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, 2006

                                       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) 873-2900

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

                        Yes   [X[               No  [  ]

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

The number of shares of $.0001 par value stock outstanding as of August 10, 2006
was: 4,902,972.

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, 2006 (Unaudited) and
       December 31, 2005 .................................................................................    3

     Condensed Consolidated Statements of Operations
       For the Three and Six Months Ended June 30, 2006 and 2005 (Unaudited)..............................    4

     Condensed Consolidated Statements of Cash Flows
       For the Six Months Ended June 30, 2006 and 2005 (Unaudited)........................................    5

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

     Item 2

     Management's Discussion and Analysis or Plan of Operations ..........................................   17

     Item 3

     Controls and Procedures..............................................................................   23

PART II - OTHER INFORMATION

     Item 1. Legal Proceedings ...........................................................................   25

     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..................................   25

     Item 3. Defaults Upon Senior Securities .............................................................   25

     Item 4.  Submission of Matters to a Vote of Security Holders ........................................   25

     Item 5. Other Information ...........................................................................   25

     Item 6. Exhibits.....................................................................................   25

     Signatures ..........................................................................................   26


CERTIFICATIONS ...........................................................................................   27
</TABLE>

<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                   AS OF JUNE 30, 2006 AND DECEMBER 31, 2005
                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                    June 30,           December 31,
                                                                                      2006                 2005
                                                                              --------------------- --------------------
                                                                                  (Unaudited)            (Audited)
<S>                                                                           <C>                  <C>
ASSETS
Current assets
  Cash and cash equivalents                                                   $             230     $             364
  Accounts receivable, net of allowance for doubtful accounts of
   $0 in 2006 and 2005                                                                    1,376                 1,858
  Prepaid expenses and other current assets                                                  71                   195
                                                                              -----------------     -----------------
       Total current assets                                                               1,677                 2,417

Property and equipment, net                                                                 393                   446
Other assets                                                                                317                   318
                                                                              -----------------     -----------------
         TOTAL ASSETS                                                          $          2,387     $           3,181
                                                                              =================     =================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
  Short-term revolving loans                                                   $            368     $             695
  Current portion of capital lease obligations                                               83                    99
  Notes payable, net of discount                                                          1,251                   995
  Accounts payable and accrued expenses                                                   2,258                 1,962
  Dividends payable, current                                                              2,123                 1,775
  Deferred revenue                                                                          378                   796
  Warrant liability                                                                         190                   459
  Liabilities from discontinued operations                                                   48                    61
                                                                              -----------------     -----------------
       Total current liabilities                                                          6,699                 6,842

Capital lease obligations, net of current portion                                            35                    73
                                                                              -----------------     -----------------
       Total liabilities                                                                  6,734                 6,915
                                                                              -----------------     -----------------
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 2006 and 2005; liquidation preference of $2,750,000 in 2006 and
    2005                                                                                      -                     -
    Series B Redeemable Preferred, 974 shares issued and outstanding
    in 2006 and 2005; liquidation preference                                                  -                     -
    of $974,075 in 2006 and 2005
    Series C Redeemable Preferred, 2,000 shares issued and outstanding
    in 2006 and 2005; liquidation preference of $2,000,000 in 2006 and 2005
    Series D Redeemable Preferred, 100 shares issued and outstanding
    in 2006 and 2005; liquidation preference of $100,000 in 2006 and 2005
  Common stock, $0.0001 par value; 50,000,000 shares
  authorized; 4,942,899 and 4,972,955
  shares issued in 2006 and 2005,respectively; and 4,902,972 and 4,933,028                    -                     -
  shares outstanding in 2006 and 2005, respectively
  Additional paid-in capital                                                            113,128               113,039
  Unearned compensation                                                                    (180)                 (134)
  Accumulated deficit                                                                  (116,967)             (116,311)
                                                                              -----------------     -----------------
                                                                                         (4,019)               (3,406)

  Common stock in treasury, at cost  - 24,371 shares                                       (328)                 (328)
                                                                              -----------------     -----------------
                                                                                         (4,347)               (3,734)
                                                                              -----------------     -----------------
          TOTAL LIABILITIES AND SHAREHODERS' DEFICIENCY                       $           2,387     $           3,181
                                                                              =================     =================
</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, 2006 and 2005
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                      Three Months Ended                    Six Months Ended
                                                                           June 30,                             June 30,
                                                                    2006              2005              2006               2005
                                                                                   (restated)                           (restated)
                                                               ---------------- ----------------- ------------------ ---------------
<S>                                                            <C>             <C>                  <C>              <C>
Revenue                                                        $       2,196    $       2,318       $     4,211      $       4,398
                                                               ---------------- ----------------- ------------------ ---------------

Costs and expenses
  Operations, research and development                                 1,003            1,034             2,066              2,047
  Sales and marketing                                                    350              559               813              1,031
  General and administrative                                             651              780             1,345              1,472
  Amortization and depreciation                                           76              115               163                228
                                                               ---------------- ----------------- ------------------ ---------------
                                                                       2,080            2,488             4,387              4,778
                                                               ---------------- ----------------- ------------------ ---------------
Operating income (loss)                                                  116             (170)             (176)              (380)

Other (income) and expenses
  Change in fair value of warrant liability                             (299)              92              (269)                92
  Other (income) expense, net                                             32                1                62                  1
  Interest expense, net                                                  153              130               334                205
                                                               ---------------- ----------------- ------------------ ---------------
Income (loss) from continuing operations                                 230             (393)             (303)              (678)

Loss from discontinued operations                                         (4)              (9)               (4)                (9)
                                                               ---------------- ----------------- ------------------ ---------------
Net income (loss)                                                        226             (402)             (307)              (687)

Preferred stock dividends                                               (176)            (171)             (348)              (325)
                                                               ---------------- ----------------- ------------------ ---------------
Net income (loss) attributable to common shareholders          $          50      $      (573)    $        (655)     $      (1,012)
                                                               ================ ================= ================== ===============

Basic and diluted income (loss) per share:
  Basic and diluted income (loss) from continuing
  operations                                                   $        0.01      $     (0.12)    $       (0.13)     $       (0.22)
                                                               ================ ================= ================== ===============
  Basic  and  diluted  (loss)  per  share  from  discontinued
  operations                                                            0.00             0.00              0.00               0.00
                                                               ---------------- ----------------- ------------------ ---------------
Basic and diluted income (loss) per share                      $        0.01      $     (0.12)    $       (0.13)             (0.22)
                                                               ================ ================= ================== ===============
Basic weighted average common shares outstanding                       4,881            4,600             4,907              4,560
                                                               ================ ================= ================== ===============
Diluted weighted average common shares outstanding                     5,619            4,600             4,907              4,560
                                                               ================ ================= ================== ===============

</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, 2006 AND 2005
                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                             2006              2005
                                                                                                           (Restated)
                                                                                     ----------------- ------------------
<S>                                                                                    <C>               <C>
Cash flows from operating activities

