UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                  FORM 10-QSB
                                   (Mark One)


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


                  For the quarterly period ended June 30, 2005

                                       OR

[ ] TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15 (d) OF THE  SECURITIES
    EXCHANGE ACT OF 1934


                For the transition period from ______ to ______

                         Commission File No. 0 - 20660


                              DIRECT INSITE CORP.
        (Exact name of Small Business Issuer as specified in its Charter)


               Delaware                                  11-2895590
    (State or other jurisdiction of                   (I.R.S. Employer
     incorporation or organization)                   Identification  No.)


   80 Orville Drive, Bohemia, N.Y.                         11716
(Address of principal executive offices)                 (Zip Code)


Registrant's telephone number, including area code      (631) 244-1500

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                       Yes     X               No


The number of shares of $.0001 par value stock  outstanding  as of July 31, 2005
was: 4,640,656

Transitional Small Business Disclosure Format (check one): Yes    No  X
                                                              ---    ---
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                                     INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                                             Page
<S>   <C>                                                                                                  <C>

     Item 1

     Condensed Consolidated Balance Sheets as of June 30, 2005 (Unaudited) and
       December 31, 2004 .................................................................................  3
     Condensed Consolidated Statements of Operations
       For the Three and Six Months Ended June 30, 2005 and 2004 (Unaudited)..............................  4

     Condensed Consolidated Statements of Cash Flows
       For the Six Months Ended June 30, 2005 and 2004 (Unaudited)........................................  5

     Notes to Condensed Consolidated Financial Statements (Unaudited) ....................................  6

     Item 2

     Management's Discussion and Analysis or Plan of Operations .......................................... 15

     Item 3

     Controls and Procedures.............................................................................. 18

PART II - OTHER INFORMATION

     Item 1. Legal Proceedings ........................................................................... 20

     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.................................. 20

     Item 3. Defaults Upon Senior Securities ............................................................. 20

     Item 4.  Submission of Matters to a Vote of Security Holders ........................................ 20

     Item 5. Other Information ........................................................................... 20

     Item 6. Exhibits..................................................................................... 20

     Signatures .......................................................................................... 21


CERTIFICATIONS ........................................................................................... 22
</TABLE>
<PAGE>

                      DIRECT INSITE CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    AS OF JUNE 30, 2005 AND DECEMBER 31, 2004
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                    June 30,           December 31,
                                                                                      2005                 2004
                                                                              --------------------- --------------------
                                                                                  (Unaudited)            (Audited)
<S>                                                                           <C>                   <C>
ASSETS
Current assets
  Cash and cash equivalents                                                   $             128     $             306
  Accounts receivable, net of allowance for doubtful accounts of
   $2 in 2005 and 2004                                                                    1,699                 1,871
  Prepaid expenses and other current assets                                                 160                   262
  Assets from discontinued operations                                                         2                    --
                                                                              -----------------     -----------------
       Total current assets                                                               1,989                 2,439

Property and equipment, net                                                                 519                   577
Other assets                                                                                305                   285
                                                                              -----------------     -----------------
         TOTAL ASSETS                                                         $           2,813     $           3,301
                                                                              =================     =================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities
  Accounts payable and accrued expenses                                       $           2,131     $           2,086
  Short-term revolving loans                                                                824                 1,012
  Notes payable, net of discount                                                            535                    --
  Dividends payable, current                                                              1,417                   376
  Current portion of long-term debt                                                         751                   782
  Deferred revenue                                                                           --                   623
  Liabilities from discontinued operations                                                   76                   112
                                                                              -----------------     -----------------
       Total current liabilities                                                          5,734                 4,991

Long term debt, net of current portion                                                      105                   125
Dividends payable, net of current portion                                                     7                   722
                                                                              -----------------     -----------------
       Total liabilities                                                                  5,846                 5,838
                                                                              -----------------     -----------------
Commitments and contingencies

Shareholders' deficiency
  Preferred stock, $0.0001 par value; 2,000,000 shares authorized;
    Series A Convertible Preferred, 134,680 issued and outstanding
    in 2005 and 2004; liquidation preference of $2,750,000 in 2005 and
    2004                                                                                      -                     -
    Series B Redeemable Preferred, 974 shares issued and outstanding
    in 2005 and 2004; liquidation preference of $974,075 in 2005 and 2004                     -                     -
    Series C Redeemable Preferred, 2,000 shares issued and outstanding
    in 2005 and 2004; liquidation preference of $2,000,000 in 2005 and 2004
     Series D Redeemable Preferred, 100 shares issued and outstanding
    in 2005 and 2004; liquidation preference of $100,000 in 2005 and 2004
  Common stock, $0.0001 par value; 50,000,000
    shares authorized in 2005 and 2004;
    4,680,583 and 4,547,013 shares issued in 2005 and 2004,
    respectively; and 4,640,656 and 4,507,086 shares outstanding
    in 2005 and 2004, respectively                                                            -                     -
  Additional paid-in capital                                                            112,867               112,484
  Unearned compensation                                                                     (14)                  (50)
  Accumulated deficit                                                                  (115,558)             (114,643)
                                                                              -----------------     -----------------
                                                                                         (2,705)               (2,209)

  Common stock in treasury, at cost  - 24,371 shares                                       (328)                 (328)
                                                                              -----------------     -----------------
       Total shareholders' deficiency                                                    (3,033)               (2,537)
                                                                              -----------------     -----------------
          TOTAL LIABILITIES AND SHAREHODERS' DEFICIENCY                       $           2,813     $           3,301
                                                                              =================     =================
</TABLE>

See notes to condensed consolidated financial statements.                      3
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                               Three Months Ended              Six Months Ended
                                                                    June 30,                       June 30,
                                                               2005           2004            2005           2004
                                                          --------------- -------------- --------------- --------------
   <S>                                                    <C>             <C>            <C>             <C>
   Revenue from continuing operations                     $       2,318   $       1,716  $       4,398   $       3,822
                                                          -------------   -------------  -------------   -------------
   Costs and expenses
     Operations, research and development                         1,034             846          2,047           1,764
     Sales and marketing                                            559             422
     General and administrative                                     780             755          1,472           1,404
     Amortization and depreciation                                  115             142            228             285
                                                          -------------   -------------  -------------   -------------
                                                                  2,488           2,165          4,778           4,267
                                                          -------------   -------------  -------------   -------------
   Operating loss                                                  (170)          (449)           (380)           (445)

   Other expenses
     Interest expense, net                                         (125)            (82)          (200)           (147)
     Other expense                                                   --             (33)            --             (33)
                                                          -------------   -------------  -------------   -------------
   Loss before provision for income taxes                          (295)           (564)          (580)           (625)

   Provision for income taxes                                         1               3              1               4
                                                          -------------   -------------  -------------   -------------
   Loss from continuing operations                                 (296)           (567)          (581)           (629)

