<PAGE>

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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  FORM 10-KSB/A
(Mark One)
[X]      ANNUAL REPORT PURSUANT SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934.

                  For the fiscal year ended December 31, 2002.

[ ]      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
incorporation or organization)                               Identification No.)


        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 Form 10-KSB.___

The issuer had revenues of $1,213,189 for the fiscal year ended December 31,
2002.

As of December 31, 2002, 61,351,387 shares of the issuer's Common Stock were
outstanding. The aggregate market value of the voting stock held by
non-affiliates on December 31, 2002 was approximately $156,200 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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<PAGE>


                                     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, markets and installs computer systems 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.

         While the majority of DDSI's sales are one time software based sales,
DDSI does offer maintenance and support for their products. DDSI has generated
$580,315 in the past year in maintenance and support revenue, and $1,706,588
over the past three years from these services. Year to year, Service revenue
generally accounts for an average of 23% of total revenue.

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 ensure accuracy and clarity. Once an acceptable image
is obtained, the booking officer can 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, and fingerprint codes.

                                     - 2 -
<PAGE>

         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. The officer
conducting a search can assign priorities or values to physical characteristics
for the computer's search of the database of existing subjects. Features that
are difficult to disguise or alter, such as facial scars, can be assigned higher
values than other characteristics such as hair color or facial hair. 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.

         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(R) 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 (the process by which a text-based system has images linked
to its data records by some unique identifier. This process eliminates the need
to re-key data and/or maintain multiple databases) 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(R)

         The Compu-Sketch(R) 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.


                                     - 3 -

<PAGE>

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.

New Products

Identify On Demand System:

         The Identify 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 "Identify on Demand" system
provides for a PVC (Polyvinylchloride) card to contain three or four lines of
descriptive data, a full color photo, and options for fingerprints, signature,
magnetic stripe or barcode applications. "Identify On Demand" is expandable to
include fingerprint matching, use as an access control card, and can integrate
data and images to other software.

FMS ("Fingerprint Matching System")

         In December of 2001, DDSI secured a royalty license from AuthenTec
Inc., located in Melbourne, Florida, for a software suite called PowerMatch(TM)
("FMS") that enables the end user to capture, digitize, store, retrieve and/or
match or sort fingerprints. DDSI subsequently renamed the software FMS
("Fingerprint Matching System"). DDSI does not have a relationship with
AuthenTec Inc.'s Officers or Directors.

         The agreement provides DDSI with a royalty bearing worldwide,
non-exclusive right and license to use the Power Match Software (FMS) in selling
or providing services to customers throughout the world. In exchange for the
non-exclusive FMS license, DDSI shall pay AuthenTec the following:

         1. a one-time royalty payment of $5,000,
         2. 10% royalty of the sales "Price" for each PowerMatch Product sale.
         3. the royalty obligation shall continue for the duration of the
            Agreement
         4. the agreement is an open ended contract.

         The FMS performs its matching, storage and capturing functions under
the FBI approved AINSI-NIST and NCIC 2000 regulations and the Compu-Capture(R)
and Compu-Scan 3000 can be integrated with this software. Since it is completely
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.


                                     - 4 -

<PAGE>


Compu-Scan 3000

         During 1998, DDSI entered into a development contract with ISC/US to
develop a computerized inkless, non-contact fingerprint capture device. On July
25, 2000, DDSI entered into an agreement with DBA Systems, a division of Titan
Systems Corp., for technical assistance in achieving compliance with the FBI
certification process. We re-evaluated this product and determined that to see
the project to completion would cost an additional $400,000 to $600,000 dollars
plus an additional 12 to 18 month timeframe, with no guarantee of FBI
certification. As such, we decided not to pursue this project any further and
focus on developing the existing products.

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 two (2) 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 applications.

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(R) 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 does not rely on any particular customers or business partners for
the majority of their sales.

Business Alliances

         Our business alliance relationships have changed over the years,
however we continue to generate the majority (approximately 50%) of our revenue
though our relationships with records management and jail management vendors
(i.e. HTE, Inc. located in Lake Mary, FL and FSG Software, Inc. located in
Janesville, WI). Since these vendors have written the necessary integration to
use DDSI imaging solutions, when a customer is looking to include an imaging
system in their program, the vendor will inform DDSI of the customers need. DDSI
is responsible for all marketing and sales efforts of our imaging solution. DDSI
believes that a substantial part of its growth will continue to come through
these business alliances.

         DDSI supplies to its business partners a SDK (software developers kit),
which allows them to link our software to their software.

                                     - 5 -
<PAGE>

Greater Penetration of Existing Customers

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

         Due to the high market penetration by DDSI's business alliances, DDSI
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, 2002, 2001, and 2000, 99.9%,
89%, and 93%, respectively, of DDSI's revenues have been from domestic
customers. Foreign sales for 2002, 2001, and 2000 were $5,598, $70,856, and
$205,953, or an aggregate for these years of approximately $282,225.

Competition

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

         DDSI's Compu-Capture(R) system (video imaging mug shot solution)
currently has several competitors, including ImageWare Systems of San Diego,
California.

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

         DDSI's Compu-Scene product is packaged with other DDSI systems. 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.
Therefore its competition would again be CrossMatch and Identix Incorporated.

Suppliers

         DDSI's hardware 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.

                                     - 6 -
<PAGE>

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.

Research and Development

         DDSI spent $177,033 in 2002 and $383,217 in 2001 for a total of
$560,250 on pure research and development in the last two years. This amount
includes $287,971 spent on outside sources for assistance with Research &
Development projects. None of these costs have been borne directly by our
customers.

         The money spent was mainly on the continuing development of the FMS
(Fingerprint Matching System) software.

Product Liability Insurance

         Although DDSI's believes its products are safe, it may be subject to
product liability claims from persons injured through the use of DDSI's marketed
products or services. DDSI 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 DDSI. There also can
be no assurance that DDSI will be able to obtain its own liability insurance
(should it seek to do so) on economically feasible terms. DDSI'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 DDSI to date, if there were any such claims brought
against DDSI, the cost of defending against such claims and any damages paid by
DDSI in connection with such claims could have a materially adverse impact upon
DDSI, including its financial position, results of operations and cashflows.

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. Due to the
cessation of the development of the Compu-Scan product DDSI, does not intend to
pursue this patent application any further.

         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.

Other Events

         On February 14, 2003, DDSI announced that the Board of Directors
changed the date of the Annual Meeting of Stockholders to March 13, 2003 due to
scheduling conflicts. The Annual Meeting was initially scheduled to be held on
February 25, 2003

                                     - 7 -

<PAGE>

         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.

         On March 4, 2002, DDSI 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, DDSI 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 DDSI 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 DDSI's Board of
Directors. DDSI also announced that Myrna Marks-Cohn, Ph.D, resigned from the
Board of Directors for personal reasons.

         On January 3, 2002, DDSI 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.

Employees

         DDSI employs a total of 5 full time employees and 1 part time employee.

ITEM 2.  Description of Property

         DDSI operates from a single location. In May 2000, DDSI entered into a
five-year operating lease for its office facility. The office facility is
located at 446 Lincoln Highway, Fairless Hills, PA.19030, and originally
contained 5,900 square feet of office space. In July 2002, DDSI downsized the
leased space to 4,460 square feet. Future minimum lease commitments in
connection with this lease are approximately $79,164 in 2003, $81,399 in 2004
and $41,256 in 2005.

ITEM 3.  Legal Proceedings

AccuSoft - Action to Terminate Product Licenses
-----------------------------------------------

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

                                     - 8 -
<PAGE>

     Since the initial filing of the action by AccuSoft Corporation, DDSI
has stopped using AccuSoft's ImageGear 6.0, 95 and 98 software and have replaced
AccuSoft's controls. The parties reached an agreement on October 28, 2002,
whereas DDSI agreed to pay AccuSoft $7,500. This was paid and a release signed
on November 1, 2002.


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

         DDSI filed an Amended Definitive Proxy with the SEC on February 14,
2003, requesting the following:

         o   the election of four directors;
         o   the increase in the number of authorized shares of our Common Stock
             from 150,000,000 to 750,000,000;
         o   to approve up to a 1 to 20 reverse stock split of all of Digital
             Descriptor System Inc.'s authorized Common Stock;
         o   the ratification of the appointment of WithumSmith+Brown as our
             independent accountants for the current fiscal year; and

At the annual shareholders meeting held on March 13, 2002 the shareholders
approved the election of the four directors and the appointment of WithumSmith &
Brown, but did not approve the amendment to DDSI's Restated Certificate of
Incorporation to increase the number of authorized shares or the stock
combination (reverse split).


                                     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, DDSI 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, 2002 there
were approximately 2,500 shareholders of record. The source of the quotes is AOL
Ticker.

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

Calendar Year 2002                 Low                       High
------------------                 ---                       ----
First Quarter                      $0.009                    $0.01
Second Quarter                     $0.006                    $0.011
Third Quarter                      $0.004                    $0.004
Fourth Quarter                     $0.0021                   $0.003

         As of December 31, 2002, there were approximately 61,351,387 shares of
common stock issued and outstanding.

                                     - 9 -
<PAGE>

Issuance of Shares

         A total of 10,915,484 shares of Common Stock, par value $.001 (the
"Shares"), were issued by DDSI from June 1999 through May 2000, for cash or
services rendered to DDSI, 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, DDSI 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, DDSI 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.

         During March 2001, DDSI issued $200,000 of convertible debentures to
two investors. These debentures matured 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 DDSI's assets.

         During January through March 2001, DDSI 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, DDSI 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, DDSI issued two convertible notes for $100,000 and
$15,000 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 DDSI'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.


                                     - 10 -
<PAGE>

         During May 2001, DDSI issued one convertible note for $40,000 to Robert
Gowell, 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 DDSI'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, DDSI 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 DDSI'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, DDSI 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.

         In October 2001, $15,000 of the $40,000 convertible note issued to
Robert Gowell was paid. The parties have entered into an agreement to extend the
maturity date of the remaining balance of $25,000 for another year. Securities
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 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.


                                     - 11 -
<PAGE>

         During October 2001 through January 2002, DDSI 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, DDSI 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.

         During February through June 2002, $33,269 of the convertible
debentures issued in March 2001 were converted into 7,547,052 shares of common
stock. Additionally, accrued interest relating to these notes was converted into
an additional 703,828 shares of common stock.

         In June 2002, a 12% convertible promissory note for $75,000 was issued
to two investors. The conversion price is (i) 50% of the average of the lowest
three inter-day sales prices, or (ii) if the common stock is then traded on the
OTC Bulletin Board or Pink Sheets, the prices asked by any person or entity
acting as a market maker in the common stock during the twenty trading days
immediately preceding the relevant date upon which a conversion is effected.

         On September 30, 2002, DDSI issued two convertible debentures for an
aggregate amount of $100,000, with simple interest accruing at the annual rate
of 12%. These debentures are due September 30, 2003. Interest payable on the
Debentures shall be paid quarterly commencing December 31, 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) $.005 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.