 Loss from continuing operations                                                       $        (303)    $        (678)
 Adjustments to reconcile loss from continuing operations
  to net cash used in continuing operations:
   Amortization and depreciation:
     Property and equipment                                                                      162               229
     Discount on debt                                                                            222                48
    Common stock and options issued for services                                                  --               113
    Amortization of deferred stock based compensation                                            115                36
    Change in fair value of warrant liability                                                   (269)               92

  Changes in operating assets and liabilities:
    Accounts receivable                                                                          482               172
    Prepaid expenses and other current assets                                                    124               102
    Other assets                                                                                  --               (20)
    Accounts payable and accrued expenses                                                        225                57
    Deferred revenue                                                                            (418)             (623)
                                                                                     ----------------- ------------------
       Net cash provided by (used in) continuing operations                                      339              (472)
                                                                                     ----------------- ------------------
  Cash flows from discontinued operations:
  (Loss) from discontinued operations                                                             (4)               (9)
  Change in:
    Assets and liabilities from discontinued operations                                          (13)              (38)
                                                                                     ----------------- ------------------
       Net cash used in discontinued operations                                                  (17)              (47)
                                                                                     ----------------- ------------------
       Net cash provided by (used in) operating activities                                       322              (519)
                                                                                     ----------------- ------------------
Cash flows used in investing activities
 Expenditures for property and equipment                                                         (52)             (127)
                                                                                     ----------------- ------------------
Cash flows from financing activities
 Repayments of revolving loans, net                                                             (327)             (188)
 Proceeds from short-term notes                                                                   --               750
 Repayments of long-term debt                                                                    (77)              (94)
                                                                                     ----------------- ------------------
       Net cash (used in) provided by financing activities                                      (404)              468
                                                                                     ----------------- ------------------
Net decrease in cash and cash equivalents                                                       (134)             (178)

Cash and cash equivalents - beginning of period                                                  364               306
                                                                                     ----------------- ------------------
Cash and cash equivalents - end of period                                             $          230    $          128
                                                                                     ================= ==================
Cash paid for interest                                                                $           81    $          78
                                                                                     ================= ==================

Non-cash investing and financing activities:

Equipment acquired through issuance of note payable                                   $           56    $           -
                                                                                     ================= ==================
Debt discount on loans                                                                $           --    $         394
                                                                                     ================= ==================
Issuance of common shares and options to purchase
 common shares for services and fees                                                   $           --    $          12
                                                                                     ================= ==================
</TABLE>
See notes to condensed consolidated financial statements.                      5
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)

           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005



1.   Interim Financial Information

     The  condensed  consolidated  balance  sheet as of June 30,  2006,  and the
     condensed  consolidated  statements  of  operations  and cash flows for the
     three  and six  month  periods  ended  June 30,  2006 and  2005,  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 six month period ended
     June 30,  2006,  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, 2005 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, 2005 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  Custom  Engineering  Services  which are single
     contractual  agreements  involving  modification  or  customization  of the
     Company's  proprietary  ASP  software  solution.  Additionally  the Company
     provides  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 11. Also, as described
     in Note 10, the Company has two customers that accounted for  approximately
     69.0% and 28.8% of the  Company's  revenue for the six month  period  ended
     June 30, 2006 and 69.9% and 27.6% of 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.

3.   Stock Based Compensation

     Stock Options
     -------------

     Effective  January 1, 2006, the Company adopted the fair value  recognition
     provisions  of  Statement of Financial  Accounting  Standards  ("SFAS") No,
     123(Revised  2004),  "Share-Based  Payment",  ("SFAS  123(R)"),  using  the
     modified-prospective-transition  method. As a result, for the three and six
     month periods ended June 30, 2006, the Company  recorded $20,000 ($0.00 per
     share) and $48,000 ($0.01 per share), respectively, in compensation expense
     for the fair value of options. At June 30, 2006, there was $90,000 of total

                                                                               6
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)

           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


3.   Stock Based Compensation (continued)

     unrecognized  compensation  costs related to stock options granted which is
     expected to be recognized over a weighted average period of 2.0 years.

     Nonqualified  and  incentive  stock options have been granted to directors,
     officers and employees of the Company under our Stock Option Plans. Options
     generally  vest over 3 years and  expire  five  years  from the date of the
     grant.  At June 30, 2006,  6,720,000  shares were  authorized  for issuance
     under the stock option plans.  Awards that expire or are cancelled  without
     delivery of shares generally become available for issuance under the plans.
     The Company issues new shares to satisfy stock option exercises. There were
     no options granted during the six months ended June 30, 2006.

     A summary of option  activity under the plans for the six months ended June
     30, 2006 is as follows:
<TABLE>
<CAPTION>


   ------------------------------- ------------------- ------------------------ -------------------- ----------------------

                                                                                 Weighted Average
                                                          Weighted Average           Remaining         Aggregate Intrinsic
                                           Shares          Exercise Price           Contractual               Value
                                       (in thousands)                              Term (in years)        (in thousands)
   ------------------------------- ------------------- ------------------------ -------------------- ----------------------
     <S>                                     <C>                    <C>                     <C>                   <C>
     Balance, December 31, 2005              4,854                  $1.25
   ------------------------------- ------------------- ------------------------ -------------------- ----------------------
         Granted                               --
   ------------------------------- ------------------- ------------------------ -------------------- ----------------------
         Exercised                             --
   ------------------------------- ------------------- ------------------------ -------------------- ----------------------
         Canceled                             610
   ------------------------------- ------------------- ------------------------ -------------------- ----------------------
         Forfeited                             --
   ------------------------------- ------------------- ------------------------ -------------------- ----------------------
     Balance, June 30, 2006                  4,244                  $1.23                   2.3                   $--
   ------------------------------- ------------------- ------------------------ -------------------- ----------------------
     Exercisable, June 30, 2006              4,098                  $1.24                   2.3                   $--
   ------------------------------- ------------------- ------------------------ -------------------- ----------------------
</TABLE>
          A summary of the status of the Company's  non-vested shares as of June
          30,  2006 and  changes  during the six months  ended June 30,  2006 is
          presented below:
<TABLE>
<CAPTION>
---------------------------------------- -------------------------------------- ----------------------------------------------

             Non-vested Shares                         Shares (000)             Weighted-average Grant Date Fair Value
---------------------------------------- -------------------------------------- ----------------------------------------------
<S>                                                      <C>                                   <C>
Non-vested at January 1, 2006                            211                                   $0.65
---------------------------------------- -------------------------------------- ----------------------------------------------
Granted                                                   --                                   $  --
---------------------------------------- -------------------------------------- ----------------------------------------------
Vested                                                    65                                   $0.73
---------------------------------------- -------------------------------------- ----------------------------------------------
Forfeited                                                                                      $  --
                                                           0
---------------------------------------- ====================================== ----------------------------------------------
Non-vested at June 30, 2006                               146                                  $0.61
---------------------------------------- ====================================== ----------------------------------------------
</TABLE>

     The total fair value of shares  vested during the six months ended June 30,
     2006 was $48,000.

