<PAGE>

                            SCHEDULE 14A INFORMATION
                Proxy Statement Pursuant to Section 14(a) of the
                         Securities Exchange Act of 1934

                                Amendment No. 1

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:

/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
    (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under Rule 14a-12


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
-----------------------------------------------------------------------------
                (Name of Registrant as Specified in Its Charter)


 -----------------------------------------------------------------------------
    (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

    1) Title of each class of securities to which transaction applies:


       ----------------------------------------------------------------------
    2) Aggregate number of securities to which transaction applies:


       ----------------------------------------------------------------------
    3) Per unit price or other underlying value of transaction computed
       pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
       filing fee is calculated and state how it was determined):


       ----------------------------------------------------------------------
    4) Proposed maximum aggregate value of transaction:


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

    5) Total fee paid:


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

/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
    0-11(a)(2) and identify the filing for which the offsetting fee was
    paid previously. Identify the previous filing by registration statement
    number, or the form or schedule and the date of its filing.

    1) Amount Previously Paid:

    ___________________________________________________________________________
    2) Form, Schedule or Registration Statement No.:

    ___________________________________________________________________________
    3) Filing Party:

    ___________________________________________________________________________
    4) Date Filed:

    ___________________________________________________________________________

<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                               446 LINCOLN HIGHWAY
                            FAIRLESS HILLS, PA 19030


October 31, 2002

Dear Digital Descriptor Systems, Inc. Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of
Digital Descriptor Systems, Inc., a Delaware Corporation ("DDSI") to be held on
December 11, 2002 at 10:00 A.M., local time, at DDSI Headquarters, 446 Lincoln
Highway, Fairless Hills, Pennsylvania 19030.

The matters proposed for consideration at the meeting are:

     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;

     o    the ratification of the appointment of WithumSmith+Brown as our
          independent accountants for the current fiscal year; and

     o    the transaction of such other business as may come before the meeting
          or any adjournment thereof.

The accompanying Notice of Annual Meeting of Stockholders and Proxy Statement
discuss these matters in further detail. We urge you to review this information
carefully.

You will have an opportunity to discuss each item of business described in the
Notice of Annual Meeting of Stockholders and Proxy Statement and to ask
questions about us and our operations.

It is important that your shares be represented and voted at the annual meeting.
Whether you plan to attend the Annual Meeting or not, it is important that you
promptly complete, sign, date and return the enclosed Proxy card in accordance
with the instructions set forth on the card. This will ensure your proper
representation at the Annual Meeting.

I hope you will be able to attend the Annual Meeting and look forward to seeing
you on December 11, 2002.

Very truly yours,

Robert Gowell
Chairman of the Board



<PAGE>



                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                               446 LINCOLN HIGHWAY
                            FAIRLESS HILLS, PA 19030


                            ------------------------
                            NOTICE OF ANNUAL MEETING
                                October 31, 2002
                            ------------------------




     The Annual Meeting of Stockholders of Digital Descriptor Systems, Inc. will
be held at DDSI Headquarters, 446 Lincoln Highway, Fairless Hills, Pennsylvania
on December 11, 2002 at 10:00 a.m., local time, for the following purposes:

     1.   To elect four directors to hold office until the next Annual Meeting
          of Stockholders or until their successors are elected; and

     2.   To approve the action the Board has requested of increasing the stock
          authorized to seven hundred fifty million (750,000,000) shares.

     3.   To approve an amendment to the Certificate of Incorporation in order
          to provide for a stock combination (reverse split) of the Common Stock
          in an exchange ratio to be approved by the Board, from one newly
          issued share for each ten outstanding shares of Common Stock to one
          newly issued share for each twenty outstanding shares of Common Stock

     4.   To approve the appointment of WithumSmith+Brown as auditors for
          Digital Descriptor Systems, Inc.

     5.   To transact such other business as may properly come before the Annual
          Meeting of Stockholders.

     Holders of record of Common Stock at the close of business on November 1,
2002 are the only stockholders entitled to notice of and to vote at the Annual
Meeting of Stockholders.


                                                     Michael J. Pellegrino
                                                     Secretary




                                       2
<PAGE>


                                TABLE OF CONTENTS


Proxy Statement.........................................................    4
Proposal One:  Election of Directors....................................    6
Directors' Compensation.................................................    7
Board of Directors and Committee Meetings...............................    7
Board Committees........................................................    7
Certain Relationships and Related Transactions..........................    8
Executive Compensation..................................................    8
Option Grants...........................................................    9
Security Ownership of Certain Beneficial Owners and Management..........   10
Proposal Two: Increase the Authorized Shares of Common Stock............   14
Proposal Three:  Provide for a Reverse Split of the Common Stock........   15
Proposal Four:  Appointment of Independent Auditors.....................   20
Other Matters...........................................................   22
Index to Financial Statements
    Independent Auditors Reports........................................   F-1
    Balance Sheets......................................................   F-3
    Statements of Operations............................................   F-4
    Statement of Shareholders' Equity (Deficiency)......................   F-5
    Statements of Cash Flows............................................   F-6
    Notes to Financial Statements.......................................   F-8
    Summary Financial Information.......................................   F-20
    Management's Discussion and Analysis or Plan of Operation...........   F-21
    Results of Operations...............................................   F-21









                                       3
<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                               446 LINCOLN HIGHWAY
                            FAIRLESS HILLS, PA 19030



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

                                 PROXY STATEMENT

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



                                                             October 31, 2002

         This Proxy Statement and the accompanying Proxy card are furnished in
connection with the solicitation by the Board of Directors of Digital Descriptor
Systems, Inc. (the "Company") of proxies to be voted at the 2002 Annual Meeting
of Stockholders (the "Meeting"). The approximate mailing date of this Proxy
Statement is November 11, 2002. A Proxy may be revoked at any time before it is
voted at the Meeting by submitting a later-dated Proxy or by giving written
notice of such revocation to the Secretary of the Company. If you do attend the
meeting, you may vote by ballot at the meeting and cancel any Proxy previously
given.

         When you sign and return the enclosed Proxy the shares represented
thereby will be voted for the nominees for director listed in the Proxy card,
unless otherwise indicated on the Proxy. The enclosed Proxy also permits you to
withhold authority for one or more nominees.

                                VOTING SECURITIES

         All holders of record of the Company's Common Stock at the close of
business on November 1, 2002 are entitled to vote at the Meeting. On that date,
58,156,490 shares of Common Stock were issued and outstanding. Each share
entitles the holder to one vote. The persons appointed by the enclosed Proxy
card have advised the Board of Directors that it is their intention to vote at
the meeting and comply with the instructions on the Proxy cards received from
stockholders and, if no contrary instruction is indicated on the Proxy card, for
the election of the persons nominated to serve as directors and in accordance
with the recommendations of the Board of Directors on any other matter brought
before the meeting.

Voting of Proxies

         When you sign, date and return the enclosed Proxy, the shares
represented by the Proxy will be voted in accordance with your directions. You
can specify your voting instructions by marking the appropriate boxes on the
Proxy card. If your Proxy card is signed and returned without specific voting
instructions, your shares of the Common Stock will be voted as recommended by
the directors:

                  "FOR" the election of Robert Gowell, Vincent Moreno,
         Michael Pellegrino and Anthony Shupin for directors;

                  "FOR" the approval to increase the stock authorized from one
         hundred fifty million (150,000,000) to seven hundred fifty million
         (750,000,000) shares.

         One reason for the increase in authorized shares is to ensure that
         there are an adequate number of shares available for our convertible
         note holders to exercise conversions. Once the number of authorized
         shares are increased, there is a potential for a change in ownership in
         our company if the current note holders were to convert the total value
         of their notes at one time. Such a conversion could result in as much
         as 485,000,000 shares at $0.0025 per share being issued, which would
         provide the note holders a majority interest and an opportunity to
         elect new directors. These shareholders are however, contractually
         limited to own no more 9.99% of our outstanding common stock.

                  "FOR" the approval to provide for a stock combination (reverse
         split) of the Common Stock in an exchange ratio to be approved by the
         Board, from one newly issued share for each ten outstanding shares of
         Common Stock to one newly issued share for each twenty outstanding
         shares of Common Stock


                                       4
<PAGE>


                  "FOR" the approval to appoint WithumSmith+Brown as auditors
for Digital Descriptor Systems, Inc.

         You may revoke your Proxy at any time before it is voted at the Meeting
by submitting a later-dated proxy or by giving written notice of revocation to
the Secretary of the Company. If you do attend the Meeting, you may vote by
ballot at the Meeting and cancel any Proxy previously given.

         Directors will be elected at the Meeting by a majority of the votes
cast at the meeting by the holders of shares represented in person or by Proxy.
Abstentions and broker non-votes are counted as shares present for determination
of a quorum, but are not counted as "For" or "Against" votes on any item to be
voted on and are not counted in determining the amount of shares voted on an
item.

         The cost of all solicitation will be borne by the Company.









                                       5
<PAGE>

                                  PROPOSAL ONE
                              ELECTION OF DIRECTORS
                           (Item 1 on the Proxy Card)

         The Board of Directors is composed of four members. The Board of
Directors has the responsibility for establishing broad corporate policies and
for overseeing the overall performance of the Company. Each director is elected
to hold office until the next annual meeting of stockholders or until a
director's successor is elected and qualified or until a director's death,
resignation or removal.

         The following summary information sets forth information concerning the
Company's directors and nominees:

         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.

         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 Present, 4 years), he is President and General Manager of PayPlus Software,
Inc., a provider of payroll software to the Professional Employer Organization
marketplace. Mr. Moreno is adept in setting strategic direction and is
experienced in the reengineering of corporate operating units. As a member of
the board, he brings guidance, direction, and vision to the Companies' strategic
planning.

         Michael Pellegrino joined the Company in 1995. On January 25, 2002 he
was appointed President, Chief Operating Officer and Chief Financial Officer,
Secretary and a Director of the Company. For eleven years prior (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 for 10 years (from 1989 to 1999), L.P. 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.



                                       6
<PAGE>

                             DIRECTORS' COMPENSATION

         Directors will 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, if approved by the stockholders, each director who is not an officer or
employee of the Company automatically receives a grant of an option to purchase
50,000 shares of the Company'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 the Company's Common Stock on the date of each of the Company's regular
annual meeting if he or she has served on the Board of Directors for at least
six months.

                    BOARD OF DIRECTORS AND COMMITTEE MEETINGS

         There were five (5) Board of Directors meetings held in year 2001 and
six (6) meetings held as of October 18, 2002. The directors had the option to
attend via conference call.

                                BOARD COMMITTEES

         The Board of Directors has established three committees: the
Compensation Committee, the Stock Option Committee and the Audit Committee, each
of which is briefly described below. The Board of Directors has no other
committees.

Compensation Committee

         The Compensation Committee reviews and approves the Company's
compensation philosophy and programs covering executive officers and key
management employees. The Committee also determines compensation of officers and
senior employees of the Company, other than the President, and makes
recommendations to the Board of Directors concerning the compensation of the
President of the Company. The Compensation Committee also determines any grants
of stock or stock options under the Consultants and Advisors Plan to
non-employee consultants and advisors. The Compensation Committee did not meet
in 2001.

