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 March 31, 2006

                                       OR

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


                 For the transition period from ______ to ______

                          Commission File No. 0 - 20660


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


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


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


        Registrant's telephone number, including area code (631) 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
            ---      ---
Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes      No  X
                                     ---     ---

The number of shares of $.0001 par value  stock  outstanding  as of May 10, 2006
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>                                                                                                        <C>

       Item 1

     Condensed Consolidated Balance Sheets as of March 31, 2006 (Unaudited) and
       December 31, 2005 .................................................................................        3

     Condensed Consolidated Statements of Operations
       For the Three Months Ended March 31, 2006 and 2005 (Unaudited).....................................        4

     Condensed Consolidated Statements of Cash Flows
       For the Three Months Ended March 31, 2006 and 2005 (Unaudited).....................................        5

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

     Item 2

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

     Item 3

     Controls and Procedures..............................................................................       21

PART II - OTHER INFORMATION

     Item 1. Legal Proceedings ...........................................................................       22

     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..................................       22

     Item 3. Defaults Upon Senior Securities .............................................................       22

     Item 4.  Submission of Matters to a Vote of Security Holders ........................................       22

     Item 5. Other Information ...........................................................................       22

     Item 6. Exhibits.....................................................................................       22

     Signatures ..........................................................................................       23


CERTIFICATIONS ...........................................................................................       24
</TABLE>
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                   AS OF MARCH 31, 2006 AND DECEMBER 31, 2005
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                   March 31,           December 31,
                                                                                      2006                 2005
                                                                               --------------------- ------------------
                                                                                   (Unaudited)          (Audited)
<S>                                                                            <C>                  <C>
ASSETS
Current assets
  Cash and cash equivalents                                                    $             73     $             364
  Accounts receivable, net of allowance for doubtful accounts of
   $0 in 2006 and 2005                                                                    1,361                 1,858
  Prepaid expenses and other current assets                                                 134                   195
                                                                               ----------------      ------------------
       Total current assets                                                               1,568                 2,417

Property and equipment, net                                                                 385                   446
Other assets                                                                                314                   318
                                                                               ----------------      ------------------
         TOTAL ASSETS                                                          $          2,267     $           3,181
                                                                               ================     ===================

LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities
  Short-term revolving loans                                                   $            247     $             695
  Current portion of capital lease obligations                                               94                    99
  Notes payable, net of discount                                                          1,110                   995
  Accounts payable and accrued expenses                                                   2,120                 1,962
  Dividends payable, current                                                              1,947                 1,775
  Deferred revenue                                                                          546                   796
  Warrant liability                                                                         489                   459
  Liabilities from discontinued operations                                                   53                    61
                                                                               ----------------      ------------------
       Total current liabilities                                                          6,606                 6,842

Capital lease obligations, net of current portion                                            50                    73
                                                                               ----------------      ------------------
       Total liabilities                                                                  6,656                 6,915
                                                                               ----------------      ------------------

Commitments and contingencies

Shareholders' deficiency
  Preferred stock, $0.0001 par value; 2,000,000 shares authorized;
    Series A Convertible Preferred, 134,680 issued and outstanding
    in 2006 and 2005; liquidation preference of $2,750,000 in 2006 and
    2005                                                                                      -                     -
    Series B Redeemable Preferred, 974 shares issued and outstanding in
    2006 and 2005; liquidation preference of $974,075 in 2006 and 2005                        -                     -
    Series C Redeemable Preferred, 2,000 shares issued and outstanding
    in 2006 and 2005; liquidation preference of $2,000,000 in 2006 and
    2005
    Series D Redeemable Preferred, 100 shares issued and outstanding
    in 2006 and 2005; liquidation preference of $100,000 in 2006 and 2005                     -                     -
  Common stock, $0.0001 par value; 50,000,000 shares authorized;
  4,972,955 shares issued in 2006 and 2005; and 4,933,028 shares
  outstanding in 2006 and 2005                                                                -                     -
  Additional paid-in capital                                                            113,177               113,039
  Unearned compensation                                                                    (222)                 (134)
  Accumulated deficit                                                                  (117,016)             (116,311)
                                                                               ----------------      ------------------
                                                                                         (4,061)               (3,406)

  Common stock in treasury, at cost  - 24,371 shares                                       (328)                 (328)
                                                                               ----------------      ------------------
     Total shareholders' deficiency                                                      (4,389)               (3,734)
                                                                               ----------------      ------------------

          TOTAL LIABILITIES AND SHAREHODERS' DEFICIENCY                       $           2,267     $            3,181
                                                                              =================     ===================
</TABLE>

See notes to condensed consolidated financial statements.                      3
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

               FOR THE THREE MONTHS ENDED MARCH 31, 2006 and 2005
                      (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                           Three Months Ended
                                                                                           ------------------
                                                                                               March 31,
                                                                                               ---------
                                                                                           2006             2005
                                                                                     ---------------- ----------------
   <S>                                                                               <C>               <C>
   Revenue                                                                           $      2,015      $      2,080
                                                                                     ---------------- ----------------