     Prior to January 1, 2006, the Company's  stock-based employee  compensation
     plans were accounted for under the recognition  and measurement  provisions
     of Accounting  Principles  Board Opinion  ("APB") No. 25,  "Accounting  for
     Stock Issued to Employees" ("APB No. 25"), and related Interpretations,  as
     permitted by Financial  Accounting  Standards Board ("FASB")  Statement No.
     123, "Accounting for Stock-Based  Compensation",  ("SFAS 123"). The Company
     did  not  recognize  stock-based  compensation  cost in its  statements  of
     operations  for periods prior to January 1, 2006 as options  granted had an
     exercise price equal to the market value of the underlying  common stock on
     the date of the grant.  However,  compensation expense was recognized under

                                                                               7

<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)

           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005



3. Stock Based Compensation (continued)

     APB No. 25 for  certain  options  granted to an  employee  and  certain non
     employees of the Company  based upon the  intrinsic  value (the  difference
     between  the  exercise  price at the date of the grant and the deemed  fair
     value of the common stock).

     Three and Six Months Ended June 30, 2005
     ----------------------------------------

     As  was  permitted   under  SFAS  No.  148,   "Accounting  for  Stock-Based
     Compensation-Transition  and  Disclosure",  which amended SFAS No. 123, the
     Company  elected  to  continue  to follow  the  intrinsic  value  method in
     accounting  for  its  stock-based  employee  compensation  arrangements  as
     defined  by  APB  No.  25,  and  related  interpretations   including  FASB
     Interpretation 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):
<TABLE>
<CAPTION>
                                                                            ------------------   --------------------
                                                                            Three Months Ended    Six Months Ended
                                                                               June 30, 2005        June 30, 2005
                                                                                (restated)           (restated)
                                                                            ------------------   --------------------
            <S>                                                                 <C>                <C>

            Net (loss) income attributable to common shareholders
             As reported                                                        $      (573)       $      (1,012)
             Less:  Stock-based employee compensation
              expense determined under fair value-based
              method for all awards                                                    (161)                (317)
                                                                                -----------        -------------
             Pro forma                                                          $      (734)       $      (1,329)
                                                                                ===========        =============
            Basic and diluted net loss per share
             As reported                                                        $     (0.12)       $       (0.22)
                                                                                ===========        =============
             Pro forma                                                          $     (0.16)       $       (0.29)
                                                                                ===========        =============
</TABLE>
     The fair value of Company  common stock  options  granted to employees  was
     estimated on the date of grant using the Black-Scholes option-pricing model
     with the following  assumptions:  (1) expected volatility of 71.9% in 2005,
     (2) risk-free  interest  rates of 4.50% in 2005,  (3) expected term of 4.75
     years in 2005, and (4) expected  dividend rate of 0.0% in 2005.  There were
     no option grants during the six months ended June 30, 2006.

4.   Restatement of Prior Periods

     The Company has restated its condensed  consolidated  financial  statements
     for the three and six month  periods  ended June 30,  2005 to  correct  the
     accounting for warrants  issued in connection  with its March 29, 2005 sale
     of  Senior  Subordinated  Notes  (See  Note 8).  The  corrected  accounting
     reflects the warrants as a derivative  liability under the guidance of SFAS
     133 and EITF 00-19 and the resultant debt discount on the notes  determined
     on the  residual  value basis.  The Company  previously  accounted  for the
     warrants  as  equity  and the  resultant  debt  discount  on the  notes was
     determined on a relative fair value basis.

                                                                               8
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)

           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005




4.   Restatement of Prior Periods (continued)

     The effects of the  restatement  on the  condensed  consolidated  financial
     statements for the three and six month periods ended June 30, 2005 were:

     Condensed Consolidated Balance Sheet: June 30, 2005
<TABLE>
<CAPTION>
                                                          June 30, 2005
           ---------------------------------------- --------------------------- -----------------------
                                                      As previously reported         As Restated
           ---------------------------------------- --------------------------- -----------------------
           <S>                                          <C>                           <C>
           Note payable, net of discount                $    535                      $    404
           ---------------------------------------- --------------------------- -----------------------
           Warrant liability                            $     --                      $    486
           ---------------------------------------- --------------------------- -----------------------
           Total liabilities                            $  5,846                      $  6,201
           ---------------------------------------- --------------------------- -----------------------
           Additional paid-in-capital                   $112,867                      $112,609
           ---------------------------------------- --------------------------- -----------------------
           Total shareholders' deficiency               $ (3,033)                     $ (3,388)
           ---------------------------------------- --------------------------- -----------------------
</TABLE>
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
                                                      Three Months Ended                      Six Months Ended
                                                         June 30, 2005                          June 30, 2005
----------------------------------------------- ---------------- ------------------- ------------------ -----------------
                                                 As previously                         As previously
                                                   reported         As Restated          reported         As Restated
----------------------------------------------- ---------------- ------------------- ------------------ -----------------
<S>                                             <C>              <C>                 <C>                <C>
Interest expense, net                           $        (125)   $        (130)      $        (200)     $        (205)
----------------------------------------------- ---------------- ------------------- ------------------ -----------------
Change in value of warrants                     $          --    $        ( 92)      $          --      $        ( 92)
----------------------------------------------- ---------------- ------------------- ------------------ -----------------
Loss  from continuing operations                $        (296)   $        (393)      $        (581)     $        (678)
----------------------------------------------- ---------------- ------------------- ------------------ -----------------
Net loss                                        $        (305)   $        (402)      $        (590)     $        (687)
----------------------------------------------- ---------------- ------------------- ------------------ -----------------

Net loss attributable to common shareholders    $        (476)   $        (573)      $        (915)     $      (1,012)
----------------------------------------------- ---------------- ------------------- ------------------ -----------------
Earnings per share:
----------------------------------------------- ---------------- ------------------- ------------------ -----------------
  Loss from continuing operations attributable
to common shareholders                          $       (0.10)   $       (0.12)      $       (0.20)     $       (0.22)
----------------------------------------------- ---------------- ------------------- ------------------ -----------------

  Loss attributable to common shareholders      $       (0.10)   $       (0.12)      $       (0.20)     $       (0.22)
----------------------------------------------- ---------------- ------------------- ------------------ -----------------
</TABLE>

5.   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.

6.   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 assets and  liabilities  of  Platinum  are  presented  as  discontinued
     operations  for  both the  current  and  prior  period.  At June 30,  2006,
     liabilities  of the  discontinued  operation  consist of loans and accounts
     payable of $48,000.

                                                                               9
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)

           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


7.   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,  2006,  the  Company  had  assigned  approximately
     $212,000  of  accounts  receivable  to the Bank and  received  advances  of
     $170,000.

     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, 2006 the Rec Fund had a total  principal  available  for
     assignment  of $250,000 and the Company had  outstanding  advances from the
     Rec  Fund  of  $198,000  resulting  in an  unused  availability  under  the
     agreement of $52,000.

8.   Debt

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

     At June 30, 2006 notes payable  consist of the notes as described  below of
     $750,000 less debt discount of $153,000,  an equipment term note of $53,000
     and lines of credit of $602,000 as further described below.

