Paybox Corp. - FORM 10-Q - November 10, 2015

Attached files

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EX-32.2 - CERTIFICATION - Paybox Corp.	diri_ex322.htm
EX-31.1 - CERTIFICATION - Paybox Corp.	diri_ex311.htm
EX-31.2 - CERTIFICATION - Paybox Corp.	diri_ex312.htm
EX-32.1 - CERTIFICATION - Paybox Corp.	diri_ex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ________________ to ________________

Commission file number: 0-20660

DIRECT INSITE CORP.

(Exact name of registrant as specified in its charter)

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

500 East Broward Boulevard, Suite 1550 Fort Lauderdale, Florida		33394
(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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ

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

As of November 10, 2015, there were 12,925,048 shares of the registrant’s Common Stock outstanding.

DIRECT INSITE CORP.

TABLE OF CONTENTS

	Page
PART I.FINANCIAL INFORMATION	3-20

ITEM 1. FINANCIAL STATEMENTS	3

CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2015 (UNAUDITED) AND DECEMBER 31, 2014	3

CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014 (UNAUDITED)	4

CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014 (UNAUDITED)	5

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)	6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	15

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	20

ITEM 4. CONTROLS AND PROCEDURES	20

PART II. OTHER INFORMATION	21-22

ITEM 1. LEGAL PROCEEDINGS	21

ITEM 1A. RISK FACTORS	21

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS	21

ITEM 3. DEFAULTS IN SENIOR SECURITIES	21

ITEM 4. MINE SAFETY DISCLOSURES	21

ITEM 5. OTHER INFORMATION	21

ITEM 6. EXHIBITS	22

SIGNATURES	23

PART I – FINANCIAL INFORMATION

Item 1. Financial Information

DIRECT INSITE CORP.

CONDENSED BALANCE SHEETS

(in thousands, except share data)

	September 30, 2015			December 31, 2014
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	2,032		$	871
Accounts receivable		1,450			2,407
Prepaid expenses and other current assets		522			383
Deferred tax assets – current		234			234
Total current assets		4,238			3,895
Property and equipment, net		968			1,020
Deferred tax assets		961			961
Other assets		256			244
Total assets	$	6,423		$	6,120

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	1,553		$	1,789
Current portion of capital lease obligations		18			27
Deferred rent		39			44
Deferred revenue		2			52
Total current liabilities		1,612			1,912
Capital lease obligations, net of current portion		0			9
Total liabilities		1,612			1,921



Stockholders’ equity:
Preferred stock, $0.0001 par value; 2,000,000 shares authorized; none issued or outstanding		–			–
Common stock, $0.0001 par value; 50,000,000 shares authorized; 12,952,520 and 12,759,870 shares issued and 12,912,593 and 12,719,943 shares outstanding in 2015 and 2014, respectively		1			1
Additional paid-in capital		116,421			116,161
Accumulated deficit		(111,283	)		(111,635	)
Common stock in treasury, at cost; 24,371 shares in 2015 and 2014		(328	)		(328	)
Total stockholders’ equity		4,811			4,199
Total liabilities and stockholders’ equity	$	6,423		$	6,120

See notes to condensed financial statements.

DIRECT INSITE CORP.

CONDENSED STATEMENTS OF OPERATIONS – UNAUDITED

(in thousands, except share data)

	For the three months ended					For the nine months ended
	September 30, 2015		September 30, 2014			September 30, 2015			September 30, 2014
Revenues:
Recurring	$	1,683	$	1,618		$	5,086		$	4,872
Non-recurring		241		436			963			1,297
Total revenues		1,924		2,054			6,049			6,169
Operating costs and expenses:
Operations, research and development		771		846			2,582			2,596
General and administrative		566		589			1,752			1,795
Sales and marketing		337		423			1,117			1,467
Amortization and depreciation		64		83			220			249
Total operating costs and expenses		1,738		1,941			5,671			6,107
Operating income		186		113			378			62
Other expense, net		–		(1	)		(2	)		(7	)
Income before provision for income taxes		186		112			376			55
Provision for income taxes		24		–			24			–
Net income	$	162	$	112		$	352		$	55

Basic income per share attributable to common stockholders	$	0.01	$	0.01		$	0.03		$	0.00

Diluted income per share attributable to common stockholders	$	0.01	$	0.01		$	0.03		$	0.00

Basic weighted average common stock outstanding		12,863		12,658			12,831			12,640

Diluted weighted average common stock outstanding		12,896		12,658			12,854			12,668

See notes to condensed financial statements.

DIRECT INSITE CORP.