         On February 28, 2002 the Board of Directors appointed Robert Gowell,
Vincent Moreno and Anthony Shupin to the Compensation Committee. The
Compensation Committee has met once in 2002.

Stock Option Committee

         The Stock Option Committee reviews and approves the Company's stock
option and stock purchase plans covering employees, including the implementation
of new plans if desirable. The Committee also determines grants of stock options
under the 1994 Stock Option Plan and the terms of stock options granted,
including number of shares covered by an option, the date of grant and the
fixing of the exercise price. The Stock Option Committee did not meet in 2001.

         On February 28, 2002 the Board of Directors appointed Robert Gowell,
Vincent Moreno and Anthony Shupin to the Stock Option Committee.

Audit Committee

         The Audit Committee meets with management to review the scope and
results of audits performed by the Company's independent accountants. The
Committee also meets with the independent auditors and with appropriate Company
financial personnel about internal controls and financial reporting. The
Committee is the agent of the Board of Directors in assuring the adequacy of the
Company's financial, accounting and reporting control processes. The Committee
is also responsible for recommending to the Board of Directors the appointment
of the Company's independent accountants.


                                       7
<PAGE>


         The Audit Committee met once in 2001 and consisted of John Boyle,
Robert Gowell and Robert Martin. On February 28, 2002, the Board of Directors
appointed Robert Gowell, Vincent Moreno and Anthony Shupin to serve on the Audit
Committee. The Board of Directors has not adopted a written charter for the
audit committee. They met once in 2002.

         The Audit Committee has discussed with the independent auditors the
matter of the Independent Auditors' responsibilities and the matter of DDSI's
accounting policies and principles and also discussed the audited financial
statements with management and the Board of Directors. Based on the review of
the audited financial statements discussed with independents auditors,
WithumSmith+Brown, the Audit Committee recommended that the audited financials
be included in the Company Annual Report on Form 10K.

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         During May 1996, the Company loaned Mr. Cohn $125,000. Interest is
accrued on this amount at one point over prime and was payable together with the
principal on August 13, 1999. Accrued interest on this loan was $40,525 at
December 31, 2000. Subsequently, the Company's Board of Directors agreed to
extend the maturity date of this note indefinitely. On February 22, 2002 Mr.
Cohn made a payment of $23,615.39. In 2001, due to uncertainty as to whether the
Company will collect the note, a reserve for uncollectable notes was recorded in
the amount of $177,400.

Compensation of Directors and Executive Officers

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

<TABLE>
<CAPTION>
                           Summary Compensation Table
                                                                                        Long Term Compensation
                            Annual Compensation                                  Awards                   Payouts
  (a)                 (b)           (c)         (d)          (e)           (f)           (g)         (h)            (I)
Name                                                                                 Securities
and                                                         Other       Restricted   Underlying                     All
Principal                                                   Annual         Stock      Options/       LTIP           Other
Position             Year         Salary       Bonus   Compensation($)    Award($)     Sar (#)    Payouts($)    Compensation ($)
<S>                  <C>         <C>             <C>          <C>            <C>         <C>          <C>             <C>
Garrett Cohn*
President/CEO        1999        $160,000        0            0              0           0            0               0
Michael J.
  Pellegrino
President & COO      2001        $110,000        0            0              0           0            0               0

Michael Ott**
V.P/ Director        2001        $110,000        0            0              0           0            0               0
Randy Hall***
   V/P               2001        $ 73,500        0            0              0           0            0               0
</TABLE>

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

    Mr. Cohn resigned as Co-Chairman of the Board of Directors effective
    July 23, 2002

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

*** Mr. Hall resigned from the Company effective October 18, 2002



                                       8
<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
 * Mr. Cohn resigned as President and Chief Executive Officer effective
   January 25, 2002.

   Mr. Cohn resigned as Co-Chairman of the Board of Directors effective
   July 23, 2002

** Mr. Hall resigned from the Company effective October 18, 2002

         None exercised

Employment Agreements

         Mr. Gowell was appointed as Chief Executive Officer effective January
25, 2002. He does not have an employment agreement and is not receiving any
compensation. Mr. Gowell has been associated with the company as an investor and
previous board member for over three years.

         Garrett Cohn resigned as Co-Chairman and Director of the Board of
Directors effective July 23, 2002 for personal reasons. He resigned as President
and Chief Executive Officer effective January 25, 2002. In July, 1994 the
Company entered into a 5 year employment agreement with Mr. Cohn which entitled
him to a base salary of $150,000 per year which may at the Board of Directors
discretion adjust his base salary (but not below $150,000 per year) or grant a
bonus. Though past the five-year period, the present employment agreement is to
remain in affect until July 18, 2002. In the interim, Mr. Cohn was granted an
increase in his annual base salary of $10,000, making his new base salary
$160,000. The Company shall also furnish Mr. Cohn with an automobile and
automobile expenses. In addition, Mr. Cohn has received non accountable expense
allowances of $11,000, $49,713 and $81,450 in 2000, 1999 and 1998 respectively.

         Michael J. Pellegrino, President, Chief Operating Office and Chief
Financial Officer. In March 2002, the Company entered into a two-year employment
agreement with Mr. Pellegrino, which entitled him to a base salary of $115,000
per year which may at the Board of Directors discretion adjust his base salary
(but not below $115,000 per year). Mr. Pellegrino is also entitled to
participate in the Annual Management Bonus Plan. As a participant in the Annual
Management Bonus Plan, Mr. Pellegrino will be eligible to receive bonuses, based
on performance, in any amount from 0% to 100% of the Base Salary. In addition,
Mr. Pellegrino shall participate in the Management Equity Incentive Plan. As a
participant in the Management Equity Incentive Plan, Mr. Pellegrino will be
eligible to receive options, which vest over a period of time from the date of
the option's issue, to purchase common shares of the Company. The Company shall
grant to Mr. Pellegrino, within ninety days of the date of the Agreement,
options to purchase such number of common shares of the Company equal to 1% of
the number of common shares of the Company outstanding on the date of the
Agreement (subject to the vesting and the satisfaction of the other terms and
conditions of such options). The Company may also grant to the Employee,
following the first anniversary of the date of the Agreement and at the sole
discretion of the Board of Directors, options to purchase such number of common
shares of the Company equal to 0.25% of the number of common shares of the
Company outstanding on the date of the Agreement (subject to the vesting and the
satisfaction of the other terms and conditions of such options). The Company
shall also furnish Mr. Pellegrino with an automobile and automobile expenses.


                                       9
<PAGE>


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

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

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

         Mr. Hall resigned from the Company effective October 18, 2002.

Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth current information relating to the
beneficial ownership of the Common Stock of the Company by (i) each person
owning beneficially more than 5 percent of the outstanding shares of Common
Stock, (ii) each Director of the Company and (iii) all Executive Officers and
Directors of the Company as a group: Percentage of beneficial ownership is based
upon 58,156,490 shares of Common Stock outstanding at October 18, 2002.


                                       10
<PAGE>

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

Garrett U. Cohn
Buffalo Grove, IL 60089                        1,695,000(1)          3.0%

Michael Pellegrino
Brielle, NJ 08730                                335,000             0.6%

Randolph Hall
Collegeville, PA 19426                           398,000            0.07%

Robert P. Martin
Seattle, WA  98119                             3,099,000(2)          5.3%

Robert Gowell
Allentown, PA  18104                              96,300            0.02%

Norman Cohn
Radnor, PA 19087                                 840,000             1.4%

AJW Partners, LLC (4)
Roslyn, NY 11576                             167,411,000            74.2%(7)(8)

New Millennium Capital Partners II (5)
Roslyn, NY 11576                             167,411,000            74.2%(7)(8)

Bristol Investment Fund, Ltd.(6)
Cayman Islands                               109,468,400            65.3%(7)(8)

AJW Qualified Partners
Roslyn, NY  11576                             20,098,600            25.7%(7)(8)

AJW Offshore
Roslyn, NY  11576                             20,098,600            25.7%(7)(8)

All Officers & Directors
As a Group                                     5,623,300(3)         9.67%

Total                                        490,110,900(8)

----------

         (1) Garrett U. Cohn owns 60,000 shares of stock. In addition, Mr. Cohn
has the right to vote 840,000 shares of stock held of record by Norman Cohn
pursuant to a Voting Trust Agreement described below, and, as a result of such
voting rights, such shares are included in the shares shown as beneficially
owned by Garrett U. Cohn. Mr. Cohn resigned as President and Chief Executive
Officer of Digital Descriptor Systems effective January 25, 2002. He resigned as
Co-Chairman of the Board of Directors effective July 23, 2002

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

         (3) Of the total Officers and Director's shares, 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.


                                       11
<PAGE>

         (4) 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 (the "Management Company"). The manager
of the Management Company, Mr. Corey Ribotsky, is responsible for the operations
of the Management Company. As the control person of the shares owned by AJW
Partners, Mr. Ribotsky will be viewed as the beneficial owner of such shares
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934.

         (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
(the "Management Company"). The manager of the Management company, Mr. Corey
Ribotsky, is responsible for the operations of the Management Company. As the
control person of the shares owned by New Millennium Capital Partners II, Mr.
Corey S. Ribotsky will be viewed as the beneficial owner of such shares pursuant
to Rule 13d-3 under the Securities Exchange Act of 1934.

         (6) 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
Management Company. As the control persons of the shares owned by Bristol
Investment Fund, Ltd., Paul Kessler and Diana Kessler will be viewed as the
beneficial owners of such shares pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934.

         (7) Assuming $1,211,220 of 12% Convertible Debentures ($500,000 plus
$47,342 interest dated December 31, 2001, $407,000 plus $78,278 interest dated
March 9, 2001, $75,000 plus $3,107 interest dated June 11, 2002, and $100,000
plus $493 interest dated September 30, 2002) converted at fifty percent (50%) of
stock price of $0.005. It is important to note that the parties are
contractually obligated not to convert more than 9.99% at one time.

         (8)At this time, the Company has 150,000,000 authorized shares.

         Under the terms of the Voting Trust Agreement dated May 1, 1995,
between Norman Cohn and Garrett U. Cohn, as Trustee, Norman Cohn has transferred
to the trust 840,000 shares of Common Stock of the Company, representing all of
the shares of Common Stock owned by him. Under the terms of the Voting Trust
Agreement, Garrett U. Cohn, as the Trustee, has the right to vote the stock in
the Voting Trust, except as to certain actions, including, but not limited to,
any amendment to the certification of incorporation of the Company, merger or
sale of substantially all of the assets of the Company or any action which will
cause a dilution in the outstanding shares of Common Stock. The term of the
Voting Trust is 10 years and shall terminate in April 2005.

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

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

            Section 16(a) of the Exchange Act requires our officers and
directors, and persons who own more than 10% of a registered class of our equity
securities to file reports of ownership and changes in ownership with the SEC
and NASDAQ. These persons are required by regulation of the SEC to furnish us
with copies of all Section 16(a) forms they file.


                                       12
<PAGE>


Accountants

         WithumSmith+Brown have been the independent public accountants of the
Company for the year ending December 31, 2001 to examine the Company's financial
statements and have been selected to be the independent public accountant for
the year ending December 31, 2002. One or more members of WithumSmith+Brown are
expected to be present at the Annual Meeting, to respond to questions and to
make a statement if they desire to do so.