                                     - 12 -
<PAGE>

         During October 2002, $3,000 of the convertible debentures issued in
March 2001 were converted into 1,639,344 shares of common stock. Additionally,
liquidated damages relating to these notes were converted into an additional
1,555,553 shares of common stock.

         On January 10, 2003, DDSI issued three convertible debentures for an
aggregate amount of $250,000, with simple interest accruing at the annual rate
of 10%. These debentures are due January 10, 2004. Interest payable on the
Debentures shall be paid quarterly commencing March 31, 2003. 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) $.01 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.

         During February 2003, $1,000 of the convertible debentures issued in
December 2001 were converted into 2,857,142 shares of common stock.

         On February 27, 2003, DDSI issued three convertible debentures for an
aggregate amount of $125,000, with simple interest accruing at the annual rate
of 10%. The debentures are due February 27, 2004. Interest payable on the
Debentures shall be paid quarterly commencing March 31, 2003. 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) $.01 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.

         In March 2003, $1,600 of the convertible debentures issued in December
2001 were converted into 8,000,000 shares of common stock. Additionally, accrued
interest relating to the note dated May 2001 was converted into an additional
1,820,634 shares of common stock.

         On March 31, 2003, DDSI issued three convertible debentures for an
aggregate amount of $125,000, with simple interest accruing at the annual rate
of 12%. The debentures are due March 31, 2004. Interest payable on the
Debentures shall be paid quarterly commencing March 31, 2003. 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) $.01 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.

         Also during March through April 2, 2003, liquidated damages relating to
the convertible debentures issued in December 2001 were converted into 9,000,000
shares of common stock.






                                     - 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 DDSI's products and competition in the computer industry.

Critical Accounting Policies

         DDSI'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.

         DDSI 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.

         DDSI 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 the following:

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

                                     - 14 -
<PAGE>

DDSI's long-term objective is as follows:

         1.       To seek additional products to sell into its basic business
                  market--Criminal Justice -- so that DDSI can generate sales
                  adequate enough to allow for profits. New products include FMS
                  (Fingerprint Matching System), and Identify on Demand.

         DDSI believes that it will not reach profitability until the year 2004.
Over the next twelve months, management is of the opinion that sufficient
working capital will be obtained from operations and external financing to meet
DDSI's liabilities and commitments as they become payable. DDSI has in the past
successfully relied on private placements of common stock securities, bank debt,
loans from private investors and the exercise of common stock warrants in order
to sustain operations. If DDSI is unable to obtain additional funding in the
future, it may be forced to curtail or terminate operations. A recent financing
has been obtained and the underlying shares are being registered in this
registration statement (see "Selling Shareholders" and "Recent Financing" on
page 40).

         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 FMS SDK (software developers
             kit).
         o   Increase revenues through the introduction of Compu-Capture(R),
             specifically towards kindergarten through twelfth grades, for the
             creation of ID cards.
         o   Increase revenues through the introduction of a scaled down version
             of our Compu-Capture(R) product.

Results of Operations

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
---------------------------------------------------------------------

         Revenues for the year ended December 31, 2002 of $1,213,189 decreased
$513,518 or 30% from the year ended December 30, 2001. DDSI generates its
revenues through software licenses, hardware, post customer support arrangements
and other services. The decrease in DDSI's revenue is attributed to discontinued
sales of the SI-3000 product line at the end of the first quarter in 2001.
SI-3000 products' largest revenue impact was in software sales. These revenues
are included in deferred revenue until the job has been completed and
"signed-off" by the client. Once that job is completed, revenue is then
recognized on the income statement. During 2002, DDSI recognized revenue of
$422,977 from software sales and software maintenance agreements from previous
installations of SI-3000. Maintenance revenues increased $59,478 or 11% from the
year ended December 31, 2001 primarily due to an increase in DDSI's customer's
service and additional stations being purchased by customers which include
software maintenance agreements.

         Cost of goods for the period ended December 31, 2002 was $430,836 a
decrease of $277,867 or 39% from the same period, prior year. The decrease was
attributable to the decrease in SI-3000 projects. Cost of goods sold as a
percentage of revenue for the period ended December 31, 2002 was 36% of total
revenues, versus 41% in the same period a year earlier.

         Costs and expenses decreased $1,978,912 or 42% during the year ended
December 31, 2002 versus the year ended December 31, 2001. The decrease is due
primarily to the cost containment efforts of DDSI. This decrease was offset by
an increase in interest and amortization of deferred debt cost of $255,220 in
connection with the convertible debentures issued in 2001. All other expenses of
DDSI experienced decreases for the year ended December 31, 2002 versus the year
ended December 31, 2001.

                                     - 15 -
<PAGE>

         General and Administrative expenses for the year ending December 31,
2002 was $946,933 versus $1,705,242 for the same period prior year for a
decrease of $758,309 or 44%. This decrease was mainly attributable to a decrease
in salaries and related payroll expenses of $160,605, a prior year charge in
miscellaneous of $414,322 for services paid in stock, a decrease in accounting
fees of $78,662, a decrease in insurance costs of $33,563, and miscellaneous
items of $66,150.

         Sales and Marketing expenses decreased $265,981 for the year ended
December 31, 2002 from $454,169 (2001) to $188,188 (2002) or a 59% decrease.
This decrease was mainly attributable to a decrease in salaries, commissions,
benefits and payroll taxes in the aggregate of $154,282, travel expenses of
$50,993, a decrease in public relations/advertising costs of $57,064, a
reduction in trade show expenses of $4,183, a decrease in hiring expenses of
$36,315, a cost cut in computer expenses of $4,189 and miscellaneous items of
$23,406.

         Research and development for the year ended December 31, 2002 was
$177,033 compared to $383,217 for the same period prior year for a decrease of
$206,184, which was due in part to a decrease in research and development
consulting costs of $78,325. Also contributing to the overall decrease was the
decline in salaries, benefits and payroll taxes in the aggregate of $92,078,
travel expenses by $27,533 and miscellaneous items of $8,248.

         The net loss for DDSI decreased 49% for the year ended December 31,
2002 to ($1,517,116) from ($2,982,510) for the year ended December 31, 2001.
This was principally due to the decrease in expenses during the year.

         Net cash used in operating activities for the year ended December 31,
2002 and 2001 was ($555,040) and ($1,019,331), respectively. The decrease in
cash used from operating activities in the year ended December 31, 2002 versus
2001 of $464,291 was principally due to the decrease in net loss for the year.

         Net cash provided by (used in) investing activities for the year ended
December 31, 2002 and 2001 was $5,289 and $(9,888) respectively, reflecting a
change of $15,177. This change is due to lack of purchases of furniture and
equipment, and the write-off of the Note Receivable - Officer, for the year
ended December 31, 2002 as compared to the same period prior year.

         Net cash provided by financing activities was $129,528 and $1,262,004
for the year ended December 31, 2002 and 2001, respectively, reflecting a
decrease of $1,132,476. This decrease was principally due to decrease in
proceeds from issuance of convertible debenture.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
---------------------------------------------------------------------

         Revenues for the year ended December 31, 2001 of $1,726,707 decreased
by 43% from 2000. DDSI generates its revenues through software licenses,
hardware, post customer support arrangements and other services. The decrease in
DDSI's revenue for software and hardware during the period is attributed to a
decrease in the sales of the SI-3000 product, which DDSI 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 DDSI'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 DDSI
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 DDSI has put in place and

                                     - 16 -

<PAGE>

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 DDSI 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 DDSI's Common Stock in 2001, versus
$1,164,066 received in 2000. DDSI received net proceeds of $1,056,000 from the
issuance of convertible debentures during the year ended December 31, 2001.

Liquidity and Capital Resources
-------------------------------

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

      Over the next twelve months, management is of the opinion that sufficient
working capital will be obtained from operations and external financing to meet
DDSI's liabilities and commitments as they become payable. DDSI has in the past
relied on private placements of common stock securities, and loans from private
investors to sustain operations. However, if DDSI is unable to obtain additional
funding in the future, it may be forced to curtail or terminate operations.

December 31, 2002
-----------------

         At December 31, 2002, DDSI had assets of $338,385 compared to
$1,691,277 on December 31, 2001 a decrease of $1,352,892 and shareholder
deficiency of $(2,070,867) on December 31, 2002 compared to shareholder
deficiency of $(750,124) on December 31, 2001, an increase of $(1,320,743). This
increase in shareholder deficiency for the year ended December 31, 2002 resulted
from the net loss for the year ended December 31, 2002 of $(1,517,116), offset
by the issuance of Common Stock and the debt discounts related to the issuance
of convertible debentures.

                                     - 17 -

<PAGE>

         As of December 31, 2002, DDSI had a negative working capital of
$2,094,654, a change of $1,303,111 from a negative working capital of $791,543
at December 31, 2001. The increase in negative working capital was a result of a
decrease in cash balances of $420,223, a decrease in debt discount and deferred
financing cost asset of $711,389 and an increase in convertible debentures of
$138,731.

Impact of Recent Accounting Pronouncements
------------------------------------------

         In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (SFAS 145). This statement provides guidance on the classification
of gains and losses from the extinguishment of debt and on the accounting for
certain specified lease transactions. The adoption of this statement will not
have a significant impact on the Company's financial position or results of
operations.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146), which addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)" (EITF
94-3). Generally SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized as incurred, whereas EITF 94-3
required such a liability to be recognized at the time that an entity committed
to an exit plan. The provisions of the statement are to be adopted prospectively
for all exit activities after December 31, 2002. Although SFAS 146 may impact
the accounting for costs related to exit or disposal activities we may enter
into in the future, particularly the timing of recognition of these costs, the
adoption of the statement is not expected to have an impact on our present
financial condition or results of operations.

         In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" (FIN 45), which addresses the
disclosure to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees. FIN 45 also requires the
recognition of a liability by a guarantor at the inception of certain guarantees
and requires the guarantor to recognize the liability for the non-contingent
component of the guarantee. This is the obligation to stand ready to perform in
the event that specified triggering events or conditions occur. The initial
measurement of this liability is the fair value of the guarantee at inception.
The recognition of the liability is required even if it is not probable that
payments will be required under the guarantee or if the guarantee was issued
with a premium payment or as part of a transaction with multiple elements. The
adoption of this statement will not have a significant impact on the Company's
financial position or results of operations.