CONDENSED STATEMENTS OF CASH FLOWS – UNAUDITED

(in thousands)

	For the nine months ended
	September 30, 2015			September 30, 2014
Cash flows from operating activities
Net income	$	352		$	55
Adjustments to reconcile net income to net cash provided by operations:
Amortization and depreciation		220			249
Stock-based compensation expense		157			136
Deferred rent expense		(5	)		23
Changes in operating assets and liabilities:
Accounts receivable		957			(449	)
Prepaid expenses and other current assets		(151	)		(8	)
Accounts payable and accrued expenses		(133	)		106
Deferred revenue		(50	)		2
Total adjustments		995			59
Net cash provided by operating activities		1,347			114

Cash flows from investing activities:
Purchases of property and equipment		(3	)		(18	)
Capitalization of internally developed software		(165	)		(372	)
Net cash used in investing activities		(168	)		(390	)

Cash flows used in financing activities:
Repayment of capital lease obligations		(18	)		(162	)

Net increase (decrease) in cash and cash equivalents		1,161			(438	)
Cash and cash equivalents – beginning		871			1,371
Cash and cash equivalents – ending	$	2,032		$	933

Supplemental disclosure of cash flow information:
Cash paid for interest	$	3		$	6
Cash paid for income taxes	$	-		$	--

Schedule of non-cash investing and financing activities:
Issuance of common stock in settlement of accrued directors’ fees	$	103		$	--

See notes to condensed financial statements.

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Nature of Business

Direct Insite Corp. (“Direct Insite” or the “Company”) operates as a Software as a Service provider (“SaaS”), providing financial supply chain automation and workflow efficiencies within the Procure-to-Pay and Order-to-Cash processes. Specifically, Direct Insite’s global electronic invoice (“e-invoice”) management services automate complex manual business processes such as invoice validation, order matching, consolidation, dispute handling, and e-payment processing in a business-to-business transaction based “fee for services” business model.

The Company’s revenue comes from (i) recurring, on-going services that are billed monthly; and (ii) non-recurring, professional services derived from the configuration of the Company’s software platform.

Throughout the year, the Company operated redundant data centers in Miami, Florida, and Amsterdam, Netherlands.

As described in Note 9, the Company has two major customers that accounted for 70.4% and 77.5% of the Company’s revenue for the three months ended September 30, 2015 and 2014, respectively, and 70.6% and 76.6% of the Company’s revenue for the nine months ended September 30, 2015 and 2014, respectively. Loss of either of these customers would have a material adverse effect on the Company.

Note 2 - Summary of Significant Accounting Policies

Interim Financial Information

The accompanying unaudited condensed interim financial statements include the accounts of Direct Insite. The condensed balance sheet as of September 30, 2015, the condensed statements of operations for the three and nine months ended September 30, 2015 and 2014 and the condensed statements of cash flows for the nine months ended September 30, 2015 and 2014 have not been audited. These unaudited, condensed interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to quarterly reports on Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The December 31, 2014 balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. These interim condensed 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 months ended September 30, 2015, are not necessarily indicative of results that may be expected for any other interim period or for the full year.

These unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2014 included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 25, 2015.

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 2 - Summary of Significant Accounting Policies (continued)

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 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. The most significant estimates are used in the accounting related to stock based compensation, the valuation allowance on deferred tax assets and capitalized internally developed software. Actual results could differ from those estimates.

Revenue Recognition

The Company records revenue in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”), and SEC Staff Accounting Bulletin Topic 13, Revenue Recognition in Financial Statements. Revenue is recognized when it is both earned and realizable, that is, when the following criteria are met:

● persuasive evidence of arrangements exist;

● delivery has occurred or services have been rendered;

● the seller’s price is fixed and determinable; and

● collectability is reasonably assured.

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

Recurring (Ongoing Services)

The Company provides transactional data processing services through its SaaS 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 provided.

Non-Recurring (Professional Services)

The Company provides non-recurring engineering services to its customers, which may include initial or additional development, modification, and customization services to the Company’s software platform. Such services are billed based on: (i) hourly rates; or (ii) milestone billings. For hourly billed services, revenue is recognized when work is performed. For milestone billed services, revenue is recognized when the project milestone has been accepted by the customer. We do not sell software licenses, upgrades or enhancements, or post-contract customer services.

