News Release

Document Security Systems, Inc.

First Federal Plaza

28 East Main Street, Suite 1525

Rochester, NY 14614

Media contact:

Robin Pedace

Document Security Systems

Director of Marketing, Public and Investor Relations

Phone: 202.885.5536

For Immediate Release

Document Security Systems Reports 28%

Revenue Growth in Fourth Quarter 2007

Revenue increases 39% for 2007

Gross Profit increases 57% for 2007

2007 Gross Profit Margin = 52% vs. 46% in 2006

ROCHESTER, NY, March 17, 2008 — Document Security Systems, Inc. (AMEX: DMC), a leader in proven, patented protection against counterfeiting and unauthorized copying, scanning and photo imaging, reported results for the fourth quarter and year ended December 31, 2007.

FINANCIAL RESULTS

Revenue from continuing operations for the fourth quarter of 2007 was $1.7 million, a 28% increase over $1.3 million in the fourth quarter of 2006. Revenue growth for the quarter was due to the sale of security printing and associated products which grew 42% during the period driven by demand for Medicaid-compliant tamperproof prescription paper.

Gross profit from continuing operations during the fourth quarter increased 27% to $810,000 compared with $641,000 for the same period of 2006. Gross profit percentage was 48% for the quarter as compared to 49% for the 2006 quarter. Operating expenses from continuing operations for the quarter were $3.0 million compared with $2.0 million for the same period of 2006, an increase of 46%. The increase reflects growth in compensation expense primarily due to additions to its sales and marketing and operation support personnel made during 2007. During 2007, the Company experienced significant costs as the result of its initial year of compliance under Sarbanes Oxley. In addition, the Company experienced an increase in rental costs along with moving expenses associated with the relocation of its plastic printing division, P3, into a 25,000 square foot facility. Finally, the increase in operating expenses reflects an increase in amortization of intangibles of 89% compared to the 2006 quarter, which mainly reflects the impact of the European patent litigation costs.

In the fourth quarter of 2007, the net loss was $2.2 million, or $0.16 per basic and diluted share, compared with a net loss of $1.4 million, or $0.11 per basic and diluted share, for the fourth quarter of 2006. The fourth quarter 2007 Adjusted EBITDA was a loss of $1.2 million, or $0.09 per basic and diluted share, compared with a loss of $719,000, or $0.06 per basic and diluted share, for the comparable period in 2006. (See Reconciliation of GAAP to Non-GAAP Financial Measures table).

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Document Security Systems Reports 2007 Financial Results

March 17, 2008

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Revenue from continuing operations for the full year of 2007 was $6.0 million, up 39%, or $1.7 million, over revenue from continuing operations of $4.3 million in 2006. Gross profit from continuing operations for 2007 increased 57% to $3.1 million compared with $2.0 in 2006. Gross profit percentage increased to 52% compared with 46% in 2006, reflecting the impact of the increase in technology licensing and the initial sales of its digital solution products, along with improvements in margins generated by core security printing products. Operating expenses from continuing operations for 2007 were $10.1 million compared with $6.8 million in 2006, an increase of 50%. Operating expenses during the year reflect increases in non-cash expenses of stock based payments and amortization of intangibles of 35% and 71%, respectively. For 2007, net loss for the year was $7.0 million, or $0.51 per basic and diluted share, compared with a net loss of $4.8 million, or $0.37 per basic and diluted share, during 2006. Adjusted EBITDA for 2007 was a loss of $3.8 million compared with an Adjusted EBITDA loss of $2.6 million for 2006.

Mr. Patrick White, CEO, commented, “We have made solid progress in repositioning our operations to focus on near-term opportunities created by the modern problem of counterfeiting and brand theft. Our solutions are now delivered on paper and plastic as well as digitally through Internet and software-based solutions. We believe our digital solutions will emerge as a key contributor to our financial results during 2008.”

Mr. White continued, “What we have learned is that the sales cycle in the security industry is much longer then other traditional business models. We are shortening this cycle on our side of the equation as we continue to strive to develop and implement robust sales channels particularly by increasing our efforts with large integrators. We believe this strategy sets the stage for continued growth during 2008. While results for 2007 did not meet our financial expectations, we made progress towards our long-term goals and increased the sale of our core technologies. We enter 2008 with confidence that we have the right products, the right partners, and an improved distribution channel to support our efforts going forward.”

LIQUIDITY

The Company completed the year with $743,000 in cash. The decrease in the cash position was primarily due to the payment of legal fees associated with its patent applications and defense costs and costs associated with the expansion of the Company’s plastic printing facility, as well as cash used for operations. During the fourth quarter of 2007, the Company secured access to credit facilities of up to $3.6 million over the next two years in order to satisfy potential cash requirements during 2008 and beyond. The total borrowed as of December 31, 2007 was $300,000. Management is confident that existing lines of credit are sufficient to fund current operations and litigation expenses.