                                       13
<PAGE>

                                  PROPOSAL TWO
         DIRECTORS' PROPOSAL TO INCREASE THE AUTHORIZED SHARES OF COMMON
                      STOCK FROM 150,000,000 TO 750,000,000
                           (Item 2 on the Proxy Card)

         At the Annual Meeting, shareholders will be asked to approve and
consent to amend the Company's restated Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 150,000,000 to 750,000,000
shares.

         The first reason for the increase in authorized shares is to ensure
that there is an adequate number of shares available for our convertible note
holders to exercise conversions. Once the number of authorized shares are
increased, there is a potential for a change in ownership in our company if the
current note holders were to convert the total value of their notes at one time.
Such a conversion could result in as much as 200,000,000 shares being issued
which would provide the note holders an opportunity to elect new directors.
These shareholders are however, contractually limited to own no more than 9.99%
of our outstanding stock.

         At the current market price at October 15, 2002 of $0.005, 484,488.000
shares of our common stock would be needed to convert $1,211,220 of 12%
Convertible Debentures ($500,000 plus $47,342 interest dated December 31, 2001,
$407,000 plus $78,278 interest dated March 9, 2001, $75,000 plus $3,107 interest
dated June 11, 2002, and $100,000 plus $493 interest dated September 30, 2002)
converted at fifty percent (50%) of stock price of $0.005.

         Though this proposal is not contingent upon approval of the proposal
for a reverse stock split, the failure to increase the number of authorized
shares would result in DDSI's inability to fulfill its contractual commitment to
the convertible note holders to increase its number of authorized shares. This
inability to convert the notes would trigger the default clause contained in the
notes. The default clause requires a cash payment which DDSI would not be able
to meet. Contractually DDSI would be obligated to pay the note holders a default
payment amounting to the then outstanding principal amount of the notes plus
accrued and unpaid interest on the unpaid principal amount of the note plus a
pro-rated default interest of 24% of the default payment amount. In addition,
DDSI may be subject to liquidated damages as a result of an inability to honor a
note holder's conversion request. The inability of DDSI to meet its contractual
obligations to the note holders would most likely result in some sort of legal
action from the note holders which would result in the shutdown of operations.
Note, the number of authorized shares is not affected by a reverse stock split.

         DDSI's revenues have been insufficient to cover the cost of revenues
and operating expenses. Therefore, we have been dependent on private placements
of its common stock and issuance of convertible notes in order to sustain
operations. Until we can reach a breakeven cash flow, more common shares will
need to be sold to keep operations up and running. Therefore another reason for
the proposed amendment to authorize additional shares of Common Stock is to
facilitate the current raising of additional capital through the sale of
securities.

         Lastly, a reason for the proposed amendment to the Certificate is to
grant options or other stock incentives to the Company's employees, have stock
available for a possible acquisition of another company or its business or
assets, or to seek to establish a strategic relationship with a corporate
partner.

         If the amendment is approved by the stockholders, the Board of
Directors does not intend to solicit further stockholder approval prior to the
issuance of any additional shares of Common Stock, except as may be required by
applicable law



                                       14
<PAGE>

                                 PROPOSAL THREE
                APPROVE AN AMENDMENT TO COMPANY'S CERTIFICATE OF
               INCORPORATION TO PROVIDE FOR A REVERSE SPLIT OF THE
                                  COMMON STOCK

                           (Item 3 on the Proxy Card)

         The Board has unanimously adopted resolutions proposing, declaring
advisable and recommending that stockholders authorize an amendment to the
Certificate of Incorporation to: (i) provide for a stock combination (reverse
split) of the Company's Common Stock in an exchange ratio to be approved by the
Board, from one (1) newly issued share for each ten (10) outstanding shares of
Common Stock to one (1) newly issued share for each twenty (20) outstanding
shares of Common Stock (the "Reverse Split"); and (ii) provide that no
fractional shares or scrip representing fractions of a share shall be issued,
but in lieu thereof, each fraction of a share that any stockholder would
otherwise be entitled to receive shall be rounded up to the nearest whole share.
There will be no change in the number of the Company's authorized shares of
Common Stock and no change in the par value of a share of Common Stock.

Factors to be Considered

         We are requesting that you approve a reverse split ratio range to
provide DDSI the ability to pick the ratio that will best fit the needs of DDSI
and its shareholders based on certain factors at that point in time. The final
ratio chosen will take into consideration several factors including:

         o  whether the shareholders approved the proposal to increase the
            number of authorized shares. If the authorized shares are not
            increased, a reverse split of some magnitude would be necessary to
            provide for the operation of DDSI. If the number of authorized
            shares is increased, a reverse split may not be necessary because
            there will most likely be enough shares to provide for the needs and
            growth of DDSI.

         o  The number of shares required to fully convert the outstanding
            convertible notes. We are asking the shareholders to grant us until
            December 2004 because it may take up to two years to fully convert
            the outstanding notes;

         o  the level of outstanding shares that provide for acquisition targets
            in the future; and

         o  the ratio, based on shareholder feedback, that would be acceptable.

         Current shareholders should be aware that after a reverse split their
equity position in DDSI will not be affected. The reverse split may have an
initial effect of increasing our current market price per share resulting from
the reduction of the total number of shares outstanding, but there can be no
assurance of any favorable future effect on our stock price. Although DDSI's
decision to implement a reverse split is independent of the need to increase
authorized shares, the need for a reverse split would not be as urgent if an
increase in authorized shares were authorized because there would most likely be
enough shares available to provide for future needs and growth of DDSI. If the
increase in authorized shares is not approved, a reverse split would be required
to provide for continuing operations of DDSI. Lastly, a reverse split does not
affect the number of shares authorized.

         Assuming the proposal for an increase in authorized shares was
approved, the most determinative factor that DDSI will consider in deciding
whether to implement a reverse split or in determining the magnitude of the
reverse split, would be how many shares will ultimately be required to trade out
the convertible note holders. If DDSI is able to pay off part of the balance or
if DDSI is able to maintain a higher stock price thus requiring significantly
fewer shares to retire the debt, the need for or the magnitude of a reverse
split would be diminished.

         Once a stable number of outstanding common shares has been reached, a
reverse split ratio based on shareholder feedback would be of critical
importance. Shareholder support would be an important ingredient in the success
of a reverse split.


                                       15
<PAGE>


         Lastly, but still an important factor would be, given the right
opportunity, what capitalization structure would be needed to attract an
acquisition or merger candidate in the future.

         If the Reverse Split is approved, the Board will have authority,
without further stockholder approval, to effect the Reverse Split pursuant to
which the Company's outstanding shares (the "Old Shares") of Common Stock would
be exchanged for new shares (the "New Shares") of Common Stock, in an exchange
ratio to be approved by the Board, from one (1) New Share for each ten (10) to
twenty (20) Old Shares. The number of Old Shares for which each New Share is to
be exchanged is referred to as the "Exchange Number". The Exchange Number may,
within such range, be a whole number or a whole number and fraction of a whole
number.

         In addition, the Board will have the authority to determine the exact
timing of the effective date and time of the Reverse Split, which may be any
time prior to December 31, 2004, without further stockholder approval. Such
timing and Exchange Number will be determined in the judgment of the Board, with
the intention to raise financing, to issue shares of Common Stock pursuant to
outstanding contractual obligations, and for other intended benefits as the
Company finds appropriate. See "Purposes of the Reverse Split," below.

         The Board also reserves the right, notwithstanding stockholder approval
and without further action by stockholders, to not proceed with a Reverse Split
if, at any time prior to filing this amendment with the Secretary of State of
the State of Delaware, the Board, in its sole discretion, determines that the
Reverse Split is no longer in the best interests of the Company and its
stockholders. The Board may consider a variety of factors in determining whether
or not to implement the Reverse Split and in determining the Exchange Number
including, but not limited to, the approval by the stockholders of Proposal 2
which would increase the number of the authorized Common Stock, overall trends
in the stock market, recent changes and anticipated trends in the per share
market price of the Common Stock, business and transactional developments and
the Company's actual and projected financial performance.

Purposes of the Reverse Split

         One purpose of the Reverse Split would be to increase the market price
of the Common Stock in order to facilitate conversion of our outstanding
convertible notes. Another purpose of the Reverse Split would be to increase the
usefulness of our Common Stock as a means to raise financing and as a possible
currency for acquisitions and other transactions. The Common Stock traded on The
NASDAQ OTC:BB at market prices ranging from approximately $0.0021 to
approximately $0.28 from July 1, 2001 through October 18, 2002. This range has
reduced the possibilities of using the Common Stock or instruments convertible
or exercisable into Common Stock in order to raise financing to support the
Company's operations and to increase the Company's net worth and as
consideration for potential acquisitions (which, when coupled with the Company's
need to deploy its available cash for operations, would make possible
acquisitions difficult to negotiate).

THERE CAN BE NO ASSURANCE, HOWEVER, THAT, EVEN AFTER CONSUMMATING THE REVERSE
SPLIT, THE COMPANY WILL BE ABLE TO MAINTAIN ITS MARKET PRICE PER SHARE AND THUS
UTILIZE ITS COMMON STOCK IN ORDER TO EFFECTUATE FINANCING OR ACQUISITION
TRANSACTIONS.

         The Reverse Split will not change the proportionate equity interests of
the Company's stockholders, nor will the respective voting rights and other
rights of stockholders be altered, except for possible immaterial changes due to
rounding up to eliminate fractional shares. The Common Stock issued pursuant to
the Reverse Split will remain fully paid and non-assessable. The Company will
continue to be subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, as amended.



                                       16
<PAGE>

Certain Effects of the Reverse Split

         The following table illustrates the principal effects of the Reverse
Split to the 58,156,490 shares of Common Stock outstanding as of October 18,
2002:

<TABLE>
<CAPTION>
COMMON SHARES
PRE INCREASED AUTHORIZED:
-------------------------

                                                                      Prior to           After 1 for 10        After 1 for 20
                                                                       Reverse              Reverse                Reverse
Number of Shares                                                     Stock Split          Stock Split            Stock Split

<S>                                                                  <C>                  <C>                    <C>
Common Stock:
Authorized.............................................              150,000,000          150,000,000            150,000,000

Outstanding (2)........................................               58,156,490            5,815,649              2,907,825
                                                                     -----------          -----------            -----------

Available for Future
Issuance...............................................               91,843,510          144,184,351            147,092,175

Less Conversion of Convertible
Debentures.............................................              484,488,000(3)        48,448,800(4)          23,567,710(5)
                                                                     -----------          -----------            -----------

Available for Future
Issuance...............................................             (392,644,490)          95,735,551            123,524,465


COMMON SHARES
POST INCREASED AUTHORIZED:
--------------------------

Common Stock
Authorized (1).........................................              750,000,000          750,000,000            750,000,000

Outstanding............................................               58,156,490            5,815,649              2,907,825
                                                                     -----------          -----------            -----------

Available for Future
Issuance...............................................              691,843,510          744,184,351            747,092,175

Less Conversion of Convertible
Debentures.............................................              484,488,000(3)        48,448,800(4)          23,567,710(5)
                                                                     -----------          -----------            -----------

Available for Future
Issuance...............................................              207,355,510          695,735,551            723,524,465
</TABLE>


         (1) If Proposal # 2 were approved by the stockholders, there would be
750,000,000 shares of Common Stock authorized.

