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 September 30, 1996

     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 November 1, 1996:

     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.
                            STATEMENTS OF CASH FLOWS
                         Nine Months Ended September 30


                                                         30-Sep        30-Sep
                                                          1995          1996
                                                      (unaudited)   (unaudited)
                                                     -----------    ----------- 
Cash flows from operating activities:
Net loss                                             $  (980,924)   $(2,044,638)
                                                                                
Adjustments to reconcile net loss to net cash                                   
provided by (used in) operating activities:                                     
Provision for doubtful accounts receivable           $   (28,790)   $    62,227 
Provision for inventory obsolescence                                $    30,000 
Depreciation and amortization                        $    48,886    $   177,709 
Amortizaton of unearned compensation                 $      --      $    18,000 
Changes in assets and liabilities:                                              
Stock awards to consultants                                         $   262,800 
Receivables                                          $    13,866    $   136,425 
Inventories                                          $  (163,499)   $    64,601 
Prepaid expenses and other                           $   (14,558)   $    75,617 
Accounts payable                                     $  (152,378)   $  (218,021)
Accrued expenses and other liabilities               $   101,399    $  (174,885)
Deferred revenue                                     $   138,143    $   (98,198)
Other noncurrent assets                              $      --      $      (853)
Due to affiliates                                    $  (776,987)   $   (71,913)
                                                     -----------    ----------- 
Net cash provided by (used in) operating activities  $(1,814,842)   $(1,781,129)
                                                     -----------    ----------- 
Cash flows from investing activities:
Equipment purchases                                  $  (223,787)   $  (109,349)
Purchase Software Acquisition                        $      --      $  (150,000)
Increase in short-term investments, including                                   
restricted cash                                      $      --      $   196,023 
Officer notes receivable                                            $  (148,000)
                                                     -----------    ----------- 
Net cash used in investing activities                $  (223,787)   $  (211,314)
                                                     -----------    ----------- 
Cash flows from financing activities:
Prepaid offering costs                               $   412,502    $      --   
Repayment of note payable                            $      --      $   (37,500)
                                                     -----------    ----------- 
Net cash used in financing activities                $   412,502    $   (37,500)
                                                     -----------    ----------- 

Increase (decrease) in cash                          $(1,626,127)   $(2,029,943)
Cash at beginning of period                          $    11,045    $ 2,778,185 
                                                     -----------    ----------- 
Cash at end of period                                $(1,615,082)   $   748,242
                                                     -----------    ----------- 

<PAGE>

                         DIGITAL DESCRIPTOR SYTEMS, INC.
                             STATEMENT OF OPERATIONS


<TABLE>
<CAPTION>
                                          Three months ended             Nine months ended
                                         30-Sep         30-Sep         30-Sep         30-Sep
                                          1995           1996           1995           1996
                                      (unaudited)    (unaudited)    (unaudited)    (unaudited)
                                      -----------    -----------    -----------    ----------- 
<S>                                   <C>                <C>        <C>            <C>        
Sales                                 $   429,273        441,038    $ 1,677,854    $ 2,225,367
Cost of sales                         $   204,582        259,298    $   844,731    $ 1,116,182
                                      -----------    -----------    -----------    ----------- 
Gross profit                          $   224,691        181,740    $   833,123    $ 1,109,185

Operating expenses:
  Sales and marketing                 $   114,336        340,703    $   318,778    $   906,066
  Research and development            $    18,237        120,452    $    99,620    $   358,942
  Depreciation and amortization       $    18,773         62,269    $    48,886    $   177,709
  General and administrative          $   613,843        441,417    $ 1,339,065    $ 1,790,302
                                      -----------    -----------    -----------    ----------- 
Total operating expenses              $   765,189        964,841    $ 1,806,349    $ 3,233,019
                                      -----------    -----------    -----------    ----------- 
Loss from operations                  $  (540,498)      (783,101)   $  (973,226)   $(2,123,834)

Interest income                       $     9,878         14,332    $     7,698    $    86,025
Interest expense                      $      --           (2,048)   $      --      $    (6,829)

Net loss                              $  (550,376)      (770,817)   $  (980,924)   $(2,044,638)
                                      -----------    -----------    -----------    ----------- 

