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NYSE MKT: DSS Company Presentation October 2014 IP DRIVEN INNOVATION

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October 2014

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Page 1: DSS - Investor Presentation

NYSE MKT: DSS

Company Presentation October 2014

IP DRIVEN INNOVATION

Page 2: DSS - Investor Presentation

NYSE MKT: DSS

Important Cautions Regarding Forward-Looking Statements

2

Forward-looking statements that may be contained in this presentation, 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, those disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission on March 26, 2014.

Forward-looking statements that may be contained in this presentation 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.

Page 3: DSS - Investor Presentation

NYSE MKT: DSS

Key Stats (NYSE MKT: DSS)

Stock Price (10/1/14) $0.81

52 Week Low-High $0.77-$2.46

Avg. Daily Vol. (3 mo.) 187,589

Shares Outstanding 42.2M

Float (est.) 39.9M

Insider Holdings 6%

Institutional Holdings 13%

Market Cap $34.2M

Enterprise Value $40.0M

Date Founded 1984

Employee Count 108

Total Revenue (ttm) $17.9M

Net Income (ttm) $0.3M

EPS (ttm) $0.01

P/S (ttm) 2.7x

Cash (mrq) $1.3M

Total Assets (mrq) $66.3M

Total Debt (mrq) $7.1M

Data sources: Yahoo! Finance, S&P Capital IQ, company estimates Figures in USD unless otherwise noted; (ttm) = trailing twelve months as of Jun. 30, 2014; (mrq) = most recent quarter as of Jun. 30, 2014

Revenue Growth

12.0

15.3 15.5 15.9

1.4

1.8 2.0 2.0

$13.4

$17.1 $17.5 $17.9

2011 2012 2013 TTM

$ millions

Tech Sales & Licensing Revenue

Printed Product Revenue

3

Page 4: DSS - Investor Presentation

NYSE MKT: DSS

What We Do

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We acquire, develop, produce and license innovative technologies founded on strong intellectual property

Broad IP portfolio protected by >120 U.S. patents

Currently focused on three verticals:

Brand Protection (our core technology area)

Software & Internet

Hardware & Peripherals

Our technology is trusted and relied upon by major corporations, governments & financial institutions

Unique product-based business model provides operating leverage to develop new products, while earning IP license fees & pursuing patent enforcement

TECHNOLOGY MANAGEMENT

Page 5: DSS - Investor Presentation

NYSE MKT: DSS

IP Licensing Opportunity

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Global IP licensing market has exploded in the last 20 years — expected to reach $500 billion2 by 2015

2.5% of U.S. GDP on R&D spend generates $120 billion1 of IP royalties and licenses

1) Bureau of Economic Analysis 2) Ernst & Young; Athreye and Cantwell, 2005; The Economist, World Intellectual Property Organization. Includes patents, copyrights, trademarks and other IP forms.

$3B $27B

$110B

$180B

$240B

$500B

1970 1990 2000 2009 2011 2015E

Global Intellectual Property Licensing Market Annual IP Licensing Revenue2

Page 6: DSS - Investor Presentation

NYSE MKT: DSS

Unique Business Model

Vertically Integrated

R&D & Licensing

Single Portfolio

Enforcement

Non-Practicing

Entity (NPE)

Buying Group

Active R&D

Product Manufacturing

IP Licensing

IP Enforcement

IP Buying Group

Our business model provides stable revenues, rich tech innovation & IP monetization opportunities

Incubation of new IP-backed technologies leads to both sales and licensing

DSS approach captures the full commercial opportunity to “monetize” a patented technology

Operating companies have a 10% higher overall litigation success rate than NPEs1

6 1) PWC “ 2013 Patent Litigation Study”

Page 7: DSS - Investor Presentation

NYSE MKT: DSS

How We Approach the Market — The DSS Process

Commercialization

Deliver incubated and value-added products & service to commercial footprint

Selectively expand into new markets

License & enforce IP/patents where partnership is favorable or our commercialization is blocked by competitors

7

Acquisition

Acquire IP through assignment, exclusive license or minority investments in partner companies

Pipeline is sourced primarily through referrals

Follow the “technology roadmap” of our business lines to identify IP with significant commercial & licensing potential

Highly selective: acquired <1% of IP portfolios evaluated

Incubation

Fund R&D in-house or through partnerships to create new products & services that are protected by our IP

Patent new innovations derived from R&D

Release completed innovations to business lines

Licensing & Enforcement

Page 8: DSS - Investor Presentation

NYSE MKT: DSS

Our Competitive Advantages

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Highly experienced managers with successful monetization track records and operating experience

Our IP expertise is founded in the continuity with the inventor and others in the companies we’ve acquired

Access to specialized private project funding capital that increases IP investment capacity