         (2) Gives effect to the Reverse Split, excluding New Shares to be
issued in lieu of fractional shares. Stockholders should recognize that, if the
Reverse Split is effectuated, they will own a fewer number of shares than they
presently own (a number equal to the number of shares owned immediately prior to
the filing of the amendment regarding the Reverse Split divided by the Exchange
Number, as adjusted to include New Shares to be issued in lieu of fractional
shares). While the Company expects that a Reverse Split will result in an
increase in the market price of the Common Stock, there can be no assurance that
the Reverse Split will increase the market price of the Common Stock by a
multiple equal to the Exchange Number or result in a permanent increase in the
market price (which is dependent upon many factors, including the Company's
performance and prospects). Also, should the market price of the Company's
Common Stock decline after the Reverse Split, the percentage decline may be
greater than would pertain in the absence of the Reverse Split. Furthermore, the
possibility exists that liquidity in the market price of the Common Stock could
be adversely affected by the reduced number of shares that would be outstanding
after the Reverse Split. In addition, the Reverse Split will increase the number
of stockholders of the Company who own odd-lots (less than 100 shares).
Stockholders who hold odd-lots typically will experience an increase in the cost
of selling their shares, as well as greater difficulty in effecting such sales.
Consequently, there can be no assurance that the Reverse Split will achieve the
desired results that have been outlined above.


                                       17
<PAGE>

         (3) Assuming $1,211,220 of 12% Convertible Debentures ($500,000 plus
$47,342 interest dated December 31, 2001, $407,000 plus $78,278 interest dated
March 9, 2001, $75,000 plus $3,107 interest dated June 11, 2002, and $100,000
plus $493 interest dated September 30, 2002) converted at fifty percent (50%) of
stock price of $0.005.

         (4) Assuming $1,211,220 of 12% Convertible Debentures ($500,000 plus
$47,342 interest dated December 31, 2001, $407,000 plus $78,278 interest dated
March 9, 2001, $75,000 plus $3,107 interest dated June 11, 2002, and $100,000
plus $493 interest dated September 30, 2002) converted at fifty percent (50%) of
stock price of $0.05.

         (5) Assuming $1,211,220 of 12% Convertible Debentures ($500,000 plus
$47,342 interest dated December 31, 2001, $407,000 plus $78,278 interest dated
March 9, 2001, $75,000 plus $3,107 interest, and $100,000 plus $493 interest
dated September 30, 2002) converted at 50 percent (50%) of stock price of $0.10.
March 9, 2001 Debentures, June 11, 2002 Promissory Note, and September 30, 2002
Debentures converted for $0.05 (50% of $0.10 stock price), and December 31, 2001
Debentures converted at $0.04 (based on maximum conversion price per contract).

         Stockholders should also recognize that, as indicated in the foregoing
table, there would be an increase in the number of shares, which the Company
will be able to issue from authorized but un-issued shares of Common Stock. As a
result of any issuance of shares, the equity and voting rights of holders of
outstanding shares may be diluted.

Procedure for Effecting Reverse Split and Exchange of Stock Certificates

         If this amendment is approved by the Company's stockholders, and if the
Board determines that a Reverse Split is in the best interests of the Company
and its stockholders, the Company will file the amendment with the Secretary of
State of the State of Delaware at such time as the Board has determined the
appropriate Exchange Number and the appropriate Effective Time for such split.
The Board may delay effecting the Reverse Split until as late as December 31,
2004 without re-soliciting stockholder approval. The Reverse Split will become
effective on the date of filing the amendment at the time specified in the
amendment (the "Effective Time"). Beginning at the Effective Time, each
certificate representing Old Shares will be deemed for all corporate purposes to
evidence ownership of New Shares.

         As soon as practicable after the Effective Time, stockholders will be
notified that the Reverse Split has been effected and of the exact Exchange
Number. The Company expects that its transfer agent will act as exchange agent
(the "Exchange Agent") for purposes of implementing the exchange of stock
certificates. Holders of Old Shares will be asked to surrender to the Exchange
Agent certificates representing Old Shares in exchange for certificates
representing New Shares in accordance with the procedures to be set forth in a
letter of transmittal to be sent by the Exchange Agent. No new certificates will
be issued to a stockholder until such stockholder has surrendered such
stockholder's outstanding certificate(s) together with the properly completed
and executed letter of transmittal to the Exchange Agent. Any Old Shares
submitted for transfer, whether pursuant to a sale or other disposition, or
otherwise, will automatically be exchanged for New Shares at the exchange ratio.
Stockholders should not destroy any stock certificate and should not submit any
certificate until requested to do so by the Company or the Exchange Agent.


                                       18
<PAGE>

Fractional Shares

         No scrip or fractional certificates will be issued in connection with
the Reverse Split. Any fraction of a share that any stockholders of record
otherwise would be entitled to receive shall be rounded up to the nearest whole
share.

No Dissenter's Rights

         Under Delaware's law, stockholders are not entitled to dissenter's
rights with respect to the proposed amendment.

Federal Income Tax Consequences of the Reverse Split

         The following is a summary of certain material U.S. federal income tax
consequences of the Reverse Split and does not purport to be complete. It does
not discuss any state, local, foreign or minimum income or other U.S. federal
tax consequences. Also, it does not address the tax consequences to holders that
are subject to special tax rules, such as banks, insurance companies, regulated
investment companies, personal holding companies, foreign entities, nonresident
alien individuals, broker-dealers and tax-exempt entities. The discussion is
based on the provisions of the U.S. federal income tax law as of the date
hereof, which is subject to change retroactively as well as prospectively. This
summary also assumes that the Old Shares were, and the New Shares will be, held
as a "capital asset," as defined in the Code (generally, property held for
investment). The tax treatment of a stockholder may vary depending upon the
particular facts and circumstances of such stockholder. Each stockholder should
consult with such stockholder's own tax advisor with respect to the consequences
of the Reverse Split.

         The Reverse Split is an isolated transaction and is not part of a plan
to periodically increase any stockholder's proportionate interest in the assets
or earnings and profits of the Company. As a result, no gain or loss should be
recognized by a stockholder of the Company upon such stockholder's exchange of
Old Shares for New Shares pursuant to the Reverse Split. The aggregate tax basis
of the New Shares received in the Reverse Split will be the same as the
stockholder's aggregate tax basis in the Old Shares exchanged therefore. The
stockholder's holding period for the New Shares will include the period during
which the stockholder held the Old Shares surrendered in the Reverse Split.






                                       19
<PAGE>

                                  PROPOSAL FOUR
          THE APPOINTMENT OF WITHUMSMITH+BROWN AS AUDITORS FOR DIGITAL
                            DESCRIPTOR SYSTEMS, INC.
                           (Item 4 on the Proxy Card)

         The Board of Directors of the Company has selected WithumSmith+Brown to
audit the consolidated financial statements of the Company and its subsidiaries
for the fiscal year ending December 31, 2002. WithumSmith+Brown has served in
this capacity since February 4, 2002. Representatives of WithumSmith+Brown are
expected to be present at the Annual Meeting and will be available to respond to
appropriate questions of stockholders and to make a statement if they desire.

         The affirmative vote of a majority of the votes cast on this proposal
will constitute ratification of the appointment of WithumSmith+Brown.

         The Board of Directors is submitting the approval of WithumSmith+Brown
to stockholders as a matter of good corporate practice, although it is not
required to do so. Should the stockholders fail to provide such ratification,
the Board of Directors will reconsider its approval of WithumSmith+Brown as the
Company's independent public accountants for the year ended December 31, 2002.
Even if the selection is ratified, the Board of Directors, in its discretion,
may direct the appointment of a new independent accounting firm at any time
during the fiscal year if the Board of Directors feels that such a change would
be in the best interests of the Company and its stockholders.

Audit Fees

         The aggregate fees billed by WithumSmith+Brown for professional
services rendered for the audit of the Company's annual financial statements for
the fiscal year ended December 31, 2001 were $34,000.

All Other Fees

         The were no other aggregate fees billed for services rendered by
WithumSmith+Brown, other than for services covered by the preceding two
paragraphs for the fiscal year ended December 31, 2001.

         The Audit Committee has considered and determined that the services
provided by WithumSmith+Brown are compatible with WithumSmith+Brown maintaining
its independence.

Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure

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

         o  Ernst & Young LLP was previously the independent auditors for
            Digital Descriptor Systems, Inc. (DDSI). On February 4, 2002, Ernst
            & Young LLP resigned as independent auditors and WithumSmith+Brown,
            PC was 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 DDSI.

         o  The audit reports of Ernst & Young LLP on the financial statements
            of DDSI 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.


                                       20
<PAGE>


         o  During DDSI's two most recent fiscal years ended December 31, 2000,
            and the subsequent interim period ending February 4, 2002, there
            were no disagreements between DDSI and Ernst & Young LLP on any
            matter of accounting principles or practices, financial statement
            disclosure, or auditing scope and procedures, which if not resolved
            to the satisfaction of Ernst & Young would have caused Ernst & Young
            to make reference to the matter in their report. DDSI has requested
            Ernst & Young 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 the Form
            8-K, Amendment No. 1.

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

         o  During DDSI's two most recent fiscal years ended December 31, 2001
            and the subsequent interim period through February 4, 2002, DDSI 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.




                                       21
<PAGE>

                                  OTHER MATTERS

         The Board of Directors of the Company does not intend to bring any
other matters before the Annual Meeting and does not know of any other matter
that may be brought before the Annual Meeting.

Submission of 2002 Stockholder Proposals

         Proposals of stockholders that are intended to be presented at the
Annual Meeting in 2003 must be received by the Secretary of Digital Descriptor
Systems, Inc., 446 Lincoln Highway, Fairless Hills, Pennsylvania 19030, not
later than December 31, 2002 to be considered for inclusion in the Company's
2003 Proxy material.

         A copy of the Company's Form 10-KSB may be obtained by written request
from Michael Pellegrino, President and Chief Operating Officer, at the Company,
446 Lincoln Highway, Fairless Hills, Pennsylvania 19030.

         The above Notice and Proxy Statement are sent by order of the Board of
Directors.

