Document:

<PAGE>

                                                                    EXHIBIT 10.3

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED
BY SUCH SECURITIES.

                             DIGITAL RECORDERS, INC.

                                     WARRANT

Warrant No. [  ]                                Original Issue Date: [   ], 2004

         Digital Recorders, Inc., a North Carolina corporation (the "Company"),
hereby certifies that, for value received, [      ] or its registered assigns
(the "Holder"), is entitled to purchase from the Company up to a total of
[         ](1) shares of Common Stock (each such share, a "Warrant Share" and
all such shares, the "Warrant Shares"), at any time and from time to time from
and after the Original Issue Date and through and including [      ], 2009 (the
"Expiration Date"), and subject to the following terms and conditions:

         1. Definitions. As used in this Warrant, the following terms shall have
the respective definitions set forth in this Section 1. Capitalized terms that
are used and not defined in this Warrant that are defined in the Purchase
Agreement (as defined below) shall have the respective definitions set forth in
the Purchase Agreement.

         "Business Day" means any day except Saturday, Sunday and any day that
is a federal legal holiday in the United States or a day on which banking
institutions in the State of New York are authorized or required by law or other
government action to close.

----------

(1)      A number of shares as equals 20% of the Shares issuable to such
         investor at Closing under the Purchase Agreement.

<PAGE>

         "Common Stock" means the common stock of the Company, par value $0.10
per share, and any securities into which such common stock may hereafter be
reclassified.

         "Exercise Price" means $8.80, subject to adjustment in accordance with
Section 9.

         "Original Issue Date" means the Original Issue Date first set forth on
the first page of this Warrant.

         "New York Courts" means the state and federal courts sitting in the
City of New York, Borough of Manhattan.

         "Purchase Agreement" means the Securities Purchase Agreement, dated
April 21, 2004, to which the Company and the original Holder are parties.

         "Trading Day" means (i) a day on which the Common Stock is traded on a
Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock
is not listed on a Trading Market (other than the OTC Bulletin Board), a day on
which the Common Stock is traded in the over-the-counter market, as reported by
the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any
Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices); provided, that in the event that the Common Stock is not
listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.

         2. Registration of Warrant. The Company shall register this Warrant
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.

         3. Registration of Transfers. The Company shall register the transfer
of any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Company at its address specified herein. Upon any such registration or
transfer, a new Warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new Warrant, a "New Warrant"), evidencing the portion of
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by
the transferee thereof shall be deemed the acceptance by such transferee of all
of the rights and obligations of a holder of a Warrant.

         4. Exercise and Duration of Warrants. This Warrant shall be exercisable
by the registered Holder at any time and from time to time on or after the
Original Issue Date through and including the Expiration Date. At 6:30 p.m., New
York City time on the Expiration Date, the portion of this Warrant not exercised
prior thereto shall be and become void and of no value. The Company may not call
or redeem any portion of this Warrant without the prior written consent of the
affected Holder.

                                       2

<PAGE>

         5. Delivery of Warrant Shares.

                  (a) To effect exercises hereunder, the Holder shall not be
required to physically surrender this Warrant unless the aggregate Warrant
Shares represented by this Warrant is being exercised. Upon delivery of the
Exercise Notice (in the form attached hereto) to the Company (with the attached
Warrant Shares Exercise Log) at its address for notice set forth herein and upon
payment of the Exercise Price multiplied by the number of Warrant Shares that
the Holder intends to purchase hereunder, the Company shall promptly (but in no
event later than three Trading Days after the Date of Exercise (as defined
herein)) issue and deliver to the Holder, a certificate for the Warrant Shares
issuable upon such exercise, which, unless otherwise required by the Purchase
Agreement, shall be free of restrictive legends. The Company shall, upon request
of the Holder and subsequent to the date on which a registration statement
covering the resale of the Warrant Shares has been declared effective by the
Securities and Exchange Commission, use its reasonable best efforts to deliver
Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions, if
available, provided, that, the Company may, but will not be required to change
its transfer agent if its current transfer agent cannot deliver Warrant Shares
electronically through the Depository Trust Corporation. A "Date of Exercise"
means the date on which the Holder shall have delivered to the Company: (i) the
Exercise Notice (with the Warrant Exercise Log attached to it), appropriately
completed and duly signed and (ii) if such Holder is not utilizing the cashless
exercise provisions set forth in this Warrant, payment of the Exercise Price for
the number of Warrant Shares so indicated by the Holder to be purchased.

