-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P2CCi5M2yjp8KY0nlibtcPYz30U8n2+Msr4tQOwou9cnCA25THXojObEjK0g2dll QduqvcY64RYBZAb77o8oFQ== 0001201800-05-000196.txt : 20050817 0001201800-05-000196.hdr.sgml : 20050817 20050817163317 ACCESSION NUMBER: 0001201800-05-000196 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050817 DATE AS OF CHANGE: 20050817 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIRECT INSITE CORP CENTRAL INDEX KEY: 0000879703 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 112895590 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-20660 FILM NUMBER: 051033708 BUSINESS ADDRESS: STREET 1: 80 ORVILLE DR CITY: BOHEMIA STATE: NY ZIP: 11716 BUSINESS PHONE: 5162441500 MAIL ADDRESS: STREET 1: 80 ORVILLE DRIVE CITY: BOHEMIA STATE: NY ZIP: 11716 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER CONCEPTS CORP /DE DATE OF NAME CHANGE: 19930328 10QSB 1 dir10qsbjune2005.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File No. 0 - 20660 DIRECT INSITE CORP. (Exact name of Small Business Issuer as specified in its Charter) Delaware 11-2895590 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 80 Orville Drive, Bohemia, N.Y. 11716 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (631) 244-1500 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares of $.0001 par value stock outstanding as of July 31, 2005 was: 4,640,656 Transitional Small Business Disclosure Format (check one): Yes No X --- --- DIRECT INSITE CORP. AND SUBSIDIARIES INDEX
PART I - FINANCIAL INFORMATION Page Item 1 Condensed Consolidated Balance Sheets as of June 30, 2005 (Unaudited) and December 31, 2004 ................................................................................. 3 Condensed Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2005 and 2004 (Unaudited).............................. 4 Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2005 and 2004 (Unaudited)........................................ 5 Notes to Condensed Consolidated Financial Statements (Unaudited) .................................... 6 Item 2 Management's Discussion and Analysis or Plan of Operations .......................................... 15 Item 3 Controls and Procedures.............................................................................. 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings ........................................................................... 20 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.................................. 20 Item 3. Defaults Upon Senior Securities ............................................................. 20 Item 4. Submission of Matters to a Vote of Security Holders ........................................ 20 Item 5. Other Information ........................................................................... 20 Item 6. Exhibits..................................................................................... 20 Signatures .......................................................................................... 21 CERTIFICATIONS ........................................................................................... 22
DIRECT INSITE CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2005 AND DECEMBER 31, 2004 (In thousands, except share data)
June 30, December 31, 2005 2004 --------------------- -------------------- (Unaudited) (Audited) ASSETS Current assets Cash and cash equivalents $ 128 $ 306 Accounts receivable, net of allowance for doubtful accounts of $2 in 2005 and 2004 1,699 1,871 Prepaid expenses and other current assets 160 262 Assets from discontinued operations 2 -- ----------------- ----------------- Total current assets 1,989 2,439 Property and equipment, net 519 577 Other assets 305 285 ----------------- ----------------- TOTAL ASSETS $ 2,813 $ 3,301 ================= ================= LIABILITIES AND SHAREHOLDERS' DEFICIENCY Current liabilities Accounts payable and accrued expenses $ 2,131 $ 2,086 Short-term revolving loans 824 1,012 Notes payable, net of discount 535 -- Dividends payable, current 1,417 376 Current portion of long-term debt 751 782 Deferred revenue -- 623 Liabilities from discontinued operations 76 112 ----------------- ----------------- Total current liabilities 5,734 4,991 Long term debt, net of current portion 105 125 Dividends payable, net of current portion 7 722 ----------------- ----------------- Total liabilities 5,846 5,838 ----------------- ----------------- Commitments and contingencies Shareholders' deficiency Preferred stock, $0.0001 par value; 2,000,000 shares authorized; Series A Convertible Preferred, 134,680 issued and outstanding in 2005 and 2004; liquidation preference of $2,750,000 in 2005 and 2004 - - Series B Redeemable Preferred, 974 shares issued and outstanding in 2005 and 2004; liquidation preference of $974,075 in 2005 and 2004 - - Series C Redeemable Preferred, 2,000 shares issued and outstanding in 2005 and 2004; liquidation preference of $2,000,000 in 2005 and 2004 Series D Redeemable Preferred, 100 shares issued and outstanding in 2005 and 2004; liquidation preference of $100,000 in 2005 and 2004 Common stock, $0.0001 par value; 50,000,000 shares authorized in 2005 and 2004; 4,680,583 and 4,547,013 shares issued in 2005 and 2004, respectively; and 4,640,656 and 4,507,086 shares outstanding in 2005 and 2004, respectively - - Additional paid-in capital 112,867 112,484 Unearned compensation (14) (50) Accumulated deficit (115,558) (114,643) ----------------- ----------------- (2,705) (2,209) Common stock in treasury, at cost - 24,371 shares (328) (328) ----------------- ----------------- Total shareholders' deficiency (3,033) (2,537) ----------------- ----------------- TOTAL LIABILITIES AND SHAREHODERS' DEFICIENCY $ 2,813 $ 3,301 ================= =================
See notes to condensed consolidated financial statements. 3 DIRECT INSITE CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (In thousands, except share data)
