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, 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 October 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

                                                          Period Ending
                                                      31-Dec          30-Sep
                    ASSETS                             1996            1997
                                                     (audited)      (unaudited)
                                                   ------------    ------------
Current assets:

Cash                                               $    494,091    $    162,161
Restricted cash                                    $    150,000    $     29,534
Short-term investments                             $    120,376    $     92,543
Accounts receivable, net of allowance for
doubtful accounts $187,019 in 1996 and             $    408,803    $    951,516
$41,711 in 1997
Accounts receivable - other                        $      2,000    $      2,000
Inventories                                        $    145,036    $     20,737
Prepaid expenses                                   $     85,765    $     25,451
Other                                              $     16,981    $     53,225
                                                   ------------    ------------
Total current assets                               $  1,423,052    $  1,337,167
Deposits                                           $      7,059    $      7,059
Officer note receivable                            $    125,000    $    125,000
Furniture and equipment, net                       $    274,697    $    177,473
Intangible assets, net                             $    100,000    $     62,500
                                                   ------------    ------------
                                                   $  1,929,808    $  1,709,199
                                                   ============    ============

     LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable                                   $    202,082    $    468,408
Notes payable                                      $     50,000    $     50,000
Deferred income                                    $    446,844    $    748,765
Accrued expenses                                   $     84,846    $     89,552
                                                   ------------    ------------
Total current liabilities                          $    783,772    $  1,356,725

Notes payable (excluding current portion)          $     37,500    $       --

Shareholders' equity:
Common stock, $.001 par value, 10,000,000
shares authorized; 2,468,750
issued and outstanding 12/31/96 and 09/30/97       $      2,469    $      2,469
Additional paid-in capital                         $ 10,148,528    $ 10,148,528
Unearned compensation                              $    (86,000)   $    (68,000)
Accumulated deficit                                $ (8,956,461)   $ (9,730,523)
                                                   ------------    ------------
Total shareholders, equity                         $  1,108,536    $    352,474
                                                   ------------    ------------
                                                   $  1,929,808    $  1,709,199
                                                   ============    ============

See accompanying notes to financial statements

<PAGE>

                         DIGITAL DESCRIPTOR SYTEMS, INC.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                              Period Ending                Period Ending
                                           Three months ended            Nine months ended
                                         30-Sep         30-Sep         30-Sep         30-Sep
                                          1996           1997           1996           1997
                                      -----------    -----------    -----------    ----------- 
                                      (unaudited)    (unaudited)    (unaudited)    (unaudited)
<S>                                   <C>                <C>        <C>            <C>        
Sales                                 $   441,038        643,884    $ 2,225,367    $ 2,238,819
Cost of sales                         $   259,298        289,561    $ 1,116,182    $   784,719
                                      -----------    -----------    -----------    ----------- 
Gross profit                          $   181,740        354,323    $ 1,109,185    $ 1,454,100

Operating expenses:
  Sales and marketing                 $   340,703        214,703    $   906,066    $   661,657
  Research and development            $   120,452         66,290    $   358,942    $   235,806
  Depreciation and amortization       $    62,269         52,260    $   177,709    $   155,410
  General and administrative          $   441,417        333,441    $ 1,790,302    $ 1,167,307
                                      -----------    -----------    -----------    ----------- 
Total operating expenses              $   964,841        666,694    $ 3,233,019    $ 2,220,180
                                      -----------    -----------    -----------    ----------- 
Loss from operations                  $  (783,101)      (312,371)   $(2,123,834)   $  (766,080)

Interest income                       $    14,332          4,516    $    86,025    $    21,023
Interest expense                      $    (2,048)        (1,122)   $    (6,829)   $   (29,005)

Net loss                              $  (770,817)   $  (308,977)   $(2,044,638)   $  (774,062)
                                      -----------    -----------    -----------    ----------- 
Net loss per share                    $     (0.31)   $     (0.13)   $     (0.84)   $     (0.31)

Weighted average shares outstanding     2,468,750      2,468,750      2,446,852      2,468,750
</TABLE>

See accompanying notes to financial statements

<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                            STATEMENTS OF CASH FLOWS
                       Nine Months Ended September 30 1997

                                                       30-Sep         30-Sep
                                                        1996           1997
                                                     -----------    -----------
                                                     (unaudited)    (unaudited)

Cash flows from operating activities:
Net loss                                             $(2,044,638)   $  (774,062)

Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for inventory obsolescence                 $    30,000    $      --
Provision for doubtful accounts receivable           $    62,227    $  (145,308)
Depreciation and amortization                        $   177,709    $   155,411
Amortizaton of unearned compensation                 $    18,000    $    18,000
Changes in assets and liabilities:
Stock awards to consultants                          $   262,800    $      --
Receivables                                          $   136,425    $  (397,405)
Inventories                                          $    64,401    $   124,299
Prepaid expenses and other                           $    75,617    $    24,070
Accounts payable                                     $  (218,021)   $   266,326
Accrued expenses and other liabilities               $  (174,885)   $     4,706
Deferred revenue                                     $   (98,198)   $   301,921
Other noncurrent assets                              $      (853)   $      --
Due to affiliates                                    $   (71,913)   $      --
                                                     -----------    -----------
Net cash used in operating activities                $(1,781,129)   $  (422,042)
                                                     -----------    -----------
Cash flows from investing activities:
Equipment purchases                                  $  (109,337)   $   (20,687)
Purchase software acquisition                        $  (150,000)   $      --
Decrease (increase) in short-term investments,
including restricted cash                            $   196,023    $   148,299
Officer note receivable                              $  (148,000)   $      --
                                                     -----------    -----------
Net cash provided by (used in) investing activities  $  (211,314)   $   127,612
                                                     -----------    -----------
Cash flows from financing activities:
Repayment of note payable                            $   (37,500)   $   (37,500)
Common stock issued                                  $        60    $      --
Capital contributions                                $      --      $      --
                                                     -----------    -----------
Net cash provided by (used in) financing activities  $   (37,500)   $   (37,500)
                                                     -----------    -----------
Decrease in cash                                     $(2,029,943)   $  (331,930)
Cash at beginning of period                          $ 2,778,185    $   494,091
                                                     -----------    -----------
Cash at end of period                                $   748,242    $   162,161
                                                     -----------    -----------

