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**UNITED STATES SECURITIES AND EXCHANGECOMMISSION****Washington, D.C. 20549**

**FORM 10-QSB**

**QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF****THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended****September30, 2005**

| **1-32146**                                                          |
|----------------------------------------------------------------------|
|                                                                      |
| Commission file number                                               |
|                                                                 |
|                                                                      |
|                                                                      |
| (Exact name of small    business issuer as specified in its charter) |

|                                                         |                                 |
|--------------------------------------------------------------|--------------------------------------|
| **New York**                                                 | **16-1229730**                       |
|                                                              |                                      |
| (State of incorporation)                                     | (IRS Employer Identification Number) |
|                                                         |                                 |
| **28 Main Street East, Suite 1525Rochester,****NY****14614** |
|                                                              |
| (Address of principal executive office)                      |
|                                                         |                                 |
| **(585) 325-3610**                                           |
|                                                              |
| (Issuer’s telephone number)                             |

**Check whether the issuer:**

(1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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      No**

**Applicable only to corporate issuers**

As of November 10, 2005 (the most recent practicable date), there were 12,401,811 shares of the issuer’s Common Stock, $0.02 par value per share, outstanding.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)**Yes      No**

Transitional Small Business Disclosure Format (check one) **Yes      No**

 

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|   |   |                                |
|--------|--------|-------------------------------------|
|        |        |                                     |
|   |   | **DOCUMENT SECURITY SYSTEMS, INC.** |   |   |
|   |   | **FORM 10-QSB**                     |   |   |
|   |   | **TABLE OF CONTENTS**               |   |   |
|   |   |                                |   |   |

| **PART I**     |   | **FINANCIAL INFORMATION**                                                                     | F-3    |   |
|----------------|--------|-----------------------------------------------------------------------------------------------|--------|--------|
|           |   |                                                                                          |   |   |
| Item 1         |   | Financial Statements (Unaudited)                                                              |   |   |
|           |   | Consolidated Balance Sheets                                                                   | F-3    |   |
|           |   | Consolidated Statements of Operations                                                         | F-4    |   |
|           |   | Consolidated Statements of Cash Flows                                                         | F-5    |   |
|           |   | Notes to Financial Statements                                                                 | F-6    |   |
| Item 2    |   | Management’s    Discussion and Analysis of Financial Condition and Results of Operations | F-11   |   |
| Item 3    |   | Controls and Procedures                                                                       | F-21   |   |
|           |   |                                                                                          |        |   |
| **PART II**    |   | **OTHER INFORMATION**                                                                         | F-21   |   |
|           |   |                                                                                          |   |   |
| Item 1         |   | Legal Proceedings                                                                             | F-21   |   |
| Item 2         |   | Unregistered Sales of Equity Securities    and Use of Proceeds                                | F-22   |   |
| Item 3         |   | Defaults upon Senior Securities                                                               | F-23   |   |
| Item 4         |   | Submission of Matters to a Vote of Security    Holders                                        | F-23   |   |
| Item 5         |   | Other Information                                                                             | F-23   |   |
| Item 6         |   | Exhibits                                                                                      | F-23   |   |
|           |   |                                                                                          |   |   |
| **SIGNATURES** | F-24   |                                                                                          |

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**PART IFINANCIAL INFORMATION**

ITEM 1 - FINANCIAL STATEMENTS

**DOCUMENT SECURITY SYSTEMS,INC. **AND SUBSIDIARIES**Consolidated Balance Sheets******

|                                                                                                                         |   | **September 30,****2005** |        | **December 31,    2004** |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|-------------|--------------------------|--------|
|                                                                                                                         |   | **(unaudited)**           |        |                     |   |   |
|                                                                                                                         |   |                           |        |                          |        |   |
|    **ASSETS**                                                                                                 |   |                      |        |                     |   |   |   |
|    **Current assets:**                                                                                        |   |                      |        |                     |   |   |   |
|       Cash and cash equivalents                                                                |   | $                         | 3,719,806   |                     | $      | 2,657,865 |   |
|       Accounts receivable, net                                                                 |   |                      | 166,401     |                     |   | 381,923 |   |
|       Inventory                                                                                |   |                      | 144,747     |                     |   | 62,494 |   |
|       Prepaid expenses                                                                         |   |                      | 88,900      |                     |   | 64,158 |   |
|                                                                                                                         |   |                      |             |                     |   |  |   |
|          Total current assets                                                   |   |                      | 4,119,854   |                     |   | 3,166,440 |   |
|                                                                                                                         |   |                      |        |                     |   |   |   |
|    **Restricted Cash**                                                                                        |   |                      | 249,000     |                     |   | 300,000 |   |
|    **Fixed assets, net**                                                                                      |   |                      | 475,568     |                     |   | 522,623 |   |
|    **Other assets**                                                                                           |   |                      | 450,927     |                     |   | - |   |
|    **Goodwill**                                                                                               |   |                      | 284,278     |                     |   | 284,278 |   |
|    **Other intangible assets, net**                                                                           |   |                      | 4,770,820   |                     |   | 343,624 |   |
|                                                                                                                         |   |                           |             |                     |        |  |   |
|                                                                                                                         |   |                      |        |                     |   |   |   |
|                                                                                                                         |   | $                         | 10,350,447  |                     | $      | 4,616,965 |   |
|                                                                                                                         |   |                           |             |                     |        |  |   |
|    **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                              |   |                      |        |                     |   |   |   |
|    **Current liabilities:**                                                                                   |   |                      |        |                     |   |   |   |
|                                                                                                                         |   |                      |        |                     |   |   |   |
|       Accounts payable and accrued expenses                                                    | $      |                      | 519,333     |                     | $      | 461,173 |   |
|       Current portion of long-term debt                                                        |   |                      | 50,124      |                     |   | 47,894 |   |
|       Current portion of capitalized lease obligations                                         |   |                      | 32,674      |                     |   | 30,663 |   |
|                                                                                                                         |   |                      |             |                     |   |  |   |
|          Total current liabilities                                              |   |                      | 602,131     |                     |   | 539,730 |   |
|                                                                                                                         |   |                      |             |                     |   |  |   |
|                                                                                                                         |   |                      |        |                     |   |   |   |
|    **Long-term debt**                                                                                         |   |                      | 180,333     |                     |   | 218,226 |   |
|                                                                                                                         |   |                      |        |                     |   |   |   |
|    **Long-term capital           lease obligations**                                                          |   |                      | 93,542      |                     |   | 118,267 |   |
|                                                                                                                         |   |                      |             |                     |   |  |   |
|    **Stockholders’ equity**                                                                              |   |                      |        |                     |   |   |   |
|       Common stock, $.02 par value;                                                            |   |                      |        |                     |   |   |   |
|             200,000,000 shares authorized, 12,395,444            |   |                      |        |                     |   |   |   |
|             shares    issued and outstanding (10,926,818 in2004) |   |                      | 247,909     |                     |   | 218,536 |   |
|             Shares    issuable (150,000 in 2005 and 0 in2004)    |   |                      | 500,000     |                     |   | — |   |
|       Additional paid-in capital                                                               |   |                      | 20,073,767  |                     |   | 13,074,847 |   |
|       Accumulated deficit                                                                      |   |                      | (11,347,235 | )                        |   | (9,552,641 | ) |
|                                                                                                                         |   |                      |             |                     |   |  |   |
|          Total stockholders’ equity                                        |   |                      | 9,474,441   |                     |   | 3,740,742 |   |
|                                                                                                                         |   |                      |             |                     |   |  |   |
|                                                                                                                         |   | $                         | 10,350,447  |                     | $      | 4,616,965 |   |
|                                                                                                                         |   |                      |             |                     |   |  |   |

See accompanying notes

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**DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES**

