10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2014

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 number: 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.)

500 East Broward Boulevard, Suite 1550 Fort Lauderdale, Florida	33394
(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 þ     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 þ     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	þ

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

As of May 6, 2014, there were 12,757,560 shares of the registrant’s Common Stock outstanding.

DIRECT INSITE CORP.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	2-16
ITEM 1.	FINANCIAL STATEMENTS	2
CONDENSED BALANCE SHEETS AS OF MARCH 31, 2014 (UNAUDITED) AND DECEMEBER 31 2013		2
CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013 (UNAUDITED)		3
CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013 (UNAUDITED)		4
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)		5
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	13
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	16
ITEM 4.	CONTROLS AND PROCEDURES	16
PART II.	OTHER INFORMATION	17–18
ITEM 1.	LEGAL PROCEEDINGS	17
ITEM 1A.	RISK FACTORS	17
ITEM 2.	UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS	17
ITEM 3.	DEFAULTS IN SENIOR SECURITIES	17
ITEM 4.	MINE SAFETY DISCLOSURES	17
ITEM 5.	OTHER INFORMATION	17
ITEM 6.	EXHIBITS	17
SIGNATURES		18

PART I – FINANCIAL INFORMATION

Item 1. Financial Information

DIRECT INSITE CORP.

CONDENSED BALANCE SHEETS

(in thousands, except share data)

	March 31, 2014			December 31, 2013
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	984		$	1,371
Accounts receivable		1,812			1,522
Prepaid expenses and other current assets		310			368
Deferred tax assets – current		318			318
Total current assets		3,424			3,579
Property and equipment, net		939			852
Deferred tax assets		874			874
Other assets		257			257
Total assets	$	5,494		$	5,562
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	1,335		$	1,402
Current portion of capital lease obligations		139			187
Deferred rent		31			23
Deferred revenue		88			--
Total current liabilities		1,593			1,612
Capital lease obligations, net of current portion		29			36
Total liabilities		1,622			1,648
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; 12,708,383 and 12,687,921 shares issued and 12,668,456 and 12,647,994 shares outstanding in 2014 and 2013, respectively		1			1
Additional paid-in capital		116,026			115,982
Accumulated deficit		(111,827	)		(111,741	)
Common stock in treasury, at cost; 24,371 shares in 2014 and 2013		(328	)		(328	)
Total stockholders’ equity		3,872			3,914
Total liabilities and stockholders’ equity	$	5,494		$	5,562

See notes to condensed financial statements.

2

DIRECT INSITE CORP.

CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED

(in thousands, except per share data)

	For the three months ended
	March 31, 2014			March 31, 2013
Revenues:
Recurring	$	1,618		$	1,961
Non-recurring		352			399
Total revenues		1,970			2,360
Operating costs and expenses:
Operations, research and development		900			956
General and administrative		592			613
Sales and marketing		474			605
Amortization and depreciation		83			98
Total operating costs and expenses		2,049			2,272
Operating income (loss)		(79	)		88
Other expense, net		4			4
Income (loss) before provision for income taxes		(83	)		84
Provision for income taxes		3			–
Net income (loss)	$	(86	)	$	84
Basic income (loss) per share attributable to common stockholders	$	(0.01	)	$	0.01
Diluted income (loss) per share attributable to common stockholders	$	(0.01	)	$	0.01
Basic weighted average common stock outstanding		12,622			12,446
Diluted weighted average common stock outstanding		12,622			12,458

See notes to condensed financial statements.

3

DIRECT INSITE CORP.

CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED

(in thousands)

	For the three months ended
	March 31, 2014			March 31, 2013
Cash flows from operating activities
Net income (loss)	$	(86	)	$	84
Adjustments to reconcile net income (loss) to net cash provided by operations:
Amortization and depreciation		83			98
Stock-based compensation expense		44			49
Deferred rent expense		8			8
Gain on sale of property and equipment		--			(8	)
Changes in operating assets and liabilities:
Accounts receivable		(290	)		39
Prepaid expenses and other current assets		58			(12	)
Accounts payable and accrued expenses		(67	)		130
Deferred revenue		88			75
Total adjustments		(76	)		379
Net cash (used)/provided by operating activities		(162	)		463
Cash flows from investing activities:
Expenditures for property and equipment		(3	)		(79	)
Capitalization of internally developed software		(167	)		--
Proceeds from the sale of property and equipment		--			8
Net cash used in investing activities		(170	)		(71	)
Cash flows from financing activities:
Repayment of long-term debt		--			(13	)
Repayment of capital lease obligations		(55	)		(49	)
Net cash used in financing activities		(55	)		(62	)
Net (decrease) increase in cash and cash equivalents		(387	)		330
Cash and cash equivalents – beginning		1,371			1,098
Cash and cash equivalents – ending	$	984		$	1,428
Supplemental disclosure of cash flow information:
Cash paid for interest	$	2		$	6
Cash paid for income taxes	$	3		$	1
Schedule of non-cash investing and financing activities:
Common stock issued for payment of liability	$	-----		$	20

See notes to condensed financial statements.

4

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 1 – Nature of Business

Direct Insite Corp. (“Direct Insite” or the “Company”) operates as a Software as a Service provider (“SaaS”), providing 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 services” business model.

The Company’s revenue comes from (i) recurring, on-going services that are billed monthly; and (ii) non-recurring, professional services derived from the configuration of the Company’s software platform.

Throughout the year, the Company operated redundant data centers in Miami, Florida, and Santa Clara, California.

As described in Note9, the Company has two major customers that accounted for 72.2% and 79.2% of the Company’s revenue for the three months ended March 31, 2014 and 2013, respectively.  Loss of any of these customers would have a material effect on the Company.

In February 2013, the Company was notified by one of these two major customers, that one of its customers, comprising 12.8% of the Company’s revenues for the three months ended March 31, 2013, terminated its contract effective March 31, 2013.

Note 2 - Summary of Significant Accounting Policies

Interim Financial Information

The accompanying unaudited condensed interim financial statements include the accounts of Direct Insite. The condensed balance sheet as of March 31, 2014, and the statements of operations and cash flows for the three months ended March 31, 2014 and 2013 have not been audited.  These unaudited condensed 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 quarterly report on Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  The December 31, 2013 balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.  These interim condensed 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 months ended March 31, 2014, are not necessarily indicative of results that may be expected for any other interim period or for the full year.

These unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2013 included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 26, 2014.

5

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 2 - Summary of Significant Accounting Policies (continued)

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 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 and capitalized internally developed software.  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 (Ongoing Services)

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 provided.

Non-Recurring (Professional Services)

The Company provides non-recurring engineering services to its customers, which may include initial or additional development, modification, and customization services to the Company’s software platform.  Such services are billed based on: (i) hourly rates; or (ii) milestone billings.  For hourly billed services, revenue is recognized when work is performed.  For milestone billed services, revenue is recognized when the project milestone has been accepted by the customer.  We do not sell software licenses, upgrades or enhancements, or post-contract customer services.

Internally Developed Software

The Company is in the process of developing a next generation version of its accounts receivable platform. It is being designed for one of the Company’s clients and will be available to all order-to-cash process customers. According to ASC 350-40, Intangibles-Goodwill and Other-Internal-Use Software, the Company capitalizes the costs associated with the application development stage of a project. The Company will start amortizing capitalized costs when the software is ready for use and placed in service. The capitalized costs will be amortized on a straight-line basis over the estimated three year useful life of the software.

6

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 2 - Summary of Significant Accounting Policies (continued)

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.  In addition, the Company expects to provide 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 tax benefits associated with the exercise of stock options, if and when realized, will not result in a tax benefit in the statement of operations, but rather will result in an increase in additional paid-in capital. The Company will continue to re-assess 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) attributable to common stockholders 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 months ended March 31, 2014, all potentially dilutive securities were excluded from the computation of diluted earnings per share because their impact was anti-dilutive.