   (Loss) income from discontinued operations                        (9)             59             (9)            263
                                                          -------------   -------------  -------------   -------------
   Net loss                                                        (305)           (508)          (590)           (366)

   Preferred stock dividends                                       (171)           (170)          (325)           (298)
                                                          -------------   -------------  -------------   -------------
   Net loss attributable to
        common shareholders                               $        (476)  $        (678) $        (915)  $        (664)
                                                          =============   =============  =============   =============

   Basic and diluted loss per share:
     Basic and diluted loss from continuing operations    $       (0.10)  $       (0.17) $       (0.20)  $       (0.22)
     Basic and diluted income  from discontinued operations          --            0.01             --            0.06
                                                          -------------   -------------  -------------   -------------
   Basic and diluted loss  per share                      $       (0.10)  $       (0.16) $       (0.20)  $       (0.16)
                                                          =============   =============  =============   =============
   Basic and diluted weighted average common shares
    outstanding                                                   4,600           4,288          4,560           4,186
                                                          =============   =============  =============   =============
</TABLE>

See notes to condensed consolidated financial statements.                      4
<PAGE>



                               DIRECT INSITE CORP
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
                        (In thousands, except share data)
<TABLE>
<CAPTION>

                                                                                          For the six months ended
                                                                                                   June 30,
                                                                                           2005              2004
                                                                                     ----------------- ------------------
<S>                                                                                    <C>               <C>
Cash flows from operating activities

 Loss from continuing operations                                                       $        (581)    $        (629)
 Adjustments to reconcile loss from continuing operations
  to net cash used in continuing operations:
   Amortization and depreciation:
     Property and equipment                                                                      229               285
     Discount on debt                                                                             43
    Common stock and options issued for services                                                 113                 4
    Unearned compensation                                                                         36                --

  Changes in operating assets and liabilities:
    Accounts receivable                                                                          172              (233)
    Prepaid expenses and other current assets                                                    102                34
    Other assets                                                                                 (20)               14
    Accounts payable and accrued expenses                                                         57              (379)
    Deferred revenue                                                                            (623)              (96)
                                                                                       -------------     -------------
       Net cash used in continuing operations                                                   (472)           (1,000)
                                                                                       -------------     -------------
Cash flows from discontinued operations:
  Income (loss) from discontinued operations                                                      (9)              263
  Change in:
    Assets and liabilities from discontinued operations                                          (38)             (429)
                                                                                       -------------     -------------
       Net cash used in discontinued operations                                                  (47)             (166)
                                                                                       -------------     -------------
       Net cash used in operating activities                                                    (519)           (1,166)
                                                                                       -------------     -------------
Cash flows from investing activities
 Expenditures for property and equipment                                                        (127)              (31)
                                                                                       -------------     -------------
       Net cash used in investing activities                                                    (127)              (31)
                                                                                       -------------     -------------
Cash flows from financing activities
 Proceeds from sales of preferred stock                                                           --             1,410
 (Repayments) advances from revolving loans, net                                                (188)               16
 Proceeds from short-term notes                                                                  750                --
 Repayments of long-term debt                                                                    (94)             (115)
                                                                                       -------------     -------------
       Net cash provided by financing activities                                                 468             1,311
                                                                                       -------------     -------------

Net (decrease) increase in cash and cash equivalents                                            (178)              114

Cash and cash equivalents - beginning of period                                                  306                75
                                                                                       -------------     -------------
Cash and cash equivalents - end of period                                              $         128     $         189
                                                                                       =============     =============
Cash paid for interest                                                                 $         149     $         145
Non-cash investing and financing activities:

Debt discount on loans                                                                 $         258     $          --
                                                                                       =============     =============
Equipment acquired with lease financing                                                $          43     $          --
Issuance of common shares and options to purchase                                      =============     =============
common shares for services and fees                                                    $          12     $         257
                                                                                       =============     =============
</TABLE>

See notes to condensed consolidated financial statements.                      5
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

1.   Interim Financial Information

     The  condensed  consolidated  balance  sheet as of June 30,  2005,  and the
     condensed  consolidated  statements  of  operations  and cash flows for the
     three  and six  month  periods  ended  June 30,  2005 and  2004,  have been
     prepared  by the  Company  and are not  audited.  These  interim  financial
     statements include all adjustments which management considers necessary for
     a fair  presentation  of the  financial  statements  and  consist of normal
     recurring  items.  The  results of  operations  for the three and six month
     periods ended June 30, 2005, are not necessarily indicative of results that
     may be expected for any other interim period or for the full year.

     These unaudited condensed  consolidated financial statements should be read
     in conjunction with the consolidated financial statements and notes thereto
     for the year ended December 31, 2004 included in the Company's  Form-10KSB.
     The  accounting  policies  used  in  preparing  these  unaudited  condensed
     consolidated  financial  statements are consistent  with those described in
     the December 31, 2004 consolidated financial statements.

2.   The Company

     Direct Insite Corp. and subsidiaries (the "Company"),  primarily operate as
     an  application  service  provider  ("ASP"),  that  markets  an  integrated
     transaction based "fee for service" offering called Invoices On-Line (IOL),
     an  electronic  invoice   presentment  and  payment  (EIP&P)  service  that
     processes  high  volumes  of  transactional  data for  invoice  presentment
     purposes delivered via the Internet on a global basis.

     The Company also provides  additional  service offerings in the form of its
     patented dbExpress TM technology, a management information tool that allows
     users to visually  data mine large  volumes of  transactional  data via the
     Internet.  A complete  Internet  Customer Care tool set integrated with the
     EIP&P product set is also available.  The Company  operates fully redundant
     data  centers  located at its main  office in Bohemia,  N.Y.  and in an IBM
     co-location facility in Newark, NJ.

     Management's liquidity plans are discussed in Note 9. Also, as described in
     Note 8, the Company has two customers that accounted for  approximately 70%
     and 28% of the  Company's  revenue for the six month  period ended June 30,
     2005.  Loss of either of these  customers  would  have a  material  adverse
     effect on the Company.