   Costs and expenses
     Operations, research and development                                                   1,063            1,013
     Sales and marketing                                                                      463              472
     General and administrative                                                               694              692
                                                                                               87              113
                                                                                     ---------------- ----------------
                                                                                            2,307            2,290
                                                                                     ---------------- ----------------

   Operating loss                                                                            (292)            (210)

   Other expenses
     Other expense, net                                                                        60               --
     Interest expense, net                                                                    181               75
                                                                                     ---------------- ----------------

   Net loss                                                                                  (533)            (285)

   Preferred stock dividends                                                                 (172)            (154)
                                                                                     ---------------- ----------------

   Net loss attributable to common shareholders                                      $       (705)    $       (439)
                                                                                     ================ ================

   Basic and diluted loss per share                                                  $      (0.14)    $      (0.10)
                                                                                     ================ ================

   Basic weighted average common shares outstanding                                         4,933            4,510
                                                                                     ================ ================
</TABLE>

See notes to condensed consolidated financial statements.                      4
<PAGE>
                               DIRECT INSITE CORP
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                          For the three months ended
                                                                                                   March 31,
                                                                                           2006              2005
                                                                                                          (Restated)
                                                                                     ----------------- ------------------
<S>                                                                                    <C>               <C>
Cash flows from operating activities

 Loss from continuing operations                                                       $        (533)    $        (285)
 Adjustments to reconcile loss from continuing operations
  to net cash used in continuing operations:
   Amortization and depreciation:
     Property and equipment                                                                       87               113
     Discount on debt                                                                            125                --
    Common stock and options issued for services                                                  --                18
    Amortization of deferred stock based compensation                                             50                22
    Change in fair value of warrant liability                                                     30                --

  Changes in operating assets and liabilities:
    Accounts receivable                                                                          496               573
    Prepaid expenses and other current assets                                                     61                29
    Other assets                                                                                   4               (28)
    Accounts payable and accrued expenses                                                        158               (42)
    Deferred revenue                                                                            (250)             (447)
                                                                                       --------------  ----------------
       Net cash provided by (used in) continuing operations                                      228               (47)
                                                                                       --------------  ----------------

  Change in:
    Assets and liabilities from discontinued operations                                           (8)               (9)
                                                                                       --------------  ----------------
       Net cash used in discontinued operations                                                   (8)               (9)
                                                                                       --------------  ----------------

       Net cash provided by (used in) operating activities                                       220               (56)
                                                                                       --------------  ----------------

Cash flows used in investing activities
 Expenditures for property and equipment                                                         (24)              (66)
                                                                                       --------------  ----------------

Cash flows from financing activities
 Repayments of revolving loans, net                                                             (448)             (298)
 Proceeds from short-term notes                                                                   --               750
 Repayments of long-term debt                                                                    (39)              (42)
                                                                                       --------------  ----------------
       Net cash (used in) provided by financing activities                                      (487)              410
                                                                                       --------------  ----------------

Net (decrease) increase in cash and cash equivalents                                            (291)              288

Cash and cash equivalents - beginning of period                                                  364               306
                                                                                       --------------  ----------------
Cash and cash equivalents - end of period                                              $          73    $          594
                                                                                       ==============   ===============

Cash paid for interest                                                                 $          47    $           78
                                                                                       ==============   ===============
Non-cash investing and financing activities:

Debt discount on loans                                                                 $          --    $          394
                                                                                       ==============   ===============
Issuance of common shares and options to purchase
common shares for services and fees                                                    $          --    $           12
                                                                                       ==============   ===============
</TABLE>

See notes to condensed consolidated financial statements.                      5
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005



1.   Interim Financial Information

     The  condensed  consolidated  balance  sheet as of March 31, 2006,  and the
     condensed  consolidated  statements  of  operations  and cash flows for the
     three month  periods  ended March 31, 2006 and 2005,  have been prepared by
     the Company and are not audited. These interim financial statements include
     all  adjustments   which   management   considers   necessary  for  a  fair
     presentation  of the financial  statements and consist of normal  recurring
     items.  The results of operations for the quarterly  period ended March 31,
     2006,  are not  necessarily  indicative of results that may be expected for
     any other interim period or for the full year.

     These unaudited condensed  consolidated financial statements should be read
     in conjunction with the consolidated financial statements and notes thereto
     for the year ended December 31, 2005 included in the Company's  Form-10KSB.
     The  accounting  policies  used  in  preparing  these  unaudited  condensed
     consolidated  financial  statements are consistent  with those described in
     the December 31, 2005 consolidated financial statements.