         In December 2002, the FASB issued SFAS No. 148 "Accounting for
Stock-Based Compensation, Transition and Disclosure, and amendment of FASB
Statement No. 123." SFAS No. 148 provides alternative methods of transition for
an entity that voluntarily changes to the fair value based method of accounting
for stock-based employee compensation. It also amends the disclosure provisions
of SFAS No. 123 to require prominent disclosure about the effects on reported
net income of an entity's accounting policy decisions with respect to
stock-based employee compensation. Finally, the Statement amends APB Opinion No.
28, "Interim Financial Reporting," to require disclosure about those effects in
the interim financial information. The amendments to SFAS No. 123 that provide
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation are
effective for financial statements for fiscal years ending after December 15,
2002. The amendment to SFAS No. 123 relating to disclosure and the amendment to
Opinion 28 is effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002. Early
application is encouraged. Management currently believes that the adoption of
SFAS No. 148 will not have a material impact on the financial statements.
Management does not intend to adopt fair value accounting under SFAS 123.


                                     - 18 -

<PAGE>
         In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46). FIN 46 clarifies
existing accounting principles related to the preparation of consolidated
financial statements when the equity investors in an entity do not have the
characteristics of a controlling financial interest or when the equity at risk
is not sufficient for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 requires a company to
evaluate all existing arrangements to identify situations where a company has a
"variable interest" (commonly a thinly capitalized entity) and further determine
when such variable interests require a company to consolidate the variable
interest entities' financial statements with its own. We are required to perform
this assessment by September 30, 2003, and consolidate any variable interest
entities for which we will absorb a majority of the entities' expected losses or
receive a majority of the expected residual gains. Management currently believes
that the adoption of FIN 46 will not have a material impact on the financial
statements.


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 DDSI'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


                                     - 19 -
<PAGE>

               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. DDSI 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.

                                    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 approved a restructuring of
management. Mr. Cohn resigned as CEO and President and 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 DDSI in
addition to his current position as CFO. Mr. Randolph Hall was appointed as Vice
President of Sales.

         Mr. Cohn resigned as Co-Chairman and Director of the Board of Directors
effective July 23, 2002 for personal reasons.

         Mr. Hall resigned from DDSI effective October 18, 2002.

         This reorganization occurred to fill the needs of DDSI i.e., to bring
in people with skill sets and experience that could assist DDSI in achieving
stability and growth. None of the above transactions fall within the provisions
of Rule 14f-1 in that the appointment of directors were to fill open slots and
were not part of an understanding with a person or persons acquiring securities.
These individuals were appointed due to their expertise in areas that would be
beneficial in growing the business of DDSI.

         Pursuant to the March 13, 2003 shareholder meeting Robert Gowell,
Michael Pellegrino, Anthony Shupin and Vincent Moreno were elected as directors.
The directors then subsequently appointed Michael Pellegrino as President, Chief
Executive Officer and Chief Financial Officer. Anthony Shupin was appointed as
Chairman of the Board upon the resignation of Robert Gowell.

         DDSI's current officers and directors consist of the following persons:

Name                      Age      Position with Company
----                      ---      ---------------------

Robert Gowell              35      Director
Michael Pellegrino         54      Director, Chief Executive Officer, President
                                   and Chief Financial Officer
Anthony Shupin             49      Chairman & Director
Vincent Moreno             60      Director


                                     - 20 -

<PAGE>

         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 from 1991-2001 (10 years). 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. Mr. Gowell resigned on March 13,
2003.

         Michael Pellegrino joined DDSI in 1995. On March 13, 2002 he was
appointed President, Chief Executive Officer and Chief Financial Officer,
Secretary and a Director of DDSI. For eleven years prior (from 1984 to 1995),
Mr. Pellegrino was Vice President and CFO of Software Shop Systems, Inc. From
1979 to 1984 (5 years), he was a regional controller for Capital Cities/ABS, and
for seven years earlier (1972-1979) 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.

         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 from 9/2000 to 9/2001, 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
specialized in telecommunications from 7/1999 to 9/2000. His background also
includes roles as Director of International Business Development at Space
Imaging L.P. for 10 years (from 1989 to 1999), where 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. from 1986 to 1989 (3 years),
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 from 1981 to 1986 (5 years) and Xerox Corporation in Princeton, New
Jersey from 1978 to 1981 (3 years). 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
(1976 through 1989). For six years (from 1989 to 1995), as President and CEO, he
ran Mainstem Corporation, a national provider of software services. He was Vice
President of Operations at DDSI from 1996 to 1998 (2 years). Most recently (1998
to 2002, 4 years), he was 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.

                                     - 21 -

<PAGE>

         An overview of changes that occurred with the DDSI Board of Directors
is as follows:

         o   Mr. Ott resigned from the DDSI Board on February 26, 2001 for
             personal reasons. He resigned as Vice President of Sales on March
             30, 2001.

         o   Mr. Charles Saphos resigned from the Board on July 26, 2001 due to
             the fact DDSI could not provide Directors & Officers insurance

         o   Mr. Boyle resigned as a Board Member on December 18, 2001 for
             personal reasons.

         o   Mr. Gowell resigned as a Board Member on December 18, 2001 for
             personal reasons. Mr. Gowell was later reappointed as Co-Chairman
             of the Board, having changed his mind as a result of the addition
             of other outside Board members.

         o   Mr. Robert Martin was appointed as a DDSI Board Member on December
             11, 2001. Mr. Martin represented a group of investors that entered
             into a Private Placement Offering. In view of his large holding of
             DDSI stock, he requested, and was appointed, as a member of the
             Board of Directors. Mr. Martin resigned from the Board effective
             January 3, 2002 due to disagreements with Company operations,
             policies and practices.

         o   Dr. Myrna Marks-Cohn resigned on January 14, 2002 for personal
             reasons. She is the wife of Mr. Garrett U. Cohn.

         o   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.

         o   Mr. Garrett U. Cohn resigned as Co-Chairman and Director of the
             Board of Directors effective July 23, 2002 for personal reasons.


         Section 16(a) of the Securities Exchange Act of 1934 requires DDSI's
directors and executive officers, and persons who own more than 10% of a
registered class of DDSI'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 DDSI. Officers,
directors and greater than 10% shareholders are required by SEC regulations to
furnish DDSI with copies of all Section 16(a) forms they file.

         To DDSI's knowledge, based solely on its review of the copies of such
reports furnished to DDSI and written representations that no other reports were
required during the fiscal year ended December 31, 2002, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with.

                                     - 22 -

<PAGE>

ITEM 10. Executive Compensation

         The following table summarizes the compensation earned and paid by DDSI
to each Officer and to all Executive Officers as a group for services rendered
in all capacities during the year ended December 31, 2002:
<TABLE>
<CAPTION>

                                                Summary Compensation Table

                                                                                           Long Term Compensation
                                Annual Compensation                         Awards                  Payouts
                                -------------------                         ------         ----------------------
       (a)                     (b)      (c)       (d)      (e)         (f)         (g)          (h)         (i)
                                                          Other                 Securities                  All
                                                         Annual     Restricted  Underlying                 Other
    Name and                                             Compen-      Stock      Options/      LTIP       Compen-
Principal Position            Year    Salary     Bonus   sation($)   Award($)     Sar(#)     Payouts($)   sation($)
------------------            ----    ------     -----   ---------  ----------  ----------   ----------   ---------
<S>                          <C>      <C>        <C>      <C>         <C>         <C>          <C>          <C>
Garrett Cohn*                 2000    $160,000     0        0           0           0            0            0
President & CEO               2001    $160,000     0        0           0           0            0            0
                              2002    $ 50,615     0        0           0           0            0            0

Michael J. Pellegrino         2000    $109,000     0        0           0           0            0            0
President & CEO               2001    $110,000     0        0           0           0            0            0
                              2002    $115,000     0        0           0           0            0            0

Michael Ott**                 2000    $110,000     0        0           0           0            0            0
V.P/Director                  2001    $110,000     0        0           0           0            0            0
                              2002    $      0     0        0           0           0            0            0

Randy Hall***                 2000    $ 70,000     0        0           0           0            0            0
    V/P                       2001    $ 73,500     0        0           0           0            0            0
                              2002    $ 60,779     0        0           0           0            0            0

</TABLE>

  *Mr. Cohn resigned as President and Chief Executive Officer effective January
   25, 2002. He resigned as Co-Chairman and Director of the Board of Directors
   effective July 23, 2002 for personal reasons.
 **Mr. Ott resigned from DDSI effective March 30, 2001
***Mr. Hall resigned as Vice President of Sales effective October 18, 2002



                                     - 23 -

<PAGE>

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>

Aggregated Option/Sar Exercises

         None exercised

Employment Agreements

         Michael J. Pellegrino, President, Chief Executive Officer and Chief
Financial Officer. Mr. Pellegrino was appointed as President and Chief Executive
Officer effective March 13, 2003. In March 2002, DDSI 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 DDSI. DDSI shall grant to Mr.
Pellegrino, within ninety days of the date of the Agreement, options to purchase
such number of common shares of DDSI equal to 1% of the number of common shares
of DDSI outstanding on the date of the Agreement (subject to the vesting and the
satisfaction of the other terms and conditions of such options). DDSI may also
grant to the Employee, following the first anniversary of the date of the
Agreement and at the sole discretion of the Board of Directors, options to
purchase such number of common shares of DDSI equal to 0.25% of the number of
common shares of DDSI outstanding on the date of the Agreement (subject to the
vesting and the satisfaction of the other terms and conditions of such options).
DDSI shall also furnish Mr. Pellegrino with an automobile and automobile
expenses.

         If the officer's employment is terminated because of death, discharge
by the Company other than for just cause, or if the officer resigns with good
reason as defined in the agreement, he shall receive his base salary and
benefits for the greater of (i) one year from the date of termination or
resignation, (ii) the remaining term of the agreement. If employment is
terminated for any other reason than the aforementioned, the Company's
obligation under the agreement ceases on the date of termination.

         Randolph Hall, Vice President Sales. Mr. Hall resigned from DDSI
effective October 18, 2002. Mr. Hall was appointed as Vice President of Sales
effective January 25, 2002. In March, 2002, DDSI 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 was also entitled to
participate in the Annual Management Bonus Plan. DDSI also furnished Mr. Hall
with an automobile and automobile expenses.

Employee and Director Stock Option Plans

         DDSI 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 DDSI and others who are making and are
expected to make substantial contributions to the successful management and
growth of DDSI are offered an opportunity to acquire common stock as an


                                     - 24 -
<PAGE>

incentive to remain with DDSI 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, DDSI
granted bonuses to various officers and employees in the form of 902,500 options
for shares of DDSI's common stock, fully vested, with an exercise price of $0.37
per share. On December 15, 2000, DDSI granted to various officers and employees
843,000 options for shares of DDSI's common stock, fully vested, with an
exercise price of $0.10 per share, the then fair market value of the underlying
shares. As of December 31, 2002 251,812 options remain outstanding.

Compensation of Directors

         Directors do not receive compensation for their services as members of
the Board of Directors. Directors will receive reimbursement for expenses in
attending directors meetings where applicable. Under the 1996 Director Option
Plan, each director who is not an officer or employee of DDSI automatically
receives a grant of an option to purchase 50,000 shares of DDSI's common stock
effective as of the date such person becomes a director and thereafter a grant
of an option to purchase 1,000 shares of DDSI's common stock on the date of each
of DDSI's regular annual meeting if he or she has served on the Board of
Directors for at least six months.






