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 September 30, 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 (§ 232.405 of this chapter) 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 November 5, 2014, there were 12,766,178 shares of the registrant’s Common Stock outstanding.

DIRECT INSITE CORP.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	2-18
ITEM 1.	FINANCIAL STATEMENTS	2
	CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2014 (UNAUDITED) AND DECEMBER 31, 2013	2
	CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED)	3
	CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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	14
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	19
ITEM 4.	CONTROLS AND PROCEDURES	19
PART II.	OTHER INFORMATION	20 – 21
ITEM 1.	LEGAL PROCEEDINGS	20
ITEM 1A.	RISK FACTORS	20
ITEM 2.	UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS	20
ITEM 3.	DEFAULTS IN SENIOR SECURITIES	20
ITEM 4.	MINE SAFETY DISCLOSURES	20
ITEM 5.	OTHER INFORMATION	20
ITEM 6.	EXHIBITS	21
SIGNATURES		22

PART I – FINANCIAL INFORMATION

Item 1. Financial Information

DIRECT INSITE CORP.

CONDENSED BALANCE SHEETS

(in thousands, except share data)

	September 30, 2014			December 31, 2013
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	933		$	1,371
Accounts receivable		1,971			1,522
Prepaid expenses and other current assets		383			368
Deferred tax assets – current		318			318
Total current assets		3,605			3,579
Property and equipment, net		993			852
Deferred tax assets		874			874
Other assets		250			257
Total assets	$	5,722		$	5,562
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	1,508		$	1,402
Current portion of capital lease obligations		45			187
Deferred rent		46			23
Deferred revenue		2			--
Total current liabilities		1,601			1,612
Capital lease obligations, net of current portion		16			36
Total liabilities		1,617			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; 12,743,649 and 12,687,921 shares issued and 12,703,722 and 12,647,994 shares outstanding in 2014 and 2013, respectively		1			1
Additional paid-in capital		116,118			115,982
Accumulated deficit		(111,686	)		(111,741	)
Common stock in treasury, at cost; 24,371 shares in 2014 and 2013		(328	)		(328	)
Total stockholders’ equity		4,105			3,914
Total liabilities and stockholders’ equity	$	5,722		$	5,562

See notes to condensed financial statements.

2

DIRECT INSITE CORP.

CONDENSED STATEMENTS OF OPERATIONS – UNAUDITED

(in thousands, except share data)

	For the three months ended						For the nine months ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
Revenues:
Recurring	$	1,618		$	1,779		$	4,872		$	5,708
Non-recurring		436			299			1,297			1,248
Total revenues		2,054			2,078			6,169			6,956
Operating costs and expenses:
Operations, research and development		846			943			2,596			2,921
General and administrative		589			546			1,795			1,721
Sales and marketing		423			522			1,467			1,755
Amortization and depreciation		83			103			249			302
Total operating costs and expenses		1,941			2,114			6,107			6,699
Operating income (loss)		113			(36	)		62			257
Other income (expense), net		(1	)		40			(7	)		26
Income  before provision for income taxes		112			4			55			283
Provision for income taxes		–			–			–			–
Net income	$	112		$	4		$	55		$	283
Basic income  per share attributable to common stockholders	$	0.01		$	0.00		$	0.00		$	0.02
Diluted income  per share attributable to common stockholders	$	0.01		$	0.00		$	0.00		$	0.02
Basic weighted average common stock outstanding		12,658			12,535			12,640			12,492
Diluted weighted average common stock outstanding		12,658			12,794			12,668			12,597

See notes to condensed financial statements.

3

DIRECT INSITE CORP.

CONDENSED STATEMENTS OF CASH FLOWS – UNAUDITED

(in thousands)

	For the nine months ended
	September 30, 2014			September 30, 2013
Cash flows from operating activities
Net income	$	55		$	283
Adjustments to reconcile net income  to net cash  provided by operations:
Amortization and depreciation		249			302
Stock-based compensation expense		136			133
Deferred rent expense		23			1
Gain on sale of property and equipment		--			(8	)
Changes in operating assets and liabilities:
Accounts receivable		(449	)		197
Prepaid expenses and other current assets		(8	)		(100	)
Accounts payable and accrued expenses		106			198
Deferred revenue		2			(41	)
Total adjustments		59			682
Net cash provided by operating activities		114			965
Cash flows from investing activities:
Purchases of property and equipment		(18	)		(110	)
Capitalization of internally developed software		(372	)		(194	)
Proceeds from the sale of property and equipment		--			8
Net cash used in investing activities		(390	)		(296	)
Cash flows from financing activities:
Repayment of capital lease obligations		(162	)		(156	)
Repayment of long-term debt		--			(32	)
Net cash used in financing activities		(162	)		(188	)
Net increase (decrease) in cash and cash equivalents		(438	)		481
Cash and cash equivalents – beginning		1,371			1,098
Cash and cash equivalents – ending	$	933		$	1,579
Supplemental disclosure of cash flow information:
Cash paid for interest	$	6		$	15
Cash paid for income taxes	$	--		$	1
Schedule of non-cash investing and financing activities:
Common stock issued for payment of liability	$	--		$	20
Equipment acquired by capital lease	$	--		$	57

See notes to condensed financial statements.

4

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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 77.5% and 74.2% of the Company’s revenue for the three months ended September 30, 2014 and 2013, respectively, and 76.6% and 78.0% of the Company’s revenue for the nine months ended September 30, 2014 and 2013, respectively.  Loss of either 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 11.0% of the Company’s revenues for the nine months ended September 30, 2013, terminated its contract effective March 31, 2013.The Company did not record any revenue from this client after June 30, 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 September 30, 2014, the condensed statements of operations for the three and nine months ended September 30, 2014 and 2013 and the condensed statements of cash flows for the nine months ended September 30, 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 reports 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 and nine months ended September 30, 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 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, 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 five year useful life of the software.

6

DIRECT INSITE CORP.

NOTES TO 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 include the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The computation of diluted weighted average common shares outstanding used in the calculation of diluted earnings per share for the three and nine months ended September 30, 2014 and 2013 is as follows (in thousands):

	For the three months ended September 30,				For the nine months ended September 30,
	2014		2013		2014		2013
Weighted average shares outstanding-basic		12,658		12,535		12,640		12,492
Stock Options		--		218		19		75
Restricted stock grants		--		41		9		30
Weighted average shares outstanding-diluted		12,658		12,794		12,668		12,597

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 three and nine months ended September 30, 2014 and 2013, consists of the following (in thousands):

	For the three months ended September 30,				For the nine months ended September 30,
	2014		2013		2014		2013
Options to purchase common stock		564		91		466		91
Unvested stock grants		67		–		31		–
Potential anti-dilutive common shares		631		91		497		91

7

DIRECT INSITE CORP.

NOTES TO 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 the Federal Depository Insurance Corporation at September 30, 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 its financial statements.

Note 3 – Property and Equipment

Property and equipment (with their respective useful lives) consist of the following at September 30, 2014 and December 31, 2013 (in thousands):

	2014			2013
Computer equipment and purchased software (3 years)	$	1,372		$	1,361
Internally developed software not yet placed in service (5 years)		806			433
Furniture and fixtures and leasehold improvements (5 – 7 years)		152			146
		2,330			1,940
Less: accumulated depreciation and amortization		(1,337	)		(1,088	)
Property and equipment, net	$	993		$	852

Depreciation and amortization expense related to property and equipment for the three months ended September 30, 2014 and 2013 was approximately $83,000 and $103,000, respectively.