The computation of basic and diluted earnings per share for the three months ended March 31, 2013 is as follows (in thousands, except per share amounts):

	Net Income		Shares		Per Share
	Numerator		Denominator		Amount
Basic Earnings Per Share
Net income attributable to common stockholders	$	84		12,446	$	0.01
Effect of Dilutive Securities
Restricted stock		--		12		0.00
Diluted Earnings Per Share	$	84		12,458	$	0.01

Securities that could potentially dilute basic EPS in the future, that were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the periods presented, consist of the following (in thousands):

	March 31,
Anti-Dilutive Potential Common Shares	2014		2013
Options to purchase common stock		646		863
Unvested stock grants		95		119
Total Anti-Dilutive Potential Common Shares		741		982

7

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 2 – Summary of Significant Accounting Policies (continued)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.  The Company has cash deposits in excess of the maximum amounts insured by Federal Depository Insurance Corporation at March 31, 2014 and December 31, 2013.

The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers.  Concentrations of credit risk with respect to accounts receivable and revenue are disclosed in Note 9.

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 financial statements.

Note 3 – Property and Equipment

Property and equipment consist of the following at March 31, 2014 and December 31, 2013:

	2014			2013
	(in thousands)
Computer equipment and purchased software (3 years)	$	1,362		$	1,361
Internally developed software not yet placed in service  (3 years)		601			433
Furniture and fixtures and leasehold improvements (5 – 7 years)		147			146
		2,110			1,940
Less: accumulated depreciation and amortization		(1,171	)		(1,088	)
Property and equipment, net	$	939		$	852

Depreciation and amortization expense related to property and equipment for the three months ended March 31, 2014 and 2013 was approximately $83,000 and $98,000, respectively.

Note 4 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following at March 31, 2014 and December 31, 2013 as follows:

	2014		2013
	(in thousands)
Trade accounts payable	$	232	$	324
Sales taxes payable		539		539
Accrued directors’ fees		420		377
Other accrued expenses		144		162
Total accounts payable and accrued expenses	$	1,335	$	1,402

8

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 5 – Debt

Capital Lease Obligations

The Company has equipment under six capital lease obligations expiring at various times through June 2016.  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.

The implied interest rates related to these capital leases range from 0.0% to 9.0%. The gross book value and the net book value of the related assets are approximately $646,000 and $181,000, respectively, as of March 31, 2014, and $646,000 and $241,000, respectively, as of December 31, 2013.

Note 6 – Stockholders’ Equity

Preferred Stock

The Company is authorized to issue 2,000,000 shares of preferred stock, of which none were issued or outstanding as of March 31, 2014 and December 31, 2013.

Common Stock, Options and Stock Grants

Three Months Ended March 31, 2014

During the three months ended March 31, 2014, 66,000 restricted common shares were granted with an aggregate grant date fair value of approximately $80,000.  During the three months ended March 31, 2014, approximately 20,000 restricted common shares with an aggregate grant date fair value of approximately $20,000 vested.

During the three months ended March 31, 2014, 29,511 stock options with an aggregate grant date fair value of approximately $24,000 vested. During this same period no options were awarded to employees. Outstanding 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 estimates the grant date fair value of the stock option using the Black-Scholes-Merton option model.

Three Months Ended March 31, 2013

During the three months ended March 31, 2013, 27,277 restricted common shares with an aggregate grant date fair value of approximately $20,000 vested. During the three months ended March 31, 2013, approximately 98,000 restricted common shares were granted with an aggregate grant date value of approximately $80,000.  During the three months ended March 31, 2013, the Company issued 55,181 shares of commons stock with a grant date fair value of approximately $42,000 to a member of its board of directors for past services.  During the three months ended March 31, 2013, the Company granted, to an employee of the Company, an option to acquire 15,000 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 option vests 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 option using the Black-Scholes-Merton option model and the following assumptions: volatility of 150%, risk free rate of 0.4%, 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 $10,000.  During the three months ended March 31, 2013, the Company recognized approximately $29,000 of expense related to the vesting of stock options.

9

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 6 – Stockholders’ Equity (continued)

Stock Option Plans

The Company grants options under multiple stock-based compensation plans that do not differ substantially in the characteristics of the awards.  Nonqualified and incentive stock options have been granted to directors, officers and employees of the Company under the Company’s Stock Option Plans.  Options generally vest over three to four years and expire five years from the date of the grant.  As of March 31, 2014, 109,428 shares were available for issuance under the stock option plans. These shares will no longer be available due to their respective option plan expiration on August 20, 2014.  Awards that expire or are cancelled without delivery of shares generally become available for issuance under the plans.

The following is a summary of stock option activity for three months ended March 31, 2014, relating to all of the Company’s common stock plans:

	Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2014		800		$	1.31		3.77	$	57
Forfeited		(154	)	$	1.45			$	6
Outstanding at March 31, 2014		646		$	1.27		3.35	$	40
Exercisable at March 31, 2014		195		$	1.16		2.83	$	16

The following table summarizes stock option information as of March 31, 2014:

Outstanding Options
Exercise Prices		Number Outstanding (in thousands)		Weighted Average Remaining Contractual Life	Options Exercisable (in thousands)
$	1.15		435	3.10 years		164
$	1.20		31	2.23 years		31
$	1.50		80	4.72 years		0
$	1.65		100	4.54 years		0
Total			646	3.35 years		195

As of March 31, 2014, there was approximately $286,000 of unrecognized compensation costs related to stock options outstanding.

Restricted Stock Grants

A summary of the status of the Company’s non-vested stock grants as of March 31, 2014 and changes during the three months ended March 31, 2014 is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-Vested at January 1, 2014		49		$	0.82
Granted		66		$	1.21
Vested		(20	)	$	0.98
Non-Vested at March 31, 2014		95		$	1.06

10

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Restricted Stock Grants (CONTINUED)

A summary of the status of the Company’s non-vested stock grants as of March 31, 2013 and changes during the three months ended March 31, 2013 is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-Vested at January 1, 2013		60		$	0.66
Granted		98		$	0.82
Vested		(27	)	$	0.73
Non-Vested at March 31, 2013		131		$	0.76

The future expected expense for non-vested shares is approximately $100,000 and will be recognized as expense through December 31, 2015.

Note 7 – 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 March 31, 2014 and December 31, 2013.

The Company has identified its federal tax return and its state tax return in 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 2010 through 2013, 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 months ended March 31, 2014 and 2013.  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 March 31, 2014, the Company has federal and state net operating loss carryforwards (“NOLs”) remaining of approximately $26 million and $20 million, respectively, which may be available to reduce taxable income, if any. Remaining federal and state net operating loss carry forwards expire from 2019 through 2033. However, Internal Revenue Code Section 382 rules limit the utilization of NOLs upon a change in control of a company.  During 2013, 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 an ownership change has taken place, either historically or in the future, utilization of its NOLs could be subject to severe limitations, which could eliminate a substantial portion of the future income tax benefits of the NOLs.  The NOL carryforward as of March 31, 2014 included approximately $1,193,000 related to windfall tax benefits for which a benefit would be recorded in additional paid-in capital if and when realized.

11

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 8 –Commitment and Contingencies

On May 29, 2013, the Company entered into an Employment Agreement (the “Employment Agreement”), with Matthew E. Oakes, the Company’s President and Chief Executive Officer.  The Employment Agreement supersedes Mr. Oakes’ previous employment agreement with the Company and extends Mr. Oakes’ term as President and Chief Executive Officer of the Company to December 31, 2015.

