<SUBMISSION>
<ACCESSION-NUMBER>0000950116-03-001585
<TYPE>SB-2
<PUBLIC-DOCUMENT-COUNT>15
<FILING-DATE>20030212
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>DIGITAL DESCRIPTOR SYSTEMS INC
<CIK>0000927454
<ASSIGNED-SIC>7372
<IRS-NUMBER>232770048
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>SB-2
<ACT>33
<FILE-NUMBER>333-103143
<FILM-NUMBER>03554658
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>2010F CABOT BLVD WEST
<CITY>LANGHORNE
<STATE>PA
<ZIP>19047
<PHONE>2157520963
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>2010 F CABOT BLVD WEST
<CITY>LANGHORNE
<STATE>PA
<ZIP>19047
</MAIL-ADDRESS>
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<TYPE>SB-2
<SEQUENCE>1
<FILENAME>form_sb2.txt
<TEXT>
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form SB-2

                             Registration Statement
                                      Under
                           The Securities Act of 1933

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

<TABLE>
<CAPTION>

         Delaware                                7373                                23-2770048
         --------                                ----                                ----------
            <S>                                   <C>                                    <C>
 (State or other jurisdiction of     (Primary Standard Industrial                 (I.R.S. Employer
 incorporation or organization)       Classification Code Number)                Identification No.)


446 Lincoln Highway, Fairless Hills, PA                                                  19030
----------------------------------------                                               ---------
(Address of principal executive offices)                                               (Zip code)
</TABLE>


         Registrant's Address and Telephone number, including area code:

                              Michael J. Pellegrino
                      President and Chief Operating Officer
                               446 Lincoln Highway
                            Fairless Hills, PA 19030
                                 (267) 580-1075

            (Name, address and telephone number of Agent for Service)

                          Copies of communications to:

                              Owen Naccarato, Esq.
                             Naccarato & Associates
                           19600 Fairchild, Suite 260
                            Irvine, California 92612
                                 (949) 851-9261

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]

<PAGE>

Calculation of registration fee

<TABLE>
<CAPTION>
--------------------------- --------------- -------------- -------------- ------------ -------------- ---------------
Title of each class of      Amount to be    Proposed       Proposed       Exercise     Proceeds to    Amount of
securities to be            registered      maximum        maximum        price per    the Company    registration
registered                                  offering       aggregate      share (1)                   fee
                                            price per      offering
                                            share (1)      price
--------------------------- --------------- -------------- -------------- ------------ -------------- ---------------
<S>                           <C>                <C>         <C>              <C>             <C>           <C>
Common  Shares, par value
$.001 underlying secured    30,000,000          $0.01      $300,000                                        $27.60
convertible debenture

--------------------------- --------------- -------------- -------------- ------------ -------------- ---------------
Shares underlying warrants



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

Restricted Common Shares
par value $.001


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




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

Total Registration Fee                                                                                     $27.60


--------------------------- --------------- -------------- -------------- ------------ -------------- ---------------
</TABLE>

(1)  Estimated solely for the purpose of determining the registration fee.
(2)  Shares being registered represent the authorized but unissued shares that
     are available to be used upon conversion of an aggregate of $500,000 in
     convertible debentures in connection with a January 10, 2003 financing to
     various investors.


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

The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effectiveness date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.



                                       2
<PAGE>


The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.

     PROSPECTUS
     February 12, 2003

                        Digital Descriptor Systems, Inc.

                        30,000,000 Shares of Common Stock


         o  The 30,000,000 shares of Common Stock offered by this Prospectus are
            being offered for resale by the stockholders listed in the section
            of this Prospectus called "Selling Security Holders".

         o  Our Common Stock is traded on the OTC Bulletin Board under the
            symbol "DDSI.OB".

         o  January 24, 2003 the closing bid price of our Common Stock on the
            OTC Bulletin Board was $.002.

         o  Investors should not purchase these shares unless they can afford to
            lose their entire investment.

         o  Selling shareholders will sell at prices they fix or negotiate and
            the selling shareholder will receive all proceeds from the sale.


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

This investment involves a high degree of risk. See the "Risk Factors" beginning
on page 6 of this Prospectus.

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

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.


                                       3

<PAGE>

                                Table of Contents
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------- ----------
                                             Section Title                                                Page No.
--------------------------------------------------------------------------------------------------------- ----------
<S>                                                                                                           <C>
Summary of Information in the Prospectus                                                                      5
--------------------------------------------------------------------------------------------------------- ----------
Risk Factors                                                                                                  6
--------------------------------------------------------------------------------------------------------- ----------
Dividend Policy                                                                                              10
--------------------------------------------------------------------------------------------------------- ----------
Dilution                                                                                                     12
--------------------------------------------------------------------------------------------------------- ----------
Use of Proceeds                                                                                              13
--------------------------------------------------------------------------------------------------------- ----------
Price Range of Common Stock                                                                                  14
--------------------------------------------------------------------------------------------------------- ----------
Management's Discussion and Analysis of Financial Condition and Results of Operations                        16
--------------------------------------------------------------------------------------------------------- ----------
Our Business                                                                                                 23
--------------------------------------------------------------------------------------------------------- ----------
Management                                                                                                   31
--------------------------------------------------------------------------------------------------------- ----------
Executive Compensation                                                                                       33
--------------------------------------------------------------------------------------------------------- ----------
Certain Relationships and Related Transactions                                                               36
--------------------------------------------------------------------------------------------------------- ----------
Security Ownership of Certain Beneficial Owners and Management                                               36
--------------------------------------------------------------------------------------------------------- ----------
Description of Securities                                                                                    39
--------------------------------------------------------------------------------------------------------- ----------
Selling Stockholders                                                                                         41
--------------------------------------------------------------------------------------------------------- ----------
Plan of Distribution                                                                                         43
--------------------------------------------------------------------------------------------------------- ----------
Legal Proceedings                                                                                            44
--------------------------------------------------------------------------------------------------------- ----------
Experts                                                                                                      45
--------------------------------------------------------------------------------------------------------- ----------
Legal Matters                                                                                                45
--------------------------------------------------------------------------------------------------------- ----------
Other Available Information                                                                                  45
--------------------------------------------------------------------------------------------------------- ----------
Financial Statements                                                                                         46
--------------------------------------------------------------------------------------------------------- ----------
Indemnification                                                                                            II-1
--------------------------------------------------------------------------------------------------------- ----------
</TABLE>


                                       4

<PAGE>

                               Prospectus Summary

This summary contains all material terms of the offering. To understand this
offering fully, you should read the entire document carefully. Please pay
particular attention to the section entitled "Risk Factors" and the section
entitled "Financial Statements".

Unless otherwise indicated, this Prospectus assumes that any of our outstanding
options or warrants have not been exercised into shares of our common stock.

                        Digital Descriptor Systems, Inc.

Digital Descriptor Systems, Inc.("DDSI"), located at 446 Lincoln Highway,
Fairless Hills, PA,19030, phone number (267) 580-1075, was originally formed as
Compu-Color, Inc., in 1989 and was incorporated in Delaware in 1994.

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

Technological Innovations

Imaging technology enables computers to record, store and retrieve both textual
information and visual images. DDSI's software programs utilize technology to
link textual information with images so that customers can record and retrieve
related text and images. DDSI's software also addresses different information
retrieval needs such as reproducing line ups and producing housing badges
(jails), bar coded wristbands for identification which facilitates movement
within jails and courts and storing and retrieving hand written and computer
generated document images within arrest records (see "Our Business" page 23).

Products

The principal product of DDSI is the Compu-Capture(R) Law Enforcement Program,
which is marketed to law enforcement agencies and jail facilities. The program
captures a video or scanned image (mug shot) of a subject that is stored by
computer application along with the booking record, physical description and
other pertinent information about the subject (see "Our Business" page 23).

DDSI also markets its Fingerprint Matching System (FMS) and its Identify On
Demand System to both commercial and criminal justice markets. (see "Our
Business" page 25).

The Offering

<TABLE>
<CAPTION>
<S>                             <C>
Securities Offered            30,000,000 Selling Security Holder Shares (see "Selling
                              Shareholders" page 41) of which 30,000,000 are authorized and none of
                              these shares have previously been issued as restricted stock.

Common Stock Outstanding:     Prior to the Offering      61,351,387     Shares as of January 24, 2003.
                              After the Offering         91,351,387     Shares

Offering Price                The selling shareholders can sell the shares at any price.

Use of Proceeds               This prospectus relates to shares of our common stock that may be
                              offered and sold from time to time by the selling stockholders. We
                              will not receive any proceeds from the sale of shares by the selling
                              shareholders. However, we will receive proceeds upon the exercise of
                              any warrants that may be exercised by the selling shareholders. These
                              funds will be used for ongoing operations.

Market for our Common Stock:  Our Common Stock trades on the Over-the Counter Bulletin Board, also
                              called OTCBB, under the trading symbol "DDSI.OB". The market for our
                              Common Stock is highly volatile. We can provide no assurance that
                              there will be a market in the future for our Common Stock.
</TABLE>

                                        5
<PAGE>

                                  Risk Factors

An investment in shares of DDSI's common stock involves a high degree of risk.
You should carefully consider the following information which summarizes all
material risks, together with the other information contained in this
prospectus, before you decide to buy DDSI's common stock. If any of the
following risks actually occur, DDSI's business would likely suffer. In these
circumstances, the market price of DDSI's common stock could decline, and you
may lose all or part of your investment.

Risks Relating to our Business:
-------------------------------

DDSI has sustained continuing losses making it a risky investment.

DDSI has a history of losses from operations and does not anticipate realizing a
profit during the next fiscal year, therefore investment in DDSI is at a risk of
being lost. Our financial statements highlight that we have a working capital
deficiency of $791,543 at December 31, 2001 and $731,891 at December 31, 2000,
plus recurring losses from operations which raise substantial doubt about our
ability to continue as a going concern. For the quarter ending September 30,
2002 we have a working capital deficiency of $1,835,239. The financial
statements do not include any adjustments that might result from the outcome of
this activity.


DDSI incurred a loss for the year ending December 31, 2001 of $2,982,510 and a
loss of $2,030,052 in the year ending December 31, 2000, and for the nine months
ending September 30, 2002 a loss of $1,125,603. DDSI does not anticipate
realizing a profit during the next fiscal year.

In addition, any one of the following factors may affect the future
profitability of our business:

         o  The inability to develop new products to sell to the current
            customer base

         o  Failure to establish new outlets for sales of the current solutions
            and products.

         o  Rejection of its modified criminal justice software solutions by the
            commercial market.

DDSI may not be able to obtain sufficient capital to fund our operations and, as
a result, we may have to cut back or discontinue operations or limit our
business strategies.

DDSI does not have adequate financing arrangements in place. DDSI intends to
raise additional capital by looking for alternative financing solutions for its
long term needs and new development projects. If DDSI is unable to obtain
alternative financing solutions, it may have to rely on private placement or
convertible notes.

Future financing may also be difficult to obtain due to such factors as our
history of unfavorable operating results, and increased stockholder dilution. If
adequate funds are not available, we may be required to cut back on one or more
of our production locations, sales, marketing or distribution programs or plans
to reduce operating expenses, or attempt to obtain funds through strategic
alliances that may require us to relinquish rights to our technologies or
products, and further dilute our shareholders.

Our need for future capital requirements will depend on many factors, including:

            o  the future of our product sales, marketing and distribution
               efforts;

            o  cost increases in the progress of filing for and obtaining
               regulatory approvals;

            o  any market rejection of our products;

            o  any increase in the levels of administrative and legal expenses

On the other hand, if debt financing is available, it may have several negative
effects on our future operations, including:


                                       6
<PAGE>


            o  a portion of our cash flow from operations will be dedicated to
               payment of principal and interest and this would reduce the funds
               available for operations and capital expenditures;

            o  increased debt burdens will substantially increase our
               vulnerability to adverse changes in general economic and
               competitive conditions; and

            o  we may be subject to restrictive debt covenants and other
               conditions in our debt instruments that may limit our capital
               expenditures, limit our expansion or future acquisitions, and
               restrict our ability to pursue our business strategies.

DDSI's ability to produce revenue is dependent on its ability to attract new
customers, and it's inability to do so would result in DDSI trimming or shutting
down operations.

Once a customer has purchased a system from DDSI, any future revenue from that
customer will consist primarily of maintenance fees and upgrades to the system
unless the customer expands the system or DDSI develops new products for the
system. Thus DDSI's ability to produce revenue is dependent on the following:

            o  its ability to attract new customers
            o  its ability to develop new products and upgrade of existing
               products to reflect current technology
            o  its ability to price products competitively.

The majority of DDSI's revenues are generated from one-time sales to different
clients of its software product. These sales account for 59% of the business in
2001. If DDSI is unable to attract new customers, it would therefore suffer a
significant decrease in revenue resulting in a cut back or shut down of
operations.

The remaining revenue consists of contract sales in DDSI's maintenance and
services areas. Though these are recurring revenues, they are not enough to
sustain operations.

Purchases of DDSI's products can be delayed due to political and budgetary
processes within Law enforcement jurisdictions, which can hamper DDSI's ability
to operate.

Law enforcement jurisdictions are subject to political, fiscal and budgetary
constraints and purchases of DDSI's products may be delayed substantially due to
these political and budgetary processes. The nature of the public sector market
and the government procurement process often result in an irregular and
unpredictable revenue stream for DDSI. This irregular and unpredictable revenue
stream makes it difficult for the business to operate smoothly.

Satisfying public contract requirements can preclude sales, which may limit
DDSI's ability to succeed.

DDSI's Compu-Capture(R) product is being marketed primarily to law enforcement
agencies. As public agencies, these prospective purchasers are subject to public
contract requirements that vary from one jurisdiction to another. Some public
contract requirements may be onerous or even impossible for DDSI to satisfy,
such as large bonding requirements, and DDSI may be precluded from making sales
in these jurisdictions. In addition, public contracts frequently are awarded
only after a formal competitive bidding process. This process is usually a long
drawn out process.


The Compu-Scan 3000 may never achieve FBI certification, which could limit our
success.


                                       7
<PAGE>


Under federal regulation, law enforcement agencies in the United States may only
utilize fingerprint systems that have passed an extensive FBI certification
process. As a result any contactless and inkless fingerprint system developed by
DDSI must pass the FBI certification process before it can be distributed to law
enforcement agencies in the United States. The FBI Appendix F requirements are
quite voluminous and detailed; however, they are available at the FBI Web Site
(http://www.fbi.gov/hq/cjisd/iafis/efts70/cover.htm).

Each time DDSI has submitted the Compu-Scan for certification, the FBI has
requested additional information. This has resulted in DDSI's decision to
investigate a redesign of the Compu-Scan 3000. There are no assurances by the
Company that the FBI will certify this latest technology and device should DDSI
submit a redesign.

During December 2001, the Company revised its anticipated certification date for
its Compu-Scan 3000 product indefinitely after its submission was not accepted
by the FBI. Additionally, there are no assurances that the FBI will ever certify
the technology. As such, and since the Company is unable to forecast any
revenues from the product, the Company wrote off the remaining investment in
Software Development of $298,714 in the fourth quarter of 2001.

DDSI may not be able to raise sufficient funding to complete the Compu-Scan 3000
project, resulting in terminating the project which would have a negative affect
on future operations of the company, thus putting the investors at risk

If DDSI is unable to raise sufficient funding to complete the Compu-Scan 3000
project, the Company will either continue with the original design of the
fingerprint slap. However, the Company has recently put a substantial amount of
funds into the project that could have been used to develop revenues in other
areas.

The pledge of substantially all of DDSI's assets could hinder the raising of
funds which would eventually result in the discontinuation of operations

Presently all of our assets have been pledged which could affect our operations
by precluding us from obtaining additional financing. The inability to gain
access to secured funding in the future could result in the abandonment of
projects, curtailment of operations and eventually the discontinuation of
operations.

We have a "Going-Concern Qualification" in our independent auditors financial
statement report at December 31, 2001, which may make capital raising more
difficult and may require us to scale back or cease operations, putting an
investors funds at risk.

The report of our auditors includes a going concern qualification, which
indicates an absence of obvious or reasonably assured sources of future funding
that will be required by us to maintain ongoing operations. To date we have
funded DDSI through equity investments and issues of debt. There is no guarantee
that DDSI will be able to attract additional equity and/or debt investors. If we
are unable to obtain additional funding, we may not be able to continue
operations. Additionally, we have a net worth deficit as of December 31, 2001.
This deficit indicates that we will be unable to meet our future obligations
unless additional funding sources are obtained.

DDSI's operating expenses for the year ended December 31, 2001 ran approximately
$2,681,080 with cash outflows of approximately $174,615 a month. A temporary cut
back in operations would lower the expenses dramatically, however, cash outflow
would still remain approximately $51,700 to $60,000 a month. Absent a plan to
obtain the necessary funds to maintain DDSI during a temporary shutdown, DDSI
would have to terminate all operations.

DDSI's operating expenses for the nine-month period ended September 30, 2002 ran
approximately $1,365,147 for a reduction of $1,266,442 from the prior year. Cash
used in operations is running approximately $52,173 a month.


                                       8
<PAGE>


DDSI plans to raise additional funding by looking for alternative financing
solutions for its long term needs and new development projects. If DDSI is
unable to obtain alternative financing solutions, it may depend on private
placement or convertible notes.

We have received notification of a threatened shareholder lawsuit, which would
require capital needed for operations to defend.

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

The shareholder threatened a direct and derivative action suggesting the
convertible debt was not legally authorized. To date no legal action has been
filed. (see legal proceedings).

Risks Relating to our Stock:

The issuance of the shares in this offering, plus the existing outstanding
convertible notes, will result in dilution.

There are a large number of shares underlying the convertible notes and warrants
in this offering that may be available for future sale and the sale of these
shares may depress the market price of our common stock and may cause
substantial dilution to our existing stockholders.

The number of shares of common stock issuable upon conversion of the convertible
notes and debentures in this offering may increase if the market price of our
stock declines. All of the shares, including all of the shares issuable upon
conversion of the notes and debentures and upon exercise of our warrants, may be
sold without restriction. The sale of these shares may adversely affect the
market price of our common stock. The issuance of shares upon conversion of the
convertible notes and debentures and exercise of outstanding warrants will also
cause immediate and substantial dilution to our existing stockholders and may
make it difficult to obtain additional capital.

The following gives examples of the number of shares that would be issued if the
debentures in this offering were converted at one time at prices representing
70%, 50%, and 25% of the current market price (assuming a market price of
$0.004): As of January 24, 2003, we had 61,351,387 shares of common stock
outstanding.

         o  70% of current stock price:

            DDSI's stock converted at 70% of current stock price would result in
            a debenture conversion rate of $.0028 cents. To convert the $500,000
            of convertible debentures would require 178,571,428 shares of DDSI's
            common stock, or 291% of DDSI's current outstanding shares.

         o  50% of current stock price:

            DDSI's stock converted at 50% of current stock price would result in
            a debenture conversion rate of $.002 cents. To convert the $500,000
            of convertible debentures would require 250,000,000 shares of DDSI's
            common stock, or 407% of DDSI's current outstanding shares.

         o  25% of current stock price

            DDSI's stock converted at 25% of current stock price would result in
            a debenture conversion rate of $.001 cents. To convert the $500,000
            of convertible debentures would require 500,000,000 shares of DDSI's
            common stock, or 815% of DDSI's current outstanding shares.

                                       9
<PAGE>

            At the current market price discounted at 50% at January 24, 2003
            the conversion rate would be $.001, 500,000,000 shares of the
            Company's common stock would be needed to convert the $500,000 in
            convertible notes covered by this registration statement. To meet
            this commitment the Company will need to increase its number of
            authorized shares. The Company currently has 150,000,000 shares
            authorized. We have filed a Definitive proxy requesting an increase
            of authorized shares to 750,000,000 shares of common stock. Once the
            increase in shares is authorized, we will file a registration
            statement to provide for the shortfall in registered shares.

DDSI may not gain shareholder approval for the increase in authorized shares
which could result in the shutdown of operations.

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.

DDSI's overhang affect of the selling shareholders resale of their securities on
the market could result in lower stock prices when converted

Overhang can translate into a potential decrease in DDSI's market price per
share. The common stock underlying unconverted debentures represents overhang.
These debentures are converted into common stock at a discount to the market
price providing the debenture holder the ability to sell his or her stock at or
below market and still make a profit. If the share volume cannot absorb the
discounted shares, DDSI's market price per share will likely decrease. As the
market price decreases, each subsequent conversion will require a larger
quantity of shares.

DDSI is required to reserve 200% of the estimated maximum number of shares of
common stock which would be issuable upon conversion in full of the debentures
and warrants in the current financing. This amount will be reserved upon
shareholder approval to increase the number of authorized shares. The 30,000,000
shares currently in the reserve amount is the number of shares available at this
time to be put into reserve. We can provide no assurance as to how many shares
we will ultimately need to issue upon the conversion of the debentures. If we
are required to issue additional shares, we will be required to file an
additional registration statement for those shares.

Short selling common stock by warrant and debenture holders may drive down the
market price of our stock.

Warrant and debenture holders may sell shares of DDSI's common stock on the
market before exercising the warrant or converting the debenture. The stock is
usually offered at or below market since the warrant and debenture holders
receive stock at a discount to market. Once the sale is completed the holders
exercise or convert a like dollar amount of shares. If the stock sale lowered
the market price, upon exercise or conversion, the holders would receive a
greater number of shares then they would have absent the short sale. This
pattern may result in the spiraling down of our stock's market price.

DDSI's absence of dividends or the ability to pay them places a limitation on
any investors return.

DDSI anticipates that for the foreseeable future, earnings will be retained for
the development of its business. Accordingly, DDSI does not anticipate paying
dividends on the common stock in the foreseeable future. The payment of future
dividends will be at the sole discretion of DDSI's Board of Directors and will
depend on the Company's general business condition.


                                       10
<PAGE>


DDSI's reliance on the exercise of common stock purchase options/warrants to
fund the operating needs of the Company. If these options/warrants were
unacceptable to the service provider, then DDSI may have to curtail operations.

DDSI often does not have the liquid fund to pay for services. In cases when
services are needed and funds are short, DDSI would issue stock purchase options
in lieu of cash. If options are not found acceptable by the service provider,
the needed service would not be completed. Depending on how critical the service
is, DDSI may have to curtail or shut down operations. DDSI's warrants would face
similar issues, in that if the underlying common stock is undesirable to the
service provider, then the warrants will not be exercised, resulting in the
service not being performed which could cause a curtailment or lead to an
eventual shutdown of operations.

DDSI's common stock is subject to the "Penny Stock" rules of the SEC and the
trading market in our securities is limited, which makes transactions in our
stock cumbersome and may reduce the value of an investment in our stock.

Our shares of common stock are "penny stocks" as defined in the Exchange Act,
which are traded in the over-the-counter market on the OTC Bulletin Board. As a
result, an investor may find it more difficult to dispose of or obtain accurate
quotations as to the price of the shares of the common stock being registered
hereby. In addition, the "penny stock" rules adopted by the Commission under the
Exchange Act subject the sale of the shares of the common stock to certain
regulations which impose sales practice requirements on broker-dealers. For
example, broker-dealers selling such securities must, prior to effecting the
transaction, provide their customers with a document that discloses the risks of
investing in such securities. Included in this document are the following:

         o  The bid and offer price quotes for the penny stock, and the number
            of shares to which the quoted prices apply.

         o  The brokerage firm's compensation for the trade.

         o  The compensation received by the brokerages firm's salesperson for
            the trade.

In addition, the brokerage firm must send the investor:

         o  Monthly account statement that gives an estimate of the value of
            each penny stock in your account.

         o  A written statement of your financial situation and investment
            goals.

Legal remedies which may be available to you are as follows:

         o  If penny stocks are sold to you in violation of your rights listed
            above, or other federal or state securities laws, you may be able to
            cancel your purchase and get your money back.

         o  If the stocks are sold in a fraudulent manner, you may be able to
            sue the persons and firms that caused the fraud for damages.

         o  If you have signed an arbitration agreement, however, you may have
            to pursue your claim through arbitration.

If the person purchasing the securities is someone other than an accredited
investor or an established customer of the broker-dealer, the broker-dealer must
also approve the potential customer's account by obtaining information
concerning the customer's financial situation, investment experience and
investment objectives. The broker-dealer must also make a determination whether
the transaction is suitable for the customer and whether the customer has
sufficient knowledge and experience in financial matters to be reasonably
expected to be capable of evaluating the risk of transactions in such
securities. Accordingly, the Commission's rules may limit the number of
potential purchasers of the shares of the common stock.


                                       11
<PAGE>


Resale restrictions on transferring "penny stocks" are sometimes imposed by some
states, which may make transactions in our stock cumbersome and may reduce the
value of an investment in our stock.

Various state securities laws impose restrictions on transferring "penny stocks"
and as a result, investors in the common stock may have their ability to sell
their shares of the common stock impaired. For example, the Utah Securities
Commission prohibits brokers from soliciting buyers for "penny stocks", which
makes selling them more difficult.

Information about forward-looking statements
--------------------------------------------

This Prospectus contains certain forward-looking statements, which involve
substantial risks and uncertainties. These forward-looking statements can
generally be identified because the context of the statement includes words such
as "may," "will," "except," "anticipate," "intend," "estimate," "continue,"
"believe," or other similar words. Similarly, this prospectus also contains
forward-looking statements about our future. Forward-looking statements include
statements about our: Plans, Objectives, Goals, Strategies, Expectations for the
future, Future performance and events, Underlying assumptions for all of the
above and Other statements which are not statements of historical facts.

These forward-looking statements involve risks and uncertainties, which could
cause our actual results to materially differ from our forward-looking
statements. We make these forward-looking statements based on our analysis of
internal and external historical trends, but there can be no assurance that we
will achieve the results set forth in these forward-looking statements. Our
forward-looking statements are expressed in good faith and we believe that there
is a reasonable basis for us to make them.

In addition to other factors discussed in this prospectus, the following are
important factors that could cause our actual results to materially differ from
our forward-looking statements:

-  Our ability to respond to changes in the marketplace
-  Competitive factors
-  The availability of financing on terms and conditions acceptable to us
-  The availability of personnel with the appropriate technical skills

We have no obligation to update or revise these forward-looking statements to
reflect future events.

Dilution

Assuming there was no change in the net tangible book value (net tangible book
value means total assets (exclusive of copyrights, patents, goodwill, research
and development costs and similar intangible items) minus total liabilities) of
DDSI after September 30, 2002 and taking into consideration $410,000 net
proceeds received from the sale of debentures our adjusted net tangible book
value as determined after the receipt of net proceeds from such maximum offering
amount, totaling ($1,399,687) will be ($0.02) per share of common stock. This
represents an immediate increase in our net tangible book value of $0.02 per
share of common stock to the Existing Stockholders, and an immediate dilution of
$0.01 per share to the investors purchasing shares of common stock in this
offering (the "New Stockholders").


                                       12
<PAGE>


The following table illustrates this per share dilution at September 30, 2002:

Offering Price per share of Common Stock...............................   $0.01

Adjusted net tangible book value (deficit) per share of
Common Stock at September 30, 2002

Before this Offering...................................................  ($0.03)

Increase attributable to the Offering..................................   $0.01

Adjusted net tangible book value (deficit)
per share of Common Stock
After this Offering....................................................  ($0.02)

Dilution in adjusted net tangible book
Value per share of Common Stock
to New Stockholders....................................................   $0.01

In addition, further dilution could occur in the future due to any contracts we
may enter into with third party entities for consulting or other services should
any additional common stock shares be issued for those consulting or other
services.

Use of proceeds
---------------

DDSI will not receive any of the proceeds from the sale of the shares of common
stock offered by the selling shareholders under this prospectus. Though warrants
are being issued with the current funding, they are not being registered on this
statement. If these Warrants were exercised ($.01 exercise price), DDSI would
receive aggregate gross proceeds of approximately $15,000.

The proceeds, if any, that DDSI receives from the exercise of warrants will be
used for working capital in support of the growing business.

The foregoing represents DDSI's current best estimate of our use of the proceeds
derived from the exercise of the warrants to purchase the shares of common stock
offered in this prospectus, if any, based upon our present plans, the state of
our business operations and current conditions in the industry in which we
operate. DDSI reserves the right to change the use of the proceeds if
unanticipated developments in our business, business opportunities, or changes
in economic, regulatory or competitive conditions, make shifts in the
allocations of proceeds necessary or desirable.

                                       13
<PAGE>



Price Range of Common Stock

DDSI's common stock has been quoted on the OTC:BB since July 7, 1997 under the
symbol "DDSI". As of November 4, 1999 DDSI's shares traded on the pink sheets;
however, the Company returned to trading on the OTC Bulletin Board effective
February 23, 2001. The following table set forth, the high and low bid prices
for the common stock for the quarters indicated. As of December 31, 2002 there
were approximately 2,500 shareholders of record. The source of the quotes is AOL
Ticker.

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

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

Calendar Year 2002                            Low                       High
---------------------------
First Quarter                                 $0.007                    $0.04
Second Quarter                                $0.002                    $0.021
Third Quarter                                 $0.002                    $0.01
Fourth Quarter                                $0.002                    $0.007

As of January 24, 2003, there were approximately 61,351,387 shares of common
stock issued and outstanding.

                                       14
<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 Prospectus.
<TABLE>
<CAPTION>
                                                         Year ended December 31    Nine Months Ended September 30
                                                            2001          2000          2002         2001
                                                         ------------------------    -------------------------
                                                                (Audited)                (Unaudited)
<S>                                                      <C>           <C>            <C>          <C>
Net sales                                                $ 1,726,707   $3,026,458     $ 988,051    $ 1,152,800
Cost of revenues                                             708,703    1,615,286       376,860        434,510
General and administrative                                 1,705,242    1,843,336       723,373      1,320,601
Sales and marketing                                          454,169      917,381        75,505        362,605
Research and development                                     383,217      536,350       168,091        284,818
Write-off of software development costs                      413,604            -             -              -
Provision for doubtful note receivable -
  former officer                                             177,400            -             -              -
Depreciation                                                 138,452      162,330        21,318        189,055
Interest & amortization of deferred
  debt costs                                                 753,029        1,775       772,809        484,281
Other (income) expense, net                                  (24,599)     (19,948)      (24,302)       (20,288)
                                                         ------------------------   --------------------------
Net Loss                                                 $(2,982,510) $(2,030,052)  $(1,125,603)   $(1,902,781)
                                                         ========================   ==========================

Weighted average Common
  Shares outstanding                                      24,436,773   18,557,547    55,297,784     21,708,767
                                                         ========================   ==========================

Basic loss per share                                         $ (0.12)     $ (0.11)      $ (0.02)       $ (0.09)
                                                         ========================   ==========================

Current Assets                                           $ 1,629,792  $ 1,000,415     $ 647,688     $1,629,792
Total Assets                                             $ 1,691,277  $ 1,783,044     $ 687,855     $1,691,277
Current Liabilities                                      $ 2,421,335  $ 1,732,306    $2,482,927     $2,421,335
Total Liabilities                                        $ 2,441,401  $ 1,760,932    $2,497,542     $2,441,401
Shareholders' equity (deficit)                           $  (750,124) $    22,112   $(1,809,687)    $ (750,124)
</TABLE>


                                       15

<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 41).

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

Results of Operations

Nine Months Ended September 30, 2002 Compared to the Nine Months Ended September
30, 2001

Revenues for the nine months ended September 30, 2002 of $988,051 decreased
$164,750 or 14% from the nine months ended September 30, 2001. DDSI generates
its revenues through software licenses, hardware, post customer support
arrangements and other services. The decrease in DDSI's revenue is attributed to
discontinued sales of the SI-3000 product line at the end of the first quarter
in 2001. SI-3000 products' largest revenue impact was in software sales. These
revenues are included in deferred revenue

                                       16
<PAGE>


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 nine months of 2002, DDSI recognized revenue of $211,500 from software
sales and software maintenance agreements from previous installations of
SI-3000. Maintenance revenues increased $57,795 or 14% from the nine months
ended September 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 September 30, 2002 was $376,860 a decrease of
$57,650 or 13% 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 September 30, 2002 was 38% of total revenues,
versus 38% in the same period a year earlier.

Costs and expenses decreased $938,604 or 34% during the nine months ended
September 30, 2002 versus the nine months ended September 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
$288,528 in connection with the convertible debentures issued in 2001. All other
expenses of the Company experienced decreases for the nine months ended
September 30, 2002 versus the nine months ended September 30, 2001.

General and Administrative expenses for the nine month period ending September
30, 2002 was $723,373 versus $1,320,601 for the same period prior year for a
decrease of $597,228 or 45%. This decrease was mainly attributable to a decrease
in salaries and related payroll expenses of $170,606, a prior year charge in
miscellaneous of $266,780 for services paid in stock, a decrease in accounting
fees of $68,812, a decrease in insurance costs of $22,344, and miscellaneous
items for $55,000.

Sales and Marketing expenses decreased $287,100 for the nine-month period ended
September 30, 2002 from $362,605 (2001) to $75,505 (2002) or a 79% decrease.
This decrease was mainly attributable to a decrease in salaries, commissions,
benefits and payroll taxes in the aggregate of $167,034, travel expenses of
$47,361, a decrease in public relations/advertising costs of $18,380, a
reduction in trade show expenses of $4,303, a decrease in hiring expenses of
$36,300, a cost cut in computer expenses of $5,529 and miscellaneous items for
$8,152.

Research and development for the nine months ended September 30, 2002 was
$168,091 compared to $284,818 for the same period prior year for a decrease of
$116,727, which was due in part to a decrease in research and development
consulting costs of $15,099. Also contributing to the overall decrease was the
decline in salaries, benefits and payroll taxes in the aggregate of $69,433,
travel expenses by $27,630 and miscellaneous items of $4,100.

The net loss for the Company decreased 41% for the nine months ending September
30, 2002 to ($1,125,603) from ($1,902,781) for the nine months ending September
30, 2001. This was principally due to the decrease in expenses during the
period.

Net cash used in operating activities for the nine months ended September 30,
2002 and 2001 was ($469,562) and ($671,731), respectively. The decrease in cash
used from operating activities in the nine months ended September 30, 2002
versus 2001 of $202,169 was principally due to the decrease in net loss for the
nine months.

Net cash provided by (used in) investing activities nine months ended September
30, 2002 and 2001 was $4,918 and $(2,220) respectively, reflecting a change of
$7,138. This change is due to lack of purchases of furniture and equipment for
the nine months ended September 30, 2002 as compared to the same period prior
year.


                                       17
<PAGE>

Net cash provided by financing activities was $131,848 and $628,646 for the nine
months ended September 30, 2002 and 2001, respectively, reflecting a decrease of
496,798. This decrease was principally due to decrease in proceeds from issuance
of convertible debenture.

Three Months Ended September 30, 2002 Compared to the Three Months Ended
September 30, 2001

Revenues for the three months ended September 30, 2002 of $573,892 versus three
months ended September 30, 2001 of $427,543 increased $146,349 or 34%. As
indicated above, the Company generates its revenues through software licenses,
hardware, post customer support arrangements and other services. The increase in
the Company's revenue is attributed to the completion of an SI-3000 project.
Maintenance revenues increased $12,121 or 9% from the three months ended
September 30, 2001 primarily due to an increase in the Company's customers
entering into such arrangements and the revenue sharing agreement with Itx on
maintenance of the SI-3000 product. 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 three months ended
September 30, 2002 versus 2001. Cost of goods increased $130,125 or 79% due to
the completion of the SI-3000 project; whereas there was less SI-3000 activity
during the same period in 2001. Cost of goods consisted of 51% of total revenues
for 2002, whereas cost of goods in 2001 consisted of 39% of the revenues.

Costs and expenses decreased $256,334 or 41% during the three months ended
September 30, 2002 versus the three months ended September 30, 2001. The
decrease is due to reduction of general and administrative related expenses such
as stock for services ($80,250), salaries ($40,844), insurance costs ($9,989). A
decrease of ($37,776) in the sales and marketing departments was a result of
lower costs. The research and development department also contributed to the
overall decrease in reducing consulting costs of ($86,426).

The net loss for the Company decreased 61% for the three months ending September
30, 2002 to ($232,406) from ($599,138) for the three months ending September 30,
2001. This was principally due to the decrease in cost of goods and overall
operating costs during the period.

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. The original contract dated September
16, 1996 has been included as Exhibit 10.2.2. 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


                                       18
<PAGE>

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.

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%.


                                       19
<PAGE>


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

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

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

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

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

Liquidity and Capital Resources

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

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. 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 41).

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


                                       20
<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.

Other Events

On January 10, 2003, DDSI issued three convertible debentures for an aggregate
amount of $250,000, with simple interest accruing at the annual rate of 10%.
These debentures are due January 10, 2004. Interest payable on the Debentures
shall be paid quarterly commencing March 31, 2003. The holders shall have the
right to convert the principal amount and interest due under the debentures into
shares of DDSI's common stock. The conversion price in effect on any Conversion
Date shall be the lesser of (1) $.01 and (2) 50% of the average of the lowest
three inter-day sales prices of the common stock during the twenty Trading Days
immediately preceding the applicable Conversion Date.

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


                                       21
<PAGE>

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

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

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

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

<TABLE>
<CAPTION>
Name                   Shares         Project
<S>                     <C>             <C>
NIR Group             150,000      financial consulting agreement
Anthony Hill           50,000      increase presence in commercial markets
Frank Guthart          25,000      increase recognition of DDSI through Federal Contracts
Stuart Johnson         30,000      installation and travel schedules
Randolph Hall          85,000      stock payment of sales commission
Scott McBride         200,000      increase sales of CPC Lite to criminal justice and commercial market
Jim Gilligan          200,000      increase sales of CPC Lite to criminal justice and commercial market
David Millery          25,000      advice regarding Compu-Capture Enterprise System
Ken Blessing           25,000      advice regarding Compu-Capture Enterprise System
Darlene Lazur          41,949      stock payment for company incurred expenses
Ralph Hallenbeck      105,882      SOLVPRO - FMS Contract with Authentic & Government Sales of FMS
George Rabine         100,000      recognition and contacts of DDSI in the Asian market
Don Brown             100,000      advice concerning program development for federal contacts
Steve Randall         400,000      corporate matters
Advocacy Group        300,000      government and political matters
About Face            750,000      public relations and investor relations activities
Owen Nacarrato        123,000      legal services
NIR Group             360,000      financial consulting agreement
</TABLE>

During October through December 2001, DDSI issued common stock via Subscription
Agreements to various individuals. The Subscription Agreements provided for the
purchase of up to 13,333,333 shares of common stock of DDSI at $0.03 per share,
in $10,000.00 (U.S.) blocks, equaling 333,333 shares per block, for an aggregate
total of $400,000. Through January 2002, the company has raised $240,000 through
these agreements and has issued 7,999,996 shares of common stock.


                                       22
<PAGE>

On December 31, 2001, DDSI issued three convertible debentures for an aggregate
amount of $500,000, with simple interest accruing at the annual rate of 12%.
These debentures are due December 31, 2002. Interest payable on the Debentures
shall be paid quarterly commencing March 30, 2002. The holders shall have the
right to convert the principal amount and interest due under the debentures into
shares of DDSI's common stock. The conversion price in effect on any Conversion
Date shall be the lesser of (1) $.043 and (2) 50% of the average of the lowest
three inter-day sales prices of the common stock during the twenty Trading Days
immediately preceding the applicable Conversion Date. The shares that will be
issued upon conversion of these debentures are being registered for resale
purposes by this registration statement.

                                  Our Business

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

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

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

While the majority of the Company's sales are one time only due to the fact that
they are software based, the Company does offer maintenance and support for
their products. On a historical basis, the company has generated approximately
$550,000 on an annual basis, or $1,650,000 over the past three years from these
services. Service revenue account for an average of 23% of total revenue.

Product and Services

Compu-Capture(R)

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

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

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


                                       23
<PAGE>

Once the data is entered into the Compu-Capture(R) system, the visual image and
textual material can be utilized in a variety of ways. The officer conducting a
search can assign priorities or values to physical characteristics for the
computer's search of the database of existing subjects. Features that are
difficult to disguise or alter, such as facial scars, can be assigned higher
values than other characteristics such as hair color or facial hair. Mug shots
can be retrieved on the computer screen or printed individually, with or without
text information, or as part of a computer generated line-up. The digitized mug
shot and information can be transmitted to remote locations by telephone line or
radio frequency or through computer networks and can be retrieved rapidly from
central and/or remote locations.

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

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

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

Compu-Capture(R) 32

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

Compu-Capture(R) ActiveX32

Compu-Capture(R) ActiveX32 is a fully functioning executable product that
image-enables (the process by which a text-based system has images linked to its
data records by some unique identifier. This process eliminates the need to
re-key data and/or maintain multiple databases) any host based records or jail
management system without costly integration. The advantage to this product is
it eliminates multiple databases and duplicate data entry from one system to
another.

Compu-Sketch(R)

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


                                       24
<PAGE>


Compu-Scene

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

Maintenance and Support

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

New Products

Identify On Demand System:

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

FMS  ("Fingerprint Matching System")

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

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

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

To date two FMS sales have occurred. The first referenced FMS sale was to Bucks
County, Pennsylvania; for approximately $45,000. The second referenced FMS sale
was to Wake County, NC for $23,910, which took place in December 2001.

The FMS performs its matching, storage and capturing functions under the FBI
approved AINSI-NIST and NCIC 2000 regulations and the Compu-Capture(R) and
Compu-Scan 3000 can be integrated with this software. Since it is completely
scalable (from 500 to 500,000 files), DDSI can offer it for large national
databases such as voter registration, drivers license or national security
identification systems or to small jails.

                                       25
<PAGE>

Compu-Scan 3000

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

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

Under federal regulation, law enforcement agencies in the United States may only
utilize fingerprint systems that have passed an extensive FBI certification
process. As a result any inkless fingerprint system developed by DDSI must pass
the FBI certification process before it can be distributed to law enforcement
agencies in the United States. The FBI Appendix F requirements are quite
voluminous and detailed; however they are available at the FBI Web Site
(http://www.fbi.gov/hq/cjisd/iafis/efts70/cover.htm). DDSI however, can supply
an inkless non-contact fingerprint system prior to FBI certification for
commercial business use, for example, for ATM machines, biometric identification
for universities, libraries, access control and any such commercial application,
which does not require a rolled fingerprint match.

On July 25, 2000, DDSI entered into an agreement with DBA Systems, a division of
Titan Systems Corp., for technical assistance in achieving compliance with the
FBI certification process. DDSI has no other relationship with Titan or its
officers and directors. The agreement calls for DDSI to pay DBA Systems for work
done towards achieving certification of the Compu-scan based on phases of
completion. If DBA reaches certification of the Compu-Scan, DDSI would be
obligated to pay approximately $460,000 to $600,000 for DBA's expenses. However,
if Certification is not achieved or if DDSI decides not to pursue the Compu-scan
project, DDSI would be obligated to pay DBA systems $58,000.

After discussions with Titan and other parties, it was recommended that DDSI
replace the system lens and possibly recast the structure of the single finger
roll unit to fit the new lens in order to meet FBI certification requirements.
Upgrading, testing and redesigning the Compu-Scan to meet FBI requirements could
take an additional 12 to 18 months, and will require additional funding of at
least $400,000. DDSI may not be able to raise sufficient funding to complete the
project which will result in either a delay or termination of the project.

The FBI has recently made available an acceptable palm print capture image. With
the possibility of enhancing the Compu-Scan slap unit (as discussed above), and
with the FBI rejecting DDSI's latest submission, DDSI put a temporary hold on
modifying its present Compu-Scan system. Given the ability to secure funding,
DDSI will continue its researching of what it would take to enhance its present
system to be able to scan both a fingerprint and/or a palm print plus meet FBI
Appendix F requirements, but for now this research is on hold.

It is estimated that this additional research will require approximately
$200,000 in funding to complete. If the research information results are
favorable, DDSI will redesign the unit for FBI certification and commercial
production. If the research is unsuccessful, DDSI will revaluate at that time
whether to go forward on this project.


                                       26
<PAGE>


During December 2001, DDSI revised its anticipated certification date for its
Compu-Scan product indefinitely after its submission was not accepted by the
FBI. Additionally, there are no assurances that the FBI will ever certify the
technology. As such, and since DDSI is unable to forecast any revenues from the
product, DDSI has written off the remaining investment in Software Development
of $298,714 in the fourth quarter of 2001.

Marketing

Law Enforcement Applications

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

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

Additionally, DDSI markets its Law Enforcement products through vendors of
compatible software applications.

Customers

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

The Company does not rely on any particular customers or business partners for
the majority of their sales.

Business Alliances

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

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

Greater Penetration of Existing Customers

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

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



                                       27
<PAGE>


Seek Acquisitions and Alliances

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

Sales by Geographic Area

During the fiscal years ended December 31, 2001, 2000, and 1999, 89%, 93%, and
95%, respectively, of DDSI's revenues have been from domestic customers. Foreign
sales for 2001, 2000, and 1999 were $70,856, $205,953 and $150,209, or an
aggregate for these years of approximately $362,266.

Competition

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

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

The Compu-Scan 3000 if certified, will have two main competitors, CrossMatch and
Identix Incorporated. All these competitors market inkless computerized
fingerprint capture systems on a national basis, and each competitor has
received FBI certification. There are no guarantees that the Company will be
able to successfully compete against these existing products.

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

DDSI's Compu-Scene product is packaged with other DDSI systems. DDSI carries it
in order to provide to its customers a more complete package of products.

The FMS solution resembles other fingerprint capture, store, retrieval and
compare software, but is different in both the size of the database it can store
and search, and in the scalability of hardware requirements. DDSI plans to sell
the FMS as a stand-alone matching solution as well as to integrators where the
FMS would be packaged with its Compu-Scan system. Therefore its competition
would again be CrossMatch and Identix Incorporated.

Suppliers

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


Government Regulation or Government Approval

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


                                       28
<PAGE>


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

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

Research and Development

As mentioned above (see page 26), DDSI has put a temporary hold on modifying its
present Compu-Scan system and started research on what it would take to upgrade
the present system to be able to scan both fingerprints and a palm print with
the slap unit, plus meeting FBI image requirements.

The Company spent $536,350 in 2000 and $383,217 in 2001 for a total of $919,567
on pure research and development in the last two years. This amount includes
$388,591 spent on outside sources for assistance with Research & Development
projects. None of these costs have been borne directly by our customers.

The money spent was mainly on the continuing development of the Compu-Scan
product and FMS (Fingerprint Matching System) software.

Patents, Trademarks and Licenses

DDSI has one patent application, number 09/08/800, for a "Device and Method for
Scanning and Mapping a Surface," which was filed in October 1998. The
application is on hold until the product is completed. In addition there is a
possibility that this project may not be completed (see Compu-Scan risk factor).
The primary use of the device is a contactless fingerprinting system.

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

Details of these trademarks are listed below:

Compu-Capture - registered June 1, 1993 as No. 1,774,106 (renewal due 6/1/2003)

Compu-Color - registered August 22, 1989 as No. 1,552,560 (renewed in 1999 with
next renewal due on 8/22/2009)

Compu-Sketch - registered April 28, 1998 as No. 2,153,713 (Combined Declaration
Under 8 & 15 due 4/28/2004)

Compu-QuickSketch - registered April 28, 1998 as No. 2,153,714 (Combined
Declaration Under 8 & 15 due 4/28/2004)

CPC2000 - registered January 14, 1997 as No. 2,029,964 (Combined Declaration
under 8 & 15 due 1/14/2003)


                                       29
<PAGE>


DDSI - registered September 9, 1997 as No. 2,094,821 (Combined Declaration under
8 & 15 due 9/9/2003)

Digital Descriptor Systems, Inc. - registered September 16, 1997 as No.
2,098,473 (Declaration Under Section 8 due 9/16/2003)

Important Events

The Company filed a Form 8-K on July 29, 2002 announcing the resignation of
Garrett U. Cohn from the Board of Directors effective July 23, 2002 for personal
reasons.

On March 18, 2002 and March 11, 2002, DDSI announced an array of upgrades,
additional licenses and the addition of new customers which included the
successful installation of a multi-user solution in Illinois (this sale totaled
$12,000 and was completed in March 2002), five additional workstations and an ID
badging module to a Mississippi agency (this sale totaled $7,183 and was
completed in March 2002), one of New Jersey's largest county's Prosecutor's
office (this sale totaled $1,170 and was completed in September 2001).

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

On February 22, 2002, DDSI announced the sale of a new countywide solution sold
in California. This sale will encompass 4 separate processing stations around
the county that will be integrated with the countywide CAD (Computer Assisted
Design) and RMS (Record Management System) systems. This sale totaled $36,077
and was completed in February 2002.

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

On January 23, 2002 DDSI announced the appointment of Anthony Shupin, Vincent
Moreno, Michael J. Pellegrino and the reappointment Robert Gowell to the
Company's Board of Directors. These appointments were made to fill the vacancies
resulting from the resignations of Charles Saphos, John Boyle, Robert Gowell and
Robert Martin. The Company also announced the resignation of Ms. Myrna
Marks-Cohn, Ph.D, from the Board of Directors for personal reasons.

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

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

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

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


                                       30
<PAGE>


On November 2, 2001, the Company announced the signing of a development contract
for the Compu-Capture Enterprise Suite (CCES), with Pennsylvania-based IT
developer, ImageVision.Net (IMV). This contract was cancelled on January 14,
2002 due to lack of funding.

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

On October 11, 2001 the Company announced the first FMS sale for Bucks County,
PA and the Bucks County Correctional facility in Doylestown, PA. This marks the
first installation in the criminal justice market of DDSI's new Fingerprint
Matching Solution (FMS) and is scheduled for installation by the end of next
quarter.

On September 25, 2001, DDSI announced an agreement with Mr. Rudy Hallenbeck,
President of SOLVPRO Inc., a privately held high tech consulting firm, to
leverage DDSI products and technology into major contracts. The Company believes
SOLVPRO will bring to DDSI essential big project capability and partnering
knowledge which will complement DDSI's proprietary products and solutions.

On September 19, 2001, the Company announced the availability of its Fingerprint
Matching System, the only fully scalable fingerprint identification system in
the world designed to take full advantage of the Windows NT/2000 environment.

On September 18, 2001, DDSI announced that the Company received its first
purchase order for its livescan fingerprint capture device. This initial order
is scheduled to be delivered in early 2002.

Employees

DDSI employs a total of 7 full time employees and 1 part time employee.

Management

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

As indicated earlier, the Board of Directors approved a major management
restructuring on January 25, 2002. On January 25, 2002, Mr. Cohn resigned as CEO
and President to help resolve differences between Mr. Martin and the Company.
Mr. Robert Gowell was appointed as CEO and Co-Chairman of the Board of
Directors. Mr. Michael J. Pellegrino will serve as President and Chief Operating
Officer of the Company in addition to his current position as CFO. Mr. Randolph
Hall was appointed as Vice President of Sales. Mr. Hall resigned from DDSI
effective October 18, 2002.

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

Mr. Gowell's ten-year law enforcement background can provide knowledge and
guidance in how to deal with law enforcement agencies in pursuing sales.

Mr. Pellegrino brings over seven years of operation and financial experience
with DDSI into the Board of Directors.

Mr. Moreno's over thirty years of experience in the software industry can
provide knowledge and guidance in how DDSI should proceed in growing the
business.


                                       31
<PAGE>


Mr. Shupin's background in business development will be extremely helpful as we
continue to enter new markets.

The Company's current officers and directors consist of the following persons:
<TABLE>
<CAPTION>
Name                        Age      Position with Company
----                        ---      ---------------------
<S>                         <C>      <C>
Robert Gowell               34       Co-Chairman, Chief Executive Officer and Director
Michael Pellegrino          53       President, Chief Operating Officer and Chief Financial Officer
Anthony Shupin              48       Director
Vincent Moreno              59       Director
</TABLE>

Robert Gowell was appointed Co-Chairman and Chief Executive Officer on January
25, 2002. He is a retired Deputy U.S. Marshal who has worked out of the New York
and Pennsylvania offices 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.

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


                                       32
<PAGE>

in Geographic Information Systems and Remote Sensing training. He has been an
invited speaker at various international symposiums and has published articles
regarding market analysis and access, education and technical assessment.

Vincent Moreno provides DDSI with over 30 years of experience from a technical
and business environment, with the past 23 years at the executive management
level. He served as Vice President of Technology for ADP for 13 years (1976
through 1989). For six years (from 1989 to 1995), as President and CEO, he ran
Mainstem Corporation, a national provider of software services. He was Vice
President of Operations at DDSI from 1996 to 1998 (2 years). Most recently (1998
to 2002, 4 years), he was President and General Manager of PayPlus Software,
Inc., a provider of payroll software to the Professional Employer Organization
marketplace. Mr. Moreno is adept in setting strategic direction and is
experienced in the reengineering of corporate operating units. As a member of
the board, he brings guidance, direction, and vision to the Companies' strategic
planning.

