10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

OR

o              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File No. 0 – 20660

DIRECT INSITE CORP.

 (Exact name of registrant as specified in its charter)

Delaware	11-2895590
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
13450 West Sunrise Blvd., Suite 510, Sunrise, FL	33323
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code	(631) 873-2900

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

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

The number of shares of $.0001 par value common stock outstanding as of November 14, 2012 was: 12,464,251.

Table of Contents

PART I – FINANCIAL INFORMATION			Page
	Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011		3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011 (Unaudited)		4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (Unaudited)		5
	Notes to Condensed Consolidated Financial Statements (Unaudited)		6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 3.	Quantitative and Qualitative Disclosure About Market Risk	19
	Item 4.	Controls and Procedures	19
PART II – OTHER INFORMATION
	Item 1.	Legal Proceedings	20
	Item 1A.	Risk Factors	20
	Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	20
	Item 3.	Defaults in Senior Securities	20
	Item 4.	Mine Safety Disclosures	20
	Item 5.	Other Information	20
	Item 6.	Exhibits	20
	Signatures		21
CERTIFICATIONS
Exhibits

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

DIRECT INSITE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

SEPTEMBER 30, 2012 AND DECEMBER 31, 2011

	2012			2011
	(Unaudited)			(Audited)
Assets
Current Assets
Cash and cash equivalents	$	725		$	687
Accounts receivable		1,977			1,568
Prepaid expenses and other current assets		283			233
Deferred tax assets - current		261			261
Total Current Assets		3,246			2,749
Property and Equipment, Net		701			765
Deferred Tax Asset		766			766
Other Assets		297			248
Total Assets	$	5,010		$	4,528
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses	$	1,199		$	1,384
Current portion of capital lease obligations		190			135
Current portion of notes payable		45			62
Deferred revenue		70			--
Deferred rent payable		25			30
Total Current Liabilities		1,529			1,611
Other Liabilities
Capital lease obligations, net of current portion		218			248
Notes payable, net of current portion		-			33
Total Liabilities		1,747			1,892
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $0.0001 par value; 2,000,000 shares authorized; none issued or outstanding		--			--
Common stock; $0.0001 par value; 50,000,000 shares authorized;12,484,262 and 12,156,760 shares issued and 12,444,335 and 12,116,833 shares outstanding in 2012 and 2011		1			1
Additional paid-in capital		115,732			115,333
Accumulated deficit		(112,142	)		(112,370	)
Common stock in treasury, at cost; 24,371 shares in 2012 and 2011		(328	)		(328	)
Total Stockholders' Equity		3,263			2,636
Total Liabilities and Stockholders' Equity	$	5,010		$	4,528

See notes to condensed consolidated financial statements.

3

DIRECT INSITE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(in thousands)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012			2011
Revenues
Recurring revenues	$	1,826		$	1,807	$	5,475		$	5,385
Professional services fees and other		342			456		1,075			1,031
Total Revenues		2,168			2,263		6,550			6,416
Costs and Expenses
Operations, research and development		928			945		2,890			2,708
Sales and marketing		585			586		1,727			1,558
General and administrative		451			454		1,411			1,837
Severance pay to former CEO		--			--		--			620
Amortization and depreciation		101			74		277			224
Total Operating Costs and Expenses		2,065			2,059		6,305			6,947
Operating Income (Loss)		103			204		245			(531	)
Other (Expense) Income
Other (expense) income, net		(11	)		12		(17	)		(192	)
Total Other (Expense) Income, Net		(11	)		12		(17	)		(192	)
Income (Loss) Before Provision for Income Taxes		92			216		228			(723	)
Provision for Income Taxes		--			--		--			--
Net Income (Loss)	$	92		$	216	$	228		$	(723	)
Basic Income (Loss) Per Share	$	0.01		$	0.02	$	0.02		$	(0.06	)
Diluted Income (Loss) Per Share	$	0.01		$	0.02	$	0.02		$	(0.06	)
Basic Weighted Average Common Stock Outstanding		12,398			11,914		12,286			11,776
Diluted Weighted Average Common Stock Outstanding		12,410			11,993		12,292			11,776

See notes to condensed consolidated financial statements.

4

DIRECT INSITE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(in thousands)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

	2012			2011
Cash Flows From Operating Activities
Net income (loss)	$	228		$	(723	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Amortization and depreciation		277			224
Stock-based compensation expense		122			95
Deferred rent expense		(5	)		18
Changes in operating assets and liabilities:
Accounts receivable		(409	)		(227	)
Prepaid expenses and other current assets		(99	)		(106	)
Accounts payable and accrued expenses		92			818
Deferred revenue		70			(69	)
Total Adjustments		48			753
Net Cash Provided by Operating Activities		276			30
Cash Flows Used in Investing Activities
Expenditures for property and equipment		(58	)		(186	)
Cash Flows From Financing Activities
Proceeds from exercise of stock options		--			217
Repayment of notes payable		(50	)		(144	)
Repayment of capital lease obligations		(130	)		(8	)
Net Cash (Used in) Provided by Financing Activities		(180	)		65
Net Increase (Decrease) in Cash and Cash Equivalents		38			(91	)
Cash and Cash Equivalents - Beginning		687			1,707
Cash and Cash Equivalents - Ending	$	725		$	1,616
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	11		$	11
Cash paid for income taxes	$	--		$	--
Schedule of Non-Cash Investing and Financing Activities:
Issuance of common stock in settlement of accrued board fees	$	277		$	--
Equipment acquired by capital lease	$	155		$	42

See notes to condensed consolidated financial statements.

5

DIRECT INSITE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Nature of Business

Direct Insite Corp. and Subsidiaries (“Direct Insite” or the “Company”), primarily operate as a Software as a Service provider (“SaaS”), that markets an integrated transaction based “fee for service” offering called Invoices On-Line (“IOL”), an electronic invoice presentment and payment (“EIP&P”) service that processes high volumes of transactional data for invoice presentment purposes delivered via the Internet on a global basis.  During the period, the Company operated redundant data centers in Miami, Florida, Commack, New York and Santa Clara, California.

As described in Note 8, the Company has three major customers that accounted for 87.5% and 92.3% of the Company’s revenue for the nine months ended September 30, 2012 and 2011, respectively.  Loss of any of these customers would have a material effect on the Company.

Note 2 - Summary of Significant Accounting Policies

Interim Financial Information and Principles of Consolidation

The accompanying unaudited condensed consolidated interim financial statements include the accounts of Direct Insite and its subsidiaries.  All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated balance sheet as of September 30, 2012, the condensed consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011 and cash flows for the nine months ended September 30, 2012 and 2011, have not been audited.  These unaudited, condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  The December 31, 2011 consolidated balance sheet was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP.  These interim condensed consolidated financial statements include all adjustments which management considers necessary for a fair presentation of the financial statements and consist of normal recurring items.  The results of operations for the three and nine months ended September 30, 2012, are not necessarily indicative of results that may be expected for any other interim period or for the full year.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2011 included in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 30, 2012.  The accounting policies used in preparing these unaudited condensed consolidated financial statements are consistent with those described in the audited December 31, 2011 consolidated financial statements.

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period.  Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  The most significant estimates are used in the accounting related to stock based compensation and the valuation allowance on deferred tax assets.  Actual results could differ from those estimates.

6

DIRECT INSITE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2 - Summary of Significant Accounting Policies (continued)

Revenue Recognition

The Company records revenue in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”) and SEC Staff Accounting Bulletin Topic 13 Revenue Recognition in Financial Statements.  Revenue is recognized when it is both earned and realizable, that is, when the following criteria are met:

· Persuasive evidence of arrangements exist;

· Delivery has occurred or services have been rendered;

· The seller’s price is fixed and determinable; and

· Collectability is reasonably assured.

The following are the specific revenue recognition policies for each major category of revenue.

Recurring

The Company provides transactional data processing services through its SaaS software solutions to its customers.  The customer is charged a monthly fixed rate on a per-transaction basis or a fixed fee based on monthly transaction volumes.  Revenue is recognized as the services are performed.

Professional Services

The Company provides nonrecurring engineering services to its customers, which may include initial or additional development, modification, and customization services to the Company’s existing software platform.  Such services are billed based on hourly rates or upon acceptance by the customer on a completed contract basis.  The Company does not sell software licenses, upgrades or enhancements, or post-contract customer services.  For hourly billed services, revenue is recognized as the services are performed.  For project-based services, revenue is recognized when the project has been accepted by the customer.

Income Taxes

The Company accounts for income taxes using the asset and liability method.  This method requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax basis of assets and liabilities, using enacted tax rates.  Additionally, net deferred tax assets are adjusted by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax assets will not be realized.  The Company currently has significant deferred tax assets.  The Company reviewed previous positive and negative evidence and also reviewed its expected taxable income for future periods and concluded that it is more likely than not that as of September 30, 2012 approximately $1,027,000 of tax benefits related to net operating loss carry-forwards will be utilized in future tax years.  As a result, the Company’s effective tax rate for the three and nine months ended September 30, 2012 and 2011 differs from the current statutory rates.  The Company

7

DIRECT INSITE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2 - Summary of Significant Accounting Policies (continued)

Income Taxes (continued)

utilizes the expected annual effective tax rate in determining its income tax provision for the interim period’s income or loss.  The Company provides a valuation allowance on the remaining future tax benefits until it can sustain a level of profitability that demonstrates its ability to utilize the remaining assets, or other significant positive evidence arises that suggests its ability to utilize the remaining assets.  The future realization of a portion of its reserved deferred tax assets related to excess tax benefits associated with the exercise of stock options that, if and when realized, will not result in a tax benefit in the consolidated statement of operations, but rather will result in an increase in additional paid-in capital. The Company will continue to reassess its reserves on deferred income tax assets in future periods on a quarterly basis.

Earnings Per Share

The Company displays earnings per share in accordance with ASC 260, Earnings Per Share (“ASC 260”).  ASC 260 requires dual presentation of basic and diluted earnings per share (“EPS”).  Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period.  Diluted earnings per share includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.  For the three and nine months ended September 30, 2012, potentially dilutive securities consisting of options to acquire 926,000 shares of common stock and 3,000 shares of unvested restricted stock are not included in the calculation of diluted earnings per share because their impact was anti-dilutive.