Pursuant to the terms of the Employment Agreement, the Company agreed to pay Mr. Oakes his current annual base salary of $275,000 for the remainder of 2013 and an annual base salary of $295,000 for each of the years 2014 and 2015.  Mr. Oakes is entitled to receive an annual bonus based on the Company’s yearly EBIT and revenue growth.  Mr. Oakes is also eligible to receive a bonus, subject to the discretion of the Company’s Board of Directors.  The options to purchase 360,000 shares of common stock of the Company, of which 150,000 were exercised on September 5, 2013 in a cashless transaction, granted to Mr. Oakes under his previous employment agreement will continue to vest as set forth in the Employment Agreement.  The Company will also continue to make lease payments on the corporate apartment, which is located in Fort Lauderdale, Florida and is utilized by Mr. Oakes, through the expiration of the lease on December 31, 2015.

Note 9 – Major Customers

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

	% of Total Revenues Three Months Ended March 31,
	2014			2013
HP Customer A		0.0	%		12.8	%
HP Customer B		14.9			12.9
HP Customer C		13.0			16.0
HP Customer D		8.6			7.8
Total HP		36.5	%		49.5	%
IBM		35.7			29.7
Total Major Customers		72.2	%		79.2	%
Others		27.8			20.8
Total		100.0	%		100.0	%

As of March 31, 2014, two customers accounted for a significant portion of the Company’s accounts receivable as follows (in thousands):

	March 31, 2014		December 31, 2013
HP	$	588	$	519
IBM		739		505
Total	$	1,327	$	1,024

Note 10 – Subsequent Events

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed financial statements.

12

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: general economic conditions; customer concentration; the risk of errors or failures in our software products; technological changes or difficulties; dependence on proprietary technology; the dependence on key personnel; the ability to recruit personnel; and the management of future growth both organically and through potential acquisitions.  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

The Company was incorporated under the laws of the State of Delaware on August 27, 1987.  We consummated our initial public offering in 1992.  In May 1990, we changed our name to Computer Concepts, Inc. and in August 2000, we changed our name to Direct Insite Corp.

Direct Insite operates as a SaaS, 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 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 services” 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, in 35 languages and multiple currencies.  Direct Insite processes more than $125 billion in invoice value annually on behalf of our clients.  Direct Insite processes, distributes and hosts millions of invoices, purchase orders, and supporting attachment documents, making them accessible on-line with an internet self-service portal.  Suppliers, customers, and internal departments, such as Finance and Accounting or Customer Service users, can easily access their business documents.

Our revenue comes from (i) recurring, on-going services that are billed monthly; and (ii) non-recurring, professional services derived from the configuration of our software platform.

HP Enterprise Services (“HP”) accounted for approximately 36.5% and 49.5% of revenue for the three months ended March 31, 2014 and 2013, respectively. We have three 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.  In February 2013, we were notified by HP that one of its customers, representing approximately 12.8% of our revenue for the three months ended March 31, 2013, was terminating its contract with HP, thus HP terminated this individual contract with us effective March 31, 2013.  As disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on July 24, 2013, despite efforts to negotiate a direct contractual agreement with this client, the client ultimately decided to sunset its use of the application. As such, we did not record revenue from this client after June 30, 2013.

13

International Business Machines, Inc. (“IBM”), representing approximately 35.7% and 29.7% ,  of revenue for the three months ended March 31, 2014 and 2013, respectively, utilizes our suite of services to allow its 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. On October 28^th 2013 one of these contracts was extended for a three year period, through December 31, 2016, and is renewable annually thereafter. The other contract was renewed for a one-year period and is renewable annually.  The contracts may be terminated by either party with ninety days advance written notice.

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

The following is a summary of our operating results for the three months ended March 31, 2014 and 2013 (dollars in thousands):

	2014			2013		Increase (Decrease)
Revenues:
Recurring	$	1,618		$	1,961	$	(343	)	(17.5	)%
Non-recurring		352			399		(47	)	(11.8	)%
Total revenues		1,970			2,360		(390	)	(16.5	)%
Operating costs and expenses:
Operations, research and development		900			956		(56	)	(5.9	%)
General and administrative		592			613		(21	)	(3.4	)%
Sales and marketing		474			605		(131	)	(21.7	)%
Amortization and depreciation		83			98		(15	)	(15.3	)%
Total operating costs and expenses		2,049			2,272		(223	)	(9.8	)%
Operating income (loss)		(79	)		88		(167	)	(189.8	)%
Other expense, net		4			4		(0	)	(0.0	%)
Provision for income taxes		3			0		3
Net income (loss)	$	(86	)	$	84	$	(170	)	(202.4	)%

Revenues

For the three months ended March 31, 2014, total revenue decreased by $390,000, or 16.5%, to $1,970,000 from $2,360,000 for the comparable prior year period.  Recurring revenue decreased by $343,000, or 17.5%, to $1,618,000 for the three months ended March 31, 2014, from $1,961,000 for the comparable prior year period, primarily due to the aforementioned HP customer that terminated its contract effective July 1, 2013.  Non-recurring revenue decreased by $47,000, or 11.8%, to $352,000 for the three months ended March 31, 2014 from $399,000 for the comparable prior year period, primarily due to the non-recurrence of a large prior year customer-requested modification.

14

Operating Cost and Expenses

Costs of operations, research and development decreased by approximately $56,000, or 5.9%, to $900,000 for the three months ended March 31, 2014 from $956,000 for the comparable prior year period. 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 decrease was primarily due to reduced salary expense resulting from a reduction in the workforce and the capitalization of internally developed software, partially offset by higher consulting fees for outsourced development.

General and administrative costs decreased by approximately $21,000, or 3.4%, to $592,000 for the three months ended March 31, 2014 from $613,000 for the comparable prior year period, as lower payroll costs, consulting and recruitment fees were mostly offset by legal and other expenses of $41,000 related to the exploration of strategic opportunities.

Sales and marketing costs decreased by approximately $131,000, or 21.7%, to $474,000 for the three months ended March 31, 2014 from $605,000 for the comparable prior year period, primarily due to a headcount-related decrease in compensation expense of $124,000, travel and related expenses of $19,000, and marketing related expenses of $6,000, partially offset by an increase in consulting expenses of $18,000.

Amortization and depreciation decreased by approximately $15,000, or 15.3%, to $83,000 for the three months ended March 31, 2014 from $98,000 for the comparable prior year period as the depreciable fixed assets remained virtually the same as last year, while some of the older assets became fully depreciated during that time.

Operating Income (Loss)

We had a net operating loss of $79,000, for the three months ended March 31, 2014, compared to net operating income of $88,000 for the comparable prior year period, due to the aforementioned decrease in revenue, partially offset by the aforementioned decrease in operating costs and expenses.

Other Expense

There was no change in other expense for the three months ended March 31, 2014 compared to the comparable prior year period.

Net Income (Loss)

We had a net loss of $86,000 for the three months ended March 31, 2014, a decrease of approximately $170,000 from net income of $84,000 for the comparable prior year period, due to the aforementioned decrease in operating income.

FINANCIAL CONDITION AND LIQUIDITY

As of March 31, 2014, we had total stockholders’ equity of approximately $3,871,000, working capital of $1,830,000 and an accumulated deficit of $111,827,000.  Our cash decreased by $387,000 during the three months ended March 31, 2014, to $984,000 on hand as of March 31, 2014.

Our primary sources for liquidity come from existing cash on hand and cash generated from operations.  We believe we have sufficient liquidity available to fund our operations for the next twelve months.

During the three months ended March 31, 2014, cash used by operations was $162,000, compared to cash provided by operations of $463,000 for the three months ended March 31, 2013.  The decrease in cash provided by operations is primarily due to the timing of collections from our customers and the timing of payments to our vendors.

15

Cash used in investing activities for the three months ended March 31, 2014 was $170,000 due to capitalization of internally developed software. Cash used in investing activities for the three months ended March 31, 2013 was due to net expenditures for new equipment of $71,000.