See accompanying notes to financial statements

<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 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 is 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 Amended and
Restated  Digital  Descriptor  Systems,  Inc 1994 Stock  Option  Plan,  the 1996
Director  Option Plan and the Employee  Stock


<PAGE>

Purchase Plan were all approved. Each of these had been previously filed on Form
S-8 with the SEC.

Results of Operations

         Sales for the nine months ended September 30, 1997 of $2,238,819 showed
an  insignificant  increase  of $13,452  from sales of  $2,225,367  for the nine
months ended  September  30, 1996.  The  Company's  deferred  revenue  increased
$301,921 to $748,765 as of September  30, 1997 from  $446,844 as of December 31,
1996.  This  increase is due to the  Company's  change in policy  whereas it now
requires  a  deposit  with  the  customer's  initial  order.  Additionally,  the
Company's  backlog  of orders  to be  installed  as of  September  30,  1997 was
approximately  $1,100,000.  The Company  anticipates that only about 50% of both
the deferred  revenue and backlog  amounts will be recognized as revenue  during
the remainder of fiscal year 1997.

         Sales for the third quarter increased from the prior year period by 46%
($643,884  vs.  $441,038),  while gross profit for the same period  increased in
overall dollars 95% ($354,323 vs. $181,740). Overall expenses decreased 31% from
$3,233,019 to $2,220,180 for the  nine-month  period and 31% for the same period
from $964,841 to $666,694.  The operating loss for the period decreased 60% from
the prior year same quarter from $770,817 to $308,977.

         The  Company's  gross  profit in  absolute  dollars  for the first nine
months  increased  31% 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 65% from an average of 50% 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 31% for the nine months ended  September
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 62% for the nine
months ending September 30, 1997 to ($774,062) from ($2,044,638).

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. There can be no assurances
that  such  financing  will be  available  or  terms  of the  financing  will be
satisfactory to management of the Company.

         As of September  30, 1997 the Company had negative  working  capital of
approximately  of ($19,558)  which  decreased  $658,838  from December 31, 1996.
During the nine-month  period ended September 30, 1997 the Company  incurred net
losses of $774,062.

         Net cash used in operating  activities was $422,042 for the nine months
ended  September  30,  1997.  The use of cash in  operating  activities  for the
quarters ended  September 30, 1997 and 1996,  resulted  largely from  continuing
losses

         The Company has entered into an agreement with United  Capital  Funding
Inc. whereby the Company will factor certain of it Accounts Receivable.

Asset Management

<PAGE>

         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  nine  months  ending  September  30.  1997,  inventories  decreased
$124,299, due to increased control and better scheduling of installations.

         As of  September  30, 1997 most of the  Company's  receivables  are due
under  contracts with county and city  jurisdictions.  The balance is with third
party vendors.  Once the contract has been awarded and the purchase order issued
by a jurisdiction,  the jurisdiction  must encumber the funds for payment of the
purchase order. The encumbered funds are typically paid to the Company after the
satisfactory completion of the installation. Accounts receivable as of September
30, 1997 were $993,227 with an allowance for doubtful accounts of $41,711.

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>

                          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
nine month period ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997.

NOTE   B- NEW ACCOUNTING PROCEDURES

In February  1997,  the  Financial  /accounting  Standards  Board (FASB)  issued
Statement of  Financial  Accounting  Standard No. 128,  Earnings per Share (SFAS
128). This Statement  introduces new methods for calculating earnings per share.
The  adoption  of this  Statement  will  not  affect  results  from  operations,
financial  condition,  or long-term  liquidity,  but will require the Company to
restate  earnings  per share  reported in prior  periods.  Compliance  with this
Statement,  which will be effective for periods  ending after December 31, 1997,
is not expected to have a material effect on the Company's earnings per share.

In June 1997, the FASB issued SFAS 130,  Reporting  Comprehensive  Income.  This
Statement  requires  that all items that are  required  to be  recognized  under
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement  that is  displayed  with  the  same  prominence  as  other
financial  statements.  The Company plans to adopt this  Statement on January 2,
1998, as required.  The adoption of this  statement  will not affect  results of
operations,  financial condition,  or long term liquidity,  but will require the
Company to classify items of other comprehensive income in a financial statement
and display the accumulated balance of other comprehensive  income separately in
the equity section of the balance sheet.

In June  1997,  the FASB  issued  SFAS 131,  Disclosures  About  Segments  of an
Enterprise and Related  Information.  This Statement  established  standards for
reporting  information about operating  segments in annual financial  statements
and  requires  selected  information  in  interim  financial  reports  issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services,  geographic areas and major customers.  The Company plans
to adopt this  Statement  on January 1, 1008 as  required.  The adoption of this
Statement  will not affect  results  from  operations,  financial  condition  or
long-term liquidity.

<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, 1996
filed pursuant to the Securities Exchange Act of 1934 and is incorporated herein
by reference.

Item 6.  Exhibits and Reports on Form 8-K

         (b)   Reports on Form 8-K


<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