For the three and nine months ended September 30, 2011, potentially dilutive securities consisting of options to acquire 153,000 shares of common stock, and 24,000 and 47,000 shares of unvested restricted stock, respectively, are not included in the calculation of diluted loss per share because their impact was anti-dilutive.

The computation of diluted weighted average common shares outstanding used in the calculation of diluted earnings per share for the three and nine months ended September 30, 2012 and 2011 is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Weighted Average Common shares outstanding		12,398		11,914		12,286		11,776
Options to purchase common stock		-		71		-		-
Restricted stock grants		12		8		6		-
Total diluted shares		12,410		11,993		12,292		11,776

Fair Value of Financial Instruments

The carrying value of the Company’s accounts receivable and accounts payable approximates their fair value due to the short-term maturity of such instruments.  The carrying value of notes payable and capital lease obligations approximate their fair value because the terms of these instruments approximate prevailing market rates.

8

DIRECT INSITE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2 - Summary of Significant Accounting Policies (continued)

Recently Issued and Adopted Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial statements.

Note 3 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following as of September 30, 2012 and December 31, 2011 as follows (in thousands):

	2012		2011
Trade accounts payable	$	155	$	229
Sales taxes payable		539		539
Accrued board fees		250		427
Other accrued expenses		255		189
Total Accounts Payable and Accrued Expenses	$	1,199	$	1,384

Note 4 – Debt

Line of Credit

The Company entered into a loan agreement with JPMorgan Chase Bank, NA (“Chase”) on May 31, 2011.  The agreement provided a revolving line of credit up to $1,000,000 with availability based on 80% of eligible assets (as defined).  The line of credit provided that interest would accrue at an annual rate of LIBOR plus 2%, was collateralized by the Company’s accounts receivable, had a term of 12 months, and provided for financial covenants.  During the time the loan agreement was in effect, the Company had not drawn any funds from the line of credit.

On May 11, 2012, the Company was notified by Chase that it was not in compliance with one of the financial covenants of the loan agreement, and although no funds had been drawn, the line of credit had been cancelled.

Notes Payable

As of September 30, 2012 and December 31, 2011, notes payable consist of approximately $45,000 and $95,000, respectively, of borrowings for the purchase of equipment.  These notes bear interest at rates ranging from 8.0% to 9.5% per year and mature through August 2013.  The notes are collateralized by the equipment purchased with net book values of approximately $46,000 and $95,000, as of September 30, 2012 and December 31, 2011, respectively.

Capital Lease Obligations

The Company has equipment under four capital lease obligations expiring at various times through August 2015.  The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair values of the assets.

9

DIRECT INSITE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 4 – Debt

Capital Lease Obligations (continued)

As of September 30, 2012, future minimum payments under these capital leases are (in thousands):

For the Twelve Months Ending
September 30,	Amount
2013	$	201
2014		198
2015		25
Total minimum lease payments		424
Less: amounts representing interest		(16	)
Net minimum lease payments		408
Less: current portion		(190	)
Long-Term Portion	$	218

The implied interest rates related to these capital leases are 0.0%, 3.0%, 3.3% and 8.0%. The gross book value and the net book value of the related assets are approximately $589,000 and $423,000, respectively, as of September 30, 2012.

Note 5– Stockholders’ Equity

Common Stock, Options and Stock Grants

For the nine months ended September 30, 2012 and 2011 the Company recorded approximately $122,000 and $95,000, respectively, in stock based compensation expense for the fair value of stock-based compensation.  For the three months ended September 30, 2012 and 2011 the Company recorded approximately $45,000 and $15,000, respectively, in stock based compensation expense for the fair value of stock-based compensation.  As of September 30, 2012, there was approximately $471,000 of total unrecognized stock based compensation costs, which is expected to be recognized over a weighted average period of 3.1 years.

Nine Months Ended September 30, 2012

During the nine months ended September 30, 2012, 65,999 restricted common shares with an aggregate grant date fair value of approximately $50,000 vested.  During the nine months ended September 30, 2012, the Company granted, to certain employees of the Company, options to acquire an aggregate of 835,000 shares of common stock for an exercise price of $1.15 per share, exercisable over a term of five years from the date of grant.  The options vest over a four year period, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting in equal monthly amounts through the fourth anniversary of the grant date. The Company estimated the grant date fair value of the stock options using the Black-Scholes option model and the following assumptions: volatility ranging from 168% to 175%, risk-free rate ranging from 0.36% to 0.41%, dividend rate of zero, and expected term of 3.75 years.  The grant date fair value of the stock options was determined to be approximately $500,000, of which approximately $71,000 was recognized as stock compensation expense for the nine months ended September 30, 2012.

10

DIRECT INSITE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 5– Stockholders’ Equity (continued)

Common Stock, Options and Stock Grants (continued)

On April 5, 2012, the Company issued 261,503 shares with a grant date fair value of approximately $277,000, pursuant to the Direct Insite Corp. Directors’ Deferred Compensation Plan dated January 1, 2008, to two former Directors for past services.

Nine Months Ended September 30, 2011

During the nine months ended September 30, 2011, the Company granted 22,500 options to the current CEO with an exercise price of $1.15. The options have a fair value of $16,000 determined using the Black-Sholes pricing model. The key assumptions used in the model were a volatility of 102.0%, a dividend rate of 0%, a risk-free rate of 0.33%, and an expected life of 2.7 years. The Company also granted 55,000 options to employees with an exercise price of $1.20.  The options had a fair value of $40,000 determined using the Black-Sholes pricing model. The key assumptions used in the model were a volatility of 103.0%, a dividend rate of 0%, a risk-free rate of 0.62%, and an expected life of 2.5 years.

During the nine months ended September 30, 2011 the Company granted approximately 111,000 shares to directors of the Company as part of their compensation. The stock grants had a fair value of approximately $86,000 based on the closing price of the stock on the date of the grant. The stock grants vest over the two year period from January 1, 2011 through December 31, 2012.  The Company also issued 350,000 shares on the exercise of 350,000 options for $217,000 to the former CEO.

Stock Options

The following is a summary of stock option activity for nine months ended September 30, 2012, relating to all of the Company’s common stock plans:

				Weighted		Weighted Average		Aggregate
				Average		Remaining		Intrinsic
	Shares			Exercise		Contractual Term		Value
	(in thousands)			Price		(in years)		(in thousands)
Outstanding at January 1, 2012		128		$	1.31		2.7	$	--
Granted		835		$	1.15		4.3	$	--
Forfeited		(20	)	$	1.15
Expired		(17	)	$	1.20
Outstanding at September 30, 2012		926		$	1.17		4.1	$	--
Exercisable at September 30, 2012		111		$	1.33		2.3	$	--

The following table summarizes stock option information as of September 30, 2012:

Outstanding Options
				Weighted Average
		Number Outstanding		Remaining	Options Exercisable
Exercise Prices		(in thousands)		Contractual Life	(in thousands)
	$1.50		50	0.5 years		50
	$1.20		38	3.7 years		38
	$1.15		838	4.4 years		23
Total			926	4.1 years		111

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DIRECT INSITE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 5– Stockholders’ Equity (continued)

Stock Options (continued)

As of September 30, 2012, there was approximately $417,000 of unrecognized compensation costs related to stock options outstanding.  As of September 30, 2012, 375,785 shares were available for issuance under the stock option plans.

Restricted Stock Grants

A summary of the status of the Company’s non-vested stock grants as of September 30, 2012 and changes during the nine months ended September 30, 2012 is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-Vested at January 1, 2012		35		$	0.93
Granted		150		$	0.66
Forfeited		(40	)	$	0.71
Vested		(66	)	$	0.75
Non-Vested at September 30, 2012		79		$	0.68

The future expected expense for non-vested shares is approximately $54,000 and will be recognized as expense through December 31, 2013.

Note 6 – Income Taxes

The Company accounts for income taxes in accordance with ASC 740 which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition.  There were no unrecognized tax benefits as of September 30, 2012 and December 31, 2011.

The Company has identified its federal tax return and its state tax returns in New York and Florida as “major” tax jurisdictions, as defined in ASC 740.  Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements.  The Company’s evaluation was performed for tax years ended 2008 through 2011, the only periods subject to examination.  The Company believes that its income tax positions and deductions will be sustained upon audit and does not anticipate any adjustments that will result in a material change to its financial position.  The Company has elected to classify interest and penalties incurred on income taxes, if any, as income tax expense.  No interest or penalties on income taxes have been recorded during the three and nine months ended September 30, 2012 and 2011.  The Company does not expect its unrecognized tax benefit position to change during the next twelve months.  Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

As of September 30, 2012, the Company has federal and state net operating loss carryforwards (“NOLs”) remaining of approximately $36 million and $30 million, which may be available to reduce taxable income, if any.  Approximately $9 million of Federal NOLs will expire in 2012 with the remaining $27 million expiring in 2019 through 2031.  Internal Revenue Code Section 382 rules limit the utilization of NOLs upon a change in control of a company.  During 2011, the Company performed an evaluation as to whether a change in control had taken place.  Management believes that there has been no change in control as such applies to Section 382.  However, if it is determined that a change in control has taken place, either historically or in the future, utilization of its NOLs could be subject to severe limitations, which could have the effect of eliminating substantially all of the future income tax benefits of the NOLs.  The NOL carryforward as of September 30, 2012 included approximately $1,194,000 related to windfall tax benefits for which a benefit would be recorded in additional paid-in capital if and when realized.

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DIRECT INSITE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 7 – Commitments and Contingencies

Operating Leases

Operating leases are primarily for office space, data centers, equipment and automobiles.  As of September 30, 2012, the future minimum lease payments under operating leases are summarized as follows (in thousands):

Twelve Months Ending
September 30,	Amount
2013	$	313
2014		207
2015		5
Total	$	525

Rent expense approximated $147,000 and $148,000 for the three months ended September 30, 2012 and 2011, respectively.  Rent expense approximated $400,000 and $391,000 for the nine months ended September 30, 2012 and 2011, respectively.

Employment Agreements

Future commitments under employment agreements for the Company’s President and Chief Executive Officer and the Company’s Executive Vice President of Channel Sales and Chief Technology Officer total $325,000 and $69,000 for the years ending September 30, 2013 and 2014 respectively.

