-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ll83MF0upLSIt251QazQeHK7fRNWEe7/S/+hKtTd4YMGEicr3ATy+cE6Z0Wt9IOw OmEFswvy7a6vWGdVq8pmAQ== 0001144204-04-006611.txt : 20040514 0001144204-04-006611.hdr.sgml : 20040514 20040514123607 ACCESSION NUMBER: 0001144204-04-006611 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIGITAL DESCRIPTOR SYSTEMS INC CENTRAL INDEX KEY: 0000927454 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 232770048 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26604 FILM NUMBER: 04805747 BUSINESS ADDRESS: STREET 1: 2010F CABOT BLVD WEST CITY: LANGHORNE STATE: PA ZIP: 19047 BUSINESS PHONE: 2157520963 MAIL ADDRESS: STREET 1: 2010 F CABOT BLVD WEST CITY: LANGHORNE STATE: PA ZIP: 19047 10QSB 1 v03297_10qsb.txt FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2004 -------------- OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________ Commission file number 0-21384 Digital Descriptor Systems, Inc. (Exact name of registrant as specified in its charter) Delaware 23-2770048 - ------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 2150 Highway 35, Sea Girt, New Jersey 08750 -------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's Telephone number, including area code: (732) 359-0260 -------------- ---------------------------------------------------------------------------- (former, name, address and former fiscal year, if changed since last report) 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 State the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. Outstanding at Class of Common Stock May 14, 2004 --------------------- ------------------ $.001 par value 145,958,423 Shares Transitional Small Business Disclosure Format Yes ___ No _X_ -1- FORM 10-QSB Securities and Exchange Commission Washington, D.C. 20549 DIGITAL DESCRIPTOR SYSTEMS, INC. Index PART I - FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets at March 31, 2004 (Unaudited) and December 31, 2003 Statements of Operations for the three months ended March 31, 2004 and 2003 (Unaudited) Statements of Cash Flows for the three months ended March 31, 2004 and 2003 (Unaudited) Notes to Financial Statements - March 31, 2004 (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3. Control and Procedures PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K -2- SIGNATURES -3- PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS DIGITAL DESCRIPTOR SYSTEMS, INC. BALANCE SHEETS
March 31 December 31 2004 2003 ---------- ---------- (Unaudited) ASSETS Current assets: Cash $ 60,973 $ 51,264 Restricted cash 569 593 Accounts receivable, less allowance for uncollectible accounts of $37,618 (unaudited) and $46,841 in 2004 and 2003, respectively 73,144 136,329 Prepaid expenses 61,240 63,600 Debt discount and deferred financing costs 212,006 300,430 ---------- ---------- Total current assets 407,932 552,216 Deposits and other assets 1,730 1,730 ---------- ---------- Total assets $ 409,662 $ 553,946 LIABILITIES AND SHAREHOLDERS' DEFICIENCY Current liabilities: Accounts payable $ 223,241 $ 214,771 Accrued expenses 291,521 306,029 Accrued interest 418,415 353,214 Due to officer and director 16,290 55,620 Deferred income 339,597 382,878 Convertible debentures 1,891,337 1,846,837 ---------- ---------- Total current liabilities 3,180,401 3,159,349 Total liabilities $3,180,401 $3,159,349 ---------- ----------
-4- DIGITAL DESCRIPTOR SYSTEMS, INC. BALANCE SHEETS (continued)
March 31 December 31 2004 2003 ------------ ------------ (Unaudited) Shareholders' deficiency: Preferred Stock, $.01 par value, authorized shares - 1,000,000; issued and outstanding - none -- -- Common Stock, $.001 par value, authorized shares - 150,000,000; issued and outstanding shares - 145,958,423 and 115,958,423 at March 31, 2004 and December 31, 2003, respectively 145,958 115,958 Additional paid-in capital 17,684,600 17,627,600 Accumulated deficit (20,601,297) (20,348,961) ------------ ------------ Total shareholder's deficiency (2,770,739) (2,605,403) ------------ ------------ Total liabilities and shareholders' deficiency $ 409,662 $ 553,946 ============ ============
