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 September 30, 2005

                                       OR

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


                For the transition period from ______ to ______

                         Commission File No. 0 - 20660


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


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


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


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

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

                                Yes    X       No


The number of shares of $.0001 par value  stock  outstanding  as of October  31,
2005 was: 4,933,028

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>

       Item 1

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

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

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

     Item 2

     Management's Discussion and Analysis or Plan of Operations ..........................................       16

     Item 3

     Controls and Procedures..............................................................................       22

PART II - OTHER INFORMATION

     Item 1. Legal Proceedings ...........................................................................       23

     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..................................       23

     Item 3. Defaults Upon Senior Securities .............................................................       23

     Item 4.  Submission of Matters to a Vote of Security Holders ........................................       23

     Item 5. Other Information ...........................................................................       23

     Item 6. Exhibits.....................................................................................       23

     Signatures ..........................................................................................       24


CERTIFICATIONS ...........................................................................................       25
</TABLE>
<PAGE>

                      DIRECT INSITE CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                 AS OF SEPTEMBER 30, 2005 AND December 31, 2004
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                 September 30,         December 31,
                                                                                      2005                 2004
                                                                              --------------------- --------------------
                                                                                  (Unaudited)            (Audited)
<S>                                                                           <C>                   <C>
ASSETS
Current assets
  Cash and cash equivalents                                                   $               65    $             306
  Accounts receivable, net of allowance for doubtful accounts of
   $2 in 2005 and 2004                                                                     1,647                1,871
  Prepaid expenses and other current assets                                                  160                  262
  Assets from discontinued operations                                                          1                   --
                                                                              ------------------    -----------------
       Total current assets                                                                1,873                2,439

Property and equipment, net                                                                  494                  577
Deposits                                                                                     272                  265
Other assets                                                                                  17                   20
                                                                              ------------------    -----------------
         TOTAL ASSETS                                                          $           2,656    $           3,301
                                                                              ==================    =================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities
  Accounts payable and accrued expenses                                        $           1,384    $           1,526
  Taxes payable                                                                              602                  560
  Short-term revolving loans                                                                 523                1,012
  Notes payable, net of discount                                                             527                   --
  Dividends payable, current                                                               1,578                  376
  Current portion of long-term debt                                                          734                  782
  Deferred revenue                                                                           115                  623
  Liabilities from discontinued operations                                                    68                  112
                                                                              ------------------    -----------------
       Total current liabilities                                                           5,531                4,991

Long term debt, net of current portion
                                                                                              85                  125
Dividends payable, net of current portion                                                      9                  722
                                                                              ------------------    -----------------
       Total liabilities                                                                   5,625                5,838
                                                                              ------------------    -----------------
Commitments and contingencies

Shareholders' deficiency
  Preferred stock, $0.0001 par value; 2,000,000 shares authorized;
    Series A Convertible Preferred, 134,680 issued and outstanding
    in 2005 and 2004; liquidation preference of $2,750,000 in 2005 and
    2004                                                                                     --                    --
    Series B Redeemable Preferred, 974 shares issued and outstanding
    in 2005 and 2004; liquidation preference of $974,075 in 2005 and 2004                    --                    --
    Series C Redeemable Preferred, 2,000 shares issued and outstanding
    in 2005 and 2004; liquidation preference of $2,000,000 in 2005 and 2004
    Series D Redeemable Preferred, 100 shares issued and outstanding
    in 2005 and 2004; liquidation preference of $100,000 in 2005 and 2004
  Common stock, $0.0001 par value; 50,000,000
    shares authorized in 2005 and 2004;
    4,972,955 and 4,547,013 shares issued in 2005 and 2004,
    respectively; and 4,933,028 and 4,507,086 shares outstanding
    in 2005 and 2004, respectively                                                          --                    --
  Additional paid-in capital                                                            113,314               112,484
  Unearned compensation                                                                    (157)                  (50)
  Accumulated deficit                                                                  (115,798)             (114,643)
                                                                                         (2,209)               (2,641)
                                                                              ------------------    -----------------
  Common stock in treasury, at cost  - 24,371 shares                                       (328)                 (328)
                                                                              ------------------    -----------------
        Total shareholders deficiency                                                    (2,969)               (2,537)
                                                                              ------------------    -----------------
          TOTAL LIABILITIES AND SHAREHODERS' DEFICIENCY                       $           2,656     $           3,301
                                                                              ==================    =================
</TABLE>

See notes to condensed consolidated financial statements.