     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 ("JPMC") is made. In connection  with the note purchase
     the Buyers were issued  warrants to purchase  750,000  common shares of the
     Company.  The initial exercise price of the warrants was $0.90 per share of
     common stock.

     Sigma had an exclusive  right to lead a  "Follow-on-Financing"  for 45 days
     following the closing and the Company had granted Sigma additional time. In

                                                                              10
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)

           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


8.   Debt (continued)

     the event that the  Follow-on-Financing  had occurred the exercise price of
     the warrants  issued in conjunction  with the Note Purchase would have been
     adjusted   as   agreed   between   the   Company   and  the   buyers.   The
     Follow-on-Financing was not consummated; as such, the exercise price of the
     warrants was reduced to $0.01 per common share.

     Under the terms of the  agreement,  on September 1, 2005 the Company  filed
     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.  The  Company is  required  to pay  liquidating
     damages  in the amount of 1% per month of the  purchase  price paid for the
     first two months  and 2% for the  remaining  months to the buyers  upon the
     occurrence of the following events:

          1.   Failure to file a registration statement by August 30, 2005
          2.   Failure to have the registration  statement declared effective by
               December 31, 2005
          3.   Failure  to  maintain  the   effectiveness  of  the  registration
               statement  until the earlier of (a) March 29, 2008,  (b) the date
               whereby all the  securities  may be sold pursuant to Rule 144 (c)
               the date on which the Buyers no longer hold the securities
          4.   Failure to be listed on the OTC Bulletin  Board,  American  Stock
               Exchange, NASDAQ, NASDAQ SmallCap or New York Stock Exchange
          5.   Failure to timely deliver warrant or interest shares.

     The Company has accrued $75,000 of liquidated damages as of June 30, 2006.

     As such under the  provisions  of EITF  00-19  "Accounting  for  Derivative
     Financial  Instruments  Indexed to, and Potentially Settled in, a Company's
     Own Stock" the Company  was  required  to record the  warrants  issued as a
     derivative  liability at fair value on the date of issuance.  (See Note 18)
     In accordance  with SFAS 133  "Accounting  for Derivative  Instruments  and
     Hedging Activities",  at each reporting this liability will be adjusted for
     changes in its fair value.  The fair value of the  warrants  is  determined
     using the Black Scholes  valuation model.  Actual period close common stock
     price ($0.26),  applicable volatility rates (74.9%),  remaining contractual
     life (5.8 years),  and the period close risk free  interest rate (5.1%) for
     the warrants expected remaining useful life are the key assumptions used in
     the valuation  calculation.  Period to period changes in fair value will be
     recorded as either an addition or charge to  earnings.  These  additions or
     charges have no cash effect over the life of the instrument.  The change in
     the fair value of the  warrants for the three and six months ended June 30,
     2006 was  $299,000  and  $269,000,  respectively,  and is included in other
     income and expenses in the condensed  consolidated  financial  statement of
     operations.

     The Company  recorded a debt  discount of  $565,000  based on the  residual
     value of the  proceeds  received and the fair value of the  warrants.  This
     discount is being  amortized  over the life of the loan using the effective
     interest rate method.  Amortization of $97,000 and $222,000 was recorded as
     interest  expense  during  the three and six month  periods  ended June 30,
     2006, respectively.

     In April  2006,  the Company  borrowed  $56,000  from a finance  company to
     purchase  computer  equipment.   The  note  is  secured  by  the  equipment
     purchased,  is  payable  over 36 months in equal  monthly  installments  of
     principal and interest of $1,800 and bears interest at 9.3% per annum.

                                                                              11
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)

           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


8.   Debt (continued)

     Lines of credit
     ---------------

     On June  30,  2005,  the  Company  obtained  a new  line of  credit  in the
     principal  amount  of  $500,000  with  JPMC  evidenced  by  a  Grid  Demand
     Promissory Note (the "Credit  Facility")  replacing a prior credit facility
     dated June 27, 2003, under  substantially  similar terms, but extending the
     original  Maturity  Date to June 30,  2007.  As a  condition  precedent  to
     providing  the  Credit  Facility,  the  JPMC  required  guarantees  of  our
     obligations  from Tall Oaks Group L.L.C.  ("Tall  Oaks") and Lawrence  Hite
     (managing  member of Tall Oaks) and a collateral  agreement from Tall Oaks.
     In  consideration  of the  issuance of such  guarantee  and delivery of the
     collateral agreement, on July 12, 2005, the Company issued and delivered to
     Tall Oaks  warrants  with an initial  exercise  price of $1.00 per share to
     purchase an aggregate of 500,000 shares of the common stock of Company.

     The LoC  permits  two forms of draw down;  one based upon prime  rate,  the
     second based upon LIBOR. 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,  2006,  the  balance
     outstanding was $500,000 and the applied interest rate was 7.05%.

     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 chairman,  secured by the assets of
     the Company and carries a variable  interest rate equal to Sterling's  base
     rate plus 2.0% (11.0% at June 30, 2006).

     Repayments are  calculated  monthly at 2.778% of the  outstanding  balance,
     plus finance  charges,  and continue  until the line is fully paid. At June
     30, 2006, the Company had an outstanding balance of approximately  $102,000
     under the line of credit.

     Capitalized lease obligations
     -----------------------------

     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. The interest rates pertaining to
     these  capital  leases range from 6.9% to 19.2%,  and the net book value of
     the related assets is approximately $111,000 as of June 30, 2006.

9.   Shareholders' Deficiency

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

     During the six months ended June 30, 2006, the Company issued 37,444 shares
     of common  stock  valued at  $23,000 to an  employee  as  compensation.  No
     options were issued during the six months ended June 30, 2006.

     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

                                                                              12
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)

           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


9.   Shareholders' Deficiency (continued)

     computed by dividing net income (loss)  attributable to common 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.

     Securities that could potentially dilute basic EPS in the future consist of
     the following (in thousands):
<TABLE>
        <S>                                                             <C>
        Options to purchase common stock                                4,244
        Warrants to purchase common stock                               3,332
        Series A Convertible preferred stock                            1,347
                                                                        -----
                Total potential common shares as of June 30, 2006       8,923
                                                                        =====
</TABLE>
10.  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,
                                           --------------------------------- -----------------------------
                                                    2006           2005           2006           2005
                                           ------------------ -------------- -------------- --------------
          <S>                                      <C>                <C>           <C>             <C>
          ASP IOL fees                             $1,565             $1,439        $ 3,116         $2,589
          Other ASP services                            8                 12             15             26
          Custom engineering fees                     623                867          1,080          1,783
                                           ------------------ -------------- -------------- --------------
               Total Revenue                       $2,196             $2,318         $4,211         $4,398
                                           ================== ============== ============== ==============
</TABLE>
Major Customers
---------------

     For the  three  months  ended  June 30,  2006  the  Company  had two  major
     customers  that  accounted  for  66.8%  and  30.9% of the  Company's  total
     revenue.  These two customers  accounted for 69.0% and 28.8% of revenue for
     the six months ended June 30, 2006. These customers accounted for 66.2% and
     30.4% of total  revenue for the three  months ended June 30, 2005 and 69.9%
     and 27.6% of revenue  for the six  months  ended  June 30,  2005.  Accounts
     receivable  from these  customers  amounted to $1,334,000 and $1,833,000 at
     June 30, 2006 and December 31, 2005, respectively.