**Consolidated Statements of Operations  (unaudited)**

|                                                                  |   | ******Three Months Ended**          |          | **Nine Months Ended**         |   |
|-----------------------------------------------------------------------|--------|-------------------------------------|---------------|-------------------------------|--------|
|                                                                  |   | ******September    30********2005** |          | ******September 30,****2004** |   | **September    30****2005** |   | **September    30****2004** |   |
|                                                                  |   |                                     |               |                          |        |  |   |  |  |   |  |  |   |
|    Sales, net                                          |   | $                                   | 373,123       |                          | $      | 355,166 |   | $ | 1,297,397 |   | $ | 1,030,605 |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|    Costs of sales                                      |   |                                | 186,649       |                          |   | 223,708 |   |   | 672,245 |   |   | 640,255 |   |
|                                                                  |   |                                     |               |                          |        |  |   |  |  |   |  |  |   |
|    Gross profit                                        |   |                                | 186,474       |                          |   | 131,458 |   |   | 625,152 |   |   | 390,350 |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|    Selling, general and administrative expenses        |   |                                | 674,018       |                          |   | 407,793 |   |   | 1,951,453 |   |   | 1,230,901 |   |
|    Research and development                            |   |                                | 79,165        |                          |   | 106,780 |   |   | 239,750 |   |   | 297,899 |   |
|    Amortization of intangibles                         |   |                                | 135,000       |                          |   | 4,500 |   |   | 270,000 |   |   | 13,500 |   |
|                                                                  |   |                                     |               |                          |        |  |   |  |  |   |  |  |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|       Operating expenses                |   |                                | 888,183  |                          |   | 519,073 |   |   | 2,461,203 |   |   | 1,542,300 |   |
|                                                                  |   |                                     |               |                          |        |  |   |  |  |   |  |  |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|    Loss before other income (expense) and income taxes |   |                                | (701,709      | )                             |   | (387,615 | ) |   | (1,836,051 | ) |   | (1,151,950 | ) |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|    Other income (expense):                             |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|        Interest    income     |   |                                | 29,797        |                          |   | 13,395 |   |   | 67,222 |   |   | 44,479 |   |
|       Interest    expense               |   |                                | (6,494        | )                             |   | (4,002 | ) |   | (20,543 | ) |   | (15,969 | ) |
|                                                                  |   |                                     |               |                          |        |  |   |  |  |   |  |  |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|    Loss before income taxes                            |   |                                | (678,406      | )                             |   | (378,222 | ) |   | (1,789,372 | ) |   | (1,123,440 | ) |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|    Income taxes                                        |   |                                | —        |                          |   | 3,599 |   |   | 5,222 |   |   | 5,799 |   |
|                                                                  |   |                                     |               |                          |        |  |   |  |  |   |  |  |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|    Net loss                                            |   | $                                   | (678,406      | )                             | $      | (381,821 | ) |   | (1,794,594 | ) |   | (1,129,239 | ) |
|                                                                  |   |                                     |               |                          |        |  |   |  |  |   |  |  |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|    Net loss per share, basic and diluted               |   | $                                   | (0.05         | )                             | $      | (0.04 | ) |   | (0.15 | ) |   | (0.10 | ) |
|                                                                  |   |                                     |               |                          |        |  |   |  |  |   |  |  |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|    Weighted average common shares outstanding, basic   |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|    and diluted                                         |   |                                | 12,285,029    |                          |   | 10,908,607 |   |   | 11,856,511 |   |   | 10,885,137 |   |
|                                                                  |   |                                     |               |                          |        |  |   |  |  |   |  |  |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
|                                                                  |   |                                |          |                          |   |   |   |   |   |   |   |   |   |
| See accompanying notes.                                               |   |                                |          |                          |   |   |   |   |   |   |   |   |   |

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**DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES**

**Consolidated Statementsof Cash Flows****(unaudited)**

|                                                                                                                                              | **Nine Months Ended** |                             |
|---------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|----------------------------------|
|                                                                                                                                              |                  | ****September    30,**    2005** |   | ****September    30,**    2004** |   |
|                                                                                                                                              |                  |                                  |  |   |  |   |
|    Cash flows from operating activities:                                                                                           |                  |                             |   |   |   |   |   |
|       Net loss                                                                                                      |                  | $                                | (1,794,594 | ) | $ | (1,129,239 | ) |
|                                                                                                                                              |                  |                             |   |   |   |   |   |
|       Adjustments to reconcile net loss to net                                                                      |                  |                             |   |   |   |   |   |
|       cash used by operating activities:                                                                            |                  |                             |   |   |   |   |   |
|             Depreciation and amortization expense                                     |                  |                             | 404,960 |   |   | 57,141 |   |
|             Stock issued for services                                                 |                  |                             | 29,521 |   |   | 3,840 |   |
|                (Increase) decrease in assets:                          |                  |                             |   |   |   |   |   |
|                   Accounts receivable                   |                  |                             | 235,226 |   |   | (17,079 | ) |
|                   Inventory                             |                  |                             | (77,176 | ) |   | 33,665 |   |
|                   Prepaid expenses and other assets     |                  |                             | (73,238 | ) |   | (52,360 | ) |
|                Increase (decrease) in liabilities:                     |                  |                             |   |   |   |   |   |
|                   Accounts payable and accrued expenses |                  |                             | 58,179 |   |   | (113,627 | ) |
|                                                                                                                                              |                  |                                  |  |   |  |  |   |
|    Net cash used by operating activities                                                                                           |                  |                             | (1,217,122 | ) |   | (1,217,659 | ) |
|                                                                                                                                              |                  |                             |   |   |   |   |   |
|    Cash flows from investing activities:                                                                                           |                  |                             |   |   |   |   |   |
|          Purchase of fixed assets                                                                    |                  |                             | (83,941 | ) |   | (266,659 | ) |
|          Purchase of royalty rights                                                                  |                  |                             | — |   |   | (90,000 | ) |
|          Purchase of patents and contractual rights                                                  |                  |                             | (185,283 | ) |   | (69,695 | ) |
|                                                                                                                                              |                  |                                  |  |   |  |  |   |
|    Net cash used by investing activities                                                                                           |                  |                             | (269,224 | ) |   | (426,354 | ) |
|                                                                                                                                              |                  |                             |   |   |   |   |   |
|    Cash flows from financing activities:                                                                                           |                  |                             |   |   |   |   |   |
|             Repayment of line of credit                                               |                  |                             | — |   |   | (11,259 | ) |
|             Repayment of long-term debt                                               |                  |                             | (35,663 | ) |   | (21,383 | ) |
|             Decrease in restricted cash                                               |                  |                             | 51,000 |   |   | — |   |
|             Repayment of capital lease obligations                                    |                  |                             | (22,714 | ) |   | — |   |
|             Issuance of common stock, net                                             |                  |                             | 2,555,664 |   |   | — |   |
|                                                                                                                                              |                  |                                  |  |   |  |  |   |
|    Net cash provided (used) by financing activities                                                                                |                  |                             | 2,548,287 |   |   | (32,642 | ) |
|                                                                                                                                              |                  |                                  |  |   |  |  |   |
|    Net increase (decrease) in cash and cash                                                                                        |                  |                             |   |   |   |   |   |
|    equivalents                                                                                                                     |                  |                             | 1,061,941 |   |   | (1,676,655 | ) |
|    Cash and cash equivalents beginning of period                                                                                   |                  |                             | 2,657,865 |   |   | 5,115,722 |   |
|                                                                                                                                              |                  |                                  |  |   |  |  |   |
|    Cash and cash equivalents end of period                                                                                         |                  | $                                | 3,719,806 |   | $ | 3,439,067 |   |
|                                                                                                                                              |                  |                             |  |   |   |  |   |
|                                                                                                                                              |                  |                             |   |   |   |   |   |
| See accompanying notes.                                                                                                                           |                  |                             |   |   |   |   |   |

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**DOCUMENT SECURITY SYSTEMS, INC.****NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS****September 30, 2005(Unaudited)**

| **1.**   | **Basis of Presentation** |
|--------------------|---------------------------|

The accompanying consolidated financial statements       include the accounts of Document Security Systems, Inc and its wholly       owned subsidiaries (collectively,    the “Company”) after elimination of intercompany transactions, profits, and balances. The consolidated financial statements are unaudited and have been prepared in accordancewith accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-QSB and Article 310 of Regulation S-B. Accordingly, they do not include all of the information and notesrequired for complete annual financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and notes for the year ended December 31, 2004 included in the Company’sAnnual Report on Form10-KSB. 

 In the opinion    of management, all adjustments necessary for a fair presentation have been    included. The    results for interim periods are not necessarily indicative of trends or of    results to be expected for a full year. Certain prior-year amounts have beenreclassified to conform to the current-year presentation. 

| **2.**   | **Other Intangible Assets** |
|--------------------|-----------------------------|

The Company’s intangible assets consists of costs associated with the application,acquisition and defense of our patents and trade secrets. Our patents and tradesecrets are for document anti-counterfeiting and anti-scanning technologies andprocesses that form the basis of our document security business

 In February 2005, the Company purchased various    legal ownership and economic interests in certain technology (patents and    trade secrets) from 40 persons and entities. The technologies related to    patent rights and trade secrets in certain document anti-fraud and anti-counterfeiting    technology that the Company had partially owned prior to the transaction.    The Company issued an aggregate of 541,460 shares of its common stock for    the rights of the interest holders andsecured 100% of the ownership rights and approximately 88% of the economic rights    to these technologies. The value of the shares of common stock was determined    based upon the closing price of the shares of the Company’scommon stock on the American Stock Exchange on February 15, 2005 of $7.25 pershare. The total aggregate fair value of the acquisition of the interests fromthe interest holders was $3,925,585. 

In September 2005, the Company acquired additional economic rights to the aforementioned patents and trade secrets from its acquisition of Secured Document Systems (Note 3). The Company estimated that the fair value of the rights purchased was$421,000.

 The Company amortizes    its intangible assets over the estimated useful life of the patents up to    the    legal life of 20 years. Currently, the patents being amortized have a weighted    average useful life of approximately 9 years. The Company also periodically    reviews the carrying value of these assets for impairment. The Company recorded    amortization expense for its patent assets during the three months and nine    months ended September 30, 2005 of $135,000 and$270,000, respectively, and $4,500 and $13,500, respectively, for those periodsin 2004. 