Three Months Ended Six Months Ended June 30, June 30, 2005 2004 2005 2004 --------------- -------------- --------------- -------------- Revenue from continuing operations $ 2,318 $ 1,716 $ 4,398 $ 3,822 ------------- ------------- ------------- ------------- Costs and expenses Operations, research and development 1,034 846 2,047 1,764 Sales and marketing 559 422 General and administrative 780 755 1,472 1,404 Amortization and depreciation 115 142 228 285 ------------- ------------- ------------- ------------- 2,488 2,165 4,778 4,267 ------------- ------------- ------------- ------------- Operating loss (170) (449) (380) (445) Other expenses Interest expense, net (125) (82) (200) (147) Other expense -- (33) -- (33) ------------- ------------- ------------- ------------- Loss before provision for income taxes (295) (564) (580) (625) Provision for income taxes 1 3 1 4 ------------- ------------- ------------- ------------- Loss from continuing operations (296) (567) (581) (629) (Loss) income from discontinued operations (9) 59 (9) 263 ------------- ------------- ------------- ------------- Net loss (305) (508) (590) (366) Preferred stock dividends (171) (170) (325) (298) ------------- ------------- ------------- ------------- Net loss attributable to common shareholders $ (476) $ (678) $ (915) $ (664) ============= ============= ============= ============= Basic and diluted loss per share: Basic and diluted loss from continuing operations $ (0.10) $ (0.17) $ (0.20) $ (0.22) Basic and diluted income from discontinued operations -- 0.01 -- 0.06 ------------- ------------- ------------- ------------- Basic and diluted loss per share $ (0.10) $ (0.16) $ (0.20) $ (0.16) ============= ============= ============= ============= Basic and diluted weighted average common shares outstanding 4,600 4,288 4,560 4,186 ============= ============= ============= =============
See notes to condensed consolidated financial statements. 4 DIRECT INSITE CORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (In thousands, except share data)
For the six months ended June 30, 2005 2004 ----------------- ------------------ Cash flows from operating activities Loss from continuing operations $ (581) $ (629) Adjustments to reconcile loss from continuing operations to net cash used in continuing operations: Amortization and depreciation: Property and equipment 229 285 Discount on debt 43 Common stock and options issued for services 113 4 Unearned compensation 36 -- Changes in operating assets and liabilities: Accounts receivable 172 (233) Prepaid expenses and other current assets 102 34 Other assets (20) 14 Accounts payable and accrued expenses 57 (379) Deferred revenue (623) (96) ------------- ------------- Net cash used in continuing operations (472) (1,000) ------------- ------------- Cash flows from discontinued operations: Income (loss) from discontinued operations (9) 263 Change in: Assets and liabilities from discontinued operations (38) (429) ------------- ------------- Net cash used in discontinued operations (47) (166) ------------- ------------- Net cash used in operating activities (519) (1,166) ------------- ------------- Cash flows from investing activities Expenditures for property and equipment (127) (31) ------------- ------------- Net cash used in investing activities (127) (31) ------------- ------------- Cash flows from financing activities Proceeds from sales of preferred stock -- 1,410 (Repayments) advances from revolving loans, net (188) 16 Proceeds from short-term notes 750 -- Repayments of long-term debt (94) (115) ------------- ------------- Net cash provided by financing activities 468 1,311 ------------- ------------- Net (decrease) increase in cash and cash equivalents (178) 114 Cash and cash equivalents - beginning of period 306 75 ------------- ------------- Cash and cash equivalents - end of period $ 128 $ 189 ============= ============= Cash paid for interest $ 149 $ 145 Non-cash investing and financing activities: Debt discount on loans $ 258 $ -- ============= ============= Equipment acquired with lease financing $ 43 $ -- Issuance of common shares and options to purchase ============= ============= common shares for services and fees $ 12 $ 257 ============= =============
See notes to condensed consolidated financial statements. 5 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 1. Interim Financial Information The condensed consolidated balance sheet as of June 30, 2005, and the condensed consolidated statements of operations and cash flows for the three and six month periods ended June 30, 2005 and 2004, have been prepared by the Company and are not audited. These interim 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 six month periods ended June 30, 2005, are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2004 included in the Company's Form-10KSB. The accounting policies used in preparing these unaudited condensed consolidated financial statements are consistent with those described in the December 31, 2004 consolidated financial statements. 2. The Company Direct Insite Corp. and subsidiaries (the "Company"), primarily operate as an application service provider ("ASP"), that markets an integrated transaction based "fee for service" offering called Invoices On-Line (IOL), an electronic invoice presentment and payment (EIP&P) service that processes high volumes of transactional data for invoice presentment purposes delivered via the Internet on a global basis. The Company also provides additional service offerings in the form of its patented dbExpress TM technology, a management information tool that allows users to visually data mine large volumes of transactional data via the Internet. A complete Internet Customer Care tool set integrated with the EIP&P product set is also available. The Company operates fully redundant data centers located at its main office in Bohemia, N.Y. and in an IBM co-location facility in Newark, NJ. Management's liquidity plans are discussed in Note 9. Also, as described in Note 8, the Company has two customers that accounted for approximately 70% and 28% of the Company's revenue for the six month period ended June 30, 2005. Loss of either of these customers would have a material adverse effect on the Company. Stock Options and Similar Equity Instruments As permitted under Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure", which