                                     - 25 -
<PAGE>



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 DDSI by (i) each person owning
beneficially more than 5 percent of the outstanding shares of common stock, (ii)
each Director of DDSI and (iii) all Executive Officers and Directors of DDSI as
a group: Percentage of beneficial ownership is based upon 61,351,387 shares of
common stock outstanding at December 31, 2002.

                                                  Beneficial Ownership
Name and Address                                    of Common Stock
Of Beneficial Owner                                  No. of Shares
-------------------                              ---------------------

Michael Pellegrino
Brielle, NJ 08730                                  335,000        0.54%

Randolph Hall
Collegeville, PA 19426                             398,000        0.64%

Robert P. Martin
Seattle, WA  98119                               3,099,000(1)     4.81%

Robert Gowell
Allentown, PA  18104                                96,300        0.12%

AJW Partners, LLC (3)
Roslyn, NY 11576                               427,793,000(4)    87.45%(13)

New Millennium Capital Partners II, LLC (5)
Roslyn, NY 11576                               427,793,000(6)    87.45%(13)

AJW Qualified Partners, LLC (7)
Roslyn, NY  11576                               51,512,500(8)    45.64%(13)

AJW Offshore, Ltd. (9)
Roslyn, NY  11576                               51,512,500(10)   45.64%(13)

Bristol Investment Fund, Ltd. (11)
Cayman Islands                                 280,000,000(12)   82.02%(13)

All Officers & Directors
As a Group                                         829,300(2)     1.35%

-----------------
(1) 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.

(2) Of the total Officers and Director's shares, 43,000 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). The remaining 1,275,000 options
are 10-year options that are fully vested at varying strike prices.


                                     - 26 -

<PAGE>

(3) AJW Partners, LLC is a private investment fund that is structured as a
limited liability company whose members are the investors in the fund. The
managing member of the fund is SMS Group, LLC, a limited liability company,
which manages the operations of the fund. Mr. Corey Ribotsky is the manager of
SMS Group, LLC. As the control person of the shares owned by AJW Partners, LLC,
Mr. Ribotsky may be viewed as the beneficial owner of such shares pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934.

(4) Concerning AJW Partners, LLC: Assuming $427,793 of 12% Convertible
Debentures ($203,500 plus $44,290.50 interest dated March 9, 2001, $125,000 plus
$15,000 interest dated December 31, 2001, and $37,500 plus $2,502.50 interest
dated June 11, 2002) converted at fifty percent (50%) of stock price of $0.002.
AJW Partners, LLC is contractually obligated not to convert more than 4.9% at
one time, however, this provision may be waived by providing a sixty-one day
notice.

(5) New Millennium Capital Partners II, LLC is a private investment fund that is
structured as a limited liability company whose members are the investors in the
fund. The managing member of the fund is First Street Manager II, LLC, a limited
liability company which manages the operations of the fund. Mr. Corey Ribotsky,
is the manager of First Street Manager II, LLC. As the control person of the
shares owned by New Millennium Capital Partners II, LLC, Mr. Corey S. Ribotsky
may be viewed as the beneficial owner of such shares pursuant to Rule 13d-3
under the Securities Exchange Act of 1934.

(6) Concerning New Millennium Capital Partners II, LLC: Assuming $427,793 of 12%
Convertible Debentures ($203,500 plus $44,290.50 interest dated March 9, 2001,
$125,000 plus $15,000 interest dated December 31, 2001, and $37,500 plus
$2,502.50 interest dated June 11, 2002) converted at fifty percent (50%) of
stock price of $0.002. New Millennium Capital Partners II, LLC is contractually
obligated not to convert more than 4.9% at one time, however, this provision may
be waived by providing a sixty-one day notice.

(7) AJW Qualified Partners, LLC is a private investment fund whose members are
the investors in the fund. The managing member of the fund is AJW Manager, LLC,
a limited liability company, which manages the operations of the fund (the
"Management Company"). Mr. Corey Ribotsky is the manager of AJW Manager, LLC. As
the control person of the shares owned by AJW Qualified Partners, LLC, Mr.
Ribotsky may be viewed as the beneficial owner of such shares pursuant to Rule
13d-3 under the Securities Exchange Act of 1934.

(8) Concerning AJW Qualified Partners, LLC: Assuming $51,512.50 of 12%
Convertible Debentures ($50,000 plus $1,512.50 interest dated September 30,
2002) converted at fifty percent (50%) of stock price of $0.002. AJW Qualified
Partners, LLC is contractually obligated not to convert more than 4.9% at one
time, however, this provision may be waived by providing a sixty-one day notice.

(9) AJW Offshore, Ltd. is a private investment fund whose members are the
investors in the fund. The managing member of the fund is First Street Manager
II, LLC, a limited liability company, which manages the operations of the fund
(the "Management Company"). Mr. Corey Ribotsky is the manager of First Street
Manager II, LLC. As the control person of the shares owned by AJW Offshore,
Ltd., Mr. Ribotsky may be viewed as the beneficial owner of such shares pursuant
to Rule 13d-3 under the Securities Exchange Act of 1934.

(10) Concerning AJW Offshore, Ltd: Assuming $51,512.50 of 12% Convertible
Debentures ($50,000 plus $1,512.50 interest dated September 30, 2002) converted
at fifty percent (50%) of stock price of $0.002. AJW Offshore, Ltd. is
contractually obligated not to convert more than 4.9% at one time, however, this
provision may be waived by providing a sixty-one day notice.

(11) Bristol Investment Fund, Ltd. is a private investment fund, formed as a
Cayman Island company, whose shares are owned by its investors. Bristol
Investment Fund, Ltd., is managed by Bristol DLP, LLC (the "Management
Company"), which has voting and investment control over the shares owned by
Bristol Investment Fund, Ltd. Paul Kessler and Diana Kessler, the managing
members of the Management Company, are responsible for the operations of the


                                     - 27 -

<PAGE>

Management Company. As the control persons of the shares owned by Bristol
Investment Fund, Ltd., Paul Kessler and Diana Kessler may be viewed as the
beneficial owners of such shares pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934. There are no other parties involved with these funds who
would meet the definition of beneficial owner.

(12) Concerning Bristol Investment Fund, Ltd.: Assuming $280,000 of 12%
Convertible Debentures ($250,000 plus $30,000 interest dated December 31, 2001)
converted at fifty percent (50%) of stock price of $0.002. Bristol Investment
Fund, Ltd. is contractually obligated not to convert more than 4.9% at one time,
however, this provision may be waived by providing a sixty-one day notice.

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









                                     - 28 -

<PAGE>


ITEM 13. Exhibits and Reports on Form 8-K

(a) Exhibits

<TABLE>
<CAPTION>

Exhibit
Number         Description
-------        -----------
<S>             <C>
2.1(1)         Certificate of Incorporation of the Company. Incorporated June 13, 1994.
2.2(1)         Restated Articles of Incorporation of the Issuer, May 21, 1997.
2.3(1)         Amended Articles of Incorporation.
2.3.1(5)       Amended Articles of Incorporation dated October 9, 2001
2.4(1)         By-Laws of the Company.
4.1(3)         Form of Warrant Agreement with Form of Warrant Election to Purchase
4.1.1(4)       Executed Warrant Agreement with AJW Partners, LLC
4.1.2(4)       Executed Warrant Agreement with New Millennium Capital Partners II, LLC
4.2.1.1.1(5)   Executed Stock Purchase Warrant Agreement with AJW Partners LLC
4.2.1(5)       Executed Stock Purchase Warrant Agreement with New Millennium Capital Partners II LLC
4.2.2(5)       Executed Stock Purchase Warrant Agreement with Bristol Investment Fund, Ltd.
4.3(8)         Stock Purchase Warrant Agreement with AJW Qualified Partners, LLC
4.3.1(8)       Stock Purchase Warrant Agreement with AJW Offshore, Ltd.
4.4(9)         Stock Purchase Warrant Agreement with AJW Qualified Partners, LLC (January 10, 2003)
4.4.1(9)       Stock Purchase Warrant Agreement with AJW Partners, LLC (January 10, 2003)
4.4.2(9)       Stock Purchase Warrant Agreement with AJW Offshore, Ltd. (January 10, 2003)
5.1(1)         Form of Voting Trust Agreement between Norman Cohn and Garrett U. Cohn.
5.1.3(5)       Legal Opinion to Investors
6.18(1)        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(1)         Resolution to Security Agreement between Norman Cohn and Garrett U. Cohn.
6.3(1)         Employee 1997 Stock Option Plan adopted by the Board of Directors February 24, 1998 and subject to stockholder
               ratification.
6.5(1)         Warrant Agreement dated May 1, 1995 between the Company and Jay Teitlebaum.
6.6(1)         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(1)         Lease for the Premises dated May 16, 2000.
6.8(1)         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(1)         Employment Agreement for Michael Pellegrino.
6.9.1(1)       Employment Agreement for Michael Ott.
6.9.2(1)       Employment Agreement for Randolph Hall.
6.9.3(6)       Employment Agreement for Michael Pellegrino (2002)
6.9.4(6)       Employment Agreement for Randolph Hall (2002)
10.1(2)        Software License and Royalty Agreement between Company and Harris Corporation
10.2(2)        Agreement for Development of Finger/Slap Scanner Product between the Company and ISC/U.S., Inc.
10.2.1(5)              Software License and Royalty Agreement between Company and AuthenTec
10.2.2(7)              Strategic Joint Venture Agreement between Company and i/tx.
10.3(3)        Form of Secured Convertible Debenture Purchase Agreement (December 28, 2000)
10.3.1(4)              Executed Secured Convertible Debenture Purchase Agreement
10.3.2(5)              Executed Securities Purchase Agreement
10.3.3         Securities Purchase Agreement (January 10, 2003)
10.4(3)        Form of First Amendment to Secured Convertible Debenture Purchase Agreement (March 5, 2001)
10.4.1(6)              Executed Amendment No. 1 to Securities Purchase Agreement dated December 31, 2001