                                                     By order of the Directors



                                                     Michael J. Pellegrino
                                                     Secretary
Dated: October 31, 2002



                                       22
<PAGE>

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




                                    Contents


Independent Auditors' Reports:                                               F-1



Audited Financial Statements


Balance Sheets                                                               F-3


Statements of Operations                                                     F-4


Statements of Shareholders' Equity (Deficiency)                              F-5


Statements of Cash Flows                                                     F-6


Notes to Financial Statements                                                F-8










<PAGE>


INDEPENDENT AUDITORS' REPORT

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

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

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

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

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






/s/ WithumSmith+Brown

Newtown, Pennsylvania
March 23, 2002


<PAGE>


Report of Independent Auditors

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

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

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

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

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




                                                           /s/ Ernst & Young LLP


Philadelphia, Pennsylvania
March 23, 2001



<PAGE>
<TABLE>
<CAPTION>
                                            DIGITAL DESCRIPTOR SYSTEMS, INC.
                                                     BALANCE SHEETS

         ASSETS                                                                      December 31                June 30
                                                                              2001               2000            2002
                                                                              ----               ----            ----
Current Assets:                                                                       (Audited)               (Unaudited)
<S>                                                                        <C>               <C>              <C>
     Cash                                                                  $    435,662      $    202,877     $     42,542
     Restricted cash                                                              5,969            10,452            1,044
     Investment                                                                       -             1,000                -
     Accounts receivable, less allowance
        for uncollectible accounts of $87,930 and $114,000
        in 2001 and 2000,ands$74,410l(unaudited) in 2002, respectively          107,948           526,292           10,487
     Inventory                                                                    5,665            22,596           22,826
     Prepaid expenses                                                           267,534             8,698          346,620
     Advance - employees                                                           -                    -          110,066
     Debt discount and deferred financing costs                                 807,014           228,500          360,751
                                                                           ------------      ------------     ------------
            Total current assets                                              1,629,792         1,000,415          894,336

Note Receivable - Former Officer, Less Allowance
  for Uncollectible Notes of $177,400 and $-0-
  in 2001 and 2000, and $157,753 (unaudited) in 2002, respectively                    -           165,525                -
Software Development Costs                                                            -           413,604                -
Furniture and Equipment, Net                                                     37,090           172,046           18,875
Deposits and Other Assets                                                        24,395            31,454           24,395
                                                                           ------------      ------------     ------------
         TOTAL ASSETS                                                      $  1,691,277      $  1,783,044     $    937,606
                                                                           ============      ============     ============
         LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

Current Liabilities:
     Accounts payable                                                      $    418,764      $    481,163     $    337,735
     Accrued expenses                                                           157,463           189,209          331,392
     Accrued payroll and related withholdings                                         -                 -          173,929
     Deferred income                                                            854,618           854,787          818,572
     Current portion of equipment loan                                            7,211             7,147            7,233
     Convertible debentures                                                     965,000           200,000        1,006,731
                                                                           ------------      ------------     ------------
         Total Current Liabilities                                            2,403,056         1,732,306        2,501,763

Equipment Loan, Net of Current Portion                                           20,066            28,626           16,447
                                                                           ------------      ------------     ------------
         Total Liabilities                                                    2,423,122         1,760,932        2,518,210

Shareholders' Equity (Deficiency):
     Preferred stock, $.01 par value: authorized shares - 1,000,000;
         issued and outstanding shares - none                                         -                 -                -
     Common stock, $.001 par value: authorized shares - 150,000,000;
         issued and outstanding shares - 48,045,610 at December 31, 2001         48,045            20,011           58,156
     Additional paid-in capital                                              16,726,819        14,544,579       16,782,748
     Accumulated deficit                                                    (17,524,988)      (14,542,478)     (18,421,508)
                                                                           ------------      ------------     ------------
         Total Shareholders' Equity (Deficiency)                               (750,124)          22,112        (1,580,604)
                                                                           ------------      ------------     ------------
         TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)           $  1,672,998      $  1,783,044     $    937,606
                                                                           ============      ============     ============
</TABLE>


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

                                       F-3





<PAGE>
<TABLE>
<CAPTION>

                                             DIGITAL DESCRIPTOR SYSTEMS, INC.
                                                 STATEMENTS OF OPERATIONS

                                                                  Year Ended December 31         Six Months Ended June 30
                                                                  2001          2000                2002          2001
                                                                  ----          ----                ----          ----
                                                                         (Audited)                      (Unaudited)
<S>                                                              <C>          <C>                <C>          <C>
 Revenues:
      Software                                                  $   938,654   $ 2,060,499        $   52,941   $   341,311
      Hardware                                                       94,350       229,525            27,692        48,574
      Maintenance                                                   520,837       583,349           314,590       268,918
      Consulting                                                     68,863        91,249                          34,500
      Other                                                         104,003        61,836            18,665        31,955
                                                                -----------   -----------        ----------   -----------
         Total Revenues                                           1,726,707     3,026,458           414,158       725,528

 Costs and Expenses:
      Cost of revenues                                              708,703     1,615,286            82,013       269,788
      General and administrative                                  1,705,242     1,843,336           510,565       917,244
      Sales and marketing                                           454,169       917,381            57,238       306,561
      Research and development                                      383,217       536,350           151,375       140,094
      Write-off of software development costs                       413,604             -                 -             -
      Provision for doubtful note receivable - former officer       177,400             -                 -             -
      Depreciation                                                  138,452       162,330            18,214       120,666
      Interest and amortization of deferred debt costs              753,029         1,775           515,569       288,934
      Other (income) expense, net                                   (24,599)      (19,948)          (24,296)      (14,391)
                                                                -----------   -----------        ----------   -----------
          Total Costs and Expenses                                4,709,217     5,056,510         1,310,678     2,028,896
                                                                -----------   -----------        ----------   -----------
 Net Loss                                                       $(2,982,510)  $(2,030,052)       $ (896,520)  $(1,303,638)
                                                                ===========   ===========        ==========   ===========

 Net Loss Per Common Share (Basic and Diluted)                      $ (0.12)      $ (0.11)          $ (0.02)      $ (0.06)
                                                                ===========   ===========        ==========   ===========
 Weighted Average Number of Common Shares Outstanding:
      Basic and Diluted                                          24,436,773    18,557,547        53,844,741    21,174,779
                                                                ===========   ===========        ==========   ===========

</TABLE>


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

                                      F-4

<PAGE>
<TABLE>
<CAPTION>
                                                  DIGITAL DESCRIPTOR SYSTEMS, INC.
                                           STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
                        FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND THE SIX MONTHS ENDED JUNE 30, 2002

                                                             Common Stock                                              Shareholders'
                                                         -------------------    Additional    Unearned     Accumulated     Equity
                                                           Shares     Amount Paid-in Capital Compensation    Deficit    (Deficiency)
                                                         ----------  ------- --------------- ------------ ------------  -----------
<S>                                                      <C>         <C>     <C>             <C>          <C>           <C>
 Balance at December 31, 1999                            14,380,127  $14,380   $12,957,544    $(14,000)   $(12,512,426)   $ 445,498
            Issuance of common shares in connection
                with a Reg. A Offering, net of offering
                costs                                     4,426,485    4,426     1,159,640           -               -    1,164,066
            Issuance of common stock for services         1,205,000    1,205       259,895           -               -      261,100
            Debt discount relating to the beneficial
                conversion feature on convertible
                debentures and issuance of warrants               -        -       167,500           -               -      167,500
            Amortization of unearned compensation                 -        -             -      14,000               -       14,000
            Net loss                                              -        -             -           -      (2,030,052)  (2,030,052)
                                                         ----------  -------   -----------    --------    ------------   ----------
 Balance at December 31, 2000                            20,011,612   20,011    14,544,579           -     (14,542,478)      22,112

            Issuance of common shares 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
            Conversions of convertible debentures to
                  common stock (unaudited)                4,659,968    4,660        27,711                                   32,371
            Net loss                                              -        -             -           -        (464,831)    (464,831)
                                                         ----------  -------   -----------    --------    ------------   ----------
 Balance at March 31, 2002 (Unaudited)                   53,065,578   53,065    16,768,570           -     (17,989,819)  (1,168,184)

            Conversions of convertible debentures to
                  common stock (unaudited)                5,090,912    5,091        14,178                                   19,269
            Net loss                                              -        -             -           -        (431,689)    (431,689)
                                                         ----------  -------   -----------    --------    ------------   ----------
 Balance at June 30, 2002 (Unaudited)                    58,156,490   58,156    16,782,748           -     (18,421,508)  (1,580,604)
</TABLE>



                                       F-5






<PAGE>


<TABLE>
<CAPTION>
                                                  DIGITAL DESCRIPTOR SYSTEMS, INC.
                                                      STATEMENTS OF CASH FLOWS

                                                                                Year Ended December 31    Six Months Ended June 30
                                                                                  2001          2000           2002         2001
                                                                                  ----          ----           ----         ----
                                                                                      (Audited)                   (unaudited)
                                                                                      ---------                   -----------
<S>                                                                            <C>           <C>             <C>         <C>
Cash Flows from Operating Activities:
     Net loss                                                                   $(2,982,510) $ (2,030,052)   $(896,520) $(1,303,638)
     Adjustments to reconcile net loss to net cash used in operating activities:
         Depreciation                                                               138,452       162,330       18,215      120,666
         Write-off of software development costs                                    413,604             -            -            -
         Provision for doubtful note receivable - former officer                    177,400             -            -            -
         Compensation expense in connection with issuance of Common Stock                                            -      186,530
         Common stock issued for services received                                  414,322       261,100       14,400            -
         Amortization of deferred financing costs and debt discounts related
            to the issuance of warrants and the beneficial conversion
            feature of convertible debentures                                       676,486             -      456,513      284,259
         Amortization of unearned compensation                                            -        14,000            -            -
         Changes in assets and liabilities:
            Accounts receivable                                                     418,344       330,303       97,462       (4,627)
            Inventory                                                                16,931        26,097      (17,161)     (20,301)
            Prepaid expenses, deposits and other assets                            (251,777)      (19,219)     (79,086)    (169,736)
            Advances - employees                                                          -             -     (110,066)           -
            Accounts payable                                                        (62,399)      360,026      (81,029)     101,530
            Accrued expenses                                                         21,985        24,395           92     (142,741)
            Accrued payroll and related withholdings                                      -             -      173,929            -
            Deferred income                                                            (169)     (463,147)    (135,946)     587,945
                                                                                -----------   -----------    ---------  -----------
                Net Cash Used in Operating Activities                            (1,019,331)   (1,334,167)    (459,197)    (360,113)

Cash Flows from Investing Activities:
     Proceeds from sale of  investment                                                1,000             -            -            -
     Purchase of furniture and equipment                                             (3,496)      (30,325)           -       (3,496)
     (Increase) Decrease in note receivable - former officer                        (11,875)      (11,875)           -       (5,937)
     (Increase) Decrease in restricted cash                                           4,483        99,548        4,925            -
                                                                                -----------   -----------    ---------  -----------
                Net Cash Provided by (Used in) Investing Activities                  (9,888)       57,348        4,925       (9,433)

Cash Flows from Financing Activities:
     Net proceeds from issuance of common stock                                     229,000     1,164,066            -            -
     Proceeds from the issuance of convertible debentures, net
         of issuance costs of $198,500 in 2001 and $61,000 in 2000                1,056,500       139,000       75,000      355,000
     Payment of convertible debentures                                              (15,000)            -            -            -
     Deferred financing costs                                                             -             -      (10,250)     (31,000)
     Repayment of equipment loan                                                     (8,496)         (593)      (3,597)      (3,565)
                                                                                -----------   -----------    ---------  -----------
                Net Cash Provided by Financing Activities                         1,262,004     1,302,473       61,153      320,435
                                                                                -----------   -----------    ---------  -----------

