DIRECT INSITE CORP. AND SUBSIDIARIES

                                      INDEX
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q
                                   (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, 2008

                                       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 registrant as specified in its charter)


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


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


        Registrant's telephone number, including area code (631) 873-2900

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

                         Yes  [X]            No [  ]

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

        Large accelerated filer [ ]          Accelerated filer [  ]

        Non-accelerated filer [ ]            Smaller reporting company   [X]

     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 November
     10, 2008 was: 9,359,264.

<PAGE>

PART I - FINANCIAL INFORMATION                                            Page

     Item 1. Financial Statements.

     Condensed Consolidated Balance Sheets as of September 30, 2008
       (Unaudited) and December 31, 2007 ..................................   3
     Condensed Consolidated Statements of Income
       For the Three and Nine Months Ended September 30, 2008
       and 2007 (Unaudited)................................................   4

     Condensed Consolidated Statements of Cash Flows
       For the Nine Months Ended September 30, 2008 and
       2007 (Unaudited)....................................................   5

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

      Item 2. Management's Discussion and Analysis of Financial
       Condition and Results of Operations ...............................   14

      Item 3. Quantitative and Qualitative Disclosure About Market
       Risk...............................................................   19

      Item 4T. Controls and Procedures....................................   19

PART II - OTHER INFORMATION

     Item 6. Exhibits.....................................................   21

     Signatures ..........................................................   22

CERTIFICATIONS                                                         Exhibits

<PAGE>


                      DIRECT INSITE CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                 AS OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                  September 30,         December 31,
                                                                                       2008                 2007
                                                                              --------------------- --------------------
                                                                                   (Unaudited)
ASSETS
Current assets
<S>                                                                           <C>                   <C>
  Cash and cash equivalents                                                   $            1,054    $         2,184
  Accounts receivable, net of allowance for doubtful accounts of
   $0 in 2008 and 2007                                                                     1,578              1,486
  Prepaid expenses and other current assets                                                   86                135
                                                                              --------------------- --------------------
       Total current assets                                                                2,718              3,805

Property and equipment, net                                                                  712                443
Deferred tax asset                                                                         2,867                  -
Other assets                                                                                 272                274
                                                                              --------------------- --------------------
         TOTAL ASSETS                                                         $            6,569     $        4,522
                                                                              ===================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
  Accounts payable and accrued expenses                                       $            1,629     $        1,839
  Current portion of capital lease obligations                                                 8                 36
  Current portion of notes payable                                                           168                 84
  Dividends payable                                                                          950              3,336
  Deferred revenue                                                                           180                123
                                                                              --------------------- --------------------
       Total current liabilities                                                           2,935              5,418

Capital lease obligations, net of current portion                                              8                 14
Notes payable, net of current portion                                                        320                135
                                                                              --------------------- --------------------

       Total liabilities                                                                   3,263              5,567
                                                                              --------------------- --------------------
Commitments and contingencies

Shareholders' equity (deficiency)
  Preferred stock, $0.0001 par value; 2,000,000 shares authorized;
    Series A Convertible Preferred, 0 issued and outstanding in 2008
    and134,680 issued and outstanding in 2007;
    Series B Redeemable Preferred, 974 shares issued and outstanding in                        -                  -
    2008 and 2007; liquidation preference of $974,075;
    Series C Redeemable Preferred, 2,000 shares issued and outstanding                         -                  -
    in 2008 and 2007; liquidation preference of $2,000,000;
    Series D Redeemable Preferred, 100 shares issued and outstanding
    in 2008 and 2007; liquidation preference of $100,000.
  Common stock, $0.0001 par value; 50,000,000 shares authorized;
  9,399,191 and 7,115,216 shares issued in 2008 and 2007, respectively;
  and 9,359,264 and 7,075,289 shares outstanding in 2008 and 2007,                             1                  1
  respectively
  Additional paid-in capital                                                             116,128            114,961
  Accumulated deficit                                                                   (112,495)          (115,679)
                                                                              --------------------- --------------------
                                                                                           3,634               (717)

  Common stock in treasury, at cost  - 24,371 shares                                        (328)              (328)
                                                                              --------------------- --------------------
            Total shareholders' equity (deficiency)                                        3,306             (1,045)
                                                                              --------------------- --------------------
          TOTAL LIABILITIES AND SHAREHODERS' EQUITY
         (DEFICIENCY)                                                         $            6,569      $       4,522
                                                                              ===================== ====================
</TABLE>


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

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 and 2007
                      (in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                  Three Months Ended                Nine Months Ended
                                                                  ------------------                -----------------
                                                                    September 30,                     September 30,
                                                                    -------------                     -------------
                                                                   2008            2007            2008             2007
                                                            --------------- --------------- ----------------- ----------------
<S>                                                         <C>             <C>             <C>               <C>
Revenue                                                     $       2,509   $       2,582   $       6,810     $        7,416
                                                            --------------- --------------- ----------------- ----------------

Costs and expenses
  Operations, research and development                                984             844           2,816              2,706
  Sales and marketing                                                 273             245             692                873
  General and administrative                                          747             871           2,197              1,931
  Depreciation and amortization                                        74              78             227                259
                                                            --------------- --------------- ----------------- ----------------
                                                                    2,078           2,038           5,932              5,769
                                                            --------------- --------------- ----------------- ----------------

Operating income                                                      431             544             878              1,647

Other (income) expense
  Other income, net                                                    (1)             --              (1)                (8)
  Interest expense, net                                                 0              20              11                 86
                                                            --------------- --------------- ----------------- ----------------
Income before provision for income tax                                432             524             868              1,569

Provision for (benefit from) income taxes                              14              --          (2,853)                27
                                                            --------------- --------------- ----------------- ----------------
Net income                                                            418             524           3,721              1,542
Preferred stock dividends                                            (161)           (227)           (536)              (658)
                                                            --------------- --------------- ----------------- ----------------

Net income attributable to common shareholders              $         257       $     297        $  3,185        $       884
                                                            =============== =============== ================= ================
Basic income per share attributable
 to common shareholders                                     $        0.03       $    0.05        $   0.43        $      0.16
                                                            =============== =============== ================= ================

Fully diluted income per share attributable
 to common shareholders                                     $        0.03       $    0.03        $   0.31        $      0.11
                                                            =============== =============== ================= ================
Basic weighted average common shares outstanding                    7,903           6,082           7,482              5,650
                                                            =============== =============== ================= ================

Fully diluted weighted average common shares outstanding
                                                                    9,553           9,014          10,871              8,136
                                                            =============== =============== ================= ================
</TABLE>
See notes to condensed consolidated financial statements. 4
<PAGE>
                               DIRECT INSITE CORP
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

            FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (In
                          thousands, except share data)
<TABLE>
<CAPTION>
                                                                                          For the nine months ended
                                                                                                 September 30,
                                                                                           2008              2007
                                                                                     ----------------- ------------------
Cash flows from operating activities
<S>                                                                                    <C>               <C>
 Net income                                                                            $       3,721    $        1,542

 Adjustments to reconcile net income to net cash provided by operations:
    Amortization and depreciation:
      Property and equipment                                                                     226               259
    Deferred taxes                                                                            (2,867)               --
    Stock based compensation expense                                                             481               458
    Gain on sale of investment                                                                    --                (8)

  Changes in operating assets and liabilities:
    Accounts receivable                                                                          (92)              320
    Prepaid expenses and other current assets                                                     50                14
    Other assets                                                                                  --                 3
    Accounts payable and accrued expenses                                                        (81)              (60)
    Deferred revenue                                                                              57              (221)
                                                                                     ----------------- ------------------
       Net cash provided by operations                                                         1,495             2,307
                                                                                     ----------------- ------------------

Cash flows used in investing activities:
    Proceeds from sale of investment                                                              --                 8
    Expenditures for property and equipment                                                     (198)             (130)
                                                                                     ----------------- ------------------
           Net cash used in investing activities                                                (198)             (122)
                                                                                     ----------------- ------------------

Cash flows used in financing activities:
    Proceeds from issuance of shares on exercise of options and warrants                         618                28
    Payment of dividends on preferred stock                                                   (2,922)               --
    Proceeds from revolving loans, net                                                            --               110
    Repayment of lines of credit                                                                  --              (586)
    Principal payments on capital lease obligations                                              (34)              (50)
    Repayments of long-term debt                                                                 (89)              (49)
                                                                                     ----------------- ------------------
       Net cash used in financing activities                                                  (2,427)             (547)
                                                                                     ----------------- ------------------

Net (decrease)  increase in cash and cash equivalents                                         (1,130)            1,638

Cash and cash equivalents - beginning of period                                                2,184               295
                                                                                     ----------------- ------------------
Cash and cash equivalents - end of period                                            $         1,054     $       1,933
                                                                                     ================= ==================
Supplemental Disclosures:

Cash paid for interest                                                               $            38     $          90
                                                                                     ================= ==================
Cash paid for income taxes                                                           $            30     $          14
                                                                                     ================= ==================
Non-cash investing and financing activities:
  Reduction in accrued liabilities through issuance of debt                          $            62     $           -
                                                                                     ================= ==================
  Acquisition of equipment through issuance of debt                                  $           295     $         104
                                                                                     ================= ==================
  Dividends accrued and unpaid                                                       $           536     $         658
                                                                                     ================= ==================
  Reclassification of warrant liability                                              $            --               602
                                                                                     ================= ==================
  Common stock issued for settlement of liability                                    $            67     $         360
                                                                                     ================= ==================
</TABLE>
See notes to condensed consolidated financial statements                       5
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


1.   Interim Financial Information

     The  accompanying   unaudited  condensed   consolidated  interim  financial
     statements include the accounts of Direct Insite Corp. and its subsidiaries
     ("Direct  Insite"  or  the  "Company").   All  intercompany   balances  and
     transactions   have  been  eliminated  in   consolidation.   The  condensed
     consolidated  balance  sheet as of September  30, 2008,  and the  condensed
     consolidated statements of operations and cash flows for the three and nine
     month periods ended  September 30, 2008 and 2007, have been prepared by the
     Company  and are  not  audited.  These  unaudited,  condensed  consolidated
     interim  financial   statements  have  been  prepared  in  accordance  with
     accounting  principles  generally  accepted in the United States of America
     for interim  financial  information and with the instructions to Form 10-Q.
     Accordingly,  they do not  include  all of the  information  and  footnotes
     required by accounting  principles  generally accepted in the United States
     of America ("GAAP") for complete  financial  statements.  In addition,  the
     December  31,  2007  balance  sheet  data  was  derived  from  the  audited
     consolidated  financial  statements,  but does not include all  disclosures
     required by GAAP. These interim condensed consolidated 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, 2008, 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 audited consolidated financial statements and notes
     thereto  for the year ended  December  31, 2007  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  audited  December  31,  2007   consolidated   financial
     statements.

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

     In preparing financial statements in conformity with accounting  principles
     generally  accepted  in the  United  States of  America,  management  makes
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities  and  disclosures of contingent  assets and  liabilities at the
     date of the condensed  consolidated  financial  statements,  as well as the
     reported  amounts of revenue  and  expenses  during the  reporting  period.
     Management  bases its  estimates on  historical  experience  and on various
     assumptions that are believed to be reasonable under the circumstances, the
     results  of which form the basis for making  judgments  about the  carrying
     values of assets and liabilities  that are not readily  apparent from other
     sources.  Disclosures that are particularly sensitive to estimation include
     revenue  recognition,  stock based  compensation,  valuation  allowance  on
     deferred tax assets, and management's plans, as disclosed in Note 9. Actual
     results could differ from those estimates.

2.   The Company

     Direct Insite Corp.  was organized as a public  company,  under the laws of
     the State of  Delaware on August 27,  1987.  Direct  Insite  operates as an
     application  service provider  ("ASP"),  providing best practice  financial
     supply chain automation and workflow efficiencies within the Procure-to-Pay
     (PTP) and  Order-to-Cash  (OTC) processes.  The Company's global Electronic
     Invoice Presentment and Payment ("EIP&P") services automate manual business
     processes such as complex  billing,  invoice  validation,  invoice-to-order
     matching, consolidation, dispute handling, and payment processing.

     Management's liquidity plans are discussed in Note 9. Also, as described in
     Note 7, the Company has two  customers  that  accounted  for  approximately
     91.3% and 96.7% of the  Company's  revenue for the nine month periods ended
     September  30,  2008  and  2007,  respectively.  Loss of  either  of  these
     customers would have a material adverse effect on the Company.

                                       6
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


3.    Stock Based Compensation

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

     The Company  accounts for stock  options  using the fair value  recognition
     provisions of Statement of Financial  Accounting Standards ("SFAS") No, 123
     (Revised 2004),  "Share-Based  Payment",  ("SFAS 123(R)"). As a result, for
     the three and nine month  periods  ended  September  30, 2008,  the Company
     recorded $14,000 and $78,000, respectively, in compensation expense for the
     fair value of options. For the three and nine month periods ended September
     30,  2007,  the Company  recorded  $11,000 and  $70,000,  respectively,  in
     compensation  expense for the fair value of options. At September 30, 2008,
     there was $17,000 of total unrecognized compensation costs related to stock
     options granted which is expected to be recognized over a weighted  average
     period of 6 months.

