10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
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:  (954) 510-3750

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ      No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o Noþ

As of May 11, 2016, there were 13,002,652 shares of the registrant’s Common Stock outstanding.

DIRECT INSITE CORP.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	3-18
ITEM 1. FINANCIAL STATEMENTS	3
CONDENSED BALANCE SHEETS AS OF MARCH 31, 2016 (UNAUDITED) AND DECEMBER 31 2015	3
CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)	4
CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)	5
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)	6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	18
ITEM 4. CONTROLS AND PROCEDURES	18
PART II. OTHER INFORMATION	19
ITEM 1. LEGAL PROCEEDINGS	19
ITEM 1A. RISK FACTORS	19
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS	19
ITEM 3. DEFAULTS IN SENIOR SECURITIES	19
ITEM 4. MINE SAFETY DISCLOSURES	19
ITEM 5. OTHER INFORMATION	19
ITEM 6. EXHIBITS	19
SIGNATURES	20

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Information

DIRECT INSITE CORP.

CONDENSED BALANCE SHEETS

(in thousands, except share data)

	March 31, 2016			December 31, 2015
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	2,243		$	2,375
Accounts receivable		1,599			1,444
Prepaid expenses and other current assets		426			405
Total current assets		4,268			4,224
Property and equipment, net		1,023			934
Deferred tax assets		1,195			1,195
Other assets		249			247
Total assets	$	6,735		$	6,600
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	1,464		$	1,468
Current portion of capital lease obligations		2			11
Deferred rent		34			37
Total liabilities		1,500			1,516
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; 13,022,646 and 12,979,536 shares issued and 12,982,719 and 12,939,609 shares outstanding in 2016 and 2015, respectively		1			1
Additional paid-in capital		116,518			116,478
Accumulated deficit		(110,956	)		(111,067	)
Common stock in treasury, at cost; 24,371 shares in 2016 and 2015		(328	)		(328	)
Total stockholders’ equity		5,235			5,084
Total liabilities and stockholders’ equity	$	6,735		$	6,600

See notes to condensed financial statements.

3

DIRECT INSITE CORP.

CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED

(in thousands, except per share data)

	For the three months ended
	March 31, 2016		March 31, 2015
Revenues:
Recurring	$	1,500	$	1,707
Non-recurring		275		353
Total revenues		1,775		2,060
Operating costs and expenses:
Operations, research and development		736		893
General and administrative		590		617
Sales and marketing		276		385
Amortization and depreciation		61		80
Total operating costs and expenses		1,663		1,975
Operating income		112		85
Other expense, net		1		1
Income before provision for income taxes		111		84
Provision for income taxes		-		4
Net income	$	111	$	80
Basic income per share	$	0.01	$	0.01
Diluted income per share	$	0.01	$	0.01
Basic weighted average common stock outstanding		12,928		12,792
Diluted weighted average common stock outstanding		12,928		12,802

See notes to condensed financial statements.

4

DIRECT INSITE CORP.

CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED

(in thousands)

	For the three months ended
	March 31, 2016			March 31, 2015
Cash flows from operating activities
Net income	$	111		$	80
Adjustments to reconcile net income  to net cash provided by operations:
Amortization and depreciation		61			80
Stock-based compensation expense		40			50
Deferred rent expense		(3	)		(1	)
Changes in operating assets and liabilities:
Accounts receivable		(155	)		486
Prepaid expenses and other current assets		(23	)		(15	)
Accounts payable and accrued expenses		(4	)		(135	)
Deferred revenue		-			(31	)
Total adjustments		(84	)		434
Net cash provided by operating activities		27			514
Cash flows used in investing activities:
Expenditures for property and equipment		(50	)		--
Capitalization of internally developed software		(100	)		(37	)
Net cash used in investing activities		(150	)		(37	)
Cash flows used in financing activities:
Repayment of capital lease obligations		(9	)		(5	)
Net increase (decrease) in cash and cash equivalents		(132	)		472
Cash and cash equivalents – beginning		2,375			871
Cash and cash equivalents – ending	$	2,243		$	1,343
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1		$	1
Schedule of non-cash investing and financing activities:
Issuance of common stock in settlement of accrued directors’ fees	$	-		$	103

See notes to condensed financial statements.

5

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Nature of Business

Direct Insite Corp. (“Direct Insite” or the “Company”) operates as a Software as a Service (“SaaS”) provider, 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 Amsterdam, Netherlands.

As described in Note 9, the Company has three major customers that accounted for 82.1%, and 80.4% of the Company’s revenue for the three months ended March 31, 2016 and 2015, respectively.  Loss of any of these customers would have a material effect on the Company.

In November 2015, we were notified by HP Enterprise Services (“HPE”) that one of its clients, representing approximately 11.0% and 14.2% of our revenue for the three months ended March 31, 2016 and 2015, respectively, was terminating its contract with HPE effective February 23, 2016.  As disclosed in our Current Report on Form 8-K filed with the SEC on February 19, 2016, despite efforts to negotiate a direct contractual agreement with this client, the client ultimately decided to terminate its use of our services, and accordingly, the Company does not expect to record revenue from this client after February 2016.

Note 2 - Summary of Significant Accounting Policies

Interim Financial Information

The accompanying unaudited condensed interim financial statements include the accounts of Direct Insite. The condensed balance sheet as of March 31, 2016, and the statements of operations and cash flows for the three months ended March 31, 2016 and 2015 have not been audited.  These unaudited condensed interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to quarterly report on Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  The December 31, 2015 balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.  These interim condensed financial statements include all adjustments which management considers necessary for a fair presentation of the financial statements and consist of normal recurring items.  The results of operations for the three months ended March 31, 2016, 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, 2015 included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 22, 2016.

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.

6

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 2 - Summary of Significant Accounting Policies (continued)

Use of Estimates (continued)

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.  The Company does not sell software licenses, upgrades or enhancements, or post-contract customer services.

Internally Developed Software

The Company released the first phase of PAYBOX®, a next generation version of its accounts receivable platform in November 2014.  It was designed for a global bank and is available to all Order-to-Cash process customers.  According to ASC 350-40, Intangibles-Goodwill and Other-Internal-Use Software, the Company is able to capitalize the costs associated with the application development stage of a project.  The Company started amortizing capitalized costs when the software was ready for use and placed in service in November 2014.  The capitalized costs are being amortized on a straight-line basis over the estimated five year useful life of the software.  As additional functionality is added, costs incurred are capitalized in accordance with professional standards.  Precontract software development costs are generally charged to operating costs and expenses as incurred, however, in accordance with professional standards the Company defers precontract costs when such costs are directly associated with specific anticipated contracts for which recovery is probable.

7

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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 income, but rather will result in an increase in additional paid-in capital. The Company will continue to re-assess its reserves on deferred income tax assets in future periods on a quarterly basis.