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On an ongoing    basis, the Company submits formal and provisional patent applications with    the United States, Canada and countries included in the Patent Cooperation    Treaty (PCT), which includes countries in Europe, and Australia, Japan, South    Africa, China and approximately 120 additional foreign countries. The Company    capitalizes these costs and amortizes them over the patents’ estimateduseful life.

In addition, the Company has    incurred costs associated with the defense of its right to use its patents.    The Company has  determined that in some cases it will need to use the court systems in the  jurisdictions of its patents to protect the rights of its patents against infringers,  and therefore, may incur substantial costs for these proceedings. The Company  capitalizes these costs as an increase to the cost basis of its patent assets  to be amortized over the  remaining estimated useful life of the patent. The Company continuously evaluates  whether the patent defense will be successful or unsuccessful. If it determines  that its defense will likely not be successful, then the defense costs are  expensed in that period and an impairment charge will likely be taken to writedown the associated patent asset to its fair value. 

 On August 26, 2005, the Company agreed to issue    150,000 of restricted shares to Strategic Resource Advisory Services, (“SRAS”) a subsidiary of IDT Corporation, in exchange for the payment of $500,000 of the Company’s legal expensesthat it will incur during the Company’s lawsuit with the European Central Bank. IDT Corporation is a related party to a member of the Company’sBoard of Directors. Pursuant to this transaction, the Company recorded a $500,000other asset that will be reclassified to patent assets as payments are made bySRAS on behalf of the Company. The cash value of the contract of $500,000 wasdeemed more readily determinable fair value than the common shares that willbe issued but not tradablefor two years. 

| **3.**   | **Acquisition** |
|--------------------|-----------------|

 On September 9, 2005, the Company purchased 100%    of the common stock of Secured Document Systems (“SDS”) for $566,000,    which consisted of 62,654 shares of its common stock plus additional costs    related to the transaction. The value of the shares of common stock was determined    based upon the closing price of the sharesof the Company’s common stock on the American Stock Exchange on September9, 2005 of $8.26 per share. SDS is an entity that holds various economic rightsto several of the Company’s patents which it had acquired from the WickerFamily. In  addition, SDS operates the Internet website ProtectedPaper.Com whichsells secured document solutions, including the Company’s safety paper.Commencing on September 1, 2005, the results of SDS’s operations are includedin the consolidated  financial statements of the Company. The Company accountedfor the acquisition as a business combination under FASB 141 “Business Combinations”.The purchase price was preliminarily allocated based on the fair market valueof the assets acquired with a pro rata reduction to the long term assets forthe excess of fair market values of the assets acquired over the purchase price.The purchase price was allocated as follows: 

| Accounts Receivable              |   | $      | 7,000   |   |
|----------------------------------|--------|--------|---------|--------|
| Inventory                        |   |   | 5,000   |   |
| Fixed Assets                     |   |   | 4,000   |   |
| Related party royalty receivable |   |   | 84,000  |   |
| Identified intangible assets     |   |   | 466,000 |   |
|                             |   |   |         |   |
|    Total          |   | $      | 566,000 |   |
|                             |   |        |         |   |

 

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The acquisition would not have had a materialeffect on pro forma and combined operating results for prior periods. 

| **4.**   | **Common Stock** |
|--------------------|------------------|

During the first three quarters of 2005, the Company received $1,324,000 in proceeds    from the exercise of warrants originally issued during a private placement    of its common stock in 2003 at exercise prices ranging from $2.00 to $5.00.    In addition, the Company received $1,250,000 in proceeds from the exercise    of warrants issued in 2003 for services at an exercise price of $2.50. As    of September 30, 2005, a total of 861,395 shares have been issued from these    warrants which includes 67,211 shares issued as the result of cashless exercises    of warrants. Pursuant to these cashlessexercises, 81,874 warrants have been cancelled. In addition, 30,000 warrants    expired during the three month ended September 30, 2005.

 In addition, the following transactions involved    the Company’sequity instruments: 

- issued 541,460 shares of its common stock to acquire various legal ownership and economic interests in certain technology, as described in Note 2 .

- issued 62,654 shares of its common stock to acquire Secured Document Systems, as described in Note 3

 - agreed to issue 150,000 shares of its common    stock in exchange for prepaid legal costs associated with the Company’s    lawsuitagainst the European Central Bank, as described in Note 2 

The Company relied    upon Section 4(2) of the Securities Act of 1933, as amended, for an exemptionfrom registration of the above described securities. 

| **5.**   | **Stock Options** |
|--------------------|-------------------|

 The Company accounts for employee stock options    using the intrinsic value method prescribed by APB 25. Accordingly, the “disclosure    only” provisionsof SFAS No.123 and 148 for these options are presented. 

 In the quarter ended March 31, 2005, the Company    granted two employees and four non-executive directors’ options to acquire    an aggregate of 72,500 shares of common stock. The options are exercisable    at    $7.14 per share and expire five years from the date of grant. Of the options    granted, 12,500 vested immediately, with the remainder of the options vestingpro-ratably over three years. 

 In the quarter    ended September 30, 2005, the Company granted 12 employees options to acquire    an aggregate    of 144,000 shares of common stock. The options are exercisable at $8.38 per    share and expire five years from the date of grant. Of the options granted,    48,000 vested immediately, with the remainder of the options vesting pro-ratablyover three years. 

 No compensation expense for stock options was    recorded in the three-month and nine-month periods ended September 30, 2005    and 2004. SFAS No. 148, “Accountingfor Stock Based Compensation - Transition and Disclosure” requires      the Company to disclose in its interim consolidated financial statements      the      impact if the Company had elected to recognize compensation cost on the    fair value of the options granted, as prescribed by SFAS 123. The impact    on the  net loss and net loss per share for the three months  and nine months ended September 30, 2005 and 2004 is presented below. 

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****

|                           |   | **September    30, 2005**          |     |
|--------------------------------|--------|------------------------------------|----------|
|                           |   | **Three           months   ended** |     | **Nine months**ended**** |   |
|                           |   |                               | $ Amount |   | $ Per share |   | $ Amount |   | $ Per share |   |
|                           |   |                                    |          |   |  |  |   |  |  |   |  |  |   |
| Net loss, as reported          |   | $                                  | (678,406 | ) | $ | (0.05 | ) | $ | (1,794,594 | ) | $ | (0.15 | ) |
|                           |   |                               |     |   |   |   |   |   |   |   |   |   |   |
| Fair value method compensation |   |                               |     |   |   |   |   |   |   |   |   |   |   |
| expense, net of tax            |   |                               | (224,473 | ) |   | (0.02 | ) |   | (449,693 | ) |   | (0.04 | ) |
|                           |   |                                    |          |   |  |  |   |  |  |   |  |  |   |
| Net loss, pro-forma            |   | $                                  | (902,879 | ) | $ | (0.07 | ) | $ | (2,244,287 | ) | $ | (0.19 | ) |

 

|                           |   | **September 30, 2004**    |     |
|--------------------------------|--------|---------------------------|----------|
|                           |   | **Three months**ended**** |     | **Nine months**ended**** |   |
|                           |   |                      | $ Amount |   |   | $ Per share |   |   | $ Amount |   |   | $ Per share |   |
|                           |   |                           |          |   |  |  |   |  |  |   |  |  |   |
|                           |   |                      |     |   |   |   |   |   |   |   |   |   |   |
| Net Income                     |   | $                         | (381,821 | ) | $ | (0.04 | ) | $ | (1,129,239 | ) | $ | (0.10 | ) |
| Fair value method compensation |   |                      |     |   |   |   |   |   |   |   |   |   |   |
| expense, net of tax            |   |                      | (145,513 | ) |   | (0.01 | ) |   | (173,838 | ) |   | (0.02 | ) |
|                           |   |                           |          |   |  |  |   |  |  |   |  |  |   |
| Net loss, pro-forma            |   | $                         | (527,334 | ) |   | (0.05 | ) | $ | (1,303,077 | ) | $ | (0.12 | ) |

      The fair      value of each option grant is estimated on the date of grant using the      Black - Scholes option    pricing model. Following are the weighted average assumptions used for valuing    the options granted during the ninemonths ended September 30, 2005: 

| Expected dividend yield         | 0   | %            |
|---------------------------------|-----|--------------|
| Expected stock price volatility | 55  | %            |
| Risk-free interest rate         | 4.1 | %            |
| Expected life of options        | 47  |  months |

      The Company intends to adopt SFAS 123(R) using the “modified prospective” transition method beginning with our first quarter of 2006. Under this method, awards that are granted, modified, or settled afterDecember 15, 2005, will be measured and accounted for in accordance with SFAS 123(R). In addition, beginning in our first quarter of 2006, expense must be recognized in the earnings statement for unvested awards that were granted prior to theadoption of SFAS 123(R). The expense will be based on the fair value determined at grant date under SFAS 123, “Accounting for Stock-Based Compensation.” Thefollowing table summarizes existing agreements and their expected pretax impactonearnings: 