Depreciation and amortization expense related to property and equipment for the nine months ended September 30, 2014 and 2013 was approximately $249,000 and $302,000, respectively.

Note 4 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following at September 30, 2014 and December 31, 2013 (in thousands):

	2014		2013
Trade accounts payable	$	180	$	324
Sales taxes payable		539		539
Accrued directors’ fees		443		377
Other accrued expenses		346		162
Total accounts payable and accrued expenses	$	1,508	$	1,402

8

DIRECT INSITE CORP.

NOTES TO 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 $122,000, respectively, as of September 30, 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 and outstanding as of September 30, 2014 and December 31, 2013.

Common Stock, Options and Stock Grants

Nine Months Ended September 30, 2014

During the nine months ended September 30, 2014, 55,728 shares of restricted common stock with an aggregate grant date fair value of approximately $53,000 vested. In connection with the reduction of the size of the board from seven to five directors and the ensuing restructuring of board compensation, members of the Board of Directors forfeited 40,398 shares of unvested restricted stock grants. The restructured board compensation approved by the Board of Directors provides that each non-Executive member of the Board would receive equal amounts: (i) $25,000 of the Company’s common stock annually at the beginning of each year, vesting over a two year period, and (ii) $10,000 in cash to be paid 25% each quarter in arrears and which may be converted into common stock in accordance with the terms of the Directors Deferred Compensation Plan. During the nine months ended September 30, 2014, the Company granted 114,058 shares of restricted common stock with a grant date fair value of approximately $115,000.  During the nine months ended September 30, 2014, the Company granted, to an employee of the Company, options to acquire 10,000 shares of common stock with an exercise price of $1.50 exercisable over a term of five years from the date of grant.  The options vest over a four year period, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting in equal monthly amounts through the fourth anniversary of the grant date. The Company estimated the grant date fair value of the stock options using the Black-Scholes option model and the following assumptions: volatility of 95%, risk free rate of 0.8%, dividend rate of zero, and expected term of 3.75 years. The grant date fair value of the stock options issued was determined to be approximately $7,500.  During the nine months ended September 30, 2014, the Company recognized approximately $83,000 of expenses related to the vesting of outstanding stock options.

9

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 6 – Stockholders’ Equity (continued)

Nine Months Ended September 30, 2013

During the nine months ended September 30, 2013, 81,831 shares of restricted common stock with an aggregate grant date fair value of approximately $60,000 vested. In the same period of time, the Company issued 55,181 shares of restricted common stock with a grant date fair value of approximately $42,000, pursuant to the Company’s Directors’ Deferred Compensation Plan dated January 1, 2008 (the “Directors’ Deferred Compensation Plan”), to a former director for past services. 20,595 of the 55,181 shares of restricted common stock were issued to settle an approximate $20,000 accrued expense recorded on the Company’s balance sheet. During the nine months ended September 30, 2013, the Company granted, to employees of the Company, options to acquire 180,909 shares of common stock with exercise prices of $1.15 (for a grant of 15,000 options), $1.25 per share (for grants of a combined 75,000 options) and $1.65 per share (for a grant of 90,909 options), exercisable over a term of five years from the date of grant. The options vest over a four year period, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting in equal monthly amounts through the fourth anniversary of the grant date. The Company estimated the grant date fair value of the stock options using the Black-Scholes-Merton option model and the following assumptions: volatility of 150%, risk free rate ranging from 0.4% to 0.8%, dividend rate of zero, and expected term of 3.75 years.  The grant date fair value of the stock options issued was determined to be approximately $163,000.  During the nine months ended September 30, 2013, the Company recognized approximately $73,000 of expense related to the vesting of outstanding stock options.  As of September 30, 2013, options to acquire 56,500 shares of common stock with an average exercise price of $1.47 expired unexercised, and options to acquire 172,500 shares of common stock with an average exercise price of $1.16 were forfeited. On September 5, 2013, Matthew E. Oakes, the Company’s President and Chief Executive Officer, received 50,348 shares of the Company’s common stock in a cashless exercise of 172,500 stock options that had an exercise price of $1.15 per share.

Stock incentive Plans

The Company has granted 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. On June 3, 2014, the Company’s stockholders approved the adoption of the 2014 Stock Incentive Plan (the “2014 Plan”).  The 2014 Plan replaces the 2004 Stock Option/Stock Issuance Plan which expired on August 20, 2014.  The 2014 Plan provides for the grant of non-qualified stock options, incentive stock options, and stock appreciation rights, shares of restricted stock, stock units and shares of unrestricted stock.  Eligible participants include officers, employees and directors.  The aggregate number of shares authorized for issuance under the 2014 Plan is 1,200,000, and is subject to adjustment as described in the 2014 Plan.  There are 354,687 shares available for issue under the 2014 plan. Awards that expire or are cancelled without delivery of shares general become available for issuance under the plans.

The following is a summary of stock option activity for nine months ended September 30, 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	$	-
Granted		10		$	1.50		4.53	$	-
Forfeited		(170	)	$	1.42			$	-
Expired		(76	)	$	1.18
Outstanding at September 30, 2014		564		$	1.30		2.96	$	-
Exercisable at September 30, 2014		211		$	1.16		2.35	$	-

10

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Stock incentive Plans (continued)

The following table summarizes stock option information as of September 30, 2014:

				Weighted Average
		Number Outstanding		Remaining	Options Exercisable
Exercise Prices		(in thousands)		Contractual Term	(in thousands)
$	1.15		347	2.4 years		184
$	1.20		27	1.7 years		27
$	1.50		90	4.5 years		–
$	1.65		100	4.1 years		–
Total			564	3.0 years		211

As of September 30, 2014, there was approximately $230,000 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 September 30, 2014 and changes during the nine months ended September 30, 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		114		$	1.01
Forfeited		(40	)	$	1.07
Vested		(56	)	$	0.94
Non-vested at September 30, 2014		67		$	0.89

The future expected expense for non-vested shares is approximately $59,000 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, Accounting for Income Taxes (“ASC 740”) which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition.  There were no unrecognized tax benefits as of September 30, 2014 and December 31, 2013.

The Company has identified its federal tax return and its state tax returns 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 and nine months ended September 30, 2014 and 2013.  The Company does not expect its unrecognized tax benefit position to change during the next twelve months.

11

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Note 7 – Income Taxes (continued)

Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

As of September 30, 2014, the Company has federal and state net operating loss carry forwards (“NOLs”) of approximately $26 million and $27 million respectively, which may be available to reduce future 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 a change in control has taken place, either historically or in the future, utilization of its NOLs could be subject to severe limitations, which could eliminate a substantial portion of the future income tax benefits of the NOLs.  The NOL carry forward as of September 30, 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.

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 agrees 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 Board of Directors of the Company.  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.

12

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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 for the respective three and nine month periods ended September 30, 2014 and 2013 as follows:

	For the three months ended						For the nine months ended
	2014			2013			2014			2013
HP Customer A		0	%		0.0	%		0	%		11.0	%
HP Customer B		14.8	%		14.5	%		14.5	%		13.4	%
HP Customer C		11.9	%		11.7	%		14.3	%		12.3	%
HP Customer D		6.5	%		11.6	%		8.5	%		10.3	%
Total HP		33.2	%		37.8	%		37.3	%		47.0	%
IBM		44.3	%		36.4	%		39.3	%		31.0	%
Total major customers		77.5	%		74.2	%		76.6	%		78.0	%
Others		22.5	%		25.8	%		23.4	%		22.0	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

As of September 30, 2014 and December 31, 2013, HP and IBM accounted for a significant portion of the Company’s accounts receivable as follows (in thousands):

	September 30, 2014		December 31, 2013
HP	$	846	$	519
IBM		642		505
Total	$	1,488	$	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.