                  (b) If by the third Trading Day after a Date of Exercise the
Company fails to deliver the required number of Warrant Shares in the manner
required pursuant to Section 5(a), then the Holder will have the right to
rescind such exercise.

                  (c) If by the third Trading Day after a Date of Exercise the
Company fails to deliver the required number of Warrant Shares in the manner
required pursuant to Section 5(a), and if after such third Trading Day and prior
to the receipt of such Warrant Shares, the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Warrant Shares which the Holder anticipated receiving
upon such exercise (a "Buy-In"), then the Company shall (1) pay in cash to the
Holder the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares
that the Company was required to deliver to the Holder in connection with the
exercise at issue by (B) the closing bid price of the Common Stock on the date
of the sale giving rise to such purchase obligation and (2) at the option of the
Holder, either reinstate the portion of the Warrant and equivalent number of
Warrant Shares for which such exercise was not honored or deliver to the Holder
the number of shares of Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder. The Holder
shall provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In.

                  (d) The Company's obligations to issue and deliver Warrant
Shares in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision

                                       3

<PAGE>

hereof, the recovery of any judgment against any Person or any action to enforce
the same, or any setoff, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder or any other Person of any obligation
to the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of Warrant Shares. Nothing herein shall limit a Holder's right to
pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing Warrant Shares upon exercise of the Warrant as
required pursuant to the terms hereof.

         6. Charges, Taxes and Expenses. Issuance and delivery of Warrant Shares
upon exercise of this Warrant shall be made without charge to the Holder for any
issue or transfer tax, withholding tax, transfer agent fee or other incidental
tax or expense in respect of the issuance of such certificates, all of which
taxes and expenses shall be paid by the Company; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the registration of any certificates for Warrant Shares
or Warrants in a name other than that of the Holder. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.

         7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity (which shall not include a surety bond), if requested.
Applicants for a New Warrant under such circumstances shall also comply with
such other reasonable regulations and procedures and pay such other reasonable
third-party costs as the Company may prescribe. If a New Warrant is requested as
a result of a mutilation of this Warrant, then the Holder shall deliver such
mutilated Warrant to the Company as a condition precedent to the Company's
obligation to issue the New Warrant.

         8. Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of Persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable.

         9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9.

                                        4

<PAGE>

                  (a) Stock Dividends and Splits. If the Company, at any time
while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock
or otherwise makes a distribution on any class of capital stock that is payable
in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock
into a larger number of shares, or (iii) combines outstanding shares of Common
Stock into a smaller number of shares, then in each such case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.

                  (b) Fundamental Transactions. If, at any time while this
Warrant is outstanding, (1) the Company effects any merger or consolidation of
the Company with or into another Person, (2) the Company effects any sale of all
or substantially all of its assets in one or a series of related transactions,
(3) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (4)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then the Holder shall have the right thereafter to
receive, upon exercise of this Warrant, the same amount and kind of securities,
cash or property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the "Alternate Consideration").
For purposes of any such exercise, the determination of the Exercise Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental
Transaction. If any successor to the Company or surviving entity in such
Fundamental Transaction shall fail to issue, not later than the earlier of 15
days after consummation of such Fundamental Transaction or three days after
written request therefor by the Holder, to the Holder a new warrant
substantially in the form of this Warrant and consistent with the foregoing
provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof, then the
Holder shall have the right to require such successor or surviving entity to
purchase the Warrant from the Holder for a purchase price, payable in cash
within five Trading Days after such request, equal to the Black Scholes value of
the remaining unexercised portion of this Warrant on the date of such request.
The terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving entity to
comply with the provisions of this paragraph (b) and insuring that the Warrant
(or any such replacement security)

                                       5

<PAGE>

will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.