     Nonqualified  and  incentive  stock options have been granted to directors,
     officers and employees of the Company under our Stock Option Plans. Options
     generally  vest over 3 years and  expire  five  years  from the date of the
     grant. At September 30, 2008, 5,754,000 shares were authorized for issuance
     under the stock option plans.  Awards that expire or are cancelled  without
     delivery of shares generally become available for issuance under the plans.
     The Company issues new shares to satisfy stock option exercises. During the
     nine months ended September 30, 2008 the Company issued 75,000 options with
     a weighted  average  grant date fair value of  $69,000.  There were  80,000
     options issued during the nine months ended September 30, 2007, which had a
     weighted  average  grant date fair value of $29,000.  The fair value of the
     stock  options  granted  was  estimated  on the date of the grant using the
     Black-Scholes option pricing model (see Note 6).

     A summary  of option  activity  under the plans for the nine  months  ended
     September 30, 2008 is as follows:
<TABLE>
<CAPTION>
   ------------------------------------ ----------------- --------------------- -------------------- --------------------------

                                                                                   Weighted Average
                                                              Weighted Average  Remaining Contractual Aggregate Intrinsic Value
                                               Shares          Exercise Price       Term (in years)       (in thousands)
                                           (in thousands)
   ------------------------------------ ----------------- --------------------- -------------------- --------------------------
   <S>                                          <C>                 <C>                    <C>                 <C>
   Balance, December 31, 2007                   2,592               $0.77
   ------------------------------------ ----------------- --------------------- -------------------- --------------------------
       Granted                                     75               $1.50
   ------------------------------------ ----------------- --------------------- -------------------- --------------------------
       Exercised                                 (800)              $1.09
   ------------------------------------ ----------------- --------------------- -------------------- --------------------------
       Canceled                                    --                  --
   ------------------------------------ ----------------- --------------------- -------------------- --------------------------
       Forfeited                                   --                  --
   ------------------------------------ ----------------- --------------------- -------------------- --------------------------
   Balance, September 30, 2008                  1,867               $0.66                  2.0                 $1,401
   ------------------------------------ ----------------- --------------------- -------------------- --------------------------
   Exercisable, September 30, 2008              1,830               $0.64                  2.0                 $1,401
   ------------------------------------ ----------------- --------------------- -------------------- --------------------------
</TABLE>
     The total  fair  value of  options  vested  during  the nine  months  ended
     September 30, 2008 was $63,000.  During the nine months ended September 30,
     2008, the Company's Chief Executive  Officer exercised 360,000 options with
     an exercise price of $1.16 per share.

     Restricted Stock Grants
     -----------------------

     During the nine months ended  September 30, 2008 the Company granted 21,856
     shares to directors as part of their  compensation.  The stock grants had a
     fair value of $33,000  based on the closing  price of the stock on the date
     of the grant.  The stock  grants vest over the two year  period  January 1,
     2008 through December 31, 2009.

                                       7

<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


     A summary  of the  status of the  Company's  restricted  non-vested  shares
     issued  pursuant to employment  and service  agreements as of September 30,
     2008 and  changes  during  the nine  months  ended  September  30,  2008 is
     presented below:
<TABLE>
<CAPTION>
------------------------------------------ ---------------------------------- ------------------------------------------------

              Non-vested Shares                    Shares (in thousands)      Weighted-average Grant Date Fair Value
------------------------------------------ ---------------------------------- ------------------------------------------------
<S>                                                       <C>                                <C>
Non-vested at January 1, 2008                              710                               $2.22
------------------------------------------ ---------------------------------- ------------------------------------------------
Granted                                                     22                               $1.50
------------------------------------------ ---------------------------------- ------------------------------------------------
Vested                                                    (140)                              $2.14
------------------------------------------ ---------------------------------- ------------------------------------------------
Forfeited                                                   --                                  --
                                           =====================================

------------------------------------------ ---------------------------------- ------------------------------------------------
Non-vested at September 30, 2008                           592                               $2.21
                                           =====================================
------------------------------------------ ---------------------------------- ------------------------------------------------
</TABLE>
     For the three and nine months ended  September 30, 2008 stock  compensation
     expense for stock grants was $134,000 and $403,000,  respectively.  For the
     three and nine months ended September 30, 2007 stock  compensation  expense
     for stock  grants  was  $333,000  and  $373,000,  respectively.  The future
     expected expense for non-vested shares is $1,138,000 and will be recognized
     on a straight-line  basis over the period October 1, 2008 through  December
     31, 2010.

4.   Accounts Receivable and Revolving Loans

     On May 31, 2007, the Company renewed an Accounts  Receivable Line of Credit
     with a Bank,  whereby the Company  from time to time may assign some of its
     accounts  receivable  to the Bank on a full recourse  basis.  The agreement
     expired on May 30, 2008. At September  30, 2008 and December 31, 2007,  the
     Company had no accounts receivable assigned to the Bank and had no advances
     from the Bank.

5.   Debt

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

     At  September  30, 2008 and December 31,  2007,  notes  payable  consist of
     $488,000 and  $219,000,  respectively,  of  borrowings  for the purchase of
     equipment.  These notes bear  interest at rates  ranging from 8.8% to 10.3%
     per year and mature through January 2012. The notes are  collateralized  by
     the equipment  purchased with net book values of $447,000 and $187,000,  at
     September 30, 2008 and December 31, 2007, respectively.

     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 12.3% to 15.3%.  At September 30, 2008, the
     gross and net book value of the related assets is approximately $38,000 and
     $18,000,  respectively.  At December 31, 2007, the gross and net book value
     of the related assets was approximately $135,000 and $28,000, respectively.