</TABLE>


                                       - 29 -


<PAGE>

<TABLE>
<CAPTION>
<S>              <C>
10.5(3)        Form of 12% Convertible Debenture
10.5.1(4)              Executed 12% Convertible Debenture with AJW Partners, LLC
10.5.2(4)              Executed 12% Convertible Debenture with New Millennium Capital Partners II, LLC
10.5.2.1(5)    Executed Secured Convertible Debenture with AJW Partners LLC
10.5.3(5)              Executed Secured Convertible Debenture with New Millennium Capital Partners II LLC
10.5.3.1(5)    Executed Secured Convertible Debenture with Bristol Investment Fund, Ltd.
105.5(8)       Secured Convertible Debenture with AJW Qualified Partners, LLC
10.5.5.1(8)    Secured Convertible Debenture with AJW Offshore, Ltd.
10.5.6(9)      Secured Convertible Debenture with AJW Qualified Partners, LLC (January 10, 2003)
10.5.6.1(9)    Secured Convertible Debenture with AJW Partners, LLC (January 10, 2003)
10.5.6.2(9)    Secured Convertible Debenture with AJW Offshore, Ltd. (January 10, 2003)
10.6(3)        Form of Registration Rights Agreement
10.6.1(4)              Executed Registration Rights Agreement
10.6.2(5)              Executed Registration Rights Agreement
10.6.3         Registration Rights Agreement (January 10, 2003)
10.7(3)        Form of Security Agreement
10.7.1(5)      Executed Security Agreement
10.7.2(9)      Security Agreement (January 10, 2003)
10.7.3(9)      Intellectual Property Security Agreement (January 10, 2003)
10.8(3)        Form of 10% Convertible Debenture
10.8.1(4)              10% Convertible Note to Robert Gowell
10.9(4)        Escrow Agreement
10.9.1(4)              Transfer Agent Instructions
10.9.2.1(5)    Executed Escrow Agreement
10.9.3(5)              Transfer Agent Instructions
10.9.4(9)      Transfer Agent Instructions (January 10, 2003)
10.10(4)               Contract with DBA Systems, a Division of Titan Industries
10.11(4)               Executed Second Amendment to Secured Convertible Debenture Purchase Agreement
10.12(6)       Form of Private Placement Subscription Agreement
10.13(8)       Private Placement Agreement Letter with AJW Qualified Partners, LLC and AJW Offshore, Ltd.
16.0(1)        Letter re change in certifying accountant.
99.1           Sarbanes - Oxley Certification
99.2           Sarbanes - Oxley Certification


(1)    Previously filed on Form 10-SB September 20, 2000, File No. 0-26604
(2)    Previously filed on Form 10-SB/A November 17, 2000, File No. 0-26604
(3)    Previously filed on Form SB-2 May 1, 2001, File No. 333-59888
(4)    Previously filed on Form SB-2, Amendment 2, August 29, 2001, File No. 333-59888
(5)    Previously filed on Form SB-2, February 13, 2002, File No. 333-82662
(6)    Previously filed on Form SB-2, Amendment No. 1, May 9, 2002, File No. 333-82662
(7)    Previously filed on Form SB-2, Amendment No. 2, Jun 25, 2002, File No. 333-82662
(8)    Previously filed on Form SB-2, Amendment No. 5, October 10, 2002, File No. 333-82662
(9)    Previously filed on Form SB-2, February 12, 2003, File No. 333-103143

</TABLE>




                                     - 30 -
<PAGE>




(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 Accountant

                     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 Accountant

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

July 29, 2002        Item 6
                     Resignation of Garrett U. Cohn on July 23, 2002 for
                     personal reasons.








                                     - 31 -

<PAGE>



ITEM  14. CONTROLS AND PROCEDURES

         The Company's management, including the Chief Executive Officer and
Chief Financial Officer, have conducted an evaluation of the effectiveness of
Digital Descriptor Systems, Inc.'s disclosure controls and procedures pursuant
to Exchange Act Rule 13a-15. Based on the Company's evaluation, which was
completed during the 90 days prior to the date on which this Annual Report was
filed with the Commission, the Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures are effective in
ensuring that all material information required to be filed in this Annual
Report has been made known to them in a timely fashion. There have been no
significant changes in internal controls, or in factors that could significantly
affect internal controls, subsequent to the date the Chief Executive Officer and
Chief Financial Officer completed their evaluation.









                                     - 32 -

<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 Executive Officer and
                                      Chief Financial Officer.

                                      Dated: April 15, 2003

         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/ Anthony Shupin                 Director - Chairman                         April 15, 2003
     -------------------------
     Anthony Shupin

By:  /s/ Michael Pellegrino             President and Chief Operating Officer,      April 15, 2003
     -------------------------          Chief Executive Officer, Director
     Michael Pellegrino

By:  /s/ Vincent Moreno                 Director                                    April 15, 2003
     -------------------------
     Vincent Moreno


By:  /s/ Robert Gowell                  Director                                    April 15, 2003
     -------------------------
     Robert Gowell

</TABLE>













                                     - 33 -


<PAGE>



CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES - OXLEY ACT OF 2002

CEO CERTIFICATION

I, Michael J. Pellegrino, certify that:

     1.  I have reviewed this annual report on Form 10KSB of Digital Descriptor
         Systems, Inc.,

     2.  Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

     4.  The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

              a)  designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

              b)  evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

              c)  presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

     5.  The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

              a)  all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

              b)  any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

     6.  The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date:  April 15, 2003

                                       /s/ Michael J. Pellegrino
                                       -----------------------------------------
                                       Michael J. Pellegrino
                                       Chief Executive Officer




                                     - 34 -
<PAGE>

CFO CERTIFICATION


I, Michael J. Pellegrino, certify that:

     1.  I have reviewed this annual report on Form 10KSB of Digital Descriptor
         Systems, Inc.,

     2.  Based on my knowledge, this Annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

     4.  The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

              a)  designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

              b)  evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

              c)   presented in this annual report our conclusions about the
                   effectiveness of the disclosure controls and procedures based
                   on our evaluation as of the Evaluation Date;

     5.  The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

              a)  all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

              b)  any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

     6.  The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.


Date:  April 15, 2003

                                       /s/ Michael J. Pellegrino
                                       -----------------------------------------
                                       Michael J. Pellegrino
                                       Chief Financial Officer




                                     - 35 -



<PAGE>









                        DIGITAL DESCRIPTOR SYSTEMS, INC.

                              FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 and 2001

















<PAGE>




                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                        CONTENTS TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2002 and 2001




                                    Contents


Independent Auditors' Reports                                                F-1



Audited Financial Statements:


Balance Sheets
December 31, 2002 and 2001                                                   F-2


Statements of Operations
For the Years Ended December 31, 2002 and 2001                               F-3

Statements of Shareholders' Deficiency
For the Years Ended December 31, 2002 and 2001                               F-4


Statements of Cash Flows
For the Years Ended December 31, 2002 and 2001                               F-5


Notes to Financial Statements                                                F-7


<PAGE>


     INDEPENDENT AUDITORS' REPORT

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

     We have audited the accompanying balance sheets of Digital Descriptor
     Systems, Inc., as of December 31, 2002 and 2001, and the related statements
     of operations, shareholders' deficiency and cash flows for the years 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 audits.

     We conducted our audits 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 audits provide 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, 2002 and 2001, and the results of its
     operations and its cash flows for the years 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
     2A 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 2003, 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 2A. The financial
     statements do not include any adjustments that might result from the
     outcome of this uncertainty.






                                                     /s/ WithumSmith+Brown P.C.
     Newtown, Pennsylvania
     April 10, 2003



<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                                 BALANCE SHEETS
                           DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
           ASSETS                                                                   2002            2001
                                                                                    ----            ----
<S>                                                                              <C>             <C>
Current Assets:
      Cash                                                                       $   15,439      $  435,662
      Restricted cash                                                                   680           5,969
      Accounts receivable, less allowance
         for uncollectible accounts of $117,560 and $87,930
         in 2002 and 2001, respectively                                              28,491         107,948
      Inventory                                                                       8,550           5,665
      Prepaid expenses                                                              153,047         267,534
      Debt discount and deferred financing costs, net                                95,625         807,014
                                                                                 ----------      ----------
               Total current assets                                                 301,832       1,629,792

Note Receivable - Former Officer, Less Allowance
  for Uncollectible Notes of $177,400 in 2001                                             -               -
Furniture and Equipment, Net                                                         12,158          37,090
Deposits and Other Assets                                                            24,395          24,395
                                                                                 ----------      ----------

           TOTAL ASSETS                                                          $  338,385      $1,691,277
                                                                                 ==========      ==========

           LIABILITIES AND SHAREHOLDERS' DEFICIENCY

Current Liabilities:
      Accounts payable                                                           $  391,067      $  418,764
      Accrued expenses                                                              118,493         141,914
      Accrued interest                                                              145,333          33,828
      Accrued payroll taxes                                                          84,848               -
      Deferred income                                                               545,724         854,618
      Current portion of equipment loan                                               7,289           7,211
      Convertible debentures                                                      1,103,732         965,000
                                                                                 ----------      ----------
           Total Current Liabilities                                              2,396,486       2,421,335

Equipment Loan, Net of Current Portion                                               12,766          20,066
                                                                                 ----------      ----------
           Total Liabilities                                                      2,409,252       2,441,401

Shareholders' 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 - 61,351,387 at December 31, 2002           61,351          48,045
           and 48,045,610 at December 31, 2001
      Additional paid-in capital                                                 16,909,886      16,726,819
      Accumulated deficit                                                       (19,042,104)    (17,524,988)
                                                                                 ----------      ----------
           Total Shareholders' Deficiency                                        (2,070,867)       (750,124)
                                                                                 ----------      ----------

           TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY                        $  338,385      $1,691,277
                                                                                 ==========      ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.

                                      F-2

<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
<TABLE>
<CAPTION>
                                                                                    2002            2001
                                                                                    ----            ----
<S>                                                                             <C>             <C>


 Revenues:
       Software                                                                 $   520,869     $   938,654
       Hardware                                                                      69,931          94,350
       Maintenance                                                                  580,315         520,837
       Consulting                                                                         -          68,863
       Other                                                                         42,074         104,003
                                                                                -----------     -----------
                                                                                  1,213,189       1,726,707

 Costs and Expenses:
       Cost of revenues                                                             430,836         708,703
       General and administrative                                                   946,934       1,705,242
       Sales and marketing                                                          188,188         454,169
       Research and development                                                     177,033         383,217
       Write-off of software development costs                                            -         413,604
       Provision for doubtful note receivable - former officer                            -         177,400
       Depreciation                                                                  24,932         138,452
       Interest and amortization of deferred debt costs                           1,008,249         753,029
       Other (income) expense, net                                                  (45,867)        (24,599)
                                                                                -----------     -----------
                                                                                  2,730,305       4,709,217
                                                                                -----------     -----------

 Net Loss                                                                       $(1,517,116)    $(2,982,510)
                                                                                ===========     ===========

 Net Loss Per Common Share (Basic and Diluted)                                  $     (0.03)    $     (0.12)
                                                                                ===========     ===========

 Weighted Average Number of Common Shares Outstanding:
       Basic and Diluted                                                         56,600,305      24,436,773
                                                                                ===========     ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.