Access to IP deal-flow

Page 9: DSS - Investor Presentation

NYSE MKT: DSS

IP Activity

Products

Overview

Product Comps

We Commercialize & License Our Patented Technologies Across 3 Verticals

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❷ Software & Internet ❸ Hardware & Peripherals

DSS has developed a range of proprietary print & digital authentication technologies

Secure and protect products, documents, and data from diversion, counterfeit & fraud

Applications range from ID badges and tickets to packaging and labels for pharmaceuticals & consumer goods to securing websites

Trusted by major corporations, governments & financial institutions

For more information: www.dsssecure.com/security-technologies

❶ Brand Protection

Counterfeiting is a Global Epidemic…

• 10% of Global GNP is counterfeit goods

1

• $1 trillion losses globally ($250B in U.S.)2

• $142B anti-counterfeit packaging market

3

1) U.S. Chamber of Commerce 2) GCCCP – United Nations World IP Organization 3) Allied Market Research, March 2014

Page 10: DSS - Investor Presentation

NYSE MKT: DSS

IP Activity

Products

Overview

Product Comps

We Commercialize & License Our Patented Technologies Across 3 Verticals

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❶ Brand Protection ❷ Software & Internet ❸ Hardware & Peripherals

AuthentiGuard®: Authenticates packaging and printed material through a mobile application

Target market: Brand name goods & pharmaceuticals frequently counterfeited

AuthentiSite: Verifies authenticity of websites

Target markets: Online retail & wholesalers

Security-enhanced packaging, printing & plastics

Secure packaging solutions for brand protection

Intelligent cards that authenticate identity & resist counterfeiting

Printing services that leverage DSS’ fraud protection technology

For more information: www.authentiguard.com

Page 11: DSS - Investor Presentation

NYSE MKT: DSS

IP Activity

Products

Overview

Product Comps

We Commercialize & License Our Patented Technologies Across 3 Verticals

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❶ Brand Protection ❷ Software & Internet ❸ Hardware & Peripherals

Multiple OS Platforms

Website Authentication

Real-Time Data Capture

GPS Mapping of Mark Scans

Page 12: DSS - Investor Presentation

NYSE MKT: DSS

IP Activity

Products

Overview

Product Comps

We Commercialize & License Our Patented Technologies Across 3 Verticals

12

❶ Brand Protection ❷ Software & Internet ❸ Hardware & Peripherals

DSS IP Portfolio Segment

Issued Patents / Applications

Technology Milestones Current

Defendants/ Licensees

“Core” Physical and Digital Brand Protection technologies

13 / 14

Digital and physical anti-counterfeit and authentication technology

5 digital applications filed in 2012-2013

Patents should issue 2015-2016

Numerous Commercial Licenses, i.e., RR Donnelly

“Core” Printed Brand Protection technologies

Breach of Contract

Unauthorized use of trade secrets provided under NDA for protecting coupons

Filed 10/24/2011

Summary judgment motion decision pending

Trial TBD

Coupons.com

Page 13: DSS - Investor Presentation

NYSE MKT: DSS

Products

Overview

IP Activity

We Commercialize & License Our Patented Technologies Across 3 Verticals

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❷ Software/Internet ❸ Hardware/Peripherals

Software & Internet vertical includes several pioneering companies and technologies founded by innovators that guide our corporate R&D

Our proprietary products and services include secure file sharing, middleware, and cloud hosting

❶ Brand Protection

Page 14: DSS - Investor Presentation

NYSE MKT: DSS

Products

Overview

IP Activity

We Commercialize & License Our Patented Technologies Across 3 Verticals

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❷ Software/Internet ❸ Hardware/Peripherals ❶ Brand Protection

Secure enterprise file sharing

Enterprise application configuration without coding

Platform independent website development

Out-of-the-box cloud application hosting

Resellers & Development Partners

Page 15: DSS - Investor Presentation

NYSE MKT: DSS

Products

Overview

IP Activity

We Commercialize & License Our Patented Technologies Across 3 Verticals

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❷ Software/Internet ❸ Hardware/Peripherals ❶ Brand Protection

DSS IP Portfolio Segment

Patents / Applications

Technology Milestones Current Defendants/

Licensees

7 / 5

Data structure used to build social networks and use thereof

Cases filed: 10/4/2012

Two settlements at 4% & 5% royalty rates

CAND case resumed 8/22 after 7 month stay

5 / 5

User configurable platforms used to create sophisticated and integrated applications

VirtualAgility is evaluating its options on how to proceed with future monetization of the portfolio

None

2 / 1

The development of custom applications & websites

Entered into sales and IP licensing partnership Nov. 2013

Ongoing licensing discussions

DSS is a Minority Shareholder

A Wholly-Owned Subsidiary of DSS

Page 16: DSS - Investor Presentation

NYSE MKT: DSS

Products

Overview

IP Activity

We Commercialize & License Our Patented Technologies Across 3 Verticals

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❷ Software/Internet ❸ Hardware/Peripherals