Note 8 – Major Customers

Three customers, HP Enterprise Services (“HP”), International Business Machines Corp. (“IBM”) and Siemens Corporation (“Siemens”), accounted for a significant portion of the Company’s revenues as follows:

	% of Total Revenues
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
HP Customer A		14.4	%		18.8	%		14.1	%		18.9	%
HP Customer B		14.5	%		15.0	%		14.9	%		15.7	%
HP Customer C		16.4	%		16.6	%		15.2	%		13.7	%
HP Customer D		6.5	%		0.0	%		5.1	%		0.0	%
Total HP		51.8	%		50.4	%		49.3	%		48.3	%
IBM		32.7	%		30.9	%		32.7	%		33.1	%
Siemens		4.7	%		10.2	%		5.5	%		10.9	%
Total Major Customers		89.2	%		91.5	%		87.5	%		92.3	%
Others		10.8	%		8.5	%		12.5	%		7.7	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

13

DIRECT INSITE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 8 – Major Customers (continued)

Revenue from Siemens for the three and nine months ended September 30, 2012 decreased due to the Company no longer incurring costs, and no longer charging Siemens for the facilitation of scanning services utilized by Siemens.

As of September 30, 2012, these three customers accounted for a significant portion of the Company’s accounts receivable as follows (in thousands):

HP	$	902
IBM		708
Siemens		75
Total	$	1,685

Note 9 – Subsequent Events

On October 24, 2012, the Company entered into a 66-month Office Lease for 5,806 square feet of office space in downtown Ft. Lauderdale, Florida.  The lease calls for escalating base rent from $17.25 to $20.00 per square foot, plus an escalating allocated share of operating costs estimated from $12.55 to $16.02 per square foot, over the lease term.  The agreement provides for a total of six months’ rent abatement in the first 15 months of the term, and termination at the Company’s discretion at the end of the 42nd month for a fee of $100,000.  The lease required a $50,000 security deposit and first month’s rent upon contract execution.  Under the terms of the lease, the amount of the security deposit will be reduced by $15,000 each, after months 36 and 49.  The Company plans to relocate its corporate headquarters from Sunrise, Florida to the new location in January, 2013.

14

DIRECT INSITE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements under, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements.  When used in this Form 10-Q, words such as “anticipate”, “believe”, “estimate”, “expect”, “intend” and similar expressions, as such words or expressions relate to us or our management, identify forward-looking statements.  Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management.  Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors including but not limited to, fluctuations in future operating results, technological changes or difficulties, management of future growth, expansion of international operations, current economic conditions, the risk of errors or failures in our software products, dependence on proprietary technology, competitive factors, risks associated with potential acquisitions, the ability to recruit personnel, the dependence on key personnel, and customer concentration. Such statements reflect the current views of management with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity.  All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph.

Overview

Direct Insite Corp., (collectively with its subsidiaries hereinafter referred to at times as “Direct Insite”, “our”, “we”, or the “Company”) operates as Software as a Service provider, providing best practice financial supply chain automation and workflow efficiencies within the Procure-to-Pay and Order-to-Cash processes.  Specifically, Direct Insite’s global electronic invoice (“e-invoice”) management services automate complex manual business processes such as invoice validation, order matching, consolidation, dispute handling, and e-payment processing in a business-to-business transaction based “fee for service” business model.

Through the automation and workflow of Procure-to-Pay and Order-to-Cash processes and the presentation of invoices, orders, and attachment data via a self-service portal, Direct Insite is helping our customers reduce manual invoice-to-order reconciliation costs, reduce the frequency of inquiries and disputes, improve cash flow, increase competitiveness and improve customer satisfaction.

Direct Insite is currently delivering service and business value across the Americas, Europe, and Asia, including more than 100 countries, 35 languages and multiple currencies.  Direct Insite processes more than $125 billion in invoice value annually on behalf of our clients.  Direct Insite processes, hosts and distributes millions of invoices, purchase orders, and attachment documents making them accessible on-line within an internet self-service portal.  Suppliers, customers, and internal departments such as Finance and Accounting or Customer Service users can access their business documents 24 hours per day, 7 days per week, 365 days per year.

HP Enterprise Services (“HP”) accounted for 51.8% and 50.4% of revenue for the three months ended September 30, 2012 and 2011, respectively, and 49.3% and 48.3% of revenue for the nine months ended September 30, 2012 and 2011, respectively.  We have four principal contracts with HP providing e-invoice services.  These contracts have terms ranging from one to five years.  The contracts may be terminated on ninety days advance written notice.

IBM, representing 32.7% and 30.9% of revenue for the three months ended September 30, 2012 and 2011, respectively, and 32.7% and 33.1% of revenue for the nine months ended September 30, 2012 and 2011, respectively, utilizes our suite of services to allow their customers from around the globe to receive, analyze, dispute and cost allocate all of their invoice data in their local language and currency via the internet.  We have two principal contracts with IBM to provide e-invoice services for substantially all of IBM’s operating units.  These contracts are for one-year periods and are renewable annually.  The contracts may be terminated on ninety days advance written notice.

15

DIRECT INSITE CORP. AND SUBSIDIARIES

Siemens Corporation (“Siemens”) accounted for approximately 4.7% and 10.2% of revenue for the three months ended September 30, 2012 and 2011, respectively, and approximately 5.5% and 10.9% of revenue for the nine months ended September 30, 2012 and 2011, respectively.  Revenue from Siemens for the three and nine months ended September 30, 2012, decreased due to the Company no longer incurring costs, and no longer charging Siemens for the facilitation of scanning services utilized by Siemens.  This change resulted in offsetting decreases in our operating, research and development expenses.

We expect to continue to focus our sales and marketing efforts to increase revenue and expand our customer base in 2012 and beyond.

Seasonality/Quantity Fluctuations

Revenue from SaaS ongoing services generally is not subject to fluctuations or seasonal flows.  However, we believe that revenue derived from custom engineering services will have a significant tendency to fluctuate based on customer demand.

Other factors, including, but not limited to, new service introductions, domestic and global economic conditions, customer budgetary considerations, and the timing of service upgrades may create fluctuations.  As a result of the foregoing factors, our operating results for any quarter are not necessarily indicative of results for any future period.

Results of Operations

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Summary information of the Company’s results of operations for the three months ended September 30, 2012 and 2011 is as follows (in thousands):

	Three Months Ended September 30,
	2012			2011		Increase (Decrease)
Revenues
Recurring revenues	$	1,826		$	1,807	$	19		1	%
Professional services fees and other		342			456		(114	)	(25	%)
Total Revenues		2,168			2,263		(95	)	(4	%)
Costs and Expenses
Operations, research and development		928			945		(17	)	(2	%)
Sales and marketing		585			586		(1	)	0	%
General and administrative		451			454		(3	)	(1	%)
Amortization and depreciation		101			74		27		36	%
Total Operating Costs and Expenses		2,065			2,059		6		0	%
Operating Income		103			204		(101	)	(50	%)
Other (Expense) Income
Other (expense) income, net		(11	)		12		(23	)	(192	%)
Total Other (Expense) Income, Net		(11	)		12		(23	)	(192	%)
Income Before Provision for Income Taxes		92			216		(124	)	(57	%)
Provision for Income Taxes		--			--		--		0	%
Net Income	$	92		$	216	$	(124	)	(57	%)

16

DIRECT INSITE CORP. AND SUBSIDIARIES

For the three months ended September 30, 2012 we had operating income of $103,000, compared to operating income of $204,000 for the three months ended September 30, 2011.  For the three months ended September 30, 2012 we had net income of $92,000, compared to net income of $216,000 for the three months ended September 30, 2011.  The decrease in income for 2012 compared to 2011 is primarily due to a decrease in revenues of approximately $95,000 and a $27,000 increase in depreciation expense primarily related to new equipment purchased at the end of 2011.

For the three months ended September 30, 2012, revenue decreased by $95,000 or 4% from $2,263,000 for the three months ended September 30, 2011 to $2,168,000 for the three months ended September 30, 2012.  The decrease is primarily due to the decrease in startup engineering services revenue from new customers contracted at the end of 2011 as they converted to ongoing IOL services revenue streams, together with the decrease in direct costs related to third-party scanning services no longer charged to Siemens.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Summary information of the Company’s results of operations for the nine months ended September 30, 2012 and 2011 is as follows (in thousands):

	Nine Months Ended June 30,
	2012			2011			Increase (Decrease)
Revenues
Recurring revenues	$	5,475		$	5,385		$	90		2	%
Professional services fees and other		1,075			1,031			44		4	%
Total Revenues		6,550			6,416			134		2	%
Costs and Expenses
Operations, research and development		2,890			2,708			182		7	%
Sales and marketing		1,727			1,558			169		11	%
General and administrative		1,411			1,837			(426	)	(23	%)
Severance pay to former CEO		--			620			(620	)	(100	%)
Amortization and depreciation		277			224			53		24	%
Total Operating Costs and Expenses		6,305			6,947			(642	)	(9	%)
Operating Income (Loss)		245			(531	)		776		(146	%)
Other Expense
Other expense, net		(17	)		(192	)		175		(91	%)
Total Other Expense, Net		(17	)		(192	)		175		(91	%)
Income (Loss) Before Provision for Income Taxes		228			(723	)		951		(132	%)
Provision for Income Taxes		--			--			--		0	%
Net Income (Loss)	$	228		$	(723	)	$	951		(132	%)

For the nine months ended September 30, 2012 we had operating income of $245,000, compared to an operating loss of $531,000 for the nine months ended September 30, 2011.  For the nine months ended September 30, 2012 we had net income of $228,000, compared to a net loss of $723,000 for the nine months ended September 30, 2011.  The increase in income for 2012 compared to 2011 is primarily due to approximately $620,000 of severance expenses incurred in 2011, an increase in revenues of $134,000 and a decrease in legal fees reflecting non-recurrence of proxy solicitation costs incurred in 2011, offset by increases in sales and marketing and operations, research and development expenses.

For the nine months ended September 30, 2012, revenue increased by $134,000 or 2% from $6,416,000 for the nine months ended September 30, 2011 to $6,550,000 for the nine months ended September 30, 2012.  The increase is primarily due to IOL services revenue and startup engineering services revenue from new customers contracted at the end of 2011, offset by the decrease in direct costs related to third-party scanning services no longer charged to Siemens.