2.   The Company

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

     The Company also  provides  Custom  Engineering  Services  which are single
     contractual  agreements  involving  modification  or  customization  of the
     Company's  proprietary  ASP  software  solution.  Additionally  the Company
     provides  service  offerings  in the  form  of its  patented  dbExpress  TM
     technology,  a  management  information  tool that allows users to visually
     data mine large volumes of transactional data via the Internet.  A complete
     Internet  Customer Care tool set  integrated  with the EIP&P product set is
     also available.  The Company  operates fully redundant data centers located
     at its main office in Bohemia,  N.Y. and in an IBM co-location  facility in
     Newark, NJ.

     Management's  liquidity  plans are discussed in Note 11. Also, as described
     in Note 10, the Company has two customers that accounted for  approximately
     71.5% and 26.5% of the  Company's  revenue for the three month period ended
     March 31, 2006 and 74.0% and 24.5% of revenue  for the three  month  period
     ended  March  31,2005.  Loss of  either  of these  customers  would  have a
     material adverse effect on the Company.

3.   Stock Based Compensation

     Effective  January 1, 2006, the Company adopted the fair value  recognition
     provisions  of  Statement of Financial  Accounting  Standards  ("SFAS") No,
     123(Revised  2004),  "Share-Based  Payment",  ("SFAS  123(R)"),  using  the
     modified-prospective-transition  method. As a result,  for the three months
     ended March 31, 2006, the Company recorded $28,000 in compensation  expense
     for the fair value of options.

                                                                               6
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005



3.   Stock Based Compensation (continued)

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

     Three Months Ended March 31, 2005
     ---------------------------------

     As  was  permitted   under  SFAS  No.  148,   "Accounting  for  Stock-Based
     Compensation--Transition  and Disclosure",  which amended SFAS No. 123, the
     Company  elected  to  continue  to follow  the  intrinsic  value  method in
     accounting  for  its  stock-based  employee  compensation  arrangements  as
     defined  by  APB  No.  25,  and  related  interpretations   including  FASB
     Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
     Compensation",  an  interpretation  of APB  No.  25.  The  following  table
     illustrates  the  effect on net loss and net loss per share if the  Company
     had  applied  the fair  value  recognition  provisions  of SFAS No.  123 to
     stock-based employee compensation (in thousands, except per share data):
<TABLE>
<CAPTION>
                                                                     ------------------
                                                                     Three Months Ended
                                                                       March 31, 2005
                                                                      -----------------
     <S>                                                                 <C>
     Net (loss) income attributable to common shareholders
      As reported                                                        $      (439)
      Less:  Stock-based employee compensation
       expense determined under fair value-based
       method for all awards                                                    (156)
                                                                         ------------
      Pro forma                                                          $      (595)
                                                                         ============

     Basic and diluted net loss per share
      As reported                                                        $     (0.10)
                                                                         ============
      Pro forma                                                          $     (0.13)
                                                                         ============
</TABLE>
     The fair value of Company  common stock  options  granted to employees  was
     estimated on the date of grant using the Black-Scholes option-pricing model
     with the following  assumptions:  (1) expected volatility of 71.9% in 2005,
     (2)  risk-free  interest  rates of 4.50% in 2005 and (3) expected  lives of
     4.75 years in 2005.

                                                                               7

<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

4.   Restatement of Prior Periods

     The Company has restated its condensed  consolidated  financial  statements
     for the quarter ended March 31, 2005 to correct the accounting for warrants
     issued in  connection  with its March 29, 2005 sale of Senior  Subordinated
     Notes (See Note 8). The  corrected  accounting  reflects  the warrants as a
     derivative  liability under the guidance of SFAS 133 and EITF 00-19 and the
     resultant  debt  discount on the notes  determined  on the  residual  value
     basis. The Company previously  accounted for the warrants as equity and the
     resultant  debt  discount on the notes was  determined  on a relative  fair
     value basis.

     The effects of the  restatement  on the  condensed  consolidated  financial
     statements for the quarter ended March 31, 2005 were:

     Condensed Consolidated Balance Sheet:
<TABLE>
<CAPTION>
                                                                 March 31, 2005
     ---------------------------------------- --------------------------- -----------------------
                                                As previously reported         As Restated
     ---------------------------------------- --------------------------- -----------------------
     <S>                                          <C>                          <C>
     Note payable, net of discount                $       492                  $      356
     ---------------------------------------- --------------------------- -----------------------
     Warrant liability                            $        --                  $      394
     ---------------------------------------- --------------------------- -----------------------
     Total liabilities                            $     5,646                  $    5,904
     ---------------------------------------- --------------------------- -----------------------
     Additional paid-in-capital                   $   112,760                  $  112,502
     ---------------------------------------- --------------------------- -----------------------
     Total stockholders' deficiency               $    (2,678)                 $   (2,936)
     ---------------------------------------- --------------------------- -----------------------
</TABLE>
5.   Reclassifications

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

6.   Discontinued Operations

     In  2001,  the  Company  and  Platinum  Communications,  Inc.  ("Platinum")
     completed  a  merger  under  an  Agreement  and  Plan  of  Merger  ("Merger
     Agreement").  Under the  Merger  Agreement,  a newly  formed  wholly  owned
     subsidiary of the Company  acquired all of the outstanding  common stock of
     Platinum.  As a result of the lack of development of the Platinum  business
     and to focus the  Company's  resources  on its core  business,  in December
     2003, the Company decided to close the operations of Platinum. Accordingly,
     the assets and  liabilities  of  Platinum  are  presented  as  discontinued
     operations  for both the  current  and prior  period.  At March  31,  2006,
     liabilities  of the  discontinued  operation  consist of loans and accounts
     payable of $53,000.