The accompanying notes are an integral part of these financial statements. -5- DIGITAL DESCRIPTOR SYSTEMS, INC. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended ------------------------------- March 31 March 31 2004 2003 ------------- ------------- Revenues: Software $ 20,089 $ 52,225 Hardware 3,917 47,401 Maintenance 78,100 96,181 Other 997 14,891 ------------- ------------- 103,102 210,698 Costs and expenses: Cost of revenues 4,948 23,226 General and administrative 114,793 164,472 Sales and marketing 18,807 58,947 Research and development 9,318 21,329 Depreciation and amortization -- 3,597 Interest and amortization of deferred debt costs 211,445 83,260 Other (income) expense, net (3,873) (15,146) ------------- ------------- 355,438 339,685 ------------- ------------- Net loss $ (252,336) $ (128,987) ============= ============= Net loss per common share $ (0.00) $ (0.01) ============= ============= (basic and diluted) Weighted average number of common shares outstanding: Basic and diluted 143,980,401 73,268,847
The accompanying notes are an integral part of these financial statements -6- DIGITAL DESCRIPTOR SYSTEMS, INC. STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended ----------------------- March 31 March 31 2004 2003 --------- --------- Cash flows from operating activities: Net loss ($252,336) ($128,987) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization -- 3,597 Amortization of deferred financing costs and debt discounts related to the issuance of warrants and the beneficial conversion feature of convertible debentures 146,244 43,070 Changes in operating assets and liabilities: Accounts receivable 63,185 (107,011) Inventory -- (10,044) Prepaid expenses, deposits and other assets 2,360 1,717 Accounts payable 8,469 (86,113) Accrued expenses (14,508) (75,627) Accrued interest 65,201 40,143 Deferred income (43,280) 57,539 --------- --------- Net cash used in operating activities (24,665) (261,714) --------- --------- Cash flows from investing activities: Increase in restricted cash 24 23 --------- --------- Net cash provided in investing activities 24 23 Cash flows from financing activities: Proceeds from issuance of convertible debentures 31,680 297,406 Due to officer and director 2,670 -- Repayment of equipment loan -- (1,816) --------- --------- Net cash provided by financing activities 34,350 295,590 --------- --------- Net increase in cash 9,709 33,899 Cash at beginning of period 51,264 15,439 --------- --------- Cash at end of period $ 60,973 $ 49,338
-7- DIGITAL DESCRIPTOR SYSTEMS, INC. STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended ----------------------- March 31 March 31 2004 2003 --------- ---------- Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ -- $ 46 ========= ========== Income Taxes $ 1,664 $ -- ========= ========== Supplemental disclosure of non-cash investing and financial activities: Debt discount relating to the issuance of warrants and the beneficial conversion features of convertible debt $ 45,000 $ -- ========= ========== Conversion of debentures $ -- $ 2,600 ========= ========== Conversion of outstanding compensation expense related to officer and director into common stock $ 42,000 $ -- ========= ==========
The accompanying notes are an integral part of these financial statements -8- DIGITAL DESCRIPTOR SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) March 31, 2004 1. 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 text and store the images and text on a computer database and transmit this information to remote locations. The principal product of the Company is the Compu-Capture Law Enforcement Program, which is marketed to law enforcement agencies and jail facilities and generated the majority of the Company's revenues during the quarters ended March 31, 2004 and 2003. Substantially all of the Company's revenues are derived principally from U.S. government agencies. 2. BASIS OF PRESENTATION The financial statements and disclosures included herein for the three months ended March 31, 2004 are unaudited. These financial statements and disclosures have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of adjustments of a normal and recurring nature) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2004 and 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. Our independent auditor has added an explanatory paragraph to the audit opinion issued in connection with the fiscal year 2003 financial statements, which states that our ability to continue as a going concern depends upon our ability to resolve liquidity problems, principally by obtaining capital, commencing sales and generating sufficient revenues to become profitable. Our ability to obtain additional funding will determine our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. 