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 June 30, 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        30-Jun
                      ASSETS                        1996          1997
                                               -----------    -----------
                                                   audited    (unaudited)
Current assets:
Cash                                               494,091        309,147
Restricted cash                                    150,000         82,000
Short-term Investments                             120,376        146,639
Accounts receivable, net of allowance for
doubtful accounts $187,019 in 1996
and $153,286 in 1997                               408,803        741,195
Accounts receivable - other                          2,000          2,000
Inventories                                        145,036         14,146
Prepaid expenses                                    85,765         76,387
Other                                               16,981         20,231
                                               -----------    -----------
Total current assets                             1,423,052      1,391,745
Accounts receivable-officers                       125,000        125,000
Deposits                                             7,059          7,059
Furniture and equipment, net                       274,697        216,608
Intangible Assets                                  100,000         75,000
                                               -----------    -----------
                                                 1,929,808      1,815,412
                                               ===========    ===========

         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable                                   202,082        406,101
Notes Payable                                       50,000        250,000
Deferred income                                    446,844        421,544
 Accrued expenses                                   84,846         69,815
                                               -----------    -----------
Total current liabilities                          783,772      1,147,460

Notes Payable (excluding current portion)           37,500         12,500

Shareholders' equity:
Commonstock, $.001 par value, 10,000,000
shares authorized; 2,468,750
issued and outstanding 06/30/97 and 12/31/96         2,469          2,469
Additional paid-in capital                      10,148,528     10,148,528
Unearned compensation                              (86,000)       (74,000)
Accumulated deficit                             (8,956,461)    (9,421,545)
Total shareholder's equity                       1,108,536        655,452
                                               -----------    -----------
                                                 1,929,808      1,815,412
                                               ===========    ===========
<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                            STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>

                                          Three months ended              Six months ended
                                         30-Jun         30-Jun         30-Jun         30-Jun
                                          1996           1997           1996           1997
                                      -----------    -----------    -----------    -----------
                                      (unaudited)    (unaudited)    (unaudited)    (unaudited)
<S>                                   <C>            <C>              <C>            <C>
Sales                                 $   874,272    $   644,533      1,784,329      1,594,935
Cost of sales                         $   338,509    $   180,568        856,884        495,158
                                      -----------    -----------    -----------    -----------
Gross profit                          $   535,763    $   463,965        927,445      1,099,777
                                      -----------    -----------    -----------    -----------
Operating expenses:
 Sales and marketing                  $   303,022    $   222,212        565,363        446,954
 Research and development             $    73,063    $    66,605        239,490        169,516
 Depreciation and amortization        $    98,636    $    52,090        174,195        286,176
 General and administrative           $   699,963    $   454,081      1,290,130        650,840
                                      -----------    -----------    -----------    -----------
Total Operating expenses              $ 1,174,684    $   794,988      2,269,178      1,553,486
                                      -----------    -----------    -----------    -----------
Loss from operations                  $  (638,921)   $  (331,023)    (1,341,733)      (453,709)

Interest income                       $    30,344    $     6,750         71,693         16,507
Interest expense                      $    (2,285)   $    (1,456)        (4,781)       (27,883)
                                      -----------    -----------    -----------    -----------
Net loss                              $  (610,862)   $  (325,729)    (1,274,821)      (465,085)
                                      -----------    -----------    -----------    -----------
Net loss per share (unaudited)              (0.25)         (0.13)         (0.52)         (0.18)

Weighted average shares outstanding     2,468,750      2,468,750      2,468,750      2,468,750
</TABLE>

<PAGE>

                            DIGITAL DESCRIPTOR SYSTEMS, INC.
                                STATEMENTS OF CASH FLOWS
                                Six Months Ended June 30



                                                         30-Jun        30-Jun
                                                          1996          1997
                                                          ----          ----
                                                      (unaudited)    (unaudited)
Cash flows from operating activities:
Net loss                                              (1,274,822)     (465,085)

Adjustments  to reconcile  net loss to net cash
provided by (used in) operating activities:
Provision for doubtful accounts receivable                (3,326)      (33,733)
Depreciation and amortization                            154,795       103,201
Amortizaton of unearned compensation                      12,000        12,000
Changes in assets and liabilities:
Receivables                                             (469,909)     (298,659)
Inventories                                               57,068       130,890
Prepaid expenses and other                                75,251         6,129
Accounts payable                                         (92,928)      204,019
Accrued expenses and other liabilities                  (181,152)      (15,030)
Deferred revenue                                        (160,982)      (25,300)
Other noncurrent assets                                     (852)            0
Due to affiliates                                        (71,913)            0
                                                      ----------    ----------
Net cash provided by (used in) operating activities   (1,956,770)     (381,569)
                                                      ----------    ----------
Cash flows from investing activities:
Equipment purchases                                      (80,744)      (20,112)
Purchase Software Acquisition                           (125,000)
Increase in short-term investments, including
restricted cash                                         (194,305)       41,737
                                                      ----------    ----------
Net cash used in investing activities                   (400,049)       21,625
                                                      ----------    ----------

Cash flows from financing activities:
Proceeds from S/T loan                                         0       200,000
Repayment of note payable                                (25,000)      (25,000)
Common Stock Issued                                           60             0
Capital contributions                                    262,740             0
                                                      ----------    ----------
Net cash used in financing activities                    237,800       175,000
                                                      ----------    ----------
Increase (decrease) in cash                           (2,119,019)     (184,944)
Cash at beginning of period                            2,778,185       494,092
                                                      ----------    ----------
Cash at end of period                                    659,166       309,147
                                                      ----------    ----------

<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
six month  period  ended June 30,  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.