7.   Accounts Receivable and Revolving Loans

     The Company  has an Accounts  Receivable  Purchase  Agreement  with a Bank,
     whereby  the Company  from time to time may assign  some of their  accounts
     receivable to the Bank on a full  recourse  basis.  Upon  specific  invoice
     approval, an advance of 80% of the underlying receivable is provided to the
     Company.  The  remaining  balance  (20%),  less  an  administrative  fee of
     approximately  0.5% plus interest at the rate of 1 1/2% per month,  is paid
     to the  Company  once the  customer  has paid.  The  maximum  amount of all
     assigned receivables outstanding at any time shall not exceed $1.5 million.
     The initial term of the agreement was for one year, and continues until due
     notice  of  termination  is  given  at any  time  by  either  party  to the
     agreement.  At March 31,  2006,  the  Company  had no  accounts  receivable
     assigned to the Bank.

     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).


                                                                               8
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005


7.   Accounts Receivable and Revolving Loans (continued)

     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 March 31, 2006 the Rec Fund had a total  principal  available for
     assignment  of $250,000 and the Company had  outstanding  advances from the
     Rec  Fund  of  $247,000  resulting  in an  unused  availability  under  the
     agreement of $3,000.

8.   Debt

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

     At March 31, 2006 notes payable  consist of the notes as described below of
     $750,000  less debt discount of $250,000 and lines of credit of $610,000 as
     further described below.

     In March 2005,  the Company  entered into a Securities  Purchase  Agreement
     (the   "Agreement")   with  Sigma   Opportunity   Fund  LLC  ("Sigma")  and
     Metropolitan   Venture  Partners  II,  L.P.  ("MetVP"),   collectively  the
     "Buyers",  whereby the Buyers purchased Senior  Subordinated  Secured Notes
     (the "Note Purchase") in the aggregate  amount of $750,000.  The notes bear
     interest at the rate of five percent (5%) per year beginning June 28, 2005,
     and are  payable  quarterly  in cash or common  stock at the  option of the
     Buyers. The Notes mature on the earlier to occur of (i) September 29, 2006,
     or (ii)  the date on which  demand  for  payment  of the  loan  payable  to
     JPMorgan Chase Bank ("JPMC") is made. In connection  with the note purchase
     the Buyers were issued  warrants to purchase  750,000  common shares of the
     Company.  The initial exercise price of the warrants was $0.90 per share of
     common stock.

     Sigma had an exclusive  right to lead a  "Follow-on-Financing"  for 45 days
     following the closing and the Company had granted Sigma additional time. In
     the event that the  Follow-on-Financing  had occurred the exercise price of
     the warrants  issued in conjunction  with the Note Purchase would have been
     adjusted   as   agreed   between   the   Company   and  the   buyers.   The
     Follow-on-Financing was not consummated; as such, the exercise price of the
     warrants was reduced to $0.01 per common share.

     Under the terms of the  agreement,  on September 1, 2005 the Company  filed
     with the  Securities and Exchange  Commission a  Registration  Statement to
     register a number of common  shares  equal to the maximum  number of shares
     that would be  issuable  to the Buyers in payment of  interest on the notes
     through the  maturity  date plus a number of common  shares  issuable  upon
     exercise  of the  warrants.  The  Company is  required  to pay  liquidating
     damages  in the amount of 1% per month of the  purchase  price paid for the
     first two months  and 2% for the  remaining  months to the buyers  upon the
     occurrence of the following events:

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

                                                                               9
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

8. Debt (continued)


          6.   Failure to timely deliver warrant or interest shares.

     The Company has accrued $30,000 of liquidated damages as of March 31, 2006.

     As such under the  provisions  of EITF  00-19  "Accounting  for  Derivative
     Financial  Instruments  Indexed to, and Potentially Settled in, a Company's
     Own Stock" the Company  was  required  to record the  warrants  issued as a
     derivative  liability at fair value on the date of issuance.  (See Note 18)
     In accordance  with SFAS 133  "Accounting  for Derivative  Instruments  and
     Hedging Activities",  at each reporting this liability will be adjusted for
     changes in its fair value.  The fair value of the  warrants  is  determined
     using the Black Scholes  valuation model.  Actual period close common stock
     price ($0.66),  applicable volatility rates (70.6%),  remaining contractual
     life (six years),  and the period close risk free  interest rate (4.8%) for
     the warrants expected remaining useful life are the key assumptions used in
     the valuation  calculation.  Period to period changes in fair value will be
     recorded as either an addition or charge to  earnings.  These  additions or
     charges have no cash effect over the life of the instrument.  The change in
     the fair value of the  warrants  for the three  months ended March 31, 2006
     was  $30,000  and is  included  in  Other  Expense,  net  in the  condensed
     consolidated financial statement of operations.