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

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

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

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

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

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

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

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

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

Executive compensation

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


                                       33

<PAGE>

<TABLE>
<CAPTION>
                                       Summary Compensation Table
                                                                         Long Term Compensation
                   Annual Compensation                      Awards              Payouts
 (a)              (b)     (c)      (d)    (e)          (f)           (g)          (h)            (I)
Name                                     Other                    Securities                      All
and                                      Annual     Restricted    Underlying                     Other
Principal                               Compen-       Stock        Options/       LTIP          Compen-
Position Year            Salary   Bonus  sation($)    Award($)      Sar(#)      Payouts($)     sation($)
<S>               <C>   <C>       <C>    <C>        <C>            <C>          <C>            <C>
Garrett Cohn*     2000  $160,000    0      0            0             0            0              0
President & CEO   2001  $160,000    0      0            0             0            0              0
                  2002  $160,000    0      0            0             0            0              0
Michael J.        2000  $110,000    0      0            0             0            0              0
  Pellegrino      2001  $110,000    0      0            0             0            0              0
President & COO   2002  $115,000    0      0            0             0            0              0
Michael Ott**     2000  $110,000    0      0            0             0            0              0
V.P/Director      2001  $110,000    0      0            0             0            0              0
                  2002  $      0    0      0            0             0            0              0
Randy Hall***     2000  $ 73,500    0      0            0             0            0              0
    V/P           2001  $ 73,500    0      0            0             0            0              0
                  2002  $ 73,500    0      0            0             0            0              0
</TABLE>
*Mr. Cohn resigned as President and Chief Executive Officer effective January
25, 2002. He resigned as Co-Chairman and Director of the Board of Directors
effective July 23, 2002 for personal reasons.
**Mr. Ott resigned from the Company effective March 30, 2001
***Mr. Hall resigned as Vice President of Sales effective October 18, 2002

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

Aggregated Option/Sar Exercises
         None exercised
</TABLE>

                              Employment Agreements

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 remained 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 also furnished Mr. Cohn with an automobile and automobile expenses. In
addition, Mr. Cohn received non accountable expense allowances of $11,000,
$49,713 and $81,450 in 2000, 1999 and 1998 respectively.








                                       34
<PAGE>

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

Michael Ott, Vice President of Sales and Director. Mr. Ott resigned from the
Company effective March 30, 2001.

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

                    Employee and Director Stock Option Plans

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

                            Compensation of Directors

Directors do not receive compensation for their services as members of the Board
of Directors. Directors will receive reimbursement for expenses in attending
directors meetings where applicable. Under the 1996 Director Option Plan, each
director who is not an officer or employee of 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.






                                       35
<PAGE>

                 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 uncollectible notes was recorded in the
amount of $177,400.

The Company's Audit Committee will review any future transactions with
affiliates and make its recommendation to the Board of Directors to ensure such
transactions are at arms length.

The Company's Board will follow the advice of the Audit Committee on
transactions that could have the potential appearance of not being at arms
length transaction.

         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 61,351,387 shares of common stock outstanding at January 24, 2003.
<TABLE>
<CAPTION>
                                                       Beneficial Ownership
Name and Address                                         of Common Stock
Of Beneficial Owner                                       No. of Shares
-------------------                                ----------------------------
<S>                                                 <C>               <C>
Garrett U. Cohn
Buffalo Grove, IL 60089                               1,695,000(1)    2.76%

Michael Pellegrino
Brielle, NJ 08730                                       335,000       0.54%

Randolph Hall
Collegeville, PA 19426                                  398,000       0.64%

Robert P. Martin
Seattle, WA  98119                                    3,099,000(2)    5.05%

Robert Gowell
Allentown, PA  18104                                     96,300       0.02%

Norman Cohn
Radnor, PA 19087                                        840,000       1.36%

AJW Partners, LLC (4)
Roslyn, NY 11576                                    427,793,000(5)    88.0%(14)

New Millennium Capital Partners II, LLC(6)
Roslyn, NY 11576                                    427,793,000(7)    88.0%(14)

AJW Qualified Partners, LLC (8)
Roslyn, NY  11576                                    51,512,500(9)    46.0%(14)

AJW Offshore, Ltd. (10)
Roslyn, NY  11576                                    51,512,500(11)   46.0%(14)

Bristol Investment Fund, Ltd. (12)
Cayman Islands                                      280,000,000(13)   82.0%(14)

Paul Kessler and Diana Kessler (12)                 280,000,000(13)   82.0%(14)

All Officers & Directors
As a Group                                            6,463,300(3)    9.16%
</TABLE>






                                       36
<PAGE>

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

(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. Mr. Corey Ribotsky is the manager of
SMS Group, LLC. As the control person of the shares owned by AJW Partners, LLC,
Mr. Ribotsky may be viewed as the beneficial owner of such shares pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934.

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

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

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






                                       37
<PAGE>

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

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

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

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

(12) 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 may be viewed as the
beneficial owners of such shares pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934. There are no other parties involved with these funds who
would meet the definition of beneficial owner.

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

(14) At this time, the Company has 61,351,387 outstanding and 150,000,000
authorized shares. There is a definitive proxy filed requesting a shareholder
vote of an increase in authorized shares.







                                       38
<PAGE>

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.

                            Description of Securities
General
-------

As of the date of this registration statement, the Company has authorized
150,000,000 shares of common stock at $.001 par value, of which 61,351,387
shares are issued and outstanding at January 24, 2003, plus 1,000,000 authorized
shares of $.01 par value per share Preferred Stock and no preferred shares are
issued and outstanding at January 24, 2003. The Company had authorized
outstanding Class A and Class B Warrants numbering one million four hundred
eighty-three thousand and seven hundred fifty (1,483,750) of each class. The
Class A Warrants had an exercise price of $1.00 per share and expired on August
15, 2002. The Class B Warrants had an exercise price of $1.50 per share and
expired on August 15, 2002. The Company had reserved an equal amount of shares
against these warrants.

The following is a description of the securities of DDSI taken from provisions
of our Company's Articles of Incorporation and By-laws, each as amended. The
following description is a summary and is qualified in its entirety by the above
referenced provisions of the Articles of Incorporation and By-laws as currently
in effect. The following description includes all material provisions of the
applicable sections of the underlying documents in the summary.

Each holder of common stock is entitled to receive ratable dividends, if any, as
may be declared by the Board of Directors out of funds legally available for the
payment of dividends. As of the date of this Offering Circular, the Company has
not paid any dividends on its common stock, and none are contemplated in the
foreseeable future. It is anticipated any earnings that may be generated from
operations of the Company will be used to finance the growth of the Company.

Holders of common stock are entitled to one vote for each share held of record.
There are no cumulative voting rights in the election of directors. Thus the
holders of more than 50% of the outstanding shares of common stock can elect all
of the directors of the Company if they choose to do so. No one shareholder
beneficially owns more than 50% of the Company's common stock.

The holders of common stock will have no preemptive, subscription, conversion or
redemption rights. Upon liquidation, dissolution or winding-up of the Company,
the holders of the common stock are entitled to receive pro rata the assets of
the Company.

Redeemable Class A Warrants and Redeemable Class B Warrants
-----------------------------------------------------------

The outstanding shares of 61,351,387 excludes the authorized and unissued Common
Redeemable Class A and Class B Warrants numbering one million four hundred
eighty-three thousand and seven hundred fifty (1,483,750) of each class. These
warrants were publicly traded with the price generally holding steady at $.02
per warrant.






                                       39
<PAGE>

Redeemable Class A Warrants
---------------------------

Each Class A Warrant entitled the holder to purchase one share of common stock
for a period of four years commencing August 15, 1996, subject to earlier
redemption, and would be exercisable at a price of $1.00 a unit. During July
2000 the Class A Warrants' expiration date was extended to August 15, 2002. No
further action was taken and the Class A warrants expired on August 15, 2002.
The Class A Warrants were subject to redemption by the Company at any time on
not less then 30 days written notice, at a price of $0.10 per Warrant, provided
that the per share closing bid price of the common stock exceeded 175% of the
exercise price for at least 20 consecutive trading days. For these purposes, the
closing bid price of the common stock shall be determined by the closing bid
price as reported by NASDAQ so long as the common stock is quoted on NASDAQ and
if the common stock is listed on a national securities exchange, shall be
determined by the last reported sale price on the primary exchange on which the
common stock is traded. Holders of Class A Warrants will automatically forfeit
all rights hereunder except the right to receive the $0.10 redemption per
Warrant unless the Warrants are exercised before they are redeemed.

Redeemable Class B Warrants
---------------------------

Each Class B Warrant entitled the holder to purchase one share of common stock
for a period of four years commencing August 15, 1996, subject to earlier
redemption, and would be exercisable at a price of $1.50 a unit. During July
2000, the Class B Warrants' expiration date was extended to August 15, 2002. No
further action was taken and the Class B warrants expired on August 15, 2002 The
Class B Warrants were subject to redemption by the Company at any time on not
less then 30 days written notice, at a price of $0.10 per Warrant, provided that
the per share closing bid price of the common stock exceeds 200% of the exercise
price for at least 20 consecutive trading days. For these purposes, the closing
bid price of the common stock shall be determined by the closing bid price as
reported by NASDAQ so long as the common stock is quoted on NASDAQ and if the
common stock is listed on a national securities exchange, shall be determined by
the last reported sale price on the primary exchange on which the common stock
is traded. Holders of Class A Warrants will automatically forfeit all rights
hereunder except the right to receive the $0.10 redemption per Warrant unless
the Warrants are exercised before they are redeemed.

The holders of Warrants ("Warrant holders") were not entitled to vote, receive
dividends, or exercise any of the rights of holders of shares of common stock
for any purpose. In addition, the Company had a right to increase the Warrant
Exercise Price upon not less than 20 days' prior notice to the Warrant holders
if the Company extended the exercise period of the Warrants beyond the four year
period.

Change in Control
-----------------

There are not provisions in the Articles of Incorporation or Bylaws that would
delay, defer or prevent a change in control of Digital Descriptor Systems, Inc.

Penny Stock Disclosure Requirements:
------------------------------------

See discussion in risk factor section, page 11, with the heading "Penny Stock
issues may be difficult for an investor to dispose of."

Shares Eligible for Future Sale
-------------------------------

On the date of this offering, DDSI has 61,351,387 shares of common stock
outstanding. Sales of a substantial number of shares of DDSI's common stock in
the public market following this offering could adversely affect the market
price of the common stock. DDSI is registering with this document 30,000,000
shares of common stock for resale, all of which will be freely tradable without
restriction or further registration under the Securities Act. This includes:






                                       40
<PAGE>

Selling Shareholders
--------------------

The Shares being offered for resale by our Selling Stockholders are issuable in
accordance with ss. 4(2) and Rule 506 under the Securities Act of 1933, as
amended (the "Securities Act"),

Warrants and Options:
---------------------

In December, 2001, DDSI issued Warrants to purchase 1,500,000 common shares at
an exercise price the lesser of $.02 per share or the average of the lowest
three inter-day sales prices during the twenty (20) Trading Days immediately
prior to exercise. The Warrant provides that in no event shall the holder
beneficially own more than 4.999% of our outstanding common stock. These
Warrants were canceled.

Recent Financing
----------------

On January 10, 2003, DDSI entered into a Securities Purchase Agreement (the
"Agreement") that calls for the issuance of $500,000 of 10% Convertible
Debentures that can be converted into shares of common stock.

Each holder of one of the 10% convertible debentures may not convert its
securities into shares of the Company's common stock if after the conversion,
such holders, together with any of its affiliates, would beneficially own over
4.9% of the outstanding shares of the Company's common stock. This percent
ownership restriction may be waived by each holder on not less than 61 days
notice to the Company. Since the number of shares of the Company's common stock
issuable upon conversion of the debentures will change based upon fluctuations
of the market price of the Company's common stock prior to a conversion, the
actual number of shares of the Company's common stock that will be issued under
the debentures owned by AJW Partners LLC, AJW Offshore, Ltd. and AJW Qualified
Partners, LLC. cannot be determined at this time. Because of this fluctuating
characteristic, we agreed to register a number of shares of the Company's common
stock that exceeds the number of the Company's shares of common stock currently
beneficially owned by AJW Partners LLC, AJW Offshore, Ltd. and AJW Qualified
Partners, LLC. DDSI currently has 30,000,000 shares available to be registered,
with the remaining required shares to be registered after the shareholders vote
on the increase in authorized shares. The shareholder meeting is scheduled for
February 25, 2003. The number of shares of the Company's common stock listed in
the "Selling Shareholders" table below, represent the 30,000,000 shares that are
available for issuance to be sold.

                              SELLING SHAREHOLDERS

The table below sets forth information concerning the resale of shares of common
stock by the Selling Stockholders. We will not receive any proceeds from the
resale of the common stock by the Selling Stockholders nor will we receive
proceeds from the exercise of the warrants. Furthermore, we are registering only
30,000,000 shares, which represent the shares available for issuance and sale by
DDSI. More shares will be registered upon the approval by the shareholders
increasing the number of authorized shares.

Assuming all the shares registered below are sold by the Selling Stockholders,
none of the Selling Stockholders will continue to own any shares of our common
stock.

The following table also sets forth the name of each person who is offering
shares of common stock by this prospectus, the number of shares of common stock
beneficially owned by each person, the number of shares of common stock that may
be sold in this offering and the number of shares of common stock each person
will own after the offering, assuming they sell all of the shares offered.






                                       41
<PAGE>

<TABLE>
<CAPTION>
                                    Shares Beneficially                Shares           Shares Beneficially
                                    Owned                              Offered          Owned After Offering
Selling                             Prior to the                       For              If All Offered
Stockholder                         Offering                           Sale (5)         Shares Are Sold
-----------                         -----------------                  --------         -------------------
                                    Number of Shares Percentage (4)                      Number of Shares Percentage
<S>                                 <C>                                <C>               <C>
AJW Partners, LLC (1)(6)             3,006,218                          12,000,000               0
AJW Qualified Partners, LLC (2)        441,000                           9,000,000               0
AJW Offshore, Ltd. (3)                 441,000                           9,000,000               0
</TABLE>
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholder has sole or shared voting power or investment power and
also any shares which the selling stockholder has the right to acquire within 60
days. The actual number of shares of common stock issuable upon the conversion
of the debentures and exercise of the debenture warrants is subject to
adjustment depending on, among other factors, the future market price of the
common stock, and could be materially less or more than the number estimated in
the table.

It was represented to DDSI that none of the selling shareholders have existing
short positions.

No Selling Stockholder has held any position or office, or has had any material
relationship with us, or any of our affiliates, within the past three years with
the exception of Robert Martin and Robert Gowell. Mr. Martin was a Director in
2001 for approximately one month before resigning and Mr. Gowell recently was
placed on the Board of Directors by the present DDSI Board to fill a vacancy.

         None of the selling shareholders are broker-dealers or affiliates of
         broker-dealers.

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

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

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

(4)      Percentages are based on 61,351,387 shares of our common stock
         outstanding (includes the shares in this Offering) as of January 24,
         2003.





                                       42
<PAGE>

(5)      This column represents the total number of shares of common stock that
         each selling security holder intends to sell, based on the current
         market price, regardless of the 4.9% limitation.


                              PLAN OF DISTRIBUTION

The shares being offered by the selling stockholders or their respective
pledgees, donees, transferees or other successors in interest, will be sold from
time to time in one or more transactions, which may involve block transactions:

         o     on the Over-the-Counter Bulletin Board or on such other market on
               which the common stock may from time to time be trading;

         o     in privately-negotiated transactions;

         o     through the writing of options on the shares;

         o     short sales; or

         o     any combination thereof.

The sale price to the public may be:

         o     the market price prevailing at the time of sale;

         o     a price related to such prevailing market price;

         o     at negotiated prices; or

         o     such other price as the selling stockholders determine from time
               to time.

The shares may also be sold pursuant to Rule 144 or Regulation S. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.

The selling stockholders or their respective pledgees, donees, transferees or
other successors in interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed "underwriters" as that
term is defined under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, or the rules and regulations under such acts.


                                       43
<PAGE>

The selling stockholders, alternatively, may sell all or any part of the shares
offered in this prospectus through an underwriter. No selling stockholder has
entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into. If a selling stockholder
enters into such an agreement or agreements, the relevant details will be set
forth in a supplement or revisions to this prospectus.

The selling stockholders and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by, the selling stockholders or any other such person.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited form simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. All of these limitations may affect the marketability of the shares.

We have agreed to indemnify the selling stockholders, or their transferees or
assignees, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the selling
stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such liabilities.



                                Legal Proceedings

Robert Martin - Shareholder Threatened Lawsuit
----------------------------------------------

On January 19, 2002, DDSI's Board of Directors received a letter threatening
legal action from Mr. Robert P. Martin who purchased shares pursuant to a
private placement offering in October 2001. The letter alleged false and
misleading representations made to Mr. Robert Martin by Mr. Garrett Cohn (past
CEO) and Mr. Scott Gallagher (About Face Communications) involving convertible
debenture funding.

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

Upon receipt of the threatened complaint, DDSI's Board of Directors had a
discussion with Mr. Martin where DDSI represented that it was in compliance with
the Company Bylaws, state and federal securities laws and that the current Board
of Directors were unaware of any fraudulent representations.

Therefore, DDSI disputes the allegations made in the complaint for the following
reasons, 1) the Company is unaware of any false and misleading misrepresentation
made by Mr. Garrett Cohn, 2) the threatened complaints received contained
insufficient information to make a determination of any wrong doing and 3) the
convertible debt was legally authorized by DDSI Board of Directors. Concerning
the legality of the convertible debt, there were three members on the Board of
Directors at the time this issue was voted on. Two board members were present
and voted on behalf of accepting the convertible debenture. In addition,
corporate counsel was contacted prior to the vote and after review of the
corporate bylaws indicated that pursuant to DDSI bylaws there was a quorum
present; therefore the business transacted by the Board would be legal and
binding. Thus, DDSI would vigorously defend itself against the allegations if
such actions were pursued.

To date there has been no legal action filed.

                                       44

<PAGE>

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

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

               A. The termination of the following license agreements: ImageGear
                  6.0, 95 and 98.

               B. A preliminary injunction enjoining DDSI from using the above
                  licenses in the sales of their products.

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

                                     Experts

The financial statements of Digital Descriptor Systems, Inc. at December 31,
2001 and 2000 as appears on the prospectus.

The financial statements of Digital Descriptor Systems, Inc. at December 31,
2001, appearing in this Prospectus and Registration Statement have been audited
by WithumSmith+Brown, independent auditors, as set forth in their report
thereon (which contains an explanatory paragraph describing conditions that
raise a substantial doubt about the Company's ability to continue as a going
concern as described in Note 2 to the financial statements) appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.

The financial statements of Digital Descriptor Systems, Inc. at and for the year
ended December 31, 2000, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon (which contains an explanatory paragraph describing
conditions that raise a substantial doubt about the Company's ability to
continue as a going concern as described in Note 2 to the financial statements)
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

                                  Legal Matters

Legal matters concerning the issuance of shares of common stock offered in this
registration statement will be passed upon by Owen Naccarato, Attorney at Law.

                           Other Available Information

We are subject to the reporting requirements of the Securities and Exchange
Commission (the "Commission"). We file periodic reports, proxy statements and
other information with the Commission under the Securities Exchange Act of 1934.
We will provide without charge to each person who receives a copy of this
prospectus, upon written or oral request, a copy of any information that is
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless the exhibits are themselves
specifically incorporated by reference). Requests should be directed to: Michael
Pellegrino.

We have filed a registration statement on Form SB-2 under the Securities Act of
1933 Act with the Commission in connection with the securities offered by this
Prospectus. This Prospectus does not contain all of the information that is the
registration statement, you may inspect without charge, and copy our filings, at
the public reference room maintained by the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549. Copies of this material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W. Washington,
D.C. 20549, at prescribe rates.

                                       45

<PAGE>

Information about the public reference room is available from the commission by
calling 1-800-SEC-0330.

The commission maintains a web site on the Internet that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the commission. The address of the site is www.sec.gov.
Visitors to the site may access such information by searching the EDGAR archives
on this web site.

We have not authorized anyone to provide you with any information that is
different.

The selling security holders are offering to sell, and seeking offers to buy,
shares of common stock only in jurisdictions where such offers and sales are
permitted.

The information contained in this Prospectus is accurate as of the date of this
prospectus. We will keep this prospectus up to date and accurate.

                              Financial Statements

Our Financial Statements begin on page F-1

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 Withum
                  Smith & 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.

               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 Withum, Smith & Brown, PC
                  regarding any of the matters or events set forth in Item 304
                  (a)(2)(i) and (ii) of Regulations S-K.

                                       46








<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                   September 30
                                                                                2001                2000                2002
                                                                                ----                ----                ----
Current Assets:                                                                         (Audited)                    (Unaudited)
<S>                                                                         <C>                 <C>                 <C>
     Cash                                                                   $    435,662        $    202,877        $    102,865
     Restricted cash                                                               5,969              10,452               1,051
     Investment                                                                        -               1,000                   -
     Accounts receivable, less allowance
        for uncollectible accounts of $87,930 and $114,000
        in 2001 and 2000, and $74,410l(unaudited) in 2002, respectively          107,948             526,292               7,820
     Inventory                                                                     5,665              22,596             160,676
     Prepaid expenses                                                            267,534               8,698             153,696
     Advance - employees                                                               -                   -             200,176
     Debt discount and deferred financing costs                                  807,014             228,500             160,562
                                                                            ------------        ------------        ------------
            Total current assets                                               1,629,792           1,000,415             647,688

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              15,772
Deposits and Other Assets                                                         24,395              31,454              24,395
                                                                            ------------        ------------        ------------
         TOTAL ASSETS                                                       $  1,691,277        $  1,783,044        $    687,855
                                                                            ============        ============        ============
         LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

Current Liabilities:
     Accounts payable                                                       $    418,764        $    481,163        $    369,054
     Accrued expenses                                                            175,742             189,209             212,692
     Accrued payroll and related withholdings                                          -                   -             289,247
     Deferred income                                                             854,618             854,787             497,943
     Current portion of equipment loan                                             7,211               7,147               7,260
     Convertible debentures                                                      965,000             200,000           1,106,731
                                                                            ------------        ------------        ------------
         Total Current Liabilities                                             2,421,335           1,732,306           2,482,927

Equipment Loan, Net of Current Portion                                            20,066              28,626              14,615
                                                                            ------------        ------------        ------------
         Total Liabilities                                                     2,441,401           1,760,932           2,497,542

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
         and 58,156,490 at September 30, 2002                                     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)        (18,650,591)
                                                                            ------------        ------------        ------------
         Total Shareholders' Equity (Deficiency)                                (750,124)             22,112          (1,809,687)
                                                                            ------------        ------------        ------------

         TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)            $  1,691,277        $  1,783,044        $    687,855
                                                                            ============        ============        ============
</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      Nine Months Ended September 30
                                                                      2001          2000             2002           2001
                                                                      ----          ----             ----           ----
                                                                          (Audited)                      (Unaudited)
<S>                                                               <C>           <C>               <C>            <C>
 Revenues:
      Software                                                    $   938,654   $ 2,060,499       $   439,390    $   591,066
      Hardware                                                         94,350       229,525            63,984         68,325
      Maintenance                                                     520,837       583,349           454,469        396,674
      Consulting                                                       68,863        91,249                           55,468
      Other                                                           104,003        61,836            30,208         41,268
                                                                  -----------   -----------       -----------    -----------
         Total Revenues                                             1,726,707     3,026,458           988,051      1,152,801

 Costs and Expenses:
      Cost of revenues                                                708,703     1,615,286           376,860        434,510
      General and administrative                                    1,705,242     1,843,336           723,373      1,320,601
      Sales and marketing                                             454,169       917,381            75,505        362,605
      Research and development                                        383,217       536,350           168,091        284,818
      Write-off of software development costs                         413,604             -                 -              -
      Provision for doubtful note receivable - former officer         177,400             -                 -              -
      Depreciation                                                    138,452       162,330            21,318        189,055
      Interest and amortization of deferred debt costs                753,029         1,775           772,809        484,281
      Other (income) expense, net                                     (24,599)      (19,948)          (24,302)       (20,288)
                                                                  -----------   -----------       -----------    -----------
          Total Costs and Expenses                                  4,709,217     5,056,510         2,113,654      3,055,582
                                                                  -----------   -----------       -----------    -----------

 Net Loss                                                         $(2,982,510)  $(2,030,052)      $(1,125,603)   $(1,902,781)
                                                                  ===========   ===========       ===========    ===========
 Net Loss Per Common Share (Basic and Diluted)                    $     (0.12)      $ (0.11)      $     (0.02)   $     (0.09)
                                                                  ===========   ===========       ===========    ===========
 Weighted Average Number of Common Shares Outstanding:
      Basic and Diluted                                            24,436,773    18,557,547        55,297,784     21,708,767
                                                                  ===========   ===========       ===========    ===========
</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 NINE MONTHS ENDED SEPTEMBER 30, 2002

                                                                Common Stock
                                                           ----------------------     Additional
                                                             Shares        Amount  Paid-in Capital
                                                           ----------     -------  ---------------
<S>                                                        <C>            <C>        <C>
Balance at December 31, 1999                               14,380,127     $ 4,380    $12,957,544
              Issuance of common shares in connection
                  with a Reg. A Offering, net of offering
                  costs                                     4,426,485       4,426      1,159,640
              Issuance of common stock for services         1,205,000       1,205        259,895
              Debt discount relating to the beneficial
                  conversion feature on convertible
                  debentures and issuance of warrants               -           -        167,500
              Amortization of unearned compensation                 -           -              -
              Net loss                                              -           -              -
                                                           ----------     -------    -----------
Balance at December 31, 2000                               20,011,612      20,011     14,544,579
              Issuance of common shares in connection
                  with a Reg. A Offering, net of offering
                  costs                                     7,999,996       8,000        221,000
              Issuance of common stock for services         4,328,831       4,329        409,993
              Conversions of convertible debentures to
                    common stock                           15,705,171      15,705        494,747
              Debt discount relating to the beneficial
                  conversion feature on convertible
                  debentures and issuance of warrants               -           -      1,056,500
              Net loss                                              -           -              -
                                                           ----------     -------    -----------
Balance at December 31, 2001                               48,045,610      48,045     16,726,819
              Issuance of common stock for services           360,000         360         14,040
              Conversions of convertible debentures to
                    common stock (unaudited)                4,659,968       4,660         27,711
              Net loss                                              -           -              -
                                                           ----------     -------    -----------
Balance at March 31, 2002 (Unaudited)                      53,065,578      53,065     16,768,570
              Conversions of convertible debentures to
                    common stock (unaudited)                5,090,912       5,091         14,178
              Net loss                                              -           -              -
                                                           ----------     -------    -----------
Balance at June 30, 2002 (Unaudited)                       58,156,490      58,156     16,782,748
              Conversions of convertible debentures to
                    common stock (unaudited)                        -           -              -
              Net loss                                              -           -              -
                                                           ----------     -------    -----------
Balance at September 30, 2002 (unaudited                    58,156,490     58.156     16,782,748
</TABLE>









<PAGE>

                                [RESTUBBED TABLE]

<TABLE>
<CAPTION>

                                                                                           Shareholders'
                                                             Unearned      Accumulated         Equity
                                                           Compensation     Deficit         (Deficiency)
                                                           ------------   ------------      -----------
<S>                                                         <C>           <C>               <C>
Balance at December 31, 1999                                 $(14,000)    $(12,512,426)     $   445,498
              Issuance of common shares in connection
                  with a Reg. A Offering, net of offering
                  costs                                             -                -        1,164,066
              Issuance of common stock for services                 -                -          261,100
              Debt discount relating to the beneficial
                  conversion feature on convertible
                  debentures and issuance of warrants               -                -          167,500
              Amortization of unearned compensation            14,000                -           14,000
              Net loss                                              -       (2,030,052)      (2,030,052)
                                                             --------     ------------      -----------
Balance at December 31, 2000                                        -      (14,542,478)          22,112
              Issuance of common shares in connection
                  with a Reg. A Offering, net of offering
                  costs                                             -                -          229,000
              Issuance of common stock for services                 -                -          414,322
              Conversions of convertible debentures to
                    common stock                                    -                -          510,452
              Debt discount relating to the beneficial
                  conversion feature on convertible
                  debentures and issuance of warrants               -                -        1,056,500
              Net loss                                              -       (2,982,510)      (2,982,510)
                                                             --------     ------------      -----------
Balance at December 31, 2001                                        -      (17,524,988)        (750,124)
              Issuance of common stock for services                 -                            14,400
              Conversions of convertible debentures to
                    common stock (unaudited)                                                     32,371
              Net loss                                              -         (464,831)        (464,831)
                                                             --------     ------------      -----------
Balance at March 31, 2002 (Unaudited)                               -      (17,989,819)      (1,168,184)
              Conversions of convertible debentures to
                    common stock (unaudited)                                                     19,269
              Net loss                                              -         (431,689)        (431,689)
                                                             --------     ------------      -----------
Balance at June 30, 2002 (Unaudited)                                -      (18,421,508)      (1,580,604)
              Conversions of convertible debentures to
                    common stock (unaudited)                        -                -                -
              Net loss                                              -                -                -
                                                             --------     ------------      -----------
Balance at September 30, 2002 (unaudited                            -      (18,650,591)      (1,809,688)
</TABLE>




                                       F-5

<PAGE>

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

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

Cash Flows from Financing Activities:
   Net proceeds from issuance of common stock                                      229,000    1,164,066
   Proceeds from the issuance of convertible debentures                          1,056,500      139,000
   Payment of convertible debentures                                               (15,000)           -
   Deferred financing costs                                                              -            -
   Repayment of equipment loan                                                      (8,496)        (593)
                                                                               -----------  -----------
              Net Cash Provided by Financing Activities                          1,262,004    1,302,473
                                                                               -----------  -----------

Net Increase (Decrease) in Cash                                                    232,785       25,654

Cash at Beginning of Year/Period                                                   202,877      177,223
                                                                               -----------  -----------
Cash at End of Year/Period                                                     $   435,662  $   202,877
                                                                               ===========  ===========
</TABLE>















<PAGE>

                                [RESTUBBED TABLE]


<TABLE>
<CAPTION>
                                                                              Nine Months Ended September 30
                                                                                    2002          2001
                                                                                    ----          ----
                                                                                         (unaudited)
                                                                                         -----------
<S>                                                                              <C>          <C>
Cash Flows from Operating Activities:
   Net loss                                                                      $(1,125,603) $(1,902,781)
   Adjustments to reconcile net loss to net cash used in operating activities:
       Depreciation                                                                   21,318      189,055
       Write-off of software development costs                                             -            -
       Provision for doubtful note receivable - former officer                             -            -
       Compensation expense in connection with issuance of Common Stock                    -      266,781
       Common stock issued for services received                                      14,400            -
       Amortization of deferred financing costs and debt discounts related
          to the issuance of warrants and the beneficial conversion
          feature of convertible debentures                                          684,201      440,444
       Accrued interest converted into Common Stock                                        -        5,077
       Amortization of unearned compensation                                               -            -
       Changes in assets and liabilities:
          Accounts receivable                                                        100,128      (29,439)
          Inventory                                                                   (8,333)     (25,391)
          Prepaid expenses, deposits and other assets                                106,858     (319,797)
          Advances - employees                                                      (200,716)           -
          Accounts payable                                                           (49,710)     175,877
          Accrued expenses                                                            55,323      (19,906)
          Accrued payroll and related withholdings                                   289,247            -
          Deferred income                                                           (356,675)     548,349
                                                                                 -----------  -----------
              Net Cash Used in Operating Activities                                 (469,562)    (671,731)

Cash Flows from Investing Activities:
   Proceeds from sale of  investment                                                       -            -
   Purchase of furniture and equipment                                                     -       (3,766)
   (Increase) Decrease in note receivable - former officer                                 -       (8,906)
   (Increase) Decrease in restricted cash                                              4,918       10,452
                                                                                 -----------  -----------
              Net Cash Provided by (Used in) Investing Activities                      4,918       (2,220)

Cash Flows from Financing Activities:
   Net proceeds from issuance of common stock                                              -            -
   Proceeds from the issuance of convertible debentures                              175,000      755,000
   Payment of convertible debentures                                                       -            -
   Deferred financing costs                                                          (37,750)    (121,000)
   Repayment of equipment loan                                                        (5,402)      (5,354)
                                                                                 -----------  -----------
              Net Cash Provided by Financing Activities                              131,848      628,646
                                                                                 -----------  -----------

Net Increase (Decrease) in Cash                                                     (332,796)     (45,305)

Cash at Beginning of Year/Period                                                     435,661      202,877
                                                                                 -----------  -----------
Cash at End of Year/Period                                                       $   102,865  $   157,572
                                                                                 ===========  ===========
</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   Nine Months Ended September 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    $ 3,694       $  5,036
                                                                          ==========     ========    =======       ========
         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 debentures and accrued
            interest into common stock                                    $  510,452     $      -    $51,640       $155,077
                                                                          ==========     ========    =======       ========
</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 nine months ended September 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, $1,125,603 and $1,902,781 for the nine months
            ended September 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
            nine months ended September 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 nine month periods ended September 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
                                           ------------------------------         September 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                539,904
                                           -----------       -----------               --------
                                           $    37,090       $   172,046               $ 15,772
                                           ===========       ===========               ========
</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 $21,318 and $189,055 for the nine months ended
            September 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.

            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
            relevant date upon which a conversion is effected.

            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.

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

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

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

            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.


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

            The Company also issued common stock purchase warrants for the right
            to purchase 200,000 shares of common stock of the Company at an
            exercise price per share equal to the lesser of $.36 or the average
            of the lowest three closing sales prices during the twenty Trading
            Days immediately prior to the date of exercise. The estimated fair
            value of the warrants of $64,000 and the intrinsic value of the
            beneficial conversion feature of $105,000 have been allocated to
            paid-in capital. This resulting debt discount plus $31,000 of
            financing charges is being amortized on a straight-line basis over
            the term of the debentures. The debentures are collateralized by
            substantially all of the Company's assets. During November 2001
            through December 2001, $160,000 of the debentures were converted
            into 6,309,526 shares of common stock. On the conversion date, the
            unamortized portion of the debt discount and deferred financing
            costs related to the converted debt, in the amount of $40,479, was
            charged to interest expense.

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

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.


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


            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.

            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.



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

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


            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 September 30, 2002                    918,500       26,312           681,000        1,625,812       $.10-$3.81
                                            ==========================================================================
Exercisable options at
December 31, 2001
    and September 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.

            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                         September 30
                                     -----------------------------------      --------------------------
                                          2001                 2000              2002            2001
                                          ----                 ----              ----            ----
                                                                              (Unaudited)    (Unaudited)
               <S>                         <C>                   <C>                <C>            <C>
            Net loss:
              As reported             $(2,982,510)           $(2,030,052)      $1,125,603      $1,902,781
              Pro forma               $(2,993,559)           $(2,103,563)      $1,136,652      $1,865,975
            Net loss per share:
              As reported                   $(.12)                 $(.11)           $(.02)          $(.09)
              Pro forma                     $(.12)                 $(.12)           $(.02)          $(.09)
</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.

                                      F-16
<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


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

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

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

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

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

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

<TABLE>
<CAPTION>
               <S>                                                                    <C>
            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
                                                                                  ==========
</TABLE>

                                      F-17
<PAGE>
                        DIGITAL DESCRIPTOR SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

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.

Note 12 - Subsequent Events (unaudited)
---------------------------------------

            On January 10, 2003, DDSI issued three convertible debentures for an
            aggregate amount of $250,000, with simple interest accruing at the
            annual rate of 12%. These debentures are due January 10, 2004.
            Interest payable on the Debentures shall be paid quarterly
            commencing January 10, 2003. The holders shall have the right to
            convert the principal amount and interest due under the debentures
            into shares of DDSI's common stock. The conversion price in effect
            on any Conversion Date shall be the lesser of (1) $.01 and (2) 50%
            of the average of the lowest three inter-day sales prices of the
            Common Stock during the twenty Trading Days immediately preceding
            the applicable Conversion Date.

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

            On 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.

            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. 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 effected.

                                      F-18







<PAGE>




Part II.   Information Not Required In Prospectus
-------------------------------------------------

                    Indemnification of Directors and Officer

The Company's Certificate of Incorporation provides that a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director.

The Company's Certificate of Incorporation provides that the Company shall
indemnify to the fullest extent permitted by law any person made or threatened
to be made a party to any action, suit or proceeding, whether criminal, civil,
administrative or investigative (a "legal action"), whether such legal action be
by or in the right of the corporation or otherwise, by reason of the fact that
such person is or was a director or officer of the Company, or serves or served
at the request of the Company as a director or officer, of another corporation,
partnership, joint venture, trust or any other enterprise. In addition, the
Company's Certificate of Incorporation provides for indemnification of any
person made or threatened to be made a party to any legal action by reason of
the fact that such person is or was a director or officer of the Company and is
or was serving as a fiduciary of, or otherwise rendering to, any employee
benefit plan of or relating to the Company. The indemnification obligation of
the Company in the Certificate of Incorporation is permitted under Section 145
of the General Corporation Law of the State of Delaware.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore unenforceable.

                   Other Expenses of Issuance and Distribution

Related to the securities being registered. The expenses shall be paid by the
Registrant.

SEC Registration Fee                $    27.60
Printing and Engraving Expenses     $ 5,000.00
Legal Fees and Expenses             $20,000.00
Accounting Fees and Expenses        $15,000.00
Transfer Agent Fees                 $ 5,000.00
Blue Sky Fees                       $ 1,000.00
Miscellaneous                       $ 5,000.00
                                    ----------
Total                               $51,027.60




                                      II-1
<PAGE>


Recent Sales of Unregistered Securities

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

From September through December 2000, the Company issued 1,205,000 restricted
shares of its common stock for services performed. These shares were valued at
market price. These shares were allocated as follows:

     o   9/29/00: 500,000 shares were issued to AJW Partners LLC,
     o   9/29/00: 500,000 shares were issued to New Millennium Capital Partners
         II, LLC,
     o   10/27/00: 100,000 shares were issued to About Face Communications, LLC,
         and
     o   12/28/00: 105,000 shares were issued to NIR Group LLC.

These four investors were sophisticated as defined by Section 4(2) in that they
each had sufficient knowledge and experience in financial and business matters
to be capable of evaluating the merits and risks of the proposed investment.
Furthermore, all four investors had access to information on the Company
necessary to make an informed investment decision. Thus, these shares were
issued pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933, as amended, as a "transaction not involving a public
offering."

During December 2000, the Company issued $200,000 of convertible debentures to
two investors. A $100,000 note was issued to AJW Partners, LLC and a $100,000
note to New Millennium Capital Partners II, LLC. The debentures mature on
December 28, 2001 and accrue interest at 12% per annum. The holder has the right
to convert the debentures to common shares at any time through maturity at 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.
These debentures were issued under the exemption to registration provided by
Regulation D Rule 506.

During March 2001, the Company issued $200,000 of convertible debentures to two
investors. A $100,000 note was issued to AJW Partners, LLC and a $100,000 note
to New Millennium Capital Partners II, LLC. These debentures mature on March 4,
2002; however, the parties have entered into an agreement to extend the maturity
date for another year, and accrue interest at 12% per annum. The holder has the
right to convert the debentures to common shares at any time through maturity at
the conversion price as described in the agreement. The debenture holders
received warrants to purchase 200,000 common shares at an exercise price the
lesser of: $0.36 per share or the average of the lowest three trading prices
during the 20 days preceding the exercise date. The debentures are
collateralized by substantially all of the Company's assets. These debentures
were issued under the exemption to registration provided by Regulation D Rule
506.

During January through March 2001, the Company granted 1,100,000 shares of
restricted common stock for services performed to three consultants. Such shares
were valued at market price. These shares were allocated as follows:

     o   1/23/01: 1,000,000 shares were issued to iCapital Corporation,

     o   2/1/01: 75,000 shares were issued to About Face Communications, and

     o   3/1/01: 25,000 shares were issued to David Likes.

All three investors were sophisticated as defined by Section 4(2) of the
Securities Act of 1933, as amended, in that they each had sufficient knowledge
and experience in financial and business matters to be capable of evaluating the
merits and risks of the proposed investment. Furthermore, all three investors


                                      II-2

<PAGE>

had access to information on the Company necessary to make an informed
investment decision. Thus, these shares were issued pursuant to the exemption
provided for under Section 4(2) of the Securities Act of 1933, as amended, as a
"transaction not involving a public offering."

During March 29, 2001 through April 10, 2001, the Company granted 93,000 shares
and 75,000 shares respectively of restricted common stock for services performed
to About Face Communication. These shares were issued at market price. About
Face Corporation is sophisticated as defined by Section 4(2) in that it had
sufficient knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of the proposed investment.
Furthermore, they had access to information on the Company necessary to make an
informed investment decision. Thus, these shares were issued pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering."

During April 2001, the Company issued two convertible notes for $100,000 and
$15,000 respectively. Interest on these Notes shall be payable quarterly
commencing June 30, 2001. The holder has the right to convert the debentures and
interest accrued into shares of the Company's common stock at a conversion price
per share that shall be an amount equal to 50% of the mean average price of the
common stock for the ten (10) trading days prior to notice of conversion per
share. The underlying shares were registered on August 29, 2001, file number
33359888.

These shares were allocated as follows:

     o   A $100,000 note to Ralph Hallenbeck
     o   A $15,000 note to Anthony Vollaro

These investors were sophisticated as defined by Section 4(2) of the Securities
Act of 1933, as amended, in that they each had sufficient knowledge and
experience in financial and business matters to be capable of evaluating the
merits and risks of the proposed investment. Furthermore, both investors had
access to information on the Company necessary to make an informed investment
decision. Securities were issued pursuant to the exemption provided for under
Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not
involving a public offering."

During May 2001, the Company issued one convertible note for $40,000 to Robert
Gowell, with interest at 10% per annum. Interest on these Notes shall be payable
quarterly commencing June 30, 2001. The holder has the right to convert the
debentures and interest accrued into shares of the Company's common stock at a
conversion price per share that shall be an amount equal to 50% of the mean
average price of the common stock for the ten (10) trading days prior to notice
of conversion per share. In October 2001, $15,000 of the convertible note was
paid. The parties have entered into an agreement to extend the maturity date of
the remaining balance of $25,000 for another year. Securities were issued
pursuant to the exemption provided for under Section 4(2) of the Securities Act
of 1933, as amended, as a "transaction not involving a public offering."

During September 2001, the Company issued $400,000 of convertible debentures to
two investors. $200,000 was issued to AJW Partners, LLC and $200,000 to New
Millennium Capital Partners II, LLC. These debentures mature on September 30,
2002 and accrue interest at 12% per annum. The holder has the right to convert
the debentures to common shares at any time through maturity at the conversion
price as described in the note agreement. The debenture holders received
warrants to purchase 800,000 common shares at an exercise price the lesser of:
$0.036 per share or the average of the lowest three trading prices during the 20
days preceding the exercise date. Such warrants expire September 30, 2004. The
debentures are collateralized by substantially all of the Company's assets.
These debentures were issued under the exemption to registration provided by
Regulation D Rule 506.

During September 2001, $35,000 of the convertible debentures issued in December
2000 were converted into 1,000,000 shares of common stock. The underlying shares
were registered August 29, 2001 file number 33359888.

                                      II-3
<PAGE>


During September 2001, Ralph Hallenbeck the holder of the $100,000 note issued
in April 2001 converted his note into 1,428,571 shares of free trading common
stock and 1,252,069 shares of restricted stock. The conversion price was valued
at $.03895 per share in accordance with the agreement terms. See above.

Ralph Hallenbeck is sophisticated as defined by Section 4(2) of the Securities
Act of 1933, as amended, in that he had sufficient knowledge and experience in
financial and business matters to be capable of evaluating the merits and risks
of the proposed investment. Furthermore, he had access to information on the
Company necessary to make an informed investment decision. These securities were
issued pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933, as amended, as a "transaction not involving a public
offering."

During September 2001, Anthony Vollaro, the holder of the $15,000 note issued in
April 2001 also converted his shares into 214,286 shares of free trading common
stock and 246,471 shares of restricted stock. The conversion price for this
transaction was valued at $.034 per share in accordance with the agreement
terms.

Anthony Vollaro is sophisticated as defined by Section 4(2) of the Securities
Act of 1933, as amended, in that he had sufficient knowledge and experience in
financial and business matters to be capable of evaluating the merits and risks
of the proposed investment. Furthermore, he had access to information on the
Company necessary to make an informed investment decision. These securities were
issued pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933, as amended, as a "transaction not involving a public
offering."

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

During October 2001 through January 2002, the remaining $165,000 of the
convertible debentures issued in December 2000, as well as $160,000 of the
convertible debentures issued in March 2001 were converted into 10,551,280
shares of common stock. Additionally, accrued interest relating to these notes
was converted into an additional 2,512,494 shares of common stock. The
underlying shares were registered August 29, 2001 file number 33359888.

During October 2001 through January 2002, the Company granted 3,070,831 shares
of common stock to certain parties for consulting services performed and to be
performed. Such shares were valued at market price.

These shares were allocated as follows:

     o   10/17/01: 150,000 shares were issued to NIR Group
     o   12/10/01: 300,000 shares were issued to Advocacy Group
     o   12/10/01: 85,000 shares were issued to Randy Hall
     o   12/10/01: 105,882 shares were issued to Rudy Hallenbeck
     o   12/10/01: 200 ,000 shares were issued to Jim Gilligan
     o   12/10/01: 200,000 shares were issued to Scott McBride
     o   12/10/01: 25,000 shares were issued to David Millery
     o   12/10/01: 25,000 shares were issued to Ken Blessing
     o   12/10/01: 25,000 shares were issued to Frank Guthart
     o   12/10/01: 100,000 shares were issued to George Rabine
     o   12/10/01: 50,000 shares were issued to Anthony Hill
     o   12/10/01: 400,000 shares were issued to Steve Randall
     o   12/10/01: 100,000 shares were issued to Don Brown
     o   12/10/01: 750,000 shares were issued to Scott Gallagher
     o   12/10/01: 41,949 shares were issued to Darlene Lazur


                                      II-4

<PAGE>

     o   12/10/01: 30,000 shares were issued to Stuart Johnson
     o   12/10/01: 123,000 shares were issued to Owen Naccarato
     o   1/02/02 : 360,000 shares were issued to NIR Group

All of the above investors were sophisticated as defined by Section 4(2) in that
they each had sufficient knowledge and experience in financial and business
matters to be capable of evaluating the merits and risks of the proposed
investment. Furthermore, all investors had access to information on the Company
necessary to make an informed investment decision. Thus, these shares were
issued pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933, as amended, as a "transaction not involving a public
offering."

During October through December 2001, DDSI issued common stock via Subscription
Agreements to various individuals. Through January 2002, the Company has raised
$240,000 through these agreements and has issued 8,000,000 shares at $0.05 per
share of common stock. These shares were issued under the exemption to
registration provided by Regulation D Rule 506.

On December 31, 2001, DDSI issued three convertible debentures for an aggregate
amount of $500,000, with simple interest accruing at the annual rate of 12%. A
$125,000 convertible debenture was issued to New Millennium Capital Partners II,
LLC, a $125,000 convertible debenture to AJW Partners, LLC and a $250,000
convertible debenture to Bristol Investment Fund, Ltd. These debentures are due
December 31, 2002. Interest payable on the Debentures shall be paid quarterly
commencing March 30, 2002. The holders shall have the right to convert the
principal amount and interest due under the debentures into shares of DDSI's
common stock. The conversion price in effect on any Conversion Date shall be the
lesser of (1) $.043 and (2) 50% of the average of the lowest three inter-day
sales prices of the common stock during the twenty Trading Days immediately
preceding the applicable Conversion Date. The shares that will be issued upon
conversion of these debentures are being registered for resale purposes by this
registration statement. DDSI also issued common stock purchase warrants for the
right to purchase 1,500,000 shares of common stock of DDSI at an exercise price
per share equal to the lesser of (i) $.02 and (ii) the average of the lowest
three inter-day sales prices during the twenty (20) Trading Days immediately
prior to exercise. These shares were issued under the exemption to registration
provided by Regulation D Rule 506. These warrants have been canceled.

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

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. 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 effected.

On September 30, 2002, DDSI issued two convertible debentures for an aggregate
amount of $100,000, with simple interest accruing at the annual rate of 12%.
These debentures are due September 30, 2003. Interest payable on the Debentures
shall be paid quarterly commencing December 31, 2002. The holders shall have the
right to convert the principal amount and interest due under the debentures into
shares of DDSI's common stock. The conversion price in effect on any Conversion
Date shall be the lesser of (1) $.005 and (2) 50% of the average of the lowest
three inter-day sales prices of the common stock during the twenty Trading Days
immediately preceding the applicable Conversion Date.

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

On January 10, 2003, DDSI issued three convertible debentures for an aggregate
amount of $250,000, with simple interest accruing at the annual rate of 12%.
These debentures are due January 10, 2004. Interest payable on the Debentures
shall be paid quarterly commencing January 10, 2003. The holders shall have the
right to convert the principal amount and interest due under the debentures into
shares of DDSI's common stock. The conversion price in effect on any Conversion
Date shall be the lesser of (1) $.01 and (2) 50% of the average of the lowest
three inter-day sales prices of the common stock during the twenty Trading Days
immediately preceding the applicable Conversion Date.


                                      II-5
<PAGE>


         Exhibits
<TABLE>
<CAPTION>
Exhibit
Number            Description
-------           -----------
<S>               <C>
2.1  (1)          Certificate of Incorporation of the Company.  Incorporated June 13, 1994.
2.2  (1)          Restated Articles of Incorporation of the Issuer, May 21, 1997.
2.3  (1)          Amended Articles of Incorporation.
2.3.1(5)          Amended Articles of Incorporation dated October 9, 2001
2.4  (1)          By-Laws of the Company.
4.1. (3)          Form of Warrant Agreement with Form of Warrant Election to Purchase
4.1.1(4)          Executed Warrant Agreement with AJW Partners, LLC
4.1.2(4)          Executed Warrant Agreement with New Millennium Capital Partners II, LLC
4.2.1.1.1(5)      Executed Stock Purchase Warrant Agreement with AJW Partners LLC
4.2.1(5)          Executed Stock Purchase Warrant Agreement with New Millennium Capital Partners II LLC
4.2.2(5)          Executed Stock Purchase Warrant Agreement with Bristol Investment Fund, Ltd.
4.3(8)            Stock Purchase Warrant Agreement with AJW Qualified Partners, LLC
4.3.1(8)          Stock Purchase Warrant Agreement with AJW Offshore, Ltd.
4.4               Stock Purchase Warrant Agreement with AJW Qualified Partners, LLC (January 10, 2003)
4.4.1             Stock Purchase Warrant Agreement with AJW Partners, LLC (January 10, 2003)
4.4.2             Stock Purchase Warrant Agreement with AJW Offshore, Ltd. (January 10, 2003)
5.1 (1)           Form of Voting Trust Agreement between Norman Cohn and Garrett U. Cohn.
5.1.1             Opinion re: Legality
5.1.3(5)          Legal Opinion to Investors
6.18 (1)          Security Agreement and Note dated as of August 14, 1996 in the principal
                  Amount of $125,000 made by Garrett U. Cohn in favor of the Company.
6.2  (1)          Resolution to Security Agreement between Norman Cohn and Garrett U. Cohn.
6.3  (1)          Employee 1997 Stock Option Plan adopted by the Board of Directors February 24, 1998
                  and subject to stockholder ratification.
6.5  (1)          Warrant Agreement dated May 1, 1995 between the Company and Jay Teitlebaum.
6.6  (1)          Warrant Agreement dated June 16, 1995 between the Company and Norman Cohn.
                  Incorporated by reference: Form 10-KSB, period December 31, 1996,
                  File No. 0-26604, Exhibit 4.4.
6.7  (1)          Lease for the Premises dated May 16, 2000.
6.8  (1)          Cohn Employment and Non-competition Agreement of Garrett U. Cohn dated July 7, 1994.
                  Incorporated by reference:  Form 10-KSB, period December 31, 1996,
                  File No. 0-26604, Exhibit 10.1.
6.9  (1)          Employment Agreement for Michael Pellegrino.
6.9.1(1)          Employment Agreement for Michael Ott.
6.9.2(1)          Employment Agreement for Randolph Hall.
6.9.3(6)          Employment Agreement for Michael Pellegrino (2002)
6.9.4(6)          Employment Agreement for Randolph Hall (2002)
10.1 (2)          Software License and Royalty Agreement between Company and Harris Corporation
10.2 (2)          Agreement for Development of Finger/Slap Scanner Product between the Company and
                  ISC/U.S., Inc.
10.2.1(5)         Software License and Royalty Agreement between Company and AuthenTec
10.2.2(7)         Strategic Joint Venture Agreement between Company and i/tx.
10.3(3)           Form of Secured Convertible Debenture Purchase Agreement (December 28, 2000)
10.3.1(4)         Executed Secured Convertible Debenture Purchase Agreement
10.3.2(5)         Executed Securities Purchase Agreement
10.3.3            Securities Purchase Agreement (January 10, 2003)
10.4(3)           Form of First Amendment to Secured Convertible Debenture Purchase Agreement
                  (March 5, 2001)
10.4.1(6)         Executed Amendment No. 1 to Securities Purchase Agreement dated December 31, 2001
10.5(3)           Form of 12% Convertible Debenture
10.5.1(4)         Executed 12% Convertible Debenture with AJW Partners, LLC
10.5.2(4)         Executed 12% Convertible Debenture with New Millennium Capital Partners II, LLC
10.5.3.1(5)       Executed Secured Convertible Debenture with AJW Partners LLC
10.5.4(5)         Executed Secured Convertible Debenture with New Millennium Capital Partners II LLC
10.5.4.1(5)       Executed Secured Convertible Debenture with Bristol Investment Fund, Ltd.
105.5(8)          Secured Convertible Debenture with AJW Qualified Partners, LLC
10.5.5.1(8)       Secured Convertible Debenture with AJW Offshore, Ltd.
</TABLE>

                                      II-6

<PAGE>
<TABLE>
<CAPTION>

<C>                                     <C>
10.5.6            Secured Convertible Debenture with AJW Qualified Partners, LLC (January 10, 2003)
10.5.6.1          Secured Convertible Debenture with AJW Partners, LLC (January 10, 2003)
10.5.6.2          Secured Convertible Debenture with AJW Offshore, Ltd. (January 10, 2003)
10.6(3)           Form of Registration Rights Agreement
10.6.1(4)         Executed Registration Rights Agreement
10.6.2(5)         Executed Registration Rights Agreement
10.6.3            Registration Rights Agreement (January 10, 2003)
10.7 (3)          Form of Security Agreement
10.7.1(5)         Executed Security Agreement
10.7.2            Security Agreement (January 10, 2003)
10.7.3            Intellectual Property Security Agreement (January 10, 2003)
10.8 (3)          Form of 10% Convertible Debenture
10.8.1(4)         10% Convertible Note to Robert Gowell
10.9(4)           Escrow Agreement
10.9.1(4)         Transfer Agent Instructions
10.9.2.1(5)       Executed Escrow Agreement
10.9.3(5)         Transfer Agent Instructions
10.9.4            Transfer Agent Instructions (January 10, 2003)
10.10(4)          Contract with DBA Systems, a Division of Titan Industries
10.11(4)          Executed Second Amendment to Secured Convertible Debenture Purchase Agreement
10.12(6)          Form of Private Placement Subscription Agreement
10.13(8)          Private Placement Agreement Letter with AJW Qualified Partners, LLC and AJW Offshore, Ltd.
16.0(1)           Letter re change in certifying accountant.
23.1              Consent of Counsel, Owen Naccarato (included in Exhibit 5.1.1)
23.2              Consent of independent auditors Ernst & Young
23.3              Consent of independent auditors Withum Smith &Brown
</TABLE>

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

                                      II-7

<PAGE>


UNDERTAKINGS

The undersigned registrant hereby undertakes that it will:

Undertaking  (a)

(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

     (i) Include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;

     (ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth in the
registration statement; and arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) ('230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of the
Registration Fee" table in the effective registration statement.