                                       3
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 and 2004
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                               Three Months Ended              Nine Months Ended
                                                                  September 30,                  September 30,
                                                                2005           2004            2005           2004
                                                          --------------- -------------- --------------- --------------
   <S>                                                    <C>             <C>           <C>              <C>
   Revenue from continuing operations                     $       2,512   $       1,598 $        6,910   $       5,421
                                                          --------------- -------------- --------------- --------------
   Costs and expenses
     Operations, research and development                         1,032             868          3,079           2,632
     Sales and marketing                                            516             386          1,547           1,201
     General and administrative                                     794             694          2,266           2,098
     Amortization and depreciation                                   95             131            324             415
                                                          --------------- -------------- --------------- --------------
                                                                  2,437           2,079          7,216           6,346
                                                          --------------- -------------- --------------- --------------
   Operating income (loss)                                           75            (481)          (306)           (925)

   Other expenses
     Interest expense, net                                          148              77            348             223
     Other expense                                                   --            ----             --              33
                                                          --------------- -------------- --------------- --------------
   Loss before provision for income taxes                           (73)           (558)          (654)         (1,181)

   Provision for income taxes                                         1               1              2               5
                                                          --------------- -------------- --------------- --------------

   Loss from continuing operations                                  (74)           (559)          (656)         (1,186)

   (Loss) income from discontinued operations                        (2)             (2)           (10)            260
                                                          --------------- -------------- --------------- --------------
   Net loss                                                         (76)           (561)          (666)           (926)

   Preferred stock dividends                                       (164)           (161)          (489)           (459)
                                                          --------------- -------------- --------------- --------------
   Net loss attributable to
        common shareholders                               $        (240)  $        (722)         (1,155)        (1,385)
                                                          =============== ============== =============== ==============
   Basic and diluted loss per share:
     Basic and diluted loss from continuing operations    $       (0.05)$         (0.17) $        (0.25) $       (0.39)
     Basic and diluted income  from
     discontinued operations                                         --             --              --            0.06
                                                          --------------- -------------- --------------- --------------
   Basic and diluted loss  per share                      $       (0.05)  $       (0.17) $        (0.25) $       (0.33)
                                                          =============== ============== =============== ==============
   Basic and  diluted  weighted  average  common  shares
   outstanding                                                    4,679           4,356           4,600          4,243
                                                          =============== ============== =============== ==============
</TABLE>
See notes to condensed consolidated financial statements.

                                       4

<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 and 2004
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                         For the nine months ended
                                                                                                September 30,
                                                                                           2005              2004
                                                                                     ----------------- ------------------
<S>                                                                                    <C>               <C>
Cash flows from operating activities
 Loss from continuing operations                                                       $        (656)    $      (1,186)
 Adjustments to reconcile loss from continuing operations
  to net cash used in continuing operations:
   Amortization and depreciation:
     Property and equipment                                                                      324               413
     Discount on debt                                                                             99                --
     Other                                                                                        --                 2
    Common stock, warrants and options issued for services                                       342                 4
    Amortization of unearned compensation                                                         58                --

  Changes in operating assets and liabilities:
    Accounts receivable                                                                          224               (74)
    Prepaid expenses and other current assets                                                    102                31
    Deposits and other assets                                                                     (6)               14
    Accounts payable, accrued expenses and other current liabilities                             (99)              (87)
    Deferred revenue                                                                            (508)              (96)
                                                                                       --------------   --------------
       Net cash used in continuing operations                                                   (120)             (979)
                                                                                       --------------   --------------
  Cash flows from discontinued operations
  (Loss) income from discontinued operations                                                     (10)              260
  Change in:
    Assets and liabilities from discontinued operations                                          (45)             (468)
                                                                                       --------------   --------------
       Net cash used in discontinued operations                                                  (55)             (208)
                                                                                       --------------   --------------
       Net cash used in operating activities                                                    (175)           (1,187)
                                                                                       --------------   --------------
Cash flows from investing activities
 Expenditures for property and equipment                                                        (196)              (90)
                                                                                       --------------   --------------
       Net cash used in investing activities                                                    (196)              (90)
                                                                                       --------------   --------------
Cash flows from financing activities
 Proceeds from sales of preferred stock                                                           --             1,410
 (Repayments) advances from short-term revolving loans, net                                     (489)              130
 Proceeds from short-term notes                                                                  750                --
 Repayments of long-term debt                                                                   (131)             (198)
                                                                                       --------------   --------------
       Net cash provided by financing activities                                                 130             1,342
                                                                                       --------------   --------------
Net (decrease) increase in cash and cash equivalents                                            (241)               65

Cash and cash equivalents - beginning of period                                                  306                75
                                                                                       --------------   --------------
Cash and cash equivalents - end of period                                              $          65    $          140
                                                                                       ==============   ==============
Cash paid during the periods for:


       Interest                                                                        $         248    $          219
                                                                                       ==============   ==============
Non-cash investing and financing activities:

       Debt discount on notes payable                                                  $         322    $            -
                                                                                       ==============   ==============
Equipment acquired with lease financing                                                $          43    $          226
                                                                                       ==============   ==============
</TABLE>

See notes to condensed consolidated financial statements.

                                       5
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

1.   Interim Financial Information

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

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


2.   The Company

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

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

     Management's liquidity plans are discussed in Note 9. Also, as described in
     Note 8, the Company has two  customers  that  accounted  for  approximately
     67.7% and 29.8%, respectively,  of the Company's revenue for the nine month
     period ended  September 30, 2005.  Loss of either of these  customers would
     have a material adverse effect on the Company.