6.   Shareholders' Equity

     The  following  table  summarizes  the  changes  in  shareholders'   equity
     (deficiency) for the nine months ended September 30, 2008:

                                       8
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


<TABLE>
<CAPTION>
                     -------------------------------------------------- --------------------
                                                                               In thousands
                     -------------------------------------------------- --------------------
                            <S>                                                 <C>
                            Balance - January 1, 2008                           $ (1,045)
                     -------------------------------------------------- --------------------
                              Dividends accrued                                     (536)
                     -------------------------------------------------- --------------------
                              Stock based compensation                               481
                     -------------------------------------------------- --------------------
                              Shares issued for settlement of
                              accrued liabilities                                     67
                     -------------------------------------------------- --------------------
                                 Proceeds on exercise of options
                                 and warrants                                        618
                     -------------------------------------------------- --------------------
                              Net income                                           3,721
                                                                               -----------
                     -------------------------------------------------- --------------------
                            Balance - September 30, 2008                        $  3,306
                     -------------------------------------------------- --------------------
</TABLE>
     Common Stock and Option Issuances
     ---------------------------------

     During the nine months ended  September 30, 2008 the Company issued 147,500
     restricted common shares with a fair value of $303,000 based on the closing
     share price on the date of the grant to certain  officers under  employment
     agreements.  The Company also issued 1,552 restricted  common shares valued
     at $3,000 to a former employee for services in 2007, and 72,275  restricted
     common  shares with a fair value of $65,000 to an employee in settlement of
     compensation  accrued in 2007 and compensation  earned in 2008.  During the
     nine months ended September 30, 2008 the Company also issued 141,898 common
     shares on the  exercise of 440,000  stock  options on a cashless  basis and
     360,000  shares on exercise of options  for cash of  $418,000.  The Company
     also issued 213,950 shares on exercise of warrants and received proceeds of
     $200,000.

     During the nine months ended  September 30, 2008, the Company issued 75,000
     options to an officer and a director to purchase common stock.  The options
     have an exercise  prices of $1.50 (the  trading  price of the shares at the
     date of the  grant)  and a fair  value at the grant  date of  $69,000.  The
     valuation  was  determined  using  the   Black-Scholes   method.   The  key
     assumptions  used were a volatility  of 98.1%,  dividend rate of 0%, a risk
     free rate of 1.9% and an expected life (using the simplified method) of 3.0
     years.

     Also in September  2008, the Company  issued  1,346,800  restricted  common
     shares upon the conversion of all of the outstanding shares of the Series A
     Preferred Stock.

     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  are not included in the  computation  when their effect would be
     anti-dilutive.  The  following  table  presents  the  shares  used  in  the
     computation  of fully  diluted  earnings  per  share for the three and nine
     months ended September 30, 2008 and 2007:

                                       9
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


<TABLE>
<CAPTION>
------------------------------------------------ -------------------- -------------------- -------------------- --------------------
                                                 Three Months Ended   Three Months Ended    Nine Months Ended    Nine Months Ended
                                                 September 30, 2008   September 30, 2007   September 30, 2008   September 30, 2007
------------------------------------------------ -------------------- -------------------- -------------------- --------------------
                                                   (in thousands)       (in thousands)       (in thousands)       (in thousands)
------------------------------------------------ -------------------- -------------------- -------------------- --------------------
   <S>                                                  <C>                 <C>                   <C>                  <C>
   Weighted Average Common shares outstanding           7,903               6,082                 7,482                5,650
------------------------------------------------ -------------------- -------------------- -------------------- --------------------
   Warrants to purchase common stock                      634               1,164                   842                1,152
------------------------------------------------ -------------------- -------------------- -------------------- --------------------
   Options to purchase common stock                       987               1,768                 1,216                1,334
------------------------------------------------ -------------------- -------------------- -------------------- --------------------
   Restricted stock grants                                 29                  --                    14                   --
------------------------------------------------ -------------------- -------------------- -------------------- --------------------
   Series A Convertible preferred stock                    --                  --                 1,317
------------------------------------------------ -------------------- -------------------- -------------------- --------------------
   Total fully diluted shares                           9,553               9,014                10,871                8,136
                                                        =====              ======                ======                =====
------------------------------------------------ -------------------- -------------------- -------------------- --------------------
</TABLE>
     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 anti-dilutive for the periods presented, consist of the following
     (in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------- --------------------------------------- -------------------------------------
                                                                   Three Months                           Nine Months
                                                               Ended September 30,                    Ended September 30,
----------------------------------------------------- --------------------------------------- -------------------------------------
                                                                 2008             2007                   2008             2007
                                                                 ----             ----                   ----             ----
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       <S>                                                        <C>              <C>                    <C>              <C>
       Options to purchase common stock                           123              445                    123              445
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       Warrants to purchase common stock                          643              200                    643              200
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       Restricted stock grants                                    577               --                    577               --
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       Series A Convertible preferred stock                        --            1,347                     --            1,347
                                                                =====            =====                  =====            =====
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------

----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
             Total potential common shares                      1,343            1,992                  1,343            1,992
                                                                =====            =====                  =====            =====
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
</TABLE>
7.   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. The following table displays revenue by product (in thousands):
<TABLE>
<CAPTION>
                                          Three Months Ended             Nine Months Ended
                                            September 30,                  September 30,
                                         2008            2007            2008         2007
                                        ------          ------          ------       ------
      <S>                               <C>             <C>             <C>          <C>
      ASP IOL fees                      $2,016          $2,035          $5,668       $5,594
      Custom engineering fees              493             547           1,142        1,822
                                        ------          ------          ------       ------
           Total Revenue                $2,509          $2,582          $6,810       $7,416
                                        ======          ======          ======       ======
</TABLE>
     Major Customers
     ---------------

     For the  three  and nine  month  periods  ended  September  30,  2008,  IBM
     accounted for 41.1% and 45.0% of revenue,  respectively,  compared to 48.8%
     and 49.1% for the three and nine month  periods  ended  September 30, 2007,
     respectively.  For the three and nine month  periods  ended  September  30,
     2008, EDS accounted for 45.1% and 46.3% of revenue, respectively,  compared
     to 48.5% and 47.6% for the three and nine month periods ended September 30,
     2007,  respectively.  Accounts  receivable from these customers amounted to
     $1,272,000  and  $1,416,000  at  September  30, 2008 and December 31, 2007,
     respectively.