13

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 provider, providing best practice financial supply chain automation and workflow efficiencies within the Procure-to-Pay and Order-to-Cash processes. Specifically, Direct Insite’s global 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 $160 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 33.2% and 37.8% of revenue for the three months ended September 30, 2014 and 2013, respectively, and approximately 37.3% and 47.0% of revenue for the nine months ended September 30, 2014 and 2013, respectively. In the third quarter, we had three principal contracts with HP providing e-invoicing 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, the Company was notified by HP, that one of its customers, representing 11.0% of the Company’s revenues for the nine months ended September 30, 2013, was terminating its contract effective March 31, 2013.  As disclosed in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on July 24, 2013, the Company determined that despite its efforts to negotiate a direct contractual agreement with this client, the client ultimately decided to sunset its use of the application. As such, the Company did not record any revenue from this client after June 30, 2013.

14

International Business Machines, Inc. (“IBM”), representing approximately 44.3% and 36.4%, of revenue for the three months ended September 30, 2014 and 2013, respectively, and approximately 39.3% and 31.0%, of revenue for the nine months ended September 30, 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 on 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

Three Months Ended September 30, 2014 Compared to the Three Months Ended September 30, 2013

The following is a summary of operating results for the three months ended September 30, 2014 and 2013 (in thousands):

	2014			2013			Increase (Decrease)
Revenues:
Recurring	$	1,618		$	1,779		$	(161	)	(9.1	)%
Non-recurring		436			299			137		45.8	%
Total revenues		2,054			2,078			(24	)	(1.2	)%
Operating costs and expenses:
Operations, research and development		846			943			(97	)	(10.3	)%
General and administrative		589			546			43		7.9	%
Sales and marketing		423			522			(99	)	( 19.0	)%
Amortization and depreciation		83			103			( 20	)	(19.4	)%
Total operating costs and expenses		1,941			2,114			(173	)	( 8.2	)%
Operating income (loss)		113			(36	)		149		100	%+
Other income (expense) net		(1	)		40			( 41	)	(100	)%+
Net income	$	112		$	4		$	108		100	%+

Revenues

For the three months ended September 30, 2014, revenue decreased by $24,000, or 1.2 %, to $2,054,000 from $2,078,000 for the comparable prior year period.  Recurring revenue decreased by $161,000, or 9.1%, to $1,618,000 for the three months ended September 30, 2014, from $1,779,000 for the comparable prior year period. This was primarily due to a customer that divided its operations, and suspended our service in one of the divisions. Non-recurring revenue increased by $137,000, or 45.8%, to $436,000 for the three months ended September 30, 2014 from $299,000 for the comparable prior year period primarily due to the timing of client-requested modifications to our software platform and increased charges for the facilitation of scanning services.

15

Operating Costs and Expenses

Costs of operations, research and development decreased by approximately $97,000, or 10.3%, to $846,000 for the three months ended September 30, 2014 from $943,000 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 lower consulting fees for outsourced development.

General and administrative costs increased by approximately $43,000, or 7.9%, to $589,000 for the three months ended September 30, 2014 from $546,000 for the comparable prior year period, primarily due to professional fees related to the Company’s Payment Card Industry and Statement on Standards for Attestation Engagements-16 (SSAE-16) (reporting on controls at a service organization) certifications.

Sales and marketing costs decreased by approximately $99,000, or 19.0%, to $423,000 for the three months ended September 30, 2014 from $522,000 for the comparable prior year period, primarily due to a headcount-related decrease in compensation expense of $102,000 and lower trade show sponsorships, partially offset by higher consulting and professional fees.

Amortization and depreciation decreased by approximately $20,000, or 19.4%, to $83,000 for the three months ended September 30, 2014 from $103,000 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)

Operating income increased by $149,000, to $113,000, for the three months ended September 30, 2014, compared to a $36,000 loss for the comparable prior year period, due to the aforementioned decrease in operating costs and expenses.

Other Income (Expense), net

We reported other expense of approximately $1,000 for the three months ended September 30, 2014 compared to other income of $40,000 for the comparable prior year period.

Net Income

Net income increased by approximately $108,000, to $112,000, for the three months ended September 30, 2014, compared to net income of $4,000 for the comparable prior year period, due to the increase in operating income.

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Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013

The following is a summary of operating results for the nine months ended September 30, 2014 and 2013 (in thousands):

	2014			2013		Increase (Decrease)
Revenues:
Recurring	$	4,872		$	5,708	$	(836	)	( 14.6	)%
Non-recurring		1,297			1,248		49		3.9	%
Total revenues		6,169			6,956		(787	)	( 11.3	)%
Operating costs and expenses:
Operations, research and development		2,596			2,921		(325	)	( 11.1	)%
General and administrative		1,795			1,721		74		4.3	%
Sales and marketing		1,467			1,755		(288	)	( 16.4	)%
Amortization and depreciation		249			302		( 53	)	( 17.5	)%
Total operating costs and expenses		6,107			6,699		(592	)	( 8.8	)%
Operating income		62			257		(195	)	(75.8	)%
Other income (expense), net		(7	)		26		( 33	)	( 100	)%+
Net income	$	55		$	283	$	(228	)	(80.0	)%

Revenues

For the nine months ended September 30, 2014, total revenue decreased by $787,000, or 11.3%, to $6,169,000 from $6,956,000 for the comparable prior year period.  Recurring revenue decreased by $836,000, or 14.6%, to $4,872,000 for the nine months ended September 30, 2014, from $5,708,000 for the comparable prior year period.  This was primarily due to the aforementioned HP customer terminating its contract effective June 30, 2013 and the customer that divided its operations, and suspended our service in one of those divisions.  Non-recurring revenue increased by $49,000, or 3.9%, to $1,297,000 for the nine months ended September 30, 2014 from $1,248,000 for the comparable prior year period primarily due increased charges for the facilitation of scanning services, partially offset by the non-recurrence of engineering of large prior year customer-requested modifications.

Operating Costs and Expenses

Costs of operations, research, and development decreased by approximately $325,000, or 11.1%, to $2,596,000 for the nine months ended September 30, 2014 from $2,921,000 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 lower headcount and a decrease in subcontractor usage, partially offset by higher cloud license and service costs and scanning charges.

General and administrative costs increased by approximately $74,000, or 4.3%, to $1,795,000 for the nine months ended September 30, 2014 from $1,721,000 for the comparable prior year period, primarily due to legal fees related to the Company’s proxy and Stock Incentive Plan, and to professional fees related to the Company’s Payment Card Industry and SSAE-16 certifications, partially offset by reduced travel and entertainment expenses.

Sales and marketing costs decreased by approximately $288,000, or 16.4%, to $1,467,000 for the nine months ended September 30, 2014 from $1,755,000 for the comparable prior year period, primarily due to a headcount-related decrease in compensation expense of $315,000 and a decrease in travel and entertainment costs, partially offset by an increase in consulting fees.