     Stock Options and Similar Equity Instruments
     --------------------------------------------

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

                                       6
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

2.   The Company (continued)
<TABLE>
<CAPTION>

                                                                    Three Months Ended         Nine Months Ended
                                                                      September 30,              September 30,
                                                                --------------------------- -------------------------
                                                                    2005          2004           2005        2004
                                                                ------------ -------------- ------------- -----------
     <S>                                                          <C>          <C>            <C>          <C>
     Net loss attributable to common shareholders
      As reported                                                 $   (240)    $   (722)      $ (1,155)    $ (1,385)
      Add: Stock-based compensation expense included
       in net loss attributable to common shareholders                   1                           7
                                                                ------------ -------------- ------------- -----------
      Less:  Stock-based employee compensation
       expense determined under fair value-based
       method for all awards                                          (238)         (48)          (685)        (493)
                                                                ------------ -------------- ------------- -----------
      Pro forma                                                   $   (477)    $   (770)      $ (1,833     $ (1,878)
                                                                ============ ============== ============= ===========
     Basic and diluted net loss per share
      As reported                                                 $  (0.05)    $  (0.17)      $  (0.25)    $  (0.33)
                                                                ============ ============== ============= ===========
      Pro forma                                                   $  (0.10)    $  (0.18)      $  (0.40)    $  (0.44)
                                                                ============ ============== ============= ===========
</TABLE>

     The fair value of Company  common stock  options  granted to employees  are
     estimated on the date of grant using the Black-Scholes option-pricing model
     with the following assumptions:  (1) expected volatility ranging from 71.4%
     to 72.6% in 2005 and 68.1% to 69.5% in 2004,  (2) risk-free  interest rates
     ranging  from  4.00% to 4.50%  in 2005 and  4.00% in 2004 and (3)  expected
     lives of 4.50 years in 2005 and ranging from 4.80 to 5.25 years in 2004.


3.   Reclassifications

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


4.   Discontinued Operations

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

                                       7
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

4.   Discontinued Operations (continued)
<TABLE>
<CAPTION>

                                                        Three Months Ended               Nine Months Ended
                                                           September 30                     September 30
                                                       2005             2004            2005             2004
                                                    ----------      ----------       ----------     -----------
          <S>                                       <C>             <C>              <C>            <C>

          Costs and Expenses
          General and administrative                $       --      $       --       $       (4)    $        --

           Other income  - net                              --              --               --             267
           Interest expense, net                            (2)             (2)              (6)             (7)
                                                    ----------      ----------       ----------     -----------
                 (Loss)       income      from
                 discontinued operations            $       (2)     $       (2)       $     (10)      $     260
                                                    ==========      ==========       ==========     ===========
</TABLE>

     At September 30, 2005, the discontinued operation had $1,000 in assets. The
     liabilities  of the  discontinued  operation at September  30, 2005 include
     loans  payable   totaling   $49,000,   and  accounts  payable  and  accrued
     liabilities of $19,000.


5.   Accounts Receivable and Revolving Loans

     The Company  has an Accounts  Receivable  Purchase  Agreement  with a Bank,
     whereby  the Company  from time to time may assign  some of their  accounts
     receivable to the Bank on a full  recourse  basis.  Upon  specific  invoice
     approval, an advance of 80% of the underlying receivable is provided to the
     Company.  The  remaining  balance  (20%),  less  an  administrative  fee of
     approximately  0.5% plus interest at the rate of 1 1/2% per month,  is paid
     to the  Company  once the  customer  has paid.  The  maximum  amount of all
     assigned receivables outstanding at any time shall not exceed $1.5 million.
     The initial term of the agreement was for one year, and continues until due
     notice  of  termination  is  given  at any  time  by  either  party  to the
     agreement.  At September 30, 2005,  the Company had assigned  approximately
     $654,000  of  accounts  receivable  to the Bank and  received  advances  of
     $523,000.

     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 September 30, 2005 the Rec Fund had a total  principal  available
     for assignment of $250,000 and the Company had no outstanding advances from
     the Rec Fund, resulting in $250,000 available under the agreement.

                                       8
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

6.   Debt

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

          At September 30, 2005 notes payable  consist of the notes as described
          below of $750,000 less debt discount of $223,000.

