AP NEWS

Document Security Systems, Inc. Announces First Quarter 2018 Financial Results

May 15, 2018

ROCHESTER, N.Y., May 15, 2018 (GLOBE NEWSWIRE) -- Document Security Systems, Inc. (NYSE American:DSS), (“DSS”), a leader in anti-counterfeit, authentication, and diversion protection technologies whose products and solutions are used by governments, corporations and financial institutions to defeat fraud and to help ensure product authenticity, today announced its financial results for the first quarter ended March 31, 2018.

The first quarter of 2018 was a slow quarter for our Printed Products group which negatively impacted first quarter results. While disappointing, this result was not completely unexpected since this group had its biggest quarter ever in sales in the fourth quarter of 2017. When looking at the past 6 months, revenues for the printed products group were down 1.4% from the comparable six-month period ending March 31, 2017. We continue to be very positive about our Printed Products group’s performance, with expectations that revenues will strengthen during the remainder of 2018. “Technology sales experienced significant revenue growth driven by a 172% increase in first quarter revenue from our AuthentiGuard product line,” stated Jeff Ronaldi, CEO of DSS. “Also impacting the quarter was the increase in costs associated with the expansion into the Asia Pacific market, in particular, the commencement of operations in Hong Kong, where we have begun selective sales and marketing efforts. We have also initiated a research project with the Hong Kong R&D Centre for Logistics and Supply Chain Management Enabling Technologies to assist with the adaptation of blockchain technology for product authentication. In addition, this group has become an integral resource for the continuing software development requirements for AuthentiGuard as our customers expand their usage of the product internationally. We are very excited about the Hong Kong office and the early successes we have already realized,” added Ronaldi.

First Quarter 2018 Financial Highlights

-- Revenue for the first quarter of 2018 decreased 8% to $4.4 million from $4.8 million in the first quarter of 2017. Printed Products revenue decrease of 11% offset by increase in Technology sales by 23%. -- Net Loss during the first quarter of 2018 was approximately $406,000 ($0.02 per share), as compared to a net loss of $184,000 ($0.01 per share) during the first quarter of 2017. -- Costs and expenses for the first quarter totaled $4.7 million, a decrease of 3% from $4.9 million during the same period of 2017. -- Adjusted EBITDA1 for the first quarter of 2018 remained positive and was approximately $15,000 as compared to $391,000 for the first quarter of 2017, which represents a 96% decrease. The decline in Adjusted EBITDA was driven by decreases in revenue at the Company’s Printed Products divisions and costs for the expansion into Hong Kong.

ABOUT DOCUMENT SECURITY SYSTEMS, INC.For over 15 years, Document Security Systems, Inc. (“DSS”) has protected corporations, financial institutions, and governments from sophisticated and costly fraud. DSS’ innovative anti-counterfeit, authentication, and brand protection solutions are deployed to prevent attacks which threaten products, digital presence, financial instruments, and identification. AuthentiGuard®, the Company’s flagship product, provides authentication capability through a smartphone application so businesses can empower a wide range of employees, supply chain personnel, and consumers to track their brands and verify authenticity. For more information on DSS and its Plastics Group subsidiary, visit https://www.dsssecure.com and http://dssplasticsgroup.com.

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Contact Information:Investor Relations Document Security Systems, Inc.Tel: (585) 232-5440Email: ir@dsssecure.com

FORWARD-LOOKING STATEMENTSForward-looking statements that may be contained in this press release, including, without limitation, statements related to the Company’s plans, strategies, objectives, expectations, potential value, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act and contain words such as “believes,” “anticipates,” “expects,” “plans,” “intends” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, our ability to continue the growth in sales of AuthentiGuard and manage our expenses, as well as those risks disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on March 6, 2018. Forward-looking statements that may be contained in this press release are being made as of the date of its release, and the Company assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements.