Internally Developed Software

The Company released the first phase of PAYBOX®, a next generation version of its accounts receivable platform in November 2014. It was designed for a global bank and is available to all Order-to-Cash process customers. According to ASC 350-40, Intangibles-Goodwill and Other-Internal-Use Software, the Company is able to capitalize the costs associated with the application development stage of a project. The Company started amortizing capitalized costs when the software was ready for use and placed in service in November 2014. The capitalized costs are being amortized on a straight-line basis over the estimated five year useful life of the software. As additional functionality is added, costs incurred are capitalized in accordance with ASC 350-40.

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 2 - Summary of Significant Accounting Policies (continued)

Income Taxes

The Company accounts for income taxes using the asset and liability method. This 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. 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 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.

Earnings Per Share

The Company displays earnings per share in accordance with ASC 260, Earnings Per Share (“ASC 260”). ASC 260 requires dual presentation of basic and diluted earnings per share (“EPS”). Basic earnings per share is computed by dividing net income (loss) attributable to common stockholders 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.

The computation of diluted weighted average common shares outstanding used in the calculation of diluted earnings per share for the three and nine months ended September 30, 2015 and 2014 is as follows (in thousands):

	For the three months ended September 30,				For the nine months ended September 30,
	2015		2014		2015		2014
Basic weighted average shares outstanding		12,863		12,658		12,831		12,640
Stock Options		6		--		2		19
Restricted stock grants		27		--		21		9
Weighted average shares outstanding-diluted		12,896		12,658		12,854		12,668

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

	For the three months ended September 30,				For the nine months ended September 30,
	2015		2014		2015		2014
Options to purchase common stock		530		564		596		466
Unvested stock grants		7		67		10		31
Potential anti-dilutive common shares		537		631		606		497

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 2 - Summary of Significant Accounting Policies (continued)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company has cash deposits in excess of the maximum amounts insured by the Federal Depository Insurance Corporation at September 30, 2015 and December 31, 2014.

The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers. Concentrations of credit risk with respect to accounts receivable and revenue are disclosed in Note 9.

Recently Issued and Adopted Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, would have a material effect on its financial statements.

Note 3 – Property and Equipment

Property and equipment (with their respective useful lives) consist of the following at September 30, 2015 and December 31, 2014 (in thousands):

	2015			2014
Computer equipment and purchased software (3 years)	$	1,372		$	1,372
Internally developed software either placed or not yet placed in service (5 years)		1,075			907
Furniture and fixtures and leasehold improvements (5 – 7 years)		156			156
		2,603			2,435
Less: accumulated depreciation and amortization		(1,635	)		(1,415	)
Property and equipment, net	$	968		$	1,020

Depreciation and amortization expense related to property and equipment for the three months ended September 30, 2015 and 2014 was approximately $64,000 and $83,000, respectively.

Depreciation and amortization expense related to property and equipment for the nine months ended September 30, 2015 and 2014 was approximately $220,000 and $249,000, respectively.

Note 4 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following at September 30, 2015 and December 31, 2014 (in thousands):

	2015		2014
Trade accounts payable	$	268	$	355
Sales taxes payable		539		539
Accrued directors’ fees		370		453
Other accrued expenses		376		442
Total accounts payable and accrued expenses	$	1,553	$	1,789

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 5 – Capital Lease Obligations

The Company has equipment under two capital lease obligations expiring at various times through June 2016. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair values of the assets.

The implied interest rates related to these capital leases range from 7.4% to 8.9%. The gross book value and the net book value of the related assets are approximately $77,000 and $21,000, respectively, as of September 30, 2015, and $77,000 and $40,000, respectively, as of December 31, 2014.

Note 6 – Stockholders’ Equity

Preferred Stock

The Company is authorized to issue 2,000,000 shares of preferred stock, of which none were issued and outstanding as of September 30, 2015 and December 31, 2014.

Common Stock, Options and Stock Grants

Nine Months Ended September 30, 2015

During the nine months ended September 30, 2015, 135,000 restricted common shares were granted with an aggregate grant date fair value of approximately $100,000. During this time, approximately 81,000 restricted common shares with an aggregate grant date fair value of approximately $65,000 vested.

During the nine months ended September 30, 2015, the Company issued 111,602 shares of restricted common stock pursuant to the Company’s Directors’ Deferred Compensation Plan dated January 1, 2008 (the “Directors’ Deferred Compensation Plan”). These shares were issued to settle approximately $103,715 of accrued directors’ fees to two former directors for past services.

During the nine months ended September 30, 2015, the Company recognized approximately $92,000 of stock based compensation expense related to the expected vesting of 123,724 options. Outstanding options vest over a four year period, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting in equal monthly amounts through the fourth anniversary of the grant date. In March 2015, 90,000 options were awarded to employees. These options vest over three years with 33% vesting at the end of each of the three years. These options expire after a five year term. The Company estimated the grant date fair value of the stock options using the Black-Scholes-Merton option model and the following assumptions: volatility of 90%, risk free rate of 0.89%, dividend rate of zero, and expected term of 3.75 years. The grant date fair value of the stock options issued was determined to be approximately $44,100.