17

DIRECT INSITE CORP. AND SUBSIDIARIES

Costs of operations, research and development increased by approximately $182,000, or 7%, to $2,890,000 for the nine months ended September 30, 2012 from $2,708,000 for the nine months ended September 30, 2011. These costs consist principally of salaries and related expenses for software development, programming, custom engineering, network services, and quality control and assurance.  Also included are costs for purchased services, network costs, costs of the production co-location facilities and other expenses directly related to our custom engineering and SaaS services.  The increase was primarily the result of an increase in labor costs due to the addition of a Vice President of Development and other development staff and development costs as the Company increased engineering and development work related to new customers.

Sales and marketing costs increased by approximately $169,000, or 11%, to $1,727,000 for the nine months ended September 30, 2012 from $1,558,000 for the nine months ended September 30, 2011.  This increase resulted principally from increased labor costs due to the addition of a new Vice President of Sales in the first quarter of 2012, marketing consultant fees and increased trade show and travel expenses, which were incurred to support corporate sales and marketing initiatives.

General and administrative costs decreased by approximately $426,000, or 23%, to $1,411,000 for the nine months ended September 30, 2012 to $1,837,000 for the nine months ended September 30, 2011.  Salaries and related costs decreased by $67,000, legal fees decreased by $183,000, travel decreased by $68,000, other expenses decreased by $128,000, telephone expenses decreased by $6,000 and professional fees decreased by $14,000.  These decreases were offset by increases in accounting fees by $34,000 and insurance expenses by $6,000.

Financial Condition and Liquidity

As of September 30, 2012, the Company had total stockholders’ equity of $3,263,000, working capital of $1,717,000 and an accumulated deficit of $112,142,000.  The Company’s cash increased by $38,000 during the nine months ended September 30, 2012, to $725,000 on hand as of September 30, 2012.

During the nine months ended September 30, 2012, cash provided by operations was $276,000, compared to cash provided by operations of $30,000 for the nine months ended September 30, 2011.  In 2012, cash generated from operations principally reflects the Company’s operating income and non-cash charges of $277,000 for depreciation and amortization, $122,000 for stock based compensation, a $92,000 increase in accounts payable and an increase in deferred revenue of $70,000, offset by a $409,000 increase in accounts receivable, and a $99,000 increase in prepaid expense and other current assets.

Cash provided by operating activities for the nine months ended September 30, 2011 was $30,000, consisting of the net loss of $723,000, increased by non-cash income and expenses of $337,000, including depreciation and amortization of property and equipment of $224,000, stock-based compensation expense of $95,000 and deferred rent expense of $18,000. In addition, accounts receivable increased by $227,000 and prepaid expenses and other assets increased $106,000.  Accounts payable and accrued expenses increased $818,000 and deferred revenue decreased $69,000.

Cash used in investing activities due to expenditures for new equipment was $58,000 for the nine months ended September 30, 2012 and $186,000 for the nine months ended September 30, 2011.

Cash used in financing activities totaled $180,000 for the nine months ended September 30, 2012, reflecting payments on long-term debt and capital leases, compared to cash provided by financing of $65,000 in 2011, reflecting proceeds from the exercise of stock options of $217,000, offset by $152,000 in repayments of equipment loans and capital leases.

The Company believes it has sufficient liquidity available to continue in operation through at least September 2013.

18

DIRECT INSITE CORP. AND SUBSIDIARIES

Our Critical Accounting Policies

Our critical accounting policies are described in the audited consolidated financial statements and notes thereto for the year ended December 31, 2011 included in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 30, 2012.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not applicable

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Acting Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act).  Based upon this evaluation our Chief Executive Officer and Acting Chief Financial Officer concluded that, at September 30, 2012, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the most recent fiscal quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

19

DIRECT INSITE CORP. AND SUBSIDIARIES

PART II Other Information

Item 1. Legal Proceedings

We are not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material adverse effect on our business, and no such proceedings are known to be contemplated.

Item 1A. Risk Factors

Not required of smaller reporting companies.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

None.

Item 3.  Defaults in Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

31 Certifications pursuant to Rules 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32 Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002.

20

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DIRECT INSITE CORP.
/s/ Matthew E. Oakes
Matthew E. Oakes, Chief Executive Officer	November 14, 2012
/s/ Sandra Wallace
Sandra Wallace, Acting Chief Financial Officer	November 14, 2012

21

EX-31

EXHIBIT 31.0

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Matthew E. Oakes certify that:

1. I have reviewed this report on Form 10-Q of  Direct Insite Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 14, 2012	/s/ Matthew E. Oakes
	Matthew E. Oakes, (Principal Executive Officer)
	President and Chief Executive Officer

EXHIBIT 31.0

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Sandra Wallace, certify that:

1. I have reviewed this report on Form 10-Q of  Direct Insite Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a.  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 14, 2012	/s/ Sandra Wallace
	Sandra Wallace
	Acting Chief Financial Officer
	(Principal Accounting Officer and Principal
	Financial Officer)

EX-32

EXHIBIT 32.0

DIRECT INSITE CORP. AND SUBSIDIARIES

CERTIFICATION OF PERIODIC REPORT

I, Matthew E. Oakes, President and Chief Executive Officer of Direct Insite Corp. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1) The Quarterly Report on Form 10-Q of the Company for the three months ended September 30, 2012 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2012
	/s/ Matthew E. Oakes
	Matthew E. Oakes, President
	and Chief Executive Officer
	(Principal Executive Officer)

EXHIBIT 32.0

DIRECT INSITE CORP. AND SUBSIDIARIES

CERTIFICATION OF PERIODIC REPORT

I, Sandra Wallace, Chief Financial Officer of Direct Insite Corp. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1) The Quarterly Report on Form 10-Q of the Company for the three months ended September 30, 2012 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2012
	/s/ Sandra Wallace
	Sandra Wallace
	Acting Chief Financial Officer
	(Principal Accounting Officer and
	Principal Financial Officer)

XML

DEBT (Details) (USD $)	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Line of Credit [Abstract]
Maximum borrowing capacity of credit facility	$ 1,000,000
Maximum line of credit availability based on eligible assets (in hundredths)	80.00%
Term period of credit facility	12 months
Notes Payable [Abstract]
Notes payable	45,000	95,000
Debt Instrument [Line Items]
Net book value of equipment collateralized for notes payable	46,000	95,000
Summary of future principal payments of notes [Abstract]
Total payments	45,000	95,000
Current Portion	(45,000)	(62,000)
Long-Term Portion	0	33,000
Capital Lease Obligations [Abstract]
Number of capital lease obligations equipments	4
Expiry period of capital lease obligations	August 2015
Summary of future minimum payments under the capital lease [Abstract]
2013	201,000
2014	198,000
2015	25,000
Total minimum lease payments	424,000
Less: amounts representing interest	(16,000)
Net minimum lease payments	408,000
Less: current portion	(190,000)	(135,000)
Long-Term Portion	218,000	248,000
Interest Rate, Capital Leases 1 (in hundredths)	0.00%
Interest rate, Capital Lease 2 (in hundredths)	3.00%
Interest Rate, Capital Lease 3 (in hundredths)	3.30%
Interest Rate Capital Lease 4 (in hundredths)	8.00%
Gross book value of capital leased assets	589,000
Net book value of capital leased assets	$ 423,000
Notes Payable [Member]
Debt Instrument [Line Items]
Interest rate of notes, minimum (in hundredths)	8.00%
Interest rate of notes, maximum (in hundredths)	9.50%
Maturity date of notes	Aug. 31, 2013
LIBOR [Member]
Line of Credit [Abstract]
Description of variable rate basis	LIBOR
Variable rate of credit facility (in hundredths)	2.00%

XML

DEBT

9 Months Ended

Sep. 30, 2012

DEBT [Abstract]

DEBT

Note 4 – Debt

Line of Credit

The Company entered into a loan agreement with JPMorgan Chase Bank, NA ("Chase") on May 31, 2011.  The agreement provided a revolving line of credit up to $1,000,000 with availability based on 80% of eligible assets (as defined).  The line of credit provided that interest would accrue at an annual rate of LIBOR plus 2%, was collateralized by the Company's accounts receivable, had a term of 12 months, and provided for financial covenants.  During the time the loan agreement was in effect, the Company had not drawn any funds from the line of credit.

On May 11, 2012, the Company was notified by Chase that it was not in compliance with one of the financial covenants of the loan agreement, and although no funds had been drawn, the line of credit had been cancelled.

Notes Payable

As of September 30, 2012 and December 31, 2011, notes payable consist of approximately $45,000 and $95,000, respectively, of borrowings for the purchase of equipment.  These notes bear interest at rates ranging from 8.0% to 9.5% per year and mature through August 2013.  The notes are collateralized by the equipment purchased with net book values of approximately $46,000 and $95,000, as of September 30, 2012 and December 31, 2011, respectively.

Capital Lease Obligations

The Company has equipment under four capital lease obligations expiring at various times through August 2015.  The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair values of the assets.

As of September 30, 2012, future minimum payments under these capital leases are (in thousands):

For the Twelve Months Ending
September 30,	Amount
2013	$	201
2014		198
2015		25
Total minimum lease payments		424
Less: amounts representing interest		(16)
Net minimum lease payments		408
Less: current portion		(190)
Long-Term Portion	$	218

The implied interest rates related to these capital leases are 0.0%, 3.0%, 3.3% and 8.0%. The gross book value and the net book value of the related assets are approximately $589,000 and $423,000, respectively, as of September 30, 2012.

