U.S. SECURITIES AND EXCHANGE COMMISSION

x ANNUAL REPORT PURSUANT SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934. For the fiscal year ended December 31, 2006.

o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934. For the transition period from ____________ to

(Name of small business issuer in its charter)

Delaware	23-2770048
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

2150 Highway 35, Suite 250, Sea Girt, New Jersey	08750
(Address of principal executive offices)	(Zip Code)

Registrant's Telephone number, including area code: (732) 359-0260

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

The issuer had revenues of $4,528,533 for the fiscal year ended December 31, 2006.

As of February 1, 2007, 9,568,806,218 shares of the issuer's Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

Transitional Small Business Disclosure Format Yes o No x

PART I

10KSB December 31, 2005 Restatement

The company filed an amendment to restate the year ended December 31, 2005 financial statements. The company increased its net loss by $1,639,849 because the company originally did not amortize the debt discount correctly. The adjustment was for $1,285,828. Additionally the company corrected a misposting in its books of $354,021 from change in accrued interest to interest expense. The errors were found through the company's internal controls and procedures.

General Business Development

Digital Descriptor Systems, Inc. ("DDSI", the "Company", "us", "we", or "our"), 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.

ITEM 1. Description of Business

Our Business

During 2005 the Company acquired CGM Security Solutions, Inc. as a wholly owned subsidiary and changed it name to CGM Applied Security Technologies, Inc. In conjunction with the acquisition the Company has changed its primary focus from the law enforcement market to the security market in general as it believes that the potential for revenue is much greater.

Description of Business of CGM

CGM is a manufacturer and distributor of indicative and barrier security seals, security tapes and related packaging security systems, protective security products for palletized cargo, physical security systems for tractors, trailers and containers as well as a number of highly specialized authentication products.

Products

CGM has Trade Secret protection on its Secure Trac tape, super seals water gum tape, and patent protection on the Button Memory Seal and Sentry Sensor. It also has exclusive rights on all NAVATECH products and seals, and owns the rights to the patented Topp Clip pallet security device. In addition, CGM provides authentication technology and products to clients to act as brand protection elements to finished goods. This brand protection technology can help manufacturers reduce the incidences of "knock-offs" that are common in the garment and accessory businesses. CGM's core products are: CGM Tapes, Self-Wound Security Tape, Void Labels and Void Tape for Bag Closure, SUPERSEALS(R), Custom Coated Products, CGM Conductive Inks and Membrane Switch Components, EMAPS(R), Locks, Sentry Sensor(R) and other representative items.

SUPERSEAL(R) and self-voiding carton sealing tape known as SECURE T.R.A.C.(R) show a customized signature if attempts are made at removing them. If cut and resealed, SUPERSEAL(R) further shows an "opened" legend on the seal's center surface. With self-wound void tape, any attempt at resealing is negated by the surface coating on the tape. An "opened" legend is also left on the tape if removed. Since the products are manufactured in-house, CGM controls all features and has the ability to customize the products to the customer's needs. CGM also offers converted labels, seals, and money bags. CGM manufactures a variety of adhesives, graphics and die cut label configurations for companies whose logos always appear on the tape or label for security purposes. No generic product can be substituted for this product since no one makes an identical product.

Uses for this product and technology include such items as:

·	Aircraft and truck seals

·	Fiber and Steel drum seals

·	Motor Vehicle inspection seals

·	Box or container closure seals

·	Cash bag components

·	Computer seals

·	Validation devices

·	General security products

Once CGM's products are applied to a particular surface, any attempt at removal will leave a sign in the form of an indelible word or legend on the tape and a removable or permanent legend on the enclosure. The EMAPS(R) or Electro-Magnetic Asset Protection System reflects entry by sending an electronic signals if cut. EMAPS(R) products function without the need to identify a cut visually. Both products, the labels and the scanners, are unique and only manufactured by CGM.

Production Process

The CGM manufacturing process can best be described as one of "converting". CGM takes highly processed materials, which are manufactured elsewhere, and converts them into finished products.

CGM purchases processed materials from 6 to 8 key suppliers, including DuPont, Adhesive Research, Sun Microsystems and Video Jet. For OEM products, CGM purchases from approximately 15 different companies. CGM has an exclusive distribution relationship in connection with some of these products, while for other products CGM is one of few or many resellers.

Markets & Customers

The primary factors behind the need for CGM's products are: (i) the escalation of cargo theft and tampering, (ii) the need for enhanced cargo security because of the fear of terrorism, (iii) damage control of freight and cargo, (iv) the need for security products, (v) brand protection and authentication requirements and (vi) governmental and regulatory requirements.

CGM is certified by the Customs-Trade Partnership Against Terrorism ("C-TPAT"), a joint initiative between government and business designed to protect the security of cargo entering the United States while improving the flow of trade. C-TPAT requires importers to take steps to assess, evolve and communicate new practices that ensure tighter security of cargo and enhanced security throughout the entire supply chain. In return, their goods and conveyances will receive expedited processing into the United States

Principal Customers

CGM's current client base includes over 2000 national and international companies, including producers of high value items such as perfumes, computers, silicon chips, jewelry, cash and negotiable documents. The market for tamper evidence includes flavors, fragrances, foodstuffs and components. CGM's products are used by major airlines, pharmaceutical clients and numerous government agencies. CGM's products have also been recommended by major insurance companies

Sales

CGM has three direct salespeople, two independent representatives and 5 distributors for domestic sales and over 12 representative distributors for sales abroad. CGM supplements its sales force with Internet advertising, trade shows, and PR benefits from Erik Hoffer's chairmanship of education for the International Cargo Security Council (ICSC) and a variety of legislators and key accounts targeted by an Executive level PR campaign

Competition

Several other companies manufacture products that are similar to CGM's self-voiding label stock. Their products are limited in scope and do not adequately address the issues of tampering by virtue of their inability to withstand the normal means of breaching adhesive products. However, new innovations and better sales/marketing by other companies with a product-solutions market approach could affect our ability to market our products. Currently, no other company manufactures the self-voiding label stock.

No other company competes vertically or sells the finished product in a customized tape or seal form like CGM does. As both a manufacturer and converter, CGM delivers finished goods to users in response to client's individual needs. CGM can modify its products through all phases of its development to make it user friendly and compatible with the needs of its desired application.

No other company in the industry offers the array of products that CGM offers. There are approximately 12 seal manufacturers that offer seals and compete with each other over price. CGM sells through a "needs based- threat-specific" assessment and determines final product design on the basis of functionality.

Industry Trends

It is estimated that losses from cargo theft each year reach 30-50 billion dollars globally and 12 billion dollars in the US, and that these numbers will continue to rise. (L.H. Gray, Facing the Growing Problem of Loss and Theft).

Employees

DDSI employs total of 20 full time employees, of whom 15 are employed by CGM.

DDSI develops, assembles, markets and installs computer systems which capture video, digitally captured images and scanned images, digitize the image, link the digitized images to text/data and store the image and text on a computer database which allows for transmitting the image and text by computer or telecommunication links 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. Heightened sensitivity since 9/11 has caused an increase in awareness for software and hardware programs related to digital identification. This awareness is causing more resources to be allocated to the development of technologies in this field. DDSI has a strong focus on developing, integrating or reselling products to its client base as well as new markets.

While the majority of DDSI's sales are one time software based sales, DDSI does offer maintenance and support for their products.

Product and Services

Compu-Capture(R)

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

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

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

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 textual 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 ("NCIC2000"), the standard adopted by Federal Bureau of Investigation for the quality of mug shots and their transmission. NCIC2002 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, and 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) 32SQL

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) ActiveX32SQL

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, which 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.

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.

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 one (1) full-time employee in sales, marketing or sales management. Leads are generated 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 41% of the installed software license fee.

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

Business Alliances

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

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

Greater Penetration of Existing Customers

In addition to seeking new customers, DDSI has recently established a marketing program to focus on the existing customer, which includes over 1,000 agencies. DDSI believes with addition of the CGM subsidiary that it can now capitalize and generate increased revenues from its existing customers by offering them the products of CGM, many of which can be used in the law enforcement environment.

Seek Acquisitions and Alliances

DDSI management plans to execute an acquisition strategy. The make-up of the targeted acquisitions must include products and markets which complement and expand its present client base. Profitable, niche companies will be integrated into DDSI's growth through acquisition strategy. DDSI plans to use funding derived from external investors.

On March 1, 2005, DDSI and its wholly-owned subsidiary, CGM Applied Security Technologies, Inc. ("CGM Sub"), acquired substantially all of the assets of CGM Security Solutions, Inc., a Florida corporation ("CGM"), for (i) $1,500,000 in cash and (ii) a 2.86% promissory note (the "Note") in the principal amount of $3,500,000, subject to adjustment (the "Acquisition"). The assets of CGM were acquired pursuant to an Asset Purchase Agreement among DDSI, CGM Sub and CGM dated as of February 25, 2005.