Cash used in financing activities totaled $55,000 and $62,000 for the three months ended March 31, 2014 and 2013, respectively, with both periods reflecting payments on equipment notes and capital leases, primarily using cash provided by operations.

OUR CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are described in the audited financial statements and notes thereto for the year ended December 31, 2013, included in the Company’s Annual Reported on Form 10-K filed with the SEC on March 26, 2014.

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 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 Chief Financial Officer concluded that, at March 31, 2014, 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 March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

16

PART IIOther 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.

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

Pursuant to the terms of the Company’s director compensation plan, each director of the Company was entitled to receive an award on January 1, 2014 of restricted shares of common stock vesting daily over two years, as follows: Philip Summe 24,793 shares, and each of James A. Cannavino, Paul Lisiak, Thomas C. Lund, John J. Murabito and Craig W. Thomas, 8,264 shares.  Each of these directors elected to defer receipt of the shares until January 15th of the year following such director’s termination of services as director.

In addition, on March 31, 2014, pursuant to the terms of the director compensation plan, the directors were entitled to receive shares of common stock as follows: Mr. Cannavino 3,557 shares, Mr. Lund 5,245 shares, Mr. Murabito 6,098 shares, Mr. Summe 6,098 shares, and Mr. Thomas 6,098 shares.  Each of these directors elected to defer receipt of the shares until January 15th of the year following such director’s termination of services as director.

These awards were made in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended and/or the “no-sale” theory.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit
Number	Description
31.1	Certification pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.
31.2	Certification pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.
101	The following materials from Direct Insite’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of March 31, 2014 (Unaudited) and December 31, 2013, (ii) Condensed Statements of Income for the Three Months Ended March 31, 2014 and 2013 (Unaudited), (iii) Condensed Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013 (Unaudited), (iv) and Notes to Condensed Financial Statements (Unaudited).

17

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	May 14, 2014
/s/ Lowell M. Rush
Lowell M. Rush, Chief Financial Officer	May 14, 2014

18

EX-31.1

Exhibit 31.1

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 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.

May 14, 2014	/s/ Matthew E. Oakes
	Matthew E. Oakes
	(Principal Executive Officer)
	President, Chief Executive Officer and Director

EX-31.2

Exhibit 31.2

I, Lowell M. Rush, 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 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.

May 14, 2014	/s/ Lowell M. Rush
	Lowell M. Rush
	Chief Financial Officer
	(Principal Accounting Officer and Principal Financial Officer)

EX-32.1

Exhibit 32.1

DIRECT INSITE CORP.

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 March 31, 2014 (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: May 14, 2014
	/s/ Matthew E. Oakes
	Matthew E. Oakes, President, Chief Executive Officer and Director
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

DIRECT INSITE CORP.

CERTIFICATION OF PERIODIC REPORT

I, Lowell Rush,  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 March 31, 2014 (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: May 14, 2014
	/s/ Lowell M. Rush
	Lowell M. Rush
	Chief Financial Officer
	(Principal Accounting Officer and
	Principal Financial Officer)

XML

ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Summary of Accounts Payable and Accrued Expenses [Abstract]
Trade accounts payable	$ 232	$ 324
Sales taxes payable	539	539
Accrued directors' fees	420	377
Other accrued expenses	144	162
Total accounts payable and accrued expenses	$ 1,335	$ 1,402

XML

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

3 Months Ended

Mar. 31, 2014

ACCOUNTS PAYABLE AND ACCRUED EXPENSES [Abstract]

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Note 4 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following at March 31, 2014 and December 31, 2013 as follows:

	2014		2013
	(in thousands)
Trade accounts payable	$	232	$	324
Sales taxes payable		539		539
Accrued directors’ fees		420		377
Other accrued expenses		144		162
Total accounts payable and accrued expenses	$	1,335	$	1,402

XML

COMMITMENT AND CONTINGENCIES (Details) (USD $)	0 Months Ended	3 Months Ended
	Sep. 05, 2013	Mar. 31, 2014
COMMITMENT AND CONTINGENCIES [Abstract]
Current annual base salary as per employment agreements		$ 275,000
Annual base salary as per employment agreements		$ 295,000
Stock options granted under employment agreements (in shares)		360,000
Stock options exercised (in shares)	150,000

XML

INCOME TAXES (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
INCOME TAXES [Abstract]
Unrecognized tax benefits	$ 0		$ 0
Unrecognized tax benefits, interest and penalties	0	0
Period for which the position in unrecognized tax benefit is not expected to change	12 months
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards, expiration dates	2019 through 2033
Net operating loss carryforwards related to tax benefit	1,193,000
Federal Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards	26,000,000
State Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards	$ 20,000,000

XML

MAJOR CUSTOMERS (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended					3 Months Ended												3 Months Ended				3 Months Ended
	Mar. 31, 2014 Customer	Mar. 31, 2014 Revenues [Member]	Mar. 31, 2013 Revenues [Member]	Mar. 31, 2014 Accounts Receivable [Member]	Dec. 31, 2013 Accounts Receivable [Member]	Mar. 31, 2014 HP Customer A [Member] Revenues [Member]	Mar. 31, 2013 HP Customer A [Member] Revenues [Member]	Mar. 31, 2014 HP Customer B [Member] Revenues [Member]	Mar. 31, 2013 HP Customer B [Member] Revenues [Member]	Mar. 31, 2014 HP Customer C [Member] Revenues [Member]	Mar. 31, 2013 HP Customer C [Member] Revenues [Member]	Mar. 31, 2014 HP Customer D [Member] Revenues [Member]	Mar. 31, 2013 HP Customer D [Member] Revenues [Member]	Mar. 31, 2014 Total HP [Member] Revenues [Member]	Mar. 31, 2013 Total HP [Member] Revenues [Member]	Mar. 31, 2014 Total HP [Member] Accounts Receivable [Member]	Dec. 31, 2013 Total HP [Member] Accounts Receivable [Member]	Mar. 31, 2014 IBM [Member] Revenues [Member]	Mar. 31, 2013 IBM [Member] Revenues [Member]	Mar. 31, 2014 IBM [Member] Accounts Receivable [Member]	Dec. 31, 2013 IBM [Member] Accounts Receivable [Member]	Mar. 31, 2014 Total Major Customers [Member] Revenues [Member]	Mar. 31, 2013 Total Major Customers [Member] Revenues [Member]	Mar. 31, 2014 Others [Member] Revenues [Member]	Mar. 31, 2013 Others [Member] Revenues [Member]
MAJOR CUSTOMERS [Abstract]
Number of major customers	2
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)		100.00%	100.00%			0.00%	12.80%	14.90%	12.90%	13.00%	16.00%	8.60%	7.80%	36.50%	49.50%			35.70%	29.70%			72.20%	79.20%	27.80%	20.80%
Summary of customers accounted for significant portion of accounts receivable [Abstract]
Major customer, accounts receivable				$ 1,327	$ 1,024											$ 588	$ 519			$ 739	$ 505

XML

PROPERTY AND EQUIPMENT

3 Months Ended

Mar. 31, 2014

PROPERTY AND EQUIPMENT [Abstract]

PROPERTY AND EQUIPMENT

Note 3 – Property and Equipment

Property and equipment consist of the following at March 31, 2014 and December 31, 2013:

	2014			2013
	(in thousands)
Computer equipment and purchased software (3 years)	$	1,362		$	1,361
Internally developed software not yet placed in service  (3 years)		601			433
Furniture and fixtures and leasehold improvements (5 – 7 years)		147			146
		2,110			1,940
Less: accumulated depreciation and amortization		(1,171	)		(1,088	)
Property and equipment, net	$	939		$	852

Depreciation and amortization expense related to property and equipment for the three months ended March 31, 2014 and 2013 was approximately $83,000 and $98,000, respectively.