Net Increase (Decrease) in Cash                                                     232,785        25,654     (393,119)     (49,111)

Cash at Beginning of Year/Period                                                    202,877       177,223      435,661      202,877
                                                                                -----------   -----------    ---------  -----------

Cash at End of Year/Period                                                      $   435,662     $ 202,877    $  42,542  $   153,766
                                                                                ===========   ===========    =========  ===========
</TABLE>


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

                                      F-6


<PAGE>
<TABLE>
<CAPTION>
                                              DIGITAL DESCRIPTOR SYSTEMS, INC.
                                                  STATEMENTS OF CASH FLOWS


                                                                          Year Ended December 31  Six Months Ended June 30
                                                                            2001          2000         2002       2001
                                                                            ----          ----         ----       ----
                                                                                                         (unaudited)
<S>                                                                         <C>           <C>          <C>        <C>
Supplemental Disclosure of Cash Flow Information:
-------------------------------------------------

     Cash paid during the year for:
         Interest                                                        $    7,263     $  1,775     $ 1,937     $4,675
                                                                         ==========     ========     =======     ======
         Income taxes                                                    $        -     $      -     $     -     $    -
                                                                         ==========     ========     =======     ======

     Supplemental Disclosure of Non-Cash Investing
       and Financing Activities:

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

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

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

         Conversion of $33,269 of debentures and $18,371 of accrued
            interest into common stock                                   $        -     $      -     $51,640     $    -
                                                                         ==========     ========     =======     ======

</TABLE>


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

                                      F-7


<PAGE>

                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS



Note 1 - Description of Business:
---------------------------------

           Digital Descriptor Systems, Inc. (the "Company") incorporated in
           Delaware in 1994, develops, assembles and markets computer
           installations consisting of hardware and software, which capture
           video and scanned images, link the digitized images to text and store
           the images and text on a computer database and transmit this
           information to remote locations. The principal product of the Company
           is the Compu-Capture Law Enforcement Program, which is marketed to
           law enforcement agencies and jail facilities and generated the
           majority of the Company's revenues during the years ended December
           31, 2001 and 2000, and for the six months ended June 30, 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 $2,982,510 and $2,030,052 for the years ended
                 December 31, 2001 and 2000, respectively and, $896,520 and
                 $1,303,638 for the six months ended June 30, 2002 and 2001,
                 respectively. The Company expects that losses from operations
                 will continue through 2002 and the Company anticipates that it
                 will require additional financing in 2002, which may not be
                 readily available. These factors raise substantial doubt about
                 the Company's ability to continue as a going concern. The
                 Company's plans include expanding the sale and acceptance of
                 its core business solutions by hiring additional sales
                 resources and increased marketing activities. The Company is
                 also pursuing FBI Certification and introduction to the
                 marketplace of the Compu-Scan 3000 fingerprint-capturing
                 device. However, there can be no assurances that the Company
                 will be successful in their efforts to generate profitable
                 operations. The financial statements do not include any
                 adjustments that might result from the outcome of this
                 uncertainty. Financial presentation may have been changed due
                 to reclassifications of certain items.


              B. Use of Estimates
              -------------------
                 The preparation of the financial statements in conformity with
                 generally accepted accounting principles requires management to
                 make estimates and assumptions that affect the reported amounts
                 of assets and liabilities and disclosure of contingent assets
                 and liabilities at the date of the financial statements and the
                 reported amounts of revenues and expenses during the reported
                 period. Actual results could differ from those estimates.

              C. Interim Financial Information
              ---------------------------------

                 The financial statements and disclosures included herein for
                 the six months ended June 30, 2002 and 2001 are unaudited.
                 These financial statements and disclosures have been prepared
                 by the Company in accordance with accounting principles
                 generally accepted in the United States for interim financial
                 information. Accordingly, they do not include all of the
                 information and footnotes required by accounting principles
                 generally accepted in the United States for complete financial
                 statements. In the opinion of management, all adjustments
                 (consisting of adjustments of a normal and recurring nature)
                 considered necessary have been included. Operating results for
                 the six month periods ended June 30, 2002 and 2001 are not
                 necessarily indicative of the results that may be expected for
                 the year ended December 31, 2002.

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





                                       F-8
<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


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

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

                 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.

              F. 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.

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



                                       F-9
<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS



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

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

              I. Income Taxes
              ---------------
                 The Company provides for income taxes under the liability
                 method. Deferred income taxes differences result from
                 differences in the timing of recognition by the Company of
                 certain expenses, the periods of depreciation of certain assets
                 and net operating loss carryforwards.

              J. Accounting for Stock Options
              -------------------------------
                 Financial Accounting Standards Board issued Statement No. 123
                 (SFAS 123), "Accounting for Stock-Based Compensation." SFAS 123
                 provides companies with a choice to follow the provisions of
                 SFAS 123 in determination of stock-based compensation expense
                 or to continue with the provisions of Accounting Principles
                 Board Opinion No. 25 (APB 25). The Company has elected to
                 follow the provisions of APB 25. Under APB 25, if the exercise
                 price of the Company stock options equals or exceeds the market
                 price of the underlying Common Stock on the date of grant, no
                 compensation expense is recognized. The effect of applying SFAS
                 123 to the Company's stock-based awards results in net loss and
                 net loss per common share that are disclosed on a pro forma
                 basis in Note 9.

              K. Net Loss Per Common Share
              ----------------------------
                 Basic loss per share is calculated by dividing the net loss by
                 the weighted average common shares outstanding for the period.
                 Diluted loss per share is calculated by dividing the net loss
                 by the weighted average common shares outstanding of the period
                 plus the dilutive effect of common stock equivalents. No
                 exercise of common stock equivalents were assumed during any
                 period because the assumed exercise of these securities would
                 be anti-dilutive.

              L. 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.

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




                                      F-10
<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


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

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

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





                                      F-11
<PAGE>



                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


Note 3 - Note Receivable - Former Officer:
------------------------------------------
         During 1996, the Company loaned the former President (departed January
         25, 2002) of the Company $125,000 evidenced by a promissory note. The
         note bore interest at the prime rate plus 1%, and was payable together
         with the principal on August 13, 1999. The Company's Board of Directors
         agreed to extend the maturity date of this note indefinitely. At
         December 31, 2001 and 2000, and March 31, 2002, accrued interest,
         included in the note receivable in the accompanying balance sheet was
         $52,400, $40,525 and $32,753 (unaudited), respectively. In 2001, due to
         uncertainty as to whether the Company will collect the note, a reserve
         for uncollectible notes was recorded in the amount of $177,400. In the
         first quarter of 2002, the Company received $19,647 of payments
         (unaudited) on the loan.

Note 4 - Furniture and Equipment:
---------------------------------
         Furniture and equipment consists of the following:
<TABLE>
<CAPTION>

                                                    December 31
                                                    -----------           June 30, 2002
                                                2001          2000          (Unaudited)
                                                ----          ----          -----------
         <S>                                  <C>           <C>              <C>
         Furniture and fixtures               $186,705      $186,705         $186,705
         Computer equipment                    274,945       271,449          274,945
         Vehicles                               59,049        59,049           59,049
         Leasehold improvements                 34,977        34,977           34,977
                                              --------      --------         --------
                                               555,676       552,180          555,676
         Less accumulated depreciation         518,586       380,134          536,801
                                              --------      --------         --------
                                              $ 37,090      $172,046         $ 18,875
                                              ========      ========         ========
</TABLE>
         Depreciation and amortization included as a charge to operations
         amounted to $138,452 and $162,330 for the years ended December 31, 2001
         and 2000, and $18,215 and $120,666 for the six months ended June 30,
         2002 and 2001, respectively.


Note 5 - Convertible Debentures:
--------------------------------
         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.


<PAGE>

         During April through June 2002, $19,269 (unaudited) of the convertible
         debentures issued in March 2001 were converted into 5,090,912
         (unaudited) shares of Common Stock. In addition, 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 applicable Conversion
         Date.

         During January through March 2002, $14,000 (unaudited) of the
         convertible debentures issued in March 2001 were converted into
         2,456,140 (unaudited) shares of Common Stock. Additionally, accrued
         interest of $18,371 (unaudited) relating to these notes was converted
         into an additional 2,203,828 (unaudited) shares of Common Stock.

         On December 31, 2001 the Company issued three convertible debentures
         for an aggregate amount of $500,000. The debentures are due December
         31, 2002 and accrue interest at the rate of 12% per annum. Interest on
         the debentures shall be paid quarterly commencing March 31, 2002. The
         holders have the right to convert the principal amount plus accrued
         interest into shares of the Company's common stock at any time through
         maturity. The conversion price in effect on any Conversion Date shall
         be the lesser of $.043 per share or 50% of the average of the lowest
         three inter-day sales prices during the twenty Trading Days immediately
         preceding the applicable Conversion Date. The Company also issued
         common stock purchase warrants for the right to purchase 1,500,000
         shares of common stock of the Company at an exercise price per share
         equal to the lesser of $.02 or the average of the lowest three
         inter-day sales prices during the twenty Trading Days immediately prior
         to exercise. The estimated fair value of the warrants of $37,500 and
         the intrinsic value of the beneficial conversion feature of $385,000
         have been allocated to paid-in capital. This resulting debt discount
         plus $77,500 of financing charges is being amortized on a straight-line
         basis over the term of the debentures. The debentures are
         collateralized by substantially all of the Company's assets.




                                      F-12
<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


         During September 2001, the Company issued two convertible debentures
         for an aggregate amount of $400,000. These debentures are due on
         September 30, 2002 and accrue interest at the rate of 12% per annum.
         Interest on the debentures shall be paid quarterly commencing December
         31, 2001. The holders have the right to convert the principal amount
         plus accrued interest into shares of the Company's common stock at any
         time through maturity. The conversion price in effect on any Conversion
         Date shall be the lesser of $.08 per share or 50% of the average of the
         lowest three inter-day sales prices during the ten Trading Days
         immediately preceding the applicable Conversion Date. The Company also
         issued common stock purchase warrants for the right to purchase 800,000
         shares of common stock of the Company at an exercise price per share
         equal to the lesser of $.36 or the average of the lowest three closing
         sales prices for the common stock during the twenty Trading Days
         immediately prior to exercise. The estimated fair value of the warrants
         of $48,000 and the intrinsic value of the beneficial conversion feature
         of $262,000 have been allocated to paid-in capital. This resulting debt
         discount plus $90,000 of financing charges is being amortized on a
         straight-line basis over the term of the debentures. The debentures are
         collateralized by substantially all of the Company's assets.