                  (c) Number of Warrant Shares. Simultaneously with any
adjustment to the Exercise Price pursuant to this Section 9, the number of
Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the adjusted number of Warrant
Shares shall be the same as the aggregate Exercise Price in effect immediately
prior to such adjustment.

                  (d) Calculations. All calculations under this Section 9 shall
be made to the nearest cent or the nearest 1/100th of a share, as applicable.
The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.

                  (e) Notice of Adjustments. Upon the occurrence of each
adjustment pursuant to this Section 9, the Company at its expense will promptly
compute such adjustment in accordance with the terms of this Warrant and prepare
a certificate setting forth such adjustment, including a statement of the
adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing
the transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based. Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company's Transfer Agent.

                  (f) Notice of Corporate Events. If the Company (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Company or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Company, then the Company shall deliver to the Holder a notice describing
the material terms and conditions of such transaction (but only to the extent
such disclosure would not result in the dissemination of material, non-public
information to the Holder) at least 10 calendar days prior to the applicable
record or effective date on which a Person would need to hold Common Stock in
order to participate in or vote with respect to such transaction, and the
Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Warrant prior to such
time so as to participate in or vote with respect to such transaction; provided,
however, that the failure to deliver such notice or any defect therein shall not
affect the validity of the corporate action required to be described in such
notice.

         10. Payment of Exercise Price. The Holder may pay the Exercise Price in
one of the following manners:

                  (a) Cash Exercise. The Holder may deliver immediately
available funds; or

                                       6

<PAGE>

                  (b) Cashless Exercise. If an Exercise Notice is delivered at a
time when a registration statement permitting the Holder to resell the Warrant
Shares is not then effective or the prospectus forming a part thereof is not
then available to the Holder for the resale of the Warrant Shares, then the
Holder may notify the Company in an Exercise Notice of its election to utilize
cashless exercise, in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:

                                    X = Y [(A-B)/A]

                           where:

                                    X = the number of Warrant Shares to be
                                    issued to the Holder.

                                    Y = the number of Warrant Shares with
                                    respect to which this Warrant is being
                                    exercised.

                                    A = the average of the closing prices for
                                    the five Trading Days immediately prior to
                                    (but not including) the Exercise Date.

                                    B = the Exercise Price.

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued.

         11. Limitations on Exercise. Notwithstanding anything to the contrary
contained herein, the number of Warrant Shares that may be acquired by the
Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall
be limited to the extent necessary to insure that, following such exercise (or
other issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder's for purposes of
Section 13(d) of the Exchange Act, does not exceed 9.999% of the total number of
issued and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such exercise). For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. This
provision shall not restrict the number of shares of Common Stock which a Holder
may receive or beneficially own in order to determine the amount of securities
or other consideration that such Holder may receive in the event of a
Fundamental Transaction as contemplated in Section 9 of this Warrant. This
restriction may not be waived.

         12. No Fractional Shares. No fractional Warrant Shares will be issued
in connection with any exercise of this Warrant. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the closing price of one share of
Common Stock as reported by the applicable Trading Market on the date of
exercise.

                                       7

<PAGE>

         13. Notices. Any and all notices or other communications or deliveries
hereunder (including, without limitation, any Exercise Notice) shall be in
writing and shall be deemed given and effective on the earliest of (i) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if to
the Company, to Digital Recorders, Inc., Attn: President, or to Facsimile No.:
(214) 378-8437 (or such other address as the Company shall indicate in writing
in accordance with this Section), or (ii) if to the Holder, to the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section.