amended SFAS No. 123, "Accounting for Stock-Based Compensation", the Company has elected to continue to follow the intrinsic value method in accounting for its stock-based employee compensation arrangements as defined by Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and related interpretations including FASB Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving Stock Compensation", an interpretation of APB No. 25. The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (in thousands, except per share data): 6 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 2. The Company (continued)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- ------------------------- 2005 2004 2005 2004 ------------ -------------- ------------- ----------- Net loss attributable to common shareholders As reported $ (476) $ (678) $ (915) $ (664) Less: Stock-based employee compensation expense determined under fair value-based method for all awards (161) (400) (317) (445) -------- -------- -------- -------- Pro forma $ (637) $ (1,078) $ (1,232) $ (1,109) ======== ======== ======== ======== Basic and diluted net loss per share As reported $ (0.10) $ (0.16) $(0.20) $(0.16) ======== ======== ======== ======== Pro forma $ (0.14) $ (0.25) $(0.27) $(0.26) ======== ======== ======== ========
The fair value of Company common stock options granted to employees are estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: (1) expected volatility ranging from 71.4% to 71.9% in 2005 and 68.1% in 2004, (2) risk-free interest rates ranging from 4.00% to 4.50% in 2005 and 4.00% in 2004 and (3) expected lives of 4.50 years in 2005 and 5.50 years in 2004. 3. Reclassifications Certain reclassifications have been made to the condensed consolidated financial statements shown for the prior period in order to have it conform to the current period's classifications. 4. Discontinued Operations In 2001, the Company and Platinum Communications, Inc. ("Platinum") completed a merger under an Agreement and Plan of Merger ("Merger Agreement"). Under the Merger Agreement, a newly formed wholly owned subsidiary of the Company acquired all of the outstanding common stock of Platinum. As a result of the lack of development of the Platinum business and to focus the Company's resources on its core business, in December 2003, the Company decided to close the operations of Platinum. Accordingly, the results of operations and the assets and liabilities of Platinum are presented as discontinued operations for both the current and prior period. The income is reflected as income from discontinued operations in the accompanying condensed consolidated statements of operations. The following table reflects the results of the discontinued operations of Platinum for the three and six month periods ended June 30, 2005 and 2004, respectively: 7 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
Three Months Ended Six Months Ended June 30 June 30 2005 2004 2005 2004 ---- ---- ---- ---- Costs and Expenses General and administrative (5) -- (5) -- Other income - net -- 61 -- 268 Interest expense, net (4) (2) (4) (5) ---------- ---------- -------- --------- (Loss) income from discontinued operations $ (9) $ 59 $ (9) $ 263 ========== ========== ======== =========
At June 30, 2005, the discontinued operation had $2,000 in assets. The liabilities of the discontinued operation at June 30, 2005 include loans payable totaling $56,000, and accounts payable and accrued liabilities of $20,000. 5. Accounts Receivable and Revolving Loans The Company has an Accounts Receivable Purchase Agreement with a Bank, whereby the Company from time to time may assign some of their accounts receivable to the Bank on a full recourse basis. Upon specific invoice approval, an advance of 80% of the underlying receivable is provided to the Company. The remaining balance (20%), less an administrative fee of approximately 0.5% plus interest at the rate of 1-1/2% per month, is paid to the Company once the customer has paid. The maximum amount of all assigned receivables outstanding at any time shall not exceed $1.5 million. The initial term of the agreement was for one year, and continues until due notice of termination is given at any time by either party to the agreement. At June 30, 2005, the Company had assigned approximately $839,000 of accounts receivable to the Bank and received advances of $671,000. In May 2004, the Company entered into an Agreement with DIRI Rec Fund LLC (the "Rec Fund") whereby the Company may assign certain accounts receivable on a full recourse basis to the Rec Fund as security for advances (loans). The Rec Fund was established solely to advance funds to the Company upon the assignment of receivables. The Rec Fund is administered by a third party trustee. Certain shareholders of the Company and a Director of the Company, are the principal investors in the Rec Fund. Under the Agreement, the Company pays interest at the rate of one (1) percent per month on the maximum purchase amount (as defined in the agreement) of the Rec Fund and pays the administrative costs of the Rec Fund which approximate $12,000 per year. At June 30, 2005 the Rec Fund had a total principal available for assignment of $250,000 and the Company had outstanding advances from the Rec Fund of $153,000 resulting in $97,000 availability under the agreement. 