17

Amortization and depreciation decreased by approximately $53,000, or 17.5%, to $249,000 for the nine months ended September 30, 2014 from $302,000 for the comparable prior year period due to lower depreciation expense that is associated with less new depreciable capital expenditures over the past nine months.

Operating Income

Operating income decreased by approximately $195,000, or 75.8%, to $62,000 for the nine months ended September 30, 2014, compared to operating income of $257,000 for the comparable prior year period, due to the aforementioned decrease in revenues, partially offset by the aforementioned decrease in operating costs and expenses.

Other Income (Expense), net

We reported other expense of approximately $7,000 for the nine months ended September 30, 2014 compared to other income of $26,000 for the comparable prior year period.

Net Income

Net income for the nine months ended September 30, 2014 decreased by approximately $228,000, or 80.0%, to $55,000 for the nine months ended September 30, 2014, compared to net income of $283,000 for the comparable prior year period.

FINANCIAL CONDITION AND LIQUIDITY

As of September 30, 2014, we had total stockholders’ equity of approximately $4,105,000, working capital of $2,004,000 and an accumulated deficit of $111,686,000.  Our cash decreased by $438,000 during the nine months ended September 30, 2014, to $933,000 of cash on hand as of September 30, 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 nine months ended September 30, 2014, cash provided by operations was $114,000, compared to cash provided by operating activities of $965,000 for the comparable prior year period.  The decrease in cash provided from operations is primarily due to lower profitability and the timing of payments from our customers.

Cash used in investing activities for the nine months ended September 30, 2014 was $390,000, primarily due to capitalization of internally developed software.  Cash used in investing activities for the nine months ended September 30, 2013 was due to expenditures for new equipment of $110,000 and the capitalization of internally developed software.

Cash used in financing activities totaled $162,000 and $188,000 for the nine months ended September 30, 2014 and 2013, respectively, 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 Report 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.

18

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 September 30, 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 September 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

19

PART II Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Not required.

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

On January 1, 2014, pursuant to the terms of the Company’s director compensation plan (the “Director Compensation Plan”), 66,113 of restricted shares of common stock were granted, vesting daily over two years, to the directors.   On March 31, 2014, pursuant to the terms of the Director Compensation Plan, the directors were granted an aggregate of 27,096 shares of common stock.  In each case, the directors elected to defer receipt of the shares until January 15th of the year following such director’s termination of services as director.

On June 3, 2014 the Director Compensation Plan was amended (the “Amended Director Compensation Plan”), and pursuant to the terms of the Amended Director Compensation Plan, the directors of the Company were granted an aggregate of 47,945 shares of restricted common stock.  The aggregate of 40,398 unvested shares were forfeited by two directors who did not retain seats on the board.  The directors who received grants elected to defer receipt of shares until January 15^th of the year following such director’s termination of services as a director.

On June 30, 2014, pursuant to the terms of the Amended Director Compensation Plan, the directors of the Company (both former and continuing) other than Mr. Lisiak elected to receive shares of common stock in lieu of cash director fee and thus were granted an aggregate of 41,164 shares of restricted common stock on such date.  The directors who received grants elected to defer receipt of shares until January 15^th of the year following such director’s termination of services as a director.

On September 30, 2014, pursuant to the terms of the Amended Director Compensation Plan, the directors of the Company other than Mr. Lisiak elected to receive shares of common stock in lieu of cash director fees and thus were granted an aggregate of 15,000 shares of restricted common stock on such date.  The directors who received grants elected to defer receipt of the shares until January 15^th of the year following such director’s termination of services as a director.

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

For additional information, reference is made to Note 6 of the Condensed Financial Statements.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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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 September 30, 2014 formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of September 30, 2014 (Unaudited) and December 31, 2013, (ii) Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013 (Unaudited), (iii) Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 (Unaudited), (iv) and Notes to Condensed Financial Statements (Unaudited).

21

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, Chairman and Chief Executive Officer	November 12, 2014
/s/ Lowell M. Rush
Lowell M. Rush, Chief Financial Officer	November 12, 2014

22

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.

November 12, 2014	/s/ Matthew E. Oakes
	Matthew E. Oakes
	(Principal Executive Officer)
	Chairman and Chief Executive Officer

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.

November 12, 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 and nine months ended September 30, 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.

November 12, 2014	/s/ Matthew E. Oakes
	Matthew E. Oakes, Chairman and Chief Executive Officer
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

DIRECT INSITE CORP.

CERTIFICATION OF PERIODIC REPORT

I, Lowell M. 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 and nine months ended September 30, 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.

November 12, 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	Sep. 30, 2014	Dec. 31, 2013
Summary of Accounts Payable and Accrued Expenses [Abstract]
Trade accounts payable	$ 180	$ 324
Sales taxes payable	539	539
Accrued directors' fees	443	377
Other accrued expenses	346	162
Total accounts payable and accrued expenses	$ 1,508	$ 1,402

XML

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

9 Months Ended

Sep. 30, 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 September 30, 2014 and December 31, 2013 (in thousands):

	2014		2013
Trade accounts payable	$	180	$	324
Sales taxes payable		539		539
Accrued directors’ fees		443		377
Other accrued expenses		346		162
Total accounts payable and accrued expenses	$	1,508	$	1,402

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COMMITMENT AND CONTINGENCIES (Details) (USD $)	0 Months Ended	9 Months Ended
	Sep. 05, 2013	Sep. 30, 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

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INCOME TAXES (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
INCOME TAXES [Abstract]
Unrecognized tax benefits	$ 0		$ 0		$ 0
Unrecognized tax benefits, interest and penalties	0	0	0	0
Period for which the position in unrecognized tax benefit is not expected to change			12 months
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards related to tax benefit	1,193,000		1,193,000
Minimum [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards, expiration dates			Dec. 31, 2019
Maximum [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards, expiration dates			Dec. 31, 2033
Federal Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards	26,000,000		26,000,000
State Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards	$ 27,000,000		$ 27,000,000

