As filed with the Securities and Exchange Commission on October 2, 2008
                                                  Registration No. 333-

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   ----------
                                    Form S-1
             Registration Statement Under The Securities Act of 1933

                               DIRECT INSITE CORP.
                               -------------------
             (Exact name of registrant as specified in its charter)

        Delaware                       7373                       11-2895590
        --------                       ----                       ----------
     (State or other            (Primary Standard               (IRS Employer
jurisdiction of incorporation      Industrial                   Identification
    or organization)         Classification Code Number)            Number)

            80 Orville Drive, Bohemia, New York 11716 (631) 873-2900
   (Address, including zip code and telephone number, including area code, of
                          principal executive offices)

                               James A. Cannavino
                                80 Orville Drive
                     Bohemia, New York 11716 (631) 873-2900
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

                                   Copies to:
                            David H. Lieberman, Esq.
                       Beckman, Lieberman & Barandes, LLP
                        100 Jericho Quadrangle, Suite 329
                             Jericho, New York 11753
                                 (516) 433-1200
                            (516) 433-5858 Facsimile


     Approximate  Date of Proposed  Sale to the Public:  As soon as  practicable
     after this Registration Statement becomes effective.


     If the  securities  being  registered  on this Form are to be  offered on a
     delayed or continuous  basis  pursuant to Rule 415 under the Securities Act
     of 1933, check the following box [X].


     If this form is filed to  register  additional  securities  for an offering
     pursuant  to Rule  462(b)  under  the  Securities  Act,  please  check  the
     following box and list the Securities Act registration  statement number of
     the earlier effective registration statement for the same offering [ ].


     If this form is a  post-effective  amendment  filed pursuant to Rule 462(c)
     under the  Securities  Act, check the following box and list the Securities
     Act  registration  statement number of the earlier  effective  registration
     statement for the same offering [ ].


     If this form is a  post-effective  amendment  filed pursuant to Rule 462(d)
     under the  Securities  Act, check the following box and list the Securities
     Act  registration  statement number of the earlier  effective  registration
     statement for the same offering [ ].

     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 definition of "accelerated filer and large accelerated filer"
     in Rule 12b-2 of the Exchange Act. (Check one):

     [ ] Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer
                         [ ] Smaller Reporting Company
<PAGE>
<TABLE>
<CAPTION>
                                                       CALCULATION OF REGISTRATION FEE
======================================= ================= ===================== ======================== ======================
                                                            Proposed Maximum       Proposed Maximum
        Title of Each Class of            Amount to be     Offering Price Per     Aggregate Offering           Amount of
   Securities to be Registered (1)       Registered(1)        Security(2)              Price (2)           Registration Fee
--------------------------------------- ----------------- --------------------- ------------------------ ----------------------

--------------------------------------- ----------------- --------------------- ------------------------ ----------------------
<S>                                        <C>                     <C>                 <C>                      <C>
Common Stock, $0.0001 par value,           1,200,000               $1.30               $1,560,000.00            $61.31

--------------------------------------- ----------------- --------------------- ------------------------ ----------------------
Common Stock, $0.0001 par value,
issuable upon exercise of Common
Stock Purchase Warrants dated July           250,000               $1.30                 $225,000.00            $12.77
12, 2005  (3)
--------------------------------------- ----------------- --------------------- ------------------------ ----------------------
Total                                      1,450,000                                   $1,885,000.00           $74.08
======================================= ================= ===================== ======================== ======================
<FN>
</FN>
(1)  Relates to the resale of these  shares of common  stock by certain  selling
     securityholders.

(2)  Estimated  solely for purposes of calculating the registration fee pursuant
     to  Rule  457(c)  under  the  Securities  Act  of  1933,  as  amended  (the
     "Securities  Act").  Pursuant to Rule 457(c) under the Securities  Act, the
     proposed maximum  offering price of each share of the  Registrant's  common
     stock is  estimated  to be the average of the high and low sales price of a
     share  as  of  a  date  five  business  days  before  the  filing  of  this
     registration statement.  Accordingly, the Registrant has used $1.30 as such
     price per share,  which is the average of the high and low  reported by the
     OTC Bulletin Board on September 25, 2008.

(3)  Pursuant to Rule 416 under the Securities Act, this registration  statement
     also relates to such indeterminate  number of shares of common stock as may
     become issuable by reason of stock splits,  stock dividends,  anti-dilution
     adjustments  and similar  transactions in accordance with the provisions of
     the common stock purchase warrants.
</TABLE>
We hereby  amend  this  Registration  Statement  on such date or dates as may be
necessary to delay its  effective  date until we have filed a further  amendment
which  specifically  states that this  Registration  Statement shall  thereafter
become  effective in accordance with Section 8(a) of the Securities Act of 1933,
as amended, or until this Registration  Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
Pursuant  to  Rule  429  promulgated  under  the  Securities  Act of  1933,  the
prospectus  forming  a part of this  Registration  Statement  on Form  S-1  also
relates to the Registrant's  Registration  Statement on Form SB-2  (Registration
No. 333-128039) effective October 24, 2006.

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

================================================================================
                                EXPLANATORY NOTE

     This Registration Statement contains two forms of prospectus: (a) one to be
used  in  connection  with  an  offering  of  up  to  1,450,000  shares  of  the
Registrant's  common stock,  par value $0.0001 per share  ("Common  Stock"),  of
which 1,200,000  shares are outstanding and 250,000 shares are issuable upon the
e exercise  of  outstanding  warrants  for resale by the holders  thereof  named
herein (the "Resale  Prospectus")  and (b) one to be used in connection  with an
offering of up to 350,000 shares of the  Registrant's  Common Sock issuable upon
exercise of outstanding warrants, which have previously been registered pursuant
to the  Registrant's  Registration  Statement  on Form  SB-2  (Registration  No.
333-128039) (the "Update Prospectus").

     The complete Resale  Prospectus  relating to the shares held by the Selling
Securityholders follows immediately. Following the Resale Prospectus are certain
pages of the Update  Prospectus,  which  include:  (i) an alternate  front cover
page,  (ii) an alternate  section  entitled  "Summary--The  Offering,"  (iii) an
alternate section entitled "Use of Proceeds," (iv) an alternate section entitled
"Selling  Securityholders",  and (v) an  alternate  section  entitled  "Plan  of
Distribution."

     All other pages of the Resale  Prospectus and the Update Prospectus are the
same.

Pursuant  to  Rule  429  promulgated  under  the  Securities  Act of  1933,  the
prospectus  forming  a part of this  Registration  Statement  on Form  S-1  also
relates to the Registrant's  Registration  Statement on Form SB-2  (Registration
No. 333-128039), effective on October 24, 2006.
<PAGE>
The  information in this  prospectus is not complete and may be changed.  We may
not sell  these  securities  until the  registration  statement  filed  with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell or a solicitation of an offer to buy these securities in any state where
the offer is not permitted.

                 SUBJECT TO COMPLETION, DATED October 2, 2008
                             Preliminary Prospectus
                                1,450,000 Shares

                               DIRECT INSITE CORP.
                                  Common Stock

     This  prospectus  relates  to the resale  shares of common  stock of Direct
Insite  Corp.  by  certain  of  our  securityholders,  referred  to  as  selling
securityholders  throughout  this  document.  The  selling  securityholders  are
offering to sell up to 1,450,000 shares of our common stock. We will not receive
any  proceeds  from the resale of shares by the selling  securityholders,  which
include:

     o    up to 1,200,000 outstanding shares; and

     o    up to 250,000  shares  issuable  upon the exercise of our common stock
          purchase warrants dated July 12, 2005.

     All of the shares being offered by this prospectus are being offered by the
selling  securityholders  named in this  prospectus.  This offering is not being
underwritten.  We will  not  receive  any of the  proceeds  from the sale of the
shares of our common stock in this  offering.  If the July 12, 2005 warrants are
exercised so that the underlying shares may be sold, we will receive the initial
exercise  price of the  warrants,  which is $1.00  per  share.  There  can be no
assurance,  however,  that all or any of the  warrants  will be  exercised.  The
selling  securityholders  identified  in this  prospectus,  or  their  pledgees,
donees, transferees or other successors-in-interest,  may offer the common stock
or interests therein from time to time through public or private transactions at
prevailing  market prices,  at prices related to prevailing market prices, or at
privately  negotiated  prices.  We will pay all  expenses  of  registering  this
offering of securities.

     The common  stock is traded in the  over-the-counter  market and prices are
quoted on the  over-the-counter  Bulletin  Board under the symbol  "DIRI.OB." On
September  25, 2008 the closing  price per share of our common  stock was $1.30.
Except under certain  circumstances,  the selling  securityholders will sell the
shares  from  time  to  time  through   independent   brokerage   firms  in  the
over-the-counter market at prices prevailing at the time of sale.

INVESTING IN OUR COMMON STOCK INVOLVES  RISK.  SEE "RISK  FACTORS"  BEGINNING ON
PAGE 4.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR  DISAPPROVED  OF THESE  SECURITIES  OR PASSED  UPON THE  ACCURACY OR
ADEQUACY  OF THE  PROSPECTUS.  ANY  REPRESENTATIONS  MADE TO THE  CONTRARY  IS A
CRIMINAL OFFENSE.

                The date of this Prospectus is ___________ ,2008.
<PAGE>

                                Table of Contents
<TABLE>
<S>                                                                                     <C>
SUMMARY                                                                                  3
RISK FACTORS                                                                             4
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS                                        7
USE OF PROCEEDS                                                                          7
SELLING SECURITYHOLDERS                                                                  8
PLAN OF DISTRIBUTION                                                                     9
LEGAL PROCEEDINGS                                                                       12
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS                            12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                          14
DESCRIPTION OF SECURITIES                                                               15
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES     18
DESCRIPTION OF BUSINESS                                                                 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                               25
DESCRIPTION OF PROPERTY                                                                 35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                          33
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                36
EXECUTIVE COMPENSATION                                                                  37
EXPERTS                                                                                 44
LEGAL MATTERS                                                                           44
WHERE YOU CAN FIND MORE INFORMATION                                                     44
</TABLE>











You should rely only on the information  contained in this  prospectus.  We have
not  authorized  anyone to provide you with  different  information.  We are not
making  an  offer  of these  securities  in any  state  where  the  offer is not
permitted.  You  should  not  assume  that  the  information  contained  in this
prospectus  is  accurate as of any date other than the date on the front of this
prospectus.

                                       2
<PAGE>

                                     SUMMARY

     This summary highlights  information contained elsewhere in the prospectus.
You  should  read the  entire  prospectus  carefully;  especially  the  risks of
investing in the  securities  discussed  under "Risk  Factors" and the financial
statements  and related  notes  included  elsewhere  in this  prospectus  before
deciding to invest in our common stock.

Our Company

     Direct Insite Corp. was organized as a public company under the name Unique
Ventures,  Inc.  under the laws of the State of Delaware on August 27, 1987.  In
August, 2000, we changed our name to Direct Insite Corp. Our principal executive
offices are located at 80 Orville Drive, Bohemia, New York. Our telephone number
is (631)  873-2900.  Unless the context  requires  otherwise,  all references to
"we," "our," "us,"  "company,"  "registrant,"  "Direct  Insite" or  "management"
refers to Direct Insite Corp. and its subsidiaries.

Our Current Business

     We operate 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.  Our 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.

     Through extensive automation for presenting, receiving, approving or paying
invoices, Direct Insite is helping its customers reduce costs, resolve disputes,
enhance cash flow efficiency, and improve customer satisfaction.

     We are currently delivering invoicing services across the Americas, Europe,
and Asia, including 62 countries, 15 languages and all major currencies.  Direct
Insite processes,  distributes and hosts millions of invoices,  purchase orders,
and  supporting  attachment  documents.   Suppliers,   customers,  and  internal
departments,  such as Finance  and  Accounting  or  Customer  Service can easily
access these critical business  documents whenever they need them through Direct
Insite's self-service portal.

     Currently, IBM, our largest customer,  representing approximately 47.1% and
47.3% of  revenue  for the three  and six month  periods  ended  June 30,  2008,
respectively  and  48.4% and  49.2% of our  revenue  for the three and six month
periods  ended June 30,  2007,  respectively,  utilizes our suite of services to
allow their  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 24 hours a day, 7 days a week,  365 days a year.  IBM accounted for
51% and 69% of our  revenue  for the years  ended  December  31,  2007 and 2006,
respectively.  Our  second  largest  customer,  Electronic  Data  Systems  Corp.
("EDS"),  accounted for  approximately  44.4% and 47.0% of revenue for the three
and six month periods ended June 30, 2008,  respectively  and 48.3% and 47.2% of
revenue for the three and six month periods  ended June 30, 2007,  respectively.
EDS accounted  for 46% and 29% of revenue for the years ended  December 31, 2007
and 2006, respectively.

                                       3
<PAGE>
The Offering

     The selling  securityholders  may offer and sell up to 1,450,000  shares of
common  stock,  an amount equal to 15.5 % of our  currently  outstanding  common
stock. For a list of selling  securityholders and the amount of shares that each
of them expects to sell, see "Selling Securityholders."

     The offering is made by the selling  securityholders  for their benefit. We
will not receive any of the proceeds of their sale of common stock.

                                  RISK FACTORS

     You  should  carefully  consider  the  factors  described  below  and other
information contained in this prospectus.  The risks and uncertainties described
below are not the only ones we face.  Additional  risks  and  uncertainties  not
presently  known to us, which we currently deem  immaterial or which are similar
to those faced by other  companies in our  industry or business in general,  may
also impair our business  operations.  If any of the  following  risks  actually
occurs,  our business,  financial  condition or results of  operations  could be
materially and adversely affected. In such case, the trading price of our common
stock  could  decline,  and you may  lose all or part of your  investment.  This
prospectus  also  contains  forward-looking  statements  that involve  risks and
uncertainties.   Please  refer  to  "Special  Note   Regarding   Forward-Looking
Statements" included elsewhere in this prospectus.

The large number of shares  available for future sale may  adversely  effect the
market price of our stock.

     We have  9,352,616  shares of common stock  outstanding as of September 26,
2008, of which approximately  4,993,000 shares are freely tradable. We also have
4,350,238 shares issuable upon exercise of options and exercise of warrants.  If
all of our  outstanding  options  and  warrants  were  exercised , we would have
13,702,854  shares  outstanding.  The  issuance of such a large number of shares
could have a significant  adverse effect on the market for, as well as the price
of, our common  stock.  A decline in the market price also may make the terms of
future  financings  using  our  common  stock or  using  convertible  debt  more
burdensome.

Our planned growth may cause a strain on our management and other resources.

     We are  pursuing a business  strategy  that has involved and is expected to
continue to involve  significant growth over at least the next twelve months. We
cannot   guarantee  that  we  will  be  able  to  achieve  our  planned  growth.
Accomplishing our objectives will depend upon a number of factors, including our
ability to develop new customer  relationships.  We may also incur  development,
acquisition  or  expansion  costs that  represent a higher  percentage  of total
revenues than larger or more established  companies,  which may adversely affect
our results of operations.

We may not be able to compete favorably in the competitive information solutions
industry.

     The market for our information solutions is intensely competitive.  We face
competition  from a broad  range  of  competitors,  many of  whom  have  greater
financial,  technical  and  marketing  resources  than  we do.  There  can be no
assurance that we will be able to compete effectively with such entities.

                                       4
<PAGE>
Our operations are dependent upon key management personnel.

     We believe that our continued success depends to a significant  extent upon
the efforts and abilities of our senior management.  In particular,  the loss of
James Cannavino,  our Chairman and Chief Executive Officer,  or any of our other
executive  officers or senior managers,  could have a material adverse effect on
our business.

Two customers account for a significant percentage of our revenue.

     We have two customers that accounted for  approximately  97% and 98% of our
revenue for the years ended December 31, 2007 and 2006,  respectively and 94% of
revenue  for the six  months  ended June 30,  2008.  The loss of either of these
customers  would  have a  material  adverse  effect on our  business,  financial
condition and results of operations.

Our success depends upon protecting our intellectual property.

     The  computer  software  industry  is  characterized  by  extensive  use of
intellectual  property protected by copyright,  patent and trademark laws. While
we believe that we do not infringe on the  intellectual  property  rights of any
third parties in conducting our business,  any allegations of  infringement,  or
disputes or litigations relating to infringement,  could have a material adverse
affect on our business,  financial  condition and results of  operations.  If we
cannot prevent third parties from using our proprietary  technology  without our
consent or without  compensating  us for the use of the  technology,  we believe
that it could adversely effect our ability to compete.  We cannot guarantee that
our  patents  and  copyrights  will  effectively  protect us from any copying or
emulation of our products in the future.

Our  common  stock is  quoted  on the OTC  Bulletin  Board,  which may limit the
liquidity and price of those  securities more than if our securities were quoted
or listed on the NASDAQ Stock Market or a national exchange.

     Our common stock is currently  quoted and traded on the OTC Bulletin  Board
("OTCBB"),  an  NASD-sponsored  and operated  inter-dealer  automated  quotation
system for equity  securities  not  included  in the  NASDAQ  Stock  Market or a
national  exchange.  Quotation of our  securities on the OTC Bulletin  Board may
limit the liquidity and price of our securities more than if our securities were
quoted  or listed on the  NASDAQ  Stock  Market  or a  national  exchange.  Some
investors  may perceive our  securities to be less  attractive  because they are
traded in the  over-the-counter  market.  Institutional  and other investors may
have  investment  guidelines  that restrict or prohibit  investing in securities
traded in the over-the-counter market. The factors may have an adverse impact on
the trading and price of our securities.

     Trading in our common stock has been limited,  so investors may not be able
to sell as many of their shares as they want at prevailing prices.

     The average daily volume of trading in our common stock for the three month
period ended August 31, 2008 was 2,073 shares.  If limited trading in our common
stock continues, it may be difficult for investors who purchase shares of common
stock to sell such shares in the public  market at any given time at  prevailing
prices.  Also,  the sale of a large block of our common stock could  depress the
market  price of our  common  stock to a  greater  degree  than a  company  that
typically has a higher volume of trading of its securities.

     We cannot  predict  whether  an active  market  for our  common  stock will
develop in the future. In the absence of an active trading market:

                                       5
<PAGE>

     o    Investors may have difficulty  buying and selling or obtaining  market
          quotations;

     o    Market visibility for our common stock may be limited; and

     o    Lack of visibility  for our common stock may have a depressive  effect
          on the market price for our common stock.

Our common stock is subject to the SEC's penny stock rules,  broker-dealers  may
experience  difficulty in completing customer  transactions and trading activity
in our securities may be severely limited.

     Currently,  we have net tangible assets less than $5,000,000 and our common
stock has a market price per share of less than $5.00.  Therefore,  transactions
in our common stock are subject to the "penny stock" rules promulgated under the
Securities Exchange Act of 1934. Under these rules, broker-dealers who recommend
such securities to persons other than institutional investors:

          o    Must make a special  written  suitability  determination  for the
               purchaser;

          o    Receive the purchaser's  written agreement to a transaction prior
               to sale;

          o    Provide  the  purchaser  with  risk  disclosure  documents  which
               identify  risks  associated  with investing in "penny stocks" and
               which  describe the market for these "penny  stocks" as well as a
               purchaser's legal remedies; and

          o    Obtain a  signed  and  dated  acknowledgment  from the  purchaser
               demonstrating  that  the  purchaser  has  actually  received  the
               required  risk  disclosure  document  before a  transaction  in a
               "penny stock" can be completed.

     As a result of these requirements,  broker-dealers may find it difficult to
effectuate  customer  transactions  and  trading  activity  in our stock will be
significantly  limited.  Accordingly,  the  market  price of our stock and other
publicly  traded  securities  may be depressed,  and it may be more difficult to
sell our shares.

Our stock price may be volatile.

     The  stock  market in  general  and the  market  for  shares of  technology
companies in particular,  have  experienced  extreme price  fluctuations,  often
unrelated  to  the  operating  performance  of  the  affected  companies.   Many
technology companies,  including us, have experienced dramatic volatility in the
market prices of their common stock. If our future  operating  results are below
the  expectations  of stock market  analysts and investors,  our stock price may
decline.  We cannot be certain  that the market  price of our common  stock will
remain stable in the future.  Our stock price may undergo  fluctuations that are
material, adverse and unrelated to our performance.

                                       6
<PAGE>
Our charter  provisions and statutory law may inhibit  changes in control of our
company.

     Our certificate of  incorporation  and bylaws contain  provisions which may
discourage takeover attempts and hinder a merger,  tender offer or proxy contest
targeting us, including  transactions in which  securityholders  might receive a
premium  for their  shares.  This may limit  your  ability as a  stockholder  to
approve  a  transaction  that you may  think is in your  best  interests.  These
provisions could reduce the price that certain investors might be willing to pay
in the future for shares of common stock or preferred stock. Moreover,  although
our ability to issue preferred stock may provide  flexibility in connection with
possible  acquisitions and other corporate  purposes,  such issuance may make it
more  difficult  for a third party to acquire,  or may  discourage a third party
from  acquiring,  a majority  of our voting  stock.  Furthermore,  we may in the
future  adopt  other  measures  that may  delay,  defer or  prevent  a change in
control.  We may adopt some of these measures without any further vote or action
by securityholders.

                SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS


     All statements  other than  statements of historical  fact included in this
prospectus  including,  without  limitation,   statements  under,  "Management's
Discussion and Analysis or Plan of Operation"  regarding our financial position,
business and the plans and objectives of management for future  operations,  are
forward-looking  statements.  When  used  in  this  prospectus,  words  such  as
"anticipate," "believe," "estimate," "expect," "intend" and similar expressions,
as such  words  or  expressions  relate  to us or we,  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 us. Actual results could differ  materially  from those  contemplated  by the
forward-looking  statements  as a result of certain  factors  including  but not
limited to, the failure to obtain sufficient additional capital, fluctuations in
projected  operating  results,  market  acceptance,   technological  changes  or
difficulties, management of future growth, dependence on proprietary technology,
competitive factors, the ability to recruit and retain personnel, the dependence
on key  personnel  and such other factors as described in our reports filed from
time to time with the SEC.  Such  statements  reflect  our  current  views  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.

                                 USE OF PROCEEDS

     This  prospectus  relates to shares of our common stock that may be offered
and sold from time to time by the selling  securityholders.  We will not receive
any of the proceeds from the sale of shares of common stock in this offering. If
the selling securityholder  exercises its warrants, we will receive the exercise
price of the warrants, which is currently $1.00 per share for the warrants dated
July 12, 2005  (500,000  warrants).  We intend to use the net proceeds  from the
exercise of the warrants for our general working capital needs.  There can be no
assurance that all, or any, of the warrants will be exercised.

                                       7
<PAGE>
                             SELLING SECURITYHOLDERS

     In  September  2002,  we sold  93,458  shares of our  Series A  Convertible
Preferred  Stock,  ("Series A Preferred") in  consideration  for $2,000,000 less
fees and  expenses  of  $178,000  to  Metropolitan  Venture  Partners  II,  L.P.
("MetVP").  In December 2002, we sold 23,365 shares of our Series A Preferred in
consideration  for  $500,000  less fees and expenses of $61,000,  to MetVP.  The
proceeds  from this  transaction  were  received  January  3, 2003,  and,  as of
December  31,  2002,  the  principal  sum was  reflected  as stock  subscription
receivable.  In June  2003,  the  Company  sold  17,857  shares of its  Series A
Preferred  in  consideration  for  $250,000  less fees and expenses of $5,000 to
MetVP.  The  holders of Series A  Preferred  ("the  Holders")  are  entitled  to
dividends,  on a  cumulative  basis,  at the rate of 9.5% per annum,  compounded
quarterly and payable on February 1, 2005 and September 25, 2004. The payment of
the first dividend was originally  scheduled for September 25, 2004, however, we
and the  Holders  agreed to defer  this  payment  until  February  1,  2005.  As
consideration  for the  deferral of the dividend  payment,  we agreed to pay the
Holders a premium of 7.5% of the dividend.  Dividends are payable, at the option
of the Holders,  in cash or in the Company's  common stock.  Certain  issues had
arisen  concerning  the Company's  obligation to accumulate and pay dividends on
the Series A Preferred  beyond  September  25, 2005.  On November 21, 2007,  the
Company and MetVP entered into an agreement resolving certain disputes which had
arisen  with  respect to the payment of  dividends  and  interest to MetVP.  The
Agreement  provides  that, in addition to the  undisputed  sum of  approximately
$1,406,000,  the Company will be paying an additional $500,000 through September
25, 2008 in  consideration  of past,  present and future  dividend  and interest
payments  on the  Series  A  Preferred  through  that  date.  All  payments  are
conditioned upon there being funds legally available for such payments when due.
The agreement  further provided for the issuance to MetVP of 100,000  restricted
shares of the  Company's  common  stock.  Each  share of Series A  Preferred  is
convertible into ten shares of common stock, at the option of the Holder or upon
an Automatic  Conversion  Event.  The Holders have certain  demand and piggyback
registration  rights,  have  preference  in the  event of  liquidation,  and are
entitled to ten votes for each share of Series A Preferred  on all matters as to
which holders of common stock are entitled to vote. In accordance with the terms
of the Series A Preferred,  all  outstanding  shares of Series A Preferred  were
converted into 1,346,800  shares of the Company's  common stock on September 25,
2008.

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

     The following  table sets forth  information  concerning  the resale of the
shares of common stock by the selling  securityholders.  We will not receive any
proceeds from the resale of the common stock by the selling securityholders.  We
will receive  proceeds  from the exercise of warrants in the event that they are
exercised,  however  there can be no  assurance  that all or any of the warrants
will be exercised.  The table below assumes that all the shares registered below
are sold by the selling securityholders.

                                       8
<PAGE>
     The following  table sets forth the name of each person who is offering the
resale of shares of common  stock by this  prospectus,  the  number of shares of
common stock  beneficially  owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the  offering,  assuming  they sell all of the shares
being offered.  Unless otherwise  indicated,  each of the following  persons has
sole voting and investment  power with respect to the shares of common stock set
forth opposite their respective names. None of the selling securityholders is an
affiliate of a registered broker-dealer.
<TABLE>
<CAPTION>
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------

                                    Number of                                          Number of
                                     shares                                             shares
                                  beneficially                        Number of       beneficially
                                  owned before                      shares being      owned after
   Selling Securityholder         the offering       Percentage        offered       the offering       Percentage

------------------------------ ------------------- --------------- ----------------- ---------------- -----------------
<S>                               <C>                   <C>         <C>               <C>                    <C>
Metropolitan Venture              2,492,657(1)          24.2%       1,200,000         1,292,657              12.5 %
Partners II, L.P.
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------
Tall Oaks Group L.L.C.              847,406(2)           8.4%         250,000(3)        597,406(2)            6.1 %
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------
<FN>
</FN>
(1)  Includes  962,010  shares  issuable  upon exercise of options and warrants.
     Metropolitan  Venture  Partners  (Advisors) L.P holds voting and investment
     control over the shares held by Metropolitan  Venture Partners II, L.P. Mr.
     Michael  Levin is a Managing  Director  of  Metropolitan  Venture  Partners
     Corp.,  which is the  general  partner  of  Metropolitan  Venture  Partners
     (Advisors)  L.P.,  which,  in turn, is the general  partner of Metropolitan
     Venture Partners II, L.P. Mr. Levin is a member of our Board of Directors.

(2)  Includes 769,219 shares issuable upon exercise of options and warrants. Mr.
     Lawrence Hite holds voting and  investment  control over the shares held by
     Tall Oaks. Mr. Hite is the General  Manager of Tall Oaks.  Does not include
     an additional 309,000 shares directly owned by Mr. Hite,  including 150,000
     shares  issuable upon  exercise of options and warrants.  Mr. Hite and Tall
     Oaks  constitute a "group" for purposes of Section 13(d) of the  Securities
     Exchange Act of 1934.

(3)  Represents shares underlying warrants.
</TABLE>
                              PLAN OF DISTRIBUTION

     The selling securityholders, or their pledgees, donees, transferees, or any
of their  successors in interest  selling  shares  received from a named selling
securityholder   as  a  gift,   partnership  or  other   distribution  or  other
non-sale-related  transfer after the date of this prospectus (all of whom may be
selling securityholders), may sell some or all of the shares of our common stock
covered  by this  prospectus  from  time to  time on the  NASD  Over-the-Counter
Bulletin Board or any stock exchange or automated  interdealer  quotation system
or tracking  facility on which the shares are  listed,  in the  over-the-counter
market, in privately negotiated  transactions or otherwise, at fixed prices that
may be  changed,  at market  prices  prevailing  at the time of sale,  at prices
related to  prevailing  market  prices or at prices  otherwise  negotiated.  The
selling  securityholders  may sell the shares of our common stock covered by the
prospectus  by  one  or  more  of  the  following  methods,  including,  without
limitation:

                                       9
<PAGE>
     1.   ordinary   brokerage   transactions  and  transactions  in  which  the
          broker-dealer solicits purchasers;

     2.   block  trades in which the  broker-dealer  so engaged  will attempt to
          sell the shares as agent but may  position and resell a portion of the
          block as principal to facilitate the transaction;

     3.   purchases  by  a   broker-dealer   as  principal  and  resale  by  the
          broker-dealer for its account pursuant to this prospectus;

     4.   an  exchange   distribution  in  accordance  with  the  rules  of  the
          applicable stock exchange on which the shares are listed;

     5.   privately negotiated transactions;

     6.   short sales,  either directly or with a broker-dealer  or an affiliate
          thereof;

     7.   broker-dealers  may  agree  with a  selling  securityholder  to sell a
          specified number of shares at a stipulated price per share;

     8.   through  the  writing  or  settlement  of  options  or  other  hedging
          transactions  relating to the  shares,  whether or not the options are
          listed on an options exchange or otherwise;

     9.   through  loans or  pledges  of the  shares  to a  broker-dealer  or an
          affiliate thereof;

     10.  by entering into transactions with third parties who may (or may cause
          others to) issue securities  convertible or exchangeable  into, or the
          return of which is  derived in whole or in part from the value of, our
          common stock;

     11.  through the  distribution of shares of our common stock by any selling
          securityholder  to its  partners,  members,  stockholders,  investors,
          interest  holders  and/or  creditors  or  to  the  partners,  members,
          investors,  stockholders,  interest  holders  and/or  creditors of its
          affiliates;

     12.  one or  more  underwritten  offerings  on a firm  commitment  or  best
          efforts basis;

     13.  a combination of any such methods of sale; or

     14.  any other method permitted pursuant to applicable law.

     The selling  securityholders  may also sell shares under Rule 144 under the
Securities  Act of 1933,  as  amended,  if  available,  rather  than  under this
prospectus.

     We do not know of any arrangements by the selling  securityholders  for the
sale of any of the securities.

                                       10

<PAGE>
     Broker-dealers or underwriters  engaged by the selling  securityholders may
participate  in  effecting  sales  of our  shares,  and  any  broker-dealers  or
underwriters  may arrange for other  brokers-dealers  to participate in sales of
our shares.  These  broker-dealers or underwriters may act as principals,  or as
agents of a selling  securityholder.  Broker dealers may receive  commissions or
discounts from the selling  securityholders  (or, if any  broker-dealer  acts as
agent  for the  purchaser  of  shares,  from the  purchaser)  in  amounts  to be
negotiated,  but,  in the  case of an  agency  transaction  not in  excess  of a
customary  brokerage  commission in compliance  with NASDR Rule 2440; and in the
case of a principal  transaction a markup or markdown in  compliance  with NASDR
IM-2440.

     In connection with the sale of our common stock or interests  therein,  the
selling  securityholders may enter into hedging transactions with broker-dealers
or other financial institutions,  which may in turn engage in short sales of our
common stock in the course of hedging the  positions  they  assume.  The selling
securityholders   may  also  enter  into  option  or  other   transactions  with
broker-dealers  or other  financial  institutions or the creation of one or more
derivative  securities which require the delivery to such broker-dealer or other
financial  institution of shares offered by this  prospectus,  which shares such
broker-dealer  or  other  financial  institution  may  resell  pursuant  to this
prospectus.

     Any broker-dealers or agents engaged by a selling  securityholder  that are
involved in selling the shares covered hereby may be deemed to be "underwriters"
within the meaning of the Securities Act in connection  with such sales. In such
event, any commissions received by such broker-dealers or agents and any profits
on the resale of the shares  purchased by them may be deemed to be  underwriting
commissions or discounts under the Securities  Act. Each selling  securityholder
has  informed  us that  it does  not  have  any  written  or oral  agreement  or
understanding,  directly or indirectly, with any person who is to distribute our
common stock covered hereby.

     We are required to pay certain fees and expenses incurred by us incident to
the registration of certain shares covered by this prospectus. We have agreed to
indemnify certain of the selling  securityholders  and their affiliates  against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act. Certain of the selling  securityholders have agreed to indemnify
us in certain circumstances  against certain liabilities,  including liabilities
under the  Securities  Act. We and  certain  selling  securityholders  have also
agreed, if these  indemnification  procedures are unavailable,  to contribute to
certain liabilities incurred by the others,  including in respect of liabilities
under the Securities Act.

     The shares  offered  hereby  were  originally  issued to or acquired by the
selling   securityholders   pursuant  to  an  exemption  from  the  registration
requirements of the Securities Act.

     Under applicable  rules and regulations  under the Exchange Act, any person
engaged in the distribution of the resale shares may not  simultaneously  engage
in market making  activities with respect to our common stock for the applicable
restricted  period, as defined in Regulation M, prior to the commencement of the
distribution.  In  addition,  the  selling  securityholders  will be  subject to
applicable  provisions  of the  Exchange  Act  and  the  rules  and  regulations
thereunder,  including Regulation M, which may limit the timing of purchases and
sales of shares of our common stock by the selling  securityholders or any other
person.  We  will  make  copies  of this  prospectus  available  to the  selling
securityholders  and have  informed  them of the need to  deliver a copy of this
prospectus  to each  purchaser  at or prior to the  time of sale  (including  by

                                       11
<PAGE>
compliance with Rule 172 under the Securities Act).

     We will not receive any proceeds from the sale of securities by the selling
securityholders hereto.

     We cannot assure you that the selling  securityholders will sell all or any
portion of the shares of our common stock offered hereby.

                                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.

          DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

     As of September  26, 2008,  the names,  ages and positions of the directors
and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
       Name            Age                Position                        Committee Member
       ----            ---                --------                        ----------------
<S>                    <C>     <C>                                       <C>
James A Cannavino      64      Chairman of the Board of Directors
                               and Chief Executive Officer
Bernard Puckett        63      Member of the Board of Directors          Audit, Compensation
Dennis Murray          61      Member of the Board of Directors          Audit, Compensation
Michael Levin          35      Member of the Board of Directors
Arnold Leap            40      Executive Vice-President and Chief
                               Technology Officer
Matthew E. Oakes       45      Executive Vice-President and
                               Chief Operating Officer
Michael J. Beecher     63      Chief Financial Officer and Secretary
Christopher Cauley     39      Executive Vice-President Sales and
                               Marketing
</TABLE>
     James A.  Cannavino has been our Chairman of the Board and a director since
March 2000, and Chief  Executive  Officer since December 2002. From September of
1997 to April of 2000 he was the  non-executive  Chairman of  Softworks,  Inc (a
then wholly owned  subsidiary of the  Company),  which went public and was later
sold to EMC. Mr. Cannavino was also the Chief Executive  Officer and Chairman of
the Board of Directors of CyberSafe, Inc., a corporation specializing in network
security  from April 1998 to July 2001.  In August,  1995,  he was  appointed as
President and Chief Operating  Officer of Perot Systems  Corporation and in 1996
was elected to serve as Chief Executive  Officer  through July 1997.  During his
tenure at Perot he was responsible for all the day-to-day  global  operations of
the company,  as well as for strategy and organization.  Prior to that he served
as a Senior Vice President at IBM, responsible for strategy and development. Mr.
Cannavino held various positions at IBM for over thirty years beginning in 1963.
Mr. Cannavino led IBM's  restructuring of its $7 billion PC business to form the
IBM PC Company.  He also served on the IBM  Corporate  Executive  Committee  and
Worldwide  Management Council, and on the board of IBM's integrated services and
solutions company.  Mr. Cannavino presently serves on the Boards of the National
Center for Missing and Exploited Children,  the International Center for Missing
and  Exploited  Children,  and Verio.  He recently  was Chairman of the Board of
Marist  College in  Poughkeepsie,  New York and continues to serve on the board.
Mr. Cannavino will serve on the Board until his successor is elected.

     Bernard Puckett served as Chairman of the Board of Openwave Systems,  Inc.,
a leading provider of open IP-based  communication  infrastructure  software and
applications,  from 2002 until 2007.  Mr. Puckett was formerly the President and
Chief Executive Officer of Mobile Telecommunications  Technology Corp. ("Mtel").
Prior to joining Mtel,  Mr.  Puckett spent 26 years with IBM where he was Senior
Vice-president - Corporate  Strategy and Development.  He also held positions in
marketing,   finance,  product  development,   manufacturing  and  new  business
development  during his tenure at IBM. He also serves on the board of  directors
of IMS Health (NYSE:RX).  Mr. Puckett was appointed to our Board of Directors in
February 2004 and will serve in such capacity until his successor is elected.

                                       12
<PAGE>
     Dr. Dennis J. Murray has been President of Marist College since 1979. Early
in his tenure,  he identified the  importance of technology in higher  education
and made it one of the central  themes of his  administration.  He  developed an
innovative  joint  study  with the IBM  Corporation,  which  resulted  in Marist
becoming one of the nations most technologically advanced liberal arts colleges.
Marist was one of the first  colleges or  universities  in the country to have a
fully  networked  campus.  Dr.  Murray has been a strong  supporter of the Linux
operating system and recently  initiated a Linux Research and Development Center
at Marist. Dr. Murray serves on the boards of the Franklin and Eleanor Roosevelt
Institute, McCann Foundation, and the New York State Greenway Conservancy, which
oversees the Hudson River Valley  National  Heritage Area. He is also the author
of two books on nonprofit  management,  editor of three books on government  and
public  affairs,  and  co-author  of a guide to  corporate-sponsored  university
research  in  biotechnology.  Dr.  Murray  has  been a  member  of the  Board of
Directors  since March 2000, and will serve in such capacity until his successor
is elected.

     Michael Levin is Managing Director of Metropolitan  Venture Partners Corp.,
a venture capital firm he co-founded in 1999. In his role, Mr. Levin  negotiates
and manages  investments,  as well as oversees  the  financial  and  operational
management  of the firm.  He also  serves as an active  Board  member  and works
closely with portfolio  companies on strategic growth and ensuring proper fiscal
discipline.  Prior to  Metropolitan  Venture  Partners,  Mr. Levin developed and
managed  hedge  funds  for the Man  Group  plc and  Larry  Hite.  Mr.  Levin was
graduated  Magna  Cum  Laude  from  The  Wharton  School  at the  University  of
Pennsylvania with a concentration in Finance.  He is also an alumnus of Phillips
Exeter  Academy.   Mr.  Levin  was  appointed  to  our  Board  of  Directors  in
February 2005.

     Arnold Leap has been Executive Vice President and Chief Technology  Officer
since November 2000. From March 1998 until November 2000 he held the position of
Chief Information Officer. Mr. Leap originally was hired in February 1997 as the
Company's  Director of Development  and  Engineering and held the position until
March  1998.  Prior  to  his  joining  Direct  Insite,  Mr.  Leap  was  the  MIS
Manager/Director  of AMP Circuits,  Inc., and a subsidiary of AMP, Inc. from1993
to February 1997. His responsibilities at AMP Circuits, Inc. included day-to-day
information systems operation as well as the development and implementation of a
consolidated ERP and financial system.

     Matthew  Oakes was appointed  Chief  Operating  Officer and Executive  Vice
President  - Client  Services  on August  16,  2006.  Prior  thereto he held the
position of  Executive  Vice  President - Client  Services of the Company  since
November of 2002. Prior to his joining the Company, Mr. Oakes served three years
as the Operations  Officer for Direct Media Networks a New York based e-commerce
and technology company. He held executive positions in Westinghouse  Communities
Inc.  including  "Managing Director of Operations" for the Pelican Bay Community
in  Naples,  Florida.  Mr.  Oakes  received a JD degree  from Nova  Southeastern
University  and holds an MBA in finance.  He is a 1993 graduate with a Bachelors
Degree in Business  from Cornell  University.  He served with the United  States
Marines prior to attending Cornell.

                                       13
<PAGE>
     Michael J. Beecher,  CPA, joined the Company as Chief Financial  Officer in
December 2003.  Prior to joining  Direct Insite Mr. Beecher was Chief  Financial
Officer  and  Treasurer  of  FiberCore,  Inc.,  a publicly  held  company in the
fiber-optics  industry.  From 1989 to 1995 he was Vice-President  Administration
and Finance at the  University of  Bridgeport.  Mr.  Beecher began his career in
public accounting with Haskins & Sells, an international public accounting firm.
He is a graduate of the University of Connecticut, a Certified Public Accountant
and a member of the American Institute of Certified Public Accountants.

     Christopher  Cauley was  appointed  Executive  Vice  President of Sales and
Marketing in August 2006.  Mr.  Cauley joined the Company in August 2005 as Vice
President of Business  Development.  Prior to joining Direct Insite from 1998 to
2005 Mr. Cauley was Senior Manager for Sales & Business  Consulting for Avolent,
Inc.,  where he led a team of sales  consultants  responsible  for  selling  the
Company's  Business to Business ("B2B")  financial  relationship  management and
electronic invoice  presentment and payment internet  application suite.  During
his tenure with Avolent, Mr. Cauley managed sales consulting strategy and closed
several large contracts with Fortune 500 companies. Mr. Cauley previously worked
for American Management  Systems,  Inc. (AMS) as a Principle Project Manager and
Solutions  Analyst in AMS' Financial  Services and  Telecommunications  Industry
Groups.  At AMS, he acquired  in-depth  knowledge of system  integration and the
development  of financial and customer care billing  systems.  Mr. Cauley earned
his  Bachelor  of  Science  Degree  in  Business  Administration  from  Virginia
Polytechnic Institute and State University in Blacksburg, Virginia.

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth the beneficial ownership of shares of voting
stock of the Company,  as of September  15, 2008 of (i) each person known by the
Company  to  beneficially  own 5% or more of the  shares of  outstanding  common
stock, based solely on filings with the Securities and Exchange Commission, (ii)
each of the  Company's  executive  officers and  directors  and (iii) all of the
Company's  executive  officers  and  directors  as a group.  Except as otherwise
indicated,  all shares are  beneficially  owned, and the persons named as owners
hold investment and voting power.
<TABLE>
<CAPTION>
                                Common Stock           Rights to Acquire                        Total Beneficially
                                Beneficially    Beneficial Ownership Through Exercise             Owned as % of
Name of Beneficial Owner (1)      Owned          of Options and Warrants Within 60 Days        Outstanding Shares (2)
---------------------------------------------------------------------------------------------------------------------
<S>                             <C>                          <C>                                     <C>
Metropolitan Venture
     Partners II, L.P.          1,530,647                    962,010                                 24.2%
Tall Oaks Group, L.L.C.            78,187                    769,219                                  8.4%
Lawrence D. Hite (3)              159,000                    150,000                                  3.2%
James Cannavino                 1,713,267                    395,000                                 21.6%
Bernard Puckett                    83,122                     50,813                                  1.4%
Dennis Murray                     172,042                     39,600                                  2.3%
Michael Levin (4)                   2,000                       --                                     *
Matthew Oakes                     200,882                    230,000                                  4.5%
Arnold Leap                       172,681                    100,000                                  2.9%
Christopher Cauley                134,719                    175,000                                  3.3%
Michael Beecher                   127,472                    185,000                                  3.3%
All Officers and Directors
as a Group (8 persons)          2,606,685                  1,175,413                                 35.9%
<FN>
-------
* =  Less than 1%
                                       14
<PAGE>

Footnotes
---------

(1)  The address of the holder is 80 Orville Drive, Suite 200, Bohemia, New York
     11716, except for Metropolitan  Venture Partners II, L.P. which is 432 Park
     Avenue  South,  12th Floor,  New York,  NY 10016 and Tall Oaks and Lawrence
     Hite which is 119 West 72nd Street, Suite 181, New York, NY 10023.

(2)  Based upon  9,352,616  common shares  outstanding as of September 26, 2008,
     plus outstanding  options and warrants  exercisable within 60 days owned by
     above named parties.

(3)  Mr. Hite's  beneficial  ownership  includes  shares held by Tall Oaks, over
     which he holds voting and investment control.

(4)  Excludes  shares held by Metropolitan  Venture  Partners II, L.P. Mr. Levin
     serves as a  Managing  Director  of  Metropolitan  Venture  Partners  Corp.
     Metropolitan  Venture Partners Corp. is the General Partner of Metropolitan
     Venture   Partners   (Advisors)  LP,  which  is  the  General   Partner  of
     Metropolitan Venture Partners II, L.P.
</FN>
</TABLE>
                            DESCRIPTION OF SECURITIES

     Our  authorized  capital  consists  of  50,000,000  shares of common  stock
$0.0001 par value,  of which 9,352,616  shares were  outstanding as of September
26, 2008. In addition,  our  authorized  capital  includes  2,000,000  shares of
preferred  stock of which we are  authorized  to issue 1,000  shares of Series B
Redeemable  Preferred Stock, 2,000 shares of Series C Redeemable Preferred Stock
and 1,500 shares of Series D Redeemable  Preferred  Stock.  As of September  26,
2008,  there  were  974  shares  of our  Series  B  Redeemable  Preferred  Stock
outstanding,  2,000 shares of our Series C Redeemable Preferred  outstanding and
100 shares of our Series D Redeemable Preferred outstanding.

     Set forth below is a summary  description of certain provisions relating to
our capital stock  contained in and qualified in its entirety by our Certificate
of Incorporation and by-laws and under the General Corporation Law of Delaware.

Common Stock

     Holders of common  stock are  entitled to one vote for each share of common
stock  owned of record on all  matters  to be voted on by  securityholders.  Our
Certificate of Incorporation does not contain any special voting provisions, and
no corporate  action  requires a greater than majority vote of  securityholders.
Cumulative voting is not permitted in the election of directors.

     The holders of common stock are entitled to receive such dividends, if any,
as may be  declared  from  time  to  time  by the  Board  of  Directors,  in its
discretion, from funds legally available therefor.

     The common stock has no preemptive or other subscription  rights, and there
are no conversion  rights or redemption  provisions.  All outstanding  shares of
common stock are validly issued, fully paid, and non-assessable.

                                       15
<PAGE>
Series B Preferred

     The board of directors has  designated and authorized the issuance of 1,000
shares  of  Series  B  Redeemable  Preferred  Stock  of  which  974  shares  are
outstanding.

     Redemption

     The Series B Redeemable  Preferred shares are redeemable by us at any time.
The redemption price is $1,000 per share plus accrued and unpaid dividends.

     Voting Rights

     The holders of Series B Redeemable Preferred Stock have no voting rights.

     Dividends

     Holders of Series B Redeemable  Preferred  are entitled to dividends at the
rate of 12% per year, payable quarterly.

     Rank

                                       16
<PAGE>
     Series B  Redeemable  Preferred  shares shall rank senior to all classes of
capital stock.

Series C Preferred

     The board of directors has  designated and authorized the issuance of 2,000
shares  of  Series  C  Redeemable  Preferred  Stock of which  2,000  shares  are
outstanding.

     Redemption

     The Series C Redeemable  Preferred  shares are redeemable by us at anytime.
The redemption price is $1,000 per share plus accrued and unpaid dividends.

     Voting Rights

     The holders of Series C Redeemable Preferred have no voting rights.

     Dividends

     The holders of Series C Redeemable  Preferred  are entitled to dividends at
the rate of 9-1/2% per annum.

     Rank

     Holders of Series C Redeemable  Preferred are entitled to preference in the
payment of dividends and  distribution of assets upon liquidation to all classes
of capital stock except for the Series B Preferred.

Series D Redeemable Preferred

     The board of directors has  designated and authorized the issuance of 1,500
shares  of  Series D  Redeemable  Preferred  Stock,  of  which  100  shares  are
outstanding.

     Redemption

     The Series D Redeemable  Preferred shares are redeemable by us at any time.
The redemption price is $1,000 per share plus accrued and unpaid dividends.

     Voting Rights

     The holders of Series D Redeemable Preferred have no voting rights.

     Dividends

     The holders of Series D Redeemable  Preferred  are entitled to dividends at
the rate of 9-1/2% per year, payable quarterly commencing April 1, 2006.

     Rank

     The holders of Series D Redeemable Preferred have preference in the payment
of  dividends  and  distribution  of assets upon  liquidation  to all classes of
capital stock except for the Series A, B and C Preferred Stock.

                                       17
<PAGE>
       DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
                                ACT LIABILITIES

     Our  Certificate of  Incorporation  and By-Laws  provide our directors with
protection for breaches of their fiduciary duties to us and our securityholders.
Insofar as indemnification  for liabilities arising under the Securities Act may
be permitted to our directors,  officers or persons controlling us, we have been
advised that it is the SEC's opinion that such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.

                                       18

<PAGE>
                             DESCRIPTION OF BUSINESS

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.  In August,  2000,  we
changed our name to Direct Insite Corp.

Our Current Business

     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.

     Through extensive automation for presenting, receiving, approving or paying
invoices, Direct Insite is helping its customers reduce costs, resolve disputes,
enhance cash flow efficiency, and improve customer satisfaction.

     Direct  Insite  is  currently  delivering  invoicing  services  across  the
Americas,  Europe, and Asia, including 62 countries,  15 languages and all major
currencies. Direct Insite processes, distributes and hosts millions of invoices,
purchase orders, and supporting attachment documents.  Suppliers, customers, and
internal  departments,  such as Finance and  Accounting or Customer  Service can
easily access these critical business  documents whenever they need them through
Direct Insite's self-service portal.

     Currently, IBM, our largest customer,  representing approximately 47.1% and
47.3% of  revenue  for the three  and six month  periods  ended  June 30,  2008,
respectively  and  48.4% and  49.2% of our  revenue  for the three and six month
periods  ended June 30,  2007,  respectively,  utilizes our suite of services to
allow their  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 24 hours a day, 7 days a week,  365 days a year.  IBM accounted for
51% and 69% of our  revenue  for the years  ended  December  31,  2007 and 2006,
respectively.  Our  second  largest  customer,  Electronic  Data  Systems  Corp.
("EDS"),  accounted for approximately 44.4% and 47% of revenue for the three and
six month  periods  ended  June 30,  2008,  respectively  and 48.3% and 47.2% of
revenue for the three and six month periods  ended June 30, 2007,  respectively.
EDS accounted  for 46% and 29% of revenue for the years ended  December 31, 2007
and 2006, respectively.

Products and Services

     Direct Insite  specializes in the automation of financial supply chain best
practices within the Procure-to-Pay and Order-to-Cash  processes.  Direct Insite
provides  its  Software  as a Service  ("SaaS")  and offers  Custom  Engineering
support to implement and customize its solutions.

     The following are Direct Insite's primary service offerings:

     o    Procure-to Pay: eInvoice Management for Accounts Payable
     o    Order-to Cash:  eInvoice Management for Accounts Receivable

                                       19
<PAGE>
Procure-to Pay - Electronic Invoice Automation for Accounts Payable

Direct Insite's eInvoice Management for Accounts Payable dramatically  increases
accounts   payable   productivity  by  streamlining   manual  supplier   invoice
validation, inquiry and approval processes.