     Stock Options and Similar Equity Instruments
     As permitted under Statement of Financial Accounting Standards ("SFAS") No.
     148,   "Accounting   for   Stock-Based   Compensation   --  Transition  and
     Disclosure",  which  amended  SFAS No.  123,  "Accounting  for  Stock-Based
     Compensation",  the Company has elected to continue to follow the intrinsic
     value  method  in  accounting  for its  stock-based  employee  compensation
     arrangements as defined by Accounting  Principles Board Opinion ("APB") No.
     25, "Accounting for Stock Issued to Employees", and related interpretations
     including  FASB  Interpretation  ("FIN")  No. 44,  "Accounting  for Certain
     Transactions  Involving Stock  Compensation",  an interpretation of APB No.
     25. The following table illustrates the effect on net loss and net loss per
     share if the Company had applied the fair value  recognition  provisions of
     SFAS No. 123 to stock-based employee compensation (in thousands, except per
     share data):

                                                                               6
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004



2.   The Company (continued)
<TABLE>
<CAPTION>
                                                                    Three Months Ended          Six Months Ended
                                                                         June 30,                   June 30,
                                                                --------------------------- -------------------------
                                                                    2005          2004           2005         2004
                                                                ------------ -------------- ------------- -----------
      <S>                                                          <C>          <C>            <C>          <C>
      Net loss attributable to common shareholders
      As reported                                                 $   (476)    $   (678)      $   (915)    $   (664)
      Less:  Stock-based employee compensation
       expense determined under fair value-based
       method for all awards                                          (161)        (400)          (317)        (445)
                                                                  --------     --------       --------     --------
      Pro forma                                                   $   (637)    $ (1,078)      $ (1,232)    $ (1,109)
                                                                  ========     ========       ========     ========
     Basic and diluted net loss per share
      As reported                                                 $  (0.10)    $  (0.16)        $(0.20)      $(0.16)
                                                                  ========     ========       ========     ========
      Pro forma                                                   $  (0.14)    $  (0.25)        $(0.27)      $(0.26)
                                                                  ========     ========       ========     ========
</TABLE>

     The fair value of Company  common stock  options  granted to employees  are
     estimated on the date of grant using the Black-Scholes option-pricing model
     with the following assumptions:  (1) expected volatility ranging from 71.4%
     to 71.9% in 2005 and 68.1% in 2004,  (2) risk-free  interest  rates ranging
     from  4.00% to 4.50% in 2005 and  4.00% in 2004 and (3)  expected  lives of
     4.50 years in 2005 and 5.50 years in 2004.

3.   Reclassifications

     Certain  reclassifications  have  been made to the  condensed  consolidated
     financial statements shown for the prior period in order to have it conform
     to the current period's classifications.

4.   Discontinued Operations

     In  2001,  the  Company  and  Platinum  Communications,  Inc.  ("Platinum")
     completed  a  merger  under  an  Agreement  and  Plan  of  Merger  ("Merger
     Agreement").  Under the  Merger  Agreement,  a newly  formed  wholly  owned
     subsidiary of the Company  acquired all of the outstanding  common stock of
     Platinum.  As a result of the lack of development of the Platinum  business
     and to focus the  Company's  resources  on its core  business,  in December
     2003, the Company decided to close the operations of Platinum. Accordingly,
     the results of operations  and the assets and  liabilities  of Platinum are
     presented as discontinued operations for both the current and prior period.
     The income is  reflected  as income  from  discontinued  operations  in the
     accompanying condensed consolidated statements of operations. The following
     table reflects the results of the  discontinued  operations of Platinum for
     the three and six month periods ended June 30, 2005 and 2004, respectively:

                                                                               7
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
<TABLE>
<CAPTION>
                                                       Three Months Ended                 Six Months Ended
                                                             June 30                           June 30
                                                       2005            2004             2005            2004
                                                       ----            ----             ----            ----
          <S>                                       <C>             <C>                <C>            <C>
          Costs and Expenses
          General and administrative                        (5)            --                (5)             --

           Other income  - net                              --             61                --             268
           Interest expense, net                            (4)            (2)               (4)             (5)
                                                    ----------      ----------         --------       ---------
                 (Loss) income from
                 discontinued operations            $       (9)     $      59          $     (9)      $     263
                                                    ==========      ==========         ========       =========
</TABLE>

At June  30,  2005,  the  discontinued  operation  had  $2,000  in  assets.  The
liabilities of the discontinued operation at June 30, 2005 include loans payable
totaling $56,000, and accounts payable and accrued liabilities of $20,000.


5.   Accounts Receivable and Revolving Loans

     The Company  has an Accounts  Receivable  Purchase  Agreement  with a Bank,
     whereby  the Company  from time to time may assign  some of their  accounts
     receivable to the Bank on a full  recourse  basis.  Upon  specific  invoice
     approval, an advance of 80% of the underlying receivable is provided to the
     Company.  The  remaining  balance  (20%),  less  an  administrative  fee of
     approximately  0.5% plus interest at the rate of 1-1/2% per month,  is paid
     to the  Company  once the  customer  has paid.  The  maximum  amount of all
     assigned receivables outstanding at any time shall not exceed $1.5 million.
     The initial term of the agreement was for one year, and continues until due
     notice  of  termination  is  given  at any  time  by  either  party  to the
     agreement.  At June  30,  2005,  the  Company  had  assigned  approximately
     $839,000  of  accounts  receivable  to the Bank and  received  advances  of
     $671,000.

     In May 2004,  the Company  entered into an Agreement with DIRI Rec Fund LLC
     (the "Rec Fund") whereby the Company may assign certain accounts receivable
     on a full recourse basis to the Rec Fund as security for advances  (loans).
     The Rec Fund was  established  solely to advance  funds to the Company upon
     the  assignment of  receivables.  The Rec Fund is  administered  by a third
     party trustee.  Certain  shareholders  of the Company and a Director of the
     Company,  are the principal investors in the Rec Fund. Under the Agreement,
     the Company  pays  interest at the rate of one (1) percent per month on the
     maximum  purchase  amount (as defined in the agreement) of the Rec Fund and
     pays the administrative costs of the Rec Fund which approximate $12,000 per
     year.  At June 30, 2005 the Rec Fund had a total  principal  available  for
     assignment  of $250,000 and the Company had  outstanding  advances from the
     Rec Fund of $153,000 resulting in $97,000 availability under the agreement.

                                                                               8
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004


6.   Debt

     Notes payable
     -------------

          At June 30, 2005 notes payable consist of the notes as described below
          of $750,000 less debt discount of $215,000.

          In  March  2005,  the  Company  entered  into  a  Securities  Purchase
          Agreement (the  "Agreement") with Sigma Opportunity Fund LLC ("Sigma")
          and Metropolitan Venture Partners II, L.P. ("MetVP"), collectively the
          "Buyers",  whereby the Buyers  purchased Senior  Subordinated  Secured
          Notes (the "Note Purchase") in the aggregate  amount of $750,000.  The
          notes  bear  interest  at the  rate  of five  percent  (5%)  per  year
          beginning June 28, 2005,  and are payable  quarterly in cash or common
          stock at the option of the Buyers.  The Notes mature on the earlier to
          occur of (i)  September 29, 2006, or (ii) the date on which demand for
          payment  of the loan  payable to  JPMorgan  Chase Bank is made and are
          collateralized  by all the assets of the  Company  excluding  accounts
          receivable as defined under the Accounts Receivable Purchase Agreement
          (see Note 5). In  connection  with the note  purchase  the Buyers were
          issued warrants to purchase 750,000 common shares of the Company.  The
          exercise  price of the  warrants  is $0.90 per  share of common  stock
          subject to adjustment on the  occurrence of certain events as defined.
          The Company  recorded a debt discount of $258,000 for the value of the
          warrants.  Under the terms of the agreement, not later than August 30,
          2005, the Company is required to file with the Securities and Exchange
          Commission  a  Registration  Statement  to register a number of common
          shares equal to the maximum number of shares that would be issuable to
          the Buyers in payment of  interest on the notes  through the  maturity
          date plus a number of common  shares  issuable  upon  exercise  of the
          warrants. Sigma had an exclusive right to lead a "Follow-on-Financing"
          for 45 days  following  the closing and the Company has granted  Sigma
          additional time. In the event that the Follow-on-Financing  does occur
          the exercise price of the warrants issued in conjunction with the Note
          Purchase  will be  adjusted  as agreed  between  the  Company  and the
          buyers.  In the event the Follow-on-  Financing is not consummated the
          exercise price of the warrants shall be $0.01 per common share.