FOURTH QUARTER HIGHLIGHTS

Document Security Systems, Inc. and Boise Cascade partner to provide doctors with enhanced security for Medicaid prescription pads. This new tightly controlled product offering specially designed for Boise Cascade meets standards set forth in Medicaid legislation regarding paper-based security features required in prescription papers starting in April 2008.

DMC signs licensing agreement with one of the nation’s largest government print and mail suppliers, NPC, Inc. (NPC), to deliver innovative anti-counterfeiting and authentication solutions. As part of the agreement, NPC partnered with Document Security Systems to manufacture AuthentiGuard® technology products for new customers as well as through established sales channels in the government, healthcare, and academic markets.

In December 2007, the nine-month opposition period ended unopposed for European Patent EP1626870B1, DMC’s eighth patent, which was issued in March 2007. This new patent is an extension of AuthentiGuard® Prism™, which is especially well suited for currency, packaging, plastic and print products. The Company has also filed seven patent applications during 2007, adding to its anti-counterfeiting and brand protection arsenal.

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Document Security Systems Reports 2007 Financial Results

March 17, 2008

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DMC’s Plastic manufacturing division, Plastic Printing Professionals (P3), moves into new 25,000 square foot manufacturing facility in Brisbane, California. This state-of-the-art facility is nearly five times the size of P3’s previous location and can already produce cards at a rate that is four times faster than the old facility.

EARLY FIRST QUARTER 2008 HIGHLIGHTS AND OUTLOOK

·	Former Vice Chairman of the New York Stock Exchange, Robert Fagenson was named the new Chairman of the Board of Document Security Systems. Mr. Fagenson published a “Letter to the Shareholders” outlining his vision for the Company that can be found on the Company’s website.

DMC’s European Patent is deemed “Valid” in the Netherlands, which gives the Company its second legal victory against the European Central Bank and the right to file for patent infringement in the Netherlands as well as Germany. The patent was previously found invalid by courts in France and the United Kingdom.

·	DMC had successful tests of its new digital prism technology on two high volume digital presses - Hewlett Packard Indigo and Xerox I-Gen.

Mr. White also commented on some first quarter 2008 events: “Management has utilized the first quarter of 2008 to stabilize and strengthen the Company’s foundation for the future. Robert Fagenson accepted the position of Chairman of the Board and his clear vision and near term objectives for the Company were defined in his recent ’2008 Letter to the Shareholders.’ We now enter the remainder of the year with clear, defined and updated strategies, goals and objectives, which are all tailored to optimize and enhance shareholder value.”

He continued, “Shareholders should be pleased with our recent court victory against the European Central Bank in the Netherlands. This is the second European country that has validated our patent, with two European countries (The U.K. and France) invalidating it. As we have said numerous times throughout this validity process we only needed to win in a single country to keep our right to file an infringement suit against the ECB and its currency printers. We now have both Germany and the Netherlands on our side of the equation and we are taking all necessary and appropriate steps in regards to pre-trial research prior to the actual filing of the infringement suit.”

Mr. White concluded, “Finally, I would also like to state that since the Euro is becoming more accepted as currency in the United States we are considering and analyzing with our attorneys a scenario in which we would file an infringement suit against the ECB, their printers and the commercial banks here in the United States. Under this ’Welcome to America’ strategy, we would put the ECB in front of our lawyers in a New York discovery process, including detailed document discovery and face-to-face depositions, and they would need to stand and present their case in front of a New York jury. If our legal team recommends that we move forward with this strategy, we will promptly notify our shareholders.”

Non-GAAP Financial Performance Measure

Adjusted Earnings before interest, taxes, depreciation, amortization and non-cash stock based compensation expense (“Adjusted EBITDA”) is presented because the Company’s management believes it to be a relevant measure of the performance of the Company. The Adjusted EBITDA is used by the Company’s management to measure its core operating performance without certain non-cash expenditures. The reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP measure is presented below.

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Document Security Systems Reports 2007 Financial Results

March 17, 2008

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About Document Security Systems, Inc.

Document Security Systems is a world leader in the development of optical deterrent technologies that help prevent counterfeiting and brand fraud from the use of the most advanced scanners, copiers and imaging systems in the market. The Company’s patented and patent-pending technologies protect valuable documents and printed products from counterfeiters and identity thieves. Document Security Systems’ customers, which include international governments, major corporations and world financial institutions, use its covert and overt technologies to protect a number of applications including, but not limited to, currency, vital records, brand protection, ID Cards, internet commerce, passports and gift certificates. Document Security Systems’ strategy is to become the world’s leading producer of cutting-edge security technologies for paper, plastic and electronically generated printed assets. More information about Document Security Systems can be found at its websites: www.documentsecurity.com and www.plasticprintingprofessionals.com.