     The  Company  recognizes  revenue  in  accordance  with the  guidelines  of
Statement  of  Position  91-I 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 form 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.

     During the second quarter the Company  entered into a consulting  agreement
with Jay  Teitlebaum  to advise the company on the terms and  conditions  of any
loans,  mergers,  acquisitions or other  transactions  that the Company may need
assistance.  The Company has agreed to pay the Consultant a fee of 35,000 shares
of the Company's  stock under the Advisors  Compensation  Plan,  as  established
effective  February 8, 1996. The Company has filed a  Registration  statement on
Form S-8 under the Securities Act of 1933 to register the issuance of Shares.

     The Company was notified by NASDAQ Stock market,  Inc. that the Company did
not meet the  maintenance  standards  to  continue  to be listed  on the  Nasdaq
SmallCap Market. Effective at the close of business on Friday, May 23, 1997. The
Company's securities were delisted.  Trading in the Company's securities are now
taking place in the over-the-counter  market through the OTC Bulletin Board. The
delisting of the Company's  Securities  could have a material  adverse effect on
the  ability  of holders  of the  Company's  Common  Stock,  Redeemable  Class A
Warrants  and  Redeemable   Class  B  Warrants  to  trade  such  securities  and
consequently on the prices of those securities.

     At the Annual Shareholder  Meeting held on May 2, 1997 the Restated Digital
Descriptor  Systems,

<PAGE>

Inc 1994 Stock Option Plan, the 1996 Director Option Plan and the Employee Stock
Purchase Plan were all approved. Each of these had been previously filed on Form
8-K with the SEC

Results of Operations

     Sales for the six months ended June 30, 1997 of $1,594,935 decreased by 11%
from sales of $1,784,329  for the six months ended June 30, 1996.  This decrease
is  attributed  to a  decrease  in the  amount of  installations  mainly  due to
backordered  items from the Company's  vendors.  The Company's  deferred revenue
decreased  $25,300 to $421,544 as of June 30, 1997 from  $446,844 as of December
31, 1996.  Additionally,  the Company's  backlog of orders to be installed as of
June 30, 1997 was approximately  $950,000. The Company anticipates that both the
deferred revenue and backlog amounts will be recognized as revenue during fiscal
year 1997.

     Sales for the second  quarter  decreased  from the prior year period by 26%
($644,533  vs.  $874,272),  while gross profit for the same period  decreased in
overall dollars 13% ($463,965 vs. $535.763). Overall expenses decreased 32% from
$1,174,684  to $794,988.  The loss for the period  decreased  47% from the prior
year same quarter from $610,862 to $325,729.

     The Company's gross profit in absolute dollars for the first half increased
19% from 1996 to 1997 due to a higher  gross  margin per sale  generated  by the
Company.  Overall the gross profit  percentage per sale increased to 69% from an
average of 52% in 1996. This increase is attributed to the fact that the Company
had a higher percentage of software sales, which are extremely high margin.

     Operating  expenses  decreased  32% for the six months  ended June 30, 1997
from the prior year 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  64% for the six
months ending June 30, 1997 to ($465,085) from  ($1,274,821)  for the six months
ended June 30, 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 June 30, 1997 the Company had  working  capital of  approximately  of
$244,285 which decreased  $394,995 from December 31, 1996.  During the six month
period ended June 30, 1997 the Company incurred net losses of $465,085.

     Net cash used in operating activities was $206,569 for the six months ended
June 30, 1997.  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 six months
ending June 30. 1997,  inventories decreased $130,890,  due to increased control
and better scheduling of installations.

<PAGE>

     As of December  31, 1996 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 June 30,
1997 were $894,481 with an allowance for doubtful accounts of $153,286.

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.

     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

    10.26 Employee Stock Purchase Plan adopted by the Board of Directors  August
          14, 1996 and February 20, 1997 and approved by the stockholders at the
          Annual Meeting held on May 21, 1997.

    10.27 Restated  1994 Stock  Option  Plan  adopted by the Board of  Directors
          March 20, 1997 and approved by the  stockholders at the Annual Meeting
          held on May 21, 1997.

     (b)  Reports on Form 8-K

     The  Company did file a Form 8-K during the  quarter  ended June 30,  1997,
pursuant to the Securities  Exchange Act of 1934 and is  incorporated  herein by
reference.

<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:  August 12, 1997                By:  /s/ Garrett U. Cohn
                                           -------------------------------------
                                           Garrett U. Cohn
                                           President and Chief Executive Officer

Date:  August 12, 1997                By:  /s/ Michael  J Pellegrino
                                            ------------------------------------
                                            Michael J Pellegrino Vice President
                                            Finance and Chief Financial Officer