                                       10
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


8.   Income Taxes

     In its interim  financial  statements  the Company  follows the guidance in
     Accounting   Principles   Board  ("APB")  Opinion  28  "Interim   Financial
     Reporting"  and FIN 18 "Accounting  for Income Taxes in Interim  Periods an
     Interpretation of APB 28", whereby the Company utilizes the expected annual
     effective tax rate in determining its income tax provisions for the interim
     period's  income or loss. As the Company has significant net operating loss
     carry-forwards  the  effective  income tax rate applied to the period ended
     September  30, 2008 income was 0%. The Company  accounts  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 basis of assets and liabilities,  using
     enacted tax rates. Additionally,  net deferred tax assets are adjusted by a
     valuation  allowance if, based on the weight of available  evidence,  it is
     more  likely  than not that some  portion  or all of the net  deferred  tax
     assets will not be realized. The Company currently has significant deferred
     tax assets consisting  predominately of net operating loss  carry-forwards.
     SFAS No.  109,  "Accounting  for  Income  Taxes  ("FAS  109"),  requires  a
     valuation allowance be established when it is more likely than not that all
     or a portion of deferred tax assets will not be  realized.  During the nine
     months ended September 30, 2008, the Company reviewed previous positive and
     negative  evidence and also reviewed its expected taxable income for future
     periods and  concluded  that it is more likely than not that  approximately
     $2,867,000  of tax benefits  related to net operating  loss  carry-forwards
     will be utilized in future tax years and, therefore,  reduced its valuation
     allowance  during the nine months ended  September  30, 2008 in  accordance
     with APB 28. As a result the Company's effective tax rate for the three and
     nine months ended  September  30, 2008  differs from the current  statutory
     rates. In addition, the Company expects to provide a valuation allowance on
     the  remaining  future  tax  benefits  until  it can  sustain  a  level  of
     profitability  that  demonstrates  its  ability  to utilize  the  remaining
     assets,  or other  significant  positive  evidence arises that suggests its
     ability to utilize  the  remaining  assets.  The  future  realization  of a
     portion  of its  reserved  deferred  tax  assets  related  to tax  benefits
     associated with the exercise of stock options,  if and when realized,  will
     not result in a tax benefit in the  consolidated  statement of  operations,
     but rather will result in an increase in  additional  paid in capital.  The
     Company  will  continue to re-assess  its  reserves on deferred  income tax
     assets in future periods on a quarterly  basis. The Company has elected the
     "with and without approach"  regarding ordering of windfall tax benefits to
     determine  whether the windfall tax benefit did reduce taxes payable in the
     current  year.  Under this  approach  the  windfall  tax  benefit  would be
     recognized in additional paid-in-capital only if an incremental tax benefit
     is realized after considering all other benefits presently available.

     At December 31, 2007,  the Company had federal and state net operating loss
     carryforwards  ("NOLs")  remaining  of  approximately  $77  million and $33
     million, respectively,  which may be available to reduce taxable income, if
     any. These NOLs expire through 2025.

9.   Management's Liquidity Plans

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

     o    For the nine months ended  September 30, 2008 and 2007 the Company had
          net  cash  provided  by  operations  of  $1,495,000  and   $2,307,000,
          respectively.  The  Company  will  continue  to  monitor  and  control
          expenses and  anticipates  that it will  continue to achieve  positive
          cash flows from operations.

     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 the
          year ended  December 31, 2007 the Company signed  agreements  with two
          new customers to provide IOL  services.  Management  anticipates  that
          revenue  from new  customers  will  continue  to  increase in 2008 and
          beyond and  expects  to further  broaden  the  customer  base in 2009,

                                       11
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


          although  there  is no  assurance  that  the  Company  will be able to
          further broaden its customer base.

     o    Based on the advice of legal counsel,  management believes the Company
          may only pay  dividends  to the  extent  it has a surplus  or  current
          earnings pursuant to the Delaware General  Corporation Law. During the
          nine months ended  September 30, 2008,  the Company paid  dividends on
          the Series A, B, and C Preferred  Stock of  $2,922,000  and expects to
          pay further dividends in 2008.

     Management believes that these plans and new initiatives as discussed above
     will lead to continued  positive  cash flows and  profitability.  While the
     Company  pursues  these goals the Company also believes that its ability to
     generate  positive cash flows from operations will provide  sufficient cash
     to meet cash requirements at least through September 30, 2009. 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.

10.  New Accounting Pronouncements

     In  September  2006,  the FASB issued  Statement  of  Financial  Accounting
     Standards  ("SFAS") No. 157, "Fair Value  Measurements"  ("SFAS 157"). SFAS
     157  clarifies  the  principle  that  fair  value  should  be  based on the
     assumptions  market  participants  would  use  when  pricing  an  asset  or
     liability  and  establishes a fair value  hierarchy  that  prioritizes  the
     information used to develop those assumptions. SFAS 157 requires fair value
     measurements  to be  separately  disclosed  by level  within the fair value
     hierarchy. SFAS 157 is effective for financial statements issued for fiscal
     years  beginning  after November 15, 2007, and interim periods within those
     fiscal  years.  On February 12, 2008,  the FASB issued FASB Staff  Position
     (FSP) No. SFAS 157-2,  "Effective Date of FASB Statement No. 157" (FSP SFAS
     157-2).  FSP SFAS 157-2 amends SFAS No. 157, to delay the effective date of
     SFAS 157 for nonfinancial assets and nonfinancial  liabilities,  except for
     the items that are  recognized  or disclosed at fair value in the financial
     statements on a recurring basis. For items within its scope, FSP SFAS 157-2
     defers  the  effective  date of SFAS 157 to fiscal  years  beginning  after
     November  15,  2008.  The  Company is  currently  evaluating  the impact of
     adopting  SFAS  157  and  FSP  SFAS  157-2  on its  consolidated  financial
     statements.

     In February  2007,  the FASB issued SFAS No. 159 "The Fair Value Option for
     Financial Assets and Financial Liabilities - Including an amendment of FASB
     Statement  No. 115" ("SFAS No. 159"),  which permits  entities to choose to
     measure many financial  instruments  and certain other items at fair value.
     The fair value option established by this Statement permits all entities to
     choose to measure eligible items at fair value at specified election dates.
     A business  entity  shall report  unrealized  gains and losses on items for
     which the fair value option has been elected in earnings at each subsequent
     reporting  date.  Adoption is required  for fiscal  years  beginning  after
     November 15, 2007. The Company has not elected to use the fair value method
     for any financial assets or liabilities and therefore SFAS 159 did not have
     an effect on the Company's financial position or results of operations.

     In  December  2007,  the FASB  issued  Statement  of  Financial  Accounting
     Standards ("SFAS") No. 141R,  "Business  Combinations" ("SFAS 141R"), which
     replaces  SFAS No.  141,  "Business  Combinations."  SFAS 141R  establishes
     principles and  requirements  for determining how an enterprise  recognizes
     and measures the fair value of certain assets and liabilities acquired in a
     business  combination,   including  non-controlling  interests,  contingent
     consideration, and certain acquired contingencies.  SFAS 141R also requires
     acquisition-related   transaction   expenses  and  restructuring  costs  be
     expensed as incurred rather than capitalized as a component of the business
     combination.  SFAS  141R  will  be  applicable  prospectively  to  business
     combinations for which the acquisition date is on or after the beginning of

                                       12
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


     the first annual  reporting period beginning on or after December 15, 2008.
     SFAS 141R would have an impact on accounting  for any  businesses  acquired
     after the effective date of this pronouncement.