          In  March  2005,  the  Company  entered  into  a  Securities  Purchase
          Agreement (the  "Agreement") with Sigma Opportunity Fund LLC ("Sigma")
          and Metropolitan Venture Partners II, L.P. ("MetVP"), collectively the
          "Buyers",  whereby the Buyers  purchased Senior  Subordinated  Secured
          Notes (the "Note Purchase") in the aggregate  amount of $750,000.  The
          notes  bear  interest  at the  rate  of five  percent  (5%)  per  year
          beginning June 28, 2005,  and are payable  quarterly in cash or common
          stock at the option of the Buyers.  The Notes mature on the earlier to
          occur of (i)  September 29, 2006, or (ii) the date on which demand for
          payment  of the loan  payable  to  JPMorgan  Chase  Bank is  made.  In
          connection  with the note purchase the Buyers were issued  warrants to
          purchase  750,000 common shares of the Company.  The exercise price of
          the warrants is $0.01 per share of common stock.  The Company recorded
          a debt  discount  of  $322,000  (as  adjusted  for the  change  in the
          exercise  price) which is being  amortized  over the life of the loan.
          Amortization  for the nine months ended September 30, 2005 was $99,000
          and is recorded as interest expense. 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.   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 the event that the
          Follow-on-Financing  had occured 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 is
          $0.01 per common  share  which  resulted  in an  increase  in the debt
          discount from $258,000 to $322,000.

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

               Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                                September 30,        December 31,
                                                                    2005                 2004
                                                             -------------------- --------------------
<S>                                                                <C>                  <C>
Lines of credit (a)                                                $    631             $    668
Capitalized lease obligations (b)                                       188                  239
                                                                   --------             --------
                                                                        819                  907
Less current portion                                                   (734)                (782)
                                                                   --------             --------
Long-term debt, net of current portion                             $     85             $    125
                                                                   ========             ========
</TABLE>

(a)  In June 2003, the Company  obtained a discretionary  Line of Credit ("LoC")
     in the amount of $500,000 from JP Morgan Private Bank ("JPMC") and this LoC
     was renewed in June 2005. The LoC is guaranteed by Tall Oaks Group, LLC, an
     affiliate  of MetVP,  and is repayable on the earlier of demand or June 30,
     2007. In July,  2005, the guarantors were issued 500,000  warrants,  with a
     fair value of  approximately  $142,000,  to purchase  common  shares of the
     Company  at an  exercise  price of $1.00 per share  (see NOte 7).  The fair
     value of the  warrants is recorded  as unearned  compensation  and is being
     amortized to

                                       9
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


6.   Debt (continued)

     Long-term debt, continued
     --------------

          compensation  expense  over  the  life of the  loan.  Amortization  of
          $18,000 was recorded as compensation expense for the nine months ended
          September  30, 2005.  The LoC  permitted  two forms of draw down;  one
          based upon prime rate, the second based upon LIBOR.  In July 2003, the
          Company  elected  to  draw  down  $500,000   applying  the  terms  and
          conditions set forth for LIBOR.  The interest rate is the JPMC reserve
          adjusted  LIBOR plus 2.30%.  As of September 30, 2005,  the applicable
          interest rate was 5.74%.

          Also in 2003, the Company obtained, and fully drew upon, a second line
          of credit from Sterling  National Bank  ("Sterling")  in the amount of
          $250,000.  The line is guaranteed by the Company's CEO, secured by the
          assets of the Company,  and carries an interest rate of 7%. Repayments
          are  calculated  monthly at 2.778% of the  outstanding  balance,  plus
          interest,  and continue until the line is fully paid. At September 30,
          2005, the Company had an outstanding balance of approximately $131,000
          under the line of credit.

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


7.   Shareholders' Deficiency

     Common Stock, Warrants and Option Issuances
     -------------------------------------------

     During the nine months ended September 30, 2005, the Company issued 425,942
     unregistered  shares of common stock and options to purchase 480,000 shares
     of its common stock as follows:

     --   The Company issued 311,002 shares,  with a fair value of $244,000,  to
          employees  and   consultants   for  services  which  was  recorded  as
          compensation expense during the nine months ended September 30, 2005;

     --   The Company issued 114,940  shares,  with a fair value of $98,000,  to
          its Directors for their services which was recorded as directors' fees
          during the nine months ended September 30, 2005;

     --   The Company issued  500,000  warrants with a fair value of $142,000 as
          compensation  for the  guarantee of a line of credit (see Note 6). For
          the nine month period ended September 30, 2005, the expense related to
          the guarantee was approximately $18,000.

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

     --   The Company  issued  100,000  options to purchase  common  stock to an

                                       10
<PAGE>

                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


7,   Shareholders' Deficiency (continued)

     Common Stock, Warrants and Option Issuances, continued
     -------------------------------------------

          employee.  The options  vest ratably over 3 years and have an exercise
          price  of  $0.65  per  share.   The   options  had  a  fair  value  of
          approximately $41,000 at the date of grant.

     --   The Company  issued  175,000  options to purchase  common  stock to an
          employee.  The options  vested 20% upon  issuance and the balance vest
          ratably  over 3 years and have an  exercise  price of $0.65 per share.
          The options had a fair value of  approximately  $71,000 at the date of
          grant.  The Company also granted  25,000  shares of common stock which
          vest over two years. The stock had a fair value of $18,000 at the date
          of grant  which was  recorded as  unearned  compensation  and is being
          amortized to compensation  expense over two years. For the nine months
          ended September 30, 2005, $750 was recorded as compensation expense.