     (iii) Include any additional or changed material information on the plan of
distribution.

(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.

(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.

Undertaking (e)

Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

                                      II-8

<PAGE>

Signatures

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Fairless
Hills, PA 19030.

Registrant:       Digital Descriptor Systems, Inc.
<TABLE>
<CAPTION>
Signature                                   Title                                       Date
---------                                   -----                                       ------------
<S>                                         <C>                                         <C>
By:      /s/Michael J. Pellegrino           President, Chief Operating Officer          February 12, 2003
         ---------------------------        Director
         Michael J. Pellegrino
</TABLE>


In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated:

<TABLE>
<CAPTION>
Signature                                   Title                                       Date
---------                                   -----                                       ------------
<S>      <C>                                <C>                                         <C>
By:      /s/Robert Gowell                   Chief Executive Officer                     February 12, 2003
         ----------------                   Director - Co-chairman
         Robert Gowell


By:      /s/ Michael J. Pellegrino          President, Chief Operating Officer          February 12, 2003
         -------------------------          Director
         Michael J. Pellegrino


By:      /s/ Anthony Shupin                 Director                                    February 12, 2003
         ------------------
         Anthony Shupin


By:      /s/ Vincent Moreno                 Director                                    February 12, 2003
         ------------------
         Vincent Moreno
</TABLE>

                                      II-9


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4
<SEQUENCE>3
<FILENAME>ex4-4.txt
<DESCRIPTION>EXHIBIT 4.4
<TEXT>
<PAGE>


                                                                     EXHIBIT 4.4




         THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
         HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
         EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE
         AGREEMENT DATED AS OF JANUARY 10, 2003, NEITHER THIS WARRANT NOR ANY OF
         SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
         EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR,
         AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR
         OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS
         NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR
         REGULATION S UNDER SUCH ACT.





                                                               Right to
                                                               Purchase 225,000
                                                               Shares of Common
                                                               Stock, $.001 par
                                                               value per share

                             STOCK PURCHASE WARRANT

         THIS CERTIFIES THAT, for value received, AJW Qualified Partners, LLC or
its registered assigns, is entitled to purchase from Digital Descriptor Systems,
Inc., a Delaware corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, Two Hundred Twenty-Five
Thousand (225,000) fully paid and nonassessable shares of the Company's Common
Stock, $.001 par value per share (the "Common Stock"), at an exercise price per
share equal to $0.01 (the "Exercise Price"). The term "Warrant Shares," as used
herein, refers to the shares of Common Stock purchasable hereunder. The Warrant
Shares and the Exercise Price are subject to adjustment as provided in Paragraph
4 hereof. The term "Warrants" means this Warrant and the other warrants issued
pursuant to that certain Securities Purchase Agreement, dated January 10, 2003,
by and among the Company and the Buyers listed on the execution page thereof
(the "Securities Purchase Agreement"), including any additional warrants
issuable pursuant to Section 4(l) thereof.

         This Warrant is subject to the following terms, provisions, and
conditions:

         1. Manner of Exercise; Issuance of Certificates; Payment for Shares.










<PAGE>

            (a) Exercise of Warrant. Subject to the provisions hereof, this
Warrant may be exercised by the holder hereof, in whole or in part, by the
surrender of this Warrant, together with a completed exercise agreement in the
form attached hereto (the "Exercise Agreement"), to the Company during normal
business hours on any business day at the Company's principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof), and upon (i) payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company of the
Exercise Price for the Warrant Shares specified in the Exercise Agreement or
(ii) if the resale of the Warrant Shares by the holder is not then registered
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"), delivery to the Company of a written
notice of an election to effect a "Cashless Exercise" (as defined in Section
11(c) below) for the Warrant Shares specified in the Exercise Agreement. The
Warrant Shares so purchased shall be deemed to be issued to the holder hereof or
such holder's designee, as the record owner of such shares, as of the close of
business on the date on which this Warrant shall have been surrendered, the
completed Exercise Agreement shall have been delivered, and payment shall have
been made for such shares as set forth above. Certificates for the Warrant
Shares so purchased, representing the aggregate number of shares specified in
the Exercise Agreement, shall be delivered to the holder hereof within a
reasonable time, not exceeding three (3) business days, after this Warrant shall
have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of such holder or such other name as shall be designated by such
holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the holder a new Warrant representing
the number of shares with respect to which this Warrant shall not then have been
exercised. In addition to all other available remedies at law or in equity, if
the Company fails to deliver certificates for the Warrant Shares within three
(3) business days after this Warrant is exercised, then the Company shall pay to
the holder in cash a penalty (the "Penalty") equal to 2% of the number of
Warrant Shares that the holder is entitled to multiplied by the Market Price (as
hereinafter defined) for each day that the Company fails to deliver certificates
for the Warrant Shares. For example, if the holder is entitled to 100,000
Warrant Shares and the Market Price is $2.00, then the Company shall pay to the
holder $4,000 for each day that the Company fails to deliver certificates for
the Warrant Shares. The Penalty shall be paid to the holder by the fifth day of
the month following the month in which it has accrued.

                  Notwithstanding anything in this Warrant to the contrary, in
no event shall the holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants (or portions
thereof) upon exercise of which the sum of (i) the number of shares of Common
Stock beneficially owned by the holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including the Debentures (as defined in the
Securities Purchase Agreement)) subject to a limitation on conversion or
exercise analogous to the limitation contained herein) and (ii) the number of
shares of Common Stock issuable upon exercise of the Warrants (or portions
thereof) with respect to which the determination described herein is being made,
would result in beneficial ownership by the holder and its affiliates of more
than 4.9% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(i) of the preceding sentence. The holder of this Warrant may waive the
limitations set forth herein by sixty-one (61) days written notice to the
Company. Notwithstanding anything to the contrary contained herein, the
limitation on exercise of this Warrant set forth herein may not be amended
without (i) the written consent of the holder hereof and the Company and (ii)
the approval of a majority of shareholders of the Company.







                                       -2-
<PAGE>

            (b) Mandatory Exercise Right. The Company shall be entitled, on any
day (the "Calculation Date") on which the Closing Price (as defined below) of
the Common Stock for thirty (30) consecutive Trading Days (as defined below) is
equal to or greater than $3.00, to deliver a written notice (the "Mandatory
Exercise Notice") to the Holder requiring such Holder to exercise this Warrant
in accordance with Section 1 hereof at any time during a thirty (30) Trading Day
period following the date of such Mandatory Exercise Notice (the "Exercise
Date"); provided, however, that the Company shall have such right if and only if
(x) for a period of thirty (30) consecutive Trading Days prior to the
Calculation Date and (y) at all times during such thirty (30) consecutive
Trading Day period and continuing through the Exercise Date, the Warrant Shares
issuable upon exercise of the Warrants are (i) authorized and reserved for
issuance, (ii) registered for resale under the Securities Act of 1933, as
amended, by the holder of this Warrant (or may otherwise be resold publicly
without restriction) and sales of the Warrant Shares may be made continuously
thereunder during such time periods, and (iii) listed for trading on each
principal exchange or market on which the shares of Common Stock of the Company
were then traded; and provided, further, that the Holder shall be required to
exercise only that portion of this Warrant that is equal to ten percent (10%) of
the average trading volume of the Common Stock over the thirty (30) consecutive
Trading Days immediately preceding the Calculation Date. The Company may not
deliver more than one Mandatory Exercise Notice during any thirty (30) Trading
Day period. Nothing in this Section 2(b) shall prohibit exercise of the Warrant
otherwise permitted pursuant to the terms of this Warrant during the pendency of
any Mandatory Exercise Notice. "Trading Day" shall mean any day on which the
Common Stock is traded for any period on the Over-the-Counter Bulletin Board
(the "OTCBB"), or on the principal securities exchange or other securities
market on which the Common Stock is then being traded. "Closing Price," as of
any date, (i) means the last reported sale price for the shares of Common Stock
on the OTCBB as reported by Bloomberg Financial Markets or other similar
reliable reporting service as designated by the Holder ("Bloomberg"), or (ii) if
the OTCBB is not the principal trading market for the shares of Common Stock,
the last reported sale price on the principal trading market for the Common
Stock as reported by Bloomberg, or (iii) if the last reported sale price cannot
be determined as of such date on any of the foregoing bases, the Closing Price
shall be the fair market value as reasonably determined in good faith by the
Board of Directors of the Company or, at the option of a majority-in-interest of
the holders of the outstanding Warrants, by an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the corporation.

         2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement and before 6:00 p.m.,
New York, New York time on the fifth (5th) anniversary of the date of issuance
(the "Exercise Period").

         3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:









                                       -3-
<PAGE>

            (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.

            (b) Reservation of Shares. Subject to the Stockholder Approval (as
defined in Section 4(m) of the Securities Purchase Agreement), the Exercise
Period, the Company shall at all times have authorized, and reserved for the
purpose of issuance upon exercise of this Warrant, a sufficient number of shares
of Common Stock to provide for the exercise of this Warrant.

            (c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.

            (d) Certain Actions Prohibited. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.

            (e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.

         4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4.

         In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
to the nearest cent.






                                       -4-
<PAGE>

            (a) Adjustment of Exercise Price and Number of Shares upon Issuance
of Common Stock. Except as otherwise provided in Paragraphs 4(c) and 4(e)
hereof, if and whenever on or after the date of issuance of this Warrant, the
Company issues or sells, or in accordance with Paragraph 4(b) hereof is deemed
to have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than the
Market Price on the date of issuance (a "Dilutive Issuance"), then immediately
upon the Dilutive Issuance, the Exercise Price will be reduced to a price
determined by multiplying the Exercise Price in effect immediately prior to the
Dilutive Issuance by a fraction, (i) the numerator of which is an amount equal
to the sum of (x) the number of shares of Common Stock actually outstanding
immediately prior to the Dilutive Issuance, plus (y) the quotient of the
aggregate consideration, calculated as set forth in Paragraph 4(b) hereof,
received by the Company upon such Dilutive Issuance divided by the Market Price
in effect immediately prior to the Dilutive Issuance, and (ii) the denominator
of which is the total number of shares of Common Stock Deemed Outstanding (as
defined below) immediately after the Dilutive Issuance.

            (b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:

                (i) Issuance of Rights or Options. If the Company in any manner
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("Convertible Securities")
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options") and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Market Price on the date of issuance or grant of such Options, then the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Options will, as of the date of the issuance or grant of such Options, be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon the exercise of such Options" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of all such Options,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of all such Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Options, the minimum
aggregate amount of additional consideration payable upon the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.

                (ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Market Price on the date of issuance,
then the maximum total number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities will, as of the date
of the issuance of such Convertible Securities, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For the
purposes of the preceding sentence, the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by dividing (i) the
total amount, if any, received or receivable by the Company as consideration for
the issuance or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof at the time such Convertible Securities
first become convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment to the Exercise Price will be made
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.






                                       -5-
<PAGE>

                (iii) Change in Option Price or Conversion Rate. If there is a
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.

                (iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon conversion or exchange of any Convertible
Securities is not, in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted to the Exercise
Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.

                (v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In case
any Common Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.









                                       -6-
<PAGE>

                (vi) Exceptions to Adjustment of Exercise Price. No adjustment
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities granted, issued and outstanding on the date of
issuance of this Warrant; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan, stock option plan or restricted stock plan of the Company now existing or
to be implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the independent members of the Board of
Directors of the Company or a majority of the members of a committee of
independent directors established for such purpose; or (iii) upon the exercise
of the Warrants.

            (c) Subdivision or Combination of Common Stock. If the Company at
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.

            (d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.

            (e) Consolidation, Merger or Sale. In case of any consolidation of
the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the holder of this Warrant
will have the right to acquire and receive upon exercise of this Warrant in lieu
of the shares of Common Stock immediately theretofore acquirable upon the
exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.






                                       -7-
<PAGE>

            (f) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (including cash) to holders of Common Stock
as a partial liquidating dividend, by way of return of capital or otherwise,
then, after the date of record for determining shareholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such distribution.

            (g) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the Chief Financial Officer of the Company.

            (h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.

            (i) No Fractional Shares. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.

            (j) Other Notices. In case at any time:

                (i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;

                (ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;

                (iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to, another
corporation or entity; or

                (iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;

then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.








                                       -8-
<PAGE>

            (k) Certain Events. If any event occurs of the type contemplated by
the adjustment provisions of this Paragraph 4 but not expressly provided for by
such provisions, the Company will give notice of such event as provided in
Paragraph 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the holder
shall be neither enhanced nor diminished by such event.

            (l) Certain Definitions.

                (i) "Common Stock Deemed Outstanding" shall mean the number of
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum
total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.

                (ii) "Market Price," as of any date, (i) means the average of
the last reported sale prices for the shares of Common Stock on the OTCBB for
the five (5) Trading Days immediately preceding such date as reported by
Bloomberg, or (ii) if the OTCBB is not the principal trading market for the
shares of Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same period as reported
by Bloomberg, or (iii) if market value cannot be calculated as of such date on
any of the foregoing bases, the Market Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of Directors of the Company
or, at the option of a majority-in-interest of the holders of the outstanding
Warrants by (b) an independent investment bank of nationally recognized standing
in the valuation of businesses similar to the business of the corporation. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.

                (iii) "Common Stock," for purposes of this Paragraph 4, includes
the Common Stock, par value $.001 per share, and any additional class of stock
of the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, par value $.001 per share, in respect of
which this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.






                                       -9-
<PAGE>

         5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.

         6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

         7. Transfer, Exchange, and Replacement of Warrant.

            (a) Restriction on Transfer. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration rights described in
Paragraph 8 are assignable only in accordance with the provisions of that
certain Registration Rights Agreement dated as of January 10, 2003 by and among
the Company and the other signatories thereto (the "Registration Rights
Agreement").

            (b) Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.

            (c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.






                                      -10-
<PAGE>

            (d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.

            (e) Register. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee and each prior
owner of this Warrant.

            (f) Exercise or Transfer Without Registration. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the "Securities Act") and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.

         8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.

         9. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 446 Lincoln Highway,
Fairless Hills, Pennsylvania 19030, Attention: President and Chief Operating
Officer, or at such other address as shall have been furnished to the holder of
this Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by facsimile, but shall in such case be subsequently
confirmed by a writing personally delivered or sent by certified or registered
mail or by recognized overnight mail courier as provided above. All notices,
requests, and other communications shall be deemed to have been given either at
the time of the receipt thereof by the person entitled to receive such notice at
the address of such person for purposes of this Paragraph 9, or, if mailed by
registered or certified mail or with a recognized overnight mail courier upon
deposit with the United States Post Office or such overnight mail courier, if
postage is prepaid and the mailing is properly addressed, as the case may be.






                                      -11-
<PAGE>

         10. Governing Law. THIS WARRANT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS WARRANT, THE AGREEMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT
SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN
EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS WARRANT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.

         11. Miscellaneous.

             (a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.

             (b) Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.

             (c) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock. For example, if the holder is exercising
100,000 Warrants with a per Warrant exercise price of $0.75 per share through a
cashless exercise when the Common Stock's current Market Price per share is
$2.00 per share, then upon such Cashless Exercise the holder will receive 62,500
shares of Common Stock.





                                      -12-
<PAGE>

             (d) Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Warrant will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Warrant, that the
holder shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Warrant and
to enforce specifically the terms and provisions thereof, without the necessity
of showing economic loss and without any bond or other security being required.





                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

















                                      -13-
<PAGE>

                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.

                                           DIGITAL DESCRIPTOR SYSTEMS, INC.


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


Dated as of January 10, 2003


























<PAGE>

                           FORM OF EXERCISE AGREEMENT



                                                        Dated: ________ __, 200_



To:  Digital Descriptor Systems, Inc.





         The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:



                                    Name:_______________________________________


                                    Signature:
                                    Address:____________________________________
                                            ____________________________________


                                    Note:  The above signature should
                                           correspond exactly with the name
                                           on the face of the within Warrant,
                                           if applicable.


and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.






<PAGE>


                               FORM OF ASSIGNMENT





         FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:


Name of Assignee                    Address                        No of Shares
----------------                    -------                        ------------






, and hereby irrevocably constitutes and appoints ___________________________ as
agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.



Dated:   ________ __, 200_



In the presence of:                ______________________________

                              Name:______________________________


                              Signature:_________________________________
                              Title of Signing Officer or Agent (if any):
                                       ______________________________
                              Address: ______________________________
                                       ______________________________


                                      Note:  The above signature should
                                             correspond exactly with the name on
                                             the face of the within Warrant, if
                                             applicable.






</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4
<SEQUENCE>4
<FILENAME>ex4-41.txt
<DESCRIPTION>EXHIBIT 4.4.1
<TEXT>

<PAGE>


                                                              EXHIBIT 4.4.1




         THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
         HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
         EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE
         AGREEMENT DATED AS OF JANUARY 10, 2003, NEITHER THIS WARRANT NOR ANY OF
         SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
         EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR,
         AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR
         OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS
         NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR
         REGULATION S UNDER SUCH ACT.

                                                              Right to
                                                              Purchase 225,000
                                                              Shares of Common
                                                              Stock, $.001 par
                                                              value per share

                             STOCK PURCHASE WARRANT

         THIS CERTIFIES THAT, for value received, AJW Partners, LLC or its
registered assigns, is entitled to purchase from Digital Descriptor Systems,
Inc., a Delaware corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, Two Hundred Twenty-Five
Thousand (225,000) fully paid and nonassessable shares of the Company's Common
Stock, $.001 par value per share (the "Common Stock"), at an exercise price per
share equal to $0.01 (the "Exercise Price"). The term "Warrant Shares," as used
herein, refers to the shares of Common Stock purchasable hereunder. The Warrant
Shares and the Exercise Price are subject to adjustment as provided in Paragraph
4 hereof. The term "Warrants" means this Warrant and the other warrants issued
pursuant to that certain Securities Purchase Agreement, dated January 10, 2003,
by and among the Company and the Buyers listed on the execution page thereof
(the "Securities Purchase Agreement"), including any additional warrants
issuable pursuant to Section 4(l) thereof.

         This Warrant is subject to the following terms, provisions, and
conditions:

         1.  Manner of Exercise; Issuance of Certificates; Payment for Shares.

         (a) Exercise of Warrant. Subject to the provisions hereof, this Warrant
may be exercised by the holder hereof, in whole or in part, by the surrender of
this Warrant, together with a completed exercise agreement in the form attached
hereto (the "Exercise Agreement"), to the Company during normal business hours
on any business day at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the holder
hereof), and upon (i) payment to the Company in cash, by certified or official



<PAGE>

bank check or by wire transfer for the account of the Company of the Exercise
Price for the Warrant Shares specified in the Exercise Agreement or (ii) if the
resale of the Warrant Shares by the holder is not then registered pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), delivery to the Company of a written notice of an
election to effect a "Cashless Exercise" (as defined in Section 11(c) below) for
the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or such holder's
designee, as the record owner of such shares, as of the close of business on the
date on which this Warrant shall have been surrendered, the completed Exercise
Agreement shall have been delivered, and payment shall have been made for such
shares as set forth above. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to the holder hereof within a reasonable time, not exceeding
three (3) business days, after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested by
the holder hereof and shall be registered in the name of such holder or such
other name as shall be designated by such holder. If this Warrant shall have
been exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of such certificates, deliver to
the holder a new Warrant representing the number of shares with respect to which
this Warrant shall not then have been exercised. In addition to all other
available remedies at law or in equity, if the Company fails to deliver
certificates for the Warrant Shares within three (3) business days after this
Warrant is exercised, then the Company shall pay to the holder in cash a penalty
(the "Penalty") equal to 2% of the number of Warrant Shares that the holder is
entitled to multiplied by the Market Price (as hereinafter defined) for each day
that the Company fails to deliver certificates for the Warrant Shares. For
example, if the holder is entitled to 100,000 Warrant Shares and the Market
Price is $2.00, then the Company shall pay to the holder $4,000 for each day
that the Company fails to deliver certificates for the Warrant Shares. The
Penalty shall be paid to the holder by the fifth day of the month following the
month in which it has accrued.

         Notwithstanding anything in this Warrant to the contrary, in no event
shall the holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including the Debentures (as defined in the
Securities Purchase Agreement)) subject to a limitation on conversion or
exercise analogous to the limitation contained herein) and (ii) the number of
shares of Common Stock issuable upon exercise of the Warrants (or portions
thereof) with respect to which the determination described herein is being made,
would result in beneficial ownership by the holder and its affiliates of more
than 4.9% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(i) of the preceding sentence. The holder of this Warrant may waive the
limitations set forth herein by sixty-one (61) days written notice to the
Company. Notwithstanding anything to the contrary contained herein, the
limitation on exercise of this Warrant set forth herein may not be amended
without (i) the written consent of the holder hereof and the Company and (ii)
the approval of a majority of shareholders of the Company.

                                      -2-

<PAGE>

         (b) Mandatory Exercise Right. The Company shall be entitled, on any day
(the "Calculation Date") on which the Closing Price (as defined below) of the
Common Stock for thirty (30) consecutive Trading Days (as defined below) is
equal to or greater than $3.00, to deliver a written notice (the "Mandatory
Exercise Notice") to the Holder requiring such Holder to exercise this Warrant
in accordance with Section 1 hereof at any time during a thirty (30) Trading Day
period following the date of such Mandatory Exercise Notice (the "Exercise
Date"); provided, however, that the Company shall have such right if and only if
(x) for a period of thirty (30) consecutive Trading Days prior to the
Calculation Date and (y) at all times during such thirty (30) consecutive
Trading Day period and continuing through the Exercise Date, the Warrant Shares
issuable upon exercise of the Warrants are (i) authorized and reserved for
issuance, (ii) registered for resale under the Securities Act of 1933, as
amended, by the holder of this Warrant (or may otherwise be resold publicly
without restriction) and sales of the Warrant Shares may be made continuously
thereunder during such time periods, and (iii) listed for trading on each
principal exchange or market on which the shares of Common Stock of the Company
were then traded; and provided, further, that the Holder shall be required to
exercise only that portion of this Warrant that is equal to ten percent (10%) of
the average trading volume of the Common Stock over the thirty (30) consecutive
Trading Days immediately preceding the Calculation Date. The Company may not
deliver more than one Mandatory Exercise Notice during any thirty (30) Trading
Day period. Nothing in this Section 2(b) shall prohibit exercise of the Warrant
otherwise permitted pursuant to the terms of this Warrant during the pendency of
any Mandatory Exercise Notice. "Trading Day" shall mean any day on which the
Common Stock is traded for any period on the Over-the-Counter Bulletin Board
(the "OTCBB"), or on the principal securities exchange or other securities
market on which the Common Stock is then being traded. "Closing Price," as of
any date, (i) means the last reported sale price for the shares of Common Stock
on the OTCBB as reported by Bloomberg Financial Markets or other similar
reliable reporting service as designated by the Holder ("Bloomberg"), or (ii) if
the OTCBB is not the principal trading market for the shares of Common Stock,
the last reported sale price on the principal trading market for the Common
Stock as reported by Bloomberg, or (iii) if the last reported sale price cannot
be determined as of such date on any of the foregoing bases, the Closing Price
shall be the fair market value as reasonably determined in good faith by the
Board of Directors of the Company or, at the option of a majority-in-interest of
the holders of the outstanding Warrants, by an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the corporation.

         2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement and before 6:00 p.m.,
New York, New York time on the fifth (5th) anniversary of the date of issuance
(the "Exercise Period").

         3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:

                                      -3-

<PAGE>

              (a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, and charges with respect
to the issue thereof.

              (b) Reservation of Shares. Subject to the Stockholder Approval (as
defined in Section 4(m) of the Securities Purchase Agreement), the Exercise
Period, the Company shall at all times have authorized, and reserved for the
purpose of issuance upon exercise of this Warrant, a sufficient number of shares
of Common Stock to provide for the exercise of this Warrant.

              (c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.

              (d) Certain Actions Prohibited. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.

              (e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.

         4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4.

         In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
to the nearest cent.

              (a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Paragraphs 4(c) and
4(e) hereof, if and whenever on or after the date of issuance of this Warrant,
the Company issues or sells, or in accordance with Paragraph 4(b) hereof is
deemed to have issued or sold, any shares of Common Stock for no consideration
or for a consideration per share (before deduction of reasonable expenses or

                                      -4-

<PAGE>

commissions or underwriting discounts or allowances in connection therewith)
less than the Market Price on the date of issuance (a "Dilutive Issuance"), then
immediately upon the Dilutive Issuance, the Exercise Price will be reduced to a
price determined by multiplying the Exercise Price in effect immediately prior
to the Dilutive Issuance by a fraction, (i) the numerator of which is an amount
equal to the sum of (x) the number of shares of Common Stock actually
outstanding immediately prior to the Dilutive Issuance, plus (y) the quotient of
the aggregate consideration, calculated as set forth in Paragraph 4(b) hereof,
received by the Company upon such Dilutive Issuance divided by the Market Price
in effect immediately prior to the Dilutive Issuance, and (ii) the denominator
of which is the total number of shares of Common Stock Deemed Outstanding (as
defined below) immediately after the Dilutive Issuance.

              (b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:

                   (i) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting of
all such Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Options, plus, in
the case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares
of Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.

                   (ii) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Market Price on the date of
issuance, then the maximum total number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities will, as of the
date of the issuance of such Convertible Securities, be deemed to be outstanding
and to have been issued and sold by the Company for such price per share. For

                                      -5-

<PAGE>

the purposes of the preceding sentence, the "price per share for which Common
Stock is issuable upon such conversion or exchange" is determined by dividing
(i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon conversion or exchange
of such Convertible Securities.

                   (iii) Change in Option Price or Conversion Rate. If there is
a change at any time in (i) the amount of additional consideration payable to
the Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.

                   (iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon conversion or exchange of any Convertible
Securities is not, in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted to the Exercise
Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.

                   (v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.

                                      -6-

<PAGE>

                   (vi) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and outstanding on
the date of issuance of this Warrant; (ii) upon the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
benefit plan, stock option plan or restricted stock plan of the Company now
existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the independent members of the
Board of Directors of the Company or a majority of the members of a committee of
independent directors established for such purpose; or (iii) upon the exercise
of the Warrants.

              (c) Subdivision or Combination of Common Stock. If the Company at
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.

              (d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.

              (e) Consolidation, Merger or Sale. In case of any consolidation of
the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the holder of this Warrant
will have the right to acquire and receive upon exercise of this Warrant in lieu
of the shares of Common Stock immediately theretofore acquirable upon the
exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.

                                      -7-

<PAGE>

              (f) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (including cash) to holders of Common Stock
as a partial liquidating dividend, by way of return of capital or otherwise,
then, after the date of record for determining shareholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such distribution.

              (g) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the Chief Financial Officer of the Company.

              (h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.

              (i) No Fractional Shares. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.

              (j) Other Notices. In case at any time:

                   (i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;

                   (ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;

                   (iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all its assets to,
another corporation or entity; or

                   (iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;

then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,

                                      -8-

<PAGE>

reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.

              (k) Certain Events. If any event occurs of the type contemplated
by the adjustment provisions of this Paragraph 4 but not expressly provided for
by such provisions, the Company will give notice of such event as provided in
Paragraph 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the holder
shall be neither enhanced nor diminished by such event.

              (l) Certain Definitions.

                   (i) "Common Stock Deemed Outstanding" shall mean the number
of shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum
total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.

                   (ii) "Market Price," as of any date, (i) means the average of
the last reported sale prices for the shares of Common Stock on the OTCBB for
the five (5) Trading Days immediately preceding such date as reported by
Bloomberg, or (ii) if the OTCBB is not the principal trading market for the
shares of Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same period as reported
by Bloomberg, or (iii) if market value cannot be calculated as of such date on
any of the foregoing bases, the Market Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of Directors of the Company
or, at the option of a majority-in-interest of the holders of the outstanding
Warrants by (b) an independent investment bank of nationally recognized standing
in the valuation of businesses similar to the business of the corporation. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.

                   (iii) "Common Stock," for purposes of this Paragraph 4,
includes the Common Stock, par value $.001 per share, and any additional class
of stock of the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, par value $.001 per share, in respect of

                                      -9-

<PAGE>

which this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.

         5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.

         6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

         7. Transfer, Exchange, and Replacement of Warrant.

              (a) Restriction on Transfer. This Warrant and the rights granted
to the holder hereof are transferable, in whole or in part, upon surrender of
this Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration rights described in
Paragraph 8 are assignable only in accordance with the provisions of that
certain Registration Rights Agreement dated as of January 10, 2003 by and among
the Company and the other signatories thereto (the "Registration Rights
Agreement").

              (b) Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.

              (c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.

                                      -10-

<PAGE>

              (d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.

              (e) Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.

              (f) Exercise or Transfer Without Registration. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the "Securities Act") and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.

         8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.

         9. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 446 Lincoln Highway,
Fairless Hills, Pennsylvania 19030, Attention: President and Chief Operating

                                      -11-

<PAGE>

Officer, or at such other address as shall have been furnished to the holder of
this Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by facsimile, but shall in such case be subsequently
confirmed by a writing personally delivered or sent by certified or registered
mail or by recognized overnight mail courier as provided above. All notices,
requests, and other communications shall be deemed to have been given either at
the time of the receipt thereof by the person entitled to receive such notice at
the address of such person for purposes of this Paragraph 9, or, if mailed by
registered or certified mail or with a recognized overnight mail courier upon
deposit with the United States Post Office or such overnight mail courier, if
postage is prepaid and the mailing is properly addressed, as the case may be.

         10. Governing Law. THIS WARRANT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS WARRANT, THE AGREEMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT
SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN
EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS WARRANT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.

         11. Miscellaneous.

              (a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.

              (b) Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.

              (c) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would

                                      -12-

<PAGE>

otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock. For example, if the holder is exercising
100,000 Warrants with a per Warrant exercise price of $0.75 per share through a
cashless exercise when the Common Stock's current Market Price per share is
$2.00 per share, then upon such Cashless Exercise the holder will receive 62,500
shares of Common Stock.

              (d) Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Warrant will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Warrant, that the
holder shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Warrant and
to enforce specifically the terms and provisions thereof, without the necessity
of showing economic loss and without any bond or other security being required.





                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -13-

<PAGE>


              IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.

                                      DIGITAL DESCRIPTOR SYSTEMS, INC.


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


Dated as of January 10, 2003



<PAGE>


                           FORM OF EXERCISE AGREEMENT



                                                        Dated: ________ __, 200_



To:      Digital Descriptor Systems, Inc.





         The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:



                                   Name:    ______________________________


                                   Signature:
                                   Address:_______________________________

                                           _______________________________

                                   Note:      The above signature should
                                              correspond exactly with the name
                                              on the face of the within Warrant,
                                              if applicable.


and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.



<PAGE>


                               FORM OF ASSIGNMENT





         FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:


Name of Assignee                  Address                           No of Shares
----------------                  -------                           ------------







, and hereby irrevocably constitutes and appoints_______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.



Dated:   ________ __, 200_



In the presence of:                  ______________________________

                                Name:______________________________


                                Signature:_________________________
                                Title of Signing Officer or Agent (if any):
                                             ______________________________
                                Address:     ______________________________
                                             ______________________________


                                    Note: The  above   signature   should
                                          correspond exactly  with  the  name on
                                          the  face of the within Warrant, if
                                          applicable.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4
<SEQUENCE>5
<FILENAME>ex4-42.txt
<DESCRIPTION>EXHIBIT 4.4.2
<TEXT>
<PAGE>


                                                                   EXHIBIT 4.4.2




         THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
         HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
         EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE
         AGREEMENT DATED AS OF JANUARY 10, 2003, NEITHER THIS WARRANT NOR ANY OF
         SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
         EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR,
         AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR
         OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS
         NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR
         REGULATION S UNDER SUCH ACT.

                                                            Right to
                                                            Purchase 300,000
                                                            Shares of Common
                                                            Stock, $.001 par
                                                            value per share

                             STOCK PURCHASE WARRANT

         THIS CERTIFIES THAT, for value received, AJW Offshore, Ltd. or its
registered assigns, is entitled to purchase from Digital Descriptor Systems,
Inc., a Delaware corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, Three Hundred Thousand
(300,000) fully paid and nonassessable shares of the Company's Common Stock,
$.001 par value per share (the "Common Stock"), at an exercise price per share
equal to $0.01 (the "Exercise Price"). The term "Warrant Shares," as used
herein, refers to the shares of Common Stock purchasable hereunder. The Warrant
Shares and the Exercise Price are subject to adjustment as provided in Paragraph
4 hereof. The term "Warrants" means this Warrant and the other warrants issued
pursuant to that certain Securities Purchase Agreement, dated January 10, 2003,
by and among the Company and the Buyers listed on the execution page thereof
(the "Securities Purchase Agreement"), including any additional warrants
issuable pursuant to Section 4(l) thereof.

         This Warrant is subject to the following terms, provisions, and
conditions:

         1. Manner of Exercise; Issuance of Certificates; Payment for Shares.






<PAGE>

            (a) Exercise of Warrant. Subject to the provisions hereof, this
Warrant may be exercised by the holder hereof, in whole or in part, by the
surrender of this Warrant, together with a completed exercise agreement in the
form attached hereto (the "Exercise Agreement"), to the Company during normal
business hours on any business day at the Company's principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof), and upon (i) payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company of the
Exercise Price for the Warrant Shares specified in the Exercise Agreement or
(ii) if the resale of the Warrant Shares by the holder is not then registered
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"), delivery to the Company of a written
notice of an election to effect a "Cashless Exercise" (as defined in Section
11(c) below) for the Warrant Shares specified in the Exercise Agreement. The
Warrant Shares so purchased shall be deemed to be issued to the holder hereof or
such holder's designee, as the record owner of such shares, as of the close of
business on the date on which this Warrant shall have been surrendered, the
completed Exercise Agreement shall have been delivered, and payment shall have
been made for such shares as set forth above. Certificates for the Warrant
Shares so purchased, representing the aggregate number of shares specified in
the Exercise Agreement, shall be delivered to the holder hereof within a
reasonable time, not exceeding three (3) business days, after this Warrant shall
have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of such holder or such other name as shall be designated by such
holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the holder a new Warrant representing
the number of shares with respect to which this Warrant shall not then have been
exercised. In addition to all other available remedies at law or in equity, if
the Company fails to deliver certificates for the Warrant Shares within three
(3) business days after this Warrant is exercised, then the Company shall pay to
the holder in cash a penalty (the "Penalty") equal to 2% of the number of
Warrant Shares that the holder is entitled to multiplied by the Market Price (as
hereinafter defined) for each day that the Company fails to deliver certificates
for the Warrant Shares. For example, if the holder is entitled to 100,000
Warrant Shares and the Market Price is $2.00, then the Company shall pay to the
holder $4,000 for each day that the Company fails to deliver certificates for
the Warrant Shares. The Penalty shall be paid to the holder by the fifth day of
the month following the month in which it has accrued.

                  Notwithstanding anything in this Warrant to the contrary, in
no event shall the holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants (or portions
thereof) upon exercise of which the sum of (i) the number of shares of Common
Stock beneficially owned by the holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including the Debentures (as defined in the
Securities Purchase Agreement)) subject to a limitation on conversion or
exercise analogous to the limitation contained herein) and (ii) the number of
shares of Common Stock issuable upon exercise of the Warrants (or portions
thereof) with respect to which the determination described herein is being made,
would result in beneficial ownership by the holder and its affiliates of more
than 4.9% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(i) of the preceding sentence. The holder of this Warrant may waive the
limitations set forth herein by sixty-one (61) days written notice to the
Company. Notwithstanding anything to the contrary contained herein, the
limitation on exercise of this Warrant set forth herein may not be amended
without (i) the written consent of the holder hereof and the Company and (ii)
the approval of a majority of shareholders of the Company.




                                       -2-
<PAGE>

            (b) Mandatory Exercise Right. The Company shall be entitled, on any
day (the "Calculation Date") on which the Closing Price (as defined below) of
the Common Stock for thirty (30) consecutive Trading Days (as defined below) is
equal to or greater than $3.00, to deliver a written notice (the "Mandatory
Exercise Notice") to the Holder requiring such Holder to exercise this Warrant
in accordance with Section 1 hereof at any time during a thirty (30) Trading Day
period following the date of such Mandatory Exercise Notice (the "Exercise
Date"); provided, however, that the Company shall have such right if and only if
(x) for a period of thirty (30) consecutive Trading Days prior to the
Calculation Date and (y) at all times during such thirty (30) consecutive
Trading Day period and continuing through the Exercise Date, the Warrant Shares
issuable upon exercise of the Warrants are (i) authorized and reserved for
issuance, (ii) registered for resale under the Securities Act of 1933, as
amended, by the holder of this Warrant (or may otherwise be resold publicly
without restriction) and sales of the Warrant Shares may be made continuously
thereunder during such time periods, and (iii) listed for trading on each
principal exchange or market on which the shares of Common Stock of the Company
were then traded; and provided, further, that the Holder shall be required to
exercise only that portion of this Warrant that is equal to ten percent (10%) of
the average trading volume of the Common Stock over the thirty (30) consecutive
Trading Days immediately preceding the Calculation Date. The Company may not
deliver more than one Mandatory Exercise Notice during any thirty (30) Trading
Day period. Nothing in this Section 2(b) shall prohibit exercise of the Warrant
otherwise permitted pursuant to the terms of this Warrant during the pendency of
any Mandatory Exercise Notice. "Trading Day" shall mean any day on which the
Common Stock is traded for any period on the Over-the-Counter Bulletin Board
(the "OTCBB"), or on the principal securities exchange or other securities
market on which the Common Stock is then being traded. "Closing Price," as of
any date, (i) means the last reported sale price for the shares of Common Stock
on the OTCBB as reported by Bloomberg Financial Markets or other similar
reliable reporting service as designated by the Holder ("Bloomberg"), or (ii) if
the OTCBB is not the principal trading market for the shares of Common Stock,
the last reported sale price on the principal trading market for the Common
Stock as reported by Bloomberg, or (iii) if the last reported sale price cannot
be determined as of such date on any of the foregoing bases, the Closing Price
shall be the fair market value as reasonably determined in good faith by the
Board of Directors of the Company or, at the option of a majority-in-interest of
the holders of the outstanding Warrants, by an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the corporation.

         2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement and before 6:00 p.m.,
New York, New York time on the fifth (5th) anniversary of the date of issuance
(the "Exercise Period").

         3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:





                                       -3-
<PAGE>

            (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.

            (b) Reservation of Shares. Subject to the Stockholder Approval (as
defined in Section 4(m) of the Securities Purchase Agreement), the Exercise
Period, the Company shall at all times have authorized, and reserved for the
purpose of issuance upon exercise of this Warrant, a sufficient number of shares
of Common Stock to provide for the exercise of this Warrant.

            (c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.

            (d) Certain Actions Prohibited. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.

            (e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.

         4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4.

         In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
to the nearest cent.





                                       -4-
<PAGE>

            (a) Adjustment of Exercise Price and Number of Shares upon Issuance
of Common Stock. Except as otherwise provided in Paragraphs 4(c) and 4(e)
hereof, if and whenever on or after the date of issuance of this Warrant, the
Company issues or sells, or in accordance with Paragraph 4(b) hereof is deemed
to have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than the
Market Price on the date of issuance (a "Dilutive Issuance"), then immediately
upon the Dilutive Issuance, the Exercise Price will be reduced to a price
determined by multiplying the Exercise Price in effect immediately prior to the
Dilutive Issuance by a fraction, (i) the numerator of which is an amount equal
to the sum of (x) the number of shares of Common Stock actually outstanding
immediately prior to the Dilutive Issuance, plus (y) the quotient of the
aggregate consideration, calculated as set forth in Paragraph 4(b) hereof,
received by the Company upon such Dilutive Issuance divided by the Market Price
in effect immediately prior to the Dilutive Issuance, and (ii) the denominator
of which is the total number of shares of Common Stock Deemed Outstanding (as
defined below) immediately after the Dilutive Issuance.

            (b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:

                (i) Issuance of Rights or Options. If the Company in any manner
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("Convertible Securities")
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options") and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Market Price on the date of issuance or grant of such Options, then the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Options will, as of the date of the issuance or grant of such Options, be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon the exercise of such Options" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of all such Options,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of all such Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Options, the minimum
aggregate amount of additional consideration payable upon the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.

                (ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Market Price on the date of issuance,
then the maximum total number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities will, as of the date
of the issuance of such Convertible Securities, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For the
purposes of the preceding sentence, the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by dividing (i) the
total amount, if any, received or receivable by the Company as consideration for
the issuance or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof at the time such Convertible Securities
first become convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment to the Exercise Price will be made
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.





                                       -5-
<PAGE>

                (iii) Change in Option Price or Conversion Rate. If there is a
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.

                (iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon conversion or exchange of any Convertible
Securities is not, in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted to the Exercise
Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.

                (v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In case
any Common Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.






                                       -6-
<PAGE>

                (vi) Exceptions to Adjustment of Exercise Price. No adjustment
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities granted, issued and outstanding on the date of
issuance of this Warrant; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan, stock option plan or restricted stock plan of the Company now existing or
to be implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the independent members of the Board of
Directors of the Company or a majority of the members of a committee of
independent directors established for such purpose; or (iii) upon the exercise
of the Warrants.

            (c) Subdivision or Combination of Common Stock. If the Company at
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.

            (d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.

            (e) Consolidation, Merger or Sale. In case of any consolidation of
the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the holder of this Warrant
will have the right to acquire and receive upon exercise of this Warrant in lieu
of the shares of Common Stock immediately theretofore acquirable upon the
exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.






                                       -7-
<PAGE>

            (f) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (including cash) to holders of Common Stock
as a partial liquidating dividend, by way of return of capital or otherwise,
then, after the date of record for determining shareholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such distribution.

            (g) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the Chief Financial Officer of the Company.

            (h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.

            (i) No Fractional Shares. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.

            (j) Other Notices. In case at any time:

                (i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;

                (ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;

                (iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to, another
corporation or entity; or

                (iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;







                                       -8-
<PAGE>

then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.

            (k) Certain Events. If any event occurs of the type contemplated by
the adjustment provisions of this Paragraph 4 but not expressly provided for by
such provisions, the Company will give notice of such event as provided in
Paragraph 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the holder
shall be neither enhanced nor diminished by such event.

            (l) Certain Definitions.

                (i) "Common Stock Deemed Outstanding" shall mean the number of
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum
total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.

                (ii) "Market Price," as of any date, (i) means the average of
the last reported sale prices for the shares of Common Stock on the OTCBB for
the five (5) Trading Days immediately preceding such date as reported by
Bloomberg, or (ii) if the OTCBB is not the principal trading market for the
shares of Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same period as reported
by Bloomberg, or (iii) if market value cannot be calculated as of such date on
any of the foregoing bases, the Market Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of Directors of the Company
or, at the option of a majority-in-interest of the holders of the outstanding
Warrants by (b) an independent investment bank of nationally recognized standing
in the valuation of businesses similar to the business of the corporation. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.








                                       -9-
<PAGE>

                (iii) "Common Stock," for purposes of this Paragraph 4, includes
the Common Stock, par value $.001 per share, and any additional class of stock
of the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, par value $.001 per share, in respect of
which this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.

         5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.

         6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

         7. Transfer, Exchange, and Replacement of Warrant.

            (a) Restriction on Transfer. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration rights described in
Paragraph 8 are assignable only in accordance with the provisions of that
certain Registration Rights Agreement dated as of January 10, 2003 by and among
the Company and the other signatories thereto (the "Registration Rights
Agreement").

            (b) Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.

            (c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.






                                      -10-
<PAGE>

            (d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.

            (e) Register. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee and each prior
owner of this Warrant.

            (f) Exercise or Transfer Without Registration. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the "Securities Act") and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.

         8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.

         9. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 446 Lincoln Highway,
Fairless Hills, Pennsylvania 19030, Attention: President and Chief Operating
Officer, or at such other address as shall have been furnished to the holder of
this Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by facsimile, but shall in such case be subsequently
confirmed by a writing personally delivered or sent by certified or registered
mail or by recognized overnight mail courier as provided above. All notices,
requests, and other communications shall be deemed to have been given either at
the time of the receipt thereof by the person entitled to receive such notice at
the address of such person for purposes of this Paragraph 9, or, if mailed by
registered or certified mail or with a recognized overnight mail courier upon
deposit with the United States Post Office or such overnight mail courier, if
postage is prepaid and the mailing is properly addressed, as the case may be.






                                      -11-
<PAGE>

         10. Governing Law. THIS WARRANT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS WARRANT, THE AGREEMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT
SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN
EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS WARRANT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.

         11. Miscellaneous.

             (a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.

             (b) Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.







                                      -12-
<PAGE>

             (c) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock. For example, if the holder is exercising
100,000 Warrants with a per Warrant exercise price of $0.75 per share through a
cashless exercise when the Common Stock's current Market Price per share is
$2.00 per share, then upon such Cashless Exercise the holder will receive 62,500
shares of Common Stock.

             (d) Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Warrant will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Warrant, that the
holder shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Warrant and
to enforce specifically the terms and provisions thereof, without the necessity
of showing economic loss and without any bond or other security being required.





                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]












                                      -13-
<PAGE>



                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.

                                       DIGITAL DESCRIPTOR SYSTEMS, INC.


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


Dated as of January 10, 2003



<PAGE>



                           FORM OF EXERCISE AGREEMENT



                                                        Dated: ________ __, 200_



To:      Digital Descriptor Systems, Inc.





         The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:



                                       Name: ___________________________________


                                       Signature:
                                       Address:_________________________________
                                               _________________________________


                                       Note:  The above signature should
                                              correspond exactly with the name
                                              on the face of the within Warrant,
                                              if applicable.


and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.



<PAGE>


                               FORM OF ASSIGNMENT





         FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:


Name of Assignee                    Address                         No of Shares
----------------                    -------                         ------------






, and hereby irrevocably constitutes and appoints ___________________________ as
agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.



Dated:   ________ __, 200_



In the presence of:                       ______________________________________

                                     Name:______________________________________


                                     Signature:_________________________________
                                     Title of Signing Officer or Agent (if any):
                                                ________________________________
                                       Address: ________________________________
                                                ________________________________


                                           Note: The above signature should
                                                 correspond exactly with the
                                                 name on the face of the within
                                                 Warrant, if applicable.










</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-5
<SEQUENCE>6
<FILENAME>ex5-11.txt
<DESCRIPTION>EXHIBIT 5.1.1
<TEXT>
<PAGE>


                                                                   Exhibit 5.1.1


February 12, 2003

Digital Descriptor Systems, Inc.
446 Lincoln Highway
Fairless Hills, PA 19030

Dear Sir or Madam:

         We have acted as counsel for Digital Descriptor Systems, Inc., a
Delaware corporation (the "Company"), in connection with its Registration
Statement on Form SB-2 and subsequent amendments, (the "Registration Statement")
being filed with the Securities and Exchange Commission relating to the
registration for resale of 30,000,000 shares of common stock, par value $ .001
per share, which are issuable upon conversion of convertible debentures.

            In connection with the foregoing, we have examined, among other
things, the Registration Statement and originals or copies, satisfactory to us,
of all such corporate records and of all such other agreements, certificates and
documents (including instruments evidencing or setting forth the terms and
provisions of the Convertible Securities) as we have deemed relevant and
necessary as a basis for the opinion hereinafter expressed. In such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity with the original
documents of documents submitted to us as copies. As to any facts material to
such opinion, we have, to the extent that relevant facts were not independently
established by us, relied on certificates of public officials and certificates,
oaths and declarations of officers or other representatives of the Company.

            Based on our examination mentioned above, we are of the opinion that
the securities being sold pursuant to the Registration Statement are duly
authorized and will be, when sold in the manner described in the Registration
Statement, legally and validly issued, and fully paid and non-assessable.

            We hereby consent to the filing of this opinion as Exhibit 5.1 to
the Registration Statement and to the reference to our firm under "Legal
Matters" in the related Prospectus.

            Very truly yours,

            /s/ Naccarato & Associates




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>7
<FILENAME>ex10-33.txt
<DESCRIPTION>EXHIBIT 10.3.3
<TEXT>
<PAGE>


                                                                   EXHBIT 10.3.3

                          SECURITIES PURCHASE AGREEMENT


         SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of January
10, 2003, by and among Digital Descriptor Systems, Inc., a Delaware corporation,
with headquarters located at 446 Lincoln Highway, Fairless Hills, PA 19030 (the
"Company"), and each of the purchasers set forth on the signature pages hereto
(the "Buyers").

         WHEREAS:

         A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the rules and regulations as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act");

         B. Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement (i) 12% convertible
debentures of the Company, in the form attached hereto as Exhibit "A", in the
aggregate principal amount of Five Hundred Thousand Dollars ($500,000) (together
with any debenture(s) issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof, the
"Debentures"), convertible into shares of common stock, par value $.001 per
share, of the Company (the "Common Stock"), upon the terms and subject to the
limitations and conditions set forth in such Debentures and (ii) warrants, in
the form attached hereto as Exhibit "B", to purchase One Million Five Hundred
Thousand (1,500,000) shares of Common Stock (the "Warrants").

         C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, such principal amount of Debentures and number of Warrants as
is set forth immediately below its name on the signature pages hereto; and

         D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit "C" (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.

         NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:

            1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.

               a. Purchase of Debentures and Warrants. On the Closing Date (as
defined below), the Company shall issue and sell to each Buyer and each Buyer
severally agrees to purchase from the Company such principal amount of
Debentures and number of Warrants as is set forth immediately below such Buyer's
name on the signature pages hereto.