     Long-term debt
     --------------

Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                                  June 30,           December 31,
                                                                    2005                 2004
                                                             -------------------- --------------------
<S>                                                               <C>                 <C>
Lines of credit (a)                                               $     642           $      668
Capitalized lease obligations (b)                                       214                  239
                                                                  ---------           ----------
                                                                        856                  907
Less current portion                                                   (751)                (782)
                                                                  ---------           ----------
Long-term debt, net of current portion                            $     105           $      125
                                                                  =========           ==========
</TABLE>

                                                                               9
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

6. Debt (continued)

     (a) In June  2003,  the  Company  obtained a  discretionary  Line of Credit
     ("LoC") in the amount of $500,000 from JP Morgan  Private Bank ("JPMC") and
     this LoC was  renewed  in June  2005.  The LoC is  guaranteed  by Tall Oaks
     Group,  LLC, an  affiliate  of MetVP,  and is  repayable  on the earlier of
     demand or June 30, 2007.  Subsequent to June 30, 2005, the guarantors  were
     issued  500,000  warrants  to purchase  common  shares of the Company at an
     exercise price of $1.00 per share. The warrants were valued at $148,000 and
     will be amortized as  compensation  expense over the life of the loan.  The
     LoC permitted two forms of draw down; one based upon prime rate, the second
     based upon LIBOR.  In July 2003, the Company  elected to draw down $500,000
     applying the terms and conditions set forth for LIBOR. The interest rate is
     the JPMC  reserve  adjusted  LIBOR plus  2.30%.  As of June 30,  2005,  the
     applicable interest rate was 5.74%.

     Also in 2003, the Company  obtained,  and fully drew upon, a second line of
     credit from Sterling  National Bank ("Sterling") in the amount of $250,000.
     The line is guaranteed by the Company's  CEO,  secured by the assets of the
     Company,  and carries an interest  rate of 7%.  Repayments  are  calculated
     monthly at 2.778% of the outstanding balance,  plus interest,  and continue
     until  the line is  fully  paid.  At June  30,  2005,  the  Company  had an
     outstanding balance of approximately $142,000 under the line of credit.

(b)  The Company has  equipment  under  capital  lease  obligations  expiring at
     various times through 2008. The assets and liabilities under capital leases
     are  recorded  at the  lower of the  present  values of the  minimum  lease
     payments or the fair values of the assets.


7.   Shareholders' Deficiency

     Common Stock and Option Issuances
     ---------------------------------

     During the six months  ended June 30,  2005,  the  Company  issued  133,570
     unregistered  shares of common stock and options to purchase 265,000 shares
     of its common stock as follows:

     --   The Company issued 133,570  shares,  valued at $119,000,  to employees
          and consultants for services;

     --   The  Company  issued  5,000  options to  purchase  common  stock to an
          employee.  The options vested upon issuance and have an exercise price
          of $1.65 per share. The options had a fair value of $5,000 at the date
          of the grant.

     --   The Company issued 60,000 options to purchase  common stock to a sales
          consultant. The options vest ratably over 3 years and have an exercise
          price of $1.50 per share.  The  options had a fair value of $57,000 at
          the date of the grant.

     --   Under the terms of an employment agreement,  the Company issued to its
          president  100,000  options to purchase  common  shares at an exercise
          price of $0.50 per share.  These  options have an  intrinsic  value of
          $20,000 and will be amortized  over 26 months.  The options had a fair
          value of $48,000 at the date of the grant.  In  addition,  the Company
          issued to its president  100,000  options to purchase common shares at
          the market  price on the date of the  grant.  The  options  had a fair
          value of $43,000 at the date of the grant.

     Earnings Per Share
     ------------------

     The Company  displays  earnings per share in accordance  with SFAS No. 128,
     "Earnings Per Share".  SFAS No. 128 requires dual presentation of basic and
     diluted  earnings per share ("EPS").  Basic EPS includes no dilution and is
     computed by dividing net income (loss) attributable to common

                                                                              10
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004


7.   Shareholders' Deficiency (continued)

     shareholders  by the weighted  average number of common shares  outstanding
     for the period.  Diluted EPS includes  the  potential  dilution  that could
     occur if securities or other contracts to issue common stock were exercised
     or converted into common stock.  Outstanding  stock  options,  warrants and
     other potential stock issuances have not been considered in the computation
     of  diluted  EPS  amounts  since  the  effect of their  inclusion  would be
     antidilutive.

     Securities that could potentially dilute basic EPS in the future, that were
     not included in the  computation  of the diluted EPS because to do so would
     have been antidilutive for the periods presented,  consist of the following
     (in thousands):
<TABLE>
       <S>                                                                 <C>
       Options to purchase common stock                                    4,839
       Convertible preferred stock and warrants to acquire common stock    4,178
                                                                           -----
             Total potential common shares as of June 30, 2005             9,017
                                                                           =====
</TABLE>

8.   Products and Services

     The Company and its subsidiaries  currently operate in one business segment
     and provide two separate  products:  ASP  services  and custom  engineering
     services.
<TABLE>
<CAPTION>
                                                 Three Months Ended             Six Months Ended
                                                      June 30,                      June 30,
                                                   2005           2004          2005           2004
                                           ---------------- -------------- ------------- --------------
 <S>                                               <C>             <C>             <C>         <C>
  ASP IOL fees                                     $1,439          $   971         $2,589      $  1,961
  ASP telecommunications fees                          12              143             26           299
  Custom engineering fees                             867              602          1,783         1,562
                                                   ------           ------         ------        ------
       Total Revenue                               $2,318           $1,716         $4,398        $3,822
                                                   ======           ======         ======        ======
</TABLE>

     Major Customers
     ---------------

     For the  three  months  ended  June 30,  2005  the  Company  had two  major
     customers  that  accounted  for  66.2%  and  30.4% of the  Company's  total
     revenue.  These two customers  accounted for 69.9% and 27.6% of revenue for
     the six  months  ended June 30,  2005.  In 2004 the  Company  had one major
     customer  that  accounted  for 96.2% and 97.5% of revenue for the three and
     six months  ended June 30, 2004,  respectively.  Accounts  receivable  from
     these  customers  amounted to  $1,656,000  at June 30, 2005.

