<PAGE>
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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB
         (MarkOne)
         [X]    ANNUAL REPORT PURSUANT SECTION 13 or 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934. For the fiscal year ended December 31,
                2001.

         [ ]    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934.  For the transition period
                from ____________ to ____________

                         Commission file number 0-26604
                                                -------

                        Digital Descriptor Systems, Inc.
                  --------------------------------------------
                 (Name of small business issuer in its charter)

          Delaware                                       23-27700048
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

446 Lincoln Highway, Fairless Hills, PA                         19030
(Address of principal executive offices)                      (Zip Code)

Registrant's Telephone number, including area code: (267) 580-1075
                                                    --------------

Securities registered under 12(b) of the Exchange Act:        None

Securities registered under Section 12(g) of the Act:         Common Stock

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
    ---    ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
Regulation S-B is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form10-KSB.___

The issuer had revenues of $1,726,707 for the fiscal year ended December 31,
2001.

As of March 31, 2002, 53,065,578 shares of the issuer's Common Stock were
outstanding. The aggregate market value of the voting stock held by
non-affiliates on March 31, 2002 was approximately $530,655.78 based on the
average of the bid and asked prices of the issuer's common stock in the
over-the-counter market on such date as reported by the OTC Bulletin Board.

                       DOCUMENTS INCORPORATED BY REFERENCE
None

Transitional Small Business Disclosure Format        Yes      No  X
                                                         ---     ---

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                                      -1-
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                                     PART I

ITEM 1. Description of Business

General Business Development

         Digital Descriptor Systems, Inc.("DDSI"), a Delaware corporation
incorporated in 1994, is the successor to Compu-Color, Inc., an Iowa
corporation. The operations of DDSI were started as a division of ASI Computer
Systems, Inc. of Waterloo Iowa in 1986. Compu-Color, Inc. was formed in July
1989 and as of July 1, 1989 purchased the assets of the Compu-Color division of
ASI Computer Systems, Inc.

Our Business

         DDSI develops, assembles and markets computer installations consisting
of hardware and software, which capture video and scanned images, digitize the
image, link the digitized images to text and store the image and text on a
computer database which allows for transmitting the image and text by computer
or over telephone transmission lines to remote locations.

         Imaging technology enables computers to record, store and retrieve both
textual information and visual images. The common problem in imaging technology
is how to record, store, process and retrieve information and images within the
same system. DDSI's software programs utilize technology to link the textual
information with the images so that customers can record and retrieve related
text and images. DDSI originally developed the software to address the
information retrieval problems of tax assessors. DDSI subsequently adapted the
software for use by law enforcement agencies and management of jail facilities.
DDSI's software also addresses different information retrieval needs such as
reproducing line ups and producing housing badges (jails), bar coded wristbands
for identification, which facilitates movement within jails and courts, and
storing and retrieving hand written and computer generated document images
within arrest records.

Product and Services

Compu-Capture(R)

         DDSI's principal product is the Compu-Capture(R) law enforcement
program. This program combines digitized image and textual information. The
system has been developed primarily for the criminal justice market, including
law enforcement, jail and correctional facilities.

         Information is entered into the Compu-Capture(R) system at the time a
subject is booked or enters the facility, including a video image of the
subject, a "mug shot". The Compu-Capture(R) system reduces the time needed to
take and process mug shots and improves the quality of the mug shot. The booking
officer can preview each mug shot image on the computer screen before processing
and storing the image to insure accuracy and clarity. Once an acceptable image
is obtained, the booking officer can rapidly store the image through the
computer application, along with the booking record, physical characteristics
and other pertinent text material.

         The information entered into the Compu-Capture(R) system can include
names, aliases, physical characteristics, such as size, hair color, facial scars
or physical deformities.

         Once the data is entered into the Compu-Capture(R) system, the visual
image and textual material can be utilized in a variety of ways. Mug shots can
be retrieved on the computer screen or printed individually, with or without
text information, or as part of a computer-generated line-up. The digitized mug
shot and information can be transmitted to remote locations by telephone line or
radio frequency or through computer networks and can be retrieved rapidly from
central and/or remote locations.


                                      -2-
<PAGE>

         The Compu-Capture(R) system produces images that meet or exceed the
suggested requirements of the Department of Justice National Crime Information
Commission 2000 ("NCIC" 2000), the standard adopted by Federal Bureau of
Investigation for the quality of mug shots and their transmission. The NCIC does
not certify or otherwise approve any mug shot systems.

         The Compu-Capture(R) system's technology can also be used in commercial
applications that are unrelated to law enforcement, such as for security or
access control, identification cards with photographs for employee
identification, voter registration cards, national welfare identification cards,
drivers' licenses, all with or without the use of fingerprints and/or
signatures.

         The following versions of the Compu-Capture offered are as follows:

Compu-Capture(R) 32

         Compu-Capture(R) 32 is DDSI's stand alone application. This version of
the Compu-Capture(R) product line contains its own database and can function on
its own without integration into law enforcement existing records or a jail
management system. The database allows for the capture of basic demographic
information such as physical characteristics. This information can then be
sorted for quick and easy retrieval of a particular record or various records
with similar characteristics. The CPC32 can be used on a Personal Computer or
networked together.

Compu-Capture(R) ActiveX32

         Compu-Capture(R) ActiveX32 is a fully functioning executable product
that image-enables any host based records or jail management system without
costly integration. The advantage to this product is it eliminates multiple
databases and duplicate data entry from one system to another.

Compu-Sketch

         The Compu-Sketch product is a composite sketching program, that allows
an individual with little to no artistic ability to draw a sketch of a persons
face as described by the witness. The program contains an interactive witness
module that asks the witness basic questions which are then used to create the
composite face. The application consists of over 40,000 features, that when
combined can create millions of different looking suspects. The user simply
selects a description of each face part from a menu and the system will then
assemble the parts to complete the composite. The user can manipulate each part
and/or add accessories, such as hats, jewelry and facial hair.

Compu-Scene

         The Compu-Scene program uses a computer aided drafting program to
compose drawings with simple drag-n-drop technology, making accident and crime
scene drawings easy. The user simply draws a room or intersection to scale with
the CAD (Computer Assisted Design) program and then simply drops in the
pre-drawn templates to complete the scene.

Maintenance and Support

         In addition to the installation of DDSI's systems, DDSI trains the
personnel of the system purchaser in the use and operation of the system. DDSI
provides maintenance and support for a limited period of time. DDSI also offers
its' customers ongoing maintenance and support plus updates of the software, for
an annual fee.

                                      -3-
<PAGE>


New Products

Identity On Demand:

         The Identity On Demand system is a secure biometric ID application to
be used in buildings, small airports, offices, factories, apartments, etc. in
order to identify and verify individuals. The "Identity on Demand" system
provides for a PVC card to contain three or four lines of descriptive data, a
full color photo, and options for fingerprints, signature, a magnetic stripe or
barcode applications. "Identity On Demand" is expandable to include fingerprint
matching, use as an access control card, as well as the ability to integrate
data and images to other software.

FMS  ("Fingerprint Matching System")

         In December of 2001, DDSI secured a royalty license from AuthenTec
Inc., Melbourne, Florida, for a software suite called PowerMatch(TM) ("FMS")
that enables the end user to capture, digitize, store, retrieve and match
fingerprints. DDSI subsequently renamed the software FMS ("Fingerprint Matching
System"). The agreement provides DDSI with a worldwide, non-exclusive license to
sell the Power Match Software (FMS). Previously the company had a limited
license with Harris Corporation (NYSE:HRS) allowing for sales to only the
criminal justice market. AuthenTec Inc. owns all the rights to PowerMatch (FMS).
The company added all commercial markets to its licensing arrangements by
contract with AuthenTec Inc. To date two FMS sales have occurred.

         FMS is available in the form of a Software Development Kit (SDK) and
has been integrated with DDSI's new Compu-Capture technology to create "Identity
on Demand." Since FMS is highly scalable (from 500 to 500,000 files), DDSI can
offer it for large national databases such as voter registration, drivers
license or national security identification systems or to small jails.

Compu-Scan 3000

         The Compu-Scan is a non-contact inkless direct reader fingerprint
system. During 1998, The Company entered into in a development contract with
ISC/US (Fort Lauderdale, FL and Hamburg, Germany), an engineering firm having a
specialized background in fingerprint technology, to develop a computerized
inkless, non-contact fingerprint capture device called the Compu-Scan 3000.
Under this agreement, the Company granted ISC/US the funds (non reimbursable) to
develop the Compu-Scan 3000 based on certain specification requirements provided
by DDSI. The development process of the Compu-Scan 3000 will not be deemed
complete until FBI certification is achieved. In return, the Company has
worldwide rights to sell this product without a royalty fee. There are two parts
to the Compu-Scan unit; one is the single finger roll unit, which includes the
"rolled" fingerprints of the individual fingers and the other is a slap unit,
which captures the four fingers simultaneously from each hand and then the two
thumbs.

         The Compu-Scan electronically reads and creates a digital image of a
fingerprint. Contact inkless fingerprint capture devices typically record
fingerprint images by rolling (contacting) the fingers of a subject on the
surface of an optical assembly, creating an optical image of the fingerprint,
and then converts the optical image into a digital image by a photo-imaging
detector. The Compu-Scan operates in a similar manner, but without direct
contact by the finger to the device. The Compu-Scan captures the fingerprint by
placing the finger over an opening in the Compu-Scan which projects a light onto
the suspended finger upon which a camera captures the resulting reflected
fingerprint image.

                                      -4-
<PAGE>

         Under federal regulation, law enforcement agencies in the United States
may only utilize fingerprint systems that have passed an extensive FBI
certification process. As a result any inkless fingerprint system developed by
DDSI must pass the FBI certification process before it can be distributed to law
enforcement agencies in the United States. DDSI however, can supply an inkless
non-contact fingerprint system prior to FBI certification for commercial
business use, for example, for ATM machines, biometric identification for
universities, libraries, access control and any such commercial application,
which does not require a rolled fingerprint match.

         In On July 25th, 2000, DDSI awarded a contract to DBA Systems, a
division of Titan Systems Corp., for technical assistance in achieving
compliance with the FBI certification process.

         After discussions with Titan and other parties, it was recommended that
DDSI replace the system lens and possibly recast the structure of the single
finger roll unit to fit the new lens in order to meet FBI certification
requirements. Upgrading, testing and redesigning the Compu-Scan to meet FBI
requirements could take an additional 12 to 18 months, and will require
additional funding of at least $400,000. The Company is unsure at this time that
it will be able to obtain the necessary funding to complete the project.

         The FBI has recently made available an acceptable palm print capture
image. With the possibility of enhancing the Compu-Scan slap unit (as discussed
above), and with the heightened awareness of homeland security resulting from
the events of September 11, 2001, DDSI put a temporary hold on modifying its
present Compu-Scan system and started researching what it would take to enhance
its present system to be able to scan both a fingerprint and/or a palm print
plus meet FBI Appendix F requirements. This research is anticipated to be
completed by September/October 2002 if the Company can obtain the necessary
funding. It is estimated that this additional research will require $200,000
funding to complete; however, more exact costing will be forthcoming following
lens testing results.

         If the research information results are favorable, DDSI will redesign
the unit for FBI certification and commercial production. This should occur
during the third or fourth quarter of 2002. If the research is unsuccessful,
DDSI intends to continue with the original design of the fingerprint slap unit.

         During December 2001, the Company revised its anticipated certification
date for its' Compu-Scan product indefinitely after its submission was not
accepted by the FBI. Additionally, there are no assurances that the FBI will
ever certify the technology. As such, and since the Company is unable to
forecast any revenues from the product, the Company has written off the
investment in Software Development of $413,604 in the fourth quarter of 2001.

Marketing

Law Enforcement Applications

         DDSI markets and sells its law enforcement product line through an
internal sales force, an independent dealer network and vendors of compatible
software applications.

         DDSI employs three (3) full-time employees in sales, marketing or sales
management. Leads are generated by DDSI's marketing department and followed up
by the salesmen, who sell directly to the end user. The employees also work with
sales employees of other vendors in making sales calls and proposals.

         Additionally, DDSI markets its Law Enforcement products through vendors
of compatible software application such as IBM Business Partners and other
hardware suppliers.

                                      -5-
<PAGE>

Customers

         DDSI maintains a continuing relationship with its customers based upon
support services and periodic upgrades of the Compu-Capture(R) line and
Compu-Sketch software. Although the major revenue-generating event is the
initial installation and any significant expansion of that installation, the
annual sales of maintenance support services, which DDSI performs subsequent to
the installation, generates approximately 17% of the installed software license
fee.

         DDSI also relies on maintaining ongoing relationships with vendors for
continuing sales introductions to new customers. DDSI has concentrated on
expanding the compatibility of its Compu-Capture(R) system with more computer
software applications in order to expand the number of vendors that may
recommend DDSI's products.

Business Alliances

         Currently approximately one-half of the revenues from DDSI's sales are
generated from business alliance relationships. To increase its sales through
these alliances, DDSI has directed a portion of its research and development
efforts in the last five years to developing software interfaces which enable
the Compu-Capture(R) program to operate in conjunction with various records and
jail management applications and other law enforcement programs using IBM
compatible hardware. DDSI believes that part of its growth will continue to come
through these business alliances.