     --   Under the terms of an employment agreement,  the Company issued to its
          president  100,000  options to purchase  common  shares at an exercise
          price of $0.50 per share.  These  options have an  intrinsic  value of
          $20,000  which  was  recorded  as  unearned  compensation  and will be
          amortized over 26 months.  During the nine months ended  September 30,
          2005, $7,000 was amortized as compensation  expense. In addition,  the
          Company  issued to its president  100,000  options to purchase  common
          shares at the market price on the date of the grant. The options had a
          fair value of $43,000 at the date of grant.

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

     The Company  displays  earnings per share in accordance  with SFAS No. 128,
     "Earnings Per Share".  SFAS No. 128 requires dual presentation of basic and
     diluted  earnings per share ("EPS").  Basic EPS includes no dilution and is
     computed by dividing net income (loss)  attributable to common shareholders
     by the weighted average number of common shares outstanding for the period.
     Diluted EPS includes the potential  dilution that could occur if securities
     or other  contracts to issue common stock were  exercised or converted into
     common stock. Outstanding stock options, warrants and other potential stock
     issuances  have not been  considered  in the  computation  of  diluted  EPS
     amounts since the effect of their inclusion would be antidilutive.

     Securities that could potentially dilute basic EPS in the future, that were
     not included in the  computation  of the diluted EPS because to do so would
     have been antidilutive for the periods presented,  consist of the following
     (in thousands):

<TABLE>
       <S>                                                                      <C>
       Options to purchase common stock                                         5,114
       Convertible preferred stock and warrants to acquire common stock         4,678
                                                                                -----
             Total potential common shares as of September 30, 2005             9,792
                                                                                =====
</TABLE>

                                       11
<PAGE>

                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


     8.   Products and Services

     The Company and its subsidiaries  currently operate in one business segment
     and provide two separate  products:  ASP  services  and custom  engineering
     services. Revenue for these services was as follows (in thousands):
<TABLE>
<CAPTION>
                                                 Three Months Ended             Nine Months Ended
                                                    September 30,                  September 30,
                                                  2005           2004          2005           2004
                                           ---------------- -------------- ------------- --------------
  <S>                                           <C>            <C>              <C>         <C>
  ASP IOL fees                                  $1,695         $  1,004         $4,284      $  2,965
  ASP telecommunications fees                        8              136             33           432
  Custom engineering fees                          809              458          2,593         2,024
                                           ---------------- -------------- ------------- --------------
       Total Revenue                            $2,512           $1,598         $6,910        $5,421
                                           ================ ============== ============= ==============
</TABLE>
     Major Customers
     ---------------

     For the three  months  ended  September  30, 2005 the Company had two major
     customers  that  accounted  for  63.8%  and  33.5% of the  Company's  total
     revenue.  These two customers  accounted for 67.7% and 29.8% of revenue for
     the nine months ended September 30, 2005. In 2004 the

8.   Products and Services (continued)

     Company  had one  major  customer  that  accounted  for  90.9% and 95.7% of
     revenue  for  the  three  and  nine  months  ended   September   30,  2004,
     respectively.   Accounts   receivable  from  these  customers  amounted  to
     $1,604,000 at September 30, 2005.


9.   Management's Liquidity Plans

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

     --   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 6).

     --   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.

     --   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 to the Company In 2004,  the
          Company  received  net proceeds  from the sale of  Preferred  Stock of
          $1,430,000.  Also in 2004 the Company  entered into an agreement  with
          DIRI Rec Fund LLC,  a  corporation  formed and funded to loan funds to
          the Company against accounts  receivable,  and may receive advances up
          to $250,000 from Diri Rec Fund (see note 5). Further, in June 2005 the
          Company renewed for a period of two years the $500,000 loan previously

                                       12
<PAGE>

                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


9.   Management's Liquidity Plans

          scheduled to mature on June 30, 2005 and the  guarantors  of this loan
          have  consented  to this  extension  (see Note 6). 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
          the Company  entered into a new agreement to provide IOL services to a
          Fortune 100  company.  Revenue from this new  customer  accounted  for
          29.8% of total  revenue for the nine months ended  September 30, 2005.
          Management  anticipates  that  revenue  from  this new  customer  will
          continue to increase in 2005 and beyond and expects to further broaden
          the Company's customer base in 2005.

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

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

10.  New Accounting Pronouncements

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

                                       13
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004


10.  New Accounting Pronouncements (continued)

     have no  effect  on the  Company's  consolidated  cash  flows or  financial
     position  but will have an  adverse  effect on the  Company's  consolidated
     results of operations.

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

     In September  2004, the EITF issued  statement  EITF Issue No. 04-08,  "The
     Effect of  Contingently  Convertible  Debt on Diluted  Earnings  per Share"
     ("EITF 04-08").  Contingently  convertible  debt  instruments are generally
     convertible  into common  shares of an issuer  after the common stock price
     has exceeded a predetermined  threshold for a specified period of time (the
     "market price contingency").  EITF 04-08 requires that shares issuable upon
     conversion of contingently convertible debt be included in diluted earnings
     per share  computations  regardless of whether the market price contingency
     contained in the debt  instrument has been met. EITF 04-08 is effective for
     reporting  periods ending after December 15, 2004 and requires  restatement
     of prior periods to the extent  applicable.  The adoption of this statement
     did not have an effect on the Company's calculation of EPS.