     The Company  recorded a debt  discount of  $565,000  based on the  residual
     value of the  proceeds  received and the fair value of the  warrants.  This
     discount is being  amortized  over the life of the loan using the effective
     interest  rate  method.  Amortization  of $125,000 was recorded as interest
     expense during the three months ended March 31, 2006.

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

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

     The LoC  permits  two forms of draw down;  one based upon prime  rate,  the
     second based upon LIBOR. The Company elected to draw down $500,000 applying
     the terms and conditions set forth for LIBOR. The interest rate is the JPMC
     reserve  adjusted  LIBOR plus  2.30%.  As of March 31,  2006,  the  balance
     outstanding was $500,000 and the applied interest rate was 7.05%.

     Also in 2003, the Company  obtained,  and fully drew upon, a second line of
     credit from Sterling  National Bank ("Sterling") in the amount of $250,000.
     The line is guaranteed by the Company's chairman,  secured by the assets of
     the Company and carries a variable  interest rate equal to Sterling's  base
     rate plus 2.0% (10.5% at March 31, 2006). Repayments are calculated monthly
     at 2.778% of the outstanding  balance,  plus finance charges,  and continue
     until  the line is fully  paid.  At March  31,  2006,  the  Company  had an
     outstanding balance of approximately $110,000 under the line of credit.


                                                                              10
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005


8.   Debt (continued)

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

     The Company has  equipment  under  capital  lease  obligations  expiring at
     various times through 2008. The assets and liabilities under capital leases
     are  recorded  at the  lower of the  present  values of the  minimum  lease
     payments or the fair values of the assets. The interest rates pertaining to
     these  capital  leases range from 6.9% to 19.2%,  and the net book value of
     the related assets is approximately $159,000 as of March 31, 2006.

9.   Shareholders' Deficiency

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

     During the  quarter  ended  March 31,  2006,  the Company did not issue any
     shares of common stock or options.

     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                             4,854
       Warrants to purchase common stock                            3,332
       Series A Convertible preferred stock                         1,347
                                                                    -----

             Total potential common shares as of March 31, 2006     9,533
                                                                    =====
</TABLE>
10.  Products and Services

     The Company and its subsidiaries  currently operate in one business segment
     and provide two separate  products:  ASP  services  and custom  engineering
     services.
<TABLE>
<CAPTION>
                                                  Three Months Ended March 31,
                                                    2006                2005
                                              ----------------- ----------------
                     <S>                           <C>                 <C>
                     ASP IOL fees                  $1,550              $1,149
                     Other ASP services                 8                  14
                     Custom engineering fees          457                 917
                                                   -------            --------

                          Total Revenue            $2,015              $2,080
                                                   ======              ======
</TABLE>
                                                                              11
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005


10.  Products and Services (continued)

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

     For the  three  months  ended  March  31,  2006 the  Company  had two major
     customers  that  accounted  for  71.5%  and  26.5% of the  Company's  total
     revenue.  For the  three  months  ended  March  31,  2005  these  customers
     accounted for 74.0% and 24.5% of total revenue.  Accounts  receivable  from
     these customers amounted to $1,354,000 and $1,833,000 at March 31, 2006 and
     December 31, 2005, respectively.

11.  Management's Liquidity Plans

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

          o    In March 2005 the  Company  closed a Bridge Loan  financing  with
               Sigma Capital Partners LLC and Metropolitan  Venture Partners II,
               L.P. and received proceeds of $750,000 less legal fees of $55,000
               (see Note 8).

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

          o    The Company may raise  additional  capital through private equity
               offerings and borrowing.  There is no assurance however that such
               capital would be available to the Company,  or if  available,  on
               terms and  conditions  that  would be  acceptable.  In 2004,  the
               Company  entered  into an  agreement  with DIRI Rec Fund  LLC,  a
               corporation  formed  and  funded  to loan  funds  to the  Company
               against  accounts  receivable,  and may  receive  advances  up to
               $250,000 from Diri Rec Fund (see Note 5).  Further,  in June 2005
               the Company  renewed for a period of two years the $500,000  loan
               previously   scheduled  to  mature  on  June  30,  2005  and  the
               guarantors  of this loan have  consented to this  extension  (see
               Note 8). As noted above the guarantors  were issued  warrants and
               the Company could receive  proceeds of $500,000 from the exercise
               of such warrants which expire on July 11, 2010, although there is
               no assurance that these warrants will be exercised.