                                      F-3

<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                           STATEMENTS OF SHAREHOLDERS'
                                   DEFICIENCY
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                            Common Stock
                                                       ------------------------   Additional     Accumulated   Shareholders'
                                                         Shares       Amount    Paid-in Capital    Deficit      Deficiency
                                                       ----------   ----------- --------------- ------------   ------------
<S>                                                    <C>          <C>         <C>             <C>            <C>
 Balance at December 31, 2000                          20,011,612   $    20,011   $14,544,579   $(14,542,478)  $     22,112
   Issuance of common stock in connection
      with a Reg. A Offering, net of offering
      costs                                             7,999,996         8,000       221,000              -        229,000
   Issuance of common stock for services                4,328,831         4,329       409,993              -        414,322
   Conversions of convertible debentures to
      common stock                                     15,705,171        15,705       494,747              -        510,452
   Debt discount relating to the beneficial
      conversion feature on convertible
      debentures and issuance of warrants                       -             -     1,056,500              -      1,056,500
   Net loss                                                     -             -             -     (2,982,510)    (2,982,510)
                                                       ----------   -----------   -----------   ------------   ------------

 Balance at December 31, 2001                          48,045,610        48,045    16,726,819    (17,524,988)      (750,124)


   Issuance of common stock for services                  360,000           360        14,040              -         14,400
   Issuance of common stock in payment of
      damages related to convertible debentures         1,555,553         1,556           778              -          2,334
   Conversion of accrued interest related to
      convertible debentures to common
      stock                                             2,203,828         2,204        16,167              -         18,371
   Conversions of convertible debentures to
      common stock                                      9,186,396         9,186        27,082              -         36,268
   Debt discount relating to the beneficial
      conversion feature on convertible
      debentures                                                -            -        125,000              -        125,000
   Net loss                                                     -            -              -     (1,517,116)    (1,517,116)
                                                       ----------   -----------   -----------   ------------   ------------

 Balance at December 31, 2002                          61,351,387   $    61,351   $16,909,886   $(19,042,104)  $ (2,070,867)
                                                       ==========   ===========   ===========   ============   ============
</TABLE>

The Notes to Financial Statements are an integral part of these statements.

                                      F-4

<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                           STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                                                  2002                  2001
                                                                                                  ----                  ----
<S>                                                                                          <C>                   <C>
Cash Flows from Operating Activities:
      Net loss                                                                               $ (1,517,116)         $ (2,982,510)
      Adjustments to reconcile net loss to net cash used in operating activities:
          Depreciation                                                                             24,932               138,452
          Write-off of software development costs                                                       -               413,604
          Provision for doubtful note receivable - former officer                                       -               177,400
          Common stock issued for services received                                                14,400               414,322
          Common stock issued in payment of damages                                                 2,334                     -
          Amortization of deferred financing costs and debt discounts related
               to the issuance of warrants and the beneficial conversion
               feature of convertible debentures                                                  874,639               676,486
          Changes in assets and liabilities:
               Accounts receivable                                                                 79,457               418,344
               Inventory                                                                           (2,885)               16,931
               Prepaid expenses, deposits and other assets                                        114,487              (251,777)
               Accounts payable                                                                   (27,697)              (62,399)
               Accrued expenses                                                                   (23,421)              (11,843)
               Accrued interest                                                                   129,876                33,828
               Accrued payroll taxes                                                               84,848                     -
               Deferred income                                                                   (308,894)                 (169)
                                                                                             ------------          ------------
                   Net Cash Used in Operating Activities                                         (555,040)           (1,019,331)

Cash Flows from Investing Activities:
      Proceeds from sale of  investment                                                                 -                 1,000
      Purchase of furniture and equipment                                                               -                (3,496)
      Increase in note receivable - officer                                                             -               (11,875)
      Decrease in restricted cash                                                                   5,289                 4,483
                                                                                             ------------          ------------
                   Net Cash Provided by (Used in) Investing Activities                              5,289                (9,888)

Cash Flows from Financing Activities:
      Net proceeds from issuance of common stock                                                        -               229,000
      Proceeds from the issuance of convertible debentures, net
          of issuance costs of $38,250 in 2002 and $198,500 in 2001                               136,750             1,056,500
      Payment of convertible debentures                                                                 -               (15,000)
      Repayment of equipment loan                                                                  (7,222)               (8,496)
                                                                                             ------------          ------------
                   Net Cash Provided by Financing Activities                                      129,528             1,262,004
                                                                                             ------------          ------------

Net (Decrease) Increase in Cash                                                                  (420,223)              232,785

Cash at Beginning of Year                                                                         435,662               202,877
                                                                                             ------------          ------------

Cash at End of Year                                                                          $     15,439          $    435,662
                                                                                             ============          ============
</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, 2002 AND 2001
<TABLE>
<CAPTION>
                                                                                    2002                 2001
                                                                                    ----                 ----
<S>                                                                               <C>                 <C>
Supplemental Disclosure of Cash Flow Information:
-------------------------------------------------

   Cash paid during the year for:
      Interest                                                                    $  3,734            $    7,263
                                                                                  ========            ==========
      Income taxes                                                                $  3,698            $        -
                                                                                  ========            ==========

   Supplemental Disclosure of Non-Cash Investing
     and Financing Activities:

      Debt discount relating to the issuance of warrants
         and the beneficial conversion features of convertible debt               $125,000            $1,056,500
                                                                                  ========            ==========

      Conversion of debentures into common stock                                  $ 36,268            $  475,000
                                                                                  ========            ==========

      Conversion of accrued interest into common stock                            $ 18,371            $   35,452
                                                                                  ========            ==========
</TABLE>

The Notes to Financial Statements are an integral part of these statements.

                                      F-6

<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. The Company 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, 2002 and 2001. 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 $1,517,116 and $2,982,510 for the years ended
                 December 31, 2002 and 2001, respectively. The Company expects
                 that losses from operations will continue through 2003 and the
                 Company anticipates that it will require additional financing
                 in 2003, 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 completion of a new product called
                 Fingerprint Matching Systems (FMS) and its introduction to the
                 marketplace. 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.

              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 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-7

<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. 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 would 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-. The Compu-Scan development project was abandoned
                 in 2002.

                 Research and development costs incurred in connection with the
                 development of software totaled $177,033 and $383,217
                 respectively for the years ended December 31, 2002 and 2001.

              G. Accounts Receivable
              ----------------------
                 Accounts receivable are uncollateralized customer obligations
                 due under normal trade terms requiring payment within 30 days
                 from the invoice date. No interest is charged on any past due
                 accounts. Accounts receivable are stated at the amount billed
                 to the customer. Payments on customer accounts are allocated to
                 the specific invoices identified on the customer remittance
                 advice, or, if unspecified, are applied to the earliest unpaid
                 invoices. Customers with account balances past the normal
                 credit terms are considered delinquent.

                                      F-8

<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                         NOTES TO FINANCIAL STATEMENTS

Note 2 - Summary of Significant Accounting Policies (Cont'd):
-------------------------------------------------------------
              G. Accounts Receivable (Cont'd)
              -------------------------------
                 The carrying amount of accounts receivable is reduced by a
                 valuation allowance that reflects management's best estimate of
                 the amounts that will not be collected. Management reviews all
                 accounts receivable balances that exceed 90 days from invoice
                 date and based on assessment of current creditworthiness,
                 estimates the portion, if any, of the balance that will not be
                 collected.

              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 net
                 operating loss carry forwards, certain expenses, and
                 differences in the depreciable lives and/or methods for certain
                 assets.

               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 10.

              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
                 exercises 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 and
                 based on their short-term nature.

              M. Impact of Recent Accounting Pronouncements
              ---------------------------------------------
                 In April 2002, the FASB issued SFAS No. 145, "Rescission of
                 FASB Statement No. 4, 44 and 64, Amendment of FASB Statement
                 No. 13, and Technical Corrections" (SFAS 145). This statement
                 provides guidance on the classification of gains and losses
                 from the extinguishment of debt and on the accounting for
                 certain specified lease transactions. The adoption of this
                 statement will not have a significant impact on the Company's
                 financial position or results of operations.

                 In June 2002, the FASB issued SFAS No. 146, "Accounting for
                 Costs Associated with Exit or Disposal Activities" (SFAS 146),
                 which addresses financial accounting and reporting for costs

                                      F-9

<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                         NOTES TO FINANCIAL STATEMENTS

Note 2 - Summary of Significant Accounting Policies (Cont'd):
-------------------------------------------------------------
              M. Impact of Recent Accounting Pronouncements (Cont'd)
              ------------------------------------------------------
                 associated with exit or disposal activities and nullifies
                 Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
                 Recognition for Certain Employee Termination Benefits and Other
                 Costs to Exit an Activity (including Certain Costs Incurred in
                 a Restructuring)" (EITF 94-3). Generally SFAS 146 requires that
                 a liability for a cost associated with an exit or disposal
                 activity be recognized as incurred, whereas EITF 94-3 required
                 such a liability to be recognized at the time that an entity
                 committed to an exit plan. The provisions of the statement are
                 to be adopted prospectively for all exit activities after
                 December 31, 2002. Although SFAS 146 may impact the accounting
                 for costs related to exit or disposal activities we may enter
                 into in the future, particularly the timing of recognition of
                 these costs, the adoption of the statement is not expected to
                 have an impact on our present financial condition or results of
                 operations.

                 In November 2002, the FASB issued FASB Interpretation No. 45,
                 "Guarantor's Accounting and Disclosure Requirements for
                 Guarantees, Including Indirect Guarantees of Indebtedness of
                 Others" (FIN 45), which addresses the disclosure to be made by
                 a guarantor in its interim and annual financial statements
                 about its obligations under guarantees. FIN 45 also requires
                 the recognition of a liability by a guarantor at the inception
                 of certain guarantees and requires the guarantor to recognize
                 the liability for the non-contingent component of the
                 guarantee. This is the obligation to stand ready to perform in
                 the event that specified triggering events or conditions occur.
                 The initial measurement of this liability is the fair value of
                 the guarantee at inception. The recognition of the liability is
                 required even if it is not probable that payments will be
                 required under the guarantee or if the guarantee was issued
                 with a premium payment or as part of a transaction with
                 multiple elements. The adoption of this statement will not have
                 a significant impact on the Company's financial position or
                 results of operations.

                 In December 2002, the FASB issued SFAS No. 148 "Accounting for
                 Stock-Based Compensation, Transition and Disclosure, and
                 amendment of FASB Statement No. 123." SFAS No. 148 provides
                 alternative methods of transition for an entity that
                 voluntarily changes to the fair value based method of
                 accounting for stock-based employee compensation. It also
                 amends the disclosure provisions of SFAS No. 123 to require
                 prominent disclosure about the effects on reported net income
                 of an entity's accounting policy decisions with respect to
                 stock-based employee compensation. Finally, the Statement
                 amends APB Opinion No. 28, "Interim Financial Reporting," to
                 require disclosure about those effects in the interim financial
                 information. The amendments to SFAS No. 123 that provide
                 alternative methods of transition for an entity that
                 voluntarily changes to the fair value based method of
                 accounting for stock-based employee compensation are effective
                 for financial statements for fiscal years ending after December
                 15, 2002. The amendment to SFAS No. 123 relating to disclosure
                 and the amendment to Opinion 28 is effective for financial
                 reports containing condensed financial statements for interim
                 periods beginning after December 15, 2002. Early application is
                 encouraged. Management currently believes that the adoption of
                 SFAS No. 148 will not have a material impact on the financial
                 statements. Management does not intend to adopt fair value
                 accounting under SFAS 123.