Earnings Per Share

The Company displays earnings per share in accordance with ASC 260, Earnings Per Share (“ASC 260”).  ASC 260 requires dual presentation of basic and diluted earnings per share (“EPS”).  Basic earnings per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings per share includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The computation of basic and diluted earnings per share for the three months ended March 31, 2016 and 2015 is as follows (in thousands):

	For the three months ended March 31,
	2016		2015
Basic weighted average shares outstanding……...		12,928		12,792
Restricted stock grants		-		10
Weighted average shares outstanding-diluted		12,928		12,802

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

	For the three months ended March 31,
	2016		2015
Options to purchase common stock		563		629
Restricted stock grants		225		14
Potential anti-dilutive common stock		788		643

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, and accounts receivable.  The Company has cash deposits in excess of the maximum amounts insured by the Federal Depository Insurance Corporation at March 31, 2016 and December 31, 2015.

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.

8

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 2 – Summary of Significant Accounting Policies (continued)

Recently Issued and Adopted Accounting Pronouncements

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled, allows an employer to repurchase more of an employee’s shares than previously allowed for tax withholding purposes without triggering liability accounting, allows a company to make a policy election to account for forfeitures as they occur, and eliminates the requirement that excess tax benefits be realized before companies can recognize them. The new guidance also requires excess tax benefits and tax shortfalls to be presented on the cash flow statement as an operating activity rather than as a financing activity, and clarifies that cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation are to be presented as a financing activity. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company has elected to adopt this standard early and applied it as of January 1, 2016, with no significant impact on our financial statements.

Note 3 – Property and Equipment

Property and equipment consist of the following at March 31, 2016 and December 31, 2015:

	2016			2015
	(in thousands)
Computer equipment and purchased software (3 years)	$	1,428		$	1,378
Internally developed software either placed or not yet placed in service  (5 years)		1,201			1,101
Furniture and fixtures and leasehold improvements (5 – 7 years)		159			159
		2,788			2,638
Less: accumulated depreciation and amortization		(1,765	)		(1,704	)
Property and equipment, net	$	1,023		$	934

Depreciation and amortization expense related to property and equipment for the three months ended March 31, 2016 and 2015 was approximately $61,000 and $80,000, respectively.

Note 4 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following at March 31, 2016 and December 31, 2015 as follows:

	2016		2015
	(in thousands)
Trade accounts payable	$	316	$	262
Sales taxes payable		539		539
Accrued directors’ fees		385		377
Other accrued expenses		224		290
Total accounts payable and accrued expenses	$	1,464	$	1,468

9

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 5 – Capital Lease Obligations

The Company has equipment under two 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 7.4% to 8.9%. The gross book value and the net book value of the related assets are approximately $77,000 and $8,000, respectively, as of March 31, 2016, and $77,000 and $21,000, respectively, as of December 31, 2015.  Amortization of assets under capital leases is included in depreciation expense.

Note 6 – Stockholders’ Equity

Preferred Stock

The Company is authorized to issue 2,000,000 shares of preferred stock, of which none were issued or outstanding as of March 31, 2016 and December 31, 2015.

Common Stock, Options and Stock Grants

Three Months Ended March 31, 2016

During the three months ended March 31, 2016, 161,812 restricted common shares were granted with an aggregate grant date fair value of approximately $100,000.  During the three months ended March 31, 2016, approximately 43,110 restricted common shares with an aggregate grant date fair value of approximately $29,374 vested.

During the three months ended March 31, 2016, the Company recognized $11,000 of stock-based compensation related to the vesting of stock options.

Three Months Ended March 31, 2015

During the three months ended March 31, 2015, 135,000 restricted common shares were granted with an aggregate grant date fair value of approximately $100,000.  During the three months ended March 31, 2015, approximately 27,000 restricted common shares with an aggregate grant date fair value of approximately $22,000 vested.

During the quarter ended March 31, 2015, the Company issued 111,602 shares of restricted common stock pursuant to the Company’s Directors’ Deferred Compensation Plan dated January 1, 2008 (the “Directors’ Deferred Compensation Plan”).  These shares were issued to settle approximately $103,175 of accrued directors’ fees to two former directors for past services.

During the three months ended March 31, 2015, 41,557 stock options with an aggregate grant date fair value of approximately $28,000 vested. During this same period 90,000 options were awarded to employees. Outstanding options vest over a four year period, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting in equal monthly amounts through the fourth anniversary of the grant date. The options granted in this quarter vest over three years with 33% vesting at the end of each of the three years. These options have a five year term.  The Company estimates the grant date fair value of the stock option using the Black-Scholes-Merton option model and the following assumptions:  volatility of 90%, risk free rate of 0.89%, 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 $44,100.

10

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 6 – Stockholders’ Equity (continued)

Stock Option 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.  As of March 31, 2016, 651,464 shares were available for issuance under the 2014 plan.  Awards that expire or are cancelled without delivery of shares generally become available for issuance under the plans.

The following is a summary of stock option activity for three months ended March 31, 2016, relating to all of the Company’s common stock plans:

						Weighted Average
				Weighted		Remaining
	Shares			Average Exercise		Contractual Term		Aggregate Intrinsic Value
	(in thousands)			Price		(in years)		(in thousands)
Outstanding at January 1, 2016		600		$	1.24		2.10	$	--
Forfeited		(100	)	$	1.65
Outstanding at March 31, 2016		500		$	1.16		1.71	$	--
Exercisable at March 31, 2016		400		$	1.17		0.99	$	--

The following table summarizes stock option information as of March 31, 2016:

Outstanding Options
		Weighted Average
	Number Outstanding	Remaining	Options Exercisable
Exercise Prices	(in thousands)	Contractual Life	(in thousands)
$0.90	90	4.00 Years	30
$1.15	310	0.88 years	306
$1.20	20	0.23 years	20
$1.50	80	2.72 years	44
Total	500	1.71 years	400

As of March 31, 2016, there was approximately $56,000 of unrecognized compensation costs related to stock options outstanding.

11

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 6 – Stockholders’ Equity (continued)

Restricted Stock Grants

A summary of the status of the Company’s non-vested stock grants as of March 31, 2016 and changes during the three months ended March 31, 2016 is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-Vested at January 1, 2016		78		$	0.74
Granted		161		$	0.62
Vested		(43	)	$	0.68
Non-Vested at March 31, 2016		196		$	0.65

The future expected expense as of March 31, 2016 for non-vested shares is approximately $128,000 and will be recognized as expense through December 31, 2017.

Note 7 – Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition.  There were no unrecognized tax benefits as of March 31, 2016 and December 31, 2015.

The Company has identified its federal tax return and its state tax return in Florida as “major” tax jurisdictions, as defined in ASC 740.  Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements.  The Company’s evaluation was performed for tax years ended 2012 through 2015, the only periods subject to examination.  The Company believes that its income tax positions and deductions would be sustained upon audit and does not anticipate any adjustments that would result in a material change to its financial position.  The Company has elected to classify interest and penalties incurred on income taxes, if any, as income tax expense.  No interest or penalties on income taxes have been recorded during the three months ended March 31, 2016 and 2015.  The Company does not expect its unrecognized tax benefit position to change during the next twelve months.  Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

 As of March 31, 2016, the Company has federal and state net operating loss carryforwards (“NOLs”) remaining of approximately $25 million and $20 million, respectively, which may be available to reduce taxable income, if any. Remaining federal and state net operating loss carry forwards expire from 2019 through 2035. However, Internal Revenue Code Section 382 rules limit the utilization of NOLs upon a change in control of a company.  During 2015, 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 in accordance with Section 382.  However, if it is determined that an ownership change has taken place, either historically or in the future, utilization of its NOLs could be subject to severe limitations, which could eliminate a substantial portion of the future income tax benefits of the NOLs.  The NOL carryforward as of March 31, 2016 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.