         14. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 10 days' notice to the Holder, the Company may appoint a new
warrant agent. Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.

         15. Miscellaneous.

                  (a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and assigns. Subject to
the preceding sentence, nothing in this Warrant shall be construed to give to
any Person other than the Company and the Holder any legal or equitable right,
remedy or cause of action under this Warrant. This Warrant may be amended only
in writing signed by the Company and the Holder and their successors and
assigns.

                  (b) All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York (except for matters governed by corporate law in the State of North
Carolina), without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of this Warrant and the transactions herein contemplated
("Proceedings") (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the New York
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any Proceeding, any claim that it is not personally subject to the jurisdiction
of any New York Court, or that such Proceeding has been

                                       8

<PAGE>

commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Warrant and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Warrant or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of this Warrant, then the
prevailing party in such Proceeding shall be reimbursed by the other party for
its attorney's fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.

                  (c) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.

                  (d) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.

                  (e) Prior to exercise of this Warrant, the Holder hereof shall
not, by reason of by being a Holder, be entitled to any rights of a stockholder
with respect to the Warrant Shares

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
                             SIGNATURE PAGE FOLLOWS]

                                       9

<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.

                                    DIGITAL RECORDERS, INC.

                                    By:
                                       -----------------------------------------
                                       Name:
                                       Title:

                                       10

<PAGE>

                                 EXERCISE NOTICE
                             DIGITAL RECORDERS, INC.
                             WARRANT DATED [ ], 2004

The undersigned Holder hereby irrevocably elects to purchase _____________
shares of Common Stock pursuant to the above referenced Warrant. Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.

(1) The undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the Warrant.

(2) The Holder intends that payment of the Exercise Price shall be made as
(check one):

                  ____"Cash Exercise" under Section 10

                  ____"Cashless Exercise" under Section 10

(3) If the holder has elected a Cash Exercise, the holder shall pay the sum of
$____________ to the Company in accordance with the terms of the Warrant.

(4) Pursuant to this Exercise Notice, the Company shall deliver to the holder
_______________ Warrant Shares in accordance with the terms of the Warrant.

(5) By its delivery of this Exercise Notice, the undersigned represents and
warrants to the Company that in giving effect to the exercise evidenced hereby
the Holder will not beneficially own in excess of the number of shares of Common
Stock (determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934) permitted to be owned under Section 11 of this Warrant to which
this notice relates.

Dated:                  ,                 Name of Holder:
      ------------------  -------

                                          (Print)
                                                 -------------------------------

                                          By:
                                             -----------------------------------
                                          Name:
                                               ---------------------------------
                                          Title:
                                                --------------------------------

                                          (Signature must conform in all
                                          respects to name of holder as
                                          specified on the face of the Warrant)

                                       11

<PAGE>

                           Warrant Shares Exercise Log

<Table>
<Caption>
                                                                                          Number of
                 Number of Warrant                                                        Warrant Shares
                 Shares Available to be          Number of Warrant Shares                 Remaining to
Date             Exercised                       Exercised                                be Exercised
<S>              <C>                             <C>                                      <C>

</Table>

                                       12

<PAGE>

                             DIGITAL RECORDERS, INC.
                      WARRANT ORIGINALLY ISSUED [   ], 2004
                                 WARRANT NO. [ ]

                               FORM OF ASSIGNMENT

         [To be completed and signed only upon transfer of Warrant]

         FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the
above-captioned Warrant to purchase ____________ shares of Common Stock to which
such Warrant relates and appoints ________________ attorney to transfer said
right on the books of the Company with full power of substitution in the
premises.