11.  Management's Liquidity Plans

     In order to meet cash  requirements and to achieve positive  operating cash
     flows the Company has and will  continue to take various  actions and steps
     that the  management  believes will enable it to attain these goals.  These
     actions include:

          *    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 legal fees of $55,000
               (see Note 8).

          *    The  Company  and  the  holders  of the  Series  A and  Series  B
               Preferred  stock  have  previously  agreed  to defer  payment  of
               dividends   until   February   1,  2006  and   April  15,   2006,
               respectively.  The  Company  may  seek to defer  these  dividends
               further. Management believes the Company is precluded from paying
               these  dividends  at  this  time  pursuant  to  Delaware  General
               Corporate Law.
                                                                              13
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)

           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005



11.  Management's Liquidity Plans (continued)


          *    The Company may raise  additional  capital through private equity
               offerings and borrowing.  There is no assurance however that such
               capital would be available to the Company,  or if  available,  on
               terms and  conditions  that  would be  acceptable.  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 8). As noted above the guarantors  were issued  warrants and
               the Company could receive  proceeds of $500,000 from the exercise
               of such warrants which expire on July 11, 2010, although there is
               no assurance that these warrants will be exercised.

          *    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 we entered  into a new  agreement to
               provide IOL services to a Fortune 500 company.  Revenue from this
               new customer  accounted  for 30.9% and 28.8% of total revenue for
               the  three  and  six  months  ended  June  30,  2006.  Management
               anticipates  that revenue from this new customer will continue to
               increase  in 2006 and beyond and  expects to further  broaden our
               customer base in 2006,  although  there is no assurance  that the
               Company will be able to broaden this customer base.

          *    In  2006  the  Company  initiated  a  cost  reduction  plan  that
               management  believes will  significantly  reduce  operating costs
               while still  enabling the Company to meet its  commitments to its
               customers.

          *    The Company continues 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 third
               quarter 2005 we employed a new sales and  marketing  executive 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 the Company also believes that its ability
          to raise  additional  capital  through equity and debt placements will
          provide  sufficient  cash to meet cash  requirements  at least through
          June 30, 2007.  There can be no assurance,  however,  that the Company
          will achieve the cash flow and profitability goals, or that it will be
          able to raise additional capital sufficient to meet operating expenses
          or implement its plans. In such event,  the Company may have to revise
          its plans and significantly reduce its operating expenses, which could
          have an adverse effect on revenue and operations in the short term.

12.  New Accounting Pronouncements

     In June 2005, the EITF reached consensus on Issue No. 05-2, "The Meaning of
     'Conventional  Convertible  Debt  Instrument'  in  EITF  Issue  No.  00-19,
                                                                              14
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)

           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005


12.     New Accounting Pronouncements (continued)

     'Accounting   for  Derivative   Financial   Instruments   Indexed  to,  and
     Potentially  Settled in, a Company's  Own  Stock.'"  Issue 00-19 is used to
     evaluate whether embedded  derivatives  should be bifurcated under SFAS No.
     133,  "Accounting for Derivative  Instruments and Hedging  Activities",  as
     amended.  Specifically,  SFAS 133 provides guidance as to when an issuer is
     required to bifurcate a conversion  option that is embedded in  convertible
     debt. However,  Issue 00-19 does not define "conventional  convertible debt
     instrument."  Given the development of numerous  contractual terms that may
     be  included  in a  convertible  debt  instrument,  it is not clear  when a
     convertible debt instrument is "conventional." The company does not believe
     that certain warrants meet the definition of conventional  convertible debt
     and as a result Issue No. 00-19 applies to the liability treatment of these
     instruments (see Note8). As such the adoption of the Issue had an effect on
     the Company's financial position and results of operations (see Note 8).

     In September  2005, the FASB ratified the EITF Issue No. 05-7,  "Accounting
     for  Modifications  to Conversion  Options Embedded in Debt Instruments and
     Related  Issues," which  addresses  whether a modification  to a conversion
     option that  changes its fair value  effects  the  recognition  of interest
     expense for the associated  debt  instrument  after the  modification,  and
     whether a borrower should recognize a beneficial  conversion feature, not a
     debt extinguishment,  if a debt modification  increases the intrinsic value
     of the debt (for example,  the modification reduces the conversion price of
     the debt).  The  adoption  of the Issue may have a  material  effect on our
     consolidated financial position or results of operations in future periods.

     In September 2005, the FASB ratified the EITF's Issue No. 05-8, "Income Tax
     Consequences  of  Issuing  Convertible  Debt with a  Beneficial  Conversion
     Feature," which discusses  whether the issuance of convertible  debt with a
     beneficial  conversion  feature results in a basis difference  arising from
     the intrinsic value of the beneficial  conversion feature on the commitment
     date (which is recorded in the stockholder's equity for book purposes,  but
     as a liability  for income tax  purposes)  and, if so,  whether  that basis
     difference is a temporary  difference  under SFAS No. 109,  "Accounting for
     Income Taxes." The adoption of the Issue is not expected to have a material
     effect on our consolidated  financial  position or results of operations in
     future periods.

     In February  2006,  the FASB issued  SFAS No. 155  "Accounting  for Certain
     Hybrid Financial  Instruments,  an amendment of FASB Statements No. 133 and
     140" ("SFAS 155").  SFAS 155 clarifies  certain issues relating to embedded
     derivatives and beneficial  interests in securitized  financial assets. The
     provisions of SFAS 155 are effective for all financial instruments acquired
     or issued  after fiscal  years  beginning  after  September  15, 2006.  The
     Company is  currently  assessing  the impact that the  adoption of SFAS 155
     will have on its results of operations and financial position.

     In March 2006, the FASB issued SFAS No. 156,  "Accounting  for Servicing of
     Financial  Assets"  ("SFAS 156"),  which amends SFAS 140,  "Accounting  for
     Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
     Liabilities",  with respect to the  accounting  for  separately  recognized
     servicing assets and servicing liabilities.  SFAS 156 permits the choice of
     the amortization  method or the fair value measurement method, with changes
     in fair value recorded in income,  for the subsequent  measurement for each
     class of separately recognized servicing assets and servicing  liabilities.
     The statement is effective for years  beginning  after  September 15, 2006,
     with earlier adoption  permitted.  The Company is currently  evaluating the
     effect that adopting this  statement  will have on the Company's  financial
     position and results of operations.

                                                                              15
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)

           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005



13.  New  Accounting Pronouncements (continued)

     In June  2006,  the FASB  issued  Interpretation  No. 48,  "Accounting  for
     Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109".
     This  Interpretation  prescribes a recognition  threshold  and  measurement
     attribute for the financial statement  recognition and measurement of a tax
     position  taken  or  expected  to be taken in a tax  return,  and  provides
     guidance  on   derecognition,   classification,   interest  and  penalties,
     accounting  in  interim   periods,   disclosure,   and   transition.   This
     Interpretation  is effective for fiscal years  beginning after December 15,
     2006.  The Company is assessing  the impact of this  Interpretation  on its
     financial statements, but does not expect it to have a material effect.