12

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 8 –Commitment and Contingencies

The Company had an employment agreement with Matthew E. Oakes, Chief Executive Officer and Chairman of the Board of Directors, for a term effective June 1, 2013 through December 31, 2015.  On February 20, 2015, Mr. Oakes’ employment agreement was superseded by a new employment agreement extending the term through December 31, 2017.  The agreement provides for a base salary of $24,583 per month, discretionary and annual incentive bonuses based on the Company’s performance in achieving prescribed revenue and earnings before interest and taxes (“EBIT”) targets.  The agreement also provides for reimbursement of all out-of-pocket expenses reasonably incurred by him in the performance of his duties hereunder and certain severance benefits in the event of termination prior to the expiration date.  If Mr. Oakes is terminated without cause or resigns from employment for “good reason” (as defined within Mr. Oakes’ employment agreement), he would receive one year of base salary and COBRA coverage at the Company’s expense.  The Company shall continue to make lease payments on the corporate apartment located in Fort Lauderdale, Florida and utilized by Mr. Oakes through the date of termination of such lease on December 31, 2017.

Note 9 – Major Customers

Three customers, HP Enterprise Services (“HPE”), inclusive of its underlying customers, International Business Machines Corp. (“IBM”) and one other customer, accounted for a significant portion of the Company’s revenues as follows:

	% of Total Revenues  Three Months Ended  March 31,
	2016			2015
HPE Customer A		11.0	%		14.2	%
HPE Customer B		13.2			11.2
HPE Customer C		7.9			6.2
Total HPE		32.1	%		31.6	%
IBM		38.3			39.7
Other Major Customer		11.7			9.1
Total Major Customers		82.1	%		80.4	%
Others		17.9			19.6
Total		100.0	%		100.0	%

In November 2015, the Company was notified by HPE that one of its clients (HPE Customer A above) was terminating its contract with HPE effective February 23, 2016. Despite the Company’s efforts to negotiate a direct contractual agreement with this client, the client ultimately decided to terminate its use of the Company’s services as of that date.

As of March 31, 2016 and December 31, 2015, HPE and IBM, along with one other major customer, accounted for a significant portion of the Company’s accounts receivable as follows (in thousands):

	2016		2015
Total HPE	$	735	$	389
IBM		453		467
One Other Major Customer		208		224
Total	$	1,396	$	1,080

13

DIRECT INSITE CORP.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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.

14

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

FORWARD LOOKING STATEMENTS

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

OVERVIEW

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

Direct Insite operates as a SaaS, providing best practice financial supply chain automation and workflow efficiencies within the Order-to-Cash and Procure-to-Pay 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 Order-to-Cash and Procure-to-Pay 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 17 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 (“HPE”) accounted for approximately 32.1% and 31.6% of revenue for the three months ended March 31, 2016 and 2015, respectively. As of December 31, 2015, we had three principal contracts with HP providing e-invoice services.  These contracts have terms ranging from one to five years.  The contracts may be terminated by either party with ninety days advance written notice.   In November 2015, we were notified by HPE that one of its clients, representing approximately 11.0% and 14.2% of our revenue for the three months ended March 31, 2016 and 2015, respectively was terminating its contract with HPE effective February 23, 2016.  As disclosed in our Current Report on Form 8-K filed with the SEC on February 19, 2016, despite efforts to negotiate a direct contractual agreement with this client, the client ultimately decided to terminate its use of our services, and accordingly, the Company does not expect to record revenue from this client after February 2016.

15

International Business Machines, Inc. (“IBM”), representing approximately 38.3% and 39.7%, of revenue for the three months ended March 31, 2016 and 2015, 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, 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 through December 31, 2016, and is renewable annually thereafter.  The contracts may be terminated by either party with ninety days advance written notice.

We have one other customer, representing approximately 11.7% and 9.1% of our revenue for the three months ended March 31, 2016 and 2015, respectively.  This customer utilizes our accounts payable automation solution and is contracted with us through December 2019.

SEASONALITY / QUANTITY FLUCTUATIONS

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

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

RESULTS OF OPERATIONS

The following is a summary of our operating results for the three months ended March 31, 2016 and 2015 (dollars in thousands):

	2016		2015		Increase (Decrease)
Revenues:
Recurring	$	1,500	$	1,707	$	(207	)	(12.1	)%
Non-recurring		275		353		(78	)	(22.1	)%
Total revenues		1,775		2,060		(285	)	(13.8	)%
Operating costs and expenses:
Operations, research and development		736		893		(157	)	(17.6	)%
General and administrative		590		617		(27	)	(4.4	)%
Sales and marketing		276		385		(109	)	(28.3	)%
Amortization and depreciation		61		80		(19	)	(23.8	)%
Total operating costs and expenses		1,663		1,975		(312	)	(15.8	)%
Operating income		112		85		27		31.8	%
Other expense, net		1		1		-		0.0	%
Provision for income taxes		-		4		(4	)	(100.0	)%
Net income	$	111	$	80	$	31		38.8	%

Revenues

For the three months ended March 31, 2016, total revenue decreased by $285,000, or 13.8%, to $1,775,000 from $2,060,000 for the comparable prior year period.  Recurring revenue decreased by $207,000, or 12.1%, to $1,500,000 for the three months ended March 31, 2016, from $1,707,000 for the comparable prior year period, due to the February 2016 termination of the HPE customer previously noted and lower volume at certain other customers.  Non-recurring revenue decreased by $78,000, or 22.1%, to $275,000 for the three months ended March 31, 2016, from $353,000 for the three months ended March 31, 2015, as the non-recurrence of large prior year professional services fees were only partially offset by higher charges for the facilitation of scanning services.

16

Operating Cost and Expenses

Costs of operations, research and development decreased by approximately $157,000, or 17.6%, to $736,000 for the three months ended March 31, 2016 from $893,000 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.  A headcount-related decrease in salary expense, was mostly offset by less costs capitalized for internally developed software and higher scanning charges.

General and administrative costs decreased by approximately $27,000, or 4.4%, to $590,000 for the three months ended March 31, 2016 from $617,000 for the comparable prior year period, as higher payroll costs and professional fees were partially offset by the non-recurrence of the prior period’s legal and other expenses.

Sales and marketing costs decreased by approximately $109,000, or 28.3%, to $276,000 for the three months ended March 31, 2016 from $385,000 for the comparable prior year period, primarily due to a decrease in trade show (timing-related) and sales compensation expense.

Amortization and depreciation decreased by approximately $19,000, or 23.8%, to $61,000 for the three months ended March 31, 2016 from $80,000 for the comparable prior year period, due to existing assets that became fully depreciated during 2015.

Operating Income

We had net operating income of $112,000 for the three months ended March 31, 2016, compared to net operating income of $85,000 for the comparable prior year period, due to the aforementioned decrease in operating costs and expenses, partially offset by the decline in revenue.