          o    The  Company  continues  to strive to  increase  revenue  through
               offering  custom  engineering  services,  expanding and enhancing
               existing  product  offerings  such as IOL,  and  introducing  new
               product  offerings.  In 2004 we entered  into a new  agreement to
               provide IOL services to a Fortune 500 company.  Revenue from this
               new customer  accounted  for 26.5% of total  revenue for the year
               three months ended March 31, 2006.  Management  anticipates  that
               revenue from this new customer  will continue to increase in 2006
               and beyond and expects to further  broaden our  customer  base in
               2006,  although  there is no  assurance  that the Company will be
               able to broaden this customer base.

          o    In  2006  the  Company  initiated  a  cost  reduction  plan  that
               management  believes will  significantly  reduce  operating costs

                                                                              12
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005


11.  Management's Liquidity Plans (continued)

               while still  enabling the Company to meet its  commitments to its
               customers.

          o    The Company continues to expand its marketing efforts in order to
               increase the customer base. In this regard,  in 2003, we became a
               business partner with IBM and through this relationship will work
               with IBM to achieve sales to new  customers.  We will continue to
               pursue similar channel partner opportunities.  Also, in the third
               quarter 2005 we employed a new sales and  marketing  executive to
               further expand our sales efforts.

     Management believes that these plans and new initiatives as discussed above
     will lead to  positive  cash  flows and  profitability.  While the  Company
     pursues  these goals the Company  also  believes  that its ability to raise
     additional   capital  through  equity  and  debt  placements  will  provide
     sufficient cash to meet cash  requirements at least through March 31, 2007.
     There can be no assurance,  however, that the Company will achieve the cash
     flow and  profitability  goals, or that it will be able to raise additional
     capital  sufficient to meet operating  expenses or implement its plans.  In
     such  event,  the  Company  may have to revise its plans and  significantly
     reduce its  operating  expenses,  which  could  have an  adverse  effect on
     revenue and operations in the short term.

12.  New Accounting Pronouncements

     In June 2005, the EITF reached consensus on Issue No. 05-2, "The Meaning of
     `Conventional  Convertible  Debt  Instrument'  in  EITF  Issue  No.  00-19,
     `Accounting   for  Derivative   Financial   Instruments   Indexed  to,  and
     Potentially  Settled in, a Company's  Own  Stock.'"  Issue 00-19 is used to
     evaluate whether embedded  derivatives  should be bifurcated under SFAS No.
     133,  "Accounting For Derivative  Instruments And Hedging  Activities",  as
     amended.  Specifically,  SFAS 133 provides guidance as to when an issuer is
     required to bifurcate a conversion  option that is embedded in  convertible
     debt. However,  Issue 00-19 does not define "conventional  convertible debt
     instrument."  Given the development of numerous  contractual terms that may
     be  included  in a  convertible  debt  instrument,  it is not clear  when a
     convertible debt instrument is "conventional." The company does not believe
     that certain warrants meet the definition of conventional  convertible debt
     and as a result Issue No. 00-19 applies to the liability treatment of these
     instruments (see Note8). As such the adoption of the Issue had an effect on
     the Company's financial position and results of operations (see Note 8).

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

     In September 2005, the FASB ratified the EITF's Issue No. 05-8, "Income Tax
     Consequences  of  Issuing  Convertible  Debt with a  Beneficial  Conversion
     Feature," which discusses  whether the issuance of convertible  debt with a
     beneficial  conversion  feature results in a basis difference  arising from
     the intrinsic value of the beneficial  conversion feature on the commitment
     date (which is recorded in the stockholder's equity for book purposes,  but
     as a liability  for income tax  purposes)  and, if so,  whether  that basis
     difference is a temporary  difference  under SFAS No. 109,  "Accounting for

                                                                              13
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005


12.  New Accounting Pronouncements (continued)

     Income Taxes." The adoption of the Issue is not expected to have a material
     effect on our consolidated  financial  position or results of operations in
     future periods.

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

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

                                                                              14
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


Item 2 - Managements Discussion and Analysis or Plan of Operations

Forward looking statements

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

Overview

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

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

This suite of services enables us to provide a comprehensive  Internet delivered
service from the raw  transaction  record  through all of the internal  workflow
management processes including an electronically delivered invoice with customer
analytics.  This comprehensive service offering provides back office operations,
reduces our  customers'  costs and  provides for  improved  customer  service by

                                                                              15
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES



providing the end customer  with easy access to all of the detailed  information
about their bill. We operate fully  redundant  data centers  located at our main
office in Bohemia,  N.Y. and in Newark,  NJ. Our facility in New Jersey is space
leased at an International Business Machines ("IBM"), e-business Hosting Center.
This  co-location / redundancy  feature  enables us to offer virtually down time
free service.

Currently, IBM, our largest customer, representing approximately 71.5% and 74.0%
of our  revenue  for the three  month  periods  ended  March 31,  2006 and 2005,
respectively,  utilizes  our suite of IOL  products  and services to allow their
customers from around the globe to receive,  analyze,  dispute and cost allocate
all of their invoice  related  information  in their local language and currency
via the  Internet  24 hours a day,  7 days a week,  365 days a year.  Our second
Fortune 500  company,  Electronic  Data Systems  Corp.  ("EDS"),  accounted  for
approximately  26.5% and 24.5% of revenue for the three  months  ended March 31,
2006 and 2005, respectively.

