I am not sure of this, but you may need either a dds delegate installed or a png delegate installed - probably the former. But I cannot tell you where to find that. Search the internet.
can you convert from dds to any other format image?
You can put a watermark from a png to a png image.
http://www.imagemagick.org/script/comma ... #watermark
http://www.imagemagick.org/Usage/compose/#watermark