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 6 – Stockholders’ Equity (continued)

Nine Months Ended September 30, 2014

During the nine months ended September 30, 2014, 55,728 shares of restricted common stock with an aggregate grant date fair value of approximately $53,000 vested. In connection with the reduction of the size of the board from seven to five directors and the ensuing restructuring of board compensation, members of the Board of Directors forfeited 40,398 shares of unvested restricted stock grants. The restructured board compensation approved by the Board of Directors provides that each non-Executive member of the Board would receive equal amounts: (i) $25,000 of the Company’s common stock annually at the beginning of each year, vesting over a two year period, and (ii) $10,000 in cash to be paid 25% each quarter in arrears and which may be converted into common stock in accordance with the terms of the Directors Deferred Compensation Plan. During the nine months ended September 30, 2014, the Company granted 114,058 shares of restricted common stock with a grant date fair value of approximately $115,000. During the nine months ended September 30, 2014, the Company granted, to an employee of the Company, options to acquire 10,000 shares of common stock with an exercise price of $1.50 exercisable over a term of five years from the date of grant. The options vest over a four year period, with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting in equal monthly amounts through the fourth anniversary of the grant date. The Company estimated the grant date fair value of the stock options using the Black-Scholes option model and the following assumptions: volatility of 95%, risk free rate of 0.8%, dividend rate of zero, and expected term of 3.75 years. The grant date fair value of the stock options issued was determined to be approximately $7,500. During the nine months ended September 30, 2014, the Company recognized approximately $83,000 of expenses related to the vesting of outstanding stock options.

Stock incentive Plans

The Company has granted options under multiple stock-based compensation plans that do not differ substantially in the characteristics of the awards. Nonqualified and incentive stock options have been granted to directors, officers and employees of the Company under the Company’s stock option plans. Options generally vest over three to four years and expire five years from the date of the grant. On June 3, 2014, the Company’s stockholders approved the adoption of the 2014 Stock Incentive Plan (the “2014 Plan”). The 2014 Plan replaces the 2004 Stock Option/Stock Issuance Plan which expired on August 20, 2014. The 2014 Plan provides for the grant of non-qualified stock options, incentive stock options, and stock appreciation rights, shares of restricted stock, stock units and shares of unrestricted stock. Eligible participants include officers, employees and directors. The aggregate number of shares authorized for issuance under the 2014 Plan is 1,200,000, and is subject to adjustment as described in the 2014 Plan. As of September 30, 2015, 836,785 shares were available for issuance under the 2014 plan. Awards that expire or are cancelled without delivery of shares generally become available for issuance under the plans.

The following is a summary of stock option activity for nine months ended September 30, 2015, relating to all of the Company’s common stock plans:

						Weighted Average
	Shares			Weighted Average Exercise		Remaining Contractual Term		Aggregate Intrinsic Value
	(in thousands)			Price		(in years)		(in thousands)
Outstanding at January 1, 2015		549		$	1.30		2.72	$	--
Granted		90		$	0.90		4.50	$	--
Expired		(1	)	$	1.15		--	$	--
Forfeited		(18	)	$	1.34		--	$	--
Outstanding at September 30, 2015		620		$	1.24		2.32	$	5
Exercisable at September 30, 2015		394		$	1.25		1.71	$	--

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 6 – Stockholders’ Equity (continued)

Stock incentive Plans (continued)

The following table summarizes stock option information as of September 30, 2015:

				Weighted Average
		Number Outstanding		Remaining	Options Exercisable
Exercise Prices		(in thousands)		Contractual Term	(in thousands)
$	0.90		90	4.5 years		–
$	1.15		326	1.4 years		287
$	1.20		24	0.7 years		24
$	1.50		80	3.2 years		35
$	1.65		100	3.0 years		48
Total			620	2.3 years		394

As of September 30, 2015, there was approximately $147,000 of unrecognized compensation costs related to stock options outstanding.

Restricted Stock Grants

A summary of the status of the Company’s non-vested stock grants as of September 30, 2015 and changes during the nine months then ended is presented below:

Non-Vested Shares	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2015		51		$	0.89
Granted		135		$	0.74
Vested		(81	)	$	0.81
Non-vested at September 30, 2015		105		$	0.76

The future expected expense as of September 30, 2015 for non-vested shares is approximately $79,000 and will be recognized as expense through December 31, 2016.