XML

MAJOR CUSTOMERS (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
MAJOR CUSTOMERS [Abstract]
Number of major customers			3
Revenues [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	100.00%	100.00%	100.00%	100.00%
Accounts Receivable [Member]
Summary of customers accounted for significant portion of accounts receivable [Abstract]
Major customer, accounts receivable	1,685		1,685
HP Customer A [Member] | Revenues [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	14.40%	18.80%	14.10%	18.90%
HP Customer B [Member] | Revenues [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	14.50%	15.00%	14.90%	15.70%
HP Customer C [Member] | Revenues [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	16.40%	16.60%	15.20%	13.70%
HP Customer D [Member] | Revenues [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	6.50%	0.00%	5.10%	0.00%
Total HP [Member] | Revenues [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	51.80%	50.40%	49.30%	48.30%
Total HP [Member] | Accounts Receivable [Member]
Summary of customers accounted for significant portion of accounts receivable [Abstract]
Major customer, accounts receivable	902		902
IBM [Member] | Revenues [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	32.70%	30.90%	32.70%	33.10%
IBM [Member] | Accounts Receivable [Member]
Summary of customers accounted for significant portion of accounts receivable [Abstract]
Major customer, accounts receivable	708		708
Siemens [Member] | Revenues [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	4.70%	10.20%	5.50%	10.90%
Siemens [Member] | Accounts Receivable [Member]
Summary of customers accounted for significant portion of accounts receivable [Abstract]
Major customer, accounts receivable	75		75
Total Major Customers [Member] | Revenues [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	89.20%	91.50%	87.50%	92.30%
Others [Member] | Revenues [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	10.80%	8.50%	12.50%	7.70%

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COMMITMENTS AND CONTINGENCIES (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Summary of future minimum lease payments under operating leases [Abstract]
2013	$ 313,000		$ 313,000
2014	207,000		207,000
2015	5,000		5,000
Total	525,000		525,000
Rent expense	147,000	148,000	400,000	391,000
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Stock options granted under employment agreements (in shares)				55,000
Exercise price of stock option grant (in dollars per share)				$ 1.20
Period within which stock option vest			4 years
Vice President of Channel Sales and Marketing and Chief Technology Officer [Member]
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Future commitments under employment agreements in year 2013	325,000		325,000
Future commitments under employment agreements in year 2014	$ 69,000		$ 69,000

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SUBSEQUENT EVENTS (Details) (Subsequent Event [Member], USD $)	0 Months Ended
	Oct. 24, 2012 sqft
Subsequent Event [Line Items]
Period of office lease	66 months
Land Subject to Ground Leases	5,806
Rent abatement description	agreement provides for a total of six months' rent abatement in the first 15 months of the term
Contract termination fee	$ 100,000
Security deposit	50,000
Reduced security deposit after certain period	15,000
Period one after which security deposit decrease	36 months
Period two after which security deposit decrease	49 months
Minimum [Member]
Subsequent Event [Line Items]
Escalating base rent per square foot	17.25
Lease calls for total rent per square feet (in dollars per square feet)	$ 12.55
Maximum [Member]
Subsequent Event [Line Items]
Escalating base rent per square foot	$ 20.00
Lease calls for total rent per square feet (in dollars per square feet)	$ 16.02

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ACCOUNTS PAYABLE AND ACCRUED EXPENSES

9 Months Ended

Sep. 30, 2012

ACCOUNTS PAYABLE AND ACCRUED EXPENSES [Abstract]

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Note 3 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following as of September 30, 2012 and December 31, 2011 as follows (in thousands):

	2012		2011
Trade accounts payable	$	155	$	229
Sales taxes payable		539		539
Accrued board fees		250		427
Other accrued expenses		255		189
Total Accounts Payable and Accrued Expenses	$	1,199	$	1,384

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current Assets
Cash and cash equivalents	$ 725	$ 687
Accounts receivable	1,977	1,568
Prepaid expenses and other current assets	283	233
Deferred tax assets - current	261	261
Total Current Assets	3,246	2,749
Property and Equipment, Net	701	765
Deferred Tax Asset	766	766
Other Assets	297	248
Total Assets	5,010	4,528
Current Liabilities
Accounts payable and accrued expenses	1,199	1,384
Current portion of capital lease obligations	190	135
Current portion of notes payable	45	62
Deferred revenue	70	0
Deferred rent payable	25	30
Total Current Liabilities	1,529	1,611
Other Liabilities
Capital lease obligation, net of current portion	218	248
Notes payable, net of current portion	0	33
Total Liabilities	1,747	1,892
Commitments and Contingencies
Stockholders' equity
Preferred stock, $0.0001 par value; 2,000,000 shares authorized; none issued or outstanding	0	0
Common stock; $0.0001 par value; 50,000,000 shares authorized; 12,484,262 and 12,156,760 shares issued and 12,444,335 and 12,116,833 shares outstanding in 2012 and 2011	1	1
Additional paid-in capital	115,732	115,333
Accumulated deficit	(112,142)	(112,370)
Common stock in treasury, at cost; 24,371 shares in 2012 and 2011	(328)	(328)
Total Stockholders' Equity	3,263	2,636
Total Liabilities and Stockholders' Equity	$ 5,010	$ 4,528

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NATURE OF BUSINESS

9 Months Ended

Sep. 30, 2012

NATURE OF BUSINESS [Abstract]

NATURE OF BUSINESS

Note 1 – Nature of Business

Direct Insite Corp. and Subsidiaries ("Direct Insite" or the "Company"), primarily operate as a Software as a Service provider ("SaaS"), that markets an integrated transaction based "fee for service" offering called Invoices On-Line ("IOL"), an electronic invoice presentment and payment ("EIP&P") service that processes high volumes of transactional data for invoice presentment purposes delivered via the Internet on a global basis.  During the period, the Company operated redundant data centers in Miami, Florida, Commack, New York and Santa Clara, California.

As described in Note 8, the Company has three major customers that accounted for 87.5% and 92.3% of the Company's revenue for the nine months ended September 30, 2012 and 2011, respectively.  Loss of any of these customers would have a material effect on the Company.

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NATURE OF BUSINESS (Details)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
NATURE OF BUSINESS [Abstract]
Number of major customers	3
Revenues [Member]
Concentration Risk [Line Items]
Ratio of Revenues from Major Customers to Total Revenues	87.50%	92.30%

XML

ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Summary of accounts payable and accrued expenses [Abstract]
Trade accounts payable	$ 155	$ 229
Sales taxes payable	539	539
Accrued board fees	250	427
Other accrued expenses	255	189
Total Accounts Payable and Accrued Expenses	$ 1,199	$ 1,384

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 2 - Summary of Significant Accounting Policies

Interim Financial Information and Principles of Consolidation

The accompanying unaudited condensed consolidated interim financial statements include the accounts of Direct Insite and its subsidiaries.  All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated balance sheet as of September 30, 2012, the condensed consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011 and cash flows for the nine months ended September 30, 2012 and 2011, have not been audited.  These unaudited, condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  The December 31, 2011 consolidated balance sheet was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP.  These interim condensed consolidated financial statements include all adjustments which management considers necessary for a fair presentation of the financial statements and consist of normal recurring items.  The results of operations for the three and nine months ended September 30, 2012, are not necessarily indicative of results that may be expected for any other interim period or for the full year.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2011 included in the Company's Form 10-K filed with the Securities and Exchange Commission on March 30, 2012.  The accounting policies used in preparing these unaudited condensed consolidated financial statements are consistent with those described in the audited December 31, 2011 consolidated financial statements.

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period.  Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  The most significant estimates are used in the accounting related to stock based compensation and the valuation allowance on deferred tax assets.  Actual results could differ from those estimates.

Revenue Recognition

The Company records revenue in accordance with Accounting Standards Codification ("ASC") 605, Revenue Recognition ("ASC 605") and SEC Staff Accounting Bulletin Topic 13 Revenue Recognition in Financial Statements.  Revenue is recognized when it is both earned and realizable, that is, when the following criteria are met:

·   Persuasive evidence of arrangements exist;

·   Delivery has occurred or services have been rendered;

·   The seller's price is fixed and determinable; and

·   Collectability is reasonably assured.

The following are the specific revenue recognition policies for each major category of revenue.

Recurring

The Company provides transactional data processing services through its SaaS software solutions to its customers.  The customer is charged a monthly fixed rate on a per-transaction basis or a fixed fee based on monthly transaction volumes.  Revenue is recognized as the services are performed.

Professional Services

The Company provides nonrecurring engineering services to its customers, which may include initial or additional development, modification, and customization services to the Company's existing software platform.  Such services are billed based on hourly rates or upon acceptance by the customer on a completed contract basis.  The Company does not sell software licenses, upgrades or enhancements, or post-contract customer services.  For hourly billed services, revenue is recognized as the services are performed.  For project-based services, revenue is recognized when the project has been accepted by the customer.

Income Taxes

The Company accounts for income taxes using the asset and liability method.  This method requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax basis of assets and liabilities, using enacted tax rates.  Additionally, net deferred tax assets are adjusted by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax assets will not be realized.  The Company currently has significant deferred tax assets.  The Company reviewed previous positive and negative evidence and also reviewed its expected taxable income for future periods and concluded that it is more likely than not that as of September 30, 2012 approximately $1,027,000 of tax benefits related to net operating loss carry-forwards will be utilized in future tax years.  As a result, the Company's effective tax rate for the three and nine months ended September 30, 2012 and 2011 differs from the current statutory rates.  The Company utilizes the expected annual effective tax rate in determining its income tax provision for the interim period's income or loss.  The Company provides a valuation allowance on the remaining future tax benefits until it can sustain a level of profitability that demonstrates its ability to utilize the remaining assets, or other significant positive evidence arises that suggests its ability to utilize the remaining assets.  The future realization of a portion of its reserved deferred tax assets related to excess tax benefits associated with the exercise of stock options that, if and when realized, will not result in a tax benefit in the consolidated statement of operations, but rather will result in an increase in additional paid-in capital. The Company will continue to reassess its reserves on deferred income tax assets in future periods on a quarterly basis.

Earnings Per Share

The Company displays earnings per share in accordance with ASC 260, Earnings Per Share ("ASC 260").  ASC 260 requires dual presentation of basic and diluted earnings per share ("EPS").  Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period.  Diluted earnings per share includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.  For the three and nine months ended September 30, 2012, potentially dilutive securities consisting of options to acquire 926,000 shares of common stock and 3,000 shares of unvested restricted stock are not included in the calculation of diluted earnings per share because their impact was anti-dilutive.

For the three and nine months ended September 30, 2011, potentially dilutive securities consisting of options to acquire 153,000 shares of common stock and 24,000 and 47,000 shares of unvested restricted stock, respectively, are not included in the calculation of diluted loss per share because their impact was anti-dilutive.