14.  Related Party Transactions

     During the quarter ended June 30, 2006, the Company  terminated and settled
     the  consulting  agreement  with Mountain  Meadow Farm and its  associates,
     including SJ Associates  (collectively  "Mountain Meadow") . As part of the
     settlement the Company agreed to issue  Mountain  Meadow 90,638  restricted
     common shares  valued at $34,000 and to pay for the costs of medical,  life
     and certain  other  insurance  through  December 31, 2013 with the cost for
     such insurance not to exceed $200,000 in the aggregate or $50,000 in any 12
     month  period.  At June 30,  2006,  the Company has recorded a liability of
     $168,000 representing the estimated present value of this obligation.


                                                                              16
<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  Custom  Engineering  Services  which  are  single  contractual
agreements involving  modification or customization of the Company's proprietary
ASP software solution. Additionally, we provide 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.

                                                                              17
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


Currently, IBM, our largest customer, representing approximately 66.8% and 69.0%
of revenue for the three and six month periods ended June 30, 2006, respectively
and 66.2% and 69.9% of our  revenue  for the three and six month  periods  ended
June 30, 2005, 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.
Our second Fortune 500 Company, Electronic Data Systems Corp. ("EDS"), accounted
for approximately 30.9% and 28.8% of revenue for the three and six month periods
ended June 30, 2006,  respectively  and 30.4% and 27.6% of revenue for the three
and six month periods ended June 30, 2005, respectively.

Critical accounting policies

     Principles of Consolidation
     ---------------------------

The consolidated  financial  statements  include the accounts of our company and
our subsidiaries.  All significant  intercompany  transactions and balances have
been eliminated in consolidation.

     Revenue Recognition
     -------------------

We record  revenue in  accordance  with  Statement  of Position  97-2  "Software
Revenue  Recognition",  issued by the American  Institute  of  Certified  Public
Accountants  (as  modified  by  Statement  of  Position  98-  9) and  SEC  Staff
Accounting Bulletin Topic 13 "Revenue  Recognition in Financial  Statements." In
some  circumstances,  we enter into  arrangements  whereby we are  obligated  to
deliver  to  our  customer   multiple   products   and/or   services   (multiple
deliverables).  In these  transactions,  in accordance  with the Emerging Issues
Task Force Issue No. 00-21, we allocate the total revenue to be earned among the
various  elements  based on their  relative  fair values.  We recognize  revenue
related to the delivered products or services only if:

-- Any undelivered  products or services are not essential to the  functionality
of the delivered products or services;

-- Payment  for the  delivered  products  or  services  is not  contingent  upon
delivery of the remaining products or services;

-- We have an  enforceable  claim to receive the amount due in the event it does
not deliver the  undelivered  products or services and it is probable  that such
amount is collectible;

-- There is evidence of the fair value for each of the  undelivered  products or
services;

-- Delivery of the delivered element  represents the culmination of the earnings
process.

The  following  are the  specific  revenue  recognition  policies for each major
category of revenue.

     ASP Services
     ------------

The Company  provides  transactional  data processing  services  through its ASP
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 performed.

                                                                              18
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                      DIRECT INSITE CORP. AND SUBSIDIARIES

        Custom Engineering Services
        ---------------------------

The Company performs custom  engineering  services which are single  contractual
agreements involving  modification or customization of the Company's proprietary
ASP software  solution.  Progress is measured  using the relative  fair value of
specifically identifiable output measures (milestones). Revenue is recognized at
the lessor of the milestone  amount when the customer accepts such milestones or
the percentage of completion of the contract following the guidance of SOP 81-1,
"Accounting for  Performance of  Construction-Type  and Certain  Production Type
Contracts".

Cost of Revenue
---------------

Cost of  revenue in the  condensed  consolidated  statements  of  operations  is
presented along with operations, research and development costs and exclusive of
amortization and depreciation  shown  separately.  Custom  Engineering  Services
costs  related to  uncompleted  milestones  are  deferred  and included in other
current assets, when applicable.

Property and Equipment
----------------------

Property and equipment  are stated at cost and  depreciated  on a  straight-line
basis  over  the  estimated  useful  lives  of  the  related  assets.  Leasehold
improvements  are  amortized  over the  terms of the  respective  leases  or the
service lives of the related assets, whichever is shorter.

Capitalized lease assets are amortized over the shorter of the lease term or the
service life of the related assets.

Impairment of Long-Lived Assets
-------------------------------

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting  for the Impairment or Disposal of Long-Lived  Assets" we review our
long-lived  assets,  including  capitalized  software  costs  and  property  and
equipment,  for impairment whenever events or changes in circumstances  indicate
that  the  carrying  amount  of the  assets  may not be  fully  recoverable.  To
determine if impairment  exists,  we compare the estimated  future  undiscounted
cash flows from the related long-lived assets to the net carrying amount of such
assets.  Once it has been determined that impairment  exists, the carrying value
of the asset is adjusted to fair value.  Factors considered in the determination
of fair value include current operating results, trends and the present value of
estimated expected future cash flows.

Derivative Liabilities
----------------------

On March 29, 2005, the Company entered into a Securities Purchase Agreement with
investors  for  secured  notes and  warrants.  (See  Note 8 of the  accompanying
condensed consolidated financial statements).  The warrant shares are subject to
registration  rights  penalties with  provisions that are outside the control of
the  Company.  As such the  detachable  warrants  are required to be recorded as
liabilities  at their fair value on the date of issuance  under the  guidance on
EITF 00-19.

In accordance  with SFAS No. 133  "Accounting  for  Derivative  Instruments  and
Hedging Activities", at each reporting period these liabilities will be adjusted
for changes in their fair value.  The  detachable  warrants are valued using the
Black  Scholes  valuation  model.  Actual  period  close  common  stock  prices,
applicable  volatility  rates,  remaining  contractual life and the period close
risk free interest rate for the instruments  expected remaining life are the key
assumptions   used   in   the   Black   Scholes   valuation   calculation.   The
period-to-period changes in fair value will be recorded as either an addition or
charge to earnings.  There is no cash effect to these  additions or charges over
the life of these instruments.  For the three and six months ended June 30, 2006
the Company  recorded  income of $299,000 and  $269,000,  respectively,  for the
change in the fair value of these derivative instruments.  For the three and six
months ended June 30, 2005 the Company  recorded a charge of $92,000 as a result
of the change in fair value of these derivative instruments.

                                                                              19
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                      DIRECT INSITE CORP. AND SUBSIDIARIES

Income Taxes
------------

We account for income taxes using the liability  method.  The  liability  method
requires the  determination of deferred tax assets and liabilities  based on the
differences  between the financial  statement and income tax bases 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.