Greater Penetration of Existing Customers

         In addition to seeking new customers, the Company has recently
established a marketing program to focus on the existing customer base, which
are potentially over 1,000 agencies. The Company believes with this addition
that it can now capitalize and generate increased revenues from its existing
customers.

         Due to the high market penetration by the Company's strategic
alliances, the Company believes that it will be able to eliminate the formal bid
process in many jurisdictions where such strategic alliances are located. In
these cases, add-on or complimentary products can be purchased directly through
the incumbent vendor. This will help to expedite the normally long sales cycle
and to eliminate the costly and time-consuming proposal process.

Seek Acquisitions and Alliances

         Depending on the availability of funds, DDSI intends to continue
developing software interfaces to make its products compatible with new and
expanded versions of systems offered by strategic alliances and other vendors of
criminal justice software. DDSI believes that expanding the number of law
enforcement systems with which the Compu-Capture(R) systems are compatible will
assist DDSI in maintaining its competitiveness.

Sales by Geographic Area

         During the fiscal years ended December 31, 2001, 2000, 1999 and 1998,
89%, 93%, 95% and 99%, respectively, of DDSI's revenues have been from domestic
customers. Foreign sales for 2000, 1999 and 1998 were $205,953, $150,209 and
$6,104, or an aggregate for these years of approximately $362,266.

Competition

         DDSI has multiple solutions being sold to the Criminal Justice market
with its competitive position varying by product.

                                      -6-
<PAGE>

         DDSI's Compu-Capture(R) system (video imaging mug shot solution),
currently has two national competitors, Printrak Inc., Anaheim, CA (recently
purchased by Motorola) and ImageWare Systems of San Diego, California.

         The Compu-Scan 3000 if certified, will have three main competitors,
CrossMatch, Digital Biometrics, Inc (recently merged with Visionics), and
Identix Incorporated (announced plans to merge with Visionics on February
22,2002) market inkless computerized fingerprint capture systems on a national
basis and each have received FBI certification. Both companies are publicly held
corporations and have been marketing their fingerprint systems for several
years. There are no guarantees that the Company will be able to successfully
compete against these existing products.

         The Compu-Sketch is a computerized, non-artistic, professional
composite system. Though there is significant competition in this field, DDSI
believes that the Compu-Sketch provides an easier system to use plus offers a
larger database than its competitors.

         DDSI's Compu-Scene product is not individually marketed. DDSI carries
it in order to provide to its customers a more complete package of products.

         The FMS solution resembles other fingerprint capture, store, retrieval
and compare software, but is different in both the size of the database it can
store and search, and in the scalability of hardware requirements. DDSI plans to
sell the FMS as a stand-alone matching solution as well as to integrators, and
intends to package it with its Compu-Scan system.

         Motorola entered into the Criminal Justice field by purchasing Printrak
Inc., and offers a suite of solutions from data transmission to MDT (patrol
cars) through bookings, fingerprint capture, mug shots and related systems.
Printrak's products are centered around records management, jail management and
AFIS solutions. AFIS is a large computerized installation used generally at the
state level, that compares fingerprints that are entered into the system from
different jurisdictions and identifies those prints within hours versus days and
weeks when done by hand. Printrak's main product by dollar volume is AFIS. DDSI
believes that Motorola would most likely specialize in large installations,
where as DDSI's target is the small and medium size markets. Thus, we believe
Motorola's entrance into the industry should have a minimal negative affect on
our Company and management believes Motorola's entrance into the field will help
advance product knowledge to the digitized imaging market.

Suppliers

         DDSI's programs are compatible with the IBM AS400 and other mainframe
and mini computer manufacturers. The peripheral equipment used in connection
with DDSI's system, such as video equipment, can be provided by a wide range of
manufacturers. As a result DDSI is not dependent on any particular supplier or
raw material.

Government Regulation or Government Approval

         Most law enforcement agencies purchasing new or upgraded or expanded
systems require that the system meet the requirements of NCIC2000, ANSI-NIST
standards and standards issued by the National Crime Information Commission and
by the FBI. All DDSI products and solutions were required to meet these
requirements.

                                      -7-
<PAGE>

         The FBI has developed an extensive certifying process that an inkless
fingerprint system must pass before the FBI will accept cards produced by that
system. ISC/US has agreed to grant DDSI the right to distribute an inkless
fingerprint system that has not been certified by the FBI. While there is no
assurance that the Compu-Scan inkless fingerprint system will successfully
complete the FBI certification process, the system produces fingerprint cards
similar in quality and type to other fingerprint systems that have been approved
by the FBI. DDSI believes that its Compu-Scan 3000 inkless fingerprint system
will meet the requirements of the FBI certification process, assuming it can
obtain the necessary funding to complete development of the product.

         ISC/US is a Delaware Corporation located in Ft. Lauderdale, Florida,
and is not related to any government agency. ISC/US also has development offices
in Hamburg, Germany.

Product Liability Insurance

         Although the Company believes its products are safe, it may be subject
to product liability claims from persons injured through the use of the
Company's marketed products or services. The Company carries no direct product
liability insurance, relying instead on the coverage maintained by its
distributors and manufacturing sources from which it obtains product. There is
no assurance that this insurance will adequately cover any liability claims
brought against the Company. There also can be no assurance that the Company
will be able to obtain its own liability insurance (should it seek to do so) on
economically feasible terms. The Company's failure to maintain its own liability
insurance could materially adversely affect its ability to sell its products in
the future. Although no product liability claims have been brought against the
Company to date, if there were any such claims brought against the Company, the
cost of defending against such claims and any damages paid by the Company in
connection with such claims could have a materially adverse impact upon the
company, including its financial position, results of operations and cashflows.

Research and Development

         As mentioned above, DDSI has put a temporary hold on modifying its
present Compu-Scan system and started research on what it would take to upgrade
the present system to be able to scan both fingerprints and a palm print with
the slap unit, plus meeting FBI image requirements. This research should be
completed by September/October 2002.

Patents, Trademarks and Licenses

         DDSI has one patent application, number 09/08/800, for a "Device and
Method for Scanning and Mapping a Surface", which was filed in October 1998. The
primary use of the device is a contactless fingerprinting system.

         DDSI owns the proprietary rights to the software used in the
Compu-Capture(R) programs. In addition, DDSI owns the rights to the trademarks
"Compu-Capture(R)", "Compu-Color(R)" and "Compu-Scan(R)" both trademarks have
been registered with the United States Patent and Trademark Office.

         The following names are trademarked by DDSI and are nationally
recognized by our marketplace and associated with DDSI: Compu-Capture 2000,
Compu-Scan, Compu-Scene, Compu-Color, Compu-Sketch, SI3000, Compu-Capture 2000
FE and Compu-Capture ActiveX32.

Other Events

         On March 18 and March 11, 2002, DDSI announced an array of upgrades,
additional licenses and the addition of new customers which included the
successful installation of a multi-user solution in Illinois, five additional
workstations and an ID badging module to a Mississippi agency, as well as one of
New Jersey's largest counties Prosecutor's office.

                                      -8-
<PAGE>

         On March 4, 2002, the Company announced the sale of an ID Badging
System to one of its existing customers (Natchez, Mississippi). The ID Badging
System will be used to accurately identify all city employees including but not
limited to Policeman, Fireman, Security Guards, Crossing Guards, etc.

         On February 22, 2002, DDSI announced the sale of a new countywide
solution sold in California. This sale will encompass 4 separate processing
stations around the county that will be integrated with the countywide CAD
(Computer Assisted Design) and RMS (Record Management System) systems.

         On January 29, 2002, the Company announced a major reorganization of
DDSI's management team. Mr. Robert Gowell was appointed as CEO and Co-Chairman
of the Board of Directors. Mr. Michael J. Pellegrino will serve as President and
Chief Operating Officer of the Company in addition to his current position as
CFO. Mr. Randolph Hall was appointed as Vice President of Sales.

         On January 23, 2002 DDSI announced the appointment of Anthony Shupin,
Vincent Moreno, Michael J. Pellegrino and Robert Gowell to the Company's Board
of Directors. The Company also announced that Ms. Myrna Marks-Cohn, Ph.D,
resigned from the Board of Directors for personal reasons.

         On January 3, 2002, the company announced a new and expanded agreement
with privately held Authentec, Inc. to sell its Finger Print Matching System
(FMS) to commercial markets. DDSI had previously only held the rights to sell
FMS to the criminal justice markets.

         On December 5, 2001, DDSI announced the formation of a new advisory
board. The focus of the new board will be to assist and advise management of the
company in all areas of its business.

         On November 26, 2001, the Company announced the completion of recently
awarded contracts to integrate solutions in Haverhill and Stoneham,
Massachusetts. The contracts totaled $52,000 and provide over $2,000 annually in
maintenance fees.

         On November 15, 2001, DDSI announced the first non-criminal justice
market sale of its new Fingerprint Matching System (FMS), which was acquired by
a county's Department of Health and Human Services (HHS) for the purposes of
identifying and tracking its homeless population.

         On November 2, 2001, the Company announced the signing of a development
contract for the Compu-Capture Enterprise Suite (CCES), with Pennsylvania-based
IT developer, ImageVision.Net (IMV). CCES will incorporate DDSI's FMS and
Compu-Scan 3000 systems as well as Document Imaging, Workflow and Facial
Recognition Software.

         On October 29, 2001, DDSI announced the availability of its new
"Identity On Demand" secure ID product, an ID System for the commercial market.
This product was developed by integrating FMS' core technology with the
Compu-Capture(R) core technology.

Employees

DDSI employs a total of 8 full time employees and 1 part time employee.

ITEM 2. Description of Property

         The Company operates from a single location. During May 2000, the
Company entered into a new five-year operating lease for its office facility.
The office facility is located at 446 Lincoln Highway, Fairless Hills, PA.
19030, and contains approximately 5,900 square feet of office space. Future
minimum lease commitments in connection with this lease are approximately
$120,200 in 2001, $102,000 in 2002, $105,000 in 2003, $108,000 in 2004 and
$54,700 in 2005.

                                      -9-
<PAGE>

ITEM 3. Legal Proceedings

         Robert Martin - Shareholder Threatening Lawsuit

         On January 18, 2002, DDSI's Board of Directors received notification of
a pending lawsuit from Robert P. Martin who purchased shares pursuant to a
private placement offering in October 2001. The letter alleged false and
misleading misrepresentations made to Mr. Robert Martin by Mr. Garrett Cohn and
Mr. Scott Gallagher (About Face Communications) involving convertible debenture
funding.

         The shareholder threatened a direct and derivative action suggesting
the convertible debt was not legally authorized.

         On March 14, 2002, DDSI was notified by the SEC that they were in
receipt of this complaint.

         The Company disputes the allegations made in the complaint in that the
Company is unaware of any false and misleading misrepresentation and the
notification contained insufficient grounds. Furthermore, the convertible debt
was legally authorized. At the time of the vote there were three members of the
Board of Directors. Two were present and voted on behalf of accepting the
convertible debenture. In addition corporate counsel was contacted prior to the
vote and after review of the Corporate Bylaws indicated that there was a quorum
present, therefore any business transacted by the Board would be legal and
binding. Thus, the Company intends to vigorously defend itself.

         AccuSoft

         On July 16, 2001, AccuSoft Corporation filed a complaint against DDSI
in the United States District Court for the Central District of Massachusetts,
Civil Action No. 0140132-NMG.

         AccuSoft sought the following relief:

              A.  The termination of the following licenses: ImageGear 6.0, 95
                  and 98.
              B.  A preliminary injunction enjoining DDSI from using the above
                  licenses in the sales of their products.


ITEM 4. Submission of Matters to a Vote of Securities Holders

         There have been no submissions of matters to a vote of Securities
holders during fiscal year 2001.

                                      -10-
<PAGE>

                                     PART II

ITEM 5. Market for Common Equity and Related Shareholder Matters


         DDSI's Common Stock has been quoted on the OTC:BB since July 7, 1997
under the symbol "DDSI". As of November 4, 1999 DDSI's shares traded on the pink
sheets; however, the Company returned to trading on the OTC Bulletin Board
effective February 23, 2001. The following table set forth, the high and low bid
prices for the Common Stock for the quarters indicated. As of December 31, 2001
there were approximately 2,500 shareholders of record. The source of the quotes
is AOL Ticker.

                                        Common Stock
                                          Bid Price
                              -------------------------------

Calendar Year 1999            Low                       High
------------------
First Quarter                 $0.50                     $1.25
Second Quarter                $0.39                     $0.93
Third Quarter                 $0.26                     $0.42
Fourth Quarter                $0.12                     $0.30


Calendar Year 2000            Low                       High
------------------
First Quarter                 $0.21                     $0.48
Second Quarter                $0.25                     $0.39
Third Quarter                 $0.21                     $0.35
Fourth Quarter                $0.06                     $0.22


Calendar Year 2001            Low                       High
------------------
First Quarter                 $0.12                     $0.40
Second Quarter                $0.12                     $0.20
Third Quarter                 $0.06                     $0.19
Fourth Quarter                $0.03                     $0.28

         As of March 31, 2002, there were approximately 53,065,578 shares of
Common Stock issued and outstanding.