9.   Management's Liquidity Plans

     In order to meet cash needs and to achieve  positive  operating  cash flows
     the Company has and will continue to take various actions and steps that we
     believe will enable us to attain these goals. These actions include:

                                                                              11
<PAGE>

                                 DIRECT INSITE
   CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004



     --   In March 2005 the Company  closed a Bridge Loan  financing  with Sigma
          Capital  Partners LLC and  Metropolitan  Venture Partners II, L.P. and
          received proceeds of $750,000 less

9.   Management's Liquidity Plans (continued)

          legal fees of $55,000 (see Note 6).  Sigma had an  exclusive  right to
          lead a follow-on-  financing for 45 days  following the closing of the
          Bridge Loan and the Company has granted

          Sigma   additional   time.   The   Company   anticipates   that   this
          follow-on-financing  will  provide the working  capital to sustain and
          expand the operations of the Company.

     --   The  Company  and the  holders of the Series A and Series B  Preferred
          stock  have  previously  agreed to defer  payment  of  dividends.  The
          Company may seek to defer these dividends further.

     --   The Company intends to raise additional capital through private equity
          offerings and borrowing.  In 2004,  the Company  received net proceeds
          from  the sale of  Preferred  Stock  of  $1,430,000.  Also in 2004 the
          Company   entered  into  an  agreement  with  DIRI  Rec  Fund  LLC,  a
          corporation  formed and funded to loan  funds to the  Company  against
          accounts receivable, and may receive advances up to $250,000 from Diri
          Rec Fund (see note 5). Further, in June 2005 the Company renewed for a
          period of two years the $500,000 loan  previously  scheduled to mature
          on June 30, 2005 and the  guarantors  of this loan have  consented  to
          this extension (see Note 6).

     --   The Company  continues to strive to increase  revenue through offering
          custom engineering services,  expanding and enhancing existing product
          offerings such as IOL, and introducing new product offerings.  In 2004
          the Company  entered into a new agreement to provide IOL services to a
          Fortune 100  company.  Revenue from this new  customer  accounted  for
          27.6% of total  revenue for the six months ended June 30, 2005. In the
          first  quarter 2005,  the Company added an additional  customer as the
          result of the sale of a part of the business of an existing  customer.
          Management  anticipates  that  revenue from these new  customers  will
          continue to increase in 2005 and beyond and expects to further broaden
          the Company's customer base in 2005.

     --   The  Company  continues  to expand its  marketing  efforts in order to
          increase  the customer  base.  In this  regard,  in 2003,  the Company
          became a business partner with IBM and through this  relationship will
          work with IBM to achieve  sales to new  customers.  The  Company  will
          continue to pursue similar channel partner opportunities. Also, in the
          fourth  quarter  2004 the Company  employed a new sales and  marketing
          executive and engaged an independent sales agent to further expand our
          sales efforts.

Management believes that these plans and new initiatives as discussed above will
lead to positive cash flows and  profitability.  While the Company pursues these
goals  management also believes that the Company's  ability to raise  additional
capital through equity and debt placements will provide  sufficient cash to meet
cash  requirements  at least  through June 30, 2006.  There can be no assurance,

                                                                              12
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

however, that the Company will achieve the cash flow and profitability goals, or
that the Company will be able to raise additional capital sufficient to meet its
operating expenses or implement its plan. In such event, the Company may have to
revise its plans and significantly

10.  New Accounting Pronouncements

     reduce its  operating  expenses,  which  could  have an  adverse  effect on
     revenue and operations in the short term.

     In December 2004, the Financial  Accounting Standards Board ("FASB") issued
     SFAS  No.  123R,  "Share-Based  Payment."  SFAS  No.  123R  eliminates  the
     alternative to use APB No. 25's intrinsic  value method of accounting  that
     was provided in SFAS No 123 as  originally  issued.  SFAS No. 123R requires
     entities to recognize the cost of employee  services in exchange for awards
     of equity  instruments  based on the grant-date  fair value of those awards
     (with limited  exceptions).  That cost will be  recognized  over the period
     during  which the  employee  is required to provide the service in exchange
     for the award.  No compensation  cost is recognized for equity  instruments
     for which  employees  do not render the  requisite  service.  SFAS No. 123R
     requires  entities  to  initially  measure  the cost of  employee  services
     received in exchange  for an award of  liability  instruments  based on its
     current fair value; the fair value of the award will be re-measured at each
     reporting  date through the settlement  date.  Changes in fair value during
     the requisite  service period will be recognized as compensation  cost over
     that  period.  The grant  date fair value of  employee  share  options  and
     similar instruments will be estimated using option-pricing  models adjusted
     for the  unique  characteristics  of those  instruments.  SFAS No.  123R is
     effective  as of the  beginning  of the  Company's  fiscal  year  following
     December  15, 2005  (January 1, 2006).  The  adoption of SFAS No. 123R will
     have no  effect  on the  Company's  consolidated  cash  flows or  financial
     position  but will have an  adverse  effect on the  Company's  consolidated
     results of operations.

     In December 2004, the FASB issued FAS No. 153,  "Exchanges of  Non-monetary
     Assets, an amendment of APB Opinion No. 29." This Statement  eliminates the
     exception from fair value measurement for non-monetary exchanges of similar
     productive  assets in paragraph 21(b) of APB Opinion No. 29 and replaces it
     with an exception for exchanges that do not have commercial substance. This
     Statement specifies that a non-monetary  exchange has commercial  substance
     if the future cash flows of the entity are expected to change significantly
     as a result of the exchange. The provisions of this Statement are effective
     for  non-monetary  asset  exchanges  occurring in fiscal periods  beginning
     after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a
     material  impact  on  the  Company's   consolidated   financial   position,
     liquidity, or results of operations.

     In  April  2004,  the  EITF  issued  Statement  No.  03-06   "Participating
     Securities and the Two-Class Method Under FASB Statement No. 128,  Earnings
     Per Share"  ("EITF  03-06").  EITF 03-06  addresses  a number of  questions
     regarding  the  computation  of earnings per share by  companies  that have
     issued  securities other than common stock that  contractually  entitle the
     holder to  participate  in dividends and earnings of the company when,  and
     if, it declares  dividends  on its common  stock.  The issue also  provides
     further guidance in applying the two-class  method of calculating  earnings
     per share,  clarifying what constitutes a participating security and how to
     apply the  two-class  method of  computing  earnings  per share  once it is
     determined  that a security  is  participating,  including  how to allocate
     undistributed  earnings to such a  security.  EITF 03-06 is  effective  for
     fiscal  periods  beginning  after  March 31,  2004.  The  adoption  of this
     statement did not have any effect on the Company's calculation of EPS.