3. CONVERTIBLE DEBENTURES 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 and (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. 4. RELATED PARTY TRANSACTIONS A director to the Company provided consulting services during 2003. For the year ended December 31, 2003 the services amounted to $51,980. For the period ended -9- March 31, 2004 the Company owes the director $1,200 for auto allowance. As of March 31, 2004, the company owes the director $4,030 with no repayment terms. The Company also owes the former chief executive officer of the Company $12,260 at March 31, 2004, for back payroll and sundry expenses with no repayment terms. During the period ended March 31, 2004 the Company paid the former chief executive officer for consulting services the sum of $13,000. Issuance of 30,000,000 shares of common stock was executed January 7, 2004, to satisfy partial payment relating to the outstanding debt for services and accrued payroll provided and owed to the above mentioned director and officer from prior years. 5. SUBSEQUENT EVENTS On May 7, 2004, DDSI issued four convertible debentures for an aggregate amount of $250,000, with simple interest accruing at the annual rate of 12%. The debentures are due May 7, 2006. Interest payable on the Debentures shall be paid quarterly commencing June 30, 2004. The holders shall have the right to convert the principal amount and interest due under the debentures into shares of DDSI's common stock. The conversion price in effect on any Conversion Date shall be the lesser of (1) $.0045 and (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. -10- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors that will have affected our financial condition and results of operations. Certain statements under this section may constitute "forward-looking statements". The following discussion should be read in conjunction with our financial statements and notes thereto included in this report. Critical Accounting Policies No material changes have occurred in the disclosure with respect to our critical accounting policies set forth in our Annual Report form 10-KSB for the fiscal year ended December 31, 2003. General Financial Condition We had net losses of $252,336 and $128,987 during the three months ended March 31, 2004 and 2003, respectively. As of March 31, 2004, we had a cash balance in the amount of $60,973 and current liabilities of $3,180,401 including obligations of $16,290 and $1,891,337 to officers and convertible debenture holders, respectively. We do not have sufficient cash or other assets to meet our current liabilities. In order to meet those obligations, we will need to raise cash from the sale of securities or from borrowings. Our independent auditors have added an explanatory paragraph to their audit opinions issued in connection with the fiscal years 2004 and 2003 financial statements, which states that our ability to continue as a going concern depends upon our ability to resolve liquidity problems, principally by obtaining capital, commencing sales and generating sufficient revenues to become profitable. Our ability to obtain additional funding will determine our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. Plan of Operations The short-term objective of DDSI is the following: o To continue to expand the sale and acceptance of its core solutions by upgrading software and offering new synergistic biometric (a measurable, physical characteristic or personal behavioral trait used to recognize the identity, or verify the claimed identity, of an individual) (i.e. FMS) security products to its installed base in the Public Safety and Security market. DDSI's objective is to expand with these, and additional products, into much larger commercial and federal markets. DDSI is also adding additional product lines as a Value Added Reseller. Technologies related to DDSI's core business can bring additional cashflow with relatively small internal development capital outlay. -11- DDSI's long-term objective is as follows: o To seek additional products to sell into its basic business market - Public Safety and Security - 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 2005. Over the next twelve months, management is of the opinion that sufficient working capital will be obtained from operations and external financing to meet the Company's liabilities and commitments as they