8 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 6. Debt Notes payable ------------- At June 30, 2005 notes payable consist of the notes as described below of $750,000 less debt discount of $215,000. In March 2005, the Company entered into a Securities Purchase Agreement (the "Agreement") with Sigma Opportunity Fund LLC ("Sigma") and Metropolitan Venture Partners II, L.P. ("MetVP"), collectively the "Buyers", whereby the Buyers purchased Senior Subordinated Secured Notes (the "Note Purchase") in the aggregate amount of $750,000. The notes bear interest at the rate of five percent (5%) per year beginning June 28, 2005, and are payable quarterly in cash or common stock at the option of the Buyers. The Notes mature on the earlier to occur of (i) September 29, 2006, or (ii) the date on which demand for payment of the loan payable to JPMorgan Chase Bank is made and are collateralized by all the assets of the Company excluding accounts receivable as defined under the Accounts Receivable Purchase Agreement (see Note 5). In connection with the note purchase the Buyers were issued warrants to purchase 750,000 common shares of the Company. The exercise price of the warrants is $0.90 per share of common stock subject to adjustment on the occurrence of certain events as defined. The Company recorded a debt discount of $258,000 for the value of the warrants. Under the terms of the agreement, not later than August 30, 2005, the Company is required to file with the Securities and Exchange Commission a Registration Statement to register a number of common shares equal to the maximum number of shares that would be issuable to the Buyers in payment of interest on the notes through the maturity date plus a number of common shares issuable upon exercise of the warrants. Sigma had an exclusive right to lead a "Follow-on-Financing" for 45 days following the closing and the Company has granted Sigma additional time. In the event that the Follow-on-Financing does occur the exercise price of the warrants issued in conjunction with the Note Purchase will be adjusted as agreed between the Company and the buyers. In the event the Follow-on- Financing is not consummated the exercise price of the warrants shall be $0.01 per common share. Long-term debt -------------- Long-term debt consists of the following (in thousands):
June 30, December 31, 2005 2004 -------------------- -------------------- Lines of credit (a) $ 642 $ 668 Capitalized lease obligations (b) 214 239 --------- ---------- 856 907 Less current portion (751) (782) --------- ---------- Long-term debt, net of current portion $ 105 $ 125 ========= ==========
9 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 6. Debt (continued) (a) In June 2003, the Company obtained a discretionary Line of Credit ("LoC") in the amount of $500,000 from JP Morgan Private Bank ("JPMC") and this LoC was renewed in June 2005. The LoC is guaranteed by Tall Oaks Group, LLC, an affiliate of MetVP, and is repayable on the earlier of demand or June 30, 2007. Subsequent to June 30, 2005, the guarantors were issued 500,000 warrants to purchase common shares of the Company at an exercise price of $1.00 per share. The warrants were valued at $148,000 and will be amortized as compensation expense over the life of the loan. The LoC permitted two forms of draw down; one based upon prime rate, the second based upon LIBOR. In July 2003, the Company elected to draw down $500,000 applying the terms and conditions set forth for LIBOR. The interest rate is the JPMC reserve adjusted LIBOR plus 2.30%. As of June 30, 2005, the applicable interest rate was 5.74%. Also in 2003, the Company obtained, and fully drew upon, a second line of credit from Sterling National Bank ("Sterling") in the amount of $250,000. The line is guaranteed by the Company's CEO, secured by the assets of the Company, and carries an interest rate of 7%. Repayments are calculated monthly at 2.778% of the outstanding balance, plus interest, and continue until the line is fully paid. At June 30, 2005, the Company had an outstanding balance of approximately $142,000 under the line of credit. (b) The Company has equipment under capital lease obligations expiring at various times through 2008. The assets and liabilities under capital leases are recorded at the lower of the present values of the minimum lease payments or the fair values of the assets. 7. Shareholders' Deficiency Common Stock and Option Issuances --------------------------------- During the six months ended June 30, 2005, the Company issued 133,570 unregistered shares of common stock and options to purchase 265,000 shares of its common stock as follows: -- The Company issued 133,570 shares, valued at $119,000, to employees and consultants for services; -- The Company issued 5,000 options to purchase common stock to an employee. The options vested upon issuance and have an exercise price of $1.65 per share. The options had a fair value of $5,000 at the date of the grant. -- The Company issued 60,000 options to purchase common stock to a sales consultant. The options vest ratably over 3 years and have an exercise price of $1.50 per share. The options had a fair value of $57,000 at the date of the grant. -- Under the terms of an employment agreement, the Company issued to its president 100,000 options to purchase common shares at an exercise price of $0.50 per share. These options have an intrinsic value of $20,000 and will be amortized over 26 months. The options had a fair value of $48,000 at the date of the grant. In addition, the Company issued to its president 100,000 options to purchase common shares at the market price on the date of the grant. The options had a fair value of $43,000 at the date of the grant. Earnings Per Share ------------------ The Company displays earnings per share in accordance with SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires dual presentation of basic and diluted earnings per share ("EPS"). Basic EPS includes no dilution and is computed by dividing net income (loss) attributable to common 10 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 7. Shareholders' Deficiency (continued) shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Outstanding stock options, warrants and other potential stock issuances have not been considered in the computation of diluted EPS amounts since the effect of their inclusion would be antidilutive. Securities that could potentially dilute basic EPS in the future, that were not included in the computation of the diluted EPS because to do so would have been antidilutive for the periods presented, consist of the following (in thousands): Options to purchase common stock 4,839 Convertible preferred stock and warrants to acquire common stock 4,178 ----- Total potential common shares as of June 30, 2005 9,017 =====
8. Products and Services The Company and its subsidiaries currently operate in one business segment and provide two separate products: ASP services and custom engineering services.