Net loss per share                          (0.32)         (0.03)        (-0.56)        (-0.84)

Weighted average shares outstanding     1,774,986      2,468,750      1,744,986      2,446,852
</TABLE>
<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                                 BALANCE SHEETS

                                                       31-Dec         30-Sep
                   ASSETS                               1995           1996
                                                    -----------    -----------
                                                     (audited)     (unaudited)
Current assets:

Cash                                                $ 2,778,185    $   748,242
Restricted cash                                     $   150,000    $   150,000
Short-term Investments                              $   389,343    $   193,320
Accounts receivable, net of allowance for
doubtful accounts $138,085 in 1995 and              $   689,240    $   589,351
$200,312 in 1996
Unbilled receivables                                $   113,172    $     6,857
Accounts receivable - other                         $     1,000    $     8,552
Inventories                                         $   217,512    $   122,911
Prepaid expenses                                    $    84,536    $    71,060
Other                                               $    79,122    $    16,981
                                                    -----------    -----------
Total current assets                                $ 4,502,110    $ 1,907,274

Deposits                                            $     7,590    $     8,443
Accounts receivable-officers notes                         --      $   148,000
Furniture and equipment, net                        $   333,901    $   303,029
Purchase software, net                                     --      $   112,500
                                                    -----------    -----------
Total assets                                        $ 4,843,601    $ 2,479,246
                                                    ===========    ===========
    LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities:
Accounts payable                                    $   329,559    $   111,538
Notes payable                                       $    50,000    $    50,000
Deferred income                                     $   527,340    $   429,142
Accrued expenses                                    $   249,032    $    74,147
Due to affiliates                                   $    71,913    $      --
                                                    -----------    -----------
Total current liabilities                           $ 1,227,844    $   664,827

Notes payable                                       $    87,500    $    50,000

Shareholder's equity:
Common stock, $.001 par value, 10,000,000
shares authorized; 2,408,750 and 2,468,750
issued and outstanding 12/31/95 and 09/30/96        $     2,409    $     2,469
Additional paid-in capital                          $ 9,885,788    $10,148,528
Unearned compensation                               $  (110,000)   $   (92,000)
Accumulated deficit                                 $(6,249,940)   $(8,294,578)
                                                    -----------    -----------
Total shareholder's equity                          $ 3,528,257    $ 1,764,418
                                                    -----------    -----------
                                                    $ 4,843,601    $ 2,479,246
                                                    ===========    ===========


<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE A-BASIS OF PRESENTATIONS

The interim financial data is unaudited; however , in the opinion of management,
the interim data includes all adjustments, consisting only of normal recurring
adjustments necessary for a fair statement of the results for the interim
periods. The financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statement prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures included herein
are adequate to make the information presented not misleading. The results of
operations for the nine month period ending September 30,1996 are not
necessarily indicative of the results to be expected for the full year.

The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the Company's
financial statements filed as part of the Company's December 31, 1995 Form
10-KSB. This quarterly report should be read in conjunction with such annual
report.

NOTE B -  NET LOSS PER COMMON SHARE

Net loss per common share was computed by dividing the net loss by the weighted
average number of shares outstanding during the period. Conversion of options
and warrants was not assumed as the effect would be anti-dilutive.

NOTE C - ACQUISITION

In January 1996, the Company acquired all of the assets of VISATEX Corporation,
including the proprietary rights to the VISATEX products, Compu-Sketch,
Compu-Scene and FotoFile which are compatible with the Company's core product,
Compu-Capture(R). Compu-Sketch is a comprehensive program to generate, touch-up
and enhance composites; Compu-Scene is a computerized drafting program for
drawing crime and accident scenes; and FotoFile is a mug-shot system similar to
Compu-Capture(R). The purchase price for the VISATEX assets was $100,000 in cash
plus potential additional payments equal to the greater of 10% of revenues from,
or a fixed commission on sales of VISATEX products for the three year period
ending December 31, 1998. An additional payment of $60,000 was made in the first
quarter of 1996. The total cost of the purchased software is being amortized
over a three year period.

NOTE D - OFFICER NOTE

Through the period ended September 31, 1996 the Company has loaned the President
of the Company $148,000. The Company has obtained an unsecured term note for
the outstanding balance payable in three years.