The principal amount of the Note is subject to adjustment based upon the average of (i) the gross revenues of CGM Sub for the fiscal year ending December 31, 2007 and (ii) an independent valuation of CGM Sub based upon the consolidated audited financial statements of the Company and CGM Sub for the fiscal years ended December 31, 2006 and 2007. In addition, the Company has granted CGM a secondary security interest in substantially all of its assets and intellectual property.

In connection with the Acquisition, the Company entered into a letter agreement with certain of its investors (the "Investors") which extended the maturity date of debt instruments issued on November 30, 2004 until March 1, 2008, and amended the conversion price of the debt that is held by the Investors to the lower of (i) $0.0005 or (ii) 60% of the average of the three lowest intraday trading prices for the Company's common stock during the 20 trading days before, but not including, the conversion date. In addition, the exercise price of the warrants held by the Investors was amended to $.001 per share.

Sales by Geographic Area

During the fiscal year ended December 31, 2006 the percentage of revenues that DDSI received from domestic customers has been approximately 77.3%. Foreign sales for 2006 were $1,027,986.

Competition

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

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

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

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

Suppliers

DDSI's hardware is 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 with 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.

Research and Development

DDSI spent $107,024 and $106,505, respectively for the years ended December 31, 2006 and 2005 on research and development. This amount includes amounts spent on outside sources for assistance with Research & Development projects. None of these costs have been borne directly by our customers.

Product Liability Insurance

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

Patents, Trademarks and Licenses

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)", all trademarks have been registered with the United States Patent and Trademark Office.

ITEM 2. Description of Property

The Company operates at 2150 Highway 35, Sea Girt, New Jersey on a four-month lease which ends in April 2007. Future minimum lease commitment in connection with this lease is $1,500.

CGM Applied Security Technologies operates from two locations. The administrative offices are located in Somerset, NJ and the production facility is located in Staten Island, NY.

ITEM 3. Legal Proceedings

On October 16, 2003, in the Court of Common Pleas of Bucks County, Pennsylvania, a judgment was entered against the Company by its landlord, BT Lincoln L.P. for breach of lease in the amount of $184,706.76. The liability, net of the security deposit, is included in accrued expenses at December 31, 2006.

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

None.

PART II

ITEM 5. Market for Common Equity and Related Shareholder Matters

DDSI's common stock has been quoted on the OTC Bulletin Board since July 7, 1997 under the symbol "DDSI". As of November 4, 1999 DDSI's shares traded on the pink sheets. DDSI returned to trading on the OTC Bulletin Board effective February 23, 2001, but as of June30, 2003 began trading on the pink sheets. The following table sets forth, the high and low bid prices for the common stock for the quarters indicated. As of February 1, 2007 there were approximately 3,200 shareholders of record.

	Common Stock Bid Price
Calendar Year 2003	Low		High
First Quarter	$	0.0003	$	0.0032
Second Quarter	$	0.0004	$	0.005
Third Quarter	$	0.001	$	0.0026
Fourth Quarter	$	0.0001	$	0.002
Calendar Year 2004
First Quarter	$	0.0010	$	0.0055
Second Quarter	$	0.0015	$	0.0085
Third Quarter	$	0.0004	$	0.0027
Fourth Quarter	$	0.0004	$	0.0009
Calendar Year 2005
First Quarter	$	0.0004	$	0.0026
Second Quarter	$	0.0011	$	0.0005
Third Quarter	$	0.0036	$	0.0001
Fourth Quarter	$	0.0009	$	0.0001
Calendar Year 2006
First Quarter	$	0.0001	$	0.0003
Second Quarter	$	0.0001	$	0.0002
Third Quarter	$	0.0001	$	0.0001
Fourth Quarter	$	0.0001	$	0.0001

As of February 1, 2007, 9,568,806,218 shares of the issuer's Common Stock were outstanding.

We have never declared nor paid cash dividends and do not expect to pay dividends in the foreseeable future.

Recent Issuances of Unregistered Securities

During January 2005, $2,500 of the convertible debentures issued in September 2001, were converted into 9,920,635 shares of common stock.

During January 2005, $1,400 of the convertible debentures issued in September 2001, were converted into 7,000,000 shares of common stock.

During February 2005, $3,100 of the convertible debentures issued in September 2001, were converted into 19,375,000 shares of common stock.

During February 2005, $2,520 of the convertible debentures issued in September 2001, were converted into 14,000,000 shares of common stock.

During March 2005, $3,400 of the convertible debentures issued in September 2001, were converted into 28,500,000 shares of common stock.

During March 2005, $3,000 of the convertible debentures issued in September 2001, were converted into 15,000,000 shares of common stock.

During April 2005, $1,000 of the convertible debentures issued in September 2001, were converted into 14,682,540 shares of common stock.

During April 2005, $1,000 of the convertible debentures issued in September 2001, were converted into 15,000,000 shares of common stock.

During May 2005, $1,000 of the convertible debentures issued in September 2001 were converted into 15,000,000 of common stock.

During May 2005, $3,560 of the convertible debentures issued in September 2001 were converted in 17,800,000 shares of common stock.

During June 2005 $4,600 of the convertible debentures issued in September 2001 were converted into 23,000,000 shares of common stock

During June 2005 $3,500 of the convertible debentures issued in September 2001 were converted into 17,500,000 shares of common stock.

During June 2005 the company issued 50,000,000 shares of stock for services rendered by New Equities Publishing for Public Relations.

During July 2005 $10,163 of the convertible debentures issued in September 2001 were converted into 48,800,000 shares of common stock

During July 2005 $11,871 of the convertible debentures issued in September 2001 were converted into 53,039,211 shares of common stock.

During August 2005 $29,099.80 of the convertible debentures issued in September 2001 were converted into 221,570,000 shares of common stock.

During August 2005 $23,106 of the convertible debentures issued in September 2001 were converted into 178,782,781 shares of common stock.

During September 2005 $43,586.60 of the convertible debentures issued in September 2001 were converted into 323,760,000 shares of common stock.

During September 2005 $20, 254 of the convertible debentures issued in September 2001 were converted into 299,410,794 shares of common stock.

During October 2005 $46,825 of convertible debentures issued in September 201 were converted into 470,000,000 shares of common stock.

During October 2005, $13,172.28 of convertible debentures issued in September 2001 were converted into 411,587,075 shares of common stock.

During November 2005, $14,260 of convertible debentures issued in September 2001 were converted into 401,500,000 shares of common stock

During November 2005 $16,388.33 of convertible debentures issued in September 2001 were converted into 401,623,645 shares of common stock.

During February 2004, the Company issued two convertible debentures for an aggregate amount of $45,000 with simple interest at 12%. The debentures are due February 2005. Interest shall be paid quarterly commencing March 2004. The holder shall have the right to convert the principal amount and interest due into common stock. The conversion price in effect on any Conversion Date shall be the lesser of (1) $.005 or (2) 40% 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.

On May 7, 2004, we entered into a Securities Purchase Agreement, with four accredited investors that provides for the issuance of convertible notes payable up to an aggregate face value of $250,000 with simple interest accruing at the annual rate of 12% and warrants to acquire up to an aggregate 750,000 shares of our common stock. The convertible notes are due two years from the date of issuance. Interest payable on the convertible notes shall be paid quarterly commencing June 30, 2004. The holders shall have the right to convert the principal amount and interest due under the convertible notes into shares of DDS's common stock. The conversion price in effect on any conversion date shall be the lesser of (1) $.0045 or (2) 40% 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 warrants have an exercise price of $0.0045 and expire on May 7, 2009.

During July 2004, $4,900 of the convertible debentures issued in September 2001, were converted into 7,000,000 shares of common stock.

During August 2004, $3,500 of the convertible debentures issued in September 2001, were converted into 14,000,000 shares of common stock and 7,222,222 shares of common stock were issued for liquidated damages relating to the notes issued December 2001.

During September 2004, $700 of the convertible debentures issued in September 2001, were converted into 7,000,000 shares of common stock.

During October 2004, $1,400 of the convertible debentures issued in September 2001, were converted into 7,000,000 shares of common stock and 15,535,714 shares of common stock were issued for liquidated damages relating to the notes issued December 2001.

On November 30, 2004, we entered into a Securities Purchase Agreement, with four accredited investors that provides for the issuance of convertible notes payable up to an aggregate face value of $3,500,000 with simple interest accruing at the annual rate of 12% and warrants to acquire up to an aggregate 6,195,000 shares of our common stock. The convertible notes are due three years and three months from the date of issuance. Interest payable on the convertible notes shall be paid quarterly commencing December 31, 2004. The holders shall have the right to convert the principal amount and interest due under the convertible notes into shares of DDS's common stock. The conversion price in effect on any conversion date shall be the lesser of (1) $.0005 or (2) 60% 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 warrants have an exercise price of $0.001 and expire on January 31, 2012.

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

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

Critical Accounting Policies

DDSI's critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the Notes to the Financial Statements. These policies have been consistently applied in all material respects and address such matters as revenue recognition and depreciation methods. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

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

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

Plan of Operations

The short-term objective of DDSI is the following:

·	The short-term objective of DDSI is to increase the market penetration of the product line of its CGM subsidiary as the Company believes this is the area where the greatest revenue growth exists. o Additionally, DDSI plans to execute an acquisition strategy based upon fund availability.