Three Months Ended Six Months Ended June 30, June 30, 2005 2004 2005 2004 ---------------- -------------- ------------- -------------- ASP IOL fees $1,439 $ 971 $2,589 $ 1,961 ASP telecommunications fees 12 143 26 299 Custom engineering fees 867 602 1,783 1,562 ------ ------ ------ ------ Total Revenue $2,318 $1,716 $4,398 $3,822 ====== ====== ====== ======
Major Customers --------------- For the three months ended June 30, 2005 the Company had two major customers that accounted for 66.2% and 30.4% of the Company's total revenue. These two customers accounted for 69.9% and 27.6% of revenue for the six months ended June 30, 2005. In 2004 the Company had one major customer that accounted for 96.2% and 97.5% of revenue for the three and six months ended June 30, 2004, respectively. Accounts receivable from these customers amounted to $1,656,000 at June 30, 2005. 9. Management's Liquidity Plans In order to meet cash needs and to achieve positive operating cash flows the Company has and will continue to take various actions and steps that we believe will enable us to attain these goals. These actions include: 11 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 -- In March 2005 the Company closed a Bridge Loan financing with Sigma Capital Partners LLC and Metropolitan Venture Partners II, L.P. and received proceeds of $750,000 less 9. Management's Liquidity Plans (continued) legal fees of $55,000 (see Note 6). Sigma had an exclusive right to lead a follow-on- financing for 45 days following the closing of the Bridge Loan and the Company has granted Sigma additional time. The Company anticipates that this follow-on-financing will provide the working capital to sustain and expand the operations of the Company. -- The Company and the holders of the Series A and Series B Preferred stock have previously agreed to defer payment of dividends. The Company may seek to defer these dividends further. -- The Company intends to raise additional capital through private equity offerings and borrowing. In 2004, the Company received net proceeds from the sale of Preferred Stock of $1,430,000. Also in 2004 the Company entered into an agreement with DIRI Rec Fund LLC, a corporation formed and funded to loan funds to the Company against accounts receivable, and may receive advances up to $250,000 from Diri Rec Fund (see note 5). Further, in June 2005 the Company renewed for a period of two years the $500,000 loan previously scheduled to mature on June 30, 2005 and the guarantors of this loan have consented to this extension (see Note 6). -- The Company continues to strive to increase revenue through offering custom engineering services, expanding and enhancing existing product offerings such as IOL, and introducing new product offerings. In 2004 the Company entered into a new agreement to provide IOL services to a Fortune 100 company. Revenue from this new customer accounted for 27.6% of total revenue for the six months ended June 30, 2005. In the first quarter 2005, the Company added an additional customer as the result of the sale of a part of the business of an existing customer. Management anticipates that revenue from these new customers will continue to increase in 2005 and beyond and expects to further broaden the Company's customer base in 2005. -- The Company continues to expand its marketing efforts in order to increase the customer base. In this regard, in 2003, the Company became a business partner with IBM and through this relationship will work with IBM to achieve sales to new customers. The Company will continue to pursue similar channel partner opportunities. Also, in the fourth quarter 2004 the Company employed a new sales and marketing executive and engaged an independent sales agent to further expand our sales efforts. Management believes that these plans and new initiatives as discussed above will lead to positive cash flows and profitability. While the Company pursues these goals management also believes that the Company's ability to raise additional capital through equity and debt placements will provide sufficient cash to meet cash requirements at least through June 30, 2006. There can be no assurance, 12 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 however, that the Company will achieve the cash flow and profitability goals, or that the Company will be able to raise additional capital sufficient to meet its operating expenses or implement its plan. In such event, the Company may have to revise its plans and significantly 10. New Accounting Pronouncements reduce its operating expenses, which could have an adverse effect on revenue and operations in the short term. In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123R, "Share-Based Payment." SFAS No. 123R eliminates the alternative to use APB No. 25's intrinsic value method of accounting that was provided in SFAS No 123 as originally issued. SFAS No. 123R requires entities to recognize the cost of employee services in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). That cost will be recognized over the period during which the employee is required to provide the service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. SFAS No. 123R requires entities to initially measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value; the fair value of the award will be re-measured at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. The grant date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments. SFAS No. 123R is effective as of the beginning of the Company's fiscal year following December 15, 2005 (January 1, 2006). The adoption of SFAS No. 123R will have no effect on the Company's consolidated cash flows or financial position but will have an adverse effect on the Company's consolidated results of operations. In December 2004, the FASB issued FAS No. 153, "Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29." This Statement eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. This Statement specifies that a non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of this Statement are effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material impact on the Company's consolidated financial position, liquidity, or results of operations. In April 2004, the EITF issued Statement No. 03-06 "Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share" ("EITF 03-06"). EITF 03-06 addresses a number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends on its common stock. The issue also provides further guidance in applying the two-class method of calculating earnings per share, clarifying what constitutes a participating security and how to apply the two-class method of computing earnings per share once it is determined that a security is participating, including how to allocate undistributed earnings to such a security. EITF 03-06 is effective for fiscal periods beginning after March 31, 2004. The adoption of this statement did not have any effect on the Company's calculation of EPS. In September 2004, the EITF issued statement EITF Issue No. 04-08, "The Effect of Contingently Convertible Debt on Diluted Earnings per Share" ("EITF 04-08"). Contingently convertible debt instruments are generally 13 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 convertible into common shares of an issuer after the common stock price has exceeded a predetermined threshold for a specified period of time (the "market price 10. New Accounting Pronouncements (continued) contingency"). EITF 04-08 requires that shares issuable upon conversion of contingently convertible debt be included in diluted earnings per share computations regardless of whether the market price contingency contained in the debt instrument has been met. EITF 04-08 is effective for reporting periods ending after December 15, 2004 and requires restatement of prior periods to the extent applicable. The adoption of this statement did not have an effect on the Company's calculation of EPS. In March 2005, the FASB issued FIN 47, which is effective for the company on December 31, 2005. FIN 47 clarifies that the phrase "conditional asset retirement obligation," as used in FASB Statement No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No.143"), refers to a legal obligation to perform an asset retirement activity for which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the company. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. SFAS No. 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The company does not expect that adoption of FIN 47 will have a significant effect on its financial position or results of operations. In May 2005, FASB issued SFAS No. 154, " Accounting Changes and Error Corrections " ("SFAS No. 154"). SFAS No. 154 requires retrospective application to prior periods' financial statements of changes in accounting principle. It also requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings for that period rather than being reported in an income statement. The statement will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption of SFAS No. 154 to have a material effect on our financial position or results of operations. In June 2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization Period for Leasehold Improvements ("EITF 05-6"). EITF 05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception. The guidance in EITF 05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. EITF 05-6 is not expected to have a material effect on the Company's financial position or results of operations. 14 DIRECT INSITE CORP. AND SUBSIDIARIES Item 2 - Managements Discussion and Analysis or Plan of Operations Forward looking statements All statements other than statements of historical fact included in this Form 10-QSB including, without limitation, statements under, "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Form 10-QSB, words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to the Company or its 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, the Company's management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors including but not limited to, fluctuations in future operating results, technological changes or difficulties, management of future growth, the risk of errors or failures in the Company's software products, dependence on proprietary technology, competitive factors, risks associated with potential acquisitions, the ability to recruit personnel and the dependence on key personnel. 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 of the Company. All subsequent written and oral forward- looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this paragraph. Overview We primarily operate as an application service provider ("ASP"), providing an integrated transaction based "fee for service" offering called Invoices On-Line ("IOL"), an electronic invoice presentment and payment ("EIP&P") service that processes high volumes of transactional data for invoice presentment purposes delivered via the Internet on a global basis on behalf of our customers. IOL is our primary offering and it is a globally delivered service that provides electronic invoice presentation in the Americas, Europe and Asia, including 28 different countries around the globe and in more than 13 languages and currencies. We currently host several million invoices that are accessible "on-line" via the Internet 24 hours per day, seven days per week, 365 days per year. IOL is a uniquely positioned service offering in the industry, the service is designed to handle the complex invoicing found in today's global business environment. The solution allows Global 1000 companies to receive, route, approve and pay invoices on- line in the local language and currency. By automating the traditional paper-based invoicing process, customers now have easy and quick access to line-item billing information, reporting and analytics. With the enhanced level of accuracy provided by IOL, invoice disputes are greatly reduced and overall customer satisfaction is substantially increased. We also provide additional service offerings in the form of our patented dbExpressTM technology, a management information tool that allows users to visually data mine large volumes of transactional data via the Internet. A complete Internet Customer Care tool set integrated with the EIP&P product set is also available. We operate fully redundant data centers located at our main office in Bohemia, N.Y. and in Newark, NJ. Our facility in New Jersey is space leased at an International Business Machines ("IBM"), e- business Hosting Center. This co-location / redundancy feature enables us to offer virtually down time free service. This suite of services enables us to provide a comprehensive Internet delivered service from the raw transaction record through all of the internal workflow management processes including an electronically delivered invoice with customer analytics. This comprehensive service offering provides back office operations, reduces our customers' costs and provides for improved customer service by providing the end customer with easy access to all of the detailed information about their bill. We operate fully redundant data centers located at our main office in Bohemia, N.Y. and in Newark, NJ. Our facility in New Jersey is space leased at an International Business Machines ("IBM"), e-business Hosting Center. This co-location / redundancy feature enables us to offer virtually down time free service. 15 DIRECT INSITE CORP. AND SUBSIDIARIES Item 2 - Managements Discussion and Analysis or Plan of Operations (continued) Currently, IBM, our largest customer, representing approximately 70% and 98% of our revenue for the six month periods ended June 30, 2005 and 2004, respectively, utilizes our suite of IOL products and services to allow their customers from around the globe to receive, analyze, dispute and cost allocate all of their invoice related information in their local language and currency via the Internet 24 hours a day, 7 days a week, 365 days a year. A second Fortune 100 customer accounted for 28% of total revenue for the first six months of 2005. As disclosed in Note 6 to the accompanying Condensed Consolidated Financial Statements, during the six months ended June 30, 2005, we received proceeds from the issuance of Senior Subordinated Secured Notes of $750,000 less expenses of $55,000. Results of operations For the three and six month periods ended June 30, 2005 we had losses from continuing operations of $296,000 and $581,000, respectively, compared to losses from continuing operations of $567,000 and $629,000, in the same periods in 2004, respectively. The decrease in the losses is principally due to an increase in revenue for the three and six months ended June 30, 2005, partially offset by an increase in operating costs as discussed below. Net loss for the three and six month periods ended June 30, 2005 was $305,000 and $590,000, respectively, compared to net losses of $508,000 and $366,000 for the same periods in 2004, respectively. This includes income from discontinued operations of $59,000 and $263,000 in the three and six month periods ended June 30, 2004 and was principally the result of recognizing income related to deferred revenue of $180,000 included in other income of the discontinued operation in the first half of 2004. For the three months ended June 30, 2005 revenue from continuing operations increased $602,000 (35.1%) to $2,318,000 compared to revenue of $1,716,000 for the same period in 