     Supplier Self Service Portal

     Direct  Insite's   Procure-to-Pay  service  offering  includes  a  supplier
self-service portal and electronic invoice  presentment  capability that is able
to materially  reduce call center traffic by resolving  inquiries  without human
intervention.  Direct  Insite's  online portal allows  suppliers to access their
invoice  status,  invoice line items,  attachments,  payment  status,  and other
relevant  billing  information on their own time, at any time and without having
to call or wait for support.

     Supplier Electronic Invoice Submission

     Suppliers  are able to  submit  their  invoices  via  electronic  formats &
adaptors,  including web form entry, supplier networks,  spreadsheet upload, and
Enterprise Resource Planning ("ERP") adaptors such as Oracle, SAP, Great Plains,
or legacy  billing  systems.  Suppliers can also perform a purchase order "flip"
function where customer orders can be used to automatically generate preliminary
bills for review and release for payment.

     Invoice Matching & Workflow Exception Handling

     Direct   Insite's    Procure-to-Pay   service   allows   Accounts   Payable
administrators the ability to configure robust invoice validation business rules
where inbound  supplier  invoices can be  automatically  matched against orders,
variable  consumption  reports,  or  other  business  documents.  Non  compliant
invoices and line items are flagged and routed for exception workflow handling.

     Invoice Approval & Payment

     Once  invoices  have been  validated  they can be  routed  to the  Accounts
Payable  financial  system for  disbursement  or paid  within the Direct  Insite
self-service portal. Direct Insite ensures that a company's ERP financial system
is always updated seamlessly.

     Direct  Insite's   Procure-to-Pay  service  is  focused  on  providing  the
following significant business benefits:

     o    Eliminate manual invoice validation processes
     o    Improve  on-time  payments  and the ability to capture  early  payment
          discounts
     o    Increase supplier electronic invoice submission
     o    Reduce Accounts Payable call center traffic
     o    Enhance supplier relationships and overall ease of business

Order-to-Cash - Electronic Invoice Automation for Accounts Receivable

     Direct  Insite's  eInvoice   Management  for  Accounts  Receivable  service
offering  generates  a dynamic  electronic  invoice  that  facilitates  customer
analysis,  dispute resolution,  approval and payment. The benefits include lower
invoicing costs, more timely payment and improved customer satisfaction.

                                       20
<PAGE>
     Invoice Compliance and Validation

     Direct  Insite's  Order-to Cash solution  allows for a preliminary  invoice
workflow  process that  automatically  validates  Accounts  Receivable  invoices
against source billing documents to ensure the invoice is compliant and accurate
before the invoice is  finalized  and  distributed  to the customer for payment.
During the preliminary invoice validation cycle,  invoice exceptions are flagged
and  automatically  processed  for  resolution.  Once  the  invoices  have  been
finalized, they can be released for payment.

     Invoice Attachment Processing

     Direct Insite enables  billers to distribute  electronic  attachments  with
their invoice to proactively provide the supporting documentation often required
by Accounts Payable  departments.  Invoice attachments are then presented online
within  an  easily  accessible   self-service   portal.   This  facilitates  the
reconciliation process for the customer and makes for more timely payments.

     Invoice Distribution & Self Service Portal Presentment

     Direct  Insite's  Order-to-Cash  service  also  supports  multiple  invoice
distribution  and  presentment  methods  depending  upon  customer  preferences,
including online,  PDF email,  self-service  downloads,  EDI, fax, or print. The
invoice  presentment  capability  displays  invoices  and  attachments  within a
self-service  web portal where  customers  can access their  invoice,  line item
detail, and supporting attachments at all times.

     Dispute Management

     Direct Insite further supports the ability for customers to initiate online
invoice or line item inquiries and disputes. Specifically,  customers can review
their invoices within the self-service  portal and initiate invoice or line item
invoice disputes  without having to reach call center support.  Once the dispute
request has been  initiated,  customers can approve the remainder of the invoice
and  schedule it for  payment.  Easing the  dispute  process  supports  customer
satisfaction and allows for partial invoice collection to improve cash flow.

     Invoice Approval & Payment

     Direct Insite  provides a workflow  tool,  with  configurable  rules,  that
customers can use to route an invoice through their corporate  approval process.
This  ensures  that  invoices  are not  stalled in the  company's  authorization
hierarchy.  Approved  invoices  can be routed to the ERP  financial  system  for
disbursement or paid within the Direct Insite self-service portal. Direct Insite
ensures the customer's ERP financial system is updated seamlessly.

     Reporting & Data Analysis

     This Order-to-Cash service can store multiple years of online invoice, line
item,  dispute status, and payment history to generate online reporting and data
analysis.  Customers  can use  the  self-reporting  capability  to  track  their
spending or produce  detailed  usage  reports.  Internal  Finance and Accounting
administrators  are able to perform online reporting to track scheduled payments
or forecast in-bound cash flow.

                                       21
<PAGE>
     Audit & Traceability

     Direct Insite's  Procure-to-Pay and Order-to-Cash service offerings support
a complete  audit log whereby all internal and external user actions are logged,
tracked and presented in views of user activity history. At any time, authorized
administrators can review online user activity and monitor user adoption.

     Direct Insite's  Order-to-Cash service offering is focused on providing the
following significant business benefits:

     o    Reduce paper invoicing costs
     o    Eliminate manual invoice reconciliation, preparation and consolidation
          processes
     o    Reduce Accounts Receivable call center traffic
     o    Reduce customer disputes and inquiries
     o    Reduce Days Sales Outstanding
     o    Improve overall cash flow
     o    Increase customer satisfaction and competitive advantage

Sales and Marketing

     Channels to Market

     Direct Insite has two primary channels to market - direct through our sales
representatives  and indirect  through  channel and  strategic  partners.  These
channels are supported by a technical sales support group.

     Direct

     The direct sales organization  consists of `in-the-field'  sales associates
complemented  by sales  support  resources.  The sales  associates  and  support
resources are primarily responsible for qualifying direct opportunities followed
by a proven solution  selling  methodology.  Sales  associates  engage in direct
sales   activities   that  include   business   value  analysis  and  alignment,
capabilities  demonstrations,   sales  forecasting,   procurement  and  contract
management.  Direct Insite's executive management team is actively involved with
and complements Direct Insite's direct sales organization.

     Indirect

     Direct  Insite  continues  to pursue both  reseller and  strategic  partner
relationships to further develop existing account  relationships and to increase
market coverage.  Direct Insite's strategic  partnerships  complement the direct
sales  channel and serve to expand Direct  Insite's  offerings and global market
leadership. Strategic partnerships also complement Direct Insite's offerings and
capability in the areas of payment transaction  processing,  content management,
centralized user authentication,  and other complementary financial supply chain
functions.  The use of indirect channel  relationships also allows Direct Insite
to leverage additional engineering and professional resources.

                                       22
<PAGE>
     Technical Sales Support and Post-Sales Account Management

     Direct Insite has a pre-sales  support staff and adds post sales support to
the existing account  management group as we secure new business.  This group is
responsible for technical sales presentations, developing proposals and pricing,
contract administration and account management post-sales support.

     IBM Reseller Agreement

     The Company executed a reseller  agreement with IBM on August 4, 2003. This
agreement  provides  IBM  with  the  ability  to  sell  the  Procure-to-Pay  and
Order-to-Cash  Electronic Invoice Automation service offerings to its customers.
The Company  supports this sales  activity by providing  Subject  Matter Experts
(SME's) to assist the IBM sales organization.

Research and Development

     The computer  software  industry is  characterized  by rapid  technological
change, which requires ongoing development and maintenance of software products.
It is customary for modifications to be made to a software product as experience
with its use  grows or  changes  in  manufacturers'  hardware  and  software  so
require.

     We believe that our research and  development  staff,  many with  extensive
experience in the industry,  represents a significant  competitive advantage. As
of  September  1, 2008,  our  research  and  development  group  consists  of 18
employees.   Further,  when  needed,  we  retain  the  services  of  independent
professional consultants. We seek to recruit highly qualified employees, and our
ability to attract  and retain  such  employees  is  expected  to be a principal
factor in our success in maintaining a leading technological  position.  For the
years ended December 31, 2007 and 2006,  research and development  expenses were
approximately $2,599,000, and $2,381,000, respectively. For the six months ended
June 30, 2008 and 2007,  research and  development  expenses were $1,350,000 and
$1,301,000,   respectively.   We  believe  that   investments  in  research  and
development are required in order to remain competitive.

Competition

     We believe our primary competitors are:

     Avolent is a privately  held San  Francisco  based  provider of  enterprise
eBilling software that includes EIP&P,  online invoice dispute  processing,  and
reporting.  Founded in 1995,  Avolent  has  primarily  focused  on the  leasing,
healthcare, and distribution markets.

     Bottomline Technologies (NASDAQ: EPAY) was established in 1989 and provides
a B2B EIP&P solution, primarily to financial institutions and the legal services
markets.  The  company's  products  include  software  designed to automate  the
disbursement  process for banks and their  corporate  customers'  anti-fraud and
electronic commerce payment software.  Bottomline focuses on cash management and
financial-related remittance, reporting and audit data.

     American Express - Harbor Payments,  Inc. Harbor Payments,  Inc. ("Harbor")
was  acquired by American  Express on December 31,  2006.  Harbor  operates as a
subsidiary of American  Express and its primary base of operations is located in
Atlanta, Georgia. The acquisition by American Express supports their strategy to
offer a suite of solutions  to enable  companies  to automate  their  `source to
settle' processes - by integrating steps in their electronic purchasing cycle.

                                       23
<PAGE>
     170 Systems is a privately held Bedford, Massachusetts provider of software
solutions that manage and optimize  financial  processes - from Accounts Payable
to General  Ledger.  Since 1990, 170 Systems has offered their  Financial  Suite
that includes imaging, workflow, self service, and e-Invoicing functionality.

     iPayables  is based in Lake  Forest,  California  and was  founded in 1999.
iPayables  provides Internet invoice delivery services focused on reducing paper
processing costs within Accounts Payable departments.

     JPMorgan  Xign, a subsidiary  of JPMorgan  Chase was founded in 2000 and is
headquartered  in Pleasanton,  California.  JPMorgan Xign's Business  Settlement
Network provides  electronic  order delivery,  invoice  processing,  and payment
service for business-to-business commerce. JPMorgan Xign's product suite focuses
on  automating a buyer's  Order-to-Pay  cycle,  including  receipt,  validation,
routing, dispute management, approval, payment, and posting.

     Ariba, Inc. (NASDAQ: ARBA) helps companies analyze,  understand, and manage
their corporate  spending to achieve increased cost savings and business process
efficiency.  Its solutions  include software,  network access,  and professional
services.  The  company's  software  and  services  streamline  and  enhance the
business  processes  related to the  identification  of  suppliers  of goods and
services,  the  negotiation  of the terms of  purchases,  and the  management of
ongoing purchasing and settlement activities.  Ariba is a public company founded
in 1996 and headquartered in Sunnyvale, California.

     Many  of  our  current  and   potential   competitors   have  greater  name
recognition,  larger installed customer bases, longer operating  histories,  and
substantially  greater financial,  technical and marketing resources than Direct
Insite. We cannot assume that current and potential competitors will not develop
products  that may be or may be perceived to be more  effective or responsive to
technological  change  than  are our  current  or  future  products  or that our
technologies  and products will not be rendered  obsolete by such  developments.
Increased competition could result in price reductions,  reduced margins or loss
of market  share,  any of which  could  have a  material  adverse  effect on our
business, operating results and financial condition.

Employees

     We had 40  employees,  all in the  United  States,  at  September  1, 2008,
including 27 in technical support,  (including  research and development),  8 in
marketing,   sales  and  support  services,  and  5  in  corporate  finance  and
administration.  Our  future  success  will  depend in part  upon our  continued
ability to attract and retain highly skilled and qualified personnel. We believe
that our  relations  with our  employees  are  good,  and we have no  collective
bargaining agreements with any labor unions.

Intellectual Property

     We rely on  proprietary  knowledge and employ  various  methods,  including
confidentiality  agreements,  to protect our software codes, concepts, ideas and
documentation  of our  proprietary  technology.  We have a federally  registered
patent "dbExpress", a data mining tool which expires in 2013.

                                       24
<PAGE>
     Despite these efforts,  unauthorized parties may attempt to copy aspects of
our  products,  obtain  and use  information  that we regard as  proprietary  or
misappropriate our copyrights,  trademarks,  trade dress and similar proprietary
rights.  In  addition,  the  laws  of  some  foreign  countries  do not  protect
proprietary  rights to as great an extent as do the laws of the  United  States.
Our means of protecting our proprietary rights may not be adequate. In addition,
our competitors might independently  develop similar technology or duplicate our
products or circumvent any patents or our other intellectual property rights.


         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

Overview

     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.

Seasonality/Quantity Fluctuations

     Revenue from ASP 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 product  introductions,
domestic   and   international    economic   conditions,    customer   budgetary
considerations, and the timing of product 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.

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
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


                                       25
<PAGE>
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:  it  requires  assumptions  to be made  that were
uncertain at the time the estimate was made; and 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 Issue No. 00-21, we allocate the total revenue to be earned among the
various  elements  based on their  relative  fair values.  We recognize  revenue
related to the delivered products or services only if:

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

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

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

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

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

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

     ASP Services

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

     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 lessor of the milestone  amount when the customer accepts such milestones or
the percentage of completion of the contract following the guidance of SOP 81-1,
"Accounting for  Performance of  Construction-Type  and Certain  Production Type
Contracts".

                                       26

<PAGE>
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 June 30, 2008 and 2007,
and  December  31, 2007 and 2006,  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 six months ended
June 30,  2008 and  2007,  and the  years  ended  December  31,  2007 and  2006,
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  June  30,  2008  Condensed
Consolidated Financial Statements).

                                       27
<PAGE>
     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
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.

For The Six Months Ended June 30, 2008

Results of Operations

     For the three and six month periods ended June 30, 2008,  IBM accounted for
47.1% and 47.3% of  revenue,  respectively,  compared to 48.4% and 49.2% for the
three and six month periods ended June 30, 2007, respectively. For the three and
six month  periods  ended June 30, 2008,  EDS  accounted  for 44.4% and 47.0% of
revenue,  respectively,  compared to 48.3% and 47.2% for the three and six month
periods ended June 30, 2007, respectively.

     For the three and six month  periods ended June 30, 2008 we had income from
operations  of  $390,000  and  $447,000,  respectively,  compared to income from
operations of $640,000 and  $1,102,000 for the three and six month periods ended
June 30, 2007,  respectively.  We had net income of $391,000 and  $3,303,000 for
the three and six months  ended June 30,  2008,  respectively,  compared  to net
income of $617,000  and  $1,018,000  for the three and six months ended June 30,
2007,  respectively.  During the six months ended June 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 as we
more likely than not expect to utilize in future years.

     For the three and six month periods  ended June 30, 2008 revenue  decreased
$234,000 (9.1%) to $2,346,000 and $533,000 (11.0%) to $4,301,000,  respectively,
compared to revenue of  $2,580,000  and  $4,834,000  for the three and six month
periods ended June 30, 2007, respectively. This decrease is primarily the result
of a decrease in engineering  services  revenue of $161,000 (23.5%) and $626,000
(49.1%)  for the three and six months  ended June 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 six months of 2008.  Revenue
from our recurring ASP IOL services decreased $72,000 for the three months ended
June 30,  2008 and  increased  $93,000  for the six months  ended June 30,  2008
compared  to the same  period  in 2007.  We  anticipate  that  revenue  from new
projects will increase  during the remainder of 2008 as we begin new initiatives
with existing customers and as we expand our customer base.

     Costs of operations,  research and development  increased by $20,000 (2.0%)
to  $1,007,000  for the three  months  ended June 30, 2008  compared to costs of
$987,000 for the three months ended June 30, 2007. For the six months ended June
30, 2008 these costs decreased $30,000 (1.6%) compared to costs of $1,862,000 in
the same period in 2007. These costs consist principally of salaries and related
expenses  for  software  developers,   programmers,  custom  engineers,  network
services,  and quality  control and assurance.  Also included are network costs,
costs of the production co-location facility and other expenses directly related
to our custom engineering and ASP production services. The increase in costs for
the  three  months  ended  June 30,  2008 is  principally  due to  increases  in
personnel  wages and benefit costs of $52,000 and an increase in rent of $24,000
offset by decreases in professional  fees of $45,000 and other costs of $31,000.
The  decrease  in costs  for the six  months  ended  June  30,  2008 is due to a

                                       28
<PAGE>
decrease in professional  fees of $87,000 offset by increases in rent of $61,000
and other costs of $26,000.

     Sales and  marketing  costs  decreased  $82,000  (28.2%)  to  $209,000  and
$210,000  (33.4%) to $419,000  for the three and six months ended June 30, 2008,
respectively,  compared to costs of $291,000  and $629,000 for the three and six
months ended June 30, 2007,  respectively.  Personnel and related  benefit costs
decreased $64,000 and $109,000 for the three and six months ended June 30, 2008,
respectively, as a result of staff reductions.  Professional and consulting fees
also  decreased  by $36,000 and $66,000 for the three and six months  ended June
30, 2008,  respectively.  Other sales and marketing costs increased  $18,000 for
the three  months ended June 30, 2008 and  decreased  $35,000 for the six months
ended June 30, 2008.

     General and  administrative  costs  increased  $96,000 (16.9%) and $389,000
(36.7%) to $664,000 and  $1,450,000  for the three and six months ended June 30,
2008,  respectively,  compared to costs of $568,000 and  $1,061,000 for the same
periods in 2007. The increase is principally  due to an increase in salaries and
related  benefit  costs  including  stock  compensation  costs of  $166,000  and
$355,000 for the three and six months ended June 30, 2008.  Legal fees decreased
$40,000  and  $49,000  for the  three  and  six  months  ended  June  30,  2008,
respectively.  All other  administrative  costs decreased  $30,000 for the three
months  ended June 30,  2008.  For the six months ended June 30, 2008 travel and
entertainment costs increased $40,000 while all other general and administrative
costs increased $43,000.

     During the three months  ended June 30, 2008 we had interest  income net of
$1,000 compared to interest  expense net of $31,000 for the same period in 2007.
For the six months ended June 30, 2008 interest expense net was $11,000 compared
to $65,000 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 six months ended June 30,
2008 was  $1,033,000  compared to cash provided by operations of $1,713,000  for
the six  months  ended  June 30,  2007.  This  consisted  of the net  income  of
$3,303,000,  increased by non-cash expenses of $485,000,  including depreciation
and  amortization  of  property  and  equipment  of  $152,000,  and  stock-based
compensation expense of $333,000, offset by the change in the deferred tax asset
of $2,867,000.  This was further offset by an increase in accounts receivable of
$17,000 and prepaid  expenses of $51,000 and a decrease in accounts  payable and
accrued expenses of $172,000. Deferred revenue increased by $216,000.

     Cash used in  investing  activities  was  $126,000 for the six months ended
June 30, 2008, compared to $78,000 for same period in 2007. This was principally
expenditures for equipment.

     Cash used in financing activities totaled $874,000 for the six months ended
June 30, 2008, compared to cash used in financing activities of $871,000 for the
six months ended June 30, 2007. We paid $802,000 in dividends on preferred stock
and repaid $72,000 of long-term debt and capital lease  obligations in the first
six months of 2008.

                                       29
<PAGE>
For The Year Ended December 31, 2007

Financial Condition and Liquidity

     For the year ended  December  31,  2007,  we had net  income of  $2,100,000
compared to net income of $269,000  for the year ended  December  31,  2006,  an
improvement  of  $1,831,000.  Cash provided from  operations  for the year ended
December 31, 2007 was  $3,255,000  compared to cash provided from  operations of
$1,149,000 for the year ended December 31, 2006. This  improvement is due to the
increase  in sales,  continued  control  of  operating  costs  and  lower  costs
financing costs as discussed below.

     Cash  provided  from  operations  for the year ended  December 31, 2007 was
$3,255,000,  consisting of the net income of  $2,100,000,  increased by non-cash
expenses of $941,000,  including  depreciation  and amortization on property and
equipment of $332,000,  and stock based compensation  expense of $609,000.  Cash
from  operations  was further  increased  by a decrease in accounts  receivable,
prepaid  expenses  and other  current and  non-current  assets of  $520,000,  an
increase in  accounts  payable and  accrued  expenses of  $135,000,  offset by a
decrease in deferred revenue of $441,000.

     Cash used in investing  activities was $202,000 for the year ended December
31,  2007,  compared  to $97,000 for the  previous  year.  This was  principally
expenditures for equipment in 2007 and 2006.

     Cash used in financing  activities  totaled  $1,164,000  for the year ended
December 31, 2007,  compared to cash used in financing  activities of $1,121,000
in 2006. We repaid Lines of Credit  totaling  $586,000 during 2007. In addition,
advances from credit lines for receivable  financing  decreased $481,000 for the
year ended  December  31,  2007 and we made  repayments  on  capital  leases and
capital notes of $125,000.  We received proceeds on exercise of stock options of
$28,000.

     As a result of these operating,  investing and financing  activities,  cash
increased by $1,889,000 to $2,184,000 at December 31, 2007.

     At  December  31,  2007 we had  accrued  dividends  due to  holders  of our
preferred stock of $3,336,000. In January 2008, we paid $773,000 of dividends to
the holders of the Series B Preferred  Stock.  Based on advice of legal counsel,
we believe that we may pay  dividends  only to the extent that we have a surplus
or current earnings pursuant to the Delaware General Corporation Law.

Results of Operations

     IBM  continues  to be our largest  customer  accounting  for 51% and 69% of
total revenue for the years ended December 31, 2007 and 2006,  respectively.  We
derive revenue from IBM from the sale of our  Invoices-on-Line  ("IOL")  managed
services  (ASP) as well as  custom  engineering  services.  We  entered  into an
agreement with IBM wherein for a per  transaction  fee, we enable IBM to present
invoices to their  customers via the Internet.  Our IOL service is an electronic
invoice  presentment and payment system ("EIP&P") offering and has been expanded
to include additional functionality. In addition EDS accounted for approximately
46% and  29% of  revenue  for the  years  ended  December  31,  2007  and  2006,
respectively.  We continue to actively pursue new sales  opportunities to reduce
sales concentration.

                                       30
<PAGE>
     For the year ended December 31, 2007 revenue increased  $1,222,000 or 13.7%
to $10,111,000  compared to revenue from continuing  operations of $8,889,000 in
2006.  The increase is primarily  due to an increase in IOL and other  recurring
services of $1,120,000, and an increase of $102,000 in engineering services. The
increase in revenue from ASP services  was the result of further  deploying  our
ASP services in Europe and the Asia Pacific  regions for IBM and  expanding  our
IOL  services  to  EDS.  The  increase  in  the  engineering  services  resulted
principally  from an  increase  of  services  to EDS  offset  by a  decrease  in
engineering  services to IBM. We expect that the addition of new  customers  and
new projects in 2007 will lead to an increase in our ASP and custom  engineering
revenue in 2008.

     Costs of operations,  research and development increased by $220,000 (6.3%)
to  $3,698,000  for the year ended  December  31, 2007  compared to the costs of
$3,478,000  in 2006.  These costs  consist  principally  of salaries and related
expenses  for  software  developers,   programmers,  custom  engineers,  network
services,  and quality  control and assurance.  Also included are network costs,
costs of the production co-location facility and other expenses directly related
to our custom engineering and ASP services. The increase in costs is principally
due to an  increase  in costs  for  outsourced  development  staff of  $445,000,
incurred for a major  deployment  project of our IOL services.  The Company will
continue to outsource  development  projects to supplement  our employed  staff.
This  increase  in  operating  costs was offset by a reduction  in salaries  and
related  costs of $244,000  due to the  reduction in employed  staff.  The staff
reductions are consistent  with our efforts to outsource  development  projects.
Rents  decreased  $30,000  primarily  due to reduced space  requirements  at our
co-location   facility.   All  other  operating   expenses  combined   increased
approximately $49,000 net.

     Sales and marketing  costs were  $1,110,000 for the year ended December 31,
2007, a decrease of $283,000 or 20.3%  compared to costs of  $1,393,000 in 2006.
Salaries and related costs decreased  $289,000 resulting from a staff reduction.
Consulting and professional fees decreased $48,000,  and rent decreased $41,000.
Travel and  entertainment  costs increased  $30,000,  and commissions  increased
$57,000. All other costs sales and marketing costs increased $8,000, net.

     General and  administrative  costs increased $174,000 or 6.7% to $2,755,000
for the year ended  December 31, 2007  compared to costs of  $2,581,000 in 2006.
Salaries and related  costs  increased  $619,000  principally  to an increase in
stock  based  compensation  for stock  grants  and salary  increases  to certain
executives.  This was offset by decreases  in  accounting  and legal  expense of
$168,000,  directors' fees of $135,000, rent of $66,000 and insurance expense of
$40,000.  All other  general  and  administrative  costs had a net  decrease  of
$36,000.

     Depreciation  and  amortization  expense  increased  by  $11,000  (3.4%) to
$332,000 for the year ended  December 31, 2007  compared to costs of $321,000 in
2006, primarily due to additions of computer equipment.

     Interest  expense,  net decreased by $513,000 to $97,000 for the year ended
December 31, 2007  compared to costs of $610,000 in 2006,  primarily  due to the
repayment  of Lines of credit of $586,000 in 2007 and the  repayment of notes of
$750,000  in  September  2006.  Additionally  the  Company  had a lower  rate of
borrowing under the short-term revolving loans used for working capital.

     We  recorded  a charge  for the  change in the fair  value of  warrants  of
$143,000 for the year ended  December 31, 2006, and there was no charge for this
in 2007 (see Note 3 to the Consolidated Financial Statements).

                                       31
<PAGE>
     Other income,  net for the year ended December 31, 2007 was $8,000 compared
to net expense of $94,000 in 2006. In 2006 other expense  included  $120,000 for
penalties incurred in connection with the registration  statement for the Bridge
Loan  financing,  and $33,000 for the termination and settlement of a consulting
agreement,  offset  by income  of  $59,000  from  liquidating  a mutual  company
insurance policy.

Net Operating Loss Carry Forwards

     At December 31, 2007,  the Company has net  operating  loss  carry-forwards
("NOLs")  remaining  of  approximately  $77  million,  which may be available to
reduce taxable income, if any. These NOLs expire through 2025. However, Internal
Revenue  Code Section 382 rules limit the  utilization  of NOLs upon a change in
control of a company.  During 2007,  we performed an  evaluation as to whether a
change in control had taken  place.  We believe that there has been no change in
control as such  applies to Section  382. If it is  determined  that a change in
control  has taken  place,  utilization  of its NOLs will be  subject  to severe
limitations  in future  periods,  which  would  have the  effect of  eliminating
substantially all of the future income tax benefits of the NOLs.

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 six months ended June 30, 2008 and the year ended December 31,
          2007  we had  net  cash  provided  by  operations  of  $1,033,000  and
          $3,255,000,  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 2008,  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 six months
          ended June 30, 2008, we paid dividends on the Series B Preferred Stock
          of $802,000 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 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 June 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

                                       32
<PAGE>
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.

New Accounting Pronouncements

     In June  2006,  the FASB  issued  Interpretation  No. 48,  "Accounting  for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
48").  This  Interpretation  prescribes a recognition  threshold and measurement
attribute for the  financial  statement  recognition  and  measurement  of a tax
position taken or expected to be taken in a tax return, and provides guidance on
derecognition,  classification,  interest and  penalties,  accounting in interim
periods, disclosure, and transition. This Interpretation is effective for fiscal
years  beginning  after December 15, 2006. The adoption of FIN 48 did not have a
material effect on the consolidated financial position, results of operations or
cash flows of the Company (see Note 9).

     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 our consolidated financial statements.

     In November  2006,  the EITF  reached a final  consensus in EITF Issue 06-6
"Debtor's  Accounting  for a  Modification  (or  Exchange) of  Convertible  Debt
Instruments"   ("EITF  06-6").   EITF  06-6  addresses  the  modification  of  a
convertible  debt  instrument  that  changes  the  fair  value  of  an  embedded
conversion  option and the subsequent  recognition  of interest  expense for the
associated  debt  instrument  when the  modification  does not  result in a debt
extinguishment  pursuant to EITF 96-19 , "Debtor's Accounting for a Modification
or  Exchange  of  Debt  Instruments,".   The  consensus  should  be  applied  to
modifications  or exchanges of debt  instruments  occurring in interim or annual
periods  beginning  after  November 29, 2006.  The adoption of EITF 06-6 did not
have a  material  impact on our  consolidated  financial  position,  results  of
operations or cash flows.

     In  November  2006,  the  FASB  ratified  EITF  Issue  No.  06-7,  Issuer's
Accounting for a Previously  Bifurcated  Conversion Option in a Convertible Debt
Instrument When the Conversion  Option No Longer Meets the Bifurcation  Criteria
in FASB Statement No. 133,  Accounting for  Derivative  Instruments  and Hedging
Activities ("EITF 06-7"). At the time of issuance, an embedded conversion option
in a convertible  debt instrument may be required to be bifurcated from the debt
instrument and accounted for separately by the issuer as a derivative  under FAS
133, based on the  application of EITF 00-19.  Subsequent to the issuance of the
convertible  debt, facts may change and cause the embedded  conversion option to
no  longer  meet  the  conditions  for  separate   accounting  as  a  derivative
instrument, such as when the bifurcated instrument meets the conditions of Issue
00-19 to be  classified  in  stockholders'  equity.  Under  EITF  06-7,  when an
embedded  conversion option  previously  accounted for as a derivative under FAS
133 no longer meets the  bifurcation  criteria  under that  standard,  an issuer

                                       33
<PAGE>
shall  disclose a  description  of the  principal  changes  causing the embedded
conversion option to no longer require  bifurcation under FAS 133 and the amount
of the liability for the conversion option reclassified to stockholders' equity.
EITF 06-7 should be applied to all previously  bifurcated  conversion options in
convertible debt instruments that no longer meet the bifurcation criteria in FAS
133 in interim or annual periods  beginning after December 15, 2006,  regardless
of whether the debt  instrument  was  entered  into prior or  subsequent  to the
effective  date of EITF 06-7.  Earlier  application of EITF 06-7 is permitted in
periods for which financial statements have not yet been issued. The adoption of
EITF 06-7 did not have a material impact on our consolidated financial position,
results of operations or cash flows.

     In December 2006, the FASB issued FASB Staff Position  ("FSP") EITF 00-19-2
"Accounting for Registration  Payment  Arrangements"  ("FSP EITF 00-19-2") which
specifies  that the contingent  obligation to make future  payments or otherwise
transfer  consideration  under a  registration  payment  arrangement  should  be
separately  recognized and measured in accordance  with SFAS No. 5,  "Accounting
for  Contingencies."  Adoption of FSP EITF 00-19-02 is required for fiscal years
beginning  after December 15, 2006. The effects of adopting FSP EITF 00-19-2 are
disclosed in Note 3 to the accompanying  December 31, 2007 and 2006 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 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

                                       34
<PAGE>
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 December  2007,  the Staff of the  Securities  and  Exchange  Commission
issued  Staff  Accounting  Bulletin No. 110 ("SAB 110")  regarding  the use of a
"simplified"  method,  as discussed in SAB 107, in developing an estimate of the
expected  term of "plain  vanilla"  share  options in  accordance  with FASB No.
123(R) "Share Based Payment'.  The Staff will continue to accept,  under certain
circumstances, the use of the simplified method beyond December 31, 2007.
<TABLE>
<CAPTION>
                             DESCRIPTION OF PROPERTY

         We currently maintain leased facilities in the locations listed below:

       Description                Location            Square Footage           Lease term          Annual Rental Cost
-------------------------- ------------------------ -------------------- ------------------------ ---------------------
<S>                        <C>                              <C>             <C>                         <C>
Corporate office           Bohemia, NY                      5,000            7/1/08 - 6/30/09           $94,500
Satellite office           Deerfield Beach , FL             1,721           11/1/05 - 10/31/08          $37,536
Co-location facility       Hauppauge, NY                                     4/1/06 - 11/30/08          $93,240
-------------------------- ------------------------ -------------------- ------------------------ ---------------------
</TABLE>
                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Shareholder

     Mr. Thomas Lund, who holds 4.3% of the Company's outstanding shares, is the
father-in-law of Mathew Oakes, the Company's EVP and Chief Operating Officer.

Related Party Transactions

     Metropolitan  Venture Partners Corp.  ("Metropolitan")  provided  financial
advisory  services to us.  Metropolitan  is the general  partner of Metropolitan
Venture Partners (Advisors) L.P., which in turn is the general partner of MetVP.
The Company  incurred  $10,000 during the year ended December 31, 2006 for these
services.  Additionally,  in 2006,  MetVP was granted  41,683  common shares for
$10,000 of interest on its investment in the Senior Subordinated  Secured Notes.
(See "Selling Securityholders")

     The Company has a  consulting  agreement  with DCL  Consulting  whereby DCL
provides quality assurance testing for the Company. In 2007 and 2006 the Company
incurred $27,000 and $26,000,  respectively for these services. The spouse of an
officer of the Company is owner and principal employee of DCL.

     The Company  received  advisory  services from Tall Oaks and Lawrence Hite.
Tall Oaks is an affiliate of  Metropolitan  and Lawrence  Hite is the  principal
owner of Tall Oaks. In 2007 and 2006 the Company  incurred  costs of $18,000 and
$9,000,  respectively  for such services.  In 2006, Tall Oaks was issued 144,000
shares in lieu of cash for his fees earned through June 30, 2006. The fair value
of the shares approximated the liability.

                                       35
<PAGE>
     During the year ended December 31, 2006, the Company terminated and settled
the consulting agreement with Mountain Meadow Farm and its associates, including
SJ Associates  (collectively  "Mountain Meadow").  As part of the settlement the
Company agreed to issue Mountain Meadow 90,638  restricted  common shares valued
at $34,000 and to pay for the costs of medical, life and certain other insurance
through  December  31,  2013  with the cost for  such  insurance  not to  exceed
$200,000 in the  aggregate  or $50,000 in any 12 month  period.  At December 31,
2007,  the  Company  has  recorded a  liability  of  $119,000  representing  the
estimated  present value of this  obligation.  Mountain Meadow and its principal
employee are shareholders of the Company.

     During the eight months  ended  August 31,  2008,  the Company paid accrued
dividends of $831,028 on the outstanding shares of its Series B Preferred Stock.
The Company's Chairman and Chief Executive Officer, as the holder of 266 shares,
received $224,577 in dividends. Tall Oaks, as the holder of 500 shares, received
$427,847 in dividends.

     In July 2008,  the  Company  paid  accrued  dividends  of  $705,204  on the
outstanding  shares of its Series C Preferred Stock. The Company's  Chairman and
Chief Executive Officer,  as holder of 200 shares received $74,730 in dividends,
Met VP, as holder of 290 shares received $104,930 in dividends,  Tall Oaks, as a
holder of 250 shares received $90,028 in dividends, Dennis Murray, a director of
the Company and a holder of 30 shares received $10,950 in dividends, and Bernard
Puckett,  a director of the Company and holder of 50 shares received  $18,320 in
dividends.

     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     (a) Market Information

     Our common stock has traded on the  Over-The-Counter  Bulletin  Board since
October 24, 2003.  The following  table sets forth the high and low sales prices
for our common stock by the quarters indicated:
<TABLE>
<CAPTION>
                                             High          Low
                                             ----          ---
2006
<S>                                          <C>          <C>
     First Quarter                           0.710        0.070
     Second Quarter                          0.680        0.200
     Third Quarter                           0.350        0.170
     Fourth Quarter                             --           --

2007
     First Quarter                           1.68         0.76
     Second Quarter                          3.00         0.76
     Third Quarter                           2.50         1.26
     Fourth Quarter                          2.36         1.78

2008
     First Quarter                           2.00         1.30
     Second Quarter                          1.80         1.30
     Third Quarter to September 25, 2008     1.50         1.15
</TABLE>

                                       36
<PAGE>
     (b) As of September 25, 2008, there were 2,550  shareholders of record.  We
estimate that there are approximately 6,500 shareholders, including shareholders
whose shares are held in the name of their brokers or stock depositories.

     (c) There were no cash dividends or other cash distributions made to common
shareholders  by us during the year ended  December 31, 2007 and through  August
31, 2008.  In 2008 through  August 31,  2008,  we paid  dividends of $831,028 to
holders of the Series B Preferred stock, and $705,204 to holders of the Series C
Preferred stock,  and we expect to pay further  dividends on preferred shares in
the remainder of 2008.  Further  dividend policy will be determined by our Board
of Directors based on our earnings,  financial  condition,  capital requirements
and other then existing  conditions.  It is anticipated that cash dividends will
not be paid to the holders of our common stock in the foreseeable future.

     (d) Equity Compensation Plan Information.  The following table shows Equity
Compensation Plan information as of December 31, 2007:
<TABLE>
<CAPTION>
Equity Compensation Plan Information
------------------------------- ---------------------------- ---------------------------- ----------------------------
                                                                                             Number of securities
                                                                                            remaining available for
                                                                                             future issuance under
                                Number of securities to be    Weighted-average exercise    equity compensation plans
                                  issued upon exercise of       price of outstanding         (excluding securities
                                    outstanding options                options              reflected in column (a)
        Plan category                       (a)                          (b)                          (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans
<S>                                      <C>                            <C>                         <C>
approved by security holders             1,187,500                      $0.83                       1,228,666
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not
approved by security holders             1,405,000                      $0.72                         684,526
------------------------------- ---------------------------- ---------------------------- ----------------------------
Total                                    2,592,500                      $0.77                       1,913,192
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
                             EXECUTIVE COMPENSATION

     The following table sets forth the annual and long-term  compensation  with
respect to the Chief Executive Officer and each of the other executive  officers
of the Company who received  more than  $100,000  for services  rendered for the
year ended December 31, 2007.
<TABLE>
<CAPTION>
                           Summary Compensation Table

------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Nonqualified
                                                                                  Non-Equity     Deferred
                                                                                  Incentive    Compensation  All Other
   Name and Principal                                 Stock Awards Option Awards    Plan        Earnings   Compensation   Total
        Position        Year  Salary ($)(1)   Bonus($)   ($)(3)      ($)(3)     Compensation($)    ($)       ($) (2)       ($)
------------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>     <C>           <C>       <C>         <C>             <C>           <C>      <C>           <C>
James A. Cannavino      2007    $215,000      $50,000   $382,500        --          --            --       $136,891      $784,391
 Chief                  2006    $180,000          --         --         --          --            --       $157,482      $337,482
 Executive
 Officer (PEO)
------------------------------------------------------------------------------------------------------------------------------------
Arnold Leap             2007    $183,000      $60,000        --     $7,938          --            --       $ 11,533      $262,471
 EVP - Chief            2006    $168,583          --         --     $3,333          --            --       $  9,190      $181,106
 Technology Officer
------------------------------------------------------------------------------------------------------------------------------------

                                       37
<PAGE>
Michael Beecher         2007    $147,833     $25,000    $ 4,625     $7,938          --            --       $ 13,369      $198,765
 Chief Financial        2006    $146,250        --          --      $3,333          --            --       $ 13,979      $163,562
 Officer
------------------------------------------------------------------------------------------------------------------------------------
Matthew Oakes           2007    $171,000     $65,000        --      $7,938          --            --       $  9,673      $253,611
 EVP -Chief  Operating  2006    $164,000        --          --      $3,333          --            --       $  9,353      $176,686
 Officer
------------------------------------------------------------------------------------------------------------------------------------
Christopher Cauley      2007    $182,250        --      $ 6,000    $18,527          --            --       $     73      $207,100
 EVP-Sales and 2006             $175,000        --      $ 9,000    $19,005          --            --             --      $203,005
 Marketing
------------------------------------------------------------------------------------------------------------------------------------
<FN>
Footnotes
---------

     (1)  In 2006 the executives  agreed to defer a portion of their salaries to
          be paid at a future date in common shares of the Company.  Included in
          2006  salaries  are the amounts  deferred as follows:  Mr.  Cannavino,
          $36,000; Mr. Leap, $10,833; Mr. Beecher,  $12,500; Mr. Oakes, $17,500;
          Mr. Cauley, $30,000.

     (2)  All  Other  Compensation  includes  the  following  for  each  of  the
          executives:

          In  2006,  Mr.  Cannavino  received  a  housing/office   allowance  of
          $120,000,  leased cars including insurance valued at $17,576,  parking
          costs  of  $7,339,   directors  fees  of  $12,500,   and  in  2007,  a
          housing/office allowance of $120,000,  leased cars including insurance
          of $8,805,  parking  costs of $2,012,  directors  fees of $6,000.  Not
          included in other  compensation are payments of $57,811 in 2006 to Mr.
          Cannavino's son, a former employee of the Company.

          In 2006,  Mr. Leap  received a car  allowance  including  insurance of
          $8,813 and life  insurance  costs of $377 and in 2007, a car allowance
          including insurance of $9,600 and life insurance costs of $1,933.

          In 2006, Mr. Beecher received a car allowance including insurance of
         $8,716, and a living allowance of $5,200 and in 2007, a car allowance
         including insurance of $8,100 and a living allowance of $5,200.

          In 2006, Mr. Oakes received a leased car including insurance valued at
          $9,286 and in 2007 a car allowance of $9,600.

     (3)  The  assumptions  used in  determining  the value of stock and  option
          awards are  included in Note 8 to the  accompanying  December 31, 2007
          and 2006 consolidated financial statements.
</FN>
</TABLE>
Outstanding Equity Awards at Fiscal Year End

     The following table provides  information  concerning  outstanding options,
unvested stock and equity  incentive plan awards for the named  executives as of
December 31, 2007:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                             Option Awards                                               Stock Awards
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                                Equity      Equity
                                                                                                                Incentive  Incentive
                                                                                                                Plan         Plan
                                                                                                                Awards:     Awards:
                                                                                                     Market     Number     Market or
                                                                                                     Value of   of          Payout
                                                    Equity                                           Shares     Unearned   Value of
                                                   Incentive                                          Share     Shares,    Unearned
                    Number of      Number of     Plan Awards:                            Number of   or Units  Units or    Shares,
                   Securities      Securities      Number of                             Shares or   of Stock   Other      Units or
                   Underlying      Underlying     Underlying                             Units of     That      Rights       Other
                   Unexercised    Unexercised     Unexercised   Option       Option     Stock That   Have Not   That        Rights
                    Options -      Options -       Unearned     Exercise   Expiration    Have Not    Vested     Have Not   That Have
      Name         Exercisable   Unexercisable      Options       Price       Date        Vested       (5)       Vested   Not Vested
------------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>               <C>              <C>      <C>        <C>          <C>          <C>           <C>         <C>
James Cannavino     360,000 (1)         --                      $1.16      8/31/2008    360,000      $756,000
                    350,000 (1)         --             --       $0.62      12/30/2012                              --          --
------------------------------------------------------------------------------------------------------------------------------------
                                       38
<PAGE>
Arnold Leap         100,000 (1)         --                      $1.20      4/30/2008    145,000      $304,500
                     75,000 (2)     35,000 (2)         --       $0.25      7/31/2011                               --          --
------------------------------------------------------------------------------------------------------------------------------------
Michael Beecher      30,000 (1)         --             --       $0.76      12/31/2008    60,000      $126,000
                     30,000 (1)         --                      $1.60      7/31/2009                               --          --
                     85,000 (2)     35,000 (2)                  $0.25      7/31/2011
------------------------------------------------------------------------------------------------------------------------------------
Matthew Oakes        25,000 (1)         --                      $1.10      10/1/2008    145,000      $304,500
                     20,000 (1)         --             --       $0.75      12/30/2008                              --           --
                    100,000 (1)         --                      $0.65      8/31/2010
                     85,000 (2)     35,000 (2)                  $0.25      7/31/2011
------------------------------------------------------------------------------------------------------------------------------------
Christopher Cauley  143,780 (3)     31,220 (3)         --       $0.65      8/31/2010                               --           --
------------------------------------------------------------------------------------------------------------------------------------
<FN>
     (1)  These options were fully vested on December 30, 2005
     (2)  These  options for Mr. Leap,  Mr.  Beecher and Mr. Oakes vest at 5,000
          per month over the 24 month period from August 1, 2006 through July 1,
          2008.
     (3)  Mr. Cauley's options vested 35,000 on September 1, 2005 and then 4,000
          per month from October 1, 2005 through August 1, 2008.
     (4)  Mr.  Cauley's  shares vest on September  10, 2007 under the  condition
          that Mr. Cauley continues to be employed through that date.
     (5)  Based on the closing price of the Company's stock of $2.10 on December
          31, 2007.
</FN>
</TABLE>
Equity Compensation Plan Information

     We maintain  various  stock plans under which  options  vest and shares are
awarded  at the  discretion  of  our  Board  of  Directors  or its  compensation
committee.  The  purchase  price of the  shares  under the plans and the  shares
subject to each  option  granted is not less than the fair  market  value on the
date of the  grant.  The term of each  option  is  generally  five  years and is
determined  at  the  time  of  the  grant  by  our  board  of  directors  or the
compensation committee. The participants in these plans are officers, directors,
employees and consultants of the Company and its subsidiaries and affiliates.

     The following information is provided about our current stock option plans:

     1998 Stock Option/Stock Issuance Plan. The 1998 Stock Option/Stock Issuance
Plan covers 257,000 shares of common stock.  Options  granted under the plan may
be incentive stock options  qualified under Section 422 of the Internal  Revenue
Code of 1986, as amended or non-qualified stock options.  Under the terms of the
plan,  the  exercise  price of options  granted  under the plan will be the fair
market  value at the date of the  grant.  Prices  for  incentive  stock  options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan expires July 1, 2008 and stock or options  granted under the Plan
shall  expire not later than five  years from the date of grant.  Stock  options
granted under the Plan may become exercisable in one or more installments in the
manner and at the time or times  specified  by the  committee.  No options  were
granted  under this plan  during the fiscal year ended  December  31,  2007.  At
December  31,  2007,  no  options  to  purchase  shares  of  common  stock  were
outstanding under this plan.

     2000 Stock Option/Stock Issuance Plan. The 2000 Stock Option/Stock Issuance
Plan covers 166,667 shares of common stock.  Options  granted under the plan may
be incentive stock options  qualified under Section 422 of the Internal  Revenue
Code of 1986, as amended or non-qualified stock options.  Under the terms of the
plan,  the  exercise  price of options  granted  under the plan will be the fair
market  value at the date of the  grant.  Prices  for  incentive  stock  options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of

                                       39
<PAGE>
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan  expires on May 31, 2010 and stock or options  granted  under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31, 2007.  At December 31, 2007,  no options to purchase  shares of common stock
were outstanding under this plan.

     2001 Stock Option/Stock Issuance Plan. The 2001 Stock Option/Stock Issuance
Plan covers 330,000 shares of common stock.  Options  granted under the plan may
be incentive stock options  qualified under Section 422 of the Internal  Revenue
Code of 1986, as amended or non-qualified stock options.  Under the terms of the
plan,  the  exercise  price of options  granted  under the plan will be the fair
market  value at the date of the  grant.  Prices  for  incentive  stock  options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan  expires on May 31, 2011 and stock or options  granted  under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31, 2007.  At December 31, 2007,  no options to purchase  shares of common stock
were outstanding under this plan.

     2001-A Stock  Option/Stock  Issuance  Plan.  The 2001-A Stock  Option/Stock
Issuance Plan covers 600,000 shares of common stock.  Options  granted under the
plan may be incentive stock options  qualified under Section 422 of the Internal
Revenue Code of 1986, as amended or non-qualified stock options. Under the terms
of the plan,  the exercise  price of options  granted under the plan will be the
fair market value at the date of the grant.  Prices for incentive  stock options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan expires on September 17, 2011 and stock or options  granted under
the Plan shall  expire  not later than five years from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31,  2007.  At December 31, 2007,  options to purchase  80,000  shares of common
stock were outstanding under this plan.

     2002 Stock Option/Stock Issuance Plan. The 2002 Stock Option/Stock Issuance
Plan covers 625,000 shares of common stock.  Options  granted under the plan may
be incentive stock options  qualified under Section 422 of the Internal  Revenue
Code of 1986, as amended or non-qualified stock options.  Under the terms of the
plan,  the  exercise  price of options  granted  under the plan will be the fair
market  value at the date of the  grant.  Prices  for  incentive  stock  options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan expires on January 1, 2012 and stock or options granted under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31, 2007.  At December 31, 2007,  options to purchase  416,000  shares of common
stock were outstanding under this plan.

                                       40
<PAGE>
     2002-A Stock  Option/Stock  Issuance  Plan.  The 2002-A Stock  Option/Stock
Issuance Plan covers 875,000 shares of common stock.  Options  granted under the
plan may be incentive stock options  qualified under Section 422 of the Internal
Revenue Code of 1986, as amended or non-qualified stock options. Under the terms
of the plan,  the exercise  price of options  granted under the plan will be the
fair market value at the date of the grant.  Prices for incentive  stock options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan expires on January 1, 2012 and stock or options granted under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31,  2007.  At December 31, 2007,  options to purchase  97,000  shares of common
stock were outstanding under this plan.

     2003 Stock Option/Stock Issuance Plan. The 2003 Stock Option/Stock Issuance
Plan covers 725,000 shares of common stock.  Options  granted under the plan may
be incentive stock options  qualified under Section 422 of the Internal  Revenue
Code of 1986, as amended or non-qualified stock options.  Under the terms of the
plan,  the  exercise  price of options  granted  under the plan will be the fair
market  value at the date of the  grant.  Prices  for  incentive  stock  options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan expires on April 1, 2013 and stock or options  granted  under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31, 2007.  At December 31, 2007,  options to purchase  362,000  shares of common
stock were outstanding under this plan.

     2003-A Stock  Option/Stock  Issuance  Plan.  The 2003-A Stock  Option/Stock
Issuance Plan covers 975,000 shares of common stock.  Options  granted under the
plan may be incentive stock options  qualified under Section 422 of the Internal
Revenue Code of 1986, as amended or non-qualified stock options. Under the terms
of the plan,  the exercise  price of options  granted under the plan will be the
fair market value at the date of the grant.  Prices for incentive  stock options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan expires on April 1, 2013 and stock or options  granted  under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31, 2007.  At December 31, 2007,  options to purchase  820,000  shares of common
stock were outstanding under this plan.

     2004 Stock Option/Stock Issuance Plan. The 2004 Stock Option/Stock Issuance
Plan covers 1,200,000 shares of common stock. Options granted under the plan may
be incentive stock options  qualified under Section 422 of the Internal  Revenue
Code of 1986, as amended or non-qualified stock options.  Under the terms of the
plan,  the  exercise  price of options  granted  under the plan will be the fair
market  value at the date of the  grant.  Prices  for  incentive  stock  options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted

                                       41
<PAGE>
under the Plan expires on August 20, 2014 and stock or options granted under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
In 2006,  360,000  options were granted under this plan. No options were granted
under this plan during the fiscal year ended  December 31, 2007. At December 31,
2007,  options to purchase 817,500 shares of common stock were outstanding under
this plan.