The computation of diluted weighted average common shares outstanding used in the calculation of diluted earnings per share for the three and nine months ended September 30, 2012 and 2011 is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Weighted Average Common shares   outstanding		12,398		11,914		12,286		11,776
Options to purchase common stock		-		71		-		-
Restricted stock grants		12		8		6		-
Total diluted shares		12,410		11,993		12,292		11,776

Fair Value of Financial Instruments

The carrying value of the Company's accounts receivable and accounts payable approximates their fair value due to the short-term maturity of such instruments.  The carrying value of notes payable and capital lease obligations approximate their fair value because the terms of these instruments approximate prevailing market rates.

Recently Issued and Adopted Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial statements.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Stockholders' equity
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, authorized (in shares)	2,000,000	2,000,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, authorized (in shares)	50,000,000	50,000,000
Common stock, issued (in shares)	12,484,262	12,156,760
Common stock, outstanding (in shares)	12,444,335	12,116,833
Treasury stock, at cost (in shares)	24,371	24,371

XML

ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables)

9 Months Ended

Sep. 30, 2012

ACCOUNTS PAYABLE AND ACCRUED EXPENSES [Abstract]

Schedule of accounts payable and accrued expenses

Accounts payable and accrued expenses consist of the following as of September 30, 2012 and December 31, 2011 as follows (in thousands):

	2012		2011
Trade accounts payable	$	155	$	229
Sales taxes payable		539		539
Accrued board fees		250		427
Other accrued expenses		255		189
Total Accounts Payable and Accrued Expenses	$	1,199	$	1,384

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 14, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	DIRECT INSITE CORP
Entity Central Index Key	0000879703
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		12,464,251
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012

XML

DEBT (Tables)

9 Months Ended

Sep. 30, 2012

DEBT [Abstract]

Future minimum payments under these capital leases

As of September 30, 2012, future minimum payments under these capital leases are (in thousands):

For the Twelve Months Ending
September 30,	Amount
2013	$	201
2014		198
2015		25
Total minimum lease payments		424
Less: amounts representing interest		(16)
Net minimum lease payments		408
Less: current portion		(190)
Long-Term Portion	$	218

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues
Recurring revenues	$ 1,826	$ 1,807	$ 5,475	$ 5,385
Professional services fees and other	342	456	1,075	1,031
Total Revenues	2,168	2,263	6,550	6,416
Costs and Expenses
Operations, research and development	928	945	2,890	2,708
Sales and marketing	585	586	1,727	1,558
General and administrative	451	454	1,411	1,837
Severance pay to former CEO	0	0	0	620
Amortization and depreciation	101	74	277	224
Total Operating Costs and Expenses	2,065	2,059	6,305	6,947
Operating Income (Loss)	103	204	245	(531)
Other (Expense) Income
Other (expense) income, net	(11)	12	(17)	(192)
Total Other (Expense) Income, Net	(11)	12	(17)	(192)
Income (Loss) Before Provision for Income Taxes	92	216	228	(723)
Provision for Income Taxes	0	0	0	0
Net Income (Loss)	$ 92	$ 216	$ 228	$ (723)
Basic Income (Loss) Per Share (in dollars per share)	$ 0.01	$ 0.02	$ 0.02	$ (0.06)
Diluted Income (Loss) Per Share (in dollars per share)	$ 0.01	$ 0.02	$ 0.02	$ (0.06)
Basic Weighted Average Common Stock Outstanding (in shares)	12,398	11,914	12,286	11,776
Diluted Weighted Average Common Stock Outstanding (in shares)	12,410	11,993	12,292	11,776

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2012

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

Note 7 – Commitments and Contingencies

Operating Leases

Operating leases are primarily for office space, data centers, equipment and automobiles.  As of September 30, 2012, the future minimum lease payments under operating leases are summarized as follows (in thousands):

Twelve Months Ending
September 30,	Amount
2013	$	313
2014		207
2015		5
Total	$	525

Rent expense approximated $147,000 and $148,000 for the three months ended September 30, 2012 and 2011, respectively.  Rent expense approximated $400,000 and $391,000 for the nine months ended September 30, 2012 and 2011, respectively.

Employment Agreements

Future commitments under employment agreements for the Company's President and Chief Executive Officer and the Company's Executive Vice President of Channel Sales and Chief Technology Officer total $325,000 and $69,000 for the years ending September 30, 2013 and 2014 respectively.

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INCOME TAXES

9 Months Ended

Sep. 30, 2012

INCOME TAXES [Abstract]

INCOME TAXES

Note 6 – Income Taxes

The Company accounts for income taxes in accordance with ASC 740 which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition.  There were no unrecognized tax benefits as of September 30, 2012 and December 31, 2011.

The Company has identified its federal tax return and its state tax returns in New York and Florida as "major" tax jurisdictions, as defined in ASC 740.  Based on the Company's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's financial statements.  The Company's evaluation was performed for tax years ended 2008 through 2011, the only periods subject to examination.  The Company believes that its income tax positions and deductions will be sustained upon audit and does not anticipate any adjustments that will result in a material change to its financial position.  The Company has elected to classify interest and penalties incurred on income taxes, if any, as income tax expense.  No interest or penalties on income taxes have been recorded during the three and nine months ended September 30, 2012 and 2011.  The Company does not expect its unrecognized tax benefit position to change during the next twelve months.  Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

As of September 30, 2012, the Company has federal and state net operating loss carryforwards ("NOLs") remaining of approximately $36 million and $30 million, which may be available to reduce taxable income, if any.  Approximately $9 million of Federal NOLs will expire in 2012 with the remaining $27 million expiring in 2019 through 2031.  Internal Revenue Code Section 382 rules limit the utilization of NOLs upon a change in control of a company.  During 2011, the Company performed an evaluation as to whether a change in control had taken place.  Management believes that there has been no change in control as such applies to Section 382.  However, if it is determined that a change in control has taken place, either historically or in the future, utilization of its NOLs could be subject to severe limitations, which could have the effect of eliminating substantially all of the future income tax benefits of the NOLs.  The NOL carryforward as of September 30, 2012 included approximately $1,194,000 related to windfall tax benefits for which a benefit would be recorded in additional paid-in capital if and when realized.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Taxes [Abstract]
Tax benefits related to net operating loss carry-forwards	$ 1,027,000		$ 1,027,000
Summary of computation of diluted weighted average common shares outstanding used in calculation of diluted earnings per share [Abstract]
Weighted Average Common Stock Outstanding (in shares)	12,398,000	11,914,000	12,286,000	11,776,000
Total diluted shares (in shares)	12,410,000	11,993,000	12,292,000	11,776,000
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive stock excluded from computation of loss per share	926,000	153,000
Summary of computation of diluted weighted average common shares outstanding used in calculation of diluted earnings per share [Abstract]
Options to purchase common stock and restricted stock grants (in shares)	0	71,000	0	0
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive stock excluded from computation of loss per share		24,000	3,000	47,000
Summary of computation of diluted weighted average common shares outstanding used in calculation of diluted earnings per share [Abstract]
Options to purchase common stock and restricted stock grants (in shares)	12,000	8,000	6,000	0

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STOCKHOLDERS' EQUITY (Tables)

9 Months Ended

Sep. 30, 2012

STOCKHOLDERS' EQUITY [Abstract]

Summary of stock option activity

The following is a summary of stock option activity for nine months ended September 30, 2012, relating to all of the Company's common stock plans:

				Weighted		Weighted Average		Aggregate
				Average		Remaining		Intrinsic
	Shares			Exercise		Contractual Term		Value
	(in thousands)			Price		(in years)		(in thousands)
Outstanding at January 1, 2012		128		$	1.31		2.7	$	--
Granted		835		$	1.15		4.3	$	--
Forfeited		(20	)		1.15
Expired		(17	)		1.20
Outstanding at September 30, 2012		926		$	1.17		4.1	$	--
Exercisable at September 30, 2012		111		$	1.33		2.3	$	--

Summary of stock option information

The following table summarizes stock option information as of September 30, 2012:

Outstanding Options
				Weighted Average
		Number Outstanding		Remaining	Options Exercisable
Exercise Prices		(in thousands)		Contractual Life	(in thousands)
$	1.50		50	0.5 years		50
$	1.20		38	3.7 years		38
$	1.15		838	4.4 years		23
Total			926	4.1 years		111

Summary of entity's non-vested stock grants

A summary of the status of the Company's non-vested stock grants as of September 30, 2012 and changes during the nine months ended September 30, 2012 is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-Vested at January 1, 2012		35		$	0.93
Granted		150		$	0.66
Forfeited		(40	)	$	0.71
Vested		(66	)	$	0.75
Non-Vested at September 30, 2012		79		$	0.68

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Interim Financial Information and Principles of Consolidation

Interim Financial Information and Principles of Consolidation

The accompanying unaudited condensed consolidated interim financial statements include the accounts of Direct Insite and its subsidiaries.  All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated balance sheet as of September 30, 2012, the condensed consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011 and cash flows for the nine months ended September 30, 2012 and 2011, have not been audited.  These unaudited, condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  The December 31, 2011 consolidated balance sheet was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP.  These interim condensed consolidated financial statements include all adjustments which management considers necessary for a fair presentation of the financial statements and consist of normal recurring items.  The results of operations for the three and nine months ended September 30, 2012, are not necessarily indicative of results that may be expected for any other interim period or for the full year.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2011 included in the Company's Form 10-K filed with the Securities and Exchange Commission on March 30, 2012.  The accounting policies used in preparing these unaudited condensed consolidated financial statements are consistent with those described in the audited December 31, 2011 consolidated financial statements.

Use of Estimates

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period.  Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  The most significant estimates are used in the accounting related to stock based compensation and the valuation allowance on deferred tax assets.  Actual results could differ from those estimates.

Revenue Recognition

Revenue Recognition

The Company records revenue in accordance with Accounting Standards Codification ("ASC") 605, Revenue Recognition ("ASC 605") and SEC Staff Accounting Bulletin Topic 13 Revenue Recognition in Financial Statements.  Revenue is recognized when it is both earned and realizable, that is, when the following criteria are met:

·   Persuasive evidence of arrangements exist;

·   Delivery has occurred or services have been rendered;

·   The seller's price is fixed and determinable; and

·   Collectability is reasonably assured.