                 In January 2003, the FASB issued FASB Interpretation No. 46,
                 "Consolidation of Variable Interest Entities" (FIN 46). FIN 46
                 clarifies existing accounting principles related to the
                 preparation of consolidated financial statements when the
                 equity investors in an entity do not have the characteristics
                 of a controlling financial interest or when the equity at risk
                 is not sufficient for the entity to finance its activities
                 without additional subordinated financial support from other
                 parties. FIN 46 requires a company to evaluate all existing
                 arrangements to identify situations where a company has a
                 "variable interest" (commonly a thinly capitalized entity) and
                 further determine when such variable interests require a
                 company to consolidate the variable interest entities'
                 financial statements with its own. We are required to perform
                 this assessment by September 30, 2003, and consolidate any
                 variable interest entities for which we will absorb a majority
                 of the entities' expected losses or receive a majority of the
                 expected residual gains. Management currently believes that the
                 adoption of FIN 46 will not have a material impact on the
                 financial statements.

                                      F-10

<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                         NOTES TO FINANCIAL STATEMENTS

Note 2 - Summary of Significant Accounting Policies (Cont'd):
-------------------------------------------------------------
              N. Reclassifications
              --------------------
                 Certain amounts in the 2001 financial statements have been
                 reclassified to conform to the 2002 presentation.

              O. Debt Discount and Deferred Financing Costs
              ---------------------------------------------
                  Financing costs associated with the issuance of debentures as
                  well as the value of the related beneficial conversion factor
                  and the value of the detachable warrants issued in connection
                  with the issuance of the debentures are amortized on a
                  straight-line basis over the term of the related debt.

Note 3 - Note Receivable - Former Officer:
------------------------------------------
           During 1996, the Company loaned a former President/Director 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, accrued interest, included in the note receivable in the
           accompanying balance sheet was $52,400. In 2001, due to uncertainty
           as to whether the Company would collect the note, a reserve for
           uncollectible notes was recorded in the amount of $177,400. During
           2002, a payment of $22,615 was received on this note, and is
           reflected in the accompanying financial statements as other income.
           The remaining unpaid balance of $154,785 plus additional accrued
           interest of $5,938 was written off in 2002 as uncollectible.

Note 4 - Furniture and Equipment:
---------------------------------
           Furniture and equipment consists of the following at December 31,
           2002 and 2001, respectively:
<TABLE>
<CAPTION>
                                                                  2002                2001
                                                                  ----                ----
<S>                                                          <C>                 <C>
              Furniture and fixtures                         $   186,705         $   186,705
              Computer equipment                                 274,945             274,945
              Vehicles                                            59,049              59,049
              Leasehold improvements                              34,977              34,977
                                                             -----------         -----------
                                                                 555,676             555,676
              Less accumulated depreciation                      543,518             518,586
                                                             -----------         -----------
                                                             $    12,158         $    37,090
                                                             ===========         ===========
</TABLE>

           Depreciation and amortization included as a charge to operations
           amounted to $24,932 and $138,452 for the years ended December 31,
           2002 and 2001, respectively.

Note 5 - Convertible Debentures:
--------------------------------
           During September 2002, the Company issued secured convertible
           debentures in the aggregate principal amount of $100,000. The
           debentures are due September 30, 2003, and accrue interest at a rate
           of 12% per annum. Interest shall be payable either quarterly or upon
           conversion at the option of the holder. The holder may at any time
           from issuance through the earlier of the (i) maturity date or (ii)
           the date of payment of the default, convert all or any part of the
           outstanding principal and unpaid accrued interest into common stock.
           If the conversion will result in ownership to the holder in excess of
           4.9% of total outstanding stock, the holder must provide 61 days
           written notice to the Company of their plans to convert. The
           conversion price shall be the lesser of the variable conversion price
           or the fixed conversion price. The variable conversion price is equal
           to 50% of the average of the lowest three intra-day prices for the
           common stock during the twenty-day period ending one trading day
           prior to the date the conversion notice is sent via facsimile to the
           borrower. The fixed conversion price is $.005 per share. The Company
           also issued common stock purchase warrants for the right to purchase
           300,000 shares of common stock of the Company at an exercise price
           per share equal to $.01. If the exercise of the warrant will result
           in ownership to the holder in excess of 4.9% of total outstanding


                                      F-11

<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                         NOTES TO FINANCIAL STATEMENTS

           Note 5 - Convertible Debentures (Cont'd):
           -----------------------------------------
           stock, the holder must provide 61 days written notice to the Company
           of their plans to exercise. The warrants are exercisable at any time
           from the date of issuance, September 30, 2002 through September 30,
           2005. The estimated fair value of the warrants was zero. The
           intrinsic value of the beneficial conversion feature of $100,000 has
           been allocated to paid-in capital and is being amortized over the
           life of the debenture on a straight-line basis. The unamortized
           beneficial conversion feature amounted to $75,000 at December 31,
           2002. Debt issuance costs of $27,500 are being amortized on a
           straight-line basis over the term of the debentures. Unamortized
           costs at December 31, 2002 amounted to $20,625.

           During June 2002, the Company issued a convertible promissory note in
           the amount of $75,000. Interest accrues at the rate of 12% per annum.
           The holders have the right to convert the principal amount plus
           unpaid accrued interest into shares of the Company's common stock at
           any time through repayment. The conversion price is equal to fifty
           percent of the average of the lowest three (i) inter-day trading
           prices, or (ii) if the common stock is traded on the OTC Bulletin
           Board or Pink Sheets, the prices asked by any person or entity acting
           as a market maker in the common stock during the twenty trading days
           immediately preceding the relevant date upon which a conversion is
           effected. The loan was due to mature in August 2002 and as such is in
           default as of December 31, 2002. Accordingly, the interest rate
           charged on the outstanding principal increased to 15% per annum
           beginning on the first day the loan was in default. The intrinsic
           value of the beneficial conversion feature of $25,000 has been
           allocated to paid-in capital. The resulting debt discount was fully
           amortized in 2002, based on the term of the debentures. Debt issuance
           costs of $10,750 were incurred and fully amortized in 2002 in
           connection with this loan.

           On December 31, 2001 the Company issued three convertible debentures
           for an aggregate amount of $500,000. The debentures are in default as
           they were due December 31, 2002. Interest accrued at the rate of 12%
           per annum through maturity, and increased to 15% per annum during the
           default period. Quarterly interest payments were not made, and
           accordingly accrued interest payable related to the notes totaling
           $60,000 is included in the accompanying financial statements. The
           holders have the right to convert the principal amount plus accrued
           interest into shares of the Company's common stock at any time
           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 $90,000 and the intrinsic value of the beneficial
           conversion feature of $332,500 have been allocated to paid-in
           capital. This resulting debt discount plus $77,500 of financing
           charges were amortized on a straight-line basis over the term of the
           debentures, and so were fully amortized at December 31, 2002. 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 in default
           as they were due on September 30, 2002. The debentures accrue
           interest at the rate of 12% per annum. A late fee equal to 15% of the
           accrued and unpaid interest is also assessed during the default
           period. Interest on the debentures was not paid quarterly, and
           accordingly accrued interest and late fees payable related to the
           notes totaling $69,000 is included in the accompanying financial
           statements. The holders have the right to convert the principal
           amount plus accrued interest into shares of the Company's common
           stock at any time after issuance. The conversion price in effect on
           any Conversion Date shall be the lesser of $.08 per share or 50% of
           the average of the lowest three inter-day sales prices during the ten
           trading days immediately preceding the applicable Conversion Date.
           The Company also issued common stock purchase warrants for the right
           to purchase 800,000 shares of common stock of the Company at an
           exercise price per share equal to the lesser of $.36 or the average
           of the lowest three closing sales prices for the common stock during
           the twenty Trading Days immediately prior to exercise. The estimated

                                      F-12

<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                         NOTES TO FINANCIAL STATEMENTS

Note 5 - Convertible Debentures (Cont'd):
-----------------------------------------
           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 were amortized on a straight-line basis over the
           term of the debentures, and so were fully amortized at December 31,
           2002. The debentures are collateralized by substantially all of the
           Company's assets.

           During April 2001 and May 2001, the Company issued three convertible
           notes for an aggregate amount of $155,000. The debentures 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
           was allocated to paid-in capital. This resulting debt discount was
           amortized on a straight-line basis over the term of the debentures,
           and so was fully amortized at December 31, 2002. The debentures are
           collateralized by substantially all of the Company's assets. During
           September 2001, $115,000 of the notes was 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 was paid. The remaining balance of $25,000 is past due.

           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 was 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 was 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 2002, $36,268 of the debentures was
           converted into 9,186,396 shares of common stock. The unpaid principal
           balance of $3,732 was in default as of December 31, 2002. Accrued
           interest of $18,371 was converted into 2,203,828 shares of common
           stock during 2002.

           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

                                      F-13

<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                         NOTES TO FINANCIAL STATEMENTS

Note 5 - Convertible Debentures (Cont'd):
-----------------------------------------
           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.

           Please refer to Notes 11 and 13 for additional information.

Note 6 - Debt Discount and Deferred Financing Costs:
----------------------------------------------------
           Debt discount and deferred financing costs consist of the following:

                                                    2002            2001
                                                    ----            ----

           Debt discounts                         $100,000      $  207,500
           Deferred financing costs                 27,500         812,500
                                                  --------      ----------
                                                   127,500       1,020,000
           Less accumulated amortization           (31,875)       (212,986)
                                                  --------      ----------
                                                  $ 95,625      $  807,014
                                                  ========      ==========

           The net debt discount and deferred financing costs of $95,625 will be
           fully amortized during the year ended December 31, 2003.


Note 7 - Equipment Loan:
------------------------
           As of December 31, 2002 and 2001, $20,055 and $27,277 were
           outstanding related to an automobile loan that matures 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:

                 2003                                             $  7,289
                 2004                                                7,354
                 2005                                                5,412
                 2006 and Thereafter                                     -
                                                                  --------
                                                                  $ 20,055
                                                                  ========

           At December 31, 2002, the Company had federal net operating loss
           carryforwards of approximately $11,842,000 to offset future federal
           taxable income expiring in various years through 2022. The Company
           also has state net operating loss carryforwards in various states,
           which approximate the federal amount to offset future state taxable
           income expiring in various years, generally 7 to 10 years following
           the year the loss was incurred.

           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.