Note 7 – Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition. There were no unrecognized tax benefits as of September 30, 2015 and December 31, 2014.

The Company has identified its federal tax return and its state tax return in Florida as “major” tax jurisdictions, as defined in ASC 740. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company’s evaluation was performed for tax years ended 2011 through 2014, the only periods subject to examination. The Company believes that its income tax positions and deductions would be sustained upon audit and does not anticipate any adjustments that would result in a material change to its financial position. The Company has elected to classify interest and penalties incurred on income taxes, if any, as income tax expense. No interest or penalties on income taxes have been recorded during the three months ended September 30, 2015 and 2014. The Company does not expect its unrecognized tax benefit position to change during the next twelve months.

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 7 – Income Taxes (continued)

Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

As of September 30, 2015, the Company has federal and state net operating loss carryforwards (“NOLs”) remaining of approximately $25 million and $20 million, respectively, which may be available to reduce taxable income, if any. Remaining federal and state net operating loss carry forwards expire from 2019 through 2034. However, Internal Revenue Code Section 382 rules limit the utilization of NOLs upon a change in control of a company. During 2014, the Company performed an evaluation as to whether a change in control had taken place. Management believes that there has been no change in control in accordance with Section 382. However, if it is determined that an ownership change has taken place, either historically or in the future, utilization of its NOLs could be subject to severe limitations, which could eliminate a substantial portion of the future income tax benefits of the NOLs. The NOL carryforward as of September, 2015 included approximately $1,193,000 related to windfall tax benefits for which a benefit would be recorded in additional paid-in capital if and when realized.

Note 8 – Commitment and Contingencies

The Company had an employment agreement with Matthew E. Oakes, Chief Executive Officer and Chairman of the Board of Directors, for a term effective June 1, 2013 through December 31, 2015. On February 20, 2015, Mr. Oakes’ employment agreement was superseded by a new employment agreement extending the term through December 31, 2017. The agreement provides for a base salary of $24,583 per month, discretionary and annual incentive bonuses based on the Company’s performance in achieving prescribed revenue and earnings before interest and taxes (“EBIT”) targets. The agreement also provides for reimbursement of all out-of-pocket expenses reasonably incurred by him in the performance of his duties hereunder and certain severance benefits in the event of termination prior to the expiration date. If Mr. Oakes is terminated without cause or resigns from employment for “good reason” (as defined within Mr. Oakes’ employment agreement), he would receive one year of base salary and COBRA coverage at the Company’s expense. The Company shall continue to make lease payments on the corporate apartment located in Fort Lauderdale, Florida and utilized by Mr. Oakes through the date of termination of such lease on December 31, 2017.

Note 9 – Major Customers

Two customers, HP Enterprise Services (“HP”) and International Business Machines Corp. (“IBM”) accounted for a significant portion of the Company’s revenues for the respective three and nine month periods ended September 30, 2015 and 2014 as follows:

	For the three months ended						For the nine months ended
	2015			2014			2015			2014
HP Customer A		15.7	%		14.8	%		14.7	%		14.5	%
HP Customer B		11.7	%		11.9	%		11.8	%		14.3	%
HP Customer C		6.6	%		6.5	%		6.3	%		8.5	%
Total HP		34.0	%		33.2	%		32.8	%		37.3	%
IBM		36.4	%		44.3	%		37.8	%		39.3	%
Total major customers		70.4	%		77.5	%		70.6	%		76.6	%
Others		29.6	%		22.5	%		29.4	%		23.4	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

DIRECT INSITE CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 9 – Major Customers (continued)

As of September 30, 2015 and December 31, 2014, HP and IBM accounted for a significant portion of the Company’s accounts receivable as follows (in thousands):

	September 30, 2015		December 31, 2014
HP	$	557	$	1,037
IBM		467		784
Total	$	1,024	$	1,821

Note 10 – Subsequent Events

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed financial statements.

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 our 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 such words or expressions relate to us or our 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, our 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, expansion of international operations, current economic conditions, the risk of errors or failures in our software products, dependence on proprietary technology, competitive factors, risks associated with potential acquisitions, the ability to recruit personnel, and 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. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph.

OVERVIEW

The Company was incorporated under the laws of the State of Delaware on August 27, 1987. We consummated our initial public offering in 1992. In May 1990, we changed our name to Computer Concepts, Inc. and in August 2000, we changed our name to Direct Insite Corp.