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|                                    |   | ****                      |   |   |                                                                            |   |   |     |        |     |   |
|-----------------------------------------|--------|---------------------------|--------|--------|---------------------------------------------------------------------------------|--------|--------|----------|--------|----------|--------|
|                                    |   | **Pre FAS123(R)Adoption** |   |   | **Post Effective Date (December15, 2005) Requisite ServiceRecognition by Year** |   |
|                                    |   |                           |   |   |                                                                                 |   |
|                                    |   |                      |   |   |                                                                            |   |   |     |        |     |   |
|                                    |   | **2005**                  |   |   | **2006**                                                                        |   |   | **2007** |        | **2008** |   |
| Agreements containing service inception |   |                      |   |   |                                                                            |   |   |     |   |     |   |
| dates within the year                   |   | 15                        |   |   | 15                                                                              |   |   | 14       |   | 0        |   |
| Shares expected to vest                 |   | 134,500                   |   |   | 73,000                                                                          |   |   | 24,000   |   | 0        |   |
| Expected pretax cost                    |   | $523, 445                 |   |   | $269,965                                                                        |   |   | $75,380  |   | $0       |   |
| Per share amounts                       |   | $0.04                     |   |   | $0.02                                                                           |   |   | $0.01    |        | Nil      |   |

      The calculation of compensation    cost for share-based payment transactions after the effective date of SFAS    123(R) may be different from the calculation of compensation cost under SFAS    123, but such differences have notyet been quantified. 

| **6.**   | **Loss per Share** |
|--------------------|--------------------|

     Basic earnings per share is computed by dividing net income by the weighted-average    number of common shares, including shares issuable to SRAS (see Note 2),    outstanding for the period. Diluted earnings per share is computed by including    the number    of additional shares that would have been outstanding if dilutive potential    shares had been issued. In periods of losses, diluted loss per share is computed    on the same basis as basic loss per share as the inclusion of any other potential    shares outstanding would be anti-dilutive. As of September 30, 2005, there    were 580,969 stock optionsand warrants outstanding with exercise prices below the average share price for    the period that would have been included in the calculation of diluted earnings    per share had the Company generated net income.

| **7.**   | **Supplemental Cash Flow Information** |
|--------------------|----------------------------------------|

     During the nine months ended September 30, 2005, the Company issued 541,460 shares    of Common Stock valued at $3,925,585 to acquire certain patent rights. (See    Note 2). The Company also issued 62,654 shares of Common Stock valued at    $517,522 for an acquisition of a business. (See Note 3). In addition, the    Company agreed to issue 150,000 shares of Common Stock for prepaid legal    services. (See Note 2).

| **8.**   | **Segment Information** |
|--------------------|-------------------------|

     The Company’s businesses are organized, managedand internally reported as three segments. The segments are determined basedon differences in products, internal reporting and how operational decisionsare made. There are no material transactions between segments. The Company reducedits number of segments from four to three by including  its motion picture filmlicensing business which has minimal ongoing activity with its document securitysegment. A summary of the three segments is as follows:

| **Document    Security** | License, manufacture         and sale of document security technologies and safety paper products         and license of motion picture films. |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|
|                     |                                                                                                                                           |
| **Printing**             | Provide commercial printing and copying services       to the metropolitan Rochester, NY area as Patrick Printing.                             |
|                     |                                                                                                                                           |
| **Legal**                | Sale of specialty legal supplies via the Internet       to lawyers and law firms located throughout the       United States as Legalstore.com. |
|                     |                                                                                                                                           |
|                     |                                                                                                                                           |

 

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      Approximate information concerning    the operations by reportable segment for the three months and nine months    ended September  30, 2005 and 2004 is as follows. The Company relies on intersegment cooperation  and management does not represent that these segments, if operated independently,would report these results. 

|                                                     |         |   |         |   | **Document** |      |               |   |         |   |
|----------------------------------------------------------|--------------|--------|--------------|--------|--------------|-----------|--------------------|--------|--------------|--------|
|    **3 months ended September 30, 2005:** | **Printing** |   | **Legal**    |   | **Security** |      | **Administrative** |   | **Total**    |   |
|                                                          |              |        |         |        |         |           |               |        |         |        |   |
| Revenues from external customers                         |         | $      | 114,000      |   | $            | 122,000   |               | $      | 137,000      |   | $ | — |   |   | 373,000 |   |
| Depreciation and amortization                            |         |   | 21,000       |   |         | 1,000     |               |   | 136,000      |   |   | 22,000 |   |   | 180,000 |   |
| Net segment profit or (loss)                             |         |   | (44,000      | )      |         | 12,000    |               |   | (350,000     | )      |   | (296,000 | ) |   | (678,000 | ) |
|                                                     |         |   |         |   |         |      |               |   |         |   |   |   |   |   |   |   |
| **3 months ended September 30, 2004:**                   |         |   |         |   |         |      |               |   |         |   |   |   |   |   |   |   |
|                                                          |         |        |              |   |              |           |               |        |              |   |  |  |   |  |  |   |
| Revenues from external customers                         |         | $      | 176,000      |   | $            | 120,000   |               | $      | 59,000       |   | $ | — |   |   | 355,000 |   |
| Depreciation and amortization                            |         |   | 12,000       |   |         | 3,000     |               |   | —       |   |   | 5,000 |   |   | 20,000 |   |
| Net segment profit or (loss)                             |         |   | (21,000      | )      |         | (9,000    | )                  |   | (187,000     | )      |   | (165,000 | ) |   | (382,000 | ) |
|                                                     |         |   |         |   |         |      |               |   |         |   |   |   |   |   |   |   |
|                                                     |         |   |         |   |         |      |               |   | **Document** |   |   |   |   |   |   |   |
|    **9 months ended September 30, 2005:** |         |   | **Printing** |   |         | **Legal** |               |   | **Security** |   |   | **Administrative** |   |   | **Total** |   |
|                                                          |         |   |              |   |         |           |               |   |              |   |   |  |   |   |  |   |
| Revenues from external customers                         |         | $      | 364,000      |   | $            | 380,000   |               | $      | 553,000      |   | $ | - |   | $ | 1,297,000 |   |
| Depreciation and amortization                            |         |   | 58,000       |   |         | 4,000     |               |   | 276,000      |   |   | 66,000 |   |   | 404,000 |   |
| Net segment profit or (loss)                             |         |   | (104,000     | )      |         | 50,000    |               |   | (685,000     | )      |   | (1,056,000 | ) |   | (1,795,000 | ) |
|                                                     |         |   |         |   |         |      |               |   |         |   |   |   |   |   |   |   |
| **9 months ended September 30, 2004:**                   |         |   |         |   |         |      |               |   |         |   |   |   |   |   |   |   |
|                                                          |         |        |              |   |              |           |               |        |              |   |  |  |   |  |  |   |
| Revenues from external customers                         |         | $      | 483,000      |   | $            | 358,000   |               | $      | 190,000      |   | $ | - |   | $ | 1,031,000 |   |
| Depreciation and amortization                            |         |   | 37,000       |   |         | 7,000     |               |   | -            |   |   | 13,000 |   |   | 57,000 |   |
| Net segment profit or (loss)                             |         |   | (61,000      | )      |         | (5,000    | )                  |   | (497,000     | )      |   | (566,000 | ) |   | (1,129,000 | ) |

**ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

***FORWARD-LOOKING STATEMENTS***

      Certain statements contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”). Document SecuritySystems, Inc. desires to avail itself of certain “safe harbor” provisions of the 1995 Reform Act and is therefore including this special note to enable us to do so. Except for the historical information contained herein, this reportcontains forward-looking statements (identified by the words “estimate,” “project,” “anticipate,” “plan,” “expect,” “intend,” “believe,” “hope,” “strategy” andsimilar expressions), which are based on our current expectations and speak onlyas of the date made. These forward-looking statements are subject to variousrisks, uncertainties and factors, including, without limitation,those contained in our Form 10-KSB for the year ended December 31, 2004 and thosedescribed herein that could cause actual results to differ materially from theresults anticipated in the forward-looking statements. 

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**Overview**

            We are a supplier and printer of security documents containing patented technology that is designed to prevent the counterfeiting of documents and or to authenticate originals. We license or print security documents that utilize our patented technologies  to security printers, corporations and governments worldwide.  Our technology has been used in securing sensitive and critical documents such as currency, automobile titles, spare parts forms for the aerospace industry, psychological examinations, gift certificates, permits, checks, licenses, receipts, prescription and medical forms, engineering schematics, ID cards, labels, original music, coupons, homeland security manualstickets, and school transcripts.  We believe our technology will also be used for consumer product and pharmaceutical packaging.  In addition, we sell legal supplies on the Internet, and commercial printing and copying services at two non-core divisions.

     We entered the document security business as the result of the acquisitions of Thomas Wicker Enterprises, Inc. and Document Security Consultants, Inc. in 2002.  Beginning in the second half of 2002, we identified document security as our core business and began to concentrate our efforts and resources primarily toward that business.   At that time, we determined that prior to our full entry into the document security business we would need to consolidate our ownership rights to a portfolio of patents and trade secrets that would be the basis of our business. Since 2002, we had been in the process of acquiring and consolidating the rights to these patents primarily in exchange for ownership interests in our Company.During the first three quarters of 2005, we substantially completed this process by issuing shares of our Common Stock to acquire and consolidate legal ownership or economic interests in some of our core patents and trade secrets.  We believe we now have the appropriate level of technology ownership rights to take full advantage of the worldwide need for our products and technologies and can now concentrate more of our resources on the marketing and sales of our technology.