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

                                       14
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                  (Unaudited)
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

10.  New Accounting Pronouncements (continued)

     asset retirement  obligation.  The company does not expect that adoption of
     FIN 47 will have a significant  effect on its financial position or results
     of operations.

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

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

     In September  2005,  the FASB  ratified  the  Emerging  Issues Task Force's
     ("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
     affects  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). In September 2005,
     the FASB also 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 shareholder'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 FASB Statement No. 109,  Accounting for Income
     Taxes.  The  adoption  of these  Issues may have a  material  effect on our
     consolidated financial position or results of operations in future periods.

                                       15
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


Item 2 - Managements Discussion and Analysis or Plan of Operations

Forward looking statements

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

Overview

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

We also  provide  additional  service  offerings  in the  form  of our  patented
dbExpressTM  technology,  a  management  information  tool that allows  users to
visually  data mine large  volumes of  transactional  data via the  Internet.  A
complete  Internet  Customer Care tool set integrated with the EIP&P product set
is also  available.  We  operate  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.

                                       16
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


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

Currently, IBM, our largest customer,  representing approximately 68% and 96% of
our  revenue  for the nine month  periods  ended  September  30,  2005 and 2004,
respectively,  utilizes  our suite of IOL  products  and services to allow their
customers from around the globe to receive,  analyze,  dispute and cost allocate
all of their invoice  related  information  in their local language and currency
via the  Internet  24  hours a day,  7 days a week,  365  days a year.  A second
Fortune  100  customer  accounted  for 30% of total  revenue  for the first nine
months of 2005.

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

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

We provide  transactional data processing services to its customers.  Revenue is
recognized as the services are performed.

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

We recognize  revenue for custom  engineering  services  using the percentage of
completion  method.  Progress  is  measured  using the  relative  fair  value of


                                       17
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


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

specifically  identifiable output measures  (milestones).  Revenue is recognized
when  the  customer  accepts  such  milestones.  Costs  related  to  uncompleted
milestones are deferred and included in other current assets, when applicable.

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

Cost of revenue in the consolidated  statements of operations is presented along
with  operations,  research and development  costs and exclusive of amortization
and depreciation shown separately.

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

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.  Statement of Financial
Accounting  Standards  ("SFAS")  No.  144,  "Accounting  for the  Impairment  or
Disposal of Long-Lived Assets" became effective for the Company during 2002.

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 not
been considered in the  computation of diluted  earnings per share amounts since
the effect of their inclusion would be anti-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.

                                       18
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

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

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 and nine month periods ended September 30, 2005 we had losses from
continuing operations of $74,000 and $656,000, respectively,  compared to losses
from continuing  operations of $559,000 and  $1,186,000,  in the same periods in
2004, respectively. The decrease in the losses is principally due to an increase
in revenue for the three and nine months ended  September  30,  2005,  partially
offset by an increase in operating  costs as discussed  below.  Net loss for the
three and nine month periods ended  September 30, 2005 was $76,000 and $666,000,
respectively,  compared  to net losses of  $561,000  and  $926,000  for the same
periods in 2004, respectively. This includes losses from discontinued operations
of $2,000 and $10,000 in the three and nine month  periods  ended  September 30,
2005, respectively, and a loss of $2,000 and income from discontinued operations
of  $260,000  for  the  three  and  nine  months  ended   September   30,  2004,
respectively,  that was principally the result of recognizing  income related to
deferred  revenue  of  $180,000  included  in other  income of the  discontinued
operation in the first nine months of 2004.

For the three months ended September 30, 2005 revenue from continuing operations
increased  $914,000 (57.2%) to $2,512,000  compared to revenue of $1,598,000 for
the same period in 2004. For the nine months ended  September 30, 2005,  revenue
from continuing  operations  increased $1,489,000 (27.5%) to $6,910,000 compared
to revenue from continuing operations of $5,421,000 for the same period in 2004.
The  increase is  primarily  the result of an increase in revenue  from our core
business,  the ASP IOL services,  of $691,000 (68.8%) and $1,319,000 (44.5%) for
the three  and nine  month  periods  ended  September  30,  2005,  respectively.
Additionally,  revenue from engineering services increased $351,000 and $569,000
for the three and nine months ended September 30, 2005,  respectively,  compared
to the same periods in 2004.  These  increases are  principally  due to expanded
services to a second major customer added in 2004, and further deployment of our
IOL services to IBM..  These increases were offset by a decrease of $128,000 and
$399,000  in revenue  from  telecommunications  services  for the three and nine
months ended September 30, 2005,  respectively,  compared to the same periods in
2004 . The decrease in the telecommunications services, which accounted for less
than 1% of total  revenue for the first nine months of 2005 compared to 8.0% for
the same period in 2004, is the result of decreased demand for such services.