<PAGE>

               b. Form of Payment. On the Closing Date (as defined below), (i)
each Buyer shall pay the purchase price for the Debentures and the Warrants to
be issued and sold to it at the Closing (as defined below) (the "Purchase
Price") by wire transfer of immediately available funds to the Company, in
accordance with the Company's written wiring instructions, against delivery of
the Debentures in the principal amount equal to the Purchase Price and the
number of Warrants as is set forth immediately below such Buyer's name on the
signature pages hereto, and (ii) the Company shall deliver such Debentures and
Warrants duly executed on behalf of the Company, to such Buyer, against delivery
of such Purchase Price.

               c. Closing Date. Subject to the satisfaction (or written waiver)
of the conditions thereto set forth in Section 6 and Section 7 below, the date
and time of the issuance and sale of the Debentures and the Warrants pursuant to
this Agreement (the "Closing Date") shall be 12:00 noon, Eastern Standard Time
on January 10, 2003 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "Closing") shall occur on the
Closing Date at such location as may be agreed to by the parties.

         2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
not jointly) represents and warrants to the Company solely as to such Buyer
that:

            a. Investment Purpose. As of the date hereof, the Buyer is
purchasing the Debentures and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Debentures (including, without
limitation, such additional shares of Common Stock, if any, as are issuable (i)
on account of interest on the Debentures, (ii) as a result of the events
described in Sections 1.3 and 1.4(g) of the Debentures and Section 2(c) of the
Registration Rights Agreement or (iii) in payment of the Standard Liquidated
Damages Amount (as defined in Section 2(f) below) pursuant to this Agreement,
such shares of Common Stock being collectively referred to herein as the
"Conversion Shares") and the Warrants and the shares of Common Stock issuable
upon exercise thereof (the "Warrant Shares" and, collectively with the
Debentures, Warrants and Conversion Shares, the "Securities") for its own
account and not with a present view towards the public sale or distribution
thereof, except pursuant to sales registered or exempted from registration under
the 1933 Act; provided, however, that by making the representations herein, the
Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.

            b. Accredited Investor Status. The Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D (an "Accredited
Investor").

            c. Reliance on Exemptions. The Buyer understands that the Securities
are being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.






                                        2
<PAGE>

            d. Information. The Buyer and its advisors, if any, have been, and
for so long as the Debentures and Warrants remain outstanding will continue to
be, furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors. The Buyer and
its advisors, if any, have been, and for so long as the Debentures and Warrants
remain outstanding will continue to be, afforded the opportunity to ask
questions of the Company. Notwithstanding the foregoing, the Company has not
disclosed to the Buyer any material nonpublic information and will not disclose
such information unless such information is disclosed to the public prior to or
promptly following such disclosure to the Buyer. Neither such inquiries nor any
other due diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. The Buyer
understands that its investment in the Securities involves a significant degree
of risk.

            e. Governmental Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.

            f. Transfer or Re-sale. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel that shall be in form, substance and scope customary for
opinions of counsel in comparable transactions to the effect that the Securities
to be sold or transferred may be sold or transferred pursuant to an exemption
from such registration, which opinion shall be accepted by the Company, (c) the
Securities are sold or transferred to an "affiliate" (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) ("Rule 144")) of the Buyer
who agrees to sell or otherwise transfer the Securities only in accordance with
this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold
pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S
under the 1933 Act (or a successor rule) ("Regulation S"), and the Buyer shall
have delivered to the Company an opinion of counsel that shall be in form,
substance and scope customary for opinions of counsel in corporate transactions,
which opinion shall be accepted by the Company; (ii) any sale of such Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any re-sale of such
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement. In the
event that the Company does not accept the opinion of counsel provided by the
Buyer with respect to the transfer of Securities pursuant to an exemption from
registration, such as Rule 144 or Regulation S, within three (3) business days
of delivery of the opinion to the Company, the Company shall pay to the Buyer
liquidated damages of three percent (3%) of the outstanding amount of the
Debentures per month plus accrued and unpaid interest on the Debentures,
prorated for partial months, in cash or shares at the option of the Buyer
("Standard Liquidated Damages Amount"). If the Buyer elects to be paid the
Standard Liquidated Damages Amount in shares of Common Stock, such shares shall
be issued at the Conversion Price at the time of payment.





                                        3
<PAGE>

            g. Legends. The Buyer understands that the Debentures and the
Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144 or Regulation S without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):

                  "The securities represented by this certificate have not been
                  registered under the Securities Act of 1933, as amended. The
                  securities may not be sold, transferred or assigned in the
                  absence of an effective registration statement for the
                  securities under said Act, or an opinion of counsel, in form,
                  substance and scope customary for opinions of counsel in
                  comparable transactions, that registration is not required
                  under said Act or unless sold pursuant to Rule 144 or
                  Regulation S under said Act."

         The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 or Regulation S.
The Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.

            h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized. This Agreement has been
duly executed and delivered on behalf of the Buyer, and this Agreement
constitutes, and upon execution and delivery by the Buyer of the Registration
Rights Agreement, such agreement will constitute, valid and binding agreements
of the Buyer enforceable in accordance with their terms.

            i. Residency. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages hereto.

         3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:







                                        4
<PAGE>

            a. Organization and Qualification. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. Schedule 3(a) sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on the
business, operations, assets, financial condition or prospects of the Company or
its Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements or instruments to be entered into in connection
herewith. "Subsidiaries" means any corporation or other organization, whether
incorporated or unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest.

            b. Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Debentures and the Warrants and to consummate
the transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement, the Debentures and the
Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the issuance of
the Debentures and the Warrants and the issuance and reservation for issuance of
the Conversion Shares and Warrant Shares issuable upon conversion or exercise
thereof) have been duly authorized by the Company's Board of Directors and
except for the Stockholder Approval (as defined in Section 4(m)), no further
consent or authorization of the Company, its Board of Directors, or its
shareholders is required, (iii) this Agreement has been duly executed and
delivered by the Company by its authorized representative, and such authorized
representative is the true and official representative with authority to sign
this Agreement and the other documents executed in connection herewith and bind
the Company accordingly, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Registration Rights Agreement, the Debentures
and the Warrants, each of such instruments will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.

            c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 150,000,000 shares of Common Stock, of
which 61,351,387 shares are issued and outstanding, 5,000,000 shares are
reserved for issuance pursuant to the Company's stock option plans, 2,465,853
shares are reserved for issuance pursuant to securities (other than the
Debentures and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 103,000,000 shares are reserved for
issuance upon conversion of the Debentures and the Additional Debentures (as
defined in Section 4(l)) and exercise of the Warrants and the Additional
Warrants (as defined in Section 4(l)) (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(h) below); and (ii) 1,000,000 shares
of preferred stock, of which no shares are issued and outstanding. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of the shareholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as disclosed in
Schedule 3(c), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act (except
the Registration Rights Agreement) and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered by the
issuance of the Debentures, the Warrants, the Conversion Shares or Warrant
Shares. The Company has furnished to the Buyer true and correct copies of the
Company's Articles of Incorporation as in effect on the date hereof ("Articles
of Incorporation"), the Company's By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock of the Company and the material rights of the holders thereof in
respect thereto. The Company shall provide the Buyer with a written update of
this representation signed by the Company's Chief Executive or Chief Financial
Officer on behalf of the Company as of the Closing Date.






                                        5
<PAGE>

            d. Issuance of Shares. Subject to the Stockholder Approval (as
defined in Section 4(m)), the Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance and, upon conversion of the Debentures and
exercise of the Warrants in accordance with their respective terms, will be
validly issued, fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of shareholders of the
Company and will not impose personal liability upon the holder thereof.

            e. Acknowledgment of Dilution. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the
Debenture or exercise of the Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares upon conversion of the
Debentures or exercise of the Warrants in accordance with this Agreement, the
Debentures and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
shareholders of the Company.

            f. No Conflicts. Subject to the Stockholder Approval (as defined in
Section 4(m)), the execution, delivery and performance of this Agreement, the
Registration Rights Agreement, the Debentures and the Warrants by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares) will not (i) conflict with
or result in a violation of any provision of the Articles of Incorporation or
By-laws or (ii) violate or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which with notice or lapse of time or
both could become a default) under, or give to others any rights of termination,






                                        6
<PAGE>

amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Articles of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the 1933 Act
and any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court, governmental agency, regulatory agency, self regulatory organization
or stock market or any third party in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement, the Debentures or the Warrants in accordance with the terms hereof or
thereof or to issue and sell the Debentures and Warrants in accordance with the
terms hereof and to issue the Conversion Shares upon conversion of the
Debentures and the Warrant Shares upon exercise of the Warrants. Except as
disclosed in Schedule 3(f), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company is not in violation of the listing requirements of the Over-the-Counter
Bulletin Board (the "OTCBB") and does not reasonably anticipate that the Common
Stock will be delisted by the OTCBB in the foreseeable future. The Company and
its Subsidiaries are unaware of any facts or circumstances which might give rise
to any of the foregoing.

            g. SEC Documents; Financial Statements. Except as disclosed in
Schedule 3(g), the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein as the "SEC Documents"). The
Company has delivered to each Buyer true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings prior the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to December 31, 2001 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.






                                        7
<PAGE>

            h. Absence of Certain Changes. Since December 31, 2001, there has
been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition,
results of operations or prospects of the Company or any of its Subsidiaries.

            i. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. Schedule
3(i) contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.

            j. Patents, Copyrights, etc.

               (i) The Company and each of its Subsidiaries owns or possesses
the requisite licenses or rights to use all patents, patent applications, patent
rights, inventions, know-how, trade secrets, trademarks, trademark applications,
service marks, service names, trade names and copyrights ("Intellectual
Property") necessary to enable it to conduct its business as now operated (and,
except as set forth in Schedule 3(j) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future); there is no
claim or action by any person pertaining to, or proceeding pending, or to the
Company's knowledge threatened, which challenges the right of the Company or of
a Subsidiary with respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and, except as set forth in Schedule 3(j)
hereof, to the best of the Company's knowledge, as presently contemplated to be
operated in the future); to the best of the Company's knowledge, the Company's
or its Subsidiaries' current and intended products, services and processes do
not infringe on any Intellectual Property or other rights held by any person;
and the Company is unaware of any facts or circumstances which might give rise
to any of the foregoing. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their Intellectual Property.











                                        8
<PAGE>

               (ii) All of the Company's computer software and computer
hardware, and other similar or related items of automated, computerized or
software systems that are used or relied on by the Company in the conduct of its
business or that were, or currently are being, sold or licensed by the Company
to customers (collectively, "Information Technology"), are Year 2000 Compliant.
For purposes of this Agreement, the term "Year 2000 Compliant" means, with
respect to the Company's Information Technology, that the Information Technology
is designed to be used prior to, during and after the calendar Year 2000, and
the Information Technology used during each such time period will accurately
receive, provide and process date and time data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the 20th and 21st
centuries, including the years 1999 and 2000, and leap-year calculations, and
will not malfunction, cease to function, or provide invalid or incorrect results
as a result of the date or time data, to the extent that other information
technology, used in combination with the Information Technology, properly
exchanges date and time data with it. The Company has delivered to the Buyers
true and correct copies of all analyses, reports, studies and similar written
information, whether prepared by the Company or another party, relating to
whether the Information Technology is Year 2000 Compliant, if any.

            k. No Materially Adverse Contracts, Etc. Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.

            l. Tax Status. Except as set forth on Schedule 3(l), the Company and
each of its Subsidiaries has made or filed all federal, state and foreign income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject (unless and only to the extent that the Company and each
of its Subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim. The Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign, federal,
state or local tax. Except as set forth on Schedule 3(l), none of the Company's
tax returns is presently being audited by any taxing authority.





                                        9


<PAGE>
            m. Certain Transactions. Except as set forth on Schedule 3(m) and
except for arm's length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

            n. Disclosure. All information relating to or concerning the Company
or any of its Subsidiaries set forth in this Agreement and provided to the
Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective registration statement filed
by the Company under the 1933 Act).

            o. Acknowledgment Regarding Buyers' Purchase of Securities. The
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no Buyer
is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyers' purchase of the Securities. The Company further represents to
each Buyer that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.

            p. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any shareholder
approval provisions applicable to the Company or its securities.






                                       10
<PAGE>

            q. No Brokers. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, transaction fees or
similar payments relating to this Agreement or the transactions contemplated
hereby.

            r. Permits; Compliance. The Company and each of its Subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "Company Permits"), and there is
no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits. Neither the Company
nor any of its Subsidiaries is in conflict with, or in default or violation of,
any of the Company Permits, except for any such conflicts, defaults or
violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. Since December 31, 2001, neither the
Company nor any of its Subsidiaries has received any notification with respect
to possible conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.

            s. Environmental Matters.

               (i) Except as set forth in Schedule 3(s), there are, to the
Company's knowledge, with respect to the Company or any of its Subsidiaries or
any predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. The term
"Environmental Laws" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

               (ii) Other than those that are or were stored, used or disposed
of in compliance with applicable law, no Hazardous Materials are contained on or
about any real property currently owned, leased or used by the Company or any of
its Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company's
or any of its Subsidiaries' business.







                                       11
<PAGE>

               (iii) Except as set forth in Schedule 3(s), there are no
underground storage tanks on or under any real property owned, leased or used by
the Company or any of its Subsidiaries that are not in compliance with
applicable law.

            t. Title to Property. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(t) or such
as would not have a Material Adverse Effect. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.

            u. Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect. The Company has provided to Buyer true and correct copies of all
policies relating to directors' and officers' liability coverage, errors and
omissions coverage, and commercial general liability coverage.

            v. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

            w. Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended, or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.






                                       12
<PAGE>

            x. Solvency. The Company (after giving effect to the transactions
contemplated by this Agreement) is solvent (i.e., its assets have a fair market
value in excess of the amount required to pay its probable liabilities on its
existing debts as they become absolute and matured) and currently the Company
has no information that would lead it to reasonably conclude that the Company
would not, after giving effect to the transaction contemplated by this
Agreement, have the ability to, nor does it intend to take any action that would
impair its ability to, pay its debts from time to time incurred in connection
therewith as such debts mature. The Company did not receive a qualified opinion
from its auditors with respect to its most recent fiscal year end and, after
giving effect to the transactions contemplated by this Agreement, does not
anticipate or know of any basis upon which its auditors might issue a qualified
opinion in respect of its current fiscal year.

            y. No Investment Company. The Company is not, and upon the issuance
and sale of the Securities as contemplated by this Agreement will not be an
"investment company" required to be registered under the Investment Company Act
of 1940 (an "Investment Company"). The Company is not controlled by an
Investment Company.

            z. Breach of Representations and Warranties by the Company. If the
Company breaches any of the representations or warranties set forth in this
Section 3, and in addition to any other remedies available to the Buyers
pursuant to this Agreement, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the option of
the Buyer, until such breach is cured. If the Buyers elect to be paid the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares shall
be issued at the Conversion Price at the time of payment.

         4. COVENANTS.

            a. Best Efforts. The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and 7 of this Agreement.

            b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date.

            c. Reporting Status; Eligibility to Use Form S-3, SB-2 or Form S-1.
The Company's Common Stock is registered under Section 12(g) of the 1934 Act.
The Company represents and warrants that it meets the requirements for the use
of Form S-3 (or if the Company is not eligible for the use of Form S-3 as of the
Filing Date (as defined in the Registration Rights Agreement), the Company may
use the form of registration for which it is eligible at that time) for
registration of the sale by the Buyer of the Registrable Securities (as defined
in the Registration Rights Agreement). So long as the Buyer beneficially owns
any of the Securities, the Company shall timely file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would permit such termination.
The Company further agrees to file all reports required to be filed by the
Company with the SEC in a timely manner so as to become eligible, and thereafter
to maintain its eligibility, for the use of Form S-3. The Company shall issue a
press release describing the materials terms of the transaction contemplated
hereby as soon as practicable following the Closing Date but in no event more
than two (2) business days of the Closing Date, which press release shall be
subject to prior review by the Buyers. The Company agrees that such press
release shall not disclose the name of the Buyers unless expressly consented to
in writing by the Buyers or unless required by applicable law or regulation, and
then only to the extent of such requirement.






                                       13
<PAGE>

            d. Use of Proceeds. The Company shall use the proceeds from the sale
of the Debentures and the Warrants in the manner set forth in Schedule 4(d)
attached hereto and made a part hereof and shall not, directly or indirectly,
use such proceeds for any loan to or investment in any other corporation,
partnership, enterprise or other person (except in connection with its currently
existing direct or indirect Subsidiaries)

            e. Future Offerings. Subject to the exceptions described below, the
Company will not, without the prior written consent of a majority-in-interest of
the Buyers, not to be unreasonably withheld, negotiate or contract with any
party to obtain additional equity financing (including debt financing with an
equity component) that involves (A) the issuance of Common Stock at a discount
to the market price of the Common Stock on the date of issuance (taking into
account the value of any warrants or options to acquire Common Stock issued in
connection therewith) or (B) the issuance of convertible securities that are
convertible into an indeterminate number of shares of Common Stock or (C) the
issuance of warrants during the period (the "Lock-up Period") beginning on the
Closing Date and ending on the later of (i) two hundred seventy (270) days from
the Closing Date and (ii) one hundred eighty (180) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (plus any days in which sales cannot be made thereunder). In
addition, subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component) ("Future
Offerings") during the period beginning on the Closing Date and ending two (2)
years after the end of the Lock-up Period unless it shall have first delivered
to each Buyer, at least twenty (20) business days prior to the closing of such
Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection therewith, and providing each Buyer an option
during the fifteen (15) day period following delivery of such notice to purchase
its pro rata share (based on the ratio that the aggregate principal amount of
Debentures purchased by it hereunder bears to the aggregate principal amount of
Debentures purchased hereunder) of the securities being offered in the Future
Offering on the same terms as contemplated by such Future Offering (the
limitations referred to in this sentence and the preceding sentence are
collectively referred to as the "Capital Raising Limitations"). In the event the
terms and conditions of a proposed Future Offering are amended in any respect
after delivery of the notice to the Buyers concerning the proposed Future
Offering, the Company shall deliver a new notice to each Buyer describing the
amended terms and conditions of the proposed Future Offering and each Buyer
thereafter shall have an option during the fifteen (15) day period following
delivery of such new notice to purchase its pro rata share of the securities
being offered on the same terms as contemplated by such proposed Future
Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act) or
(ii) issuances of securities as consideration for a merger, consolidation or
purchase of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product or license
by the Company. The Capital Raising Limitations also shall not apply to the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof or to
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan approved by
the shareholders of the Company.







                                       14
<PAGE>

            f. Expenses. At the Closing, the Company shall reimburse Buyers for
expenses incurred by them in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith ("Documents"), including, without
limitation, attorneys' and consultants' fees and expenses, transfer agent fees,
fees for stock quotation services, fees relating to any amendments or
modifications of the Documents or any consents or waivers of provisions in the
Documents, fees for the preparation of opinions of counsel, escrow fees, and
costs of restructuring the transactions contemplated by the Documents. When
possible, the Company must pay these fees directly, otherwise the Company must
make immediate payment for reimbursement to the Buyers for all fees and expenses
immediately upon written notice by the Buyer or the submission of an invoice by
the Buyer If the Company fails to reimburse the Buyer in full within three (3)
business days of the written notice or submission of invoice by the Buyer, the
Company shall pay interest on the total amount of fees to be reimbursed at a
rate of 15% per annum.

            g. Financial Information. The Company agrees to send the following
reports to each Buyer until such Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-KSB and any
Current Reports on Form 8-K; (ii) within one (1) day after release, copies of
all press releases issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the shareholders of the
Company, copies of any notices or other information the Company makes available
or gives to such shareholders.

            h. Authorization and Reservation of Shares. Subject to the
Stockholder Approval (as defined in Schedule 4(m)), the Company shall at all
times have authorized, and reserved for the purpose of issuance, a sufficient
number of shares of Common Stock to provide for the full conversion or exercise
of the outstanding Debentures and Warrants and issuance of the Conversion Shares
and Warrant Shares in connection therewith (based on the Conversion Price of the
Debentures or Exercise Price of the Warrants in effect from time to time) and as
otherwise required by the Debentures. The Company shall not reduce the number of
shares of Common Stock reserved for issuance upon conversion of Debentures and
exercise of the Warrants without the consent of each Buyer. The Company shall at







                                       15
<PAGE>

all times maintain the number of shares of Common Stock so reserved for issuance
at an amount ("Reserved Amount") equal to no less than two (2) times the number
that is then actually issuable upon full conversion of the Debentures and
Additional Debentures and upon exercise of the Warrants and the Additional
Warrants (based on the Conversion Price of the Debentures or the Exercise Price
of the Warrants in effect from time to time). If at any time the number of
shares of Common Stock authorized and reserved for issuance ("Authorized and
Reserved Shares") is below the Reserved Amount, the Company will promptly take
all corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of shareholders
to authorize additional shares to meet the Company's obligations under this
Section 4(h), in the case of an insufficient number of authorized shares, obtain
shareholder approval of an increase in such authorized number of shares, and
voting the management shares of the Company in favor of an increase in the
authorized shares of the Company to ensure that the number of authorized shares
is sufficient to meet the Reserved Amount. If the Company fails to obtain such
shareholder approval within thirty (30) days following the date on which the
number of Authorized and Reserved Shares exceeds the Reserved Amount, the
Company shall pay to the Borrower the Standard Liquidated Damages Amount, in
cash or in shares of Common Stock at the option of the Buyer. If the Buyer
elects to be paid the Standard Liquidated Damages Amount in shares of Common
Stock, such shares shall be issued at the Conversion Price at the time of
payment. In order to ensure that the Company has authorized a sufficient amount
of shares to meet the Reserved Amount at all times, the Company must deliver to
the Buyer at the end of every month a list detailing (1) the current amount of
shares authorized by the Company and reserved for the Buyer; and (2) amount of
shares issuable upon conversion of the Debentures and upon exercise of the
Warrants and as payment of interest accrued on the Debentures for one year. If
the Company fails to provide such list within five (5) business days of the end
of each month, the Company shall pay the Standard Liquidated Damages Amount, in
cash or in shares of Common Stock at the option of the Buyer, until the list is
delivered. If the Buyer elects to be paid the Standard Liquidated Damages Amount
in shares of Common Stock, such shares shall be issued at the Conversion Price
at the time of payment.

            i. Listing. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and, so long as any Buyer owns
any of the Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares and Warrant
Shares from time to time issuable upon conversion of the Debentures or exercise
of the Warrants. The Company will obtain and, so long as any Buyer owns any of
the Securities, maintain the listing and trading of its Common Stock on the
OTCBB or any equivalent replacement exchange, the Nasdaq National Market
("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock
Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers ("NASD")
and such exchanges, as applicable. The Company shall promptly provide to each
Buyer copies of any notices it receives from the OTCBB and any other exchanges
or quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.









                                       16
<PAGE>

            j. Corporate Existence. So long as a Buyer beneficially owns any
Debentures or Warrants, the Company shall maintain its corporate existence and
shall not sell all or substantially all of the Company's assets, except in the
event of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the OTCBB, Nasdaq,
Nasdaq SmallCap, NYSE or AMEX.

            k. No Integration. The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.

            l. Subsequent Investment. The Company and the Buyers agree that,
upon filing by the Company of the Registration Statement to be filed pursuant to
the Registration Rights Agreement (the "Filing Date"), the Buyers shall purchase
additional debentures ("Filing Debentures") in the aggregate principal amount of
One Hundred Twenty-Five Thousand Dollars ($125,000) and additional warrants (the
"Filing Warrants") to purchase an aggregate of 375,000 shares of Common Stock,
for an aggregate purchase price of One Hundred Twenty-Five Thousand Dollars
($125,000), with the closing of such purchase to occur within fifteen (15) days
of the Filing Date; provided, however, that the obligation of each Buyer to
purchase the Filing Debentures and the Filing Warrants is subject to the
satisfaction, at or before the closing of such purchase and sale, of the
conditions set forth in Section 7. The Company and the Buyers further agree
that, upon the declaration of effectiveness of the Registration Statement to be
filed pursuant to the Registration Rights Agreement (the "Effective Date"), the
Buyers shall purchase additional debentures (the "Effectiveness Debentures" and,
collectively with the Filing Debentures, the "Additional Debentures") in the
aggregate principal amount of One Hundred Twenty-Five Thousand Dollars
($125,000) and additional warrants (the "Effectiveness Warrants" and,
collectively with the Filing Warrants, the "Additional Warrants") to purchase an
aggregate of 375,000 shares of Common Stock, for an aggregate purchase price of
One Hundred Twenty-Five Thousand Dollars ($125,000), with the closing of such
purchase to occur within five (5) days of the Effective Date; provided, however,
that the obligation of each Buyer to purchase the Effectiveness Debentures and
the Effectiveness Warrants is subject to the satisfaction, at or before the
closing of such purchase and sale, of the conditions set forth in Section 7;
and, provided, further, that there shall not have been a Material Adverse Effect
as of such effective date. The terms of the Additional Debentures and the
Additional Warrants shall be identical to the terms of the Debentures and
Warrants, as the case may be, to be issued on the Closing Date. The Common Stock
underlying the Additional Debentures and the Additional Warrants shall be
Registrable Securities (as defined in the Registration Rights Agreement) and
shall be included in the Registration Statement to be filed pursuant to the
Registration Rights Agreement.






                                       17
<PAGE>

            m. Stockholder Approval. The Company shall use its best efforts to
obtain, on or before February 25, 2003 such approvals of the Company's
stockholders as may be required to issue all of the shares of Common Stock
issuable upon conversion or exercise of, or otherwise with respect to, the
Debentures and the Warrants in accordance with Delaware law and any applicable
rules or regulations of the OTCBB and Nasdaq, either through a reverse stock
split of the Common Stock or an increase in authorized capital (the "Stockholder
Approval"). The Company shall furnish to each Buyer and its legal counsel
promptly (but in no event less than two (2) business days) before the same is
filed with the SEC, one copy of any amendment to the proxy statement filed with
the SEC in connection with the Stockholder Approval, and shall deliver to each
Buyer promptly each letter written by or on behalf of the Company to the SEC or
the staff of the SEC, and each item of correspondence from the SEC or the staff
of the SEC, in each case relating to such proxy statement (other than any
portion thereof which contains information for which the Company has sought
confidential treatment). The Company will promptly (but in no event more than
three (3) business days) respond to any and all comments received from the SEC
(which comments shall promptly be made available to each Buyer). The Company
shall comply with the filing and disclosure requirements of Section 14 under the
1934 Act in connection with the Stockholder Approval. The Company represents and
warrants that its Board of Directors has approved the proposal contemplated by
this Section 4(m) and has indicated such approval in the proxy statement used in
connection with the Stockholder Approval.

            n. Breach of Covenants. If the Company breaches any of the covenants
set forth in this Section 4, and in addition to any other remedies available to
the Buyers pursuant to this Agreement, the Company shall pay to the Buyers the
Standard Liquidated Damages Amount, in cash or in shares of Common Stock at the
option of the Buyer, until such breach is cured. If the Buyers elect to be paid
the Standard Liquidated Damages Amount in shares, such shares shall be issued at
the Conversion Price at the time of payment.

         5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Debentures or exercise of the Warrants in accordance with the
terms thereof (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act or
the date on which the Conversion Shares and Warrant Shares may be sold pursuant
to Rule 144 without any restriction as to the number of Securities as of a
particular date that can then be immediately sold, all such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If a
Buyer provides the Company with (i) an opinion of counsel in form, substance and
scope customary for opinions in comparable transactions, to the effect that a




                                       18
<PAGE>

public sale or transfer of such Securities may be made without registration
under the 1933 Act and such sale or transfer is effected or (ii) the Buyer
provides reasonable assurances that the Securities can be sold pursuant to Rule
144, the Company shall permit the transfer, and, in the case of the Conversion
Shares and Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates, free from restrictive legend, in such name and in such
denominations as specified by such Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers, by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 may be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section,
that the Buyers shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate transfer,
without the necessity of showing economic loss and without any bond or other
security being required.

         6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Debentures and Warrants to a Buyer
at the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions thereto, provided that these conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion:

            a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.

            b. The applicable Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.

            c. The representations and warranties of the applicable Buyer shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the applicable Buyer shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.

            d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.

         7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of
each Buyer hereunder to purchase the Debentures and Warrants at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for such Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:

            a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.





                                       19
<PAGE>

            b. The Company shall have delivered to such Buyer duly executed
Debentures (in such denominations as the Buyer shall request) and Warrants in
accordance with Section 1(b) above.

            c. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.

            d. The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Articles of Incorporation, By-laws and Board of Directors' resolutions relating
to the transactions contemplated hereby.

            e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.

            f. No event shall have occurred which could reasonably be expected
to have a Material Adverse Effect on the Company.

            g. The Conversion Shares and Warrant Shares shall have been
authorized for quotation on the OTCBB and trading in the Common Stock on the
OTCBB shall not have been suspended by the SEC or the OTCBB.

            h. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "D"
attached hereto.

            i. The Buyer shall have received an officer's certificate described
in Section 3(c) above, dated as of the Closing Date.

         8. GOVERNING LAW; MISCELLANEOUS.

            a. Governing Law. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,




                                       20
<PAGE>

NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.

            b. Counterparts; Signatures by Facsimile. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.

            c. Headings. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement.

            d. Severability. In the event that any provision of this Agreement
is invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.

            e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.

            f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:








                                       21
<PAGE>


                           If to the Company:

                                Digital Descriptor Systems, Inc.
                                446 Lincoln Highway
                                Fairless Hills, Pennsylvania  19030
                                Attention: President and Chief Operating Officer
                                Telephone: 267-580-1075
                                Facsimile: 267-580-1090
                                Email: michael.pellegrino@ddsi-cpc.com

                           With copy to:

                                Naccarato & Associates
                                19600 Fairchild, Suite 260
                                Irvine, California  92612
                                Attention: Owen Naccarato, Esq.
                                Telephone: 949-851-9261
                                Facsimile: 949-851-9262
                                Email: onacc@jps.net

         If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.

                           With copy to:

                                Ballard Spahr Andrews & Ingersoll, LLP
                                1735 Market Street
                                51st Floor
                                Philadelphia, Pennsylvania  19103
                                Attention: Gerald J. Guarcini, Esq.
                                Telephone: 215-864-8625
                                Facsimile: 215-864-8999
                                Email: guarcini@ballardspahr.com

         Each party shall provide notice to the other party of any change in
address.

            g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.






                                       22
<PAGE>

            h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

            i. Survival. The representations and warranties of the Company and
the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive
the closing hereunder notwithstanding any due diligence investigation conducted
by or on behalf of the Buyers. The Company agrees to indemnify and hold harmless
each of the Buyers and all their officers, directors, employees and agents for
loss or damage arising as a result of or related to any breach or alleged breach
by the Company of any of its representations, warranties and covenants set forth
in Sections 3 and 4 hereof or any of its covenants and obligations under this
Agreement or the Registration Rights Agreement, including advancement of
expenses as they are incurred.

            j. Publicity. The Company and each of the Buyers shall have the
right to review a reasonable period of time before issuance of any press
releases, SEC, OTCBB or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of each of the Buyers, to
make any press release or SEC, OTCBB (or other applicable trading market) or
NASD filings with respect to such transactions as is required by applicable law
and regulations (although each of the Buyers shall be consulted by the Company
in connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment thereon).

            k. Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

            l. No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

            m. Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that the
Buyers shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Agreement
and to enforce specifically the terms and provisions hereof, without the
necessity of showing economic loss and without any bond or other security being
required.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



                                       23
<PAGE>



         IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.



DIGITAL DESCRIPTOR SYSTEMS, INC.


/s/ Michael J. Pellegrino
--------------------------------------
Michael J. Pellegrino
President and Chief Operating Officer


AJW PARTNERS, LLC
By: SMS Group, LLC


______________________________________
Corey S. Ribotsky
Manager


RESIDENCE:  Delaware

ADDRESS: 1044 Northern Boulevard
         Suite 302
         Roslyn, New York  11576
         Facsimile: (516) 739-7115
         Telephone: (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

    Aggregate Principal Amount of Debentures:                     $75,000
    Number of Warrants:                                           225,000
    Aggregate Purchase Price:                                     $75,000









                                       24
<PAGE>






AJW OFFSHORE, LTD.
By: First Street Manager II, LLC


______________________________________
Corey S. Ribotsky
Manager


RESIDENCE: Cayman Islands

ADDRESS: AJW Offshore, Ltd.
         P.O. Box 32021 SMB
         Grand Cayman, Cayman Island, B.W.I.

AGGREGATE SUBSCRIPTION AMOUNT:

    Aggregate Principal Amount of Debentures:                     $100,000
    Number of Warrants:                                            300,000
    Aggregate Purchase Price:                                     $100,000















                                       25
<PAGE>




AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC


______________________________________
Corey S. Ribotsky
Manager



RESIDENCE: New York

ADDRESS: 1044 Northern Boulevard
         Suite 302
         Roslyn, New York  11576
         Facsimile: (516) 739-7115
         Telephone: (516) 739-7110


AGGREGATE SUBSCRIPTION AMOUNT:

    Aggregate Principal Amount of Debentures:                     $75,000
    Number of Warrants:                                           225,000
    Aggregate Purchase Price:                                     $75,000









                                       26









</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>8
<FILENAME>ex10-56.txt
<DESCRIPTION>EXHIBIT 10.5.6
<TEXT>

<PAGE>


                                                                  EXHIBIT 10.5.6





         THE SECURITIES  REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
         "ACT").  THE  SECURITIES  MAY  NOT BE  SOLD,  TRANSFERRED  OR
         ASSIGNED  IN  THE  ABSENCE  OF  AN   EFFECTIVE   REGISTRATION
         STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF
         COUNSEL IN FORM,  SUBSTANCE AND SCOPE  CUSTOMARY FOR OPINIONS
         OF COUNSEL IN COMPARABLE  TRANSACTIONS  THAT  REGISTRATION IS
         NOT REQUIRED  UNDER SAID ACT OR UNLESS SOLD  PURSUANT TO RULE
         144 OR REGULATIONS UNDER SAID ACT.


                          SECURED CONVERTIBLE DEBENTURE

Fairless Hills, Pennsylvania
January 10, 2003                                                         $75,000

         FOR VALUE RECEIVED, DIGITAL DESCRIPTOR SYSTEMS, INC., a Delaware
corporation (hereinafter called the "Borrower"), hereby promises to pay to the
order of AJW Qualified Partners, LLC or registered assigns (the "Holder") the
sum of Seventy-Five Thousand Dollars ($75,000), on January 10, 2004 (the
"Maturity Date"), and to pay interest on the unpaid principal balance hereof at
the rate of ten percent (10%) per annum from January 10, 2003 (the "Issue Date")
until the same becomes due and payable, whether at maturity or upon acceleration
or by prepayment or otherwise. Any amount of principal or interest on this
Debenture which is not paid when due shall bear interest at the rate of fifteen
percent (15%) per annum from the due date thereof until the same is paid
("Default Interest"). Interest shall commence accruing on the issue date, shall
be computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable, at the option of the Holder, either quarterly on March 31,
June 30, September 30 and December 31 of each year beginning on March 31, 2003,
or at the time of conversion of the principal to which such interest relates in
accordance with Article I below. All payments due hereunder (to the extent not
converted into common stock, $.001 par value per share, of the Borrower (the
"Common Stock") in accordance with the terms hereof) shall be made in lawful
money of the United States of America or, at the option of the Borrower, in
whole or in part, in shares of Common Stock of the Borrower valued at the then
applicable Conversion Price (as defined herein). All payments shall be made at
such address as the Holder shall hereafter give to the Borrower by written
notice made in accordance with the provisions of this Debenture. Whenever any
amount expressed to be due by the terms of this Debenture is due on any day
which is not a business day, the same shall instead be due on the next
succeeding day which is a business day and, in the case of any interest payment
date which is not the date on which this Debenture is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of interest due on such date. As used in this
Debenture, the term "business day" shall mean any day other than a Saturday,



<PAGE>

Sunday or a day on which commercial banks in the city of New York, New York are
authorized or required by law or executive order to remain closed. Each
capitalized term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in that certain Securities Purchase Agreement, dated January
10, 2003, pursuant to which this Debenture was originally issued (the "Purchase
Agreement").

         This Debenture is free from all taxes, liens, claims and encumbrances
with respect to the issue thereof and shall not be subject to preemptive rights
or other similar rights of shareholders of the Borrower and will not impose
personal liability upon the holder thereof. The obligations of the Borrower
under this Debenture shall be secured by that certain Security Agreement dated
by and between the Borrower and the Holder of even date herewith.

         The following terms shall apply to this Debenture:

                          Article I. CONVERSION RIGHTS

              1.1 Conversion Right. The Holder shall have the right from time to
time, and at any time on or prior to the earlier of (i) the Maturity Date and
(ii) the date of payment of the Default Amount (as defined in Article III)
pursuant to Section 1.6(a) or Article III, the Optional Prepayment Amount (as
defined in Section 5.1 or any payments pursuant to Section 1.7, each in respect
of the remaining outstanding principal amount of this Debenture to convert all
or any part of the outstanding and unpaid principal amount of this Debenture
into fully paid and non-assessable shares of Common Stock, as such Common Stock
exists on the Issue Date, or any shares of capital stock or other securities of
the Borrower into which such Common Stock shall hereafter be changed or
reclassified at the conversion price (the "Conversion Price") determined as
provided herein (a "Conversion"); provided, however, that in no event shall the
Holder be entitled to convert any portion of this Debenture in excess of that
portion of this Debenture upon conversion of which the sum of (1) the number of
shares of Common Stock beneficially owned by the Holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the Debentures or the
unexercised or unconverted portion of any other security of the Borrower
(including, without limitation, the warrants issued by the Borrower pursuant to
the Purchase Agreement) subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (2) the number of shares of
Common Stock issuable upon the conversion of the portion of this Debenture with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 4.9% of
the outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulations 13D-G thereunder, except as otherwise provided in
clause (1) of such proviso. The Holder of this Debenture may waive the
limitations set forth herein by sixty-one (61) days written notice to the
Company. The number of shares of Common Stock to be issued upon each conversion
of this Debenture shall be determined by dividing the Conversion Amount (as
defined below) by the applicable Conversion Price then in effect on the date
specified in the notice of conversion, in the form attached hereto as Exhibit A
(the "Notice of Conversion"), delivered to the Borrower by the Holder in
accordance with Section 1.4 below; provided that the Notice of Conversion is

                                       2

<PAGE>

submitted by facsimile (or by other means resulting in, or reasonably expected
to result in, notice) to the Borrower before 6:00 p.m., New York, New York time
on such conversion date (the "Conversion Date"). The term "Conversion Amount"
means, with respect to any conversion of this Debenture, the sum of (1) the
principal amount of this Debenture to be converted in such conversion plus (2)
accrued and unpaid interest, if any, on such principal amount at the interest
rates provided in this Debenture to the Conversion Date plus (3) Default
Interest, if any, on the amounts referred to in the immediately preceding
clauses (1) and/or (2) plus (4) at the Holder's option, any amounts owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
that certain Registration Rights Agreement, dated as of January 10, 2003,
executed in connection with the initial issuance of this Debenture and the other
Debentures issued on the Issue Date (the "Registration Rights Agreement").

              1.2  Conversion Price.

                   (a) Calculation of Conversion Price. The Conversion Price
shall be the lesser of (i) the Variable Conversion Price (as defined herein) and
(ii) the Fixed Conversion Price (as defined herein) (subject, in each case, to
equitable adjustments for stock splits, stock dividends or rights offerings by
the Borrower relating to the Borrower's securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events). The "Variable Conversion Price"
shall mean the Applicable Percentage (as defined herein) multiplied by the
Market Price (as defined herein). "Market Price" means the average of the lowest
three (3) Trading Prices (as defined below) for the Common Stock during the
twenty (20) Trading Day period ending one Trading Day prior to the date the
Conversion Notice is sent by the Holder to the Borrower via facsimile (the
"Conversion Date"). "Trading Price" means, for any security as of any date, the
intraday trading price on the Over-the-Counter Bulletin Board (the "OTCBB") as
reported by a reliable reporting service mutually acceptable to and hereafter
designated by Holders of a majority in interest of the Debentures and the
Borrower or, if the OTCBB is not the principal trading market for such security,
the intraday trading price of such security on the principal securities exchange
or trading market where such security is listed or traded or, if no intraday
trading price of such security is available in any of the foregoing manners, the
average of the intraday trading prices of any market makers for such security
that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If
the Trading Price cannot be calculated for such security on such date in the
manner provided above, the Trading Price shall be the fair market value as
mutually determined by the Borrower and the holders of a majority in interest of
the Debentures being converted for which the calculation of the Trading Price is
required in order to determine the Conversion Price of such Debentures. "Trading
Day" shall mean any day on which the Common Stock is traded for any period on
the OTCBB, or on the principal securities exchange or other securities market on
which the Common Stock is then being traded. "Applicable Percentage" shall mean
50.0%. The "Fixed Conversion Price" shall mean $.01.

                   (b) Conversion Price During Major Announcements.
Notwithstanding anything contained in Section 1.2(a) to the contrary, in the
event the Borrower (i) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which
the Borrower is the surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the assets of the
Borrower or (ii) any person, group or entity (including the Borrower) publicly

                                       3

<PAGE>

announces a tender offer to purchase 50% or more of the Borrower's Common Stock
(or any other takeover scheme) (the date of the announcement referred to in
clause (i) or (ii) is hereinafter referred to as the "Announcement Date"), then
the Conversion Price shall, effective upon the Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined below), be
equal to the lower of (x) the Conversion Price which would have been applicable
for a Conversion occurring on the Announcement Date and (y) the Conversion Price
that would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in this
Section 1.2(a). For purposes hereof, "Adjusted Conversion Price Termination
Date" shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this Section
1.2(b) has been made, the date upon which the Borrower (in the case of clause
(i) above) or the person, group or entity (in the case of clause (ii) above)
consummates or publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this Section
1.2(b) to become operative.

              1.3 Authorized Shares. Subject to the Stockholder Approval (as
defined in Section 4(m) of the Purchase Agreement), the Borrower covenants that
during the period the conversion right exists, the Borrower will reserve from
its authorized and unissued Common Stock a sufficient number of shares, free
from preemptive rights, to provide for the issuance of Common Stock upon the
full conversion of this Debenture and the other Debentures issued pursuant to
the Purchase Agreement. The Borrower is required at all times to have authorized
and reserved two times the number of shares that is actually issuable upon full
conversion of the Debentures (based on the Conversion Price of the Debentures or
the Exercise Price of the Warrants in effect from time to time) (the "Reserved
Amount"). The Reserved Amount shall be increased from time to time in accordance
with the Borrower's obligations pursuant to Section 4(h) of the Purchase
Agreement. The Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. In addition, if the Borrower
shall issue any securities or make any change to its capital structure which
would change the number of shares of Common Stock into which the Debentures
shall be convertible at the then current Conversion Price, the Borrower shall at
the same time make proper provision so that thereafter there shall be a
sufficient number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Debentures. The Borrower
(i) acknowledges that it has irrevocably instructed its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this Debenture,
and (ii) agrees that its issuance of this Debenture shall constitute full
authority to its officers and agents who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for shares of
Common Stock in accordance with the terms and conditions of this Debenture.

              If, at any time a Holder of this Debenture submits a Notice of
Conversion, and the Borrower does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article I (a "Conversion Default"), subject to Section
4.8, the Borrower shall issue to the Holder all of the shares of Common Stock
which are then available to effect such conversion. The portion of this
Debenture which the Holder included in its Conversion Notice and which exceeds
the amount which is then convertible into available shares of Common Stock (the
"Excess Amount") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the terms hereof

                                       4

<PAGE>

until (and at the Holder's option at any time after) the date additional shares
of Common Stock are authorized by the Borrower to permit such conversion, at
which time the Conversion Price in respect thereof shall be the lesser of (i)
the Conversion Price on the Conversion Default Date (as defined below) and (ii)
the Conversion Price on the Conversion Date thereafter elected by the Holder in
respect thereof. In addition, the Borrower shall pay to the Holder payments
("Conversion Default Payments") for a Conversion Default in the amount of (x)
the sum of (1) the then outstanding principal amount of this Debenture plus (2)
accrued and unpaid interest on the unpaid principal amount of this Debenture
through the Authorization Date (as defined below) plus (3) Default Interest, if
any, on the amounts referred to in clauses (1) and/or (2), multiplied by (y)
..24, multiplied by (z) (N/365), where N = the number of days from the day the
holder submits a Notice of Conversion giving rise to a Conversion Default (the
"Conversion Default Date") to the date (the "Authorization Date") that the
Borrower authorizes a sufficient number of shares of Common Stock to effect
conversion of the full outstanding principal balance of this Debenture. The
Borrower shall use its best efforts to authorize a sufficient number of shares
of Common Stock as soon as practicable following the earlier of (i) such time
that the Holder notifies the Borrower or that the Borrower otherwise becomes
aware that there are or likely will be insufficient authorized and unissued
shares to allow full conversion thereof and (ii) a Conversion Default. The
Borrower shall send notice to the Holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of Holder's
accrued Conversion Default Payments. The accrued Conversion Default Payments for
each calendar month shall be paid in cash or shall be convertible into Common
Stock (at such time as there are sufficient authorized shares of Common Stock)
at the applicable Conversion Price, at the Holder's option, as follows:

                   (a) In the event Holder elects to take such payment in cash,
cash payment shall be made to Holder by the fifth (5th) day of the month
following the month in which it has accrued; and

                   (b) In the event Holder elects to take such payment in Common
Stock, the Holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Article I (so long as there is then a sufficient number
of authorized shares of Common Stock).

              The Holder's election shall be made in writing to the Borrower at
any time prior to 6:00 p.m., New York, New York time, on the third day of the
month following the month in which Conversion Default payments have accrued. If
no election is made, the Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the Holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Borrower's failure
to maintain a sufficient number of authorized shares of Common Stock, and each
holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).

              1.4  Method of Conversion.

                   (a) Mechanics of Conversion. Subject to Section 1.1, this
Debenture may be converted by the Holder in whole or in part at any time from
time to time after the Issue Date, by (A) submitting to the Borrower a Notice of
Conversion (by facsimile or other reasonable means of communication dispatched
on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B)
subject to Section 1.4(b), surrendering this Debenture at the principal office
of the Borrower.

                                       5

<PAGE>

                   (b) Surrender of Debenture Upon Conversion. Notwithstanding
anything to the contrary set forth herein, upon conversion of this Debenture in
accordance with the terms hereof, the Holder shall not be required to physically
surrender this Debenture to the Borrower unless the entire unpaid principal
amount of this Debenture is so converted. The Holder and the Borrower shall
maintain records showing the principal amount so converted and the dates of such
conversions or shall use such other method, reasonably satisfactory to the
Holder and the Borrower, so as not to require physical surrender of this
Debenture upon each such conversion. In the event of any dispute or discrepancy,
such records of the Borrower shall be controlling and determinative in the
absence of manifest error. Notwithstanding the foregoing, if any portion of this
Debenture is converted as aforesaid, the Holder may not transfer this Debenture
unless the Holder first physically surrenders this Debenture to the Borrower,
whereupon the Borrower will forthwith issue and deliver upon the order of the
Holder a new Debenture of like tenor, registered as the Holder (upon payment by
the Holder of any applicable transfer taxes) may request, representing in the
aggregate the remaining unpaid principal amount of this Debenture. The Holder
and any assignee, by acceptance of this Debenture, acknowledge and agree that,
by reason of the provisions of this paragraph, following conversion of a portion
of this Debenture, the unpaid and unconverted principal amount of this Debenture
represented by this Debenture may be less than the amount stated on the face
hereof.

                   (c) Payment of Taxes. The Borrower shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock or other securities or property on
conversion of this Debenture in a name other than that of the Holder (or in
street name), and the Borrower shall not be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons (other than the Holder or the custodian in whose street name such shares
are to be held for the Holder's account) requesting the issuance thereof shall
have paid to the Borrower the amount of any such tax or shall have established
to the satisfaction of the Borrower that such tax has been paid.

                   (d) Delivery of Common Stock Upon Conversion. Upon receipt by
the Borrower from the Holder of a facsimile transmission (or other reasonable
means of communication) of a Notice of Conversion meeting the requirements for
conversion as provided in this Section 1.4, the Borrower shall issue and deliver
or cause to be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable upon such conversion within two (2)
business days after such receipt (and, solely in the case of conversion of the
entire unpaid principal amount hereof, surrender of this Debenture) (such second
business day being hereinafter referred to as the "Deadline") in accordance with
the terms hereof and the Purchase Agreement (including, without limitation, in
accordance with the requirements of Section 2(g) of the Purchase Agreement that
certificates for shares of Common Stock issued on or after the effective date of
the Registration Statement upon conversion of this Debenture shall not bear any
restrictive legend).

                                       6

<PAGE>

                   (e) Obligation of Borrower to Deliver Common Stock. Upon
receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to
be the holder of record of the Common Stock issuable upon such conversion, the
outstanding principal amount and the amount of accrued and unpaid interest on
this Debenture shall be reduced to reflect such conversion, and, unless the
Borrower defaults on its obligations under this Article I, all rights with
respect to the portion of this Debenture being so converted shall forthwith
terminate except the right to receive the Common Stock or other securities, cash
or other assets, as herein provided, on such conversion. If the Holder shall
have given a Notice of Conversion as provided herein, the Borrower's obligation
to issue and deliver the certificates for Common Stock shall be absolute and
unconditional, irrespective of the absence of any action by the Holder to
enforce the same, any waiver or consent with respect to any provision thereof,
the recovery of any judgment against any person or any action to enforce the
same, any failure or delay in the enforcement of any other obligation of the
Borrower to the holder of record, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder of any
obligation to the Borrower, and irrespective of any other circumstance which
might otherwise limit such obligation of the Borrower to the Holder in
connection with such conversion. The Conversion Date specified in the Notice of
Conversion shall be the Conversion Date so long as the Notice of Conversion is
received by the Borrower before 6:00 p.m., New York, New York time, on such
date.

                   (f) Delivery of Common Stock by Electronic Transfer. In lieu
of delivering physical certificates representing the Common Stock issuable upon
conversion, provided the Borrower's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the Holder and its compliance with the provisions
contained in Section 1.1 and in this Section 1.4, the Borrower shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of
Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
("DWAC") system.

                   (g) Failure to Deliver Common Stock Prior to Deadline.
Without in any way limiting the Holder's right to pursue other remedies,
including actual damages and/or equitable relief, the parties agree that if
delivery of the Common Stock issuable upon conversion of this Debenture is more
than two (2) days after the Deadline (other than a failure due to the
circumstances described in Section 1.3 above, which failure shall be governed by
such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for
each day beyond the Deadline that the Borrower fails to deliver such Common
Stock. Such cash amount shall be paid to Holder by the fifth day of the month
following the month in which it has accrued or, at the option of the Holder (by
written notice to the Borrower by the first day of the month following the month
in which it has accrued), shall be added to the principal amount of this
Debenture, in which event interest shall accrue thereon in accordance with the
terms of this Debenture and such additional principal amount shall be
convertible into Common Stock in accordance with the terms of this Debenture.

              1.5 Concerning the Shares. The shares of Common Stock issuable
upon conversion of this Debenture may not be sold or transferred unless (i) such
shares are sold pursuant to an effective registration statement under the Act or
(ii) the Borrower or its transfer agent shall have been furnished with an
opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that

                                       7

<PAGE>

the shares to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration or (iii) such shares are sold or transferred
pursuant to Rule 144 under the Act (or a successor rule) ("Rule 144") or (iv)
such shares are transferred to an "affiliate" (as defined in Rule 144) of the
Borrower who agrees to sell or otherwise transfer the shares only in accordance
with this Section 1.5 and who is an Accredited Investor (as defined in the
Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and
subject to the removal provisions set forth below), until such time as the
shares of Common Stock issuable upon conversion of this Debenture have been
registered under the Act as contemplated by the Registration Rights Agreement or
otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold,
each certificate for shares of Common Stock issuable upon conversion of this
Debenture that has not been so included in an effective registration statement
or that has not been sold pursuant to an effective registration statement or an
exemption that permits removal of the legend, shall bear a legend substantially
in the following form, as appropriate:

         "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THE
         SECURITIES  MAY NOT BE SOLD,  TRANSFERRED  OR ASSIGNED IN THE
         ABSENCE  OF  AN  EFFECTIVE  REGISTRATION  STATEMENT  FOR  THE
         SECURITIES  UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM,
         SUBSTANCE  AND SCOPE  CUSTOMARY  FOR  OPINIONS  OF COUNSEL IN
         COMPARABLE  TRANSACTIONS,  THAT  REGISTRATION IS NOT REQUIRED
         UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION
         S UNDER SAID ACT."

              The legend set forth above shall be removed and the Borrower shall
issue to the Holder a new certificate therefor free of any transfer legend if
(i) the Borrower or its transfer agent shall have received an opinion of
counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of such
Common Stock may be made without registration under the Act and the shares are
so sold or transferred, (ii) such Holder provides the Borrower or its transfer
agent with reasonable assurances that the Common Stock issuable upon conversion
of this Debenture (to the extent such securities are deemed to have been
acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case
of the Common Stock issuable upon conversion of this Debenture, such security is
registered for sale by the Holder under an effective registration statement
filed under the Act or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately sold. Nothing in this Debenture shall (i) limit the Borrower's
obligation under the Registration Rights Agreement or (ii) affect in any way the
Holder's obligations to comply with applicable prospectus delivery requirements
upon the resale of the securities referred to herein.