     Generally, we generate revenue from our document security business in three ways.  We produce a security paper containing our patent pending technologies for the wholesale paper industry.  We also license our patented technologies to security printers so that they can provide their customers with products containing our anti-counterfeiting technologies.  Finally, we design and print, customized secure documents  for various end users such as governments and corporations.  

     Our    primary product for the paper market is AuthentiGuard Safety Paper. AuthentiGuard    Safety Paper is a paper which reveals hidden warning words, logos or images    when a clear plastic viewer is placed over the paper or when the paper is    faxed, copied, scanned or re-imaged in any form. The hidden words appear    on the duplicate copy or the computer digital scan and essentially prevent    important documents from ever being counterfeited. During the past year,    we have concentrated on the wholesale portion of the Safety Paper business.    Due to our limited size, we determined that we did not have the resources    to develop an international retail market in Safety Paper. To achieve this    goal, we have sought distributors who could more effectively meet the demands    of world-wide retail customers. Beginning in the first quarter of 2005, Boise    White Paper LLC (“Boise”) obtained the rights to distribute ****a    branded version of this safety paper called “Boise Beware” on an    exclusive basis throughout North America to paper distributors and printers.    We retained the right to sell our “AuthentiGuard” brand of safety    paper directly to all end users including North America, and printers and    paper distributors outside of North America. We are also in discussions with    a large international paper distributor for the rights to distribute our    Safety Paper outside of North America, including Europe, Asia, South America,    Australia and Africa.

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     Much of our efforts in the first half of 2005 were spent on working with Boise to launch Boise Beware.   We educated and trained the Boise employees about our technology, and developed, in cooperation with Boise personnel, a purchase order and manufacturing process including outlining the distribution and warehouse functions. We also used a third-party printer to meet initial demand and to build our inventories of the paper which Boise has arranged to sell at OfficeMax and CopyMax stores throughout the United States as well as to its corporate clients.    

     Currently, our Safety Paper is manufactured and stored for us by a third-party printer which has sufficient capacity to meet our foreseeable demand for Safety Paper.    During the third quarter of 2005, sales of Safety Paper slowed as compared to the second quarter of 2005 primarily due to a seasonality factor and that our paper distributor, Boise, was still in an initial set-up mode.  During the quarter, their inventories were sufficient to supply direct retail paper sales.  We believe that the “Boise Beware” product line will experience continued growth due to the continued sales efforts of Boise in North America.

     We intend to further increase our revenues by expanding the market for our “AuthentiGuard” safety paper internationally and expect to benefit from new distribution agreements outside of North America.   In addition, we are seeking to increase revenues and increase gross profit margins by developing manufacturing capabilities through strategic mergers and acquisitions that will allow us to service larger and a wider range of potential customers while eliminating a layer of costs by reducing our reliance on third party printers. 

     Concurrent with the completion of the patent consolidation phase of our business, we are concentrating more of our efforts and resources towards growing our technology licensing business.   We continue to reinforce our existing industry relationships and we are active in introducing our organization and technologies to various industries and government agencies in the United States and internationally.  In addition, we expanded our service personnel to assure our current and future customers of our ability to provide future support for their post sale service requirements.   Our sales initiative is focused on major national and international corporations that have a long-term need for our anti-counterfeitingtechnologies.  

     During 2005, we have also begun to expand our marketing efforts to the end-user of custom secure documents.  Whereas in the past, we typically sought to license our technology to the printer of the end-user, we have determined that significant advantages exist in the market if we are able to own the end-user relationship from the design phase through the production phase.  By utilizing our patented technologies, the company has the ability to create, design and manufacture one of a kind unique, proprietary secure documents.  Therefore, we have shifted our focus to utilize more of our internal printing capabilities towards the custom security document market.  In addition, we are actively seeking strategic acquisitioncandidates in the various printing manufacturing categories.  We are in merger and acquisition discussions with several interested companies in the packaging, ID card, digital printing and checks and forms industries.  We are also in discussions with one of the world’s largest media electronics companies for a technology cross licensing agreement or a possible merger and or acquisition with one of their subsidiary operations.  All of these discussions are at preliminary stages and there is no guarantee that any transactions will be concluded.   

      We are also developing a new line of security which employs new technology for use with documents requiring a very high level of security such as vital records to be considered for distribution by Boise or other strategic partners in the paper distribution industry.  These efforts continued during the first nine months of 2005 and included the processing of several new US and International patent applications.  During 2005, we have invested over 18% of our revenue towards research and development.    These advanced technologies protect, as well as identify, documents as originals or counterfeits.  Large security printers and packaging companies are testing our technology and we anticipate that our technologies willbe embedded on pharmaceutical packaging, consumer product packaging, checks and currencies.

          We also believe that some of our technologies are being used on an un-authorized basis.  By aggressively defending our intellectual property rights, we believe that we will be able to secure a potentially significant amount of additional and ongoing revenue by securing licensing agreements with those persons, companies or governments that we believe are infringing our patents.    We also anticipate that we may be required to commence litigation in some cases and that we will need to spend a significant amount of money and time on these matters.   During the first nine months of 2005, we have incurred approximately $250,000 in legal fees, paid for by shares of our common stock, related to acase we filed against the European Central Bank for infringement of our European Patent 455750B1. We capitalize these costs into the cost of our patents and expense them if it is determined that the defense will be unsuccessful.   We anticipate that we will continue to incur significant legal costs associated with this case, of which the majority will be paid for by shares of our common stock. 

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     As mentioned above, our company also generates revenue from our commercial printing operations and our Internet company, Legalstore.com, which supplies legal supplies and customized legal documents to the legal profession. The principal purpose of these non-core operations is to provide a testing ground for our products and to offset research and development costs associated with the development of our technologies.  We intend to continue to pursue profitable growth for these businesses.  

***Results of Operations for the Three and Nine Months Ended******September 30, 2005***

      The following discussion and    analysis provides information that our management believes is relevant to    an assessment and understanding  of our results of operations and financial condition. The discussion should  be read in conjunction with the financial statements and footnotes in this  quarterly report and in our annual report on Form 10-KSB for the year endedDecember 31, 2004. 

| **Summary**                                                                       |   | **Three    Months Ended     September 30,2005**   |     | **Nine Months Ended            September 30,2005** |                                               |
|-----------------------------------------------------------------------------------|--------|-------------------------------------------------------------|----------|----------------------------------------------------|----------------------------------------------------|
|                                                                              |   | **$**                                                       |     |                                               | **% change vs. 3    months ended  Sept. 30, 2004** |   | **$** |   |   | **% change vs. 9months ended  Sept. 30, 2004** |   |
|                                                                              |   |                                                             |          |                                                    |                                                    |   |  |  |  |  |   |
|    Sales, net                                                      |   |                                                        | 373,000  |                                               | 5                                                  | % |   | 1,297,000 |   | 26 | % |
|                                                                              |   |                                                        |     |                                               |                                               |   |   |   |   |   |   |
|    Costs of sales                                                  |   |                                                        | 187,000  |                                               | -17                                                | % |   | 672,000 |   | 5 | % |
|                                                                              |   |                                                             |          |                                                    |                                                    |   |  |  |  |  |   |
|                                                                              |   |                                                        |     |                                               |                                               |   |   |   |   |   |   |
|       Gross    profit                               |   |                                                        | 186,000  |                                               | 42                                                 | % |   | 625,000 |   | 60 | % |
|                                                                              |   |                                                        |     |                                               |                                               |   |   |   |   |   |   |
|          Total    operating expenses |   |                                                        | 888,000  |                                               | 71                                                 | % |   | 2,461,000 |   | 59 | % |
|                                                                              |   |                                                             |          |                                                    |                                                    |   |  |  |  |  |   |
|                                                                              |   |                                                        |     |                                               |                                               |   |   |   |   |   |   |
|    Loss before other income    (expense)                           |   |                                                        |     |                                               |                                               |   |   |   |   |   |   |
|    and income taxes                                                |   |                                                        | (702,000 | )                                                  | 81                                                 | % |   | (1,836,000 | ) | 58 | % |
|                                                                              |   |                                                        |     |                                               |                                               |   |   |   |   |   |   |
|    Other income (expense):                                         |   |                                                        |     |                                               |                                               |   |   |   |   |   |   |
|          Interest    income          |   |                                                        | 30,000   |                                               | 131                                                | % |   | 67,000 |   | 52 | % |
|          Interest    expense         |   |                                                        | (6,000   | )                                                  | 50                                                 | % |   | (21,000 | ) | 31 | % |
|                                                                              |   |                                                             |          |                                                    |                                                    |   |  |  |  |  |   |
|                                                                              |   |                                                        |     |                                               |                                               |   |   |   |   |   |   |
|    Loss before income taxes                                        |   |                                                        | (678,000 | )                                                  | 79                                                 | % |   | (1,790,000 | ) | 58 | % |
|                                                                              |   |                                                        |     |                                               |                                               |   |   |   |   |   |   |
|    Income taxes                                                    |   |                                                        | -        |                                               | -100                                               | % |   | 5,000 |   | -10 | % |
|                                                                              |   |                                                             |          |                                                    |                                                    |   |  |  |  |  |   |
|                                                                              |   |                                                        |     |                                               |                                               |   |   |   |   |   |   |
|    Net loss                                                        |   |                                                        | (678,000 | )                                                  | 77                                                 | % |   | (1,795,000 | ) | 58 | % |
|                                                                              |   |                                                             |          |                                                    |                                                    |   |  |  |  |  |   |