Directors Compensation

     Effective  January  1,  2008,  directors  receive  an annual  cash award of
$10,000 and a stock grant equal to a number of shares  equal in value to $10,000
divided  by the  average  of the  closing  price of the shares for the last five
trading days of the previous  year.  The shares vest over a two year period.  In
addition each director receives $2,500 for each board meeting attended in person
or $1,500 for each scheduled telephonic board meeting.  Members of committees of
the board receive  $5,000 per year for membership on the committee and the chair
of a committee  receives an additional  $5,000.  Each committee  member receives
$1,000 for each committee meeting attended.

     Prior  to 2008,  directors  received  a fee of  $2,500  for  each  board of
directors meeting  attended;  $1,500 for participation in a telephone meeting of
the board; an annual fee of $5,000 for membership in each committee of the Board
and  $1,000  for each  committee  meeting  attended.  The  Chair  person of each
committee received an annual fee of $5,000 in addition to the membership fee.

     The Company also reimburses  directors for reasonable  expenses incurred in
attending board and committee meetings.

     The following table provides the  compensation  earned by our  non-employee
directors for the year ended December 31, 2007. Mr.  Cannavino's  directors fees
earned in 2007 are included in the Summary Compensation Table above:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                Director Compensation
----------------------------------------------------------------------------------------------------------------------
                       Fees                                               Nonqualified
                     Earned or                           Non-equity         Deferred
                     Paid in     Stock      Option     Incentive Plan     Compensation     All Other
                     Cash ($)    Awards     Awards     Compensation         Earnings      Compensation      Total
       Name            (1)          $         ($)           ($)               ($)             ($)            ($)
----------------------------------------------------------------------------------------------------------------------
<S>                  <C>           <C>        <C>            <C>               <C>            <C>          <C>
Dennis Murray (2)    $30,000       --         --             --                --             --           $30,000
----------------------------------------------------------------------------------------------------------------------
Bernard Puckett (2)  $30,000       --         --             --                --             --           $30,000
----------------------------------------------------------------------------------------------------------------------
Carla Steckline      $ 4,472       --         --             --                --             --           $ 4,472
(2), (3)
----------------------------------------------------------------------------------------------------------------------
Michael Levin (4)    $ 6,000       --         --             --                --             --           $ 6,000
----------------------------------------------------------------------------------------------------------------------
<FN>
     (1)  Except  for  Carla  Steckline,  the  fees  earned  were not paid as of
          December 31, 2007.

     (2)  Dr.  Murray  is  chair  of  the  audit  committee  and  member  of the
          compensation  committee,  Mr.  Puckett  is chair  of the  compensation
          committee  and member of the audit  committee,  Mrs.  Steckline  was a
          member of the audit and compensation committees.

                                       42
<PAGE>
     (3)  Mrs.  Steckline  resigned from the Board  effective March 12, 2007 for
          personal reasons.

     (4)  Mr.  Levin is the  director  designee  of MetVP and as such all of his
          director's fees are assigned and paid to MetVP.
</FN>
</TABLE>
Employment Agreements

     On August 22, 2007, the Board ratified and approved the Services  Agreement
with its Chairman and Chief Executive Officer, effective June 1, 2007 for a term
ending on December 31, 2010. The agreement calls for compensation of $20,000 per
month (with a 10% increase on each annual anniversary subject to approval of the
Company's  Compensation  Committee and based on performance  of the Company),  a
one-time grant of 100,000 shares of restricted  common stock and the granting of
10,000 shares of restricted common stock per month commencing with the execution
of the  Agreement  and ending on December  1, 2010.  The fair value of the stock
grants is $1,193,000 based on the closing price of the shares on the grant date.
During the year ended  December  31, 2007,  the Company  issued  170,000  shares
valued at $383,000 as compensation  expense  related to the services  agreement.
The agreement further provides for:  reimbursement of certain  expenses;  living
and travel  expenses  approximating  $11,000 per month;  and  certain  severance
benefits in the event of termination prior to the expiration date.

     On August 22,  2007,  the Board  ratified  and approved an amendment to the
Services  Agreement  with its  Executive  Vice  President  and  Chief  Operating
Officer,  for a term  ending on  December  31,  2010.  The  agreement  calls for
compensation  of $15,500 per month,  a $25,000 cash bonus paid upon execution of
the Agreement,  and the granting of 5,000 shares of restricted  common stock per
month  commencing  on August 1, 2008 and ending on December 31,  2010.  The fair
value of the stock grants is $326,000  based on the closing  price of the shares
on the grant date and is being  amortized over the contract  period.  During the
year ended  December  31,  2007 the  Company  recorded  $33,000 as  compensation
expense  related  to  the  stock  grant.  The  agreement  further  provides  for
reimbursement  of  certain  expenses  and  severance  benefits  in the  event of
termination prior to the expiration date.

     On August 22,  2007,  the Board  ratified  and approved an amendment to the
Services  Agreement  with its  Executive  Vice  President  and Chief  Technology
Officer,  for a term  ending on  December  31,  2010.  The  agreement  calls for
compensation  of $16,500 per month,  a $25,000 cash bonus paid upon execution of
the Agreement,  and the granting of 5,000 shares of restricted  common stock per
month  commencing  on August 1, 2008 and ending on December 31,  2010.  The fair
value of the stock grants is $326,000  based on the closing  price of the shares
on the grant date and is being  amortized over the contract  period.  During the
year ended  December  31,  2007 the  Company  recorded  $33,000 as  compensation
expense  related  to  the  stock  grant.  The  agreement  further  provides  for
reimbursement  of  certain  expenses  and  severance  benefits  in the  event of
termination prior to the expiration date.

     On December 12, 2007,  the Board  ratified and approved an amendment to the
Services  Agreement  with its  Chief  Financial  Officer,  for a term  ending on
December 31, 2009. The agreement  calls for  compensation  of $14,583 per month,
and the granting of 2,500 shares of restricted common stock per month commencing
on December 1, 2007 and ending on December 31, 2009. The fair value of the stock
grants is $116,000  based on the  closing  price of the shares on the grant date
and is being amortized over the contract period.  During the year ended December
31, 2007 the Company  recorded  $5,000 as  compensation  expense  related to the
stock  grant.  The  agreement  further  provides  for  reimbursement  of certain
expenses  and  severance  benefits  in the  event  of  termination  prior to the
expiration date.

                                       43
<PAGE>
     The Company  entered into an employment and  consulting  agreement with its
then President  effective  January 1, 2003. The agreement was amended on January
1, 2006.  The  employment  term of the  agreement  expired  June 30, 2006 and is
followed  by a  consulting  period  which ends  December  31,  2008.  During the
employment  term  compensation  was based on an annual  salary of  $240,000.  In
addition  the  President  received  options to  purchase  100,000  shares of the
Company's  common stock at $0.50 per share which vested ratably over a period of
26 months and an additional  option to purchase  100,000 shares of the Company's
common stock at market price on the date of grant which vest on an equal monthly
basis over a period of 36 months.  During the  consulting  term of the agreement
compensation  is $12,000 per month and duties during the consulting term include
consultation  with  senior  executives   concerning  the  Company's   respective
businesses and  operations.  The agreement was amended  effective  April 1, 2008
extending the consulting period to end on March 31, 2010 and the monthly fee was
reduced to $6,000.

     The  Company  entered  into  an  employment  services  agreement  with  the
Executive  Vice  President of Sales and Marketing on August 1, 2006. The term of
the  agreement is for two years and provides for base  compensation  of $144,996
per year for each year of the agreement  plus $2,500 per month payable in common
stock of the Company. In addition the agreement provides for commissions from 3%
to 5% of the net  revenue  received  on certain  accounts.  The  Executive  Vice
President of Sales and  Marketing  was  previously  granted  options to purchase
175,000  restricted  common shares at the exercise price of $0.65 per share. The
options vest at the rate 20% at the grant date and the balance in equal  monthly
amounts over the three years from September 1, 2005.

                                     EXPERTS

     The financial statements of Direct Insite Corp. as of December 31, 2007 and
2006,  and for each of the two years in the  period  ended  December  31,  2007,
included  in this  prospectus  have been  audited by Marcum & Kliegman  LLP,  an
independent  registered  public  accounting  firm,  as  stated  in  its  reports
appearing herein.  These financial  statements have been so included in reliance
upon the  reports  of such  firm  given  upon  their  authority  as  experts  in
accounting and auditing.

                                  LEGAL MATTERS

     Certain  legal matters with respect to the validity of the shares of common
stock being  offered  hereby  will be passed on for us by  Beckman,  Lieberman &
Barandes, LLP.


                       WHERE YOU CAN FIND MORE INFORMATION

     We file reports, proxy statements and other information with the Securities
and  Exchange  Commission  as  required by federal  law.  These  reports,  proxy
statements  and other  information  can be  inspected  and  copied at the public
reference facilities  maintained by the Securities Exchange Commission Investors
may read and copy any of these reports, statements, and other information at the
SEC's public reference room located at 100 F. Street, N.E,, , Washington,  D.C.,
20549, or any of the SEC's other public reference  rooms.  Investors should call
the SEC at  l-800-SEC-0330  for further  information  on these public  reference
rooms upon payment of the fees prescribed by the Securities Exchange Commission.
These SEC filings are also available free at the SEC's web site at www.sec.gov.

                                       44
<PAGE>
     This  prospectus  does not contain all of the  information set forth in the
registration statement,  parts of which are omitted to comply with the rules and
regulations  of the Securities  Exchange  Commission.  For further  information,
please see the registration statement in its entirety.
<PAGE>

                      DIRECT INSITE CORP. AND SUBSIDIARIES

                 For the Years Ended December 31, 2007 and 2006

                                    CONTENTS
--------------------------------------------------------------------------------




                                                                           Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                     F-1


FINANCIAL STATEMENTS
--------------------
  Consolidated Balance Sheets                                               F-2
  Consolidated Statements of Operations                                     F-4
  Consolidated Statement of Shareholders' Deficiency                        F-5
  Consolidated Statements of Cash Flows                                     F-7


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                            F-9 - F-31
<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------

To the Audit Committee of the
Board of Directors and Shareholders of
Direct Insite Corp. and Subsidiaries


We have audited the  accompanying  consolidated  balance sheets of Direct Insite
Corp. and Subsidiaries  (the "Company") as of December 31, 2007 and 2006 and the
related  consolidated   statements  of  operations,   changes  in  shareholders'
deficiency,  and cash flows for the years then ended. These financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial  statements,  assessing the accounting principles used and significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of the
Company as of  December  31, 2007 and 2006 and the  consolidated  results of its
operations and its cash flows for the years then ended in conformity with United
States generally accepted accounting principles.

As discussed in Note 3 to the  consolidated  financial  statements,  the Company
changed its method of accounting  for common stock  warrants in accordance  with
FASB Staff Position ("FSP") EITF 00-19-2,  "Accounting for Registration  Payment
Arrangements"  on  January  1,  2007.  Also,  as  discussed  in  Note  2 to  the
consolidated financial statements,  the Company changed its method of accounting
for  share  based   compensation  in  accordance  with  Statement  of  Financial
Accounting Standard No. 123 (Revised 2004) on January 1, 2006.

/s/ Marcum & Kliegman LLP
Marcum & Kliegman LLP
Melville, NY
March 26, 2008

                                      F-1
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
                           December 31, 2007 and 2006
--------------------------------------------------------------------------------


                                     ASSETS
                                     ------
<TABLE>
<CAPTION>
                                                                                        2007              2006
                                                                                  ---------------- -----------------

CURRENT ASSETS
--------------
<S>                                                                                <C>                <C>
 Cash and cash equivalents                                                         $       2,184      $       295
 Accounts receivable, net of allowance for doubtful accounts of
  $0 in 2007 and 2006                                                                      1,486            1,999
 Prepaid expenses and other current assets                                                   135              139
                                                                                       ---------        ---------

       Total Current Assets                                                                3,805            2,433

PROPERTY AND EQUIPMENT, Net                                                                  443              450

OTHER ASSETS                                                                                 274              280
                                                                                       ---------        ---------

       TOTAL ASSETS                                                                       $4,522           $3,163
                                                                                       =========        =========

</TABLE>

                                      F-2
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES


                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
                           December 31, 2007 and 2006
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                    LIABILITIES AND SHAREHOLDERS' DEFICIENCY

                                                                                            2007            2006
                                                                                       --------------- ---------------
CURRENT LIABILITIES
-------------------
<S>                                                                                       <C>            <C>
 Accounts payable and accrued expenses                                                    $   1,839      $    2,065
 Lines of credit                                                                                 --             586
 Current portion of capital lease obligations                                                    36              58
 Current portion of notes payable                                                                84              53
 Warrant liability                                                                               --             602
 Short-term revolving loans                                                                      --             481
 Deferred revenue                                                                               123             564
 Dividends payable                                                                            3,336           2,489
                                                                                        -----------      ----------

       Total Current Liabilities                                                              5,418           6,898

OTHER LIABILITIES
-----------------
 Capital lease obligations, net of current portion                                               14              34
 Notes payable, net of current portion                                                          135             130
                                                                                       ------------    ------------

       TOTAL LIABILITIES                                                                      5,567           7,062
                                                                                        -----------     -----------
COMMITMENTS AND CONTINGENCIES
-----------------------------

SHAREHOLDERS' DEFICIENCY
------------------------
  Preferred stock, $0.0001 par value; 2,000,000 shares authorized;
      Series A Convertible Preferred, 134,680 issued
      and outstanding in 2007 and 2006; liquidation
      preference of $2,750,000;
      Series B Redeemable Preferred, 974 issued and outstanding in
      2007 and 2006; liquidation preference of $974,075;                                         --              --
      Series C Redeemable Preferred, 2,000 issued and
      outstanding in 2007 and 2006; liquidation preference of $2,000,000;                        --              --
      Series D Redeemable Preferred, 100 shares issued and outstanding in
      2007 and 2006,liquidation preference of $100,000;                                          --              --

 Common stock, $.0001 par value; 50,000,000 shares authorized; 7,115,216 and
  5,293,311 shares issued in 2007 and 2006, respectively; and 7,075,289 and
  5,253,384
  shares outstanding in 2007 and 2006, respectively                                               1              --
 Additional paid-in capital                                                                 114,961         113,185
 Accumulated deficit                                                                       (115,679)       (116,756)
                                                                                           ---------       ---------

                                                                                               (717)         (3,571)
 Common stock in treasury, at cost; 24,371 shares in 2007
  and 2006                                                                                     (328)           (328)
                                                                                         -----------     -----------

       TOTAL SHAREHOLDERS' DEFICIENCY                                                        (1,045)         (3,899)
                                                                                          ----------      ----------

       TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY                                    $    4,522      $    3,163
                                                                                         ==========      ==========
</TABLE>
                                      F-3
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

                 For the Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                           2007          2006
                                                                                     -------------- -------------

REVENUES                                                                              $     10,111   $      8,889
--------                                                                              ------------   ------------

COSTS AND EXPENSES
<S>                                                                                   <C>            <C>
 Operations, research and development                                                        3,698          3,478
 Sales and marketing                                                                         1,110          1,393
 General and administrative                                                                  2,755          2,581

 Amortization and depreciation                                                                 332            321
                                                                                      ------------   ------------

       TOTAL OPERATING EXPENSES                                                              7,895          7,773
                                                                                      ------------   ------------


       OPERATING INCOME                                                                      2,216          1,116
                                                                                      ------------   ------------

OTHER EXPENSE (INCOME)
---------------------
Change in fair value of warrant                                                                 --            143
Interest expense, net                                                                           97            610
Other (income) expense, net                                                                     (8)            94
                                                                                      ------------   ------------

         TOTAL OTHER EXPENSE, NET                                                               89            847
                                                                                      ------------   ------------

INCOME BEFORE PROVISION FOR INCOME TAXES                                                     2,127            269
----------------------------------------


PROVISION  FOR INCOME TAXES                                                                     27              0
---------------------------                                                           ------------   ------------

NET INCOME                                                                                   2,100            269
----------


PREFERRED STOCK DIVIDENDS                                                                   (1,060)          (714)
-------------------------                                                             ------------   ------------

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
----------------------------------------
 SHAREHOLDERS                                                                          $     1,040     $     (445)
 ------------                                                                         ============   ============

BASIC INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS                      $      0.17     $    (0.09)
-----------------------------------------------------------------                     =============  ============

FULLY DILUTED INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS              $      0.12      $   (0.09)
-------------------------------------------------------------------------             =============  ============

BASIC WEIGHTED AVERAGE COMMON SHARES OUSTANDING                                              5,966          5,000
-----------------------------------------------                                       ============   ============

FULLY DILUTED WEIGHTED AVERAGE COMMON SHARES OUSTANDING                                      8,534          5,000
-------------------------------------------------------                               ============   ============
</TABLE>

                                      F-4
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

               CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY


          For the Years Ended December 31, 2007 and 2006 (in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                       Preferred Stock
                              ------------------------------------------------------------------
                                                                                                                Deferred
                       Series A       Series B       Series C        Series D       Common Stock    Additional   Stock
                                                                                                     Paid-in      Based     Accum-
                                                                                                     Capital   Compensation ulated
                   Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Shares   Amount    Amount      Amount    Deficit
                  ------------------------------------------------------------------------------------------------------------------
BALANCE -
-------
<S>                <C>   <C>         <C>  <C>       <C>    <C>       <C>    <C>    <C>      <C>      <C>         <C>      <C>
January 1, 2006    135   $  --       1    $  --     2      $   --     --    $ --   4,933    $  --    $ 113,039   $ (134)  $(116,311)

Reclassification
on adoption
of FAS 123 (R)                                                                                            (134)     134

Common stock
and options
issued for
services           --      --      --       --       --       --      --      --     320       --          117                  --

Stock based
compensation
expense                                                                                                    163

Dividends
declared,
preferred         --      --      --       --       --       --      --      --       --       --           --       --        (714)


 Net income       --      --      --       --       --       --      --      --      269       --           --       --         269
                  ------------------------------------------------------------------------------------------------------------------

BALANCE -
December 31,
 2006             135   $  --       1     $ --      2      $ --      --    $ --    5,253     $ --    $ 113,185     $ --   $(116,756)
                  =================================================================================================================
</TABLE>
                                      F-5

<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

          CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY, continued


          For the Years Ended December 31, 2007 and 2006 (in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                       Preferred Stock
                              ------------------------------------------------------------------
                                                                                                                Deferred
                       Series A       Series B       Series C        Series D       Common Stock    Additional   Stock
                                                                                                     Paid-in      Based     Accum-
                                                                                                     Capital   Compensation ulated
                   Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Shares   Amount    Amount      Amount    Deficit
                  ------------------------------------------------------------------------------------------------------------------

BALANCE -
-------
<S>                <C>   <C>         <C>  <C>       <C>    <C>       <C>    <C>    <C>      <C>      <C>         <C>      <C>
December 31, 2006  135   $  --       1     $  --       2  $  --       --    $ --   5,253    $  --  $ 113,185     $  --   $(116,756)

Cumulative effect
of change in
Accounting
principle                                                                                                565        --          37

Common stock
and warrants
ssued for
services           --       --      --        --      --     --       --      --      5         --        45                    --

Common stock
issued on
exercise
of options
and warrants                                                                        765          1       28

Employee stock
based
compensation
expense                                                                             185                 564

Common stock
issued to settle
accrued
liabilities                                                                         767                 361

Dividends
declared,
preferred
Stock              --       --      --        --      --     --       --      --    100                 213                 (1,060)


 Net income        --       --      --        --      --     --       --      --     --        --        --        --        2,100
                  ------------------------------------------------------------------------------------------------------------------

BALANCE -
December 31,      135    $  --       1      $ --       2   $ --       --    $ --  7,075      $ 1  $ 114,961      $ --    $(115,679)
                  =================================================================================================================
</TABLE>

                                      F-6
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

                 For the Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                           2007              2006
                                                                                     ----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
<S>                                                                                          <C>                 <C>
 Net income                                                                                  $ 2,100             $ 269
 Adjustments to reconcile net income
  to net cash provided by operations:
   Amortization and depreciation:
     Property and equipment                                                                      329               319
     Other                                                                                         3                 2
     Discount on debt                                                                             --               375
    Stock based compensation expense                                                             609               163
    Change in fair value of warrants                                                              --               143

  Changes in operating assets and liabilities:
    Accounts receivable                                                                          513              (141)
    Prepaid expenses and other current assets                                                      4                88
    Other assets                                                                                   3                 2
    Accounts payable and accrued expenses                                                        135               161
    Deferred revenue                                                                            (441)             (232)
                                                                                       --------------    --------------

       NET CASH PROVIDED BY  OPERATING ACTIVITIES                                       $      3,255      $      1,149
                                                                                       --------------    --------------

CASH FLOWS USED IN INVESTING ACTIVITIES
 Expenditures for property and equipment                                                  $     (202)        $     (97)
                                                                                       --------------    --------------

CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
  Proceeds from issuance of shares on exercise of options                                         28                --
  Repayment of short-term revolving loans, net                                                  (481)             (214)
  Repayment of long-term debt                                                                    (68)             (768)
  Repayments of lines of credit                                                                 (586)              (34)
  Repayments of capital lease obligations                                                        (57)             (105)
                                                                                       --------------    --------------

       NET CASH USED IN FINANCING ACTIVITIES                                                  (1,164)           (1,121)
                                                                                       --------------    --------------


       NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                                                                               1,889               (69)

CASH AND CASH EQUIVALENTS - Beginning                                                            295               364
-------------------------                                                              --------------    --------------

CASH AND CASH EQUIVALENTS - Ending                                                      $      2,184        $      295
-------------------------                                                              ==============    ==============
</TABLE>

                                      F-7
<PAGE>

                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - Nature of Business
         ------------------

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

A complete Internet Customer Care tool set integrated with the EIP&P product set
is also  available.  In 2006, the Company  operated fully redundant data centers
located at its main office in Bohemia,  N.Y. and in an IBM co-location  facility
in Newark,  NJ. In 2007 the  Company  relocated  its data center  previously  in
Newark, to a co-location facility in Hauppauge, New York.

Management's  liquidity  plans are  discussed in Note 12. Also,  as described in
Note 15, the Company has two major  customers that  accounted for  approximately
97% and 98% of the Company's  revenue for the years ended  December 31, 2007 and
2006, respectively. Loss of these customers would have a material adverse effect
on the Company.

NOTE 2 - Significant Accounting Policies
         -------------------------------

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

The  consolidated  financial  statements  include the accounts of Direct  Insite
Corp.  and its  subsidiaries.  All  significant  intercompany  transactions  and
balances have been eliminated in consolidation.

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

The Company  records  revenue in accordance  with Statement of Position  ("SOP")
81-1  "Accounting for Performance of  Construction-Type  and Certain  Production
Type  Contracts",   issued  by  the  American   Institute  of  Certified  Public
Accountants and SEC Staff Accounting  Bulletin Topic 13 "Revenue  Recognition in
Financial   Statements."  In  some   circumstances,   the  Company  enters  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 The Company has an enforceable claim to receive the amount due in the event it
does not deliver the  undelivered  products or services and it is probable  that
such amount is collectible;

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

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

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

                                      F-8
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - Significant Accounting Policies, continued
         ------------------------------

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

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

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

The Company performs custom  engineering  services which are single  contractual
agreements  involving  modification  or  customization  of our  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.

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

Cost of revenue in the consolidated  statements of operations is presented along
with  research  and  development   costs  and  exclusive  of  amortization   and
depreciation which is shown separately. Custom Service Engineering costs related
to  uncompleted  milestones  are deferred and included in other current  assets,
when  applicable.  For the years ended December 31, 2007 and 2006,  research and
development   expenses   were   approximately   $2,598,000,    and   $2,381,000,
respectively.

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

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

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

Software Costs
--------------

Costs  associated  with the  development  of  software  products  are  generally
capitalized once  technological  feasibility is established.  Purchased software
technologies are recorded at cost and software technologies acquired in purchase
business transactions are recorded at their estimated fair value. Software costs
are  amortized  using the  greater  of the  ratio of  current  revenue  to total
projected revenue for a product or the  straight-line  method over its estimated
useful  life.  Amortization  of  software  costs  begins  when  products  become
available for general customer release. Costs incurred prior to establishment of
technological   feasibility  are  expensed  as  incurred  and  are  included  in
"operations,  research  and  development".  No software  development  costs were
capitalized in 2007 and 2006.

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

                                      F-9
<PAGE>
                 DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO

                       CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - Significant Accounting Policies, continued
         -------------------------------

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 years ended December 31, 2007 and
2006, respectively.

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

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.  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. Accordingly, and after considering changes in previously
existing positive evidence, the Company recorded a full valuation allowance.  In
addition,  the Company  expects to provide a full valuation  allowance on future
tax benefits until it can sustain a level of profitability that demonstrates its
ability to utilize the assets,  or other  significant  positive  evidence arises
that suggests its ability to utilize such 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.

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. Basic earnings per share includes no dilution and is
computed by dividing net income (loss)  attributable  to common  shareholders by
the weighted average number of common shares outstanding for the period. Diluted
earnings per share include the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock.

                                      F-10
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - Significant Accounting Policies, continued
         -------------------------------

Securities that could potentially dilute basic earnings per share ("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,  consist of the
following (shares are in thousands):
<TABLE>
<CAPTION>
     Potential Common Shares                                         December 31,
                                                            -----------------------------
                                                                 2007           2006
                                                                 ----           ----
                                                            ---------------- ------------
     <S>                                                       <C>              <C>
     Options to purchase common stock                            --             4,605
     Warrants to purchase common stock                           200            3,332
     Series A Convertible Preferred Stock                      1,347            1,347
                                                               -----            -----

     Total Potential Common Shares as of  December 31,         1,547            9,284
                                                               =====            =====
</TABLE>
Cash and Cash Equivalents
-------------------------

The Company  considers all investments with original  maturities of three months
or less to be cash  equivalents.  The Company has cash deposits in excess of the
maximum  amounts  insured by FDIC at  December  31,  2007 and 2006.  The Company
mitigates its risk by investing in or through major financial institutions.

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. Management performs on-going
credit evaluations of its customers and adjusts credit limits based upon payment
history and the  customer's  current  credit  worthiness,  as  determined by the
review of their  current  credit  information.  Collections  and  payments  from
customers  are  continuously  monitored.  While  such  bad  debt  expenses  have
historically been within  expectations and allowances  established,  the Company
cannot  guarantee that it will continue to experience the same credit loss rates
that it has in the past.  At  December  31,  2007 and  2006,  an  allowance  for
doubtful  accounts is not  provided  since,  in the opinion of  management,  all
accounts are deemed collectible. If the financial condition of customers were to
deteriorate,  resulting  in an  impairment  of their  ability to make  payments,
additional allowances may be required.

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

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and accounts receivable.  Concentrations
of credit risk with respect to accounts  receivable and revenue are disclosed in
Note 16. The Company  performs  ongoing  credit  evaluations  of its  customers'
financial condition and,  generally,  requires no collateral from its customers.
Unless otherwise disclosed, the fair value of financial instruments approximates
their recorded value.

                                      F-11
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - Significant Accounting Policies, continued
         -------------------------------

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

In preparing  consolidated  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  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,  fair value of derivative
warrants, stock based compensation,  valuation allowance on deferred tax assets,
and  management's  plans,  as disclosed in Note 13. Actual  results could differ
from those estimates.

New Accounting Pronouncements
-----------------------------

In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes - an  interpretation of FASB Statement No. 109" ("FIN 48"). This
Interpretation  prescribes a recognition threshold and measurement attribute for
the financial  statement  recognition and measurement of a tax position taken or
expected to be taken in a tax return,  and provides  guidance on  derecognition,
classification,   interest  and  penalties,   accounting  in  interim   periods,
disclosure,  and transition.  This  Interpretation is effective for fiscal years
beginning  after  December  15,  2006.  The  adoption  of FIN 48 did not  have a
material effect on the consolidated financial position, results of operations or
cash flows of the Company (see Note 9).

In September 2006, the FASB issued Statement of Financial  Accounting  Standards
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.  The Company is currently  evaluating  the impact of
adopting  SFAS 157 on its future  consolidated  financial  position,  results of
operations and cash flows and has not yet determined such effects.

In  November  2006,  the EITF  reached  a final  consensus  in EITF  Issue  06-6
"Debtor's  Accounting  for a  Modification  (or  Exchange) of  Convertible  Debt
Instruments"   ("EITF  06-6").   EITF  06-6  addresses  the  modification  of  a
convertible  debt  instrument  that  changes  the  fair  value  of  an  embedded
conversion  option and the subsequent  recognition  of interest  expense for the
associated  debt  instrument  when the  modification  does not  result in a debt
extinguishment  pursuant to EITF 96-19 , "Debtor's Accounting for a Modification
or  Exchange  of  Debt  Instruments,".   The  consensus  should  be  applied  to
modifications  or exchanges of debt  instruments  occurring in interim or annual
periods  beginning  after  November 29, 2006.  The adoption of EITF 06-6 did not
have a  material  impact on our  consolidated  financial  position,  results  of
operations or cash flows.

In November 2006, the FASB ratified EITF Issue No. 06-7, Issuer's Accounting for
a Previously  Bifurcated Conversion Option in a Convertible Debt Instrument When
the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement

                                      F-12
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - Significant Accounting Policies, continued
         -------------------------------

No. 133,  Accounting for Derivative  Instruments and Hedging  Activities  ("EITF
06-7"). At the time of issuance,  an embedded conversion option in a convertible
debt  instrument may be required to be bifurcated  from the debt  instrument and
accounted for  separately by the issuer as a derivative  under FAS 133, based on
the  application  of EITF 00-19.  Subsequent to the issuance of the  convertible
debt,  facts may change and cause the  embedded  conversion  option to no longer
meet the conditions for separate accounting as a derivative instrument,  such as
when the  bifurcated  instrument  meets  the  conditions  of  Issue  00-19 to be
classified in stockholders' equity. Under EITF 06-7, when an embedded conversion
option  previously  accounted for as a derivative  under FAS 133 no longer meets
the  bifurcation  criteria  under  that  standard,  an issuer  shall  disclose a
description of the principal  changes causing the embedded  conversion option to
no longer require  bifurcation under FAS 133 and the amount of the liability for
the conversion option reclassified to stockholders'  equity. EITF 06-7 should be
applied to all previously  bifurcated  conversion  options in  convertible  debt
instruments  that no longer meet the bifurcation  criteria in FAS 133 in interim
or annual periods  beginning after December 15, 2006,  regardless of whether the
debt  instrument  was entered into prior or subsequent to the effective  date of
EITF 06-7.  Earlier  application  of EITF 06-7 is permitted in periods for which
financial statements have not yet been issued. The adoption of EITF 06-7 did not
have a  material  impact on our  consolidated  financial  position,  results  of
operations or cash flows.

In December  2006,  the FASB issued FASB Staff  Position  ("FSP")  EITF  00-19-2
"Accounting for Registration  Payment  Arrangements"  ("FSP EITF 00-19-2") which
specifies  that the contingent  obligation to make future  payments or otherwise
transfer  consideration  under a  registration  payment  arrangement  should  be
separately  recognized and measured in accordance  with SFAS No. 5,  "Accounting
for  Contingencies."  Adoption of FSP EITF  00-19-2 is required for fiscal years
beginning  after  December 15, 2006. The effect of adopting FSP EITF 00-19-2 are
disclosed in Note 3.

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.  Early adoption
is  permitted  as of the  beginning  of a fiscal  year that  begins on or before
November 15, 2007,  provided the entity also elects to apply the  provisions  of
SFAS No. 159. The Company is currently  evaluating  the expected  effect of SFAS
159 on its  consolidated  financial  statements  and is  currently  not yet in a
position to determine such effects.

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 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

                                      F-13
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - Significant Accounting Policies, continued
         -------------------------------

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 December 2007, the Staff of the  Securities  and Exchange  Commission  issued
Staff  Accounting   Bulletin  No.  110  ("SAB  110")  regarding  the  use  of  a
"simplified"  method,  as discussed in SAB 107, in developing an estimate of the
expected  term of "plain  vanilla"  share  options in  accordance  with FASB No.
123(R) "Share Based Payment'.  The Staff will continue to accept,  under certain
circumstances, the use of the simplified method beyond December 31, 2007.

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

Effective  January 1,  2006,  the  Company  adopted  the fair value  recognition
provisions  of  Statement  of  Financial   Accounting   Standards  ("SFAS")  No,
123(Revised   2004),   "Share-Based   Payment",   ("SFAS  123(R)"),   using  the
modified-prospective-transition  method to account for stock based compensation.
Non-employee  stock based  compensation is accounted for using the provisions of
EITF  96-18.  As a result,  for the year ended  December  31,  2007 the  Company
recorded  $609,000  in stock  based  compensation  expense for the fair value of
stock based  compensation  of which $81,000  related to stock options granted to
employees,  $452,000 related to restricted stock grants,  and $35,000 related to
warrants issued in exchange for services.  For the year ended December 31, 2006,
the Company recorded $163,000 in stock based  compensation  expense for the fair
value of stock based  compensation  of which  $83,000  related to stock  options
granted to employees,  $9,000  related to restricted  stock grants,  and $71,000
related to warrants issued in exchange for services. At December 31, 2007, there
was $1,534,000 of total unrecognized  stock based  compensation  costs, which is
expected to be recognized over a weighted average period of 2.9 years.

NOTE 3 - Change in Accounting Principle
         ------------------------------

Prior to  January  1, 2007 the  Company,  under  the  provisions  of EITF  00-19
"Accounting  for Derivative  Financial  Instruments  Indexed to, and Potentially
Settled in, a Company's Own Stock",  was required to record the warrants  issued
in conjunction with a bridge loan as a derivative liability at fair value on the
date of issuance due to the registration  payment  arrangements  included in the
financing  and warrant  agreements.  At December  31, 2006 the fair value of the
warrant liability was $602,000.  In January 2007, the Company changed the method
of accounting following the guidance of FSP EITF 00-19-2 which provides that the
contingent  obligation  to make future  payments  under a  registration  payment
arrangement  should be accounted for as a separate  agreement in accordance with
FASB  Statement No. 5,  Accounting  for  Contingencies.  As a result the warrant
liability at issuance of $565,000 was reclassified to Additional Paid In Capital
based on its  original  fair  value and the  cumulative  effect of the change in
accounting principle of $37,000 was recorded as a credit to accumulated deficit.
The cumulative effect upon adoption of FSP EITF 00-19-2 is summarized below:

                                      F-14
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Accumulated deficit - December 31, 2006                               $(116,756)
         Cumulative effect of the change in accounting principle             37
                                                                     ----------

Accumulated deficit - January 1, 2007                                 $(116,719)
                                                                      ==========


NOTE 4 - Accounts Receivable and Short-term 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 their accounts
receivable to the Bank on a full recourse basis. Upon specific invoice approval,
an advance of 80% of the underlying  receivable is provided to the Company.  The
remaining balance (20%), less finance charges equal to the prime rate plus 2.00%
per month (9.25% at December 31, 2007), is paid to the Company once the customer
has paid. The maximum amount of all assigned receivables outstanding at any time
shall not exceed $1.5  million.  The Company  paid a facility fee of $15,000 for
the renewal and the agreement  expires on May 30, 2008. A December 31, 2007, the
Company had no accounts receivable assigned to the Bank and had no advances from
the Bank. At December 31, 2006, the Company had assigned  approximately $290,000
of accounts  receivable  to the Bank and received  advances of $232,000 from the
Bank.

In May 2004,  the Company  entered into an Agreement with DIRI Rec Fund LLC (the
"Rec Fund") whereby the Company may assign certain accounts receivable on a full
recourse  basis to the Rec Fund as security for advances  (loans).  The Rec Fund
was  established  solely to advance funds to the Company upon the  assignment of
receivables.  The Rec Fund is  administered  by a third party  trustee.  Certain
shareholders  of the  Company  and a former  Director  of the  Company,  are the
principal  investors  in the Rec Fund.  Under the  Agreement,  the Company  pays
interest at the rate of one (1) percent per month on the maximum purchase amount
(as defined in the agreement) of the Rec Fund and pays the administrative  costs
of the Rec Fund which  approximate  $12,000 per year. At December 31, 2006,  the
Rec Fund had a total  principal  available  for  advances  of  $250,000  and the
Company had outstanding  advances from the Rec Fund of $249,000  resulting in an
unused  availability  under the  agreement  of $1,000.  At December 31, 2007 the
Company had repaid all advances received from the Rec Fund and the Agreement was
terminated.

NOTE 5 - Property and Equipment
-------------------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>

                                                                                December 31,            Useful life
                                                                                                         in Years
                                                                            2007            2006
                                                                        ------------------------------ --------------
                                                                               (in thousands)
       <S>                                                                    <C>            <C>                 <C>
       Computer equipment and purchased software                              $ 3,287        $ 6,655               3
       Furniture and fixtures                                                      58            455             5 - 7
       Automobile                                                                   0             44               3
                                                                             --------      ---------
                                                                                3,345          7,154
       Less: accumulated deprecation and amortization                          (2,902)        (6,704)
                                                                              -------        -------
             Property and Equipment, Net                                     $    443       $    450
                                                                             ========       ========
</TABLE>
Depreciation and amortization  expense related to property and equipment for the
years ended December 31, 2007 and 2006 was $329,000 and $319,000,  respectively,
which  includes  amortization  of equipment  under capital leases of $35,000 and
$102,000 for the years ended December 31, 2007 and 2006, respectively. The costs
and net book value of equipment under capital leases is stated in Note 7.

                                      F-15
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 - Accounts Payable and Accrued Expenses
         -------------------------------------
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
                                                     December 31,
                                                2007             2006
                                         ----------------------------------
                                                    (in thousands)
       <S>                                    <C>               <C>
       Trade accounts payable                 $  456            $  499
       Sales taxes payable                       539               539
       Other accrued expenses                    844             1,027
                                              -------         ---------

                                              $1,839            $2,065
                                              ======            ======
</TABLE>
NOTE 7 - Debt
-------------

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

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

The LoC permitted two forms of draw downs; one based upon prime rate, the second
based upon LIBOR.  The Company elected to draw down $500,000  applying the terms
and  conditions  set forth for  LIBOR.  The  interest  rate is the JPMC  reserve
adjusted LIBOR plus 2.30%.  As of December 31, 2006 the balance  outstanding was
$500,000 and the applied  interest rate was 7.93%. The credit line was repaid in
full on June 28, 2007 and the credit line was terminated. The Company also had a
second line of credit from Sterling  National Bank  ("Sterling") in the original
amount of $250,000.  The line was guaranteed by the Company's chairman,  secured
by the assets of the Company and carried an interest rate of 11.25%.  Repayments
were  calculated  monthly at 2.778% of the  outstanding  balance,  plus  finance
charges,  and continue  until the line is fully paid. At December 31, 2006,  the
Company had an outstanding  balance of  approximately  $86,000 under the line of
credit.  On February 21, 2007 the balance of $81,000  under the line was paid in
full and the LoC was terminated.

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

The Company has equipment  under capital lease  obligations  expiring at various
times through 2010. 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.

As of December 31, 2007 minimum future payments under these capital leases are:

                                      F-16
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - Debt (continued)
------------------------
<TABLE>
<CAPTION>
                                                Year Ending
                             -----------------------------------------------
                                                                                (in thousands)
                                                    <S>                           <C>
                                                    2008                          $   40
                                                    2009                               9
                                                    2010                               7
                                                                                  -----------

                                        Total minimum lease payments                  56

                                  Less: amounts representing interest                 (6)
                                                                                  ---------

                                         Net minimum lease payments                   50
                                  Current portion                                     36
                                                                                  ----------
                                  Long term portion                               $   14
                                                                                  =========
</TABLE>
The interest rates pertaining to these capital leases and notes range from 10.2%
to  15.3%.  The  gross  value and the net book  value of the  related  assets is
approximately  $135,000  and $28,000 at December  31,  2007,  respectively,  and
$314,000 and $66,000 at December 31, 2006, respectively.

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

At December 31, 2007 and 2006,  notes payable  consist of $219,000 and $183,000,
respectively,  of  borrowings  for the purchase of  equipment.  These notes bear
interest at rates  ranging from 9.0% to 10.3% per year and mature  through April
2011. The notes are collateralized by the equipment purchased.

As of December 31, 2007 future principal payments under these notes are:
<TABLE>
<CAPTION>
                                                 Year Ending
                             -----------------------------------------------
                                                                                (in thousands)
                                                    <S>                           <C>
                                                    2008                          $   84
                                                    2009                              78
                                                    2019                              48
                                                    2011                               9
                                                                                  -----------
                                               Total payments                        219
                                  Current portion                                     84
                                                                                  ----------
                                  Long term portion                            $      135
                                                                                  ==========
</TABLE>
In March 2005,  the Company  entered into a Securities  Purchase  Agreement (the
"Agreement") with Sigma Opportunity Fund LLC ("Sigma") and Metropolitan  Venture
Partners  II, L.P.  ("MetVP"),  collectively  the  "Buyers",  whereby the Buyers
purchased  Senior  Subordinated  Secured  Notes  (the  "Note  Purchase")  in the
aggregate  amount of  $750,000.  The  notes  bear  interest  at the rate of five
percent (5%) per year beginning June 28, 2005, and are payable quarterly in cash
or common stock at the option of the Buyers.  The Notes mature on the earlier to
occur of (i) October 10,  2006,  or (ii) the date on which demand for payment of
the loan payable to JPMorgan  Chase Bank is made.  In  connection  with the note
purchase the Buyers were issued  warrants to purchase  750,000  common shares of
the Company.  The initial  exercise price of the warrants was $0.90 per share of
common stock. Sigma had an exclusive right to lead a  "Follow-on-Financing"  for
45 days following the closing and the Company had granted Sigma additional time.
In the event that the Follow-on-Financing had occurred the exercise price of the

                                      F-17
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - Debt (continued)
         ---------------

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

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

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

During the year ended December 31, 2006, the Company paid $120,000 of liquidated
damages and $43,000 of interest. The notes of $750,000 in principal were paid in
full on October 10, 2006.

The Company  recorded a debt discount of $565,000 based on the residual value of
the proceeds  received  and the fair value of the  warrants.  This  discount was
amortized  over the life of the loan using the  effective  interest rate method.
Amortization of $375,000 was recorded as interest  expense during the year ended
December 31, 2006.

NOTE 8 - Shareholders' Deficiency
         ------------------------

Preferred Stock
---------------

The Company has  2,000,000  authorized  preferred  shares of which  137,754 were
issued and outstanding at December 31, 2007 and 2006, as follows:

Series A Convertible Preferred Stock
------------------------------------

The Company has issued  134,680 shares of Series A Convertible  Preferred  Stock
("Series A Preferred") to MetVP. Each share of Series A Preferred is convertible
into 10 shares of common stock of the  Company.  Under the terms of the Series A
Preferred the shares automatically convert to common shares under certain events
with a final automatic conversion date of September 25, 2008. The holders of the
Series A Preferred  ("the  Holders") are entitled to dividends,  on a cumulative
basis,  at the rate of 9-1/2% per annum,  compounded  quarterly  and  payable on
February 1, 2005 and  September  25, 2005.  The Holders have certain  demand and

                                      F-18
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

piggyback  registrations rights for the Common Stock issuable upon conversion of
the  Series A  Preferred.  The  payment  of the first  dividend  was  originally
scheduled for September 25, 2004, however, the Company and the Holders agreed to
defer this payment until February 1, 2005. As consideration  for the deferral of
the dividend payment, the Company agreed to pay the Holders a premium of 7.5% of
the dividend.  In May 2004, the Company and the Holders  further agreed to grant
the  Company  the right,  in its sole  discretion,  to defer the  payment of the
dividend scheduled to be paid on February 1, 2005 until February 1, 2006. In the
event the  Company  elected to pay the  dividend on February 1, 2006 the Holders
would receive a premium of $129,000.  Also, the Company and the Holders  further
agreed to grant the  Company  the right,  in its sole  discretion,  to defer the
payment  of the  dividend  scheduled  to be paid on  September  25,  2005  until
February 1, 2006.  As a result of this  deferment,  the Company  agreed to pay a
premium of $26,000.  The holders of Series A Preferred  have  preference  in the
payment of dividends and, in the event of liquidation, to all classes of capital
stock of the  Company  except for the Series B and C  Preferred  Stock.  Certain
issues had arisen  concerning  the Company's  obligation  to accumulate  and pay
dividends on the Series A Preferred  beyond  September 25, 2005. On November 21,
2007, the Company and MetVP entered into an agreement resolving certain disputes
which had arisen with respect to the payment of dividends and interest to MetVP.
The Agreement  provides that, in addition to the undisputed sum of approximately
$1,406,000,  the Company will be paying an additional $500,000 through September
25, 2008 in  consideration  of past,  present and future  dividend  and interest
payments  through that date. All payments are conditioned upon there being funds
legally available for such payments when due. The agreement further provided for
the  issuance  to MetVP of 100,000  restricted  shares of the  Company's  common
stock.  These shares were issued in November  2007 and had a fair value based on
the closing  stock price on the date of issuance of $213,000  which was recorded
as a dividend  during the fourth quarter of 2007. At December 31, 2007 and 2006,
there were $1,685,000 and  $1,345,000,  respectively,  of dividends  accrued and
unpaid for Series A Preferred Holders and remain unpaid as of March 24, 2008.

Series B Redeemable Preferred Stock
-----------------------------------

The  Company  has issued 974  Series B  Preferred  shares at $1,000 per share in
exchange of $974,000 of  outstanding  debt.  The Company's  Chairman and current
Chief Executive  Officer holds 266 shares,  Markus & Associates (an affiliate of
SJ,  Note 10) holds 208  shares,  and Tall Oaks  holds 500  shares.  Each of the
Preferred  Stock  -  B  shares  is  entitled  to  mandatory  dividends,  payable
quarterly, commencing on the first day of the calendar quarter after the date of
issuance,  at the rate of 12% per annum.  Additionally,  the Preferred Stock - B
shares were redeemable, at the sole option of the Company, on or after March 31,
2005 (or  prior to March  31,  2005  with the  consent  of  majority-in-interest
holders of  Preferred  Stock - B shares).  Upon  redemption,  the holders of the
Preferred  Stock - B shall be entitled to receive,  for each share of  Preferred
Stock - B  outstanding,  an amount equal to the price per share plus accrued and
unpaid  dividends.  As of December  31, 2007 and 2006,  there were  $773,000 and
$532,000, respectively, in dividends payable to the Preferred Stock - B holders.
The holders of Series B Preferred  have  preference  in the payment of dividends
and, in the event of liquidation, to all classes of capital stock of the Company
before  the  Series A, C and D  Preferred  Stock.  The  Company  paid  dividends
totaling $773,000 in January 2008.

Series C Redeemable Preferred Stock
-----------------------------------

The  Company  has issued  2,000  shares of its  non-voting  Series C  Redeemable
Preferred Stock  ("Preferred Stock - C"). The holders of Preferred Stock - C are
entitled to  dividends  at the rate of 9-1/2% per annum,  payable  quarterly  in
arrears  beginning  October 1, 2005. The Company has the option to redeem issued
shares  of  Preferred  Stock - C, in  whole or in part,  at any  time,  with the

                                      F-19
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - Shareholders' Deficiency, continued
         ------------------------

redemption price equal to the purchase price plus accrued and unpaid  dividends.
For each  share of  Preferred  Stock - C  purchased,  each  investor  received a
Warrant to purchase the number of shares of the Company's  common stock equal to
the exchange  ratio of $1,000 of price per share ("Price Per Share")  divided by
123% of the closing price per share of the Company's common stock on the trading
day immediately prior to the date of issuance of the Warrant.  Certain officers,
directors and  affiliates  hold 1,470 shares of the  Preferred  Stock - C. As of
December 31, 2007 and 2006,  1,990,779  warrants are  outstanding  in connection
with the issuances of Preferred  Stock - C. The warrants expire in 2008 and 2009
and have  exercise  prices  ranging  from $0.86 to $2.13 per common  share.  The
proceeds  were  used for  working  capital  purposes.  The  holders  of Series C
Preferred  have  preference  in the  payment of  dividends  and, in the event of
liquidation,  to all  classes of  capital  stock of the  Company  except for the
Series B Preferred  Stock. As of December 31, 2007 and 2006, there were $844,000
and $589,000,  respectively,  in dividends  accrued for the Preferred  Stock - C
holders.

Series D Redeemable Preferred Stock
-----------------------------------

The Board of Directors authorized the issuance of up to 1,500 shares of Series D
Redeemable  Preferred  Stock  ("Series D  Preferred")  at $1,000 per share.  The
holders of Series D Preferred are entitled to dividends,  on a cumulative basis,
at the rate of 9-1/2% per year,  compounded and payable  quarterly  beginning on
April 1, 2006. The holders of Series D Preferred have  preference in the payment
of dividends and, in the event of  liquidation,  to all classes of capital stock
of the Company except for the Series A, B and C Preferred  Stock. As of December
31,  2007 and  2006,  100  shares of  Series D  Preferred  had been sold and the
Company received proceeds of $100,000. The buyer was issued warrants to purchase
90,909 common shares at an exercise price of $2.03 per share in conjunction with
the sale.  At  December  31,  2007 and 2006  there  were  $34,000  and  $22,000,
respectively, of dividends accrued and unpaid for Series D Preferred Holders.

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
Delaware General Corporate Law.

Dividends included in net income (loss) attributable to common shareholders for
the years ended December 31, 2007 and 2006 were:
<TABLE>
<CAPTION>
---------------------------------------- ----------------------------------------- -----------------------------------
            Preferred Stock                                2007                                   2006
            ---------------                                ----                                   ----
---------------------------------------- ----------------------------------------- -----------------------------------
<S>                                                      <C>                                    <C>
Series A                                                 $553,000                               $271,000
---------------------------------------- ----------------------------------------- -----------------------------------
Series B                                                 $240,000                               $200,000
---------------------------------------- ----------------------------------------- -----------------------------------
Series C                                                 $255,000                               $232,000
---------------------------------------- ----------------------------------------- -----------------------------------
Series D                                                 $ 12,000                               $ 11,000
                                                         --------                               --------
---------------------------------------- ----------------------------------------- -----------------------------------
Total                                                  $1,060,000                               $714,000
                                                       ==========                               ========
---------------------------------------- ----------------------------------------- -----------------------------------
</TABLE>

Common Stock, Options, Stock Grants and Warrants Issuances
----------------------------------------------------------

Year Ended December 31, 2007
----------------------------

During the year ended December 31, 2007 the Company  issued  764,580  registered
shares of common stock, 1,057,325 unregistered shares of common stock and 80,000
options to purchase common shares as follows:

     o    646,176 common shares on exercise of warrants on a cashless basis;

                                      F-20
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - Shareholders' Deficiency, continued
         ------------------------

     o    25,000  common  shares on  exercise  of options  for which the Company
          received proceeds of $28,000;

     o    93,404 common shares on the cashless exercise of options;

     o    100,000 common shares to MetVP  pursuant to the  settlement  agreement
          related to dividends on the Series A Preferred  Stock. The shares were
          valued at  $213,000  based on the  closing  price of the shares on the
          date of the agreement;

     o    88,740 common shares,  valued at $44,000 based on the closing price of
          the shares on the date earned,  for  settlement  of accrued  directors
          fees;

     o    659,618 common  shares,  valued at $307,000 based on the closing price
          of the shares on the date earned, to certain employees, executives and
          former employees for accrued compensation related to salary reductions
          in 2005 and 2006;

     o    170,000 common shares to the Chief Executive  Officer for compensation
          under his  employment  agreement  (Note 12). The shares were valued at
          $383,000  based on the closing  market price of the shares on the date
          of the grant;

     o    35,592  common  shares to an employee  and a  consultant  for services
          valued at  $38,000  for  services  of which  18,720  shares  valued at
          $10,000  were for  services  in 2006.  The  shares  were  based on the
          closing price of the stock on the date earned;

     o    3,375 common shares to certain employees for bonuses, valued at $7,000
          based on the closing market price on the date of the grant;

     o    80,000 options to purchase  common shares to certain  employees of the
          Company.