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) Three Months Three Months Ended March Ended March % 31, 31, change 2018 2017 -------------- -------------- ------ Revenue Printed products $ 3,924,000 $ 4,403,000 -11 % Technology sales, services and licensing 454,000 368,000 23 % - ---------- - - ---------- - ---- - Total revenue $ 4,378,000 $ 4,771,000 -8 % Costs and expenses Costs of goods sold, exclusive of depreciation and amortization $ 2,582,000 $ 2,788,000 -7 % Sales, general and administrative compensation 968,000 898,000 8 % Depreciation and amortization 346,000 343,000 1 % Professional fees 234,000 161,000 45 % Stock based compensation 1,000 134,000 -99 % Sales and marketing 92,000 94,000 -2 % Rent and utilities 154,000 152,000 1 % Other operating expenses 234,000 227,000 3 % Research and development 99,000 60,000 65 % - ---------- - - ---------- - ---- - Total costs and expenses $ 4,710,000 $ 4,857,000 -3 % Operating loss (332,000 ) (86,000 ) 286 % Other income and expense Interest income 3,000 - 100 % Interest expense (49,000 ) (58,000 ) -16 % Amortized debt discount (28,000 ) (35,000 ) -20 % - ---------- - - ---------- - ---- - Total other income and expense $ (74,000 ) $ (93,000 ) -20 % Loss before income taxes (406,000 ) (179,000 ) 127 % Income tax expense - (5,000 ) -100 % - ---------- - - ---------- - ---- - Net loss $ (406,000 ) $ (184,000 ) 121 % - ---------- - - ---------- - ---- - Loss per common share: Basic and diluted $ (0.02 ) $ (0.01 ) 100 % Shares used in computing loss per common share: Basic and diluted 16,599,327 13,624,522 22 %

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES Consolidated Balance Sheets As of (unaudited) March 31, 2018 December 31, 2017 ----------------- ---------------- ASSETS Current assets: Cash $ 3,728,086 $ 4,188,623 Restricted cash 555,831 256,005 Accounts receivable, net of $50,000 allowance for 1,999,595 2,025,284 doubtful accounts Inventory 1,599,547 1,651,246 Prepaid expenses and other current assets 247,996 261,324 ------------ - ------------ - Total current assets 8,131,055 8,382,482 Property, plant and equipment, net 4,762,554 4,805,640 Investment 484,930 484,930 Other assets 83,376 83,376 Goodwill 2,453,597 2,453,597 Other intangible assets, net 1,066,888 1,220,752 ------------ - ------------ - Total assets $ 16,982,400 $ 17,430,777 ------------ - ------------ - LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 917,451 $ 728,652 Accrued expenses and deferred revenue 1,004,025 1,105,718 Other current liabilities 2,933,591 2,953,629 Short-term debt 3,714,129 3,645,760 Current portion of long-term debt, net 806,202 966,506 ------------ - ------------ - Total current liabilities 9,375,398 9,400,265 Long-term debt, net 1,659,291 1,734,171 Other long-term liabilities 1,137,821 1,384,500 Deferred tax liability, net 125,982 125,982 Commitments and contingencies Stockholders’ equity Common stock, $.02 par value; 200,000,000 shares authorized, 16,599,327 shares issued and 331,987 331,987 outstanding (16,599,327 on December 31, 2017) Additional paid-in capital 106,622,960 106,633,708 Subscription receivable - (300,000 ) Accumulated other comprehensive loss (8,180 ) (23,069 ) Accumulated deficit (102,262,859 ) (101,856,767 ) ------------ - ------------ - Total stockholders’ equity 4,683,908 4,785,859 ------------ - ------------ - Total liabilities and stockholders’ equity $ 16,982,400 $ 17,430,777 ------------ - ------------ -

