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 September 30, 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 October 29, 2004
--------------------- ------------------
$.001 par value 210,716,359 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 September 30, 2004 (Unaudited) and December 31,
2003
Statements of Operations (Unaudited) for the nine months and three
months ended September 30, 2004 and 2003
Statements of Cash Flows (Unaudited) for the nine months ended
September 30, 2004 and 2003 (Unaudited)
Notes to Financial Statements - September 30, 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
SIGNATURES
- 2 -
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
DIGITAL DESCRIPTOR SYSTEMS, INC.
BALANCE SHEETS
September 30 December 31
2004 2003
---------- ----------
(Unaudited)
ASSETS
Current assets:
Cash $ 43,766 $ 51,264
Restricted cash 521 593
Accounts receivable, less allowance for uncollectible
accounts of $21,365 (unaudited) and $46,841 in
2004 and 2003, respectively 77,873 136,329
Prepaid expenses 57,050 63,600
Debt discount and deferred financing costs 279,610 300,430
---------- ----------
Total current assets 458,820 552,216
Deposits 1,730 1,730
---------- ----------
Total assets $ 460,550 $ 553,946
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 156,539 $ 214,771
Accrued expenses 250,512 306,029
Accrued interest 567,062 353,214
Due to officer and director 11,631 55,620
Deferred income 312,384 382,878
Convertible debentures 1,879,237 1,846,837
---------- ----------
Total current liabilities 3,177,365 3,159,349
Other liabilities
Convertible debentures due May 2006 250,000 --
Total liabilities $3,427,365 $3,159,349
---------- ----------
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DIGITAL DESCRIPTOR SYSTEMS, INC.
BALANCE SHEETS (continued)
September 30 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 -
9,999,000,000; issued and outstanding shares - 188,180,625 at
September 30, 2004; authorized shares - 150,000,000; issued and
outstanding shares - 115,958,423, at December 31, 2003 188,180 115,958
Additional paid-in capital 17,910,678 17,627,600
Accumulated deficit (21,065,673) (20,348,961)
------------ ------------
Total shareholder's deficiency (2,966,815) (2,605,403)
------------ ------------
Total liabilities and shareholders' deficiency $ 460,550 $ 553,946
============ ============
The accompanying notes are an integral part of these financial statements.
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DIGITAL DESCRIPTOR SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 30 September 30 September 30 September 30
2004 2003 2004 2003
------------- ------------- ------------- -------------
Revenues:
Software $ 8,501 $ 1,500 $ 33,588 $ 148,173
Hardware -- -- 3,917 55,177
Maintenance 62,567 88,396 209,757 293,537
Other -- 2,910 997 66,955
------------- ------------- ------------- -------------
71,068 92,806 248,259 563,842
Costs and expenses:
Cost of revenues (2,030) 22,422 2,937 141,530
General and administrative 58,355 85,295 305,756 593,974
Sales and marketing 10,851 33,295 48,320 152,472
Research and development 4,864 4,397 17,037 38,035
Depreciation and amortization -- 349 -- 6,097
Interest and amortization of
deferred debt costs 173,259 202,508 594,794 556,251
Other (income) expense, net -- -- (3,873) (61,872)
------------- ------------- ------------- -------------
245,299 348,266 964,971 1,426,487
------------- ------------- ------------- -------------
Net loss $ (174,231) $ (255,460) $ (716,712) $ (862,645)
============= ============= ============= =============
Net loss per common share $ (0.00) $ (0.00) $ (0.00) $ (0.01)
============= ============= ============= =============
(basic and diluted)
Weighted average number of common shares outstanding:
Basic and diluted 169,913,737 110,126,539 153,344,879 91,021,784
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements
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DIGITAL DESCRIPTOR SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30 September 30
2004 2003
------------ ------------
Cash flows from operating activities:
Net loss ($716,712) ($862,645)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization -- 6,096
Amortization of deferred financing costs and debt discounts
related to the issuance of warrants and the beneficial
conversion feature of convertible debentures 383,884 426,050
Bad debt expense (25,475) (6,833)
Changes in operating assets and liabilities:
Accounts receivable 83,933 (95,675)
Inventory -- 8,550
Prepaid expenses, deposits and other assets 6,550 118,701
Accounts payable (58,232) (79,533)
Accrued expenses (46,319) 118,427
Accrued interest 213,848 129,777
Accrued payroll and related withholdings -- (84,848)
Deferred income (70,494) (138,598)
--------- ---------
Net cash used in operating activities (229,017) (460,531)
Cash flows from investing activities:
Increase in restricted cash 72 63
--------- ---------
Net cash provided by investing activities 72 63
Cash flows from financing activities:
Proceeds from issuance of convertible debentures 226,335 393,042
Repayment of convertible debenture (3,500) --
Due to officer and director (1,990) 60,390
Repayment of equipment loan -- (3,028)
--------- ---------
Net cash provided by financing activities 221,447 450,404
--------- ---------
Net decrease in cash (7,498) (10,064)