Direct Insite operates as a SaaS, providing best practice financial supply chain automation and workflow efficiencies within the Order-to-Cash and Procure-to-Pay processes. Specifically, Direct Insite’s global e-invoice management services automate complex manual business processes such as invoice validation, order matching, consolidation, dispute handling, and e-payment processing in a business-to-business transaction based “fee for services” business model.

Through the automation and workflow of Order-to-Cash and Procure-to-Pay processes and the presentation of invoices, orders, and attachment data via a self-service portal, Direct Insite is helping our customers reduce manual invoice-to-order reconciliation costs, reduce the frequency of inquiries and disputes, improve cash flow, increase competitiveness and improve customer satisfaction.

Direct Insite is currently delivering service and business value across the Americas, Europe, and Asia, including more than 100 countries, in 17 languages and multiple currencies. Direct Insite processes more than $160 billion in invoice value annually on behalf of our clients. Direct Insite processes, distributes and hosts millions of invoices, purchase orders, and supporting attachment documents, making them accessible on-line with an internet self-service portal. Suppliers, customers, and internal departments, such as Finance and Accounting or Customer Service users, can easily access their business documents.

Our revenue comes from (i) recurring, on-going services that are billed monthly; and (ii) non-recurring, professional services derived from the configuration of our software platform.

HP Enterprise Services (“HP”) accounted for approximately 34.0% and 33.2% of revenue for the three months ended September 30, 2015 and 2014, respectively, and approximately 32.8% and 37.3% of revenue for the nine months ended September 30, 2015 and 2014, respectively. We have three principal contracts with HP providing e-invoice services. These contracts have terms ranging from one to five years. The contracts may be terminated by either party on ninety days advance written notice.

International Business Machines, Inc. (“IBM”), representing approximately 36.4% and 44.3%, of revenue for the three months ended September 30, 2015 and 2014, respectively, and approximately 37.8% and 39.3%, of revenue for the nine months ended September 30, 2015 and 2014, respectively, utilizes our suite of services to allow its customers from around the globe to receive, analyze, dispute and cost allocate all of their invoice data in their local language and currency via the internet. We have two principal contracts with IBM to provide e-invoice services for substantially all of IBM’s operating units. On October 28, 2013, one of these contracts was extended for a three year period, through December 31, 2016, and is renewable annually thereafter. The other contract was renewed through December 31, 2015, and is renewable annually thereafter. The contracts may be terminated by either party with ninety days advance written notice.

SEASONALITY / QUANTITY FLUCTUATIONS

Revenue from SaaS ongoing services generally is not subject to fluctuations or seasonal flows. However, we believe that revenue derived from custom engineering services will have a significant tendency to fluctuate based on customer demand.

Other factors, including, but not limited to, new service introductions, domestic and global economic conditions, customer budgetary considerations, and the timing of service upgrades may create fluctuations. As a result of the foregoing factors, our operating results for any quarter are not necessarily indicative of results for any future period.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014

The following is a summary of operating results for the three months ended September 30, 2015 and 2014 (in thousands):

	2015		2014			Increase (Decrease)
Revenues:
Recurring	$	1,683	$	1,618		$	65		4.0	%
Non-recurring		241		436			(195	)	(44.7	)%
Total revenues		1,924		2,054			(130	)	(6.3	)%

Operating costs and expenses:
Operations, research and development		771		846			(75	)	(8.9	)%
General and administrative		566		589			(23	)	(3.9	)%
Sales and marketing		337		423			(86	)	(20.3	)%
Amortization and depreciation		64		83			(19	)	(23.0	)%
Total operating costs and expenses		1,738		1,941			(203	)	(10.5	)%

Operating income (loss)		186		113			73		64.6	%

Other income (expense) net		--		(1	)		1		0	%
Provision for Income Tax		24		--			(24	)	100	%+
Net income	$	162	$	112		$	50		44.6	%

Revenues

For the three months ended September 30, 2015, total revenue decreased by $130,000, or 6.3%, to $1,924,000 from $2,054,000 for the comparable prior year period. Recurring revenue increased by $65,000, or 4.0%, to $1,683,000 for the three months ended September 30, 2015, from $1,618,000 for the comparable prior year period, primarily due to the November 2014 launch of the PAYBOX® integrated receivables solution. Non-recurring revenue decreased by $195,000, or 44.7%, to $241,000 for the three months ended September 30, 2015, as the non-recurrence of large prior year professional services fees were only partially offset by higher charges for the facilitation of scanning services.