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MAJOR CUSTOMERS (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	3 Months Ended		9 Months Ended				3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended				3 Months Ended		9 Months Ended				3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended
	Sep. 30, 2014 Customer	Sep. 30, 2014 Revenues [Member]	Sep. 30, 2013 Revenues [Member]	Sep. 30, 2014 Revenues [Member]	Sep. 30, 2013 Revenues [Member]	Sep. 30, 2014 Accounts Receivable [Member]	Dec. 31, 2013 Accounts Receivable [Member]	Sep. 30, 2014 HP Customer A [Member] Revenues [Member]	Sep. 30, 2013 HP Customer A [Member] Revenues [Member]	Sep. 30, 2014 HP Customer A [Member] Revenues [Member]	Sep. 30, 2013 HP Customer A [Member] Revenues [Member]	Sep. 30, 2014 HP Customer B [Member] Revenues [Member]	Sep. 30, 2013 HP Customer B [Member] Revenues [Member]	Sep. 30, 2014 HP Customer B [Member] Revenues [Member]	Sep. 30, 2013 HP Customer B [Member] Revenues [Member]	Sep. 30, 2014 HP Customer C [Member] Revenues [Member]	Sep. 30, 2013 HP Customer C [Member] Revenues [Member]	Sep. 30, 2014 HP Customer C [Member] Revenues [Member]	Sep. 30, 2013 HP Customer C [Member] Revenues [Member]	Sep. 30, 2014 HP Customer D [Member] Revenues [Member]	Sep. 30, 2013 HP Customer D [Member] Revenues [Member]	Sep. 30, 2014 HP Customer D [Member] Revenues [Member]	Sep. 30, 2013 HP Customer D [Member] Revenues [Member]	Sep. 30, 2014 Total HP [Member] Revenues [Member]	Sep. 30, 2013 Total HP [Member] Revenues [Member]	Sep. 30, 2014 Total HP [Member] Revenues [Member]	Sep. 30, 2013 Total HP [Member] Revenues [Member]	Sep. 30, 2014 Total HP [Member] Accounts Receivable [Member]	Dec. 31, 2013 Total HP [Member] Accounts Receivable [Member]	Sep. 30, 2014 IBM [Member] Revenues [Member]	Sep. 30, 2013 IBM [Member] Revenues [Member]	Sep. 30, 2014 IBM [Member] Revenues [Member]	Sep. 30, 2013 IBM [Member] Revenues [Member]	Sep. 30, 2014 IBM [Member] Accounts Receivable [Member]	Dec. 31, 2013 IBM [Member] Accounts Receivable [Member]	Sep. 30, 2014 Total major customers [Member] Revenues [Member]	Sep. 30, 2013 Total major customers [Member] Revenues [Member]	Sep. 30, 2014 Total major customers [Member] Revenues [Member]	Sep. 30, 2013 Total major customers [Member] Revenues [Member]	Sep. 30, 2014 Others [Member] Revenues [Member]	Sep. 30, 2013 Others [Member] Revenues [Member]	Sep. 30, 2014 Others [Member] Revenues [Member]	Sep. 30, 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%	100.00%	100.00%			0.00%	0.00%	0.00%	11.00%	14.80%	14.50%	14.50%	13.40%	11.90%	11.70%	14.30%	12.30%	6.50%	11.60%	8.50%	10.30%	33.20%	37.80%	37.30%	47.00%			44.30%	36.40%	39.30%	31.00%			77.50%	74.20%	76.60%	78.00%	22.50%	25.80%	23.40%	22.00%
Summary of customers accounted for significant portion of accounts receivable [Abstract]
Major customer, accounts receivable						$ 1,488	$ 1,024																					$ 846	$ 519					$ 642	$ 505

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PROPERTY AND EQUIPMENT

9 Months Ended

Sep. 30, 2014

PROPERTY AND EQUIPMENT [Abstract]

PROPERTY AND EQUIPMENT

Note 3 – Property and Equipment

Property and equipment (with their respective useful lives) consist of the following at September 30, 2014 and December 31, 2013 (in thousands):

	2014			2013
Computer equipment and purchased software (3 years)	$	1,372		$	1,361
Internally developed software not yet placed in service (5 years)		806			433
Furniture and fixtures and leasehold improvements (5 – 7 years)		152			146
		2,330			1,940
Less: accumulated depreciation and amortization		(1,337	)		(1,088	)
Property and equipment, net	$	993		$	852

Depreciation and amortization expense related to property and equipment for the three months ended September 30, 2014 and 2013 was approximately $83,000 and $103,000, respectively.

Depreciation and amortization expense related to property and equipment for the nine months ended September 30, 2014 and 2013 was approximately $249,000 and $302,000, respectively.

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CONDENSED BALANCE SHEETS (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 933	$ 1,371
Accounts receivable	1,971	1,522
Prepaid expenses and other current assets	383	368
Deferred tax assets - current	318	318
Total current assets	3,605	3,579
Property and equipment, net	993	852
Deferred tax assets	874	874
Other assets	250	257
Total assets	5,722	5,562
Current liabilities:
Accounts payable and accrued expenses	1,508	1,402
Current portion of capital lease obligations	45	187
Deferred rent	46	23
Deferred revenue	2	0
Total current liabilities	1,601	1,612
Capital lease obligations, net of current portion	16	36
Total liabilities	1,617	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; 12,743,649 and 12,687,921 shares issued and 12,703,722 and 12,647,994 shares outstanding in 2014 and 2013, respectively	1	1
Additional paid-in capital	116,118	115,982
Accumulated deficit	(111,686)	(111,741)
Common stock in treasury, at cost; 24,371 shares in 2014 and 2013	(328)	(328)
Total stockholders' equity	4,105	3,914
Total liabilities and stockholders' equity	$ 5,722	$ 5,562

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NATURE OF BUSINESS

9 Months Ended

Sep. 30, 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 77.5% and 74.2% of the Company’s revenue for the three months ended September 30, 2014 and 2013, respectively, and 76.6% and 78.0% of the Company’s revenue for the nine months ended September 30, 2014 and 2013, respectively.  Loss of either 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 11.0% of the Company’s revenues for the nine months ended September 30, 2013, terminated its contract effective March 31, 2013.The Company did not record any revenue from this client after June 30, 2013.

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NATURE OF BUSINESS (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Concentration Risk [Line Items]
Number of major customers			2
Revenues [Member]
Concentration Risk [Line Items]
Ratio of revenues from major customers to total revenues (in hundredths)	100.00%	100.00%	100.00%	100.00%
Revenues [Member] | Customers One [Member]
Concentration Risk [Line Items]
Ratio of revenues from major customers to total revenues (in hundredths)	77.50%	74.20%	76.60%	78.00%
Revenues [Member] | Customers Two [Member]
Concentration Risk [Line Items]
Ratio of revenues from major customers to total revenues (in hundredths)				11.00%

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PROPERTY AND EQUIPMENT (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Summary of property and equipment [Abstract]
Property and equipment, gross	$ 2,330		$ 2,330		$ 1,940
Less: accumulated depreciation and amortization	(1,337)		(1,337)		(1,088)
Property and equipment, net	993		993		852
Depreciation and amortization	83	103	249	302
Computer Equipment and Purchased Software [Member]
Summary of property and equipment [Abstract]
Property and equipment, gross	1,372		1,372		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	806		806		433
Estimated useful lives			5 years
Furniture and Fixtures and Leasehold Improvements [Member]
Summary of property and equipment [Abstract]
Property and equipment, gross	$ 152		$ 152		$ 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

9 Months Ended

Sep. 30, 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 September 30, 2014, the condensed statements of operations for the three and nine months ended September 30, 2014 and 2013 and the condensed statements of cash flows for the nine months ended September 30, 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 reports 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 and nine months ended September 30, 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, 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 five 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 include the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The computation of diluted weighted average common shares outstanding used in the calculation of diluted earnings per share for the three and nine months ended September 30, 2014 and 2013 is as follows (in thousands):

	For the three months ended September 30,				For the nine months ended September 30,
	2014		2013		2014		2013
Weighted average shares outstanding-basic		12,658		12,535		12,640		12,492
Stock Options		--		218		19		75
Restricted stock grants		--		41		9		30
Weighted average shares outstanding-diluted		12,658		12,794		12,668		12,597

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 three and nine months ended September 30, 2014 and 2013, consists of the following (in thousands):

	For the three months ended September 30,				For the nine months ended September 30,
	2014		2013		2014		2013
Options to purchase common stock		564		91		466		91
Unvested stock grants		67		–		31		–
Potential anti-dilutive common shares		631		91		497		91

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 the Federal Depository Insurance Corporation at September 30, 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 its financial statements.