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Three Months Ended March 31, (unaudited) 2018 2017 ------------- ----------- Cash flows from operating activities: Net loss $ (406,091 ) $ (184,039 ) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 345,667 342,774 Stock based compensation 1,251 133,807 Paid in-kind interest 12,000 18,000 Change in deferred tax provision - 4,737 Amortization of deferred financing costs 27,731 35,288 Decrease (increase) in assets: Accounts receivable 25,689 (133,989 ) Inventory 51,699 2,854 Prepaid expenses and other current assets 13,329 (27,076 ) Increase (decrease) in liabilities: Accounts payable 188,795 (419,482 ) Accrued expenses (103,928 ) (259,678 ) Other liabilities (249,594 ) - --------- - --------- - Net cash used by operating activities (93,452 ) (486,804 ) Cash flows from investing activities: Purchase of property, plant and equipment (132,937 ) (66,206 ) Purchase of intangible assets (15,780 ) (4,949 ) --------- - --------- - Net cash used by investing activities (148,717 ) (71,155 ) Cash flows from financing activities: Payments of long-term debt (206,542 ) (203,647 ) Subscription receivable 288,000 - Net cash from (used by) financing activities 81,458 (203,647 ) Net decrease in cash (160,711 ) (761,606 ) Cash and restricted cash at beginning of period 4,444,628 6,049,347 --------- - --------- - Cash and restricted cash at end of period $ 4,283,917 $ 5,287,741 --------- - --------- -

1 ADJUSTED EBITDAThe Company uses Adjusted EBITDA as a non-GAAP financial performance measurement. The Company calculates Adjusted EBITDA by adding back to net income (loss): interest, income taxes, depreciation and amortization expense, and impairment charges as further adjusted to add back stock-based compensation expense and non-recurring items. Adjusted EBITDA is provided to investors to supplement the results of operations reported in accordance with GAAP. Management believes that Adjusted EBITDA provides an additional tool for investors to use in comparing the Company’s financial results with other companies in the industry, many of which also use Adjusted EBITDA in their communications to investors. By excluding non-cash charges such as amortization, depreciation, stock-based compensation and impairment charges, as well as non-operating charges for interest and income taxes, investors can evaluate the Company’s operations and its ability to generate cash flows from operations and can compare its results on a more consistent basis to the results of other companies in the industry. Management also uses Adjusted EBITDA to establish internal budgets and goals, and evaluate performance of its business units and management, and evaluate potential acquisitions. The Company considers Adjusted EBITDA to be an important indicator of the Company’s operational strength and performance of its business and a useful measure of the Company’s historical and prospective operating trends. However, there are significant limitations to the use of Adjusted EBITDA since it excludes interest income and expense and income taxes and non-recurring items such as goodwill impairments, each of which impact the Company’s profitability and operating cash flows, as well as depreciation, amortization, impairment charges and stock-based compensation. The Company believes that these limitations are compensated by clearly identifying the difference between the two measures. Consequently, Adjusted EBITDA should not be considered in isolation or as a substitute for net income and loss presented in accordance with GAAP. Adjusted EBITDA as defined by the Company may not be comparable with similarly named measures provided by other entities. The following is a reconciliation of net loss to Adjusted EBITDA loss:

Three Months Ended March 31, 2018 2017 % change - -------- - - -------- - ------ (unaudited) (unaudited) Net loss: $ (406,000 ) $ (184,000 ) 121 % Add backs: Depreciation & amortization 346,000 343,000 1 % Stock based compensation 1,000 134,000 -99 % Interest, net 46,000 58,000 -21 % Amortized debt discount 28,000 35,000 -20 % Income tax expense - 5,000 -100 % - -------- - - -------- - ---- - Adjusted EBITDA $ 15,000 $ 391,000 -96 % - -------- - - -------- - ---- - Adjusted EBITDA, by group (unaudited) Printed Products $ 551,000 $ 773,000 -29 % Technology (309,000 ) (79,000 ) 291 % Corporate (227,000 ) (303,000 ) -25 % - -------- - - -------- - ---- - 15,000 391,000 -96 % - -------- - - -------- - ---- -

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