              1.6  Effect of Certain Events.

                   (a) Effect of Merger, Consolidation, Etc. At the option of
the Holder, the sale, conveyance or disposition of all or substantially all of
the assets of the Borrower, the effectuation by the Borrower of a transaction or
series of related transactions in which more than 50% of the voting power of the
Borrower is disposed of, or the consolidation, merger or other business
combination of the Borrower with or into any other Person (as defined below) or

                                       8

<PAGE>

Persons when the Borrower is not the survivor shall either: (i) be deemed to be
an Event of Default (as defined in Article III) pursuant to which the Borrower
shall be required to pay to the Holder upon the consummation of and as a
condition to such transaction an amount equal to the Default Amount (as defined
in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. "Person"
shall mean any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.

                   (b) Adjustment Due to Merger, Consolidation, Etc. If, at any
time when this Debenture is issued and outstanding and prior to conversion of
all of the Debentures, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then the Holder of this Debenture
shall thereafter have the right to receive upon conversion of this Debenture,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore issuable upon conversion,
such stock, securities or assets which the Holder would have been entitled to
receive in such transaction had this Debenture been converted in full
immediately prior to such transaction (without regard to any limitations on
conversion set forth herein), and in any such case appropriate provisions shall
be made with respect to the rights and interests of the Holder of this Debenture
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares issuable upon
conversion of the Debenture) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter deliverable upon
the conversion hereof. The Borrower shall not effect any transaction described
in this Section 1.6(b) unless (a) it first gives, to the extent practicable,
thirty (30) days prior written notice (but in any event at least fifteen (15)
days prior written notice) of the record date of the special meeting of
shareholders to approve, or if there is no such record date, the consummation
of, such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event or sale of assets (during which time the
Holder shall be entitled to convert this Debenture) and (b) the resulting
successor or acquiring entity (if not the Borrower) assumes by written
instrument the obligations of this Section 1.6(b). The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.

                   (c) Adjustment Due to Distribution. If the Borrower shall
declare or make any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a dividend, stock repurchase, by way of return of
capital or otherwise (including any dividend or distribution to the Borrower's
shareholders in cash or shares (or rights to acquire shares) of capital stock of
a subsidiary (i.e., a spin-off)) (a "Distribution"), then the Holder of this
Debenture shall be entitled, upon any conversion of this Debenture after the
date of record for determining shareholders entitled to such Distribution, to
receive the amount of such assets which would have been payable to the Holder
with respect to the shares of Common Stock issuable upon such conversion had
such Holder been the holder of such shares of Common Stock on the record date
for the determination of shareholders entitled to such Distribution.

                                       9

<PAGE>

                   (d) Adjustment Due to Dilutive Issuance. If, at any time when
any Debentures are issued and outstanding, the Borrower issues or sells, or in
accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any
shares of Common Stock for no consideration or for a consideration per share
(before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Fixed Conversion
Price in effect on the date of such issuance (or deemed issuance) of such shares
of Common Stock (a "Dilutive Issuance"), then immediately upon the Dilutive
Issuance, the Fixed Conversion Price will be reduced to the amount of the
consideration per share received by the Borrower in such Dilutive Issuance;
provided that only one adjustment will be made for each Dilutive Issuance.

                   The Borrower shall be deemed to have issued or sold shares of
Common Stock if the Borrower in any manner issues or grants any warrants, rights
or options, whether or not immediately exercisable, to subscribe for or to
purchase Common Stock or other securities convertible into or exchangeable for
Common Stock ("Convertible Securities") (such warrants, rights and options to
purchase Common Stock or Convertible Securities are hereinafter referred to as
"Options") and the price per share for which Common Stock is issuable upon the
exercise of such Options is less than the Fixed Conversion Price then in effect,
then the Fixed Conversion Price shall be equal to such price per share. For
purposes of the preceding sentence, the "price per share for which Common Stock
is issuable upon the exercise of such Options" is determined by dividing (i) the
total amount, if any, received or receivable by the Borrower as consideration
for the issuance or granting of all such Options, plus the minimum aggregate
amount of additional consideration, if any, payable to the Borrower upon the
exercise of all such Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Options, the minimum aggregate amount of
additional consideration payable upon the conversion or exchange thereof at the
time such Convertible Securities first become convertible or exchangeable, by
(ii) the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options (assuming full conversion of Convertible
Securities, if applicable). No further adjustment to the Conversion Price will
be made upon the actual issuance of such Common Stock upon the exercise of such
Options or upon the conversion or exchange of Convertible Securities issuable
upon exercise of such Options.

                   Additionally, the Borrower shall be deemed to have issued or
sold shares of Common Stock if the Borrower in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options), and the price per share for
which Common Stock is issuable upon such conversion or exchange is less than the
Fixed Conversion Price then in effect, then the Fixed Conversion Price shall be
equal to such price per share. For the purposes of the preceding sentence, the
"price per share for which Common Stock is issuable upon such conversion or
exchange" is determined by dividing (i) the total amount, if any, received or
receivable by the Borrower as consideration for the issuance or sale of all such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Borrower upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment to the Fixed Conversion Price will be made upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.

                                       10

<PAGE>

                   (e) Purchase Rights. If, at any time when any Debentures are
issued and outstanding, the Borrower issues any convertible securities or rights
to purchase stock, warrants, securities or other property (the "Purchase
Rights") pro rata to the record holders of any class of Common Stock, then the
Holder of this Debenture will be entitled to acquire, upon the terms applicable
to such Purchase Rights, the aggregate Purchase Rights which such Holder could
have acquired if such Holder had held the number of shares of Common Stock
acquirable upon complete conversion of this Debenture (without regard to any
limitations on conversion contained herein) immediately before the date on which
a record is taken for the grant, issuance or sale of such Purchase Rights or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.

                   (f) Notice of Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price as a result of the events
described in this Section 1.6, the Borrower, at its expense, shall promptly
compute such adjustment or readjustment and prepare and furnish to the Holder of
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Borrower shall, upon the written request at any time of the Holder, furnish to
such Holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of the Debenture.

              1.7 Trading Market Limitations. Unless permitted by the applicable
rules and regulations of the principal securities market on which the Common
Stock is then listed or traded, in no event shall the Borrower issue upon
conversion of or otherwise pursuant to this Debenture and the other Debentures
issued pursuant to the Purchase Agreement more than the maximum number of shares
of Common Stock that the Borrower can issue pursuant to any rule of the
principal United States securities market on which the Common Stock is then
traded (the "Maximum Share Amount"), which, as of the Issue Date shall be
12,264,142 shares (19.99% of the total shares outstanding on the Issue Date),
subject to equitable adjustment from time to time for stock splits, stock
dividends, combinations, capital reorganizations and similar events relating to
the Common Stock occurring after the date hereof. Once the Maximum Share Amount
has been issued (the date of which is hereinafter referred to as the "Maximum
Conversion Date"), if the Borrower fails to eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Borrower or any of its securities on the Borrower's ability to issue shares
of Common Stock in excess of the Maximum Share Amount (a "Trading Market
Prepayment Event"), in lieu of any further right to convert this Debenture, and
in full satisfaction of the Borrower's obligations under this Debenture, the
Borrower shall pay to the Holder, within fifteen (15) business days of the
Maximum Conversion Date (the "Trading Market Prepayment Date"), an amount equal
to 130% times the sum of (a) the then outstanding principal amount of this
Debenture immediately following the Maximum Conversion Date, plus (b) accrued
and unpaid interest on the unpaid principal amount of this Debenture to the
Trading Market Prepayment Date, plus (c) Default Interest, if any, on the
amounts referred to in clause (a) and/or (b) above, plus (d) any optional
amounts that may be added thereto at the Maximum Conversion Date by the Holder
in accordance with the terms hereof (the then outstanding principal amount of
this Debenture immediately following the Maximum Conversion Date, plus the

                                       11

<PAGE>

amounts referred to in clauses (b), (c) and (d) above shall collectively be
referred to as the "Remaining Convertible Amount"). With respect to each Holder
of Debentures, the Maximum Share Amount shall refer to such Holder's pro rata
share thereof determined in accordance with Section 4.8 below. In the event that
the sum of (x) the aggregate number of shares of Common Stock issued upon
conversion of this Debenture and the other Debentures issued pursuant to the
Purchase Agreement plus (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of this Debenture and the other Debentures
issued pursuant to the Purchase Agreement, represents at least one hundred
percent (100%) of the Maximum Share Amount (the "Triggering Event"), the
Borrower will use its best efforts to seek and obtain Shareholder Approval (or
obtain such other relief as will allow conversions hereunder in excess of the
Maximum Share Amount) as soon as practicable following the Triggering Event and
before the Maximum Conversion Date. As used herein, "Shareholder Approval" means
approval by the shareholders of the Borrower to authorize the issuance of the
full number of shares of Common Stock which would be issuable upon full
conversion of the then outstanding Debentures but for the Maximum Share Amount.

              1.8 Status as Shareholder. Upon submission of a Notice of
Conversion by a Holder, (i) the shares covered thereby (other than the shares,
if any, which cannot be issued because their issuance would exceed such Holder's
allocated portion of the Reserved Amount or Maximum Share Amount) shall be
deemed converted into shares of Common Stock and (ii) the Holder's rights as a
Holder of such converted portion of this Debenture shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such Holder because of a failure by the Borrower to comply with the terms of
this Debenture. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Deadline with respect to a conversion of any
portion of this Debenture for any reason, then (unless the Holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Borrower) the Holder shall regain the rights of a Holder of this Debenture with
respect to such unconverted portions of this Debenture and the Borrower shall,
as soon as practicable, return such unconverted Debenture to the Holder or, if
the Debenture has not been surrendered, adjust its records to reflect that such
portion of this Debenture has not been converted. In all cases, the Holder shall
retain all of its rights and remedies (including, without limitation, (i) the
right to receive Conversion Default Payments pursuant to Section 1.3 to the
extent required thereby for such Conversion Default and any subsequent
Conversion Default and (ii) the right to have the Conversion Price with respect
to subsequent conversions determined in accordance with Section 1.3) for the
Borrower's failure to convert this Debenture.

                         Article II. CERTAIN COVENANTS

              2.1 Distributions on Capital Stock. So long as the Borrower shall
have any obligation under this Debenture, the Borrower shall not without the
Holder's written consent (a) pay, declare or set apart for such payment, any
dividend or other distribution (whether in cash, property or other securities)
on shares of capital stock other than dividends on shares of Common Stock solely
in the form of additional shares of Common Stock or (b) directly or indirectly
or through any subsidiary make any other payment or distribution in respect of
its capital stock except for distributions pursuant to any shareholders' rights
plan which is approved by a majority of the Borrower's disinterested directors.

                                       12

<PAGE>

              2.2 Restriction on Stock Repurchases. So long as the Borrower
shall have any obligation under this Debenture, the Borrower shall not without
the Holder's written consent redeem, repurchase or otherwise acquire (whether
for cash or in exchange for property or other securities or otherwise) in any
one transaction or series of related transactions any shares of capital stock of
the Borrower or any warrants, rights or options to purchase or acquire any such
shares.

              2.3 Borrowings. So long as the Borrower shall have any obligation
under this Debenture, the Borrower shall not, without the Holder's written
consent, create, incur, assume or suffer to exist any liability for borrowed
money, except (a) borrowings in existence or committed on the date hereof and of
which the Borrower has informed Holder in writing prior to the date hereof, (b)
indebtedness to trade creditors or financial institutions incurred in the
ordinary course of business or (c) borrowings, the proceeds of which shall be
used to repay this Debenture.

              2.4 Sale of Assets. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, sell, lease or otherwise dispose of any significant portion of
its assets outside the ordinary course of business. Any consent to the
disposition of any assets may be conditioned on a specified use of the proceeds
of disposition.

              2.5 Advances and Loans. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, lend money, give credit or make advances to any person, firm,
joint venture or corporation, including, without limitation, officers,
directors, employees, subsidiaries and affiliates of the Borrower, except loans,
credits or advances (a) in existence or committed on the date hereof and which
the Borrower has informed Holder in writing prior to the date hereof, (b) made
in the ordinary course of business or (c) not in excess of $50,000.

              2.6 Contingent Liabilities. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm, partnership,
joint venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection and except assumptions, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof
and which the Borrower has informed Holder in writing prior to the date hereof,
and (b) similar transactions in the ordinary course of business.

                         Article III. EVENTS OF DEFAULT

              If any of the following events of default (each, an "Event of
Default") shall occur:

                                       13

<PAGE>

              3.1 Failure to Pay Principal or Interest. The Borrower fails to
pay the principal hereof or interest thereon when due on this Debenture, whether
at maturity, upon a Trading Market Prepayment Event pursuant to Section 1.7,
upon acceleration or otherwise.

              3.2 Conversion and the Shares. The Borrower fails to issue shares
of Common Stock to the Holder (or announces or threatens that it will not honor
its obligation to do so) upon exercise by the Holder of the conversion rights of
the Holder in accordance with the terms of this Debenture (for a period of at
least sixty (60) days, if such failure is solely as a result of the
circumstances governed by Section 1.3 and the Borrower is using its best efforts
to authorize a sufficient number of shares of Common Stock as soon as
practicable), fails to transfer or cause its transfer agent to transfer
(electronically or in certificated form) any certificate for shares of Common
Stock issued to the Holder upon conversion of or otherwise pursuant to this
Debenture as and when required by this Debenture or the Registration Rights
Agreement, or fails to remove any restrictive legend (or to withdraw any stop
transfer instructions in respect thereof) on any certificate for any shares of
Common Stock issued to the Holder upon conversion of or otherwise pursuant to
this Debenture as and when required by this Debenture or the Registration Rights
Agreement (or makes any announcement, statement or threat that it does not
intend to honor the obligations described in this paragraph) and any such
failure shall continue uncured (or any announcement, statement or threat not to
honor its obligations shall not be rescinded in writing) for ten (10) days after
the Borrower shall have been notified thereof in writing by the Holder.

              3.3 Failure to Timely File Registration or Effect Registration.
The Borrower fails to file the Registration Statement within sixty (60) days
following the Closing Date (as defined in the Purchase Agreement) or obtain
effectiveness with the Securities and Exchange Commission of the Registration
Statement within one hundred thirty-five (135) days following the Filing Date or
such Registration Statement lapses in effect (or sales cannot otherwise be made
thereunder effective, whether by reason of the Borrower's failure to amend or
supplement the prospectus included therein in accordance with the Registration
Rights Agreement or otherwise) for more than twenty (20) consecutive days or
forty (40) days in any twelve month period after the Registration Statement
becomes effective;

              3.4 Breach of Covenants. The Borrower breaches any material
covenant or other material term or condition contained in Sections 1.3, 1.6 or
1.7 of this Debenture, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of the
Purchase Agreement and such breach continues for a period of ten (10) days after
written notice thereof to the Borrower from the Holder;

              3.5 Breach of Representations and Warranties. Any representation
or warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement and the Registration
Rights Agreement), shall be false or misleading in any material respect when
made and the breach of which has (or with the passage of time will have) a
material adverse effect on the rights of the Holder with respect to this
Debenture, the Purchase Agreement or the Registration Rights Agreement;

              3.6 Receiver or Trustee. The Borrower or any subsidiary of the
Borrower shall make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee shall otherwise
be appointed;

                                       14

<PAGE>

              3.7 Judgments. Any money judgment, writ or similar process shall
be entered or filed against the Borrower or any subsidiary of the Borrower or
any of its property or other assets for more than $50,000, and shall remain
unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld;

              3.8 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower or any subsidiary of the Borrower;

              3.9 Delisting of Common Stock. The Borrower shall fail to maintain
the listing of the Common Stock on at least one of the OTCBB or an equivalent
replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market,
the New York Stock Exchange, or the American Stock Exchange; or

              3.10 Default Under Other Debentures. An Event of Default has
occurred and is continuing under any of the other Debentures issued pursuant to
the Purchase Agreement,

then, upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of the Holders of a majority of the aggregate principal amount of the
outstanding Debentures issued pursuant to the Purchase Agreement exercisable
through the delivery of written notice to the Borrower by such Holders (the
"Default Notice"), and upon the occurrence of an Event of Default specified in
Section 3.6 or 3.8, the Debentures shall become immediately due and payable and
the Borrower shall pay to the Holder, in full satisfaction of its obligations
hereunder, an amount equal to the greater of (i) 130% times the sum of (w) the
then outstanding principal amount of this Debenture plus (x) accrued and unpaid
interest on the unpaid principal amount of this Debenture to the date of payment
(the "Mandatory Prepayment Date") plus (y) Default Interest, if any, on the
amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
the Registration Rights Agreement (the then outstanding principal amount of this
Debenture to the date of payment plus the amounts referred to in clauses (x),
(y) and (z) shall collectively be known as the "Default Sum") or (ii) the
"parity value" of the Default Sum to be prepaid, where parity value means (a)
the highest number of shares of Common Stock issuable upon conversion of or
otherwise pursuant to such Default Sum in accordance with Article I, treating
the Trading Day immediately preceding the Mandatory Prepayment Date as the
"Conversion Date" for purposes of determining the lowest applicable Conversion
Price, unless the Default Event arises as a result of a breach in respect of a
specific Conversion Date in which case such Conversion Date shall be the
Conversion Date), multiplied by (b) the highest Closing Price for the Common
Stock during the period beginning on the date of first occurrence of the Event
of Default and ending one day prior to the Mandatory Prepayment Date (the
"Default Amount") and all other amounts payable hereunder shall immediately
become due and payable, all without demand, presentment or notice, all of which
hereby are expressly waived, together with all costs, including, without
limitation, legal fees and expenses, of collection, and the Holder shall be
entitled to exercise all other rights and remedies available at law or in

                                       15

<PAGE>

equity. If the Borrower fails to pay the Default Amount within five (5) business
days of written notice that such amount is due and payable, then the Holder
shall have the right at any time, so long as the Borrower remains in default
(and so long and to the extent that there are sufficient authorized shares), to
require the Borrower, upon written notice, to immediately issue, in lieu of the
Default Amount, the number of shares of Common Stock of the Borrower equal to
the Default Amount divided by the Conversion Price then in effect.

                           Article IV. MISCELLANEOUS

              4.1 Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

              4.2 Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by courier or sent
by United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Borrower; and the address of the Borrower shall be 446 Lincoln
Highway, Fairless Hills, PA 19030, facsimile number: 267-580-1090. Both the
Holder and the Borrower may change the address for service by service of written
notice to the other as herein provided.

              4.3 Amendments. This Debenture and any provision hereof may only
be amended by an instrument in writing signed by the Borrower and the Holder.
The term "Debenture" and all reference thereto, as used throughout this
instrument, shall mean this instrument (and the other Debentures issued pursuant
to the Purchase Agreement) as originally executed, or if later amended or
supplemented, then as so amended or supplemented.

              4.4 Assignability. This Debenture shall be binding upon the
Borrower and its successors and assigns, and shall inure to be the benefit of
the Holder and its successors and assigns. Each transferee of this Debenture
must be an "accredited investor" (as defined in Rule 501(a) of the 1933 Act).
Notwithstanding anything in this Debenture to the contrary, this Debenture may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement.

              4.5 Cost of Collection. If default is made in the payment of this
Debenture, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.

              4.6 Governing Law. THIS DEBENTURE SHALL BE ENFORCED, GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS DEBENTURE, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED

                                       16

<PAGE>

IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS DEBENTURE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.

              4.7 Certain Amounts. Whenever pursuant to this Debenture the
Borrower is required to pay an amount in excess of the outstanding principal
amount (or the portion thereof required to be paid at that time) plus accrued
and unpaid interest plus Default Interest on such interest, the Borrower and the
Holder agree that the actual damages to the Holder from the receipt of cash
payment on this Debenture may be difficult to determine and the amount to be so
paid by the Borrower represents stipulated damages and not a penalty and is
intended to compensate the Holder in part for loss of the opportunity to convert
this Debenture and to earn a return from the sale of shares of Common Stock
acquired upon conversion of this Debenture at a price in excess of the price
paid for such shares pursuant to this Debenture. The Borrower and the Holder
hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the receipt of a cash
payment without the opportunity to convert this Debenture into shares of Common
Stock.

              4.8 Allocations of Maximum Share Amount and Reserved Amount. The
Maximum Share Amount and Reserved Amount shall be allocated pro rata among the
Holders of Debentures based on the principal amount of such Debentures issued to
each Holder. Each increase to the Maximum Share Amount and Reserved Amount shall
be allocated pro rata among the Holders of Debentures based on the principal
amount of such Debentures held by each Holder at the time of the increase in the
Maximum Share Amount or Reserved Amount. In the event a Holder shall sell or
otherwise transfer any of such Holder's Debentures, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount and
Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any
Debentures shall be allocated to the remaining Holders of Debentures, pro rata
based on the principal amount of such Debentures then held by such Holders.

                                       17

<PAGE>

              4.9 Damages Shares. The shares of Common Stock that may be
issuable to the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant
to Section 2(c) of the Registration Rights Agreement ("Damages Shares") shall be
treated as Common Stock issuable upon conversion of this Debenture for all
purposes hereof and shall be subject to all of the limitations and afforded all
of the rights of the other shares of Common Stock issuable hereunder, including
without limitation, the right to be included in the Registration Statement filed
pursuant to the Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein, amounts convertible into Damages Shares ("Damages Amounts")
shall not bear interest but must be converted prior to the conversion of any
outstanding principal amount hereof, until the outstanding Damages Amounts is
zero.

              4.10 Denominations. At the request of the Holder, upon surrender
of this Debenture, the Borrower shall promptly issue new Debentures in the
aggregate outstanding principal amount hereof, in the form hereof, in such
denominations of at least $50,000 as the Holder shall request.

              4.11 Purchase Agreement. By its acceptance of this Debenture, each
Holder agrees to be bound by the applicable terms of the Purchase Agreement.

              4.12 Notice of Corporate Events. Except as otherwise provided
below, the Holder of this Debenture shall have no rights as a Holder of Common
Stock unless and only to the extent that it converts this Debenture into Common
Stock. The Borrower shall provide the Holder with prior notification of any
meeting of the Borrower's shareholders (and copies of proxy materials and other
information sent to shareholders). In the event of any taking by the Borrower of
a record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation, reclassification or recapitalization) any share of any class or
any other securities or property, or to receive any other right, or for the
purpose of determining shareholders who are entitled to vote in connection with
any proposed sale, lease or conveyance of all or substantially all of the assets
of the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
4.12.

              4.13 Remedies. The Borrower acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder, by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Borrower acknowledges that the remedy at law for a breach of
its obligations under this Debenture will be inadequate and agrees, in the event
of a breach or threatened breach by the Borrower of the provisions of this
Debenture, that the Holder shall be entitled, in addition to all other available
remedies at law or in equity, and in addition to the penalties assessable

                                       18

<PAGE>

herein, to an injunction or injunctions restraining, preventing or curing any
breach of this Debenture and to enforce specifically the terms and provisions
thereof, without the necessity of showing economic loss and without any bond or
other security being required.

                         Article V. OPTIONAL PREPAYMENT

              5.1 Optional Prepayment. Notwithstanding anything to the contrary
contained in this Article V, so long as (i) no Event of Default or Trading
Market Prepayment Event shall have occurred and be continuing, (ii) the Borrower
has a sufficient number of authorized shares of Common Stock reserved for
issuance upon full conversion of the Debentures, then at any time after the
Issue Date, and (iii) the common stock is trading below $1.00 per share the
Borrower shall have the right, exercisable on not less than ten (10) Trading
Days prior written notice to the Holders of the Debentures (which notice may not
be sent to the Holders of the Debentures until the Borrower is permitted to
prepay the Debentures pursuant to this Section 5.1), to prepay all of the
outstanding Debentures in accordance with this Section 5.1. Any notice of
prepayment hereunder (an "Optional Prepayment") shall be delivered to the
Holders of the Debentures at their registered addresses appearing on the books
and records of the Borrower and shall state (1) that the Borrower is exercising
its right to prepay all of the Debentures issued on the Issue Date and (2) the
date of prepayment (the "Optional Prepayment Notice"). On the date fixed for
prepayment (the "Optional Prepayment Date"), the Borrower shall make payment of
the Optional Prepayment Amount (as defined below) to or upon the order of the
Holders as specified by the Holders in writing to the Borrower at least one (1)
business day prior to the Optional Prepayment Date. If the Borrower exercises
its right to prepay the Debentures, the Borrower shall make payment to the
holders of an amount in cash (the "Optional Prepayment Amount") equal to either
(i) 130% (for prepayments occurring within thirty (30) days of the Issue Date),
(ii) 140% (for prepayments occurring between thirty-one (31) and ninety (90)
days of the Issue Date) or (iii) 150% (for prepayments occurring after the
ninetieth (90th) day following the Issue Date), multiplied by the sum of (w) the
then outstanding principal amount of this Debenture plus (x) accrued and unpaid
interest on the unpaid principal amount of this Debenture to the Optional
Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in
clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections
1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the Registration Rights
Agreement (the then outstanding principal amount of this Debenture to the date
of payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "Optional Prepayment Sum"). Notwithstanding notice
of an Optional Prepayment, the Holders shall at all times prior to the Optional
Prepayment Date maintain the right to convert all or any portion of the
Debentures in accordance with Article I and any portion of Debentures so
converted after receipt of an Optional Prepayment Notice and prior to the
Optional Prepayment Date set forth in such notice and payment of the aggregate
Optional Prepayment Amount shall be deducted from the principal amount of
Debentures which are otherwise subject to prepayment pursuant to such notice. If
the Borrower delivers an Optional Prepayment Notice and fails to pay the
Optional Prepayment Amount due to the Holders of the Debentures within two (2)
business days following the Optional Prepayment Date, the Borrower shall forever
forfeit its right to redeem the Debentures pursuant to this Section 5.1.

                                       19

<PAGE>


              IN WITNESS WHEREOF, Borrower has caused this Debenture to be
signed in its name by its duly authorized officer this 10th day of January,
2003.


                                       DIGITAL DESCRIPTOR SYSTEMS, INC.



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

                                       20

<PAGE>


                                    EXHIBIT A

                              NOTICE OF CONVERSION
                    (To be Executed by the Registered Holder
                       in order to Convert the Debentures)

              The undersigned hereby irrevocably elects to convert $__________
principal amount of the Debenture (defined below) into shares of common stock,
par value $.001 per share ("Common Stock"), of Digital Descriptor Systems, Inc.,
a Delaware corporation (the "Borrower") according to the conditions of the
convertible debentures of the Borrower dated as of January 10, 2003 (the
"Debentures"), as of the date written below. If securities are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates. No fee will be charged to the Holder for any conversion, except
for transfer taxes, if any. A copy of each Debenture is attached hereto (or
evidence of loss, theft or destruction thereof).

              The Borrower shall electronically transmit the Common Stock
issuable pursuant to this Notice of Conversion to the account of the undersigned
or its nominee with DTC through its Deposit Withdrawal Agent Commission system
("DWAC Transfer").

         Name of DTC Prime Broker:
                                  ------------------------------------
         Account Number:
                        ----------------------------------------------

              In lieu of receiving shares of Common Stock issuable pursuant to
this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the number of
shares of Common Stock set forth below (which numbers are based on the Holder's
calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:

         Name:
              --------------------------------------------------------
         Address:
                 -----------------------------------------------------

              The undersigned represents and warrants that all offers and sales
by the undersigned of the securities issuable to the undersigned upon conversion
of the Debentures shall be made pursuant to registration of the securities under
the Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption
from registration under the Act.

                  Date of Conversion:_____________________________
                  Applicable Conversion Price:____________________
                  Number of Shares of Common Stock to be Issued Pursuant to
                  Conversion of the Debentures:______________
                  Signature:______________________________________
                  Name:___________________________________________
                  Address:________________________________________

                                       21

<PAGE>


The Borrower shall issue and deliver shares of Common Stock to an overnight
courier not later than three business days following receipt of the original
Debenture(s) to be converted, and shall make payments pursuant to the Debentures
for the number of business days such issuance and delivery is late.



                                       22

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>9
<FILENAME>ex10-561.txt
<DESCRIPTION>EXHIBIT 10.5.6.1
<TEXT>

<PAGE>


                                                                EXHIBIT 10.5.6.1





         THE SECURITIES  REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
         "ACT").  THE  SECURITIES  MAY  NOT BE  SOLD,  TRANSFERRED  OR
         ASSIGNED  IN  THE  ABSENCE  OF  AN   EFFECTIVE   REGISTRATION
         STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF
         COUNSEL IN FORM,  SUBSTANCE AND SCOPE  CUSTOMARY FOR OPINIONS
         OF COUNSEL IN COMPARABLE  TRANSACTIONS  THAT  REGISTRATION IS
         NOT REQUIRED  UNDER SAID ACT OR UNLESS SOLD  PURSUANT TO RULE
         144 OR REGULATIONS UNDER SAID ACT.


                          SECURED CONVERTIBLE DEBENTURE

Fairless Hills, Pennsylvania
January 10, 2003                                                         $75,000

                  FOR VALUE RECEIVED, DIGITAL DESCRIPTOR SYSTEMS, INC., a
Delaware corporation (hereinafter called the "Borrower"), hereby promises to pay
to the order of AJW Partners, LLC or registered assigns (the "Holder") the sum
of Seventy-Five Thousand Dollars ($75,000), on January 10, 2004 (the "Maturity
Date"), and to pay interest on the unpaid principal balance hereof at the rate
of ten percent (10%) per annum from January 10, 2003 (the "Issue Date") until
the same becomes due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise. Any amount of principal or interest on this Debenture
which is not paid when due shall bear interest at the rate of fifteen percent
(15%) per annum from the due date thereof until the same is paid ("Default
Interest"). Interest shall commence accruing on the issue date, shall be
computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable, at the option of the Holder, either quarterly on March 31,
June 30, September 30 and December 31 of each year beginning on March 31, 2003,
or at the time of conversion of the principal to which such interest relates in
accordance with Article I below. All payments due hereunder (to the extent not
converted into common stock, $.001 par value per share, of the Borrower (the
"Common Stock") in accordance with the terms hereof) shall be made in lawful
money of the United States of America or, at the option of the Borrower, in
whole or in part, in shares of Common Stock of the Borrower valued at the then
applicable Conversion Price (as defined herein). All payments shall be made at
such address as the Holder shall hereafter give to the Borrower by written
notice made in accordance with the provisions of this Debenture. Whenever any
amount expressed to be due by the terms of this Debenture is due on any day
which is not a business day, the same shall instead be due on the next
succeeding day which is a business day and, in the case of any interest payment
date which is not the date on which this Debenture is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of interest due on such date. As used in this
Debenture, the term "business day" shall mean any day other than a Saturday,



<PAGE>

Sunday or a day on which commercial banks in the city of New York, New York are
authorized or required by law or executive order to remain closed. Each
capitalized term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in that certain Securities Purchase Agreement, dated January
10, 2003, pursuant to which this Debenture was originally issued (the "Purchase
Agreement").

         This Debenture is free from all taxes, liens, claims and encumbrances
with respect to the issue thereof and shall not be subject to preemptive rights
or other similar rights of shareholders of the Borrower and will not impose
personal liability upon the holder thereof. The obligations of the Borrower
under this Debenture shall be secured by that certain Security Agreement dated
by and between the Borrower and the Holder of even date herewith.

         The following terms shall apply to this Debenture:

                          Article I. CONVERSION RIGHTS

              1.1 Conversion Right. The Holder shall have the right from time to
time, and at any time on or prior to the earlier of (i) the Maturity Date and
(ii) the date of payment of the Default Amount (as defined in Article III)
pursuant to Section 1.6(a) or Article III, the Optional Prepayment Amount (as
defined in Section 5.1 or any payments pursuant to Section 1.7, each in respect
of the remaining outstanding principal amount of this Debenture to convert all
or any part of the outstanding and unpaid principal amount of this Debenture
into fully paid and non-assessable shares of Common Stock, as such Common Stock
exists on the Issue Date, or any shares of capital stock or other securities of
the Borrower into which such Common Stock shall hereafter be changed or
reclassified at the conversion price (the "Conversion Price") determined as
provided herein (a "Conversion"); provided, however, that in no event shall the
Holder be entitled to convert any portion of this Debenture in excess of that
portion of this Debenture upon conversion of which the sum of (1) the number of
shares of Common Stock beneficially owned by the Holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the Debentures or the
unexercised or unconverted portion of any other security of the Borrower
(including, without limitation, the warrants issued by the Borrower pursuant to
the Purchase Agreement) subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (2) the number of shares of
Common Stock issuable upon the conversion of the portion of this Debenture with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 4.9% of
the outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulations 13D-G thereunder, except as otherwise provided in
clause (1) of such proviso. The Holder of this Debenture may waive the
limitations set forth herein by sixty-one (61) days written notice to the
Company. The number of shares of Common Stock to be issued upon each conversion
of this Debenture shall be determined by dividing the Conversion Amount (as
defined below) by the applicable Conversion Price then in effect on the date
specified in the notice of conversion, in the form attached hereto as Exhibit A
(the "Notice of Conversion"), delivered to the Borrower by the Holder in
accordance with Section 1.4 below; provided that the Notice of Conversion is

                                       2

<PAGE>

submitted by facsimile (or by other means resulting in, or reasonably expected
to result in, notice) to the Borrower before 6:00 p.m., New York, New York time
on such conversion date (the "Conversion Date"). The term "Conversion Amount"
means, with respect to any conversion of this Debenture, the sum of (1) the
principal amount of this Debenture to be converted in such conversion plus (2)
accrued and unpaid interest, if any, on such principal amount at the interest
rates provided in this Debenture to the Conversion Date plus (3) Default
Interest, if any, on the amounts referred to in the immediately preceding
clauses (1) and/or (2) plus (4) at the Holder's option, any amounts owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
that certain Registration Rights Agreement, dated as of January 10, 2003,
executed in connection with the initial issuance of this Debenture and the other
Debentures issued on the Issue Date (the "Registration Rights Agreement").

              1.2  Conversion Price.

                   (a) Calculation of Conversion Price. The Conversion Price
shall be the lesser of (i) the Variable Conversion Price (as defined herein) and
(ii) the Fixed Conversion Price (as defined herein) (subject, in each case, to
equitable adjustments for stock splits, stock dividends or rights offerings by
the Borrower relating to the Borrower's securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events). The "Variable Conversion Price"
shall mean the Applicable Percentage (as defined herein) multiplied by the
Market Price (as defined herein). "Market Price" means the average of the lowest
three (3) Trading Prices (as defined below) for the Common Stock during the
twenty (20) Trading Day period ending one Trading Day prior to the date the
Conversion Notice is sent by the Holder to the Borrower via facsimile (the
"Conversion Date"). "Trading Price" means, for any security as of any date, the
intraday trading price on the Over-the-Counter Bulletin Board (the "OTCBB") as
reported by a reliable reporting service mutually acceptable to and hereafter
designated by Holders of a majority in interest of the Debentures and the
Borrower or, if the OTCBB is not the principal trading market for such security,
the intraday trading price of such security on the principal securities exchange
or trading market where such security is listed or traded or, if no intraday
trading price of such security is available in any of the foregoing manners, the
average of the intraday trading prices of any market makers for such security
that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If
the Trading Price cannot be calculated for such security on such date in the
manner provided above, the Trading Price shall be the fair market value as
mutually determined by the Borrower and the holders of a majority in interest of
the Debentures being converted for which the calculation of the Trading Price is
required in order to determine the Conversion Price of such Debentures. "Trading
Day" shall mean any day on which the Common Stock is traded for any period on
the OTCBB, or on the principal securities exchange or other securities market on
which the Common Stock is then being traded. "Applicable Percentage" shall mean
50.0%. The "Fixed Conversion Price" shall mean $.01.

                   (b) Conversion Price During Major Announcements.
Notwithstanding anything contained in Section 1.2(a) to the contrary, in the
event the Borrower (i) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which
the Borrower is the surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the assets of the
Borrower or (ii) any person, group or entity (including the Borrower) publicly

                                       3

<PAGE>

announces a tender offer to purchase 50% or more of the Borrower's Common Stock
(or any other takeover scheme) (the date of the announcement referred to in
clause (i) or (ii) is hereinafter referred to as the "Announcement Date"), then
the Conversion Price shall, effective upon the Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined below), be
equal to the lower of (x) the Conversion Price which would have been applicable
for a Conversion occurring on the Announcement Date and (y) the Conversion Price
that would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in this
Section 1.2(a). For purposes hereof, "Adjusted Conversion Price Termination
Date" shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this Section
1.2(b) has been made, the date upon which the Borrower (in the case of clause
(i) above) or the person, group or entity (in the case of clause (ii) above)
consummates or publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this Section
1.2(b) to become operative.

              1.3 Authorized Shares. Subject to the Stockholder Approval (as
defined in Section 4(m) of the Purchase Agreement), the Borrower covenants that
during the period the conversion right exists, the Borrower will reserve from
its authorized and unissued Common Stock a sufficient number of shares, free
from preemptive rights, to provide for the issuance of Common Stock upon the
full conversion of this Debenture and the other Debentures issued pursuant to
the Purchase Agreement. The Borrower is required at all times to have authorized
and reserved two times the number of shares that is actually issuable upon full
conversion of the Debentures (based on the Conversion Price of the Debentures or
the Exercise Price of the Warrants in effect from time to time) (the "Reserved
Amount"). The Reserved Amount shall be increased from time to time in accordance
with the Borrower's obligations pursuant to Section 4(h) of the Purchase
Agreement. The Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. In addition, if the Borrower
shall issue any securities or make any change to its capital structure which
would change the number of shares of Common Stock into which the Debentures
shall be convertible at the then current Conversion Price, the Borrower shall at
the same time make proper provision so that thereafter there shall be a
sufficient number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Debentures. The Borrower
(i) acknowledges that it has irrevocably instructed its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this Debenture,
and (ii) agrees that its issuance of this Debenture shall constitute full
authority to its officers and agents who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for shares of
Common Stock in accordance with the terms and conditions of this Debenture.

              If, at any time a Holder of this Debenture submits a Notice of
Conversion, and the Borrower does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article I (a "Conversion Default"), subject to Section
4.8, the Borrower shall issue to the Holder all of the shares of Common Stock
which are then available to effect such conversion. The portion of this
Debenture which the Holder included in its Conversion Notice and which exceeds
the amount which is then convertible into available shares of Common Stock (the
"Excess Amount") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the terms hereof

                                       4

<PAGE>

until (and at the Holder's option at any time after) the date additional shares
of Common Stock are authorized by the Borrower to permit such conversion, at
which time the Conversion Price in respect thereof shall be the lesser of (i)
the Conversion Price on the Conversion Default Date (as defined below) and (ii)
the Conversion Price on the Conversion Date thereafter elected by the Holder in
respect thereof. In addition, the Borrower shall pay to the Holder payments
("Conversion Default Payments") for a Conversion Default in the amount of (x)
the sum of (1) the then outstanding principal amount of this Debenture plus (2)
accrued and unpaid interest on the unpaid principal amount of this Debenture
through the Authorization Date (as defined below) plus (3) Default Interest, if
any, on the amounts referred to in clauses (1) and/or (2), multiplied by (y)
..24, multiplied by (z) (N/365), where N = the number of days from the day the
holder submits a Notice of Conversion giving rise to a Conversion Default (the
"Conversion Default Date") to the date (the "Authorization Date") that the
Borrower authorizes a sufficient number of shares of Common Stock to effect
conversion of the full outstanding principal balance of this Debenture. The
Borrower shall use its best efforts to authorize a sufficient number of shares
of Common Stock as soon as practicable following the earlier of (i) such time
that the Holder notifies the Borrower or that the Borrower otherwise becomes
aware that there are or likely will be insufficient authorized and unissued
shares to allow full conversion thereof and (ii) a Conversion Default. The
Borrower shall send notice to the Holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of Holder's
accrued Conversion Default Payments. The accrued Conversion Default Payments for
each calendar month shall be paid in cash or shall be convertible into Common
Stock (at such time as there are sufficient authorized shares of Common Stock)
at the applicable Conversion Price, at the Holder's option, as follows:

                   (a) In the event Holder elects to take such payment in cash,
cash payment shall be made to Holder by the fifth (5th) day of the month
following the month in which it has accrued; and

                   (b) In the event Holder elects to take such payment in Common
Stock, the Holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Article I (so long as there is then a sufficient number
of authorized shares of Common Stock).

              The Holder's election shall be made in writing to the Borrower at
any time prior to 6:00 p.m., New York, New York time, on the third day of the
month following the month in which Conversion Default payments have accrued. If
no election is made, the Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the Holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Borrower's failure
to maintain a sufficient number of authorized shares of Common Stock, and each
holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).

              1.4 Method of Conversion.

                   (a) Mechanics of Conversion. Subject to Section 1.1, this
Debenture may be converted by the Holder in whole or in part at any time from
time to time after the Issue Date, by (A) submitting to the Borrower a Notice of
Conversion (by facsimile or other reasonable means of communication dispatched
on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B)
subject to Section 1.4(b), surrendering this Debenture at the principal office
of the Borrower.

                                       5

<PAGE>

                   (b) Surrender of Debenture Upon Conversion. Notwithstanding
anything to the contrary set forth herein, upon conversion of this Debenture in
accordance with the terms hereof, the Holder shall not be required to physically
surrender this Debenture to the Borrower unless the entire unpaid principal
amount of this Debenture is so converted. The Holder and the Borrower shall
maintain records showing the principal amount so converted and the dates of such
conversions or shall use such other method, reasonably satisfactory to the
Holder and the Borrower, so as not to require physical surrender of this
Debenture upon each such conversion. In the event of any dispute or discrepancy,
such records of the Borrower shall be controlling and determinative in the
absence of manifest error. Notwithstanding the foregoing, if any portion of this
Debenture is converted as aforesaid, the Holder may not transfer this Debenture
unless the Holder first physically surrenders this Debenture to the Borrower,
whereupon the Borrower will forthwith issue and deliver upon the order of the
Holder a new Debenture of like tenor, registered as the Holder (upon payment by
the Holder of any applicable transfer taxes) may request, representing in the
aggregate the remaining unpaid principal amount of this Debenture. The Holder
and any assignee, by acceptance of this Debenture, acknowledge and agree that,
by reason of the provisions of this paragraph, following conversion of a portion
of this Debenture, the unpaid and unconverted principal amount of this Debenture
represented by this Debenture may be less than the amount stated on the face
hereof.

                   (c) Payment of Taxes. The Borrower shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock or other securities or property on
conversion of this Debenture in a name other than that of the Holder (or in
street name), and the Borrower shall not be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons (other than the Holder or the custodian in whose street name such shares
are to be held for the Holder's account) requesting the issuance thereof shall
have paid to the Borrower the amount of any such tax or shall have established
to the satisfaction of the Borrower that such tax has been paid.

                   (d) Delivery of Common Stock Upon Conversion. Upon receipt by
the Borrower from the Holder of a facsimile transmission (or other reasonable
means of communication) of a Notice of Conversion meeting the requirements for
conversion as provided in this Section 1.4, the Borrower shall issue and deliver
or cause to be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable upon such conversion within two (2)
business days after such receipt (and, solely in the case of conversion of the
entire unpaid principal amount hereof, surrender of this Debenture) (such second
business day being hereinafter referred to as the "Deadline") in accordance with
the terms hereof and the Purchase Agreement (including, without limitation, in
accordance with the requirements of Section 2(g) of the Purchase Agreement that
certificates for shares of Common Stock issued on or after the effective date of
the Registration Statement upon conversion of this Debenture shall not bear any
restrictive legend).

                                       6

<PAGE>

                   (e) Obligation of Borrower to Deliver Common Stock. Upon
receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to
be the holder of record of the Common Stock issuable upon such conversion, the
outstanding principal amount and the amount of accrued and unpaid interest on
this Debenture shall be reduced to reflect such conversion, and, unless the
Borrower defaults on its obligations under this Article I, all rights with
respect to the portion of this Debenture being so converted shall forthwith
terminate except the right to receive the Common Stock or other securities, cash
or other assets, as herein provided, on such conversion. If the Holder shall
have given a Notice of Conversion as provided herein, the Borrower's obligation
to issue and deliver the certificates for Common Stock shall be absolute and
unconditional, irrespective of the absence of any action by the Holder to
enforce the same, any waiver or consent with respect to any provision thereof,
the recovery of any judgment against any person or any action to enforce the
same, any failure or delay in the enforcement of any other obligation of the
Borrower to the holder of record, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder of any
obligation to the Borrower, and irrespective of any other circumstance which
might otherwise limit such obligation of the Borrower to the Holder in
connection with such conversion. The Conversion Date specified in the Notice of
Conversion shall be the Conversion Date so long as the Notice of Conversion is
received by the Borrower before 6:00 p.m., New York, New York time, on such
date.

                   (f) Delivery of Common Stock by Electronic Transfer. In lieu
of delivering physical certificates representing the Common Stock issuable upon
conversion, provided the Borrower's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the Holder and its compliance with the provisions
contained in Section 1.1 and in this Section 1.4, the Borrower shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of
Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
("DWAC") system.

                   (g) Failure to Deliver Common Stock Prior to Deadline.
Without in any way limiting the Holder's right to pursue other remedies,
including actual damages and/or equitable relief, the parties agree that if
delivery of the Common Stock issuable upon conversion of this Debenture is more
than two (2) days after the Deadline (other than a failure due to the
circumstances described in Section 1.3 above, which failure shall be governed by
such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for
each day beyond the Deadline that the Borrower fails to deliver such Common
Stock. Such cash amount shall be paid to Holder by the fifth day of the month
following the month in which it has accrued or, at the option of the Holder (by
written notice to the Borrower by the first day of the month following the month
in which it has accrued), shall be added to the principal amount of this
Debenture, in which event interest shall accrue thereon in accordance with the
terms of this Debenture and such additional principal amount shall be
convertible into Common Stock in accordance with the terms of this Debenture.

              1.5 Concerning the Shares. The shares of Common Stock issuable
upon conversion of this Debenture may not be sold or transferred unless (i) such
shares are sold pursuant to an effective registration statement under the Act or
(ii) the Borrower or its transfer agent shall have been furnished with an
opinion of counsel (which opinion shall be in form, substance and scope

                                       7

<PAGE>

customary for opinions of counsel in comparable transactions) to the effect that
the shares to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration or (iii) such shares are sold or transferred
pursuant to Rule 144 under the Act (or a successor rule) ("Rule 144") or (iv)
such shares are transferred to an "affiliate" (as defined in Rule 144) of the
Borrower who agrees to sell or otherwise transfer the shares only in accordance
with this Section 1.5 and who is an Accredited Investor (as defined in the
Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and
subject to the removal provisions set forth below), until such time as the
shares of Common Stock issuable upon conversion of this Debenture have been
registered under the Act as contemplated by the Registration Rights Agreement or
otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold,
each certificate for shares of Common Stock issuable upon conversion of this
Debenture that has not been so included in an effective registration statement
or that has not been sold pursuant to an effective registration statement or an
exemption that permits removal of the legend, shall bear a legend substantially
in the following form, as appropriate:

         "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THE
         SECURITIES  MAY NOT BE SOLD,  TRANSFERRED  OR ASSIGNED IN THE
         ABSENCE  OF  AN  EFFECTIVE  REGISTRATION  STATEMENT  FOR  THE
         SECURITIES  UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM,
         SUBSTANCE  AND SCOPE  CUSTOMARY  FOR  OPINIONS  OF COUNSEL IN
         COMPARABLE  TRANSACTIONS,  THAT  REGISTRATION IS NOT REQUIRED
         UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION
         S UNDER SAID ACT."

              The legend set forth above shall be removed and the Borrower shall
issue to the Holder a new certificate therefor free of any transfer legend if
(i) the Borrower or its transfer agent shall have received an opinion of
counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of such
Common Stock may be made without registration under the Act and the shares are
so sold or transferred, (ii) such Holder provides the Borrower or its transfer
agent with reasonable assurances that the Common Stock issuable upon conversion
of this Debenture (to the extent such securities are deemed to have been
acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case
of the Common Stock issuable upon conversion of this Debenture, such security is
registered for sale by the Holder under an effective registration statement
filed under the Act or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately sold. Nothing in this Debenture shall (i) limit the Borrower's
obligation under the Registration Rights Agreement or (ii) affect in any way the
Holder's obligations to comply with applicable prospectus delivery requirements
upon the resale of the securities referred to herein.

              1.6 Effect of Certain Events.

                   (a) Effect of Merger, Consolidation, Etc. At the option of
the Holder, the sale, conveyance or disposition of all or substantially all of
the assets of the Borrower, the effectuation by the Borrower of a transaction or
series of related transactions in which more than 50% of the voting power of the

                                       8

<PAGE>

Borrower is disposed of, or the consolidation, merger or other business
combination of the Borrower with or into any other Person (as defined below) or
Persons when the Borrower is not the survivor shall either: (i) be deemed to be
an Event of Default (as defined in Article III) pursuant to which the Borrower
shall be required to pay to the Holder upon the consummation of and as a
condition to such transaction an amount equal to the Default Amount (as defined
in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. "Person"
shall mean any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.

                   (b) Adjustment Due to Merger, Consolidation, Etc. If, at any
time when this Debenture is issued and outstanding and prior to conversion of
all of the Debentures, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then the Holder of this Debenture
shall thereafter have the right to receive upon conversion of this Debenture,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore issuable upon conversion,
such stock, securities or assets which the Holder would have been entitled to
receive in such transaction had this Debenture been converted in full
immediately prior to such transaction (without regard to any limitations on
conversion set forth herein), and in any such case appropriate provisions shall
be made with respect to the rights and interests of the Holder of this Debenture
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares issuable upon
conversion of the Debenture) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter deliverable upon
the conversion hereof. The Borrower shall not effect any transaction described
in this Section 1.6(b) unless (a) it first gives, to the extent practicable,
thirty (30) days prior written notice (but in any event at least fifteen (15)
days prior written notice) of the record date of the special meeting of
shareholders to approve, or if there is no such record date, the consummation
of, such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event or sale of assets (during which time the
Holder shall be entitled to convert this Debenture) and (b) the resulting
successor or acquiring entity (if not the Borrower) assumes by written
instrument the obligations of this Section 1.6(b). The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.

                   (c) Adjustment Due to Distribution. If the Borrower shall
declare or make any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a dividend, stock repurchase, by way of return of
capital or otherwise (including any dividend or distribution to the Borrower's
shareholders in cash or shares (or rights to acquire shares) of capital stock of
a subsidiary (i.e., a spin-off)) (a "Distribution"), then the Holder of this
Debenture shall be entitled, upon any conversion of this Debenture after the
date of record for determining shareholders entitled to such Distribution, to
receive the amount of such assets which would have been payable to the Holder
with respect to the shares of Common Stock issuable upon such conversion had
such Holder been the holder of such shares of Common Stock on the record date
for the determination of shareholders entitled to such Distribution.

                                       9

<PAGE>

                   (d) Adjustment Due to Dilutive Issuance. If, at any time when
any Debentures are issued and outstanding, the Borrower issues or sells, or in
accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any
shares of Common Stock for no consideration or for a consideration per share
(before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Fixed Conversion
Price in effect on the date of such issuance (or deemed issuance) of such shares
of Common Stock (a "Dilutive Issuance"), then immediately upon the Dilutive
Issuance, the Fixed Conversion Price will be reduced to the amount of the
consideration per share received by the Borrower in such Dilutive Issuance;
provided that only one adjustment will be made for each Dilutive Issuance.

                   The Borrower shall be deemed to have issued or sold shares of
Common Stock if the Borrower in any manner issues or grants any warrants, rights
or options, whether or not immediately exercisable, to subscribe for or to
purchase Common Stock or other securities convertible into or exchangeable for
Common Stock ("Convertible Securities") (such warrants, rights and options to
purchase Common Stock or Convertible Securities are hereinafter referred to as
"Options") and the price per share for which Common Stock is issuable upon the
exercise of such Options is less than the Fixed Conversion Price then in effect,
then the Fixed Conversion Price shall be equal to such price per share. For
purposes of the preceding sentence, the "price per share for which Common Stock
is issuable upon the exercise of such Options" is determined by dividing (i) the
total amount, if any, received or receivable by the Borrower as consideration
for the issuance or granting of all such Options, plus the minimum aggregate
amount of additional consideration, if any, payable to the Borrower upon the
exercise of all such Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Options, the minimum aggregate amount of
additional consideration payable upon the conversion or exchange thereof at the
time such Convertible Securities first become convertible or exchangeable, by
(ii) the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options (assuming full conversion of Convertible
Securities, if applicable). No further adjustment to the Conversion Price will
be made upon the actual issuance of such Common Stock upon the exercise of such
Options or upon the conversion or exchange of Convertible Securities issuable
upon exercise of such Options.