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| **Sales**                                                              |   | **Three Months Ended    September    30,2005**  |    | **Nine Months Ended            September 30,2005** |                                         |
|------------------------------------------------------------------------|--------|------------------------------------------------------|---------|----------------------------------------------------|----------------------------------------------|
|                                                                   |   | **$**                                                |    |                                               | **% change vs. 3months endedSept. 30, 2004** |   | **$** |   |   | **% change vs. 9months endedSept. 30, 2004** |   |
|                                                                   |   |                                                      |         |                                                    |                                              |   |  |  |  |  |   |
|    Sales, net                                           |   |                                                 |    |                                               |                                         |   |   |   |   |   |   |
|       Document    Security               |   | $                                                    | 137,000 |                                               | 132                                          | % | $ | 553,000 |   | 191 | % |
|       Printing                           |   |                                                 | 114,000 |                                               | -35                                          | % |   | 364,000 |   | -25 | % |
|       Legal    supplies                  |   |                                                 | 122,000 |                                               | 2                                            | % |   | 380,000 |   | 6 | % |
|                                                                   |   |                                                      |         |                                                    |                                              |   |  |  |  |  |   |
|          Total    Revenue |   |                                                 | 373,000 |                                               | 5                                            | % |   | 1,297,000 |   | 26 | % |
|                                                                   |   |                                                 |    |                                               |                                         |   |   |   |   |   |   |

     Document Security

     Document security    sales increased 132% for third quarter and 191% for the first nine months    of 2005.    The increases during the quarter are primarily the result of increases in    sales of custom security documents for our customers. The increases the first    nine months of 2005 also reflect the early orders under our distribution    and marketing contract with Boise. While we still consider these sales to    be nominal, we believe that the early results are indicative of thepotential for our safety paper products. However, we also are aware that our    safety paper products are still a relatively new and there can be no assurance    that we will continue to receive orders at a pace higher or lower then the    initial product rollout. During the third quarter of 2005, we began to more    aggressively target the custom security market by offering custom designand manufacturing services to the end-user market for security documents. 

      To date, licensing    revenue has been insignificant. We are currently in the process of presenting    and    testing our technology with multiple printers, corporations and government    agencies, however, we have not entered into any definitive licensing agreements    with any parties. We are also in the contract negotiation stage with several    clients which should conclude in 2005 or early 2006. We believe that the    nature of our technology and the typical length and breadth oflicensing agreements that we seek to enter into with our customers creates a    sales cycle of six to twelve months. In addition, during the third quarter    of 2005, we began to limit our licensing business to only large or strategiccustomers. 

     Printing and legal supplies

     We view sales from    our commercial printing business segment to be essentially a means of having    access to a    working research and development facility and to be able to offset the costs    of our research. During the quarter ended September 30, 2005, we experienced    a 35% decline in our sales to external commercial printing customers primarily    due to three factors. First, during the quarter, we utilized a larger amount    of our printing capacity for custom securityprint orders which have a higher profit margin than traditional commercial print    orders. Second, results were adversely affected by a large, one-time order    from a customer in 2004 that did not occur in the 2005 period. Third, we    experienced a decline in business from one significant customer which webelieve will be made up in the fourth quarter of 2005. 

      Revenue from our    legal supplies business continued to grow during the third quarter and the    first nine months    of 2005. We view our legal supplies business segment as a non-core part of    our company and have attempted to simplify its operation by emphasizing e-commerce    sales. Although the sales of this segment appear to be significant as toour total sales, we do not expect that to be true in thefuture. The division continues to increase its revenue by seeking to grow itscustomer base in a cost effective manner. 

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| **Gross Profit**                                                            |   |   | **Three Months Ended      September    30,2005**  |   | **Nine Months Ended     September 30,2005**  |   |
|-----------------------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                        |   | **$**  |                                                   |   | **% change vs. 3months endedSept. 30, 2004** |   | **$** |   |   | **% change vs. 9months endedSept. 30, 2004** |   |
|                                                                        |   |        |                                                        |        |                                              |   |  |  |  |  |   |
|    Gross profit                                              |   |   |                                                   |   |                                         |   |   |   |   |   |   |
|       Document    Security                    |   |   | 66,000                                                 |   | 214                                          | %      |   | 259,000 |   | 232 | % |
|       Printing                                |   |   | 60,000                                                 |   | -19                                          | %      |   | 183,000 |   | 13 | % |
|       Legal    supplies                       |   |   | 60,000                                                 |   | 67                                           | %      |   | 183,000 |   | 21 | % |
|                                                                        |   |        |                                                        |        |                                              |   |  |  |  |  |   |
|          Total    gross profit |   |   | 186,000                                                |   | 42                                           | %      |   | 625,000 |   | 60 | % |
|                                                                        |   |   |                                                   |   |                                         |   |   |   |   |   |   |

|                                                                 |   | **Three Months Ended       September    30,2005**  |   | **Nine Months Ended     September 30,2005**  |   |
|----------------------------------------------------------------------|--------|---------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                 |   |                                                    |   | **% change vs. 3months endedSept. 30, 2004** |   |   |   | **% change vs. 9months endedSept. 30, 2004** |   |
|                                                                 |   |                                                         |        |                                              |   |  |  |  |   |
| Gross profit percentage:                                             |   |                                                    |   |                                         |   |   |   |   |   |
|    Document Security                                  |   | 48                                                      | %      | 35                                           | %      | 47 | % | 14 | % |
|    Printing                                           |   | 53                                                      | %      | 25                                           | %      | 50 | % | 50 | % |
|    Legal supplies                                     |   | 49                                                      | %      | 64                                           | %      | 48 | % | 14 | % |
|                                                                 |   |                                                         |   |                                              |   |  |   |  |   |
|       Total    gross profit percentage |   | 50                                                      | %      | 35                                           | %      | 48 | % | 27 | % |
|                                                                 |   |                                                    |   |                                         |   |   |   |   |   |

     Document Security

      The 214% increase    in gross profit in the third quarter of 2005 when compared to the third quarter    of    2004 is the result of increased volumes of custom security print orders versus    prior year amounts. The gross profit percentage increase reflects the improvements    in inventory management and pricing gained by larger order quantities whichthe Company is able to make as its sales increase. 

     Printing and legal supplies

        Gross profits from our printing and legal supplies operations support our document security business. While gross profits declined on a dollar basis due to the revenue variances described above, printing gross profit percentages have increased forboth periods presented generally as the result of improvements in the customer mix as the sales declines described above were generally to commercial printing and copying customers which had lower than average profit margins associated with them.

      Legal supplies    gross profit margins in the third quarter of 2005 as compared to the third    quarter in    2004 increased primarily due to a change in product mix resulting in a greater    percentage of wholesale sales versus drop shipment sales. We generally generate    higher gross margins on products that we purchase on a wholesale basis and    resell to our customers versus products that we sell as a dealer for a largerlegal supply company. 

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**Expenses****Operating expenses******

|                                                            |   | **Three Months Ended       September    30,2005**  |    | **Nine Months Ended     September 30,2005** |                                          |
|-----------------------------------------------------------------|--------|---------------------------------------------------------|---------|---------------------------------------------|-----------------------------------------------|
|                                                            |   | **$**                                                   |    |                                        | **% change vs. 3months ended Sept. 30, 2004** |   | **$** |   |   | **% change vs. 9months ended Sept. 30, 2004** |   |
|                                                            |   |                                                         |         |                                             |                                               |   |  |  |  |  |   |
| Selling, general and administrative expenses:                   |   |                                                    |    |                                        |                                          |   |   |   |   |   |   |
|    Compensation                                  |   |                                                    | 260,000 |                                        | 79                                            | % |   | 724,000 |   | 75 | % |
|    Professional Fees                             |   |                                                    | 156,000 |                                        | 64                                            | % |   | 490,000 |   | 114 | % |
|    Sales and marketing                           |   |                                                    | 125,000 |                                        | 54                                            | % |   | 351,000 |   | 33 | % |
|    Depreciation and amortization                 |   |                                                    | 23,000  |                                        | 188                                           | % |   | 117,000 |   | 388 | % |
|    Other                                         |   |                                                    | 110,000 |                                        | 41                                            | % |   | 269,000 |   | 3 | % |
| Research and development                                        |   |                                                    | 79,000  |                                        | -26                                           | % |   | 240,000 |   | -19 | % |
| Amortization of intangibles                                     |   |                                                    | 135,000 |                                        | 2600                                          | % |   | 270,000 |   | 335 | % |
|                                                            |   |                                                    |         |                                        |                                               |   |   |  |   |  |   |
|                                                            |   |                                                    |    |                                        |                                          |   |   |   |   |   |   |
|       Total    operating expenses |   |                                                    | 888,000 |                                        | 71                                            | % |   | 2,461,000 |   | 59 | % |

     **Selling, General and Administrative**

     Our selling, general and administrative costs have increased as we have increased the size of our organization to a level that we feel necessary to execute our business plan. Increases in compensation costs are primarily due to the additions insales, service and finance personnel. As mentioned above, we increased our sales and service departments to coincide with our national and international sales initiative and to improve our post sale support capabilities. Our addition in financeinternalizes our finance and corporate governance capabilities and is expected to be partially offset by decrease in professional fees.