During the year ended December 31, 2007, the Company recorded  $564,000 as stock
based  compensation  expense  for the vesting of options  and  restricted  stock
grants with the offset to additional  paid-in-capital.  The options  issued have
exercise prices ranging from $0.61 to $0.95 per share (the trading prices of the
shares at the date of the grant) and have a fair value at the date of the grants
of $29,000. The valuation was determined using the Black-Scholes method. The key
assumptions used were an expected  volatility based on historical  volatility of
69.0% to 76.7% with a weighted average volatility of 71.7%, dividend rate of 0%,
a risk free interest rate of 3.9% to 4.9%, and expected life of 3.25 years using
the simplified method to determine expected life.

During the year ended  December 31,  2007,  the Company  amended its  employment
agreements  with  certain of the  executive  officers.  Under  these  agreements
certain stock grants were granted to these officers.  See Note 12 for a detailed
explanation of these grants.

Year Ended December 31, 2006
----------------------------

During the year ended December 31, 2006 the Company issued 400,356  unregistered
shares of common stock and 360,000 options to purchase common shares as follows:

     o    49,944 common shares with a fair value of $22,000 based on the closing

                                      F-21
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - Shareholders' Deficiency, continued
         ------------------------

          price on the date earned to an employee as compensation;

     o    64,729 common shares with a fair value of $24,000 based on the closing
          price of the shares on the date of the agreement as partial settlement
          of a consulting agreement;

     o    144,000  common  shares to Tall Oaks  valued at  $36,000  based on the
          closing  price of the  shares on the date of the  agreement  to accept
          shares for payment in lieu of cash for consulting services;

     o    41,683  common  shares to MetVP valued at $10,000 based on the closing
          price of the shares on the date of the  agreement to accept shares for
          payment in lieu of cash for interest;

     o    100,000  common shares valued at $25,000 based on the closing price of
          the shares on the date of the agreement to accept shares or payment in
          lieu of cash for legal fees;

     o    360,000 options to purchase  common shares to certain  officers of the
          Company.

The options  issued have an exercise price of $0.25 per share (the trading price
of the shares at the date of the grant)  and have a fair value of  $48,000.  The
valuation was determined  using the  Black-Scholes  method.  The key assumptions
used were a volatility of 73.7%,  dividend rate of 0%, a risk free interest rate
of 4.9% and expected life of 3.25 years.

Stock Option Plans
------------------

The Company grants 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 3 years and expire five years from the date of the grant.  At December  31,
2007,  4,620,000  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.

In 2004, the Company's Board of Directors  authorized and adopted the 2004 Stock
/ Stock Option Plan ("2004 Plan") whereby  1,200,000  shares of its common stock
were  reserved  for  issuance  under the Plan.  The 2004  Plan was  approved  by
shareholders  at the  annual  meeting on  December  21,  2006.  The 2004 Plan is
divided into two separate equity  programs:  an option grant program and a stock
issuance program. Under the stock issuance program, the purchase price per share
is fixed by the Board of Directors or compensation  committee but cannot be less
than the fair  market  value of the common  stock on the  issuance  date.  As of
December 31, 2007,  there are 346,000 shares  available to be issued pursuant to
this plan.

                                      F-22
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - Shareholders' Deficiency, continued
         ------------------------

         The following is a summary of stock option activity for 2007 and 2006,
         relating to all of the Company's common stock plans (shares are in
         thousands):
<TABLE>
<CAPTION>
                                                               Weighted           Weighted Average            Aggregate
                                                                Average              Remaining                Intrinsic
                                                Shares         Exercise           Contractual Term              Value
                                             (in thousands)      Price               (in years)            (in thousands)
                                            ---------------- -------------- ------------------------- ----------------------
     <S>                                              <C>                <C>            <C>                   <C>
     Outstanding at January 1, 2006                   4,854              1.25           2.58                  $  12
                                                                         ----           ----                  -----

      Granted                                           360              0.25
      Exercised                                          --               --
      Forfeited                                        (610)             1.42
                                                  ---------              ----

     Outstanding at December 31, 2006                 4,604              1.15           2.1                   $ 398
                                                                         ----           ---                   -----

      Granted                                            80              0.70
      Exercised                                        (283)             1.32
      Forfeited                                      (1,809)             1.66
                                                  ---------              ----

     Outstanding at December 31, 2007                 2,592             $0.77           2.1                  $3,433
                                                  =========             =====           ===                  ======
     Exercisable at December 31, 2007                 2,451             $0.79           2.0                  $3,204
                                                  =========             =====           ===                  ======
</TABLE>

The following table summarizes stock option information as of December 31, 2007:
<TABLE>
<CAPTION>
                               Options Outstanding
     ------------------------- ----------------------------- ------------------------ ---------------------------
                                                                Weighted Average
                                    Number Outstanding        Remaining Contractual      Options Exercisable
         Exercise Prices              (in thousands)                  Life                  (in thousands)
     ------------------------- ----------------------------- ------------------------ ---------------------------
     <S>                                              <C>                  <C>                             <C>
     $0.25 to $0.75                                   1,765                2.7 years                       1,624
     ------------------------- ----------------------------- ------------------------ ---------------------------
     $0.76 to $1.10                                     130                1.2 years                         130
     ------------------------- ----------------------------- ------------------------ ---------------------------
     $1.16 to $1.75                                     697                0.7 years                         697
                                                        ---                                                  ---
     ------------------------- ----------------------------- ------------------------ ---------------------------
     Total                                            2,592                2.1 years                       2,451
                                                      =====                                                =====
     ------------------------- ----------------------------- ------------------------ ---------------------------
</TABLE>
     A total of 7,302,000 and 7,936,000 shares of the Company's common stock are
     reserved for options,  warrants and  contingencies at December 31, 2007 and
     2006,  respectively.  The total fair value of shares vested during the year
     ended  December  31, 2007 was $74,000.  The weighted  average fair value of
     options  granted  during the years  ended  December  31, 2007 and 2006 were
     $0.36 and $0.13,  respectively.  At December 31, 2007, there was $26,000 of
     total  unrecognized  compensation  costs related to stock  options  granted
     which is expected to be  recognized  over a weighted  average  period of .6
     years.

Restricted Stock Grants

A summary of the status of the  Company's  non-vested  shares as of December 31,
2006 and changes during the year ended December 31, 2007 is presented below:

                                      F-23
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
------------------------------------------- ----------------------------------- ----------------------------------------------

            Non-vested Shares                          Shares (000)                Weighted-average Grant Date Fair Value
------------------------------------------- ----------------------------------- ----------------------------------------------
<S>                                                        <C>                                         <C>
Non-vested at January 1, 2007                               --                                         $0.00
------------------------------------------- ----------------------------------- ----------------------------------------------
Granted                                                    883                                         $2.22
------------------------------------------- ----------------------------------- ----------------------------------------------
Vested                                                    (173)                                        $2.24
------------------------------------------- ----------------------------------- ----------------------------------------------
Forfeited                                                   --                                         $0.00
------------------------------------------- ----------------------------------- ----------------------------------------------
Non-vested at December 31, 2007                                                                        $2.22
                                            ==================================
                                                           710
------------------------------------------- ----------------------------------- ----------------------------------------------
</TABLE>
The future  expected  expense for  non-vested  shares is $1,508,000  and will be
recognized  on a  straight-line  basis over the period  January 1, 2008  through
December 31, 2010.

Warrants
--------

At December 31, 2007, the Company had warrants outstanding to purchase 2,681,688
shares of common stock.  The warrants have exercise prices ranging from $0.01 to
$2.13 and contracted lives from 5 to 7 years.

NOTE 9 - Income Taxes
         ------------

The Company adopted Financial  Accounting  Standards Board's  Interpretation No.
48,  "Accounting  for  Uncertainty in Income Taxes,  an  interpretation  of FASB
Statement No. 109" ("FIN 48"),  effective  January 1, 2007. FIN 48 clarifies the
accounting for  uncertainty in income taxes  recognized in financial  statements
and  requires  the impact of a tax position to be  recognized  in the  financial
statements  if that  position is more likely than not of being  sustained by the
taxing authority.  FIN 48 is effective for fiscal years beginning after December
31,  2006,  and is to be  applied  to all  open  tax  years  as of the  date  of
effectiveness.  FIN 48 also provides guidance on derecognition,  classification,
interest  and  penalties,   accounting  in  interim   periods,   disclosure  and
transition. There were no unrecognized tax benefits as of December 31, 2007.

The  Company has  identified  its federal tax return and its state tax return in
New York as  "major"  tax  jurisdictions,  as  defined  in FIN 48.  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 2004
through 2007, the only periods subject to examination. The Company believes that
its income tax positions and  deductions  will be sustained  upon audit and does
not  anticipate  any  adjustments  that will result in a material  change to its
financial position. In addition,  the Company did not record a cumulative effect
adjustment  related  to the  adoption  of FIN 48.  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
year ended December 31, 2007. The Company does not expect its  unrecognized  tax
benefit  position  to  change  during  the next  twelve  months.  Management  is
currently  unaware of any issues under  review that could result in  significant
payments, accruals or material deviations from its position. The adoption of FIN
48 did not have a  material  effect on our  consolidated  financial  position  ,
results of operations or cash flows.

The  following  table  summarizes  components  of the  provision for current and
deferred income taxes for the years ended December 31, 2007 and 2006:

                                      F-24
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - Income Taxes (continued)
         -----------------------
<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                        2007              2006
                                                                                   ---------------- -----------------
                                                                                            (in thousands)
       <S>                                                                           <C>              <C>
       Current
         Federal                                                                     $         23     $         --
         State and other                                                                        4               --
                                                                                      -----------     ------------

             Total                                                                             27               --
                                                                                     ------------     ------------
       Deferred
         Federal                                                                               --               --
         State and other                                                                       --               --
                                                                                     ------------     ------------
             Total                                                                             --               --
                                                                                     ------------     ------------

                  Provision for Income Taxes                                          $        27      $        --
                                                                                      ===========      ===========
</TABLE>
The following  table  summarizes the  significant  differences  between the U.S.
Federal  statutory tax rate and the  Company's  effective tax rate for financial
statement purposes for the years ended December 31, 2007 and 2006:
<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                           2007            2006
                                                                                     ----------------- --------------
       <S>                                                                                 <C>               <C>
       U.S. Federal statutory tax rate                                                     34%               34%
       Permanent items                                                                      1                 5
       Change in effective tax rate                                                         9                 0
       State taxes
       Decrease in valuation allowance                                                      6                 2
                                                                                          (49)              (41)

                                                                                            1%                0%
                                                                                           ===               ===
</TABLE>
The tax effects of temporary  differences  that give rise to deferred tax assets
and liabilities are summarized as follows:
<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                          2007             2006
                                                                                    ----------------- ----------------
                                                                                             (in thousands)
       <S>                                                                                <C>               <C>
       Deferred tax assets
         Net operating loss carryforwards                                                 $ 27,649          $ 28,514
         Tax credit carryforwards                                                              759               733
         Fixed and intangible assets                                                            46                62
         Deferred revenue                                                                       49               225
         Value of stock options                                                                 99                28
         Unrealized loss on securities                                                         544               549
         Accruals                                                                              222               341
                                                                                       -----------        ----------
                                                                                            29,368            30,452
       Valuation allowance                                                                 (29,368)          (30,452)
                                                                                       -----------       -----------
             Deferred tax assets                                                       $         0       $         0
                                                                                       ===========       ===========
</TABLE>

                                      F-25
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - Income Taxes (continued)
         -----------------------

At December  31,  2007,  the Company  has 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. However, Internal Revenue Code Section 382 rules limit
the utilization of NOLs upon a change in control of a company.  During 2007, 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 as such
applies to Section 382.  However,  if it is determined  that a change in control
has taken place, either  historically or in the future,  utilization of its NOLs
could  be  subject  to  severe  limitations,  which  could  have the  effect  of
eliminating substantially all of the future income tax benefits of the NOLs. The
NOL carryforward as of December 31, 2007 included approximately $230,000 related
to windfall  tax benefits  for which a benefit  would be recorded in  additional
paid-in-capital when realized.

NOTE 10 - Related Party and Other Transactions
          ------------------------------------

     o    Metropolitan   Venture   Partners  Corp.   ("Metropolitan")   provided
          financial  advisory  services  to  the  Company.  Metropolitan  is the
          managing general partner of MetVP. The Company incurred $10,000 during
          the year ended December 31, 2006 for these services.  Additionally, in
          2006,  MetVP was granted  41,683 common shares for $10,000 of interest
          on its investment in the Senior Subordinated Secured Notes.

     o    The Company has a consulting agreement with DCL Consulting whereby DCL
          provides quality assurance  testing for the Company.  In 2007 and 2006
          the Company  incurred  $27,000  and  $26,000,  respectively  for these
          services.  The  spouse  of an  officer  of the  Company  is owner  and
          principal employee of DCL.

     o    The Company  receives  advisory  services  from Tall Oaks and Lawrence
          Hite. Tall Oaks is an affiliate of  Metropolitan  and Lawrence Hite is
          the  principal  owner of Tall  Oaks.  In 2007  and  2006  the  Company
          incurred costs of $18,000 and $9,000,  respectively for such services.
          In 2006,  Tall Oaks was issued  144,000 shares in lieu of cash for his
          fees  earned  through  June 30,  2006.  The fair  value of the  shares
          approximated the liability.

     o    During the year ended  December 31, 2006,  the Company  terminated and
          settled the  consulting  agreement  with Mountain  Meadow Farm and its
          associates,  including SJ Associates (collectively "Mountain Meadow").
          As part of the settlement the Company agreed to issue Mountain  Meadow
          90,638  restricted  common shares valued at $34,000 and to pay for the
          costs of medical,  life and certain other insurance  through  December
          31, 2013 with the cost for such  insurance  not to exceed  $200,000 in
          the aggregate or $50,000 in any 12 month period. At December 31, 2007,
          the Company  has  recorded a liability  of $119,000  representing  the
          estimated  present value of this  obligation.  Mountain Meadow and its
          principal employee are shareholders of the Company.


NOTE 11 - Commitments and Contingencies
          -----------------------------

Operating Leases
----------------

Operating  leases are  primarily for office  space,  co-location,  equipment and
automobiles.  At December 31, 2007,  the future  minimum  lease  payments  under
operating leases are summarized as follows:

                                      F-26
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - Commitments and Contingencies (continued)
          ----------------------------------------
<TABLE>
<CAPTION>
                                     Year Ending
                                     December 31,               Amount
                             -----------------------------------------------
                                                             (in thousands)
                                         <S>                        <C>
                                         2008                        216
                                         2009                         19
                                         2010                         17
                                         2011                          1
                                                                  ------

                                         Total                      $253
                                                                    ====
</TABLE>
Rent expense approximated $430,000 and $567,000 for the years ended December 31,
2007 and 2006, respectively.

Employment Agreements
---------------------

On August 22, 2007, the Board ratified and approved the Services  Agreement with
its  Chairman and Chief  Executive  Officer,  effective  June 1, 2007 for a term
ending on December 31, 2010. The agreement calls for compensation of $20,000 per
month (with a 10% increase on each annual anniversary subject to approval of the
Company's  Compensation  Committee and based on performance  of the Company),  a
one-time grant of 100,000 shares of restricted  common stock and the granting of
10,000 shares of restricted common stock per month commencing with the execution
of the  Agreement  and ending on December  1, 2010.  The fair value of the stock
grants is $1,193,000 based on the closing price of the shares on the grant date.
During the year ended  December  31, 2007,  the Company  issued  170,000  shares
valued at $383,000 as compensation  expense  related to the services  agreement.
The agreement further provides for:  reimbursement of certain  expenses;  living
and travel  expenses  approximating  $11,000 per month;  and  certain  severance
benefits in the event of termination prior to the expiration date.

On August 22, 2007, the Board ratified and approved an amendment to the Services
Agreement with its Executive Vice President and Chief Operating  Officer,  for a
term ending on December  31,  2010.  The  agreement  calls for  compensation  of
$15,500 per month,  a $25,000 cash bonus paid upon  execution of the  Agreement,
and the granting of 5,000 shares of restricted common stock per month commencing
on August 1, 2008 and ending on December 31,  2010.  The fair value of the stock
grants is $326,000  based on the  closing  price of the shares on the grant date
and is being amortized over the contract period.  During the year ended December
31, 2007 the Company  recorded  $33,000 as  compensation  expense related to the
stock  grant.  The  agreement  further  provides  for  reimbursement  of certain
expenses  and  severance  benefits  in the  event  of  termination  prior to the
expiration date.

On August 22, 2007, the Board ratified and approved an amendment to the Services
Agreement with its Executive Vice President and Chief Technology Officer,  for a
term ending on December  31,  2010.  The  agreement  calls for  compensation  of
$16,500 per month,  a $25,000 cash bonus paid upon  execution of the  Agreement,
and the granting of 5,000 shares of restricted common stock per month commencing
on August 1, 2008 and ending on December 31,  2010.  The fair value of the stock
grants is $326,000  based on the  closing  price of the shares on the grant date
and is being amortized over the contract period.  During the year ended December
31, 2007 the Company  recorded  $33,000 as  compensation  expense related to the
stock  grant.  The  agreement  further  provides  for  reimbursement  of certain
expenses  and  severance  benefits  in the  event  of  termination  prior to the
expiration date.

                                      F-27
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - Commitments and Contingencies (continued)
          ----------------------------------------

On December  12,  2007,  the Board  ratified  and  approved an  amendment to the
Services  Agreement  with its  Chief  Financial  Officer,  for a term  ending on
December 31, 2009. The agreement  calls for  compensation  of $14,583 per month,
and the granting of 2,500 shares of restricted common stock per month commencing
on December 1, 2007 and ending on December 31, 2009. The fair value of the stock
grants is $116,000  based on the  closing  price of the shares on the grant date
and is being amortized over the contract period.  During the year ended December
31, 2007 the Company  recorded  $5,000 as  compensation  expense  related to the
stock  grant.  The  agreement  further  provides  for  reimbursement  of certain
expenses  and  severance  benefits  in the  event  of  termination  prior to the
expiration date.

The Company entered into an employment and consulting  agreement with its former
President  effective  January 1, 2003.  The  agreement was amended on January 1,
2006. The employment term of the agreement expired June 30, 2006 and is followed
by a consulting  period which ends December 31, 2008. During the employment term
compensation  was  based on an  annual  salary  of  $240,000.  In  addition  the
President  received  options to purchase  100,000 shares of the Company's common
stock at $0.50 per share  which vest  ratably  over a period of 26 months and an
additional  option to purchase  100,000 shares of the Company's  common stock at
market  price on the date of grant which vest on an equal  monthly  basis over a
period of 36 months.  During the employment  term and for 90 days thereafter the
President was  reimbursed for  reasonable  out-of-pocket  expenses and temporary
living accommodations not to exceed $2,500 per month. During the employment term
he also received a  transportation  allowance of $600 per month and the cost for
transportation  to his  home.  During  the  consulting  term  of  the  agreement
compensation  will be $12,000 per month and duties  during the  consulting  term
include consultation with senior executives  concerning the Company's respective
businesses and operations.

The Company  entered into an employment  services  agreement  with the Executive
Vice  President  of Sales  and  Marketing  on August  1,  2006.  The term of the
agreement is for two years and provides  for base  compensation  of $144,996 per
year for each year of the  agreement  plus  $2,500  per month  payable in common
stock of the Company. In addition the agreement provides for commissions from 3%
to 5% of the net  revenue  received  on certain  accounts.  The  Executive  Vice
President of Sales and  Marketing  was  previously  granted  options to purchase
175,000  restricted  common shares at the exercise price of $0.65 per share. The
options vest at the rate 20% at the grant date and the balance in equal  monthly
amounts over the three years from September 1, 2005.

Future commitments under employment and consulting agreements are:

                           2008             $1,089,000
                           2009                970,000
                           2010                823,000
                                            ----------

                           Total            $2,882,000
                                            ==========

NOTE 12 - 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 will enable the Company to attain these goals. These actions include:

                                      F-28

<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     o    For the year ended December 31, 2007 the Company had net cash provided
          by operations of $3,255,000.  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  may raise  additional  capital  through  private  equity
          offerings  and  borrowing.  There is no  assurance  however  that such
          capital would be available to the Company,  or if available,  on terms
          and  conditions  that would be  acceptable to it. The Company does not
          anticipate  raising any capital from these  sources in the next twelve
          months.

     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  our  customer  base in 2008,
          although  there  is no  assurance  that  the  Company  will be able to
          further broaden its customer base.

     o    In  2006  the  Company  initiated  a  cost  reduction  plan  that  has
          significantly reduced operating costs while still enabling the Company
          to meet its commitments to its customers. The Company will continue to
          seek ways to control and reduce costs.

     o    The  Company  continues  to expand its  marketing  efforts in order to
          increase  the customer  base.  In this  regard,  the Company  became a
          business partner with IBM and through this relationship will work with
          IBM to achieve  sales to new  customers.  The Company will continue to
          pursue similar channel partner opportunities.

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 raise
additional  capital through equity and debt  placements will provide  sufficient
cash to meet cash  requirements at least through December 31, 2008. 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.

                                      F-29
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - Consolidated Statements of Cash Flows
          -------------------------------------

Supplemental  disclosure of cash flow  information  for the years ended December
31, 2007 and 2006 is summarized as follows:
<TABLE>
<CAPTION>
                                                                                      Year ended December 31,
                                                                                      2007               2006
                                                                                ----------------- -------------------
                                                                                           (in thousands)
     <S>                                                                               <C>               <C>
     Interest paid                                                                     $120              $243
                                                                                       ====              ====
     Income taxes paid                                                                 $ 14              $  0
                                                                                       ====              ====
</TABLE>

Non-cash  investing and financing  activities  for the years ended  December 31,
2007 and 2006 are summarized as follows:
<TABLE>
<CAPTION>
                                                                                        Year Ended December 31,
                                                                                          2007            2006
                                                                                  --------------- ------------------
                                                                                           (in thousands)
      <S>                                                                                 <C>             <C>
      Dividends accrued and unpaid                                                        $  847          $  714
                                                                                          ======          ======
      Capitalized leases and equipment notes incurred                                     $  119          $  226
                                                                                          ======          ======
      Reclassification of warrant liability                                               $  602        $     --
                                                                                          ======        ========

      Stock issued as dividends                                                           $  213        $     --
                                                                                          ======        ========
</TABLE>
NOTE 14 - Products and Services
          ---------------------

The Company and its subsidiaries  currently  operate in one business segment and
have,  during the years  2007 and 2006,  provided  two  separate  products:  ASP
Services  and  Custom  Engineering  Services.  Refer  to  Note 1 for a  detailed
description of these products and services.
<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                                     2007           2006
                                                                               ----------------- ----------------
                                                                                        (in thousands)
       <S>                                                                          <C>               <C>
       ASP fees                                                                     $ 7,606           $6,486
       Custom Engineering fees                                                        2,505            2,403
                                                                                    -------           ------
              Total Revenue                                                         $10,111           $8,889
                                                                                    =======           ======
</TABLE>
NOTE 15 - Major Customers
          ---------------

For the year ended  December 31, 2007,  IBM and  Electronic  Data Systems  Corp.
("EDS") accounted for 51% and 46%,  respectively,  of the Company's revenue.  In
2006, IBM and EDS accounted for 69% and 29% of revenue,  respectively.  Accounts
receivable  from these two customers at December 31, 2007 and 2006,  amounted to
$1,416,000 and $1,937,000, respectively. Loss of either of these customers would
have a material adverse effect on the Company.

                                      F-30
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                     For the Six Months Ended June 30, 2008


                                    CONTENTS
--------------------------------------------------------------------------------


Condensed Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and
  June 30, 2007..........................................................F-32

Condensed Consolidated Statements of Operations
  For the Three and Six Months Ended June 30, 2008 and 2007 (Unaudited)..F-33

Condensed Consolidated Statements Cash Flows
  For the Six Months Ended June 30, 2008 and 2007 (Unaudited)............F-34

Notes to Condensed Consolidated Financial Statements (Unaudited).....F-35 - F-42
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    AS OF JUNE 30, 2008 AND DECEMBER 31, 2007
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                    June 30,           December 31,
                                                                                      2008                 2007
                                                                              --------------------- --------------------
                                                                                   (Unaudited)
ASSETS
Current assets
<S>                                                                           <C>                   <C>
  Cash and cash equivalents                                                   $           2,217    $            2,184
  Accounts receivable, net of allowance for doubtful accounts of
   $0 in 2008 and 2007                                                                    1,469                 1,486
  Prepaid expenses and other current assets                                                  85
                                                                              ------------------    -------------------
                                                                                                                  135

       Total current assets                                                               3,771                 3,805

Property and equipment, net                                                                 418                   443
Deferred tax asset                                                                        2,867
                                                                                                                   --
Other assets                                                                                273                   274
                                                                              ------------------    -------------------

         TOTAL ASSETS                                                          $          7,329     $           4,522
                                                                               ================     ===================

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
  Accounts payable and accrued expenses                                             $     1,556     $           1,839
  Current portion of capital lease obligations                                               18
                                                                                                                   36
  Current portion of notes payable                                                           54                    84
  Dividends payable                                                                       2,909                 3,336
  Deferred revenue                                                                          339                   123
                                                                              ------------------    -------------------
       Total current liabilities                                                          4,876                 5,418

Capital lease obligations, net of current portion                                             9                    14
              Notes payable, net of current portion                                         177                   135
                                                                              -------------------   -------------------

       Total liabilities                                                                  5,062                 5,567
                                                                              ------------------    -------------------

Commitments and contingencies

Shareholders' equity (deficiency)
  Preferred stock, $0.0001 par value; 2,000,000 shares authorized;
   Series A Convertible Preferred, 134,680 issued and outstanding
   in 2008 and 2007; liquidation preference of $2,750,000;
   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; 7,340,734 and 7,115,216
  shares issued in 2008 and 2007, respectively; and 7,300,807 and 7,075,289                   1                     1
  shares outstanding in 2008 and 2007, respectively
  Additional paid-in capital                                                            115,345               114,961
  Accumulated deficit                                                                  (112,751)             (115,679)
                                                                              ------------------    -------------------

                                                                                          2,595                  (717)

  Common stock in treasury, at cost  - 24,371 shares                                       (328)                 (328)
                                                                              ------------------    -------------------
       Total shareholders' equity (deficiency)                                            2,267                (1,045)
                                                                              ------------------    -------------------

          TOTAL LIABILITIES AND SHAREHODERS' EQUITY
        (DEFICIENCY)                                                          $           7,329      $          4,522
                                                                              ====================  ==================


</TABLE>
See notes to condensed consolidated financial statements.

                                      F-32
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 and 2007
                      (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                  Three Months Ended                Six Months Ended
                                                                       June 30,                         June 30,
                                                                 2008            2007             2008             2007
                                                            --------------- --------------- ----------------- ----------------

Revenue                                                     $       2,346   $       2,580   $        4,301    $        4,834
                                                            --------------- --------------- ----------------- ----------------
Costs and expenses
<S>                                                                 <C>               <C>            <C>               <C>
  Operations, research and development                              1,007             987            1,832             1,862
  Sales and marketing                                                 209             291              419               629
  General and administrative                                          664             568            1,450             1,061
  Depreciation and amortization                                        76              94              153               180
                                                            --------------- --------------- ----------------- ----------------
                                                                    1,956           1,940            3,854             3,732
                                                            --------------- --------------- ----------------- ----------------
Operating income                                                      390             640             447              1,102

Other (income) expense
  Other income, net                                                    --              (8)             --                 (8)
  Interest (income) expense, net                                       (1)             31              11                 65
                                                            --------------- --------------- ----------------- ----------------
Income  before provision for income tax                               391             617                              1,045

Benefit from (provision for) income taxes                              --              --           2,867               ( 27)
                                                            --------------- --------------- ----------------- ----------------
Net income                                                            391             617           3,303              1,018

Preferred stock dividends                                            (202)           (219)           (375)              (431)
                                                            --------------- --------------- ----------------- ----------------
Net income  attributable to common shareholders             $         189   $         398   $       2,928     $          587
                                                            =============== =============== ================= ================
Basic  income  per share attributable
 to common shareholders                                     $        0.03   $        0.07  $         0.40     $         0.11
                                                            =============== =============== ================= ================
Fully diluted income  per share attributable
 to common shareholders                                     $        0.02            0.05            0.28               0.08
                                                            =============== =============== ================= ================
Basic weighted average common shares outstanding                    7,290           5,532           7,244              5,412
                                                            =============== =============== ================= ================
Fully diluted weighted average common shares outstanding            9,473           8,200          10,874              7,675
                                                            =============== =============== ================= ================
</TABLE>
See notes to condensed consolidated financial statements.

                                      F-33

<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 and 2007
                      (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                         For the six months ended
                                                                                                  June 30,
                                                                                           2008              2007
                                                                                     ----------------- ------------------
Cash flows from operating activities
<S>                                                                                    <C>               <C>
 Net income                                                                            $        3,303    $        1,018

 Adjustments to reconcile net income
  to net cash provided by operations:
    Amortization and depreciation:
      Property and equipment                                                                     152               180
    Deferred taxes                                                                            (2,867)               --
    Stock based compensation expense                                                             333                97
    Gain on sale of investment                                                                    --                (8)

  Changes in operating assets and liabilities:
    Accounts receivable                                                                           17               182
    Prepaid expenses and other current assets                                                     51                72

    Accounts payable and accrued expenses                                                       (172)              155
    Deferred revenue                                                                             216                17
                                                                                     ---------------    --------------
       Net cash provided by operations                                                         1,033             1,713
                                                                                     ---------------      ------------

Cash flows used in investing activities:
    Proceeds from sale of investment                                                              --                 8
    Expenditures for property and equipment                                                     (126)              (86)
                                                                                      ---------------    --------------
           Net cash used in investing activities                                                (126)              (78)
                                                                                     ----------------    --------------

Cash flows used in financing activities:
    Proceeds from issuance of shares on exercise of options                                       --                17
    Payment of dividends on preferred stock                                                     (802)               --
    Repayments of revolving loans, net                                                            --              (232)
    Repayment of lines of credit                                                                  --              (586)
    Principal payments on capital lease obligations                                              (22)              (39)
    Repayments of long-term debt                                                                 (50)              (31)
                                                                                     ---------------    --------------
       Net cash used in financing activities                                                    (874)             (871)
                                                                                      ---------------   ---------------

Net  increase in cash and cash equivalents                                                        33               764

Cash and cash equivalents - beginning of period                                                2,184               295
                                                                                     ---------------    --------------

Cash and cash equivalents - end of period                                            $         2,217     $       1,059
                                                                                     ===============     =============
Supplemental Disclosures:

Cash paid for interest                                                               $            32     $         63
                                                                                     ===============     =============
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                                  $            --     $        104
                                                                                     ===============     =============

  Dividends accrued and unpaid                                                       $           375     $        431
                                                                                     ===============     =============

  Reclassification of warrant liability                                              $            --     $        602
                                                                                     ===============     =============

  Common stock issued for settlement of liability                                    $            51     $         --
                                                                                     ===============     =============
</TABLE>
                                      F-34
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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  June  30,  2008,  and  the  condensed
     consolidated  statements of operations and cash flows for the three and six
     month  periods  ended June 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 six month periods ended
     June 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.

                                      F-35
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     Management's liquidity plans are discussed in Note 9. Also, as described in
     Note 7, the Company has two  customers  that  accounted  for  approximately
     94.3% of the Company's revenue for the six month period ended June 30, 2008
     and 96.4% of revenue for the six month period ended June 30, 2007.  Loss of
     either of these  customers  would  have a  material  adverse  effect on the
     Company.

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 six month periods ended June 30, 2008,  the Company  recorded
     $19,000 and $64,000,  respectively,  in  compensation  expense for the fair
     value of options.  For the three and six month periods ended June 30, 2007,
     the Company  recorded  $25,000 and $58,000,  respectively,  in compensation
     expense for the fair value of options.  At June 30, 2008, there was $31,000
     of total  unrecognized  compensation costs related to stock options granted
     which is  expected to be  recognized  over a weighted  average  period of 8
     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 June 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
     six months  ended June 30, 2008 the Company  issued  75,000  options with a
     weighted  average  grant date fair  value of  $69,000.  There  were  65,000
     options  issued  during the six months  ended  June 30,  2007,  which had a
     weighted  average  grant date fair value of $20,000.  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 six months ended June
     30, 2008 is as follows:
<TABLE>
<CAPTION>
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
                                                                                  Weighted Average
                                               Shares         Weighted Average  Remaining Contractual Aggregate Intrinsic Value
                                           (in thousands)      Exercise Price      Term (in years)         (in thousands)
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
   <S>                                         <C>                 <C>                   <C>                 <C>
   Balance, December 31, 2007                  2,592              $0.77
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
       Granted                                    75              $1.50
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
       Exercised                                (235)             $0.95
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
       Canceled                                   --                 --
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
       Forfeited                                  --                 --
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
   Balance, June 30, 2008                      2,432              $0.77                  1.8                 $1,312
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
   Exercisable, June 30, 2008                  2,372              $0.77                  1.7                 $1,291
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
</TABLE>
     The total fair value of options vested during the six months ended June 30,
     2008  was  $64,000.  Subsequent  to June  30,  2008,  the  Company's  Chief
     Executive Officer exercised 360,000 options with an exercise price of $1.16
     per share. The unrecognized  compensation expense for non-vested options is
     $31,000 at June 30, 2008 and will be recognized  over the next nine months.

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

     During the six months ended June 30, 2008 the Company granted 21,858 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.

                                      F-36
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     A summary  of the  status of the  Company's  restricted  non-vested  shares
     issued  pursuant to employment  and service  agreements as of June 30, 2008
     and changes during the six months ended June 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                                                       (81)                               $2.12
------------------------------------------ ---------------------------------- ------------------------------------------------
Forfeited                                                                                          --
                                           ---------------------------------
                                                              --
                                            --------------------
------------------------------------------ ---------------------------------- ------------------------------------------------
Non-vested at June 30, 2008                                  651                                $2.20
                                           ==================================
------------------------------------------ ---------------------------------- ------------------------------------------------
</TABLE>
     For the three and six months ended June 30, 2008 stock compensation expense
     for stock grants was $134,000 and $269,000, respectively. For the three and
     six months ended June 30, 2007 stock compensation  expense for stock grants
     was $20,000 and  $40,000,  respectively.  The future  expected  expense for
     non-vested  shares is $1,272,000 and will be recognized on a  straight-line
     basis over the period July 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 June 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 June 30, 2008 and December 31, 2007,  notes payable  consist of $231,000
     and $219,000,  respectively,  of borrowings  for the purchase of equipment.
     These notes bear  interest at rates ranging from 9.0% to 10.3% per year and
     mature through January 2012. The notes are  collateralized by the equipment
     purchased  with net book values of $182,000 and $187,000,  at June 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 10.2% to 19.2%. At June 30, 2008, the gross
     and net book value of the  related  assets is  approximately  $135,000  and
     $21,000,  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 six months ended June 30, 2008:

                                      F-37
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
<TABLE>
<CAPTION>
                     -------------------------------------------------- --------------------
                                                                               In thousands
                     -------------------------------------------------- --------------------
                            <S>                                                <C>
                            Balance - January 1, 2008                           $ (1,045)
                     -------------------------------------------------- --------------------
                              Dividends accrued                                     (375)
                     -------------------------------------------------- --------------------
                              Stock based compensation                               333
                     -------------------------------------------------- --------------------
                              Shares issued for settlement of
                              accrued liabilities                                     51
                     -------------------------------------------------- --------------------
                              Net income                                           3,303
                                                                               -----------
                     -------------------------------------------------- --------------------
                            Balance - June 30, 2008                            $   2,267
                     -------------------------------------------------- -------=========----
</TABLE>
     Common Stock and Option Issuances
     ---------------------------------

     During  the six  months  ended  June 30,  2008 the  Company  issued  52,500
     restricted  common shares with a fair value of $95,000 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 61,431  restricted
     common  shares  with a fair  value of $47,500 to an  employee  for  accrued
     compensation in 2007. During the six months ended June 30, 2008 the Company
     also issued  110,035 common shares on the exercise of 235,000 stock options
     on a cashless basis.

     During the six months  ended  June 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 of 3.0 years.

     During the six months  ended  June 30,  2007,  the  Company  issued  65,000
     options to employees to purchase  common  stock.  The options have exercise
     prices of $0.61 and $0.70 (the trading  prices of the shares at the date of
     the grant) and a fair value at the grant date of $19,500. The valuation was
     determined using the Black-Scholes  method. The key assumptions used were a
     volatility of 69.0% to 74.3%, dividend rate of 0%, a risk free rate of 4.9%
     and an expected  life of 3.25 years.  During the six months  ended June 30,
     2007,  the Company issued 646,176 shares on exercise of warrants and 15,000
     shares on exercise of options.  The warrant exercise was done on a cashless
     basis. The Company received proceeds of $17,000 from the option exercise.

     Subsequent  to  June  30,  2008,  the  Company's  Chief  Executive  Officer
     exercised 360,000 options with an exercise price of $1.16 per share.

     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 six
     months ended June 30, 2008 and 2007:

                                      F-38
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
                                                     Three Months Ended   Three Months Ended    Six Months Ended    Six Months Ended
                                                        June 30, 2008        June 30, 2007        June 30, 2008       June 30, 2007
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
                                                       (in thousands)       (in thousands)       (in thousands)       (in thousands)
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
       <S>                                                    <C>                  <C>                   <C>                  <C>
       Weighted Average Common shares outstanding             7,290                5,532                 7,244                5,412
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
       Warrants to purchase common stock                        902                1,247                   946                1,146
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
       Options to purchase common stock                       1,273                1,421                 1,330                1,117
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
       Stock grants                                               8                   --                     7                   --
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
       Series A Convertible preferred stock                      --                   --                 1,347                   --
                                                              -----                -----                ------               -------
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
       Total fully diluted shares                             9,473                8,200                10,874                7,675
                                                              =====                =====               =======               ======
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
</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 antidilutive for the periods presented,  consist of the following
     (in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------- --------------------------------------- -------------------------------------
                                                            Three Months Ended June 30,             Six Months Ended June 30,
----------------------------------------------------- --------------------------------------- -------------------------------------
                                                                 2008             2007                   2008             2007
                                                                 ----             ----                   ----             ----
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       <S>                                                       <C>             <C>                     <C>             <C>
       Options to purchase common stock                            93              923                     93              923
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       Warrants to purchase common stock                          552              643                    552              643
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       Restricted stock grants                                    620               --                    620               --
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       Series A Convertible preferred stock                     1,347            1,347                     --            1,347
                                                                -----            -----                  -----            -----
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------

----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
             Total potential common shares                      2,612            2,913                  1,265            2,913
                                                                =====            =====                  =====            =====
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
</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 June 30,     Six Months Ended June 30,
                                               2008                2007                  2008                 2007
                                               ----                ----                  ----                 ----
             <S>                              <C>                   <C>               <C>                     <C>
             ASP IOL fees                     $1,823               $1,895             $ 3,652                 $ 3,559

             Custom engineering fees             523                  685                 649                   1,275
                                             -------               ------             --------                --------
           Total Revenue                      $2,346               $2,580              $4,301                  $4,834
                                              ======               ======             =======                 =======

</TABLE>
     Major Customers

     For the three and six month periods ended June 30, 2008,  IBM accounted for
     47.1% and 47.3% of revenue,  respectively,  compared to 48.4% and 49.2% for
     the three and six month periods ended June 30, 2007, respectively.  For the
     three and six month  periods  ended June 30, 2008,  EDS accounted for 44.4%
     and 47.0% of  revenue,  respectively,  compared  to 48.3% and 47.2% for the
     three and six month  periods  ended June 30, 2007,  respectively.  Accounts
     receivable  from these  customers  amounted to $1,292,000 and $1,416,000 at
     June 30, 2008 and December 31, 2007, respectively.

                                      F-39
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


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
     June 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 six
     months  ended June 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 six months ended June 30, 2008 in accordance with APB
     28.  As a result  the  Company's  effective  tax rate for the three and six
     months  ended June 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 six months ended June 30, 2008 and the year ended December 31,
          2007 the Company had net cash provided by operations of $1,033,000 and
          $3,255,000,  respectively.  The Company  will  continue to monitor and
          control  expenses  and  anticipates  that it will  continue to achieve
          positive cash flows from operations.

                                      F-40
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


     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 2008,
          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
          six months  ended June 30,  2008,  the Company  paid  dividends on the
          Series B  Preferred  Stock of  $802,000  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 June 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 our  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.


                                      F-41
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


     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
     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.

                                      F-42
<PAGE>
                                                                ALTERNATIVE PAGE


The  information in this  prospectus is not complete and may be changed.  We may
not sell  these  securities  until the  registration  statement  filed  with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell or a solicitation of an offer to buy these securities in any state where
the offer is not permitted.

                  SUBJECT TO COMPLETION, DATED October 2, 2008
                             Preliminary Prospectus
                                 350,000 Shares

                               DIRECT INSITE CORP.
                                  Common Stock

     This  prospectus  relates  to the resale  shares of common  stock of Direct
Insite  Corp.  by  certain  of  our  securityholders,  referred  to  as  selling
securityholders  throughout  this  document.  The  selling  securityholders  are
offering to sell up to 350,000  shares of our common stock.  We will not receive
any  proceeds  from the resale of shares by the selling  securityholders,  which
include:

          up to 100,000  shares  issuable  upon the exercise of our common stock
          purchase warrants dated March 29, 2005; and

          up to 250,000  shares  issuable  upon the exercise of our common stock
          purchase warrants dated July 12, 2005.

     All of the shares being offered by this prospectus are being offered by the
selling  securityholders  named in this  prospectus.  This offering is not being
underwritten.  We will  not  receive  any of the  proceeds  from the sale of the
shares of our common stock in this offering.  If the March 29, 2005 warrants are
exercised so that the underlying shares may be sold, we will receive the initial
exercise  price of the warrants,  which is $.01 per share.  If the July 12, 2005
warrants  are  exercised  so that the  underlying  shares  may be sold,  we will
receive the initial  exercise  price of the warrants,  which is $1.00 per share.
There can be no  assurance,  however,  that all or any of the  warrants  will be
exercised. The selling securityholders  identified in this prospectus,  or their
pledgees,  donees,  transferees or other  successors-in-interest,  may offer the
common  stock or interests  therein from time to time through  public or private
transactions at prevailing market prices, at prices related to prevailing market
prices,  or at  privately  negotiated  prices.  We  will  pay  all  expenses  of
registering this offering of securities.

     The common  stock is traded in the  over-the-counter  market and prices are
quoted on the  over-the-counter  Bulletin  Board under the symbol  "DIRI.OB." On
September  25, 2008 the closing  price per share of our common  stock was $1.30.
Except under certain  circumstances,  the selling  securityholders will sell the
shares  from  time  to  time  through   independent   brokerage   firms  in  the
over-the-counter market at prices prevailing at the time of sale.

INVESTING IN OUR COMMON STOCK INVOLVES  RISK.  SEE "RISK  FACTORS"  BEGINNING ON
PAGE 4.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR  DISAPPROVED  OF THESE  SECURITIES  OR PASSED  UPON THE  ACCURACY OR
ADEQUACY  OF THE  PROSPECTUS.  ANY  REPRESENTATIONS  MADE TO THE  CONTRARY  IS A
CRIMINAL OFFENSE.

                The date of this Prospectus is ___________ ,2008.

                                       A-1
<PAGE>
                                                                ALTERNATIVE PAGE

                                     SUMMARY

     This summary highlights  information contained elsewhere in the prospectus.
You  should  read the  entire  prospectus  carefully;  especially  the  risks of
investing in the  securities  discussed  under "Risk  Factors" and the financial
statements  and related  notes  included  elsewhere  in this  prospectus  before
deciding to invest in our common stock.

Our Company

     Direct Insite Corp. was organized as a public company under the name Unique
Ventures,  Inc.  under the laws of the State of Delaware on August 27, 1987.  In
August, 2000, we changed our name to Direct Insite Corp. Our principal executive
offices are located at 80 Orville Drive, Bohemia, New York. Our telephone number
is (631)  873-2900.  Unless the context  requires  otherwise,  all references to
"we," "our," "us,"  "company,"  "registrant,"  "Direct  Insite" or  "management"
refers to Direct Insite Corp. and its subsidiaries.

Our Current Business

     We operate 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.  Our 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.

     Through extensive automation for presenting, receiving, approving or paying
invoices, Direct Insite is helping its customers reduce costs, resolve disputes,
enhance cash flow efficiency, and improve customer satisfaction.

     We are currently delivering invoicing services across the Americas, Europe,
and Asia, including 62 countries, 15 languages and all major currencies.  Direct
Insite processes,  distributes and hosts millions of invoices,  purchase orders,
and  supporting  attachment  documents.   Suppliers,   customers,  and  internal
departments,  such as Finance  and  Accounting  or  Customer  Service can easily
access these critical business  documents whenever they need them through Direct
Insite's self-service portal.

     Currently, IBM, our largest customer,  representing approximately 47.1% and
47.3% of  revenue  for the three  and six month  periods  ended  June 30,  2008,
respectively  and  48.4% and  49.2% of our  revenue  for the three and six month
periods  ended June 30,  2007,  respectively,  utilizes our suite of services to
allow their  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 24 hours a day, 7 days a week,  365 days a year.  IBM accounted for
51% and 69% of our  revenue  for the years  ended  December  31,  2007 and 2006,
respectively.  Our  second  largest  customer,  Electronic  Data  Systems  Corp.
("EDS"),  accounted for  approximately  44.4% and 47.0% of revenue for the three
and six month periods ended June 30, 2008,  respectively  and 48.3% and 47.2% of
revenue for the three and six month periods  ended June 30, 2007,  respectively.
EDS accounted  for 46% and 29% of revenue for the years ended  December 31, 2007
and 2006, respectively.


The Offering

     The  selling  securityholders  may offer and sell up to  350,000  shares of
common  stock,  an amount  equal to 3.7 % of our  currently  outstanding  common

                                      A-2
<PAGE>
                                                                ALTERNATIVE PAGE


stock. For a list of selling  securityholders and the amount of shares that each
of them expects to sell, see "Selling Securityholders."

     The offering is made by the selling  securityholders  for their benefit. We
will not receive any of the proceeds of their sale of common stock.

                                  RISK FACTORS

     You  should  carefully  consider  the  factors  described  below  and other
information contained in this prospectus.  The risks and uncertainties described
below are not the only ones we face.  Additional  risks  and  uncertainties  not
presently  known to us, which we currently deem  immaterial or which are similar
to those faced by other  companies in our  industry or business in general,  may
also impair our business  operations.  If any of the  following  risks  actually
occurs,  our business,  financial  condition or results of  operations  could be
materially and adversely affected. In such case, the trading price of our common
stock  could  decline,  and you may  lose all or part of your  investment.  This
prospectus  also  contains  forward-looking  statements  that involve  risks and
uncertainties.   Please  refer  to  "Special  Note   Regarding   Forward-Looking
Statements" included elsewhere in this prospectus.

The large number of shares available for future sale may adversely effect the
market price of our stock.

     We have  9,352,616  shares of common stock  outstanding as of September 26,
2008, of which approximately  4,993,000 shares are freely tradable. We also have
4,350,238  shares issuable upon the conversion of preferred  stock,  exercise of
options and exercise of warrants. If all of our outstanding options and warrants
were exercised,  we would have 13,702,854  shares  outstanding.  The issuance of
such a large number of shares  could have a  significant  adverse  effect on the
market for, as well as the price of, our common  stock.  A decline in the market
price also may make the terms of future  financings  using our  common  stock or
using convertible debt more burdensome.

Our planned growth may cause a strain on our management and other resources.

     We are  pursuing a business  strategy  that has involved and is expected to
continue to involve  significant growth over at least the next twelve months. We
cannot   guarantee  that  we  will  be  able  to  achieve  our  planned  growth.
Accomplishing our objectives will depend upon a number of factors, including our
ability to develop new customer  relationships.  We may also incur  development,
acquisition  or  expansion  costs that  represent a higher  percentage  of total
revenues than larger or more established  companies,  which may adversely affect
our results of operations.

We may not be able to compete favorably in the competitive information solutions
industry.

     The market for our information solutions is intensely competitive.  We face
competition  from a broad  range  of  competitors,  many of  whom  have  greater
financial,  technical  and  marketing  resources  than  we do.  There  can be no
assurance that we will be able to compete effectively with such entities.

Our operations are dependent upon key management personnel.

     We believe that our continued success depends to a significant  extent upon
the efforts and abilities of our senior management.  In particular,  the loss of

                                      A-3


<PAGE>
                                                                ALTERNATIVE PAGE


James Cannavino, our Chairman and Chief Furthermore,  we may in the future adopt
other  measures  that may delay,  defer or prevent a change in  control.  We may
adopt  some  of  these   measures   without  any  further   vote  or  action  by
securityholders.

                           FORWARD-LOOKING STATEMENTS

     All statements  other than  statements of historical  fact included in this
prospectus  including,  without  limitation,   statements  under,  "Management's
Discussion and Analysis or Plan of Operation"  regarding our financial position,
business  strategy  and the  plans  and  objectives  of  management  for  future
operations, are forward-looking statements. When used in this prospectus,  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,  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
the dependence on key personnel.  Such  statements  reflect the current views of
management  with  respect to future  events  and are  subject to these and other
risks,  uncertainties  and assumptions  relating to the  operations,  results of
operations,  growth  strategy and  liquidity.  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.

                                 USE OF PROCEEDS

     This  prospectus  relates to shares of our common stock that may be offered
and sold from time to time by the selling  securityholders.  We will not receive
any of the proceeds from the sale of shares of common stock in this offering. If
the selling securityholder  exercises its warrants, we will receive the exercise
price of the warrants, which is currently $1.00 per share for the warrants dated
July 12, 2005  (250,000  warrants),  and $.01 per share for the  warrants  dated
March 29, 2005  (100,000  warrants).  We intend to use the net proceeds from the
exercise of the warrants for our general working capital needs.  There can be no
assurance that all, or any, of the warrants will be exercised.