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CONDENSED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)	Sep. 30, 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)	12,743,649	12,687,921
Common stock, outstanding (in shares)	12,703,722	12,647,994
Treasury stock, at cost (in shares)	24,371	24,371

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Computation of basic and diluted earnings per share

The computation of diluted weighted average common shares outstanding used in the calculation of diluted earnings per share for the three and nine months ended September 30, 2014 and 2013 is as follows (in thousands):

	For the three months ended September 30,				For the nine months ended September 30,
	2014		2013		2014		2013
Weighted average shares outstanding-basic		12,658		12,535		12,640		12,492
Stock Options		--		218		19		75
Restricted stock grants		--		41		9		30
Weighted average shares outstanding-diluted		12,658		12,794		12,668		12,597

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 three and nine months ended September 30, 2014 and 2013, consists of the following (in thousands):

	For the three months ended September 30,				For the nine months ended September 30,
	2014		2013		2014		2013
Options to purchase common stock		564		91		466		91
Unvested stock grants		67		–		31		–
Potential anti-dilutive common shares		631		91		497		91

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 05, 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		12,766,178
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014

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PROPERTY AND EQUIPMENT (Tables)

9 Months Ended

Sep. 30, 2014

PROPERTY AND EQUIPMENT [Abstract]

Property and Equipment

Property and equipment (with their respective useful lives) consist of the following at September 30, 2014 and December 31, 2013 (in thousands):

	2014			2013
Computer equipment and purchased software (3 years)	$	1,372		$	1,361
Internally developed software not yet placed in service (5 years)		806			433
Furniture and fixtures and leasehold improvements (5 – 7 years)		152			146
		2,330			1,940
Less: accumulated depreciation and amortization		(1,337	)		(1,088	)
Property and equipment, net	$	993		$	852

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CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenues:
Recurring	$ 1,618	$ 1,779	$ 4,872	$ 5,708
Non-recurring	436	299	1,297	1,248
Total revenues	2,054	2,078	6,169	6,956
Operating costs and expenses:
Operations, research and development	846	943	2,596	2,921
General and administrative	589	546	1,795	1,721
Sales and marketing	423	522	1,467	1,755
Amortization and depreciation	83	103	249	302
Total operating costs and expenses	1,941	2,114	6,107	6,699
Operating income (loss)	113	(36)	62	257
Other income (expense), net	(1)	40	(7)	26
Income before provision for income taxes	112	4	55	283
Provision for income taxes	0	0	0	0
Net income	$ 112	$ 4	$ 55	$ 283
Basic income per share attributable to common stockholders (in dollars per share)	$ 0.01	$ 0	$ 0	$ 0.02
Diluted income per share attributable to common stockholders (in dollars per share)	$ 0.01	$ 0	$ 0	$ 0.02
Basic weighted average common stock outstanding (in shares)	12,658	12,535	12,640	12,492
Diluted weighted average common stock outstanding (in shares)	12,658	12,794	12,668	12,597

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INCOME TAXES

9 Months Ended

Sep. 30, 2014

INCOME TAXES [Abstract]

INCOME TAXES

Note 7 – Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes (“ASC 740”) which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition.  There were no unrecognized tax benefits as of September 30, 2014 and December 31, 2013.

The Company has identified its federal tax return and its state tax returns 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 and nine months ended September 30, 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 September 30, 2014, the Company has federal and state net operating loss carry forwards (“NOLs”) of approximately $26 million and $27 million respectively, which may be available to reduce future 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 a change in control has taken place, either historically or in the future, utilization of its NOLs could be subject to severe limitations, which could eliminate a substantial portion of the future income tax benefits of the NOLs.  The NOL carry forward as of September 30, 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

9 Months Ended

Sep. 30, 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 and outstanding as of September 30, 2014 and December 31, 2013.

Common Stock, Options and Stock Grants

Nine Months Ended September 30, 2014

During the nine months ended September 30, 2014, 55,728 shares of restricted common stock with an aggregate grant date fair value of approximately $53,000 vested. In connection with the reduction of the size of the board from seven to five directors and the ensuing restructuring of board compensation, members of the Board of Directors forfeited 40,398 shares of unvested restricted stock grants. The restructured board compensation approved by the Board of Directors provides that each non-Executive member of the Board would receive equal amounts: (i) $25,000 of the Company’s common stock annually at the beginning of each year, vesting over a two year period, and (ii) $10,000 in cash to be paid 25% each quarter in arrears and which may be converted into common stock in accordance with the terms of the Directors Deferred Compensation Plan. During the nine months ended September 30, 2014, the Company granted 114,058 shares of restricted common stock with a grant date fair value of approximately $115,000.  During the nine months ended September 30, 2014, the Company granted, to an employee of the Company, options to acquire 10,000 shares of common stock with an exercise price of $1.50 exercisable over a term of five years from the date of grant.  The options vest over a four year period, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting in equal monthly amounts through the fourth anniversary of the grant date. The Company estimated the grant date fair value of the stock options using the Black-Scholes option model and the following assumptions: volatility of 95%, risk free rate of 0.8%, dividend rate of zero, and expected term of 3.75 years. The grant date fair value of the stock options issued was determined to be approximately $7,500.  During the nine months ended September 30, 2014, the Company recognized approximately $83,000 of expenses related to the vesting of outstanding stock options.

Nine Months Ended September 30, 2013

During the nine months ended September 30, 2013, 81,831 shares of restricted common stock with an aggregate grant date fair value of approximately $60,000 vested. In the same period of time, the Company issued 55,181 shares of restricted common stock with a grant date fair value of approximately $42,000, pursuant to the Company’s Directors’ Deferred Compensation Plan dated January 1, 2008 (the “Directors’ Deferred Compensation Plan”), to a former director for past services. 20,595 of the 55,181 shares of restricted common stock were issued to settle an approximate $20,000 accrued expense recorded on the Company’s balance sheet. During the nine months ended September 30, 2013, the Company granted, to employees of the Company, options to acquire 180,909 shares of common stock with exercise prices of $1.15 (for a grant of 15,000 options), $1.25 per share (for grants of a combined 75,000 options) and $1.65 per share (for a grant of 90,909 options), exercisable over a term of five years from the date of grant. The options vest over a four year period, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting in equal monthly amounts through the fourth anniversary of the grant date. The Company estimated the grant date fair value of the stock options using the Black-Scholes-Merton option model and the following assumptions: volatility of 150%, risk free rate ranging from 0.4% to 0.8%, dividend rate of zero, and expected term of 3.75 years.  The grant date fair value of the stock options issued was determined to be approximately $163,000.  During the nine months ended September 30, 2013, the Company recognized approximately $73,000 of expense related to the vesting of outstanding stock options.  As of September 30, 2013, options to acquire 56,500 shares of common stock with an average exercise price of $1.47 expired unexercised, and options to acquire 172,500 shares of common stock with an average exercise price of $1.16 were forfeited. On September 5, 2013, Matthew E. Oakes, the Company’s President and Chief Executive Officer, received 50,348 shares of the Company’s common stock in a cashless exercise of 172,500 stock options that had an exercise price of $1.15 per share.

Stock incentive Plans

The Company has granted 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. On June 3, 2014, the Company’s stockholders approved the adoption of the 2014 Stock Incentive Plan (the “2014 Plan”).  The 2014 Plan replaces the 2004 Stock Option/Stock Issuance Plan which expired on August 20, 2014.  The 2014 Plan provides for the grant of non-qualified stock options, incentive stock options, and stock appreciation rights, shares of restricted stock, stock units and shares of unrestricted stock.  Eligible participants include officers, employees and directors.  The aggregate number of shares authorized for issuance under the 2014 Plan is 1,200,000, and is subject to adjustment as described in the 2014 Plan.  There are 354,687 shares available for issue under the 2014 plan. Awards that expire or are cancelled without delivery of shares general become available for issuance under the plans.