                   Additionally, the Borrower shall be deemed to have issued or
sold shares of Common Stock if the Borrower in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options), and the price per share for
which Common Stock is issuable upon such conversion or exchange is less than the
Fixed Conversion Price then in effect, then the Fixed Conversion Price shall be
equal to such price per share. For the purposes of the preceding sentence, the
"price per share for which Common Stock is issuable upon such conversion or
exchange" is determined by dividing (i) the total amount, if any, received or
receivable by the Borrower as consideration for the issuance or sale of all such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Borrower upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment to the Fixed Conversion Price will be made upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.

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<PAGE>

                   (e) Purchase Rights. If, at any time when any Debentures are
issued and outstanding, the Borrower issues any convertible securities or rights
to purchase stock, warrants, securities or other property (the "Purchase
Rights") pro rata to the record holders of any class of Common Stock, then the
Holder of this Debenture will be entitled to acquire, upon the terms applicable
to such Purchase Rights, the aggregate Purchase Rights which such Holder could
have acquired if such Holder had held the number of shares of Common Stock
acquirable upon complete conversion of this Debenture (without regard to any
limitations on conversion contained herein) immediately before the date on which
a record is taken for the grant, issuance or sale of such Purchase Rights or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.

                   (f) Notice of Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price as a result of the events
described in this Section 1.6, the Borrower, at its expense, shall promptly
compute such adjustment or readjustment and prepare and furnish to the Holder of
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Borrower shall, upon the written request at any time of the Holder, furnish to
such Holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of the Debenture.

              1.7 Trading Market Limitations. Unless permitted by the applicable
rules and regulations of the principal securities market on which the Common
Stock is then listed or traded, in no event shall the Borrower issue upon
conversion of or otherwise pursuant to this Debenture and the other Debentures
issued pursuant to the Purchase Agreement more than the maximum number of shares
of Common Stock that the Borrower can issue pursuant to any rule of the
principal United States securities market on which the Common Stock is then
traded (the "Maximum Share Amount"), which, as of the Issue Date shall be
12,264,142 shares (19.99% of the total shares outstanding on the Issue Date),
subject to equitable adjustment from time to time for stock splits, stock
dividends, combinations, capital reorganizations and similar events relating to
the Common Stock occurring after the date hereof. Once the Maximum Share Amount
has been issued (the date of which is hereinafter referred to as the "Maximum
Conversion Date"), if the Borrower fails to eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Borrower or any of its securities on the Borrower's ability to issue shares
of Common Stock in excess of the Maximum Share Amount (a "Trading Market
Prepayment Event"), in lieu of any further right to convert this Debenture, and
in full satisfaction of the Borrower's obligations under this Debenture, the
Borrower shall pay to the Holder, within fifteen (15) business days of the
Maximum Conversion Date (the "Trading Market Prepayment Date"), an amount equal
to 130% times the sum of (a) the then outstanding principal amount of this
Debenture immediately following the Maximum Conversion Date, plus (b) accrued
and unpaid interest on the unpaid principal amount of this Debenture to the
Trading Market Prepayment Date, plus (c) Default Interest, if any, on the
amounts referred to in clause (a) and/or (b) above, plus (d) any optional
amounts that may be added thereto at the Maximum Conversion Date by the Holder
in accordance with the terms hereof (the then outstanding principal amount of
this Debenture immediately following the Maximum Conversion Date, plus the

                                       11

<PAGE>

amounts referred to in clauses (b), (c) and (d) above shall collectively be
referred to as the "Remaining Convertible Amount"). With respect to each Holder
of Debentures, the Maximum Share Amount shall refer to such Holder's pro rata
share thereof determined in accordance with Section 4.8 below. In the event that
the sum of (x) the aggregate number of shares of Common Stock issued upon
conversion of this Debenture and the other Debentures issued pursuant to the
Purchase Agreement plus (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of this Debenture and the other Debentures
issued pursuant to the Purchase Agreement, represents at least one hundred
percent (100%) of the Maximum Share Amount (the "Triggering Event"), the
Borrower will use its best efforts to seek and obtain Shareholder Approval (or
obtain such other relief as will allow conversions hereunder in excess of the
Maximum Share Amount) as soon as practicable following the Triggering Event and
before the Maximum Conversion Date. As used herein, "Shareholder Approval" means
approval by the shareholders of the Borrower to authorize the issuance of the
full number of shares of Common Stock which would be issuable upon full
conversion of the then outstanding Debentures but for the Maximum Share Amount.

              1.8 Status as Shareholder. Upon submission of a Notice of
Conversion by a Holder, (i) the shares covered thereby (other than the shares,
if any, which cannot be issued because their issuance would exceed such Holder's
allocated portion of the Reserved Amount or Maximum Share Amount) shall be
deemed converted into shares of Common Stock and (ii) the Holder's rights as a
Holder of such converted portion of this Debenture shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such Holder because of a failure by the Borrower to comply with the terms of
this Debenture. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Deadline with respect to a conversion of any
portion of this Debenture for any reason, then (unless the Holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Borrower) the Holder shall regain the rights of a Holder of this Debenture with
respect to such unconverted portions of this Debenture and the Borrower shall,
as soon as practicable, return such unconverted Debenture to the Holder or, if
the Debenture has not been surrendered, adjust its records to reflect that such
portion of this Debenture has not been converted. In all cases, the Holder shall
retain all of its rights and remedies (including, without limitation, (i) the
right to receive Conversion Default Payments pursuant to Section 1.3 to the
extent required thereby for such Conversion Default and any subsequent
Conversion Default and (ii) the right to have the Conversion Price with respect
to subsequent conversions determined in accordance with Section 1.3) for the
Borrower's failure to convert this Debenture.

                         Article II. CERTAIN COVENANTS

              2.1 Distributions on Capital Stock. So long as the Borrower shall
have any obligation under this Debenture, the Borrower shall not without the
Holder's written consent (a) pay, declare or set apart for such payment, any
dividend or other distribution (whether in cash, property or other securities)
on shares of capital stock other than dividends on shares of Common Stock solely
in the form of additional shares of Common Stock or (b) directly or indirectly
or through any subsidiary make any other payment or distribution in respect of
its capital stock except for distributions pursuant to any shareholders' rights
plan which is approved by a majority of the Borrower's disinterested directors.

                                       12

<PAGE>

              2.2 Restriction on Stock Repurchases. So long as the Borrower
shall have any obligation under this Debenture, the Borrower shall not without
the Holder's written consent redeem, repurchase or otherwise acquire (whether
for cash or in exchange for property or other securities or otherwise) in any
one transaction or series of related transactions any shares of capital stock of
the Borrower or any warrants, rights or options to purchase or acquire any such
shares.

              2.3 Borrowings. So long as the Borrower shall have any obligation
under this Debenture, the Borrower shall not, without the Holder's written
consent, create, incur, assume or suffer to exist any liability for borrowed
money, except (a) borrowings in existence or committed on the date hereof and of
which the Borrower has informed Holder in writing prior to the date hereof, (b)
indebtedness to trade creditors or financial institutions incurred in the
ordinary course of business or (c) borrowings, the proceeds of which shall be
used to repay this Debenture.

              2.4 Sale of Assets. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, sell, lease or otherwise dispose of any significant portion of
its assets outside the ordinary course of business. Any consent to the
disposition of any assets may be conditioned on a specified use of the proceeds
of disposition.

              2.5 Advances and Loans. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, lend money, give credit or make advances to any person, firm,
joint venture or corporation, including, without limitation, officers,
directors, employees, subsidiaries and affiliates of the Borrower, except loans,
credits or advances (a) in existence or committed on the date hereof and which
the Borrower has informed Holder in writing prior to the date hereof, (b) made
in the ordinary course of business or (c) not in excess of $50,000.

              2.6 Contingent Liabilities. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm, partnership,
joint venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection and except assumptions, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof
and which the Borrower has informed Holder in writing prior to the date hereof,
and (b) similar transactions in the ordinary course of business.

                         Article III. EVENTS OF DEFAULT

              If any of the following events of default (each, an "Event of
Default") shall occur:

              3.1 Failure to Pay Principal or Interest. The Borrower fails to
pay the principal hereof or interest thereon when due on this Debenture, whether
at maturity, upon a Trading Market Prepayment Event pursuant to Section 1.7,
upon acceleration or otherwise.

                                       13

<PAGE>

              3.2 Conversion and the Shares. The Borrower fails to issue shares
of Common Stock to the Holder (or announces or threatens that it will not honor
its obligation to do so) upon exercise by the Holder of the conversion rights of
the Holder in accordance with the terms of this Debenture (for a period of at
least sixty (60) days, if such failure is solely as a result of the
circumstances governed by Section 1.3 and the Borrower is using its best efforts
to authorize a sufficient number of shares of Common Stock as soon as
practicable), fails to transfer or cause its transfer agent to transfer
(electronically or in certificated form) any certificate for shares of Common
Stock issued to the Holder upon conversion of or otherwise pursuant to this
Debenture as and when required by this Debenture or the Registration Rights
Agreement, or fails to remove any restrictive legend (or to withdraw any stop
transfer instructions in respect thereof) on any certificate for any shares of
Common Stock issued to the Holder upon conversion of or otherwise pursuant to
this Debenture as and when required by this Debenture or the Registration Rights
Agreement (or makes any announcement, statement or threat that it does not
intend to honor the obligations described in this paragraph) and any such
failure shall continue uncured (or any announcement, statement or threat not to
honor its obligations shall not be rescinded in writing) for ten (10) days after
the Borrower shall have been notified thereof in writing by the Holder.

              3.3 Failure to Timely File Registration or Effect Registration.
The Borrower fails to file the Registration Statement within sixty (60) days
following the Closing Date (as defined in the Purchase Agreement) or obtain
effectiveness with the Securities and Exchange Commission of the Registration
Statement within one hundred thirty-five (135) days following the Filing Date or
such Registration Statement lapses in effect (or sales cannot otherwise be made
thereunder effective, whether by reason of the Borrower's failure to amend or
supplement the prospectus included therein in accordance with the Registration
Rights Agreement or otherwise) for more than twenty (20) consecutive days or
forty (40) days in any twelve month period after the Registration Statement
becomes effective;

              3.4 Breach of Covenants. The Borrower breaches any material
covenant or other material term or condition contained in Sections 1.3, 1.6 or
1.7 of this Debenture, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of the
Purchase Agreement and such breach continues for a period of ten (10) days after
written notice thereof to the Borrower from the Holder;

              3.5 Breach of Representations and Warranties. Any representation
or warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement and the Registration
Rights Agreement), shall be false or misleading in any material respect when
made and the breach of which has (or with the passage of time will have) a
material adverse effect on the rights of the Holder with respect to this
Debenture, the Purchase Agreement or the Registration Rights Agreement;

              3.6 Receiver or Trustee. The Borrower or any subsidiary of the
Borrower shall make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee shall otherwise
be appointed;

                                       14

<PAGE>

              3.7 Judgments. Any money judgment, writ or similar process shall
be entered or filed against the Borrower or any subsidiary of the Borrower or
any of its property or other assets for more than $50,000, and shall remain
unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld;

              3.8 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower or any subsidiary of the Borrower;

              3.9 Delisting of Common Stock. The Borrower shall fail to maintain
the listing of the Common Stock on at least one of the OTCBB or an equivalent
replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market,
the New York Stock Exchange, or the American Stock Exchange; or

              3.10 Default Under Other Debentures. An Event of Default has
occurred and is continuing under any of the other Debentures issued pursuant to
the Purchase Agreement,

then, upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of the Holders of a majority of the aggregate principal amount of the
outstanding Debentures issued pursuant to the Purchase Agreement exercisable
through the delivery of written notice to the Borrower by such Holders (the
"Default Notice"), and upon the occurrence of an Event of Default specified in
Section 3.6 or 3.8, the Debentures shall become immediately due and payable and
the Borrower shall pay to the Holder, in full satisfaction of its obligations
hereunder, an amount equal to the greater of (i) 130% times the sum of (w) the
then outstanding principal amount of this Debenture plus (x) accrued and unpaid
interest on the unpaid principal amount of this Debenture to the date of payment
(the "Mandatory Prepayment Date") plus (y) Default Interest, if any, on the
amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
the Registration Rights Agreement (the then outstanding principal amount of this
Debenture to the date of payment plus the amounts referred to in clauses (x),
(y) and (z) shall collectively be known as the "Default Sum") or (ii) the
"parity value" of the Default Sum to be prepaid, where parity value means (a)
the highest number of shares of Common Stock issuable upon conversion of or
otherwise pursuant to such Default Sum in accordance with Article I, treating
the Trading Day immediately preceding the Mandatory Prepayment Date as the
"Conversion Date" for purposes of determining the lowest applicable Conversion
Price, unless the Default Event arises as a result of a breach in respect of a
specific Conversion Date in which case such Conversion Date shall be the
Conversion Date), multiplied by (b) the highest Closing Price for the Common
Stock during the period beginning on the date of first occurrence of the Event
of Default and ending one day prior to the Mandatory Prepayment Date (the
"Default Amount") and all other amounts payable hereunder shall immediately
become due and payable, all without demand, presentment or notice, all of which
hereby are expressly waived, together with all costs, including, without
limitation, legal fees and expenses, of collection, and the Holder shall be
entitled to exercise all other rights and remedies available at law or in

                                       15

<PAGE>

equity. If the Borrower fails to pay the Default Amount within five (5) business
days of written notice that such amount is due and payable, then the Holder
shall have the right at any time, so long as the Borrower remains in default
(and so long and to the extent that there are sufficient authorized shares), to
require the Borrower, upon written notice, to immediately issue, in lieu of the
Default Amount, the number of shares of Common Stock of the Borrower equal to
the Default Amount divided by the Conversion Price then in effect.

                           Article IV. MISCELLANEOUS

              4.1 Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

              4.2 Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by courier or sent
by United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Borrower; and the address of the Borrower shall be 446 Lincoln
Highway, Fairless Hills, PA 19030, facsimile number: 267-580-1090. Both the
Holder and the Borrower may change the address for service by service of written
notice to the other as herein provided.

              4.3 Amendments. This Debenture and any provision hereof may only
be amended by an instrument in writing signed by the Borrower and the Holder.
The term "Debenture" and all reference thereto, as used throughout this
instrument, shall mean this instrument (and the other Debentures issued pursuant
to the Purchase Agreement) as originally executed, or if later amended or
supplemented, then as so amended or supplemented.

              4.4 Assignability. This Debenture shall be binding upon the
Borrower and its successors and assigns, and shall inure to be the benefit of
the Holder and its successors and assigns. Each transferee of this Debenture
must be an "accredited investor" (as defined in Rule 501(a) of the 1933 Act).
Notwithstanding anything in this Debenture to the contrary, this Debenture may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement.

              4.5 Cost of Collection. If default is made in the payment of this
Debenture, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.

              4.6 Governing Law. THIS DEBENTURE SHALL BE ENFORCED, GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD

                                       16

<PAGE>

TO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS DEBENTURE, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS DEBENTURE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.

              4.7 Certain Amounts. Whenever pursuant to this Debenture the
Borrower is required to pay an amount in excess of the outstanding principal
amount (or the portion thereof required to be paid at that time) plus accrued
and unpaid interest plus Default Interest on such interest, the Borrower and the
Holder agree that the actual damages to the Holder from the receipt of cash
payment on this Debenture may be difficult to determine and the amount to be so
paid by the Borrower represents stipulated damages and not a penalty and is
intended to compensate the Holder in part for loss of the opportunity to convert
this Debenture and to earn a return from the sale of shares of Common Stock
acquired upon conversion of this Debenture at a price in excess of the price
paid for such shares pursuant to this Debenture. The Borrower and the Holder
hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the receipt of a cash
payment without the opportunity to convert this Debenture into shares of Common
Stock.

              4.8 Allocations of Maximum Share Amount and Reserved Amount. The
Maximum Share Amount and Reserved Amount shall be allocated pro rata among the
Holders of Debentures based on the principal amount of such Debentures issued to
each Holder. Each increase to the Maximum Share Amount and Reserved Amount shall
be allocated pro rata among the Holders of Debentures based on the principal
amount of such Debentures held by each Holder at the time of the increase in the
Maximum Share Amount or Reserved Amount. In the event a Holder shall sell or
otherwise transfer any of such Holder's Debentures, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount and
Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any
Debentures shall be allocated to the remaining Holders of Debentures, pro rata
based on the principal amount of such Debentures then held by such Holders.

                                       17

<PAGE>

              4.9 Damages Shares. The shares of Common Stock that may be
issuable to the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant
to Section 2(c) of the Registration Rights Agreement ("Damages Shares") shall be
treated as Common Stock issuable upon conversion of this Debenture for all
purposes hereof and shall be subject to all of the limitations and afforded all
of the rights of the other shares of Common Stock issuable hereunder, including
without limitation, the right to be included in the Registration Statement filed
pursuant to the Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein, amounts convertible into Damages Shares ("Damages Amounts")
shall not bear interest but must be converted prior to the conversion of any
outstanding principal amount hereof, until the outstanding Damages Amounts is
zero.

              4.10 Denominations. At the request of the Holder, upon surrender
of this Debenture, the Borrower shall promptly issue new Debentures in the
aggregate outstanding principal amount hereof, in the form hereof, in such
denominations of at least $50,000 as the Holder shall request.

              4.11 Purchase Agreement. By its acceptance of this Debenture, each
Holder agrees to be bound by the applicable terms of the Purchase Agreement.

              4.12 Notice of Corporate Events. Except as otherwise provided
below, the Holder of this Debenture shall have no rights as a Holder of Common
Stock unless and only to the extent that it converts this Debenture into Common
Stock. The Borrower shall provide the Holder with prior notification of any
meeting of the Borrower's shareholders (and copies of proxy materials and other
information sent to shareholders). In the event of any taking by the Borrower of
a record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation, reclassification or recapitalization) any share of any class or
any other securities or property, or to receive any other right, or for the
purpose of determining shareholders who are entitled to vote in connection with
any proposed sale, lease or conveyance of all or substantially all of the assets
of the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
4.12.

              4.13 Remedies. The Borrower acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder, by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Borrower acknowledges that the remedy at law for a breach of
its obligations under this Debenture will be inadequate and agrees, in the event
of a breach or threatened breach by the Borrower of the provisions of this
Debenture, that the Holder shall be entitled, in addition to all other available
remedies at law or in equity, and in addition to the penalties assessable
herein, to an injunction or injunctions restraining, preventing or curing any
breach of this Debenture and to enforce specifically the terms and provisions
thereof, without the necessity of showing economic loss and without any bond or
other security being required.

                                       18

<PAGE>

                         Article V. OPTIONAL PREPAYMENT

              5.1 Optional Prepayment. Notwithstanding anything to the contrary
contained in this Article V, so long as (i) no Event of Default or Trading
Market Prepayment Event shall have occurred and be continuing, (ii) the Borrower
has a sufficient number of authorized shares of Common Stock reserved for
issuance upon full conversion of the Debentures, then at any time after the
Issue Date, and (iii) the common stock is trading below $1.00 per share the
Borrower shall have the right, exercisable on not less than ten (10) Trading
Days prior written notice to the Holders of the Debentures (which notice may not
be sent to the Holders of the Debentures until the Borrower is permitted to
prepay the Debentures pursuant to this Section 5.1), to prepay all of the
outstanding Debentures in accordance with this Section 5.1. Any notice of
prepayment hereunder (an "Optional Prepayment") shall be delivered to the
Holders of the Debentures at their registered addresses appearing on the books
and records of the Borrower and shall state (1) that the Borrower is exercising
its right to prepay all of the Debentures issued on the Issue Date and (2) the
date of prepayment (the "Optional Prepayment Notice"). On the date fixed for
prepayment (the "Optional Prepayment Date"), the Borrower shall make payment of
the Optional Prepayment Amount (as defined below) to or upon the order of the
Holders as specified by the Holders in writing to the Borrower at least one (1)
business day prior to the Optional Prepayment Date. If the Borrower exercises
its right to prepay the Debentures, the Borrower shall make payment to the
holders of an amount in cash (the "Optional Prepayment Amount") equal to either
(i) 130% (for prepayments occurring within thirty (30) days of the Issue Date),
(ii) 140% (for prepayments occurring between thirty-one (31) and ninety (90)
days of the Issue Date) or (iii) 150% (for prepayments occurring after the
ninetieth (90th) day following the Issue Date), multiplied by the sum of (w) the
then outstanding principal amount of this Debenture plus (x) accrued and unpaid
interest on the unpaid principal amount of this Debenture to the Optional
Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in
clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections
1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the Registration Rights
Agreement (the then outstanding principal amount of this Debenture to the date
of payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "Optional Prepayment Sum"). Notwithstanding notice
of an Optional Prepayment, the Holders shall at all times prior to the Optional
Prepayment Date maintain the right to convert all or any portion of the
Debentures in accordance with Article I and any portion of Debentures so
converted after receipt of an Optional Prepayment Notice and prior to the
Optional Prepayment Date set forth in such notice and payment of the aggregate
Optional Prepayment Amount shall be deducted from the principal amount of
Debentures which are otherwise subject to prepayment pursuant to such notice. If
the Borrower delivers an Optional Prepayment Notice and fails to pay the
Optional Prepayment Amount due to the Holders of the Debentures within two (2)
business days following the Optional Prepayment Date, the Borrower shall forever
forfeit its right to redeem the Debentures pursuant to this Section 5.1.

                                       19

<PAGE>


              IN WITNESS WHEREOF, Borrower has caused this Debenture to be
signed in its name by its duly authorized officer this 10th day of January,
2003.


                                     DIGITAL DESCRIPTOR SYSTEMS, INC.



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

                                       20

<PAGE>


                                    EXHIBIT A

                              NOTICE OF CONVERSION
                    (To be Executed by the Registered Holder
                       in order to Convert the Debentures)

              The undersigned hereby irrevocably elects to convert $__________
principal amount of the Debenture (defined below) into shares of common stock,
par value $.001 per share ("Common Stock"), of Digital Descriptor Systems, Inc.,
a Delaware corporation (the "Borrower") according to the conditions of the
convertible debentures of the Borrower dated as of January 10, 2003 (the
"Debentures"), as of the date written below. If securities are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates. No fee will be charged to the Holder for any conversion, except
for transfer taxes, if any. A copy of each Debenture is attached hereto (or
evidence of loss, theft or destruction thereof).

              The Borrower shall electronically transmit the Common Stock
issuable pursuant to this Notice of Conversion to the account of the undersigned
or its nominee with DTC through its Deposit Withdrawal Agent Commission system
("DWAC Transfer").

         Name of DTC Prime Broker:
                                  ------------------------------------
         Account Number:
                        ----------------------------------------------

              In lieu of receiving shares of Common Stock issuable pursuant to
this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the number of
shares of Common Stock set forth below (which numbers are based on the Holder's
calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:

         Name:
              --------------------------------------------------------
         Address:
                 -----------------------------------------------------

              The undersigned represents and warrants that all offers and sales
by the undersigned of the securities issuable to the undersigned upon conversion
of the Debentures shall be made pursuant to registration of the securities under
the Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption
from registration under the Act.

               Date of Conversion:_____________________________
               Applicable Conversion Price:____________________
               Number of Shares of Common Stock to be Issued Pursuant to
               Conversion of the Debentures:______________
               Signature:______________________________________
               Name:___________________________________________
               Address:________________________________________

                                       21

<PAGE>


The Borrower shall issue and deliver shares of Common Stock to an overnight
courier not later than three business days following receipt of the original
Debenture(s) to be converted, and shall make payments pursuant to the Debentures
for the number of business days such issuance and delivery is late.

                                       22

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>10
<FILENAME>ex10-562.txt
<DESCRIPTION>EXHIBIT 10.5.6.2
<TEXT>

<PAGE>


                                                                EXHIBIT 10.5.6.2





         THE SECURITIES  REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
         "ACT").  THE  SECURITIES  MAY  NOT BE  SOLD,  TRANSFERRED  OR
         ASSIGNED  IN  THE  ABSENCE  OF  AN   EFFECTIVE   REGISTRATION
         STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF
         COUNSEL IN FORM,  SUBSTANCE AND SCOPE  CUSTOMARY FOR OPINIONS
         OF COUNSEL IN COMPARABLE  TRANSACTIONS  THAT  REGISTRATION IS
         NOT REQUIRED  UNDER SAID ACT OR UNLESS SOLD  PURSUANT TO RULE
         144 OR REGULATIONS UNDER SAID ACT.


                          SECURED CONVERTIBLE DEBENTURE

Fairless Hills, Pennsylvania
January 10, 2003                                                        $100,000

         FOR VALUE RECEIVED, DIGITAL DESCRIPTOR SYSTEMS, INC., a Delaware
corporation (hereinafter called the "Borrower"), hereby promises to pay to the
order of AJW Offshore, Ltd. or registered assigns (the "Holder") the sum of One
Hundred Thousand Dollars ($100,000), on January 10, 2004 (the "Maturity Date"),
and to pay interest on the unpaid principal balance hereof at the rate of ten
percent (10%) per annum from January 10, 2003 (the "Issue Date") until the same
becomes due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise. Any amount of principal or interest on this Debenture
which is not paid when due shall bear interest at the rate of fifteen percent
(15%) per annum from the due date thereof until the same is paid ("Default
Interest"). Interest shall commence accruing on the issue date, shall be
computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable, at the option of the Holder, either quarterly on March 31,
June 30, September 30 and December 31 of each year beginning on March 31, 2003,
or at the time of conversion of the principal to which such interest relates in
accordance with Article I below. All payments due hereunder (to the extent not
converted into common stock, $.001 par value per share, of the Borrower (the
"Common Stock") in accordance with the terms hereof) shall be made in lawful
money of the United States of America or, at the option of the Borrower, in
whole or in part, in shares of Common Stock of the Borrower valued at the then
applicable Conversion Price (as defined herein). All payments shall be made at
such address as the Holder shall hereafter give to the Borrower by written
notice made in accordance with the provisions of this Debenture. Whenever any
amount expressed to be due by the terms of this Debenture is due on any day
which is not a business day, the same shall instead be due on the next
succeeding day which is a business day and, in the case of any interest payment
date which is not the date on which this Debenture is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of interest due on such date. As used in this
Debenture, the term "business day" shall mean any day other than a Saturday,



<PAGE>

Sunday or a day on which commercial banks in the city of New York, New York are
authorized or required by law or executive order to remain closed. Each
capitalized term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in that certain Securities Purchase Agreement, dated January
10, 2003, pursuant to which this Debenture was originally issued (the "Purchase
Agreement").

         This Debenture is free from all taxes, liens, claims and encumbrances
with respect to the issue thereof and shall not be subject to preemptive rights
or other similar rights of shareholders of the Borrower and will not impose
personal liability upon the holder thereof. The obligations of the Borrower
under this Debenture shall be secured by that certain Security Agreement dated
by and between the Borrower and the Holder of even date herewith.

         The following terms shall apply to this Debenture:

                          Article I. CONVERSION RIGHTS

              1.1 Conversion Right. The Holder shall have the right from time to
time, and at any time on or prior to the earlier of (i) the Maturity Date and
(ii) the date of payment of the Default Amount (as defined in Article III)
pursuant to Section 1.6(a) or Article III, the Optional Prepayment Amount (as
defined in Section 5.1 or any payments pursuant to Section 1.7, each in respect
of the remaining outstanding principal amount of this Debenture to convert all
or any part of the outstanding and unpaid principal amount of this Debenture
into fully paid and non-assessable shares of Common Stock, as such Common Stock
exists on the Issue Date, or any shares of capital stock or other securities of
the Borrower into which such Common Stock shall hereafter be changed or
reclassified at the conversion price (the "Conversion Price") determined as
provided herein (a "Conversion"); provided, however, that in no event shall the
Holder be entitled to convert any portion of this Debenture in excess of that
portion of this Debenture upon conversion of which the sum of (1) the number of
shares of Common Stock beneficially owned by the Holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the Debentures or the
unexercised or unconverted portion of any other security of the Borrower
(including, without limitation, the warrants issued by the Borrower pursuant to
the Purchase Agreement) subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (2) the number of shares of
Common Stock issuable upon the conversion of the portion of this Debenture with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 4.9% of
the outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulations 13D-G thereunder, except as otherwise provided in
clause (1) of such proviso. The Holder of this Debenture may waive the
limitations set forth herein by sixty-one (61) days written notice to the
Company. The number of shares of Common Stock to be issued upon each conversion
of this Debenture shall be determined by dividing the Conversion Amount (as
defined below) by the applicable Conversion Price then in effect on the date
specified in the notice of conversion, in the form attached hereto as Exhibit A
(the "Notice of Conversion"), delivered to the Borrower by the Holder in
accordance with Section 1.4 below; provided that the Notice of Conversion is

                                       2

<PAGE>

submitted by facsimile (or by other means resulting in, or reasonably expected
to result in, notice) to the Borrower before 6:00 p.m., New York, New York time
on such conversion date (the "Conversion Date"). The term "Conversion Amount"
means, with respect to any conversion of this Debenture, the sum of (1) the
principal amount of this Debenture to be converted in such conversion plus (2)
accrued and unpaid interest, if any, on such principal amount at the interest
rates provided in this Debenture to the Conversion Date plus (3) Default
Interest, if any, on the amounts referred to in the immediately preceding
clauses (1) and/or (2) plus (4) at the Holder's option, any amounts owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
that certain Registration Rights Agreement, dated as of January 10, 2003,
executed in connection with the initial issuance of this Debenture and the other
Debentures issued on the Issue Date (the "Registration Rights Agreement").

              1.2 Conversion Price.

                   (a) Calculation of Conversion Price. The Conversion Price
shall be the lesser of (i) the Variable Conversion Price (as defined herein) and
(ii) the Fixed Conversion Price (as defined herein) (subject, in each case, to
equitable adjustments for stock splits, stock dividends or rights offerings by
the Borrower relating to the Borrower's securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events). The "Variable Conversion Price"
shall mean the Applicable Percentage (as defined herein) multiplied by the
Market Price (as defined herein). "Market Price" means the average of the lowest
three (3) Trading Prices (as defined below) for the Common Stock during the
twenty (20) Trading Day period ending one Trading Day prior to the date the
Conversion Notice is sent by the Holder to the Borrower via facsimile (the
"Conversion Date"). "Trading Price" means, for any security as of any date, the
intraday trading price on the Over-the-Counter Bulletin Board (the "OTCBB") as
reported by a reliable reporting service mutually acceptable to and hereafter
designated by Holders of a majority in interest of the Debentures and the
Borrower or, if the OTCBB is not the principal trading market for such security,
the intraday trading price of such security on the principal securities exchange
or trading market where such security is listed or traded or, if no intraday
trading price of such security is available in any of the foregoing manners, the
average of the intraday trading prices of any market makers for such security
that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If
the Trading Price cannot be calculated for such security on such date in the
manner provided above, the Trading Price shall be the fair market value as
mutually determined by the Borrower and the holders of a majority in interest of
the Debentures being converted for which the calculation of the Trading Price is
required in order to determine the Conversion Price of such Debentures. "Trading
Day" shall mean any day on which the Common Stock is traded for any period on
the OTCBB, or on the principal securities exchange or other securities market on
which the Common Stock is then being traded. "Applicable Percentage" shall mean
50.0%. The "Fixed Conversion Price" shall mean $.01.

                   (b) Conversion Price During Major Announcements.
Notwithstanding anything contained in Section 1.2(a) to the contrary, in the
event the Borrower (i) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which
the Borrower is the surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the assets of the
Borrower or (ii) any person, group or entity (including the Borrower) publicly

                                       3

<PAGE>

announces a tender offer to purchase 50% or more of the Borrower's Common Stock
(or any other takeover scheme) (the date of the announcement referred to in
clause (i) or (ii) is hereinafter referred to as the "Announcement Date"), then
the Conversion Price shall, effective upon the Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined below), be
equal to the lower of (x) the Conversion Price which would have been applicable
for a Conversion occurring on the Announcement Date and (y) the Conversion Price
that would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in this
Section 1.2(a). For purposes hereof, "Adjusted Conversion Price Termination
Date" shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this Section
1.2(b) has been made, the date upon which the Borrower (in the case of clause
(i) above) or the person, group or entity (in the case of clause (ii) above)
consummates or publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this Section
1.2(b) to become operative.

              1.3 Authorized Shares. Subject to the Stockholder Approval (as
defined in Section 4(m) of the Purchase Agreement), the Borrower covenants that
during the period the conversion right exists, the Borrower will reserve from
its authorized and unissued Common Stock a sufficient number of shares, free
from preemptive rights, to provide for the issuance of Common Stock upon the
full conversion of this Debenture and the other Debentures issued pursuant to
the Purchase Agreement. The Borrower is required at all times to have authorized
and reserved two times the number of shares that is actually issuable upon full
conversion of the Debentures (based on the Conversion Price of the Debentures or
the Exercise Price of the Warrants in effect from time to time) (the "Reserved
Amount"). The Reserved Amount shall be increased from time to time in accordance
with the Borrower's obligations pursuant to Section 4(h) of the Purchase
Agreement. The Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. In addition, if the Borrower
shall issue any securities or make any change to its capital structure which
would change the number of shares of Common Stock into which the Debentures
shall be convertible at the then current Conversion Price, the Borrower shall at
the same time make proper provision so that thereafter there shall be a
sufficient number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Debentures. The Borrower
(i) acknowledges that it has irrevocably instructed its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this Debenture,
and (ii) agrees that its issuance of this Debenture shall constitute full
authority to its officers and agents who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for shares of
Common Stock in accordance with the terms and conditions of this Debenture.

              If, at any time a Holder of this Debenture submits a Notice of
Conversion, and the Borrower does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article I (a "Conversion Default"), subject to Section
4.8, the Borrower shall issue to the Holder all of the shares of Common Stock
which are then available to effect such conversion. The portion of this
Debenture which the Holder included in its Conversion Notice and which exceeds
the amount which is then convertible into available shares of Common Stock (the
"Excess Amount") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the terms hereof

                                       4

<PAGE>

until (and at the Holder's option at any time after) the date additional shares
of Common Stock are authorized by the Borrower to permit such conversion, at
which time the Conversion Price in respect thereof shall be the lesser of (i)
the Conversion Price on the Conversion Default Date (as defined below) and (ii)
the Conversion Price on the Conversion Date thereafter elected by the Holder in
respect thereof. In addition, the Borrower shall pay to the Holder payments
("Conversion Default Payments") for a Conversion Default in the amount of (x)
the sum of (1) the then outstanding principal amount of this Debenture plus (2)
accrued and unpaid interest on the unpaid principal amount of this Debenture
through the Authorization Date (as defined below) plus (3) Default Interest, if
any, on the amounts referred to in clauses (1) and/or (2), multiplied by (y)
..24, multiplied by (z) (N/365), where N = the number of days from the day the
holder submits a Notice of Conversion giving rise to a Conversion Default (the
"Conversion Default Date") to the date (the "Authorization Date") that the
Borrower authorizes a sufficient number of shares of Common Stock to effect
conversion of the full outstanding principal balance of this Debenture. The
Borrower shall use its best efforts to authorize a sufficient number of shares
of Common Stock as soon as practicable following the earlier of (i) such time
that the Holder notifies the Borrower or that the Borrower otherwise becomes
aware that there are or likely will be insufficient authorized and unissued
shares to allow full conversion thereof and (ii) a Conversion Default. The
Borrower shall send notice to the Holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of Holder's
accrued Conversion Default Payments. The accrued Conversion Default Payments for
each calendar month shall be paid in cash or shall be convertible into Common
Stock (at such time as there are sufficient authorized shares of Common Stock)
at the applicable Conversion Price, at the Holder's option, as follows:

                   (a) In the event Holder elects to take such payment in cash,
cash payment shall be made to Holder by the fifth (5th) day of the month
following the month in which it has accrued; and

                   (b) In the event Holder elects to take such payment in Common
Stock, the Holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Article I (so long as there is then a sufficient number
of authorized shares of Common Stock).

              The Holder's election shall be made in writing to the Borrower at
any time prior to 6:00 p.m., New York, New York time, on the third day of the
month following the month in which Conversion Default payments have accrued. If
no election is made, the Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the Holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Borrower's failure
to maintain a sufficient number of authorized shares of Common Stock, and each
holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).

              1.4 Method of Conversion.

                   (a) Mechanics of Conversion. Subject to Section 1.1, this
Debenture may be converted by the Holder in whole or in part at any time from
time to time after the Issue Date, by (A) submitting to the Borrower a Notice of
Conversion (by facsimile or other reasonable means of communication dispatched
on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B)
subject to Section 1.4(b), surrendering this Debenture at the principal office
of the Borrower.

                                       5

<PAGE>

                   (b) Surrender of Debenture Upon Conversion. Notwithstanding
anything to the contrary set forth herein, upon conversion of this Debenture in
accordance with the terms hereof, the Holder shall not be required to physically
surrender this Debenture to the Borrower unless the entire unpaid principal
amount of this Debenture is so converted. The Holder and the Borrower shall
maintain records showing the principal amount so converted and the dates of such
conversions or shall use such other method, reasonably satisfactory to the
Holder and the Borrower, so as not to require physical surrender of this
Debenture upon each such conversion. In the event of any dispute or discrepancy,
such records of the Borrower shall be controlling and determinative in the
absence of manifest error. Notwithstanding the foregoing, if any portion of this
Debenture is converted as aforesaid, the Holder may not transfer this Debenture
unless the Holder first physically surrenders this Debenture to the Borrower,
whereupon the Borrower will forthwith issue and deliver upon the order of the
Holder a new Debenture of like tenor, registered as the Holder (upon payment by
the Holder of any applicable transfer taxes) may request, representing in the
aggregate the remaining unpaid principal amount of this Debenture. The Holder
and any assignee, by acceptance of this Debenture, acknowledge and agree that,
by reason of the provisions of this paragraph, following conversion of a portion
of this Debenture, the unpaid and unconverted principal amount of this Debenture
represented by this Debenture may be less than the amount stated on the face
hereof.

                   (c) Payment of Taxes. The Borrower shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock or other securities or property on
conversion of this Debenture in a name other than that of the Holder (or in
street name), and the Borrower shall not be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons (other than the Holder or the custodian in whose street name such shares
are to be held for the Holder's account) requesting the issuance thereof shall
have paid to the Borrower the amount of any such tax or shall have established
to the satisfaction of the Borrower that such tax has been paid.

                   (d) Delivery of Common Stock Upon Conversion. Upon receipt by
the Borrower from the Holder of a facsimile transmission (or other reasonable
means of communication) of a Notice of Conversion meeting the requirements for
conversion as provided in this Section 1.4, the Borrower shall issue and deliver
or cause to be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable upon such conversion within two (2)
business days after such receipt (and, solely in the case of conversion of the
entire unpaid principal amount hereof, surrender of this Debenture) (such second
business day being hereinafter referred to as the "Deadline") in accordance with
the terms hereof and the Purchase Agreement (including, without limitation, in
accordance with the requirements of Section 2(g) of the Purchase Agreement that
certificates for shares of Common Stock issued on or after the effective date of
the Registration Statement upon conversion of this Debenture shall not bear any
restrictive legend).

                                       6

<PAGE>

                   (e) Obligation of Borrower to Deliver Common Stock. Upon
receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to
be the holder of record of the Common Stock issuable upon such conversion, the
outstanding principal amount and the amount of accrued and unpaid interest on
this Debenture shall be reduced to reflect such conversion, and, unless the
Borrower defaults on its obligations under this Article I, all rights with
respect to the portion of this Debenture being so converted shall forthwith
terminate except the right to receive the Common Stock or other securities, cash
or other assets, as herein provided, on such conversion. If the Holder shall
have given a Notice of Conversion as provided herein, the Borrower's obligation
to issue and deliver the certificates for Common Stock shall be absolute and
unconditional, irrespective of the absence of any action by the Holder to
enforce the same, any waiver or consent with respect to any provision thereof,
the recovery of any judgment against any person or any action to enforce the
same, any failure or delay in the enforcement of any other obligation of the
Borrower to the holder of record, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder of any
obligation to the Borrower, and irrespective of any other circumstance which
might otherwise limit such obligation of the Borrower to the Holder in
connection with such conversion. The Conversion Date specified in the Notice of
Conversion shall be the Conversion Date so long as the Notice of Conversion is
received by the Borrower before 6:00 p.m., New York, New York time, on such
date.

                   (f) Delivery of Common Stock by Electronic Transfer. In lieu
of delivering physical certificates representing the Common Stock issuable upon
conversion, provided the Borrower's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the Holder and its compliance with the provisions
contained in Section 1.1 and in this Section 1.4, the Borrower shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of
Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
("DWAC") system.

                   (g) Failure to Deliver Common Stock Prior to Deadline.
Without in any way limiting the Holder's right to pursue other remedies,
including actual damages and/or equitable relief, the parties agree that if
delivery of the Common Stock issuable upon conversion of this Debenture is more
than two (2) days after the Deadline (other than a failure due to the
circumstances described in Section 1.3 above, which failure shall be governed by
such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for
each day beyond the Deadline that the Borrower fails to deliver such Common
Stock. Such cash amount shall be paid to Holder by the fifth day of the month
following the month in which it has accrued or, at the option of the Holder (by
written notice to the Borrower by the first day of the month following the month
in which it has accrued), shall be added to the principal amount of this
Debenture, in which event interest shall accrue thereon in accordance with the
terms of this Debenture and such additional principal amount shall be
convertible into Common Stock in accordance with the terms of this Debenture.

              1.5 Concerning the Shares. The shares of Common Stock issuable
upon conversion of this Debenture may not be sold or transferred unless (i) such
shares are sold pursuant to an effective registration statement under the Act or
(ii) the Borrower or its transfer agent shall have been furnished with an
opinion of counsel (which opinion shall be in form, substance and scope

                                  7

<PAGE>

customary for opinions of counsel in comparable transactions) to the effect that
the shares to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration or (iii) such shares are sold or transferred
pursuant to Rule 144 under the Act (or a successor rule) ("Rule 144") or (iv)
such shares are transferred to an "affiliate" (as defined in Rule 144) of the
Borrower who agrees to sell or otherwise transfer the shares only in accordance
with this Section 1.5 and who is an Accredited Investor (as defined in the
Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and
subject to the removal provisions set forth below), until such time as the
shares of Common Stock issuable upon conversion of this Debenture have been
registered under the Act as contemplated by the Registration Rights Agreement or
otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold,
each certificate for shares of Common Stock issuable upon conversion of this
Debenture that has not been so included in an effective registration statement
or that has not been sold pursuant to an effective registration statement or an
exemption that permits removal of the legend, shall bear a legend substantially
in the following form, as appropriate:

         "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THE
         SECURITIES  MAY NOT BE SOLD,  TRANSFERRED  OR ASSIGNED IN THE
         ABSENCE  OF  AN  EFFECTIVE  REGISTRATION  STATEMENT  FOR  THE
         SECURITIES  UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM,
         SUBSTANCE  AND SCOPE  CUSTOMARY  FOR  OPINIONS  OF COUNSEL IN
         COMPARABLE  TRANSACTIONS,  THAT  REGISTRATION IS NOT REQUIRED
         UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION
         S UNDER SAID ACT."

              The legend set forth above shall be removed and the Borrower shall
issue to the Holder a new certificate therefor free of any transfer legend if
(i) the Borrower or its transfer agent shall have received an opinion of
counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of such
Common Stock may be made without registration under the Act and the shares are
so sold or transferred, (ii) such Holder provides the Borrower or its transfer
agent with reasonable assurances that the Common Stock issuable upon conversion
of this Debenture (to the extent such securities are deemed to have been
acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case
of the Common Stock issuable upon conversion of this Debenture, such security is
registered for sale by the Holder under an effective registration statement
filed under the Act or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately sold. Nothing in this Debenture shall (i) limit the Borrower's
obligation under the Registration Rights Agreement or (ii) affect in any way the
Holder's obligations to comply with applicable prospectus delivery requirements
upon the resale of the securities referred to herein.

              1.6 Effect of Certain Events.

                   (a) Effect of Merger, Consolidation, Etc. At the option of
the Holder, the sale, conveyance or disposition of all or substantially all of
the assets of the Borrower, the effectuation by the Borrower of a transaction or
series of related transactions in which more than 50% of the voting power of the

                                       8

<PAGE>

Borrower is disposed of, or the consolidation, merger or other business
combination of the Borrower with or into any other Person (as defined below) or
Persons when the Borrower is not the survivor shall either: (i) be deemed to be
an Event of Default (as defined in Article III) pursuant to which the Borrower
shall be required to pay to the Holder upon the consummation of and as a
condition to such transaction an amount equal to the Default Amount (as defined
in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. "Person"
shall mean any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.

                   (b) Adjustment Due to Merger, Consolidation, Etc. If, at any
time when this Debenture is issued and outstanding and prior to conversion of
all of the Debentures, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then the Holder of this Debenture
shall thereafter have the right to receive upon conversion of this Debenture,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore issuable upon conversion,
such stock, securities or assets which the Holder would have been entitled to
receive in such transaction had this Debenture been converted in full
immediately prior to such transaction (without regard to any limitations on
conversion set forth herein), and in any such case appropriate provisions shall
be made with respect to the rights and interests of the Holder of this Debenture
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares issuable upon
conversion of the Debenture) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter deliverable upon
the conversion hereof. The Borrower shall not effect any transaction described
in this Section 1.6(b) unless (a) it first gives, to the extent practicable,
thirty (30) days prior written notice (but in any event at least fifteen (15)
days prior written notice) of the record date of the special meeting of
shareholders to approve, or if there is no such record date, the consummation
of, such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event or sale of assets (during which time the
Holder shall be entitled to convert this Debenture) and (b) the resulting
successor or acquiring entity (if not the Borrower) assumes by written
instrument the obligations of this Section 1.6(b). The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.

                   (c) Adjustment Due to Distribution. If the Borrower shall
declare or make any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a dividend, stock repurchase, by way of return of
capital or otherwise (including any dividend or distribution to the Borrower's
shareholders in cash or shares (or rights to acquire shares) of capital stock of
a subsidiary (i.e., a spin-off)) (a "Distribution"), then the Holder of this
Debenture shall be entitled, upon any conversion of this Debenture after the
date of record for determining shareholders entitled to such Distribution, to
receive the amount of such assets which would have been payable to the Holder
with respect to the shares of Common Stock issuable upon such conversion had
such Holder been the holder of such shares of Common Stock on the record date
for the determination of shareholders entitled to such Distribution.

                                       9

<PAGE>

                   (d) Adjustment Due to Dilutive Issuance. If, at any time when
any Debentures are issued and outstanding, the Borrower issues or sells, or in
accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any
shares of Common Stock for no consideration or for a consideration per share
(before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Fixed Conversion
Price in effect on the date of such issuance (or deemed issuance) of such shares
of Common Stock (a "Dilutive Issuance"), then immediately upon the Dilutive
Issuance, the Fixed Conversion Price will be reduced to the amount of the
consideration per share received by the Borrower in such Dilutive Issuance;
provided that only one adjustment will be made for each Dilutive Issuance.

                   The Borrower shall be deemed to have issued or sold shares of
Common Stock if the Borrower in any manner issues or grants any warrants, rights
or options, whether or not immediately exercisable, to subscribe for or to
purchase Common Stock or other securities convertible into or exchangeable for
Common Stock ("Convertible Securities") (such warrants, rights and options to
purchase Common Stock or Convertible Securities are hereinafter referred to as
"Options") and the price per share for which Common Stock is issuable upon the
exercise of such Options is less than the Fixed Conversion Price then in effect,
then the Fixed Conversion Price shall be equal to such price per share. For
purposes of the preceding sentence, the "price per share for which Common Stock
is issuable upon the exercise of such Options" is determined by dividing (i) the
total amount, if any, received or receivable by the Borrower as consideration
for the issuance or granting of all such Options, plus the minimum aggregate
amount of additional consideration, if any, payable to the Borrower upon the
exercise of all such Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Options, the minimum aggregate amount of
additional consideration payable upon the conversion or exchange thereof at the
time such Convertible Securities first become convertible or exchangeable, by
(ii) the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options (assuming full conversion of Convertible
Securities, if applicable). No further adjustment to the Conversion Price will
be made upon the actual issuance of such Common Stock upon the exercise of such
Options or upon the conversion or exchange of Convertible Securities issuable
upon exercise of such Options.

                   Additionally, the Borrower shall be deemed to have issued or
sold shares of Common Stock if the Borrower in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options), and the price per share for
which Common Stock is issuable upon such conversion or exchange is less than the
Fixed Conversion Price then in effect, then the Fixed Conversion Price shall be
equal to such price per share. For the purposes of the preceding sentence, the
"price per share for which Common Stock is issuable upon such conversion or
exchange" is determined by dividing (i) the total amount, if any, received or
receivable by the Borrower as consideration for the issuance or sale of all such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Borrower upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment to the Fixed Conversion Price will be made upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.

                                       10

<PAGE>

                   (e) Purchase Rights. If, at any time when any Debentures are
issued and outstanding, the Borrower issues any convertible securities or rights
to purchase stock, warrants, securities or other property (the "Purchase
Rights") pro rata to the record holders of any class of Common Stock, then the
Holder of this Debenture will be entitled to acquire, upon the terms applicable
to such Purchase Rights, the aggregate Purchase Rights which such Holder could
have acquired if such Holder had held the number of shares of Common Stock
acquirable upon complete conversion of this Debenture (without regard to any
limitations on conversion contained herein) immediately before the date on which
a record is taken for the grant, issuance or sale of such Purchase Rights or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.

                   (f) Notice of Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price as a result of the events
described in this Section 1.6, the Borrower, at its expense, shall promptly
compute such adjustment or readjustment and prepare and furnish to the Holder of
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Borrower shall, upon the written request at any time of the Holder, furnish to
such Holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of the Debenture.

              1.7 Trading Market Limitations. Unless permitted by the applicable
rules and regulations of the principal securities market on which the Common
Stock is then listed or traded, in no event shall the Borrower issue upon
conversion of or otherwise pursuant to this Debenture and the other Debentures
issued pursuant to the Purchase Agreement more than the maximum number of shares
of Common Stock that the Borrower can issue pursuant to any rule of the
principal United States securities market on which the Common Stock is then
traded (the "Maximum Share Amount"), which, as of the Issue Date shall be
12,264,142 shares (19.99% of the total shares outstanding on the Issue Date),
subject to equitable adjustment from time to time for stock splits, stock
dividends, combinations, capital reorganizations and similar events relating to
the Common Stock occurring after the date hereof. Once the Maximum Share Amount
has been issued (the date of which is hereinafter referred to as the "Maximum
Conversion Date"), if the Borrower fails to eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Borrower or any of its securities on the Borrower's ability to issue shares
of Common Stock in excess of the Maximum Share Amount (a "Trading Market
Prepayment Event"), in lieu of any further right to convert this Debenture, and
in full satisfaction of the Borrower's obligations under this Debenture, the
Borrower shall pay to the Holder, within fifteen (15) business days of the
Maximum Conversion Date (the "Trading Market Prepayment Date"), an amount equal
to 130% times the sum of (a) the then outstanding principal amount of this
Debenture immediately following the Maximum Conversion Date, plus (b) accrued

                                       11

<PAGE>

and unpaid interest on the unpaid principal amount of this Debenture to the
Trading Market Prepayment Date, plus (c) Default Interest, if any, on the
amounts referred to in clause (a) and/or (b) above, plus (d) any optional
amounts that may be added thereto at the Maximum Conversion Date by the Holder
in accordance with the terms hereof (the then outstanding principal amount of
this Debenture immediately following the Maximum Conversion Date, plus the
amounts referred to in clauses (b), (c) and (d) above shall collectively be
referred to as the "Remaining Convertible Amount"). With respect to each Holder
of Debentures, the Maximum Share Amount shall refer to such Holder's pro rata
share thereof determined in accordance with Section 4.8 below. In the event that
the sum of (x) the aggregate number of shares of Common Stock issued upon
conversion of this Debenture and the other Debentures issued pursuant to the
Purchase Agreement plus (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of this Debenture and the other Debentures
issued pursuant to the Purchase Agreement, represents at least one hundred
percent (100%) of the Maximum Share Amount (the "Triggering Event"), the
Borrower will use its best efforts to seek and obtain Shareholder Approval (or
obtain such other relief as will allow conversions hereunder in excess of the
Maximum Share Amount) as soon as practicable following the Triggering Event and
before the Maximum Conversion Date. As used herein, "Shareholder Approval" means
approval by the shareholders of the Borrower to authorize the issuance of the
full number of shares of Common Stock which would be issuable upon full
conversion of the then outstanding Debentures but for the Maximum Share Amount.