                             SELLING SECURITYHOLDERS

     On March 29 2005 we entered into a Securities Purchase Agreement with Sigma
Opportunity  Fund L.L.C.  ("Sigma") and  Metropolitan  Venture Partners II, L.P.
("MetVP"),  collectively  the  "Buyers",  whereby  the Buyers  purchased  Senior
Subordinated  Secured notes (the "Note  Purchase")  in the  aggregate  amount of
$750,000.  The notes bear  interest  at the rate of five  percent  (5%) per year
beginning  June 28, 2005 and mature on the earlier to occur of (i) September 29,
2006;  (ii) the date on which  demand for payment of the Grid Demand  Promissory
Note,  dated as of June 27,  2005  payable to JPMorgan  Chase Bank is made,  and
(iii) the due date of the loan payment to JPMorgan  Chase Bank  pursuant to such
Grid  Demand  Promissory  Note,  including  if due on demand and  whether or not
demand for payment is actually made. Interest is payable in cash or shares of


                                      A-4
<PAGE>
                                                                ALTERNATIVE PAGE


our common stock,  at the Buyer's  election.  In the event we do not approve the
payment of interest by issuing shares in lieu of cash and do not pay the cash by
the interest  payment date, we must issue shares of common stock.  The number of
shares to be issued is determined by dividing the average price per share of our
common  stock for the ten (10) trading  days  immediately  preceding an interest
payment date into the dollar amount of interest which would have been payable if
paid in  cash.  The  first  interest  payment  date was  October  31,  2005.  In
connection  with the Note  Purchase the Buyers were issued  warrants to purchase
750,000 of our common  shares.  The exercise price of the warrants was $0.90 per
share of common stock subject to adjustment on the occurrence of certain events.
Sigma  had the right to lead a  "Follow-on  Financing."  In the  event  that the
Follow-on-Financing  did not occur,  the exercise price of the warrants would be
$0.01 per common share. As of the date hereof, we have elected not to pursue the
Follow-on-Financing  with Sigma and therefore the exercise price of the warrants
is $0.01 per share.  Michael Levin, a Managing Director of Metropolitan  Venture
Partners Corp., serves as a member of our Board of Directors.

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

     The following  table sets forth  information  concerning  the resale of the
shares of common stock by the selling  securityholders.  We will not receive any
proceeds from the resale of the common stock by the selling securityholders.  We
will receive  proceeds  from the exercise of warrants in the event that they are
exercised,  however  there can be no  assurance  that all or any of the warrants
will be exercised.  The table below assumes that all the shares registered below
are sold by the selling securityholders.

     The following  table sets forth the name of each person who is offering the
resale of shares of common  stock by this  prospectus,  the  number of shares of
common stock  beneficially  owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the  offering,  assuming  they sell all of the shares
being offered.  Unless otherwise  indicated,  each of the following  persons has
sole voting and investment  power with respect to the shares of common stock set
forth opposite their respective names. None of the selling securityholders is an
affiliate of a registered broker-dealer.
<TABLE>
<CAPTION>
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------

                                Number of shares                                        Number of
                                  beneficially                                           shares
                                owned before the                      Number of       beneficially
                                    offering                         shares being      owned after
   Selling Securityholder                            Percentage        offered        the offering       Percentage
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------
<S>                            <C>                       <C>          <C>               <C>                    <C>
Metropolitan Venture           2,492,657(1)              24.2 %       100,000(3)        2,392,657              23.4 %
Partners II, L.P.
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------
Tall Oaks Group L.L.C.           847,406(2)              10.2%        250,000(3)          597,406(2)            6.1 %
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------

                                      A-5
<PAGE>
                                                                ALTERNATIVE PAGE

<FN>
(1)  Includes  962,010  shares  issuable  upon exercise of options and warrants.
     Metropolitan  Venture  Partners  (Advisors) L.P holds voting and investment
     control over the shares held by Metropolitan  Venture Partners II, L.P. Mr.
     Michael  Levin is a Managing  Director  of  Metropolitan  Venture  Partners
     Corp.,  which is the  general  partner  of  Metropolitan  Venture  Partners
     (Advisors)  L.P.,  which,  in turn, is the general  partner of Metropolitan
     Venture Partners II, L.P. Mr. Levin is a member of our Board of Directors.

(2)  Includes 769,219 shares issuable upon exercise of options and warrants. Mr.
     Lawrence Hite holds voting and  investment  control over the shares held by
     Tall Oaks. Mr. Hite is the General  Manager of Tall Oaks.  Does not include
     an additional 259,000 shares directly owned by Mr. Hite,  including 150,000
     shares  issuable upon  exercise of options and warrants.  Mr. Hite and Tall
     Oaks  constitute a "group" for purposes of Section 13(d) of the  Securities
     Exchange Act of 1934.

(3)  Represents shares underlying warrants.
</FN>
</TABLE>
                              PLAN OF DISTRIBUTION

     The selling securityholders, or their pledgees, donees, transferees, or any
of their  successors in interest  selling  shares  received from a named selling
securityholder   as  a  gift,   partnership  or  other   distribution  or  other
non-sale-related  transfer after the date of this prospectus (all of whom may be
selling securityholders), may sell some or all of the shares of our common stock
covered  by this  prospectus  from  time to  time on the  NASD  Over-the-Counter
Bulletin Board or any stock exchange or automated  interdealer  quotation system
or tracking  facility on which the shares are  listed,  in the  over-the-counter
market, in privately negotiated  transactions or otherwise, at fixed prices that
may be  changed,  at market  prices  prevailing  at the time of sale,  at prices
related to  prevailing  market  prices or at prices  otherwise  negotiated.  The
selling  securityholders  may sell the shares of our common stock covered by the
prospectus  by  one  or  more  of  the  following  methods,  including,  without
limitation:

     1.   ordinary   brokerage   transactions  and  transactions  in  which  the
          broker-dealer solicits purchasers;

     2.   block  trades in which the  broker-dealer  so engaged  will attempt to
          sell the shares as agent but may  position and resell a portion of the
          block as principal to facilitate the transaction;

     3.   purchases  by  a   broker-dealer   as  principal  and  resale  by  the
          broker-dealer for its account pursuant to this prospectus;

     4.   an  exchange   distribution  in  accordance  with  the  rules  of  the
          applicable stock exchange on which the shares are listed;

     5.   privately negotiated transactions;

     6.   short sales,  either directly or with a broker-dealer  or an affiliate
          thereof;

     7.   broker-dealers  may  agree  with a  selling  securityholder  to sell a
          specified number of shares at a stipulated price per share;

     8.   through  the  writing  or  settlement  of  options  or  other  hedging
          transactions  relating to the  shares,  whether or not the options are
          listed on an options exchange or otherwise;

     9.   through  loans or  pledges  of the  shares  to a  broker-dealer  or an
          affiliate thereof;

     10.  by entering into transactions with third parties who may (or may cause
          others to) issue securities  convertible or exchangeable  into, or the
          return of which is  derived in whole or in part from the value of, our
          common stock;

                                      A-6
<PAGE>
                                                                ALTERNATIVE PAGE

     11.  through the  distribution of shares of our common stock by any selling
          securityholder  to its  partners,  members,  stockholders,  investors,
          interest  holders  and/or  creditors  or  to  the  partners,  members,
          investors,  stockholders,  interest  holders  and/or  creditors of its
          affiliates;

     12.  one or  more  underwritten  offerings  on a firm  commitment  or  best
          efforts basis;

     13.  a combination of any such methods of sale; or

     14.  any other method permitted pursuant to applicable law.

     The selling  securityholders  may also sell shares under Rule 144 under the
Securities  Act of 1933,  as  amended,  if  available,  rather  than  under this
prospectus.

     We do not know of any arrangements by the selling  securityholders  for the
sale of any of the securities.

Broker-dealers  or  underwriters  engaged by the
selling  securityholders  may participate in effecting sales of our shares,  and
any  broker-dealers  or underwriters  may arrange for other  brokers-dealers  to
participate in sales of our shares. These broker-dealers or underwriters may act
as  principals,  or as agents of a selling  securityholder.  Broker  dealers may
receive  commissions or discounts from the selling  securityholders  (or, if any
broker-dealer acts as agent for the purchaser of shares,  from the purchaser) in
amounts  to be  negotiated,  but,  in the case of an agency  transaction  not in
excess of a customary  brokerage  commission in compliance with NASDR Rule 2440;
and in the case of a principal  transaction  a markup or markdown in  compliance
with NASDR IM-2440.

     In connection with the sale of our common stock or interests  therein,  the
selling  securityholders may enter into hedging transactions with broker-dealers
or other financial institutions,  which may in turn engage in short sales of our
common stock in the course of hedging the  positions  they  assume.  The selling
securityholders   may  also  enter  into  option  or  other   transactions  with
broker-dealers  or other  financial  institutions or the creation of one or more
derivative  securities which require the delivery to such broker-dealer or other
financial  institution of shares offered by this  prospectus,  which shares such
broker-dealer  or  other  financial  institution  may  resell  pursuant  to this
prospectus.

     Any broker-dealers or agents engaged by a selling  securityholder  that are
involved in selling the shares covered hereby may be deemed to be "underwriters"
within the meaning of the Securities Act in connection  with such sales. In such
event, any commissions received by such broker-dealers or agents and any profits
on the resale of the shares  purchased by them may be deemed to be  underwriting
commissions or discounts under the Securities  Act. Each selling  securityholder
has  informed  us that  it does  not  have  any  written  or oral  agreement  or
understanding,  directly or indirectly, with any person who is to distribute our
common stock covered hereby.

     We are required to pay certain fees and expenses incurred by us incident to
the registration of certain shares covered by this prospectus. We have agreed to
indemnify certain of the selling  securityholders  and their affiliates  against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act. Certain of the selling  securityholders have agreed to indemnify
us in certain circumstances  against certain liabilities,  including liabilities
under the  Securities  Act. We and  certain  selling  securityholders  have also
agreed, if these  indemnification  procedures are unavailable,  to contribute to
certain liabilities incurred by the others,  including in respect of liabilities
under the Securities Act.

     The shares  offered  hereby  were  originally  issued to or acquired by the
selling   securityholders   pursuant  to  an  exemption  from  the  registration
requirements of the Securities Act.

     Under applicable  rules and regulations  under the Exchange Act, any person
engaged in the distribution of the resale shares may not  simultaneously  engage
in market making  activities with respect to our common stock for the applicable
restricted  period, as defined in Regulation M, prior to the commencement of the
distribution.  In  addition,  the  selling  securityholders  will be  subject to
applicable  provisions  of the  Exchange  Act  and  the  rules  and  regulations
thereunder,  including Regulation M, which may limit the timing of purchases and
sales of shares of our common stock by the selling  securityholders or any other
person.  We  will  make  copies  of this  prospectus  available  to the  selling
securityholders  and have  informed  them of the need to  deliver a copy of this
prospectus  to each  purchaser  at or prior to the  time of sale  (including  by
compliance with Rule 172 under the Securities Act).

     We will not receive any proceeds from the sale of securities by the selling
securityholders hereto.

     We cannot assure you that the selling  securityholders will sell all or any
portion of the shares of our common stock offered hereby.

                                      A-7
<PAGE>
                                     PART II

                   INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

     The estimated expenses of the distribution, all of which are to be borne by
us, are as follows. All amounts are estimates except the Securities and Exchange
Commission registration fee:

         Registration Fee                            $     74.08
         Accounting Fees and Expenses                   8,500.00
         Legal Fees and Expenses                       20,000.00
         Miscellaneous                               -----------
                  Total                              $ 29,574.08
                                                     ===========

Item 14. Indemnification of Directors

     Under the  provisions of the  Certificate of  Incorporation  and By-Laws of
     Registrant,  each person who is or was a director or officer of  Registrant
     shall be indemnified by Registrant as of right to the full extent permitted
     or authorized by the General Corporation Law of Delaware.

     Under such law, to the extent that such person is  successful on the merits
     in the defense of a suit or proceeding brought against him by reason of the
     fact  that  he  is a  director  or  officer  of  Registrant,  he  shall  be
     indemnified  against  expenses   (including   attorneys'  fees)  reasonably
     incurred in connection with such action.

     If unsuccessful  in defense of a third-party  civil suit or a criminal suit
     is settled,  such a person shall be indemnified under such law against both
     (1)  expenses  (including  attorneys'  fees) and (2)  judgments,  fines and
     amounts  paid in  settlement  if he acted in good  faith and in a manner he
     reasonably  believed  to be in, or not opposed  to, the best  interests  of
     Registrant,  and with respect to any  criminal  action,  had no  reasonable
     cause to believe his conduct was unlawful.

     If  unsuccessful  in  defense  of a  suit  brought  by or in the  right  of
     Registrant,  or if such suit is settled, such a person shall be indemnified
     under such law only against expenses  (including  attorneys' fees) incurred
     in the defense or  settlement of such suit if he acted in good faith and in
     a manner he  reasonably  believed  to be in, or not  opposed  to,  the best
     interests of Registrant,  except that if such a person is adjudicated to be
     liable in such suit for negligence or misconduct in the  performance of his
     duty to  Registrant,  he cannot be made whole even for expenses  unless the
     court  determines  that  he  is  fairly  and  reasonably   entitled  to  be
     indemnified for such expenses.

     The  officers  and  directors of  registrant  are covered by officers'  and
     directors' liability insurance.  The policy coverage is $10,000,000,  which
     includes  reimbursement  for costs and fees.  There is a maximum  aggregate
     deductible for each loss under the policy of $200,000.


Item 15. Recent Sales of Unregistered Securities

     On November  21,  2007,  the Company and MetVP  entered  into an  agreement
resolving  certain  disputes  which had arisen  with  respect to the  payment of
dividends and interest to MetVP. The Agreement provides that, in addition to the
undisputed  sum of  approximately  $1,406,000,  the  Company  will be  paying an
additional $500,000 through September 25, 2008 in consideration of past, present
and future  dividend and interest  payments  through that date. All payments are
conditioned upon there being funds legally available for such payments when due.

                                      II-1
<PAGE>
The agreement  further provided for the issuance to MetVP of 100,000  restricted
shares of the Company's common stock.  These shares were issued in November 2007
and had a fair value based on the closing stock price on the date of issuance of
$213,000 which was recorded as a dividend during the fourth quarter of 2007.

Item 16.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

3.1  (a)  Certificate of Incorporation, as amended.(Incorporated by reference to
          Exhibit 3(a) of Form S-1 Registration Statement).(1)
     (b)  Certificate of Amendment  (Change in Name)  (Incorporated by reference
          to Exhibit 3(a) of Form S-1 Registration Statement).(1)
     (c)  Certificate of Amendment  (Change in Name)  (Incorporated by reference
          to Exhibit 3(a) of Form S-1 Registration Statement).(1)
     (d)  Certificate  of  Amendment  (Authorizing  Increase in Shares of Common
          Stock).  (Incorporated  by reference to Exhibit 3 (i) (d) to Form 10-K
          for the year ended 1995).
     (e)  Certificate of Amendment  (Authorizing one for ten reverse-stock split
          as of March 30, 1998). (1)
     (f)  Certificate  of  Designation,  Preferences  and  Rights  of  Series  A
          Convertible  Preferred  Stock filed October 3, 2002  (Incorporated  by
          reference to Exhibit 3.1 to the Company's  Current  Report on Form 8-K
          dated September 25, 2002).
     (g)  Certificate of Amendment of Certificate  of  Designation,  Preferences
          and Rights of Series A Convertible  Preferred Stock filed December 20,
          2002  (Incorporated  by reference to Exhibit 3.2 of Company's  Current
          Report on Form 8-K dated December 24, 2002).
     (h)  Certificate of Amendment of Certificate  of  Designation,  Preferences
          and Rights of Series A  Convertible  Preferred  Stock filed January 2,
          2003  (Incorporated  by reference to Exhibit 3.3 of Company's  Current
          Report on Form 8-K dated January 2, 2003).
     (i)  Certificate  of  Designation,  Preferences  and  Rights  of  Series  B
          Redeemable  Preferred Stock filed December 10, 2003  (Incorporated  by
          reference  to  Exhibit  3(i) of the  Company's  Annual  Report on Form
          10-KSB filed April 14, 2004).
     (j)  Certificate  of  Designation,  Preferences  and  Rights  of  Series  C
          redeemable  Preferred Stock filed December 16, 2003  (Incorporated  by
          reference  to  Exhibit  3(j) of the  Company's  Annual  Report on Form
          10-KSB filed April 14, 2004).
     (k)  Certificate of Amendment of Certificate  of  Designation,  Preferences
          and  Rights  of  Series  C  Preferred   Stock  filed  March  29,  2005
          (Incorporated  by reference to Exhibit  3(k) of the  Company's  Annual
          Report on Form 10-KSB filed April 29, 2005).
     (l)  Certificate  of  Designation,  Preferences  and  Rights  of  Series  D
          Redeemable  Preferred  Stock filed  October 7, 2004  (Incorporated  by
          reference to Exhibit 3.1L of the Company's  Registration  Statement on
          Form SB-2, No. 333-128039 filed September 1, 2005).

3.2       By-Laws.  (Incorporated  by reference to Exhibit 3(d) of the Company's
          Form S-1 Registration Statement).(1)

4.1       Form of  Common  Stock  Certificate.  (Incorporated  by  reference  to
          Exhibit 4 of the Company's Form S-1 Registration Statement).(1)

4.2       Rights  Agreement  dated as of August 28, 2001 between the Company and
          Manhattan Transfer Registrar Company,  as Rights Agent.  (Incorporated
          by reference to Exhibit 4 of the  Company's  Form 8-K dated August 28,
          2001.

                                      II-2
<PAGE>
4.3       Securities  Purchase Agreement between the Company,  Sigma Opportunity
          Fund, LLC and Metropolitan Venture Partners II, L.P.  (Incorporated by
          reference to Exhibit 4.1 of the Current Report on Form 8-K filed March
          31, 2005).

4.4       Form of Senior Subordinated Secured Note (Incorporated by reference to
          Exhibit 4.2 of the Current Report on Form 8-K filed March 31, 2005).

4.5       Form of Common Stock Purchase  Warrant  (Incorporated  by reference to
          Exhibit  4.3 of the  Current  Report  on Form 8-K  filed on March  31,
          2005.)

4.6       Common Stock Purchase  Warrant issued July 12, 2005 to Tall Oaks Group
          L.L.C. (Incorporated by reference to Exhibit 4.6 to Amendment No. 1 to
          the Company's  Registration  Statement on Form SB-2,  No.  333-128039,
          filed December 8, 2005.)

5         Opinion of Beckman, Lieberman & Barandes, LLP.

10.1      Directors,   Officers   and   Consultants   1993  Stock   Option  Plan
          (Incorporated   by   reference   to  Exhibit  4.1  of  the   Company's
          Registration Statement on Form S-8 filed on June 28, 1995).

10.2      Employees 1993 Stock Option Plan (Incorporated by reference to Exhibit
          4.2 of the Company's  Registration Statement on Form S-8 filed on June
          28, 1995).

10.3      995 Incentive Stock Plan  (Incorporated  by reference to Exhibit 5 of
          the Company's Proxy Statement filed on January 29, 1996).

10.4      2000 Stock Option Plan  (Incorporated  by reference to Exhibit 10.4 of
          the Company's  Annual Report on Form 10-K for the year ended  December
          31, 2001).

10.5      2001 Stock  Option/Stock  Issuance Plan  (Incorporated by reference to
          Exhibit 10.5 of the Company's  Annual Report on Form 10-K for the year
          ended December 31, 2001).

10.6      2001-A Stock Option/Stock Issuance Plan. (Incorporated by reference to
          Exhibit 10.6 of the Company's  Annual Report on Form 10-K for the year
          ended December 31, 2001).

10.7      2002 Stock  Option/Stock  Issuance Plan  (Incorporated by reference to
          Exhibit 10.7 of the Company's  Annual Report on Form 10-K for the year
          ended December 31, 2001).

10.8      2003 Stock Option /Stock Issuance Plan.  (Incorporated by reference to
          Exhibit 10.8 of the Company's  Annual  Report on Form-10K  filed April
          15, 2003).

10.9      Lease  Extension  Agreement  between Atrium  Executive  Center and the
          Company  (Incorporated  by  reference  to  Exhibit  10 (g) (ii) of the
          Company's  Annual Report on Form 10-K for the year ended  December 31,
          1993).

10.10     Offer to Purchase dated  December 23, 1999,  among Eagle Merger Corp.,
          EMC Corporation and the Company  (Incorporated by reference to Exhibit
          1 of the Company's Form 8-K filed on February 9, 2000).

10.11     Indemnification   Agreement   dated  December  21,  1999,   among  EMC
          Corporation,  Eagle  Merger  Corp.  and the Company  (Incorporated  by
          reference to Exhibit 2 of the Company's  Form 8-K filed on February 9,
          2000).

                                      II-3
<PAGE>
10.12     Indemnification  Agreement dated December 21, 1999, between Softworks,
          Inc.  and the Company  (Incorporated  by reference to Exhibit 3 of the
          Company's Form 8-K filed on February 9, 2000).

10.13     Escrow Agreement dated December 21, 1999, among EMC Corporation, Eagle
          Merger  Corp.,  the Company and State  Street Bank and Trust  Company,
          Inc. as escrow  agent  (Incorporated  by reference to Exhibit 4 of the
          Company's Form 8-K filed on February 9, 2000).

10.14     Exchange  Agreement,  dated  February  10,  2000,  among the  Company,
          NetWolves Corporation and ComputerCOP Corp. (Incorporated by reference
          to Exhibit 10.1 of the Company's Form 8-K filed on March 2, 2000).

10.15     Agreement and Plan of Merger by and among Platinum  Acquisition Corp.,
          the Company, Platinum Communications, Inc., Kevin Ford and Ken Tanoury
          dated May 10, 2001  (Incorporated  by reference to Exhibit 10.1 of the
          Company's Report on Form 10-Q for the quarter ended June 30, 2001).

10.16     Employment  Agreement between the Company and Kevin Ford dated May 10,
          2001  (Incorporated  by  reference  to Exhibit  10.2 of the  Company's
          Report on Form 10-Q for the quarter ended June 30, 2001).

10.17     Employment Agreement between the Company and Ken Tanoury dated May 10,
          2001  (Incorporated  by  reference  to Exhibit  10.3 of the  Company's
          Report on Form 10-Q for the quarter ended June 30, 2001).

10.18     Employment  Agreement  between the Company and Anthony  Coppola  dated
          December 1, 2001  (Incorporated  by reference to Exhibit  10.17 of the
          Company's  Annual Report on Form 10-K for the year ended  December 31,
          2001).

10.19     Services  Agreement  between the Company and James A. Cannavino  dated
          January 25, 2003.  (Incorporated  by reference to Exhibit 10.19 of the
          Company's Annual Report on Form-10K filed April 15, 2003).

10.20     Stock Purchase and Registration  Rights Agreement  between the Company
          and  Metropolitan  Venture Partners II, L.P. dated as of September 25,
          2002  (Incorporated  by  reference  to  Exhibit  10.1 of  Registrant's
          Current Report on Form 8-K dated September 25, 2002).

10.21     Stock Purchase and Registration  Rights Agreement  between the Company
          and  Metropolitan  Venture  Partners II, L.P. dated as of December 24,
          2002  (Incorporated  by  reference  to  Exhibit  10.1 of  Registrant's
          Current Report on Form 8-K dated December 24, 2002).

10.22     Promissory  Note between the Company and Tall Oaks Group L.L.C.  dated
          January 13, 2003  (Incorporated  by reference to Exhibit  10.22 of the
          Company's Annual Report on Form-10K filed April 15, 2003).

10.23     Amendment  and Notice dated January 13, 2003 by and among the Company,
          Metropolitan  Venture  Partners  II, L.P.  and Tall Oaks Group  L.L.C.
          (Incorporated  by reference to Exhibit 10.23 of the  Company's  Annual
          Report on Form-10K filed April 15, 2003).

                                      II-4
<PAGE>
10.24     Form of Subscription Agreement for Series C Redeemable Preferred Stock
          (Incorporated  by reference to Exhibit 3(j)) of the  Company's  Annual
          Report on Form-10K filed April 14, 2004).

10.25     Employment and Consulting  Agreement between the Company and Robert L.
          Carberry  (Incorporated  by reference to Exhibit 10.2 of  registrant's
          Current Report on Form 8-K dated December 5, 2003).

10.26     Amended and Restated Reimbursement Agreement dated as of June 27, 2005
          by and among the Company,  Lawrence D. Hite and Tall Oaks Group L.L.C.
          (Incorporated  by reference to Exhibit 10.26 to Amendment No. 1 of the
          Company's Registration  Statement on Form SB-2, No. 333-128039,  filed
          December 8, 2005).

10.27     Settlement  Agreement  dated November 21, 2007 between the Company and
          Metropolitan  Venture Partners II, L.P.  (Incorporated by reference to
          Exhibit 10 of registrant's  Current Report on Form 8-K, dated November
          27, 2007).

23.1      Consent of Marcum & Kliegman, LLP.

23.2      Consent of Beckman,  Lieberman & Barandes,  LLP (included in Exhibit 5
          hereof).

----------
(1)  Filed with Form S-1, Registration Statement of the Company Reg. No 33-47322
     and are incorporated herein by reference.

Item 17. Undertakings

     A. Insofar as indemnification  for liabilities arising under the Securities
Act of 1933 may be permitted to our directors,  officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange  Commission such  indemnification  is
against  public  policy  as  expressed  in the  Securities  Act of 1933  and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such  liabilities,  other than the payment by us of expenses incurred or paid by
our director,  officer or controlling  person in the  successful  defense of any
action, suit or proceeding, is asserted by such director, officer or controlling
person in connection with the securities being  registered,  we will,  unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit  to a  court  of  appropriate  jurisdiction  the  question  whether  such
indemnification  by it is against  public policy as expressed in the  Securities
Act of 1933 and will be governed by the final adjudication of such issue.

     B. We hereby undertake:

     (1) To file,  during any period in which  offers or sales are being made, a
post--effective amendment to this Registration Statement:

          (i) To include any  prospectus  required  by Section  10(a) (3) of the
     Securities Act of 1933;

          (ii) To specify in the  prospectus  any facts or events  arising after
     the  effective   date  of  the   Registration   Statement  or  most  recent
     post--effective  amendment thereof which, individually or in the aggregate,
     represent  a  fundamental  change  in  the  information  set  forth  in the
     Registration  Statement.  Notwithstanding  the  foregoing,  any increase or
     decrease in volume of  securities  offered,  if the total  dollar  value of
     securities  offered  would not exceed  that which was  registered,  and any
     deviation from the low or high end of the estimated  maximum offering range
     may be reflected in the form of prospectus  filed with the  Securities  and
     Exchange  Commission  pursuant to Rule 424(b),  if, in the  aggregate,  the

                                      II-5
<PAGE>

     changes  in volume  and price  represent  no more than a 20%  change in the
     maximum  aggregate   offering  price  set  forth  in  the  "Calculation  of
     Registration Fee" table in the effective Registration Statement; and

          (iii) To  include  material  information  with  respect to the plan of
     distribution not previously disclosed in the Registration  Statement or any
     material change to such information in the Registration Statement.

     (2) That, for the purpose of determining any liability under the Securities
Act of 1933,  each such  post--effective  amendment  shall be deemed to be a new
Registration  Statement  relating to the  securities  offered  therein,  and the
offering of such  securities at that time shall be deemed to be the initial bona
fide offering thereof.

     (3) To remove from registration by means of a post--effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

                                      II-6
<PAGE>
                                   SIGNATURES

     In  accordance  with the  requirements  of the  Securities  Act of 1933, as
amended, the registrant has duly caused this Registration Statement to be signed
on its behalf by the  undersigned,  thereunto  duly  authorized,  in the City of
Bohemia, State of New York, on the 29th day of September, 2008.

                                      DIRECT INSITE CORP.

                                      By:  /s/  James A. Cannavino
                                           -------------------------------------
                                           James A. Cannavino
                                           Chairman of the Board,
                                           Chief Executive Officer


                                POWER OF ATTORNEY

Pursuant to the  requirements of the Securities Act. of 1933, this  Registration
Statement has been signed below on September  29, 2008 by the following  persons
in the  capacities  indicated.  Each person whose  signature  appears below also
constitutes   and   appoints   James  A.   Cannavino,   his   true  and   lawful
attorney-in-fact  and agent, with full power of substitution and resubstitution,
for him and in his name,  place and stead, in any and all capacities to sign any
and all amendments  (including  post-effective  amendments) to this Registration
Statement,  and to file  the  same,  with all  exhibits  thereto  and all  other
documents in  connection  therewith,  with the  Commission,  granting  unto said
attorney-in-fact  and agent full power and  authority to do and perform each and
every act and thing  requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person,  hereby ratifying and confirming
all that said  attorney-in-fact  and agent or his substitute or substitutes  may
lawfully do or cause to be done by virtue hereof.


/s/James A. Cannavino
---------------------  Chairman of the Board,
James A. Cannavino     Chief Executive Officer


/s/Michael J. Beecher
---------------------
Michael J. Beecher     Chief Financial Officer, Principal Accounting Officer and
                       Secretary

/s/Bernard Puckett
---------------------
Bernard Puckett        Director


/s/Dennis J. Murray
---------------------
Dennis J. Murray       Director


/s/Michael Levin
---------------------
Michael Levin          Director
[{"type": "S-1", "sequence": "1", "filename": "diri-s1oct08.txt", "secsgml_size_bytes": 401836}]
{"company-data": {"conformed-name": "DIRECT INSITE CORP", "cik": "0000879703", "assigned-sic": "7373", "irs-number": "112895590", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-153792", "film-number": "081102661"}, "business-address": {"street1": "80 ORVILLE DR", "city": "BOHEMIA", "state": "NY", "zip": "11716", "phone": "631-873-2900"}, "mail-address": {"street1": "80 ORVILLE DRIVE", "city": "BOHEMIA", "state": "NY", "zip": "11716"}, "former-company": {"former-conformed-name": "COMPUTER CONCEPTS CORP /DE", "date-changed": "19930328"}}
As filed with the Securities and Exchange Commission on October 2, 2008
                                                  Registration No. 333-

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   ----------
                                    Form S-1
             Registration Statement Under The Securities Act of 1933

                               DIRECT INSITE CORP.
                               -------------------
             (Exact name of registrant as specified in its charter)

        Delaware                       7373                       11-2895590
        --------                       ----                       ----------
     (State or other            (Primary Standard               (IRS Employer
jurisdiction of incorporation      Industrial                   Identification
    or organization)         Classification Code Number)            Number)

            80 Orville Drive, Bohemia, New York 11716 (631) 873-2900
   (Address, including zip code and telephone number, including area code, of
                          principal executive offices)

                               James A. Cannavino
                                80 Orville Drive
                     Bohemia, New York 11716 (631) 873-2900
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

                                   Copies to:
                            David H. Lieberman, Esq.
                       Beckman, Lieberman & Barandes, LLP
                        100 Jericho Quadrangle, Suite 329
                             Jericho, New York 11753
                                 (516) 433-1200
                            (516) 433-5858 Facsimile

     Approximate  Date of Proposed  Sale to the Public:  As soon as  practicable
     after this Registration Statement becomes effective.

     If the  securities  being  registered  on this Form are to be  offered on a
     delayed or continuous  basis  pursuant to Rule 415 under the Securities Act
     of 1933, check the following box [X].

     If this form is filed to  register  additional  securities  for an offering
     pursuant  to Rule  462(b)  under  the  Securities  Act,  please  check  the
     following box and list the Securities Act registration  statement number of
     the earlier effective registration statement for the same offering [ ].

     If this form is a  post-effective  amendment  filed pursuant to Rule 462(c)
     under the  Securities  Act, check the following box and list the Securities
     Act  registration  statement number of the earlier  effective  registration
     statement for the same offering [ ].

     If this form is a  post-effective  amendment  filed pursuant to Rule 462(d)
     under the  Securities  Act, check the following box and list the Securities
     Act  registration  statement number of the earlier  effective  registration
     statement for the same offering [ ].

     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 definition of "accelerated filer and large accelerated filer"
     in Rule 12b-2 of the Exchange Act. (Check one):

     [ ] Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer
                         [ ] Smaller Reporting Company
CALCULATION OF REGISTRATION FEE
======================================= ================= ===================== ======================== ======================
                                                            Proposed Maximum       Proposed Maximum
        Title of Each Class of            Amount to be     Offering Price Per     Aggregate Offering           Amount of
   Securities to be Registered (1)       Registered(1)        Security(2)              Price (2)           Registration Fee
--------------------------------------- ----------------- --------------------- ------------------------ ----------------------

--------------------------------------- ----------------- --------------------- ------------------------ ----------------------
Common Stock, $0.0001 par value,           1,200,000               $1.30               $1,560,000.00            $61.31

--------------------------------------- ----------------- --------------------- ------------------------ ----------------------
Common Stock, $0.0001 par value,
issuable upon exercise of Common
Stock Purchase Warrants dated July           250,000               $1.30                 $225,000.00            $12.77
12, 2005  (3)
--------------------------------------- ----------------- --------------------- ------------------------ ----------------------
Total                                      1,450,000                                   $1,885,000.00           $74.08
======================================= ================= ===================== ======================== ======================
(1)  Relates to the resale of these  shares of common  stock by certain  selling
     securityholders.

(2)  Estimated  solely for purposes of calculating the registration fee pursuant
     to  Rule  457(c)  under  the  Securities  Act  of  1933,  as  amended  (the
     "Securities  Act").  Pursuant to Rule 457(c) under the Securities  Act, the
     proposed maximum  offering price of each share of the  Registrant's  common
     stock is  estimated  to be the average of the high and low sales price of a
     share  as  of  a  date  five  business  days  before  the  filing  of  this
     registration statement.  Accordingly, the Registrant has used $1.30 as such
     price per share,  which is the average of the high and low  reported by the
     OTC Bulletin Board on September 25, 2008.

(3)  Pursuant to Rule 416 under the Securities Act, this registration  statement
     also relates to such indeterminate  number of shares of common stock as may
     become issuable by reason of stock splits,  stock dividends,  anti-dilution
     adjustments  and similar  transactions in accordance with the provisions of
     the common stock purchase warrants.
We hereby  amend  this  Registration  Statement  on such date or dates as may be
necessary to delay its  effective  date until we have filed a further  amendment
which  specifically  states that this  Registration  Statement shall  thereafter
become  effective in accordance with Section 8(a) of the Securities Act of 1933,
as amended, or until this Registration  Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
Pursuant  to  Rule  429  promulgated  under  the  Securities  Act of  1933,  the
prospectus  forming  a part of this  Registration  Statement  on Form  S-1  also
relates to the Registrant's  Registration  Statement on Form SB-2  (Registration
No. 333-128039) effective October 24, 2006.

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

================================================================================
                                EXPLANATORY NOTE

     This Registration Statement contains two forms of prospectus: (a) one to be
used  in  connection  with  an  offering  of  up  to  1,450,000  shares  of  the
Registrant's  common stock,  par value $0.0001 per share  ("Common  Stock"),  of
which 1,200,000  shares are outstanding and 250,000 shares are issuable upon the
e exercise  of  outstanding  warrants  for resale by the holders  thereof  named
herein (the "Resale  Prospectus")  and (b) one to be used in connection  with an
offering of up to 350,000 shares of the  Registrant's  Common Sock issuable upon
exercise of outstanding warrants, which have previously been registered pursuant
to the  Registrant's  Registration  Statement  on Form  SB-2  (Registration  No.
333-128039) (the "Update Prospectus").

     The complete Resale  Prospectus  relating to the shares held by the Selling
Securityholders follows immediately. Following the Resale Prospectus are certain
pages of the Update  Prospectus,  which  include:  (i) an alternate  front cover
page,  (ii) an alternate  section  entitled  "Summary--The  Offering,"  (iii) an
alternate section entitled "Use of Proceeds," (iv) an alternate section entitled
"Selling  Securityholders",  and (v) an  alternate  section  entitled  "Plan  of
Distribution."

     All other pages of the Resale  Prospectus and the Update Prospectus are the
same.

Pursuant  to  Rule  429  promulgated  under  the  Securities  Act of  1933,  the
prospectus  forming  a part of this  Registration  Statement  on Form  S-1  also
relates to the Registrant's  Registration  Statement on Form SB-2  (Registration
No. 333-128039), effective on October 24, 2006.
The  information in this  prospectus is not complete and may be changed.  We may
not sell  these  securities  until the  registration  statement  filed  with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell or a solicitation of an offer to buy these securities in any state where
the offer is not permitted.

                 SUBJECT TO COMPLETION, DATED October 2, 2008
                             Preliminary Prospectus
                                1,450,000 Shares

                               DIRECT INSITE CORP.
                                  Common Stock

     This  prospectus  relates  to the resale  shares of common  stock of Direct
Insite  Corp.  by  certain  of  our  securityholders,  referred  to  as  selling
securityholders  throughout  this  document.  The  selling  securityholders  are
offering to sell up to 1,450,000 shares of our common stock. We will not receive
any  proceeds  from the resale of shares by the selling  securityholders,  which
include:

     o    up to 1,200,000 outstanding shares; and

     o    up to 250,000  shares  issuable  upon the exercise of our common stock
          purchase warrants dated July 12, 2005.

     All of the shares being offered by this prospectus are being offered by the
selling  securityholders  named in this  prospectus.  This offering is not being
underwritten.  We will  not  receive  any of the  proceeds  from the sale of the
shares of our common stock in this  offering.  If the July 12, 2005 warrants are
exercised so that the underlying shares may be sold, we will receive the initial
exercise  price of the  warrants,  which is $1.00  per  share.  There  can be no
assurance,  however,  that all or any of the  warrants  will be  exercised.  The
selling  securityholders  identified  in this  prospectus,  or  their  pledgees,
donees, transferees or other successors-in-interest,  may offer the common stock
or interests therein from time to time through public or private transactions at
prevailing  market prices,  at prices related to prevailing market prices, or at
privately  negotiated  prices.  We will pay all  expenses  of  registering  this
offering of securities.

     The common  stock is traded in the  over-the-counter  market and prices are
quoted on the  over-the-counter  Bulletin  Board under the symbol  "DIRI.OB." On
September  25, 2008 the closing  price per share of our common  stock was $1.30.
Except under certain  circumstances,  the selling  securityholders will sell the
shares  from  time  to  time  through   independent   brokerage   firms  in  the
over-the-counter market at prices prevailing at the time of sale.

INVESTING IN OUR COMMON STOCK INVOLVES  RISK.  SEE "RISK  FACTORS"  BEGINNING ON
PAGE 4.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR  DISAPPROVED  OF THESE  SECURITIES  OR PASSED  UPON THE  ACCURACY OR
ADEQUACY  OF THE  PROSPECTUS.  ANY  REPRESENTATIONS  MADE TO THE  CONTRARY  IS A
CRIMINAL OFFENSE.

                The date of this Prospectus is ___________ ,2008.
Table of Contents
SUMMARY                                                                                  3
RISK FACTORS                                                                             4
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS                                        7
USE OF PROCEEDS                                                                          7
SELLING SECURITYHOLDERS                                                                  8
PLAN OF DISTRIBUTION                                                                     9
LEGAL PROCEEDINGS                                                                       12
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS                            12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                          14
DESCRIPTION OF SECURITIES                                                               15
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES     18
DESCRIPTION OF BUSINESS                                                                 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                               25
DESCRIPTION OF PROPERTY                                                                 35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                          33
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                36
EXECUTIVE COMPENSATION                                                                  37
EXPERTS                                                                                 44
LEGAL MATTERS                                                                           44
WHERE YOU CAN FIND MORE INFORMATION                                                     44
You should rely only on the information  contained in this  prospectus.  We have
not  authorized  anyone to provide you with  different  information.  We are not
making  an  offer  of these  securities  in any  state  where  the  offer is not
permitted.  You  should  not  assume  that  the  information  contained  in this
prospectus  is  accurate as of any date other than the date on the front of this
prospectus.

                                       2
SUMMARY

     This summary highlights  information contained elsewhere in the prospectus.
You  should  read the  entire  prospectus  carefully;  especially  the  risks of
investing in the  securities  discussed  under "Risk  Factors" and the financial
statements  and related  notes  included  elsewhere  in this  prospectus  before
deciding to invest in our common stock.

Our Company

     Direct Insite Corp. was organized as a public company under the name Unique
Ventures,  Inc.  under the laws of the State of Delaware on August 27, 1987.  In
August, 2000, we changed our name to Direct Insite Corp. Our principal executive
offices are located at 80 Orville Drive, Bohemia, New York. Our telephone number
is (631)  873-2900.  Unless the context  requires  otherwise,  all references to
"we," "our," "us,"  "company,"  "registrant,"  "Direct  Insite" or  "management"
refers to Direct Insite Corp. and its subsidiaries.

Our Current Business

     We operate 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.  Our 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.

     Through extensive automation for presenting, receiving, approving or paying
invoices, Direct Insite is helping its customers reduce costs, resolve disputes,
enhance cash flow efficiency, and improve customer satisfaction.

     We are currently delivering invoicing services across the Americas, Europe,
and Asia, including 62 countries, 15 languages and all major currencies.  Direct
Insite processes,  distributes and hosts millions of invoices,  purchase orders,
and  supporting  attachment  documents.   Suppliers,   customers,  and  internal
departments,  such as Finance  and  Accounting  or  Customer  Service can easily
access these critical business  documents whenever they need them through Direct
Insite's self-service portal.

     Currently, IBM, our largest customer,  representing approximately 47.1% and
47.3% of  revenue  for the three  and six month  periods  ended  June 30,  2008,
respectively  and  48.4% and  49.2% of our  revenue  for the three and six month
periods  ended June 30,  2007,  respectively,  utilizes our suite of services to
allow their  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 24 hours a day, 7 days a week,  365 days a year.  IBM accounted for
51% and 69% of our  revenue  for the years  ended  December  31,  2007 and 2006,
respectively.  Our  second  largest  customer,  Electronic  Data  Systems  Corp.
("EDS"),  accounted for  approximately  44.4% and 47.0% of revenue for the three
and six month periods ended June 30, 2008,  respectively  and 48.3% and 47.2% of
revenue for the three and six month periods  ended June 30, 2007,  respectively.
EDS accounted  for 46% and 29% of revenue for the years ended  December 31, 2007
and 2006, respectively.

                                       3
The Offering

     The selling  securityholders  may offer and sell up to 1,450,000  shares of
common  stock,  an amount equal to 15.5 % of our  currently  outstanding  common
stock. For a list of selling  securityholders and the amount of shares that each
of them expects to sell, see "Selling Securityholders."

     The offering is made by the selling  securityholders  for their benefit. We
will not receive any of the proceeds of their sale of common stock.

                                  RISK FACTORS

     You  should  carefully  consider  the  factors  described  below  and other
information contained in this prospectus.  The risks and uncertainties described
below are not the only ones we face.  Additional  risks  and  uncertainties  not
presently  known to us, which we currently deem  immaterial or which are similar
to those faced by other  companies in our  industry or business in general,  may
also impair our business  operations.  If any of the  following  risks  actually
occurs,  our business,  financial  condition or results of  operations  could be
materially and adversely affected. In such case, the trading price of our common
stock  could  decline,  and you may  lose all or part of your  investment.  This
prospectus  also  contains  forward-looking  statements  that involve  risks and
uncertainties.   Please  refer  to  "Special  Note   Regarding   Forward-Looking
Statements" included elsewhere in this prospectus.

The large number of shares  available for future sale may  adversely  effect the
market price of our stock.

     We have  9,352,616  shares of common stock  outstanding as of September 26,
2008, of which approximately  4,993,000 shares are freely tradable. We also have
4,350,238 shares issuable upon exercise of options and exercise of warrants.  If
all of our  outstanding  options  and  warrants  were  exercised , we would have
13,702,854  shares  outstanding.  The  issuance of such a large number of shares
could have a significant  adverse effect on the market for, as well as the price
of, our common  stock.  A decline in the market price also may make the terms of
future  financings  using  our  common  stock or  using  convertible  debt  more
burdensome.

Our planned growth may cause a strain on our management and other resources.

     We are  pursuing a business  strategy  that has involved and is expected to
continue to involve  significant growth over at least the next twelve months. We
cannot   guarantee  that  we  will  be  able  to  achieve  our  planned  growth.
Accomplishing our objectives will depend upon a number of factors, including our
ability to develop new customer  relationships.  We may also incur  development,
acquisition  or  expansion  costs that  represent a higher  percentage  of total
revenues than larger or more established  companies,  which may adversely affect
our results of operations.

We may not be able to compete favorably in the competitive information solutions
industry.

     The market for our information solutions is intensely competitive.  We face
competition  from a broad  range  of  competitors,  many of  whom  have  greater
financial,  technical  and  marketing  resources  than  we do.  There  can be no
assurance that we will be able to compete effectively with such entities.

                                       4
Our operations are dependent upon key management personnel.

     We believe that our continued success depends to a significant  extent upon
the efforts and abilities of our senior management.  In particular,  the loss of
James Cannavino,  our Chairman and Chief Executive Officer,  or any of our other
executive  officers or senior managers,  could have a material adverse effect on
our business.

Two customers account for a significant percentage of our revenue.

     We have two customers that accounted for  approximately  97% and 98% of our
revenue for the years ended December 31, 2007 and 2006,  respectively and 94% of
revenue  for the six  months  ended June 30,  2008.  The loss of either of these
customers  would  have a  material  adverse  effect on our  business,  financial
condition and results of operations.

Our success depends upon protecting our intellectual property.

     The  computer  software  industry  is  characterized  by  extensive  use of
intellectual  property protected by copyright,  patent and trademark laws. While
we believe that we do not infringe on the  intellectual  property  rights of any
third parties in conducting our business,  any allegations of  infringement,  or
disputes or litigations relating to infringement,  could have a material adverse
affect on our business,  financial  condition and results of  operations.  If we
cannot prevent third parties from using our proprietary  technology  without our
consent or without  compensating  us for the use of the  technology,  we believe
that it could adversely effect our ability to compete.  We cannot guarantee that
our  patents  and  copyrights  will  effectively  protect us from any copying or
emulation of our products in the future.

Our  common  stock is  quoted  on the OTC  Bulletin  Board,  which may limit the
liquidity and price of those  securities more than if our securities were quoted
or listed on the NASDAQ Stock Market or a national exchange.

     Our common stock is currently  quoted and traded on the OTC Bulletin  Board
("OTCBB"),  an  NASD-sponsored  and operated  inter-dealer  automated  quotation
system for equity  securities  not  included  in the  NASDAQ  Stock  Market or a
national  exchange.  Quotation of our  securities on the OTC Bulletin  Board may
limit the liquidity and price of our securities more than if our securities were
quoted  or listed on the  NASDAQ  Stock  Market  or a  national  exchange.  Some
investors  may perceive our  securities to be less  attractive  because they are
traded in the  over-the-counter  market.  Institutional  and other investors may
have  investment  guidelines  that restrict or prohibit  investing in securities
traded in the over-the-counter market. The factors may have an adverse impact on
the trading and price of our securities.

     Trading in our common stock has been limited,  so investors may not be able
to sell as many of their shares as they want at prevailing prices.

     The average daily volume of trading in our common stock for the three month
period ended August 31, 2008 was 2,073 shares.  If limited trading in our common
stock continues, it may be difficult for investors who purchase shares of common
stock to sell such shares in the public  market at any given time at  prevailing
prices.  Also,  the sale of a large block of our common stock could  depress the
market  price of our  common  stock to a  greater  degree  than a  company  that
typically has a higher volume of trading of its securities.

     We cannot  predict  whether  an active  market  for our  common  stock will
develop in the future. In the absence of an active trading market:

                                       5
o    Investors may have difficulty  buying and selling or obtaining  market
          quotations;

     o    Market visibility for our common stock may be limited; and

     o    Lack of visibility  for our common stock may have a depressive  effect
          on the market price for our common stock.

Our common stock is subject to the SEC's penny stock rules,  broker-dealers  may
experience  difficulty in completing customer  transactions and trading activity
in our securities may be severely limited.

     Currently,  we have net tangible assets less than $5,000,000 and our common
stock has a market price per share of less than $5.00.  Therefore,  transactions
in our common stock are subject to the "penny stock" rules promulgated under the
Securities Exchange Act of 1934. Under these rules, broker-dealers who recommend
such securities to persons other than institutional investors:

          o    Must make a special  written  suitability  determination  for the
               purchaser;

          o    Receive the purchaser's  written agreement to a transaction prior
               to sale;

          o    Provide  the  purchaser  with  risk  disclosure  documents  which
               identify  risks  associated  with investing in "penny stocks" and
               which  describe the market for these "penny  stocks" as well as a
               purchaser's legal remedies; and

          o    Obtain a  signed  and  dated  acknowledgment  from the  purchaser
               demonstrating  that  the  purchaser  has  actually  received  the
               required  risk  disclosure  document  before a  transaction  in a
               "penny stock" can be completed.

     As a result of these requirements,  broker-dealers may find it difficult to
effectuate  customer  transactions  and  trading  activity  in our stock will be
significantly  limited.  Accordingly,  the  market  price of our stock and other
publicly  traded  securities  may be depressed,  and it may be more difficult to
sell our shares.

Our stock price may be volatile.

     The  stock  market in  general  and the  market  for  shares of  technology
companies in particular,  have  experienced  extreme price  fluctuations,  often
unrelated  to  the  operating  performance  of  the  affected  companies.   Many
technology companies,  including us, have experienced dramatic volatility in the
market prices of their common stock. If our future  operating  results are below
the  expectations  of stock market  analysts and investors,  our stock price may
decline.  We cannot be certain  that the market  price of our common  stock will
remain stable in the future.  Our stock price may undergo  fluctuations that are
material, adverse and unrelated to our performance.

                                       6
Our charter  provisions and statutory law may inhibit  changes in control of our
company.

     Our certificate of  incorporation  and bylaws contain  provisions which may
discourage takeover attempts and hinder a merger,  tender offer or proxy contest
targeting us, including  transactions in which  securityholders  might receive a
premium  for their  shares.  This may limit  your  ability as a  stockholder  to
approve  a  transaction  that you may  think is in your  best  interests.  These
provisions could reduce the price that certain investors might be willing to pay
in the future for shares of common stock or preferred stock. Moreover,  although
our ability to issue preferred stock may provide  flexibility in connection with
possible  acquisitions and other corporate  purposes,  such issuance may make it
more  difficult  for a third party to acquire,  or may  discourage a third party
from  acquiring,  a majority  of our voting  stock.  Furthermore,  we may in the
future  adopt  other  measures  that may  delay,  defer or  prevent  a change in
control.  We may adopt some of these measures without any further vote or action
by securityholders.

                SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

     All statements  other than  statements of historical  fact included in this
prospectus  including,  without  limitation,   statements  under,  "Management's
Discussion and Analysis or Plan of Operation"  regarding our financial position,
business and the plans and objectives of management for future  operations,  are
forward-looking  statements.  When  used  in  this  prospectus,  words  such  as
"anticipate," "believe," "estimate," "expect," "intend" and similar expressions,
as such  words  or  expressions  relate  to us or we,  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 us. Actual results could differ  materially  from those  contemplated  by the
forward-looking  statements  as a result of certain  factors  including  but not
limited to, the failure to obtain sufficient additional capital, fluctuations in
projected  operating  results,  market  acceptance,   technological  changes  or
difficulties, management of future growth, dependence on proprietary technology,
competitive factors, the ability to recruit and retain personnel, the dependence
on key  personnel  and such other factors as described in our reports filed from
time to time with the SEC.  Such  statements  reflect  our  current  views  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.