2004. For the six months ended June 30, 2005, revenue from continuing operations increased $576,000 (15.1%) to $4,398,000 compared to revenue from continuing operations of $3,822,000 for the same period in 2004. The increase is primarily the result of an increase in revenue from our core business, the ASP IOL services, of $468,000 (48.2%) and $628,000 (32.0%) for the three and six month periods ended June 30, 2005. Additionally, revenue from engineering services increased $221,000 for the six months ended June 30, 2005. These increases are principally due to expanded services to a second major customer added in 2004, further deployment of our IOL services to IBM and an additional new customer. These increases were offset by a decrease of $273,000 in revenue from telecommunications services for the six months ended June 30, 2005. The decrease in the telecommunications services, which accounted for less than 1% of total revenue in the first half of 2005 compared to 7.8% for the same period in 2004, is the result of decreased demand for such services. Costs of operations, research and development increased by $188,000 (22.2%) and $283,000 (16.0%) to $1,034,000 and $2,047,000 for the three and six month periods ended June 30, 2005, respectively, compared to costs of $846,000 and $1,764,000 for the same periods in 2004. These costs consist principally of salaries and related expenses for software developers, programmers, custom engineers, network services, and quality control and assurance. Also included are network costs, costs of the production co-location facility and other expenses directly related to our custom engineering and ASP production services. The increase in costs for the six months ended June 30, 2005 is principally due to increases in personnel wages and benefit costs of $180,000 from wage increases and staff additions, an increase in professional fees of $49,000 resulting from engaging temporary technical staff, and an increase in software purchases of $22,000. All other operating expenses increased $32,000, net. Sales and marketing costs were $559,000 and $1,031,000 for the three and six month periods ended June 30, 2005, respectively, an increase of $137,000 (32.5%) and $217,000 (26.7%) compared to costs for the same periods in 2004. Professional fees, including personnel recruiting costs, increased $81,000, consulting fees increased $111,000 due to engaging an independent sales 16 DIRECT INSITE CORP. AND SUBSIDIARIES Item 2 - Managements Discussion and Analysis or Plan of Operations (continued) representative and promotional costs increased $31,000, while all other costs decreased by $6,000, net. We intend to continue increasing our sales and marketing efforts to achieve further growth in our IOL services. General and administrative costs increased $25,000 (3.3%) and $68,000 (4.8%) to $780,000 and $1,472,000 for the three and six month periods ended June 30, 2005, respectively, compared to costs of $755,000 and $1,404,000 for the same periods in 2004. For the six months ended June 30, 2005, salaries and related costs increased $145,000 principally due to the restoration of salary reductions taken in 2004. Costs for directors meetings increased by $30,000 and legal fees increased $34,000. Insurance costs decreased $48,000 primarily due to rate decreases, while professional fees decreased $50,000 and travel and entertainment costs decreased $29,000. All other administrative costs decreased $14,000. Depreciation and amortization expense decreased by $27,000 (19.0%) and $57,000 (20.0%) for the three and six month periods ended June 30, 2005, respectively, compared to the same periods in 2004, primarily due to fully amortizing certain software costs and other computer equipment. Financial Condition and Liquidity For the six months June 30, 2005, we had a loss from continuing operations of $581,000 compared to a loss from continuing operations of $629,000 for the same period in 2004. We used $472,000 in cash for continuing operations in the first six months of 2005 compared to $1,000,000 for the same period in 2004, an improvement of $528,000 or 52.8%. Cash used in discontinued operations was $47,000 for the six months ended June 30, 2005. We funded the shortfall in cash from operations primarily through the new borrowing noted above. Cash used in operations, including cash used for discontinued operations, for the six months ended June 30, 2005 was $519,000, consisting of the net loss of $581,000, reduced by non-cash expenses of $421,000, including depreciation and amortization of $229,000 and stock and options issued for services of $113,000. In addition, accounts receivable decreased by $172,000 and prepaid expenses and other assets decreased $82,000. Accounts payable and accrued expenses increased $57,000 and deferred revenue decreased $623,000. Cash used in investing activities was $127,000 for the six months ended June 30, 2005, compared to $31,000 for same period in 2004. This was principally expenditures for equipment. Cash provided by financing activities totaled $468,000 for the six months ended June 30, 2005, compared to $1,311,000 for the six months ended June 30, 2004. As noted above, we received proceeds from a new loan financing of $750,000. We also repaid $94,000 of long-term debt and capital lease obligations in the first half of 2005. The balance outstanding under short term revolving loans for receivables financing decreased by $188,000 in 2005. Management's Liquidity and Financing Plans In order to meet our cash needs and to achieve positive operating cash flows we have and will continue to take various actions and steps that we believe will enable us to attain these goals. These actions include: -- In March 2005 we closed a Bridge Loan financing with Sigma Capital PartnersLLC and Metropolitan Venture Partners II, L.P. and received proceeds of $750,000 less legal fees of $55,000 (see Note 6). Sigma had an exclusive right to lead a follow-on- financing for 45 days following the closing of the Bridge Loan and the Company has granted Sigma additional time. We anticipate that this follow-on-financing will provide the working capital to sustain and expand our operationsy. 17 DIRECT INSITE CORP. AND SUBSIDIARIES Item 2 - Managements Discussion and Analysis or Plan of Operations (continued) -- We and the holders of the Series A and Series B Preferred stock have previously agreed to defer payment of dividends. We may seek to defer these dividends further. -- We intend to raise additional capital through private equity offerings and borrowing. In 2004, we received net proceeds from the sale of Preferred Stock of $1,430,000. Also in 2004 we entered into an agreement with DIRI Rec Fund LLC, a corporation formed and funded to loan funds to the Company against accounts receivable, and may receive advances up to $250,000 from Diri Rec Fund (see Note 5). Further, in June 2005 we renewed for a period of two years the $500,000 loan previously scheduled to mature on June 30, 2005 and the guarantors of this loan have consented to this extension (see Note 6). -- We continue to strive to increase revenue through offering custom engineering services, expanding and enhancing existing product offerings such as IOL, and introducing new product offerings. In 2004 we entered into a new agreement to provide IOL services to a Fortune 100 company. Revenue from this new customer accounted for 27.6% of total revenue for the six months ended June 30, 2005. In the first quarter 2005, we added an additional customer as the result of the sale of a part of the business of an existing customer. Management anticipates that revenue from these new customers will continue to increase in 2005 and beyond and expects to further broaden our customer