Operating Costs and Expenses

Costs of operations, research and development decreased by approximately $75,000, or 8.9%, to $771,000 for the three months ended September 30, 2015 from $846,000 for the comparable prior year period. These costs consist principally of salaries and related expenses for software development, programming, custom engineering, network services, and quality control and assurance. Also included are costs for purchased services, network costs, costs of the production co-location facilities and other expenses directly related to our custom engineering and SaaS services. The decrease was primarily due to a headcount-related reduction in compensation expense and lower professional fees, partially offset by higher scanning charges.

General and administrative costs decreased by approximately $23,000, or 3.9%, to $566,000 for the three months ended September 30, 2015 from $589,000 for the comparable prior year period, primarily due to lower professional, legal and accounting fees.

Sales and marketing costs decreased by approximately $86,000, or 20.3%, to $337,000 for the three months ended September 30, 2014 from $423,000 for the comparable prior year period, primarily due to a headcount-related decrease in compensation expense.

Amortization and depreciation decreased by approximately $19,000, or 23.0%, to $64,000 for the three months ended September 30, 2015 from $83,000 for the comparable prior year period, as the amortization of internally developed software costs were offset by existing assets that became fully depreciated during the interim period.

Operating Income

We had operating income of $186,000 for the three months ended September 30, 2015, compared to operating income of $113,000 for the comparable prior year period, due to the aforementioned decrease in operating costs and expenses.

Other Expense

Other expense decreased by approximately $1,000 to $0 for the three months ended September 30, 2015 from $1,000 for the comparable prior year period.

Provision for Income Taxes

We recorded a Florida income tax provision of $24,000 during the third quarter of 2015.

Net Income

Net income increased by approximately $50,000, to $162,000, for the three months ended September 30, 2015, compared to net income of $112,000 for the comparable prior year period, due to the increase in operating income, partially offset by this year’s income tax provision.

Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014

The following is a summary of operating results for the nine months ended September 30, 2015 and 2014 (in thousands):

	2015			2014			Increase (Decrease)
Revenues:
Recurring	$	5,086		$	4,872		$	214		4.4	%
Non-recurring		963			1,297			(334	)	(25.8	)%
Total revenues		6,049			6,169			(120	)	( 1.9	)%

Operating costs and expenses:
Operations, research and development		2,582			2,596			(14	)	( 0.1	)%
General and administrative		1,752			1,795			(43	)	( 2.4	)%
Sales and marketing		1,117			1,467			(350	)	(23.9	)%
Amortization and depreciation		220			249			(29	)	(11.7	)%
Total operating costs and expenses		5,671			6,107			(436	)	(7.1	)%

Operating income		378			62			316		100.0	%+

Other expense, net		(2	)		(7	)		5		71.4	%
Provision for Income Tax		24			--			24		100.0	%+


Net income	$	352		$	55		$	297		100.0	%+

Revenues

For the nine months ended September 30, 2015, total revenue decreased by $120,000, or 1.9%, to $6,049,000 from $6,169,000 for the comparable prior year period. Recurring revenue increased by $214,000, or 4.4%, to $5,086,000 for the nine months ended September 30, 2015, from $4,872,000 for the comparable prior year period. This was due to the November 2014 launch of the PAYBOX® integrated receivables solution and increased usage from certain other customers. Non-recurring revenue decreased by $334,000, or 25.8%, to $963,000 for the nine months ended September 30, 2015 from $1,297,000 for the comparable prior year period primarily due to the non-recurrence of certain large prior year customer requested modifications.

Operating Costs and Expenses

Costs of operations, research, and development decreased by approximately $14,000, or 0.1%, to $2,582,000 for the nine months ended September 30, 2015 from $2,596,000 for the comparable prior year period. These costs consist principally of salaries and related expenses for software development, programming, custom engineering, network services, and quality control and assurance. Also included are costs for purchased services, network costs, costs of the production co-location facilities and other expenses directly related to our custom engineering and SaaS services. The increased cost was due to higher scanning charges and less costs capitalized for internally developed software, partially offset by lower professional fees.

General and administrative costs decreased by approximately $43,000, or 2.4%, to $1,752,000 for the nine months ended September 30, 2015 from $1,795,000 for the comparable prior year period, primarily due to the non-recurrence of last year’s legal and other professional fees related to the Company’s proxy and Stock Incentive Plan, and intellectual property.

Sales and marketing costs decreased by approximately $350,000, or 23.9%, to $1,117,000 for the nine months ended September 30, 2015 from $1,467,000 for the comparable prior year period, due to a headcount-related decrease in compensation expense.

Amortization and depreciation decreased by approximately $29,000, or 11.7%, to $220,000 for the nine months ended September 30, 2015 from $249,000 for the comparable prior year period as the amortization of internally developed software costs were offset by existing assets that became fully depreciated during the interim period.