Dated: _______________, ____

                                          -------------------------------------
                                          (Signature must conform in all
                                          respects to name of holder as
                                          specified on the face of the Warrant)

                                          -------------------------------------
                                          Address of Transferee

                                          -------------------------------------

                                          -------------------------------------

In the presence of:

--------------------------

                                       13

<PAGE>
                   SCHEDULE TO EXHIBIT 10.3 (FORM OF WARRANT)
                                   TO FORM 8-K

         The following lists: (i) the holders to which warrants to purchase
shares of common stock of Digital Recorders, Inc. have been granted, as
described in this Form 8-K and (ii) the number of shares of common stock each
holder is entitled to purchase pursuant to its warrant:

<Table>
<Caption>

                                                      NUMBER OF SHARES HOLDER IS
         NAME OF HOLDER OF WARRANT                       ENTITLED TO PURCHASE
         -------------------------                    --------------------------
<S>                                                   <C>
Elliott Associates, L.P.                                          8,000
Elliott International, L.P.                                      12,000
Bonanza Master Fund Ltd.                                         20,000
Heimdall Investments Ltd.                                        20,000
Langley Partners, L.P.                                           10,000
Smithfield Fiduciary LLC                                         13,000
Omicron Master Trust                                             18,000
Gabriel Capital, L.P.                                             7,000
Cohanzick Absolute Return Master Fund, Ltd.                       3,000
Cranshire Capital, LP                                            10,000
Portside Growth and Opportunity Fund                              4,000
</Table><PAGE>

                                                                     EXHIBIT 4.3

                      FORM OF REGISTRATION RIGHTS AGREEMENT

         This Registration Rights Agreement (the "Agreement") is made and
entered into as of the ___ day of __________, 2004, by and among Cash Systems,
Inc., a Delaware corporation (the "Company"), and the Investors listed on
Schedule A attached hereto (individually, an "Investor" and collectively, the
"Investors").

                                    RECITALS

         A.       Each of the Investors and the Company have entered into a
Subscription Agreement and Letter of Investment Intent (the "Purchase
Agreement") to purchase shares of the Company's Common Stock (the "Shares")
pursuant to a Confidential Private Placement Memorandum dated March 8, 2004 (the
"Memorandum").

         B.       It is a condition to the transactions contemplated in the
Purchase Agreement that the Company provide the registration rights provided
herein and the parties hereto desire to provide for such rights on the terms and
conditions contained herein.

         NOW, THEREFORE, in consideration of the premises and covenants
contained herein, the parties hereto agree as follows:

         1.       Defined Terms. Unless otherwise noted, all capitalized terms
used herein shall have the meanings afforded them in the Purchase Agreement.

         2.       Required Registration. Within 30 days following the date of
the final closing on the sale of Shares pursuant to the Memorandum, but no later
than April 22, 2004 (the "File Date"), the Company shall file a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act"),
in accordance with the provisions of Form S-3, as required by the Securities and
Exchange Commission (the "Commission"), covering the resale of the Shares sold
on or before March 22, 2004. If additional Shares are sold after March 22, 2004,
within 30 days of the final sale of such additional Shares under the Memorandum
(the "Second File Date"), the Company shall file a second Registration Statement
under the Securities Act covering the resale of such shares. The Company will
use its best efforts to have each such Registration Statement become effective
with the Commission as soon as possible thereafter, including responding to any
Commission comments within five (5) business days following receipt unless
otherwise directed or agreed to by the Investors or their counsel.

         3.       Registration - General Provisions. In connection with the
registration of the Shares under the Securities Act, the Company will:

                  (a) prepare and file with the Commission, on or before the
                  File Date and on or before the Second File Date, if
                  applicable, a Registration Statement on Form S-3 covering the
                  resale of the Shares (in accordance with Section 2 above), and
                  use its best efforts to cause such Registration Statement to
                  become effective as soon as possible thereafter and keep the
                  prospectus, which is a part of such Registration Statement,
                  current until the earlier of the date on which: (i) all
                  registered Shares have been sold by the Investors, or (ii) two
                  years after the date it is declared effective by the
                  Commission;