             Professional fees have primarily increased due to increases in legal, accounting, investor and public relation costs and consulting fees. Legal costs are associated with general corporate fees and legal fees in connection with the litigationreferred to below in *Part II –Legal Proceedings.*These legal costs do not include legal costs associated with the application and defense of our patents which the company capitalizes and amortizes over the expected life of the patent.Consulting fees are primarily directed towards efforts to help the Company develop contacts and market opportunities with government and large multinational corporations.

             Sales and marketing expense increases include increases in travel costs associated with greater participation in trade shows as well as an increase in potential customer site visits. We expect that sales and marketing expenses will continue tofluctuate as we incur costs incidental with our sales volume.

             Depreciation expense has increased primarily due to leasehold improvements incurred during the last quarter of 2004 for our new corporate headquarters as well as additional computers and office equipment associated with our increase in personnellevels.

             Other expenses are primarily rent, supplies, and insurance costs that have not significantly fluctuated since 2004, except for the timing of certain office expenses and employee hiring costs which the company experience in the third quarter of2005 but not in the third quarter of 2004.

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     **Research and Development**

      We continue to invest in research    and development to improve our existing technologies and develop new technologies    that will  enhance our position in the document security market. Research and development  costs consists primarily of compensation costs for our chief technology officer  and third party subcontracting costs incurred to test our technologies on equipment  that we do not have access to internally. These costs have decreased in both  periods of 2005  primarily due to a reduction in subcontracting costs. We expect that our research  and development costs will continue at current levels for the foreseeable future  as we continue to research new technologies and different uses of our currenttechnologies. 

     **Amortization of intangibles**

      Commencing in the second quarter    of 2005, we began to amortize the costs associated with the patents that    we acquired in  2005. As described above, we consolidated our patent portfolio with the purchase  of legal and economic ownership rights to several patents in the first quarter  of 2005. We are amortizing these costs over the weighed average expected life  of the patents that we purchased which is approximately 9 years. This non-cash  expense will continue to  be a significant component of our operating expenses during the amortization  period. In addition, we expect to capitalize additional costs associated with  the application and defense of our patents which will increase the amortizationexpense that we will incur in future periods. 

**Other income and expense**

|                       |   | **Three Months    Ended     September 30,2005**  |   | **Nine Months Ended       September    30,2005** |                                         |
|----------------------------|--------|-------------------------------------------------------|--------|--------------------------------------------------|----------------------------------------------|
|                       |   | **$**                                                 |   |                                             | **% change vs. 3months endedSept. 30, 2004** |   | **$** |   |   | **% change vs. 9months endedSept. 30, 2004** |   |
|                       |   |                                                       |        |                                                  |                                              |   |  |  |  |  |   |
| Other income    (expense): |   |                                                  | 30,000 |                                             | 131                                          | % |   | 67,000 |   | 52 | % |
| Interest income            |   |                                                  | (6,000 | )                                                | 50                                           | % |   | (21,000 | ) | 31 | % |
|                       |   |                                                  |        |                                             |                                              |   |   |  |   |  |   |
| Interest expense           |   |                                                  | 24,000 |                                             | 167                                          | % |   | 46,000 |   | 64 | % |

      Our other income    and expense is comprised of interest income, which we derive from our cash    savings and    interest expense which we incur on our debt and capitalized lease obligations.    Interest income has increased due to increase in our rate of return compared    to the same periods of 2004. Our interest expense has increased due to the    addition of several capitalized leases in the last quarter of 2004. We expect    that our interest income will decrease as we use cash inoperations. We expect interest expense to be stable. 

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**Net loss**

|     |   | **Three            Months Ended       September 30,2005**  |     | **Nine Months          Ended       September 30,2005** |                                                     |
|----------|--------|-----------------------------------------------------------------|----------|--------------------------------------------------------|----------------------------------------------------------|
|     |   | **$**                                                           |     |                                                   | **% change vs. 3      months ended      Sept. 30, 2004** |   | **$** |   |   | **% change vs. 9      months ended       Sept. 30, 2004** |   |
|     |   |                                                                 |          |                                                        |                                                          |   |  |  |  |  |   |
| Net loss |   |                                                            | (678,000 | )                                                      | 77                                                       | % |   | (1,795,000 | ) | 59 | % |
|     |   |                                                            |          |                                                   |                                                          |   |   |  |   |  |   |

     During the three and nine months    ended September 30, 2005 we continued to experience a net loss. While we    have experienced growth  in our net sales and our gross profit, these increases have not offset our  increases in our operating expense, especially a significant increase in amortization  of intangibles expense that has resulted from the investments we have madein our patent assets. 

| **Loss per share**                                 |                   |   |                  |   |                  |       |                  |   |       |   |   |       |   |
|----------------------------------------------------|------------------------|--------|-----------------------|--------|-----------------------|------------|-----------------------|--------|------------|--------|--------|------------|--------|
|                                               | **Three Months Ended** |   | **Nine Months Ended** |   |
|                                               | **September 30,2005**  |   | **September 30,2004** |   | **September 30,2005** |       | **September 30,2004** |   |
|                                               |                        |   |                       |   |                       |       |                       |   |
|                                               |                   |   |                  |   |                  |       |                  |   |
|    Net loss                         |                   | $      | (678,406              | )      | $                     | (381,821   | )                     | $      | (1,794,594 | )      | $      | (1,129,239 | )      |
|                                               |                   |        |                       |   |                       |            |                  |        |            |   |        |            |   |
|    Net loss per share, basic    and |                   |   |                  |   |                  |       |                  |   |       |   |   |       |   |
|    diluted                          |                   | $      | (0.05                 | )      | $                     | (0.04      | )                     |   | (0.15      | )      |   | (0.10      | )      |
|                                               |                   |        |                       |   |                       |            |                  |        |            |   |        |            |   |
|    Weighted average common          |                   |   |                  |   |                  |       |                  |   |       |   |   |       |   |
|    shares outstanding, basic    and |                   |   |                  |   |                  |       |                  |   |       |   |   |       |   |
|    diluted                          |                   |   | 12,285,046            |   |                  | 10,908,607 |                  |   | 11,856,517 |   |   | 10,885,137 |   |
|                                               |                   |        |                       |   |                       |            |                  |        |            |   |        |            |   |

      Our basic loss per share has increased due to the increased dollar value of our loss partially offset by an increase in the weighted average common shares outstanding in both periods of 2005 compared to 2004. Our shareshave increased as we have used our common shares for an acquisition and to purchase patent assets. In addition, we have issued shares as the result of exercises of warrants by some of our investors as well as to pay certain legal fees. The “basicnet loss per share” is computed by dividing the net loss, by the weighted averagecommon shares outstanding. 

**LIQUIDITY AND CAPITAL RESOURCES**

 The Company’s cash flows and other key indicatorsof liquidity are summarized as follows: 

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|                             | **Nine Months Ended**            |   |                             |   |
|----------------------------------|----------------------------------|--------|----------------------------------|--------|
|                             | **September 30,2005(unaudited)** |   | **September 30,2004(unaudited)** |   | **%Change** |   |
|                             |                                  |        |                             |        |   |  |   |
|                             |                             |   |                             |   |   |   |
| Operating activities cash flows  |                             | $      | (1,217,000                       | )      | $ | (1,218,000 | ) | 0 | % |
| Investing activities cash flows: |                             |   | (269,000                         | )      |   | (426,000 | ) | 37 | % |
| Financing activities cash flows  |                             |   | 2,548,000                        |   |   | (33,000 | ) | 7821 | % |
| Working capital                  |                             |   | 3,518,000                        |   |   | 2,627,000 |   | 34 | % |
| Current ratio                    |                             |   | 6.84                             | x      |   | 5.87 | x | 17 | % |

      During the first    nine months of 2005, we continued to use cash for operations at a rate consistent    with    the same period of 2004. Our operating cash flow loss during the first nine    months of 2005 was primarily the result of our operating loss and our use    of cash for insurance pre-payments and to increase our inventory levels.    While our net loss has increased from 2004 levels, our cash flow has remained    consistent due to the fact that our 2005 results are primarilynegatively impacted by a large increase in non-cash depreciation and amortizationexpenses.

             During the first nine months of 2005, our investing activities used cash for investments in software, equipment and patents of $269,000, which was 37% less than the use of cash for investment during the first nine months of 2004. During 2005, wehave been able to use our common stock to pay for investments in patents and contractual rights which we may not have otherwise been able to had we been required to pay in cash. The use of equity for our investments has allowed us to retain cashneeded for operations during the early stages of our business without sacrificing the investments needed to secure our competitiveness in the future.