Earnings per Share
------------------

We display  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.  Basic  earnings  per share  includes no dilution  and is computed by
dividing net income (loss)  attributable to common  shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share  include the  potential  dilution  that could occur if securities or other
contracts to issue common stock were  exercised or converted  into common stock.
Outstanding  stock options,  warrants and other  potential  stock issuances have
been considered in the  computation of diluted  earnings per share to the extent
they were dilutive.

Concentrations and Fair Value of Financial Instruments
------------------------------------------------------

Financial  instruments that potentially subject the Company to concentrations of
credit risk  consist  principally  of cash and accounts  receivable.  We perform
ongoing credit evaluations of our customers' financial condition and, generally,
require no collateral from our customers.  Unless otherwise disclosed,  the fair
value of financial instruments approximates their recorded value.

Use of Estimates
----------------

In preparing  consolidated  financial  statements in conformity  with accounting
principles  generally  accepted in the United States of America,  our 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  consolidated  financial  statements,  as well as the  reported  amounts  of
revenue and expenses  during the reporting  period.  Actual results could differ
from those estimates.

Results of operations
---------------------

For the three  months  ended June 30,  2006 we had  income  from  operations  of
$116,000  compared to a loss from  operations  of $170,000 in the same period in
2005.  For the six months ended June 30, 2006 we had a loss from  operations  of
$176,000  compared to an operating loss of $380,000 for the same period in 2005.
The improvement in the operating  profit/loss is principally due to the decrease
in  operating  costs as discussed  below.  Net income for the three months ended
June 30, 2006 was $226,000 compared to a loss of $402,000 for the same period in
2005.  We had a net loss of  $307,000  for the six months  ended  June 30,  2006
compared to a net loss of $687,000 for the same period in 2005.

For the three months ended June 30, 2006 revenue  decreased  $122,000  (5.3%) to
$2,196,000  compared to revenue of $2,318,000 for the same period in 2005.  This
decrease is primarily  the result of an increase in our core  business,  the ASP
IOL services,  of $126,000  (8.8%)  offset by a decrease of $244,000  (28.1%) in
revenue  from  engineering  services  and a small  decrease  of  $4,000 in other
services.  For the six months  ended June 30, 2006  revenue  decreased  $187,000
(4.3%) to $4,211,000  compared to revenue of $4,398,000 for the six months ended

                                                                              20
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                      DIRECT INSITE CORP. AND SUBSIDIARIES

June 30,  2005.  For the six months ended June 30, 2006 revenue from the ASP IOL
services  increased  $527,000  (20.4%) while revenue from  engineering  services
decreased $703,000 (39.4%).  Engineering services revenue decreased  principally
as the result of substantially  completing  deployment of our IOL service in all
major geographies for our largest  customer,  IBM, and completion of the initial
phases of our IOL service for EDS. We anticipate  that revenue from  engineering
services will increase as we begin new initiatives at both IBM and EDS and as we
expand our customer base.

Costs of  operations,  research and  development  decreased by $31,000 (3.0%) to
$1,003,000 for the three months ended June 30, 2006 and increased $19,000 (0.9%)
to  $2,066,000  for the six months  ended  June 30,  2006  compared  to costs of
$1,034,000  and  $2,047,000  for the three and six month  periods ended June 30,
2005,  respectively.  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 services.  For the three months ended June 30,
2006 the  decrease  is  principally  due to a decrease in  professional  fees of
$34,000,  rent of $12,000 and phone  expense of $8,000  offset by an increase in
purchased  services  of $37,000 and  salaries  of $9,000,  while all other costs
decreased $23,000. For the six months ended June 30, 2006 the increase is due to
increases  in  salaries  of  $27,000,  purchased  services  of $47,000  and auto
expenses  of $11,000  offset by decrease in  professional  fees of $54,000.  All
other costs decreased $12,000 for the six month period.

Sales and marketing costs were $350,000 and $813,000 for the three and six month
periods ended June 30, 2006,  respectively,  a decrease of $209,000  (37.3%) for
the three  month  period and a decrease  of  $218,000  (21.1%) for the six month
period  compared to costs of $559,000 and $1,031,000 for the three and six month
periods ended June 30, 2005, respectively.  Salaries and related costs decreased
$39,000  and $18,000 for the three and six month  periods  ended June 30,  2006,
respectively,  while  professional  and consulting  fees  decreased  $86,000 and
$113,000  for the  three  and six  month  periods,  respectively.  Additionally,
advertising and travel costs decreased $63,000 and $74,000 for the three and six
month periods ended June 30, 2006,  respectively compared to the same periods in
2005.

General and administrative  costs decreased $129,000 (16.5%) and $127,000 (8.6%)
to $651,000 and  $1,345,000  for the three and six month  periods ended June 30,
2006,  respectively,  compared to the same periods in 2005.  The decreases  were
principally  due to  decreases  in  salaries  and  related  costs of $34,000 and
$32,000 for the three and six month periods  ended June 30, 2006,  respectively.
In addition,  rents, travel, personnel recruiting costs and commercial insurance
costs  decreased  a combined  $74,000 and  $101,000  for the three and six month
periods ended June 30, 2006, respectively, compared to cost for the same periods
in 2005.

Depreciation and amortization  expense  decreased by $39,000 (33.9%) and $65,000
(28.5%) to $76,000 and $163,000 for the three and six month  periods  ended June
30,  2006,  respectively,  compared to costs for the same  periods in 2005.  The
decrease is primarily due to fully  amortizing  certain software costs and other
computer equipment.

For the three and six  months  ended  June 30,  2006 we  recorded  a gain on the
revaluation  of the warrant  liability  of $299,000  and  269,000,  respectively
compared to a charge of $92,000 for the three and six month  periods  ended June
30, 2005.

For the three and six months ended June 30,  2006,  interest  expense  increased
$23,000 and $129,000, respectively,  principally due to the amortization of debt
discount  of  $97,000  and  $222,000,  for  the  three  and six  month  periods,
respectively,  offset by a decrease in interest  due to lower rate of  borrowing
under our receivables financing agreements.

Other  expense net of other income was $32,000 and $62,000 for the three and six
months ended June 30, 2006 compared to other expense net of $1,000 for the three
and six months ended June 30, 2005. During the six months ended June 30, 2006 we

                                                                              21
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

realized  a gain on the sale of an  investment  of  $59,000.  This was offset by
$75,000  due to  penalties  incurred  in  connection  with the  Sigma  and MetVP
financing (see Note 8 to the Condensed  Consolidated  Financial  Statements) and
$32,000 of expenses  related to the settlement  and  termination of a consulting
agreement.

Financial Condition and Liquidity

For the six months ended June 30, 2006, we had net loss of $307,000  compared to
a net loss of $687,000 for the same period in 2005.  Cash provided by continuing
operations was $339,000 in the first six months of 2006 compared to cash used in
continuing operations of $472,000 for the same period in 2005, an improvement of
$811,000.