XML

CONDENSED BALANCE SHEETS (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 984	$ 1,371
Accounts receivable	1,812	1,522
Prepaid expenses and other current assets	310	368
Deferred tax assets - current	318	318
Total current assets	3,424	3,579
Property and equipment, net	939	852
Deferred tax assets	874	874
Other assets	257	257
Total assets	5,494	5,562
Current liabilities:
Accounts payable and accrued expenses	1,335	1,402
Current portion of capital lease obligations	139	187
Deferred rent	31	23
Deferred revenue	88	0
Total current liabilities	1,593	1,612
Capital lease obligations, net of current portion	29	36
Total liabilities	1,622	1,648
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; 12,708,383 and 12,687,921 shares issued and 12,668,456 and 12,647,994 shares outstanding in 2014 and 2013, respectively	1	1
Additional paid-in capital	116,026	115,982
Accumulated deficit	(111,827)	(111,741)
Common stock in treasury, at cost; 24,371 shares in 2014 and 2013	(328)	(328)
Total stockholders' equity	3,872	3,914
Total liabilities and stockholders' equity	$ 5,494	$ 5,562

XML

NATURE OF BUSINESS

3 Months Ended

Mar. 31, 2014

NATURE OF BUSINESS [Abstract]

NATURE OF BUSINESS

Note 1 – Nature of Business

Direct Insite Corp. (“Direct Insite” or the “Company”) operates as a Software as a Service provider (“SaaS”), providing 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 services” business model.

The Company’s revenue comes from (i) recurring, on-going services that are billed monthly; and (ii) non-recurring, professional services derived from the configuration of the Company’s software platform.

Throughout the year, the Company operated redundant data centers in Miami, Florida, and Santa Clara, California.

As described in Note9, the Company has two major customers that accounted for 72.2% and 79.2% of the Company’s revenue for the three months ended March 31, 2014 and 2013, respectively.  Loss of any of these customers would have a material effect on the Company.

In February 2013, the Company was notified by one of these two major customers, that one of its customers, comprising 12.8% of the Company’s revenues for the three months ended March 31, 2013, terminated its contract effective March 31, 2013.

XML

NATURE OF BUSINESS (Details)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Concentration Risk [Line Items]
Number of major customers	2
Revenues [Member] | Customers One [Member]
Concentration Risk [Line Items]
Ratio of revenues from major customers to total revenues (in hundredths)	72.20%	79.20%
Revenues [Member] | Customers Two [Member]
Concentration Risk [Line Items]
Ratio of revenues from major customers to total revenues (in hundredths)		12.80%

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PROPERTY AND EQUIPMENT (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Summary of property and equipment [Abstract]
Property and equipment, gross	$ 2,110		$ 1,940
Less: accumulated depreciation and amortization	(1,171)		(1,088)
Property and Equipment, Net	939		852
Depreciation and amortization	83	98
Computer Equipment and Purchased Software [Member]
Summary of property and equipment [Abstract]
Property and equipment, gross	1,362		1,361
Estimated useful lives	3 years
Internally Developed Software Not Yet Placed in Service [Member]
Summary of property and equipment [Abstract]
Property and equipment, gross	601		433
Estimated useful lives	3 years
Furniture and Fixtures and Leasehold Improvements [Member]
Summary of property and equipment [Abstract]
Property and equipment, gross	$ 147		$ 146
Furniture and Fixtures and Leasehold Improvements [Member] | Minimum [Member]
Summary of property and equipment [Abstract]
Estimated useful lives	5 years
Furniture and Fixtures and Leasehold Improvements [Member] | Maximum [Member]
Summary of property and equipment [Abstract]
Estimated useful lives	7 years

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 2 - Summary of Significant Accounting Policies

Interim Financial Information

The accompanying unaudited condensed interim financial statements include the accounts of Direct Insite. The condensed balance sheet as of March 31, 2014, and the statements of operations and cash flows for the three months ended March 31, 2014 and 2013 have not been audited.  These unaudited condensed 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 quarterly report on Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  The December 31, 2013 balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.  These interim condensed 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 months ended March 31, 2014, are not necessarily indicative of results that may be expected for any other interim period or for the full year.

These unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2013 included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 26, 2014.

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 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 and capitalized internally developed software.  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 (Ongoing Services)

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 provided.

Non-Recurring (Professional Services)

The Company provides non-recurring engineering services to its customers, which may include initial or additional development, modification, and customization services to the Company’s software platform.  Such services are billed based on: (i) hourly rates; or (ii) milestone billings.  For hourly billed services, revenue is recognized when work is performed.  For milestone billed services, revenue is recognized when the project milestone has been accepted by the customer.  We do not sell software licenses, upgrades or enhancements, or post-contract customer services.

Internally Developed Software

The Company is in the process of developing a next generation version of its accounts receivable platform. It is being designed for one of the Company’s clients and will be available to all order-to-cash process customers. According to ASC 350-40, Intangibles-Goodwill and Other-Internal-Use Software, the Company capitalizes the costs associated with the application development stage of a project. The Company will start amortizing capitalized costs when the software is ready for use and placed in service. The capitalized costs will be amortized on a straight-line basis over the estimated three year useful life of the software.

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.  In addition, the Company expects to provide 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 tax benefits associated with the exercise of stock options, if and when realized, will not result in a tax benefit in the statement of operations, but rather will result in an increase in additional paid-in capital. The Company will continue to re-assess 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) attributable to common stockholders 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 months ended March 31, 2014, all potentially dilutive securities were excluded from the computation of diluted earnings per share because their impact was anti-dilutive.

The computation of basic and diluted earnings per share for the three months ended March 31, 2013 is as follows (in thousands, except per share amounts):

	Net Income		Shares		Per Share
	Numerator		Denominator		Amount
Basic Earnings Per Share
Net income attributable to common stockholders	$	84		12,446	$	0.01
Effect of Dilutive Securities
Restricted stock		--		12		0.00
Diluted Earnings Per Share	$	84		12,458	$	0.01

Securities that could potentially dilute basic EPS in the future, that were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the periods presented, consist of the following (in thousands):

	March 31,
Anti-Dilutive Potential Common Shares	2014		2013
Options to purchase common stock		646		863
Unvested stock grants		95		119
Total Anti-Dilutive Potential Common Shares		741		982

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.  The Company has cash deposits in excess of the maximum amounts insured by Federal Depository Insurance Corporation at March 31, 2014 and December 31, 2013.

The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers.  Concentrations of credit risk with respect to accounts receivable and revenue are disclosed in Note 9.

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 financial statements.

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CONDENSED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)	Mar. 31, 2014	Dec. 31, 2013
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)	12,708,383	12,687,921
Common stock, outstanding (in shares)	12,668,456	12,647,994
Treasury stock, at cost (in shares)	24,371	24,371

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Computation of basic and diluted earnings per share

The computation of basic and diluted earnings per share for the three months ended March 31, 2013 is as follows (in thousands, except per share amounts):

	Net Income		Shares		Per Share
	Numerator		Denominator		Amount
Basic Earnings Per Share
Net income attributable to common stockholders	$	84		12,446	$	0.01
Effect of Dilutive Securities
Restricted stock		--		12		0.00
Diluted Earnings Per Share	$	84		12,458	$	0.01

Antidilutive securities excluded from computation of earnings per share

Securities that could potentially dilute basic EPS in the future, that were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the periods presented, consist of the following (in thousands):

	March 31,
Anti-Dilutive Potential Common Shares	2014		2013
Options to purchase common stock		646		863
Unvested stock grants		95		119
Total Anti-Dilutive Potential Common Shares		741		982

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2014	May 06, 2014
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		12,757,560
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2014

XML

PROPERTY AND EQUIPMENT (Tables)