DDSI's long-term objective is as follows:

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 biometric devices such as FMS (Fingerprint Matching System) and our integrated digital image and fingerprint package, Identify on Demand.

DDSI believes that it will not reach profitability until the year 2006. Over the next twelve months, management is of the opinion that sufficient working capital will be obtained from operations and external financing to meet DDSI's liabilities and commitments as they become payable. DDSI has in the past successfully relied on private placements of common stock securities, bank debt, loans from private investors and the exercise of common stock warrants in order to sustain operations. If DDSI is unable to obtain additional funding in the future, it may be forced to curtail or terminate operations. A recent financing has been obtained and the underlying shares are being registered in this registration statement (see "Selling Shareholders" and "Recent Financing" on page 40).

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

· Cut costs in areas that add the least value to DDSI

· Concentrate on increasing the sales of the CGM product line.

· Derive funds through investigating business alliances with other companies.

· Increase revenues through the introduction of Compu-Capture(R), specifically towards kindergarten through twelfth grades, for the creation of ID cards.

· Increase revenues through the introduction of a scaled down version of our Compu-Capture(R) product.

· Acquire and effectively add management support to profitable companies complementary to its broadened target markets.

Results of Operations

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Revenues for the year ended December 31, 2006 of $4,528,533 increased $1,193,002 or 35.5% from the year ended December 30, 2005. During 2006, Maintenance revenues decreased $6,543 or 2.5% from the year ended December 31, 2005. DDSI generates its revenues through software licenses, hardware, post customer support arrangements and other services. CGM generates its revenue through the manufacturer and distributor of indicative and barrier security seals, security tapes and related packaging security systems, protective security products for palletized cargo, physical security systems for tractors, trailers and containers as well as a number of highly specialized authentication products. The increase in DDSI's revenue is attributed to the purchase of CGM Applied Security Technology, Inc in March, 2005 and an increase in its revenue for the comparable twelve month period.

Cost of revenue for the year ended December 31, 2006 was $1,298,970, an increase of $190,066 or 17% from the prior year. Cost of revenue sold as a percentage of revenue for the year ended December 31, 2006 was 28% of total revenues, versus 33% the year earlier. The decrease was attributable to increased sales and a decrease in the cost of raw materials.

Operating expenses increased $299,527 or 12% during the year ended December 31, 2006 versus the year ended December 31, 2005. This increase was mainly attributable to the purchase of CGM Applied Security Technology, Inc in March 2005.

General and Administrative expenses for the year ending December 31, 2006 were $2,175,852 versus $2,208,216 for the prior year for a decrease of $32,364 or 1.5%. This decrease was mainly attributable to the purchase of CGM Applied Security Technology, Inc in March 2005.

Sales and Marketing expenses for the year ending December 31, 2006 were $463,544 versus $132,172 for the prior year for an increase of $331,372 or 250%. This increase was mainly attributable to the company increasing its advertising budget due to the purchase of CGM Applied Security Technologies, Inc.

Research and development for the year ended December 31, 2006 was $107,024 compared to $106,505 for the same period prior year for an increase of $519.

The net (loss) for DDSI increased 10% or $(400,860) for the year ended December 31, 2006 to $(4,349,881) from $(3,949,021) for the year ended December 31, 2005. This was primarily due to the change in accounting procedures in which convertible debentures are treated as derivatives according to the guidance of SFAS133 and EITF00.

Net cash provided by (used in) operating activities for the year ended December 31, 2006 and 2005 was $129,511 and ($623,204), respectively. The increase in cash provided by operating activities in the year ended December 31, 2006 of $752,715 was due in part to less expenditures for infrastructure necessary after the purchase of CGM Applied Security Technology, Inc. in March 2005.

Net cash (used in) investing activities was $(20,603) and $(1,629,630) for the years ended December 31, 2006 and 2005, respectively.

Net cash (used in) financing activities was $(12,000) and $(531,691) for the years ended December 31, 2006 and 2005, respectively.

Liquidity and Capital Resources

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

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

At December 31, 2006, DDSI had assets of $6,033,224 compared $6,212,339 on December 31, 2005 a decrease of $179,115 and shareholder deficiency of $(12,779,283) on December 31, 2006 compared to shareholder deficiency of $(10,346,477) on December 31, 2005, an increase of ($2,432,806). This increase in shareholder deficiency for the year ended December 31, 2006 resulted from the net loss for the year ended December 31, 2006.

As of December 31, 2006, DDSI working capital was $(11,855,140), a change from negative working capital of $(10,095,386) at December 31, 2005. The decrease in working capital was primarily a result of an increase in the fair market value of the derivative liabilities.

Recent Developments

On December 19, 2006 a special meeting of the shareholders was held and at the meeting the shareholders passed a resolution to change the name of the company from Digital Descriptor Systems, Inc. to Applied Security Innovations, Inc. The shareholders also passed a resolution to authorize a 1 for 500 reverse stock split. Both of these events took place on February 5, 2007. In addition the 2006 Incentive Stock Option Plan adopted by The Board of Directors on October 12, 2006 was approved by the shareholders.

ITEM 7. Financial Statements

The report of the independent registered public accounting firm and financial statements are set forth in this report beginning on Page F-1.

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

(a) On January 13, 2006, Digital Descriptor Systems, Inc. ("Registrant") was notified by Rosenberg Rich Baker Berman & Co. ("Rosenberg") that it was resigning as Registrant's certifying accountant, effective immediately.

During the two fiscal years ended December 31, 2004 and 2003, and any subsequent period through January 13, 2006, (i) there were no disagreements between Registrant and Rosenberg on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Rosenberg would have caused Rosenberg to make reference to the matter in its reports on Registrant's financial statements, and (ii) Rosenberg's reports on Registrant's financial statements did not contain an adverse opinion or disclaimer of opinion, and was not modified as to uncertainty, audit scope or accounting principles. During the two fiscal years ended December 31, 2004 and 2003 and through January 13, 2006, there were no reportable events as the term is described in Item 304(a)(1)(iv) of Regulation S-B.

(b) On January 13, 2006, Registrant engaged the firm of Bagell Josephs, Levine and Company LLC. to serve as its independent registered public accountants for the fiscal year ending December 2005.

During the two fiscal years ended December 31, 2004 and 2003, and through January 13, 2006, Registrant has not consulted with Bagell, Josephs Levine and Company LLC. regarding either:

1. The application of accounting principles to any specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on Registrants' financial statements, and neither a written report was provided to Bagell, Josephs, Levine & Company LLC. nor oral advice was provided that Bagell, Josephs, Levine and Company LLC. concluded was an important factor considered by Registrant in reaching a decision as to the accounting, auditing or financial reporting issue; or

2. Any matter that was either subject of disagreement or event, as defined in Item 304(a)(1)(iv) of Regulation S-B and the related instruction to Item 304 of Regulation S-B, or a reportable event, as that term is explained in Item 304(a)(1)(iv) of Regulation S-B.

On January 19, 2006, Registrant provided Rosenberg with a copy of the disclosures it is making in response to Item 4.01 on this Form 8-K, and has requested that Rosenberg furnish it with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements .

ITEM 8A. Control and Procedures

Evaluation of Disclosure Controls and Procedures

As of December 31, 2006, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There have been significant changes in our internal controls that could significantly affect those controls subsequent to the date of their last valuation. Specifically, we have hired a new controller and implemented a new accounting system to integrate our subsidiary's financials. We believe that these steps have enhanced our financial disclosures.

PART III

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

Set forth below is certain information regarding our directors and executive officers. Our Board of Directors is comprised of four directors. There are no family relationships between any of our directors or executive officers. Each of our directors is elected to serve until our next annual meeting of our stockholders and until his successor is elected and qualified or until such director's earlier death, removal or termination.

Name	Age	Position with Company
Anthony Shupin	51	Director, Chief Executive Officer, President
Michael Pellegrino	57	Senior Vice President, CFO and Director
Robert Gowell	38	Director
Vincent Moreno	63	Director
Erik Hoffer	59	Executive Vice President and Director

Anthony Shupin became CEO and President of DDSI in October 2003. His affiliation with DDSI began as a member of the Board of Directors in January 2002. His 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. Prior to DDSI, Mr. Shupin served in several capacities in the Technology and Management Consulting field. He founded TShupin and Associates, a management consulting firm focused on assisting clients in the areas of Sales and Marketing, New Business Start-Up, Operational Analysis and Business/Technology Synchronization. At Deloitte Consulting, he directed activities as a Business Development Executive in the Communications and Media practice. Mr. Shupin's background also includes a role as Director of International Business Development at the world's first commercial satellite aerospace company.A graduate of Colby College, Waterville, Maine, Mr. Shupin has extended his education at Rutgers University, Cook College in Geographic Information Systems and Remote Sensing training.