The following is a summary of stock option activity for nine months ended September 30, 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	$	-
Granted		10		$	1.50		4.53	$	-
Forfeited		(170	)	$	1.42			$	-
Expired		(76	)	$	1.18
Outstanding at September 30, 2014		564		$	1.30		2.96	$	-
Exercisable at September 30, 2014		211		$	1.16		2.35	$	-

The following table summarizes stock option information as of September 30, 2014:

				Weighted Average
		Number Outstanding		Remaining	Options Exercisable
Exercise Prices		(in thousands)		Contractual Term	(in thousands)
$	1.15		347	2.4 years		184
$	1.20		27	1.7 years		27
$	1.50		90	4.5 years		–
$	1.65		100	4.1 years		–
Total			564	3.0 years		211

As of September 30, 2014, there was approximately $230,000 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 September 30, 2014 and changes during the nine months ended September 30, 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		114		$	1.01
Forfeited		(40	)	$	1.07
Vested		(56	)	$	0.94
Non-vested at September 30, 2014		67		$	0.89

The future expected expense for non-vested shares is approximately $59,000 and will be recognized as expense through December 31, 2015.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Basic earnings per share [Abstract]
Weighted average shares outstanding-basic (in shares)	12,658	12,535	12,640	12,492
Weighted average shares outstanding-diluted (in shares)	12,658	12,794	12,668	12,597
Summary of antidilutive securities excluded from computation of earnings per share [Abstract]
Total anti-dilutive potential common shares (in shares)	631	91	497	91
Stock Options [Member]
Basic earnings per share [Abstract]
Effect of dilutive securities (in shares)	0	218	19	75
Summary of antidilutive securities excluded from computation of earnings per share [Abstract]
Total anti-dilutive potential common shares (in shares)	564	91	466	91
Restricted Stock [Member]
Basic earnings per share [Abstract]
Effect of dilutive securities (in shares)	0	41	9	30
Summary of antidilutive securities excluded from computation of earnings per share [Abstract]
Total anti-dilutive potential common shares (in shares)	67	0	31	0
Internally Developed Software [Member]
Property and Equipment [Line Items]
Internally developed software, useful life			5 years

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ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables)

9 Months Ended

Sep. 30, 2014

ACCOUNTS PAYABLE AND ACCRUED EXPENSES [Abstract]

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following at September 30, 2014 and December 31, 2013 (in thousands):

	2014		2013
Trade accounts payable	$	180	$	324
Sales taxes payable		539		539
Accrued directors’ fees		443		377
Other accrued expenses		346		162
Total accounts payable and accrued expenses	$	1,508	$	1,402

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 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

9 Months Ended

Sep. 30, 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 agrees 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 Board of Directors of the Company.  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

9 Months Ended

Sep. 30, 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 for the respective three and nine month periods ended September 30, 2014 and 2013 as follows:

	For the three months ended						For the nine months ended
	2014			2013			2014			2013
HP Customer A		0	%		0.0	%		0	%		11.0	%
HP Customer B		14.8	%		14.5	%		14.5	%		13.4	%
HP Customer C		11.9	%		11.7	%		14.3	%		12.3	%
HP Customer D		6.5	%		11.6	%		8.5	%		10.3	%
Total HP		33.2	%		37.8	%		37.3	%		47.0	%
IBM		44.3	%		36.4	%		39.3	%		31.0	%
Total major customers		77.5	%		74.2	%		76.6	%		78.0	%
Others		22.5	%		25.8	%		23.4	%		22.0	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

As of September 30, 2014 and December 31, 2013, HP and IBM accounted for a significant portion of the Company’s accounts receivable as follows (in thousands):

	September 30, 2014		December 31, 2013
HP	$	846	$	519
IBM		642		505
Total	$	1,488	$	1,024

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 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 September 30, 2014, the condensed statements of operations for the three and nine months ended September 30, 2014 and 2013 and the condensed statements of cash flows for the nine months ended September 30, 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 reports 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 and nine months ended September 30, 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, 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 five 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 include the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The computation of diluted weighted average common shares outstanding used in the calculation of diluted earnings per share for the three and nine months ended September 30, 2014 and 2013 is as follows (in thousands):

	For the three months ended September 30,				For the nine months ended September 30,
	2014		2013		2014		2013
Weighted average shares outstanding-basic		12,658		12,535		12,640		12,492
Stock Options		--		218		19		75
Restricted stock grants		--		41		9		30
Weighted average shares outstanding-diluted		12,658		12,794		12,668		12,597

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 three and nine months ended September 30, 2014 and 2013, consists of the following (in thousands):

	For the three months ended September 30,				For the nine months ended September 30,
	2014		2013		2014		2013
Options to purchase common stock		564		91		466		91
Unvested stock grants		67		–		31		–
Potential anti-dilutive common shares		631		91		497		91

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 the Federal Depository Insurance Corporation at September 30, 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 its financial statements.

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MAJOR CUSTOMERS (Tables)

9 Months Ended

Sep. 30, 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 for the respective three and nine month periods ended September 30, 2014 and 2013 as follows:

	For the three months ended						For the nine months ended
	2014			2013			2014			2013
HP Customer A		0	%		0.0	%		0	%		11.0	%
HP Customer B		14.8	%		14.5	%		14.5	%		13.4	%
HP Customer C		11.9	%		11.7	%		14.3	%		12.3	%
HP Customer D		6.5	%		11.6	%		8.5	%		10.3	%
Total HP		33.2	%		37.8	%		37.3	%		47.0	%
IBM		44.3	%		36.4	%		39.3	%		31.0	%
Total major customers		77.5	%		74.2	%		76.6	%		78.0	%
Others		22.5	%		25.8	%		23.4	%		22.0	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

Accounts Receivable [Member]

Concentration Risk [Line Items]

Customers Accounted for Significant Portion of Revenues and Accounts Receivable

As of September 30, 2014 and December 31, 2013, HP and IBM accounted for a significant portion of the Company’s accounts receivable as follows (in thousands):

	September 30, 2014		December 31, 2013
HP	$	846	$	519
IBM		642		505
Total	$	1,488	$	1,024

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DEBT (Details) (USD $)	9 Months Ended
	Sep. 30, 2014 Lease	Dec. 31, 2013
Capital Leased Assets [Line Items]
Number of capital lease equipments obligation	6
Expiration period of capital lease obligations	Jun. 30, 2016
Gross book value of capital leased assets	$ 646,000	$ 646,000
Net book value of capital leased assets	$ 122,000	$ 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	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities
Net income	$ 55	$ 283
Adjustments to reconcile net income to net cash provided by operations:
Amortization and depreciation	249	302
Stock-based compensation expense	136	133
Deferred rent expense	23	1
Gain on sale of property and equipment	0	(8)
Changes in operating assets and liabilities:
Accounts receivable	(449)	197
Prepaid expenses and other current assets	(8)	(100)
Accounts payable and accrued expenses	106	198
Deferred revenue	2	(41)
Total adjustments	59	682
Net cash provided by operating activities	114	965
Cash flows from investing activities:
Purchases of property and equipment	(18)	(110)
Capitalization of internally developed software	(372)	(194)
Proceeds from the sale of property and equipment	0	8
Net cash used in investing activities	(390)	(296)
Cash flows from financing activities:
Repayment of capital lease obligations	(162)	(156)
Repayment of long-term debt	0	(32)
Net cash used in financing activities	(162)	(188)
Net increase (decrease) in cash and cash equivalents	(438)	481
Cash and cash equivalents - beginning	1,371	1,098
Cash and cash equivalents - ending	933	1,579
Supplemental disclosure of cash flow information:
Cash paid for interest	6	15
Cash paid for income taxes	0	1
Schedule of non-cash investing and financing activities:
Common stock issued for payment of liability	0	20
Equipment acquired by capital lease	$ 0	$ 57

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DEBT

9 Months Ended

Sep. 30, 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 $122,000, respectively, as of September 30, 2014, and $646,000 and $241,000, respectively, as of December 31, 2013.