             Also during the first nine months of 2005, our financing activities resulted in cash inflows primarily from the issuance of our common stock to warrant holders who have exercised their right to buy our stock at prices ranging from $2.00 to $5.00.The proceeds from these investors support our operations. Since entering the document security business, we have funded a significant portion of our cash needs by issuing our securities.

      At September 30,    2005, we had cash and cash equivalents of approximately $3,720,000 along    with restricted    cash of $249,000. Our restricted cash is held as collateral for our current    and long-term debt obligation which was approximately $230,000 at September    30, 2005. Our working capital as of September 30, 2005 was approximately    $3,518,000 which was $891,000 or 34% higher than working capital at September    30, 2004. Our ability to improve our working capitalposition was based on our ability to use our securities to obtain funding and    make investments in patent assets. Our working capital position is expected    to deteriorate as long as we continue to lose money from operations. In order    to support our existing and proposed operations, we may need additional financing.    Although we have outstanding warrants to purchase our common stock with exercise    prices below the current market price, there is no assurance that all or    any of the warrants will beexercised. If the warrants are not exercised, we may be required to raise additional    funds by borrowing or selling stock to meet our cash needs, and there isno guarantee that we will be able to raise such additional funds. 

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**ITEM 3 - CONTROLS AND PROCEDURES**

     Evaluation of Disclosure Controls and Procedures. Our  management, with the participation of our principal executive officer and principal  accounting officer, has evaluated the effectiveness of our disclosure controls  and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities  Exchange Act of 1934, as amended (the “Exchange Act”)), as of the  end of the period covered by this Quarterly Report on Form 10-QSB. Based on  that evaluation, our principal executive officer and principal accounting officer  have concluded that as of that date, our disclosure controls and procedures  were designed to ensure that information required to be disclosed in reports  that we file or  submit under the Exchange Act is recorded, processed, summarized and reported  with the time periods specified in applicable SEC rules and forms and wereeffective. 

     In addition, there have been no changes in our internal controls or in other factors that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

**PART II  OTHER INFORMATION**

**ITEM 1 - LEGAL PROCEEDINGS**

     There    were no significant developments during the first nine months of 2005 in    connection with our intellectual property litigation against    Adler Technologies  and Andrew McTagger. This litigation commenced by us in January 2003, is described  in our Form 10-KSB Annual Report for the year ended December 31, 2004. The  case is in the late stage of discovery and it is still too soon to determine  how the various issues raised by the lawsuit will be resolved. There can be  no assurance that we  will be successful in our suit against Adler and McTagger or that Adler’s  counterclaims will not be upheld. If Adler is successful in all of its counterclaims,we may be adversely affected in our ability to market certain technology. 

     We    have been named as a defendant in a lawsuit entitled Frank LaLoggia v. Document    Security Systems, Inc. (Index No. 05/8307 New York State    Supreme Court,  Monroe County) in which the plaintiff alleges that he is owed compensation  in the amount of 3,000,000 shares of the Company’s Common Stock for services  allegedly provided to the Company. The complaint asserts that the Company owes  the shares as a result of efforts made by Mr. Frank LaLoggia under a movie  consulting agreement dating from 1996. Management believes that the plaintiff  has received all compensation which was due to him in relation to the former  movie business. The Company believes that even if the plaintiff was owed any  compensation for services, the number of  shares would be determined on a post reverse stock split basis, which was effected  several years ago (resulting in a claim for 15,000 shares). Management believes  that the claims, which relate to the former movie production business of the  Company when it was named New Sky Communications, Inc. and was operated by  different senior management, are without merit and subject to valid defenses.  The Company intends to vigorously defend this action and has asserted against  the plaintiff  counterclaims for money damages up to $800,000 arising out of and related to  his conduct under that same agreement. The complaint was filed on July 26,  2005 and is currently in the discovery stage. There can be no assurance thatwe will be successful in our defense or in our counterclaims. 

      On August 1, 2005 we commenced    a suit against the European Central Bank alleging patent infringement by    the European Central  Bank and have claimed unspecified damages. The suit was brought by us in EuropeanCourt of First Instance in Luxembourg. The Company alleges that all Euro banknotesin circulation infringe its European Patent 455750B1, which covers a method ofincorporating an anti-counterfeiting feature into banknotes or similar securitydocuments to protect against forgeries by digital scanning and copying devices.We are currently awaiting their defense. 

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**ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

      During the quarter ended March 31, 2005, the Company issued an aggregate of 541,460 shares of its common stock for the various legal ownership and economic interests in certain technology (patents and trade secrets)  from 40 persons and entities who previously obtained these rights from the Wicker Family. The value of the shares of common stock was determined based upon the closing price of the shares of the Company’s common stock on the American Stock  Exchange on February 15, 2005 ($7.25 per share) The total aggregate fair value of the acquisition of the interests from the interest holders was $3,925,585. The shares issued in the transaction are “restricted securities” within  the meaning of Rule 144 of the Securities Act of 1933. We relied upon the exemption  from registration under the Securities Act of 1933 provided by Section 4(2)  thereof in connection with the issuance of the securities. We filed a registration  statement with the  Securities and Exchange Commission to register for resale 20% of the shares  that were received by each Interest Holder, which was declared effective onAugust 9, 2005. 

     During the quarter ended September    30, 2005, we issued 83,705 shares of our common stock pursuant to the exercise    of our  common stock purchase warrants. Net proceeds from the exercise of the warrants  were approximately $332,000. Of the shares issued upon the exercise of warrants,  35,933 were issued at $5.00 per share for proceeds of $180,000, and 31,665  were issued at $4.80 per share for proceeds of $152,000. In addition, 16,107  shares were issued as a result of  cashless exercise provisions of warrant agreements issued as part of our 2003  private placement of common stock and warrants. Pursuant to these cashless  exercises, 19,068 warrants were cancelled. The proceeds were used to fund general  operations. The shares issued pursuant to the exercise of the warrants have  been registered with the Securities and Exchange Commission under an effective  Form S-3. We relied upon the exemption from registration under the Securities  Act of 1933 provided bySection 4(2) thereof in connection with the issuance of the securities 

     On    August 26, 2005, the Company agreed to issue 150,000 restricted shares to    Strategic Resource Advisory Services, (“SRAS”), a subsidiary of IDT Corporation, in exchange for the payment of substantially all of the Company’s legal  expenses that it will incur during the Company’s lawsuit with the European Central Bank. IDT Corporation is a related party to a member of the Company’s  Board of Directors. The Company expects to issue the shares during its fiscal  fourth quarter, and the shares will not be registered under the SecuritiesAct of 1933. 

      On September 9, 2005, the Company purchased Secured Document Systems (“SDS”) for 62,654 shares of its common stock. The value of the shares of common stock was determined based upon the closing price of the  shares of the Company’s common stock on the American Stock Exchange on September 9, 2005 of $8.26 per share. SDS is an entity that holds various economic rights to several of the Company’s  patents which it had previously obtained from the Wicker Family. The sharesissued in the transaction were not registered under the Securities Act of 1933. 

      We did not purchase any shares    of our capitalstock during the nine months ended September 30, 2005. 

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**ITEM 3 - DEFAULTS UPON SENIOR SECURITIES**

     None  

**ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

      No matters were submitted to    a vote of our security holders during the fiscal quarter ended September    30, 2005. We anticipateholding a meeting of shareholders in the fourth quarter of 2005. 

**ITEM 5 - OTHER INFORMATION**

     None  

**ITEM 6 - EXHIBITS**

     (a) Exhibits  

|   |                                                                                                                                                                 |   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                                                                 |   |
|   |      Item 31.1     Certifications of Chief Executive Officer Pursuant to Section 302of the Sarbanes Oxley Act      |
|        |
|   |                                                                                                                                                                 |   |
|   |      Item 31.2     Certifications of Principal Accounting Officer Pursuant to Section302 of the Sarbanes Oxley Act |
|        |
|   |                                                                                                                                                                 |   |
|   |      Item 32.1     Certification of Chief Executive Officer Pursuant to Section 906of the Sarbanes Oxley Act       |
|        |
|   |                                                                                                                                                                 |   |
|   |      Item 32.2     Certification of principal Accounting Officer Pursuant to Section906 of the Sarbanes Oxley Act  |
|        |

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**SIGNATURES**

      In accordance with    the requirements of the Exchange Act, the registrant caused this report on    Form 10-QSB tobe signed on its behalf by the undersigned, thereunto duly authorized. 

 

|              | **DOCUMENT SECURITY SYSTEMS, INC.** |
|-------------------|-------------------------------------|
|              |                                |   |
| November 14, 2005 | By:                                 | /s/ Patrick White                          |
|              |                                | Patrick White |
|              |                                | President, Chief Executive Officer and      Acting    Chief Financial Officer |
|              |                                |   |
| November 14, 2005 | By:                                 | /s/ Philip Jones                          |
|              |                                | Philip Jones |
|              |                                | Controller/Principal Accounting Officer |
|              |                                |   |
|              |                                |   |

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