Michael Pellegrino became Senior Vice President & CFO in February 2005. He originally joined DDSI in 1995 as Vice President & Chief Financial Officer. In March 2002, he was appointed President, Chief Executive Officer and Chief Financial Officer, Secretary and a Director of DDSI. From 1984 to 1995, Mr. Pellegrino was Vice President and CFO of Software Shop Systems, Inc. From 1979 to 1984, he was a regional controller for Capital Cities/ABS and from 1972 to 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.

Robert Gowell has been a director of the Company since 2001. He was the Company's Co-Chairman and Chief Executive Officer from January 2002 until June 2002. He is a retired Deputy U.S. Marshal who has worked out of the New York and Pennsylvania offices from 1991 to 2001. He earned his B.S. in Management and Finance from the City University of New York. He is currently working on his MBA at Kutztown University.

Vincent Moreno has been a director of the Company since January 2002. Mr. 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. Since 2002, Mr. Moreno has been doing consulting work for various software development firms. From 1998- 2002, he was President and General Manager of PayPlus Software, Inc., a provider of payroll software to the Professional Employer Organization marketplace. He served as Vice President of Operations at DDSI from 1996 to 1998. From 1989 to 1995, he served as President and CEO of Mainstem Corporation, a national provider of software services.

Erik Hoffer was appointed as Executive Vice President and a director of the Company and President of CGM Sub in March 2005. Prior to joining the Company, Mr. Hoffer has been the president and chief executive officer of CGM, which he created in 1977. Prior to starting CGM, Mr. Hoffer was the national sales manager of Lamart Corporation from 1972-1977. For the past 37 years, Mr. Hoffer has designed and patented a number of theft control, authentication, barrier and theft detection products. He holds many patents and a considerable amount on corporate trade secrets in manufacturing these products. He is considered an expert in the areas of adhesive coating, conductive inks and cargo security science. For the past four 4 years, Mr. Hoffer has been the chairman of educational events for the National Cargo Security Council and previously the co-chairman of the NCSC GMATS program. Mr. Hoffer received a B.S. in industrial psychology from Northeastern University. He also holds an associates degree in transportation and traffic management.

Code of Ethics

The Company has not formally adopted a written code of ethics that governs all of our officers, directors and finance and accounting employees. The draft code of ethics is filed herewith as Exhibit 14.1

Section 16 Beneficial Ownership Compliance

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

Section 16(a) forms they file.

To DDSI's knowledge, based solely on its review of the copies of such reports furnished to DDSI and written representations that no other reports were required during the fiscal year ended December 31, 2002, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with, except that the following individuals have filed their Form 3s late: Anthony Shupin, Vincent Moreno and Erik Hoffer and the following individuals have filed their Form 4s late: Michael Pellegrino and Robert Gowell.

ITEM 10. Executive Compensation

The following table sets forth information concerning the total compensation that we have paid or that has accrued on behalf of our Chief Executive Officer and other executive officers with annual compensation exceeding $100,000 during fiscal 2006, 2005 and 2004.

									Long Term Compensation
					Annual Compensation				Awards				Payouts
							Other				Securities
Name and							Annual		Restricted		Underlying				Other
Principal							Compen-		Stock		Options/		LTIP		Compen-
Position	Year		Salary		Bonus		sation ($)		Award ($)		Sar (#)		Payouts($)		sation ($)
Anthony Shupin		2006	$	215,000		0		0		0		0		0		0
President & CEO		2005	$	198,539		0		0		0		0		0		0
		2004	$	108,000		0		0		0		0		0		0
		2003	$	108,000		0		0		0		0		0		0
		2002		0		0		0		0		0		0		0

Michael J		2006	$	174,022		0		0		0		0		0		0
Pellegrino*		2005	$	148,077		0		0		0		0		0		0
		2004	$	52,000		0		0		0		0		0		0
		2003	$	115,000		0		0		0		0		0		0
		2002	$	115,000		0		0		0		0		0		0

*Mr. Pellegrino resigned as President and Chief Executive Officer effective October 6, 2003. In 2004, Mr. Pellegrino served as Chairman of the Board and as a consultant to the Company.

Appointment of Principal Officers; Compensatory Arrangements of Certain Officers.

Effective November 13, 2006, Digital Descriptor Systems, Inc. (the "Company") granted to each of Anthony Shupin, its President and Chief Executive Officer and Michael Pellegrino, its Chief Financial Officer, 10,000 shares of newly created Series A Preferred Stock ("A Preferred") as recognition for services.

The shares vest in five equal monthly installments commencing November 1, 2007. Each share of A Preferred is convertible into 240,000 shares of common stock of the Company starting three years from the date of issuance, provided that the closing bid price of the Company's common stock is then $2.00 per share. The shares of A Preferred may be voted with the Company's common stock on an as converted basis on any matters that the common stock is entitled to vote on as a class.

Unconverted shares of A Preferred will automatically cease to exist, and all rights associated therewith will be terminated upon the earlier of (i) that person's termination of employment with the Company for any reason, or (ii) five years from the date of issuance.

On November 13, 2006, the Company filed with the Secretary of State of Delaware a Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock.

Options/SAR Grants in Last Fiscal Year

Michael J. Pellegrino, CFO

N/A

Anthony Shupin, President & CEO

N/A

Aggregated Option/SAR Exercises

None exercised

Employment Agreements

Anthony R. Shupin, Chairman, President and Chief Executive Officer. Mr. Shupin was re-appointed as Chairman, President and Chief Executive Officer effective February, 2005. On February 25, 2005, DDSI entered into a five-year employment agreement with Mr. Shupin, which entitled him to a base salary of $215,000 per year, which may at the Board of Directors discretion adjust his base salary (but not below $215,000 per year). Mr. Shupin is also entitled to participate in the Annual Management Bonus Plan. As a participant in the Annual Management Bonus Plan, Mr. Shupin will be eligible to receive bonuses, based on performance, in any amount from 10% to 200% of the Base Salary. In addition, Mr. Shupin shall participate in the Management Equity Incentive Plan. As a participant in the Management Equity Plan, Mr. Shupin will be eligible to receive options, which vest over a period of time from the date of the option's issue, to purchase common shares of DDSI. The Company may grant Mr. Shupin, following the first anniversary of the date hereof and at the sole discretion of the Board of Directors, options to purchase common shares of the Company (subject to the vesting and the satisfaction of the other terms and conditions of such options). Mr. Shupin will be entitled to 25 vacations days per year at such times as may be mutually agreed with the Board of Directors. DDSI will provide Mr. Shupin a monthly car allowance of Six Hundred Dollars ($600.00) along with related car expenses.

Michael J. Pellegrino, Senior Vice President and Chief Financial Officer. Mr. Pellegrino was appointed as Senior Vice President and Chief Financial Officer effective February 25, 2005. On February 25, 2005, DDSI entered into a five-year employment agreement with Mr. Pellegrino, which entitled him to a base salary of $175,000 per year which may at the Board of Directors discretion adjust his base salary (but not below $175,000 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 10% to 200% of the Base Salary. In addition, Mr. Pellegrino shall participate in the Management Equity Incentive Plan. As a participant in the Management Equity Incentive Plan, Mr. Pellegrino will be eligible to receive options, which vest over a period of time from the date of the option's issue, to purchase common shares of DDSI. DDSI 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 common shares of the Company (subject to the vesting and the satisfaction of the other terms and conditions of such options). Mr. Pellegrino will be entitled to 25 vacation days per year at such times as may be mutually agreed with the Board of Directors. DDSI shall also furnish Mr. Pellegrino with monthly car allowance of Six Hundred Dollars ($600.00) and related car expenses.

DDSI has an employment agreement with Erik Hoffer, pursuant to which Mr. Hoffer will be employed as Executive Vice President of the Company for an initial term of three years, which may be extended, and President of CGM Sub for an initial term of one year, which may be renewed for successive one-year terms. Pursuant to the Employment Agreement, Mr. Hoffer will receive a base salary of $200,000, a bonus of 5% of the gross margin sales increase over the prior year's gross margin sales of CGM products and customary benefits and reimbursements.

Employee and Director Stock Option Plans

DDSI adopted the 2006 Stock Incentive Plan, (the "Plan") in order to attract and retain qualified personnel. This plan was adopted by the Board of Directors on October 12, 2006 and approved by the shareholders on December 19, 2006. The Board of Directors has initially reserved 2,500,000 shares of Common Stock for issuance under the 2006 Incentive Plan. Under the Plan, options may be granted which are intended to qualify as Incentive Stock Options, (ISO’s) under Section 422 of the Internal Revenue Code of 1986 (the “Code”) or which are not (Non_ISO’s) intended to qualify as Incentive Stock Options thereunder.

The 2006 Incentive Plan and the right of participants to make purchases thereunder are intended to qualify as an “employee stock purchase plan” under Section 423 of the internal Revenue Code of 1986, as amended (the “Code”). The 2006 Incentive Plan is not a qualified deferred compensation plan under Sections 401(a) of the Internal Revenue Code and is not subject to the provisions of the Employee Retirement Income Security Act of 1974 (”ERISA”)

The number of shares reversed for issuance under the 2006 Incentive Plan accounts for the 1 for 500 reverse stock split.

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.