Other Expense

Other expense remained the same at $1,000 for the three months ended March 31, 2016 from $1,000 for the comparable prior year period.  No provision for income taxes was recorded during the first quarter of 2016 as compared with a provision of $4,000 in the prior year first quarter.

Net Income

We had net income of $111,000 for the three months ended March 31, 2016, an increase of approximately $31,000 from net income of $80,000 for the comparable prior year period, due to the aforementioned increase in operating income.

FINANCIAL CONDITION AND LIQUIDITY

As of March 31, 2016, we had total stockholders’ equity of approximately $5,235,000, working capital of $2,768,000 and an accumulated deficit of $110,956,000.  Our cash decreased by $132,000 during the three months ended March 31, 2016, to $2,243,000 on hand as of March 31, 2016, with a corresponding increase in trade accounts receivable of $155,000 for a total receivable of $1,599,000.

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

During the three months ended March 31, 2016, cash provided by operations was $27,000, compared to cash provided by operations of $514,000 for the three months ended March 31, 2015.  The decrease in cash provided by operations is primarily due to the timing of collections from our customers and the timing of payments to our vendors.

17

Cash used in investing activities totaled $150,000 and $37,000 for the three months ended March 31, 2016 and 2015, respectively, with both periods reflecting the capitalization of internally developed software and 2016 reflecting the purchase of property and equipment.

Cash used in financing activities totaled $9,000 and $5,000 for the three months ended March 31, 2016 and 2015, respectively, with both periods reflecting payments on 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, 2015, included in the Company’s Annual Reported on Form 10-K filed with the SEC on March 22, 2016.

OFF-BALANCE SHEET ARRANGEMENTS

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

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not applicable.

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act).  Based upon this evaluation our Chief Executive Officer and Chief Financial Officer concluded that, at March 31, 2016, our disclosure controls and procedures were effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the most recent fiscal quarter ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

18

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

Pursuant to the terms of the Company’s director compensation plan, each non-officer director of the Company was entitled to receive an award on January 1, 2016 of restricted shares of common stock vesting daily over two years, as follows: James A. Cannavino, Paul Lisiak, Thomas C. Lund, and John J. Murabito, each 40,453 shares.  These directors elected to defer receipt of the shares until January 15th of the year following such director’s termination of services as director.

In addition, on March 31, 2016, pursuant to the terms of the director compensation plan, each of Mr. Cannavino, Mr. Lund, and Mr. Murabito were granted 3,731 shares.  These directors elected to defer receipt of the shares until January 15th of the year following such director’s termination of services as director.

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

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.	Description
10.1	Employment Agreement, effective January 1, 2015 by and between Direct Insite Corp. and Matthew E. Oakes (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 24, 2015).
31.1	Certification pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.
31.2	Certification pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.
101	The following materials from Direct Insite’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015, (ii) Condensed Statements of Income for the Three Months Ended March 31, 2016 and 2015 (Unaudited), (iii) Condensed Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (Unaudited), (iv) and Notes to Condensed Financial Statements (Unaudited).

19

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.
May 11, 2016	By:	/s/ Matthew E. Oakes
		Matthew E. Oakes
		Chief Executive Officer
May 11, 2016	By:	/s/ Lowell M. Rush
		Lowell M. Rush
		Chief Financial Officer

20

EX-31.1

Exhibit 31.1

I, Matthew E. Oakes certify that:

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

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

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

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

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

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

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

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

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

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

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

May 11, 2016	By:	/s/ Matthew E. Oakes
		Matthew E. Oakes
		President, Chief Executive Officer, and
		Chairman of the Board of Directors
		(Principal 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.

May 11, 2016	By:	/s/ Lowell M. Rush
		Lowell M. Rush
		Chief Financial Officer
		(Principal Accounting Officer and Principal Financial Officer)

EX-32.1

Exhibit 32.1

DIRECT INSITE CORP.

CERTIFICATION OF PERIODIC REPORT

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

(1) The Quarterly Report on Form 10-Q of the Company for the three months ended March 31, 2016 (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.

May 11, 2016	By:	/s/ Matthew E. Oakes
		Matthew E. Oakes
		President, Chief Executive Officer, and
		Chairman of the Board of Directors
		(Principal Executive Officer)

EX-32.2

Exhibit 32.2

DIRECT INSITE CORP.

CERTIFICATION OF PERIODIC REPORT

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

(1) The Quarterly Report on Form 10-Q of the Company for the three months ended March 31, 2016 (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.

May 11, 2016	By:	/s/ Lowell M. Rush
		Lowell M. Rush
		Chief Financial Officer
		(Principal Accounting Officer and Principal Financial Officer)

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	May. 11, 2016
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		13,002,652
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2016

XML

CONDENSED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 2,243	$ 2,375
Accounts receivable	1,599	1,444
Prepaid expenses and other current assets	426	405
Total current assets	4,268	4,224
Property and equipment, net	1,023	934
Deferred tax assets	1,195	1,195
Other assets	249	247
Total assets	6,735	6,600
Current liabilities:
Accounts payable and accrued expenses	1,464	1,468
Current portion of capital lease obligations	2	11
Deferred rent	34	37
Total liabilities	$ 1,500	$ 1,516
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; 13,022,646 and 12,979,536 shares issued and 12,982,719 and 12,939,609 shares outstanding in 2016 and 2015, respectively	$ 1	$ 1
Additional paid-in capital	116,518	116,478
Accumulated deficit	(110,956)	(111,067)
Common stock in treasury, at cost; 24,371 shares in 2016 and 2015	(328)	(328)
Total stockholders' equity	5,235	5,084
Total liabilities and stockholders' equity	$ 6,735	$ 6,600

XML

CONDENSED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares	Mar. 31, 2016	Dec. 31, 2015
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)	13,022,646	12,979,536
Common stock, outstanding (in shares)	12,982,719	12,939,609
Treasury stock, at cost (in shares)	24,371	24,371

XML

CONDENSED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Revenues:
Recurring	$ 1,500	$ 1,707
Non-recurring	275	353
Total revenues	1,775	2,060
Operating costs and expenses:
Operations, research and development	736	893
General and administrative	590	617
Sales and marketing	276	385
Amortization and depreciation	61	80
Total operating costs and expenses	1,663	1,975
Operating income	112	85
Other expense, net	1	1
Income before provision for income taxes	$ 111	84
Provision for income taxes		4
Net income	$ 111	$ 80
Basic income per share	$ 0.01	$ 0.01
Diluted income per share	$ 0.01	$ 0.01
Basic weighted average common stock outstanding	12,928	12,792
Diluted weighted average common stock outstanding	12,928	12,802

XML

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Cash flows from operating activities
Net income	$ 111	$ 80
Adjustments to reconcile net income to net cash provided by operations:
Amortization and depreciation	61	80
Stock-based compensation expense	40	50
Deferred rent expense	(3)	(1)
Changes in operating assets and liabilities:
Accounts receivable	(155)	486
Prepaid expenses and other current assets	(23)	(15)
Accounts payable and accrued expenses	$ (4)	(135)
Deferred revenue		(31)
Total adjustments	$ (84)	434
Net cash provided by operating activities	27	$ 514
Cash flows used in investing activities:
Expenditures for property and equipment	(50)
Capitalization of internally developed software	(100)	$ (37)
Net cash used in investing activities	(150)	(37)
Cash flows used in financing activities:
Repayment of capital lease obligations	(9)	(5)
Net increase (decrease) in cash and cash equivalents	(132)	472
Cash and cash equivalents - beginning	2,375	871
Cash and cash equivalents - ending	2,243	1,343
Supplemental disclosure of cash flow information:
Cash paid for interest	$ 1	1
Schedule of non-cash investing and financing activities:
Issuance of common stock in settlement of accrued directors' fees		$ 103

XML

NATURE OF BUSINESS

3 Months Ended

Mar. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NATURE OF BUSINESS

Direct Insite Corp. (“Direct Insite” or the “Company”) operates as a Software as a Service (“SaaS”) provider, 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 Amsterdam, Netherlands.