     In December 2007, the FASB issued SFAS No. 160, "Non-controlling  Interests
     in Consolidated  Financial  Statements - An Amendment of ARB No. 51" ("SFAS
     160").  SFAS 160  establishes  accounting  and reporting  standards for the
     non-controlling  interest  in  a  subsidiary  (previously  referred  to  as
     minority interests). SFAS 160 also requires that a retained non-controlling
     interest upon the  deconsolidation of a subsidiary be initially measured at
     its fair value. Upon adoption of SFAS 160, the Company would be required to
     report  any   non-controlling   interests   as  a  separate   component  of
     stockholders' equity. The Company would also be required to present any net
     income allocable to non-controlling  interests and net income  attributable
     to  the  stockholders  of  the  Company   separately  in  its  consolidated
     statements  of  operations.  SFAS 160 is effective  for fiscal  years,  and
     interim  periods within those fiscal years,  beginning on or after December
     15, 2008. SFAS 160 requires  retroactive  adoption of the  presentation and
     disclosure   requirements  for  existing  minority  interests.   All  other
     requirements  of SFAS 160 shall be  applied  prospectively.  SFAS 160 would
     have an impact on the  presentation  and disclosure of the  non-controlling
     interests of any non wholly-owned businesses acquired in the future.

     In March  2008,  the FASB issued SFAS 161,  "Disclosures  about  Derivative
     Instruments and Hedging Activities an amendment of FASB Statement No. 133",
     which amends and expands the disclosure requirements of SFAS 133 to require
     qualitative   disclosure   about   objectives   and  strategies  for  using
     derivatives, quantitative disclosures about fair value amounts of and gains
     and   losses   on   derivative    instruments,    and   disclosures   about
     credit-risk-related  contingent  features in  derivative  agreements.  This
     statement  will be effective for the Company  beginning on January 1, 2009.
     The  adoption  of this  statement  will change the  disclosures  related to
     derivative instruments held by the Company, if any.

                                       13
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations

Forward looking statements

All statements  other than  statements of historical  fact included in this Form
10-Q including,  without limitation,  statements under, "Management's Discussion
and Analysis of Financial  Condition  and Results of  Operations"  regarding 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-Q, 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,
the  dependence  on key  personnel,  and such other risk factors which may arise
from time to time  including,  but not limited to, the risk factors as set forth
in the  Company's  Reports on Form 10KSB as filed with the  Securities  Exchange
Commission. 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

Direct Insite Corp. and its  subsidiaries  (hereinafter  referred to at times as
"Direct Insite" or the "Company"),  was organized as a public company, under the
laws of the State of Delaware on August 27, 1987.  Direct Insite  operates as an
application  service provider ("ASP"),  providing best practice financial supply
chain automation and workflow  efficiencies within the Procure-to-Pay  (PTP) and
Order-to-Cash   (OTC)  processes.   The  Company's  global  Electronic   Invoice
Presentment and Payment ("EIP&P")  services  automate manual business  processes
such  as  complex  billing,  invoice  validation,   invoice-to-order   matching,
consolidation, dispute handling, and payment processing.

Direct  Insite is currently  delivering  service and  business  value across the
Americas,  Europe, and Asia,  including 62 countries,  15 languages and multiple
currencies. Direct Insite processes, hosts and distributes millions of invoices,
purchase orders, and attachment  documents making them accessible on-line within
an internet self service portal. Suppliers,  customers, and internal departments
such as Finance  and  Accounting  or  Customer  Service  users can access  their
business documents 24 hours per day, seven days per week, 365 days per year.

For the three and nine month periods ended September 30, 2008, IBM accounted for
41.1% and 45.0% of  revenue,  respectively,  compared to 48.8% and 49.1% for the
three and nine  month  periods  ended  September  30,  2007,  respectively.  The
decrease in revenue  from IBM is due to the decrease in service to IBM in Europe
and a  decrease  in  engineering  services  resulting  from  the  completion  of
deploying the IOL service to all major geographies. For the three and nine month
periods ended  September 30, 2008, EDS accounted for 45.1% and 46.3% of revenue,
respectively,  compared to 48.5% and 47.6% for the three and nine month  periods
ended  September  30,  2007,  respectively.  The decrease in the  percentage  of
revenue from EDS is principally due to increased revenue from other customers.

Critical accounting policies

Our condensed  consolidated  financial  statements and the notes thereto contain
information  that is pertinent to  management's  discussion  and  analysis.  The
preparation of financial  statements in conformity  with  accounting  principles
generally  accepted in the United States  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and

                                       14
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


disclosures of contingent assets and liabilities. Management bases its estimates
on historical  experience and on various other  assumptions that are believed to
be reasonable under the  circumstances,  the results of which form the basis for
making  judgments about the carrying  values of assets and liabilities  that are
not readily  apparent  from other  sources.  On a continuing  basis,  management
reviews its estimates  utilizing  currently  available  information,  changes in
facts and circumstances, historical experience and reasonable assumptions. After
such  reviews,   and  if  deemed  appropriate,   those  estimates  are  adjusted
accordingly.  Actual results may vary from these estimates and assumptions under
different  and/or  future  circumstances.  Management  considers  an  accounting
estimate to be critical if:

     o    it requires assumptions to be made that were uncertain at the time the
          estimate was made; and

     o    changes in the estimate,  or the use of different  estimating  methods
          that could  have been  selected,  could have a material  impact on the
          Company's  condensed  consolidated  results of operations or financial
          condition.

The following critical  accounting policies have been identified that affect the
more  significant  judgments  and  estimates  used  in  the  preparation  of the
consolidated financial statements. We believe that the following are some of the
more critical judgment areas in the application of our accounting  policies that
affect our financial condition and results of operations.  We have discussed the
application of these critical accounting policies with our Audit Committee.  The
following  critical  accounting  policies are not intended to be a comprehensive
list of all of the Company's accounting policies or estimates.

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

We record revenue in accordance  with Statement of Position 81-1,  issued by the
American  Institute of Certified  Public  Accountants  and SEC Staff  Accounting
Bulletin  Topic  13  "Revenue  Recognition  in  Financial  Statements."  In some
circumstances,  we enter into  arrangements  whereby the Company is obligated to
deliver  to  its  customer   multiple   products   and/or   services   (multiple
deliverables).  In these  transactions,  in accordance  with the Emerging Issues
Task  Force  ("EITF")  Issue No.  00-21,  "Revenue  Arrangements  with  Multiple
Deliverables",  the Company  allocates  the total revenue to be earned among the
various  elements  based on their relative fair values.  The Company  recognizes
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 we do 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
------------

We provide  transactional  data  processing  services  through our ASP  software
solutions to our  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.