ITEM 11. Security Ownership of Certain Beneficial Owners and Management

The following table lists stock ownership of our common stock as of December 31, 2006. The information includes beneficial ownership by (i) holders of more than 5% of our common stock, (ii) each of our current directors and executive officers and (iii) all of our directors and executive officers as a group. The information is determined in accordance with Rule 13d-3 promulgated under the Exchange Act based upon information furnished by the persons listed or contained in filings made by them with the Commission. Except as noted below, to our knowledge, each person named in the table has sole voting and investment power with respect to all shares of our common stock beneficially owned by them.

Percentage of beneficial ownership is based upon 9,568,806,013 shares of common stock outstanding at December 31, 2006, together with securities exercisable or convertible into shares of common stock within 60 days of December 31, 2006 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of December 31, 2006 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

		Beneficial Ownership
Name and Address		of Common Stock
of Beneficial Owner	Title	No. of Shares	Percent of Class

Anthony R. Shupin	Chairman, CEO and	15,000,000	.00015	%
2150 Hwy 35, Suite 250	President
Sea Girt, NJ 08750

Michael Pellegrino	Senior Vice President,	15,000,000	.00015	%
2150 Hwy 35, Suite 250	Chief Financial Officer
Sea Girt, NJ 08750	& Director

Robert Gowell	Director	96,300	*
2150 Hwy 35, Suite 250
Sea Girt, NJ 08750

Vincent Moreno	Director	0	*
2150 Hwy 35, Suite 250
Sea Girt, NJ 08750

Erik Hoffer	Executive Vice	0	*
2150 Hwy 35, Suite 250	President and Director
Sea Girt, NJ 08750

All Officers & Directors As a Group		30,096,300	.0003	%

* less than 1%

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

ITEM 12. Certain Relationships and Related Transaction

None

ITEM 13. Exhibits

31.1		Certification by Chief Executive Officer pursuant to Sarbanes-Oxley Section 302

31.2		Certification by Chief Financial Officer pursuant to Sarbanes-Oxley Section 302

32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350

ITEM 14. Principal Accountant Fees and Services

Audit Fees. The aggregate fees billed by Bagell Joseph and Levine, our principal accountants, for professional services rendered for the audit of the Company's annual financial statements for the last two fiscal years and for the reviews of the financial statements included in the Company's Quarterly reports on Form 10-QSB during the last two fiscal years 2006 and 2005 were $79,858 and $83,012, respectively.

Tax Fees. The aggregate fees billed by the Company's principal accountants for tax compliance, tax advice and tax planning services rendered to the Company during the last two fiscal years 2006 and 2005 were $5,000 and $3,000, respectively.

All Other Fees. The Company did not engage its principal accountants to render services to the Company during the last two fiscal years, other than as reported above.

Signatures

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


	Digital Descriptor Systems, Inc.

	By:	/s/ Anthony Shupin
		Anthony Shupin, Chairman, President, and
		Chief Executive Officer

		Dated:

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date


By: /s/ Anthony Shupin			Chairman, President, and Chief,
Anthony Shupin			Executive Officer


By: /s/ Michael Pellegrino			Senior Vice President and Chief
Michael Pellegrino			Financial Officer, Director


By:			Executive Vice President and
Erik Hoffer			Director


By: /s/ Vincent Moreno			Director
Vincent Moreno


By:			Director
Robert Gowell

Digital Descriptor Systems, Inc. and Subsidiary Contents to Financial Statements

December 31, 2006

	Page(s)
Report of Independent Registered Public Accounting Firm - 2006		1
Audited Consolidated Financial Statements:
Balance Sheet as of December 31, 2006		2
Statements of Operations for the Years Ended December 31, 2006
and December 31,2005, restated		3
Statements of Shareholders' Impairment for the Years Ended
December 31, 2006 and December 31,2005, as restated		4
Statements of Cash Flows for the Years Ended December 31, 2006
and December 31, 2005, restated		5-6
Notes to Consolidated Financial Statements		7-18

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Digital Descriptor Systems, Inc.

2150 Highway 35, Suite 250

Sea Girt, New Jersey 08750

We have audited the accompanying consolidated balance sheet of Digital Descriptor Systems, Inc., (the “Company”) as of December 31, 2006, and the related consolidated statements of operations, changes in shareholders’ impairment and cash flows for each of the years in the two-year period ended December 31, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Digital Descriptor Systems, Inc., as of December 31, 2006, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 12 to the consolidated financial statements, the Company did not generate sufficient cash flows from revenues during the year ended December 31, 2006, to fund its operations. Also at December 31, 2006, the Company had negative net working capital of $11,855,140. This matter raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regard to these matters is also described in Note 12. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.

Bagell, Josephs, Levine & Company, L.L.C.

Gibbsboro, NJ 08026

March 28, 2007

-1-

Digital Descriptor Systems, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2006

	December 31
	2006

ASSETS
Current Assets
Cash and cash equivalents	$	392,719
Accounts receivable, less allowance of $118,055		559,151
Inventory		538,365

Total Current Assets		1,490,235

Property and equipment, net of
accumulated depreciation		317,956

Other Assets
Deposits		1,730
Goodwill		4,054,998
Intangible assets, net of
accumulated amortization of		168,305

Total Assets	$	6,033,224

LIABILITIES AND STOCKHOLDERS' (IMPAIRMENT)

Current Liabilities
Accounts payable	$	115,560
Accrued expenses		356,570
Accrued payroll expenses		32,174
Accrued interest		1,441,438
Deferred income		134,395
Convertible debentures current		3,500,000
Derivative liabilities		7,765,238

Total Current Liabilities		13,345,375

Note payable		3,500,000
Convertible debentures		1,967,132

Total Liabilities		18,812,507

Shareholders' deficit
Preferred stock, $.001 par value
1,000,000 shares authorized, -0- issued and outstanding		-0-
Common stock, par value $.001; authorized 9,999,000,000 shares;
9,568,806,218 issued and outstanding		9,568,806
Additional paid-in capital		9,146,598
Accumulated deficit		(31,494,687	)

Total Shareholders' (Impairment)		(12,779,283	)


Total Liabilities and Shareholders' (Impairment)	$	6,033,224

The accompanying notes are an integral part of these consolidated financial statements.

-2-

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (RESTATED)

	December 31,			December 31,
	2006			2005
				As restated
INCOME
Net Sales	$	4,528,533		$	3,335,631
Cost of Revenue		1,298,970			1,108,904

Gross Profit		3,229,563			2,226,727

OPERATING EXPENSES
General and administrative		2,175,852			2,208,216
Sales and marketing		463,544			132,172
Research		107,024			106,505

Total Operating Expenses		2,746,420			2,446,893

INCOME (LOSS) BEFORE OTHER INCOME (EXPENSE)		483,143			(220,166	)

OTHER (EXPENSE)
Interest		(2,374,253	)		(1,826,962	)
Amortization of deferred financing cost		(264,438	)		(151,815	)
Amortization of debt discount		(1,187,147	)		(1,714,394	)
Change in fair market value of derivative liability		(896,046	)		138,672
Depreciation and Amortization		(99,866	)
Other income and expenses		(11,274	)		(174,356	)

Total Other Income (Expense)		(4,833,024	)		(3,728,855	)

Income (Loss) before provision for income taxes		(4,349,881	)		(3,949,021	)
`
Provision for income taxes		0			0

NET INCOME (LOSS) APPLICABLE TO COMMON SHARES		(4,349,881	)		(3,949,021	)

NET INCOME(LOSS) PER BASIC AND DILUTED SHARES	$	(0.00	)	$	(0.00	)

Weighted average shares of common stock
Outstanding, basic and diluted		7,723,279,613			756,472,931

The accompanying notes are an integral part of these consolidated financial statements.

-3-

Digital Descriptor Systems, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF SHAREHOLDERS' IMPAIRMENT

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (RESTATED)

					Additional
	Common Stock				Paid in			Accumulated			Shareholders'
	Shares		Amount		Capital			Deficit			Impairment
Balance at December 31, 2004		210,716,359	$	210,716	$	15,750,707		$	(23,195,785	)	$	(7,234,362	)

Issuance of common stock for services -		50,000,000		50,000		(20,000	)		-			30,000

Issuance of common stock in payment of damages
related to convertible debentures		1,422,224,681		1,422,225		(1,190,151	)					232,074

Conversion of accrued interest related to
convertible debentures to common stock		1,584,627,000		1,584,627		(1,544,232	)					40,395

Benificial interest recognized on common stock
issuances						534,437						534,437

Net Loss, As originally reported									(2,309,172	)		(2,309,172	)

Balance at December 31, 2005, as originally
reported		3,267,568,040	$	3,267,568	$	13,530,761		$	(25,504,957	)	$	(8,706,628	)

Adjustment, increase in net loss									(1,639,849	)		(1,639,849	)

Balance at December 31, 2005, as restated		3,267,568,040	$	3,267,568	$	13,530,761		$	(27,144,806	)		(10,346,477	)

Conversion of accrued interest related to
convertible debentures to common stock		6,301,237,973		6,301,238		(4,384,163	)					1,917,075

Net Loss									(4,349,881	)		(4,349,881	)

Balance at December 31, 2006		9,568,806,013		9,568,806		9,146,598			(31,494,687	)		(12,779,283	)

The accompanying notes are an integral part of these consolidated financial statements.