As described in Note 9, the Company has three major customers that accounted for 82.1%, and 80.4% of the Company’s revenue for the three months ended March 31, 2016 and 2015, respectively.  Loss of any of these customers would have a material effect on the Company.

In November 2015, we were notified by HP Enterprise Services (“HPE”) that one of its clients, representing approximately 11.0% and 14.2% of our revenue for the three months ended March 31, 2016 and 2015, respectively, was terminating its contract with HPE effective February 23, 2016.  As disclosed in our Current Report on Form 8-K filed with the SEC on February 19, 2016, despite efforts to negotiate a direct contractual agreement with this client, the client ultimately decided to terminate its use of our services, and accordingly, the Company does not expect to record revenue from this client after February 2016.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Information

The accompanying unaudited condensed interim financial statements include the accounts of Direct Insite. The condensed balance sheet as of March 31, 2016, and the statements of operations and cash flows for the three months ended March 31, 2016 and 2015 have not been audited.  These unaudited condensed interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to quarterly report on Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  The December 31, 2015 balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.  These interim condensed financial statements include all adjustments which management considers necessary for a fair presentation of the financial statements and consist of normal recurring items.  The results of operations for the three months ended March 31, 2016, 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, 2015 included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 22, 2016.

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.  The Company does not sell software licenses, upgrades or enhancements, or post-contract customer services.

Internally Developed Software

The Company released the first phase of PAYBOX®, a next generation version of its accounts receivable platform in November 2014.  It was designed for a global bank and is available to all Order-to-Cash process customers.  According to ASC 350-40, Intangibles-Goodwill and Other-Internal-Use Software, the Company is able to capitalize the costs associated with the application development stage of a project.  The Company started amortizing capitalized costs when the software was ready for use and placed in service in November 2014.  The capitalized costs are being amortized on a straight-line basis over the estimated five year useful life of the software.  As additional functionality is added, costs incurred are capitalized in accordance with professional standards.  Precontract software development costs are generally charged to operating costs and expenses as incurred, however, in accordance with professional standards the Company defers precontract costs when such costs are directly associated with specific anticipated contracts for which recovery is probable.

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 income, but rather will result in an increase in additional paid-in capital. The Company will continue to re-assess its reserves on deferred income tax assets in future periods on a quarterly basis.

Earnings Per Share

The Company displays earnings per share in accordance with ASC 260, Earnings Per Share (“ASC 260”).  ASC 260 requires dual presentation of basic and diluted earnings per share (“EPS”).  Basic earnings per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings per share includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The computation of basic and diluted earnings per share for the three months ended March 31, 2016 and 2015 is as follows (in thousands):

	For the three months ended March 31,
	2016		2015
Basic weighted average shares outstanding……...		12,928		12,792
Restricted stock grants		-		10
Weighted average shares outstanding-diluted		12,928		12,802

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

	For the three months ended March 31,
	2016		2015
Options to purchase common stock		563		629
Restricted stock grants		225		14
Potential anti-dilutive common stock		788		643

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, and accounts receivable.  The Company has cash deposits in excess of the maximum amounts insured by the Federal Depository Insurance Corporation at March 31, 2016 and December 31, 2015.

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

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled, allows an employer to repurchase more of an employee’s shares than previously allowed for tax withholding purposes without triggering liability accounting, allows a company to make a policy election to account for forfeitures as they occur, and eliminates the requirement that excess tax benefits be realized before companies can recognize them. The new guidance also requires excess tax benefits and tax shortfalls to be presented on the cash flow statement as an operating activity rather than as a financing activity, and clarifies that cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation are to be presented as a financing activity. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company has elected to adopt this standard early and applied it as of January 1, 2016, with no significant impact on our financial statements.

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PROPERTY AND EQUIPMENT

3 Months Ended

Mar. 31, 2016

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

Property and equipment consist of the following at March 31, 2016 and December 31, 2015:

	2016			2015
	(in thousands)
Computer equipment and purchased software (3 years)	$	1,428		$	1,378
Internally developed software either placed or not yet placed in service  (5 years)		1,201			1,101
Furniture and fixtures and leasehold improvements (5 – 7 years)		159			159
		2,788			2,638
Less: accumulated depreciation and amortization		(1,765	)		(1,704	)
Property and equipment, net	$	1,023		$	934

Depreciation and amortization expense related to property and equipment for the three months ended March 31, 2016 and 2015 was approximately $61,000 and $80,000, respectively.

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ACCOUNTS PAYABLE AND ACCRUED EXPENSES

3 Months Ended

Mar. 31, 2016

Payables and Accruals [Abstract]

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following at March 31, 2016 and December 31, 2015 as follows:

	2016		2015
	(in thousands)
Trade accounts payable	$	316	$	262
Sales taxes payable		539		539
Accrued directors’ fees		385		377
Other accrued expenses		224		290
Total accounts payable and accrued expenses	$	1,464	$	1,468

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CAPITAL LEASE OBLIGATIONS

3 Months Ended

Mar. 31, 2016

Capital Lease Obligations [Abstract]

CAPITAL LEASE OBLIGATIONS

The Company has equipment under two 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 7.4% to 8.9%. The gross book value and the net book value of the related assets are approximately $77,000 and $8,000, respectively, as of March 31, 2016, and $77,000 and $21,000, respectively, as of December 31, 2015.  Amortization of assets under capital leases is included in depreciation expense.

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STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2016

Stockholders' Equity Note [Abstract]

STOCKHOLDERS' EQUITY

Preferred Stock

The Company is authorized to issue 2,000,000 shares of preferred stock, of which none were issued or outstanding as of March 31, 2016 and December 31, 2015.

Common Stock, Options and Stock Grants

Three Months Ended March 31, 2016

During the three months ended March 31, 2016, 161,812 restricted common shares were granted with an aggregate grant date fair value of approximately $100,000.  During the three months ended March 31, 2016, approximately 43,110 restricted common shares with an aggregate grant date fair value of approximately $29,374 vested.

During the three months ended March 31, 2016, the Company recognized $11,000 of stock-based compensation related to the vesting of stock options.

Three Months Ended March 31, 2015

During the three months ended March 31, 2015, 135,000 restricted common shares were granted with an aggregate grant date fair value of approximately $100,000.  During the three months ended March 31, 2015, approximately 27,000 restricted common shares with an aggregate grant date fair value of approximately $22,000 vested.