              1.8 Status as Shareholder. Upon submission of a Notice of
Conversion by a Holder, (i) the shares covered thereby (other than the shares,
if any, which cannot be issued because their issuance would exceed such Holder's
allocated portion of the Reserved Amount or Maximum Share Amount) shall be
deemed converted into shares of Common Stock and (ii) the Holder's rights as a
Holder of such converted portion of this Debenture shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such Holder because of a failure by the Borrower to comply with the terms of
this Debenture. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Deadline with respect to a conversion of any
portion of this Debenture for any reason, then (unless the Holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Borrower) the Holder shall regain the rights of a Holder of this Debenture with
respect to such unconverted portions of this Debenture and the Borrower shall,
as soon as practicable, return such unconverted Debenture to the Holder or, if
the Debenture has not been surrendered, adjust its records to reflect that such
portion of this Debenture has not been converted. In all cases, the Holder shall
retain all of its rights and remedies (including, without limitation, (i) the
right to receive Conversion Default Payments pursuant to Section 1.3 to the
extent required thereby for such Conversion Default and any subsequent
Conversion Default and (ii) the right to have the Conversion Price with respect
to subsequent conversions determined in accordance with Section 1.3) for the
Borrower's failure to convert this Debenture.

                         Article II. CERTAIN COVENANTS

              2.1 Distributions on Capital Stock. So long as the Borrower shall
have any obligation under this Debenture, the Borrower shall not without the
Holder's written consent (a) pay, declare or set apart for such payment, any
dividend or other distribution (whether in cash, property or other securities)
on shares of capital stock other than dividends on shares of Common Stock solely
in the form of additional shares of Common Stock or (b) directly or indirectly

                                       12

<PAGE>

or through any subsidiary make any other payment or distribution in respect of
its capital stock except for distributions pursuant to any shareholders' rights
plan which is approved by a majority of the Borrower's disinterested directors.

              2.2 Restriction on Stock Repurchases. So long as the Borrower
shall have any obligation under this Debenture, the Borrower shall not without
the Holder's written consent redeem, repurchase or otherwise acquire (whether
for cash or in exchange for property or other securities or otherwise) in any
one transaction or series of related transactions any shares of capital stock of
the Borrower or any warrants, rights or options to purchase or acquire any such
shares.

              2.3 Borrowings. So long as the Borrower shall have any obligation
under this Debenture, the Borrower shall not, without the Holder's written
consent, create, incur, assume or suffer to exist any liability for borrowed
money, except (a) borrowings in existence or committed on the date hereof and of
which the Borrower has informed Holder in writing prior to the date hereof, (b)
indebtedness to trade creditors or financial institutions incurred in the
ordinary course of business or (c) borrowings, the proceeds of which shall be
used to repay this Debenture.

              2.4 Sale of Assets. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, sell, lease or otherwise dispose of any significant portion of
its assets outside the ordinary course of business. Any consent to the
disposition of any assets may be conditioned on a specified use of the proceeds
of disposition.

              2.5 Advances and Loans. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, lend money, give credit or make advances to any person, firm,
joint venture or corporation, including, without limitation, officers,
directors, employees, subsidiaries and affiliates of the Borrower, except loans,
credits or advances (a) in existence or committed on the date hereof and which
the Borrower has informed Holder in writing prior to the date hereof, (b) made
in the ordinary course of business or (c) not in excess of $50,000.

              2.6 Contingent Liabilities. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm, partnership,
joint venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection and except assumptions, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof
and which the Borrower has informed Holder in writing prior to the date hereof,
and (b) similar transactions in the ordinary course of business.

                                       13

<PAGE>

                         Article III. EVENTS OF DEFAULT

              If any of the following events of default (each, an "Event of
Default") shall occur:

              3.1 Failure to Pay Principal or Interest. The Borrower fails to
pay the principal hereof or interest thereon when due on this Debenture, whether
at maturity, upon a Trading Market Prepayment Event pursuant to Section 1.7,
upon acceleration or otherwise.

              3.2 Conversion and the Shares. The Borrower fails to issue shares
of Common Stock to the Holder (or announces or threatens that it will not honor
its obligation to do so) upon exercise by the Holder of the conversion rights of
the Holder in accordance with the terms of this Debenture (for a period of at
least sixty (60) days, if such failure is solely as a result of the
circumstances governed by Section 1.3 and the Borrower is using its best efforts
to authorize a sufficient number of shares of Common Stock as soon as
practicable), fails to transfer or cause its transfer agent to transfer
(electronically or in certificated form) any certificate for shares of Common
Stock issued to the Holder upon conversion of or otherwise pursuant to this
Debenture as and when required by this Debenture or the Registration Rights
Agreement, or fails to remove any restrictive legend (or to withdraw any stop
transfer instructions in respect thereof) on any certificate for any shares of
Common Stock issued to the Holder upon conversion of or otherwise pursuant to
this Debenture as and when required by this Debenture or the Registration Rights
Agreement (or makes any announcement, statement or threat that it does not
intend to honor the obligations described in this paragraph) and any such
failure shall continue uncured (or any announcement, statement or threat not to
honor its obligations shall not be rescinded in writing) for ten (10) days after
the Borrower shall have been notified thereof in writing by the Holder.

              3.3 Failure to Timely File Registration or Effect Registration.
The Borrower fails to file the Registration Statement within sixty (60) days
following the Closing Date (as defied in the Purchase Agreement) or obtain
effectiveness with the Securities and Exchange Commission of the Registration
Statement within one hundred thirty-five (135) days following the Filing Date or
such Registration Statement lapses in effect (or sales cannot otherwise be made
thereunder effective, whether by reason of the Borrower's failure to amend or
supplement the prospectus included therein in accordance with the Registration
Rights Agreement or otherwise) for more than twenty (20) consecutive days or
forty (40) days in any twelve month period after the Registration Statement
becomes effective;

              3.4 Breach of Covenants. The Borrower breaches any material
covenant or other material term or condition contained in Sections 1.3, 1.6 or
1.7 of this Debenture, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of the
Purchase Agreement and such breach continues for a period of ten (10) days after
written notice thereof to the Borrower from the Holder;

              3.5 Breach of Representations and Warranties. Any representation
or warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement and the Registration
Rights Agreement), shall be false or misleading in any material respect when
made and the breach of which has (or with the passage of time will have) a
material adverse effect on the rights of the Holder with respect to this
Debenture, the Purchase Agreement or the Registration Rights Agreement;

              3.6 Receiver or Trustee. The Borrower or any subsidiary of the
Borrower shall make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee shall otherwise
be appointed;

                                       14

<PAGE>

              3.7 Judgments. Any money judgment, writ or similar process shall
be entered or filed against the Borrower or any subsidiary of the Borrower or
any of its property or other assets for more than $50,000, and shall remain
unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld;

              3.8 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower or any subsidiary of the Borrower;

              3.9 Delisting of Common Stock. The Borrower shall fail to maintain
the listing of the Common Stock on at least one of the OTCBB or an equivalent
replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market,
the New York Stock Exchange, or the American Stock Exchange; or

              3.10 Default Under Other Debentures. An Event of Default has
occurred and is continuing under any of the other Debentures issued pursuant to
the Purchase Agreement,

then, upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of the Holders of a majority of the aggregate principal amount of the
outstanding Debentures issued pursuant to the Purchase Agreement exercisable
through the delivery of written notice to the Borrower by such Holders (the
"Default Notice"), and upon the occurrence of an Event of Default specified in
Section 3.6 or 3.8, the Debentures shall become immediately due and payable and
the Borrower shall pay to the Holder, in full satisfaction of its obligations
hereunder, an amount equal to the greater of (i) 130% times the sum of (w) the
then outstanding principal amount of this Debenture plus (x) accrued and unpaid
interest on the unpaid principal amount of this Debenture to the date of payment
(the "Mandatory Prepayment Date") plus (y) Default Interest, if any, on the
amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
the Registration Rights Agreement (the then outstanding principal amount of this
Debenture to the date of payment plus the amounts referred to in clauses (x),
(y) and (z) shall collectively be known as the "Default Sum") or (ii) the
"parity value" of the Default Sum to be prepaid, where parity value means (a)
the highest number of shares of Common Stock issuable upon conversion of or
otherwise pursuant to such Default Sum in accordance with Article I, treating
the Trading Day immediately preceding the Mandatory Prepayment Date as the
"Conversion Date" for purposes of determining the lowest applicable Conversion
Price, unless the Default Event arises as a result of a breach in respect of a
specific Conversion Date in which case such Conversion Date shall be the
Conversion Date), multiplied by (b) the highest Closing Price for the Common
Stock during the period beginning on the date of first occurrence of the Event
of Default and ending one day prior to the Mandatory Prepayment Date (the
"Default Amount") and all other amounts payable hereunder shall immediately
become due and payable, all without demand, presentment or notice, all of which
hereby are expressly waived, together with all costs, including, without
limitation, legal fees and expenses, of collection, and the Holder shall be
entitled to exercise all other rights and remedies available at law or in

                                       15

<PAGE>

equity. If the Borrower fails to pay the Default Amount within five (5) business
days of written notice that such amount is due and payable, then the Holder
shall have the right at any time, so long as the Borrower remains in default
(and so long and to the extent that there are sufficient authorized shares), to
require the Borrower, upon written notice, to immediately issue, in lieu of the
Default Amount, the number of shares of Common Stock of the Borrower equal to
the Default Amount divided by the Conversion Price then in effect.

                           Article IV. MISCELLANEOUS

              4.1 Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

              4.2 Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by courier or sent
by United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Borrower; and the address of the Borrower shall be 446 Lincoln
Highway, Fairless Hills, PA 19030, facsimile number: 267-580-1090. Both the
Holder and the Borrower may change the address for service by service of written
notice to the other as herein provided.

              4.3 Amendments. This Debenture and any provision hereof may only
be amended by an instrument in writing signed by the Borrower and the Holder.
The term "Debenture" and all reference thereto, as used throughout this
instrument, shall mean this instrument (and the other Debentures issued pursuant
to the Purchase Agreement) as originally executed, or if later amended or
supplemented, then as so amended or supplemented.

              4.4 Assignability. This Debenture shall be binding upon the
Borrower and its successors and assigns, and shall inure to be the benefit of
the Holder and its successors and assigns. Each transferee of this Debenture
must be an "accredited investor" (as defined in Rule 501(a) of the 1933 Act).
Notwithstanding anything in this Debenture to the contrary, this Debenture may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement.

              4.5 Cost of Collection. If default is made in the payment of this
Debenture, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.

              4.6 Governing Law. THIS DEBENTURE SHALL BE ENFORCED, GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD

                                       16

<PAGE>

TO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS DEBENTURE, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS DEBENTURE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.

              4.7 Certain Amounts. Whenever pursuant to this Debenture the
Borrower is required to pay an amount in excess of the outstanding principal
amount (or the portion thereof required to be paid at that time) plus accrued
and unpaid interest plus Default Interest on such interest, the Borrower and the
Holder agree that the actual damages to the Holder from the receipt of cash
payment on this Debenture may be difficult to determine and the amount to be so
paid by the Borrower represents stipulated damages and not a penalty and is
intended to compensate the Holder in part for loss of the opportunity to convert
this Debenture and to earn a return from the sale of shares of Common Stock
acquired upon conversion of this Debenture at a price in excess of the price
paid for such shares pursuant to this Debenture. The Borrower and the Holder
hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the receipt of a cash
payment without the opportunity to convert this Debenture into shares of Common
Stock.

              4.8 Allocations of Maximum Share Amount and Reserved Amount. The
Maximum Share Amount and Reserved Amount shall be allocated pro rata among the
Holders of Debentures based on the principal amount of such Debentures issued to
each Holder. Each increase to the Maximum Share Amount and Reserved Amount shall
be allocated pro rata among the Holders of Debentures based on the principal
amount of such Debentures held by each Holder at the time of the increase in the
Maximum Share Amount or Reserved Amount. In the event a Holder shall sell or
otherwise transfer any of such Holder's Debentures, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount and
Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any
Debentures shall be allocated to the remaining Holders of Debentures, pro rata
based on the principal amount of such Debentures then held by such Holders.

                                       17

<PAGE>

              4.9 Damages Shares. The shares of Common Stock that may be
issuable to the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant
to Section 2(c) of the Registration Rights Agreement ("Damages Shares") shall be
treated as Common Stock issuable upon conversion of this Debenture for all
purposes hereof and shall be subject to all of the limitations and afforded all
of the rights of the other shares of Common Stock issuable hereunder, including
without limitation, the right to be included in the Registration Statement filed
pursuant to the Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein, amounts convertible into Damages Shares ("Damages Amounts")
shall not bear interest but must be converted prior to the conversion of any
outstanding principal amount hereof, until the outstanding Damages Amounts is
zero.

              4.10 Denominations. At the request of the Holder, upon surrender
of this Debenture, the Borrower shall promptly issue new Debentures in the
aggregate outstanding principal amount hereof, in the form hereof, in such
denominations of at least $50,000 as the Holder shall request.

              4.11 Purchase Agreement. By its acceptance of this Debenture, each
Holder agrees to be bound by the applicable terms of the Purchase Agreement.

              4.12 Notice of Corporate Events. Except as otherwise provided
below, the Holder of this Debenture shall have no rights as a Holder of Common
Stock unless and only to the extent that it converts this Debenture into Common
Stock. The Borrower shall provide the Holder with prior notification of any
meeting of the Borrower's shareholders (and copies of proxy materials and other
information sent to shareholders). In the event of any taking by the Borrower of
a record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation, reclassification or recapitalization) any share of any class or
any other securities or property, or to receive any other right, or for the
purpose of determining shareholders who are entitled to vote in connection with
any proposed sale, lease or conveyance of all or substantially all of the assets
of the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
4.12.

              4.13 Remedies. The Borrower acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder, by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Borrower acknowledges that the remedy at law for a breach of
its obligations under this Debenture will be inadequate and agrees, in the event
of a breach or threatened breach by the Borrower of the provisions of this
Debenture, that the Holder shall be entitled, in addition to all other available

                                       18

<PAGE>

remedies at law or in equity, and in addition to the penalties assessable
herein, to an injunction or injunctions restraining, preventing or curing any
breach of this Debenture and to enforce specifically the terms and provisions
thereof, without the necessity of showing economic loss and without any bond or
other security being required.

                         Article V. OPTIONAL PREPAYMENT

              5.1 Optional Prepayment. Notwithstanding anything to the contrary
contained in this Article V, so long as (i) no Event of Default or Trading
Market Prepayment Event shall have occurred and be continuing, (ii) the Borrower
has a sufficient number of authorized shares of Common Stock reserved for
issuance upon full conversion of the Debentures, then at any time after the
Issue Date, and (iii) the common stock is trading below $1.00 per share the
Borrower shall have the right, exercisable on not less than ten (10) Trading
Days prior written notice to the Holders of the Debentures (which notice may not
be sent to the Holders of the Debentures until the Borrower is permitted to
prepay the Debentures pursuant to this Section 5.1), to prepay all of the
outstanding Debentures in accordance with this Section 5.1. Any notice of
prepayment hereunder (an "Optional Prepayment") shall be delivered to the
Holders of the Debentures at their registered addresses appearing on the books
and records of the Borrower and shall state (1) that the Borrower is exercising
its right to prepay all of the Debentures issued on the Issue Date and (2) the
date of prepayment (the "Optional Prepayment Notice"). On the date fixed for
prepayment (the "Optional Prepayment Date"), the Borrower shall make payment of
the Optional Prepayment Amount (as defined below) to or upon the order of the
Holders as specified by the Holders in writing to the Borrower at least one (1)
business day prior to the Optional Prepayment Date. If the Borrower exercises
its right to prepay the Debentures, the Borrower shall make payment to the
holders of an amount in cash (the "Optional Prepayment Amount") equal to either
(i) 130% (for prepayments occurring within thirty (30) days of the Issue Date),
(ii) 140% (for prepayments occurring between thirty-one (31) and ninety (90)
days of the Issue Date) or (iii) 150% (for prepayments occurring after the
ninetieth (90th) day following the Issue Date), multiplied by the sum of (w) the
then outstanding principal amount of this Debenture plus (x) accrued and unpaid
interest on the unpaid principal amount of this Debenture to the Optional
Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in
clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections
1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the Registration Rights
Agreement (the then outstanding principal amount of this Debenture to the date
of payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "Optional Prepayment Sum"). Notwithstanding notice
of an Optional Prepayment, the Holders shall at all times prior to the Optional
Prepayment Date maintain the right to convert all or any portion of the
Debentures in accordance with Article I and any portion of Debentures so
converted after receipt of an Optional Prepayment Notice and prior to the
Optional Prepayment Date set forth in such notice and payment of the aggregate
Optional Prepayment Amount shall be deducted from the principal amount of
Debentures which are otherwise subject to prepayment pursuant to such notice. If
the Borrower delivers an Optional Prepayment Notice and fails to pay the
Optional Prepayment Amount due to the Holders of the Debentures within two (2)
business days following the Optional Prepayment Date, the Borrower shall forever
forfeit its right to redeem the Debentures pursuant to this Section 5.1.

                                       19

<PAGE>


              IN WITNESS WHEREOF, Borrower has caused this Debenture to be
signed in its name by its duly authorized officer this 10th day of January,
2003.


                                      DIGITAL DESCRIPTOR SYSTEMS, INC.



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

                                       20

<PAGE>


                                    EXHIBIT A

                              NOTICE OF CONVERSION
                    (To be Executed by the Registered Holder
                       in order to Convert the Debentures)

              The undersigned hereby irrevocably elects to convert $__________
principal amount of the Debenture (defined below) into shares of common stock,
par value $.001 per share ("Common Stock"), of Digital Descriptor Systems, Inc.,
a Delaware corporation (the "Borrower") according to the conditions of the
convertible debentures of the Borrower dated as of January 10, 2003 (the
"Debentures"), as of the date written below. If securities are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates. No fee will be charged to the Holder for any conversion, except
for transfer taxes, if any. A copy of each Debenture is attached hereto (or
evidence of loss, theft or destruction thereof).

              The Borrower shall electronically transmit the Common Stock
issuable pursuant to this Notice of Conversion to the account of the undersigned
or its nominee with DTC through its Deposit Withdrawal Agent Commission system
("DWAC Transfer").

         Name of DTC Prime Broker:
                                  ------------------------------------
         Account Number:
                        ----------------------------------------------

              In lieu of receiving shares of Common Stock issuable pursuant to
this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the number of
shares of Common Stock set forth below (which numbers are based on the Holder's
calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:

         Name:
              --------------------------------------------------------
         Address:
                 -----------------------------------------------------

              The undersigned represents and warrants that all offers and sales
by the undersigned of the securities issuable to the undersigned upon conversion
of the Debentures shall be made pursuant to registration of the securities under
the Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption
from registration under the Act.

                Date of Conversion:_____________________________
                Applicable Conversion Price:____________________
                Number of Shares of Common Stock to be Issued Pursuant to
                Conversion of the Debentures:______________
                Signature:______________________________________
                Name:___________________________________________
                Address:________________________________________

                                       21

<PAGE>


The Borrower shall issue and deliver shares of Common Stock to an overnight
courier not later than three business days following receipt of the original
Debenture(s) to be converted, and shall make payments pursuant to the Debentures
for the number of business days such issuance and delivery is late.

                                       22


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>11
<FILENAME>ex10-63.txt
<DESCRIPTION>EXHIBIT 10.6.3
<TEXT>
<PAGE>


                                                                  EXHIBIT 10.6.3


                          REGISTRATION RIGHTS AGREEMENT


         REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of January
10, 2003, by and among Digital Descriptor Systems, Inc., a Delaware corporation
, with its headquarters located at 446 Lincoln Highway, Fairless Hills, PA 19030
(the "Company"), and each of the undersigned (together with their respective
affiliates and any assignee or transferee of all of their respective rights
hereunder, the "Initial Investors").

         WHEREAS:

         A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) convertible debentures
in the aggregate principal amount of up to Five Hundred Thousand Dollars
($500,000) (the "Debentures") that are convertible into shares of the Company's
common stock (the "Common Stock"), upon the terms and subject to the limitations
and conditions set forth in such Debentures and (ii) warrants (the "Warrants")
to acquire an aggregate of 1,500,000 shares of Common Stock, upon the terms and
conditions and subject to the limitations and conditions set forth in the
Warrants dated January 10, 2003; and

         B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Initial Investors hereby agree as follows:

                  1. DEFINITIONS.

                           a. As used in this Agreement, the following terms
shall have the following meanings:

                                    (i) "Investors" means the Initial Investors
and any transferee or assignee who agrees to become bound by the provisions of
this Agreement in accordance with Section 9 hereof.

                                    (ii) "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
Registration Statement or Statements in compliance with the 1933 Act and
pursuant to Rule 415 under the 1933 Act or any successor rule providing for
offering securities on a continuous basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "SEC").

<PAGE>


                                    (iii) "Registrable Securities" means the
Conversion Shares issued or issuable upon conversion or otherwise pursuant to
the Debentures and Additional Debentures (as defined in the Securities Purchase
Agreement) including, without limitation, Damages Shares (as defined in the
Debentures) issued or issuable pursuant to the Debentures, shares of Common
Stock issued or issuable in payment of the Standard Liquidated Damages Amount
(as defined in the Securities Purchase Agreement), shares issued or issuable in
respect of interest or in redemption of the Debentures in accordance with the
terms thereof) and Warrant Shares issuable, upon exercise or otherwise pursuant
to the Warrants and Additional Warrants (as defined in the Securities Purchase
Agreement), and any shares of capital stock issued or issuable as a dividend on
or in exchange for or otherwise with respect to any of the foregoing.

                                    (iv) "Registration Statement" means a
registration statement of the Company under the 1933 Act.

                           b. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement or the Convertible Debenture.

                  2. REGISTRATION.

                           a. Mandatory Registration. The Company shall prepare,
and, on or prior to (i) twenty (20) days from the date of Closing (as defined in
the Securities Purchase Agreement), with respect to 30,000,000 Registrable
Securities and (ii) February 25, 2003 with respect to the remaining Registrable
Securities (the "Filing Date"), file with the SEC a Registration Statement on
Form S-3 (or, if Form S-3 is not then available, on such form of Registration
Statement as is then available to effect a registration of the Registrable
Securities, subject to the consent of the Initial Investors, which consent will
not be unreasonably withheld) covering the resale of the Registrable Securities
underlying the Debentures and Warrants issued or issuable pursuant to the
Securities Purchase Agreement, which Registration Statement, to the extent
allowable under the 1933 Act and the rules and regulations promulgated
thereunder (including Rule 416), shall state that such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of or otherwise pursuant to the Debentures
and exercise of the Warrants to prevent dilution resulting from stock splits,
stock dividends or similar transactions. The number of shares of Common Stock
initially included in such Registration Statement shall be no less than an
amount equal to two (2) times the sum of the number of Conversion Shares that
are then issuable upon conversion of the Debentures and Additional Debentures
(based on the Variable Conversion Price as would then be in effect and assuming
the Variable Conversion Price is the Conversion Price at such time), and the
number of Warrant Shares that are then issuable upon exercise of the Warrants,
without regard to any limitation on the Investor's ability to convert the
Debentures or exercise the Warrants. The Company acknowledges that the number of
shares initially included in the Registration Statement represents a good faith
estimate of the maximum number of shares issuable upon conversion of the
Debentures and upon exercise of the Warrants.

                                       2

<PAGE>


                           b. Underwritten Offering. If any offering pursuant to
a Registration Statement pursuant to Section 2(a) hereof involves an
underwritten offering, the Investors who hold a majority in interest of the
Registrable Securities subject to such underwritten offering, with the consent
of a majority-in-interest of the Initial Investors, shall have the right to
select one legal counsel and an investment banker or bankers and manager or
managers to administer the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company.

                           c. Payments by the Company. The Company shall use its
best efforts to obtain effectiveness of the Registration Statement as soon as
practicable. If (i) the Registration Statement(s) covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a) hereof
is not filed by the Filing Date or declared effective by the SEC on or prior to
one hundred five (105) days from the date of Closing, or (ii) after the
Registration Statement has been declared effective by the SEC, sales of all of
the Registrable Securities cannot be made pursuant to the Registration
Statement, or (iii) the Common Stock is not listed or included for quotation on
the Nasdaq National Market ("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq
SmallCap"), the New York Stock Exchange (the "NYSE") or the American Stock
Exchange (the "AMEX") after being so listed or included for quotation, or (iv)
the Common Stock ceases to be traded on the Over-the-Counter Bulletin Board (the
"OTCBB") or any equivalent replacement exchange prior to being listed or
included for quotation on one of the aforementioned markets, then the Company
will make payments to the Investors in such amounts and at such times as shall
be determined pursuant to this Section 2(c) as partial relief for the damages to
the Investors by reason of any such delay in or reduction of their ability to
sell the Registrable Securities (which remedy shall not be exclusive of any
other remedies available at law or in equity). The Company shall pay to each
holder of the Debentures or Registrable Securities an amount equal to the then
outstanding principal amount of the Debentures (and, in the case of holders of
Registrable Securities, the principal amount of Debentures from which such
Registrable Securities were converted) ("Outstanding Principal Amount"),
multiplied by the Applicable Percentage (as defined below) times the sum of: (i)
the number of months (prorated for partial months) after the Filing Date or the
end of the aforementioned one hundred five (105) day period and prior to the
date the Registration Statement is declared effective by the SEC, provided,
however, that there shall be excluded from such period any delays which are
solely attributable to changes required by the Investors in the Registration
Statement with respect to information relating to the Investors, including,
without limitation, changes to the plan of distribution, or to the failure of
the Investors to conduct their review of the Registration Statement pursuant to
Section 3(h) below in a reasonably prompt manner; (ii) the number of months
(prorated for partial months) that sales of all of the Registrable Securities
cannot be made pursuant to the Registration Statement after the Registration
Statement has been declared effective (including, without limitation, when sales
cannot be made by reason of the Company's failure to properly supplement or
amend the prospectus included therein in accordance with the terms of this
Agreement, but excluding any days during an Allowed Delay (as defined in Section
3(f)); and (iii) the number of months (prorated for partial months) that the
Common Stock is not listed or included for quotation on the OTCBB, Nasdaq,
Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted after the
Registration Statement has been declared effective. The term "Applicable
Percentage" means two hundredths (.02). (For example, if the Registration
Statement becomes effective one (1) month after the end of such thirty-day
period, the Company would pay $5,000 for each $250,000 of Outstanding Principal
Amount. If thereafter, sales could not be made pursuant to the Registration
Statement for an additional period of one (1) month, the Company would pay an
additional $5,000 for each $250,000 of Outstanding Principal Amount.) Such
amounts shall be paid in cash or, at each Investor's option, in shares of Common
Stock priced at the Conversion Price (as defined in the Debentures) on such
payment date.

                                       3
<PAGE>

                           d. Piggy-Back Registrations. Subject to the last
sentence of this Section 2(d), if at any time prior to the expiration of the
Registration Period (as hereinafter defined) the Company shall determine to file
with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the 1933 Act of any of its equity
securities (other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other bona fide, employee benefit plans), the
Company shall send to each Investor who is entitled to registration rights under
this Section 2(d) written notice of such determination and, if within fifteen
(15) days after the effective date of such notice, such Investor shall so
request in writing, the Company shall include in such Registration Statement all
or any part of the Registrable Securities such Investor requests to be
registered, except that if, in connection with any underwritten public offering
for the account of the Company the managing underwriter(s) thereof shall impose
a limitation on the number of shares of Common Stock which may be included in
the Registration Statement because, in such underwriter(s)' judgment, marketing
or other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which such Investor has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities shall be made
pro rata among the Investors seeking to include Registrable Securities in
proportion to the number of Registrable Securities sought to be included by such
Investors; provided, however, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities; and provided, further, however, that, after giving
effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
right to include such securities in the Registration Statement other than
holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a) hereof. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering. Notwithstanding
anything to the contrary set forth herein, the registration rights of the
Investors pursuant to this Section 2(d) shall only be available in the event the
Company fails to timely file, obtain effectiveness or maintain effectiveness of
any Registration Statement to be filed pursuant to Section 2(a) in accordance
with the terms of this Agreement.

                                       4
<PAGE>

                           e. Eligibility for Form S-3, SB-2 or S-1; Conversion
to Form S-3. The Company represents and warrants that it meets the requirements
for the use of Form S-3, SB-2 or S-1 for registration of the sale by the Initial
Investors and any other Investors of the Registrable Securities. The Company
agrees to file all reports required to be filed by the Company with the SEC in a
timely manner so as to remain eligible or become eligible, as the case may be,
and thereafter to maintain its eligibility, for the use of Form S-3. If the
Company is not currently eligible to use Form S-3, not later than five (5)
business days after the Company first meets the registration eligibility and
transaction requirements for the use of Form S-3 (or any successor form) for
registration of the offer and sale by the Initial Investors and any other
Investors of Registrable Securities, the Company shall file a Registration
Statement on Form S-3 (or such successor form) with respect to the Registrable
Securities covered by the Registration Statement on Form SB-2 or Form S-1,
whichever is applicable, filed pursuant to Section 2(a) (and include in such
Registration Statement on Form S-3 the information required by Rule 429 under
the 1933 Act) or convert the Registration Statement on Form SB-2 or Form S-1,
whichever is applicable, filed pursuant to Section 2(a) to a Form S-3 pursuant
to Rule 429 under the 1933 Act and cause such Registration Statement (or such
amendment) to be declared effective no later than forty-five (45) days after
filing. In the event of a breach by the Company of the provisions of this
Section 2(e), the Company will be required to make payments pursuant to Section
2(c) hereof.

                  3. OBLIGATIONS OF THE COMPANY.

         In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:

                           a. The Company shall prepare promptly, and file with
the SEC not later than the Filing Date, a Registration Statement with respect to
the number of Registrable Securities provided in Section 2(a), and thereafter
use its best efforts to cause such Registration Statement relating to
Registrable Securities to become effective as soon as possible after such filing
(but in no event later than one hundred five (105) days from the date of Closing
(as defined in the Securities Purchase Agreement), and keep the Registration
Statement effective pursuant to Rule 415 at all times until such date as is the
earlier of (i) the date on which all of the Registrable Securities have been
sold and (ii) the date on which the Registrable Securities (in the opinion of
counsel to the Initial Investors) may be immediately sold to the public without
registration or restriction (including without limitation as to volume by each
holder thereof) under the 1933 Act (the "Registration Period"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.

                           b. The Company shall prepare and file with the SEC
such amendments (including post-effective amendments) and supplements to the
Registration Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration Statements
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statements
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statements. In the event the number of
shares available under a Registration Statement filed pursuant to this Agreement
is insufficient to cover all of the Registrable Securities issued or issuable
upon conversion of the Debentures and exercise of the Warrants, the Company

                                       5
<PAGE>

shall amend the Registration Statement, or file a new Registration Statement (on
the short form available therefor, if applicable), or both, so as to cover all
of the Registrable Securities, in each case, as soon as practicable, but in any
event within fifteen (15) days after the necessity therefor arises (based on the
market price of the Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof, but in any event within thirty (30)
days after the date on which the Company reasonably first determines (or
reasonably should have determined) the need therefor. The provisions of Section
2(c) above shall be applicable with respect to such obligation, with the one
hundred five (105) days running from the day the Company reasonably first
determines (or reasonably should have determined) the need therefor.

                           c. The Company shall furnish to each Investor whose
Registrable Securities are included in a Registration Statement and its legal
counsel (i) promptly (but in no event more than two (2) business days) after the
same is prepared and publicly distributed, filed with the SEC, or received by
the Company, one copy of each Registration Statement and any amendment thereto,
each preliminary prospectus and prospectus and each amendment or supplement
thereto, and, in the case of the Registration Statement referred to in Section
2(a), each letter written by or on behalf of the Company to the SEC or the staff
of the SEC, and each item of correspondence from the SEC or the staff of the
SEC, in each case relating to such Registration Statement (other than any
portion of any thereof which contains information for which the Company has
sought confidential treatment), and (ii) promptly (but in no event more than two
(2) business days) after the Registration Statement is declared effective by the
SEC, such number of copies of a prospectus, including a preliminary prospectus,
and all amendments and supplements thereto and such other documents as such
Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor. The Company will immediately
notify each Investor by facsimile of the effectiveness of each Registration
Statement or any post-effective amendment. The Company will promptly (but in no
event more than five (5) business days) respond to any and all comments received
from the SEC (which comments shall promptly be made available to the Investors
upon request), with a view towards causing each Registration Statement or any
amendment thereto to be declared effective by the SEC as soon as practicable,
shall promptly file an acceleration request as soon as practicable (but in no
event more than two (2) business days) following the resolution or clearance of
all SEC comments or, if applicable, following notification by the SEC that any
such Registration Statement or any amendment thereto will not be subject to
review and shall promptly file with the SEC a final prospectus as soon as
practicable (but in no event more than two (2) business days) following receipt
by the Company from the SEC of an order declaring the Registration Statement
effective. In the event of a breach by the Company of the provisions of this
Section 3(c), the Company will be required to make payments pursuant to Section
2(c) hereof.

                           d. The Company shall use reasonable efforts to (i)
register and qualify the Registrable Securities covered by the Registration
Statements under such other securities or "blue sky" laws of such jurisdictions
in the United States as the Investors who hold a majority in interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the

                                       6
<PAGE>

Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its shareholders.

                           e. In the event Investors who hold a
majority-in-interest of the Registrable Securities being offered in the offering
(with the approval of a majority-in-interest of the Initial Investors) select
underwriters for the offering, the Company shall enter into and perform its
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering.

                           f. As promptly as practicable after becoming aware of
such event, the Company shall notify each Investor of the happening of any
event, of which the Company has knowledge, as a result of which the prospectus
included in any Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
use its best efforts promptly to prepare a supplement or amendment to any
Registration Statement to correct such untrue statement or omission, and deliver
such number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request; provided that, for not more than ten (10)
consecutive trading days (or a total of not more than twenty (20) trading days
in any twelve (12) month period), the Company may delay the disclosure of
material non-public information concerning the Company (as well as prospectus or
Registration Statement updating) the disclosure of which at the time is not, in
the good faith opinion of the Company, in the best interests of the Company (an
"Allowed Delay"); provided, further, that the Company shall promptly (i) notify
the Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under such Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.

                           g. The Company shall use its best efforts to prevent
the issuance of any stop order or other suspension of effectiveness of any
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.

                                       7
<PAGE>

                           h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review such Registration Statement and
all amendments and supplements thereto (as well as all requests for acceleration
or effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of such Registration Statement without
prior notice to such counsel. The sections of such Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.

                           i. The Company shall make generally available to its
security holders as soon as practicable, but not later than ninety (90) days
after the close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the 1933 Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.

                           j. At the request of any Investor, the Company shall
furnish, on the date that Registrable Securities are delivered to an
underwriter, if any, for sale in connection with any Registration Statement or,
if such securities are not being sold by an underwriter, on the date of
effectiveness thereof (i) an opinion, dated as of such date, from counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering,
addressed to the underwriters, if any, and the Investors and (ii) a letter,
dated such date, from the Company's independent certified public accountants in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and the Investors.

                           k. The Company shall make available for inspection by
(i) any Investor, (ii) any underwriter participating in any disposition pursuant
to a Registration Statement, (iii) one firm of attorneys and one firm of
accountants or other agents retained by the Initial Investors, (iv) one firm of
attorneys and one firm of accountants or other agents retained by all other
Investors, and (v) one firm of attorneys retained by all such underwriters
(collectively, the "Inspectors") all pertinent financial and other records, and
pertinent corporate documents and properties of the Company, including without
limitation, records of conversions by other holders of convertible securities
issued by the Company and the issuance of stock to such holders pursuant to the
conversions (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or

                                       8
<PAGE>

government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(k). Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investor's ability to sell Registrable Securities in a manner which
is otherwise consistent with applicable laws and regulations.

                           l. The Company shall hold in confidence and not make
any disclosure of information concerning an Investor provided to the Company
unless (i) disclosure of such information is necessary to comply with federal or
state securities laws, (ii) the disclosure of such information is necessary to
avoid or correct a misstatement or omission in any Registration Statement, (iii)
the release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.

                           m. The Company shall (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on each national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) to the
extent the securities of the same class or series are not then listed on a
national securities exchange, secure the designation and quotation, of all the
Registrable Securities covered by the Registration Statement on Nasdaq or, if
not eligible for Nasdaq, on Nasdaq SmallCap or, if not eligible for Nasdaq or
Nasdaq SmallCap, on the OTCBB and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities.

                           n. The Company shall provide a transfer agent and
registrar, which may be a single entity, for the Registrable Securities not
later than the effective date of the Registration Statement.

                           o. The Company shall cooperate with the Investors who
hold Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as Exhibit 1 and an opinion of such counsel in the form
attached hereto as Exhibit 2.

                                       9
<PAGE>

                           p. At the request of the holders of a
majority-in-interest of the Registrable Securities, the Company shall prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and any prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.

                           q. From and after the date of this Agreement, the
Company shall not, and shall not agree to, allow the holders of any securities
of the Company to include any of their securities in any Registration Statement
under Section 2(a) hereof or any amendment or supplement thereto under Section
3(b) hereof without the consent of the holders of a majority-in-interest of the
Registrable Securities.

                           r. The Company shall take all other reasonable
actions necessary to expedite and facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration Statement.

                  4. OBLIGATIONS OF THE INVESTORS.

         In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:

                           a. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request. At least three (3) business days prior to the first
anticipated filing date of the Registration Statement, the Company shall notify
each Investor of the information the Company requires from each such Investor.

                           b. Each Investor, by such Investor's acceptance of
the Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statements hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statements.

                           c. In the event Investors holding a
majority-in-interest of the Registrable Securities being registered (with the
approval of the Initial Investors) determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.

                                       10
<PAGE>

                           d. Each Investor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 3(f) or 3(g), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.

                           e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.

                  5. EXPENSES OF REGISTRATION.

         All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel selected by the Initial Investors pursuant to
Sections 2(b) and 3(h) hereof shall be borne by the Company.

                  6. INDEMNIFICATION.

         In the event any Registrable Securities are included in a Registration
Statement under this Agreement:

                           a. To the extent permitted by law, the Company will
indemnify, hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and each
person who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), if any, (iii) any
underwriter (as defined in the 1933 Act) for the Investors, and (iv) the
directors, officers, partners, employees and each person who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)

                                       11
<PAGE>

being, collectively, "Violations"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are incurred and are
due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of such Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.

                           b. In connection with any Registration Statement in
which an Investor is participating, each such Investor agrees severally and not
jointly to indemnify, hold harmless and defend, to the same extent and in the
same manner set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other shareholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such shareholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent

                                       12
<PAGE>

(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.

                           c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

                                       13
<PAGE>

                  7. CONTRIBUTION.

         To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.

                  8. REPORTS UNDER THE 1934 ACT.

         With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:

                           a. make and keep public information available, as
those terms are understood and defined in Rule 144;

                           b. file with the SEC in a timely manner all reports
and other documents required of the Company under the 1933 Act and the 1934 Act
so long as the Company remains subject to such requirements (it being understood
that nothing herein shall limit the Company's obligations under Section 4(c) of
the Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and

                           c. furnish to each Investor so long as such Investor
owns Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of Rule 144,
the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.

                  9. ASSIGNMENT OF REGISTRATION RIGHTS.

         The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.

                                       14
<PAGE>

                  10. AMENDMENT OF REGISTRATION RIGHTS.

         Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, each
of the Initial Investors (to the extent such Initial Investor still owns
Registrable Securities) and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.

                  11. MISCELLANEOUS.

                           a. A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.

                           b. Any notices required or permitted to be given
under the terms hereof shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:

                           If to the Company:

                           Digital Descriptor Systems, Inc.
                           446 Lincoln Highway
                           Fairless Hills, Pennsylvania  19030
                           Attention: President and Chief Operating Officer
                           Telephone: 267-580-1075
                           Facsimile: 267-580-1090
                           Email: michael.pellegrino@ddsi-cpc.com


                                       15
<PAGE>

                           With copy to:

                           Naccarato & Associates
                           19600 Fairchild, Suite    260
                           Irvine, California  92612
                           Attention: Owen Naccarato, Esq.
                           Telephone: 949-851-9261
                           Facsimile: 949-851-9262
                           Email: onacc@jps.net


If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.

                           With a copy to:

                           Ballard Spahr Andrews & Ingersoll, LLP
                           1735 Market Street
                           51st Floor
                           Philadelphia, Pennsylvania  19103
                           Attention: Gerald J. Guarcini, Esq.
                           Telephone: 215-865-8625
                           Facsimile: 215-864-8999
                           Email: guarcini@ballardspahr.com

                           c. Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.

                           d. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED NEW YORK, NEW
YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT
SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN
EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.

                                       16
<PAGE>

                           e. In the event that any provision of this Agreement
is invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.

                           f. This Agreement, the Warrants and the Securities
Purchase Agreement (including all schedules and exhibits thereto) constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement and the Securities Purchase Agreement supersede all prior agreements
and understandings among the parties hereto with respect to the subject matter
hereof and thereof.

                           g. Subject to the requirements of Section 9 hereof,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns.

                           h. The headings in this Agreement are for convenience
of reference only and shall not form part of, or affect the interpretation of,
this Agreement.

                           i. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party.
This Agreement, once executed by a party, may be delivered to the other party
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.

                           j. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

                           k. Except as otherwise provided herein, all consents
and other determinations to be made by the Investors pursuant to this Agreement
shall be made by Investors holding a majority of the Registrable Securities,
determined as if the all of the Debentures then outstanding have been converted
into for Registrable Securities.

                                       17
<PAGE>

                           l. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to each Investor by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for breach of its
obligations under this Agreement will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of any of the provisions under this
Agreement, that each Investor shall be entitled, in addition to all other
available remedies in law or in equity, and in addition to the penalties
assessable herein, to an injunction or injunctions restraining, preventing or
curing any breach of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss and without
any bond or other security being required.

                           m. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.





                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]





                                       18
<PAGE>

         IN WITNESS WHEREOF, the Company and the undersigned Initial Investors
have caused this Agreement to be duly executed as of the date first above
written.


DIGITAL DESCRIPTOR SYSTEMS, INC.

/s/ Michael J. Pellegrino
--------------------------------------
Michael J. Pellegrino
President and Chief Operating Officer



AJW PARTNERS, LLC
By:  SMS Group, LLC


--------------------------------------
Corey S. Ribotsky
Manager



AJW OFFSHORE, LTD.
By:  First Street Manager II, LLC


--------------------------------------
Corey S. Ribotsky
Manager


AJW QUALIFIED PARTNERS, LLC
By:  AJW Manager, LLC


------------------------------------
Corey S. Ribotsky
Manager

                                       19

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>12
<FILENAME>ex10-72.txt
<DESCRIPTION>EXHIBIT 10.7.2
<TEXT>
<PAGE>

                                                                  EXHIBIT 10.7.2


                               SECURITY AGREEMENT


         SECURITY AGREEMENT (this "Agreement"), dated as of January 10, 2003, by
and among Digital Descriptor Systems, Inc., a Delaware corporation ("Company"),
and the secured parties signatory hereto and their respective endorsees,
transferees and assigns (collectively, the "Secured Party").

                              W I T N E S S E T H:

         WHEREAS, pursuant to a Securities Purchase Agreement, dated the date
hereof between Company and the Secured Party (the "Purchase Agreement"), Company
has agreed to issue to the Secured Party and the Secured Party has agreed to
purchase from Company certain of Company's 12% Secured Convertible Debentures,
due one year from the date of issue (the "Debentures"), which are convertible
into shares of Company's Common Stock, par value $.001 per share (the "Common
Stock"). In connection therewith, Company shall issue the Secured Party certain
Common Stock purchase warrants dated as of the date hereof to purchase the
number of shares of Common Stock indicated below each Secured Party's name on
the Purchase Agreement (the "Warrants"); and

         WHEREAS, in order to induce the Secured Party to purchase the
Debentures, Company has agreed to execute and deliver to the Secured Party this
Agreement for the benefit of the Secured Party and to grant to it a first
priority security interest in certain property of Company to secure the prompt
payment, performance and discharge in full of all of Company's obligations under
the Debentures and exercise and discharge in full of Company's obligations under
the Warrants.

         NOW, THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:

         1. Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "general intangibles" and "proceeds") shall have the respective
meanings given such terms in Article 9 of the UCC.

             (a) "Collateral" means the collateral in which the Secured Party is
granted a security interest by this Agreement and which shall include the
following, whether presently owned or existing or hereafter acquired or coming
into existence, and all additions and accessions thereto and all substitutions
and replacements thereof, and all proceeds, products and accounts thereof,
including, without limitation, all proceeds from the sale or transfer of the
Collateral and of insurance covering the same and of any tort claims in
connection therewith:


<PAGE>

                 (i) All Goods of the Company, including, without limitations,
all machinery, equipment, computers, motor vehicles, trucks, tanks, boats,
ships, appliances, furniture, special and general tools, fixtures, test and
quality control devices and other equipment of every kind and nature and
wherever situated, together with all documents of title and documents
representing the same, all additions and accessions thereto, replacements
therefor, all parts therefor, and all substitutes for any of the foregoing and
all other items used and useful in connection with the Company's businesses and
all improvements thereto (collectively, the "Equipment"); and

                 (ii) All Inventory of the Company; and

                 (iii) All of the Company's contract rights and general
intangibles, including, without limitation, all partnership interests, stock or
other securities, licenses, distribution and other agreements, computer software
development rights, leases, franchises, customer lists, quality control
procedures, grants and rights, goodwill, trademarks, service marks, trade
styles, trade names, patents, patent applications, copyrights, deposit accounts,
and income tax refunds (collectively, the "General Intangibles"); and

                 (iv) All Receivables of the Company including all insurance
proceeds, and rights to refunds or indemnification whatsoever owing, together
with all instruments, all documents of title representing any of the foregoing,
all rights in any merchandising, goods, equipment, motor vehicles and trucks
which any of the same may represent, and all right, title, security and
guaranties with respect to each Receivable, including any right of stoppage in
transit; and

                 (v) All of the Company's documents, instruments and chattel
paper, files, records, books of account, business papers, computer programs and
the products and proceeds of all of the foregoing Collateral set forth in
clauses (i)-(iv) above.

             (b) "Company" shall mean, collectively, Company and all of the
subsidiaries of Company, a list of which is contained in Schedule A, attached
hereto.

             (c) "Obligations" means all of the Company's obligations under this
Agreement and the Debentures, in each case, whether now or hereafter existing,
voluntary or involuntary, direct or indirect, absolute or contingent, liquidated
or unliquidated, whether or not jointly owed with others, and whether or not
from time to time decreased or extinguished and later decreased, created or
incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from the Secured Party as a preference, fraudulent
transfer or otherwise as such obligations may be amended, supplemented,
converted, extended or modified from time to time.

             (d) "UCC" means the Uniform Commercial Code, as currently in effect
in the State of New York.

         2. Grant of Security Interest. As an inducement for the Secured Party
to purchase the Debentures and to secure the complete and timely payment,
performance and discharge in full, as the case may be, of all of the
Obligations, the Company hereby, unconditionally and irrevocably, pledges,
grants and hypothecates to the Secured Party, a continuing security interest in,
a continuing first lien upon, an unqualified right to possession and disposition
of and a right of set-off against, in each case to the fullest extent permitted
by law, all of the Company's right, title and interest of whatsoever kind and
nature in and to the Collateral (the "Security Interest").

                                       2
<PAGE>

         3. Representations, Warranties, Covenants and Agreements of the
Company. The Company represents and warrants to, and covenants and agrees with,
the Secured Party as follows:

             (a) The Company has the requisite corporate power and authority to
enter into this Agreement and otherwise to carry out its obligations thereunder.
The execution, delivery and performance by the Company of this Agreement and the
filings contemplated therein have been duly authorized by all necessary action
on the part of the Company and no further action is required by the Company.
This Agreement constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditor's rights generally.

             (b) The Company represents and warrants that it has no place of
business or offices where its respective books of account and records are kept
(other than temporarily at the offices of its attorneys or accountants) or
places where Collateral is stored or located, except as set forth on Schedule A
attached hereto;

             (c) The Company is the sole owner of the Collateral (except for
non-exclusive licenses granted by the Company in the ordinary course of
business), free and clear of any liens, security interests, encumbrances, rights
or claims, and is fully authorized to grant the Security Interest in and to
pledge the Collateral. There is not on file in any governmental or regulatory
authority, agency or recording office an effective financing statement, security
agreement, license or transfer or any notice of any of the foregoing (other than
those that have been filed in favor of the Secured Party pursuant to this
Agreement) covering or affecting any of the Collateral. So long as this
Agreement shall be in effect, the Company shall not execute and shall not
knowingly permit to be on file in any such office or agency any such financing
statement or other document or instrument (except to the extent filed or
recorded in favor of the Secured Party pursuant to the terms of this Agreement).

             (d) No part of the Collateral has been judged invalid or
unenforceable. No written claim has been received that any Collateral or the
Company's use of any Collateral violates the rights of any third party. There
has been no adverse decision to the Company's claim of ownership rights in or
exclusive rights to use the Collateral in any jurisdiction or to the Company's
right to keep and maintain such Collateral in full force and effect, and there
is no proceeding involving said rights pending or, to the best knowledge of the
Company, threatened before any court, judicial body, administrative or
regulatory agency, arbitrator or other governmental authority.

             (e) The Company shall at all times maintain its books of account
and records relating to the Collateral at its principal place of business and
its Collateral at the locations set forth on Schedule A attached hereto and may
not relocate such books of account and records or tangible Collateral unless it
delivers to the Secured Party at least 30 days prior to such relocation (i)
written notice of such relocation and the new location thereof (which must be
within the United States) and (ii) evidence that appropriate financing
statements and other necessary documents have been filed and recorded and other
steps have been taken to perfect the Security Interest to create in favor of the
Secured Party valid, perfected and continuing first priority liens in the
Collateral.

                                       3
<PAGE>

             (f) This Agreement creates in favor of the Secured Party a valid
security interest in the Collateral securing the payment and performance of the
Obligations and, upon making the filings described in the immediately following
sentence, a perfected first priority security interest in such Collateral.
Except for the filing of financing statements on Form-1 under the UCC with the
jurisdictions indicated on Schedule B, attached hereto, no authorization or
approval of or filing with or notice to any governmental authority or regulatory
body is required either (i) for the grant by the Company of, or the
effectiveness of, the Security Interest granted hereby or for the execution,
delivery and performance of this Agreement by the Company or (ii) for the
perfection of or exercise by the Secured Party of its rights and remedies
hereunder.

             (g) On the date of execution of this Agreement, the Company will
deliver to the Secured Party one or more executed UCC financing statements on
Form-1 with respect to the Security Interest for filing with the jurisdictions
indicated on Schedule B, attached hereto and in such other jurisdictions as may
be requested by the Secured Party.

             (h) The execution, delivery and performance of this Agreement does
not conflict with or cause a breach or default, or an event that with or without
the passage of time or notice, shall constitute a breach or default, under any
agreement to which the Company is a party or by which the Company is bound. No
consent (including, without limitation, from stock holders or creditors of the
Company) is required for the Company to enter into and perform its obligations
hereunder.

             (i) The Company shall at all times maintain the liens and Security
Interest provided for hereunder as valid and perfected first priority liens and
security interests in the Collateral in favor of the Secured Party until this
Agreement and the Security Interest hereunder shall terminate pursuant to
Section 11. The Company hereby agrees to defend the same against any and all
persons. The Company shall safeguard and protect all Collateral for the account
of the Secured Party. At the request of the Secured Party, the Company will sign
and deliver to the Secured Party at any time or from time to time one or more
financing statements pursuant to the UCC (or any other applicable statute) in
form reasonably satisfactory to the Secured Party and will pay the cost of
filing the same in all public offices wherever filing is, or is deemed by the
Secured Party to be, necessary or desirable to effect the rights and obligations
provided for herein. Without limiting the generality of the foregoing, the
Company shall pay all fees, taxes and other amounts necessary to maintain the
Collateral and the Security Interest hereunder, and the Company shall obtain and
furnish to the Secured Party from time to time, upon demand, such releases
and/or subordinations of claims and liens which may be required to maintain the
priority of the Security Interest hereunder.

                                       4
<PAGE>

             (j) The Company will not transfer, pledge, hypothecate, encumber,
license (except for non-exclusive licenses granted by the Company in the
ordinary course of business), sell or otherwise dispose of any of the Collateral
without the prior written consent of the Secured Party.

             (k) The Company shall keep and preserve its Equipment, Inventory
and other tangible Collateral in good condition, repair and order and shall not
operate or locate any such Collateral (or cause to be operated or located) in
any area excluded from insurance coverage.

             (l) The Company shall, within ten (10) days of obtaining knowledge
thereof, advise the Secured Party promptly, in sufficient detail, of any
substantial change in the Collateral, and of the occurrence of any event which
would have a material adverse effect on the value of the Collateral or on the
Secured Party's security interest therein.