-4-

Digital Descriptor Systems, Inc. and Subsidiary Consolidated Statements of Cash

Flows For the Years Ended December 31, 2006 and 2005 As Restated

	2006			2005
				As Restated
Cash Flows from Operating Activities
Net loss	$	(4,349,881	)	$	(3,949,021	)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities
Depreciation and amortization		99,866			174,356
Common stock issued in payment of services		0			30,000
Amortization of deferred financing costs		264,438			151,815
Amortization of debt discount		1,187,147			1,714,394
Amortization of Beneficial Interest		1,917,074			534,437
Change in Fair Market value of derivatives		896,046			(138,672	)
Bad debt expense		65,795			15,000

Changes in operating assets and liabilities
Accounts receivable		(13,523	)		(557,894	)
Inventory		(124,214	)		(79,398	)
Prepaid expenses, deposits and other assets		4,266			(4,266	)
Accounts payable		(109,437	)		87,415
Accrued expenses		7,550			33,149
Accrued interest		355,452			1,349,471
Deferred Income		(71,068	)		16,010

Net Cash Provided by (used in) Operating Activities	$	129,511		$	(623,204	)

Cash Flows from Investing Activities
Purchase of equipment		(20,603	)		(129,630	)
Acquisition of Business Assets		0			(1,500,000	)

Net Cash (used in) Investing Activities	$	(20,603	)	$	(1,629,630	)

Cash Flows from Financing Activities

Payment of convertible debentures		(12,000	)		(531,691	)

Net Cash (used in) Financing Activities	$	(12,000	)	$	(531,691	)

Net Increase (Decrease) in Cash		96,908			(2,784,525	)
Cash at Beginning of Year		295,811			3,080,336

Cash at End of Year	$	392,719		$	295,811

The accompanying notes are an integral part of these consolidated financial statements.

-5-

Digital Descriptor Systems, Inc. and Subsidiary Consolidated Statements of Cash

Flows For the Years Ended December 31, 2006 and 2005 As Restated

	December 31,
	2006		2005
			As Restated

Supplemental Disclosure of Cash Flow Information:

Supplemental Disclosure of Non-Cash Investing
and Financing Activities:

Debt discount relating to the issuance of warrants and the
beneficial conversion features of convertible debt	$	310,124	$	97,402

Accrued Interest converted into debt	$	536,546	$	643,340

Conversion of accrued interest	$	-	$	251,915

The accompanying notes are an integral part of these consolidated financial statements.

-6-

Digital Descriptor Systems, Inc. and Subsidiary

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2006 and December 31, 2005 (Restated)

Note 1 - Description of Business

Digital Descriptor Systems, Inc., 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 test 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 generates the majority of the Company's revenues. Substantially all of the Company's revenues are derived from governmental agencies in the United States.

Note 2 - Summary of Significant Accounting Policies

Significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are summarized below:

Use of Estimates

The preparation of the consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Revenue Recognition

The Company derives revenue from the sale of hardware, software, post customer support, and other related services. Post customer support includes telephone support, bug fixes, and rights to upgrades. Other related services include basic training.

The Company recognizes revenue upon delivery of the product to the end-user, when the fee is determinable and collectibility is probable. Revenue allocable to post customer support is recognized on a straight-line basis over the period which the service is to be provided. Revenue collected for future services is recorded as deferred income and totaled $134,395 and $205,463, respectively, for the years ended December 31, 2006 and December 31, 2005, as restated. Revenue allocable to other services is recognized as the services are provided.

Software Development Costs

All costs incurred in the research and development of new software products and costs incurred prior to the establishment of a technologically feasible product are expensed as incurred. Research and development of software costs were $ 107,024 and $ 106,505, respectively, for the years ended December 31, 2006 and December 31, 2005, as restated.

Cash and Cash Equivalents

For the purpose of the statement of cash flows, cash and cash equivalents include time deposits, certificates of deposits, restricted cash, and all highly liquid debt instruments with original maturities or three months or less.

Accounts Receivable

Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. No interest is charged on any past due accounts. Accounts receivable are stated at the amount billed to the customer. Accounts receivable, net of allowance was $ 559,151 and $ 611,423, respectively, for the years ended December 31, 2006 and December 31, 2005, as restated.

The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management's best estimate of the amount that will not be collected. Management reviews all accounts receivable balances that exceed 90 days from invoice date and based on assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. The allowance for doubtful accounts was $118,055 and $ 53,084, respectively, for the years ended December 31, 2006 and December 31, 2005, as restated.

-7-

Digital Descriptor Systems, Inc. and Subsidiary

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2006 and December 31, 2005 (Restated)

Income Taxes

The Company provides for income taxes under the liability method. Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Such differences result from differences in the timing of recognition by the Company of net operating loss carry forwards, certain expenses, and differences in the depreciable lives and depreciation methods for certain assets.

Accounting for Stock Options

Financial Accounting Standards Board issued Statement No. 123 (SFAS 123), "Accounting for Stock-Based Compensation" which 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 8.

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. Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive.

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.

Fair Value of Financial Instruments

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

Note 3 - Impact of Recent Accounting Pronouncements

In December of 2004 the FASB issued a revision to Statement No. 123, Accounting for Stock-Based Compensation. This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees as provided in Statement 123 as originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with selling, Goods or Services." This Statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, Employers Accounting for Employee Stock Ownership Plans. The revisions of this statement did not have a material impact upon the Company's consolidated financial statements.

The Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value. Goodwill represents the excess of the cost of the Company’s acquired subsidiaries or assets over the fair value of their net assets at the date of acquisition. Under Statement of Financial Accounting Standards (“SFAS”) No. 142, goodwill is no longer subject to amortization over its estimated useful life; rather, goodwill is subject to at least an annual assessment for impairment applying a fair-value based test.

-8-

Digital Descriptor Systems, Inc. and Subsidiary

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2006 and December 31, 2005 (Restated)

Note 4 - Convertible Debentures

Based on the guidance in SFAS133 and EITF00-19, the Company concluded that the conversion features of it convertible debentures were required to be accounted for as derivatives. The embedded derivative feature was bi-furcated and the fair market value was determined using a convertible bond valuation model. The derivative instruments are recorded at fair market value with changes in value recognized during the period of change. For further discussion, see footnote #13 regarding restatement.

During May 2001, the Company issued three convertible notes for an aggregate amount of $20,000. The debentures are collateralized by substantially all of the company's assets. The debentures accrue interest at the rate of 10% per annum.

The holders have the right to convert the principal amount plus accrued interest into shares of the Company's common stock. 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.

We recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $ 4,992 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

During September 2001, the Company issued two convertible debentures for an aggregate amount of $400,000. The debentures are collateralized by substantially all of the company's assets. These debentures are in default as they were due on September 30, 2002. The debentures accrue interest at the rate of 12% per annum. A late fee equal to 15% of the accrued and unpaid interest is also assessed during the default period. Interest on the debentures was not paid quarterly and accordingly accrued interest and late fees payable related to the notes totaling $187,600 is included in the accompanying consolidated financial statements.

The holders have the right to convert the principal amount plus accrued interest into shares of the Company's common stock at anytime after issuance. The conversion price in effect on any Conversion Date shall be the lesser of $.08 per share or 50% of the average of the lowest three inter-day sales prices during the ten trading days immediately preceding the applicable Conversion Date.

The Company also issued common stock purchase warrants for the right to purchase 800,000 shares of common stock of the Company at an exercise price per share equal to the lesser of $.36 or the average of the lowest three closing sales prices for the common stock during the twenty Trading Days immediately prior to exercise. The estimated fair value of the warrants of $48,000 was allocated to paid-in capital. This resulting debt discount plus $90,000 of financing charges were amortized on a straight-line basis over the term of the debentures, and were fully amortized at December 31, 2002.

In addition, we recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $ 59,407 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

-9-

Digital Descriptor Systems, Inc. and Subsidiary

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2006 and December 31, 2005 (Restated)

During 2004, $10,500 of the debenture was converted into 35,000,000 shares of common stock and during 2003; $3,164 of the debenture was converted into 15,818,010 shares of common stock.

In December, 2001 the Company issued three convertible debentures for an aggregate amount of $500,000. The debentures are collateralized by substantially all of the company's assets. The debentures are in default as they were due December 31, 2002. Interest accrues at the rate of 12% per annum through maturity, and increased to 15% per annum during the default period. Quarterly interest payments were not made, and accordingly accrued interest payable related to the notes totaling $210,000 is included in the accompanying consolidated financial statements.

The holders have the right to convert the principal amount plus accrued interest into shares of the Company's common stock at any time. The conversion price in effect on any Conversion Date shall be the lesser of $.043 per share or 50% of the average of the lowest three inter-day sales prices during the twenty Trading Days immediately preceding the applicable Conversion Date.