Cash provided by operations,  including cash used for  discontinued  operations,
for the six months ended June 30, 2006 was $322,000,  consisting of the net loss
of $307,000,  reduced by non-cash expenses of $230,000,  including  depreciation
and  amortization  of property and equipment of $162,000,  amortization  of debt
discount of  $222,000,  amortization  of deferred  stock-based  compensation  of
$115,000  and  the  change  in the  fair  value  of  the  warrant  liability  of
($269,000).  In addition accounts  receivable were reduced by $482,000,  prepaid
expenses  decreased  $123,000,  while  accounts  payable  and  accrued  expenses
increased  $225,000.  This was  offset by a  decrease  in  deferred  revenue  of
$418,000.

Cash used in investing  activities was $52,000 for the six months ended June 30,
2006,  compared  to  $127,000  for same  period  in 2005.  This was  principally
expenditures for equipment.

Cash used in financing activities totaled $404,000 for the six months ended June
30, 2006, compared to cash provided by financing  activities of $468,000 for the
six months ended June 30, 2005. As noted above, we received  proceeds from a new
loan financing of $750,000 in the first six months of 2005. We repaid $77,000 of
long-term debt and capital lease obligations in the first six months of 2006 and
the  balance  outstanding  under  short  term  revolving  loans for  receivables
financing decreased by $327,000 in 2006.

Management's Liquidity and Financing Plans

In order to meet our cash  requirements 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
          Partners LLC and  Metropolitan  Venture Partners II, L.P. and received
          proceeds of $750,000 less legal fees of $55,000 (see Note 8).

     *    The  holders  of the  Series  A and  Series  B  Preferred  stock  have
          previously agreed to defer payment of dividends until February 1, 2006
          and April 15, 2006, respectively. We may seek to defer these dividends
          further.  Management  believes that we are precluded from paying these
          dividends at this time pursuant to Delaware General Corporate Law.

     *    We may raise  additional  capital through private equity offerings and
          borrowing.  There is no assurance  however that such capital  would be
          available to us, or if available,  on terms and conditions  that would
          be  acceptable.  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  7  of  the  accompanying  condensed
          consolidated financial statements).  Further, in June 2005, we renewed

                                                                              22
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                      DIRECT INSITE CORP. AND SUBSIDIARIES

          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  8  of  the   accompanying   condensed
          consolidated financial statements). As noted above the guarantors were
          issued  warrants and we could  receive  proceeds of $500,000  from the
          exercise of such  warrants  which  expire on July 11,  2010,  although
          there is no assurance that these warrants will be exercised.

     *    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
          500 company.  Revenue from this new customer  accounted  for 30.9% and
          28.8% of total  revenue  for the three and six  months  ended June 30,
          2006. We anticipate  that revenue from this new customer will continue
          to  increase  in 2006 and beyond and  expect to  further  broaden  our
          customer base in 2006,  although there is no assurance that we will be
          able to broaden this customer base.

     *    In 2006 we  initiated  a cost  reduction  plan  that we  believe  will
          significantly  reduce our operating  costs while still  enabling us to
          meet our commitments to our customers.

     *    We continue to expand our  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. As a result of this relationship, in the first
          quarter  of 2006 we  began  deployment  of our  IOL  service  to a new
          outsourcing  customer  of IBM.  We will  continue  to  pursue  similar
          channel  partner  opportunities.  Also,  in the third  quarter 2005 we
          employed a new sales and  marketing  executive  to further  expand our
          sales efforts.

     We believe that these plans and new  initiatives  as  discussed  above will
     lead to positive cash flow 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, 2007. 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  operating  expenses  or
     implement  its plans.  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

Evaluation of Disclosure Controls and Procedures
------------------------------------------------

The Company maintains disclosure controls and procedures designed to ensure that
information  required  to be  disclosed  in the reports it files with the SEC is
accumulated  and  communicated to management,  as  appropriate,  to allow timely
decisions  regarding  required  disclosure,  and such  information  is recorded,
processed,  summarized  and reported  within the time  periods  specified in the
SEC's  rules and  forms.  The  Company's  Chief  Executive  and Chief  Financial
Officers are  responsible  for  establishing,  maintaining  and enhancing  these
procedures.  They are also responsible,  as required by the rules established by
the SEC, for the evaluation of the effectiveness of these procedures.

                                                                              23
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                      DIRECT INSITE CORP. AND SUBSIDIARIES

Based on their  evaluation of the Company's  disclosure  controls and procedures
which took place as of June 30, 2006, the Chief Executive  Officer and the Chief
Financial  Officer believe that these  procedures were not effective as a result
of limited  resources  and a limited  segregation  of duties in  accounting  and
financial  reporting.  The  Company  has a limited  number of  personnel  in the
finance and accounting area and therefore one person performs various accounting
functions where a greater segregation of duties would permit checks and balances
and reviews that would improve internal  control.  The Company has been aware of
this  weakness  since  January  2004 at which  time the staff of the  accounting
department  was reduced.  Since that date the Company  retains a consultant on a
part-time  basis to assist  with the  financial  closing  and  financial  report
preparation process.  The part-time  consultant is qualified,  holds a degree in
accounting  and has several  years of  experience  in  accounting  and financial
reporting. The Company incurs approximately $60,000 annually for these services.
As a result the Chief Financial  Officer devotes  substantive  time to reviewing
the accounting  records and financial  reports and the Company expects that this
will continue until financial  resources permit engaging  additional  accounting
staff.  The Company has not determined at this time when such  additional  staff
will be employed.

Changes in Internal Control Over Financial Reporting
----------------------------------------------------

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.  The Company is a small business  issuer and therefore is not yet
subject to the evaluation of internal control requirements of Section 404 of the
Sarbanes-Oxley  Act of 2002 (the "Act") and  therefore is not yet subject to the
reporting  requirements of Regulation S-B, Items 308(a) and (b), and, therefore,
has not fully complied with these requirements. The Company is required to be in
compliance  with  Section 404 of the Act and report  thereon for the fiscal year
ended  December  31,  2007 and in this  regard  has begun to  develop a plan for
compliance  and expects to engage  outside  consultants  to design and implement
this plan.

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

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,  there is only limited  segregation  of duties  within the
accounting function,  leaving most significant aspects of financial reporting in
the hands of the CFO. As noted above,  we have  engaged a  consultant  to assist
with  the  financial  closing  process  and  the  preparation  of our  financial
statements.  Our Chief  Financial  Officer  thoroughly  reviews  the work of the
consultant and the consultant reviews the work of the Chief Financial Officer.

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 limited segregation of duties and the absence of
reviews and approvals  beyond that performed by the Chief Financial  Officer and
the consultant as mentioned above, of transactions and accounting entries. Given
these  reportable  conditions and material  weaknesses,  as described above, the
Chief Financial Officer and the consultant  devoted  additional time to closing,
preparing  and  reviewing  the report for the six months  ended June 30, 2006 by
engaging  an  outside  consultant  to  assist  with the  financial  closing  and
financial reporting process.

                                                                              24
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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

        None

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.

                                                                              25
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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, 2006



/s/ Michael J. Beecher
-------------------------------------------
Michael J. Beecher, Chief Financial Officer                    August 17, 2006