Our newest technology vertical

Includes semiconductor and wireless technologies acquired principally from fortune 500 Companies

These technologies to help protect our hardware products, and develop new hardware and peripherals

❶ Brand Protection

Page 17: DSS - Investor Presentation

NYSE MKT: DSS

Products

Overview

IP Activity

We Commercialize & License Our Patented Technologies Across 3 Verticals

17

❷ Software/Internet ❸ Hardware/Peripherals

SensorShield: Cloud based facilities monitoring technology using multifunction sensors

CloudZone Gateway: Out-of-the-box computing server that allows SMBs to manage, share & protect data

AuthentiGuard Reader: Mobile reader that provides product authentication, management and communication, directly to the palm of your hand

❶ Brand Protection

Research & Development

Page 18: DSS - Investor Presentation

NYSE MKT: DSS

Products

Overview

IP Activity

We Commercialize & License Our Patented Technologies Across 3 Verticals

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❷ Software/Internet ❸ Hardware/Peripherals ❶ Brand Protection

DSS IP Portfolio Segment

Patents / Applications

Technology Milestones Current Defendants/

Licensees

2 / 0

Use of wireless peripheral devices in “Personal Data Network”

Case filed 11/26/2013 in EDTX

Markman Hearing 11/6/2014 in EDTX

9 / 0

Semiconductor Fabrication

Acquired in Q3-13

Cases filed 3/10/2014 in EDTX

Markman Hearing 3/2/2015 in EDTX

90

Semiconductor Manufacturing

Acquired in Q2-14

Page 19: DSS - Investor Presentation

NYSE MKT: DSS

Phase 5 Phase 1 Phase 4 Phase 3 Phase 2

Patent Litigation: Typical Milestones & Where We Stand

Complaint filed by patent owner in U.S. district court

Defendant answers complaint, asserts any counterclaims

End of any phase often leads to settlement discussions (95% of all cases lead to settlement before trial)

Plaintiff serves complaint & summons on defendant

Plaintiff replies to any counterclaims

Rule 26(f) Discovery

Conference

Case Management Conference w/ Judge

Jury Trial

Verdict

Pretrial Briefing

Pre-trial Conference w/ Judge

Expert Discovery Each party’s experts submit expert reports, expert depositions

Fact Discovery Depositions, document requests, interrogatories, requests for admission, subpoenas of third parties

The Markman Hearing An important of pretrial events

where the court determines the meaning of key words in the

patent claims. Interpretation of patent claims ultimately define the scope of infringement and

potential damages.

Motions for Summary Judgment

Initial decision on infringement & patent validity.

Appeal Plaintiff or defendant can appeal at federal circuit Court of Appeals

1. Coupons.com: Summary Judgment motion decision pending.

2. Bascom Research: Summary Judgment hearing scheduled for Nov. 21, 2014.

3. Apple: Markman Hearing scheduled for Nov. 6, 2014.

4. TSMC, Samsung Electronics and NEC Corporation: Discovery Phase initiated. Markman Hearing scheduled March 2, 2015.

5. Lenovo: Initial mediation scheduled Jan. 19, 2015. Markman hearing scheduled in May 2015. Trial anticipated Feb. 2016.

Status of DSS Patent Litigation

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Page 20: DSS - Investor Presentation

NYSE MKT: DSS

Growing IP Portfolio & Increasing Monetization Activity

20

15

35

150

4

10

15

2012 2013 2014E 2015E

Issued Patents

Active Disputes

IP Portfolio Growth & Outlook

Brand Protection

9% Issued: 13

Pending: 14

Software & Internet

17% Issued: 14

Pending: 11

Hardware & Peripherals

74% Issued: 110 Pending: 0

Patent Asset Composition Issued & Pending

We have focused our IP acquisitions on hardware patents that align with our technology roadmaps.

These IP assets support our operating divisions, product innovations and licensing programs.

We anticipate additional IP acquisitions to diversify our portfolio as we take advantage of this unprecedented buyer’s market for IP assets.

Page 21: DSS - Investor Presentation

NYSE MKT: DSS

Improving Net Profitability of Sales (Sales less direct costs, excl. depreciation & amortization)

$4.5

$6.1

$7.0 $6.8

2011 2012 2013 TTM

Revenue Growth

Financial Performance

$12.0

$15.3 $15.5 $15.9

$1.4

$1.8 $2.0 $2.0

$13.4

$17.1 $17.5 $17.9

2011 2012 2013 TTM

$ millions

Tech Sales & Licensing Revenue

Printed Product Revenue

$ millions

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Page 22: DSS - Investor Presentation

NYSE MKT: DSS

Balance Sheet

Access to private project funding capital from IP-savvy investors, increases DSS’ IP investment capacity.