Operating Income

Operating income increased by approximately $316,000 to $378,000 for the nine months ended September 30, 2015, compared to operating income of $62,000 for the comparable prior year period, due to the aforementioned decrease in operating costs and expenses.

Other Expense, net

Other expense decreased by approximately $5,000 to $2,000 for the nine months ended September 30, 2015 from $7,000 for the comparable prior year period.

Provision for Income Tax

We recorded a Florida income tax provision of $24,000 during the third quarter of 2015.

Net Income

We had net income of $352,000 for the nine months ended September 30, 2015, an increase of approximately $297,000 from net income of $55,000 for the comparable prior year period, due to the aforementioned increase in operating income.

FINANCIAL CONDITION AND LIQUIDITY

As of September 30, 2015, we had total stockholders’ equity of approximately $4,811,000, working capital of $2,626,000 and an accumulated deficit of $111,283,000. Our cash increased by $1,161,000 during the nine months ended September 30, 2015, to $2,032,000 of cash on hand as of September 30, 2015, due to decreased accounts receivable and lower operating expenses.

Our primary sources for liquidity come from existing cash on hand and cash generated from operations. We believe we have sufficient liquidity available to fund our operations for the next twelve months.

During the nine months ended September 30, 2015, cash provided by operations was $1,347,000, compared to cash provided by operating activities of $114,000 for the comparable prior year period. The increase in cash provided from operations is primarily due to higher profitability and the timing of payments from our customers.

Cash used in investing activities totaled $168,000 and $390,000 for the nine months ended September 30, 2015 and 2014, respectively, with both periods reflecting the capitalization of internally developed software.

Cash used in financing activities totaled $18,000 and $162,000 for the nine months ended September 30, 2015 and 2014, respectively, reflecting payments on equipment notes and capital leases, primarily using cash provided by operations.

OUR CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are described in the audited financial statements and notes thereto for the year ended December 31, 2014, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 25, 2015.

OFF-BALANCE SHEET ARRANGEMENTS

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

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not applicable.

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation our Chief Executive Officer and Chief Financial Officer concluded that, at September 30, 2015, our disclosure controls and procedures were effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the most recent fiscal quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II Other Information

Item 1. Legal Proceedings

We are not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material adverse effect on our business, and no such proceedings are known to be contemplated.

Item 1A. Risk Factors

Not required.

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

Pursuant to the terms of the Company’s director compensation plan, each director of the Company was entitled to receive an award on January 1, 2015 of restricted shares of common stock vesting daily over two years, as follows: James A. Cannavino, Paul Lisiak, Thomas C. Lund, and John J. Murabito, each 33,784 shares. These directors elected to defer receipt of the shares until January 15th of the year following such director’s termination of services as director.

On March 31, 2015, pursuant to the terms of the director compensation plan, each of Mr. Cannavino, Mr. Lund, and Mr. Murabito were granted 3,049 shares. These directors elected to defer receipt of the shares until January 15th of the year following such director’s termination of services as director.

On June 30, 2015, pursuant to the terms of the director compensation plan, each of Mr. Cannavino, Mr. Lund and Mr. Murabito were granted 2,358 shares of restricted stock. The directors who received grants elected to defer receipt of shares until January 15th of the year following such director’s termination of services as a director.

On September 30, 2015, pursuant to the terms of the director compensation plan, each of Mr. Cannavino, Mr. Lund and Mr. Murabito were granted 2,660 shares of restricted stock. The directors who received grants elected to defer receipt of shares until January 15th of the year following such director’s termination of services as a director.

These awards were made in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended and/or the “no-sale” theory.

For additional information, reference is made to Note 6 of the Condensed Financial Statements.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number		Description

10.1		Employment Agreement, effective January 1, 2015 by and between Direct Insite Corp. and Matthew E. Oakes (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 24, 2015).

31.1		Certification pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.

31.2		Certification pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.

101		The following materials from Direct Insite’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of September 30, 2015 (Unaudited) and December 31, 2014, (ii) Condensed Statements of Income for the Three and Nine Months Ended September 30, 2015 and 2014 (Unaudited), (iii) Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (Unaudited), (iv) and Notes to Condensed Financial Statements (Unaudited).

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.

November 10, 2015	By:	/s/ Matthew E. Oakes
		Matthew E. Oakes, Chairman and Chief Executive Officer


November 10, 2015	By:	/s/ Lowell M. Rush
		Lowell M. Rush, Chief Financial Officer

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