     In September  2004, the EITF issued  statement  EITF Issue No. 04-08,  "The
     Effect of  Contingently  Convertible  Debt on Diluted  Earnings  per Share"
     ("EITF 04-08").  Contingently  convertible  debt  instruments are generally

                                                                              13
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

     convertible  into common  shares of an issuer  after the common stock price
     has exceeded a predetermined  threshold for a specified period of time (the
     "market price

10. New Accounting Pronouncements (continued)

     contingency").  EITF 04-08 requires that shares issuable upon conversion of
     contingently  convertible  debt be included in diluted  earnings  per share
     computations  regardless of whether the market price contingency  contained
     in the debt  instrument has been met. EITF 04-08 is effective for reporting
     periods  ending after  December 15, 2004 and requires  restatement of prior
     periods to the extent  applicable.  The adoption of this  statement did not
     have an effect on the Company's calculation of EPS.

     In March 2005,  the FASB issued FIN 47, which is effective  for the company
     on December 31, 2005. FIN 47 clarifies that the phrase  "conditional  asset
     retirement  obligation," as used in FASB Statement No. 143, "Accounting for
     Asset Retirement Obligations" ("SFAS No.143"), refers to a legal obligation
     to perform an asset retirement  activity for which the timing and/or method
     of  settlement  are  conditional  on a future  event that may or may not be
     within the  control of the  company.  The  obligation  to perform the asset
     retirement  activity is unconditional  even though uncertainty exists about
     the timing and/or method of settlement. Uncertainty about the timing and/or
     method of settlement of a conditional asset retirement obligation should be
     factored into the measurement of the liability when sufficient  information
     exists.   SFAS  No.  143  acknowledges  that  in  some  cases,   sufficient
     information  may not be available to reasonably  estimate the fair value of
     an asset retirement obligation.  FIN 47 also clarifies when an entity would
     have  sufficient  information  to reasonably  estimate the fair value of an
     asset retirement  obligation.  The company does not expect that adoption of
     FIN 47 will have a significant  effect on its financial position or results
     of operations.

     In May 2005,  FASB  issued  SFAS No.  154, "  Accounting  Changes and Error
     Corrections  " ("SFAS  No.  154").  SFAS  No.  154  requires  retrospective
     application to prior periods' financial statements of changes in accounting
     principle. It also requires that the new accounting principle be applied to
     the balances of assets and  liabilities as of the beginning of the earliest
     period  for  which  retrospective  application  is  practicable  and that a
     corresponding  adjustment  be  made  to the  opening  balance  of  retained
     earnings for that period rather than being reported in an income statement.
     The statement will be effective for accounting  changes and  corrections of
     errors made in fiscal years  beginning  after  December 15, 2005. We do not
     expect  the  adoption  of SFAS No.  154 to have a  material  effect  on our
     financial position or results of operations.

     In June 2005, the EITF reached consensus on Issue No. 05-6, Determining the
     Amortization  Period for Leasehold  Improvements  ("EITF 05-6").  EITF 05-6
     provides  guidance on  determining  the  amortization  period for leasehold
     improvements  acquired in a business  combination or acquired subsequent to
     lease  inception.  The guidance in EITF 05-6 will be applied  prospectively
     and is effective for periods  beginning  after June 29, 2005.  EITF 05-6 is
     not expected to have a material effect on the Company's  financial position
     or results of operations.

                                                                              14
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

Item 2 - Managements Discussion and Analysis or Plan of Operations

Forward looking statements

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

Overview

We primarily operate as an application  service provider  ("ASP"),  providing an
integrated  transaction based "fee for service" offering called Invoices On-Line
("IOL"),  an electronic  invoice  presentment and payment ("EIP&P") service that
processes high volumes of transactional  data for invoice  presentment  purposes
delivered via the Internet on a global basis on behalf of our customers.  IOL is
our  primary  offering  and it is a globally  delivered  service  that  provides
electronic invoice  presentation in the Americas,  Europe and Asia, including 28
different  countries  around  the  globe  and in  more  than  13  languages  and
currencies.  We currently  host several  million  invoices  that are  accessible
"on-line" via the Internet 24 hours per day,  seven days per week,  365 days per
year. IOL is a uniquely positioned service offering in the industry, the service
is designed to handle the complex  invoicing  found in today's  global  business
environment.  The  solution  allows  Global 1000  companies  to receive,  route,
approve  and pay  invoices  on- line in the  local  language  and  currency.  By
automating the traditional  paper-based  invoicing  process,  customers now have
easy and quick access to line-item billing information, reporting and analytics.
With the  enhanced  level of accuracy  provided  by IOL,  invoice  disputes  are
greatly reduced and overall customer satisfaction is substantially increased.

We also  provide  additional  service  offerings  in the  form  of our  patented
dbExpressTM  technology,  a  management  information  tool that allows  users to
visually  data mine large  volumes of  transactional  data via the  Internet.  A
complete  Internet  Customer Care tool set integrated with the EIP&P product set
is also  available.  We operate fully redundant data centers located at our main
office in Bohemia,  N.Y. and in Newark,  NJ. Our facility in New Jersey is space
leased at an  International  Business  Machines  ("IBM"),  e-  business  Hosting
Center. This co-location / redundancy feature enables us to offer virtually down
time free service.

This suite of services enables us to provide a comprehensive  Internet delivered
service from the raw  transaction  record  through all of the internal  workflow
management processes including an electronically delivered invoice with customer
analytics.  This comprehensive service offering provides back office operations,
reduces our  customers'  costs and  provides for  improved  customer  service by
providing the end customer  with easy access to all of the detailed  information
about their bill. We operate fully  redundant  data centers  located at our main
office in Bohemia,  N.Y. and in Newark,  NJ. Our facility in New Jersey is space
leased at an International Business Machines ("IBM"), e-business Hosting Center.
This  co-location / redundancy  feature  enables us to offer virtually down time
free service.

                                                                              15
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

Item 2 - Managements Discussion and Analysis or Plan of Operations (continued)

Currently, IBM, our largest customer,  representing approximately 70% and 98% of
our  revenue  for  the  six  month   periods  ended  June  30,  2005  and  2004,
respectively,  utilizes  our suite of IOL  products  and services to allow their
customers from around the globe to receive,  analyze,  dispute and cost allocate
all of their invoice  related  information  in their local language and currency
via the  Internet  24  hours a day,  7 days a week,  365  days a year.  A second
Fortune 100 customer accounted for 28% of total revenue for the first six months
of 2005.

As  disclosed in Note 6 to the  accompanying  Condensed  Consolidated  Financial
Statements, during the six months ended June 30, 2005, we received proceeds from
the issuance of Senior  Subordinated  Secured Notes of $750,000 less expenses of
$55,000.