The following are the specific revenue recognition policies for each major category of revenue.

Recurring

The Company provides transactional data processing services through its SaaS software solutions to its customers.  The customer is charged a monthly fixed rate on a per-transaction basis or a fixed fee based on monthly transaction volumes.  Revenue is recognized as the services are performed.

Professional Services

The Company provides nonrecurring engineering services to its customers, which may include initial or additional development, modification, and customization services to the Company's existing software platform.  Such services are billed based on hourly rates or upon acceptance by the customer on a completed contract basis.  The Company does not sell software licenses, upgrades or enhancements, or post-contract customer services.  For hourly billed services, revenue is recognized as the services are performed.  For project-based services, revenue is recognized when the project has been accepted by the customer.

Income Taxes

Income Taxes

The Company accounts for income taxes using the asset and liability method.  This method requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax basis of assets and liabilities, using enacted tax rates.  Additionally, net deferred tax assets are adjusted by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax assets will not be realized.  The Company currently has significant deferred tax assets.  The Company reviewed previous positive and negative evidence and also reviewed its expected taxable income for future periods and concluded that it is more likely than not that as of September 30, 2012 approximately $1,027,000 of tax benefits related to net operating loss carry-forwards will be utilized in future tax years.  As a result, the Company's effective tax rate for the three and nine months ended September 30, 2012 and 2011 differs from the current statutory rates.  The Company utilizes the expected annual effective tax rate in determining its income tax provision for the interim period's income or loss.  The Company provides a valuation allowance on the remaining future tax benefits until it can sustain a level of profitability that demonstrates its ability to utilize the remaining assets, or other significant positive evidence arises that suggests its ability to utilize the remaining assets.  The future realization of a portion of its reserved deferred tax assets related to excess tax benefits associated with the exercise of stock options that, if and when realized, will not result in a tax benefit in the consolidated statement of operations, but rather will result in an increase in additional paid-in capital. The Company will continue to reassess its reserves on deferred income tax assets in future periods on a quarterly basis.

Earnings Per Share

Earnings Per Share

The Company displays earnings per share in accordance with ASC 260, Earnings Per Share ("ASC 260").  ASC 260 requires dual presentation of basic and diluted earnings per share ("EPS").  Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period.  Diluted earnings per share includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.  For the three and nine months ended September 30, 2012, potentially dilutive securities consisting of options to acquire 926,000 shares of common stock and 3,000 shares of unvested restricted stock are not included in the calculation of diluted earnings per share because their impact was anti-dilutive.

For the three and nine months ended September 30, 2011, potentially dilutive securities consisting of options to acquire 153,000 shares of common stock and 24,000 and 47,000 shares of unvested restricted stock, respectively, are not included in the calculation of diluted loss per share because their impact was anti-dilutive.

The computation of diluted weighted average common shares outstanding used in the calculation of diluted earnings per share for the three and nine months ended September 30, 2012 and 2011 is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Weighted Average Common shares   outstanding		12,398		11,914		12,286		11,776
Options to purchase common stock		-		71		-		-
Restricted stock grants		12		8		6		-
Total diluted shares		12,410		11,993		12,292		11,776

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying value of the Company's accounts receivable and accounts payable approximates their fair value due to the short-term maturity of such instruments.  The carrying value of notes payable and capital lease obligations approximate their fair value because the terms of these instruments approximate prevailing market rates.

Recently Issued and Adopted Accounting Pronouncements

Recently Issued and Adopted Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial statements.

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MAJOR CUSTOMERS

9 Months Ended

Sep. 30, 2012

MAJOR CUSTOMERS [Abstract]

MAJOR CUSTOMERS

Note 8 – Major Customers

Three customers, HP Enterprise Services ("HP"), International Business Machines Corp. ("IBM") and Siemens Corporation ("Siemens"), accounted for a significant portion of the Company's revenues as follows:

	% of Total Revenues
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
HP Customer A		14.4	%		18.8	%		14.1	%		18.9	%
HP Customer B		14.5	%		15.0	%		14.9	%		15.7	%
HP Customer C		16.4	%		16.6	%		15.2	%		13.7	%
HP Customer D		6.5	%		0.0	%		5.1	%		0.0	%
Total HP		51.8	%		50.4	%		49.3	%		48.3	%
IBM		32.7	%		30.9	%		32.7	%		33.1	%
Siemens		4.7	%		10.2	%		5.5	%		10.9	%
Total Major Customers		89.2	%		91.5	%		87.5	%		92.3	%
Others		10.8	%		8.5	%		12.5	%		7.7	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

Revenue from Siemens for the three and nine months ended September 30, 2012 decreased due to the Company no longer incurring costs, and no longer charging Siemens for the facilitation of scanning services utilized by Siemens.

As of September 30, 2012, these three customers accounted for a significant portion of the Company's accounts receivable as follows (in thousands):

HP	$	902
IBM		708
Siemens		75
Total	$	1,685

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2012

SUBSEQUENT EVENTS [Abstract]

SUBSEQUENT EVENTS

Note 9 – Subsequent Events

On October 24, 2012, the Company entered into a 66-month Office Lease for 5,806 square feet of office space in downtown Ft. Lauderdale, Florida.  The lease calls for escalating base rent from $17.25 to $20.00 per square foot, plus an escalating allocated share of operating costs estimated from $12.55 to $16.02 per square foot over the lease term.  The agreement provides for a total of six months' rent abatement in the first 15 months of the term, and termination at the Company's discretion at the end of the 42nd month for a fee of $100,000.  The lease required a $50,000 security deposit and first month's rent upon contract execution.  Under the terms of the lease, the amount of the security deposit will be reduced by $15,000 each, after months 36 and 49.  The Company plans to relocate its corporate headquarters from Sunrise, Florida to the new location in January, 2013.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Schedule of computation of diluted weighted average common shares

The computation of diluted weighted average common shares outstanding used in the calculation of diluted earnings per share for the three and nine months ended September 30, 2012 and 2011 is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Weighted Average Common shares   outstanding		12,398		11,914		12,286		11,776
Options to purchase common stock		-		71		-		-
Restricted stock grants		12		8		6		-
Total diluted shares		12,410		11,993		12,292		11,776

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MAJOR CUSTOMERS (Tables)

9 Months Ended

Sep. 30, 2012

Revenues [Member]

Concentration Risk [Line Items]

Schedule of customers accounted for a significant portion of revenues and accounts receivable

Three customers, HP Enterprise Services ("HP"), International Business Machines Corp. ("IBM") and Siemens Corporation ("Siemens"), accounted for a significant portion of the Company's revenues as follows:

	% of Total Revenues
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
HP Customer A		14.4	%		18.8	%		14.1	%		18.9	%
HP Customer B		14.5	%		15.0	%		14.9	%		15.7	%
HP Customer C		16.4	%		16.6	%		15.2	%		13.7	%
HP Customer D		6.5	%		0.0	%		5.1	%		0.0	%
Total HP		51.8	%		50.4	%		49.3	%		48.3	%
IBM		32.7	%		30.9	%		32.7	%		33.1	%
Siemens		4.7	%		10.2	%		5.5	%		10.9	%
Total Major Customers		89.2	%		91.5	%		87.5	%		92.3	%
Others		10.8	%		8.5	%		12.5	%		7.7	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

Accounts Receivable [Member]

Concentration Risk [Line Items]

Schedule of customers accounted for a significant portion of revenues and accounts receivable

As of September 30, 2012, these three customers accounted for a significant portion of the Company's accounts receivable as follows (in thousands):