Cash at beginning of period 51,264 15,439
--------- ---------
Cash at end of period $ 43,766 $ 5,375
========= =========
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DIGITAL DESCRIPTOR SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30 September 30
2004 2003
-------- --------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ 474
======== ========
Income Taxes $ 3,147 $ --
======== ========
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 $363,065 $393,042
======== ========
Conversion of debentures into common stock $ 9,100 $ 6,895
======== ========
Conversion of outstanding officer and director compensation
Expense into common stock and additional paid in capital $ 42,000 $ --
======== ========
Conversion of liquidated damages into common stock $ 9,200 $ 3,191
======== ========
The accompanying notes are an integral part of these financial statements
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DIGITAL DESCRIPTOR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 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 September 30, 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 nine months
ended September 30, 2004 and 2003 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 nine month periods ended September 30, 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 May 2004, the Company issued four convertible debentures for an aggregate
amount of $250,000 with simple interest at 12%. The debentures are due May 2006.
Interest shall be paid quarterly commencing June 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)
$.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.
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.
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4. RELATED PARTY TRANSACTIONS
For the year ended December 31, 2003, a director provided consulting services
amounting to $51,980. As of September 30, 2004, the company owes to the director
$3,630 for back consulting fees and sundry expenses with no repayment terms.
The Company also owes the former chief executive officer, who is presently a
director, $8,000 at September 30, 2004, for back payroll and sundry expenses
with no repayment terms. For the nine month period ended September 30, 2004, the
director provided consulting services amounting to $39,000.
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 directors for prior
year's services and expenses.
5. SUBSEQUENT EVENTS
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.
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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 $174,231 and $255,460 during the three months ended
September 30, 2004 and 2003, respectively. As of September 30, 2004, we had a
cash balance in the amount of $43,766 and current liabilities of $3,177,365
including obligations of $11,630 and $1,879,237 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 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.
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, though there is no
certainty that the monies expended on development will add any revenue to the
Company.
- 10 -
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
Nine Months Ended September 30, 2004 Compared to the Nine Months Ended September
30, 2003
Revenues for the nine months ended September 30, 2004, of $248,259 decreased
$315,583 or 56% from the nine months ended September 30, 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 revenue decreased $138,593 or
98% and was reduced to 1% of total revenues from 25% in the same period a year
earlier.
Costs and expenses decreased $461,516 or 32% during the nine months ended
September 30, 2004, versus the nine months ended September 30, 2003. The
increase in interest and amortization of deferred debt cost of $38,543 was
offset by the combined reduction in expenses for all other areas of $500,059 for
the nine months ended September 30, 2004 as compared to 2003. The costs
decreased $138,593, expenses for the general and administration department
decreased $288,218, sales and marketing department decreased $104,152, research
and development decreased $20,998, depreciation expense decreased $6,097 and
miscellaneous income decreased $57,999 for the nine months ended September, 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.
- 11 -
General and Administrative expenses for the nine month period ending September
30, 2004, was $305,756 versus $593,974 for the same period prior year for a
decrease of $288,219 or 49%. This decrease was mainly attributable to a decrease
in rent expense of $206,768, telephone expense of $23,135, filing fees $22,148,
vehicle expense 19,567 and miscellaneous items for $16,601.
Sales and Marketing expenses decreased $104,152 for the nine months period ended
September 30, 2004, from $119,177 (2003) to $48,320 (2004) or a 59% decrease.
This decrease was mainly attributable to a decrease in professional consulting
of $57,490, a decrease in salaries, commissions, benefits and payroll taxes in
the aggregate of $38,833, and a decrease in miscellaneous items for $7,829.
Research and development for the nine months ended September 30, 2004, was
$17,037 compared to $38,035 for the same period prior year for a decrease of
$20,998. The decrease was due to the decline in salaries, benefits and payroll
taxes in the aggregate of $24,356 and an increase in consulting expense of
$3,358.