During the quarter ended March 31, 2015, the Company issued 111,602 shares of restricted common stock pursuant to the Company’s Directors’ Deferred Compensation Plan dated January 1, 2008 (the “Directors’ Deferred Compensation Plan”).  These shares were issued to settle approximately $103,175 of accrued directors’ fees to two former directors for past services.

During the three months ended March 31, 2015, 41,557 stock options with an aggregate grant date fair value of approximately $28,000 vested. During this same period 90,000 options were awarded to employees. Outstanding options vest over a four year period, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting in equal monthly amounts through the fourth anniversary of the grant date. The options granted in this quarter vest over three years with 33% vesting at the end of each of the three years. These options have a five year term.  The Company estimates the grant date fair value of the stock option using the Black-Scholes-Merton option model and the following assumptions:  volatility of 90%, risk free rate of 0.89%, 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 $44,100.

Stock Option 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.  As of March 31, 2016, 651,464 shares were available for issuance under the 2014 plan.  Awards that expire or are cancelled without delivery of shares generally become available for issuance under the plans.

The following is a summary of stock option activity for three months ended March 31, 2016, relating to all of the Company’s common stock plans:

						Weighted Average
				Weighted		Remaining
	Shares			Average Exercise		Contractual Term		Aggregate Intrinsic Value
	(in thousands)			Price		(in years)		(in thousands)
Outstanding at January 1, 2016		600		$	1.24		2.10	$	--
Forfeited		(100	)	$	1.65
Outstanding at March 31, 2016		500		$	1.16		1.71	$	--
Exercisable at March 31, 2016		400		$	1.17		0.99	$	--

The following table summarizes stock option information as of March 31, 2016:

Outstanding Options
		Weighted Average
	Number Outstanding	Remaining	Options Exercisable
Exercise Prices	(in thousands)	Contractual Life	(in thousands)
$0.90	90	4.00 Years	30
$1.15	310	0.88 years	306
$1.20	20	0.23 years	20
$1.50	80	2.72 years	44
Total	500	1.71 years	400

As of March 31, 2016, there was approximately $56,000 of unrecognized compensation costs related to stock options outstanding.

Restricted Stock Grants

A summary of the status of the Company’s non-vested stock grants as of March 31, 2016 and changes during the three months ended March 31, 2016 is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-Vested at January 1, 2016		78		$	0.74
Granted		161		$	0.62
Vested		(43	)	$	0.68
Non-Vested at March 31, 2016		196		$	0.65

The future expected expense as of March 31, 2016 for non-vested shares is approximately $128,000 and will be recognized as expense through December 31, 2017.

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INCOME TAXES

3 Months Ended

Mar. 31, 2016

Income Tax Disclosure [Abstract]

INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition.  There were no unrecognized tax benefits as of March 31, 2016 and December 31, 2015.

The Company has identified its federal tax return and its state tax return in Florida as “major” tax jurisdictions, as defined in ASC 740.  Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements.  The Company’s evaluation was performed for tax years ended 2012 through 2015, the only periods subject to examination.  The Company believes that its income tax positions and deductions would be sustained upon audit and does not anticipate any adjustments that would result in a material change to its financial position.  The Company has elected to classify interest and penalties incurred on income taxes, if any, as income tax expense.  No interest or penalties on income taxes have been recorded during the three months ended March 31, 2016 and 2015.  The Company does not expect its unrecognized tax benefit position to change during the next twelve months.  Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

As of March 31, 2016, the Company has federal and state net operating loss carryforwards (“NOLs”) remaining of approximately $25 million and $20 million, respectively, which may be available to reduce taxable income, if any. Remaining federal and state net operating loss carry forwards expire from 2019 through 2035. However, Internal Revenue Code Section 382 rules limit the utilization of NOLs upon a change in control of a company.  During 2015, 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 in accordance with Section 382.  However, if it is determined that an ownership change has taken place, either historically or in the future, utilization of its NOLs could be subject to severe limitations, which could eliminate a substantial portion of the future income tax benefits of the NOLs.  The NOL carryforward as of March 31, 2016 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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COMMITMENT AND CONTINGENCIES

3 Months Ended

Mar. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITMENT AND CONTINGENCIES

The Company had an employment agreement with Matthew E. Oakes, Chief Executive Officer and Chairman of the Board of Directors, for a term effective June 1, 2013 through December 31, 2015.  On February 20, 2015, Mr. Oakes’ employment agreement was superseded by a new employment agreement extending the term through December 31, 2017.  The agreement provides for a base salary of $24,583 per month, discretionary and annual incentive bonuses based on the Company’s performance in achieving prescribed revenue and earnings before interest and taxes (“EBIT”) targets.  The agreement also provides for reimbursement of all out-of-pocket expenses reasonably incurred by him in the performance of his duties hereunder and certain severance benefits in the event of termination prior to the expiration date.  If Mr. Oakes is terminated without cause or resigns from employment for “good reason” (as defined within Mr. Oakes’ employment agreement), he would receive one year of base salary and COBRA coverage at the Company’s expense.  The Company shall continue to make lease payments on the corporate apartment located in Fort Lauderdale, Florida and utilized by Mr. Oakes through the date of termination of such lease on December 31, 2017.

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MAJOR CUSTOMERS

3 Months Ended

Mar. 31, 2016

MAJOR CUSTOMERS [Abstract]

MAJOR CUSTOMERS

Three customers, HP Enterprise Services (“HPE”), inclusive of its underlying customers, International Business Machines Corp. (“IBM”) and one other customer, accounted for a significant portion of the Company’s revenues as follows:

	% of Total Revenues  Three Months Ended  March 31,
	2016			2015
HPE Customer A		11.0	%		14.2	%
HPE Customer B		13.2			11.2
HPE Customer C		7.9			6.2
Total HPE		32.1	%		31.6	%
IBM		38.3			39.7
Other Major Customer		11.7			9.1
Total Major Customers		82.1	%		80.4	%
Others		17.9			19.6
Total		100.0	%		100.0	%

In November 2015, the Company was notified by HPE that one of its clients (HPE Customer A above) was terminating its contract with HPE effective February 23, 2016. Despite the Company’s efforts to negotiate a direct contractual agreement with this client, the client ultimately decided to terminate its use of the Company’s services as of that date.

As of March 31, 2016 and December 31, 2015, HPE and IBM, along with one other major customer, accounted for a significant portion of the Company’s accounts receivable as follows (in thousands):

	2016		2015
Total HPE	$	735	$	389
IBM		453		467
One Other Major Customer		208		224
Total	$	1,396	$	1,080

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2016

Subsequent Events [Abstract]

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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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

INTERIM FINANCIAL INFORMATION

The accompanying unaudited condensed interim financial statements include the accounts of Direct Insite. The condensed balance sheet as of March 31, 2016, and the statements of operations and cash flows for the three months ended March 31, 2016 and 2015 have not been audited.  These unaudited condensed interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to quarterly report on Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  The December 31, 2015 balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.  These interim condensed financial statements include all adjustments which management considers necessary for a fair presentation of the financial statements and consist of normal recurring items.  The results of operations for the three months ended March 31, 2016, 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, 2015 included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 22, 2016.

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.  The Company does not sell software licenses, upgrades or enhancements, or post-contract customer services.