become payable. The Company 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. DDSI is doing the following in its effort to reach profitability: o Cut costs in areas that add the least value to DDSI. o Upgrading its present core Compu-Capture(R) products to include a fully scalable database and ANSI/NIST capability. o Derive funds through investigating business alliances with other companies who may wish to license the FMS SDK (software developer's kit). o Increase revenues through the introduction of Compu-Capture(R), specifically towards the education market for the creation of ID cards. o Increase revenues through the introduction of a scaled down version of our Compu-Capture(R) product. o Increase revenues through the addition of innovative technologies as a Value Added Reseller. Results of Operations Three Months Ended March 31, 2004 Compared to the Three Months Ended March 31, 2003 Revenues for the three months ended March 31, 2004, of $103,102 decreased $107,596 or 51% from the three months ended March 31, 2003. The Company generates its revenues through software licenses, hardware, post customer support arrangements and other services. The decrease in the Company's revenue is attributed to a decrease in software maintenance contract dollar amount, a loss in client base, a reduction in sales and marketing staff and the lack of new product offerings to their clients. Cost of goods decreased $18,278 or 79% and was reduced to 5% of total revenues from 11% in the same period a year earlier. Costs and expenses increased $15,754 or 5% during the three months ended March 31, 2004, versus the three months ended March 31, 2003. The increase in interest and amortization of deferred debt cost of $128,185 was offset by the combined reduction in expenses for all other areas of ($112,433) for the three months ended March 31, 2004 as compared to 2003. The expense for the general and administration department decreased ($49,679), sales and marketing department decreased ($40,140), research and development decreased ($12,011), depreciation expense decreased ($3,597) and miscellaneous income decreased ($11,273) for the -12- three months ended March 31, 2004 as compared to 2003. In keeping with the goal to streamline costs yet achieve a working product, the Company is re-evaluating its' current development strategy and resources resulting in a cutback of expenses. General and Administrative expenses for the three month period ending March 31, 2004, was $114,793 versus $164,472 for the same period prior year for a decrease of $49,679 or 30%. This decrease was mainly attributable to a decrease in salaries and related payroll expenses of ($18,417), rent of ($14,832), telephone expense of ($5,736), filing fees ($9,032) and miscellaneous items for ($1,662). Sales and Marketing expenses decreased $40,140 for the three months period ended March 31, 2004, from $58,947 (2003) to $18,807 (2004) or a 68% decrease. This decrease was mainly attributable to a decrease in professional consulting of ($21,700), a decrease in salaries, commissions, benefits and payroll taxes in the aggregate of ($19,516), and an increase in miscellaneous items for $76. Research and development for the three months ended March 31, 2004, was $9,318 compared to $22,329 for the same period prior year for a decrease of $12,011. The decrease was due to the decline in salaries, benefits and payroll taxes in the aggregate of ($10,739) and a decline in miscellaneous expense ($1,272). The net loss for the Company increased 96% for the three months ending March 31, 2004, to $252,336 from $128,987 for the three months ending March 31, 2003. This was principally due to the increase in interest and amortization of deferred debt cost during the period. Liquidity and Capital Resources The Company's revenues have been insufficient to cover the cost of revenues and operating expenses. Therefore, the Company has been dependent on private placements of its Common Stock and issuance of convertible notes in order to sustain operations. In addition, there can be no assurances that the proceeds from private placements or other capital will continue to be available, or that revenues will increase to meet the Company's cash needs, or that a sufficient amount of the Company's Common Stock or other securities can or will be sold or that any Common Stock purchase options/warrants will be exercised to fund the operating needs of the Company.