         A total of 10,915,484 shares of common stock, par value $.001 (the
"Shares"), were issued by the Company from June 1999 through May 2000, for cash
or services rendered to the Company, absent registration under the Securities
Act. These shares were offered pursuant to the exemption provided by Regulation
A where such offering price was valued at $.30 per share.

         From September through December 2000, the Company issued 1,205,000
restricted shares of its common stock for services performed. These shares were
valued at market price and represented fair value for services rendered. These
shares were issued pursuant to the exemption provided for under Section 4(2) of
the Securities Act of 1933, as amended, as a "transaction not involving a public
offering."

         During December 2000, the Company issued $200,000 of convertible
debentures to two investors. The debentures accrue interest at 12% per annum.
The holder has the right to convert the debentures to common shares at any time
through maturity at a conversion price the lesser of: $0.08 per share or 50% of
the average of the lowest three trading prices during the 20 days preceding the
conversion date. The debenture holders also received warrants allowing purchase
of 400,000 common shares at an exercise price of $0.036 per share at any time
before December 28, 2003. During September 2001 through November 2001 the
debentures in the amount of $200,000 were converted into 5,241,754 shares of
common stock. In addition, $30,374 of accrued interest related to the debentures
was converted into 1,012,494 shares of common stock.

                                      -11-
<PAGE>

         During March 2001, the Company issued $200,000 of convertible
debentures to two investors. These debentures mature on March 4, 2002; however,
the parties have entered into an agreement to extend the maturity date for
another year, and accrue interest at 12% per annum. The holder has the right to
convert the debentures to common shares at any time through maturity at the
conversion price as described in the agreement. The debenture holders received
warrants to purchase 200,000 common shares at an exercise price the lesser of:
$0.36 per share or the average of the lowest three trading prices during the 20
days preceding the exercise date. The debentures are collateralized by
substantially all of the Company's assets.

         During January through March 2001, the Company granted 1,100,000 shares
of restricted common stock for services performed. Such shares were valued at
the fair market value on the date the shares were granted.

         During April 2001, the Company granted 168,000 shares of restricted
common stock for services performed. Such shares were valued at the fair market
value on the date the shares were granted.

         During April 2001, the Company issued two convertible notes for
$100,000 and $15,000, and one convertible note in May 2001 for $40,000
respectively, with interest at 10% per annum. Interest on these Notes shall be
payable quarterly commencing June 30, 2001. The holder has the right to convert
the debentures and interest accrued into shares of the Company's Common Stock at
a conversion price per share that shall be an amount equal to 50% of the mean
average price of the Common Stock for the ten (10) trading days prior to notice
of conversion per share.

         During September 2001, the Company issued $400,000 of convertible
debentures to two investors. These debentures mature on September 30, 2002 and
accrue interest at 12% per annum. The holder has the right to convert the
debentures to common shares at any time through maturity at the conversion price
as described in the note agreement. The debenture holders received warrants to
purchase 800,000 common shares at an exercise price the lesser of: $0.036 per
share or the average of the lowest three trading prices during the 20 days
preceding the exercise date. Such warrants expire September 30, 2004. The
debentures are collateralized by substantially all of the Company's assets.

         During September 2001, $35,000 of the convertible debentures issued in
December 2000, were converted into 1,000,000 shares of Common Stock.

         During September 2001, the holder of the $100,000 note issued in April
2001 converted the note, plus accrued interest, into 1,428,571 shares of free
trading Common Stock and 1,252,069 shares of restricted stock. The conversion
price was valued at $.03895 per share in accordance with the agreement terms.

         During September 2001, the $15,000 note issued in April 2001, plus
accrued interest thereon, was also converted into 214,286 shares of free trading
Common Stock and 246,471 shares of restricted stock. The conversion price for
this transaction was valued at $.034 per share in accordance with the agreement
terms.

         During the quarter ended September 30, 2001, the Company granted
350,000 shares of restricted Common Stock to certain parties in connection with
raising capital and for services performed. Such shares were valued at the fair
market value on the date the shares were granted.

         During October 2001, through January 2002, the remaining $165,000 of
the convertible debentures issued in December 2000, as well as $160,000 of the
convertible debentures issued in March 2001, was converted into 10,551,280
shares of Common Stock. Additionally, accrued interest relating to these notes
was converted into an additional 2,512,494 shares of Common Stock.

                                      -12-
<PAGE>

         During October 2001 through January 2002, the Company granted 3,070,831
shares of Common Stock to certain parties for consulting services performed and
to be performed. Such shares were valued at the fair market value on the date
granted.

         During October through December 2001, DDSI issued common stock via
Subscription Agreements to various individuals. The Subscription Agreements
provided for the purchase of up to 13,333,333 shares of common stock of DDSI at
$0.03 per share, in $10,000.00 (u.s.) blocks, equaling 333,333 shares per block,
for an aggregate total of $400,000. Through January 2002, the company has raised
$229,000 (net of issuance costs) through these agreements and has issued
7,999,996 shares of common stock.

         On December 31, 2001, DDSI issued three convertible debentures for an
aggregate amount of $500,000, with simple interest accruing at the annual rate
of 12%. These debentures are due December 31, 2002. Interest payable on the
Debentures shall be paid quarterly commencing March 30, 2002. The holders shall
have the right to convert the principal amount and interest due under the
debentures into shares of DDSI's common stock. The conversion price in effect on
any Conversion Date shall be the lesser of (1) $.043 and (2) 50% 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. DDSI also
issued common stock purchase warrants for the right to purchase 1,500,000 shares
of Common Stock of DDSI at an exercise price per share equal to the lesser of
(i) $.02 and (ii) the average of the lowest three inter-day sales prices during
the twenty (20) Trading Days immediately prior to exercise.

         It is anticipated that the $ 500,000 of convertible debentures will be
converted into shares in accordance with the terms of these debentures.


                                      -13-
<PAGE>

ITEM 6. Management's Discussion and Analysis or Plan of Operations

         Except for historical matters contained herein, the matters discussed
in this Form 10-KSB are forward-looking and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that these forward-looking statements reflect numerous
assumptions, especially as regarding installation schedules and product mix, and
involves risks and uncertainties which may affect Digital Descriptor Systems,
Inc.'s business and prospects and cause actual results to differ materially from
these forward-looking statements, including sufficient funds to finance working
capital and other financing requirements of Digital Descriptor Systems, Inc.,
market acceptance of the Company's products and competition in the computer
industry.

Critical Accounting Policies

         The Company's critical accounting policies, including the assumptions
and judgments underlying them, are disclosed in the Notes to the Financial
Statements. These policies have been consistently applied in all material
respects and address such matters as revenue recognition and depreciation
methods. 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.

         The Company derives revenue from the sale of hardware, software, post
customer support (PCS), and other related services. PCS includes telephone
support, bug fixes, and rights to upgrades on a when-and-if-available basis.
Other related services include basic consulting and training. Included with the
hardware is software that is not considered to be incidental. Revenue from
transactions with customers where the software component is not considered to be
incidental is allocated between the hardware and software components based on
the relative fair value of the respective components.

         The Company also derives revenue from the sale of software without a
related hardware component. Revenue allocable to software components is further
allocated to the individual deliverable elements of the software portion of the
arrangement such as PCS and other services. In arrangements that include rights
to PCS for the software and/or other services, the software component
arrangement fee is allocated among each deliverable based on the relative fair
value of each of the deliverables determined using vendor-specific objective
evidence, which has been established by the separate sales of these
deliverables.

Plan of Operations

         The short-term objective of DDSI is:

         1.       To expand the sales and acceptance of its core solutions by
                  offering new and synergistic biometric security products to
                  its installed base in the criminal justice market. The
                  Company's objective is to expand with these, and additional
                  products, into much larger commercial and federal markets.

         DDSI's long-term objectives are as follows:

         1.       To obtain enough 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 FMS
                  (Fingerprint Matching System), and Identity on Demand.

         2.       Continue pursuing the FBI certification of the Compu-Scan 3000
                  Fingerprint capturing device. This would include redesigning
                  the slap unit of the Compu-Scan to capture a palm print as
                  well as a fingerprint. In addition consideration will be given
                  to the creation of a contactless single digit reader that
                  would not require FBI certification. There is no guarantee
                  that the company will be able to raise sufficient funding to
                  complete this project or that it will ever be able to meet FBI
                  certification.

         DDSI believes that it will not reach profitability until the year 2003.
Over the next twelve months, Management is of the opinion that sufficient
working capital will be obtained from operations and external financing to meet
the Company's liabilities and commitments as they become payable. The Company
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.

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

         o        Cut costs in areas that add the least value to DDSI.
         o        Derive funds through investigating business alliances with
                  other companies who may wish to license the Compu-Scan device.
         o        Derive funds through investigating business alliance with
                  other companies who may wish to license the FMS SDK inclusive
                  of new industry verticals.
         o        Increase revenues through the introduction of Compu-Capture in
                  the K-12 marketplace for the creation of ID cards.
         o        Increase revenues through the introduction of a scaled down
                  version of our Compu-Capture product. The Compu-Capture lite
                  is a low cost product and will open up a greater portion of
                  the criminal justice market place for potential sales.

                                      -14-
<PAGE>

Results of Operations

Year Ended December 31, 2001 Year Ended December 31, 2000

         Revenues for the year ended December 31, 2001 of $1,726,707 decreased
by 43% from 2000. The Company generates its revenues through software licenses,
hardware, post customer support arrangements and other services. The decrease in
the Company's revenue for software and hardware during the period is attributed
to a decrease in the sales of the SI-3000 product, which the Company has ceased
to actively sell. Maintenance revenues decreased $62,512 or 11% from the year
ended December 31, 2000 primarily due to a decrease in the Company's customers
entering into such arrangements and the revenue sharing agreement with Itx on
maintenance of the SI-3000 product line. Other revenues consist of sales of
supplies that the Company makes available to its customers, such as wristbands,
ID cards and print packs. More customers ordered such items in the year ended
December 31, 2001 versus December 31, 2000, which accounted for the modest
increase. Cost of goods decreased $906,583 or 56% due to the decrease in
revenues and was reduced to 41% of total revenues from 53% in the same period a
year earlier. Both the lower cost of sales and the higher gross margin are
attributed to the decrease in sales of SI-3000.

         Operating Costs and expenses decreased $754,439 or 23% during the year
ended December 31, 2001 versus the year ended December 31, 2000. The decrease is
due primarily to the strict cost containment measures the Company has put in
place and the reorganization of the sales department. Non-operating expenses
increased $413,604 due to the write-off of capitalized software development
costs related to the Compu-Scan device. Other expenses also increased $900,125
due to interest expense in connection with the convertible debentures issued in
2001 and the provision for doubtful note receivable of former officer recorded
in 2001.

         The net loss for the Company increased 47% for the year ending December
31, 2001 to $2,982,510 from $2,030,052 for the year ending December 31, 2000.
This was principally due to the decrease in revenues the period.

         Net cash used in operating activities for the years ended December 31,
2001 and 2000 was $1,019,331 and $1,334,167, respectively. The change in cash
from operating activities in 2001 versus 2000 of $314,836 was principally due to
the increase in the net loss for the year ended December 31, 2001 versus 2000 of
$952,451 as well as due to amortization of debt discount of $676,486 for the
year ended December 31, 2001, offset by other changes in operating assets and
liabilities.

         Net cash provided by (used in) investing activities was $(9,888) and
$57,348 for the years ended December 31, 2001 and 2000, respectively, reflecting
a change of $(67,236). This change is due to lesser purchases of furniture and
equipment in the year ended December 31, 2001, and less cash being released from
restriction in 2001.

         Net cash provided by financing activities was $1,262,004 and $1,304,473
for the years ended December 31, 2001 and 2000, respectively, reflecting a
change of $42,469. This decrease was principally due to only $229,000 in net
proceeds received from the issuance of the Company's common stock in 2001,
versus $1,164,066 received in 2000. The Company received net proceeds of
$1,056,000 from the issuance of convertible debentures during the year ended
December 31, 2001.

                                      -15-
<PAGE>

Year Ended December 31, 2000 Year Ended December 31, 1999

         Revenues for the year ended December 31, 2000 of $3,026,458 increased
by 6% from 1999. The Company attributes this to the fact that the SI-3000
product line had an increase in sales and the upgrade to Compu-Capture was
completed. The Company generates its revenues through software licenses,
hardware, post customer support arrangements and other services. The increase in
the Company's software fees during the period is attributed to the continued
increase in the sales of the SI-3000 product. Maintenance revenues increased
$44,315 or 8% from the prior period primarily due to an increase in the
Company's customer's entering into such arrangements. Other revenues consist of
sales of supplies that the Company makes available to its customers, such as
wristbands, ID cards and print packs. Fewer customers ordered such items in the
year ended December 31, 2000 versus 1999, which accounted for the decrease of
$97,878 or 61%. The Company's gross profit decreased 24% during the year ending
December 31, 2000 versus the year ending December 31, 1999, due to an increase
in sales of the SI-3000 product line that has lower margins. Overall the gross
profit percentage per sale decreased 19%.