<PAGE>

                  (b)      prepare and file with the Commission such amendments
to such Registration Statement and supplements to the prospectus contained
therein as may be necessary to keep such Registration Statement effective for
the period required by Section 3(a) above;

                  (c)      provide the Investors' counsel with reasonable
opportunities to review and comment on, and otherwise participate in, the
preparation of such Registration Statement;

                  (d)      furnish to the Investors participating in such
registration and to the underwriters of the securities being registered, if any,
such reasonable number of copies of the Registration Statement, preliminary
prospectus, final prospectus and such other documents as the Investors and
underwriters may reasonably request in order to facilitate the public offering
of such securities;

                  (e)      use its diligent, good faith efforts to register or
qualify the securities covered by such Registration Statement under such state
securities or blue sky laws of such jurisdictions as the Investors may
reasonably request, and to keep such registration or qualification in effect for
so long as such Registration Statement remains in effect, except that the
Company shall not for any purpose be required to execute a general consent to
service of process (which shall not include a "Uniform Consent to Service of
Process" or other similar consent to service of process which relates only to
actions or proceedings arising out of or in connection with the sale of
securities, or out of a violation of the laws of the jurisdiction requesting
such consent) or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;

                  (f)      notify the Investors, promptly after it shall receive
notice thereof, of the time when such Registration Statement has become
effective or a supplement to any prospectus forming a part of such Registration
Statement has been filed with the Commission;

                  (g)      notify the Investors promptly of any request by the
Commission for the amending or supplementing of such Registration Statement or
prospectus or for additional information;

                  (h)      prepare and file with the Commission, promptly upon
the request of the Investors, any amendments or supplements to such Registration
Statement or prospectus which, in the opinion of counsel for the Investors (and
concurred in by counsel for the Company), is required under the Securities Act
or the rules and regulations promulgated thereunder in connection with the
distribution of the shares of the Company's common stock by the Investors;

                  (i)      prepare and promptly file with the Commission, and
promptly notify the Investors of the filing of, such amendment or supplement to
such Registration Statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event shall
have occurred as the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances in which they were made, not misleading;

                  (j)      advise the Investors, and the Investors' counsel, if
any, promptly after it shall receive notice or obtain knowledge thereof, of the
issuance of any stop order by the

<PAGE>

Commission suspending the effectiveness of such Registration Statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued. In the event of the issuance of
any such stop order, the period referred to in Section 3(a) hereof shall be
extended by a number of days equal to the number of days during the period from
and including the date of the issuance of said stop order and to and including
the date of the withdrawal of said stop order;

                  (k)      not file any amendment or supplement to such
Registration Statement or prospectus to which the Investors shall have
reasonably objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations promulgated thereunder, after having been furnished
with a copy thereof at least five business days prior to the filing thereof,
unless in the opinion of counsel for the Company the filing of such amendment or
supplement is reasonably necessary to protect the Company from any material
liabilities under any applicable federal or state law and such filing will not
violate applicable law;

                  (l)      cooperate with the selling Investors to facilitate
the timely preparation and delivery of certificates representing the Shares to
be sold, which certificates shall not bear any restrictive legends, and enable
such Shares to be in such denomination and registered in such names as the
Investors may request; and

                  (m)      file reports in compliance with the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and use its best efforts
to comply with all rules and regulations of the Commission applicable in
connection with use of Rule 144 and take such other actions and furnish the
Investors with such other information as any such Investor may request in order
to avail itself of such rule or any other rule or regulation of the Commission,
allowing such Investor to sell any Shares without registration. If at any time
the Company is not required to file reports in compliance with either Section 13
or Section 15(d) of the Exchange Act, the Company at its expense will, forthwith
upon the written request of any Investor, make available adequate current public
information with respect to the Company within the meaning of paragraph (c)(2)
of Rule 144.