Critical accounting policies

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

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

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

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

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

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

o 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;

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

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

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

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

The Company  provides  transactional  data processing  services  through its ASP
software  solutions to its  customers.  The customer is charged a monthly  fixed
rate on a per  transaction  basis or a fixed  fee based on  monthly  transaction
volumes. Revenue is recognized as the services are performed.

                                                                              16
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

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

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

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

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

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

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

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

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

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

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

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

In accordance  with SFAS No. 133  "Accounting  for  Derivative  Instruments  and
Hedging Activities", at each reporting period these liabilities will be adjusted
for changes in their fair value.  The  detachable  warrants are valued using the
Black  Scholes  valuation  model.  Actual  period  close  common  stock  prices,
applicable  volatility  rates,  remaining  contractual life and the period close
risk free interest rate for the instruments  expected remaining life are the key
assumptions   used   in   the   Black   Scholes   valuation   calculation.   The
period-to-period changes in fair value will be recorded as either an addition or
charge to earnings.  There is no cash effect to these  additions or charges over
the life of these  instruments.  For the three  months  ended March 31, 2006 and
2005 the Company recorded a charge of $30,000 and $0, respectively,  as a result
of the change in fair value of these derivative instruments.

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

                                                                              17
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

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.

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

In preparing  consolidated  financial  statements in conformity  with accounting
principles  generally  accepted in the United States of America,  our management
makes estimates and assumptions  that affect the reported  amounts of assets and
liabilities and disclosures of contingent  assets and liabilities at the date of
the  consolidated  financial  statements,  as well as the  reported  amounts  of
revenue and expenses  during the reporting  period.  Actual results could differ
from those estimates.

Results of operations

For the three  months  ended  March 31,  2006 we had a loss from  operations  of
$292,000  compared to a loss from  operations  of $210,000 in the same period in
2005. The increase in the loss is principally due to a small decrease in revenue
and an increase in operating  costs as discussed  below.  Net loss for the three
months ended March 31, 2006 was $533,000 compared to a loss of $285,000 in 2005.

For the three months ended March 31, 2006 revenue  decreased  $65,000  (3.1%) to
$2,015,000  compared to revenue of $2,080,000 for the same period in 2005.  This
decrease is primarily  the result of an increase in our core  business,  the ASP
IOL services,  of $401,000  (34.9%) offset by a decrease of $460,000  (50.2%) in
revenue  from  engineering  services  and a small  decrease  of  $6,000 in other
services.  Engineering  services revenue decreased  principally as the result of
substantially  completing deployment of our IOL service in all major geographies
for our largest  customer,  IBM, and completion of the initial phases of our IOL
service for EDS. We  anticipate  that revenue  from  engineering  services  will
increase  as we begin new  initiatives  at both IBM and EDS and as we expand our
customer base.

Costs of  operations,  research and  development  increased by $50,000 (4.9%) to
$1,063,000  for the three  months  ended  March 31,  2006  compared  to costs of
$1,013,000  for the three  months  ended March 31,  2005.  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 is principally  due to increases in
personnel  wages and benefit costs of $17,000,  an increase in software costs of
$9,000 and an  increase  in office  rent of  $20,000,  offset by a  decrease  in
professional fees of $21,000.  All other operating  expenses  increased $25,000,
net.

Sales and  marketing  costs were  $463,000  for the three months ended March 31,
2006,  a decrease of $9,000 or 1.9%  compared to costs of $472,000  for the same
period  in  2005.  Professional  fees,  including  personnel  recruiting  costs,
decreased $26,000, while personnel and related benefits costs increased $21,000,
while all other costs decreased by $4,000.

General and administrative costs increased $2,000, less than 1%, to $694,000 for
the three months ended March 31, 2006 compared to costs of $692,000 for the same
period in 2005. Legal and accounting fees increased  $43,000  principally due to
costs incurred for a registration  statement,  while  personnel  costs including
recruitment costs decreased $12,000. Insurance costs decreased $13,000 primarily
due to rate decreases. All other administrative costs decreased $16,000.

                                                                              18
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


Depreciation and amortization  expense  decreased by $26,000 (23.0%),  primarily
due to fully amortizing certain software costs and other computer equipment.

Interest expense increased $106,000, principally due to the amortization of debt
discount of  $125,000,  offset by a decrease  in  interest  due to lower rate of
borrowing under our receivables financing agreements.

Other expense increased $60,000 due to penalties incurred in connection with the
Sigma and MetVP  financing (see Note 8 to the Condensed  Consolidated  Financial
Statements)  and the  marked  to  market  adjustment  for the fair  value of the
warrant liability.