Received $1.5 million milestone payment in Q3 2014.

$1 million available under a revolving credit line.

Select Balance Sheet Items

$Millions June 30, 2014

Cash & restricted cash $1.6

Total assets $66.3

Total debt $7.1

Total liabilities $11.7

Total stockholders’ equity $54.6

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Page 23: DSS - Investor Presentation

NYSE MKT: DSS

Growth Drivers

Brand Protection

Continued transition to higher margin products in print and ID

Remain EBITDA positive in packaging and printing business groups

Ramp commercialization of AuthentiGuard

Licensing Revenue

Accelerate monetization of existing patents

Assert additional patents against identified targets

Intellectual Property

Create new IP in key technology verticals

Acquire foundational IP that aligns with our tech road map

Innovation

Continued development of technology and products in our core verticals

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Page 24: DSS - Investor Presentation

NYSE MKT: DSS

Key Takeaways

Differentiated business model — focused on commercialization and enforcement of a diversified technology portfolio

Growing and profitable brand protection business

Valuable near-term growth opportunities with AuthentiGuard & other digital products

Significant upside potential with IP licensing

Catalysts in 2014 include potential product successes and litigation milestones

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Revenue Growth

$12.0

$15.3 $15.5 $15.9

$1.4

$1.8 $2.0 $2.0

$13.4

$17.1 $17.5 $17.9

2011 2012 2013 TTM

$ millions

Tech Sales & Licensing Revenue

Printed Product Revenue

Page 25: DSS - Investor Presentation

NYSE MKT: DSS

Contact Us

DSS Investor Relations Tel (585) 325-3610 [email protected]

Liolios Group, Inc. Investor Relations Matt Glover or Michael Koehler Newport Beach, CA 92660 Tel (949) 574-3860 [email protected]

Document Security Systems, Inc. 28 Main Street East, 15th Floor Rochester, NY 14614 www.dsssecure.com

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Page 26: DSS - Investor Presentation

NYSE MKT: DSS

2013-2014 Timeline & Milestones

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Jul: Merged with Lexington

Technology Group

Oct: Partnered with National Association of Drug Diversion Investigators

Sept: First AuthentiGuard

sale to MedTech

Oct: Launched Hardware & Peripheral

Vertical

Nov: Partnered with Condé Nast

Publication, Brides Magazine

Nov: Entered into sales & IP licensing

partnership with Express Mobile

Nov: Filed patent lawsuit against Apple

Dec: Printed Products EBITDA

profitability increased 386%

Feb: AuthentiGuard

on Fox & Friends

Jan: Completed

consolidation of print & packaging divisions

Mar: Filed patent infringement claim against

Samsung TSMC & NEC

Q3: Acquired wireless &

semiconductor portfolios

Q2: Acquired hardware portfolios

Mar: Closed $4.5M project

Financing

2013 | 2014

Q2 Revenue Up 14% $4.9M

Page 27: DSS - Investor Presentation

NYSE MKT: DSS

Proven Leadership in IP Monetization & Commercialization

Executive Team Expertise

Brand Protection Software/Internet Tech Management

Jeff Ronaldi CEO

Peter Hardigan COO

Robert Bzdick President

Phillip Jones CFO

Dave Wicker VP of R&D

Tom Bascom Bascom Research

Warren Hurwitz Director

25+ years of experience in company formation and management

Former CEO of Lexington Technology Group

Leader in IP enforcement with verdicts against Microsoft, Genzyme and Citrix

Extensive IP experience as CFO & Head of Investment Management at IP Navigation

Previously COO of Lexington Technology Group

Principal & leader of IP transactions at Charles River Associates in NYC and Frankfurt

25+ years of successful entrepreneurial experience

Founder and CEO of Premier Packaging Corp. prior to DSS acquisition

Leads Brand Protection vertical

CFO DSS since 2009

Controller and Principal Accounting Officer from 2005-2009

Financial management positions at American Fiber Systems and Zapata

PWC and Arthur Andersen

24+ years of experience in the commercial printing industry

Developed techniques to provide user-friendly secure technologies

Implemented through on-site technical training for web press operators around the country

Founder of Linkspace

Program Manager for Raytheon & Northrup Grumman’s ballistic missile defense program

Manager for NASA’s Mission to Planet Earth at Goddard Space Flight Center

Co-founded Altitude Capital Partners

Managed Altitude’s key investment portfolio companies: Visto, Saxon, DeepNines, MercExchange, Digitude and Software Rights Archive.

SVP at HSBC Capital (USA), U.S. Private Equity arm of HSBC Group

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