         4.       Registration Expense. The Company shall pay all Registration
Expenses (as defined below) in connection with the inclusion of the Shares in
any Registration Statement, or application to register or qualify such Shares
under state securities laws, filed by the Company hereunder, other than as set
forth herein. For purposes of this Agreement, the term "Registration Expenses"
means the filing fees payable to the Commission, any state agency and the NASD;
the fees and expenses of the Company's legal counsel and independent certified
public accountants in connection with the preparation and filing of the
Registration Statement (and all amendments and supplements thereto) with the
Commission; and all expenses relating to the printing of the Registration
Statement, prospectuses and various agreements executed in connection with the
Registration Statement. Notwithstanding the foregoing, the Investors will pay
the fees and expenses of any legal counsel the Investors may engage.

         5.       Penalty Payments.

                  (a)      Untimely Filings. In the event that the Registration
Statement relating to the resale of the Shares is not filed with the Commission
by the Company, under the terms of Section 2, on or before the applicable File
Date or the Second File Date, then the Company shall

<PAGE>

pay the Investors to be included in such Registration Statement the amounts
("Penalty Payments") equal to (i) one percent (1%) of the purchase price of the
Shares (the "Purchase Price") paid by such Investors to the Company, and (ii) an
additional one percent (1%) of the Purchase Price for each 30-day period
thereafter in which the Registration Statement is not filed with the Commission.
Penalties for failure to file shall be cumulative. The Company shall be liable
to the Investors for a full 30-day period, determined in accordance with the
above schedule, regardless of by how many days it misses the targeted filing
date set forth above. All such Penalty Payments shall be immediately payable by
the Company to the Investors (on a pro rata basis based on the number of Shares
purchased by each under the Purchase Agreement) via wire transfer of immediately
available funds by the close of business on last day of each respective period
set forth above.

                  (b)      Untimely Responses to the SEC. In the event that the
Company fails to respond to SEC comments relating to the Registration Statement
within five (5) business days following receipt of such comments under the terms
set forth in Section 2 of this Agreement, then the Company shall pay the
Investors included in such Registration Statement the amounts ("Additional
Penalty Payments") equal to (i) one-half of one percent (.5%) of the purchase
price of the Shares (the "Purchase Price") paid by the Investors to the Company,
and (ii) an additional one half of one percent (.5%) of the Purchase Price for
each 10-day period thereafter in which the Company fails to respond to SEC
comments. Penalties for failure to file shall be cumulative. All such Penalty
Payments shall be immediately payable by the Company to the Investors (on a pro
rata basis based on the number of Shares purchased by each under the Purchase
Agreement) via wire transfer of immediately available funds by the close of
business on last day of each respective period set forth above.

         6.       Indemnification. With respect to the registration of the
resale of the Shares:

                  (a)      to the fullest extent permitted by law, the Company
will indemnify and hold harmless each Investor, the trustees, partners,
officers, directors and agents of each Investor, any underwriter (as defined in
the Securities Act) for such Investor and each person, if any, who controls such
Investor or underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by the Registration Statement; and the Company will reimburse each such
Investor, trustee, partner, officer, director, agent, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 6 shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld, conditioned or
delayed), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action

<PAGE>

to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished to it
expressly for use in connection with such registration by an Investor, trustee,
partner, officer, director, agent, underwriter or controlling person of an
Investor.

                  (b)      to the extent permitted by law, each Investor will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other Investor selling securities
under the Registration Statement or any of such other Investor's, trustees,
partners, directors or officers or any person who controls such Investor,
against any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director, officer, controlling person, underwriter or
other such Investor, or trustee, partner, director, officer or controlling
person of such other Investor may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Investor and stated to be specifically for use in
connection with such registration; and each such Investor will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Investor, or trustee, partner,
officer, director or controlling person of such other Investor in connection
with investigating or defending any such loss, claim, damage, liability or
action if it is judicially determined that there was such a Violation; provided,
however, that the indemnity agreement contained in this Section 6 shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Investor,
which consent shall not be unreasonably withheld, conditioned or delayed;
provided further, that in no event shall any indemnity under this Section 6(b)
exceed the gross proceeds received by such Investor from sales of such
Investor's Shares unless the Violation is the result of fraud on the part of
such Investor.