3 Months Ended

Mar. 31, 2014

PROPERTY AND EQUIPMENT [Abstract]

Property and Equipment

Property and equipment consist of the following at March 31, 2014 and December 31, 2013:

	2014			2013
	(in thousands)
Computer equipment and purchased software (3 years)	$	1,362		$	1,361
Internally developed software not yet placed in service  (3 years)		601			433
Furniture and fixtures and leasehold improvements (5 – 7 years)		147			146
		2,110			1,940
Less: accumulated depreciation and amortization		(1,171	)		(1,088	)
Property and equipment, net	$	939		$	852

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CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Revenues:
Recurring	$ 1,618	$ 1,961
Non-recurring	352	399
Total revenues	1,970	2,360
Operating costs and expenses:
Operations, research and development	900	956
General and administrative	592	613
Sales and marketing	474	605
Amortization and depreciation	83	98
Total operating costs and expenses	2,049	2,272
Operating income (loss)	(79)	88
Other expense, net	4	4
Income (loss) before provision for income taxes	(83)	84
Provision for income taxes	3	0
Net income (loss)	$ (86)	$ 84
Basic income (loss) per share attributable to common stockholders (in dollars per share)	$ (0.01)	$ 0.01
Diluted income (loss) per share attributable to common stockholders (in dollars per share)	$ (0.01)	$ 0.01
Basic weighted average common stock outstanding (in shares)	12,622	12,446
Diluted weighted average common stock outstanding (in shares)	12,622	12,458

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INCOME TAXES

3 Months Ended

Mar. 31, 2014

INCOME TAXES [Abstract]

INCOME TAXES

Note 7 – 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 March 31, 2014 and December 31, 2013.

The Company has identified its federal tax return and its state tax return in 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 2010 through 2013, 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 months ended March 31, 2014 and 2013.  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 March 31, 2014, the Company has federal and state net operating loss carryforwards (“NOLs”) remaining of approximately $26 million and $20 million, respectively, which may be available to reduce taxable income, if any. Remaining federal and state net operating loss carry forwards expire from 2019 through 2033. However, Internal Revenue Code Section 382 rules limit the utilization of NOLs upon a change in control of a company.  During 2013, 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 an ownership change has taken place, either historically or in the future, utilization of its NOLs could be subject to severe limitations, which could eliminate a substantial portion of the future income tax benefits of the NOLs.  The NOL carryforward as of March 31, 2014 included approximately $1,193,000 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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STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2014

STOCKHOLDERS' EQUITY [Abstract]

STOCKHOLDERS' EQUITY

Note 6 – Stockholders’ Equity

Preferred Stock

The Company is authorized to issue 2,000,000 shares of preferred stock, of which none were issued or outstanding as of March 31, 2014 and December 31, 2013.

Common Stock, Options and Stock Grants

Three Months Ended March 31, 2014

During the three months ended March 31, 2014, 66,000 restricted common shares were granted with an aggregate grant date fair value of approximately $80,000.  During the three months ended March 31, 2014, approximately 20,000 restricted common shares with an aggregate grant date fair value of approximately $20,000 vested.

During the three months ended March 31, 2014, 29,511 stock options with an aggregate grant date fair value of approximately $24,000 vested. During this same period no options were awarded to employees. Outstanding 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 estimates the grant date fair value of the stock option using the Black-Scholes-Merton option model.

Three Months Ended March 31, 2013

During the three months ended March 31, 2013, 27,277 restricted common shares with an aggregate grant date fair value of approximately $20,000 vested. During the three months ended March 31, 2013, approximately 98,000 restricted common shares were granted with an aggregate grant date value of approximately $80,000.  During the three months ended March 31, 2013, the Company issued 55,181 shares of commons stock with a grant date fair value of approximately $42,000 to a member of its board of directors for past services.  During the three months ended March 31, 2013, the Company granted, to an employee of the Company, an option to acquire 15,000 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 option vests 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 option using the Black-Scholes-Merton option model and the following assumptions: volatility of 150%, risk free rate of 0.4%, 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 $10,000.  During the three months ended March 31, 2013, the Company recognized approximately $29,000 of expense related to the vesting of stock options.

Stock Option Plans

The Company grants options under multiple stock-based compensation plans that do not differ substantially in the characteristics of the awards.  Nonqualified and incentive stock options have been granted to directors, officers and employees of the Company under the Company’s Stock Option Plans.  Options generally vest over three to four years and expire five years from the date of the grant.  As of March 31, 2014, 109,428 shares were available for issuance under the stock option plans. These shares will no longer be available due to their respective option plan expiration on August 20, 2014.  Awards that expire or are cancelled without delivery of shares generally become available for issuance under the plans.

The following is a summary of stock option activity for three months ended March 31, 2014, relating to all of the Company’s common stock plans:

	Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2014		800		$	1.31		3.77	$	57
Forfeited		(154	)	$	1.45			$	6
Outstanding at March 31, 2014		646		$	1.27		3.35	$	40
Exercisable at March 31, 2014		195		$	1.16		2.83	$	16

The following table summarizes stock option information as of March 31, 2014:

Outstanding Options
Exercise Prices		Number Outstanding (in thousands)		Weighted Average Remaining Contractual Life	Options Exercisable (in thousands)
$	1.15		435	3.10 years		164
$	1.20		31	2.23 years		31
$	1.50		80	4.72 years		0
$	1.65		100	4.54 years		0
Total			646	3.35 years		195

As of March 31, 2014, there was approximately $286,000 of unrecognized compensation costs related to stock options outstanding.

Restricted Stock Grants

A summary of the status of the Company’s non-vested stock grants as of March 31, 2014 and changes during the three months ended March 31, 2014 is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-Vested at January 1, 2014		49		$	0.82
Granted		66		$	1.21
Vested		(20	)	$	0.98
Non-Vested at March 31, 2014		95		$	1.06

A summary of the status of the Company’s non-vested stock grants as of March 31, 2013 and changes during the three months ended March 31, 2013 is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-Vested at January 1, 2013		60		$	0.66
Granted		98		$	0.82
Vested		(27	)	$	0.73
Non-Vested at March 31, 2013		131		$	0.76

The future expected expense for non-vested shares is approximately $100,000 and will be recognized as expense through December 31, 2015.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Net Income Numerator [Abstract]
Net income attributable to common stockholders		$ 84
Effect of Dilutive Securities		0
Net income attributable to common shareholders, Dilutive		$ 84
Shares Denominator [Abstract]
Net income attributable to common stockholders (in shares)	12,622	12,446
Effect of Dilutive Securities (in shares)		12
Diluted weighted average common stock outstanding (in shares)	12,622	12,458
Per Share Amount [Abstract]
Net income attributable to common stockholders (in dollars per share)	$ (0.01)	$ 0.01
Diluted Earnings Per Share (in dollars per share)	$ (0.01)	$ 0.01
Summary of antidilutive securities excluded from computation of earnings per share [Abstract]
Total Anti-Dilutive Potential Common Shares (in shares)	741	982
Stock Options [Member]
Summary of antidilutive securities excluded from computation of earnings per share [Abstract]
Total Anti-Dilutive Potential Common Shares (in shares)	646	863
Restricted Stock [Member]
Summary of antidilutive securities excluded from computation of earnings per share [Abstract]
Total Anti-Dilutive Potential Common Shares (in shares)	95	119
Internally Developed Software [Member]
Property and Equipment [Line Items]
Internally developed software, useful life	3 years

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ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables)

3 Months Ended

Mar. 31, 2014

ACCOUNTS PAYABLE AND ACCRUED EXPENSES [Abstract]

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following at March 31, 2014 and December 31, 2013 as follows:

	2014		2013
	(in thousands)
Trade accounts payable	$	232	$	324
Sales taxes payable		539		539
Accrued directors’ fees		420		377
Other accrued expenses		144		162
Total accounts payable and accrued expenses	$	1,335	$	1,402

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2014

SUBSEQUENT EVENTS [Abstract]

SUBSEQUENT EVENTS

Note 10 – Subsequent Events

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed financial statements.