Results of operations

For the three and six month  periods  ended  June 30,  2005 we had  losses  from
continuing operations of $296,000 and $581,000, respectively, compared to losses
from  continuing  operations  of $567,000 and  $629,000,  in the same periods in
2004, respectively. The decrease in the losses is principally due to an increase
in revenue for the three and six months ended June 30, 2005, partially offset by
an increase in operating  costs as discussed  below.  Net loss for the three and
six month periods  ended June 30, 2005 was $305,000 and $590,000,  respectively,
compared to net losses of $508,000  and  $366,000  for the same periods in 2004,
respectively.  This includes income from discontinued  operations of $59,000 and
$263,000  in the  three  and six  month  periods  ended  June  30,  2004 and was
principally  the result of  recognizing  income  related to deferred  revenue of
$180,000  included in other  income of the  discontinued  operation in the first
half of 2004.

For the three  months ended June 30, 2005  revenue  from  continuing  operations
increased  $602,000 (35.1%) to $2,318,000  compared to revenue of $1,716,000 for
the same period in 2004.  For the six months ended June 30,  2005,  revenue from
continuing  operations  increased  $576,000  (15.1%) to  $4,398,000  compared to
revenue from  continuing  operations of $3,822,000  for the same period in 2004.
The  increase is  primarily  the result of an increase in revenue  from our core
business, the ASP IOL services, of $468,000 (48.2%) and $628,000 (32.0%) for the
three and six month  periods  ended June 30,  2005.  Additionally,  revenue from
engineering  services increased $221,000 for the six months ended June 30, 2005.
These  increases  are  principally  due to expanded  services to a second  major
customer  added in 2004,  further  deployment  of our IOL services to IBM and an
additional new customer.  These  increases were offset by a decrease of $273,000
in revenue  from  telecommunications  services for the six months ended June 30,
2005. The decrease in the telecommunications  services, which accounted for less
than 1% of total revenue in the first half of 2005 compared to 7.8% for the same
period in 2004, is the result of decreased demand for such services.

Costs of operations,  research and development increased by $188,000 (22.2%) and
$283,000  (16.0%)  to  $1,034,000  and  $2,047,000  for the  three and six month
periods  ended June 30,  2005,  respectively,  compared to costs of $846,000 and
$1,764,000  for the same periods in 2004.  These costs  consist  principally  of
salaries  and related  expenses  for software  developers,  programmers,  custom
engineers,  network services,  and quality control and assurance.  Also included
are  network  costs,  costs of the  production  co-location  facility  and other
expenses directly related to our custom engineering and ASP production services.
The increase in costs for the six months ended June 30, 2005 is principally  due
to  increases  in  personnel  wages  and  benefit  costs of  $180,000  from wage
increases  and staff  additions,  an  increase in  professional  fees of $49,000
resulting from engaging  temporary  technical staff, and an increase in software
purchases of $22,000. All other operating expenses increased $32,000, net.

Sales and  marketing  costs were $559,000 and  $1,031,000  for the three and six
month periods ended June 30, 2005, respectively, an increase of $137,000 (32.5%)
and  $217,000   (26.7%)  compared  to  costs  for  the  same  periods  in  2004.
Professional  fees,  including  personnel  recruiting costs,  increased $81,000,
consulting  fees  increased  $111,000  due  to  engaging  an  independent  sales


                                                                              16
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

Item 2 - Managements Discussion and Analysis or Plan of Operations (continued)

representative  and promotional costs increased  $31,000,  while all other costs
decreased  by  $6,000,  net.  We intend  to  continue  increasing  our sales and
marketing efforts to achieve further growth in our IOL services.

General and administrative  costs increased $25,000 (3.3%) and $68,000 (4.8%) to
$780,000 and $1,472,000 for the three and six month periods ended June 30, 2005,
respectively,  compared to costs of $755,000 and $1,404,000 for the same periods
in 2004.  For the six months  ended June 30, 2005,  salaries  and related  costs
increased $145,000 principally due to the restoration of salary reductions taken
in 2004.  Costs for  directors  meetings  increased  by  $30,000  and legal fees
increased  $34,000.  Insurance  costs  decreased  $48,000  primarily due to rate
decreases,   while   professional   fees   decreased   $50,000  and  travel  and
entertainment costs decreased $29,000.  All other administrative costs decreased
$14,000.

Depreciation and amortization  expense  decreased by $27,000 (19.0%) and $57,000
(20.0%) for the three and six month periods  ended June 30, 2005,  respectively,
compared to the same periods in 2004,  primarily due to fully amortizing certain
software costs and other computer equipment.


Financial Condition and Liquidity

For the six months June 30, 2005,  we had a loss from  continuing  operations of
$581,000 compared to a loss from continuing  operations of $629,000 for the same
period in 2004. We used $472,000 in cash for continuing  operations in the first
six  months of 2005  compared  to  $1,000,000  for the same  period in 2004,  an
improvement  of  $528,000 or 52.8%.  Cash used in  discontinued  operations  was
$47,000 for the six months ended June 30, 2005.  We funded the shortfall in cash
from operations primarily through the new borrowing noted above.

Cash used in operations,  including cash used for discontinued  operations,  for
the six months ended June 30, 2005 was  $519,000,  consisting of the net loss of
$581,000,  reduced by non-cash expenses of $421,000,  including depreciation and
amortization  of $229,000 and stock and options issued for services of $113,000.
In addition,  accounts receivable decreased by $172,000 and prepaid expenses and
other assets decreased $82,000.  Accounts payable and accrued expenses increased
$57,000 and deferred revenue decreased $623,000.

Cash used in investing activities was $127,000 for the six months ended June 30,
2005,  compared  to  $31,000  for  same  period  in 2004.  This was  principally
expenditures for equipment.

Cash provided by financing  activities totaled $468,000 for the six months ended
June 30, 2005, compared to $1,311,000 for the six months ended June 30, 2004. As
noted above, we received proceeds from a new loan financing of $750,000. We also
repaid $94,000 of long-term debt and capital lease obligations in the first half
of  2005.  The  balance   outstanding  under  short  term  revolving  loans  for
receivables financing decreased by $188,000 in 2005.

Management's Liquidity and Financing Plans

In order to meet our cash needs and to achieve positive  operating cash flows we
have and will  continue to take  various  actions and steps that we believe will
enable us to attain these goals. These actions include:

     --   In March 2005 we closed a Bridge  Loan  financing  with Sigma  Capital
          PartnersLLC and  Metropolitan  Venture  Partners II, L.P. and received
          proceeds of $750,000  less legal fees of $55,000  (see Note 6).  Sigma
          had an  exclusive  right to lead a  follow-on-  financing  for 45 days
          following  the  closing of the Bridge Loan and the Company has granted
          Sigma  additional  time. We anticipate  that this  follow-on-financing
          will   provide  the   working   capital  to  sustain  and  expand  our
          operationsy.