INTERNALLY DEVELOPED SOFTWARE

The Company released the first phase of PAYBOX®, a next generation version of its accounts receivable platform in November 2014.  It was designed for a global bank and is available to all Order-to-Cash process customers.  According to ASC 350-40, Intangibles-Goodwill and Other-Internal-Use Software, the Company is able to capitalize the costs associated with the application development stage of a project.  The Company started amortizing capitalized costs when the software was ready for use and placed in service in November 2014.  The capitalized costs are being amortized on a straight-line basis over the estimated five year useful life of the software.  As additional functionality is added, costs incurred are capitalized in accordance with professional standards.  Precontract software development costs are generally charged to operating costs and expenses as incurred, however, in accordance with professional standards the Company defers precontract costs when such costs are directly associated with specific anticipated contracts for which recovery is probable.

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 income, but rather will result in an increase in additional paid-in capital. The Company will continue to re-assess its reserves on deferred income tax assets in future periods on a quarterly basis.

EARNINGS PER SHARE

The Company displays earnings per share in accordance with ASC 260, Earnings Per Share (“ASC 260”).  ASC 260 requires dual presentation of basic and diluted earnings per share (“EPS”).  Basic earnings per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period.  Diluted earnings per share includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The computation of basic and diluted earnings per share for the three months ended March 31, 2016 and 2015 is as follows (in thousands):

	For the three months ended March 31,
	2016		2015
Basic weighted average shares outstanding……...		12,928		12,792
Restricted stock grants		-		10
Weighted average shares outstanding-diluted		12,928		12,802

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

	For the three months ended March 31,
	2016		2015
Options to purchase common stock		563		629
Restricted stock grants		225		14
Potential anti-dilutive common stock		788		643

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, and accounts receivable.  The Company has cash deposits in excess of the maximum amounts insured by the Federal Depository Insurance Corporation at March 31, 2016 and December 31, 2015.

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

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled, allows an employer to repurchase more of an employee’s shares than previously allowed for tax withholding purposes without triggering liability accounting, allows a company to make a policy election to account for forfeitures as they occur, and eliminates the requirement that excess tax benefits be realized before companies can recognize them. The new guidance also requires excess tax benefits and tax shortfalls to be presented on the cash flow statement as an operating activity rather than as a financing activity, and clarifies that cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation are to be presented as a financing activity. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company has elected to adopt this standard early and applied it as of January 1, 2016, with no significant impact on our financial statements.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

Computation of basic and diluted earnings per share

	For the three months ended March 31,
	2016		2015
Basic weighted average shares outstanding……...		12,928		12,792
Restricted stock grants		-		10
Weighted average shares outstanding-diluted		12,928		12,802

Antidilutive securities excluded from computation of earnings per share

	For the three months ended March 31,
	2016		2015
Options to purchase common stock		563		629
Restricted stock grants		225		14
Potential anti-dilutive common stock		788		643

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PROPERTY AND EQUIPMENT (Tables)

3 Months Ended

Mar. 31, 2016

Property, Plant and Equipment [Abstract]

Property and Equipment

	2016			2015
	(in thousands)
Computer equipment and purchased software (3 years)	$	1,428		$	1,378
Internally developed software either placed or not yet placed in service  (5 years)		1,201			1,101
Furniture and fixtures and leasehold improvements (5 – 7 years)		159			159
		2,788			2,638
Less: accumulated depreciation and amortization		(1,765	)		(1,704	)
Property and equipment, net	$	1,023		$	934

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ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables)

3 Months Ended

Mar. 31, 2016

Payables and Accruals [Abstract]

Accounts Payable and Accrued Expenses

	2016		2015
	(in thousands)
Trade accounts payable	$	316	$	262
Sales taxes payable		539		539
Accrued directors’ fees		385		377
Other accrued expenses		224		290
Total accounts payable and accrued expenses	$	1,464	$	1,468

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STOCKHOLDERS' EQUITY (Tables)

3 Months Ended

Mar. 31, 2016

Stockholders' Equity Note [Abstract]

Stock Option Activity

						Weighted Average
				Weighted		Remaining
	Shares			Average Exercise		Contractual Term		Aggregate Intrinsic Value
	(in thousands)			Price		(in years)		(in thousands)
Outstanding at January 1, 2016		600		$	1.24		2.10	$	--
Forfeited		(100	)	$	1.65
Outstanding at March 31, 2016		500		$	1.16		1.71	$	--
Exercisable at March 31, 2016		400		$	1.17		0.99	$	--

Stock Option Information

Outstanding Options
		Weighted Average
	Number Outstanding	Remaining	Options Exercisable
Exercise Prices	(in thousands)	Contractual Life	(in thousands)
$0.90	90	4.00 Years	30
$1.15	310	0.88 years	306
$1.20	20	0.23 years	20
$1.50	80	2.72 years	44
Total	500	1.71 years	400

Non-vested Stock Grants

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-Vested at January 1, 2016		78		$	0.74
Granted		161		$	0.62
Vested		(43	)	$	0.68
Non-Vested at March 31, 2016		196		$	0.65

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MAJOR CUSTOMERS (Tables)

3 Months Ended

Mar. 31, 2016

Revenues [Member]

Concentration Risk [Line Items]

Customers Accounted for Significant Portion of Revenues and Accounts Receivable

	% of Total Revenues  Three Months Ended  March 31,
	2016			2015
HPE Customer A		11.0	%		14.2	%
HPE Customer B		13.2			11.2
HPE Customer C		7.9			6.2
Total HPE		32.1	%		31.6	%
IBM		38.3			39.7
Other Major Customer		11.7			9.1
Total Major Customers		82.1	%		80.4	%
Others		17.9			19.6
Total		100.0	%		100.0	%

Accounts Receivable [Member]

Concentration Risk [Line Items]

Customers Accounted for Significant Portion of Revenues and Accounts Receivable

	2016		2015
Total HPE	$	735	$	389
IBM		453		467
One Other Major Customer		208		224
Total	$	1,396	$	1,080

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NATURE OF BUSINESS (Details Narrative) - Customer	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Concentration Risk [Line Items]
Number of major customers	3
Revenues [Member]
Concentration Risk [Line Items]
Ratio of revenues from major customers to total revenues	100.00%	100.00%
Revenues [Member] | Customers [Member]
Concentration Risk [Line Items]
Ratio of revenues from major customers to total revenues	82.10%	80.40%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Earnings Per Share [Abstract]
Basic weighted average shares outstanding	12,928	12,792
Restricted stock grants		10
Weighted average shares outstanding-diluted	12,928	12,802

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Accounting Policies [Abstract]
Options to purchase common stock	563	629
Restricted stock grants	225	14
Potential anti-dilutive common shares	788	643