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STOCKHOLDERS' EQUITY (Details) (USD $)	0 Months Ended	9 Months Ended			9 Months Ended													12 Months Ended	9 Months Ended
	Sep. 05, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Sep. 30, 2014 $1.15 [Member]	Sep. 30, 2013 $1.15 [Member]	Sep. 30, 2014 $1.20 [Member]	Sep. 30, 2014 $1.50 [Member]	Sep. 30, 2014 $1.65 [Member]	Sep. 30, 2013 $1.65 [Member]	Sep. 30, 2013 $1.25 [Member]	Sep. 30, 2014 Director [Member] Director	Sep. 30, 2013 Director [Member] Director	Sep. 30, 2014 Restricted Stock Grants [Member]	Sep. 30, 2013 Restricted Stock Grants [Member]	Sep. 30, 2014 Stock Options [Member]	Sep. 30, 2013 Stock Options [Member]	Dec. 31, 2013 Stock Options [Member]	Sep. 30, 2013 Stock Options [Member] President and Chief Executive Officer [Member]	Sep. 30, 2014 Minimum [Member] Stock Options [Member]	Sep. 30, 2013 Minimum [Member] Stock Options [Member]	Sep. 30, 2014 Maximum [Member] Stock Options [Member]	Sep. 30, 2013 Maximum [Member] Stock Options [Member]
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]
Grant date fair value of vested stock option														$ 53,000	$ 60,000
Number of member of Board of Directors												5	7
Amount of annual common stock paid to non-Executive member of the Board												25,000
Vesting period of annual common stock paid to non-Executive member of the Board												2 years
Amount of cash paid to non-Executive member of the Board												10,000
Percentage of quarterly cash payment to non-Executive member of the Board (in hundredths)												25.00%
Term of stock option grant						P5Y				P5Y	P5Y
Vesting period of stock option																4 years	4 years			3 years		4 years
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%
Grant date fair value of option														115,000		7,500	163,000
Recognized stock compensation expense																83,000	73,000
Shares issued under deferred compensation plan (in shares)													55,181						50,348
Shares issued under deferred compensation plan													42,000
Shares issued under deferred compensation plan (in dollars per share)																			$ 1.15
Stock issued to former director for past services (in shares)															20,595
Stock issued to former director for past services															20,000
Expected volatility (in hundredths)																95.00%	150.00%
Risk free interest rate (in hundredths)																0.80%					0.40%		0.80%
Expected dividend rate (in hundredths)																0.00%	0.00%
Expected term																3 years 9 months	3 years 9 months
Stock Option Plans [Abstract]
Number of shares authorized (in shares)																1,200,000
Expiration period of stock option																5 years
Number of shares available for issuance under stock option plans (in shares)																354,687
Shares [Abstract]
Outstanding, beginning balance (in shares)																800,000
Granted (in shares)						15,000				90,909	75,000					10,000	180,909
Forfeited (in shares)																(170,000)	(172,500)
Expired (in shares)																(76,000)	(56,500)
Exercised (in shares)	(150,000)																(172,500)		(172,500)
Outstanding, ending balance (in shares)																564,000		800,000
Exercisable, ending balance (in shares)																211,000
Weighted Average Exercise Price [Abstract]
Outstanding, beginning balance (in dollars per share)																$ 1.31
Granted (in dollars per share)																$ 1.50	$ 1.15
Forfeited (in dollars per share)																$ 1.42	$ 1.16
Expired (in dollars per share)																$ 1.18	$ 1.47
Exercised (in dollars per share)																	$ 1.15
Outstanding, ending balance (in dollars per share)																$ 1.30		$ 1.31
Exercisable, ending balance (in dollars per share)																$ 1.16
Weighted Average Remaining Contractual Term [Abstract]
Outstanding, beginning balance																2 years 11 months 16 days		3 years 9 months 7 days
Granted																4 years 6 months 11 days
Outstanding, ending balance																2 years 11 months 16 days		3 years 9 months 7 days
Exercisable, ending balance																2 years 4 months 6 days
Aggregate Intrinsic Value [Abstract]
Outstanding, beginning balance																0
Granted																0
Forfeited																0
Outstanding, ending balance																0		0
Exercisable, ending balance																0
Shares [Abstract]
Non-Vested, beginning balance (in shares)														49,000
Granted (in shares)														114,000
Forfeited (in shares)														(40,000)
Vested (in shares)														(56,000)	(81,831)
Non-Vested, beginning balance (in shares)														67,000
Weighted-Average Grant Date Fair Value [Abstract]
Non-Vested, beginning balance (in dollars per share)														$ 0.82
Granted (in dollars per share)														$ 1.01
Forfeited (in dollars per share)														$ 1.07
Vested (in dollars per share)														$ 0.94
Non-Vested, ending balance (in dollars per share)														$ 0.89
Future expected expense for non-vested shares to be recognized														59,000
Summary of stock option information [Abstract]
Exercise Prices (in dollars per share)					$ 1.15	$ 1.15	$ 1.20	$ 1.50	$ 1.65	$ 1.65	$ 1.25
Number Outstanding (in shares)		564,000			347,000		27,000	90,000	100,000
Weighted Average Remaining Contractual Life		3 years			2 years 4 months 24 days		1 year 8 months 12 days	4 years 6 months	4 years 1 month 6 days
Options Exercisable (in shares)		211,000			184,000		27,000	0	0
Unrecognized compensation costs related to stock options		$ 230,000

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STOCKHOLDERS' EQUITY (Tables)

9 Months Ended

Sep. 30, 2014

STOCKHOLDERS' EQUITY [Abstract]

Stock Option Activity

The following is a summary of stock option activity for nine months ended September 30, 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	$	-
Granted		10		$	1.50		4.53	$	-
Forfeited		(170	)	$	1.42			$	-
Expired		(76	)	$	1.18
Outstanding at September 30, 2014		564		$	1.30		2.96	$	-
Exercisable at September 30, 2014		211		$	1.16		2.35	$	-

Stock Option Information

The following table summarizes stock option information as of September 30, 2014:

				Weighted Average
		Number Outstanding		Remaining	Options Exercisable
Exercise Prices		(in thousands)		Contractual Term	(in thousands)
$	1.15		347	2.4 years		184
$	1.20		27	1.7 years		27
$	1.50		90	4.5 years		–
$	1.65		100	4.1 years		–
Total			564	3.0 years		211

Non-vested Stock Grants

A summary of the status of the Company’s non-vested stock grants as of September 30, 2014 and changes during the nine months ended September 30, 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		114		$	1.01
Forfeited		(40	)	$	1.07
Vested		(56	)	$	0.94
Non-vested at September 30, 2014		67		$	0.89