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.