- ------------------------------------------------------------------------------------------------ Contractual Obligations Total One Year or Less More Than One Year - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Due to Related Parties $ 16,290 $ 16,290 $ 0 - ------------------------------------------------------------------------------------------------ Notes Payable - Related Parties 0 0 0 - ------------------------------------------------------------------------------------------------ Convertible Debentures 1,891,337 1,891,337 0 - ------------------------------------------------------------------------------------------------ Accounts Payable and Accrued Expenses 1,272,774 1,272,774 0 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Total Contractual Obligations $ 3,180,401 $ 3,180,401 $ 0 - ------------------------------------------------------------------------------------------------
Below is a discussion of our sources and uses of funds for the three months ended March 31, 2004 and 2003. -13- Net Cash Used in Operating Activities Net cash used in operating activities for the three months ended March 31, 2004 and 2003 was ($24,665) and ($261,714), respectively. The decrease in cash used from operating activities in the three months ended March 31, 2004 versus 2003 of $237,049 was principally due to the decrease in net operating costs for the three months. Net Cash Provided By Investing Activities Net cash provided by investing activities three months ended March 31, 2004 and 2003 was $24 and $23 respectively, reflecting a change of $1. This reflected no significant change in restricted cash. Net Cash Provided By Financing Activities Net cash provided by financing activities was $34,350 and $295,590 for the three months ended March 31, 2004 and 2003, respectively, reflecting a decrease of $261,240. This is primarily due to a decrease in receipt of proceeds from issuance of convertible debentures in the amount of ($330,000) net of issuance costs of ($64,774). ITEM 3. CONTROL AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Within the 90 days prior to March 31, 2004, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done under the supervision and with the participation of the Company's President and Chief Financial Officer. Based upon that evaluation, they concluded that the Company's disclosure controls and procedures are effective in gathering, analyzing and disclosing information needed to satisfy the Company's disclosure obligations under the Exchange Act. (b) Changes in Internal Controls There were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls during the quarter covered by this Report or from the end of the reporting period to the date of this Form 10-QSB. -14- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On October 16, 2003, in the Court of Common Please 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 Company intends to negotiate a settlement. The liability, net of the security deposit, is included in accrued expense at March 31, 2004. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 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 and (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 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 and (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 January 10, 2003, DDSI issued three convertible debentures for an aggregate amount of $250,000, with simple interest accruing at the annual rate of 10%. These debentures are due January 10, 2004. Interest payable on the Debentures shall be paid quarterly commencing March 31, 2003. The holders shall have the right to convert the principal amount and interest due under the debentures into shares of DDSI's common stock. The conversion price in effect on any Conversion Date shall be the lesser of (1) $.01 and (2) 50% of the average of the lowest three inter-day sales prices of the common stock during the twenty Trading Days immediately preceding the applicable Conversion Date. During February 2003, $1,000 of the convertible debentures issued in December 2001 was converted into 2,857,142 shares of common stock. On February 27, 2003, DDSI issued three convertible debentures for an aggregate amount of $125,000, with simple interest accruing at the annual rate of 10%. The debentures are due February 27, 2004. Interest payable on the Debentures shall be paid quarterly commencing March 31, 2003. The holders shall have the right to -15- convert the principal amount and interest due under the debentures into shares of DDSI's common stock. The conversion price in effect on any Conversion Date shall be the lesser of (1) $.01 and (2) 50% of the average of the lowest three inter-day sales prices of the common stock during the twenty Trading Days immediately preceding the applicable Conversion Date. In March 2003, $1,600 of the convertible debentures issued in December 2001, was converted into 8,000,000 shares of common stock. Additionally, accrued interest relating to the note dated May 2001 was converted into an additional 1,820,634 shares of common stock. On April 2, 2003, DDSI issued three convertible debentures for an aggregate amount of $125,000, with simple interest accruing at the annual rate of 12%. The debentures are due March 31, 2004. Interest payable on the Debentures shall be paid