base in 2005. -- We continue to expand its marketing efforts in order to increase the customer base. In this regard, in 2003, we became a business partner with IBM and through this relationship will work with IBM to achieve sales to new customers. We will continue to pursue similar channel partner opportunities. Also, in the fourth quarter 2004 we employed a new sales and marketing executive and engaged an independent sales agent to further expand our sales efforts. We believe that these plans and new initiatives as discussed above will lead to positive cash flows and profitability. While we pursue these goals we also believe that our ability to raise additional capital through equity and debt placements will provide sufficient cash to meet cash requirements at least through June 30, 2006. There can be no assurance, however, that we will achieve the cash flow and profitability goals, or that we will be able to raise additional capital sufficient to meet our operating expenses or implement our plan. In such event, we may have to revise our plans and significantly reduce our operating expenses, which could have an adverse effect on revenue and operations in the short term. Item 3 - Controls and Procedures Disclosures Controls and Procedures - ----------------------------------- The Company maintains controls and procedures designed to ensure that it is able to collect the information that is required to be disclosed in the reports it files with the SEC, and to process, summarize and disclose this information within the time period specified in the rules of the SEC. The Company's Chief 18 DIRECT INSITE CORP. AND SUBSIDIARIES Executive and Chief Financial Officers are responsible for establishing, maintaining and enhancing Item 3 - Controls and Procedures (continued) these procedures. They are also responsible, as required by the rules established by the SEC, for the evaluation of the effectiveness of these procedures. Based on their evaluation of the Company's disclosure controls and procedures which took place as of the date of filing of this report, the Chief Executive Officer and the Chief Financial Officer believe that, as is typical of small companies, these procedures were not effective as a result of limited resources and a limited segregation of duties in accounting and financial reporting. Internal Financial Controls - --------------------------- The Company maintains a system of internal controls designed to provide reasonable assurance that transactions are executed in accordance with management's general or specific authorization; transactions are recorded as necessary to (1) permit preparation of financial statements in conformity with accepted accounting principles generally accepted in the United States of America, and (2) maintain accountability for assets. Access to assets is permitted only in accordance with management's general or specific authorization. Since the date of the most recent evaluation of the Company's internal controls by the Chief Executive and Chief Financial Officers, there have been no significant changes in such controls or in other factors that could have significantly affected those controls, including any corrective actions with regard to significant deficiencies and material weaknesses. Internal Controls over Financial Reporting - ------------------------------------------ It is the responsibility of the Company's management to establish and maintain adequate internal control over financial reporting. However, due to its limited financial resources typical of companies its size, there is only limited segregation of duties within the accounting function, leaving most significant aspects of financial reporting in the hands of the CFO. Based on the integrity and trustworthiness of the Company's chief financial officer, the Board of Directors has had confidence that there have been no irregularities in the Company's financial reporting or in the protection of its assets. Our independent auditors have reported to our Board of Directors certain matters involving internal controls that our independent auditors considered to be a reportable condition and a material weakness, under standards established by the American Institute of Certified Public Accountants. The reportable conditions and material weakness relate to the financial close process, limited segregation of duties and the absence of reviews and approvals beyond that performed by the Chief Financial Officer, of transactions and accounting entries. Given these reportable conditions and material weaknesses, management devoted additional resources to closing and preparing the report for the quarter ended June 30, 2005. As a result, we are confident that our financial statements for the quarter ended June 30, 2005 fairly present, in all material respects, our financial condition and results of operations. 19 DIRECT INSITE CORP. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This information has been previously provided on Form 8-K dated March 29, 2005. Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits 31 Certifications pursuant to Rules 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 20 DIRECT INSITE CORP. AND SUBSIDIARIES 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/ James A. Cannavino - ------------------------------------------- --------------- James A. Cannavino, Chief Executive Officer August 17, 2005 /s/ Michael J. Beecher - ------------------------------------------- --------------- Michael J. Beecher, Chief Financial Officer August 17, 2005 21 EX-31 2 dir10qsbjun05-ex31.txt CERTIFICATION EXHIBIT 31.0 DIRECT INSITE CORP. AND SUBSIDIARIES CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James Cannavino certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Direct Insite Corp.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) 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 c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter 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 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 controls 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 controls. August 17, 2005 /s/ James A. Cannavino ---------------------- James A. Cannavino, Chief Executive Officer DIRECT INSITE CORP. AND SUBSIDIARIES CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Michael J. Beecher, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Direct Insite Corp.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) 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 c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter 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 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 controls 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 controls. August 17, 2005 /s/ Michael J. Beecher ----------------------- Michael J. Beecher Chief Financial Officer EX-32 3 dir10qsbjun05-ex32.txt CERTIFICATION EXHIBIT 32.0 DIRECT INSITE CORP. AND SUBSIDIARIES CERTIFICATION OF PERIODIC REPORT I, James A. Cannavino, 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-QSB of the Company for the three and six months ended June 30, 2005 (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 result of operations of the Company. Date: August 17, 2005 /s/ James A. Cannavino James A. Cannavino Chief Executive Officer DIRECT INSITE CORP. AND SUBSIDIARIES CERTIFICATION OF PERIODIC REPORT I, Michael J. Beecher, 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-QSB of the Company for the three and six months ended June 30, 2005 (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 result of operations of the Company. Date: August 17, 2005 /s/Michael J. Beecher Michael J. Beecher Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----