Current Report on Form 8-K,
         dated March 3, 2005)
   4.2   Intellectual Property Security Agreement dated February 25, 2005 by
         and between CGM Applied Security Technologies, Inc and CGM Security
         Solutions, Inc. (incorporated herein by reference to the Current Report
         on Form 8-K, dated March 3, 2005)
   4.3   Letter Agreement, by and among the Company, AJW Partners, LLC, New
         Millennium Capital Partners II, LLC, AJW Offshore, Ltd. and AJW
         Qualified Partners, LLC, dated January 31, 2005 (incorporated herein by
         reference to the Current Report on Form 8-K, dated March 3, 2005)
   4.4   2.86% Secured Convertible promissory Note in the name of CGM Security
         Solutions, Inc. dated February 25, 2005 (incorporated herein by
         reference to the Current Report on Form 8-K, dated March 3, 2005)
   10.1  Asset Purchase Agreement dated February 25, 2005 by and among the
         Company, CGM Applied Security Technologies, Inc. and CGM Applied
         Security Solutions. (incorporated herein by reference to the Current
         Report on Form 8-K, dated March 3, 2005)
   10.2  Employment Agreement, dated February 25, 2005, by and among the
         Company, CGM Applied Security Technologies, Inc. and CGM Security
         Solutions, Inc. and Eric Hoffer (incorporated herein by reference to
         the Current Report on Form 8-K, dated March 3, 2005)
   10.3  Employment Agreement dated February 25, 2005 by and among the Company
         and Anthony Shupin (incorporated herein by reference to the Current
         Report on Form 8-K, dated April 15, 2005)
   10.4  Employment Agreement dated February 25, 2005 by and among the Company
         and Michael J. Pellegrino (incorporated herein by reference to the
         Current Report on Form 8-K, dated April 15, 2005)
   31.1  Certification by Chief Executive Officer pursuant to Sarbanes-Oxley
         Section 302
   31.2  Certification by Chief Financial Officer pursuant to Sarbanes-Oxley
         Section 302
   32.1  Certification by Chief Executive Officer pursuant to 18 U.S.C., Section
         1350
   32.2  Certification by Chief Financial Officer pursuant to Sarbanes-Oxley
         Section 1350


                                       22
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                                  (Registrant)


      Date: May 17, 2006             By: /s/ ANTHONY SHUPIN
                                         ---------------------------------------
                                         Anthony Shupin
                                         (President, Chief Executive Officer)
                                         (Chairman)


      Date: May 17, 2006             By: /s/ MICHAEL J. PELLEGRINO
                                         ---------------------------------------
                                         Michael J. Pellegrino
                                         Senior Vice President & CFO
                                         (Director)


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