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PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Summary of property and equipment [Abstract]
Property and equipment, gross	$ 2,788	$ 2,638
Less: accumulated depreciation and amortization	(1,765)	(1,704)
Property and equipment, net	1,023	934
Computer Equipments And Purchased Software [Member]
Summary of property and equipment [Abstract]
Property and equipment, gross	$ 1,428	1,378
Estimated useful lives	3 years
Software Development [Member]
Summary of property and equipment [Abstract]
Property and equipment, gross	$ 1,201	1,101
Estimated useful lives	5 years
Furnitures and fixtures and leasehold improvements [Member]
Summary of property and equipment [Abstract]
Property and equipment, gross	$ 159	$ 159
Furnitures and fixtures and leasehold improvements [Member] | Minimum [Member]
Summary of property and equipment [Abstract]
Estimated useful lives	5 years
Furnitures and fixtures and leasehold improvements [Member] | Maximum [Member]
Summary of property and equipment [Abstract]
Estimated useful lives	7 years

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PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Property, Plant and Equipment [Abstract]
Depreciation and amortization	$ 61	$ 80

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ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Summary of Accounts Payable and Accrued Expenses [Abstract]
Trade accounts payable	$ 316	$ 262
Sales taxes payable	539	539
Accrued directors' fees	385	377
Other accrued expenses	224	290
Total accounts payable and accrued expenses	$ 1,464	$ 1,468

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CAPITAL LEASE OBLIGATIONS (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($) Customer	Dec. 31, 2015 USD ($)
Capital Lease Obligations [Abstract]
Number of capital lease equipments obligation | Customer	2
Expiration period of capital lease obligations	Jun. 30, 2016
Gross book value of capital leased assets	$ 77	$ 77
Net book value of capital leased assets	$ 8	$ 21
Minimum [Member]
Capital Lease Obligations [Abstract]
Interest rate capital leases	7.40%
Maximum [Member]
Capital Lease Obligations [Abstract]
Interest rate capital leases	8.90%

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STOCKHOLDERS' EQUITY (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Shares
Outstanding at January 1, 2016	600,000
Forfeited	(100,000)
Outstanding at March 31, 2016	500,000	600,000
Exercisable at March 31, 2016	400,000
Weighted Average Exercise Price
Outstanding at January 1, 2016	$ 1.24
Forfeited	1.65
Outstanding at March 31, 2016	1.16	$ 1.24
Exercisable at March 31, 2016	$ 1.17
Weighted Average Remaining Contractual Term (in years)
Outstanding	1 year 8 months 16 days	2 years 1 month 6 days
Exercisable at March 31, 2016	11 months 27 days
Aggregate Intrinsic Value (in thousands)

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STOCKHOLDERS' EQUITY (Details 1) - shares	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Number Outstanding	500,000	600,000
Weighted Average Remaining Contractual Life	1 year 8 months 16 days	2 years 1 month 6 days
Options Exercisable	400,000
Exercise Prices 0.90 [Member]
Number Outstanding	90,000
Weighted Average Remaining Contractual Life	4 years
Options Exercisable	30,000
Exercise Price 1.15 [Member]
Number Outstanding	310,000
Weighted Average Remaining Contractual Life	10 months 17 days
Options Exercisable	306,000
Exercise Price 1.20 [Member]
Number Outstanding	20,000
Weighted Average Remaining Contractual Life	2 months 23 days
Options Exercisable	20,000
Exercise Price 1.50 [Member]
Number Outstanding	80,000
Weighted Average Remaining Contractual Life	2 years 8 months 19 days
Options Exercisable	44,000

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STOCKHOLDERS' EQUITY (Details 2)	3 Months Ended
	Mar. 31, 2016 $ / shares shares
Non-Vested Shares
Non-Vested at January 1, 2016 | shares	78,000
Granted | shares	161,000
Vested | shares	(43,000)
Non-Vested at March 31, 2016 | shares	196,000
Weighted-Average Grant Date Fair Value
Non-Vested at January 1, 2016 | $ / shares	$ 0.74
Granted | $ / shares	0.62
Vested | $ / shares	0.68
Non-Vested at March 31, 2016 | $ / shares	$ 0.65

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STOCKHOLDERS' EQUITY (Details Narrative) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
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
Percentage of stock options vesting up- to first anniversary		25.00%
Percentage of stock options vesting from year two to fourth anniversary		75.00%
Percentage of stock options vesting for second three years		33.00%
Vesting period of stock option		5 years
Volatility rate		90.00%
Risk free rate		0.89%
Dividend rate		0.00%
Expected term		3 years 9 months
Stock option granted		41,557
Stock option granted fair value		$ 28
Unrecognized compensation costs	$ 56
Future expected expense for non-vested shares	128
Restricted Stock [Member]
Shares issued for compensation, fair value	$ 11
Stock option vested during the period	43,110	27,000
Stock option vested during the period fair value	$ 29	$ 22
Stock option granted	161,812	135,000
Stock option granted fair value	$ 100	$ 100
2014 Plan [Member]
Shares available for issuance	651,464
Employee [Member]
Stock option granted	90,000
Stock option granted fair value	$ 44
Director [Member]
Accrued fees		$ 103
Director [Member] | Restricted Stock [Member]
Shares issued for compensation		111,602

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INCOME TAXES (Details Narrative) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Unrecognized tax benefits	$ 0		$ 0
Unrecognized tax benefits, interest and penalties	$ 0	$ 0
Period for which the position in unrecognized tax benefit is not expected to change	1 year
Net operating loss carryforwards related to tax benefit	$ 1,193
Federal Tax Authority [Member]
Operating loss carryforwards	25,000
State and Local Jurisdiction [Member]
Operating loss carryforwards	$ 20,000
Minimum [Member]
Operating loss carryforwards, expiration dates	Dec. 31, 2019
Maximum [Member]
Operating loss carryforwards, expiration dates	Dec. 31, 2035

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COMMITMENT AND CONTINGENCIES (Details Narrative) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($)
Chief Executive Officer [Member]
Employment Agreement [Abstract]
Base salary per month as per employment agreements	$ 24,583

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MAJOR CUSTOMERS (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($) Customer	Mar. 31, 2015	Dec. 31, 2015 USD ($)
Concentration Risk [Line Items]
Number of major customers | Customer	3
Revenues [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	100.00%	100.00%
Revenues [Member] | HPE Customer A [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	11.00%	14.20%
Revenues [Member] | HPE Customer B [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	13.20%	11.20%
Revenues [Member] | HPE Customer C [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	7.90%	6.20%
Revenues [Member] | HPE [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	32.10%	31.60%
Revenues [Member] | I B M [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	38.30%	39.70%
Revenues [Member] | Other Major Customer [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	11.70%	9.10%
Revenues [Member] | Total Major Customers [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	82.10%	80.40%
Revenues [Member] | Others [Member]
Summary of customers accounted for significant portion of revenues [Abstract]
Major customer, revenues (in hundredths)	17.90%	19.60%
Accounts Receivable [Member]
Summary of customers accounted for significant portion of accounts receivable [Abstract]
Major customer, accounts receivable	$ 1,396		$ 1,080
Accounts Receivable [Member] | HPE [Member]
Summary of customers accounted for significant portion of accounts receivable [Abstract]
Major customer, accounts receivable	735		389
Accounts Receivable [Member] | I B M [Member]
Summary of customers accounted for significant portion of accounts receivable [Abstract]
Major customer, accounts receivable	453		467
Accounts Receivable [Member] | One Other Major Customer [Member]
Summary of customers accounted for significant portion of accounts receivable [Abstract]
Major customer, accounts receivable	$ 208		$ 224