                                      F-14

<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                         NOTES TO FINANCIAL STATEMENTS

Note 8 - Income Taxes (Cont'd):
-------------------------------
           The tax effects of temporary differences that give rise to
           significant portions of deferred tax assets at December 31, 2002 and
           2001 are as follows:

                                                      2002             2001
                                                      ----             ----
            Deferred tax assets:
                Net operating loss carryforwards  $ 5,049,432      $ 3,838,269
                Bad debt reserves                      50,551           37,810
                Inventory reserves                      1,347            1,868
                Depreciation                           51,678           67,848
                                                  -----------      -----------
            Deferred tax assets                     5,153,008        3,945,795
            Valuation allowance                    (5,153,008)      (3,945,795)
                                                  -----------      -----------
                Net deferred tax asset            $         -      $         -
                                                  ===========      ===========


Note 9 - Commitments and Contingencies:
---------------------------------------
           Operating Lease:
           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, 2002 are as follows:

                 2003                                            $  92,381
                 2004                                               91,954
                 2005                                               43,016
                 2006 and thereafter                                     -
                                                                 ---------
                                                                 $ 227,351
                                                                 =========

           Rental expense under such operating leases was approximately $93,724
           and $104,100 during the years ended December 31, 2002 and 2001,
           respectively.

           Employment Contract:
           During 2002, the Company entered into an employment agreement with
           one of the officer's. The agreement is for a three-year period that
           terminates on February 28, 2005. Pursuant to the agreement, the
           officer will receive an annual base salary of $115,000, which may be
           increased by the Board of Directors annually. The officer is also
           eligible to participate in the Annual Management Bonus Plan under
           which he may receive a bonus in any amount from 0% to 100% of his
           base salary based on his performance and the Company's performance
           for the immediately preceding calendar year. He is also eligible to
           receive options to purchase shares of the Company's common stock
           under the Management Equity Incentive Plan. In addition, the officer
           is entitled to a monthly car allowance totaling $1,200 and to be
           reimbursed for reasonable expenses in the discharge of his services,
           including travel, lodging and similar items.

           If the officer's employment is terminated because of death, discharge
           by the Company other than for just cause, or if the officer resigns
           with good reason as defined in the agreement, he shall receive his
           base salary and benefits for the greater of (i) one year from the
           date of termination or resignation, (ii) the remaining term of the
           agreement. If employment is terminated for any other reason than the
           aforementioned, the Company's obligation under the agreement ceases
           on the date of termination.

                                      F-15

<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                         NOTES TO FINANCIAL STATEMENTS

Note 10 - Stock Option and Other Plans:
---------------------------------------
           The Company maintains the 1994 Restated Stock Option Plan (the 1994
           Plan) pursuant to which the Company reserved 5,000,000 shares of
           common stock. The options granted have a term of ten years and are
           issued at or above the fair market value of the underlying shares on
           the grant date. The Company also maintains the 1996 Director Option
           Plan (the Director Plan) pursuant to which the Company reserved
           200,000 shares of common stock. Options granted under the Director
           Plan are issued at or above the fair market value of the underlying
           shares on the grant date. A portion of the first option vests at the
           six-month anniversary of the date of the grant and continues over a
           four-year period. Subsequent options vest on the first anniversary of
           the grant date. The options expire ten years from the date of the
           grant or 90 days after termination of employment, whichever comes
           first.

           The following is a summary of option activity under all plans:
<TABLE>
<CAPTION>
                                                                                                             Weighted
                                                             1996                               Total         Average
                                                           Director                           Number of      Exercise
                                            1994 Plan        Plan         Nonqualified         Options         Price
                                            --------------------------------------------------------------------------
<S>                                         <C>             <C>              <C>            <C>             <C>
Outstanding at December 31, 2000            1,022,000       33,812           889,000        1,944,812       $.10-$3.30
Granted                                             -            -                 -                -                -
Expired                                      (103,500)     ( 7,500)        ( 208,000)        (319,000)      $.10-$3.30
                                            --------------------------------------------------------------------------
Outstanding at December 31, 2001              918,500       26,312           681,000        1,625,812       $.10-$3.30
Granted                                             -            -                 -                -                -
Expired                                      (693,000)           -          (150,000)        (843,000)      $ .10-$.63
                                            --------------------------------------------------------------------------
Outstanding at December 31, 2002              225,500       26,312           531,000          782,812       $.10-$3.30
                                            ==========================================================================

Exercisable options at
December 31, 2002                             225,500       26,312           531,000          782,812
                                            =========================================================
</TABLE>

           At December 31, 2002, the remaining contractual life of outstanding
           options was 7 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
                                                    --------------------
                                                    2002            2001
                                                    ----            ----
                  Net loss:
                      As reported               $(1,517,117)    $(2,982,510)
                      Pro forma                 $(1,529,742)    $(2,993,559)
                  Net loss per share:
                      As reported                     $(.03)          $(.12)
                      Pro forma                       $(.03)          $(.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 and 1999 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 and .879, respectively.

           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.

                                      F-16

<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                         NOTES TO FINANCIAL STATEMENTS

Note 10 - Stock Option and Other Plans (Cont'd):
------------------------------------------------
           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. The Company has not awarded any stock
           options or stock grants under this Plan since 1998. No awards shall
           be made after December 31, 2001.

Note 11 - Equity Transactions:
------------------------------
           During 2002, the Company issued 360,000 shares of common stock for
           services and 1,555,553 shares of common stock as payment of penalties
           incurred in connection with the late filing of a registration
           statement and late receipt of an effective registration in connection
           with the convertible debentures issued on December 31, 2001. The
           Company recorded charges of $14,400 and $2,334 respectively in 2002
           based on the fair market value of the Company's common stock on the
           date of the stock grant.

           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, the Company issued 4,328,831 shares of restrictive
           common stock for services received. The Company recorded a charge for
           the issuance of such shares during 2001 of $414,322 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. Class A and Class B Warrants expired on
           August 15, 2002. At December 31, 2001 there were 1,483,750 Redeemable
           Class A Warrants outstanding and 1,483,750 Redeemable Class B
           Warrants outstanding.

           At December 31, 2002, the Company has the following common shares
           reserved for issuance:

           Common stock options                                 5,000,000
           Common stock available for grant:
           Consultants and advisors compensation plan             139,000
           Convertible debentures                              50,000,548
                                                               ----------
                      Total                                    55,139,548
                                                               ==========

                                      F-17



<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                         NOTES TO FINANCIAL STATEMENTS

Note 12 - Related Party Transactions:
-------------------------------------
           One of the directors has a contract with the Company to provide sales
           and marketing consulting services. The effective date of the
           agreement was October 17, 2002, and renews automatically on a monthly
           basis. Minimum fees of $1,100 are paid weekly. For the year ended
           December 31, 2002, fees totaling $17,993 were incurred of which
           $8,093 were payable at December 31, 2002.

Note 13 - Contingency:
----------------------
           During the year ended December 31, 2002, the Company failed to timely
           file a registration statement, and failed to timely obtain an
           effective registration in connection with the convertible debentures
           issued on December 31, 2001. As a result, pursuant to the
           Registration Rights Agreement, damages of $35,834 were sought by one
           of the three holders of the December 31, 2001 series. Of this amount,
           $2,334 was paid via the issuance of common stock, and the balance of
           $33,500 is reflected in the accompanying financial statements as a
           liability at December 31, 2002.

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

Note 14 - Subsequent Events:
----------------------------
           On January 10, 2003, the Company entered into a Securities Purchase
           Agreement, providing for the issuance of secured convertible
           debentures in the aggregate principal amount of $500,000 and warrants
           to purchase an aggregate of 1,500,000 shares of the Company's common
           stock for the aggregate consideration of $500,000. The debentures
           accrue interest at a rate of 12%. The debentures mature one year from
           issuance and are secured by the assets of the Company, including
           certain intellectual property as defined in the Intellectual Property
           Security Agreement.

           Initially, secured convertible debentures in the aggregate principal
           amount of $250,000 and warrants to purchase an aggregate of 750,000
           shares of the Company's common stock for the aggregate consideration
           of $250,000 were issued on January 10, 2003. As part of the
           agreement, the buyers agreed to subsequent investments in the
           securities provided that the Company performed under the Registration
           Rights Agreement. Specifically, the buyers agreed to purchase
           additional debentures in the aggregate principal amount of $125,000
           ("Filing Debentures") and additional warrants to purchase an
           aggregate of 375,000 shares of common stock ("Filing Warrants") for
           an aggregate purchase price of $125,000 within fifteen days of the
           Company filing the Registration Statement. Further, upon declaration
           of the effectiveness of the Registration Statement, the buyer agreed
           to purchase additional debentures in the aggregate principal amount
           of $125,000 ("Effectiveness Debentures") and additional warrants to
           purchase an aggregate of 375,000 shares of common stock
           ("Effectiveness Warrants") for an aggregate purchase price of
           $125,000 within five days of the effective date. The subsequent
           investments are to be made under the same terms as the initial
           January 10th 2003 investment.

           The holder may at any time from issuance through the earlier of the
           (i) maturity date or (ii) the date of payment of the default, convert
           all or any part of the outstanding principal into shares of the
           Company's common stock. If the conversion will result in ownership to
           the holder in excess of 4.9% of total outstanding stock, the holder
           must provide 61 days written notice to the Company of their plans to
           convert. The conversion price shall be the lesser of the variable
           conversion price or the fixed conversion price. The variable
           conversion price is equal to 50% of the average of the lowest three
           intra-day prices for the common stock during the twenty-day period
           ending one trading day prior to the date the conversion notice is
           sent via facsimile to the borrower. The fixed conversion price is
           $.01 per share.

                                      F-18

<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                         NOTES TO FINANCIAL STATEMENTS

Note 14 - Subsequent Events (Cont'd):
-------------------------------------
           The common stock purchase warrants issued stipulate an exercise price
           per share equal to $.01. The warrants are exercisable at any time
           from the date of issuance through the fifth anniversary of the date
           of issuance.

           On February 27, 2003, the Company issued the second round of
           financing under the January 10, 2003 Securities Purchase Agreement.
           Secured convertible debentures with principal aggregating $125,000
           and warrants to purchase an aggregate of 375,000 shares of common
           stock were issued for an aggregate purchase price of $125,000 under
           the terms noted above.

           On March 31, 2003, the Company issued the final round of financing
           under the January 10, 2003 Securities Purchase Agreement. Secured
           convertible debentures with principal aggregating $125,000 and
           warrants to purchase an aggregate of 375,000 shares of common stock
           were issued for an aggregate purchase price of $125,000 under the
           terms noted above.

           During February 2003, $1,000 of the convertible debentures issued in
           December 2001 was converted into 2,857,142 shares of common stock.

           In March 2003, $1,600 of the convertible debentures issued in
           December 2001 was converted into 8,000,000 shares of common stock.
           Additionally, accrued interest relating to the note dated May 2001
           was converted into an additional 1,820,634 shares of common stock.

           Also during March through April 2, 2003, liquidated damages relating
           to the convertible debentures issued in December 2001 were converted
           into 9,000,000 shares of common stock.

                                      F-19