                                 USE OF PROCEEDS

     This  prospectus  relates to shares of our common stock that may be offered
and sold from time to time by the selling  securityholders.  We will not receive
any of the proceeds from the sale of shares of common stock in this offering. If
the selling securityholder  exercises its warrants, we will receive the exercise
price of the warrants, which is currently $1.00 per share for the warrants dated
July 12, 2005  (500,000  warrants).  We intend to use the net proceeds  from the
exercise of the warrants for our general working capital needs.  There can be no
assurance that all, or any, of the warrants will be exercised.

                                       7
SELLING SECURITYHOLDERS

     In  September  2002,  we sold  93,458  shares of our  Series A  Convertible
Preferred  Stock,  ("Series A Preferred") in  consideration  for $2,000,000 less
fees and  expenses  of  $178,000  to  Metropolitan  Venture  Partners  II,  L.P.
("MetVP").  In December 2002, we sold 23,365 shares of our Series A Preferred in
consideration  for  $500,000  less fees and expenses of $61,000,  to MetVP.  The
proceeds  from this  transaction  were  received  January  3, 2003,  and,  as of
December  31,  2002,  the  principal  sum was  reflected  as stock  subscription
receivable.  In June  2003,  the  Company  sold  17,857  shares of its  Series A
Preferred  in  consideration  for  $250,000  less fees and expenses of $5,000 to
MetVP.  The  holders of Series A  Preferred  ("the  Holders")  are  entitled  to
dividends,  on a  cumulative  basis,  at the rate of 9.5% per annum,  compounded
quarterly and payable on February 1, 2005 and September 25, 2004. The payment of
the first dividend was originally  scheduled for September 25, 2004, however, we
and the  Holders  agreed to defer  this  payment  until  February  1,  2005.  As
consideration  for the  deferral of the dividend  payment,  we agreed to pay the
Holders a premium of 7.5% of the dividend.  Dividends are payable, at the option
of the Holders,  in cash or in the Company's  common stock.  Certain  issues had
arisen  concerning  the Company's  obligation to accumulate and pay dividends on
the Series A Preferred  beyond  September  25, 2005.  On November 21, 2007,  the
Company and MetVP entered into an agreement resolving certain disputes which had
arisen  with  respect to the payment of  dividends  and  interest to MetVP.  The
Agreement  provides  that, in addition to the  undisputed  sum of  approximately
$1,406,000,  the Company will be paying an additional $500,000 through September
25, 2008 in  consideration  of past,  present and future  dividend  and interest
payments  on the  Series  A  Preferred  through  that  date.  All  payments  are
conditioned upon there being funds legally available for such payments when due.
The agreement  further provided for the issuance to MetVP of 100,000  restricted
shares of the  Company's  common  stock.  Each  share of Series A  Preferred  is
convertible into ten shares of common stock, at the option of the Holder or upon
an Automatic  Conversion  Event.  The Holders have certain  demand and piggyback
registration  rights,  have  preference  in the  event of  liquidation,  and are
entitled to ten votes for each share of Series A Preferred  on all matters as to
which holders of common stock are entitled to vote. In accordance with the terms
of the Series A Preferred,  all  outstanding  shares of Series A Preferred  were
converted into 1,346,800  shares of the Company's  common stock on September 25,
2008.

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

     The following  table sets forth  information  concerning  the resale of the
shares of common stock by the selling  securityholders.  We will not receive any
proceeds from the resale of the common stock by the selling securityholders.  We
will receive  proceeds  from the exercise of warrants in the event that they are
exercised,  however  there can be no  assurance  that all or any of the warrants
will be exercised.  The table below assumes that all the shares registered below
are sold by the selling securityholders.

                                       8
The following  table sets forth the name of each person who is offering the
resale of shares of common  stock by this  prospectus,  the  number of shares of
common stock  beneficially  owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the  offering,  assuming  they sell all of the shares
being offered.  Unless otherwise  indicated,  each of the following  persons has
sole voting and investment  power with respect to the shares of common stock set
forth opposite their respective names. None of the selling securityholders is an
affiliate of a registered broker-dealer.
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------

                                    Number of                                          Number of
                                     shares                                             shares
                                  beneficially                        Number of       beneficially
                                  owned before                      shares being      owned after
   Selling Securityholder         the offering       Percentage        offered       the offering       Percentage

------------------------------ ------------------- --------------- ----------------- ---------------- -----------------
Metropolitan Venture              2,492,657(1)          24.2%       1,200,000         1,292,657              12.5 %
Partners II, L.P.
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------
Tall Oaks Group L.L.C.              847,406(2)           8.4%         250,000(3)        597,406(2)            6.1 %
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------
(1)  Includes  962,010  shares  issuable  upon exercise of options and warrants.
     Metropolitan  Venture  Partners  (Advisors) L.P holds voting and investment
     control over the shares held by Metropolitan  Venture Partners II, L.P. Mr.
     Michael  Levin is a Managing  Director  of  Metropolitan  Venture  Partners
     Corp.,  which is the  general  partner  of  Metropolitan  Venture  Partners
     (Advisors)  L.P.,  which,  in turn, is the general  partner of Metropolitan
     Venture Partners II, L.P. Mr. Levin is a member of our Board of Directors.

(2)  Includes 769,219 shares issuable upon exercise of options and warrants. Mr.
     Lawrence Hite holds voting and  investment  control over the shares held by
     Tall Oaks. Mr. Hite is the General  Manager of Tall Oaks.  Does not include
     an additional 309,000 shares directly owned by Mr. Hite,  including 150,000
     shares  issuable upon  exercise of options and warrants.  Mr. Hite and Tall
     Oaks  constitute a "group" for purposes of Section 13(d) of the  Securities
     Exchange Act of 1934.

(3)  Represents shares underlying warrants.
PLAN OF DISTRIBUTION

     The selling securityholders, or their pledgees, donees, transferees, or any
of their  successors in interest  selling  shares  received from a named selling
securityholder   as  a  gift,   partnership  or  other   distribution  or  other
non-sale-related  transfer after the date of this prospectus (all of whom may be
selling securityholders), may sell some or all of the shares of our common stock
covered  by this  prospectus  from  time to  time on the  NASD  Over-the-Counter
Bulletin Board or any stock exchange or automated  interdealer  quotation system
or tracking  facility on which the shares are  listed,  in the  over-the-counter
market, in privately negotiated  transactions or otherwise, at fixed prices that
may be  changed,  at market  prices  prevailing  at the time of sale,  at prices
related to  prevailing  market  prices or at prices  otherwise  negotiated.  The
selling  securityholders  may sell the shares of our common stock covered by the
prospectus  by  one  or  more  of  the  following  methods,  including,  without
limitation:

                                       9
1.   ordinary   brokerage   transactions  and  transactions  in  which  the
          broker-dealer solicits purchasers;

     2.   block  trades in which the  broker-dealer  so engaged  will attempt to
          sell the shares as agent but may  position and resell a portion of the
          block as principal to facilitate the transaction;

     3.   purchases  by  a   broker-dealer   as  principal  and  resale  by  the
          broker-dealer for its account pursuant to this prospectus;

     4.   an  exchange   distribution  in  accordance  with  the  rules  of  the
          applicable stock exchange on which the shares are listed;

     5.   privately negotiated transactions;

     6.   short sales,  either directly or with a broker-dealer  or an affiliate
          thereof;

     7.   broker-dealers  may  agree  with a  selling  securityholder  to sell a
          specified number of shares at a stipulated price per share;

     8.   through  the  writing  or  settlement  of  options  or  other  hedging
          transactions  relating to the  shares,  whether or not the options are
          listed on an options exchange or otherwise;

     9.   through  loans or  pledges  of the  shares  to a  broker-dealer  or an
          affiliate thereof;

     10.  by entering into transactions with third parties who may (or may cause
          others to) issue securities  convertible or exchangeable  into, or the
          return of which is  derived in whole or in part from the value of, our
          common stock;

     11.  through the  distribution of shares of our common stock by any selling
          securityholder  to its  partners,  members,  stockholders,  investors,
          interest  holders  and/or  creditors  or  to  the  partners,  members,
          investors,  stockholders,  interest  holders  and/or  creditors of its
          affiliates;

     12.  one or  more  underwritten  offerings  on a firm  commitment  or  best
          efforts basis;

     13.  a combination of any such methods of sale; or

     14.  any other method permitted pursuant to applicable law.

     The selling  securityholders  may also sell shares under Rule 144 under the
Securities  Act of 1933,  as  amended,  if  available,  rather  than  under this
prospectus.

     We do not know of any arrangements by the selling  securityholders  for the
sale of any of the securities.

                                       10
Broker-dealers or underwriters  engaged by the selling  securityholders may
participate  in  effecting  sales  of our  shares,  and  any  broker-dealers  or
underwriters  may arrange for other  brokers-dealers  to participate in sales of
our shares.  These  broker-dealers or underwriters may act as principals,  or as
agents of a selling  securityholder.  Broker dealers may receive  commissions or
discounts from the selling  securityholders  (or, if any  broker-dealer  acts as
agent  for the  purchaser  of  shares,  from the  purchaser)  in  amounts  to be
negotiated,  but,  in the  case of an  agency  transaction  not in  excess  of a
customary  brokerage  commission in compliance  with NASDR Rule 2440; and in the
case of a principal  transaction a markup or markdown in  compliance  with NASDR
IM-2440.

     In connection with the sale of our common stock or interests  therein,  the
selling  securityholders may enter into hedging transactions with broker-dealers
or other financial institutions,  which may in turn engage in short sales of our
common stock in the course of hedging the  positions  they  assume.  The selling
securityholders   may  also  enter  into  option  or  other   transactions  with
broker-dealers  or other  financial  institutions or the creation of one or more
derivative  securities which require the delivery to such broker-dealer or other
financial  institution of shares offered by this  prospectus,  which shares such
broker-dealer  or  other  financial  institution  may  resell  pursuant  to this
prospectus.

     Any broker-dealers or agents engaged by a selling  securityholder  that are
involved in selling the shares covered hereby may be deemed to be "underwriters"
within the meaning of the Securities Act in connection  with such sales. In such
event, any commissions received by such broker-dealers or agents and any profits
on the resale of the shares  purchased by them may be deemed to be  underwriting
commissions or discounts under the Securities  Act. Each selling  securityholder
has  informed  us that  it does  not  have  any  written  or oral  agreement  or
understanding,  directly or indirectly, with any person who is to distribute our
common stock covered hereby.

     We are required to pay certain fees and expenses incurred by us incident to
the registration of certain shares covered by this prospectus. We have agreed to
indemnify certain of the selling  securityholders  and their affiliates  against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act. Certain of the selling  securityholders have agreed to indemnify
us in certain circumstances  against certain liabilities,  including liabilities
under the  Securities  Act. We and  certain  selling  securityholders  have also
agreed, if these  indemnification  procedures are unavailable,  to contribute to
certain liabilities incurred by the others,  including in respect of liabilities
under the Securities Act.

     The shares  offered  hereby  were  originally  issued to or acquired by the
selling   securityholders   pursuant  to  an  exemption  from  the  registration
requirements of the Securities Act.

     Under applicable  rules and regulations  under the Exchange Act, any person
engaged in the distribution of the resale shares may not  simultaneously  engage
in market making  activities with respect to our common stock for the applicable
restricted  period, as defined in Regulation M, prior to the commencement of the
distribution.  In  addition,  the  selling  securityholders  will be  subject to
applicable  provisions  of the  Exchange  Act  and  the  rules  and  regulations
thereunder,  including Regulation M, which may limit the timing of purchases and
sales of shares of our common stock by the selling  securityholders or any other
person.  We  will  make  copies  of this  prospectus  available  to the  selling
securityholders  and have  informed  them of the need to  deliver a copy of this
prospectus  to each  purchaser  at or prior to the  time of sale  (including  by

                                       11
compliance with Rule 172 under the Securities Act).

     We will not receive any proceeds from the sale of securities by the selling
securityholders hereto.

     We cannot assure you that the selling  securityholders will sell all or any
portion of the shares of our common stock offered hereby.

                                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.

          DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

     As of September  26, 2008,  the names,  ages and positions of the directors
and executive officers of the Company are as follows:
Name            Age                Position                        Committee Member
       ----            ---                --------                        ----------------
James A Cannavino      64      Chairman of the Board of Directors
                               and Chief Executive Officer
Bernard Puckett        63      Member of the Board of Directors          Audit, Compensation
Dennis Murray          61      Member of the Board of Directors          Audit, Compensation
Michael Levin          35      Member of the Board of Directors
Arnold Leap            40      Executive Vice-President and Chief
                               Technology Officer
Matthew E. Oakes       45      Executive Vice-President and
                               Chief Operating Officer
Michael J. Beecher     63      Chief Financial Officer and Secretary
Christopher Cauley     39      Executive Vice-President Sales and
                               Marketing
James A.  Cannavino has been our Chairman of the Board and a director since
March 2000, and Chief  Executive  Officer since December 2002. From September of
1997 to April of 2000 he was the  non-executive  Chairman of  Softworks,  Inc (a
then wholly owned  subsidiary of the  Company),  which went public and was later
sold to EMC. Mr. Cannavino was also the Chief Executive  Officer and Chairman of
the Board of Directors of CyberSafe, Inc., a corporation specializing in network
security  from April 1998 to July 2001.  In August,  1995,  he was  appointed as
President and Chief Operating  Officer of Perot Systems  Corporation and in 1996
was elected to serve as Chief Executive  Officer  through July 1997.  During his
tenure at Perot he was responsible for all the day-to-day  global  operations of
the company,  as well as for strategy and organization.  Prior to that he served
as a Senior Vice President at IBM, responsible for strategy and development. Mr.
Cannavino held various positions at IBM for over thirty years beginning in 1963.
Mr. Cannavino led IBM's  restructuring of its $7 billion PC business to form the
IBM PC Company.  He also served on the IBM  Corporate  Executive  Committee  and
Worldwide  Management Council, and on the board of IBM's integrated services and
solutions company.  Mr. Cannavino presently serves on the Boards of the National
Center for Missing and Exploited Children,  the International Center for Missing
and  Exploited  Children,  and Verio.  He recently  was Chairman of the Board of
Marist  College in  Poughkeepsie,  New York and continues to serve on the board.
Mr. Cannavino will serve on the Board until his successor is elected.

     Bernard Puckett served as Chairman of the Board of Openwave Systems,  Inc.,
a leading provider of open IP-based  communication  infrastructure  software and
applications,  from 2002 until 2007.  Mr. Puckett was formerly the President and
Chief Executive Officer of Mobile Telecommunications  Technology Corp. ("Mtel").
Prior to joining Mtel,  Mr.  Puckett spent 26 years with IBM where he was Senior
Vice-president - Corporate  Strategy and Development.  He also held positions in
marketing,   finance,  product  development,   manufacturing  and  new  business
development  during his tenure at IBM. He also serves on the board of  directors
of IMS Health (NYSE:RX).  Mr. Puckett was appointed to our Board of Directors in
February 2004 and will serve in such capacity until his successor is elected.

                                       12
Dr. Dennis J. Murray has been President of Marist College since 1979. Early
in his tenure,  he identified the  importance of technology in higher  education
and made it one of the central  themes of his  administration.  He  developed an
innovative  joint  study  with the IBM  Corporation,  which  resulted  in Marist
becoming one of the nations most technologically advanced liberal arts colleges.
Marist was one of the first  colleges or  universities  in the country to have a
fully  networked  campus.  Dr.  Murray has been a strong  supporter of the Linux
operating system and recently  initiated a Linux Research and Development Center
at Marist. Dr. Murray serves on the boards of the Franklin and Eleanor Roosevelt
Institute, McCann Foundation, and the New York State Greenway Conservancy, which
oversees the Hudson River Valley  National  Heritage Area. He is also the author
of two books on nonprofit  management,  editor of three books on government  and
public  affairs,  and  co-author  of a guide to  corporate-sponsored  university
research  in  biotechnology.  Dr.  Murray  has  been a  member  of the  Board of
Directors  since March 2000, and will serve in such capacity until his successor
is elected.

     Michael Levin is Managing Director of Metropolitan  Venture Partners Corp.,
a venture capital firm he co-founded in 1999. In his role, Mr. Levin  negotiates
and manages  investments,  as well as oversees  the  financial  and  operational
management  of the firm.  He also  serves as an active  Board  member  and works
closely with portfolio  companies on strategic growth and ensuring proper fiscal
discipline.  Prior to  Metropolitan  Venture  Partners,  Mr. Levin developed and
managed  hedge  funds  for the Man  Group  plc and  Larry  Hite.  Mr.  Levin was
graduated  Magna  Cum  Laude  from  The  Wharton  School  at the  University  of
Pennsylvania with a concentration in Finance.  He is also an alumnus of Phillips
Exeter  Academy.   Mr.  Levin  was  appointed  to  our  Board  of  Directors  in
February 2005.

     Arnold Leap has been Executive Vice President and Chief Technology  Officer
since November 2000. From March 1998 until November 2000 he held the position of
Chief Information Officer. Mr. Leap originally was hired in February 1997 as the
Company's  Director of Development  and  Engineering and held the position until
March  1998.  Prior  to  his  joining  Direct  Insite,  Mr.  Leap  was  the  MIS
Manager/Director  of AMP Circuits,  Inc., and a subsidiary of AMP, Inc. from1993
to February 1997. His responsibilities at AMP Circuits, Inc. included day-to-day
information systems operation as well as the development and implementation of a
consolidated ERP and financial system.

     Matthew  Oakes was appointed  Chief  Operating  Officer and Executive  Vice
President  - Client  Services  on August  16,  2006.  Prior  thereto he held the
position of  Executive  Vice  President - Client  Services of the Company  since
November of 2002. Prior to his joining the Company, Mr. Oakes served three years
as the Operations  Officer for Direct Media Networks a New York based e-commerce
and technology company. He held executive positions in Westinghouse  Communities
Inc.  including  "Managing Director of Operations" for the Pelican Bay Community
in  Naples,  Florida.  Mr.  Oakes  received a JD degree  from Nova  Southeastern
University  and holds an MBA in finance.  He is a 1993 graduate with a Bachelors
Degree in Business  from Cornell  University.  He served with the United  States
Marines prior to attending Cornell.

                                       13
Michael J. Beecher,  CPA, joined the Company as Chief Financial  Officer in
December 2003.  Prior to joining  Direct Insite Mr. Beecher was Chief  Financial
Officer  and  Treasurer  of  FiberCore,  Inc.,  a publicly  held  company in the
fiber-optics  industry.  From 1989 to 1995 he was Vice-President  Administration
and Finance at the  University of  Bridgeport.  Mr.  Beecher began his career in
public accounting with Haskins & Sells, an international public accounting firm.
He is a graduate of the University of Connecticut, a Certified Public Accountant
and a member of the American Institute of Certified Public Accountants.

     Christopher  Cauley was  appointed  Executive  Vice  President of Sales and
Marketing in August 2006.  Mr.  Cauley joined the Company in August 2005 as Vice
President of Business  Development.  Prior to joining Direct Insite from 1998 to
2005 Mr. Cauley was Senior Manager for Sales & Business  Consulting for Avolent,
Inc.,  where he led a team of sales  consultants  responsible  for  selling  the
Company's  Business to Business ("B2B")  financial  relationship  management and
electronic invoice  presentment and payment internet  application suite.  During
his tenure with Avolent, Mr. Cauley managed sales consulting strategy and closed
several large contracts with Fortune 500 companies. Mr. Cauley previously worked
for American Management  Systems,  Inc. (AMS) as a Principle Project Manager and
Solutions  Analyst in AMS' Financial  Services and  Telecommunications  Industry
Groups.  At AMS, he acquired  in-depth  knowledge of system  integration and the
development  of financial and customer care billing  systems.  Mr. Cauley earned
his  Bachelor  of  Science  Degree  in  Business  Administration  from  Virginia
Polytechnic Institute and State University in Blacksburg, Virginia.

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth the beneficial ownership of shares of voting
stock of the Company,  as of September  15, 2008 of (i) each person known by the
Company  to  beneficially  own 5% or more of the  shares of  outstanding  common
stock, based solely on filings with the Securities and Exchange Commission, (ii)
each of the  Company's  executive  officers and  directors  and (iii) all of the
Company's  executive  officers  and  directors  as a group.  Except as otherwise
indicated,  all shares are  beneficially  owned, and the persons named as owners
hold investment and voting power.
Common Stock           Rights to Acquire                        Total Beneficially
                                Beneficially    Beneficial Ownership Through Exercise             Owned as % of
Name of Beneficial Owner (1)      Owned          of Options and Warrants Within 60 Days        Outstanding Shares (2)
---------------------------------------------------------------------------------------------------------------------
Metropolitan Venture
     Partners II, L.P.          1,530,647                    962,010                                 24.2%
Tall Oaks Group, L.L.C.            78,187                    769,219                                  8.4%
Lawrence D. Hite (3)              159,000                    150,000                                  3.2%
James Cannavino                 1,713,267                    395,000                                 21.6%
Bernard Puckett                    83,122                     50,813                                  1.4%
Dennis Murray                     172,042                     39,600                                  2.3%
Michael Levin (4)                   2,000                       --                                     *
Matthew Oakes                     200,882                    230,000                                  4.5%
Arnold Leap                       172,681                    100,000                                  2.9%
Christopher Cauley                134,719                    175,000                                  3.3%
Michael Beecher                   127,472                    185,000                                  3.3%
All Officers and Directors
as a Group (8 persons)          2,606,685                  1,175,413                                 35.9%
-------
* =  Less than 1%
                                       14
Footnotes
---------

(1)  The address of the holder is 80 Orville Drive, Suite 200, Bohemia, New York
     11716, except for Metropolitan  Venture Partners II, L.P. which is 432 Park
     Avenue  South,  12th Floor,  New York,  NY 10016 and Tall Oaks and Lawrence
     Hite which is 119 West 72nd Street, Suite 181, New York, NY 10023.

(2)  Based upon  9,352,616  common shares  outstanding as of September 26, 2008,
     plus outstanding  options and warrants  exercisable within 60 days owned by
     above named parties.

(3)  Mr. Hite's  beneficial  ownership  includes  shares held by Tall Oaks, over
     which he holds voting and investment control.

(4)  Excludes  shares held by Metropolitan  Venture  Partners II, L.P. Mr. Levin
     serves as a  Managing  Director  of  Metropolitan  Venture  Partners  Corp.
     Metropolitan  Venture Partners Corp. is the General Partner of Metropolitan
     Venture   Partners   (Advisors)  LP,  which  is  the  General   Partner  of
     Metropolitan Venture Partners II, L.P.
DESCRIPTION OF SECURITIES

     Our  authorized  capital  consists  of  50,000,000  shares of common  stock
$0.0001 par value,  of which 9,352,616  shares were  outstanding as of September
26, 2008. In addition,  our  authorized  capital  includes  2,000,000  shares of
preferred  stock of which we are  authorized  to issue 1,000  shares of Series B
Redeemable  Preferred Stock, 2,000 shares of Series C Redeemable Preferred Stock
and 1,500 shares of Series D Redeemable  Preferred  Stock.  As of September  26,
2008,  there  were  974  shares  of our  Series  B  Redeemable  Preferred  Stock
outstanding,  2,000 shares of our Series C Redeemable Preferred  outstanding and
100 shares of our Series D Redeemable Preferred outstanding.

     Set forth below is a summary  description of certain provisions relating to
our capital stock  contained in and qualified in its entirety by our Certificate
of Incorporation and by-laws and under the General Corporation Law of Delaware.

Common Stock

     Holders of common  stock are  entitled to one vote for each share of common
stock  owned of record on all  matters  to be voted on by  securityholders.  Our
Certificate of Incorporation does not contain any special voting provisions, and
no corporate  action  requires a greater than majority vote of  securityholders.
Cumulative voting is not permitted in the election of directors.

     The holders of common stock are entitled to receive such dividends, if any,
as may be  declared  from  time  to  time  by the  Board  of  Directors,  in its
discretion, from funds legally available therefor.

     The common stock has no preemptive or other subscription  rights, and there
are no conversion  rights or redemption  provisions.  All outstanding  shares of
common stock are validly issued, fully paid, and non-assessable.

                                       15
Series B Preferred

     The board of directors has  designated and authorized the issuance of 1,000
shares  of  Series  B  Redeemable  Preferred  Stock  of  which  974  shares  are
outstanding.

     Redemption

     The Series B Redeemable  Preferred shares are redeemable by us at any time.
The redemption price is $1,000 per share plus accrued and unpaid dividends.

     Voting Rights

     The holders of Series B Redeemable Preferred Stock have no voting rights.

     Dividends

     Holders of Series B Redeemable  Preferred  are entitled to dividends at the
rate of 12% per year, payable quarterly.

     Rank

                                       16
Series B  Redeemable  Preferred  shares shall rank senior to all classes of
capital stock.

Series C Preferred

     The board of directors has  designated and authorized the issuance of 2,000
shares  of  Series  C  Redeemable  Preferred  Stock of which  2,000  shares  are
outstanding.

     Redemption

     The Series C Redeemable  Preferred  shares are redeemable by us at anytime.
The redemption price is $1,000 per share plus accrued and unpaid dividends.

     Voting Rights

     The holders of Series C Redeemable Preferred have no voting rights.

     Dividends

     The holders of Series C Redeemable  Preferred  are entitled to dividends at
the rate of 9-1/2% per annum.

     Rank

     Holders of Series C Redeemable  Preferred are entitled to preference in the
payment of dividends and  distribution of assets upon liquidation to all classes
of capital stock except for the Series B Preferred.

Series D Redeemable Preferred

     The board of directors has  designated and authorized the issuance of 1,500
shares  of  Series D  Redeemable  Preferred  Stock,  of  which  100  shares  are
outstanding.

     Redemption

     The Series D Redeemable  Preferred shares are redeemable by us at any time.
The redemption price is $1,000 per share plus accrued and unpaid dividends.

     Voting Rights

     The holders of Series D Redeemable Preferred have no voting rights.

     Dividends

     The holders of Series D Redeemable  Preferred  are entitled to dividends at
the rate of 9-1/2% per year, payable quarterly commencing April 1, 2006.

     Rank

     The holders of Series D Redeemable Preferred have preference in the payment
of  dividends  and  distribution  of assets upon  liquidation  to all classes of
capital stock except for the Series A, B and C Preferred Stock.

                                       17
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
                                ACT LIABILITIES

     Our  Certificate of  Incorporation  and By-Laws  provide our directors with
protection for breaches of their fiduciary duties to us and our securityholders.
Insofar as indemnification  for liabilities arising under the Securities Act may
be permitted to our directors,  officers or persons controlling us, we have been
advised that it is the SEC's opinion that such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.

                                       18
DESCRIPTION OF BUSINESS

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.  In August,  2000,  we
changed our name to Direct Insite Corp.

Our Current Business

     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.

     Through extensive automation for presenting, receiving, approving or paying
invoices, Direct Insite is helping its customers reduce costs, resolve disputes,
enhance cash flow efficiency, and improve customer satisfaction.

     Direct  Insite  is  currently  delivering  invoicing  services  across  the
Americas,  Europe, and Asia, including 62 countries,  15 languages and all major
currencies. Direct Insite processes, distributes and hosts millions of invoices,
purchase orders, and supporting attachment documents.  Suppliers, customers, and
internal  departments,  such as Finance and  Accounting or Customer  Service can
easily access these critical business  documents whenever they need them through
Direct Insite's self-service portal.

     Currently, IBM, our largest customer,  representing approximately 47.1% and
47.3% of  revenue  for the three  and six month  periods  ended  June 30,  2008,
respectively  and  48.4% and  49.2% of our  revenue  for the three and six month
periods  ended June 30,  2007,  respectively,  utilizes our suite of services to
allow their  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 24 hours a day, 7 days a week,  365 days a year.  IBM accounted for
51% and 69% of our  revenue  for the years  ended  December  31,  2007 and 2006,
respectively.  Our  second  largest  customer,  Electronic  Data  Systems  Corp.
("EDS"),  accounted for approximately 44.4% and 47% of revenue for the three and
six month  periods  ended  June 30,  2008,  respectively  and 48.3% and 47.2% of
revenue for the three and six month periods  ended June 30, 2007,  respectively.
EDS accounted  for 46% and 29% of revenue for the years ended  December 31, 2007
and 2006, respectively.

Products and Services

     Direct Insite  specializes in the automation of financial supply chain best
practices within the Procure-to-Pay and Order-to-Cash  processes.  Direct Insite
provides  its  Software  as a Service  ("SaaS")  and offers  Custom  Engineering
support to implement and customize its solutions.

     The following are Direct Insite's primary service offerings:

     o    Procure-to Pay: eInvoice Management for Accounts Payable
     o    Order-to Cash:  eInvoice Management for Accounts Receivable

                                       19
Procure-to Pay - Electronic Invoice Automation for Accounts Payable

Direct Insite's eInvoice Management for Accounts Payable dramatically  increases
accounts   payable   productivity  by  streamlining   manual  supplier   invoice
validation, inquiry and approval processes.

     Supplier Self Service Portal

     Direct  Insite's   Procure-to-Pay  service  offering  includes  a  supplier
self-service portal and electronic invoice  presentment  capability that is able
to materially  reduce call center traffic by resolving  inquiries  without human
intervention.  Direct  Insite's  online portal allows  suppliers to access their
invoice  status,  invoice line items,  attachments,  payment  status,  and other
relevant  billing  information on their own time, at any time and without having
to call or wait for support.

     Supplier Electronic Invoice Submission

     Suppliers  are able to  submit  their  invoices  via  electronic  formats &
adaptors,  including web form entry, supplier networks,  spreadsheet upload, and
Enterprise Resource Planning ("ERP") adaptors such as Oracle, SAP, Great Plains,
or legacy  billing  systems.  Suppliers can also perform a purchase order "flip"
function where customer orders can be used to automatically generate preliminary
bills for review and release for payment.

     Invoice Matching & Workflow Exception Handling

     Direct   Insite's    Procure-to-Pay   service   allows   Accounts   Payable
administrators the ability to configure robust invoice validation business rules
where inbound  supplier  invoices can be  automatically  matched against orders,
variable  consumption  reports,  or  other  business  documents.  Non  compliant
invoices and line items are flagged and routed for exception workflow handling.

     Invoice Approval & Payment

     Once  invoices  have been  validated  they can be  routed  to the  Accounts
Payable  financial  system for  disbursement  or paid  within the Direct  Insite
self-service portal. Direct Insite ensures that a company's ERP financial system
is always updated seamlessly.

     Direct  Insite's   Procure-to-Pay  service  is  focused  on  providing  the
following significant business benefits:

     o    Eliminate manual invoice validation processes
     o    Improve  on-time  payments  and the ability to capture  early  payment
          discounts
     o    Increase supplier electronic invoice submission
     o    Reduce Accounts Payable call center traffic
     o    Enhance supplier relationships and overall ease of business

Order-to-Cash - Electronic Invoice Automation for Accounts Receivable

     Direct  Insite's  eInvoice   Management  for  Accounts  Receivable  service
offering  generates  a dynamic  electronic  invoice  that  facilitates  customer
analysis,  dispute resolution,  approval and payment. The benefits include lower
invoicing costs, more timely payment and improved customer satisfaction.

                                       20
Invoice Compliance and Validation

     Direct  Insite's  Order-to Cash solution  allows for a preliminary  invoice
workflow  process that  automatically  validates  Accounts  Receivable  invoices
against source billing documents to ensure the invoice is compliant and accurate
before the invoice is  finalized  and  distributed  to the customer for payment.
During the preliminary invoice validation cycle,  invoice exceptions are flagged
and  automatically  processed  for  resolution.  Once  the  invoices  have  been
finalized, they can be released for payment.

     Invoice Attachment Processing

     Direct Insite enables  billers to distribute  electronic  attachments  with
their invoice to proactively provide the supporting documentation often required
by Accounts Payable  departments.  Invoice attachments are then presented online
within  an  easily  accessible   self-service   portal.   This  facilitates  the
reconciliation process for the customer and makes for more timely payments.

     Invoice Distribution & Self Service Portal Presentment

     Direct  Insite's  Order-to-Cash  service  also  supports  multiple  invoice
distribution  and  presentment  methods  depending  upon  customer  preferences,
including online,  PDF email,  self-service  downloads,  EDI, fax, or print. The
invoice  presentment  capability  displays  invoices  and  attachments  within a
self-service  web portal where  customers  can access their  invoice,  line item
detail, and supporting attachments at all times.

     Dispute Management

     Direct Insite further supports the ability for customers to initiate online
invoice or line item inquiries and disputes. Specifically,  customers can review
their invoices within the self-service  portal and initiate invoice or line item
invoice disputes  without having to reach call center support.  Once the dispute
request has been  initiated,  customers can approve the remainder of the invoice
and  schedule it for  payment.  Easing the  dispute  process  supports  customer
satisfaction and allows for partial invoice collection to improve cash flow.

     Invoice Approval & Payment

     Direct Insite  provides a workflow  tool,  with  configurable  rules,  that
customers can use to route an invoice through their corporate  approval process.
This  ensures  that  invoices  are not  stalled in the  company's  authorization
hierarchy.  Approved  invoices  can be routed to the ERP  financial  system  for
disbursement or paid within the Direct Insite self-service portal. Direct Insite
ensures the customer's ERP financial system is updated seamlessly.

     Reporting & Data Analysis

     This Order-to-Cash service can store multiple years of online invoice, line
item,  dispute status, and payment history to generate online reporting and data
analysis.  Customers  can use  the  self-reporting  capability  to  track  their
spending or produce  detailed  usage  reports.  Internal  Finance and Accounting
administrators  are able to perform online reporting to track scheduled payments
or forecast in-bound cash flow.

                                       21
Audit & Traceability

     Direct Insite's  Procure-to-Pay and Order-to-Cash service offerings support
a complete  audit log whereby all internal and external user actions are logged,
tracked and presented in views of user activity history. At any time, authorized
administrators can review online user activity and monitor user adoption.

     Direct Insite's  Order-to-Cash service offering is focused on providing the
following significant business benefits:

     o    Reduce paper invoicing costs
     o    Eliminate manual invoice reconciliation, preparation and consolidation
          processes
     o    Reduce Accounts Receivable call center traffic
     o    Reduce customer disputes and inquiries
     o    Reduce Days Sales Outstanding
     o    Improve overall cash flow
     o    Increase customer satisfaction and competitive advantage

Sales and Marketing

     Channels to Market

     Direct Insite has two primary channels to market - direct through our sales
representatives  and indirect  through  channel and  strategic  partners.  These
channels are supported by a technical sales support group.

     Direct

     The direct sales organization  consists of `in-the-field'  sales associates
complemented  by sales  support  resources.  The sales  associates  and  support
resources are primarily responsible for qualifying direct opportunities followed
by a proven solution  selling  methodology.  Sales  associates  engage in direct
sales   activities   that  include   business   value  analysis  and  alignment,
capabilities  demonstrations,   sales  forecasting,   procurement  and  contract
management.  Direct Insite's executive management team is actively involved with
and complements Direct Insite's direct sales organization.

     Indirect

     Direct  Insite  continues  to pursue both  reseller and  strategic  partner
relationships to further develop existing account  relationships and to increase
market coverage.  Direct Insite's strategic  partnerships  complement the direct
sales  channel and serve to expand Direct  Insite's  offerings and global market
leadership. Strategic partnerships also complement Direct Insite's offerings and
capability in the areas of payment transaction  processing,  content management,
centralized user authentication,  and other complementary financial supply chain
functions.  The use of indirect channel  relationships also allows Direct Insite
to leverage additional engineering and professional resources.

                                       22
Technical Sales Support and Post-Sales Account Management

     Direct Insite has a pre-sales  support staff and adds post sales support to
the existing account  management group as we secure new business.  This group is
responsible for technical sales presentations, developing proposals and pricing,
contract administration and account management post-sales support.

     IBM Reseller Agreement

     The Company executed a reseller  agreement with IBM on August 4, 2003. This
agreement  provides  IBM  with  the  ability  to  sell  the  Procure-to-Pay  and
Order-to-Cash  Electronic Invoice Automation service offerings to its customers.
The Company  supports this sales  activity by providing  Subject  Matter Experts
(SME's) to assist the IBM sales organization.

Research and Development

     The computer  software  industry is  characterized  by rapid  technological
change, which requires ongoing development and maintenance of software products.
It is customary for modifications to be made to a software product as experience
with its use  grows or  changes  in  manufacturers'  hardware  and  software  so
require.

     We believe that our research and  development  staff,  many with  extensive
experience in the industry,  represents a significant  competitive advantage. As
of  September  1, 2008,  our  research  and  development  group  consists  of 18
employees.   Further,  when  needed,  we  retain  the  services  of  independent
professional consultants. We seek to recruit highly qualified employees, and our
ability to attract  and retain  such  employees  is  expected  to be a principal
factor in our success in maintaining a leading technological  position.  For the
years ended December 31, 2007 and 2006,  research and development  expenses were
approximately $2,599,000, and $2,381,000, respectively. For the six months ended
June 30, 2008 and 2007,  research and  development  expenses were $1,350,000 and
$1,301,000,   respectively.   We  believe  that   investments  in  research  and
development are required in order to remain competitive.

Competition

     We believe our primary competitors are:

     Avolent is a privately  held San  Francisco  based  provider of  enterprise
eBilling software that includes EIP&P,  online invoice dispute  processing,  and
reporting.  Founded in 1995,  Avolent  has  primarily  focused  on the  leasing,
healthcare, and distribution markets.

     Bottomline Technologies (NASDAQ: EPAY) was established in 1989 and provides
a B2B EIP&P solution, primarily to financial institutions and the legal services
markets.  The  company's  products  include  software  designed to automate  the
disbursement  process for banks and their  corporate  customers'  anti-fraud and
electronic commerce payment software.  Bottomline focuses on cash management and
financial-related remittance, reporting and audit data.

     American Express - Harbor Payments,  Inc. Harbor Payments,  Inc. ("Harbor")
was  acquired by American  Express on December 31,  2006.  Harbor  operates as a
subsidiary of American  Express and its primary base of operations is located in
Atlanta, Georgia. The acquisition by American Express supports their strategy to
offer a suite of solutions  to enable  companies  to automate  their  `source to
settle' processes - by integrating steps in their electronic purchasing cycle.

                                       23
170 Systems is a privately held Bedford, Massachusetts provider of software
solutions that manage and optimize  financial  processes - from Accounts Payable
to General  Ledger.  Since 1990, 170 Systems has offered their  Financial  Suite
that includes imaging, workflow, self service, and e-Invoicing functionality.

     iPayables  is based in Lake  Forest,  California  and was  founded in 1999.
iPayables  provides Internet invoice delivery services focused on reducing paper
processing costs within Accounts Payable departments.

     JPMorgan  Xign, a subsidiary  of JPMorgan  Chase was founded in 2000 and is
headquartered  in Pleasanton,  California.  JPMorgan Xign's Business  Settlement
Network provides  electronic  order delivery,  invoice  processing,  and payment
service for business-to-business commerce. JPMorgan Xign's product suite focuses
on  automating a buyer's  Order-to-Pay  cycle,  including  receipt,  validation,
routing, dispute management, approval, payment, and posting.

     Ariba, Inc. (NASDAQ: ARBA) helps companies analyze,  understand, and manage
their corporate  spending to achieve increased cost savings and business process
efficiency.  Its solutions  include software,  network access,  and professional
services.  The  company's  software  and  services  streamline  and  enhance the
business  processes  related to the  identification  of  suppliers  of goods and
services,  the  negotiation  of the terms of  purchases,  and the  management of
ongoing purchasing and settlement activities.  Ariba is a public company founded
in 1996 and headquartered in Sunnyvale, California.

     Many  of  our  current  and   potential   competitors   have  greater  name
recognition,  larger installed customer bases, longer operating  histories,  and
substantially  greater financial,  technical and marketing resources than Direct
Insite. We cannot assume that current and potential competitors will not develop
products  that may be or may be perceived to be more  effective or responsive to
technological  change  than  are our  current  or  future  products  or that our
technologies  and products will not be rendered  obsolete by such  developments.
Increased competition could result in price reductions,  reduced margins or loss
of market  share,  any of which  could  have a  material  adverse  effect on our
business, operating results and financial condition.

Employees

     We had 40  employees,  all in the  United  States,  at  September  1, 2008,
including 27 in technical support,  (including  research and development),  8 in
marketing,   sales  and  support  services,  and  5  in  corporate  finance  and
administration.  Our  future  success  will  depend in part  upon our  continued
ability to attract and retain highly skilled and qualified personnel. We believe
that our  relations  with our  employees  are  good,  and we have no  collective
bargaining agreements with any labor unions.

Intellectual Property

     We rely on  proprietary  knowledge and employ  various  methods,  including
confidentiality  agreements,  to protect our software codes, concepts, ideas and
documentation  of our  proprietary  technology.  We have a federally  registered
patent "dbExpress", a data mining tool which expires in 2013.

                                       24
Despite these efforts,  unauthorized parties may attempt to copy aspects of
our  products,  obtain  and use  information  that we regard as  proprietary  or
misappropriate our copyrights,  trademarks,  trade dress and similar proprietary
rights.  In  addition,  the  laws  of  some  foreign  countries  do not  protect
proprietary  rights to as great an extent as do the laws of the  United  States.
Our means of protecting our proprietary rights may not be adequate. In addition,
our competitors might independently  develop similar technology or duplicate our
products or circumvent any patents or our other intellectual property rights.

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

Overview

     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.

Seasonality/Quantity Fluctuations

     Revenue from ASP 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 product  introductions,
domestic   and   international    economic   conditions,    customer   budgetary
considerations, and the timing of product 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.

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
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

                                       25
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:  it  requires  assumptions  to be made  that were
uncertain at the time the estimate was made; and 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 Issue No. 00-21, we allocate the total revenue to be earned among the
various  elements  based on their  relative  fair values.  We recognize  revenue
related to the delivered products or services only if:

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

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

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

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

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

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

     ASP Services

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

     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 lessor of the milestone  amount when the customer accepts such milestones or
the percentage of completion of the contract following the guidance of SOP 81-1,
"Accounting for  Performance of  Construction-Type  and Certain  Production Type
Contracts".

                                       26
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 June 30, 2008 and 2007,
and  December  31, 2007 and 2006,  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 six months ended
June 30,  2008 and  2007,  and the  years  ended  December  31,  2007 and  2006,
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  June  30,  2008  Condensed
Consolidated Financial Statements).

                                       27
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
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.

For The Six Months Ended June 30, 2008

Results of Operations

     For the three and six month periods ended June 30, 2008,  IBM accounted for
47.1% and 47.3% of  revenue,  respectively,  compared to 48.4% and 49.2% for the
three and six month periods ended June 30, 2007, respectively. For the three and
six month  periods  ended June 30, 2008,  EDS  accounted  for 44.4% and 47.0% of
revenue,  respectively,  compared to 48.3% and 47.2% for the three and six month
periods ended June 30, 2007, respectively.

     For the three and six month  periods ended June 30, 2008 we had income from
operations  of  $390,000  and  $447,000,  respectively,  compared to income from
operations of $640,000 and  $1,102,000 for the three and six month periods ended
June 30, 2007,  respectively.  We had net income of $391,000 and  $3,303,000 for
the three and six months  ended June 30,  2008,  respectively,  compared  to net
income of $617,000  and  $1,018,000  for the three and six months ended June 30,
2007,  respectively.  During the six months ended June 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 as we
more likely than not expect to utilize in future years.

     For the three and six month periods  ended June 30, 2008 revenue  decreased
$234,000 (9.1%) to $2,346,000 and $533,000 (11.0%) to $4,301,000,  respectively,
compared to revenue of  $2,580,000  and  $4,834,000  for the three and six month
periods ended June 30, 2007, respectively. This decrease is primarily the result
of a decrease in engineering  services  revenue of $161,000 (23.5%) and $626,000
(49.1%)  for the three and six months  ended June 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 six months of 2008.  Revenue
from our recurring ASP IOL services decreased $72,000 for the three months ended
June 30,  2008 and  increased  $93,000  for the six months  ended June 30,  2008
compared  to the same  period  in 2007.  We  anticipate  that  revenue  from new
projects will increase  during the remainder of 2008 as we begin new initiatives
with existing customers and as we expand our customer base.

     Costs of operations,  research and development  increased by $20,000 (2.0%)
to  $1,007,000  for the three  months  ended June 30, 2008  compared to costs of
$987,000 for the three months ended June 30, 2007. For the six months ended June
30, 2008 these costs decreased $30,000 (1.6%) compared to costs of $1,862,000 in
the same period in 2007. These costs consist principally of salaries and related
expenses  for  software  developers,   programmers,  custom  engineers,  network
services,  and quality  control and assurance.  Also included are network costs,
costs of the production co-location facility and other expenses directly related
to our custom engineering and ASP production services. The increase in costs for
the  three  months  ended  June 30,  2008 is  principally  due to  increases  in
personnel  wages and benefit costs of $52,000 and an increase in rent of $24,000
offset by decreases in professional  fees of $45,000 and other costs of $31,000.
The  decrease  in costs  for the six  months  ended  June  30,  2008 is due to a

                                       28
decrease in professional  fees of $87,000 offset by increases in rent of $61,000
and other costs of $26,000.

     Sales and  marketing  costs  decreased  $82,000  (28.2%)  to  $209,000  and
$210,000  (33.4%) to $419,000  for the three and six months ended June 30, 2008,
respectively,  compared to costs of $291,000  and $629,000 for the three and six
months ended June 30, 2007,  respectively.  Personnel and related  benefit costs
decreased $64,000 and $109,000 for the three and six months ended June 30, 2008,
respectively, as a result of staff reductions.  Professional and consulting fees
also  decreased  by $36,000 and $66,000 for the three and six months  ended June
30, 2008,  respectively.  Other sales and marketing costs increased  $18,000 for
the three  months ended June 30, 2008 and  decreased  $35,000 for the six months
ended June 30, 2008.

     General and  administrative  costs  increased  $96,000 (16.9%) and $389,000
(36.7%) to $664,000 and  $1,450,000  for the three and six months ended June 30,
2008,  respectively,  compared to costs of $568,000 and  $1,061,000 for the same
periods in 2007. The increase is principally  due to an increase in salaries and
related  benefit  costs  including  stock  compensation  costs of  $166,000  and
$355,000 for the three and six months ended June 30, 2008.  Legal fees decreased
$40,000  and  $49,000  for the  three  and  six  months  ended  June  30,  2008,
respectively.  All other  administrative  costs decreased  $30,000 for the three
months  ended June 30,  2008.  For the six months ended June 30, 2008 travel and
entertainment costs increased $40,000 while all other general and administrative
costs increased $43,000.

     During the three months  ended June 30, 2008 we had interest  income net of
$1,000 compared to interest  expense net of $31,000 for the same period in 2007.
For the six months ended June 30, 2008 interest expense net was $11,000 compared
to $65,000 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 six months ended June 30,
2008 was  $1,033,000  compared to cash provided by operations of $1,713,000  for
the six  months  ended  June 30,  2007.  This  consisted  of the net  income  of
$3,303,000,  increased by non-cash expenses of $485,000,  including depreciation
and  amortization  of  property  and  equipment  of  $152,000,  and  stock-based
compensation expense of $333,000, offset by the change in the deferred tax asset
of $2,867,000.  This was further offset by an increase in accounts receivable of
$17,000 and prepaid  expenses of $51,000 and a decrease in accounts  payable and
accrued expenses of $172,000. Deferred revenue increased by $216,000.

     Cash used in  investing  activities  was  $126,000 for the six months ended
June 30, 2008, compared to $78,000 for same period in 2007. This was principally
expenditures for equipment.

     Cash used in financing activities totaled $874,000 for the six months ended
June 30, 2008, compared to cash used in financing activities of $871,000 for the
six months ended June 30, 2007. We paid $802,000 in dividends on preferred stock
and repaid $72,000 of long-term debt and capital lease  obligations in the first
six months of 2008.

                                       29
For The Year Ended December 31, 2007

Financial Condition and Liquidity

     For the year ended  December  31,  2007,  we had net  income of  $2,100,000
compared to net income of $269,000  for the year ended  December  31,  2006,  an
improvement  of  $1,831,000.  Cash provided from  operations  for the year ended
December 31, 2007 was  $3,255,000  compared to cash provided from  operations of
$1,149,000 for the year ended December 31, 2006. This  improvement is due to the
increase  in sales,  continued  control  of  operating  costs  and  lower  costs
financing costs as discussed below.

     Cash  provided  from  operations  for the year ended  December 31, 2007 was
$3,255,000,  consisting of the net income of  $2,100,000,  increased by non-cash
expenses of $941,000,  including  depreciation  and amortization on property and
equipment of $332,000,  and stock based compensation  expense of $609,000.  Cash
from  operations  was further  increased  by a decrease in accounts  receivable,
prepaid  expenses  and other  current and  non-current  assets of  $520,000,  an
increase in  accounts  payable and  accrued  expenses of  $135,000,  offset by a
decrease in deferred revenue of $441,000.

     Cash used in investing  activities was $202,000 for the year ended December
31,  2007,  compared  to $97,000 for the  previous  year.  This was  principally
expenditures for equipment in 2007 and 2006.

     Cash used in financing  activities  totaled  $1,164,000  for the year ended
December 31, 2007,  compared to cash used in financing  activities of $1,121,000
in 2006. We repaid Lines of Credit  totaling  $586,000 during 2007. In addition,
advances from credit lines for receivable  financing  decreased $481,000 for the
year ended  December  31,  2007 and we made  repayments  on  capital  leases and
capital notes of $125,000.  We received proceeds on exercise of stock options of
$28,000.

     As a result of these operating,  investing and financing  activities,  cash
increased by $1,889,000 to $2,184,000 at December 31, 2007.

     At  December  31,  2007 we had  accrued  dividends  due to  holders  of our
preferred stock of $3,336,000. In January 2008, we paid $773,000 of dividends to
the holders of the Series B Preferred  Stock.  Based on advice of legal counsel,
we believe that we may pay  dividends  only to the extent that we have a surplus
or current earnings pursuant to the Delaware General Corporation Law.

Results of Operations

     IBM  continues  to be our largest  customer  accounting  for 51% and 69% of
total revenue for the years ended December 31, 2007 and 2006,  respectively.  We
derive revenue from IBM from the sale of our  Invoices-on-Line  ("IOL")  managed
services  (ASP) as well as  custom  engineering  services.  We  entered  into an
agreement with IBM wherein for a per  transaction  fee, we enable IBM to present
invoices to their  customers via the Internet.  Our IOL service is an electronic
invoice  presentment and payment system ("EIP&P") offering and has been expanded
to include additional functionality. In addition EDS accounted for approximately
46% and  29% of  revenue  for the  years  ended  December  31,  2007  and  2006,
respectively.  We continue to actively pursue new sales  opportunities to reduce
sales concentration.