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COMMITMENT AND CONTINGENCIES

3 Months Ended

Mar. 31, 2014

COMMITMENT AND CONTINGENCIES [Abstract]

COMMITMENT AND CONTINGENCIES

Note 8 –Commitment and Contingencies

On May 29, 2013, the Company entered into an Employment Agreement (the “Employment Agreement”), with Matthew E. Oakes, the Company’s President and Chief Executive Officer.  The Employment Agreement supersedes Mr. Oakes’ previous employment agreement with the Company and extends Mr. Oakes’ term as President and Chief Executive Officer of the Company to December 31, 2015.

Pursuant to the terms of the Employment Agreement, the Company agreed to pay Mr. Oakes his current annual base salary of $275,000 for the remainder of 2013 and an annual base salary of $295,000 for each of the years 2014 and 2015.  Mr. Oakes is entitled to receive an annual bonus based on the Company’s yearly EBIT and revenue growth.  Mr. Oakes is also eligible to receive a bonus, subject to the discretion of the Company’s Board of Directors.  The options to purchase 360,000 shares of common stock of the Company, of which 150,000 were exercised on September 5, 2013 in a cashless transaction, granted to Mr. Oakes under his previous employment agreement will continue to vest as set forth in the Employment Agreement.  The Company will also continue to make lease payments on the corporate apartment, which is located in Fort Lauderdale, Florida and is utilized by Mr. Oakes, through the expiration of the lease on December 31, 2015.

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MAJOR CUSTOMERS

3 Months Ended

Mar. 31, 2014

MAJOR CUSTOMERS [Abstract]

MAJOR CUSTOMERS

Note 9 – Major Customers

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

	% of Total Revenues Three Months Ended March 31,
	2014			2013
HP Customer A		0.0	%		12.8	%
HP Customer B		14.9			12.9
HP Customer C		13.0			16.0
HP Customer D		8.6			7.8
Total HP		36.5	%		49.5	%
IBM		35.7			29.7
Total Major Customers		72.2	%		79.2	%
Others		27.8			20.8
Total		100.0	%		100.0	%

As of March 31, 2014, two customers accounted for a significant portion of the Company’s accounts receivable as follows (in thousands):

	March 31, 2014		December 31, 2013
HP	$	588	$	519
IBM		739		505
Total	$	1,327	$	1,024

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

INTERIM FINANCIAL INFORMATION

Interim Financial Information

The accompanying unaudited condensed interim financial statements include the accounts of Direct Insite. The condensed balance sheet as of March 31, 2014, and the statements of operations and cash flows for the three months ended March 31, 2014 and 2013 have not been audited.  These unaudited condensed 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 quarterly report on Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  The December 31, 2013 balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.  These interim condensed 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 months ended March 31, 2014, are not necessarily indicative of results that may be expected for any other interim period or for the full year.

These unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2013 included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 26, 2014.

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 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 and capitalized internally developed software.  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 (Ongoing Services)

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 provided.

Non-Recurring (Professional Services)

The Company provides non-recurring engineering services to its customers, which may include initial or additional development, modification, and customization services to the Company’s software platform.  Such services are billed based on: (i) hourly rates; or (ii) milestone billings.  For hourly billed services, revenue is recognized when work is performed.  For milestone billed services, revenue is recognized when the project milestone has been accepted by the customer.  We do not sell software licenses, upgrades or enhancements, or post-contract customer services.

INTERNALLY DEVELOPED SOFTWARE

Internally Developed Software

The Company is in the process of developing a next generation version of its accounts receivable platform. It is being designed for one of the Company’s clients and will be available to all order-to-cash process customers. According to ASC 350-40, Intangibles-Goodwill and Other-Internal-Use Software, the Company capitalizes the costs associated with the application development stage of a project. The Company will start amortizing capitalized costs when the software is ready for use and placed in service. The capitalized costs will be amortized on a straight-line basis over the estimated three year useful life of the software.

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.  In addition, the Company expects to provide 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 tax benefits associated with the exercise of stock options, if and when realized, will not result in a tax benefit in the statement of operations, but rather will result in an increase in additional paid-in capital. The Company will continue to re-assess 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) attributable to common stockholders 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 months ended March 31, 2014, all potentially dilutive securities were excluded from the computation of diluted earnings per share because their impact was anti-dilutive.

The computation of basic and diluted earnings per share for the three months ended March 31, 2013 is as follows (in thousands, except per share amounts):

	Net Income		Shares		Per Share
	Numerator		Denominator		Amount
Basic Earnings Per Share
Net income attributable to common stockholders	$	84		12,446	$	0.01
Effect of Dilutive Securities
Restricted stock		--		12		0.00
Diluted Earnings Per Share	$	84		12,458	$	0.01

Securities that could potentially dilute basic EPS in the future, that were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the periods presented, consist of the following (in thousands):

	March 31,
Anti-Dilutive Potential Common Shares	2014		2013
Options to purchase common stock		646		863
Unvested stock grants		95		119
Total Anti-Dilutive Potential Common Shares		741		982

CONCENTRATION OF CREDIT RISK

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.  The Company has cash deposits in excess of the maximum amounts insured by Federal Depository Insurance Corporation at March 31, 2014 and December 31, 2013.

The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers.  Concentrations of credit risk with respect to accounts receivable and revenue are disclosed in Note 9.

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 financial statements.

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MAJOR CUSTOMERS (Tables)

3 Months Ended

Mar. 31, 2014

Revenues [Member]

Concentration Risk [Line Items]

Customers Accounted for Significant Portion of Revenues and Accounts Receivable

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

	% of Total Revenues Three Months Ended March 31,
	2014			2013
HP Customer A		0.0	%		12.8	%
HP Customer B		14.9			12.9
HP Customer C		13.0			16.0
HP Customer D		8.6			7.8
Total HP		36.5	%		49.5	%
IBM		35.7			29.7
Total Major Customers		72.2	%		79.2	%
Others		27.8			20.8
Total		100.0	%		100.0	%

Accounts Receivable [Member]

Concentration Risk [Line Items]

Customers Accounted for Significant Portion of Revenues and Accounts Receivable

As of March 31, 2014, two customers accounted for a significant portion of the Company’s accounts receivable as follows (in thousands):

	March 31, 2014		December 31, 2013
HP	$	588	$	519
IBM		739		505
Total	$	1,327	$	1,024

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DEBT (Details) (USD $)	3 Months Ended
	Mar. 31, 2014 Lease	Dec. 31, 2013
Capital Leased Assets [Line Items]
Number of capital lease obligations equipment's	6
Expiry period of capital lease obligations	June 30, 2016
Gross book value of capital leased assets	$ 646,000	$ 646,000
Net book value of capital leased assets	$ 181,000	$ 241,000
Minimum [Member]
Capital Leased Assets [Line Items]
Interest rate capital leases (in hundredths)	0.00%
Maximum [Member]
Capital Leased Assets [Line Items]
Interest rate capital leases (in hundredths)	9.00%

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CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash flows from operating activities
Net income (loss)	$ (86)	$ 84
Adjustments to reconcile net income (loss) to net cash provided by operations:
Amortization and depreciation	83	98
Stock-based compensation expense	44	49
Deferred rent expense	8	8
Gain on sale of property and equipment	0	(8)
Changes in operating assets and liabilities:
Accounts receivable	(290)	39
Prepaid expenses and other current assets	58	(12)
Accounts payable and accrued expenses	(67)	130
Deferred revenue	88	75
Total adjustments	(76)	379
Net cash (used)/provided by operating activities	(162)	463
Cash flows from investing activities:
Expenditures for property and equipment	(3)	(79)
Capitalization of internally developed software	(167)	0
Proceeds from the sale of property and equipment	0	8
Net cash used in investing activities	(170)	(71)
Cash flows from financing activities:
Repayment of long-term debt	0	(13)
Repayment of capital lease obligations	(55)	(49)
Net cash used in financing activities	(55)	(62)
Net (decrease) increase in cash and cash equivalents	(387)	330
Cash and cash equivalents - beginning	1,371	1,098
Cash and cash equivalents - ending	984	1,428
Supplemental disclosure of cash flow information:
Cash paid for interest	2	6
Cash paid for income taxes	3	1
Schedule of non-cash investing and financing activities:
Common stock issued for payment of liability	$ 0	$ 20

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DEBT

3 Months Ended

Mar. 31, 2014

DEBT [Abstract]

DEBT

Note 5 – Debt

Capital Lease Obligations

The Company has equipment under six capital lease obligations expiring at various times through June 2016.  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.