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                      DIRECT INSITE CORP. AND SUBSIDIARIES


Item 2 - Managements Discussion and Analysis or Plan of Operations (continued)

     --   We and the holders of the Series A and Series B  Preferred  stock have
          previously agreed to defer payment of dividends.  We may seek to defer
          these dividends further.

     --   We intend to raise additional capital through private equity offerings
          and  borrowing.  In 2004,  we received net  proceeds  from the sale of
          Preferred  Stock  of  $1,430,000.  Also  in 2004  we  entered  into an
          agreement  with DIRI Rec Fund LLC, a corporation  formed and funded to
          loan funds to the Company against accounts receivable, and may receive
          advances up to $250,000 from Diri Rec Fund (see Note 5).  Further,  in
          June 2005 we  renewed  for a period of two  years  the  $500,000  loan
          previously  scheduled to mature on June 30, 2005 and the guarantors of
          this loan have consented to this extension (see Note 6).

     --   We continue  to strive to increase  revenue  through  offering  custom
          engineering   services,   expanding  and  enhancing  existing  product
          offerings such as IOL, and introducing new product offerings.  In 2004
          we entered  into a new  agreement to provide IOL services to a Fortune
          100 company.  Revenue from this new  customer  accounted  for 27.6% of
          total  revenue for the six months  ended June 30,  2005.  In the first
          quarter  2005,  we added an  additional  customer as the result of the
          sale of a part of the  business  of an existing  customer.  Management
          anticipates  that revenue from these new  customers  will  continue to
          increase  in 2005 and  beyond  and  expects  to  further  broaden  our
          customer base in 2005.

     --   We continue to expand its  marketing  efforts in order to increase the
          customer base. In this regard,  in 2003, we became a business  partner
          with IBM and through this  relationship  will work with IBM to achieve
          sales to new  customers.  We will continue to pursue  similar  channel
          partner opportunities.  Also, in the fourth quarter 2004 we employed a
          new sales and  marketing  executive and engaged an  independent  sales
          agent to further expand our sales efforts.

We believe that these plans and new  initiatives as discussed above will lead to
positive  cash  flows and  profitability.  While we pursue  these  goals we also
believe that our ability to raise  additional  capital  through  equity and debt
placements  will  provide  sufficient  cash to meet cash  requirements  at least
through June 30, 2006. There can be no assurance,  however, that we will achieve
the  cash  flow  and  profitability  goals,  or that  we  will be able to  raise
additional  capital  sufficient to meet our operating  expenses or implement our
plan. In such event,  we may have to revise our plans and  significantly  reduce
our  operating  expenses,  which  could  have an adverse  effect on revenue  and
operations in the short term.


Item 3 - Controls and Procedures


Disclosures Controls and Procedures
-----------------------------------

The Company maintains controls and procedures designed to ensure that it is able
to collect the  information  that is required to be  disclosed in the reports it
files with the SEC,  and to process,  summarize  and disclose  this  information
within the time period  specified in the rules of the SEC. The  Company's  Chief

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                      DIRECT INSITE CORP. AND SUBSIDIARIES


Executive  and  Chief  Financial  Officers  are  responsible  for  establishing,
maintaining and enhancing

Item 3 - Controls and Procedures (continued)

these  procedures.   They  are  also  responsible,  as  required  by  the  rules
established  by the  SEC,  for the  evaluation  of the  effectiveness  of  these
procedures.

Based on their  evaluation of the Company's  disclosure  controls and procedures
which took place as of the date of filing of this  report,  the Chief  Executive
Officer and the Chief  Financial  Officer  believe  that, as is typical of small
companies,  these procedures were not effective as a result of limited resources
and a limited segregation of duties in accounting and financial reporting.

Internal Financial Controls
---------------------------

The  Company  maintains  a system  of  internal  controls  designed  to  provide
reasonable   assurance  that   transactions  are  executed  in  accordance  with
management's  general or specific  authorization;  transactions  are recorded as
necessary to (1) permit  preparation of financial  statements in conformity with
accepted  accounting  principles  generally  accepted  in the  United  States of
America,  and (2)  maintain  accountability  for  assets.  Access  to  assets is
permitted   only  in   accordance   with   management's   general  or   specific
authorization.

Since the date of the most recent evaluation of the Company's  internal controls
by the  Chief  Executive  and  Chief  Financial  Officers,  there  have  been no
significant  changes  in such  controls  or in other  factors  that  could  have
significantly  affected those  controls,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Internal Controls over Financial Reporting
------------------------------------------

It is the  responsibility of the Company's  management to establish and maintain
adequate internal control over financial reporting.  However, due to its limited
financial  resources  typical  of  companies  its  size,  there is only  limited
segregation of duties within the accounting  function,  leaving most significant
aspects of financial  reporting in the hands of the CFO.  Based on the integrity
and  trustworthiness  of the Company's  chief  financial  officer,  the Board of
Directors  has had  confidence  that  there have been no  irregularities  in the
Company's financial reporting or in the protection of its assets.

Our independent auditors have reported to our Board of Directors certain matters
involving  internal  controls that our independent  auditors  considered to be a
reportable condition and a material weakness, under standards established by the
American Institute of Certified Public  Accountants.  The reportable  conditions
and material weakness relate to the financial close process, limited segregation
of duties and the absence of reviews and approvals  beyond that performed by the
Chief Financial  Officer,  of transactions and accounting  entries.  Given these
reportable  conditions and material  weaknesses,  management  devoted additional
resources  to closing and  preparing  the report for the quarter  ended June 30,
2005.  As a result,  we are  confident  that our  financial  statements  for the
quarter  ended June 30, 2005  fairly  present,  in all  material  respects,  our
financial condition and results of operations.

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                      DIRECT INSITE CORP. AND SUBSIDIARIES

                          PART II - OTHER INFORMATION

Item 1. Legal Proceedings

        None

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

        This information has been previously  provided on Form 8-K dated March
        29, 2005.

Item 3. Defaults Upon Senior Securities

        None

Item 4. Submission of Matters to a Vote of Security Holders

        None

Item 5. Other Information

        None

Item 6. Exhibits


          31   Certifications pursuant to Rules 13a-14(a) as adopted pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002.
          32   Certifications  pursuant  to 18 U.S.C.  Section  1350 as  adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

                                                                              20
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                      DIRECT INSITE CORP. AND SUBSIDIARIES

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.




DIRECT INSITE CORP.




/s/  James A. Cannavino
-------------------------------------------               ---------------
James A. Cannavino, Chief Executive Officer               August 17, 2005



/s/ Michael J. Beecher
-------------------------------------------               ---------------
Michael J. Beecher, Chief Financial Officer               August 17, 2005

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