          Costs and expenses increased $376,455 or 12% during the year ended
December 31, 2000 versus the year ended December 31, 1999. This increase is due
to an increase in general and administrative expenses in the amount of $249,490.
Additionally, research and development costs increased in the amount of $106,751
due principally to the continued upgrading of the Company's core software
packages to 32-bit code. Costs of revenues during this period increased as a
result of the corresponding increase in revenues as described above.

         The net loss for the Company increased 68% for the year ending December
31, 2000 to $2,030,052 from $1,205,517 for the year ending December 31, 1999.
This was principally due to a lower percentage increase of revenues than the
percentage increase of costs and expenses during the year.

         Net cash used in operating activities for the years ended December 31,
2000 and 1999 was $1,334,167 and $866,542, respectively. The change in cash from
operating activities of $467,625 was principally due to the increase in the net
loss for 2000.

         Net cash provided by (used in) investing activities was $57,348 and
($699,570) for the years ended December 31, 2000 and 1999 respectively,
reflecting a change of $756,918. This change was a result of decreased software
development costs of $413,604 in 2000, the purchase of furniture and equipment
of $30,325 and proceeds from the sale of restricted cash of $99,548.

         Net cash provided by financing activities was $1,302,473 and $1,664,716
for the years ended December 31, 2000 and 1999, respectively, reflecting a
change of $362,243. This decrease was principally due to less proceeds received
from the issuance of the Company's common stock in the 2000 year.

Liquidity and Capital Resources

         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 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.

                                      -16-
<PAGE>

December 31, 2001

         At December 31, 2001, the Company had assets of $1,691,277 compared to
$1,783,044 on December 31, 2000, a decrease of $91,767 and shareholder
deficiency of $(750,124) on December 31, 2001 compared to shareholder equity of
$22,112 on December 31, 2000, a decrease of $772,236. This decrease in
shareholder equity for the year ended December 31, 2001 resulted from the net
loss for the year ended December 31, 2001 of $2,982,510, offset by the issuance
of common stock and the debt discounts related to the issuance of convertible
debentures.

         As of December 31, 2001, the Company had a negative working capital of
$791,543, a change of $59,652 from a negative working capital of $731,891 at
December 31, 2000, which was primarily a result of an increase in cash, prepaid
expenses and debt discount as well as a decrease in accounts receivable with an
overall increase netting $647,308 and a decrease in accounts payable and accrued
expenses with increases in convertible debentures with the net result of
$689,134.

ITEM 7. Financial Statements

The report of independent auditors and financial statements are set forth in
this report beginning on Page F-1.

ITEM 8. Changes In and Disagreements With Accountants on Accounting and
        Financial Disclosure

         DDSI replaces Ernst & Young LLP

         A Form 8-K was filed on February 7, 2002, and subsequently amended on
February 19, 2002, respectively, reporting a change in accounting firms.

               Ernst & Young LLP were previously the independent auditors for
               Digital Descriptor Systems, Inc. (the "Registrant"). On February
               4, 2002, Ernst & Young LLP resigned as independent auditors and
               WithumSmith + Brown, PC were engaged as independent auditors. The
               decision to change was based on financial considerations and was
               approved by the audit committee and the full Board of Directors
               of the Registrant.

               The audit reports of Ernst & Young LLP on the financial
               statements of Digital Descriptor Systems, Inc. as of and for the
               fiscal years ended December 31, 2000 and 1999 did not contain an
               adverse opinion or disclaimer of opinion and were not qualified
               or modified as to uncertainty, audit scope or accounting
               principles, except that such reports were modified with respect
               to the Company's ability to continue as a going concern.

               During the Registrant's two most recent fiscal years ended
               December 31, 2000, and the subsequent interim period ending
               February 4, 2002, there were no disagreements between the
               Registrant and Ernst & Young LLP on any matter of accounting
               principles or practices, financial statement disclosure, or
               auditing scope and procedures, which if not resolved to the
               satisfaction of Ernst & Young LLP would have caused Ernst & Young
               LLP to make reference to the matter in their report. The Company
               has requested Ernst & Young LLP to furnish it a letter addressed
               to the Commission stating whether it agrees with the above
               statements. A copy of that letter, dated February 19, 2002, is
               filed as Exhibit 16 to this Form 8-K, Amendment No. 1.

               There were no other "reportable events" as that term is described
               in Item 304(a)(1)(v) of Regulation S-K occurring within the
               Registrant's two most recent fiscal years and the subsequent
               interim period ending February 4, 2002.

               During the Registrant's two most recent fiscal years ended
               December 31, 2001 and the subsequent interim period through
               February 4, 2002, the Registrant did not consult with WithumSmith
               + Brown, PC regarding any of the matters or events set forth in
               Item 304 (a)(2)(i) and (ii) of Regulations S-K.

                                      -17-
<PAGE>

                                    PART III

ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act

         On January 25, 2002 the Board of Directors agreed that Mr. Garrett Cohn
would resign as President and CEO, but continue to serve as a Board Member. Mr.
Cohn and the members of the Board of Directors believe this action was in the
best interest of the Company due to pressure from outside shareholders. Mr.
Robert Gowell was appointed Co-Chairman of the Board of Directors as well as
Chief Executive Officer. Mr. Pellegrino was appointed as President and Chief
Operating Officer. Mr. Randolph Hall was appointed as Vice President of Sales.

         The Company's current officers and directors consist of the following
persons:
<TABLE>
<CAPTION>
         Name                       Age     Position with Company
         ----                       ---     ---------------------
<S>                                 <C>     <C>
         Robert Gowell              34      Co-Chairman, Chief Executive Officer and Director
         Michael Pellegrino         53      President, Chief Operating Officer and Chief Financial Officer
         Garrett U. Cohn            63      Co-Chairman and Director
         Anthony Shupin             47      Director
         Vincent Moreno             59      Director
         Randolph W. Hall           43      Vice President
</TABLE>
         Robert Gowell was appointed Co-Chairman and Chief Executive Officer on
January 25, 2002. He is a retired Deputy U.S. Marshal who has worked out of the
New York and Pennsylvania offices. He earned his B.S. in Management and Finance
from the City University of New York. He is currently working on his MBA at
Kutztown University.

         Michael Pellegrino joined the Company in 1995. On January 25, 2002 he
was appointed President, Chief Operating Officer and Chief Financial Officer,
Secretary and a Director of the Company. For eleven years prior, Mr. Pellegrino
was Vice President and CFO of Software Shop Systems, Inc. Prior to that he was a
regional controller for Capital Cities/ABS for four years and for seven years
earlier as Director of Financial Systems for ADP. Mr. Pellegrino has a Bachelors
degree in accounting from MSU and a Masters in Finance from Rutgers University,
after which he worked at Touche Ross for 3 years.

         Garrett U. Cohn has been a Director of the Company since July, 1994.
Prior to the change in management that took place effective January 25, 2002,
Mr. Cohn served as President and Chief Executive Officer. Garrett Cohn graduated
from the University of Iowa, Iowa City, Iowa in 1961. His degrees were in
Philosophy with a minor in Business. He went into the merchandise promotion
business and designed many national programs for Playboy, Shell Oil Company,
Standard Oil Company, American Express, Polaroid Corporation, Fingerhut
Manufacturing and many other clients. He was awarded national recognition by
developing the largest selling single piece of promotional luggage during the
years 1983 to 1986 and was featured in Money Magazine. Following his successful
direct merchandising activities, he became President of Rockford Tool Company,
Hillside, Illinois that he rescued from bankruptcy and later sold to an
investment group. He then returned to his family's business and developed the
computer imaging ability into a national video imaging division of ASI Computers
called Compu-Color Inc. In 1995, a public Company named Digital Descriptors
Systems Inc. was formed.

                                      -18-
<PAGE>

         Anthony Shupin's experience includes over 20 years of executive
management, sales and marketing management and project and program management
with technology computing, aerospace and professional services companies. As a
Business Development Executive in the Communications and Media practice at
Deloitte Consulting, Mr. Shupin directed activities and resources targeted at
strategic global accounts. Prior to Deloitte, he served as Vice President of
John Richard Associates, Inc., a management consulting firm specializing in
telecommunications. His background also includes roles as Director of
International Business Development at Space Imaging, L.P. where his
responsibilities included supervising the International Groundstation Network
and establishing global strategic relationships concerning the acquisition and
distribution of high-resolution satellite imagery. Mr. Shupin has also served as
Vice President, Sales and Marketing at Remark Industries, Inc., which marketed
and manufactured products such as on-line lottery and electronic gaming devices,
medical monitoring and analysis devices. Prior to Remark Industries, he held
management and account management positions at Wang Laboratories and Xerox
Corporation in Princeton, New Jersey. A graduate of Colby College, Waterville,
Maine, Mr. Shupin has extended his education at Rutgers University, Cook College
in Geographic Information Systems and Remote Sensing training. He has been an
invited speaker at various international symposiums and has published articles
regarding market analysis and access, education and technical assessment.

         Vincent Moreno provides DDSI with over 30 years of experience from a
technical and business environment, with the past 23 years at the executive
management level. He served as Vice President of Technology for ADP for 13
years. For six years, as President and CEO, he ran Mainstem Corporation, a
national provider of software services. Most recently, he is President and
General Manager of PayPlus Software, Inc., a provider of payroll software to the
Professional Employer Organization marketplace. Mr. Moreno is adept in setting
strategic direction and is experienced in the reengineering of corporate
operating units. As a member of the board, he brings guidance, direction, and
vision to the Companies' strategic planning.

         Randolph W. Hall joined the Company as the Director of Marketing in
1996 and in 1999 assumed the position of Vice President of Operations. Mr. Hall
was appointed Vice President of Sales on January 25, 2002. Prior to joining the
Company, Mr. Hall successfully launched and subsequently sold his ownership
share of a Company that marketed a records management system for local law
enforcement agencies. Before that Mr. Hall served as the Regional Installation
and Training Manager for a national solution provider of law enforcement
systems. Mr. Hall has a degree in Computer Science and is currently pursuing his
Bachelors in Business Administration from Ursinus College.

         An overview of changes that occurred with the DDSI Board of Directors
is as follows: Mr. Robert Gowell, Mr. John Boyle and Mr. Charles Saphos were
elected as members of DDSI's Board of Directors on July 26, 2001. Mr. Saphos
resigned from the Board for personal reasons on July 26, 2001. Both Mr. Gowell
and Mr. Boyle resigned as Directors for personal reasons effective December 19,
2001.

         Mr. Martin was appointed as a DDSI Board Member on December 11, 2001
and resigned from the Board effective January 3, 2002. Mr. Martin stated that
his resignation was due to disagreements with Company operations, policies and
practices.

         Dr. Myrna Marks-Cohn resigned from the DDSI Board of Directors for
personal reasons effective January 14, 2002.

         Mr. Robert Gowell was reappointed to the Board of Directors on January
15, 2002. Mr. Anthony Shupin, Mr. Vincent Moreno and Mr. Michael Pellegrino were
appointed to the Board of Directors on January 15, 2002.

                                      -19-
<PAGE>

Compliance with Section 16(a) of the Securities Exchange Act of 1934

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than 10% shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.

         To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the company and written representations that no other
reports were required during the fiscal year ended December 31, 2001, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.

ITEM 10. Executive Compensation

         The following table summarizes the compensation earned and paid by the
Company to each Officer and to all Executive Officers as a group for services
rendered in all capacities during the year ended December 31, 2001:

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                                            Long Term Compensation
                  Annual Compensation                            Awards                 Payouts
   (a)            (b)      (c)          (d)     (e)         (f)         (g)                (h)               (I)
Name                                           Other                 Securities                              All
and                                            Annual    Restricted  Underlying                             Other
Principal                                      Compen      Stock     Options/              LTIP            Compen-
Position Year            Salary        Bonus  sation($)   Award($)     Sar (#)           Payouts($)       sation ($)
----------------------------------------------------------------------------------------------------------------------
<S>              <C>    <C>           <C>     <C>       <C>         <C>                   <C>              <C>
Garrett Cohn*
President/CEO     1999  $160,000        0         0           0           0                  0               0
                  2000  $160,000        0         0           0           0                  0               0
                  2001  $160,000        0         0           0           0                  0               0

Michael J.        1999  $109,000        0         0           0           0                  0               0
  Pellegrino      2000  $109,000        0         0           0           0                  0               0
President & COO   2001  $110,000        0         0           0           0                  0               0

Michael Ott,**    1999  $110,000        0         0           0           0                  0               0
  V.P/ Director   2000  $110,000        0         0           0           0                  0               0
                  2001  $110,000        0         0           0           0                  0               0

Randy Hall        1999  $ 70,000        0         0           0           0                  0               0
  V/P             2000  $ 70,000        0         0           0           0                  0               0
                  2001  $ 73,500        0         0           0           0                  0               0
</TABLE>
 *Mr. Cohn resigned as President and Chief Executive Officer effective January
  25, 2002.
**Mr. Ott resigned from the Company effective March 30, 2001

Options/Sar Grants in Last Fiscal Year
<TABLE>
<CAPTION>

                                                                        Number of                % of Total
                             -----------------------------------------------------------------------------------------
                                      Securities                      Options/SARS
                                      Underlying                      Granted to
                                      Options/SARS                    Employees in        Exercise or Base
Name                                  Granted                         Fiscal Year         Price ($/Sh)          Expiration Date
--------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                           <C>                 <C>                   <C>
Garrett U. Cohn, CEO                      0                               N/A                   N/A                   N/A
Michael J. Pellegrino, CFO                0                               N/A                   N/A                   N/A
Randy Hall, VP Operations                 0                               N/A                   N/A                   N/A
</TABLE>

                                      -20-
<PAGE>

Aggregated Option/Sar Exercises

         None exercised

Employment Agreements

         On January 25, 2002, the Board of Directors approved a management
reorganization. On March 14, 2002, the newly appointed compensation committee
recommended, and the Board of Directors approved, new compensation packages and
employment agreements for Michael Pellegrino and Randolph Hall.