The implied interest rates related to these capital leases range from 0.0% to 9.0%. The gross book value and the net book value of the related assets are approximately $646,000 and $181,000, respectively, as of March 31, 2014, and $646,000 and $241,000, respectively, as of December 31, 2013.

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STOCKHOLDERS' EQUITY (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Preferred Stock [Abstract]
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, Options and Stock Grants [Abstract]
Percentage of stock options vesting up-to first anniversary (in hundredths)	25.00%	25.00%
Percentage of stock options vesting from year two to fifth anniversary (in hundredths)	75.00%	75.00%
Summary of stock option information [Abstract]
Number Outstanding (in shares)	646,000
Weighted Average Remaining Contractual Life	3 years 4 months 6 days
Options Exercisable (in shares)	195,000
Unrecognized compensation costs related to stock options	$ 286,000
$1.15 [Member]
Summary of stock option information [Abstract]
Exercise Prices (in dollars per share)	$ 1.15	$ 1.15
Number Outstanding (in shares)	435,000
Weighted Average Remaining Contractual Life	3 years 1 month 6 days
Options Exercisable (in shares)	164,000
$1.20 [Member]
Summary of stock option information [Abstract]
Exercise Prices (in dollars per share)	$ 1.20
Number Outstanding (in shares)	31,000
Weighted Average Remaining Contractual Life	2 years 2 months 23 days
Options Exercisable (in shares)	31,000
$1.50 [Member]
Summary of stock option information [Abstract]
Exercise Prices (in dollars per share)	$ 1.50
Number Outstanding (in shares)	80,000
Weighted Average Remaining Contractual Life	4 years 8 months 19 days
Options Exercisable (in shares)	0
$1.65 [Member]
Summary of stock option information [Abstract]
Exercise Prices (in dollars per share)	$ 1.65
Number Outstanding (in shares)	100,000
Weighted Average Remaining Contractual Life	4 years 6 months 14 days
Options Exercisable (in shares)	0
Director [Member]
Common Stock, Options and Stock Grants [Abstract]
Shares issued under deferred compensation plan (in shares)		55,181
Shares issued under deferred compensation plan		42,000
Restricted Stock Grants [Member]
Common Stock, Options and Stock Grants [Abstract]
Aggregate grant date fair value of restricted common shares	80,000	80,000
Grant date fair value of vested stock option	20,000	20,000
Shares [Abstract]
Non-Vested, beginning balance (in shares)	49,000	60,000	60,000
Granted (in shares)	66,000	98,000
Vested (in shares)	(20,000)	(27,000)
Non-Vested, beginning balance (in shares)	95,000	131,000
Weighted-Average Grant Date Fair Value [Abstract]
Non-Vested, beginning balance (in dollars per share)	$ 0.82	$ 0.66	$ 0.66
Granted (in dollars per share)	$ 1.21	$ 0.82
Vested (in dollars per share)	$ 0.98	$ 0.73
Non-Vested, ending balance (in dollars per share)	$ 1.06	$ 0.76
Future expected expense for non-vested shares to be recognized	100,000
Stock Options [Member]
Common Stock, Options and Stock Grants [Abstract]
Grant date fair value of vested stock option	24,000
Stock option vested during the period (in shares)	29,511
Term of stock option grant		P5Y
Vesting period of stock option	4 years	4 years
Grant date fair value of option		10,000
Recognized stock compensation expense		29,000
Expected volatility (in hundredths)		150.00%
Risk free interest rate (in hundredths)		0.40%
Expected dividend rate (in hundredths)		0.00%
Expected term		3 years 9 months
Stock Option Plans [Abstract]
Expiration period of stock option	5 years
Number of shares available for issuance under stock option plans (in shares)	109,428
Number of shares no longer available due to expiration of plan (in shares)	109,428
Shares [Abstract]
Outstanding, beginning balance (in shares)	800,000
Forfeited (in shares)	(154,000)
Outstanding, ending balance (in shares)	646,000		800,000
Exercisable, ending balance (in shares)	195,000
Weighted Average Exercise Price [Abstract]
Outstanding, beginning balance (in dollars per share)	$ 1.31
Forfeited (in dollars per share)	$ 1.45
Outstanding, ending balance (in dollars per share)	$ 1.27		$ 1.31
Exercisable, ending balance (in dollars per share)	$ 1.16
Weighted Average Remaining Contractual Term [Abstract]
Outstanding, beginning balance	3 years 4 months 6 days		3 years 9 months 7 days
Outstanding, ending balance	3 years 4 months 6 days		3 years 9 months 7 days
Exercisable, ending balance	2 years 9 months 29 days
Aggregate Intrinsic Value [Abstract]
Outstanding, beginning balance	57,000
Forfeited	6,000
Outstanding, ending balance	40,000		57,000
Exercisable, ending balance	$ 16,000
Stock Options [Member] | $1.15 [Member]
Shares [Abstract]
Granted (in shares)		15,000
Minimum [Member] | Stock Options [Member]
Common Stock, Options and Stock Grants [Abstract]
Vesting period of stock option	3 years
Maximum [Member] | Stock Options [Member]
Common Stock, Options and Stock Grants [Abstract]
Vesting period of stock option	4 years

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STOCKHOLDERS' EQUITY (Tables)

3 Months Ended

Mar. 31, 2014

STOCKHOLDERS' EQUITY [Abstract]

Stock Option Activity

The following is a summary of stock option activity for three months ended March 31, 2014, relating to all of the Company’s common stock plans:

	Shares (in thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2014		800		$	1.31		3.77	$	57
Forfeited		(154	)	$	1.45			$	6
Outstanding at March 31, 2014		646		$	1.27		3.35	$	40
Exercisable at March 31, 2014		195		$	1.16		2.83	$	16

Stock Option Information

The following table summarizes stock option information as of March 31, 2014:

Outstanding Options
Exercise Prices		Number Outstanding (in thousands)		Weighted Average Remaining Contractual Life	Options Exercisable (in thousands)
$	1.15		435	3.10 years		164
$	1.20		31	2.23 years		31
$	1.50		80	4.72 years		0
$	1.65		100	4.54 years		0
Total			646	3.35 years		195

Non-vested Stock Grants

A summary of the status of the Company’s non-vested stock grants as of March 31, 2014 and changes during the three months ended March 31, 2014 is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-Vested at January 1, 2014		49		$	0.82
Granted		66		$	1.21
Vested		(20	)	$	0.98
Non-Vested at March 31, 2014		95		$	1.06

A summary of the status of the Company’s non-vested stock grants as of March 31, 2013 and changes during the three months ended March 31, 2013 is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-Vested at January 1, 2013		60		$	0.66
Granted		98		$	0.82
Vested		(27	)	$	0.73
Non-Vested at March 31, 2013		131		$	0.76