Safe Harbor Statement

This release contains forward-looking statements regarding expectations for future financial performance, which involve uncertainty and risk. It is possible the Company's future financial performance may differ from expectations due to a variety of factors including, but not limited to, changes in economic and business conditions in the world, increased competitive activity, achieving sales levels to fulfill revenue expectations, consolidation among its competitors and customers, technology advancements, unexpected costs and charges, adequate funding for plans, changes in interest and foreign exchange rates, regulatory and other approvals and failure to implement all plans, for whatever reason. It is not possible to foresee or identify all such factors. Any forward-looking statements in this report are based on current conditions; expected future developments and other factors it believes are appropriate in the circumstances. Prospective investors are cautioned that such statements are not a guarantee of future performance and actual results or developments may differ materially from those projected. The Company makes no commitment to update any forward-looking statement included herein, or disclose any facts, events or circumstances that may affect the accuracy of any forward-looking statement.

TABLES FOLLOW.

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Document Security Systems Reports 2007 Financial Results

March 17, 2008

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DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

	Three Months Ended									Year Ended

	December 31, 2007			December 31, 2006			% Change			December 31, 2007			December 31, 2006			% Change
Revenue
Security printing & products	$	1,148,000		$	810,000			42	%	$	3,913,000		$	2,995,000			31	%
Royalties		324,000			339,000			-4	%		1,195,000			682,000			75	%
Digital solutions		17,000			-			0	%		201,000			-			0	%
Legal products		169,000			147,000			15	%		682,000			631,000			8	%
Total Revenue		1,658,000			1,296,000			28	%		5,991,000			4,308,000			39	%

Costs of revenue
Security printing & products		774,000			572,000			35	%		2,466,000			1,972,000			25	%
Digital sales		4,000			-			0	%		44,000			-			0	%
Legal products		78,000			83,000			-6	%		354,000			350,000			1	%
Total cost of revenue		856,000			655,000			31	%		2,864,000			2,322,000			23	%

Gross profit
Security printing & products		374,000			238,000			57	%		1,447,000			1,024,000			41	%
Royalties		324,000			339,000			-4	%		1,195,000			682,000			75	%
Digital solutions		13,000			-			0	%		157,000			-			0	%
Legal products		91,000			64,000			42	%		328,000			281,000			17	%
Total gross profit		802,000			641,000			25	%		3,127,000			1,987,000			57	%
		48	%		49	%		-2	%		52	%		46	%		13	%

Operating Expenses
General and administrative compensation		564,000			460,000			23	%		2,023,000			1,521,000			33	%
Stock based payments		384,000			410,000			-6	%		1,355,000			1,002,000			35	%
Professional Fees		368,000			175,000			110	%		1,404,000			1,120,000			25	%
Sales and marketing		599,000			437,000			37	%		1,974,000			1,049,000			88	%
Depreciation and amortization		28,000			18,000			56	%		89,000			92,000			-3	%
Other		444,000			197,000			125	%		1,129,000			590,000			91	%
Research and development		106,000			90,000			18	%		420,000			353,000			19	%
Amortization of intangibles		495,000			262,000			89	%		1,754,000			1,026,000			71	%
		2,988,000			2,049,000			46	%		10,148,000			6,753,000			50	%

Total other income (loss), net		(10,000	)		(19,000	)		-47	%		34,000			(66,000	)		-152	%


Net loss	$	(2,196,000	)	$	(1,427,000	)		54	%	$	(6,987,000	)	$	(4,832,000	)		45	%

Net loss per share, basic and diluted		(0.16	)		(0.11	)		46	%		(0.51	)		(0.37	)		40	%

Weighted average common shares outstanding, basic and diluted		13,654,364			12,958,375			5	%		13,629,877			12,891,505			6	%

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Document Security Systems Reports 2007 Financial Results

March 17, 2008

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DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31,

	2007			2006
ASSETS

Current assets:
Cash and cash equivalents	$	742,468		$	5,802,615
Accounts receivable, net of allowance
of $82,000 ($74,000 -2006)		617,320			618,622
Inventory		259,442			239,416
Loans to employees		120,732			51,895
Prepaid expenses and other current assets (including a prepaid balance with a related party of $91,000 in 2006)		487,715			172,887

Total current assets		2,227,677			6,885,435

Restricted cash		177,345			-
Fixed assets, net		1,494,540			637,732
Other assets		147,958			156,734
Goodwill		1,396,734			1,396,734
Other intangible assets, net		6,149,530			5,389,564