         Garrett U. Cohn, Co-Chairman. In July, 1994 the Company entered into a
5 year employment agreement with Mr. Cohn which entitled him to a base salary of
$150,000 per year which may at the Board of Directors discretion adjust his base
salary (but not below $150,000 per year) or grant a bonus. Though past the
five-year period, the present employment agreement is to remain in affect until
July 18, 2002. In the interim, Mr. Cohn was granted an increase in his annual
base salary of $10,000, making his new base salary $160,000. The Company shall
also furnish Mr. Cohn with an automobile and automobile expenses. In addition,
Mr. Cohn has received non-accountable expense allowances of $0, $11,000, $49,713
and $81,450 in 2001, 2000, 1999 and 1998 respectively.

Mr. Cohn resigned as President and Chief Executive Officer effective January
25, 2002.

      Michael J. Pellegrino, President, Chief Operating Office and Chief
Financial Officer. In March, 2002, the Company entered into a two year
employment agreement with Mr. Pellegrino, which entitled him to a base salary of
$115,000 per year which may at the Board of Directors discretion adjust his base
salary (but not below $115,000 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 0% to 100% 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 the Company. The Company shall
grant to Mr. Pellegrino, within ninety days of the date of the Agreement,
options to purchase such number of common shares of the Company equal to 1% of
the number of common shares of the Company outstanding on the date of the
Agreement (subject to the vesting and the satisfaction of the other terms and
conditions of such options). The Company 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 such number of common
shares of the Company equal to 0.25% of the number of common shares of the
Company outstanding on the date of the Agreement (subject to the vesting and the
satisfaction of the other terms and conditions of such options). The Company
shall also furnish Mr. Pellegrino with an automobile and automobile expenses.

Mr. Pellegrino was appointed as President and Chief Operating Officer effective
January 25, 2002.

         Michael Ott**, Vice President of Sales and Director. In July, 1998, the
Company entered into a two year employment agreement with Mr. Ott, which
entitled him to a base salary of $110,000 per year which may at the Board of
Directors discretion adjust his base salary (but not below $110,000 per year).
Though past the two-year period, this employment agreement is to remain in
affect until a new employment agreement is drafted. Mr. Ott is also entitled to
participate in the Annual Management Bonus Plan. As a participant in the Annual
Management Bonus Plan, Mr. Ott will be eligible to receive bonuses, based on
performance, in any amount from 0% to 100% of the Base Salary. In addition, Mr.
Ott shall participate in the Management Equity Incentive Plan. As a participant
in the Management Equity Incentive Plan, Mr. Ott 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 the Company. The Company shall grant to Mr. Ott,
within ninety days of the date of the Agreement, options to purchase such number
of common shares of the Company equal to 1% of the number of common shares of
the Company outstanding on the date of the Agreement (subject to the vesting and
the satisfaction of the other terms and conditions of such options). The Company
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 such number of common shares of the Company equal to 0.25% of the
number of common shares of the Company outstanding on the date of the Agreement
(subject to the vesting and the satisfaction of the other terms and conditions
of such options).

                                      -21-
<PAGE>

**Mr. Ott resigned from the Company effective March 30, 2001 for personal
  reasons.

      Randolph Hall, Vice President Sales. In March, 2002, the Company entered
into a two year employment agreement with Mr. Hall, which entitled him to a base
salary of $73,500 per year which may at the Board of Directors discretion adjust
his base salary (but not below $73,500 per year). Mr. Hall is also entitled to
participate in the Annual Management Bonus Plan. As a participant in the Annual
Management Bonus Plan, Mr. Hall will be eligible to receive bonuses, based on
performance, in any amount from 0% to 100% of the Base Salary. In addition, Mr.
Hall shall participate in the Management Equity Incentive Plan. As a participant
in the Management Equity Incentive Plan, Mr. Hall 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 the Company. The Company shall grant to Mr. Hall,
within ninety days of the date of the Agreement, options to purchase such number
of common shares of the Company equal to 1% of the number of common shares of
the Company outstanding on the date of the Agreement (subject to the vesting and
the satisfaction of the other terms and conditions of such options). The Company
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 such number of common shares of the Company equal to 0.25% of the
number of common shares of the Company outstanding on the date of the Agreement
(subject to the vesting and the satisfaction of the other terms and conditions
of such options). The Company shall also furnish Mr. Hall with an automobile and
automobile expenses.

Mr. Hall was appointed as Vice President of Sales effective January 25, 2002.

Employee and Director Stock Option Plans

         The Company adopted the 1994 Stock Option Plan, (restated in 1997) (the
"Plan") in order to attract and retain qualified personnel. In October 1998, the
Board of Directors voted to amend the plan but has not formally established the
amended plan to date and will not do so this fiscal year. However, under the
proposed 1998 Plan, the Compensation Committee of the Board of Directors in its
discretion may grant stock options (either incentive or non-qualified stock
options) to officers and employees. The terms and conditions upon which the
options may be exercised will be set out in the Plan. The Plan is intended to
provide a method whereby employees of the Company and others who are making and
are expected to make substantial contributions to the successful management and
growth of the Company are offered an opportunity to acquire Common Stock as an
incentive to remain with the Company and advance its interests. Therefore, to
date, no options have been granted under the 1998 plan and none will be until
the plan is formalized some time during the next fiscal year. On August 31,
1999, the Company granted bonuses to various officers and employees in the form
of 902,500 options for shares of the Company's Common Stock, fully vested, with
an exercise price of $0.37 per share. On December 15, 2000, the Company granted
to various officers and employees 843,000 options for shares of the Company's
Common Stock, fully vested, with an exercise price of $0.10 per share, the then
fair market value of the underlying shares.

                                      -22-
<PAGE>

Compensation of Directors

The Directors who are employees of the Company receive no compensation for their
services as Directors, either on an annual basis or for each meeting. Directors
who are not an employee of the Company, receive $1,000 for each Board of
Directors meeting attended and any travel expenses they may incur to attend
meetings.

ITEM 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth current information relating to the beneficial
ownership of the Common Stock of the Company by (i) each person owning
beneficially more than 5 percent of the outstanding shares of Common Stock, (ii)
each Director of the Company and (iii) all Executive Officers and directors of
the Company as a group: Percentage of beneficial ownership is based upon
53,065,578 shares of common stock outstanding at March 31, 2002.

                                                           Beneficial Ownership
Name and Address                                           of Common Stock
Of Beneficial Owner              No. of Shares (3)         Prior to This Filing
-------------------              -----------------         --------------------
Garrett U. Cohn
249 Willow Parkway
Buffalo Grove, IL 60089            1,695,000 (1)                  3.2%

Michael Pellegrino
33 Maple Lane
Brielle, NJ 08730                    335,000                      0.6%

Michael Ott**
26415 212th Avenue
Delhi, IA 52223                      215,000                     0.04%

Randolph Hall
505 Northridge Rd.
Collegeville, PA 19426               398,000                     0.08%

Robert P. Martin**
521-5th Avenue W., #1104
Seattle, WA  98119                 3,099,000(2)                   5.8%

Robert Gowell
264 Susquehanna Trail
Allentown, PA  18104                  96,300                     0.02%

Myrna Cohn Ph.D.**
249 Willow Parkway
Buffalo Grove, IL  60089              15,000                    0.006%

Norman Cohn
200 Pine Tree Road
Radnor, PA 19087                     840,000                      1.6%

All Officers & Directors
As a Group                         6,693,300(3)                  12.6%

---------------
**Was a Director during 2001.

                                      -23-
<PAGE>

(1) Garrett U. Cohn owns 60,000 shares of stock. In addition, Mr. Cohn has the
right to vote 840,000 shares of stock held of record by Norman Cohn pursuant to
a Voting Trust Agreement described below, and, as a result of such voting
rights, such shares are included in the shares shown as beneficially owned by
Garrett U. Cohn.

(2) Mr. Martin holds 2,399,000 in direct holdings and 700,000 in indirect
holdings. Mr. Martin resigned from the Board of Directors on January 3, 2002.

(3) Of the total Officers and Director's shares, 53,000 shares are options which
are 10 year options with a three-year vesting period, vesting 1/3 each year with
a strike price of thirty-three cents ($0.33). Also included is a ten-year option
for 15,000 shares that vest over four years at a strike price of three dollars
and eighty-one cents ($3.81). Additionally, there are 110,000 options which are
10 year options that vest over 4 years a strike price of $3.30. The remaining
1,480,000 options are 10 year options that are fully vested at varying strike
prices.

(3) Includes all options that are exercisable within the next sixty (60) days.

Under the terms of the Voting Trust Agreement dated April 19, 1995, between
Norman Cohn and Garrett U. Cohn, as Trustee, Norman Cohn has transferred to the
trust 840,000 shares of Common Stock of the Company, representing all of the
shares of Common Stock owned by him. Under the terms of the Voting Trust
Agreement, Garrett U. Cohn, as the Trustee, has the right to vote the stock in
the Voting Trust, except as to certain actions, including, but not limited to,
any amendment to the certification of incorporation of the Company, merger or
sale of substantially all of the assets of the Company or any action which will
cause a dilution in the outstanding shares of Common Stock. The term of the
Voting Trust is 10 years and shall terminate in April, 2005.

There are no arrangements known to the Company that at a later date may result
in a change in control of the Company.



                                      -24-
<PAGE>

ITEM 13. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit
Number        Description
------        -----------
2.1   *       Certificate of Incorporation of the Company. Incorporated June 13,
              1994.
2.2   *       Restated Articles of Incorporation of the Issuer, May 21, 1997.
2.3   *       Amended Articles of Incorporation.
2.3.1 *****   Amended Articles of Incorporation dated October 9, 2001
2.4   *       By-Laws of the Company.
4.1.  ***     Form of Warrant Agreement with Form of Warrant Election to
              Purchase
4.1.1 ****    Executed Warrant Agreement with AJW Partners, LLC
4.1.2 ****    Executed Warrant Agreement with New Millennium Capital Partners
              II, LLC
4.2   *****   Executed Stock Purchase Warrant Agreement with AJW Partners LLC
4.2.1 *****   Executed Stock Purchase Warrant Agreement with New Millennium
              Capital Partners II LLC
4.2.2 *****   Executed Stock Purchase Warrant Agreement with Bristol Investment
              Fund, Ltd.
5.1   *       Form of Voting Trust Agreement between Norman Cohn and Garrett U.
              Cohn.
5.1.1 ***     Legal Opinion to Investors
5.1.2 ****    Opinion re: Legality
5.1.3 *****   Legal Opinion to Investors
6.18  *       Security Agreement and Note dated as of August 14, 1996 in the
              principal Amount of $125,000 made by Garrett U. Cohn in favor of
              the Company.
6.2   *       Resolution to Security Agreement between Norman Cohn and Garrett
              U. Cohn.
6.3   *       Employee 1997 Stock Option Plan adopted by the Board of Directors
              February 24, 1998 and subject to stockholder ratification.
6.5   *       Warrant Agreement dated April 19, 1995 between the Company and Jay
              Teitlebaum.
6.6   *       Warrant Agreement dated June 16, 1995 between the Company and
              Norman Cohn. Incorporated by reference: Form 10-KSB, period
              December 31, 1996, File No. 0-26604, Exhibit 4.4.
6.7   *       Lease for the Premises dated May 16, 2000.
6.8   *       Cohn Employment and Non-competition Agreement of Garrett U. Cohn
              dated July 7, 1994. Incorporated by reference: Form 10-KSB, period
              December 31, 1996, File No. 0-26604, Exhibit 10.1.
6.9   *       Employment Agreement for Michael Pellegrino.
6.9.1 *       Employment Agreement for Michael Ott.
6.9.2 *       Employment Agreement for Randolph Hall
6.9.3         Employment Agreement for Michael Pellegrino (2002)
6.9.4         Employment Agreement for Randolph Hall (2002)
10.1  **      Software License and Royalty Agreement between Company and Harris
              Corporation
10.2  **      Agreement for Development of Finger/Slap Scanner Product between
              the Company and ISC/U.S., Inc.
10.2.1*****   Software License and Royalty Agreement between Company and
              AuthenTec
10.3  ***     Form of Secured Convertible Debenture Purchase Agreement (December
              28, 2000)
10.3.1****    Executed Secured Convertible Debenture Purchase Agreement
10.3.2*****   Executed Securities Purchase Agreement
10.4  ***     Form of First Amendment to Secured Convertible Debenture Purchase
              Agreement (March 5, 2001)
10.5  ***     Form of 12% Convertible Debenture
10.5.1****    Executed 12% Convertible Debenture with AJW Partners, LLC
10.5.2****    Executed 12% Convertible Debenture with New Millennium Capital
              Partners II, LLC
10.5.3*****   Executed Secured Convertible Debenture with AJW Partners LLC
10.5.4*****   Executed Secured Convertible Debenture with New Millennium Capital
              Partners II LLC
10.5.5*****   Executed Secured Convertible Debenture with Bristol Investment
              Fund, Ltd.
10.6  **      Form of Registration Rights Agreement