Costs of operations,  research and development increased by $164,000 (18.9%) and
$447,000  (17.0%)  to  $1,032,000  and  $3,079,000  for the three and nine month
periods ended  September 30, 2005,  respectively,  compared to costs of $868,000
and $2,632,000 for the same periods in 2004. These costs consist  principally of
salaries  and related  expenses  for software  developers,  programmers,  custom
engineers,  network services,  and quality control and assurance.  Also included
are  network  costs,  costs of the  production  co-location  facility  and other
expenses directly related to our custom engineering and ASP production services.
The increase in costs for the three months ended September 30, 2005 is primarily
due to  increases  in  personnel  wages and benefit  costs of $78,000  from wage
increases  and staff  additions,  an  increase in  professional  fees of $35,000
resulting from engaging  temporary  technical staff, and an increase in software
purchases of $28,000.  Other operating  expenses  increased by a net of $23,000.
The  increase  in  costs  for  the  nine  months  ended  September  30,  2005 is
principally  due to increases in personnel  wages and benefit  costs of $251,000
from wage increases and staff  additions,  an increase in  professional  fees of
$84,000  resulting from engaging  temporary  technical staff, and an increase in
software  purchases of $50,000.  All other operating expenses increased $62,000,
net.

                                       19
<PAGE>

                      DIRECT INSITE CORP. AND SUBSIDIARIES


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

Sales and marketing  costs were $516,000 and  $1,547,000  for the three and nine
month periods ended  September 30, 2005,  respectively,  an increase of $130,000
(33.7%) and $346,000  (28.8%)  compared to costs of $386,000 and  $1,201,000 for
the same  periods  in 2004.  For the  nine  months  ended  September  30,  2005,
professional  fees,  including  personnel  recruiting costs,  increased $97,000,
consulting  fees  increased  $147,000  due  to  engaging  an  independent  sales
representative  and promotional costs increased  $41,000,  while all other costs
increased  by $61,000,  net  compared to the same period in 2004.  For the three
months  ended  September  30,  2005,   professional  fees,  including  personnel
recruiting costs,  increased  $15,000,  consulting fees increased $38,000 due to
engaging an independent  sales  representative,  travel and  entertainment  fees
increased  $24,000 and promotional costs increased $10,000 while all other costs
increased by $43,000,  net  compared to the same  period  in 2004.  We intend to
continue increasing our sales and marketing efforts to achieve further growth in
our IOL services.

General and administrative  costs increased $100,000 (14.4%) and $168,000 (8.0%)
to $794,000 and $2,266,000 for the three and nine month periods ended  September
30, 2005,  respectively,  compared to costs of $694,000 and  $2,098,000  for the
same periods in 2004.  For the three and nine month periods ended  September 30,
2005,  salaries and related costs increased $72,000 and $216,000 compared to the
same periods in 2004,  principally due to the  restoration of salary  reductions
taken in 2004. Costs for directors  meetings  decreased $15,000 and increased by
$27,000  for the  three  and  nine  month  periods  ended  September  30,  2005,
respectively,  compared to costs for the same periods in 2004. For the three and
nine month periods ended  September 30, 2005 costs for legal and accounting fees
increased  $69,000 and $157,000,  respectively,  compared to the same periods in
2004,  principally  due to  costs  incurred  for  the  issuance  of  the  Senior
Subordinated  Notes and the  related  registration  statement.  Insurance  costs
decreased  $19,000  and  $67,000  for the three  and nine  month  periods  ended
September  30,  2005,  respectively,  compared  to the  same  periods  in  2004,
primarily  due  to  rate  decreases.  Professional  fees  increased  $6,000  and
decreased $34,000 for the three and nine month periods ended September 30, 2005,
respectively,  compared  to costs  for the same  periods  in  2004.  Travel  and
entertainment  costs decreased  $27,000 and $94,000 for the three and nine month
periods ended September 30, 2005, respectively,  compared to the same periods in
2004. All other administrative costs increased $14,000 and decreased $37,000 for
the three  and nine  month  periods  ended  September  30,  2005,  respectively,
compared to the same periods in 2004.

Depreciation and amortization  expense  decreased by $36,000 (27.5%) and $91,000
(21.9%)  for the  three  and  nine  month  periods  ended  September  30,  2005,
respectively,  compared  to the same  periods  in 2004,  primarily  due to fully
amortizing certain software costs and other computer equipment.


Financial Condition and Liquidity

For the nine months September 30, 2005, we had a loss from continuing operations
of $656,000 compared to a loss from continuing  operations of $1,186,000 for the
same period in 2004. We used $120,000 in cash for  continuing  operations in the
first nine months of 2005  compared to $979,000 for the same period in 2004,  an
improvement  of  $859,000 or 87.7%.  Cash used in  discontinued  operations  was
$55,000 for the nine months ended  September 30, 2005,  compared to $208,000 for
the nine months ended  September  30, 2004. We funded the shortfall in cash from
operations primarily through the new borrowing noted above.