Total assets	$	11,593,784		$	14,466,199

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	1,795,085		$	1,283,503
Accrued expenses & other current liabilities (including a related party balance of $230,000 in 2006)		818,606			877,261
Deferred revenue		732,355			564,439
Current portion of capital lease obligations		79,948			34,814

Total current liabilities		3,425,994			2,760,017


Revolving note from related party		300,000			-
Long-term capital lease obligations		294,821			50,417
Long-term deferred revenue		15,938			466,875
Deferred tax liability		200,000			-
Commitments and contingencies


Stockholders' equity
Common stock; $.02 par value; 200,000,000 shares authorized, 13,654,364 shares issued and outstanding (13,544,724 in 2006)		273,087			270,894
Additional paid-in capital		31,298,571			28,145,793
Accumulated deficit		(24,214,627	)		(17,227,797	)

Total stockholders' equity		7,357,031			11,188,890

Total liabilities and stockholders' equity	$	11,593,784		$	14,466,199

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March 17, 2008

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Consolidated Statements of Cash Flows
For the Years Ended December 31,

	2007			2006			2005

Cash flows from operating activities:
Net loss	$	(6,986,830	)	$	(4,832,366	)	$	(2,842,790	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization expense		1,945,119			1,233,016			720,603
Stock based compensation		1,354,742			1,002,420			118,518
Net gain on disposal of discontinued operations		(42,906	)		-			-
(Increase) decrease in assets:
Accounts receivable		1,302			(287,910	)		236,897
Inventory		(20,026	)		(20,465	)		(81,233	)
Prepaid expenses and other assets		(65,291	)		(117,221	)		(140,640	)
Increase (decrease) in liabilities:
Accounts payable		629,792			527,327			137,670
Accrued expenses and other liabilities		247,797			52,208			161,254
Deferred revenue		(283,021	)		1,031,314			-

Net cash used by operating activities		(3,219,322	)		(1,411,677	)		(1,689,721	)

Cash flows from investing activities:
Purchase of fixed assets		(759,538	)		(136,078	)		(107,083	)
Proceeds from the sale of discontinued operations		80,000			-			-
Restricted cash- patent litigation guarantee		(177,345	)
Acquisition of business		-			(1,301,670	)		-
Purchase of other intangible assets		(1,083,619	)		(835,946	)		(185,912	)

Net cash used by investing activities		(1,940,502	)		(2,273,694	)		(292,995	)

Cash flows from financing activities:
Repayment of long-term debt		-			(218,200	)		(47,920	)
Borrowing on revolving note- related party		300,000			-			-
Decrease in restricted cash		-			240,000			60,000
Repayments of capital lease obligations		(35,929	)		(33,074	)		(30,625	)
Payment of accrued stock issuance costs		(519,619	)		-			-
Issuance of common stock		355,225			5,545,778			3,296,878

Net cash (used) provided by financing activities		99,677			5,534,504			3,278,333

Net increase (decrease) in cash and cash equivalents		(5,060,147	)		1,849,133			1,295,617
Cash and cash equivalents beginning of year		5,802,615			3,953,482			2,657,865

Cash and cash equivalents end of year	$	742,468		$	5,802,615		$	3,953,482

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Document Security Systems Reports 2007 Financial Results

March 17, 2008

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DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Adjusted EBITDA

	Three Months Ended									Year Ended

	December 31, 2007			December 31, 2006			% Change			December 31, 2007			December 31, 2006			% Change


Net Loss	$	(2,196,000	)	$	(1,427,000	)		54	%	$	(6,987,000	)	$	(4,832,000	)		45	%
Add back:
Depreciation		54,000			44,000			23	%		191,000			207,000			-8	%
Amortization of Intangibles		495,000			262,000			89	%		1,754,000			1,026,000			71	%
Stock based payments		384,000			410,000			-6	%		1,355,000			1,002,000			35	%
Interest Income		(4,000	)		(9,000	)		-56	%		(93,000	)		(60,000	)		55	%
Interest Expense		1,000			1,000			0	%		5,000			15,000			-67	%
Income Taxes		5,000			-			0	%		19,000			-			0	%

Adjusted EBITDA		(1,261,000	)		(719,000	)		75	%		(3,756,000	)		(2,642,000	)		42	%

Adjusted EBITDA loss per share, basic and diluted		(0.09	)		(0.06	)		50	%		(0.28	)		(0.20	)		40	%

Weighted average common shares outstanding, basic and diluted		13,654,364			12,958,375			5	%		13,629,877			12,891,505			6	%

Non-GAAP Financial Performance Measure

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