quarterly commencing June 30, 2003. The holders shall have the right to convert the principal amount and interest due under the debentures into shares of DDSI's common stock. The conversion price in effect on any Conversion Date shall be the lesser of (1) $.01 and (2) 50% of the average of the lowest three inter-day sales prices of the common stock during the twenty Trading Days immediately preceding the applicable Conversion Date. In April 2003, $1,130 of the convertible debentures issued in March 2001, was converted into 5,650,000 shares of common stock. Also in April $470 of the convertible debentures issued in September 2001, were converted into 2,350,000 of common stock. In addition 6,000,000 shares of common stock were converted for liquidated damages relating to the notes issued December 2001. During May 2003, $1,600 of the convertible debentures issued in September 2001, was converted into 8,000,000 shares of common stock. Additionally, liquidated damages relating to the notes issued December 2001, were converted into 4,450,000 shares of common stock. In June 2003, $1,093 of the convertible debentures issued in September 2001, was converted into 5,468,010 shares of common stock. Additionally, liquidated damages relating to the notes issued December 2001, were converted into 1,011,250 shares of common stock. On October 1, 2003, we entered into a Securities Purchase Agreement, with two accredited investors that provides for the issuance of convertible notes payable up to an aggregate face value of $300,000 and warrants to acquire up to an aggregate 2,100,000 shares of our common stock. The agreement provides for the funding of the notes in three tranches, of which the first, amounting to $165,000 with 1,115,000 warrants were issued October 1, 2003. On the final business day of each of the three (3) months beginning in October 2003 and ending in December 2003, the Company will issue and sell to the investors an aggregate of $45,000 principal amount of convertible notes and warrants to purchase an aggregate of 315,000 shares. The convertible notes are due one year from the date of issuance. Interest payable on the convertible notes shall be paid quarterly commencing December 30, 2003. 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) $.01 and (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 -16- applicable conversion date. The warrants have an exercise price of $0.005 and expire on September 30, 2008. ITEM 3. DEFAULTS UPON SENIOR SECURITIES: None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During February 2004, the Company filed a Preliminary Proxy Statement with the U. S. Securities and Exchange Commission in order to increase the authorized shares of common stock to 10,000,000,000 from 150,000,000. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits Exhibit 31.1 Certification by Chief Executive Officer and Chief Financial Officer pursuant to Sarbanes-Oxley Section 302: Exhibit 32.1 Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C., Section 1350 -17- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DIGITAL DESCRIPTOR SYSTEMS, INC. (Registrant) Date: May 14, 2004 By: /s/ ANTHONY SHUPIN ------------------------------------ Anthony Shupin (President, Chief Executive Officer, Acting Chief Financial Officer and Director) Date: May 14, 2004 By: /s/ MICHAEL J. PELLEGRINO ------------------------------------ Michael J. Pellegrino (Director - Chairman) Date: May 14, 2004 By: /s/ VINCENT MORENO ------------------------------------ Vincent Moreno. (Director) Date: May 14, 2004 By: /s/ ROBERT GOWELL. ------------------------------------ Robert Gowell (Director) -18- EX-31.1 2 v03297_ex31-1.txt EXHIBIT 31.1 DIGITAL DESCRIPTOR SYSTEMS, INC. OFFICER'S CERTIFICATE PURSUANT TO SECTION 302 I, Anthony Shupin, the President, Chief Executive Officer, Acting Chief Financial Officer and Director of Digital Descriptor Systems, Inc., certify 1) I have reviewed this Form 10-QSB of Digital Descriptor Systems, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4) The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by other within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5) The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design of operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: May 14, 2004 /s/ Anthony Shupin - ----------------------------- Anthony Shupin President, CEO and Acting CFO EX-32.1 3 v03297_ex32-1.txt EXHIBIT 32.1 DIGITAL DESCRIPTOR SYSTEMS, INC. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Digital Descriptor Systems, Inc. (the "Company") on Form 10-QSB for the period ended March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Anthony Shupin, President, Chief Executive Officer, Acting Chief Financial Officer and Director of the Company, certify, pursuant to 18 U.S.C., ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complied with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 2934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to Digital Descriptor Systems, Inc. and will be retained by Digital Descriptor Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Date: May 14, 2004 /s/ Anthony Shupin - -------------------------------- Anthony Shupin President, Chief Executive Officer, Acting Chief Financial Officer and Director -----END PRIVACY-ENHANCED MESSAGE-----