         During April 2001 and May 2001, the Company issued three convertible
         notes for an aggregate amount of $155,000 and accrue interest at the
         rate of 10% per annum. Interest on the debentures shall be paid
         quarterly commencing June 30, 2001. The holders have the right to
         convert the principal amount plus accrued interest into shares of the
         Company's common stock thirty days prior to the maturity date. The
         conversion price in effect on any Conversion Date shall be an amount
         equal to 50% of the mean average price of the common stock for the ten
         trading days prior to notice of conversion. The intrinsic value of the
         beneficial conversion feature of $155,000 has been allocated to paid-in
         capital. This resulting debt discount is being amortized on a
         straight-line basis over the term of the debentures. The debentures are
         collateralized by substantially all of the Company's assets. During
         September 2001, $115,000 of the notes were converted into 1,498,540
         shares of free trading common stock and 1,252,069 shares of restricted
         stock at conversion prices ranging between of $.03895 and $.034 per
         share. In addition, $5,078 of accrued interest related to the
         debentures was converted into 132,827 shares of common stock. On the
         conversion date, the unamortized portion of the debt discount related
         to the converted debt, in the amount of $11,329, was charged to
         interest expense. In October 2001, $15,000 of the convertible
         debentures were paid. The parties have entered into an agreement to
         extend the maturity date of the remaining balance of $25,000 for
         another year.

         During March 2001, the Company issued two convertible debentures for an
         aggregate amount of $200,000 with a maturity date of March 4, 2002. The
         debentures accrue interest at the rate of 12% per annum. The holders
         have the right to convert the principal amount plus accrued interest
         into shares of the Company's common stock at any time through maturity.
         The conversion price in effect on any Conversion Date shall be the
         lesser of $.08 per share or 50% of the average of the lowest three
         inter-day sales prices during the ten Trading Days immediately
         preceding the applicable Conversion Date. The Company also issued
         common stock purchase warrants for the right to purchase 200,000 shares
         of common stock of the Company at an exercise price per share equal to
         the lesser of $.36 or the average of the lowest three closing sales
         prices during the twenty Trading Days immediately prior to the date of
         exercise. The estimated fair value of the warrants of $64,000 and the
         intrinsic value of the beneficial conversion feature of $105,000 have
         been allocated to paid-in capital. This resulting debt discount plus
         $31,000 of financing charges is being amortized on a straight-line
         basis over the term of the debentures. The debentures are
         collateralized by substantially all of the Company's assets. During
         November 2001 through December 2001, $160,000 of the debentures were
         converted into 6,309,526 shares of common stock. On the conversion
         date, the unamortized portion of the debt discount and deferred
         financing costs related to the converted debt, in the amount of
         $40,479, was charged to interest expense.




                                      F-13
<PAGE>



                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


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

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
















                                      F-14
<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS



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

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

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

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

           The tax effects of temporary differences that give rise to
           significant portions of deferred tax assets and deferred tax
           liabilities at December 31, 2001 and 2000 are as follows:
<TABLE>
<CAPTION>

                                                                                      2001              2000
                                                                                      ----              ----
                  <S>                                                             <C>               <C>
                  Deferred tax assets:
                      Net operating loss carryforwards                             $ 3,838,269      $ 3,453,113
                      Bad debt reserves                                                 37,810           43,519
                      Inventory reserves                                                 1,868              200
                      Accrued expenses                                                       -            1,755
                      Depreciation                                                      67,848                -
                                                                                   -----------      -----------
                  Total deferred tax assets                                          3,945,795        3,498,587

                  Deferred tax liabilities:
                      Software development                                                   -         (157,441)
                      Depreciation                                                           -          (22,914)
                                                                                   -----------      -----------
                  Total deferred tax asset                                           3,945,795        3,318,232
                  Valuation allowance                                               (3,945,795)      (3,318,232)
                                                                                   -----------      -----------
                  Net deferred tax asset                                           $         -      $         -
                                                                                   ===========      ===========
</TABLE>

Note 8 - Commitments and Contingencies:
---------------------------------------

          The Company is a defendant in a lawsuit filed by Accusoft
          Corporation. Accusoft Corporation is seeking the termination of
          certain license agreements and a preliminary injunction enjoining
          the Company from using the above licenses in the sales of their
          products. The ultimate outcome of this litigation cannot presently
          be determined. However, in management's opinion, the likelihood of a
          material adverse outcome is remote. Accordingly, adjustments, that
          might result from the resolution of this matter, if any, have not
          been reflected in the financial statements.







                                      F-15
<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS



          The Company leases certain facilities, vehicles and office equipment
          under non-cancelable operating lease agreements that expire at various
          dates through 2005. Future minimum lease payments at December 31, 2001
          are as follows:

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

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

Note 9 - Stock Option and Other Plans:
--------------------------------------
           The Company maintains the 1994 Restated Stock Option Plan (the 1994
           Plan) pursuant to which the Company reserved 5,000,000 shares of
           common stock. The options granted have a term of ten years and are
           issued at or above the fair market value of the underlying shares on
           the grant date. The Company also maintains the 1996 Director Option
           Plan (the Director Plan) pursuant to which the Company reserved
           200,000 shares of common stock. Under the Director Plan, each outside
           director is automatically granted an option to purchase 15,000 shares
           of common stock (first option) upon adoption of the Director Plan or
           the date such person becomes a director. Every year thereafter, each
           outside director is automatically granted an option to purchase 1,000
           shares (subsequent option) on each date of the annual meeting if a
           minimum of six months were served on the Board of Directors. Options
           granted under the Director Plan are issued at or above the fair
           market value of the underlying shares on the grant date. A portion of
           the first option vests at the six-month anniversary of the date of
           the grant and continues over a four-year period. Subsequent options
           vest on the first anniversary of the grant date. The options expire
           ten years from the date of the grant.

           The following is a summary of option activity under all plans:
<TABLE>
<CAPTION>

                                                                                                             Weighted
                                                              1996                             Total           Average
                                                           Director                           Number of       Exercise
                                            1994 Plan         Plan       Nonqualified         Options           Price
                                            --------------------------------------------------------------------------
<S>                                         <C>            <C>           <C>                <C>             <C>
Outstanding at December 31, 1999              179,000       33,182           896,500        1,109,312       $.33-$3.81
Granted                                       843,000            -                 -          843,000              .10
Expired                                             -            -            (7,500)          (7,500)             .37
                                            --------------------------------------------------------------------------
Outstanding at December 31, 2000            1,022,000       33,812           889,000        1,944,812       $.10-$3.81
Granted                                             -            -                 -                -                -
Expired                                      (103,500)     ( 7,500)        ( 208,000)        (319,000)      $.10-$3.81
                                            --------------------------------------------------------------------------
Outstanding at December 31, 2001
    and June 30, 2002                         918,500       26,312           681,000        1,625,812       $.10-$3.81
    ------------------                      ==========================================================================
Exercisable options at
December 31, 2001
    and June 30, 2002                         918,500       26,312           681,000        1,625,812
    ------------------                      =========================================================

</TABLE>
           At December 31, 2001, the remaining contractual life of outstanding
           options was 8 years.




                                      F-16
<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


Note 9 - Stock Option and Other Plans (Cont'd):
-----------------------------------------------

           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:
<TABLE>
<CAPTION>

                                                      December 31                            June 30
                                                 ---------------------                       --------
                                                 2001             2000                  2002          2001
                                                 ----             ----                  ----          ----
                  <S>                        <C>              <C>                    <C>            <C>
                  Net loss:                                                          (Unaudited)    (Unaudited)
                           As reported       $(2,982,510)     $(2,030,052)             $896,520     $1,303,638
                           Pro forma         $(2,993,559)     $(2,103,563)             $907,569     $1,266,832
                  Net loss per share:
                           As reported             $(.12)           $(.11)                $(.02)         $(.06)
                           Pro forma               $(.12)           $(.12)                $(.02)         $(.06)

</TABLE>

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

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

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

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

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




                                      F-17




<PAGE>


                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


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

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

           At December 31, 2001, the Company has the following common shares
           reserved for issuance:

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

Note 11 - Subsequent Events:
----------------------------

            On January 19, 2002 the Company received a letter from a shareholder
            threatening legal action pursuant to an October 2001 private
            placement offering. The letter from the shareholder alleged false
            and misleading statements were made by the Company in relation to
            convertible debenture funding and that the convertible debt was not
            properly approved by the board. The Company believes that the
            allegations are without merit. Currently no legal action has been
            filed, however, the Company intends to vigorously defend itself
            against such allegations if they are pursued.

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

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

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

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


                                      F-18
<PAGE>

Note 12 - Subsequent Events (unaudited)
---------------------------------------
         During April through June 2002, $19,269 of the convertible debentures
         issued in March 2001 were converted into 5,090,912 shares of Common
         Stock.

         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.

         In addition, 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 efffected.








                                      F-19


<PAGE>

                          Summary Financial Information

The summary historical financial data should be read in conjunction with the
financial statements (and notes thereto) of our Company and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Proxy Statement.

<TABLE>
<CAPTION>
                                                    Year ended December 31                 Six Months Ended June 30
                                                    2001              2000                 2002                2001
                                               ------------------------------           ------------------------------
                                                           (Audited)                             (Unaudited)

<S>                                            <C>                <C>                   <C>                <C>
Net sales                                      $ 1,726,707        $ 3,026,458           $   414,158        $   725,528
Cost of revenues                                   708,703          1,615,286                82,013            269,788
General and administrative                       1,705,242          1,843,336               510,565            917,244
Sales and marketing                                454,169            917,381                57,238            306,561
Research and development                           383,217            536,350               151,375            140,094
Write-off of software development costs            413,604                  -                     -                  -
Provision for doubtful note receivable -
    former officer                                 177,400                  -                     -                  -
Depreciation                                       138,452            162,330                18,214            120,666
Interest & amortization of deferred
   debt costs                                      753,029              1,775               515,569            288,934
Other (income) expense, net                        (24,599)           (19,948)              (24,296)           (14,391)
                                               ------------------------------           ------------------------------
Net Loss                                       $(2,982,510)       $(2,030,052)          $  (896,520)       $(1,303,638)
                                               ==============================           ==============================
Weighted average Common
        Shares outstanding                      24,436,773         18,557,547            53,844,741         21,174,779
                                               ==============================           ==============================

Basic loss per share                           $     (0.12)       $     (0.11)          $     (0.02)       $     (0.06)
                                               ==============================           ==============================

Current Assets                                 $ 1,629,792        $ 1,000,415           $   894,336        $ 1,629,792
Total Assets                                   $ 1,691,277        $ 1,783,044           $   937,606        $ 1,691,277
Current Liabilities                            $ 2,421,335        $ 1,732,306           $ 2,501,736        $ 2,421,335
Total Liabilities                              $ 2,441,401        $ 1,760,932           $ 2,518,210        $ 2,441,401
Shareholders' equity (deficit)                 $  (750,124)       $    22,112           $(1,580,604)       $  (750,124)
</TABLE>

















                                      F-20


<PAGE>


Management's Discussion and Analysis or Plan of Operation

Plan of Operations
------------------

         The short-term objectives of DDSI are 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. The Company's objective is to expand with
                  these, and additional products, into much larger commercial
                  and federal markets.

         DDSI's long-term objectives are as follows:

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

DDSI believes that it will not reach profitability until the year 2003. Over the
next twelve months, management is of the opinion that sufficient working capital
will be obtained from operations and external financing to meet the Company's
liabilities and commitments as they become payable. 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 Compu-Scan device
                  or the FMS SDK (software developers kit).
         o        Increase revenues through the introduction of Compu-Capture,
                  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 product.