The net loss for the Company decreased 17% for the nine months ending September
30, 2004, to $716,712 from $862,645 for the nine months ending September 30,
2003. This was principally due to the decrease in both sales and expenses.
Three Months September 30, 2004 Compared to the Three Months Ended September 30,
2003
Revenues for the three months ended September 30, 2004 were $71,068 versus three
months ended September 30, 2003 of $92,806 decreased $21,738 or 23%. Costs for
the three months ended September 30, 2004 were ($2,030) versus the three months
ended September 30, 2003 of $22,422 decreased $24,452. Maintenance revenues
decreased $25,829 or 29% during the three months ended September 30, 2004 from
the three months ended September 30, 2003. This is attributable to the decrease
in software maintenance contract dollar amount and loss of customer base in
2004.
Costs and expenses decreased $102,967 or 30% during the three months ended
September 30, 2004 versus the three months ended September 30, 2003. General and
administrative expenses decreased $26,940 or 32 % to $58,355 for the three
months ended September 30, 2004 from $85,295 for the three months ended
September 30, 2003. Research and development costs for the three month period
ended September 30, 2004 increased by $467 compared to the prior period. Sales
and marketing decreased $22,444 or 67% during the three months ended September
30, 2004 from the three months ended September 30, 2003. Depreciation expense
decreased $349 due to the lack of asset purchases in 2004. During the three
months ended September 30, 2004 compared to September 30, 2003, interest and
amortization of deferred debt cost decreased from $202,508 to $173,259 or 14%.
- 12 -
The net loss for the Company decreased $81,229 or 32% for the three months ended
September 30, 2004 to $174,231 from $255,460 for the three months ended
September 30, 2003. This was principally due to overall decreased expenses that
were in excess of the sales decrease.
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.
The Company has contractual obligations of $3,114,981 as of September 30, 2004.
These contractual obligations, along with the dates on which such payments are
due are described below:
- --------------------------------------------------------------------------------------------------------
Contractual Obligations Total One Year or Less More Than One Year
- --------------------------------------------------------------------------------------------------------
Due to Related Parties $ 11,630 $ 11,630 $ 0
- --------------------------------------------------------------------------------------------------------
Convertible Debentures 2,129,237 1,879,237 250,000
- --------------------------------------------------------------------------------------------------------
Accounts Payable and Accrued Expenses 974,114 974,114 0
- --------------------------------------------------------------------------------------------------------
Total Contractual Obligations $3,114,981 $2,864,981 $ 250,000
- --------------------------------------------------------------------------------------------------------
Below is a discussion of our sources and uses of funds for the nine months ended
September 30, 2004 and 2003.
Net Cash Used in Operating Activities
Net cash used in operating activities for the nine months ended September 30,
2004 and 2003 was $229,017 and $460,531, respectively. The decrease in cash used
from operating activities in the nine months ended September 30, 2004 versus
2003 of $231,514 was principally due to the decrease in net operating costs for
the nine months.
Net Cash Provided By Investing Activities
Net cash provided by investing activities nine months ended September 30, 2004
and 2003 was $72 and $63 respectively, reflecting a change of $9. This reflected
no significant change in restricted cash.
Net Cash Provided By Financing Activities
Net cash provided by financing activities was $221,447 and $450,404 for the nine
months ended September 30, 2004 and 2003, respectively, reflecting a decrease of
$228,957.
- 13 -
ITEM 3. CONTROL AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and acting Chief Financial Officer have evaluated
the effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
quarterly report (the "Evaluation Date"). Based on such evaluation, such
officers have concluded that, as of the Evaluation Date, our disclosure controls
and procedures are effective in alerting them on a timely basis to material
information relating to our Company required to be included in our reports filed
or submitted 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.
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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 September 30, 2004.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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.
During September 2004, $700 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 July 2004, $4,900 of the convertible debentures issued in September 2001,
were converted into 7,000,000 shares of common stock. and 7,000,000 shares of
common stock were issued for liquidated damages relating to the notes issued
December 2001.
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 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.
- 15 -
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
The Company is in default of $1,744,238 of outstanding debentures. Although the
debenture holders have not pursued their rights under such debentures, there can
be no assurances that such rights will not be exercised.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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
- 16 -
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: November 15, 2004 By: /s/ ANTHONY SHUPIN
----------------------------------------
Anthony Shupin
(President, Chief Executive Officer,
Acting Chief Financial Officer
and Director)
Date: November 15, 2004 By: /s/ MICHAEL J. PELLEGRINO
----------------------------------------
Michael J. Pellegrino
(Director - Chairman)
Date: November 15, 2004 By: /s/ VINCENT MORENO
----------------------------------------
Vincent Moreno.
(Director)
Date: November 15, 2004 By: /s/ ROBERT GOWELL.
----------------------------------------
Robert Gowell
(Director)
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