The Company also issued common stock purchase warrants for the right to purchase 1,500,000 shares of common stock of the Company at an exercise price per share equal to the lesser of $.02 or the average of the lowest three inter-day sales prices during the twenty Trading Days immediately prior to exercise. The estimated fair value of the warrants of $90,000 was allocated to paid-in capital. This resulting debt discount plus $77,500 of financing charges were amortized on a straight-line basis over the term of the debentures, and were fully amortized at December 31, 2002.

In addition, we recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $ 388,800 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

In June 2002, a 12% convertible promissory note for $75,000 was issued to two investors. The debentures are collateralized by substantially all of the company's assets. The debentures are in default as they were due in August 2003. The debentures accrue interest at the rate of 12% per annum. A late fee equal to 15% of the accrued and unpaid interest is also assessed during the default period. Quarterly interest on the debentures was not paid and accordingly accrued interest and late fees payable related to the notes totaling $29,071 is included in the accompanying condensed consolidated financial statements.

The holders have the right to convert the principal amount plus unpaid accrued interest into shares of the Company's common stock at any time through repayment. The conversion price is equal to fifty percent of the average of the lowest three (i) inter-day trading prices, or (ii) if the common stock is traded on the OTC Bulletin Board or Pink Sheets, the prices asked by any person or entity acting as a market maker in the common stock during the twenty trading days immediately preceding the relevant date upon which a conversion is effected.

In addition, we recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $ 59,430 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

In September 2002, the Company issued secured convertible debentures in the aggregate principal amount of $100,000. The debentures are collateralized by substantially all of the company's assets. The debentures are in default as they were due on September 30, 2003. The debentures accrue interest at the rate of 12% per annum. A late fee equal to 15% of the accrued and unpaid interest is also assessed during the default period. Quarterly interest on the debentures was not paid, and accordingly accrued interest and late fees payable related to the notes totaling $30,000 are included in the accompanying condensed consolidated financial statements.

-10-

Digital Descriptor Systems, Inc. and Subsidiary

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2006 and December 31, 2005 (Restated)

The holders have the right to convert the principal amount and interest due under the debentures into shares of common stock. The conversion price in effect on any Conversion Date shall be the lesser of (1) $0.005 or (2) 40% 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 Company also issued common stock purchase warrants for the right to purchase 300,000 shares of common stock of the Company at an exercise price per share equal to $.01. The estimated fair value of the warrants was zero. Debt issuance costs of $27,500 were also amortized on a straight-line basis over the term of the debentures and were fully amortized at December 31, 2003.

In addition, we recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $ 79,190 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

In January, 2003 the Company issued three convertible debentures for an aggregate amount of $250,000, with simple interest accruing at the annual rate of 10%. The debentures are collateralized by substantially all of the company's assets. These debentures are in default as they were due January 10, 2004. Quarterly interest was not paid and accordingly, accrued interest of $61,415 is included in the condensed consolidated financial statements.

The Company also issued common stock purchase warrants for the right to purchase 750,000 shares of common stock of the Company at an exercise price per share equal to $0.01. The estimated fair value of the warrants was zero. Financing costs incurred of $56,750 were fully amortized at December 31, 2003.

In addition, we recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $ 92,225 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

In February, 2003, the Company issued three convertible debentures for an aggregate amount of $125,000, with simple interest accruing at the annual rate of 10%. The debentures are collateralized by substantially all of the company's assets. The debentures are in default as they were due February 27, 2004. Quarterly interest due was not paid and accordingly accrued interest of $28,125 is included in the condensed consolidated financial statements.

The Company also issued common stock purchase warrants for the right to purchase 375,000 shares of common stock of the Company at an exercise price per share equal to $0.01. The estimated fair value of the warrants was zero. Debt issuance costs of $10,843 were also amortized on a straight-line basis over the term of the debentures. Amortization expense during 2004 was $24,307 and the costs were fully amortized as of December 31, 2004.

-11-

Digital Descriptor Systems, Inc. and Subsidiary

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2006 and December 31, 2005 (Restated)

In addition, we recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $ 47,850 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

In April, 2003, The Company issued three convertible debentures for an aggregate amount of $125,000, with simple interest accruing at the annual rate of 10%. The debentures are collateralized by substantially all of the company's assets. The debentures are in default as they were due March 31, 2004. Quarterly interest was not paid and accordingly accrued interest of $15,834 is included in the condensed consolidated financial statements.

The Company also issued common stock purchase warrants for the right to purchase 375,000 shares of common stock of the Company at an exercise price per share equal to $0.01. The estimated fair value of the warrants was zero. Debt issuance costs of $20,844 were also amortized on a straight-line basis over the term of the debentures. Amortization expense during 2004 was $38,591 and the costs were fully amortized as of December 31, 2004.

In addition, we recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $ 68,250 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

In October, 2003, the Company issued two convertible debentures for an aggregate amount of $165,000, with simple interest accruing at the annual rate of 12%. The debentures are collateralized by substantially all of the company's assets. The debentures are in default as they were due October 1, 2004. Quarterly interest was not paid and accordingly accrued interest of $25,988 is included in the condensed consolidated financial statements.

The holders have the right to convert the principal amount and interest due under the debentures into shares of the Company's common stock. The conversion price in effect on any Conversion Date shall be the lesser of (1) $.005 or (2) 40% 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 debenture holders also received warrants to purchase 1,505,000 shares at an exercise price of $0.01 per share. The estimated fair value of the warrants was zero. Amortization expense during 2004 was $147,469 and the costs were fully amortized as of December31, 2004.

In addition, we recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $ 326,733 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

-12-

Digital Descriptor Systems, Inc. and Subsidiary

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2006 and December 31, 2005 (Restated)

In November, 2003, the Company issued two convertible debentures for an aggregate amount of $45,000, with simple interest accruing at the annual rate of 10%. The debentures are in default as they were due November 27, 2004. Quarterly interest was not paid and accordingly accrued interest of $9,453 is included in the condensed consolidated financial statements.

The Company also issued common stock purchase warrants for the right to purchase 315,000 shares of common stock of the Company at an exercise price per share equal to $0.01. The estimated fair value of the warrants was zero. Amortization expense during 2004 was $47,469 and the costs were fully amortized as of December 31, 2004.

In addition, we recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $ 72,572 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

In December, 2003, the Company issued three convertible debentures for an aggregate amount of $45,000, with simple interest accruing at the annual rate of 12%. The debentures are collateralized by substantially all of the company's assets. These debentures are in default as they were due by December 3, 2004. Quarterly interest was not paid and accordingly accrued interest of $5,694 is included in the condensed consolidated financial statements.

The Company also issued common stock purchase warrants for the right to purchase 750,000 shares of common stock of the Company at an exercise price per share equal to $0.01. The estimated fair value of the warrants was zero. Amortization expense during 2004 was $42,349 and the costs were fully amortized as of December 31, 2004.

In addition, we recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $ 72,527 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

In February, 2004, the Company issued two convertible debentures for an aggregate amount of $45,000, with simple interest accruing at the annual rate of 12%. The debentures are collateralized by substantially all of the company's assets. These debentures are due in February, 2005. Quarterly interest was not paid and accordingly accrued interest of $4,906 is included in the condensed consolidated financial statements.

-13-

Digital Descriptor Systems, Inc. and Subsidiary

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2006 and December 31, 2005 (Restated)

The holders have the right to convert the principal amount and interest due under the debentures into shares of the Company's common stock. The conversion price in effect on any conversion date shall be the lesser of (1) $.005 or (2) 67% of the average of the lowest three inter-day sales prices of the common stock during the twenty trading days immediately preceding the applicable conversion date. In addition the debenture holders also received warrants to purchase 315,000 shares at an exercise price of $0.005 per share anytime before February 28, 2009. The estimated fair value of the warrants was $504, which was also recorded as a debt discount. The total debt discount is being amortized on a straight line basis which approximates the effective interest method, over the life of the note. $20,317 of this amount was charged to interest expense during 2004. Additional costs of $12,819 incurred with the issuance of the convertible debentures were recorded as deferred financing cost and are being amortized on a straight-line basis, which approximates the effective interest method, over the term of the debentures. Unamortized costs as of December 31, 2004 amounted to $1,068.

In addition, we recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $172,265 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

In May, 2004, the Company issued four convertible debentures for an aggregate amount of $250,000, with simple interest accruing at the annual rate of 12%. The debentures are collateralized by substantially all of the company's assets. These debentures are due in May 2005. Quarterly interest was not paid and accordingly accrued interest of $19,555 is included in the condensed consolidated financial statements.

The holders have the right to convert the principal amount and interest due under the debentures into shares of the Company's common stock. The conversion price in effect on any conversion date shall be the lesser of (1) $.005 or (2) 67% of the average of the lowest three inter-day sales prices of the common stock during the twenty trading days immediately preceding the applicable conversion date. In addition the debenture holders also received warrants to purchase 750,000 shares at an exercise price of $0.005 per share anytime before May 31, 2009. The estimated fair value of the warrants was $5,175, which was also recorded as a debt discount. The total debt discount is being amortized on a straight line basis which approximates the effective interest method, over the life of the note. $35,911 of this amount was charged to interest expense during 2004.