Results of Operations
---------------------

Six Months June 30, 2002 Compared to the Six Months Ended June 30, 2001
-----------------------------------------------------------------------

Revenues for the six months ended June 30, 2002 of $414,158 decreased $311,100
or 43% from the six months ended June 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


                                      F-21

<PAGE>

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 the first six months of 2002, DDSI
recognized revenue of $5,307 from software maintenance agreements from previous
installations of SI-3000. Maintenance revenues increased $45,672 or 16.7% from
the six months ended June 30, 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 June 30, 2002 was $82,013, a decrease of
$187,775 or 70% 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 June 30, 2002 was 20% of total revenues, versus 37%
in the same period a year earlier, a decrease of 17%.

Costs and expenses decreased $644,721 or 47% during the six months ended June
30, 2002 versus the six months ended June 30, 2001. The decrease is due
primarily to the cost containment efforts of the Company. This decrease was
offset by an increase in interest and amortization of deferred debt cost of
$226,635 in connection with the convertible debentures issued in 2001. All other
expenses of the Company experienced decreases with the exception of the
development department that increased $11,281 or 8% for the six months ended
June 30, 2002 versus the six months ended June 30, 2001.

General and Administrative expenses for the six month period ending June 30,
2002 was $510,565 versus $917,244 for the same period prior year for a decrease
of $406,679 or 44%. This decrease was mainly attributable to a decrease in
salaries of $48,112, a prior year charge in miscellaneous of $243,000 for
services paid in stock, a decrease in accounting fees of $64,765, a decrease in
insurance costs of $18,058, and miscellaneous items for $32,744.

Sales and Marketing expenses decreased $249,323 for the six-month period June
30, 2002 from $306,561 or 81%. This decrease was mainly attributable to a
decrease in salaries, commissions, benefits and payroll taxes of $157,273,
travel expenses of $19,621, a decrease in public relations / advertising costs
of $17,334, a reduction in trade show expenses of $4,700, a decrease in hiring
expenses of $36,300, a cost cut in computer expenses of $5,656 and miscellaneous
items for $8,439.

Research and development for the six months ended June 30, 2002 was $151,375
compared to $140,094 for the same period prior year for an increase of $11,281,
which was due to an increase in research and development consulting costs.

The net loss for the Company decreased 31% for the six months ending June 30,
2002 to ($896,520) from ($1,303,638) for the six months ending June 30, 2001.
This was principally due to the decrease in expenses during the period.

Net cash used in operating activities for the six months ended June 30, 2002 and
2001 was $459,197 and $360,113, respectively. The change in cash from operating
activities in the six months ended June 30, 2002 versus 2001 of $99,084 was
principally due to the increase amortization of debt discount and the decrease
in deferred income offset by the decrease in the net loss for the six months and
other changes in operating assets and liabilities ended June 30, 2002.

Net cash provided by (used in) investing activities six months ended June 30,
2002 and 2001 was $4,925 and ($9,433) respectively, reflecting a change of
$14,358. This change is due to lesser purchases of furniture and equipment and
less cash being released from restriction for the six months ended June 30, 2002
as compared to the same period prior year.




                                      F-22


<PAGE>

Net cash provided by financing activities was $ $61,153 and $ 320,435 for the
six months ended June 30, 2002 and 2001, respectively, reflecting a decrease of
$259,282. This decrease was principally due to a reduction in convertible notes
issued of $280,000, offset by financing costs.

Year Ended December 31, 2001 versus Year Ended December 31, 2000
----------------------------------------------------------------

Revenues for the year ended December 31, 2001 of $1,726,707 decreased by 43%
from 2000. The Company generates its revenues through software licenses,
hardware, post customer support arrangements and other services. The decrease in
the Company's revenue for software and hardware during the period is attributed
to a decrease in the sales of the SI-3000 product, which the Company has ceased
to actively sell. Maintenance revenues decreased $62,512 or 11% from the year
ended December 31, 2000 primarily due to a decrease in the Company's customers
entering into such arrangements and the revenue sharing agreement with Itx on
maintenance of the SI-3000 product line. Since Itx provided the support, there
was a 90/10 revenue split. The 10% payment to DDSI covers the Company's
accounting and administrative efforts. DDSI has an arms length relationship with
Itx and does not have a relationship with any of its officers or directors. DDSI
has an agreement with Itx whereby if one of DDSI's FMS clients contracts for
maintenance, Itx provides the maintenance. Other revenues consist of sales of
supplies that the Company makes available to its customers, such as wristbands,
ID cards and print packs. More customers ordered such items in the year ended
December 31, 2001 versus December 31, 2000, which accounted for the modest
increase. Cost of goods decreased $906,583 or 56% due to the decrease in
revenues and was reduced to 41% of total revenues from 53% in the same period a
year earlier. Both the lower cost of sales and the higher gross margin are
attributed to the decrease in sales of the SI-3000.

Operating Costs and expenses decreased $754,439 or 23% during the year ended
December 31, 2001 versus the year ended December 31, 2000. The decrease is due
primarily to the strict cost containment measures the Company has put in place
and the reorganization of the sales department. Non-operating expenses increased
$413,604 due to the write-off of capitalized software development costs related
to the Compu-Scan device. Other expenses also increased $900,125 due to interest
expense in connection with the convertible debentures issued in 2001 and the
provision for doubtful note receivable of former officer recorded in 2001. The
increase in other expenses of $900,125 for the year ending December 31, 2001
versus the year ending December 2000 was attributable to $530,780 of the
amortization of beneficial conversion costs related to the convertible
debentures, $184,945 in amortization of debt discounts, $177,400 in allowance
for ex-officer loan, and $7,000 in late charges.

General and Administrative for the twelve month period December 31, 2001 was
$1,705,242 versus $1,843,336 for the same period prior year for a decrease of
$138,094 or 7.5%. This decrease was mainly attributable to a decrease in
salaries of $56,110 and a prior year charge in miscellaneous of $84,808 for
services paid in stock.

Sales and Marketing and Research and Development expenses decreased $463,167 for
the twelve-month period December 31, 2001 from $917,381, or 50%. This decrease
was mainly attributable to a decrease in salaries and commissions of $333,337,
travel expenses of $158,259 offset by an increase in public relations of
$35,250.

Research and Development decreased $153,133 for the twelve month period ended
December 31, 2001 or 28.5% for the same period prior year. The decrease was
mainly attributable to a reduction in professional consulting of $145,889 plus a
reduction in travel & entertainment of $9,034.

Other expenses increased $1,313,729 due to the following: 1) a $413,604 charge
due to the write-off of capitalized software development costs related to the
Compu-Scan device, 2) a $580,780 charge for below market beneficial debt
conversion costs, 3) $184,945 in amortization of debt discounts, 3) $7,000 in
late fees, and 4) a $177,400 charge to bad debt.


                                      F-23


<PAGE>

The net loss for the Company increased 47% for the year ending December 31, 2001
to $2,982,510 from $2,030,052 for the year ending December 31, 2000. This was
principally due to the decrease in revenues for 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 $1,302,473 for the
years ended December 31, 2001 and 2000, respectively, reflecting a change of
$42,469. This decrease was principally due to only $229,000 in net proceeds
received from the issuance of the Company's common stock in 2001, versus
$1,164,066 received in 2000. The Company received net proceeds of $1,056,000
from the issuance of convertible debentures during the year ended December 31,
2001.

Year Ended December 31, 2000 versus Year Ended December 31, 1999
----------------------------------------------------------------

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

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

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

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

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


                                      F-24
<PAGE>

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

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

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

Over the next twelve months, management is of the opinion that sufficient
working capital will be obtained from operations and external financing to meet
the Company's liabilities and commitments as they become payable. 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.

DDSI is doing the following in its effort to reach profitability and positive
cash flow:

o     Cut costs in areas that add the least value to DDSI.

o     Derive funds through investigating business alliances with other
      companies who may wish to license the Compu-Scan device or the FMS SDK
      (software developers kit).

o     Increase revenues through the introduction of Compu-Capture,
      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 product.

June 30, 2002

Net cash used in operating activities for the six months ended June 30, 2002 and
2001 was $(459,197) and $(360,113), respectively. The change in cash from
operating activities in 2002 versus 2001 of $99,084 was principally due to the
increases in prepaid, inventory and accrued payroll expenses; decreases in
accounts payable and deferred income.

Net cash provided by (used in) investing activities was $4,925 and $(9,433) for
the six months ended June 30, 2002 and 2001, respectively, reflecting a change
of $14,358. This change is due to no purchase of fixed assets and reducing the
balance of the restricted cash in the six months ended June 30, 2002.

Net cash provided by financing activities was $61,153 and $320,435 for the six
months ended June 30, 2002 and 2001, respectively, reflecting a change of
$259,282. This was principally due to less proceeds received from the issuance
of the Company's common stock in the first six months of 2002 versus the first
six months of 2001.


                                      F-25
<PAGE>


December 31, 2001 and December 31, 2000

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

As of December 31, 2001, the Company had a negative working capital of $791,543,
a change of $59,652 from a negative working capital of $731,891 at December 31,
2000, which was primarily a result of an increase in cash, prepaid expenses and
debt discount as well as a decrease in accounts receivable with an overall
increase netting $647,308 and a decrease in accounts payable and accrued
expenses with increases in convertible debentures with the net result of
$689,134. The increase in prepaid expenses is attributable to prepaid SI-3000
costs as of December 31, 2001. The prepaid SI-3000 expenses represent cash
payments for software - $139,095, hardware - $13,422, sub-contractors - $68,140
and software maintenance - $38,178 paid by the Company in advance of and/or
during the installation of the SI-3000 product. The costs remain in prepaid
expenses until there is customer acceptance of the fully installed system, which
is evidenced by the signature of the customer. Once acceptance from the customer
is obtained, prepaid costs and the related deferred income are reduced and
recognized as expense and revenue, respectively. Although the Company stopped
selling the SI-3000 product during the second quarter of 2001, prepaid expenses
related to the SI-3000 increased because installation and customer acceptance of
the SI-3000 can take in excess of two years, and the Company is still in the
process of fulfilling contracts related to customer orders placed prior to the
date the Company stopped selling the SI-3000. The Company has no control over
the time frame as to when the installation and customer acceptance takes place.
This issue is in the hands of Itx as they are the ones to determine installation
dates. Also to be taken into consideration is additional time needed to resolve
any problems that may be encountered by Itx with its installation of the SI-3000
product. As of December 31, 2001, The Company had prepaid expenses of
approximately $260,000 for SI-3000 installation projects which had not yet
commenced or were in progress, compared to $-0- prepaid SI-3000 costs at
December 31, 2000 as similar contracts with these prepayments did not exist at
December 31, 2000. The Company expects to substantially fulfill all SI-3000
orders by Year Ended 2003 at which time the costs and related deferred revenue
will be recognized.

The Company expects that its monthly operating expenses should not exceed
$80,000 per month which it believes it can maintain until such time as
profitability and cash flow are sufficient to cover these monthly expenses.
Until the above can be attained the Company will have to seek additional
funding.

DDSI's monthly operating expenses are about $80,000 per month. Of this $61,000
is covered by operations and $19,000 is covered by outside financing. If unable
to sustain outside financing, DDSI would need $60,000 per month to maintain
operations on a bare bones basis.






                                      F-26