                                       15
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


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

We perform 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 lesser 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.

Allowance For Doubtful Accounts
-------------------------------

The  allowance  for doubtful  accounts  reflects  management's  best estimate of
probable  losses  inherent  in  the  account  receivable   balance.   Management
determines  the  allowance   based  on  known  troubled   accounts,   historical
experience,  and other currently available  evidence.  At September 30, 2008 and
December 31, 2007, an allowance for doubtful  accounts is not provided since, in
the opinion of management, all accounts are deemed collectible.

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

Statement of Financial  Accounting  Standards ("SFAS"),  No. 144 "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("FAS 144") requires management
judgments  regarding the future  operating and disposition  plans for marginally
performing assets, and estimates of expected  realizable values for assets to be
sold. The Company accounts for its long-lived  assets in accordance with FAS 144
for purposes of  determining  and measuring  impairment of its other  intangible
assets. It is the Company's policy to periodically  review the value assigned to
its long lived assets,  including  capitalized  software  costs, to determine if
they have been  permanently  impaired by adverse  conditions.  If  required,  an
impairment  charge would be recorded  based on an estimate of future  discounted
cash flows. In order to test for recoverability, the Company compared the sum of
an undiscounted  cash flow projection from the related  long-lived assets to the
net  carrying  amount  of  such  assets.  Considerable  management  judgment  is
necessary to estimate  undiscounted  future operating cash flows and fair values
and,  accordingly,  actual results could vary significantly from such estimates.
No impairment charges were recognized during the nine months ended September 30,
2008 and 2007, respectively.

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

We currently have significant deferred tax assets. SFAS No. 109, "Accounting for
Income Taxes"("FAS 109"),  requires a valuation allowance be established when it
is more likely than not that all or a portion of deferred tax assets will not be
realized.  Furthermore, FAS 109 provides that it is difficult to conclude that a
valuation  allowance  is not needed  when  there is  negative  evidence  such as
cumulative losses in recent years. Therefore, cumulative losses weigh heavily in
the overall  assessment.  The future  realization  of a portion of our  reserved
deferred  tax assets  related to tax  benefits  associated  with the exercise of
stock  options,  if and when  realized,  will not result in a tax benefit in the
consolidated  statement of operations,  but rather will result in an increase in
additional  paid in capital.  We will  continue  to  re-assess  our  reserves on
deferred income tax assets in future periods on a quarterly basis (see note 8 to
the Condensed Consolidated Financial Statements).

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

In preparing  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

                                       16
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


revenue and expenses during the reporting period.  Certain items,  among others,
that are  particularly  sensitive to estimates  are revenue  recognition,  stock
based  compensation and the valuation  allowance on deferred tax assets.  Actual
results could differ from those estimates.

Results of operations

For the three and nine month periods ended September 30, 2008 we had income from
operations  of  $431,000  and  $878,000,  respectively,  compared to income from
operations of $544,000 and $1,647,000 for the three and nine month periods ended
September 30, 2007,  respectively.  We had net income of $418,000 and $3,721,000
for the three and nine months ended September 30, 2008,  respectively,  compared
to net income of $524,000  and  $1,542,000  for the three and nine months  ended
September  30, 2007,  respectively.  During the nine months ended  September 30,
2008,  we recorded a benefit  from  income  taxes of  $2,867,000  as a result of
reducing the  valuation  allowance on our deferred tax assets for net  operating
loss carry-forwards we more likely than not expect to utilize in future years.

For the three and nine month periods ended September 30, 2008 revenue  decreased
$73,000  (2.8%) to $2,509,000 and $606,000  (8.2%) to $6,810,000,  respectively,
compared to revenue of $2,582,000  and  $7,416,000  for the three and nine month
periods ended September 30, 2007,  respectively.  This decrease is primarily the
result of a decrease  in  engineering  services  revenue  of $54,000  (9.9%) and
$680,000  (37.3%)  for the three  and nine  months  ended  September  30,  2008,
respectively.  The  decrease  in the  engineering  services  revenue is due to a
decrease  in the number and size of  projects  in process  during the first nine
months of 2008.  Revenue from our recurring ASP IOL services  decreased  $19,000
(0.9%) for the three  months  ended  September  30, 2008 and  increased  $74,000
(1.3%) for the nine months ended  September 30, 2008 compared to the same period
in 2007.

Costs of operations,  research and development increased by $140,000 (16.6%) and
$110,000  (4.1%) to $984,000 and  $2,816,000 for the three and nine months ended
September 30, 2008,  respectively,  compared to costs of $844,000 and $2,706,000
for the three and nine months  ended  September  30, 2007,  respectively.  These
costs  consist  principally  of  salaries  and  related  expenses  for  software
developers, programmers, custom engineers, network services, and quality control
and  assurance.  Also  included  are  network  costs,  costs  of the  production
co-location   facility  and  other  expenses  directly  related  to  our  custom
engineering and ASP production services. The increase in 2008 is principally due
to an increase  in the cost of  purchased  services  of  $156,000  for the three
months and  $147,000  for the nine  months  ended  September  30,  2008,  due to
outsourcing  certain  services in support of a new IOL  product  offering to one
customer.  Other costs of operations decreased $16,000 and $37,000 for the three
and nine months ended September 30, 2008, respectively.

Sales and marketing  costs  increased  $28,000  (11.4%) to $273,000  compared to
costs of $245,000 for the three months ended September 30, 2007. The increase is
due to an increase in  personnel  costs of  $16,000,  and  increase in travel of
$10,000 and other costs of $2,000.  For the nine months ended September 30, 2008
sales and marketing costs  decreased  $181,000  (20.7%) to $692,000  compared to
costs  of  $873,000  for the  same  period  in 2007.  The  decrease  is due to a
reduction of $92,000 in salaries  and  benefits  due to a reduction in staff,  a
decrease of $66,000 for professional and consulting fees and a decrease of other
sales costs of $23,000.

General and administrative  costs decreased $124,000 (14.2%) to $747,000 for the
three months ended  September  30, 2008,  compared to costs of $871,000 the same
period  in  2007.  The  decrease  is  principally  due to a  decrease  in  stock
compensation  costs of $210,000,  offset by an increase in professional  fees of
$77,000 and other  administrative  costs of $9,000.  For the nine  months  ended
September 30, 2008, general and administrative  costs increased $266,000 (13.8%)
compared to the nine months ended  September 30, 2007.  This increase was due to
an increase in personnel costs of $151,000,  an increase in professional fees of
$96,000,  while all other administrative costs increased $19,000 compared to the
same period in 2007.