<PAGE>

NOTE E - CONSULTANTS AND ADVISORS COMPENSATION PLAN

In February 1996 the Company adopted a Consultants and Advisors Compensation
Plan and granted 60,000 shares of stock under the Plan to certain individuals on
April 9, 1996. Accordingly, in the first quarter, the Company has recorded a
compensation charge of $262,800 related to the issuance of those shares.

NOTE F - 1996 DIRECTOR OPTION PLAN

In August 1996, the Company adopted the 1996 Director Option Plan for the
purpose of granting stock options to directors. Two hundred thousand shares of
common stock have been reserved under this Plan. Options for 45,000 shares of
common stock have been granted to non-employee directors, subject to
stockholders approval.

<PAGE>

Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS

                        DIGITAL DESCRIPTOR SYSTEMS, INC.

     Management's  Discussion  and Analysis  Financial  Condition and Results of
     Operation

Results of Operations

Revenue for the third quarter, which is traditionally a slow quarter for the
Company, increased 3% to $441,038, up only marginally, from $429,273 in the same
period in 1995. On a year to date basis sales are up 33% to $2,225,367, an
increase of $547,513 over the first nine months of 1995. The sales increase is
due mainly to the higher number of contracts that the Company has been awarded.

Gross margin for the quarter decreased 20% from $224,691 to $181,740 due to the
higher percentage of hardware in the sales figure, which has a lower gross
margin. On a year to date basis gross margin has increased 33% or $276,062 on an
absolute dollar basis from $833,123 in 1995 to $1,109,185 in 1996.

Operating expenses for the quarter increased 26% from $765,189 to $964,841 with
the increase mainly in the sales and research and development areas. For the
nine months ended September 30, overall operating expenses have increased 79%
over the same period in 1995 ($1,806,349 vs. $3,233,019). Sales and marketing
expenses have increased mainly due to the hiring of additional personnel in an
effort to increase both sales volume and geographic coverage. Research and
development costs increased due to the increase in personnel and external
development costs as the Company continues to investigate and develop new
products as well as enhancing its current product line. General and
administrative costs increased due to the employee related expenses and mainly
to a one time non-cash charge of $262,800 for compensation expense relating to
stock grants to outside advisors.

Due to the Company's continued losses and revenue growth which has been below
expectation, it has undertaken a complete review of all cost areas and has
begun, and will continue to make cuts where appropriate.

Liquidity and Sources of Capital

Cash Flows from operations were a negative $1,781,129 for the nine months ended
September 30, 1996 as compared to a negative $1,814,842 in the comparable period
of 1995. This was primarily due to the loss for the first nine months.

General Risk Factors Affecting Quarterly Results

The software industry is characterized by rapid technological change as well as
changes in customer requirements and preferences. The Company believes that its
future quarterly results will depend in large part upon its ability to offer
products that compete favorably in 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 6.   Exhibits and Reports on Form 8-K

          (a)  Exhibits

               10.23   1996  Director  Option  Plan  adopted  by  the  Board  of
                       Directors  August 14,  1996 and  subject  to  stockholder
                       ratification.

               10.24   Note dated as of August 14, 1996 in the principal  amount
                       of  $148,000  made by  Garrett  U.  Cohn in  favor of the
                       Company.

          (b)  Reports on Form 8-K

               The  Company  was not  required  to and did not  file a Form  8-K
          during the quarter ended September 30, 1996.


<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:  November 8, 1996                  By: /s/ Garrett U. Cohn
                                             -----------------------------------
                                             Garrett U. Cohn, President and
                                             Chief Executive Officer
                                    
Date:  November 8, 1996                  By: /s/ Michael Pellegrino
                                             -----------------------------------
                                             Michael Pellegrino, Vice President
                                             Finance and Chief Financial Officer
                                    
                                    
<PAGE>                           

                                INDEX TO EXHIBITS

Exhibit
Number                           Description of Document
------                           -----------------------

10.23     1996 Director Option Plan adopted by the Board of Directors August 14,
          1996 and subject to stockholder ratification.

10.24     Note  dated  as  of  August  14,  1996  in  the  principal  amount  of
          $148,000 made by Garrett U. Cohn in favor of the Company.