             (m) The Company shall promptly execute and deliver to the Secured
Party such further deeds, mortgages, assignments, security agreements, financing
statements or other instruments, documents, certificates and assurances and take
such further action as the Secured Party may from time to time request and may
in its sole discretion deem necessary to perfect, protect or enforce its
security interest in the Collateral including, without limitation, the execution
and delivery of a separate security agreement with respect to the Company's
intellectual property ("Intellectual Property Security Agreement") in which the
Secured Party has been granted a security interest hereunder, substantially in a
form acceptable to the Secured Party, which Intellectual Property Security
Agreement, other than as stated therein, shall be subject to all of the terms
and conditions hereof.

             (n) The Company shall permit the Secured Party and its
representatives and agents to inspect the Collateral at any time, and to make
copies of records pertaining to the Collateral as may be requested by the
Secured Party from time to time.

             (o) The Company will take all steps reasonably necessary to
diligently pursue and seek to preserve, enforce and collect any rights, claims,
causes of action and accounts receivable in respect of the Collateral.

             (p) The Company shall promptly notify the Secured Party in
sufficient detail upon becoming aware of any attachment, garnishment, execution
or other legal process levied against any Collateral and of any other
information received by the Company that may materially affect the value of the
Collateral, the Security Interest or the rights and remedies of the Secured
Party hereunder.

             (q) All information heretofore, herein or hereafter supplied to the
Secured Party by or on behalf of the Company with respect to the Collateral is
accurate and complete in all material respects as of the date furnished.

             (r) Schedule A attached hereto contains a list of all of the
subsidiaries of Company.

         4. Defaults. The following events shall be "Events of Default":

                                       5
<PAGE>

             (a) The occurrence of an Event of Default (as defined in the
Debentures) under the Debentures;

             (b) Any representation or warranty of the Company in this Agreement
or in the Intellectual Property Security Agreement shall prove to have been
incorrect in any material respect when made;

             (c) The failure by the Company to observe or perform any of its
obligations hereunder or in the Intellectual Property Security Agreement for ten
(10) days after receipt by the Company of notice of such failure from the
Secured Party; and

             (d) Any breach of, or default under, the Warrants.

         5. Duty To Hold In Trust. Upon the occurrence of any Event of Default
and at any time thereafter, the Company shall, upon receipt by it of any
revenue, income or other sums subject to the Security Interest, whether payable
pursuant to the Debentures or otherwise, or of any check, draft, note, trade
acceptance or other instrument evidencing an obligation to pay any such sum,
hold the same in trust for the Secured Party and shall forthwith endorse and
transfer any such sums or instruments, or both, to the Secured Party for
application to the satisfaction of the Obligations.

         6. Rights and Remedies Upon Default. Upon occurrence of any Event of
Default and at any time thereafter, the Secured Party shall have the right to
exercise all of the remedies conferred hereunder and under the Debentures, and
the Secured Party shall have all the rights and remedies of a secured party
under the UCC and/or any other applicable law (including the Uniform Commercial
Code of any jurisdiction in which any Collateral is then located). Without
limitation, the Secured Party shall have the following rights and powers:

             (a) The Secured Party shall have the right to take possession of
the Collateral and, for that purpose, enter, with the aid and assistance of any
person, any premises where the Collateral, or any part thereof, is or may be
placed and remove the same, and the Company shall assemble the Collateral and
make it available to the Secured Party at places which the Secured Party shall
reasonably select, whether at the Company's premises or elsewhere, and make
available to the Secured Party, without rent, all of the Company's respective
premises and facilities for the purpose of the Secured Party taking possession
of, removing or putting the Collateral in saleable or disposable form.

             (b) The Secured Party shall have the right to operate the business
of the Company using the Collateral and shall have the right to assign, sell,
lease or otherwise dispose of and deliver all or any part of the Collateral, at
public or private sale or otherwise, either with or without special conditions
or stipulations, for cash or on credit or for future delivery, in such parcel or
parcels and at such time or times and at such place or places, and upon such
terms and conditions as the Secured Party may deem commercially reasonable, all
without (except as shall be required by applicable statute and cannot be waived)
advertisement or demand upon or notice to the Company or right of redemption of
the Company, which are hereby expressly waived. Upon each such sale, lease,
assignment or other transfer of Collateral, the Secured Party may, unless
prohibited by applicable law which cannot be waived, purchase all or any part of
the Collateral being sold, free from and discharged of all trusts, claims, right
of redemption and equities of the Company, which are hereby waived and released.

                                       6
<PAGE>

         7. Applications of Proceeds. The proceeds of any such sale, lease or
other disposition of the Collateral hereunder shall be applied first, to the
expenses of retaking, holding, storing, processing and preparing for sale,
selling, and the like (including, without limitation, any taxes, fees and other
costs incurred in connection therewith) of the Collateral, to the reasonable
attorneys' fees and expenses incurred by the Secured Party in enforcing its
rights hereunder and in connection with collecting, storing and disposing of the
Collateral, and then to satisfaction of the Obligations, and to the payment of
any other amounts required by applicable law, after which the Secured Party
shall pay to the Company any surplus proceeds. If, upon the sale, license or
other disposition of the Collateral, the proceeds thereof are insufficient to
pay all amounts to which the Secured Party is legally entitled, the Company will
be liable for the deficiency, together with interest thereon, at the rate of 15%
per annum (the "Default Rate"), and the reasonable fees of any attorneys
employed by the Secured Party to collect such deficiency. To the extent
permitted by applicable law, the Company waives all claims, damages and demands
against the Secured Party arising out of the repossession, removal, retention or
sale of the Collateral, unless due to the gross negligence or willful misconduct
of the Secured Party.

         8. Costs and Expenses. The Company agrees to pay all out-of-pocket
fees, costs and expenses incurred in connection with any filing required
hereunder, including without limitation, any financing statements, continuation
statements, partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Secured Party. The
Company shall also pay all other claims and charges which in the reasonable
opinion of the Secured Party might prejudice, imperil or otherwise affect the
Collateral or the Security Interest therein. The Company will also, upon demand,
pay to the Secured Party the amount of any and all reasonable expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, which the Secured Party may incur in connection with (i) the enforcement
of this Agreement, (ii) the custody or preservation of, or the sale of,
collection from, or other realization upon, any of the Collateral, or (iii) the
exercise or enforcement of any of the rights of the Secured Party under the
Debentures. Until so paid, any fees payable hereunder shall be added to the
principal amount of the Debentures and shall bear interest at the Default Rate.

         9. Responsibility for Collateral. The Company assumes all liabilities
and responsibility in connection with all Collateral, and the obligations of the
Company hereunder or under the Debentures and the Warrants shall in no way be
affected or diminished by reason of the loss, destruction, damage or theft of
any of the Collateral or its unavailability for any reason.

         10. Security Interest Absolute. All rights of the Secured Party and all
Obligations of the Company hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Debentures, the Warrants or any agreement entered into in connection with
the foregoing, or any portion hereof or thereof; (b) any change in the time,
manner or place of payment or performance of, or in any other term of, all or
any of the Obligations, or any other amendment or waiver of or any consent to
any departure from the Debentures, the Warrants or any other agreement entered
into in connection with the foregoing; (c) any exchange, release or
nonperfection of any of the Collateral, or any release or amendment or waiver of
or consent to departure from any other collateral for, or any guaranty, or any
other security, for all or any of the Obligations; (d) any action by the Secured
Party to obtain, adjust, settle and cancel in its sole discretion any insurance
claims or matters made or arising in connection with the Collateral; or (e) any
other circumstance which might otherwise constitute any legal or equitable
defense available to the Company, or a discharge of all or any part of the
Security Interest granted hereby. Until the Obligations shall have been paid and
performed in full, the rights of the Secured Party shall continue even if the


                                       7
<PAGE>

Obligations are barred for any reason, including, without limitation, the
running of the statute of limitations or bankruptcy. The Company expressly
waives presentment, protest, notice of protest, demand, notice of nonpayment and
demand for performance. In the event that at any time any transfer of any
Collateral or any payment received by the Secured Party hereunder shall be
deemed by final order of a court of competent jurisdiction to have been a
voidable preference or fraudulent conveyance under the bankruptcy or insolvency
laws of the United States, or shall be deemed to be otherwise due to any party
other than the Secured Party, then, in any such event, the Company's obligations
hereunder shall survive cancellation of this Agreement, and shall not be
discharged or satisfied by any prior payment thereof and/or cancellation of this
Agreement, but shall remain a valid and binding obligation enforceable in
accordance with the terms and provisions hereof. The Company waives all right to
require the Secured Party to proceed against any other person or to apply any
Collateral which the Secured Party may hold at any time, or to marshal assets,
or to pursue any other remedy. The Company waives any defense arising by reason
of the application of the statute of limitations to any obligation secured
hereby.

         11. Term of Agreement. This Agreement and the Security Interest shall
terminate on the date on which all payments under the Debentures have been made
in full and all other Obligations have been paid or discharged. Upon such
termination, the Secured Party, at the request and at the expense of the
Company, will join in executing any termination statement with respect to any
financing statement executed and filed pursuant to this Agreement.

         12. Power of Attorney; Further Assurances.

             (a) The Company authorizes the Secured Party, and does hereby make,
constitute and appoint it, and its respective officers, agents, successors or
assigns with full power of substitution, as the Company's true and lawful
attorney-in-fact, with power, in its own name or in the name of the Company, to,
after the occurrence and during the continuance of an Event of Default, (i)
endorse any notes, checks, drafts, money orders, or other instruments of payment
(including payments payable under or in respect of any policy of insurance) in
respect of the Collateral that may come into possession of the Secured Party;
(ii) to sign and endorse any UCC financing statement or any invoice, freight or
express bill, bill of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with accounts, and
other documents relating to the Collateral; (iii) to pay or discharge taxes,
liens, security interests or other encumbrances at any time levied or placed on
or threatened against the Collateral; (iv) to demand, collect, receipt for,
compromise, settle and sue for monies due in respect of the Collateral; and (v)
generally, to do, at the option of the Secured Party, and at the Company's
expense, at any time, or from time to time, all acts and things which the
Secured Party deems necessary to protect, preserve and realize upon the
Collateral and the Security Interest granted therein in order to effect the
intent of this Agreement, the Debentures and the Warrants, all as fully and
effectually as the Company might or could do; and the Company hereby ratifies
all that said attorney shall lawfully do or cause to be done by virtue hereof.
This power of attorney is coupled with an interest and shall be irrevocable for
the term of this Agreement and thereafter as long as any of the Obligations
shall be outstanding.

                                       8
<PAGE>

             (b) On a continuing basis, the Company will make, execute,
acknowledge, deliver, file and record, as the case may be, in the proper filing
and recording places in any jurisdiction, including, without limitation, the
jurisdictions indicated on Schedule B, attached hereto, all such instruments,
and take all such action as may reasonably be deemed necessary or advisable, or
as reasonably requested by the Secured Party, to perfect the Security Interest
granted hereunder and otherwise to carry out the intent and purposes of this
Agreement, or for assuring and confirming to the Secured Party the grant or
perfection of a security interest in all the Collateral.

             (c) The Company hereby irrevocably appoints the Secured Party as
the Company's attorney-in-fact, with full authority in the place and stead of
the Company and in the name of the Company, from time to time in the Secured
Party's discretion, to take any action and to execute any instrument which the
Secured Party may deem necessary or advisable to accomplish the purposes of this
Agreement, including the filing, in its sole discretion, of one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral without the signature of the Company where permitted by law.

         13. Notices. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto, and
shall be deemed to have been duly given when (i) if delivered by hand, upon
receipt, (ii) if sent by facsimile, upon receipt of proof of sending thereof,
(iii) if sent by nationally recognized overnight delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered or
certified mail, return receipt requested, postage prepaid, four days after
posting in the U.S. mails, in each case if delivered to the following addresses:

             If to the Company:

                               Digital Descriptor Systems, Inc.
                               446 Lincoln Highway
                               Fairless Hills, Pennsylvania  19030
                               Attention: President and Chief Operating Officer
                               Telephone: 267-580-1075
                               Facsimile: 267-580-1090
                               Email: michael.pellegrino@ddsi-cpc.com

             With copy to:

                               Naccarato & Associates
                               19600 Fairchild, Suite    260
                               Irvine, California  92612
                               Attention: Owen Naccarato, Esq.
                               Telephone: 949-851-9261
                               Facsimile: 949-851-9262
                               Email: onacc@jps.net


                                       9
<PAGE>

         If to the Secured Party:    AJW Partners, LLC
                                     AJW Offshore, Ltd.
                                     AJW Qualified Partners, LLC
                                     1044 Northern Boulevard
                                     Suite 302
                                     Roslyn, New York  11576
                                     Attention: Corey Ribotsky
                                     Facsimile: 516-739-7115

                                     With copies to:

                                     Ballard Spahr Andrews & Ingersoll, LLP
                                     1735 Market Street, 51st Floor
                                     Philadelphia, Pennsylvania  19103
                                     Attention: Gerald J. Guarcini, Esq.
                                     Facsimile: 215-864-8999

         14. Other Security. To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity,
then the Secured Party shall have the right, in its sole discretion, to pursue,
relinquish, subordinate, modify or take any other action with respect thereto,
without in any way modifying or affecting any of the Secured Party's rights and
remedies hereunder.

         15. Miscellaneous.

             (a) No course of dealing between the Company and the Secured Party,
nor any failure to exercise, nor any delay in exercising, on the part of the
Secured Party, any right, power or privilege hereunder or under the Debentures
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.

             (b) All of the rights and remedies of the Secured Party with
respect to the Collateral, whether established hereby or by the Debentures or by
any other agreements, instruments or documents or by law shall be cumulative and
may be exercised singly or concurrently.

             (c) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and is intended to supersede all prior
negotiations, understandings and agreements with respect thereto. Except as
specifically set forth in this Agreement, no provision of this Agreement may be
modified or amended except by a written agreement specifically referring to this
Agreement and signed by the parties hereto.

             (d) In the event that any provision of this Agreement is held to be
invalid, prohibited or unenforceable in any jurisdiction for any reason, unless
such provision is narrowed by judicial construction, this Agreement shall, as to
such jurisdiction, be construed as if such invalid, prohibited or unenforceable
provision had been more narrowly drawn so as not to be invalid, prohibited or
unenforceable. If, notwithstanding the foregoing, any provision of this
Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other provisions of
this Agreement and without affecting the validity or enforceability of such
provision or the other provisions of this Agreement in any other jurisdiction.

                                       10
<PAGE>

             (e) No waiver of any breach or default or any right under this
Agreement shall be considered valid unless in writing and signed by the party
giving such waiver, and no such waiver shall be deemed a waiver of any
subsequent breach or default or right, whether of the same or similar nature or
otherwise.

             (f) This Agreement shall be binding upon and inure to the benefit
of each party hereto and its successors and assigns.

             (g) Each party shall take such further action and execute and
deliver such further documents as may be necessary or appropriate in order to
carry out the provisions and purposes of this Agreement.

             (h) This Agreement shall be construed in accordance with the laws
of the State of New York, except to the extent the validity, perfection or
enforcement of a security interest hereunder in respect of any particular
Collateral which are governed by a jurisdiction other than the State of New York
in which case such law shall govern. Each of the parties hereto irrevocably
submit to the exclusive jurisdiction of any New York State or United States
Federal court sitting in Manhattan county over any action or proceeding arising
out of or relating to this Agreement, and the parties hereto hereby irrevocably
agree that all claims in respect of such action or proceeding may be heard and
determined in such New York State or Federal court. The parties hereto agree
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. The parties hereto further waive any objection to venue
in the State of New York and any objection to an action or proceeding in the
State of New York on the basis of forum non conveniens.

             (i) EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS
TO A JURY TRAIL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF
ANY DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATER
OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY
HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED ON THIS
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL CONTINUE TO RELY
ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY WAIVES ITS RIGHTS TO A JURY TRIAL
FOLLOWING SUCH CONSULTATION. THIS WAIVER IS IRREVOCABLE, MEANING THAT,
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS AND SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF A
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.

                                       11
<PAGE>

             (j) This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same Agreement. In the event
that any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.







                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



                                       12
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.


                                  DIGITAL DESCRIPTOR SYSTEMS, INC.



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



                                  AJW PARTNERS, LLC
                                  By: SMS Group, LLC



                                  By:  _____________________________________
                                       Corey S. Ribotsky
                                       Manager



                                  AJW OFFSHORE, LTD.
                                  By: First Street Manager II, LLC



                                  By:  _____________________________________
                                       Corey S. Ribotsky
                                       Manager



                                  AJW QUALIFIED PARTNERS, LLC
                                  By: AJW Manager, LLC


                                  By:  _____________________________________
                                       Corey S. Ribotsky
                                       Manager



                                       13



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>13
<FILENAME>ex10-73.txt
<DESCRIPTION>EXHIBIT 10.7.3
<TEXT>
<PAGE>

                                                                  EXHIBIT 10.7.3

                    INTELLECTUAL PROPERTY SECURITY AGREEMENT

                  Intellectual Property Security Agreement (this "Agreement"
dated as of January 10, 2003, by and among Digital Descriptor Systems, Inc., a
Delaware corporation (the "Company"), and the secured parties signatory hereto
and their respective endorsees, transferees and assigns (collectively, the
"Secured Party").

                              W I T N E S S E T H :

         WHEREAS, pursuant to a Securities Purchase Agreement, dated as of
January 10, 2003 between Company and the Secured Party (the "Purchase
Agreement"), Company has agreed to issue to the Secured Party and the Secured
Party has agreed to purchase from Company certain of Company's 12% Secured
Convertible Debentures, due one year from the date of issue (the "Debentures"),
which are convertible into shares of Company's Common Stock, par value $.001 per
share (the "Common Stock"). In connection therewith, Company shall issue the
Secured Party certain Common Stock purchase warrants dated as of the date hereof
to purchase the number of shares of Common Stock indicated below each Secured
Party's name on the Purchase Agreement (the "Warrants"); and

         WHEREAS, in order to induce the Secured Party to purchase the
Debentures, Company has agreed to execute and deliver to the Secured Party this
Agreement for the benefit of the Secured Party and to grant to it a first
priority security interest in certain Intellectual Property (defined below) of
Company to secure the prompt payment, performance and discharge in full of all
of Company's obligations under the Debentures and exercise and discharge in full
of Company's obligations under the Warrants; and

         NOW, THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:

         1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Purchase Agreement and used herein are so used as so defined; and
the following terms shall have the following meanings:

            "Software Intellectual Property" shall mean:

            (a) all software programs (including all source code, object code
and all related applications and data files), whether now owned, upgraded,
enhanced, licensed or leased or hereafter acquired by the Company, above;

            (b) all computers and electronic data processing hardware and
firmware associated therewith;

            (c) all documentation (including flow charts, logic diagrams,
manuals, guides and specifications) with respect to such software, hardware and
firmware described in the preceding clauses (a) and (b); and


<PAGE>

            (d) all rights with respect to all of the foregoing, including,
without limitation, any and all upgrades, modifications, copyrights, licenses,
options, warranties, service contracts, program services, test rights,
maintenance rights, support rights, improvement rights, renewal rights and
indemnifications and substitutions, replacements, additions, or model
conversions of any of the foregoing.

            "Copyrights" shall mean (a) all copyrights, registrations and
applications for registration, issued or filed, including any reissues,
extensions or renewals thereof, by or with the United States Copyright Office or
any similar office or agency of the United States, any state thereof, or any
other country or political subdivision thereof, or otherwise, including, all
rights in and to the material constituting the subject matter thereof,
including, without limitation, any referred to in Schedule B hereto, and (b) any
rights in any material which is copyrightable or which is protected by common
law, United States copyright laws or similar laws or any law of any State,
including, without limitation, any thereof referred to in Schedule B hereto.

            "Copyright License" shall mean any agreement, written or oral,
providing for a grant by the Company of any right in any Copyright, including,
without limitation, any thereof referred to in Schedule B hereto.

            "Intellectual Property" shall means, collectively, the Software
Intellectual Property, Copyrights, Copyright Licenses, Patents, Patent Licenses,
Trademarks, Trademark Licenses and Trade Secrets.

            "Obligations" means all of the Company's obligations under this
Agreement and the Debentures, in each case, whether now or hereafter existing,
voluntary or involuntary, direct or indirect, absolute or contingent, liquidated
or unliquidated, whether or not jointly owed with others, and whether or not
from time to time decreased or extinguished and later decreased, created or
incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from the Secured Party as a preference, fraudulent
transfer or otherwise as such obligations may be amended, supplemented,
converted, extended or modified from time to time.

            "Patents" shall mean (a) all letters patent of the United States or
any other country or any political subdivision thereof, and all reissues and
extensions thereof, including, without limitation, any thereof referred to in
Schedule B hereto, and (b) all applications for letters patent of the United
States and all divisions, continuations and continuations-in-part thereof or any
other country or any political subdivision, including, without limitation, any
thereof referred to in Schedule B hereto.

            "Patent License" shall mean all agreements, whether written or oral,
providing for the grant by the Company of any right to manufacture, use or sell
any invention covered by a Patent, including, without limitation, any thereof
referred to in Schedule B hereto.

            "Security Agreement" shall mean the a Security Agreement, dated the
date hereof between Company and the Secured Party.

            "Trademarks" shall mean (a) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and the goodwill
associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any state thereof or any other
country or any political subdivision thereof, or otherwise, including, without
limitation, any thereof referred to in Schedule B hereto, and (b) all reissues,
extensions or renewals thereof.

                                       2
<PAGE>

            "Trademark License" shall mean any agreement, written or oral,
providing for the grant by the Company of any right to use any Trademark,
including, without limitation, any thereof referred to in Schedule B hereto.

            "Trade Secrets" shall mean common law and statutory trade secrets
and all other confidential or proprietary or useful information and all know-how
obtained by or used in or contemplated at any time for use in the business of
the Company (all of the foregoing being collectively called a "Trade Secret"),
whether or not such Trade Secret has been reduced to a writing or other tangible
form, including all documents and things embodying, incorporating or referring
in any way to such Trade Secret, all Trade Secret licenses, including each Trade
Secret license referred to in Schedule B hereto, and including the right to sue
for and to enjoin and to collect damages for the actual or threatened
misappropriation of any Trade Secret and for the breach or enforcement of any
such Trade Secret license.

         2. Grant of Security Interest. In accordance with Section 3(m) of the
Security Agreement, to secure the complete and timely payment, performance and
discharge in full, as the case may be, of all of the Obligations, the Company
hereby, unconditionally and irrevocably, pledges, grants and hypothecates to the
Secured Party, a continuing security interest in, a continuing first lien upon,
an unqualified right to possession and disposition of and a right of set-off
against, in each case to the fullest extent permitted by law, all of the
Company's right, title and interest of whatsoever kind and nature in and to the
Intellectual Property (the "Security Interest").

         3. Representations and Warranties. The Company hereby represents and
warrants, and covenants and agrees with, the Secured Party as follows:

            (a) The Company has the requisite corporate power and authority to
enter into this Agreement and otherwise to carry out its obligations thereunder.
The execution, delivery and performance by the Company of this Agreement and the
filings contemplated therein have been duly authorized by all necessary action
on the part of the Company and no further action is required by the Company.
This Agreement constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditor's rights generally.

            (b) The Company represents and warrants that it has no place of
business or offices where its respective books of account and records are kept
(other than temporarily at the offices of its attorneys or accountants) or
places where the Intellectual Property is stored or located, except as set forth
on Schedule A attached hereto;

                                       3
<PAGE>

            (c) The Company is the sole owner of the Intellectual Property
(except for non-exclusive licenses granted by the Company in the ordinary course
of business), free and clear of any liens, security interests, encumbrances,
rights or claims, and is fully authorized to grant the Security Interest in and
to pledge the Intellectual Property. There is not on file in any governmental or
regulatory authority, agency or recording office an effective financing
statement, security agreement, license or transfer or any notice of any of the
foregoing (other than those that have been filed in favor of the Secured Party
pursuant to this Agreement) covering or affecting any of the Intellectual
Property. So long as this Agreement shall be in effect, the Company shall not
execute and shall not knowingly permit to be on file in any such office or
agency any such financing statement or other document or instrument (except to
the extent filed or recorded in favor of the Secured Party pursuant to the terms
of this Agreement), except for a financing statement covering assets acquired by
the Company after the date hereof, provided that the value of the Intellectual
Property covered by this Agreement along with the Collateral (as defined in the
Security Agreement) is equal to at least 150% of the Obligations.

            (d) The Company shall at all times maintain its books of account and
records relating to the Intellectual Property at its principal place of business
and its Intellectual Property at the locations set forth on Schedule A attached
hereto and may not relocate such books of account and records unless it delivers
to the Secured Party at least 30 days prior to such relocation (i) written
notice of such relocation and the new location thereof (which must be within the
United States) and (ii) evidence that the necessary documents have been filed
and recorded and other steps have been taken to perfect the Security Interest to
create in favor of the Secured Party valid, perfected and continuing first
priority liens in the Intellectual Property to the extent they can be perfected
through such filings.

            (e) This Agreement creates in favor of the Secured Party a valid
security interest in the Intellectual Property securing the payment and
performance of the Obligations and, upon making the filings required hereunder,
a perfected first priority security interest in such Intellectual Property to
the extent that it can be perfected through such filings.

            (f) Upon request of the Secured Party, the Company shall execute and
deliver any and all agreements, instruments, documents, and papers as the
Secured Party may request to evidence the Secured Party's security interest in
the Intellectual Property and the goodwill and general intangibles of the
Company relating thereto or represented thereby, and the Company hereby appoints
the Secured Party its attorney-in-fact to execute and file all such writings for
the foregoing purposes, all acts of such attorney being hereby ratified and
confirmed; such power being coupled with an interest is irrevocable until the
Obligations have been fully satisfied and are paid in full.

            (g) The execution, delivery and performance of this Agreement does
not conflict with or cause a breach or default, or an event that with or without
the passage of time or notice, shall constitute a breach or default, under any
agreement to which the Company is a party or by which the Company is bound. No
consent (including, without limitation, from stock holders or creditors of the
Company) is required for the Company to enter into and perform its obligations
hereunder.



                                       4
<PAGE>

            (h) The Company shall at all times maintain the liens and Security
Interest provided for hereunder as valid and perfected first priority liens and
security interests in the Intellectual Property to the extent they can be
perfected by filing in favor of the Secured Party until this Agreement and the
Security Interest hereunder shall terminate pursuant to Section 11. The Company
hereby agrees to defend the same against any and all persons. The Company shall
safeguard and protect all Intellectual Property for the account of the Secured
Party. Without limiting the generality of the foregoing, the Company shall pay
all fees, taxes and other amounts necessary to maintain the Intellectual
Property and the Security Interest hereunder, and the Company shall obtain and
furnish to the Secured Party from time to time, upon demand, such releases
and/or subordinations of claims and liens which may be required to maintain the
priority of the Security Interest hereunder.

            (i) The Company will not transfer, pledge, hypothecate, encumber,
license (except for non-exclusive licenses granted by the Company in the
ordinary course of business), sell or otherwise dispose of any of the
Intellectual Property without the prior written consent of the Secured Party.

            (j) The Company shall, within ten (10) days of obtaining knowledge
thereof, advise the Secured Party promptly, in sufficient detail, of any
substantial change in the Intellectual Property, and of the occurrence of any
event which would have a material adverse effect on the value of the
Intellectual Property or on the Secured Party's security interest therein.

            (k) The Company shall permit the Secured Party and its
representatives and agents to inspect the Intellectual Property at any time, and
to make copies of records pertaining to the Intellectual Property as may be
requested by the Secured Party from time to time.

            (l) The Company will take all steps reasonably necessary to
diligently pursue and seek to preserve, enforce and collect any rights, claims,
causes of action and accounts receivable in respect of the Intellectual
Property.

            (m) The Company shall promptly notify the Secured Party in
sufficient detail upon becoming aware of any attachment, garnishment, execution
or other legal process levied against any Intellectual Property and of any other
information received by the Company that may materially affect the value of the
Intellectual Property, the Security Interest or the rights and remedies of the
Secured Party hereunder.

            (n) All information heretofore, herein or hereafter supplied to the
Secured Party by or on behalf of the Company with respect to the Intellectual
Property is accurate and complete in all material respects as of the date
furnished.

            (o) Schedule A attached hereto contains a list of all of the
subsidiaries of Company.

            (p) Schedule B attached hereto includes all Licenses, and all
Patents and Patent Licenses, if any, owned by the Company in its own name as of
the date hereof. Schedule B hereto also includes all Trademarks and Trademark
Licenses, if any, owned by the Company in its own name as of the date hereof.
Schedule B hereto includes all Copyrights and Copyright Licenses, if any, owned
by the Company in its own name as of the date hereof. To the best of the
Company's knowledge, each License, Patent, Trademark and Copyright is valid,
subsisting, unexpired, enforceable and has not been abandoned. Except as set
forth in Schedule B, none of such Licenses, Patents, Trademarks and Copyrights
is the subject of any licensing or franchise agreement. To the best of the
Company's knowledge, no holding, decision or judgment has been rendered by any
Governmental Body which would limit, cancel or question the validity of any
License, Patent, Trademark or Copyright. No action or proceeding is pending (i)
seeking to limit, cancel or question the validity of any License, Patent,
Trademark or Copyright, or (ii) which, if adversely determined, would have a
material adverse effect on the value of any License, Patent, Trademark or
Copyright. The Company has used and will continue to use for the duration of
this Agreement, proper statutory notice in connection with its use of the
Patents, Trademarks and Copyrights and consistent standards of quality in
products leased or sold under the Patents, Trademarks and Copyrights.

                                       5
<PAGE>

            (q) With respect to any Intellectual Property:

                (i)   such Intellectual Property is subsisting and has not been
                      adjudged invalid or unenforceable, in whole or in part;

                (ii)  such Intellectual Property is valid and enforceable;

                (iii) the Company has made all necessary filings and
                      recordations to protect its interest in such Intellectual
                      Property, including, without limitation, recordations of
                      all of its interests in the Patents, Patent Licenses,
                      Trademarks and Trademark Licenses in the United States
                      Patent and Trademark Office and in corresponding offices
                      throughout the world and its claims to the Copyrights and
                      Copyright Licenses in the United States Copyright Office
                      and in corresponding offices throughout the world;

                (iv)  other than as set forth in Schedule B, the Company is the
                      exclusive owner of the entire and unencumbered right,
                      title and interest in and to such Intellectual Property
                      and no claim has been made that the use of such
                      Intellectual Property infringes on the asserted rights of
                      any third party; and

                (v)   the Company has performed and will continue to perform all
                      acts and has paid all required fees and taxes to maintain
                      each and every item of Intellectual Property in full force
                      and effect throughout the world, as applicable.

            (r) Except with respect to any Trademark or Copyright that the
Company shall reasonably determine is of negligible economic value to the
Company, the Company shall



                                       6
<PAGE>

                (i) maintain each Trademark and Copyright in full force free
       from any claim of abandonment for non-use, maintain as in the past the
       quality of products and services offered under such Trademark or
       Copyright; employ such Trademark or Copyright with the appropriate notice
       of registration; not adopt or use any mark which is confusingly similar
       or a colorable imitation of such Trademark or Copyright unless the
       Secured Party shall obtain a perfected security interest in such mark
       pursuant to this Agreement; and not (and not permit any licensee or
       sublicensee thereof to) do any act or knowingly omit to do any act
       whereby any Trademark or Copyright may become invalidated;

                (ii) not, except with respect to any Patent that it shall
       reasonably determine is of negligible economic value to it, do any act,
       or omit to do any act, whereby any Patent may become abandoned or
       dedicated; and

                (iii) notify the Secured Party immediately if it knows, or has
       reason to know, that any application or registration relating to any
       Patent, Trademark or Copyright may become abandoned or dedicated, or of
       any adverse determination or development (including, without limitation,
       the institution of, or any such determination or development in, any
       proceeding in the United States Patent and Trademark Office, United
       States Copyright Office or any court or tribunal in any country)
       regarding its ownership of any Patent, Trademark or Copyright or its
       right to register the same or to keep and maintain the same.

            (s) Whenever the Company, either by itself or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Patent, Trademark or Copyright with the United States Patent and
Trademark Office, United States Copyright Office or any similar office or agency
in any other country or any political subdivision thereof or acquire rights to
any new Patent, Trademark or Copyright whether or not registered, report such
filing to the Secured Party within five business days after the last day of the
fiscal quarter in which such filing occurs.

            (t) The Company shall take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, United States Copyright Office or any similar office or
agency in any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration) and to
maintain each registration of the Patents, Trademarks and Copyrights, including,
without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.

            (u) In the event that any Patent, Trademark or Copyright included in
the Intellectual Property is infringed, misappropriated or diluted by a third
party, promptly notify the Secured Party after it learns thereof and shall,
unless it shall reasonably determine that such Patent, Trademark or Copyright is
of negligible economic value to it, which determination it shall promptly report
to the Secured Party, promptly sue for infringement, misappropriation or
dilution, to seek injunctive relief where appropriate and to recover any and all
damages for such infringement, misappropriation or dilution, or take such other
actions as it shall reasonably deem appropriate under the circumstances to
protect such Patent, Trademark or Copyright. If the Company lacks the financial
resources to comply with this Section 3(t), the Company shall so notify the
Secured Party and shall cooperate fully with any enforcement action undertaken
by the Secured Party on behalf of the Company.

                                       7
<PAGE>

         4. Defaults. The following events shall be "Events of Default":

            (a) The occurrence of an Event of Default (as defined in the
Debentures) under the Debentures;

            (b) Any representation or warranty of the Company in this Agreement
or in the Security Agreement shall prove to have been incorrect in any material
respect when made;

            (c) The failure by the Company to observe or perform any of its
obligations hereunder or in the Security Agreement for ten (10) days after
receipt by the Company of notice of such failure from the Secured Party; and

            (d) Any breach of, or default under, the Warrants.

         5. Duty To Hold In Trust. Upon the occurrence of any Event of Default
and at any time thereafter, the Company shall, upon receipt by it of any
revenue, income or other sums subject to the Security Interest, whether payable
pursuant to the Debentures or otherwise, or of any check, draft, note, trade
acceptance or other instrument evidencing an obligation to pay any such sum,
hold the same in trust for the Secured Party and shall forthwith endorse and
transfer any such sums or instruments, or both, to the Secured Party for
application to the satisfaction of the Obligations.

         6. Rights and Remedies Upon Default. Upon occurrence of any Event of
Default and at any time thereafter, the Secured Party shall have the right to
exercise all of the remedies conferred hereunder and under the Debentures, and
the Secured Party shall have all the rights and remedies of a secured party
under the UCC and/or any other applicable law (including the Uniform Commercial
Code of any jurisdiction in which any Intellectual Property is then located).
Without limitation, the Secured Party shall have the following rights and
powers:

            (a) The Secured Party shall have the right to take possession of the
Intellectual Property and, for that purpose, enter, with the aid and assistance
of any person, any premises where the Intellectual Property, or any part
thereof, is or may be placed and remove the same, and the Company shall assemble
the Intellectual Property and make it available to the Secured Party at places
which the Secured Party shall reasonably select, whether at the Company's
premises or elsewhere, and make available to the Secured Party, without rent,
all of the Company's respective premises and facilities for the purpose of the
Secured Party taking possession of, removing or putting the Intellectual
Property in saleable or disposable form.

            (b) The Secured Party shall have the right to operate the business
of the Company using the Intellectual Property and shall have the right to
assign, sell, lease or otherwise dispose of and deliver all or any part of the
Intellectual Property, at public or private sale or otherwise, either with or
without special conditions or stipulations, for cash or on credit or for future
delivery, in such parcel or parcels and at such time or times and at such place
or places, and upon such terms and conditions as the Secured Party may deem
commercially reasonable, all without (except as shall be required by applicable
statute and cannot be waived) advertisement or demand upon or notice to the
Company or right of redemption of the Company, which are hereby expressly
waived. Upon each such sale, lease, assignment or other transfer of Intellectual
Property, the Secured Party may, unless prohibited by applicable law which
cannot be waived, purchase all or any part of the Intellectual Property being
sold, free from and discharged of all trusts, claims, right of redemption and
equities of the Company, which are hereby waived and released.

                                       8
<PAGE>

         7. Applications of Proceeds. The proceeds of any such sale, lease or
other disposition of the Intellectual Property hereunder shall be applied first,
to the expenses of retaking, holding, storing, processing and preparing for
sale, selling, and the like (including, without limitation, any taxes, fees and
other costs incurred in connection therewith) of the Intellectual Property, to
the reasonable attorneys' fees and expenses incurred by the Secured Party in
enforcing its rights hereunder and in connection with collecting, storing and
disposing of the Intellectual Property, and then to satisfaction of the
Obligations, and to the payment of any other amounts required by applicable law,
after which the Secured Party shall pay to the Company any surplus proceeds. If,
upon the sale, license or other disposition of the Intellectual Property, the
proceeds thereof are insufficient to pay all amounts to which the Secured Party
is legally entitled, the Company will be liable for the deficiency, together
with interest thereon, at the rate of 15% per annum (the "Default Rate"), and
the reasonable fees of any attorneys employed by the Secured Party to collect
such deficiency. To the extent permitted by applicable law, the Company waives
all claims, damages and demands against the Secured Party arising out of the
repossession, removal, retention or sale of the Intellectual Property, unless
due to the gross negligence or willful misconduct of the Secured Party.

         8. Costs and Expenses. The Company agrees to pay all out-of-pocket
fees, costs and expenses incurred in connection with any filing required
hereunder, including without limitation, any financing statements, continuation
statements, partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Secured Party. The
Company shall also pay all other claims and charges which in the reasonable
opinion of the Secured Party might prejudice, imperil or otherwise affect the
Intellectual Property or the Security Interest therein. The Company will also,
upon demand, pay to the Secured Party the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, which the Secured Party may incur in connection with (i) the
enforcement of this Agreement, (ii) the custody or preservation of, or the sale
of, collection from, or other realization upon, any of the Intellectual
Property, or (iii) the exercise or enforcement of any of the rights of the
Secured Party under the Debentures. Until so paid, any fees payable hereunder
shall be added to the principal amount of the Debentures and shall bear interest
at the Default Rate.

         9. Responsibility for Intellectual Property. The Company assumes all
liabilities and responsibility in connection with all Intellectual Property, and
the obligations of the Company hereunder or under the Debentures and the
Warrants shall in no way be affected or diminished by reason of the loss,
destruction, damage or theft of any of the Intellectual Property or its
unavailability for any reason.

                                       9
<PAGE>

         10. Security Interest Absolute. All rights of the Secured Party and all
Obligations of the Company hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Debentures, the Warrants or any agreement entered into in connection with
the foregoing, or any portion hereof or thereof; (b) any change in the time,
manner or place of payment or performance of, or in any other term of, all or
any of the Obligations, or any other amendment or waiver of or any consent to
any departure from the Debentures, the Warrants or any other agreement entered
into in connection with the foregoing; (c) any exchange, release or
nonperfection of any of the Intellectual Property, or any release or amendment
or waiver of or consent to departure from any other Intellectual Property for,
or any guaranty, or any other security, for all or any of the Obligations; (d)
any action by the Secured Party to obtain, adjust, settle and cancel in its sole
discretion any insurance claims or matters made or arising in connection with
the Intellectual Property; or (e) any other circumstance which might otherwise
constitute any legal or equitable defense available to the Company, or a
discharge of all or any part of the Security Interest granted hereby. Until the
Obligations shall have been paid and performed in full, the rights of the
Secured Party shall continue even if the Obligations are barred for any reason,
including, without limitation, the running of the statute of limitations or
bankruptcy. The Company expressly waives presentment, protest, notice of
protest, demand, notice of nonpayment and demand for performance. In the event
that at any time any transfer of any Intellectual Property or any payment
received by the Secured Party hereunder shall be deemed by final order of a
court of competent jurisdiction to have been a voidable preference or fraudulent
conveyance under the bankruptcy or insolvency laws of the United States, or
shall be deemed to be otherwise due to any party other than the Secured Party,
then, in any such event, the Company's obligations hereunder shall survive
cancellation of this Agreement, and shall not be discharged or satisfied by any
prior payment thereof and/or cancellation of this Agreement, but shall remain a
valid and binding obligation enforceable in accordance with the terms and
provisions hereof. The Company waives all right to require the Secured Party to
proceed against any other person or to apply any Intellectual Property which the
Secured Party may hold at any time, or to marshal assets, or to pursue any other
remedy. The Company waives any defense arising by reason of the application of
the statute of limitations to any obligation secured hereby.

         11. Term of Agreement. This Agreement and the Security Interest shall
terminate on the date on which all payments under the Debentures have been made
in full and all other Obligations have been paid or discharged. Upon such
termination, the Secured Party, at the request and at the expense of the
Company, will join in executing any termination statement with respect to any
financing statement executed and filed pursuant to this Agreement.

         12. Power of Attorney; Further Assurances.

            (a) The Company authorizes the Secured Party, and does hereby make,
constitute and appoint it, and its respective officers, agents, successors or
assigns with full power of substitution, as the Company's true and lawful
attorney-in-fact, with power, in its own name or in the name of the Company, to,
after the occurrence and during the continuance of an Event of Default, (i)
endorse any notes, checks, drafts, money orders, or other instruments of payment
(including payments payable under or in respect of any policy of insurance) in
respect of the Intellectual Property that may come into possession of the
Secured Party; (ii) to sign and endorse any UCC financing statement or any
invoice, freight or express bill, bill of lading, storage or warehouse receipts,
drafts against debtors, assignments, verifications and notices in connection
with accounts, and other documents relating to the Intellectual Property; (iii)
to pay or discharge taxes, liens, security interests or other encumbrances at
any time levied or placed on or threatened against the Intellectual Property;
(iv) to demand, collect, receipt for, compromise, settle and sue for monies due
in respect of the Intellectual Property; and (v) generally, to do, at the option
of the Secured Party, and at the Company's expense, at any time, or from time to
time, all acts and things which the Secured Party deems necessary to protect,
preserve and realize upon the Intellectual Property and the Security Interest
granted therein in order to effect the intent of this Agreement, the Debentures
and the Warrants, all as fully and effectually as the Company might or could do;
and the Company hereby ratifies all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is coupled with an
interest and shall be irrevocable for the term of this Agreement and thereafter
as long as any of the Obligations shall be outstanding.

                                       10
<PAGE>

            (b) On a continuing basis, the Company will make, execute,
acknowledge, deliver, file and record, as the case may be, in the proper filing
and recording places in any jurisdiction, including, without limitation, the
jurisdictions indicated on Schedule C, attached hereto, all such instruments,
and take all such action as may reasonably be deemed necessary or advisable, or
as reasonably requested by the Secured Party, to perfect the Security Interest
granted hereunder and otherwise to carry out the intent and purposes of this
Agreement, or for assuring and confirming to the Secured Party the grant or
perfection of a security interest in all the Intellectual Property.

            (c) The Company hereby irrevocably appoints the Secured Party as the
Company's attorney-in-fact, with full authority in the place and stead of the
Company and in the name of the Company, from time to time in the Secured Party's
discretion, to take any action and to execute any instrument which the Secured
Party may deem necessary or advisable to accomplish the purposes of this
Agreement, including the filing, in its sole discretion, of one or more
financing or continuation statements and amendments thereto, relative to any of
the Intellectual Property without the signature of the Company where permitted
by law.

         13. Notices. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto, and
shall be deemed to have been duly given when (i) if delivered by hand, upon
receipt, (ii) if sent by facsimile, upon receipt of proof of sending thereof,
(iii) if sent by nationally recognized overnight delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered or
certified mail, return receipt requested, postage prepaid, four days after
posting in the U.S. mails, in each case if delivered to the following addresses:

         If to the Company:    Digital Descriptor Systems, Inc.
                               446 Lincoln Highway
                               Fairless Hills, Pennsylvania  19030
                               Attention: President and Chief Operating Officer
                               Telephone: 267-580-1075
                               Facsimile: 267-580-1090
                               Email: michael.pellegrino@ddsi-cpc.com

         With copy to:         Naccarato & Associates
                               19600 Fairchild, Suite 260
                               Irvine, California  92612
                               Attention: Owen Naccarato, Esq.
                               Telephone: 949-851-9261
                               Facsimile: 949-851-9262
                               Email: onacc@jps.net



                                       11
<PAGE>

         If to the Secured Party:  AJW Partners, LLC
                                   AJW Offshore, Ltd.
                                   AJW Qualified Partners, LLC
                                   1044 Northern Boulevard
                                   Suite 302
                                   Roslyn, New York  11576
                                   Attention: Corey Ribotsky
                                   Facsimile: 516-739-7115

         With copies to:           Ballard Spahr Andrews & Ingersoll, LLP
                                   1735 Market Street, 51st Floor
                                   Philadelphia, Pennsylvania  19103
                                   Attention: Gerald J. Guarcini, Esquire
                                   Facsimile: 215-864-8999

         14. Other Security. To the extent that the Obligations are now or
hereafter secured by property other than the Intellectual Property or by the
guarantee, endorsement or property of any other person, firm, corporation or
other entity, then the Secured Party shall have the right, in its sole
discretion, to pursue, relinquish, subordinate, modify or take any other action
with respect thereto, without in any way modifying or affecting any of the
Secured Party's rights and remedies hereunder.

         15. Miscellaneous.

            (a) No course of dealing between the Company and the Secured Party,
nor any failure to exercise, nor any delay in exercising, on the part of the
Secured Party, any right, power or privilege hereunder or under the Debentures
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.

            (b) All of the rights and remedies of the Secured Party with respect
to the Intellectual Property, whether established hereby or by the Debentures or
by any other agreements, instruments or documents or by law shall be cumulative
and may be exercised singly or concurrently.

            (c) This Agreement and the Security Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and is
intended to supersede all prior negotiations, understandings and agreements with
respect thereto. Except as specifically set forth in this Agreement, no
provision of this Agreement may be modified or amended except by a written
agreement specifically referring to this Agreement and signed by the parties
hereto.

                                       12
<PAGE>

            (d) In the event that any provision of this Agreement is held to be
invalid, prohibited or unenforceable in any jurisdiction for any reason, unless
such provision is narrowed by judicial construction, this Agreement shall, as to
such jurisdiction, be construed as if such invalid, prohibited or unenforceable
provision had been more narrowly drawn so as not to be invalid, prohibited or
unenforceable. If, notwithstanding the foregoing, any provision of this
Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other provisions of
this Agreement and without affecting the validity or enforceability of such
provision or the other provisions of this Agreement in any other jurisdiction.

            (e) No waiver of any breach or default or any right under this
Agreement shall be considered valid unless in writing and signed by the party
giving such waiver, and no such waiver shall be deemed a waiver of any
subsequent breach or default or right, whether of the same or similar nature or
otherwise.

            (f) This Agreement shall be binding upon and inure to the benefit of
each party hereto and its successors and assigns.

            (g) Each party shall take such further action and execute and
deliver such further documents as may be necessary or appropriate in order to
carry out the provisions and purposes of this Agreement.

            (h) This Agreement shall be construed in accordance with the laws of
the State of New York, except to the extent the validity, perfection or
enforcement of a security interest hereunder in respect of any particular
Intellectual Property which are governed by a jurisdiction other than the State
of New York in which case such law shall govern. Each of the parties hereto
irrevocably submit to the exclusive jurisdiction of any New York State or United
States Federal court sitting in Manhattan county over any action or proceeding
arising out of or relating to this Agreement, and the parties hereto hereby
irrevocably agree that all claims in respect of such action or proceeding may be
heard and determined in such New York State or Federal court. The parties hereto
agree that a final judgment in any such action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law. The parties hereto further waive any objection to
venue in the State of New York and any objection to an action or proceeding in
the State of New York on the basis of forum non conveniens.

            (i) EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS
TO A JURY TRAIL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF
ANY DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATER
OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY
HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED ON THIS
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL CONTINUE TO RELY
ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY WAIVES ITS RIGHTS TO A JURY TRIAL
FOLLOWING SUCH CONSULTATION. THIS WAIVER IS IRREVOCABLE, MEANING THAT,
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS AND SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF A
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.

                                       13
<PAGE>

            (j) This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same Agreement. In the event
that any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



                                       14
<PAGE>


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.


                                     DIGITAL DESCRIPTOR SYSTEMS, INC.


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


                                     AJW PARTNERS, LLC
                                     By: SMS Group, LLC


                                     By:______________________________________
                                        Corey S. Ribotsky
                                        Manager


                                     AJW OFFSHORE, LTD.
                                     By:  First Street Manager II, LLC


                                     By:______________________________________
                                        Corey S. Ribotsky
                                        Manager


                                     AJW QUALIFIED PARTNERS, LLC
                                     By:  AJW Manager, LLC


                                     By:______________________________________
                                        Corey S. Ribotsky
                                        Manager


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>14
<FILENAME>ex10-94.txt
<DESCRIPTION>EXHIBIT 10.9.4
<TEXT>
<PAGE>

                                                                  EXHIBIT 10.9.4


                                January 10, 2003

Continental Stock Transfer & Trust
17 Battery Place
8th Floor
New York, NY  10004

Ladies and Gentlemen:

                  Digital Descriptor Systems, Inc., a Delaware corporation (the
"Company"), and certain investors (the "Investors") have entered into a
Securities Purchase Agreement dated as of January 10, 2003 (the "Agreement")
providing for the issuance of 12% Convertible Debentures in the aggregate
principal amount of $500,000 (the "Debentures") and warrants to purchase an
aggregate of 1,500,000 shares of the Company's Common Stock (the "Warrants"),
for the aggregate consideration of $500,000.

                  You are hereby irrevocably authorized and instructed to
reserve (subject to the Stockholder Approval (as defined in the Agreement) a
sufficient number of shares of Common Stock (initially, 103,000,000 shares) of
the Company for issuance upon full conversion of the Debentures and exercise of
the Warrants in accordance with the respective terms thereof. You are hereby
further irrevocably authorized and directed to issue the shares of Common Stock
so reserved upon your receipt from the Company of a notice of conversion
("Notice of Conversion") or exercise agreement ("Exercise Agreement") duly
executed by an Investor in accordance with the terms of such notices and
agreements and the Debentures and Warrants, as applicable.

                  A copy of a Form of Debenture and Form of Warrant is attached
hereto. You should familiarize yourself with your issuance and delivery
obligations, as Transfer Agent, contained therein. The shares to be issued are
to be registered in the names of the registered holder of the securities
submitted for conversion or exercise.

                  So long as you have previously received confirmation from the
Company that the shares have been registered under the 1933 Act or otherwise may
be sold pursuant to Rule 144 without any restriction as to the number of
securities as of a particular date that can then be immediately sold, such
shares should be transferred, at the option of the holder of the Debentures or
Warrants as specified in the Notice of Conversion or Exercise Agreement, as
applicable, either (i) electronically by crediting the account of a Prime Broker
with the Depository Trust Company through its Deposit Withdrawal Agent
Commission system or (ii) in certificated form without any legend which would
restrict the transfer of the shares, and you should remove all stop-transfer
instructions relating to such shares. Until such time as you are advised by
Company counsel that the shares have been registered under the 1933 Act or
otherwise have been sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold,
you are hereby instructed to place the following legends on the certificates:



<PAGE>

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE
         SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
         REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION
         OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF
         COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED
         OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

                  The legend set forth above shall be removed and you are
instructed to issue a certificate without such legend to the holder of any
shares upon which it is stamped, if, unless otherwise required by applicable
state securities laws, (a) such shares are registered for sale under an
effective registration statement filed under the 1933 Act or otherwise have been
sold pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold, (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect that
a public sale or transfer of such security may be made without registration
under the 1933 Act and such sale or transfer is effected or (c) such holder
provides the Company with reasonable assurances that such shares have been sold
pursuant to Rule 144.

                  The Investors are intended to be and are third party
beneficiaries hereof, and no amendment or modification to the instructions set
forth herein may be made without the consent of such Investors.

                                        Very truly yours,

                                        DIGITAL DESCRIPTOR SYSTEMS, INC.



                                        _____________________________________
                                        Michael J. Pellegrino
                                        President and Chief Operating Officer
Acknowledged:


______________________________
Transfer Agent

                                       2


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>15
<FILENAME>ex23-2.txt
<DESCRIPTION>EXHIBIT 23.2
<TEXT>
<PAGE>



                                                                    Exhibit 23.2



                         CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 23, 2001, in the Registration Statement (Form
SB-2, No. 333-_____) and related Prospectus of Digital Descriptor Systems, Inc.
for the Registration of 30,000,000 shares of Common Stock.


                                                     /s/ Ernst & Young LLP


Philadelphia, Pennsylvania
February 12, 2003


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>16
<FILENAME>ex23-3.txt
<DESCRIPTION>EXHIBIT 23.3
<TEXT>
<PAGE>



                                                                    EXHIBIT 23.3





                         CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 23, 2002, in the Registration Statement (form
SB-2) and the related Prospectus of Digital Descriptor Systems,
Inc. for the Registration of 30,000,000 shares of Common Stock dated February
12, 2003




/s/WithumSmith+Brown
Newtown, Pennsylvania
February 12, 2003


</TEXT>
</DOCUMENT>
</SUBMISSION>