                                      -25-
<PAGE>

10.6.1****    Executed Registration Rights Agreement
10.6.2*****   Executed Registration Rights Agreement
10.7  ***     Form of Security Agreement
10.7.1*****   Executed Security Agreement
10.8  ***     Form of 10% Convertible Debenture
10.8.1****    10% Convertible Note to Robert Gowell
10.9  ****    Escrow Agreement
10.9.1****    Transfer Agent Instructions
10.9.2*****   Executed Escrow Agreement
10.9.3*****   Transfer Agent Instructions
10.10 ****    Contract with DBA Systems, a Division of Titan Industries
10.11 ****    Executed Second Amendment to Secured Convertible Debenture
              Purchase Agreement
10.12 *****   Form of Private Placement Subscription Agreement
16.0  *       Letter re change in certifying accountant
16.1          Letter re change in certifying accountant (Ernst & Young)
23.1  ***     Consent of Counsel, Owen Naccarato (included in Exhibit 5.1.2)
23.2  *****   Consent of independent auditors, Ernst & Young LLP


*    Previously filed on Form 10-SB September 20, 2000, File No. 0-26604
**   Previously filed on Form 10-SB/A November 17, 2000, File No. 0-26604
***  Previously filed on Form SB-2 May 1, 2001, File No. 333-59888
**** Previously filed on Form SB-2, Amendment 2, August 29, 2001, File
     No. 333-59888
*****Previously filed on Form SB-2 February 13, 2002, File No. 333-82662

(b)  Reports on Form 8-K:

January 7, 2002            Item 6
                           Resignation of John Boyle for personal reasons
                           Resignation of Bob Gowell for personal reasons
                           Resignation of Robert Martin due to disagreements
                           with Company operations, policies and practices

February 7, 2002           Item 4
                           Change in Registrant's Certifying Accounts


                           Item 6
                           Resignation of Myrna Marks-Cohn for personal reasons

February 19, 2002 Amendment to February 7, 2002 8-K Filing

                           Item 4
                           Change in Registrant's Certifying Accounts

                           Item 6
                           Resignation of Myrna Marks-Cohn for personal reasons.


                                      -26-
<PAGE>



         Signatures


         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                   Digital Descriptor Systems, Inc.

                   By: /s/  Michael J. Pellegrino
                      ----------------------------------------------------------
                      Michael J. Pellegrino, President & Chief Operating Officer

                      Dated:   April 15, 2002

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature                                   Title                                       Date
---------                                   -----                                       ----
<S>                                        <C>                                         <C>
By:      /s/Robert Gowell                   Chief Executive Officer,                    April 15, 2002
         ------------------                 Director - Co-Chairman
         Robert Gowell


By:      /s/Garrett U. Cohn                 Director - Co-Chairman                      April 15, 2002
         ------------------
         Garrett U. Cohn


By:      /s/ Michael Pellegrino             President and Chief Operating Officer,      April 15, 2002
         ------------------------            Director
            Michael Pellegrino


By:      /s/ Vincent Moreno                 Director                                    April 15, 2002
         ------------------
            Vincent Moreno


By:      /s/ Anthony Shupin                 Director                                    April 15, 2002
         ------------------
            Anthony Shupin
</TABLE>

                                      -27-

<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.

                              FINANCIAL STATEMENTS

                           DECEMBER 31, 2001 and 2000























<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                        CONTENTS TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 and 2000




                                    Contents


Independent Auditors' Reports:                                        F-1



Audited Financial Statements


Balance Sheets
December 31, 2001 and 2000                                            F-3


Statements of Operations
For the Years Ended December 31, 2001 and 2000                        F-4

Statements of Shareholders' Equity (Deficiency)
For the Years Ended December 31, 2001 and 2000                        F-5


Statements of Cash Flows
For the Years Ended December 31, 2001 and 2000                        F-6


Notes to Financial Statements                                         F-8





<PAGE>


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders,
Digital Descriptor Systems, Inc.

We have audited the accompanying balance sheet of Digital Descriptor Systems,
Inc., as of December 31, 2001, and the related statements of operations,
shareholders' equity (deficiency) and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Digital Descriptor Systems,
Inc. as of December 31, 2001, and the results of its operations and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 2 to
the financial statements, the Company has never been profitable and continues to
incur losses from operations and anticipates that it will require additional
debt and/or equity financing in 2002, which may not be readily available. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.






WithumSmith+Brown
Newtown, Pennsylvania
March 23, 2002

<PAGE>


                         Report of Independent Auditors

The Board of Directors and Shareholders
Digital Descriptor Systems, Inc.

We have audited the accompanying balance sheet of Digital Descriptor Systems,
Inc. as of December 31, 2000, and the related statements of operations,
shareholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Digital Descriptor Systems,
Inc. as of December 31, 2000, and the results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States.

The accompanying financial statements have been prepared assuming that Digital
Descriptor Systems, Inc. will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has never been profitable and
continues to incur losses from operations and anticipates that it will require
additional debt and/or equity financing in 2001, which may not be readily
available. These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans relating to these matters are
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

                                          /s/ Ernst & Young LLP

Philadelphia, Pennsylvania
March 23, 2001





<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                                 BALANCE SHEETS
                               DECEMBER 31, 2001
<TABLE>
<CAPTION>
           ASSETS                                                                                  2001                    2000
                                                                                                   ----                    ----
<S>                                                                                             <C>                     <C>
Current Assets:
      Cash                                                                                      $   435,662             $   202,877
      Restricted cash                                                                                 5,969                  10,452
      Investment                                                                                          -                   1,000
      Accounts receivable, less allowance
         for uncollectible accounts of $87,930 and $114,000
         in 2001 and 2000, respectively                                                             107,948                 526,292
      Inventory                                                                                       5,665                  22,596
      Prepaid expenses                                                                              267,534                   8,698
      Debt discount and deferred financing costs                                                    807,014                 228,500
                                                                                                -----------             -----------
               Total current assets                                                               1,629,792               1,000,415

Note Receivable - Former Officer, Less Allowance
  for Uncollectible Notes of $177,400 and $-0-
  in 2001 and 2000, respectively                                                                          -                 165,525
Software Development Costs                                                                                -                 413,604
Furniture and Equipment, Net                                                                         37,090                 172,046
Deposits and Other Assets                                                                            24,395                  31,454
                                                                                                -----------             -----------

           TOTAL ASSETS                                                                         $ 1,691,277             $ 1,783,044
                                                                                                ===========             ===========

           LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

Current Liabilities:
      Accounts payable                                                                          $   418,764             $   481,163
      Accrued expenses                                                                              175,742                 189,209
      Deferred income                                                                               854,618                 854,787
      Current portion of equipment loan                                                               7,211                   7,147
      Convertible debentures                                                                        965,000                 200,000
                                                                                                -----------             -----------
           Total Current Liabilities                                                              2,421,335               1,732,306

Equipment Loan, Net of Current Portion                                                               20,066                  28,626
                                                                                                -----------             -----------
           Total Liabilities                                                                      2,441,401               1,760,932

Shareholders' Equity (Deficiency):
      Preferred stock, $.01 par value: authorized shares - 1,000,000;
           issued and outstanding shares - none                                                           -                       -
      Common stock, $.001 par value: authorized shares - 150,000,000;
           issued and outstanding shares - 48,045,610 at December 31, 2001                           48,045                  20,011
      Additional paid-in capital                                                                 16,726,819              14,544,579
      Accumulated deficit                                                                       (17,524,988)            (14,542,478)
                                                                                                -----------             -----------
           Total Shareholders' Equity (Deficiency)                                                 (750,124)                 22,112
                                                                                                -----------             -----------

           TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)                              $ 1,691,277             $ 1,783,044
                                                                                                ===========             ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.

                                      F-3
<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
<TABLE>
<CAPTION>
                                                                                     2001                      2000
                                                                                     ----                      ----
<S>                                                                              <C>                       <C>
Revenues:
      Software                                                                   $    938,654              $  2,060,499
      Hardware                                                                         94,350                   229,525
      Maintenance                                                                     520,837                   583,349
      Consulting                                                                       68,863                    91,249
      Other                                                                           104,003                    61,836
                                                                                 ------------              ------------
          Total Revenues                                                            1,726,707                 3,026,458

Costs and Expenses:
      Cost of revenues                                                                708,703                 1,615,286
      General and administrative                                                    1,705,242                 1,843,336
      Sales and marketing                                                             454,169                   917,381
      Research and development                                                        383,217                   536,350
      Write-off of software development costs                                         413,604                         -
      Provision for doubtful note receivable - former officer                         177,400                         -
      Depreciation                                                                    138,452                   162,330
      Interest and amortization of deferred debt costs                                753,029                     1,775
      Other (income) expense, net                                                     (24,599)                  (19,948)
                                                                                 ------------              ------------
           Total Costs and Expenses                                                 4,709,217                 5,056,510
                                                                                 ------------              ------------

Net Loss                                                                         $ (2,982,510)             $ (2,030,052)
                                                                                 ============              ============

Net Loss Per Common Share (Basic and Diluted)                                         $ (0.12)                  $ (0.11)
                                                                                 ============              ============

Weighted Average Number of Common Shares Outstanding:
      Basic and Diluted                                                            24,436,773                18,557,547
                                                                                 ============              ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.

                                      F-4


<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                 STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
<TABLE>
<CAPTION>
                                                              Common Stock
                                                       -------------------------         Additional            Unearned
                                                         Shares          Amount        Paid-in Capital       Compensation
                                                       ----------       --------       ---------------       ------------
<S>                                                   <C>              <C>             <C>                   <C>
Balance at December 31, 1999                           14,380,127       $ 14,380        $ 12,957,544          $ (14,000)
      Issuance of common shares in connection
          with a Reg. A Offering, net of offering
          costs                                         4,426,485          4,426           1,159,640                  -
      Issuance of common stock for services             1,205,000          1,205             259,895                  -
      Debt discount relating to the beneficial
          conversion feature on convertible
          debentures and issuance of warrants                   -              -             167,500                  -
      Amortization of unearned compensation                     -              -                   -             14,000
      Net loss                                                  -              -                   -                  -
                                                       ----------       --------        ------------          ---------
Balance at December 31, 2000                           20,011,612         20,011          14,544,579                  -
      Issuance of common shares in connection
          with a Reg. A Offering, net of offering
          costs                                         7,999,996          8,000             221,000                  -
      Issuance of common stock for services             4,328,831          4,329             409,993                  -
      Conversions of convertible debentures to
          common stock                                 15,705,171         15,705             494,747                  -
      Debt discount relating to the beneficial
          conversion feature on convertible
          debentures and issuance of warrants                   -              -           1,056,500                  -
      Net loss                                                  -              -                   -                  -
                                                       ----------       --------        ------------          ---------
Balance at December 31, 2001                           48,045,610       $ 48,045        $ 16,726,819          $       -
                                                       ==========       ========        ============          =========


                                                                                      Shareholders'
                                                              Accumulated                Equity
                                                                Deficit               (Deficiency)
                                                             ------------             ------------
Balance at December 31, 1999                                 $(12,512,426)             $  445,498
      Issuance of common shares in connection
          with a Reg. A Offering, net of offering
          costs                                                         -               1,164,066
      Issuance of common stock for services                             -                 261,100
      Debt discount relating to the beneficial
          conversion feature on convertible
          debentures and issuance of warrants                           -                 167,500
      Amortization of unearned compensation                             -                  14,000
      Net loss                                                 (2,030,052)             (2,030,052)
                                                             ------------              ----------
Balance at December 31, 2000                                  (14,542,478)                 22,112
      Issuance of common shares in connection
          with a Reg. A Offering, net of offering
          costs                                                         -                 229,000
      Issuance of common stock for services                             -                 414,322
      Conversions of convertible debentures to
          common stock                                                  -                 510,452
      Debt discount relating to the beneficial
          conversion feature on convertible
          debentures and issuance of warrants                           -               1,056,500
      Net loss                                                 (2,982,510)             (2,982,510)
                                                             ------------              ----------
Balance at December 31, 2001                                 $(17,524,988)             $ (750,124)
                                                             ============              ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.