HP	$	902
IBM		708
Siemens		75
Total	$	1,685

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STOCKHOLDERS' EQUITY (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Stock-Based Compensation [Abstract]
Stock based compensation expense	$ 45,000	$ 15,000	$ 122,000	$ 95,000
Unrecognized stock based compensation costs	471,000		471,000
Expected weighted average period for recognition of compensation cost			3 years 1 month 6 days
Common Stock, Options and Stock Grants [Abstract]
Exercise price of stock option grant (in dollars per share)				$ 1.20
Term of stock option grant			5 years
Vesting period of stock option			4 years
Percentage of stock options vesting up-to first anniversary (in hundredths)			25.00%
Percentage of stock options vesting from year two to fifth anniversary (in hundredths)			75.00%
Stock options granted to certain employees (in shares)				55,000
Expected volatility rate (in hundredths)				103.00%
Expected risk free interest rate (in hundredths)				0.62%
Expected dividend rate (in hundredths)			0.00%	0.00%
Expected term			3 years 9 months	2 years 8 months 12 days
Grant date fair value of stock option			500,000
Recognized stock compensation expense	45,000	15,000	122,000	95,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			4 years
Proceeds from exercise of stock options			0	217,000
Weighted Average Exercise Price [Abstract]
Granted (in dollars per share)				$ 1.20
Weighted Average Remaining Contractual Term [Abstract]
Exercisable, ending balance			5 years
Summary of stock option information [Abstract]
Number Outstanding (in shares)	926,000		926,000
Weighted Average Remaining Contractual Life (in dollars per share)			4 years 1 month 6 days
Options Exercisable (in shares)	111,000		111,000
$1.50 [Member]
Summary of stock option information [Abstract]
Exercise Prices ((in dollars per share)			$ 1.50
Number Outstanding (in shares)	50,000		50,000
Weighted Average Remaining Contractual Life (in dollars per share)			6 months
Options Exercisable (in shares)	50,000		50,000
$1.20 [Member]
Summary of stock option information [Abstract]
Exercise Prices ((in dollars per share)			$ 1.20
Number Outstanding (in shares)	38,000		38,000
Weighted Average Remaining Contractual Life (in dollars per share)			3 years 8 months 12 days
Options Exercisable (in shares)	38,000		38,000
$1.15 [Member]
Summary of stock option information [Abstract]
Exercise Prices ((in dollars per share)			$ 1.15
Number Outstanding (in shares)	838,000		838,000
Weighted Average Remaining Contractual Life (in dollars per share)			4 years 4 months 24 days
Options Exercisable (in shares)	23,000		23,000
Director [Member]
Common Stock, Options and Stock Grants [Abstract]
Vesting period of stock option				2 years
Shares issued under deferred compensation plan (in shares)			261,503	111,000
Deferred compensation arrangement with individual fair value of shares issued			277,000	86,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period				2 years
Number of employees to whom shares issued under deferred compensation arrangement			2
CEO [Member]
Common Stock, Options and Stock Grants [Abstract]
Expected volatility rate (in hundredths)				102.00%
Expected risk free interest rate (in hundredths)			0.33%
Expected dividend rate (in hundredths)				0.00%
Shares issued under deferred compensation plan (in shares)				22,500
Deferred compensation arrangement with individual fair value of shares issued				16,000
Deferred compensation arrangement with individual exercise price (in dollars per share)				$ 1.15
Former CEO [Member]
Common Stock, Options and Stock Grants [Abstract]
Shares issued under deferred compensation plan (in shares)				350,000
Proceeds from exercise of stock options				217,000
Restricted Stock Grants [Member]
Common Stock, Options and Stock Grants [Abstract]
Stock option vested during the period (in shares)	65,999		65,999
Grant date fair value of vested stock option			50,000
Shares [Abstract]
Non-Vested, beginning balance (in shares)			35,000
Granted (in shares)			150,000
Forfeited (in shares)			(40,000)
Vested (in shares)			(66,000)
Non-Vested, beginning balance (in shares)	79,000		79,000
Weighted-Average Grant Date Fair Value [Abstract]
Non-Vested, beginning balance (in dollars per share)			$ 0.93
Granted (in dollars per share)			$ 0.66
Forfeited (in dollars per share)			$ 0.71
Vested (in dollars per share)			$ 0.75
Non-Vested, ending balance (in dollars per share)	$ 0.68		$ 0.68
Future expected expense for non-vested shares to be recognized	54,000		54,000
Stock Options [Member]
Stock-Based Compensation [Abstract]
Stock based compensation expense			71,000
Common Stock, Options and Stock Grants [Abstract]
Exercise price of stock option grant (in dollars per share)			$ 1.15
Term of stock option grant			2 years 3 months 18 days
Recognized stock compensation expense			71,000
Shares [Abstract]
Outstanding, beginning balance (in shares)			128,000
Granted (in shares)			835,000
Forfeited			(20,000)
Expired			(17,000)
Outstanding, ending balance (in shares)	926,000		926,000
Exercisable, ending balance (in shares)	111,000		111,000
Weighted Average Exercise Price [Abstract]
Outstanding, beginning balance (in dollars per share)			$ 1.31
Granted (in dollars per share)			$ 1.15
Forfeited (in dollars per share)			$ 1.15
Expired (in dollars per share)			$ 1.20
Outstanding, ending balance (in dollars per share)	$ 1.17		$ 1.17
Exercisable, ending balance (in dollars per share)	$ 1.33		$ 1.33
Weighted Average Remaining Contractual Term [Abstract]
Outstanding, beginning balance			2 years 8 months 12 days
Granted			4 years 3 months 18 days
Outstanding, ending balance			2 years 8 months 12 days
Exercisable, ending balance			2 years 3 months 18 days
Aggregate Intrinsic Value [Abstract]
Outstanding, beginning balance			0
Granted			0
Outstanding, ending balance	0		0
Exercisable, ending balance	0		0
Summary of stock option information [Abstract]
Unrecognized compensation costs related to stock options	$ 417,000		$ 417,000
Number of shares available for issuance under stock option plans (in shares)	375,785		375,785
Maximum [Member]
Common Stock, Options and Stock Grants [Abstract]
Expected volatility rate (in hundredths)			175.00%
Expected risk free interest rate (in hundredths)			0.41%
Minimum [Member]
Common Stock, Options and Stock Grants [Abstract]
Expected volatility rate (in hundredths)			168.00%
Expected risk free interest rate (in hundredths)			0.36%

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash Flows From Operating Activities
Net income (loss)	$ 228	$ (723)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Amortization and depreciation	277	224
Stock-based compensation expense	122	95
Deferred rent expense	(5)	18
Changes in operating assets and liabilities:
Accounts receivable	(409)	(227)
Prepaid expenses and other current assets	(99)	(106)
Accounts payable and accrued expenses	92	818
Deferred revenue	70	(69)
Total Adjustments	48	753
Net Cash Provided by Operating Activities	276	30
Cash Flows Used in Investing Activities
Expenditures for property and equipment	(58)	(186)
Cash Flows From Financing Activities
Proceeds from exercise of stock options	0	217
Repayment of notes payable	(50)	(144)
Repayment of capital lease obligations	(130)	(8)
Net Cash (Used in) Provided by Financing Activities	(180)	65
Net Increase (Decrease) in Cash and Cash Equivalents	38	(91)
Cash and Cash Equivalents - Beginning	687	1,707
Cash and Cash Equivalents - Ending	725	1,616
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	11	11
Cash paid for income taxes	0	0
Schedule of Non-Cash Investing and Financing Activities:
Issuance of common stock in settlement of accrued board fees	277	0
Equipment acquired by capital lease	$ 155	$ 42

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STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2012

STOCKHOLDERS' EQUITY [Abstract]

SHAREHOLDERS' EQUITY

Note 5– Stockholders' Equity

Common Stock, Options and Stock Grants

For the nine months ended September 30, 2012 and 2011 the Company recorded approximately $122,000 and $95,000, respectively, in stock based compensation expense for the fair value of stock-based compensation.  For the three months ended September 30, 2012 and 2011 the Company recorded approximately $45,000 and $15,000, respectively, in stock based compensation expense for the fair value of stock-based compensation.  As of September 30, 2012, there was approximately $471,000 of total unrecognized stock based compensation costs, which is expected to be recognized over a weighted average period of 3.1 years.

Nine Months Ended September 30, 2012

During the nine months ended September 30, 2012, 65,999 restricted common shares with an aggregate grant date fair value of approximately $50,000 vested.  During the nine months ended September 30, 2012, the Company granted, to certain employees of the Company, options to acquire an aggregate of 835,000 shares of common stock for an exercise price of $1.15 per share, exercisable over a term of five years from the date of grant.  The options vest over a four year period, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting in equal monthly amounts through the fourth anniversary of the grant date. The Company estimated the grant date fair value of the stock options using the Black-Scholes option model and the following assumptions: volatility ranging from 168% to 175%, risk-free rate ranging from 0.36% to 0.41%, dividend rate of zero, and expected term of 3.75 years.  The grant date fair value of the stock options was determined to be approximately $500,000, of which approximately $71,000 was recognized as stock compensation expense for the nine months ended September 30, 2012.

On April 5, 2012, the Company issued 261,503 shares with a grant date fair value of approximately $277,000, pursuant to the Direct Insite Corp. Directors' Deferred Compensation Plan dated January 1, 2008, to two former Directors for past services.

Nine Months Ended September 30, 2011

During the nine months ended September 30, 2011, the Company granted 22,500 options to the current CEO with an exercise price of $1.15. The options have a fair value of $16,000 determined using the Black-Sholes pricing model. The key assumptions used in the model were a volatility of 102.0%, a dividend rate of 0%, a risk-free rate of 0.33%, and an expected life of 2.7 years. The Company also granted 55,000 options to employees with an exercise price of $1.20.  The options had a fair value of $40,000 determined using the Black-Sholes pricing model. The key assumptions used in the model were a volatility of 103.0%, a dividend rate of 0%, a risk-free rate of 0.62%, and an expected life of 2.5 years.

During the nine months ended September 30, 2011 the Company granted approximately 111,000 shares to directors of the Company as part of their compensation. The stock grants had a fair value of approximately $86,000 based on the closing price of the stock on the date of the grant. The stock grants vest over the two year period from January 1, 2011 through December 31, 2012.  The Company also issued 350,000 shares on the exercise of 350,000 options for $217,000 to the former CEO.

Stock Options

The following is a summary of stock option activity for nine months ended September 30, 2012, relating to all of the Company's common stock plans:

				Weighted		Weighted Average		Aggregate
				Average		Remaining		Intrinsic
	Shares			Exercise		Contractual Term		Value
	(in thousands)			Price		(in years)		(in thousands)
Outstanding at January 1, 2012		128		$	1.31		2.7	$	--
Granted		835		$	1.15		4.3	$	--
Forfeited		(20	)		1.15
Expired		(17	)		1.20
Outstanding at September 30, 2012		926		$	1.17		4.1	$	--
Exercisable at September 30, 2012		111		$	1.33		2.3	$	--

The following table summarizes stock option information as of September 30, 2012:

Outstanding Options
				Weighted Average
		Number Outstanding		Remaining	Options Exercisable
Exercise Prices		(in thousands)		Contractual Life	(in thousands)
$	1.50		50	0.5 years		50
$	1.20		38	3.7 years		38
$	1.15		838	4.4 years		23
Total			926	4.1 years		111

As of September 30, 2012, there was approximately $417,000 of unrecognized compensation costs related to stock options outstanding.  As of September 30, 2012, 375,785 shares were available for issuance under the stock option plans.

Restricted Stock Grants

A summary of the status of the Company's non-vested stock grants as of September 30, 2012 and changes during the nine months ended September 30, 2012 is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-Vested at January 1, 2012		35		$	0.93
Granted		150		$	0.66
Forfeited		(40	)	$	0.71
Vested		(66	)	$	0.75
Non-Vested at September 30, 2012		79		$	0.68

The future expected expense for non-vested shares is approximately $54,000 and will be recognized as expense through December 31, 2013.

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INCOME TAXES (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
INCOME TAXES [Abstract]
Unrecognized tax benefits	$ 0		$ 0		$ 0
Unrecognized tax benefits, interest and penalties	0	0	0	0
Period for which the position in unrecognized tax benefit is not expected to change			12 months
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards related to tax benefit	1,194,000		1,194,000
Federal Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards	36,000,000		36,000,000
Amount of federal net operating loss expire in 2012			9,000,000
Amount of federal net operating loss expire in 2019 through 2031			27,000,000
State Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards	$ 30,000,000		$ 30,000,000

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2012

COMMITMENTS AND CONTINGENCIES [Abstract]

Schedule of future minimum lease payments under operating leases

Operating leases are primarily for office space, data centers, equipment and automobiles.  As of September 30, 2012, the future minimum lease payments under operating leases are summarized as follows (in thousands):

Twelve Months Ending
September 30,	Amount
2013	$	313
2014		207
2015		5
Total	$	525