Financial Condition and Liquidity

For the three months ended March 31, 2006, we had an operating  loss of $292,000
compared  to an  operating  loss of $210,000  for the same period in 2005.  Cash
provided by continuing operations was $228,000 in the first three months of 2006
compared to cash used in continuing operations of $47,000 for the same period in
2005, an  improvement  of $275,000.  Cash used in  discontinued  operations  was
$8,000 for the three  months  ended March 31,  2006,  compared to $9,000 for the
same period in 2005.

Cash provided by operations,  including cash used for  discontinued  operations,
for the three months ended March 31, 2006 was  $220,000,  consisting  of the net
loss  of  $533,000,   reduced  by  non-cash  expenses  of  $292,000,   including
depreciation and amortization of property and equipment of $87,000, amortization
of debt discount of $125,000,  amortization of deferred stock-based compensation
of $50,000 and the change in the fair value of the warrant liability of $30,000.
In addition accounts receivable were reduced by $496,000, while accounts payable
and  accrued  expenses  increased  $158,000.  This was offset by a  decrease  in
deferred revenue of $250,000.

Cash used in investing  activities  was $24,000 for the three months ended March
31,  2006,  compared to $66,000 for same  period in 2004.  This was  principally
expenditures for equipment.

Cash used in financing  activities  totaled  $487,000 for the three months ended
March 31, 2006,  compared to cash  provided by financing  activities of $410,000
for the three months ended March 31, 2005. As noted above, we received  proceeds
from a new loan  financing of $750,000 in the first  quarter of 2005.  We repaid
$39,000 of long-term debt and capital lease  obligations in the first quarter of
2006  and  the  balance   outstanding  under  short  term  revolving  loans  for
receivables financing decreased by $448,000 in 2006.

Management's Liquidity and Financing Plans

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

     o    In March 2005 the we closed a Bridge Loan financing with Sigma Capital
          Partners LLC and  Metropolitan  Venture Partners II, L.P. and received
          proceeds of $750,000 less legal fees of $55,000 (see Note 8).

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

     o    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

                                                                              19
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


          be  acceptable.  In 2004,  we entered into an agreement  with DIRI Rec
          Fund LLC, a corporation formed and funded to loan funds to the Company
          against accounts  receivable,  and may receive advances up to $250,000
          from Diri Rec Fund (see Note 7). 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 8). As noted above the guarantors were issued
          warrants  and the 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.

     o    We continue  to strive to increase  revenue  through  offering  custom
          engineering   services,   expanding  and  enhancing  existing  product
          offerings such as IOL, and introducing new product offerings.  In 2004
          we entered  into a new  agreement to provide IOL services to a Fortune
          500 company.  Revenue from this new  customer  accounted  for 26.5% of
          total  revenue  for the year three  months  ended March 31,  2006.  We
          anticipate  that  revenue  from this new  customer  will  continue  to
          increase in 2006 and beyond and expect to further broaden our customer
          base in 2006,  although  there is no assurance that we will be able to
          broaden this customer base.

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

     o    We continue to expand our  marketing  efforts in order to increase the
          customer base. In this regard,  in 2003, we became a business  partner
          with IBM and through this  relationship  will work with IBM to achieve
          sales to new customers. As a result of this relationship, in the first
          quarter  of 2006 we  began  deployment  of our  IOL  service  to a new
          outsourcing  customer  of IBM.  We will  continue  to  pursue  similar
          channel  partner  opportunities.  Also,  in the third  quarter 2005 we
          employed a new sales and  marketing  executive  to further  expand our
          sales efforts.

     We believe that these plans and new  initiatives  as  discussed  above will
     lead to positive cash flows and profitability.  While we pursue these goals
     we also believe that our ability to raise additional capital through equity
     and debt placements will provide  sufficient cash to meet cash requirements
     at least through March 31, 2007. There can be no assurance,  however,  that
     we will achieve the cash flow and  profitability  goals, or that we will be
     able to raise additional  capital  sufficient to meet operating expenses or
     implement  its plans.  In such  event,  we may have to revise our plans and
     significantly  reduce our operating  expenses,  which could have an adverse
     effect on revenue and operations in the short term.


Item 3- Controls and Procedures

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

The  Company  maintains   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 March 31, 2006, the Chief Executive Officer and the Chief

                                                                              20
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


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.

Changes in Internal 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 materially affected,  or is
reasonably likely to materially affect, those controls.

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.

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 three months
ended March 31, 2006.

                                                                              21
<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

     None

Item 3. Defaults Upon Senior Securities

     None

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

     None

Item 5. Other Information

     None

Item 6. Exhibits


          31   Certifications pursuant to Rules 13a-14(a) as adopted pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002.

          32   Certifications  pursuant  to 18 U.S.C.  Section  1350 as  adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


                                                                              22
<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                May 22, 2006



/s/ Michael J. Beecher
------------------------------------------------------
Michael J. Beecher,  Chief Financial Officer               May 22, 2006