                                       30
For the year ended December 31, 2007 revenue increased  $1,222,000 or 13.7%
to $10,111,000  compared to revenue from continuing  operations of $8,889,000 in
2006.  The increase is primarily  due to an increase in IOL and other  recurring
services of $1,120,000, and an increase of $102,000 in engineering services. The
increase in revenue from ASP services  was the result of further  deploying  our
ASP services in Europe and the Asia Pacific  regions for IBM and  expanding  our
IOL  services  to  EDS.  The  increase  in  the  engineering  services  resulted
principally  from an  increase  of  services  to EDS  offset  by a  decrease  in
engineering  services to IBM. We expect that the addition of new  customers  and
new projects in 2007 will lead to an increase in our ASP and custom  engineering
revenue in 2008.

     Costs of operations,  research and development increased by $220,000 (6.3%)
to  $3,698,000  for the year ended  December  31, 2007  compared to the costs of
$3,478,000  in 2006.  These costs  consist  principally  of salaries and related
expenses  for  software  developers,   programmers,  custom  engineers,  network
services,  and quality  control and assurance.  Also included are network costs,
costs of the production co-location facility and other expenses directly related
to our custom engineering and ASP services. The increase in costs is principally
due to an  increase  in costs  for  outsourced  development  staff of  $445,000,
incurred for a major  deployment  project of our IOL services.  The Company will
continue to outsource  development  projects to supplement  our employed  staff.
This  increase  in  operating  costs was offset by a reduction  in salaries  and
related  costs of $244,000  due to the  reduction in employed  staff.  The staff
reductions are consistent  with our efforts to outsource  development  projects.
Rents  decreased  $30,000  primarily  due to reduced space  requirements  at our
co-location   facility.   All  other  operating   expenses  combined   increased
approximately $49,000 net.

     Sales and marketing  costs were  $1,110,000 for the year ended December 31,
2007, a decrease of $283,000 or 20.3%  compared to costs of  $1,393,000 in 2006.
Salaries and related costs decreased  $289,000 resulting from a staff reduction.
Consulting and professional fees decreased $48,000,  and rent decreased $41,000.
Travel and  entertainment  costs increased  $30,000,  and commissions  increased
$57,000. All other costs sales and marketing costs increased $8,000, net.

     General and  administrative  costs increased $174,000 or 6.7% to $2,755,000
for the year ended  December 31, 2007  compared to costs of  $2,581,000 in 2006.
Salaries and related  costs  increased  $619,000  principally  to an increase in
stock  based  compensation  for stock  grants  and salary  increases  to certain
executives.  This was offset by decreases  in  accounting  and legal  expense of
$168,000,  directors' fees of $135,000, rent of $66,000 and insurance expense of
$40,000.  All other  general  and  administrative  costs had a net  decrease  of
$36,000.

     Depreciation  and  amortization  expense  increased  by  $11,000  (3.4%) to
$332,000 for the year ended  December 31, 2007  compared to costs of $321,000 in
2006, primarily due to additions of computer equipment.

     Interest  expense,  net decreased by $513,000 to $97,000 for the year ended
December 31, 2007  compared to costs of $610,000 in 2006,  primarily  due to the
repayment  of Lines of credit of $586,000 in 2007 and the  repayment of notes of
$750,000  in  September  2006.  Additionally  the  Company  had a lower  rate of
borrowing under the short-term revolving loans used for working capital.

     We  recorded  a charge  for the  change in the fair  value of  warrants  of
$143,000 for the year ended  December 31, 2006, and there was no charge for this
in 2007 (see Note 3 to the Consolidated Financial Statements).

                                       31
Other income,  net for the year ended December 31, 2007 was $8,000 compared
to net expense of $94,000 in 2006. In 2006 other expense  included  $120,000 for
penalties incurred in connection with the registration  statement for the Bridge
Loan  financing,  and $33,000 for the termination and settlement of a consulting
agreement,  offset  by income  of  $59,000  from  liquidating  a mutual  company
insurance policy.

Net Operating Loss Carry Forwards

     At December 31, 2007,  the Company has net  operating  loss  carry-forwards
("NOLs")  remaining  of  approximately  $77  million,  which may be available to
reduce taxable income, if any. These NOLs expire through 2025. However, Internal
Revenue  Code Section 382 rules limit the  utilization  of NOLs upon a change in
control of a company.  During 2007,  we performed an  evaluation as to whether a
change in control had taken  place.  We believe that there has been no change in
control as such  applies to Section  382. If it is  determined  that a change in
control  has taken  place,  utilization  of its NOLs will be  subject  to severe
limitations  in future  periods,  which  would  have the  effect of  eliminating
substantially all of the future income tax benefits of the NOLs.

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 six months ended June 30, 2008 and the year ended December 31,
          2007  we had  net  cash  provided  by  operations  of  $1,033,000  and
          $3,255,000,  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 2008,  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 six months
          ended June 30, 2008, we paid dividends on the Series B Preferred Stock
          of $802,000 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 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 June 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

                                       32
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.

New Accounting Pronouncements

     In June  2006,  the FASB  issued  Interpretation  No. 48,  "Accounting  for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
48").  This  Interpretation  prescribes a recognition  threshold and measurement
attribute for the  financial  statement  recognition  and  measurement  of a tax
position taken or expected to be taken in a tax return, and provides guidance on
derecognition,  classification,  interest and  penalties,  accounting in interim
periods, disclosure, and transition. This Interpretation is effective for fiscal
years  beginning  after December 15, 2006. The adoption of FIN 48 did not have a
material effect on the consolidated financial position, results of operations or
cash flows of the Company (see Note 9).

     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 our consolidated financial statements.

     In November  2006,  the EITF  reached a final  consensus in EITF Issue 06-6
"Debtor's  Accounting  for a  Modification  (or  Exchange) of  Convertible  Debt
Instruments"   ("EITF  06-6").   EITF  06-6  addresses  the  modification  of  a
convertible  debt  instrument  that  changes  the  fair  value  of  an  embedded
conversion  option and the subsequent  recognition  of interest  expense for the
associated  debt  instrument  when the  modification  does not  result in a debt
extinguishment  pursuant to EITF 96-19 , "Debtor's Accounting for a Modification
or  Exchange  of  Debt  Instruments,".   The  consensus  should  be  applied  to
modifications  or exchanges of debt  instruments  occurring in interim or annual
periods  beginning  after  November 29, 2006.  The adoption of EITF 06-6 did not
have a  material  impact on our  consolidated  financial  position,  results  of
operations or cash flows.

     In  November  2006,  the  FASB  ratified  EITF  Issue  No.  06-7,  Issuer's
Accounting for a Previously  Bifurcated  Conversion Option in a Convertible Debt
Instrument When the Conversion  Option No Longer Meets the Bifurcation  Criteria
in FASB Statement No. 133,  Accounting for  Derivative  Instruments  and Hedging
Activities ("EITF 06-7"). At the time of issuance, an embedded conversion option
in a convertible  debt instrument may be required to be bifurcated from the debt
instrument and accounted for separately by the issuer as a derivative  under FAS
133, based on the  application of EITF 00-19.  Subsequent to the issuance of the
convertible  debt, facts may change and cause the embedded  conversion option to
no  longer  meet  the  conditions  for  separate   accounting  as  a  derivative
instrument, such as when the bifurcated instrument meets the conditions of Issue
00-19 to be  classified  in  stockholders'  equity.  Under  EITF  06-7,  when an
embedded  conversion option  previously  accounted for as a derivative under FAS
133 no longer meets the  bifurcation  criteria  under that  standard,  an issuer

                                       33
shall  disclose a  description  of the  principal  changes  causing the embedded
conversion option to no longer require  bifurcation under FAS 133 and the amount
of the liability for the conversion option reclassified to stockholders' equity.
EITF 06-7 should be applied to all previously  bifurcated  conversion options in
convertible debt instruments that no longer meet the bifurcation criteria in FAS
133 in interim or annual periods  beginning after December 15, 2006,  regardless
of whether the debt  instrument  was  entered  into prior or  subsequent  to the
effective  date of EITF 06-7.  Earlier  application of EITF 06-7 is permitted in
periods for which financial statements have not yet been issued. The adoption of
EITF 06-7 did not have a material impact on our consolidated financial position,
results of operations or cash flows.

     In December 2006, the FASB issued FASB Staff Position  ("FSP") EITF 00-19-2
"Accounting for Registration  Payment  Arrangements"  ("FSP EITF 00-19-2") which
specifies  that the contingent  obligation to make future  payments or otherwise
transfer  consideration  under a  registration  payment  arrangement  should  be
separately  recognized and measured in accordance  with SFAS No. 5,  "Accounting
for  Contingencies."  Adoption of FSP EITF 00-19-02 is required for fiscal years
beginning  after December 15, 2006. The effects of adopting FSP EITF 00-19-2 are
disclosed in Note 3 to the accompanying  December 31, 2007 and 2006 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 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

                                       34
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 December  2007,  the Staff of the  Securities  and  Exchange  Commission
issued  Staff  Accounting  Bulletin No. 110 ("SAB 110")  regarding  the use of a
"simplified"  method,  as discussed in SAB 107, in developing an estimate of the
expected  term of "plain  vanilla"  share  options in  accordance  with FASB No.
123(R) "Share Based Payment'.  The Staff will continue to accept,  under certain
circumstances, the use of the simplified method beyond December 31, 2007.
DESCRIPTION OF PROPERTY

         We currently maintain leased facilities in the locations listed below:

       Description                Location            Square Footage           Lease term          Annual Rental Cost
-------------------------- ------------------------ -------------------- ------------------------ ---------------------
Corporate office           Bohemia, NY                      5,000            7/1/08 - 6/30/09           $94,500
Satellite office           Deerfield Beach , FL             1,721           11/1/05 - 10/31/08          $37,536
Co-location facility       Hauppauge, NY                                     4/1/06 - 11/30/08          $93,240
-------------------------- ------------------------ -------------------- ------------------------ ---------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Shareholder

     Mr. Thomas Lund, who holds 4.3% of the Company's outstanding shares, is the
father-in-law of Mathew Oakes, the Company's EVP and Chief Operating Officer.

Related Party Transactions

     Metropolitan  Venture Partners Corp.  ("Metropolitan")  provided  financial
advisory  services to us.  Metropolitan  is the general  partner of Metropolitan
Venture Partners (Advisors) L.P., which in turn is the general partner of MetVP.
The Company  incurred  $10,000 during the year ended December 31, 2006 for these
services.  Additionally,  in 2006,  MetVP was granted  41,683  common shares for
$10,000 of interest on its investment in the Senior Subordinated  Secured Notes.
(See "Selling Securityholders")

     The Company has a  consulting  agreement  with DCL  Consulting  whereby DCL
provides quality assurance testing for the Company. In 2007 and 2006 the Company
incurred $27,000 and $26,000,  respectively for these services. The spouse of an
officer of the Company is owner and principal employee of DCL.

     The Company  received  advisory  services from Tall Oaks and Lawrence Hite.
Tall Oaks is an affiliate of  Metropolitan  and Lawrence  Hite is the  principal
owner of Tall Oaks. In 2007 and 2006 the Company  incurred  costs of $18,000 and
$9,000,  respectively  for such services.  In 2006, Tall Oaks was issued 144,000
shares in lieu of cash for his fees earned through June 30, 2006. The fair value
of the shares approximated the liability.

                                       35
During the year ended December 31, 2006, the Company terminated and settled
the consulting agreement with Mountain Meadow Farm and its associates, including
SJ Associates  (collectively  "Mountain Meadow").  As part of the settlement the
Company agreed to issue Mountain Meadow 90,638  restricted  common shares valued
at $34,000 and to pay for the costs of medical, life and certain other insurance
through  December  31,  2013  with the cost for  such  insurance  not to  exceed
$200,000 in the  aggregate  or $50,000 in any 12 month  period.  At December 31,
2007,  the  Company  has  recorded a  liability  of  $119,000  representing  the
estimated  present value of this  obligation.  Mountain Meadow and its principal
employee are shareholders of the Company.

     During the eight months  ended  August 31,  2008,  the Company paid accrued
dividends of $831,028 on the outstanding shares of its Series B Preferred Stock.
The Company's Chairman and Chief Executive Officer, as the holder of 266 shares,
received $224,577 in dividends. Tall Oaks, as the holder of 500 shares, received
$427,847 in dividends.

     In July 2008,  the  Company  paid  accrued  dividends  of  $705,204  on the
outstanding  shares of its Series C Preferred Stock. The Company's  Chairman and
Chief Executive Officer,  as holder of 200 shares received $74,730 in dividends,
Met VP, as holder of 290 shares received $104,930 in dividends,  Tall Oaks, as a
holder of 250 shares received $90,028 in dividends, Dennis Murray, a director of
the Company and a holder of 30 shares received $10,950 in dividends, and Bernard
Puckett,  a director of the Company and holder of 50 shares received  $18,320 in
dividends.

     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     (a) Market Information

     Our common stock has traded on the  Over-The-Counter  Bulletin  Board since
October 24, 2003.  The following  table sets forth the high and low sales prices
for our common stock by the quarters indicated:
High          Low
                                             ----          ---
2006
First Quarter                           0.710        0.070
     Second Quarter                          0.680        0.200
     Third Quarter                           0.350        0.170
     Fourth Quarter                             --           --

2007
     First Quarter                           1.68         0.76
     Second Quarter                          3.00         0.76
     Third Quarter                           2.50         1.26
     Fourth Quarter                          2.36         1.78

2008
     First Quarter                           2.00         1.30
     Second Quarter                          1.80         1.30
     Third Quarter to September 25, 2008     1.50         1.15
36
(b) As of September 25, 2008, there were 2,550  shareholders of record.  We
estimate that there are approximately 6,500 shareholders, including shareholders
whose shares are held in the name of their brokers or stock depositories.

     (c) There were no cash dividends or other cash distributions made to common
shareholders  by us during the year ended  December 31, 2007 and through  August
31, 2008.  In 2008 through  August 31,  2008,  we paid  dividends of $831,028 to
holders of the Series B Preferred stock, and $705,204 to holders of the Series C
Preferred stock,  and we expect to pay further  dividends on preferred shares in
the remainder of 2008.  Further  dividend policy will be determined by our Board
of Directors based on our earnings,  financial  condition,  capital requirements
and other then existing  conditions.  It is anticipated that cash dividends will
not be paid to the holders of our common stock in the foreseeable future.

     (d) Equity Compensation Plan Information.  The following table shows Equity
Compensation Plan information as of December 31, 2007:
Equity Compensation Plan Information
------------------------------- ---------------------------- ---------------------------- ----------------------------
                                                                                             Number of securities
                                                                                            remaining available for
                                                                                             future issuance under
                                Number of securities to be    Weighted-average exercise    equity compensation plans
                                  issued upon exercise of       price of outstanding         (excluding securities
                                    outstanding options                options              reflected in column (a)
        Plan category                       (a)                          (b)                          (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans
approved by security holders             1,187,500                      $0.83                       1,228,666
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not
approved by security holders             1,405,000                      $0.72                         684,526
------------------------------- ---------------------------- ---------------------------- ----------------------------
Total                                    2,592,500                      $0.77                       1,913,192
------------------------------- ---------------------------- ---------------------------- ----------------------------
EXECUTIVE COMPENSATION

     The following table sets forth the annual and long-term  compensation  with
respect to the Chief Executive Officer and each of the other executive  officers
of the Company who received  more than  $100,000  for services  rendered for the
year ended December 31, 2007.
Summary Compensation Table

------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Nonqualified
                                                                                  Non-Equity     Deferred
                                                                                  Incentive    Compensation  All Other
   Name and Principal                                 Stock Awards Option Awards    Plan        Earnings   Compensation   Total
        Position        Year  Salary ($)(1)   Bonus($)   ($)(3)      ($)(3)     Compensation($)    ($)       ($) (2)       ($)
------------------------------------------------------------------------------------------------------------------------------------
James A. Cannavino      2007    $215,000      $50,000   $382,500        --          --            --       $136,891      $784,391
 Chief                  2006    $180,000          --         --         --          --            --       $157,482      $337,482
 Executive
 Officer (PEO)
------------------------------------------------------------------------------------------------------------------------------------
Arnold Leap             2007    $183,000      $60,000        --     $7,938          --            --       $ 11,533      $262,471
 EVP - Chief            2006    $168,583          --         --     $3,333          --            --       $  9,190      $181,106
 Technology Officer
------------------------------------------------------------------------------------------------------------------------------------

                                       37
Michael Beecher         2007    $147,833     $25,000    $ 4,625     $7,938          --            --       $ 13,369      $198,765
 Chief Financial        2006    $146,250        --          --      $3,333          --            --       $ 13,979      $163,562
 Officer
------------------------------------------------------------------------------------------------------------------------------------
Matthew Oakes           2007    $171,000     $65,000        --      $7,938          --            --       $  9,673      $253,611
 EVP -Chief  Operating  2006    $164,000        --          --      $3,333          --            --       $  9,353      $176,686
 Officer
------------------------------------------------------------------------------------------------------------------------------------
Christopher Cauley      2007    $182,250        --      $ 6,000    $18,527          --            --       $     73      $207,100
 EVP-Sales and 2006             $175,000        --      $ 9,000    $19,005          --            --             --      $203,005
 Marketing
------------------------------------------------------------------------------------------------------------------------------------
Footnotes
---------

     (1)  In 2006 the executives  agreed to defer a portion of their salaries to
          be paid at a future date in common shares of the Company.  Included in
          2006  salaries  are the amounts  deferred as follows:  Mr.  Cannavino,
          $36,000; Mr. Leap, $10,833; Mr. Beecher,  $12,500; Mr. Oakes, $17,500;
          Mr. Cauley, $30,000.

     (2)  All  Other  Compensation  includes  the  following  for  each  of  the
          executives:

          In  2006,  Mr.  Cannavino  received  a  housing/office   allowance  of
          $120,000,  leased cars including insurance valued at $17,576,  parking
          costs  of  $7,339,   directors  fees  of  $12,500,   and  in  2007,  a
          housing/office allowance of $120,000,  leased cars including insurance
          of $8,805,  parking  costs of $2,012,  directors  fees of $6,000.  Not
          included in other  compensation are payments of $57,811 in 2006 to Mr.
          Cannavino's son, a former employee of the Company.

          In 2006,  Mr. Leap  received a car  allowance  including  insurance of
          $8,813 and life  insurance  costs of $377 and in 2007, a car allowance
          including insurance of $9,600 and life insurance costs of $1,933.

          In 2006, Mr. Beecher received a car allowance including insurance of
         $8,716, and a living allowance of $5,200 and in 2007, a car allowance
         including insurance of $8,100 and a living allowance of $5,200.

          In 2006, Mr. Oakes received a leased car including insurance valued at
          $9,286 and in 2007 a car allowance of $9,600.

     (3)  The  assumptions  used in  determining  the value of stock and  option
          awards are  included in Note 8 to the  accompanying  December 31, 2007
          and 2006 consolidated financial statements.
Outstanding Equity Awards at Fiscal Year End

     The following table provides  information  concerning  outstanding options,
unvested stock and equity  incentive plan awards for the named  executives as of
December 31, 2007:
------------------------------------------------------------------------------------------------------------------------------------
                                             Option Awards                                               Stock Awards
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                                Equity      Equity
                                                                                                                Incentive  Incentive
                                                                                                                Plan         Plan
                                                                                                                Awards:     Awards:
                                                                                                     Market     Number     Market or
                                                                                                     Value of   of          Payout
                                                    Equity                                           Shares     Unearned   Value of
                                                   Incentive                                          Share     Shares,    Unearned
                    Number of      Number of     Plan Awards:                            Number of   or Units  Units or    Shares,
                   Securities      Securities      Number of                             Shares or   of Stock   Other      Units or
                   Underlying      Underlying     Underlying                             Units of     That      Rights       Other
                   Unexercised    Unexercised     Unexercised   Option       Option     Stock That   Have Not   That        Rights
                    Options -      Options -       Unearned     Exercise   Expiration    Have Not    Vested     Have Not   That Have
      Name         Exercisable   Unexercisable      Options       Price       Date        Vested       (5)       Vested   Not Vested
------------------------------------------------------------------------------------------------------------------------------------
James Cannavino     360,000 (1)         --                      $1.16      8/31/2008    360,000      $756,000
                    350,000 (1)         --             --       $0.62      12/30/2012                              --          --
------------------------------------------------------------------------------------------------------------------------------------
                                       38
Arnold Leap         100,000 (1)         --                      $1.20      4/30/2008    145,000      $304,500
                     75,000 (2)     35,000 (2)         --       $0.25      7/31/2011                               --          --
------------------------------------------------------------------------------------------------------------------------------------
Michael Beecher      30,000 (1)         --             --       $0.76      12/31/2008    60,000      $126,000
                     30,000 (1)         --                      $1.60      7/31/2009                               --          --
                     85,000 (2)     35,000 (2)                  $0.25      7/31/2011
------------------------------------------------------------------------------------------------------------------------------------
Matthew Oakes        25,000 (1)         --                      $1.10      10/1/2008    145,000      $304,500
                     20,000 (1)         --             --       $0.75      12/30/2008                              --           --
                    100,000 (1)         --                      $0.65      8/31/2010
                     85,000 (2)     35,000 (2)                  $0.25      7/31/2011
------------------------------------------------------------------------------------------------------------------------------------
Christopher Cauley  143,780 (3)     31,220 (3)         --       $0.65      8/31/2010                               --           --
------------------------------------------------------------------------------------------------------------------------------------
(1)  These options were fully vested on December 30, 2005
     (2)  These  options for Mr. Leap,  Mr.  Beecher and Mr. Oakes vest at 5,000
          per month over the 24 month period from August 1, 2006 through July 1,
          2008.
     (3)  Mr. Cauley's options vested 35,000 on September 1, 2005 and then 4,000
          per month from October 1, 2005 through August 1, 2008.
     (4)  Mr.  Cauley's  shares vest on September  10, 2007 under the  condition
          that Mr. Cauley continues to be employed through that date.
     (5)  Based on the closing price of the Company's stock of $2.10 on December
          31, 2007.
Equity Compensation Plan Information

     We maintain  various  stock plans under which  options  vest and shares are
awarded  at the  discretion  of  our  Board  of  Directors  or its  compensation
committee.  The  purchase  price of the  shares  under the plans and the  shares
subject to each  option  granted is not less than the fair  market  value on the
date of the  grant.  The term of each  option  is  generally  five  years and is
determined  at  the  time  of  the  grant  by  our  board  of  directors  or the
compensation committee. The participants in these plans are officers, directors,
employees and consultants of the Company and its subsidiaries and affiliates.

     The following information is provided about our current stock option plans:

     1998 Stock Option/Stock Issuance Plan. The 1998 Stock Option/Stock Issuance
Plan covers 257,000 shares of common stock.  Options  granted under the plan may
be incentive stock options  qualified under Section 422 of the Internal  Revenue
Code of 1986, as amended or non-qualified stock options.  Under the terms of the
plan,  the  exercise  price of options  granted  under the plan will be the fair
market  value at the date of the  grant.  Prices  for  incentive  stock  options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan expires July 1, 2008 and stock or options  granted under the Plan
shall  expire not later than five  years from the date of grant.  Stock  options
granted under the Plan may become exercisable in one or more installments in the
manner and at the time or times  specified  by the  committee.  No options  were
granted  under this plan  during the fiscal year ended  December  31,  2007.  At
December  31,  2007,  no  options  to  purchase  shares  of  common  stock  were
outstanding under this plan.

     2000 Stock Option/Stock Issuance Plan. The 2000 Stock Option/Stock Issuance
Plan covers 166,667 shares of common stock.  Options  granted under the plan may
be incentive stock options  qualified under Section 422 of the Internal  Revenue
Code of 1986, as amended or non-qualified stock options.  Under the terms of the
plan,  the  exercise  price of options  granted  under the plan will be the fair
market  value at the date of the  grant.  Prices  for  incentive  stock  options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of

                                       39
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan  expires on May 31, 2010 and stock or options  granted  under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31, 2007.  At December 31, 2007,  no options to purchase  shares of common stock
were outstanding under this plan.

     2001 Stock Option/Stock Issuance Plan. The 2001 Stock Option/Stock Issuance
Plan covers 330,000 shares of common stock.  Options  granted under the plan may
be incentive stock options  qualified under Section 422 of the Internal  Revenue
Code of 1986, as amended or non-qualified stock options.  Under the terms of the
plan,  the  exercise  price of options  granted  under the plan will be the fair
market  value at the date of the  grant.  Prices  for  incentive  stock  options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan  expires on May 31, 2011 and stock or options  granted  under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31, 2007.  At December 31, 2007,  no options to purchase  shares of common stock
were outstanding under this plan.

     2001-A Stock  Option/Stock  Issuance  Plan.  The 2001-A Stock  Option/Stock
Issuance Plan covers 600,000 shares of common stock.  Options  granted under the
plan may be incentive stock options  qualified under Section 422 of the Internal
Revenue Code of 1986, as amended or non-qualified stock options. Under the terms
of the plan,  the exercise  price of options  granted under the plan will be the
fair market value at the date of the grant.  Prices for incentive  stock options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan expires on September 17, 2011 and stock or options  granted under
the Plan shall  expire  not later than five years from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31,  2007.  At December 31, 2007,  options to purchase  80,000  shares of common
stock were outstanding under this plan.

     2002 Stock Option/Stock Issuance Plan. The 2002 Stock Option/Stock Issuance
Plan covers 625,000 shares of common stock.  Options  granted under the plan may
be incentive stock options  qualified under Section 422 of the Internal  Revenue
Code of 1986, as amended or non-qualified stock options.  Under the terms of the
plan,  the  exercise  price of options  granted  under the plan will be the fair
market  value at the date of the  grant.  Prices  for  incentive  stock  options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan expires on January 1, 2012 and stock or options granted under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31, 2007.  At December 31, 2007,  options to purchase  416,000  shares of common
stock were outstanding under this plan.

                                       40
2002-A Stock  Option/Stock  Issuance  Plan.  The 2002-A Stock  Option/Stock
Issuance Plan covers 875,000 shares of common stock.  Options  granted under the
plan may be incentive stock options  qualified under Section 422 of the Internal
Revenue Code of 1986, as amended or non-qualified stock options. Under the terms
of the plan,  the exercise  price of options  granted under the plan will be the
fair market value at the date of the grant.  Prices for incentive  stock options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan expires on January 1, 2012 and stock or options granted under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31,  2007.  At December 31, 2007,  options to purchase  97,000  shares of common
stock were outstanding under this plan.

     2003 Stock Option/Stock Issuance Plan. The 2003 Stock Option/Stock Issuance
Plan covers 725,000 shares of common stock.  Options  granted under the plan may
be incentive stock options  qualified under Section 422 of the Internal  Revenue
Code of 1986, as amended or non-qualified stock options.  Under the terms of the
plan,  the  exercise  price of options  granted  under the plan will be the fair
market  value at the date of the  grant.  Prices  for  incentive  stock  options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan expires on April 1, 2013 and stock or options  granted  under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31, 2007.  At December 31, 2007,  options to purchase  362,000  shares of common
stock were outstanding under this plan.

     2003-A Stock  Option/Stock  Issuance  Plan.  The 2003-A Stock  Option/Stock
Issuance Plan covers 975,000 shares of common stock.  Options  granted under the
plan may be incentive stock options  qualified under Section 422 of the Internal
Revenue Code of 1986, as amended or non-qualified stock options. Under the terms
of the plan,  the exercise  price of options  granted under the plan will be the
fair market value at the date of the grant.  Prices for incentive  stock options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted
under the Plan expires on April 1, 2013 and stock or options  granted  under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
No options  were granted  under this plan during the fiscal year ended  December
31, 2007.  At December 31, 2007,  options to purchase  820,000  shares of common
stock were outstanding under this plan.

     2004 Stock Option/Stock Issuance Plan. The 2004 Stock Option/Stock Issuance
Plan covers 1,200,000 shares of common stock. Options granted under the plan may
be incentive stock options  qualified under Section 422 of the Internal  Revenue
Code of 1986, as amended or non-qualified stock options.  Under the terms of the
plan,  the  exercise  price of options  granted  under the plan will be the fair
market  value at the date of the  grant.  Prices  for  incentive  stock  options
granted to  employees  who own 10% or more of our stock are at least 110% of the
market value at the date of the grant. The nature and terms of the options to be
granted are determined at the date of the grant by the compensation committee of
the board of  directors.  The term for which  stock and  options  may be granted

                                       41
under the Plan expires on August 20, 2014 and stock or options granted under the
Plan  shall  expire  not later  than five  years  from the date of grant.  Stock
options  granted  under  the  Plan  may  become   exercisable  in  one  or  more
installments  in the manner and at the time or times specified by the committee.
In 2006,  360,000  options were granted under this plan. No options were granted
under this plan during the fiscal year ended  December 31, 2007. At December 31,
2007,  options to purchase 817,500 shares of common stock were outstanding under
this plan.

Directors Compensation

     Effective  January  1,  2008,  directors  receive  an annual  cash award of
$10,000 and a stock grant equal to a number of shares  equal in value to $10,000
divided  by the  average  of the  closing  price of the shares for the last five
trading days of the previous  year.  The shares vest over a two year period.  In
addition each director receives $2,500 for each board meeting attended in person
or $1,500 for each scheduled telephonic board meeting.  Members of committees of
the board receive  $5,000 per year for membership on the committee and the chair
of a committee  receives an additional  $5,000.  Each committee  member receives
$1,000 for each committee meeting attended.

     Prior  to 2008,  directors  received  a fee of  $2,500  for  each  board of
directors meeting  attended;  $1,500 for participation in a telephone meeting of
the board; an annual fee of $5,000 for membership in each committee of the Board
and  $1,000  for each  committee  meeting  attended.  The  Chair  person of each
committee received an annual fee of $5,000 in addition to the membership fee.

     The Company also reimburses  directors for reasonable  expenses incurred in
attending board and committee meetings.

     The following table provides the  compensation  earned by our  non-employee
directors for the year ended December 31, 2007. Mr.  Cannavino's  directors fees
earned in 2007 are included in the Summary Compensation Table above:
----------------------------------------------------------------------------------------------------------------------
                                                Director Compensation
----------------------------------------------------------------------------------------------------------------------
                       Fees                                               Nonqualified
                     Earned or                           Non-equity         Deferred
                     Paid in     Stock      Option     Incentive Plan     Compensation     All Other
                     Cash ($)    Awards     Awards     Compensation         Earnings      Compensation      Total
       Name            (1)          $         ($)           ($)               ($)             ($)            ($)
----------------------------------------------------------------------------------------------------------------------
Dennis Murray (2)    $30,000       --         --             --                --             --           $30,000
----------------------------------------------------------------------------------------------------------------------
Bernard Puckett (2)  $30,000       --         --             --                --             --           $30,000
----------------------------------------------------------------------------------------------------------------------
Carla Steckline      $ 4,472       --         --             --                --             --           $ 4,472
(2), (3)
----------------------------------------------------------------------------------------------------------------------
Michael Levin (4)    $ 6,000       --         --             --                --             --           $ 6,000
----------------------------------------------------------------------------------------------------------------------
(1)  Except  for  Carla  Steckline,  the  fees  earned  were not paid as of
          December 31, 2007.

     (2)  Dr.  Murray  is  chair  of  the  audit  committee  and  member  of the
          compensation  committee,  Mr.  Puckett  is chair  of the  compensation
          committee  and member of the audit  committee,  Mrs.  Steckline  was a
          member of the audit and compensation committees.

                                       42
(3)  Mrs.  Steckline  resigned from the Board  effective March 12, 2007 for
          personal reasons.

     (4)  Mr.  Levin is the  director  designee  of MetVP and as such all of his
          director's fees are assigned and paid to MetVP.
Employment Agreements

     On August 22, 2007, the Board ratified and approved the Services  Agreement
with its Chairman and Chief Executive Officer, effective June 1, 2007 for a term
ending on December 31, 2010. The agreement calls for compensation of $20,000 per
month (with a 10% increase on each annual anniversary subject to approval of the
Company's  Compensation  Committee and based on performance  of the Company),  a
one-time grant of 100,000 shares of restricted  common stock and the granting of
10,000 shares of restricted common stock per month commencing with the execution
of the  Agreement  and ending on December  1, 2010.  The fair value of the stock
grants is $1,193,000 based on the closing price of the shares on the grant date.
During the year ended  December  31, 2007,  the Company  issued  170,000  shares
valued at $383,000 as compensation  expense  related to the services  agreement.
The agreement further provides for:  reimbursement of certain  expenses;  living
and travel  expenses  approximating  $11,000 per month;  and  certain  severance
benefits in the event of termination prior to the expiration date.

     On August 22,  2007,  the Board  ratified  and approved an amendment to the
Services  Agreement  with its  Executive  Vice  President  and  Chief  Operating
Officer,  for a term  ending on  December  31,  2010.  The  agreement  calls for
compensation  of $15,500 per month,  a $25,000 cash bonus paid upon execution of
the Agreement,  and the granting of 5,000 shares of restricted  common stock per
month  commencing  on August 1, 2008 and ending on December 31,  2010.  The fair
value of the stock grants is $326,000  based on the closing  price of the shares
on the grant date and is being  amortized over the contract  period.  During the
year ended  December  31,  2007 the  Company  recorded  $33,000 as  compensation
expense  related  to  the  stock  grant.  The  agreement  further  provides  for
reimbursement  of  certain  expenses  and  severance  benefits  in the  event of
termination prior to the expiration date.

     On August 22,  2007,  the Board  ratified  and approved an amendment to the
Services  Agreement  with its  Executive  Vice  President  and Chief  Technology
Officer,  for a term  ending on  December  31,  2010.  The  agreement  calls for
compensation  of $16,500 per month,  a $25,000 cash bonus paid upon execution of
the Agreement,  and the granting of 5,000 shares of restricted  common stock per
month  commencing  on August 1, 2008 and ending on December 31,  2010.  The fair
value of the stock grants is $326,000  based on the closing  price of the shares
on the grant date and is being  amortized over the contract  period.  During the
year ended  December  31,  2007 the  Company  recorded  $33,000 as  compensation
expense  related  to  the  stock  grant.  The  agreement  further  provides  for
reimbursement  of  certain  expenses  and  severance  benefits  in the  event of
termination prior to the expiration date.

     On December 12, 2007,  the Board  ratified and approved an amendment to the
Services  Agreement  with its  Chief  Financial  Officer,  for a term  ending on
December 31, 2009. The agreement  calls for  compensation  of $14,583 per month,
and the granting of 2,500 shares of restricted common stock per month commencing
on December 1, 2007 and ending on December 31, 2009. The fair value of the stock
grants is $116,000  based on the  closing  price of the shares on the grant date
and is being amortized over the contract period.  During the year ended December
31, 2007 the Company  recorded  $5,000 as  compensation  expense  related to the
stock  grant.  The  agreement  further  provides  for  reimbursement  of certain
expenses  and  severance  benefits  in the  event  of  termination  prior to the
expiration date.

                                       43
The Company  entered into an employment and  consulting  agreement with its
then President  effective  January 1, 2003. The agreement was amended on January
1, 2006.  The  employment  term of the  agreement  expired  June 30, 2006 and is
followed  by a  consulting  period  which ends  December  31,  2008.  During the
employment  term  compensation  was based on an annual  salary of  $240,000.  In
addition  the  President  received  options to  purchase  100,000  shares of the
Company's  common stock at $0.50 per share which vested ratably over a period of
26 months and an additional  option to purchase  100,000 shares of the Company's
common stock at market price on the date of grant which vest on an equal monthly
basis over a period of 36 months.  During the  consulting  term of the agreement
compensation  is $12,000 per month and duties during the consulting term include
consultation  with  senior  executives   concerning  the  Company's   respective
businesses and  operations.  The agreement was amended  effective  April 1, 2008
extending the consulting period to end on March 31, 2010 and the monthly fee was
reduced to $6,000.

     The  Company  entered  into  an  employment  services  agreement  with  the
Executive  Vice  President of Sales and Marketing on August 1, 2006. The term of
the  agreement is for two years and provides for base  compensation  of $144,996
per year for each year of the agreement  plus $2,500 per month payable in common
stock of the Company. In addition the agreement provides for commissions from 3%
to 5% of the net  revenue  received  on certain  accounts.  The  Executive  Vice
President of Sales and  Marketing  was  previously  granted  options to purchase
175,000  restricted  common shares at the exercise price of $0.65 per share. The
options vest at the rate 20% at the grant date and the balance in equal  monthly
amounts over the three years from September 1, 2005.

                                     EXPERTS

     The financial statements of Direct Insite Corp. as of December 31, 2007 and
2006,  and for each of the two years in the  period  ended  December  31,  2007,
included  in this  prospectus  have been  audited by Marcum & Kliegman  LLP,  an
independent  registered  public  accounting  firm,  as  stated  in  its  reports
appearing herein.  These financial  statements have been so included in reliance
upon the  reports  of such  firm  given  upon  their  authority  as  experts  in
accounting and auditing.

                                  LEGAL MATTERS

     Certain  legal matters with respect to the validity of the shares of common
stock being  offered  hereby  will be passed on for us by  Beckman,  Lieberman &
Barandes, LLP.

                       WHERE YOU CAN FIND MORE INFORMATION

     We file reports, proxy statements and other information with the Securities
and  Exchange  Commission  as  required by federal  law.  These  reports,  proxy
statements  and other  information  can be  inspected  and  copied at the public
reference facilities  maintained by the Securities Exchange Commission Investors
may read and copy any of these reports, statements, and other information at the
SEC's public reference room located at 100 F. Street, N.E,, , Washington,  D.C.,
20549, or any of the SEC's other public reference  rooms.  Investors should call
the SEC at  l-800-SEC-0330  for further  information  on these public  reference
rooms upon payment of the fees prescribed by the Securities Exchange Commission.
These SEC filings are also available free at the SEC's web site at www.sec.gov.

                                       44
This  prospectus  does not contain all of the  information set forth in the
registration statement,  parts of which are omitted to comply with the rules and
regulations  of the Securities  Exchange  Commission.  For further  information,
please see the registration statement in its entirety.
DIRECT INSITE CORP. AND SUBSIDIARIES

                 For the Years Ended December 31, 2007 and 2006

                                    CONTENTS
--------------------------------------------------------------------------------

                                                                           Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                     F-1

FINANCIAL STATEMENTS
--------------------
  Consolidated Balance Sheets                                               F-2
  Consolidated Statements of Operations                                     F-4
  Consolidated Statement of Shareholders' Deficiency                        F-5
  Consolidated Statements of Cash Flows                                     F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                            F-9 - F-31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------

To the Audit Committee of the
Board of Directors and Shareholders of
Direct Insite Corp. and Subsidiaries

We have audited the  accompanying  consolidated  balance sheets of Direct Insite
Corp. and Subsidiaries  (the "Company") as of December 31, 2007 and 2006 and the
related  consolidated   statements  of  operations,   changes  in  shareholders'
deficiency,  and cash flows for the years then ended. These financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial  statements,  assessing the accounting principles used and significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of the
Company as of  December  31, 2007 and 2006 and the  consolidated  results of its
operations and its cash flows for the years then ended in conformity with United
States generally accepted accounting principles.

As discussed in Note 3 to the  consolidated  financial  statements,  the Company
changed its method of accounting  for common stock  warrants in accordance  with
FASB Staff Position ("FSP") EITF 00-19-2,  "Accounting for Registration  Payment
Arrangements"  on  January  1,  2007.  Also,  as  discussed  in  Note  2 to  the
consolidated financial statements,  the Company changed its method of accounting
for  share  based   compensation  in  accordance  with  Statement  of  Financial
Accounting Standard No. 123 (Revised 2004) on January 1, 2006.

/s/ Marcum & Kliegman LLP
Marcum & Kliegman LLP
Melville, NY
March 26, 2008

                                      F-1
DIRECT INSITE CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
                           December 31, 2007 and 2006
--------------------------------------------------------------------------------

                                     ASSETS
                                     ------
2007              2006
                                                                                  ---------------- -----------------

CURRENT ASSETS
--------------
Cash and cash equivalents                                                         $       2,184      $       295
 Accounts receivable, net of allowance for doubtful accounts of
  $0 in 2007 and 2006                                                                      1,486            1,999
 Prepaid expenses and other current assets                                                   135              139
                                                                                       ---------        ---------

       Total Current Assets                                                                3,805            2,433

PROPERTY AND EQUIPMENT, Net                                                                  443              450

OTHER ASSETS                                                                                 274              280
                                                                                       ---------        ---------

       TOTAL ASSETS                                                                       $4,522           $3,163
                                                                                       =========        =========
F-2
DIRECT INSITE CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
                           December 31, 2007 and 2006
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY

                                                                                            2007            2006
                                                                                       --------------- ---------------
CURRENT LIABILITIES
-------------------
Accounts payable and accrued expenses                                                    $   1,839      $    2,065
 Lines of credit                                                                                 --             586
 Current portion of capital lease obligations                                                    36              58
 Current portion of notes payable                                                                84              53
 Warrant liability                                                                               --             602
 Short-term revolving loans                                                                      --             481
 Deferred revenue                                                                               123             564
 Dividends payable                                                                            3,336           2,489
                                                                                        -----------      ----------

       Total Current Liabilities                                                              5,418           6,898

OTHER LIABILITIES
-----------------
 Capital lease obligations, net of current portion                                               14              34
 Notes payable, net of current portion                                                          135             130
                                                                                       ------------    ------------

       TOTAL LIABILITIES                                                                      5,567           7,062
                                                                                        -----------     -----------
COMMITMENTS AND CONTINGENCIES
-----------------------------

SHAREHOLDERS' DEFICIENCY
------------------------
  Preferred stock, $0.0001 par value; 2,000,000 shares authorized;
      Series A Convertible Preferred, 134,680 issued
      and outstanding in 2007 and 2006; liquidation
      preference of $2,750,000;
      Series B Redeemable Preferred, 974 issued and outstanding in
      2007 and 2006; liquidation preference of $974,075;                                         --              --
      Series C Redeemable Preferred, 2,000 issued and
      outstanding in 2007 and 2006; liquidation preference of $2,000,000;                        --              --
      Series D Redeemable Preferred, 100 shares issued and outstanding in
      2007 and 2006,liquidation preference of $100,000;                                          --              --

 Common stock, $.0001 par value; 50,000,000 shares authorized; 7,115,216 and
  5,293,311 shares issued in 2007 and 2006, respectively; and 7,075,289 and
  5,253,384
  shares outstanding in 2007 and 2006, respectively                                               1              --
 Additional paid-in capital                                                                 114,961         113,185
 Accumulated deficit                                                                       (115,679)       (116,756)
                                                                                           ---------       ---------

                                                                                               (717)         (3,571)
 Common stock in treasury, at cost; 24,371 shares in 2007
  and 2006                                                                                     (328)           (328)
                                                                                         -----------     -----------

       TOTAL SHAREHOLDERS' DEFICIENCY                                                        (1,045)         (3,899)
                                                                                          ----------      ----------

       TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY                                    $    4,522      $    3,163
                                                                                         ==========      ==========
F-3
DIRECT INSITE CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

                 For the Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------
2007          2006
                                                                                     -------------- -------------

REVENUES                                                                              $     10,111   $      8,889
--------                                                                              ------------   ------------

COSTS AND EXPENSES
Operations, research and development                                                        3,698          3,478
 Sales and marketing                                                                         1,110          1,393
 General and administrative                                                                  2,755          2,581

 Amortization and depreciation                                                                 332            321
                                                                                      ------------   ------------

       TOTAL OPERATING EXPENSES                                                              7,895          7,773
                                                                                      ------------   ------------

       OPERATING INCOME                                                                      2,216          1,116
                                                                                      ------------   ------------

OTHER EXPENSE (INCOME)
---------------------
Change in fair value of warrant                                                                 --            143
Interest expense, net                                                                           97            610
Other (income) expense, net                                                                     (8)            94
                                                                                      ------------   ------------

         TOTAL OTHER EXPENSE, NET                                                               89            847
                                                                                      ------------   ------------

INCOME BEFORE PROVISION FOR INCOME TAXES                                                     2,127            269
----------------------------------------

PROVISION  FOR INCOME TAXES                                                                     27              0
---------------------------                                                           ------------   ------------

NET INCOME                                                                                   2,100            269
----------

PREFERRED STOCK DIVIDENDS                                                                   (1,060)          (714)
-------------------------                                                             ------------   ------------

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
----------------------------------------
 SHAREHOLDERS                                                                          $     1,040     $     (445)
 ------------                                                                         ============   ============

BASIC INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS                      $      0.17     $    (0.09)
-----------------------------------------------------------------                     =============  ============

FULLY DILUTED INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS              $      0.12      $   (0.09)
-------------------------------------------------------------------------             =============  ============

BASIC WEIGHTED AVERAGE COMMON SHARES OUSTANDING                                              5,966          5,000
-----------------------------------------------                                       ============   ============

FULLY DILUTED WEIGHTED AVERAGE COMMON SHARES OUSTANDING                                      8,534          5,000
-------------------------------------------------------                               ============   ============
F-4
DIRECT INSITE CORP. AND SUBSIDIARIES

               CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY

          For the Years Ended December 31, 2007 and 2006 (in thousands)
--------------------------------------------------------------------------------
Preferred Stock
                              ------------------------------------------------------------------
                                                                                                                Deferred
                       Series A       Series B       Series C        Series D       Common Stock    Additional   Stock
                                                                                                     Paid-in      Based     Accum-
                                                                                                     Capital   Compensation ulated
                   Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Shares   Amount    Amount      Amount    Deficit
                  ------------------------------------------------------------------------------------------------------------------
BALANCE -
-------
January 1, 2006    135   $  --       1    $  --     2      $   --     --    $ --   4,933    $  --    $ 113,039   $ (134)  $(116,311)

Reclassification
on adoption
of FAS 123 (R)                                                                                            (134)     134

Common stock
and options
issued for
services           --      --      --       --       --       --      --      --     320       --          117                  --

Stock based
compensation
expense                                                                                                    163

Dividends
declared,
preferred         --      --      --       --       --       --      --      --       --       --           --       --        (714)

 Net income       --      --      --       --       --       --      --      --      269       --           --       --         269
                  ------------------------------------------------------------------------------------------------------------------

BALANCE -
December 31,
 2006             135   $  --       1     $ --      2      $ --      --    $ --    5,253     $ --    $ 113,185     $ --   $(116,756)
                  =================================================================================================================
F-5
DIRECT INSITE CORP. AND SUBSIDIARIES

          CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY, continued

          For the Years Ended December 31, 2007 and 2006 (in thousands)
--------------------------------------------------------------------------------
Preferred Stock
                              ------------------------------------------------------------------
                                                                                                                Deferred
                       Series A       Series B       Series C        Series D       Common Stock    Additional   Stock
                                                                                                     Paid-in      Based     Accum-
                                                                                                     Capital   Compensation ulated
                   Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Shares   Amount    Amount      Amount    Deficit
                  ------------------------------------------------------------------------------------------------------------------

BALANCE -
-------
December 31, 2006  135   $  --       1     $  --       2  $  --       --    $ --   5,253    $  --  $ 113,185     $  --   $(116,756)

Cumulative effect
of change in
Accounting
principle                                                                                                565        --          37

Common stock
and warrants
ssued for
services           --       --      --        --      --     --       --      --      5         --        45                    --

Common stock
issued on
exercise
of options
and warrants                                                                        765          1       28

Employee stock
based
compensation
expense                                                                             185                 564

Common stock
issued to settle
accrued
liabilities                                                                         767                 361

Dividends
declared,
preferred
Stock              --       --      --        --      --     --       --      --    100                 213                 (1,060)

 Net income        --       --      --        --      --     --       --      --     --        --        --        --        2,100
                  ------------------------------------------------------------------------------------------------------------------

BALANCE -
December 31,      135    $  --       1      $ --       2   $ --       --    $ --  7,075      $ 1  $ 114,961      $ --    $(115,679)
                  =================================================================================================================
F-6
DIRECT INSITE CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

                 For the Years Ended December 31, 2007 and 2006
--------------------------------------------------------------------------------
2007              2006
                                                                                     ----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net income                                                                                  $ 2,100             $ 269
 Adjustments to reconcile net income
  to net cash provided by operations:
   Amortization and depreciation:
     Property and equipment                                                                      329               319
     Other                                                                                         3                 2
     Discount on debt                                                                             --               375
    Stock based compensation expense                                                             609               163
    Change in fair value of warrants                                                              --               143

  Changes in operating assets and liabilities:
    Accounts receivable                                                                          513              (141)
    Prepaid expenses and other current assets                                                      4                88
    Other assets                                                                                   3                 2
    Accounts payable and accrued expenses                                                        135               161
    Deferred revenue                                                                            (441)             (232)
                                                                                       --------------    --------------

       NET CASH PROVIDED BY  OPERATING ACTIVITIES                                       $      3,255      $      1,149
                                                                                       --------------    --------------

CASH FLOWS USED IN INVESTING ACTIVITIES
 Expenditures for property and equipment                                                  $     (202)        $     (97)
                                                                                       --------------    --------------

CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
  Proceeds from issuance of shares on exercise of options                                         28                --
  Repayment of short-term revolving loans, net                                                  (481)             (214)
  Repayment of long-term debt                                                                    (68)             (768)
  Repayments of lines of credit                                                                 (586)              (34)
  Repayments of capital lease obligations                                                        (57)             (105)
                                                                                       --------------    --------------

       NET CASH USED IN FINANCING ACTIVITIES                                                  (1,164)           (1,121)
                                                                                       --------------    --------------

       NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                                                                               1,889               (69)

CASH AND CASH EQUIVALENTS - Beginning                                                            295               364
-------------------------                                                              --------------    --------------

CASH AND CASH EQUIVALENTS - Ending                                                      $      2,184        $      295
-------------------------                                                              ==============    ==============
F-7
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Nature of Business
         ------------------

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

A complete Internet Customer Care tool set integrated with the EIP&P product set
is also  available.  In 2006, the Company  operated fully redundant data centers
located at its main office in Bohemia,  N.Y. and in an IBM co-location  facility
in Newark,  NJ. In 2007 the  Company  relocated  its data center  previously  in
Newark, to a co-location facility in Hauppauge, New York.

Management's  liquidity  plans are  discussed in Note 12. Also,  as described in
Note 15, the Company has two major  customers that  accounted for  approximately
97% and 98% of the Company's  revenue for the years ended  December 31, 2007 and
2006, respectively. Loss of these customers would have a material adverse effect
on the Company.

NOTE 2 - Significant Accounting Policies
         -------------------------------

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

The  consolidated  financial  statements  include the accounts of Direct  Insite
Corp.  and its  subsidiaries.  All  significant  intercompany  transactions  and
balances have been eliminated in consolidation.

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

The Company  records  revenue in accordance  with Statement of Position  ("SOP")
81-1  "Accounting for Performance of  Construction-Type  and Certain  Production
Type  Contracts",   issued  by  the  American   Institute  of  Certified  Public
Accountants and SEC Staff Accounting  Bulletin Topic 13 "Revenue  Recognition in
Financial   Statements."  In  some   circumstances,   the  Company  enters  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 The Company has an enforceable claim to receive the amount due in the event it
does not deliver the  undelivered  products or services and it is probable  that
such amount is collectible;

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

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

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

                                      F-8
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - Significant Accounting Policies, continued
         ------------------------------

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

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

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

The Company performs custom  engineering  services which are single  contractual
agreements  involving  modification  or  customization  of our  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.