Additional costs of $55,244 incurred with the issuance of the convertible debentures were recorded as deferred financing cost and are being amortized on a straight-line basis, which approximates the effective interest method, over the term of the debentures. Unamortized costs as of December 31, 2004 amounted to $36,829.

In addition, we recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $327,750 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

In November, 2004, the Company issued four convertible debentures for an aggregate amount of $3,500,000, with simple interest accruing at the annual rate of 12%. The debentures are collateralized by substantially all of the company's assets. These debentures are due in November, 2005. Quarterly interest was not paid and accordingly accrued interest of $36,151 is included in the condensed consolidated financial statements.

The holders have the right to convert the principal amount and interest due under the debentures into shares of the Company's common stock. The conversion price in effect on any conversion date shall be the lesser of (1) $.0005 or (2) 67% of the average of the lowest three inter-day sales prices of the common stock during the twenty trading days immediately preceding the applicable conversion date. In addition the debenture holders also received warrants to purchase 10,500,000 shares at an exercise price of $0.005 per share anytime before November 30, 2009. The estimated fair value of the warrants was $5,250, which was also recorded as a debt discount. The total debt discount is being amortized on a straight line basis which approximates the effective interest method; over the life of the note $71,828 of this amount was charged to interest expense during 2004.

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Digital Descriptor Systems, Inc. and Subsidiary

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2006 and December 31, 2005 (Restated)

Additional costs of $391,569 with the issuance of the convertible debentures were recorded as deferred financing cost and are being amortized on a straight-line basis which approximates the effective interest method, over the term of the debentures. Unamortized costs as of December 31, 2004 amounted to $376,509.

In addition, we recorded a derivative liability related to this convertible debenture. The initial fair market value of the conversion option in the amount of $ 2,519,300 was recorded as a debt discount and is being amortized over the stated maturities of the notes using the effective interest method. The fair market value of the conversion feature is also shown as a derivative liability on the company’s balance sheet and is being adjusted to fair market value each reporting period with the change being reported as “other income and expenses” in the statement of operations.

In 2005 the Company converted $643,340 of accrued interest into convertible debentures; $97,402 was recorded as debt discount. In March 2005, $513,431 was repaid on convertible debentures.

In 2006 the Company converted $536,546 of accrued interest into convertible debentures; $310,124 was recorded as debt discount.

Note 5 - Deferred Financing Costs

Deferred financing costs represent cost incurred in connection with the issuance of the convertible debentures. Deferred financing costs are being amortized over the life of the convertible debentures on the straight-line basis, which approximates the effective interest method. The net financing costs were $0 and $264,438 for the years ended December 31, 2006 and December 31, 2005, as restated, respectively.

Note 6 - Income Taxes

At December 31, 2006, the Company had federal net operating loss carryforwards of approximately $16,500,000 to offset future federal taxable income expiring in various years through 2026. The Company also has state net operating loss carryforwards in various states, which approximate the federal amount to offset future state taxable income expiring in various years, generally 7 to 10 years following the year the loss was incurred.

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

The differences between income tax provisions in the financial statements and the tax expense (benefit) computed at the U.S. Federal Statutory rate are as follows:

	Year Ended December 31,
		2006		2005
Tax provision at the U. S. Federal Statutory rate		34	%	34	%
Valuation allowance		(34	)%	(34	)%
Effective tax rates		—	%	—

The tax effects of temporary differences that give rise to significant portions of deferred tax assets at December 31, 2006 and December 31, 2005 follows:

		2006			2005
Deferred tax asset
Net approximate operating loss carry forward	$	5,515,473		$	5,748,727
Bad debt reserves		—			—
Deferred tax assets		5,515,473			5,748,727
Valuation allowance		(5,515,473	)		(5,748,727	)
Net deferred tax asset	$	—		$	—

Note 7 - Commitments and Contingencies

Operating Lease

The Company rents office facilities under a rental agreement that is automatically renewable every four months. The most recent renewal period will expire in April 2007.

Rental expense under such operating lease was approximately $36,547 and $32,790 during the years ended December 31, 2006 and 2005, respectively.

CGM leases two facilities, one in Somerset NJ and the other in Staten Island New York under non-cancelable lease agreements that end in December 2007 and December 2008, respectively.

Rental expense under such operating leases was approximately $122,026 and $81,595 during the years ended December 31, 2006 and 2005, respectively.

Employment Agreements

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Digital Descriptor Systems, Inc. and Subsidiary

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2006 and December 31, 2005 (Restated)

Note 8 - Stock Option and Other Plans

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

The following is a summary of option activity under all plans:

	1994 Plan		1996 Director Plan		Nonqualified		Total Number of Options		Weighted Average Exercise Price
Outstanding at December 31, 2005		33,000		—		—		33,000	$	.10 - $.365
Outstanding at December 31, 2006		33,000						33,000	$	.10-.365

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 would result in the same amounts reported.

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Digital Descriptor Systems, Inc. and Subsidiary

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2006 and December 31, 2005 (Restated)

Note 9 - Contingency

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

On October 16, 2003, a judgment was entered against the Company by its landlord, BT Lincoln L.P. for breach of lease in the amount of $184,706.76.

Note 10- Related Parties

As of December 31, 2006 and December 31 2005, the Company owes its Directors $0.

Note 11 - Purchase of CGM Applied Security Technology, Inc.

On March 1, 2005, the Company acquired substantially all of the assets of CGM Security Solutions, Inc., a Florida corporation (“CGM”), for (i) $1,500,000 in cash and (ii) a 2.86% promissory note (the “Note”) in the principal amount of $3,500,000, subject to adjustment (the “Acquisition”). The assets of CGM were acquired pursuant to an Asset Purchase Agreement among the Company and CGM dated as of February 25, 2005. In connection with the acquisition, the Company and CGM each entered into an employment agreement with Erik Hoffer (the “Employment Agreement”). CGM is a manufacturer and distributor of barrier security seals, security tapes and related packaging security systems, protective security products for palletized cargo, and physical security systems for tractors, trailers and containers.

The principal amount of the Note is subject to adjustment based upon the average of (i) the gross revenues of CGM for the fiscal year ending December 31, 2007 and (ii) an independent valuation of CGM Sub based upon the consolidated audited consolidated financial statements of the Company and CGM Sub for the fiscal years ending December 31, 2006 and 2007. In addition, the Company has granted CGM a secondary security interest in substantially all of its assets and intellectual property.

In connection with the Acquisition, the Company entered into a letter agreement with certain of its investors (the “Investors”) which extended the maturity date of debt instruments issued on November 30, 2004 until March 1, 2008, and amended the conversion price of the debt that is held by the Investors to the lower of (i) $0.0005 or (ii) 40% of the average of the three lowest intraday trading prices for the Company’s common stock during the 20 trading days before, but not including, the conversion date. In addition, the exercise price of the warrants held by the Investors was amended to $.001 per share.

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Note 12 - Going Concern

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has sustained operating losses and has accumulated large deficits for the years ended December 31, 2006 and 2005. These factors raise substantial doubt about its ability to continue as a going concern.

Management has formulated and is in the process of implementing its business plan intended to develop steady revenues and income, as well as reducing expenses in the areas of operations. This plan includes the following management objectives:

·	Soliciting new customers in the U.S.

·	Expanding sales in the international market

·	Expanding sales through E-commerce

·	Adding new distributor both in the U.S and internationally

·	The introduction of new products into the market

·	Seeking out possible merger candidates

Presently, the Company cannot ascertain the eventual success of management’s plan with any degree of certainty. The accompanying consolidated financial statements do not include any adjustments that might result from the eventual outcome of the risks and uncertainties described above.

Note 13 - Restatement 2005

The company restated its financial statements for the year ended December 31, 2005. The company increased its (net loss) by ($1,639,849). The company originally did not amortize the debt discount correctly which has now been corrected. This adjustment was for $1,285,828. Additionally the company corrected a misposting in its books of $354,021 from change in accrued interest to interest expense. These errors were found through the company’s internal controls and procedures.

	As Reported			As Restated


Total Assets	$	6,212,339		$	6,212,339
Accrued Interest		814,408			1,168,429
Convertible debenture, net of debt discount		1,727,210			2,881,888
Total Current Liabilities		9,912,338			11,421.037
Long Term
Convertible debenture, net of debt discount		1,506,629			1,637,779
Total Liabilities		14,918,967			16,558,816

Accumulated deficit		(25,504,957	)		(27,144,806	)
Total Shareholders Impairment		(8,706,628	)		(10,346,477	)
Total Liabilities and Shareholders Impairment		6,212,339			6,212,339

Interest		(1,472,941	)		(1,826,962	)
Amortization of debt discount		(428,566	)		(1,714,394	)
Total Other Income and (Expenses)		(2,089,006	)		(3,728,855	)
Net Loss		(2,309,172	)		(3,949,021	)

Net loss per share		(.00	)		(.00	)

Note 14 - Subsequent Event

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