                                      F-5

<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
<TABLE>
<CAPTION>
                                                                                                   2001                  2000
                                                                                                   ----                  ----
<S>                                                                                            <C>                   <C>
Cash Flows from Operating Activities:
      Net loss                                                                                 $(2,982,510)          $(2,030,052)
      Adjustments to reconcile net loss to net cash used
        in operating activities:
           Depreciation                                                                            138,452               162,330
           Write-off of software development costs                                                 413,604                     -
           Provision for doubtful note receivable -
             former officer                                                                        177,400                     -
           Common stock issued for services received                                               414,322               261,100
           Amortization of deferred financing costs and debt
               discounts related to the issuance of warrants
               and the beneficial conversion
               feature of convertible debentures                                                   676,486                     -
           Amortization of unearned compensation                                                         -                14,000
           Changes in assets and liabilities:
               Accounts receivable                                                                 418,344               330,303
               Inventory                                                                            16,931                26,097
               Prepaid expenses, deposits and other assets                                        (251,777)              (19,219)
               Accounts payable                                                                    (62,399)              360,026
               Accrued expenses                                                                     21,985                24,395
               Deferred income                                                                        (169)             (463,147)
                                                                                               -----------           -----------
                    Net Cash Used in Operating Activities                                       (1,019,331)           (1,334,167)

Cash Flows from Investing Activities:
      Proceeds from sale of  investment                                                              1,000                     -
      Purchase of furniture and equipment                                                           (3,496)              (30,325)
      Increase in note receivable - former officer                                                 (11,875)              (11,875)
      Decrease in restricted cash                                                                    4,483                99,548
                                                                                               -----------           -----------
                    Net Cash Provided by (Used in) Investing Activities                             (9,888)               57,348

Cash Flows from Financing Activities:
      Net proceeds from issuance of common stock                                                   229,000             1,164,066
      Proceeds from the issuance of convertible debentures, net
           of issuance costs of $198,500 in 2001 and $61,000 in 2000                             1,056,500               139,000
      Payment of convertible debentures                                                            (15,000)                    -
      Repayment of equipment loan                                                                   (8,496)                 (593)
                                                                                               -----------           -----------
                    Net Cash Provided by Financing Activities                                    1,262,004             1,302,473
                                                                                               -----------           -----------
Net Increase in Cash                                                                               232,785                25,654
Cash at Beginning of Year                                                                          202,877               177,223
                                                                                               -----------           -----------
Cash at End of Year                                                                            $   435,662           $   202,877
                                                                                               ===========           ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.

                                      F-6
<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
<TABLE>
<CAPTION>
                                                                                           2001                   2000
                                                                                           ----                   ----
<S>                                                                                    <C>                     <C>
Supplemental Disclosure of Cash Flow Information:

     Cash paid during the year for:
         Interest                                                                      $     7,263              $   1,775
                                                                                       ===========              =========
         Income taxes                                                                  $         -              $       -
                                                                                       ===========              =========

     Supplemental Disclosure of Non-Cash Investing
       and Financing Activities:

         Acquisition of equipment with loan                                            $         -              $  36,366
                                                                                       ===========              =========

         Debt discount relating to the issuance of warrants
            and the beneficial conversion features of convertible debt                 $ 1,056,500              $ 167,500
                                                                                       ===========              =========

         Conversion of $475,000 of debentures and $35,452 of accrued
            interest into common stock                                                 $   510,452              $       -
                                                                                       ===========              =========

</TABLE>
The Notes to Financial Statements are an integral part of these statements.

                                      F-7

<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 1 - Description of Business:
           Digital Descriptor Systems, Inc. (the "Company") 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 text 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 generated the
           majority of the Company's revenues during the years ended December
           31, 2001 and 2000. Substantially all of the Company's revenues are
           derived principally from state and local governments.

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:

              A. Basis of Financial Statement Presentation
                 The financial statements of the Company have been prepared
                 assuming the Company will continue as a going concern, which
                 contemplates the realization of assets and the satisfaction of
                 liabilities in the normal course of business. The Company has
                 never been profitable and has incurred substantial losses from
                 operations of $2,982,510 and $2,030,052 for the years ended
                 December 31, 2001 and 2000, respectively. The Company expects
                 that losses from operations will continue through 2002 and the
                 Company anticipates that it will require additional financing
                 in 2002, which may not be readily available. These factors
                 raise substantial doubt about the Company's ability to continue
                 as a going concern. The Company's plans include expanding the
                 sale and acceptance of its core business solutions by hiring
                 additional sales resources and increased marketing activities.
                 The Company is also pursuing FBI Certification and introduction
                 to the marketplace of the Compu-Scan 3000 fingerprint-capturing
                 device. However, there can be no assurances that the Company
                 will be successful in their efforts to generate profitable
                 operations. The financial statements do not include any
                 adjustments that might result from the outcome of this
                 uncertainty. Financial presentation may have been changed due
                 to reclassifications of certain items.

              B. 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.

              C. Inventory
                 Inventory is valued at the lower of cost (determined on a
                 first-in, first-out basis) or market.

              D. Revenue Recognition
                 The Company derives revenue from the sale of hardware,
                 software, post customer support (PCS), and other related
                 services. PCS includes telephone support, bug fixes, and rights
                 to upgrades on a when-and-if-available basis. Other related
                 services include basic consulting and training. Included with
                 the hardware is software that is not considered to be
                 incidental. Revenue from transactions with customers where the
                 software component is not considered to be incidental is
                 allocated between the hardware and software components based on
                 the relative fair value of the respective components.

                 The Company also derives revenue from the sale of software
                 without a related hardware component. Revenue allocable to
                 software components is further allocated to the individual
                 deliverable elements of the software portion of the arrangement
                 such as PCS and other services. In arrangements that include
                 rights to PCS for the software and/or other services, the
                 software component arrangement fee is allocated among each
                 deliverable based on the relative fair value of each of the
                 deliverables determined using vendor-specific objective
                 evidence, which has been established by the separate sales of
                 these deliverables.


                                      F-8
<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 2 - Summary of Significant Accounting Policies (Cont'd):

              D. Revenue Recognition (Cont'd)
                 The Company recognizes the revenue allocable to hardware and
                 software licenses upon delivery of the product to the end-user,
                 unless the fee is not fixed or determinable or collectibility
                 is not probable. If collectibility is not considered probable,
                 revenue is recognized when the fee is collected. Revenue
                 allocable to PCS is recognized on a straight-line basis over
                 the period the PCS is provided. Revenue allocable to other
                 services is recognized as the services are provided.

              E. Property and Equipment
                 Property and equipment are stated at cost. Depreciation and
                 amortization is computed using the straight-line method over
                 the estimated useful lives of related assets. Depreciable lives
                 of the Company's property and equipment are presented below:

                                                                Years
                                                                -----
                      Furniture and fixtures                      5
                      Computer equipment                          2
                      Vehicles                                    3
                      Leasehold improvements        Estimated useful life of
                                                    the asset or term of the
                                                    lease whichever is shorter

                 Repair and maintenance costs are expensed when incurred, while
                 additions and improvements are capitalized. The cost and
                 related accumulated depreciation or amortization of assets sold
                 or retired is eliminated from the accounts and any gains or
                 losses are reflected in income.

              F. Long-Lived Assets
                 The Company evaluates impairment of its intangible and other
                 long-lived assets in accordance with Statement of Financial
                 Accounting Standards No. 121, "Accounting for the Impairment of
                 Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
                 In making such determination, management compares the estimated
                 future cash flows, on an undiscounted basis, of the underlying
                 operations or assets with their carrying value to determine if
                 any impairment exists. If impairment exists, any adjustment is
                 determined by comparing the carrying amount to the fair value
                 of the impaired asset.

              G. Software Development Costs
                 The Company capitalizes software development costs after
                 technological feasibility of the software is established and
                 through the product's availability for general release to the
                 Company's customers. Technological feasibility of the Company's
                 software development costs is determined when the planning,
                 designing, coding, and testing activities are completed, and
                 the Company has established that the product can be produced to
                 meet its design specifications. All costs incurred in the
                 research and development of new software products and costs
                 incurred prior to the establishment of technological
                 feasibility are expensed as incurred. During 1999, $413,604 was
                 capitalized as software development costs in connection with
                 the Company's new product entitled Compu-Scan, a computerized
                 inkless fingerprint device. During 2000, the Company submitted
                 this product for approval to the FBI. In 2001, due to
                 uncertainty as to whether the Company will be able to obtain
                 funding needed to complete development and the FBI approval
                 process, the Company wrote down the asset to a net realizable
                 value of $-0-.

              H. 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
                 certain expenses, the periods of depreciation of certain assets
                 and net operating loss carryforwards.



                                      F-9
<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 2 - Summary of Significant Accounting Policies (Cont'd):

               I. Accounting for Stock Options
                 Financial Accounting Standards Board issued Statement No. 123
                 (SFAS 123), "Accounting for Stock-Based Compensation." SFAS 123
                 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 9.

              J. 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
                 exercise of common stock equivalents were assumed during any
                 period because the assumed exercise of these securities would
                 be anti-dilutive.

              K. 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.

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

              M. Impact of Recent Accounting Pronouncements
                 In August 2001, the FASB issued SFAS No. 144 "Accounting for
                 the Impairment or Disposal of Long-Lived Assets, which
                 addresses financial accounting and reporting for the impairment
                 or disposal of long-lived assets and supercedes SFAS No. 121,
                 Accounting for the Impairment of Long-Lived Assets to be
                 Disposed Of. Statement 144 is effective for the Company
                 beginning on January 1, 2002. The Company does not expect that
                 the adoption of SFAS No. 144 will have a significant impact on
                 the Company's financial position or results of operations.

                 In June 2001, the FASB issued SFAS No. 141, Business
                 Combinations, and No. 142 Goodwill and Other Intangible Assets,
                 effective for fiscal years' beginning after December 15, 2001.
                 Under the new rules goodwill and intangible assets deemed to
                 have indefinite lives will no longer be amortized but will be
                 subject to annual impairment tests in accordance with the
                 Statements. Other intangible assets will continue to be
                 amortized over their useful lives. The adoption of this
                 statement will have not have a significant impact on the
                 Company's financial position or results of operations.

                 In June 1999, the Financial Accounting Standards Board ("FASB")
                 issued Statement of Financial Accounting Standards No. 133,
                 "Accounting for Derivatives and Hedging Activities" (SFAS 133),
                 which established accounting and reporting standards for
                 derivative instruments, including certain derivative
                 instruments embedded in other contracts (collectively referred
                 to as derivatives), and for hedging activities. SFAS 133 is
                 effective for fiscal years beginning after June 15, 2000. Under
                 SFAS 133, accounting for changes in fair value of a derivative
                 depends on its intended use and destination. The Company
                 adopted SFAS 133 during the first quarter of 2001. The adoption
                 did not have a significant impact on the Company's financial
                 position or results of operations.


                                      F-10
<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 3 - Note Receivable - Former Officer:
           During 1996, the Company loaned the former President (departed
           January 25, 2002) of the Company $125,000 evidenced by a promissory
           note. The note bore interest at the prime rate plus 1%, and was
           payable together with the principal on August 13, 1999. The Company's
           Board of Directors agreed to extend the maturity date of this note
           indefinitely. At December 31, 2001 and 2000, accrued interest,
           included in the note receivable in the accompanying balance sheet was
           $52,400 and $40,525, respectively. In 2001, due to uncertainty as to
           whether the Company will collect the note, a reserve for
           uncollectible notes was recorded in the amount of $177,400.

Note 4 - Furniture and Equipment:
           Furniture and equipment consists of the following at December 31,
           2001 and 2000, respectively:

                                                     2001           2000
                                                     ----           ----
              Furniture and fixtures              $ 186,705     $ 186,705
              Computer equipment                    274,945       271,449
              Vehicles                               59,049        59,049
              Leasehold improvements                 34,977        34,977
                                                  ---------     ---------
                                                    555,676       552,180
              Less accumulated depreciation         518,586       380,134
                                                  ---------     ---------
                                                  $  37,090     $ 172,046
                                                  =========     =========

           Depreciation and amortization included as a charge to operations
           amounted to $138,452 and $162,330 for the years ended December 31,
           2001 and 2000, respectively.

Note 5 - Convertible Debentures:
           On December 31, 2001 the Company issued three convertible debentures
           for an aggregate amount of $500,000. The debentures are due December
           31, 2002 and accrue interest at the rate of 12% per annum. Interest
           on the debentures shall be paid quarterly commencing March 31, 2002.
           The holders have the right to convert the principal amount plus
           accrued interest into shares of the Company's common stock at any
           time through maturity. 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 $37,500 and the intrinsic value of the beneficial
           conversion feature of $385,000 have been allocated to paid-in
           capital. This resulting debt discount plus $77,500 of financing
           charges is being amortized on a straight-line basis over the term of
           the debentures. The debentures are collateralized by substantially
           all of the Company's assets.

           During September 2001, the Company issued two convertible debentures
           for an aggregate amount of $400,000. These debentures are due on
           September 30, 2002 and accrue interest at the rate of 12% per annum.
           Interest on the debentures shall be paid quarterly commencing
           December 31, 2001. The holders have the right to convert the
           principal amount plus accrued interest into shares of the Company's
           common stock at any time through maturity. 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 and the
           intrinsic value of the beneficial conversion feature of $262,000 have
           been allocated to paid-in capital. This resulting debt discount plus
           $90,000 of financing charges is being amortized on a straight-line
           basis over the term of the debentures. The debentures are
           collateralized by substantially all of the Company's assets.