                  (c)      promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section, deliver
to the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party; and provided further, that if there is more than one
indemnified party, the indemnifying party shall pay for the fees and expenses of
one counsel for any and all indemnified parties to be mutually agreed upon by
such indemnified parties, unless representation of an indemnified party by the
counsel retained by the other indemnified parties would be inappropriate due to
actual or potential differing interests between such indemnified parties. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if materially prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section, but the omission so to
deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section.

                  (d)      if the indemnification provided for in this Section
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses,

<PAGE>

claims, damages or liabilities referred to herein, the indemnifying party, in
lieu of indemnifying such indemnified party thereunder, shall to the extent
permitted by applicable law, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the Violation(s) that resulted in such loss, claim, damage or liability, as
well as any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No person or
entity guilty of fraudulent misrepresentation (within the meaning of Section 11
of the Securities Act) shall be entitled to contribution from any person or
entity who shall not have been guilty of such fraudulent misrepresentation.

                  (e)      the obligation of the Company and the Investors under
this Section shall survive the completion of any offering for resale of Shares
in the Registration Statement, and otherwise.

         7.       Miscellaneous.

                  (a)      The Company shall not hereafter enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Investors in this Agreement.

                  (b)      Except as otherwise provided herein, the provisions
of this Agreement may not be amended, modified or supplemented, and waivers or
consents to or departures from the provisions hereof may not be given or made
unless the Company has obtained the written consent from at least a majority of
the Investors.

                  (c)      All notices and other communications provided for or
permitted hereunder shall be made by hand delivery, telex, facsimile, overnight
courier or registered first-class mail:

                  (i)      if to an Investor, at the address set forth on
Schedule A attached hereto;

                  (ii)     if to the Company, at the address set forth in the
Purchase Agreement.

All such notices and communications shall be deemed to have been duly given:
when delivered, if by hand, overnight courier or mail; when the appropriate
answer back is received, if by telex; when transmission is confirmed by the
sending unit, if by facsimile.

                  (d)      This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one an the same agreement.

                  (e)      The headings to this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

                  (f)      This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving effect to the
principles of choice or conflict of law thereof. Each of the Company and the
Investors irrevocably consent to the exclusive

<PAGE>

jurisdiction of the United States Federal courts and state courts, located in
Hennepin County, Minnesota, in any suit or proceeding relating to, based on or
arising under this Agreement and irrevocably agree that all claims in respect of
such suit or proceeding may be determined in such courts. Nothing herein shall
affect the right of any Investor to serve process in any manner permitted by
law.

                  (g)      In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of such provision in every other respect and of the
remaining provisions contained herein shall not be in any way impaired thereby,
it being intended that all of the rights and privileges of the Investors and the
Company shall be enforceable to the fullest extent permitted by law.

                  (h)      The remedies provided for in this Agreement shall be
cumulative and in addition to all other remedies available, at law or in equity,
and nothing herein shall limit an Investor's right to pursue actual damages for
any failure by the Company to comply with the terms of this Agreement.

<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                Company:

                                CASH SYSTEMS, INC.

                                By:
                                     -------------------------------------------
                                Its:
                                     -------------------------------------------
                                Individual Investor:

                                ------------------------------------------------
                                Signature

                                ------------------------------------------------
                                Name (Typed or Printed)

                                ------------------------------------------------
                                Signature (If more than one individual Investor)

                                ------------------------------------------------
                                Name (Typed or Printed)

                                Entity Investor:

                                ------------------------------------------------

                                By:
                                    --------------------------------------------
                                    Name:
                                    Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00065-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00065-of-00352.parquet"}]]