Cash used in operations,  including cash used for discontinued  operations,  for
the nine months ended  September  30, 2005 was  $175,000,  consisting of the net
loss  of  $666,000,   reduced  by  non-cash  expenses  of  $823,000,   including
depreciation and amortization of $324,000 and stock, warrants and options issued
for services of $342,000. In addition, accounts receivable decreased by $224,000
and prepaid  expenses  and other assets  decreased  $96,000.  Accounts  payable,
accrued expenses and other current  liabilities  decreased  $99,000 and deferred
revenue decreased $508,000.

                                       20
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

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

Cash  used in  investing  activities  was  $196,000  for the nine  months  ended
September  30,  2005,  compared  to $90,000  for same  period in 2004.  This was
principally  expenditures for equipment.  Cash provided by financing  activities
totaled  $130,000 for the nine months  ended  September  30,  2005,  compared to
$1,342,000  for the nine months ended  September  30, 2004.  As noted above,  we
received proceeds from a new loan financing of $750,000. We also repaid $131,000
of  long-term  debt and capital  lease  obligations  in the first nine months of
2005. The balance  outstanding  under short term revolving loans for receivables
financing decreased by $489,000 in 2005.

Management's Liquidity and Financing Plans

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

     --   In March 2005 we closed a Bridge  Loan  financing  with Sigma  Capital
          PartnersLLC and  Metropolitan  Venture  Partners II, L.P. and received
          proceeds of $750,000 less legal fees of $55,000 (see Note 6).

     --   We 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. We may seek to defer these dividends
          further.

     --   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  to us. In 2004, we received net proceeds from the sale
          of  Preferred  Stock of  $1,430,000.  Also in 2004 we entered  into an
          agreement  with DIRI Rec Fund LLC, a corporation  formed and funded to
          loan funds to the Company against accounts receivable, and may receive
          advances up to $250,000 from Diri Rec Fund (see Note 5).  Further,  in
          June 2005 we  renewed  for a period of two  years  the  $500,000  loan
          previously  scheduled to mature on June 30, 2005 and the guarantors of
          this loan have  consented to this  extension (see Note 6). ). 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
          100 company.  Revenue from this new  customer  accounted  for 29.8% of
          total revenue for the nine months ended September 30, 2005. Management
          anticipates  that revenue  from this  new  customer  will  continue to
          increase  in 2005 and  beyond  and  expects  to  further  broaden  our
          customer base in 2005.

     --   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.  We will continue to pursue  similar  channel
          partner opportunities.  Also, in the fourth quarter 2004 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  flows and  profitability.  While we pursue  these  goals we also
believe that our ability to raise  additional  capital  through  equity and debt

                                       21
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

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

placements  will  provide  sufficient  cash to meet cash  requirements  at least
through  September 30, 2006.  There can be no assurance,  however,  that we will
achieve the cash flow and profitability  goals, or that we will be able to raise
additional  capital  sufficient to meet our operating  expenses or implement our
plan. In such event,  we may have to revise our plans and  significantly  reduce
our  operating  expenses,  which  could  have an adverse  effect on revenue  and
operations in the short term.

Item 3 - Controls and Procedures
Disclosures Controls and Procedures
-----------------------------------

The  Company  maintains   controls  and  procedures   designed  to  ensure  that
information  required  to be  disclosed  in the reports it files with the SEC 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.

Based on their  evaluation of the Company's  disclosure  controls and procedures
which took place as of September 30, 2005, 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. Internal Financial Controls

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

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

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

It is the  responsibility of the Company's  management to establish and maintain
adequate internal control over financial reporting.  However, due to its limited
financial  resources,  there is only limited  segregation  of duties  within the
accounting function,  leaving most significant aspects of financial reporting in
the hands of the CFO. 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.  Based on these
reviews  we have  confidence  that  there  have  been no  irregularities  in the
Company's financial reporting or in the protection of its assets.

Our independent auditors have reported to our Board of Directors certain matters
involving  internal  controls that our independent  auditors  considered to be a
reportable condition and a material weakness, under standards established by the
American Institute of Certified Public  Accountants.  The reportable  conditions
and material weakness relate to 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,   management  devoted
additional  resources to closing and  preparing the report for the quarter ended
September 30, 2005. As a result, we are confident that our financial  statements
for the  quarter  ended  September  30,  2005 fairly  present,  in all  material
respects, our financial condition and results of operations.

                                       22
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

                          PART II - OTHER INFORMATION

Item 1. Legal Proceedings

        None

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

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

Item 3. Defaults Upon Senior Securities

        None

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

        None

Item 5. Other Information

        None

Item 6. Exhibits

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

                                       23
<PAGE>


                      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       November 14, 2005



/s/ Michael J. Beecher
-------------------------------------------
Michael J. Beecher, Chief Financial Officer       November 14, 2005
  And Principal Accounting Officer

                                       24