                                      F-11
<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 5 - Convertible Debentures (Cont'd):
           During April 2001 and May 2001, the Company issued three convertible
           notes for an aggregate amount of $155,000 and accrue interest at the
           rate of 10% per annum. Interest on the debentures shall be paid
           quarterly commencing June 30, 2001. The holders have the right to
           convert the principal amount plus accrued interest into shares of the
           Company's common stock thirty days prior to the maturity date. 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. The intrinsic value
           of the beneficial conversion feature of $155,000 has been allocated
           to paid-in capital. This resulting debt discount is being amortized
           on a straight-line basis over the term of the debentures. The
           debentures are collateralized by substantially all of the Company's
           assets. During September 2001, $115,000 of the notes were converted
           into 1,498,540 shares of free trading common stock and 1,252,069
           shares of restricted stock at conversion prices ranging between of
           $.03895 and $.034 per share. In addition, $5,078 of accrued interest
           related to the debentures was converted into 132,827 shares of common
           stock. On the conversion date, the unamortized portion of the debt
           discount related to the converted debt, in the amount of $11,329, was
           charged to interest expense. In October 2001, $15,000 of the
           convertible debentures were paid. The parties have entered into an
           agreement to extend the maturity date of the remaining balance of
           $25,000 for another year.

           During March 2001, the Company issued two convertible debentures for
           an aggregate amount of $200,000 with a maturity date of March 4,
           2002. The debentures accrue interest at the rate of 12% per annum.
           The holders have the right to convert the principal amount plus
           accrued interest into shares of the Company's common stock at any
           time through maturity. 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 200,000 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 during the twenty Trading
           Days immediately prior to the date of exercise. The estimated fair
           value of the warrants of $64,000 and the intrinsic value of the
           beneficial conversion feature of $105,000 have been allocated to
           paid-in capital. This resulting debt discount plus $31,000 of
           financing charges is being amortized on a straight-line basis over
           the term of the debentures. The debentures are collateralized by
           substantially all of the Company's assets. During November 2001
           through December 2001, $160,000 of the debentures were converted into
           6,309,526 shares of common stock. On the conversion date, the
           unamortized portion of the debt discount and deferred financing costs
           related to the converted debt, in the amount of $40,479, was charged
           to interest expense.

           During December 2000, the Company issued $200,000 of convertible
           debentures to two investors. The debentures accrue interest at 12%
           per annum. The holder has the right to convert the debentures to
           common shares at any time through maturity at a conversion price the
           lessor of: $0.08 per share or 50% of the average of the lowest three
           trading prices during the 20 days preceding the conversion date. The
           debenture holders also received warrants to purchase 400,000 common
           shares at an exercise price of $0.036 per share at any time before
           December 28, 2003. The estimated fair value of the warrants of
           $40,000 and the intrinsic value of the beneficial conversion feature
           of $127,500 have been allocated to paid-in capital. This resulting
           debt discount plus the $61,000 of financing charges was amortized on
           a straight-line basis over the term of the debentures. During
           September 2001 through November 2001 the debentures in the amount of
           $200,000 were converted into 5,241,754 shares of common stock. In
           addition, $30,374 of accrued interest related to the debentures was
           converted into 1,012,494 shares of common stock. On the conversion
           date, the unamortized portion of the debt discount and deferred
           financing costs related to the converted debt, in the amount of
           $41,756, was charged to interest expense.


                                      F-12
<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 6 - Equipment Loan
           During 2000, the Company entered into a $36,366 automobile loan,
           maturing in November 2005. The loan requires monthly installments of
           $620, including interest at .9%. The loan is collateralized by the
           automobile. Future maturities of the loan are as follows:

               2002                                  $  7,211
               2003                                     7,276
               2004                                     7,342
               2005                                     5,448
               2006 and Thereafter                          -
                                                     --------
                                                     $ 27,277
                                                     ========

Note 7 - Income Taxes:
           At December 31, 2001, the Company had federal net operating loss
           carryforwards of approximately $11,124,000 to offset future federal
           taxable income expiring in various years through 2021. The Company
           also has state net operating loss carryforwards of approximately
           $621,500 to offset future state taxable income expiring in various
           years through 2021.

           The timing and extent in which the Company can utilize future tax
           deductions in any year may be limited by provisions of the Internal
           Revenue Code regarding changes in ownership of corporations due to
           certain ownership changes of the Company.

           The tax effects of temporary differences that give rise to
           significant portions of deferred tax assets and deferred tax
           liabilities at December 31, 2001 and 2000 are as follows:
<TABLE>
<CAPTION>
                                                                 2001             2000
                                                                 ----             ----
<S>                                                          <C>              <C>
                  Deferred tax assets:
                      Net operating loss carryforwards        $ 3,838,269      $ 3,453,113
                      Bad debt reserves                            37,810           43,519
                      Inventory reserves                            1,868              200
                      Accrued expenses                                  -            1,755
                      Depreciation                                 67,848                -
                                                              -----------      -----------
                  Total deferred tax assets                     3,945,795        3,498,587

                  Deferred tax liabilities:
                      Software development                              -         (157,441)
                      Depreciation                                      -          (22,914)
                                                              -----------      -----------
                  Total deferred tax asset                      3,945,795        3,318,232
                  Valuation allowance                          (3,945,795)      (3,318,232)
                                                              -----------      -----------
                  Net deferred tax asset                      $         -      $         -
                                                              ===========      ===========
</TABLE>
  Note 8 - Commitments and Contingencies:
           The Company leases certain facilities, vehicles and office equipment
           under non-cancelable operating lease agreements that expire at
           various dates through 2005. Future minimum lease payments at December
           31, 2001 are as follows:

                               2002                      $  118,194
                               2003                         118,194
                               2004                         118,486
                               2005                          56,462
                               2006 and thereafter                -
                                                         ----------
                                                         $  411,336
                                                         ==========

           Rental expense under such operating leases was approximately $104,100
           and $126,000 during the years ended December 31, 2001 and 2000,
           respectively.

                                      F-13
<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 9 - 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. Under the Director Plan, each outside
           director is automatically granted an option to purchase 15,000 shares
           of common stock (first option) upon adoption of the Director Plan or
           the date such person becomes a director. Every year thereafter, each
           outside director is automatically granted an option to purchase 1,000
           shares (subsequent option) on each date of the annual meeting if a
           minimum of six months were served on the Board of Directors. 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.

           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 December 31, 1999              179,000       33,182           896,500        1,109,312       $.33-$3.81
Granted                                       843,000            -                 -          843,000              .10
Expired                                             -            -            (7,500)          (7,500)             .37
                                            --------------------------------------------------------------------------
Outstanding at December 31, 2000            1,022,000       33,812           889,000        1,944,812       $.10-$3.81
Granted                                             -            -                 -                -                -
Expired                                      (103,500)      (7,500)         (208,000)        (319,000)      $.10-$3.81
                                            --------------------------------------------------------------------------
Outstanding at December 31, 2001              918,500       26,312           681,000        1,625,812       $.10-$3.81
                                            ==========================================================================
Exercisable options at
December 31, 2001                             918,500       26,312           681,000        1,625,812
                                            =========================================================
</TABLE>
           At December 31, 2001, the remaining contractual life of outstanding
           options was 8 years.

           Pro forma information regarding 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 is as follows:

                                                    December 31
                                                    -----------
                                                2001            2000
                                                ----            ----
                  Net loss:
                      As reported           $(2,982,510)    $(2,030,052)
                      Pro forma             $(2,993,559)    $(2,103,563)
                  Net loss per share:
                      As reported                 $(.12)          $(.11)
                      Pro forma                   $(.12)          $(.12)

           The Company estimated the fair value of stock options at the date of
           grant by using a Black Scholes option pricing model with the
           following weighted-average assumptions for grants in 2000 as follows:
           risk-free interest rate of 5.5% for all years; expected life of the
           option of 5 years; no expected cash dividend payments on common
           stock, and volatility factors of the expected market price of the
           Company's common stock of: 1.033. The weighted average estimated fair
           value of stock options granted during 2000 was $.01. There were no
           options issued in 2001.

                                      F-14
<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 9 - Stock Option and Other Plans (Cont'd):
           The Black-Scholes option valuation model was developed for use in
           estimating the fair value of traded options which have no vesting
           restrictions and are fully transferable. As noted above, the
           Company's stock options are vested over an extended period. In
           addition, option models require the input of highly subjective
           assumptions including future stock price volatility. Because the
           Company's stock options have characteristics significantly different
           from those of traded options, and because changes in the subjective
           assumptions can materially affect the fair value estimates, in
           management's opinion, the Black-Scholes model does not necessarily
           provide a reliable measure of the fair value of the Company's stock
           options.

           During 1997, the Company adopted the Consultants and Advisors
           Compensation Plan (the Plan). Persons eligible under this Plan
           include any consultant or advisor of the Company who has provided
           bona fide services to the Company, except for services provided in
           connection with the offer or sale of securities in an equity
           transaction. The Company reserved 300,000 shares of common stock for
           issuance under this Plan of which 211,357 shares have been awarded
           through December 31, 2000. Awards may be granted in the form of stock
           options or stock grants. No awards shall be made after December 31,
           2001. The Company has not awarded any stock options or stock grants
           under this Plan since 1998.

Note 10 - Equity Transactions:
           During October 2001 through December 2001, the Company received
           $229,000 net of $11,000 of issuance costs, from the issuance of
           7,999,996 shares of common stock at $.03 per share via subscription
           agreements to various individuals.

           During 2001 and 2000, the Company issued 4,328,831 and 1,205,000
           shares, respectively, of restrictive common stock for services
           received. The Company recorded a charge for the issuance of such
           shares during 2001 and 2000 of $414,322 and $261,100, respectively,
           based on the fair market value of the Company's common stock on the
           date of the stock grant.

           In connection with the Company's initial public offering in 1995, the
           Company issued to each unit holder one Redeemable Class A Warrant and
           one Redeemable Class B Warrant. The Warrants were immediately
           detachable and separately transferable. Each Class A Warrant entitled
           the holder to purchase one share of common stock for $6.00 subject to
           adjustment, during the four-year period commencing one year from the
           date of the offering. Each Class B Warrant entitled the holder to
           purchase one share of common stock for $7.25 subject to adjustment,
           during the four-year period commencing one year from the date of the
           offering. The Class A and Class B Warrants are subject to redemption
           by the Company at any time, (within thirty days notice) at $.10 per
           warrant provided that the per share closing bid price of the common
           stock exceeds 175% of the exercise price for the Class A Warrant, and
           200% of the exercise price for the Class B Warrant, for at least 20
           consecutive trading days. During July 2000, the Company's Board of
           Directors reduced the exercise price of the Class A Warrants from
           $6.00 to $1.00, and reduced the exercise price of the Class B
           Warrants from $7.50 to $1.50. The expiration date for the Class A and
           Class B Warrants was extended from August 15, 2000 to August 15,
           2002. At December 31, 2001 and 2000, there were 1,483,750 Redeemable
           Class A Warrants outstanding and 1,483,750 Redeemable Class B
           Warrants outstanding.

           During July 1994, the Chairman excercised rights to purchase 119,999
           shares of Common Stock at $.001 per share in connection with an
           employment agreement. The Company recorded $120,000 in unearned
           compensation, based on the fair value of the restricted stock at the
           date of issuance. Such unearned compensation has amortized to expense
           in the statement of operations over the period of the employment
           agreement. Amortization expense of $-0- and $14,000 was recorded
           during the years ended December 31, 2001 and 2000, respectively.


                                      F-15
<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 10 - Equity Transactions (Cont'd):
           At December 31, 2001, the Company has the following common shares
reserved for issuance:

           Common stock options available to grant                    4,255,188
           Common stock options outstanding                           1,625,812
           Common stock purchase rights                                 119,999
           Class A warrants outstanding                               1,483,750
           Class B warrants outstanding                               1,483,750
           Common stock available for grant:
                  Employee stock purchase plan                          100,000
                  Consultants and advisors compensation plan             88,643
           Convertible debentures                                    12,846,668
                                                                     ----------
                      Total                                          22,003,810
                                                                     ==========

Note 11 - Subsequent Events:
           During January 2002, the Company issued 360,000 shares of restricted
           common stock for consulting services received. Such shares were
           valued at the fair market value on the date the shares were granted.

           During January 2002, the Company issued 1,500,000 shares of common
           stock in payment of $12,600 accrued interest on convertible
           debentures. During February 2002, the Company issued 703,828 shares
           of common stock in payment of $5,771 of accrued interest on
           convertible debentures.

           During February 2002, $14,000 of debentures were converted into
           2,456,140 shares of common stock.

           In April 2002, the Company entered into an agreement to extend the
           maturity date of the convertible debentures issued in March 2001 in
           the amount of $200,000 with a maturity date of March 4, 2002 for an
           additional year.



                                      F-16