During the three months ended September 30, 2008 we had $0 interest expense, net
compared to interest  expense,  net of $20,000 for the same period in 2007.  For

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                      DIRECT INSITE CORP. AND SUBSIDIARIES


the nine months  ended  September  30, 2008  interest  expense,  net was $11,000
compared to $86,000 for the same period in 2007.  The  improvement  was due to a
return on  investment  of excess cash and lower  borrowing  in 2008  compared to
2007.

Financial Condition and Liquidity

Cash provided by operating  activities  for the nine months ended  September 30,
2008 was  $1,495,000  compared  to cash  provided  by  operating  activities  of
$2,307,000 for the nine months ended  September 30, 2007.  This consisted of net
income of  $3,721,000,  increased by non-cash  expenses of  $707,000,  including
depreciation  and  amortization  of property  and  equipment  of  $226,000,  and
stock-based  compensation  expense  of  $481,000,  offset  by the  change in the
deferred  tax asset of  $2,867,000.  This was  further  offset by an increase in
accounts  receivable  of $92,000 and a decrease in accounts  payable and accrued
expenses of $81,000.  Prepaid  expenses  decreased  $50,000 and deferred revenue
increased $57,000.

Cash  used in  investing  activities  was  $198,000  for the nine  months  ended
September  30,  2008,  compared  to $122,000  for same period in 2007.  This was
principally expenditures for equipment.

Cash used in financing  activities  totaled $2,427,000 for the nine months ended
September  30, 2008,  compared to cash used in financing  activities of $547,000
for the nine months ended September 30, 2007. We paid $2,922,000 in dividends on
preferred  stock  and  repaid  $123,000  of  long-term  debt and  capital  lease
obligations  in the first nine months of 2008 and we received  proceeds from the
exercise of stock options and warrants of $618,000.

Off-Balance Sheet Arrangements

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

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    For the nine months ended  September 30, 2008 and 2007 we had net cash
          provided by operations of $1,495,000 and $2,307,000,  respectively. We
          will continue to monitor and control  expenses and we anticipate  that
          we will continue to achieve positive cash flows from operations.

     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 the
          year  ended  December  31,  2007 we  signed  agreements  with  two new
          customers to provide IOL services. We anticipate that revenue from new
          customers  will  continue to increase in 2008 and beyond and we expect
          to further  broaden our customer  base in 2009,  although  there is no
          assurance that we will be able to further broaden our customer base.

     o    Based on the advice of legal counsel,  we believe the Company may only
          pay  dividends  to the  extent it has a surplus  or  current  earnings
          pursuant to Delaware  General  Corporate  Law.  During the nine months
          ended  September  30, 2008,  we paid  dividends on preferred  stock of
          $2,922,000 and we expect to pay further dividends in 2008.

     We believe that these plans and new  initiatives  as  discussed  above will
     lead to continued  positive cash flows and  profitability.  While we pursue


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                      DIRECT INSITE CORP. AND SUBSIDIARIES


     these goals we also  believe  that our ability to  generate  positive  cash
     flows  from  operations  will  provide  sufficient  cash to meet  our  cash
     requirements  at  least  through  September  30,  2009.  There  can  be  no
     assurance,  however, 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 operating expenses,  which could
     have an adverse effect on revenue and operations in the short term.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

       Not applicable

Item 4T.  Controls and Procedures

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

     The Company maintains disclosure controls and procedures designed to ensure
     that information  required to be disclosed in the reports it files with the
     SEC is accumulated and communicated to management, as appropriate, to allow
     timely decisions  regarding  required  disclosure,  and such information is
     recorded,  processed,  summarized  and  reported  within  the time  periods
     specified in the SEC's rules and forms.  Under the supervision and with the
     participation of our management,  including our Chief Executive Officer and
     Chief  Financial  Officer,  we  have  evaluated  the  effectiveness  of our
     disclosure  controls  and  procedures  as such term is defined by the rules
     established under the Securities Exchange Act of 1934.

     Based on our  evaluation  which took place as of  September  30,  2008 (the
     "Evaluation  Date"), we believe that these procedures were not effective as
     a result  of  limited  resources  and a  limited  segregation  of duties in
     accounting and financial  reporting.  More specifically,  the Company has a
     limited  number  of  personnel  in the  finance  and  accounting  area  and
     therefore one person performs various accounting  functions where a greater
     segregation  of duties  would  permit  checks and balances and reviews that
     would improve internal control. The Company has been aware of this material
     weakness  since  January  2004 at which  time the  staff of the  accounting
     department was reduced.  As a result the Chief  Financial  Officer  devotes
     substantive time to reviewing the accounting  records and financial reports
     and the Company expects that this will continue until  financial  resources
     permit engaging additional accounting staff. The Company has not determined
     at this time when such additional staff will be employed.

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

     The Company  maintains a system of  internal  controls  designed to provide
     reasonable  assurance  that  transactions  are executed in accordance  with
     management's general or specific  authorization;  transactions are recorded
     as  necessary  to  (1)  permit  preparation  of  financial   statements  in
     conformity  with  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.  In 2007 the Company  adopted and  implemented the
     control  requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the
     "Act").

     There  was no change  in the  Company's  internal  control  over  financial
     reporting  during the  Company's  last fiscal  quarter that has  materially
     affected,  or is  reasonably  likely to  materially  affect,  the Company's
     internal control 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.


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                      DIRECT INSITE CORP. AND SUBSIDIARIES


     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 as of the
     Evaluation  Date,  under  standards   established  by  the  Public  Company
     Accounting  Oversight Board. As previously stated, the reportable condition
     and  material  weakness  relates to limited  segregation  of duties and the
     absence  of  reviews  and  approvals  beyond  that  performed  by the Chief
     Financial  Officer as  mentioned  above,  of  transactions  and  accounting
     entries.  Given this reportable condition and material weakness,  the Chief
     Financial  Officer  devoted  additional  time  to  closing,  preparing  and
     reviewing the report for the nine months ended September 30, 2008.


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<PAGE>


                      DIRECT INSITE CORP. AND SUBSIDIARIES

                           PART II - OTHER INFORMATION





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.


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                      DIRECT INSITE CORP. AND SUBSIDIARIES

                                   SIGNATURES

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




DIRECT INSITE CORP.




/s/  James A. Cannavino
-------------------------------------------
James A. Cannavino, Chief Executive Officer                November 13, 2008



/s/ Michael J. Beecher
--------------------------------------------
Michael J. Beecher,  Chief Financial Officer               November 13, 2008



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