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

Cost of revenue in the consolidated  statements of operations is presented along
with  research  and  development   costs  and  exclusive  of  amortization   and
depreciation which is shown separately. Custom Service Engineering costs related
to  uncompleted  milestones  are deferred and included in other current  assets,
when  applicable.  For the years ended December 31, 2007 and 2006,  research and
development   expenses   were   approximately   $2,598,000,    and   $2,381,000,
respectively.

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

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

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

Software Costs
--------------

Costs  associated  with the  development  of  software  products  are  generally
capitalized once  technological  feasibility is established.  Purchased software
technologies are recorded at cost and software technologies acquired in purchase
business transactions are recorded at their estimated fair value. Software costs
are  amortized  using the  greater  of the  ratio of  current  revenue  to total
projected revenue for a product or the  straight-line  method over its estimated
useful  life.  Amortization  of  software  costs  begins  when  products  become
available for general customer release. Costs incurred prior to establishment of
technological   feasibility  are  expensed  as  incurred  and  are  included  in
"operations,  research  and  development".  No software  development  costs were
capitalized in 2007 and 2006.

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

                                      F-9
DIRECT INSITE CORP. AND SUBSIDIARIES NOTES TO

                       CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - Significant Accounting Policies, continued
         -------------------------------

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 years ended December 31, 2007 and
2006, respectively.

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

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.  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. Accordingly, and after considering changes in previously
existing positive evidence, the Company recorded a full valuation allowance.  In
addition,  the Company  expects to provide a full valuation  allowance on future
tax benefits until it can sustain a level of profitability that demonstrates its
ability to utilize the assets,  or other  significant  positive  evidence arises
that suggests its ability to utilize such 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.

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. Basic earnings per share includes no dilution and is
computed by dividing net income (loss)  attributable  to common  shareholders by
the weighted average number of common shares outstanding for the period. Diluted
earnings per share include the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock.

                                      F-10
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - Significant Accounting Policies, continued
         -------------------------------

Securities that could potentially dilute basic earnings per share ("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,  consist of the
following (shares are in thousands):
Potential Common Shares                                         December 31,
                                                            -----------------------------
                                                                 2007           2006
                                                                 ----           ----
                                                            ---------------- ------------
Options to purchase common stock                            --             4,605
     Warrants to purchase common stock                           200            3,332
     Series A Convertible Preferred Stock                      1,347            1,347
                                                               -----            -----

     Total Potential Common Shares as of  December 31,         1,547            9,284
                                                               =====            =====
Cash and Cash Equivalents
-------------------------

The Company  considers all investments with original  maturities of three months
or less to be cash  equivalents.  The Company has cash deposits in excess of the
maximum  amounts  insured by FDIC at  December  31,  2007 and 2006.  The Company
mitigates its risk by investing in or through major financial institutions.

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. Management performs on-going
credit evaluations of its customers and adjusts credit limits based upon payment
history and the  customer's  current  credit  worthiness,  as  determined by the
review of their  current  credit  information.  Collections  and  payments  from
customers  are  continuously  monitored.  While  such  bad  debt  expenses  have
historically been within  expectations and allowances  established,  the Company
cannot  guarantee that it will continue to experience the same credit loss rates
that it has in the past.  At  December  31,  2007 and  2006,  an  allowance  for
doubtful  accounts is not  provided  since,  in the opinion of  management,  all
accounts are deemed collectible. If the financial condition of customers were to
deteriorate,  resulting  in an  impairment  of their  ability to make  payments,
additional allowances may be required.

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

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and accounts receivable.  Concentrations
of credit risk with respect to accounts  receivable and revenue are disclosed in
Note 16. The Company  performs  ongoing  credit  evaluations  of its  customers'
financial condition and,  generally,  requires no collateral from its customers.
Unless otherwise disclosed, the fair value of financial instruments approximates
their recorded value.

                                      F-11
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - Significant Accounting Policies, continued
         -------------------------------

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

In preparing  consolidated  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  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,  fair value of derivative
warrants, stock based compensation,  valuation allowance on deferred tax assets,
and  management's  plans,  as disclosed in Note 13. Actual  results could differ
from those estimates.

New Accounting Pronouncements
-----------------------------

In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes - an  interpretation of FASB Statement No. 109" ("FIN 48"). This
Interpretation  prescribes a recognition threshold and measurement attribute for
the financial  statement  recognition and measurement of a tax position taken or
expected to be taken in a tax return,  and provides  guidance on  derecognition,
classification,   interest  and  penalties,   accounting  in  interim   periods,
disclosure,  and transition.  This  Interpretation is effective for fiscal years
beginning  after  December  15,  2006.  The  adoption  of FIN 48 did not  have a
material effect on the consolidated financial position, results of operations or
cash flows of the Company (see Note 9).

In September 2006, the FASB issued Statement of Financial  Accounting  Standards
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.  The Company is currently  evaluating  the impact of
adopting  SFAS 157 on its future  consolidated  financial  position,  results of
operations and cash flows and has not yet determined such effects.

In  November  2006,  the EITF  reached  a final  consensus  in EITF  Issue  06-6
"Debtor's  Accounting  for a  Modification  (or  Exchange) of  Convertible  Debt
Instruments"   ("EITF  06-6").   EITF  06-6  addresses  the  modification  of  a
convertible  debt  instrument  that  changes  the  fair  value  of  an  embedded
conversion  option and the subsequent  recognition  of interest  expense for the
associated  debt  instrument  when the  modification  does not  result in a debt
extinguishment  pursuant to EITF 96-19 , "Debtor's Accounting for a Modification
or  Exchange  of  Debt  Instruments,".   The  consensus  should  be  applied  to
modifications  or exchanges of debt  instruments  occurring in interim or annual
periods  beginning  after  November 29, 2006.  The adoption of EITF 06-6 did not
have a  material  impact on our  consolidated  financial  position,  results  of
operations or cash flows.

In November 2006, the FASB ratified EITF Issue No. 06-7, Issuer's Accounting for
a Previously  Bifurcated Conversion Option in a Convertible Debt Instrument When
the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement

                                      F-12
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - Significant Accounting Policies, continued
         -------------------------------

No. 133,  Accounting for Derivative  Instruments and Hedging  Activities  ("EITF
06-7"). At the time of issuance,  an embedded conversion option in a convertible
debt  instrument may be required to be bifurcated  from the debt  instrument and
accounted for  separately by the issuer as a derivative  under FAS 133, based on
the  application  of EITF 00-19.  Subsequent to the issuance of the  convertible
debt,  facts may change and cause the  embedded  conversion  option to no longer
meet the conditions for separate accounting as a derivative instrument,  such as
when the  bifurcated  instrument  meets  the  conditions  of  Issue  00-19 to be
classified in stockholders' equity. Under EITF 06-7, when an embedded conversion
option  previously  accounted for as a derivative  under FAS 133 no longer meets
the  bifurcation  criteria  under  that  standard,  an issuer  shall  disclose a
description of the principal  changes causing the embedded  conversion option to
no longer require  bifurcation under FAS 133 and the amount of the liability for
the conversion option reclassified to stockholders'  equity. EITF 06-7 should be
applied to all previously  bifurcated  conversion  options in  convertible  debt
instruments  that no longer meet the bifurcation  criteria in FAS 133 in interim
or annual periods  beginning after December 15, 2006,  regardless of whether the
debt  instrument  was entered into prior or subsequent to the effective  date of
EITF 06-7.  Earlier  application  of EITF 06-7 is permitted in periods for which
financial statements have not yet been issued. The adoption of EITF 06-7 did not
have a  material  impact on our  consolidated  financial  position,  results  of
operations or cash flows.

In December  2006,  the FASB issued FASB Staff  Position  ("FSP")  EITF  00-19-2
"Accounting for Registration  Payment  Arrangements"  ("FSP EITF 00-19-2") which
specifies  that the contingent  obligation to make future  payments or otherwise
transfer  consideration  under a  registration  payment  arrangement  should  be
separately  recognized and measured in accordance  with SFAS No. 5,  "Accounting
for  Contingencies."  Adoption of FSP EITF  00-19-2 is required for fiscal years
beginning  after  December 15, 2006. The effect of adopting FSP EITF 00-19-2 are
disclosed in Note 3.

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.  Early adoption
is  permitted  as of the  beginning  of a fiscal  year that  begins on or before
November 15, 2007,  provided the entity also elects to apply the  provisions  of
SFAS No. 159. The Company is currently  evaluating  the expected  effect of SFAS
159 on its  consolidated  financial  statements  and is  currently  not yet in a
position to determine such effects.

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 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

                                      F-13
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - Significant Accounting Policies, continued
         -------------------------------

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 December 2007, the Staff of the  Securities  and Exchange  Commission  issued
Staff  Accounting   Bulletin  No.  110  ("SAB  110")  regarding  the  use  of  a
"simplified"  method,  as discussed in SAB 107, in developing an estimate of the
expected  term of "plain  vanilla"  share  options in  accordance  with FASB No.
123(R) "Share Based Payment'.  The Staff will continue to accept,  under certain
circumstances, the use of the simplified method beyond December 31, 2007.

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

Effective  January 1,  2006,  the  Company  adopted  the fair value  recognition
provisions  of  Statement  of  Financial   Accounting   Standards  ("SFAS")  No,
123(Revised   2004),   "Share-Based   Payment",   ("SFAS  123(R)"),   using  the
modified-prospective-transition  method to account for stock based compensation.
Non-employee  stock based  compensation is accounted for using the provisions of
EITF  96-18.  As a result,  for the year ended  December  31,  2007 the  Company
recorded  $609,000  in stock  based  compensation  expense for the fair value of
stock based  compensation  of which $81,000  related to stock options granted to
employees,  $452,000 related to restricted stock grants,  and $35,000 related to
warrants issued in exchange for services.  For the year ended December 31, 2006,
the Company recorded $163,000 in stock based  compensation  expense for the fair
value of stock based  compensation  of which  $83,000  related to stock  options
granted to employees,  $9,000  related to restricted  stock grants,  and $71,000
related to warrants issued in exchange for services. At December 31, 2007, there
was $1,534,000 of total unrecognized  stock based  compensation  costs, which is
expected to be recognized over a weighted average period of 2.9 years.

NOTE 3 - Change in Accounting Principle
         ------------------------------

Prior to  January  1, 2007 the  Company,  under  the  provisions  of EITF  00-19
"Accounting  for Derivative  Financial  Instruments  Indexed to, and Potentially
Settled in, a Company's Own Stock",  was required to record the warrants  issued
in conjunction with a bridge loan as a derivative liability at fair value on the
date of issuance due to the registration  payment  arrangements  included in the
financing  and warrant  agreements.  At December  31, 2006 the fair value of the
warrant liability was $602,000.  In January 2007, the Company changed the method
of accounting following the guidance of FSP EITF 00-19-2 which provides that the
contingent  obligation  to make future  payments  under a  registration  payment
arrangement  should be accounted for as a separate  agreement in accordance with
FASB  Statement No. 5,  Accounting  for  Contingencies.  As a result the warrant
liability at issuance of $565,000 was reclassified to Additional Paid In Capital
based on its  original  fair  value and the  cumulative  effect of the change in
accounting principle of $37,000 was recorded as a credit to accumulated deficit.
The cumulative effect upon adoption of FSP EITF 00-19-2 is summarized below:

                                      F-14
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated deficit - December 31, 2006                               $(116,756)
         Cumulative effect of the change in accounting principle             37
                                                                     ----------

Accumulated deficit - January 1, 2007                                 $(116,719)
                                                                      ==========

NOTE 4 - Accounts Receivable and Short-term 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 their accounts
receivable to the Bank on a full recourse basis. Upon specific invoice approval,
an advance of 80% of the underlying  receivable is provided to the Company.  The
remaining balance (20%), less finance charges equal to the prime rate plus 2.00%
per month (9.25% at December 31, 2007), is paid to the Company once the customer
has paid. The maximum amount of all assigned receivables outstanding at any time
shall not exceed $1.5  million.  The Company  paid a facility fee of $15,000 for
the renewal and the agreement  expires on May 30, 2008. A December 31, 2007, the
Company had no accounts receivable assigned to the Bank and had no advances from
the Bank. At December 31, 2006, the Company had assigned  approximately $290,000
of accounts  receivable  to the Bank and received  advances of $232,000 from the
Bank.

In May 2004,  the Company  entered into an Agreement with DIRI Rec Fund LLC (the
"Rec Fund") whereby the Company may assign certain accounts receivable on a full
recourse  basis to the Rec Fund as security for advances  (loans).  The Rec Fund
was  established  solely to advance funds to the Company upon the  assignment of
receivables.  The Rec Fund is  administered  by a third party  trustee.  Certain
shareholders  of the  Company  and a former  Director  of the  Company,  are the
principal  investors  in the Rec Fund.  Under the  Agreement,  the Company  pays
interest at the rate of one (1) percent per month on the maximum purchase amount
(as defined in the agreement) of the Rec Fund and pays the administrative  costs
of the Rec Fund which  approximate  $12,000 per year. At December 31, 2006,  the
Rec Fund had a total  principal  available  for  advances  of  $250,000  and the
Company had outstanding  advances from the Rec Fund of $249,000  resulting in an
unused  availability  under the  agreement  of $1,000.  At December 31, 2007 the
Company had repaid all advances received from the Rec Fund and the Agreement was
terminated.

NOTE 5 - Property and Equipment
-------------------------------
Property and equipment consist of the following:
December 31,            Useful life
                                                                                                         in Years
                                                                            2007            2006
                                                                        ------------------------------ --------------
                                                                               (in thousands)
Computer equipment and purchased software                              $ 3,287        $ 6,655               3
       Furniture and fixtures                                                      58            455             5 - 7
       Automobile                                                                   0             44               3
                                                                             --------      ---------
                                                                                3,345          7,154
       Less: accumulated deprecation and amortization                          (2,902)        (6,704)
                                                                              -------        -------
             Property and Equipment, Net                                     $    443       $    450
                                                                             ========       ========
Depreciation and amortization  expense related to property and equipment for the
years ended December 31, 2007 and 2006 was $329,000 and $319,000,  respectively,
which  includes  amortization  of equipment  under capital leases of $35,000 and
$102,000 for the years ended December 31, 2007 and 2006, respectively. The costs
and net book value of equipment under capital leases is stated in Note 7.

                                      F-15
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - Accounts Payable and Accrued Expenses
         -------------------------------------
Accounts payable and accrued expenses consist of the following:
December 31,
                                                2007             2006
                                         ----------------------------------
                                                    (in thousands)
Trade accounts payable                 $  456            $  499
       Sales taxes payable                       539               539
       Other accrued expenses                    844             1,027
                                              -------         ---------

                                              $1,839            $2,065
                                              ======            ======
NOTE 7 - Debt
-------------

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

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

The LoC permitted two forms of draw downs; one based upon prime rate, the second
based upon LIBOR.  The Company elected to draw down $500,000  applying the terms
and  conditions  set forth for  LIBOR.  The  interest  rate is the JPMC  reserve
adjusted LIBOR plus 2.30%.  As of December 31, 2006 the balance  outstanding was
$500,000 and the applied  interest rate was 7.93%. The credit line was repaid in
full on June 28, 2007 and the credit line was terminated. The Company also had a
second line of credit from Sterling  National Bank  ("Sterling") in the original
amount of $250,000.  The line was guaranteed by the Company's chairman,  secured
by the assets of the Company and carried an interest rate of 11.25%.  Repayments
were  calculated  monthly at 2.778% of the  outstanding  balance,  plus  finance
charges,  and continue  until the line is fully paid. At December 31, 2006,  the
Company had an outstanding  balance of  approximately  $86,000 under the line of
credit.  On February 21, 2007 the balance of $81,000  under the line was paid in
full and the LoC was terminated.

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

The Company has equipment  under capital lease  obligations  expiring at various
times through 2010. 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.

As of December 31, 2007 minimum future payments under these capital leases are:

                                      F-16
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - Debt (continued)
------------------------
Year Ending
                             -----------------------------------------------
                                                                                (in thousands)
2008                          $   40
                                                    2009                               9
                                                    2010                               7
                                                                                  -----------

                                        Total minimum lease payments                  56

                                  Less: amounts representing interest                 (6)
                                                                                  ---------

                                         Net minimum lease payments                   50
                                  Current portion                                     36
                                                                                  ----------
                                  Long term portion                               $   14
                                                                                  =========
The interest rates pertaining to these capital leases and notes range from 10.2%
to  15.3%.  The  gross  value and the net book  value of the  related  assets is
approximately  $135,000  and $28,000 at December  31,  2007,  respectively,  and
$314,000 and $66,000 at December 31, 2006, respectively.

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

At December 31, 2007 and 2006,  notes payable  consist of $219,000 and $183,000,
respectively,  of  borrowings  for the purchase of  equipment.  These notes bear
interest at rates  ranging from 9.0% to 10.3% per year and mature  through April
2011. The notes are collateralized by the equipment purchased.

As of December 31, 2007 future principal payments under these notes are:
Year Ending
                             -----------------------------------------------
                                                                                (in thousands)
2008                          $   84
                                                    2009                              78
                                                    2019                              48
                                                    2011                               9
                                                                                  -----------
                                               Total payments                        219
                                  Current portion                                     84
                                                                                  ----------
                                  Long term portion                            $      135
                                                                                  ==========
In March 2005,  the Company  entered into a Securities  Purchase  Agreement (the
"Agreement") with Sigma Opportunity Fund LLC ("Sigma") and Metropolitan  Venture
Partners  II, L.P.  ("MetVP"),  collectively  the  "Buyers",  whereby the Buyers
purchased  Senior  Subordinated  Secured  Notes  (the  "Note  Purchase")  in the
aggregate  amount of  $750,000.  The  notes  bear  interest  at the rate of five
percent (5%) per year beginning June 28, 2005, and are payable quarterly in cash
or common stock at the option of the Buyers.  The Notes mature on the earlier to
occur of (i) October 10,  2006,  or (ii) the date on which demand for payment of
the loan payable to JPMorgan  Chase Bank is made.  In  connection  with the note
purchase the Buyers were issued  warrants to purchase  750,000  common shares of
the Company.  The initial  exercise price of the warrants was $0.90 per share of
common stock. Sigma had an exclusive right to lead a  "Follow-on-Financing"  for
45 days following the closing and the Company had granted Sigma additional time.
In the event that the Follow-on-Financing had occurred the exercise price of the

                                      F-17
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - Debt (continued)
         ---------------

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

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

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

During the year ended December 31, 2006, the Company paid $120,000 of liquidated
damages and $43,000 of interest. The notes of $750,000 in principal were paid in
full on October 10, 2006.

The Company  recorded a debt discount of $565,000 based on the residual value of
the proceeds  received  and the fair value of the  warrants.  This  discount was
amortized  over the life of the loan using the  effective  interest rate method.
Amortization of $375,000 was recorded as interest  expense during the year ended
December 31, 2006.

NOTE 8 - Shareholders' Deficiency
         ------------------------

Preferred Stock
---------------

The Company has  2,000,000  authorized  preferred  shares of which  137,754 were
issued and outstanding at December 31, 2007 and 2006, as follows:

Series A Convertible Preferred Stock
------------------------------------

The Company has issued  134,680 shares of Series A Convertible  Preferred  Stock
("Series A Preferred") to MetVP. Each share of Series A Preferred is convertible
into 10 shares of common stock of the  Company.  Under the terms of the Series A
Preferred the shares automatically convert to common shares under certain events
with a final automatic conversion date of September 25, 2008. The holders of the
Series A Preferred  ("the  Holders") are entitled to dividends,  on a cumulative
basis,  at the rate of 9-1/2% per annum,  compounded  quarterly  and  payable on
February 1, 2005 and  September  25, 2005.  The Holders have certain  demand and

                                      F-18
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

piggyback  registrations rights for the Common Stock issuable upon conversion of
the  Series A  Preferred.  The  payment  of the first  dividend  was  originally
scheduled for September 25, 2004, however, the Company and the Holders agreed to
defer this payment until February 1, 2005. As consideration  for the deferral of
the dividend payment, the Company agreed to pay the Holders a premium of 7.5% of
the dividend.  In May 2004, the Company and the Holders  further agreed to grant
the  Company  the right,  in its sole  discretion,  to defer the  payment of the
dividend scheduled to be paid on February 1, 2005 until February 1, 2006. In the
event the  Company  elected to pay the  dividend on February 1, 2006 the Holders
would receive a premium of $129,000.  Also, the Company and the Holders  further
agreed to grant the  Company  the right,  in its sole  discretion,  to defer the
payment  of the  dividend  scheduled  to be paid on  September  25,  2005  until
February 1, 2006.  As a result of this  deferment,  the Company  agreed to pay a
premium of $26,000.  The holders of Series A Preferred  have  preference  in the
payment of dividends and, in the event of liquidation, to all classes of capital
stock of the  Company  except for the Series B and C  Preferred  Stock.  Certain
issues had arisen  concerning  the Company's  obligation  to accumulate  and pay
dividends on the Series A Preferred  beyond  September 25, 2005. On November 21,
2007, the Company and MetVP entered into an agreement resolving certain disputes
which had arisen with respect to the payment of dividends and interest to MetVP.
The Agreement  provides that, in addition to the undisputed sum of approximately
$1,406,000,  the Company will be paying an additional $500,000 through September
25, 2008 in  consideration  of past,  present and future  dividend  and interest
payments  through that date. All payments are conditioned upon there being funds
legally available for such payments when due. The agreement further provided for
the  issuance  to MetVP of 100,000  restricted  shares of the  Company's  common
stock.  These shares were issued in November  2007 and had a fair value based on
the closing  stock price on the date of issuance of $213,000  which was recorded
as a dividend  during the fourth quarter of 2007. At December 31, 2007 and 2006,
there were $1,685,000 and  $1,345,000,  respectively,  of dividends  accrued and
unpaid for Series A Preferred Holders and remain unpaid as of March 24, 2008.

Series B Redeemable Preferred Stock
-----------------------------------

The  Company  has issued 974  Series B  Preferred  shares at $1,000 per share in
exchange of $974,000 of  outstanding  debt.  The Company's  Chairman and current
Chief Executive  Officer holds 266 shares,  Markus & Associates (an affiliate of
SJ,  Note 10) holds 208  shares,  and Tall Oaks  holds 500  shares.  Each of the
Preferred  Stock  -  B  shares  is  entitled  to  mandatory  dividends,  payable
quarterly, commencing on the first day of the calendar quarter after the date of
issuance,  at the rate of 12% per annum.  Additionally,  the Preferred Stock - B
shares were redeemable, at the sole option of the Company, on or after March 31,
2005 (or  prior to March  31,  2005  with the  consent  of  majority-in-interest
holders of  Preferred  Stock - B shares).  Upon  redemption,  the holders of the
Preferred  Stock - B shall be entitled to receive,  for each share of  Preferred
Stock - B  outstanding,  an amount equal to the price per share plus accrued and
unpaid  dividends.  As of December  31, 2007 and 2006,  there were  $773,000 and
$532,000, respectively, in dividends payable to the Preferred Stock - B holders.
The holders of Series B Preferred  have  preference  in the payment of dividends
and, in the event of liquidation, to all classes of capital stock of the Company
before  the  Series A, C and D  Preferred  Stock.  The  Company  paid  dividends
totaling $773,000 in January 2008.

Series C Redeemable Preferred Stock
-----------------------------------

The  Company  has issued  2,000  shares of its  non-voting  Series C  Redeemable
Preferred Stock  ("Preferred Stock - C"). The holders of Preferred Stock - C are
entitled to  dividends  at the rate of 9-1/2% per annum,  payable  quarterly  in
arrears  beginning  October 1, 2005. The Company has the option to redeem issued
shares  of  Preferred  Stock - C, in  whole or in part,  at any  time,  with the

                                      F-19
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - Shareholders' Deficiency, continued
         ------------------------

redemption price equal to the purchase price plus accrued and unpaid  dividends.
For each  share of  Preferred  Stock - C  purchased,  each  investor  received a
Warrant to purchase the number of shares of the Company's  common stock equal to
the exchange  ratio of $1,000 of price per share ("Price Per Share")  divided by
123% of the closing price per share of the Company's common stock on the trading
day immediately prior to the date of issuance of the Warrant.  Certain officers,
directors and  affiliates  hold 1,470 shares of the  Preferred  Stock - C. As of
December 31, 2007 and 2006,  1,990,779  warrants are  outstanding  in connection
with the issuances of Preferred  Stock - C. The warrants expire in 2008 and 2009
and have  exercise  prices  ranging  from $0.86 to $2.13 per common  share.  The
proceeds  were  used for  working  capital  purposes.  The  holders  of Series C
Preferred  have  preference  in the  payment of  dividends  and, in the event of
liquidation,  to all  classes of  capital  stock of the  Company  except for the
Series B Preferred  Stock. As of December 31, 2007 and 2006, there were $844,000
and $589,000,  respectively,  in dividends  accrued for the Preferred  Stock - C
holders.

Series D Redeemable Preferred Stock
-----------------------------------

The Board of Directors authorized the issuance of up to 1,500 shares of Series D
Redeemable  Preferred  Stock  ("Series D  Preferred")  at $1,000 per share.  The
holders of Series D Preferred are entitled to dividends,  on a cumulative basis,
at the rate of 9-1/2% per year,  compounded and payable  quarterly  beginning on
April 1, 2006. The holders of Series D Preferred have  preference in the payment
of dividends and, in the event of  liquidation,  to all classes of capital stock
of the Company except for the Series A, B and C Preferred  Stock. As of December
31,  2007 and  2006,  100  shares of  Series D  Preferred  had been sold and the
Company received proceeds of $100,000. The buyer was issued warrants to purchase
90,909 common shares at an exercise price of $2.03 per share in conjunction with
the sale.  At  December  31,  2007 and 2006  there  were  $34,000  and  $22,000,
respectively, of dividends accrued and unpaid for Series D Preferred Holders.

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
Delaware General Corporate Law.

Dividends included in net income (loss) attributable to common shareholders for
the years ended December 31, 2007 and 2006 were:
---------------------------------------- ----------------------------------------- -----------------------------------
            Preferred Stock                                2007                                   2006
            ---------------                                ----                                   ----
---------------------------------------- ----------------------------------------- -----------------------------------
Series A                                                 $553,000                               $271,000
---------------------------------------- ----------------------------------------- -----------------------------------
Series B                                                 $240,000                               $200,000
---------------------------------------- ----------------------------------------- -----------------------------------
Series C                                                 $255,000                               $232,000
---------------------------------------- ----------------------------------------- -----------------------------------
Series D                                                 $ 12,000                               $ 11,000
                                                         --------                               --------
---------------------------------------- ----------------------------------------- -----------------------------------
Total                                                  $1,060,000                               $714,000
                                                       ==========                               ========
---------------------------------------- ----------------------------------------- -----------------------------------
Common Stock, Options, Stock Grants and Warrants Issuances
----------------------------------------------------------

Year Ended December 31, 2007
----------------------------

During the year ended December 31, 2007 the Company  issued  764,580  registered
shares of common stock, 1,057,325 unregistered shares of common stock and 80,000
options to purchase common shares as follows:

     o    646,176 common shares on exercise of warrants on a cashless basis;

                                      F-20
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - Shareholders' Deficiency, continued
         ------------------------

     o    25,000  common  shares on  exercise  of options  for which the Company
          received proceeds of $28,000;

     o    93,404 common shares on the cashless exercise of options;

     o    100,000 common shares to MetVP  pursuant to the  settlement  agreement
          related to dividends on the Series A Preferred  Stock. The shares were
          valued at  $213,000  based on the  closing  price of the shares on the
          date of the agreement;

     o    88,740 common shares,  valued at $44,000 based on the closing price of
          the shares on the date earned,  for  settlement  of accrued  directors
          fees;

     o    659,618 common  shares,  valued at $307,000 based on the closing price
          of the shares on the date earned, to certain employees, executives and
          former employees for accrued compensation related to salary reductions
          in 2005 and 2006;

     o    170,000 common shares to the Chief Executive  Officer for compensation
          under his  employment  agreement  (Note 12). The shares were valued at
          $383,000  based on the closing  market price of the shares on the date
          of the grant;

     o    35,592  common  shares to an employee  and a  consultant  for services
          valued at  $38,000  for  services  of which  18,720  shares  valued at
          $10,000  were for  services  in 2006.  The  shares  were  based on the
          closing price of the stock on the date earned;

     o    3,375 common shares to certain employees for bonuses, valued at $7,000
          based on the closing market price on the date of the grant;

     o    80,000 options to purchase  common shares to certain  employees of the
          Company.

During the year ended December 31, 2007, the Company recorded  $564,000 as stock
based  compensation  expense  for the vesting of options  and  restricted  stock
grants with the offset to additional  paid-in-capital.  The options  issued have
exercise prices ranging from $0.61 to $0.95 per share (the trading prices of the
shares at the date of the grant) and have a fair value at the date of the grants
of $29,000. The valuation was determined using the Black-Scholes method. The key
assumptions used were an expected  volatility based on historical  volatility of
69.0% to 76.7% with a weighted average volatility of 71.7%, dividend rate of 0%,
a risk free interest rate of 3.9% to 4.9%, and expected life of 3.25 years using
the simplified method to determine expected life.

During the year ended  December 31,  2007,  the Company  amended its  employment
agreements  with  certain of the  executive  officers.  Under  these  agreements
certain stock grants were granted to these officers.  See Note 12 for a detailed
explanation of these grants.

Year Ended December 31, 2006
----------------------------

During the year ended December 31, 2006 the Company issued 400,356  unregistered
shares of common stock and 360,000 options to purchase common shares as follows:

     o    49,944 common shares with a fair value of $22,000 based on the closing

                                      F-21
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - Shareholders' Deficiency, continued
         ------------------------

          price on the date earned to an employee as compensation;

     o    64,729 common shares with a fair value of $24,000 based on the closing
          price of the shares on the date of the agreement as partial settlement
          of a consulting agreement;

     o    144,000  common  shares to Tall Oaks  valued at  $36,000  based on the
          closing  price of the  shares on the date of the  agreement  to accept
          shares for payment in lieu of cash for consulting services;

     o    41,683  common  shares to MetVP valued at $10,000 based on the closing
          price of the shares on the date of the  agreement to accept shares for
          payment in lieu of cash for interest;

     o    100,000  common shares valued at $25,000 based on the closing price of
          the shares on the date of the agreement to accept shares or payment in
          lieu of cash for legal fees;

     o    360,000 options to purchase  common shares to certain  officers of the
          Company.

The options  issued have an exercise price of $0.25 per share (the trading price
of the shares at the date of the grant)  and have a fair value of  $48,000.  The
valuation was determined  using the  Black-Scholes  method.  The key assumptions
used were a volatility of 73.7%,  dividend rate of 0%, a risk free interest rate
of 4.9% and expected life of 3.25 years.

Stock Option Plans
------------------

The Company grants 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 3 years and expire five years from the date of the grant.  At December  31,
2007,  4,620,000  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.

In 2004, the Company's Board of Directors  authorized and adopted the 2004 Stock
/ Stock Option Plan ("2004 Plan") whereby  1,200,000  shares of its common stock
were  reserved  for  issuance  under the Plan.  The 2004  Plan was  approved  by
shareholders  at the  annual  meeting on  December  21,  2006.  The 2004 Plan is
divided into two separate equity  programs:  an option grant program and a stock
issuance program. Under the stock issuance program, the purchase price per share
is fixed by the Board of Directors or compensation  committee but cannot be less
than the fair  market  value of the common  stock on the  issuance  date.  As of
December 31, 2007,  there are 346,000 shares  available to be issued pursuant to
this plan.

                                      F-22
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - Shareholders' Deficiency, continued
         ------------------------

         The following is a summary of stock option activity for 2007 and 2006,
         relating to all of the Company's common stock plans (shares are in
         thousands):
Weighted           Weighted Average            Aggregate
                                                                Average              Remaining                Intrinsic
                                                Shares         Exercise           Contractual Term              Value
                                             (in thousands)      Price               (in years)            (in thousands)
                                            ---------------- -------------- ------------------------- ----------------------
Outstanding at January 1, 2006                   4,854              1.25           2.58                  $  12
                                                                         ----           ----                  -----

      Granted                                           360              0.25
      Exercised                                          --               --
      Forfeited                                        (610)             1.42
                                                  ---------              ----

     Outstanding at December 31, 2006                 4,604              1.15           2.1                   $ 398
                                                                         ----           ---                   -----

      Granted                                            80              0.70
      Exercised                                        (283)             1.32
      Forfeited                                      (1,809)             1.66
                                                  ---------              ----

     Outstanding at December 31, 2007                 2,592             $0.77           2.1                  $3,433
                                                  =========             =====           ===                  ======
     Exercisable at December 31, 2007                 2,451             $0.79           2.0                  $3,204
                                                  =========             =====           ===                  ======
The following table summarizes stock option information as of December 31, 2007:
Options Outstanding
     ------------------------- ----------------------------- ------------------------ ---------------------------
                                                                Weighted Average
                                    Number Outstanding        Remaining Contractual      Options Exercisable
         Exercise Prices              (in thousands)                  Life                  (in thousands)
     ------------------------- ----------------------------- ------------------------ ---------------------------
$0.25 to $0.75                                   1,765                2.7 years                       1,624
     ------------------------- ----------------------------- ------------------------ ---------------------------
     $0.76 to $1.10                                     130                1.2 years                         130
     ------------------------- ----------------------------- ------------------------ ---------------------------
     $1.16 to $1.75                                     697                0.7 years                         697
                                                        ---                                                  ---
     ------------------------- ----------------------------- ------------------------ ---------------------------
     Total                                            2,592                2.1 years                       2,451
                                                      =====                                                =====
     ------------------------- ----------------------------- ------------------------ ---------------------------
A total of 7,302,000 and 7,936,000 shares of the Company's common stock are
     reserved for options,  warrants and  contingencies at December 31, 2007 and
     2006,  respectively.  The total fair value of shares vested during the year
     ended  December  31, 2007 was $74,000.  The weighted  average fair value of
     options  granted  during the years  ended  December  31, 2007 and 2006 were
     $0.36 and $0.13,  respectively.  At December 31, 2007, there was $26,000 of
     total  unrecognized  compensation  costs related to stock  options  granted
     which is expected to be  recognized  over a weighted  average  period of .6
     years.

Restricted Stock Grants

A summary of the status of the  Company's  non-vested  shares as of December 31,
2006 and changes during the year ended December 31, 2007 is presented below:

                                      F-23
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------- ----------------------------------- ----------------------------------------------

            Non-vested Shares                          Shares (000)                Weighted-average Grant Date Fair Value
------------------------------------------- ----------------------------------- ----------------------------------------------
Non-vested at January 1, 2007                               --                                         $0.00
------------------------------------------- ----------------------------------- ----------------------------------------------
Granted                                                    883                                         $2.22
------------------------------------------- ----------------------------------- ----------------------------------------------
Vested                                                    (173)                                        $2.24
------------------------------------------- ----------------------------------- ----------------------------------------------
Forfeited                                                   --                                         $0.00
------------------------------------------- ----------------------------------- ----------------------------------------------
Non-vested at December 31, 2007                                                                        $2.22
                                            ==================================
                                                           710
------------------------------------------- ----------------------------------- ----------------------------------------------
The future  expected  expense for  non-vested  shares is $1,508,000  and will be
recognized  on a  straight-line  basis over the period  January 1, 2008  through
December 31, 2010.

Warrants
--------

At December 31, 2007, the Company had warrants outstanding to purchase 2,681,688
shares of common stock.  The warrants have exercise prices ranging from $0.01 to
$2.13 and contracted lives from 5 to 7 years.

NOTE 9 - Income Taxes
         ------------

The Company adopted Financial  Accounting  Standards Board's  Interpretation No.
48,  "Accounting  for  Uncertainty in Income Taxes,  an  interpretation  of FASB
Statement No. 109" ("FIN 48"),  effective  January 1, 2007. FIN 48 clarifies the
accounting for  uncertainty in income taxes  recognized in financial  statements
and  requires  the impact of a tax position to be  recognized  in the  financial
statements  if that  position is more likely than not of being  sustained by the
taxing authority.  FIN 48 is effective for fiscal years beginning after December
31,  2006,  and is to be  applied  to all  open  tax  years  as of the  date  of
effectiveness.  FIN 48 also provides guidance on derecognition,  classification,
interest  and  penalties,   accounting  in  interim   periods,   disclosure  and
transition. There were no unrecognized tax benefits as of December 31, 2007.

The  Company has  identified  its federal tax return and its state tax return in
New York as  "major"  tax  jurisdictions,  as  defined  in FIN 48.  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 2004
through 2007, the only periods subject to examination. The Company believes that
its income tax positions and  deductions  will be sustained  upon audit and does
not  anticipate  any  adjustments  that will result in a material  change to its
financial position. In addition,  the Company did not record a cumulative effect
adjustment  related  to the  adoption  of FIN 48.  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
year ended December 31, 2007. The Company does not expect its  unrecognized  tax
benefit  position  to  change  during  the next  twelve  months.  Management  is
currently  unaware of any issues under  review that could result in  significant
payments, accruals or material deviations from its position. The adoption of FIN
48 did not have a  material  effect on our  consolidated  financial  position  ,
results of operations or cash flows.

The  following  table  summarizes  components  of the  provision for current and
deferred income taxes for the years ended December 31, 2007 and 2006:

                                      F-24
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - Income Taxes (continued)
         -----------------------
December 31,
                                                                                        2007              2006
                                                                                   ---------------- -----------------
                                                                                            (in thousands)
Current
         Federal                                                                     $         23     $         --
         State and other                                                                        4               --
                                                                                      -----------     ------------

             Total                                                                             27               --
                                                                                     ------------     ------------
       Deferred
         Federal                                                                               --               --
         State and other                                                                       --               --
                                                                                     ------------     ------------
             Total                                                                             --               --
                                                                                     ------------     ------------

                  Provision for Income Taxes                                          $        27      $        --
                                                                                      ===========      ===========
The following  table  summarizes the  significant  differences  between the U.S.
Federal  statutory tax rate and the  Company's  effective tax rate for financial
statement purposes for the years ended December 31, 2007 and 2006:
December 31,
                                                                                           2007            2006
                                                                                     ----------------- --------------
U.S. Federal statutory tax rate                                                     34%               34%
       Permanent items                                                                      1                 5
       Change in effective tax rate                                                         9                 0
       State taxes
       Decrease in valuation allowance                                                      6                 2
                                                                                          (49)              (41)

                                                                                            1%                0%
                                                                                           ===               ===
The tax effects of temporary  differences  that give rise to deferred tax assets
and liabilities are summarized as follows:
December 31,
                                                                                          2007             2006
                                                                                    ----------------- ----------------
                                                                                             (in thousands)
Deferred tax assets
         Net operating loss carryforwards                                                 $ 27,649          $ 28,514
         Tax credit carryforwards                                                              759               733
         Fixed and intangible assets                                                            46                62
         Deferred revenue                                                                       49               225
         Value of stock options                                                                 99                28
         Unrealized loss on securities                                                         544               549
         Accruals                                                                              222               341
                                                                                       -----------        ----------
                                                                                            29,368            30,452
       Valuation allowance                                                                 (29,368)          (30,452)
                                                                                       -----------       -----------
             Deferred tax assets                                                       $         0       $         0
                                                                                       ===========       ===========
F-25
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - Income Taxes (continued)
         -----------------------

At December  31,  2007,  the Company  has 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. However, Internal Revenue Code Section 382 rules limit
the utilization of NOLs upon a change in control of a company.  During 2007, 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 as such
applies to Section 382.  However,  if it is determined  that a change in control
has taken place, either  historically or in the future,  utilization of its NOLs
could  be  subject  to  severe  limitations,  which  could  have the  effect  of
eliminating substantially all of the future income tax benefits of the NOLs. The
NOL carryforward as of December 31, 2007 included approximately $230,000 related
to windfall  tax benefits  for which a benefit  would be recorded in  additional
paid-in-capital when realized.

NOTE 10 - Related Party and Other Transactions
          ------------------------------------

     o    Metropolitan   Venture   Partners  Corp.   ("Metropolitan")   provided
          financial  advisory  services  to  the  Company.  Metropolitan  is the
          managing general partner of MetVP. The Company incurred $10,000 during
          the year ended December 31, 2006 for these services.  Additionally, in
          2006,  MetVP was granted  41,683 common shares for $10,000 of interest
          on its investment in the Senior Subordinated Secured Notes.

     o    The Company has a consulting agreement with DCL Consulting whereby DCL
          provides quality assurance  testing for the Company.  In 2007 and 2006
          the Company  incurred  $27,000  and  $26,000,  respectively  for these
          services.  The  spouse  of an  officer  of the  Company  is owner  and
          principal employee of DCL.

     o    The Company  receives  advisory  services  from Tall Oaks and Lawrence
          Hite. Tall Oaks is an affiliate of  Metropolitan  and Lawrence Hite is
          the  principal  owner of Tall  Oaks.  In 2007  and  2006  the  Company
          incurred costs of $18,000 and $9,000,  respectively for such services.
          In 2006,  Tall Oaks was issued  144,000 shares in lieu of cash for his
          fees  earned  through  June 30,  2006.  The fair  value of the  shares
          approximated the liability.

     o    During the year ended  December 31, 2006,  the Company  terminated and
          settled the  consulting  agreement  with Mountain  Meadow Farm and its
          associates,  including SJ Associates (collectively "Mountain Meadow").
          As part of the settlement the Company agreed to issue Mountain  Meadow
          90,638  restricted  common shares valued at $34,000 and to pay for the
          costs of medical,  life and certain other insurance  through  December
          31, 2013 with the cost for such  insurance  not to exceed  $200,000 in
          the aggregate or $50,000 in any 12 month period. At December 31, 2007,
          the Company  has  recorded a liability  of $119,000  representing  the
          estimated  present value of this  obligation.  Mountain Meadow and its
          principal employee are shareholders of the Company.

NOTE 11 - Commitments and Contingencies
          -----------------------------

Operating Leases
----------------

Operating  leases are  primarily for office  space,  co-location,  equipment and
automobiles.  At December 31, 2007,  the future  minimum  lease  payments  under
operating leases are summarized as follows:

                                      F-26
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - Commitments and Contingencies (continued)
          ----------------------------------------
Year Ending
                                     December 31,               Amount
                             -----------------------------------------------
                                                             (in thousands)
2008                        216
                                         2009                         19
                                         2010                         17
                                         2011                          1
                                                                  ------

                                         Total                      $253
                                                                    ====
Rent expense approximated $430,000 and $567,000 for the years ended December 31,
2007 and 2006, respectively.

Employment Agreements
---------------------

On August 22, 2007, the Board ratified and approved the Services  Agreement with
its  Chairman and Chief  Executive  Officer,  effective  June 1, 2007 for a term
ending on December 31, 2010. The agreement calls for compensation of $20,000 per
month (with a 10% increase on each annual anniversary subject to approval of the
Company's  Compensation  Committee and based on performance  of the Company),  a
one-time grant of 100,000 shares of restricted  common stock and the granting of
10,000 shares of restricted common stock per month commencing with the execution
of the  Agreement  and ending on December  1, 2010.  The fair value of the stock
grants is $1,193,000 based on the closing price of the shares on the grant date.
During the year ended  December  31, 2007,  the Company  issued  170,000  shares
valued at $383,000 as compensation  expense  related to the services  agreement.
The agreement further provides for:  reimbursement of certain  expenses;  living
and travel  expenses  approximating  $11,000 per month;  and  certain  severance
benefits in the event of termination prior to the expiration date.

On August 22, 2007, the Board ratified and approved an amendment to the Services
Agreement with its Executive Vice President and Chief Operating  Officer,  for a
term ending on December  31,  2010.  The  agreement  calls for  compensation  of
$15,500 per month,  a $25,000 cash bonus paid upon  execution of the  Agreement,
and the granting of 5,000 shares of restricted common stock per month commencing
on August 1, 2008 and ending on December 31,  2010.  The fair value of the stock
grants is $326,000  based on the  closing  price of the shares on the grant date
and is being amortized over the contract period.  During the year ended December
31, 2007 the Company  recorded  $33,000 as  compensation  expense related to the
stock  grant.  The  agreement  further  provides  for  reimbursement  of certain
expenses  and  severance  benefits  in the  event  of  termination  prior to the
expiration date.

On August 22, 2007, the Board ratified and approved an amendment to the Services
Agreement with its Executive Vice President and Chief Technology Officer,  for a
term ending on December  31,  2010.  The  agreement  calls for  compensation  of
$16,500 per month,  a $25,000 cash bonus paid upon  execution of the  Agreement,
and the granting of 5,000 shares of restricted common stock per month commencing
on August 1, 2008 and ending on December 31,  2010.  The fair value of the stock
grants is $326,000  based on the  closing  price of the shares on the grant date
and is being amortized over the contract period.  During the year ended December
31, 2007 the Company  recorded  $33,000 as  compensation  expense related to the
stock  grant.  The  agreement  further  provides  for  reimbursement  of certain
expenses  and  severance  benefits  in the  event  of  termination  prior to the
expiration date.

                                      F-27
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - Commitments and Contingencies (continued)
          ----------------------------------------

On December  12,  2007,  the Board  ratified  and  approved an  amendment to the
Services  Agreement  with its  Chief  Financial  Officer,  for a term  ending on
December 31, 2009. The agreement  calls for  compensation  of $14,583 per month,
and the granting of 2,500 shares of restricted common stock per month commencing
on December 1, 2007 and ending on December 31, 2009. The fair value of the stock
grants is $116,000  based on the  closing  price of the shares on the grant date
and is being amortized over the contract period.  During the year ended December
31, 2007 the Company  recorded  $5,000 as  compensation  expense  related to the
stock  grant.  The  agreement  further  provides  for  reimbursement  of certain
expenses  and  severance  benefits  in the  event  of  termination  prior to the
expiration date.

The Company entered into an employment and consulting  agreement with its former
President  effective  January 1, 2003.  The  agreement was amended on January 1,
2006. The employment term of the agreement expired June 30, 2006 and is followed
by a consulting  period which ends December 31, 2008. During the employment term
compensation  was  based on an  annual  salary  of  $240,000.  In  addition  the
President  received  options to purchase  100,000 shares of the Company's common
stock at $0.50 per share  which vest  ratably  over a period of 26 months and an
additional  option to purchase  100,000 shares of the Company's  common stock at
market  price on the date of grant which vest on an equal  monthly  basis over a
period of 36 months.  During the employment  term and for 90 days thereafter the
President was  reimbursed for  reasonable  out-of-pocket  expenses and temporary
living accommodations not to exceed $2,500 per month. During the employment term
he also received a  transportation  allowance of $600 per month and the cost for
transportation  to his  home.  During  the  consulting  term  of  the  agreement
compensation  will be $12,000 per month and duties  during the  consulting  term
include consultation with senior executives  concerning the Company's respective
businesses and operations.

The Company  entered into an employment  services  agreement  with the Executive
Vice  President  of Sales  and  Marketing  on August  1,  2006.  The term of the
agreement is for two years and provides  for base  compensation  of $144,996 per
year for each year of the  agreement  plus  $2,500  per month  payable in common
stock of the Company. In addition the agreement provides for commissions from 3%
to 5% of the net  revenue  received  on certain  accounts.  The  Executive  Vice
President of Sales and  Marketing  was  previously  granted  options to purchase
175,000  restricted  common shares at the exercise price of $0.65 per share. The
options vest at the rate 20% at the grant date and the balance in equal  monthly
amounts over the three years from September 1, 2005.

Future commitments under employment and consulting agreements are:

                           2008             $1,089,000
                           2009                970,000
                           2010                823,000
                                            ----------

                           Total            $2,882,000
                                            ==========

NOTE 12 - 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 will enable the Company to attain these goals. These actions include:

                                      F-28
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     o    For the year ended December 31, 2007 the Company had net cash provided
          by operations of $3,255,000.  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  may raise  additional  capital  through  private  equity
          offerings  and  borrowing.  There is no  assurance  however  that such
          capital would be available to the Company,  or if available,  on terms
          and  conditions  that would be  acceptable to it. The Company does not
          anticipate  raising any capital from these  sources in the next twelve
          months.

     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  our  customer  base in 2008,
          although  there  is no  assurance  that  the  Company  will be able to
          further broaden its customer base.

     o    In  2006  the  Company  initiated  a  cost  reduction  plan  that  has
          significantly reduced operating costs while still enabling the Company
          to meet its commitments to its customers. The Company will continue to
          seek ways to control and reduce costs.

     o    The  Company  continues  to expand its  marketing  efforts in order to
          increase  the customer  base.  In this  regard,  the Company  became a
          business partner with IBM and through this relationship will work with
          IBM to achieve  sales to new  customers.  The Company will continue to
          pursue similar channel partner opportunities.

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 raise
additional  capital through equity and debt  placements will provide  sufficient
cash to meet cash  requirements at least through December 31, 2008. 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.

                                      F-29
DIRECT INSITE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - Consolidated Statements of Cash Flows
          -------------------------------------

Supplemental  disclosure of cash flow  information  for the years ended December
31, 2007 and 2006 is summarized as follows:
Year ended December 31,
                                                                                      2007               2006
                                                                                ----------------- -------------------
                                                                                           (in thousands)
Interest paid                                                                     $120              $243
                                                                                       ====              ====
     Income taxes paid                                                                 $ 14              $  0
                                                                                       ====              ====
Non-cash  investing and financing  activities  for the years ended  December 31,
2007 and 2006 are summarized as follows:
Year Ended December 31,
                                                                                          2007            2006
                                                                                  --------------- ------------------
                                                                                           (in thousands)
Dividends accrued and unpaid                                                        $  847          $  714
                                                                                          ======          ======
      Capitalized leases and equipment notes incurred                                     $  119          $  226
                                                                                          ======          ======
      Reclassification of warrant liability                                               $  602        $     --
                                                                                          ======        ========

      Stock issued as dividends                                                           $  213        $     --
                                                                                          ======        ========
NOTE 14 - Products and Services
          ---------------------

The Company and its subsidiaries  currently  operate in one business segment and
have,  during the years  2007 and 2006,  provided  two  separate  products:  ASP
Services  and  Custom  Engineering  Services.  Refer  to  Note 1 for a  detailed
description of these products and services.
Year Ended December 31,
                                                                                     2007           2006
                                                                               ----------------- ----------------
                                                                                        (in thousands)
ASP fees                                                                     $ 7,606           $6,486
       Custom Engineering fees                                                        2,505            2,403
                                                                                    -------           ------
              Total Revenue                                                         $10,111           $8,889
                                                                                    =======           ======
NOTE 15 - Major Customers
          ---------------

For the year ended  December 31, 2007,  IBM and  Electronic  Data Systems  Corp.
("EDS") accounted for 51% and 46%,  respectively,  of the Company's revenue.  In
2006, IBM and EDS accounted for 69% and 29% of revenue,  respectively.  Accounts
receivable  from these two customers at December 31, 2007 and 2006,  amounted to
$1,416,000 and $1,937,000, respectively. Loss of either of these customers would
have a material adverse effect on the Company.

                                      F-30
DIRECT INSITE CORP. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                     For the Six Months Ended June 30, 2008

                                    CONTENTS
--------------------------------------------------------------------------------

Condensed Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and
  June 30, 2007..........................................................F-32

Condensed Consolidated Statements of Operations
  For the Three and Six Months Ended June 30, 2008 and 2007 (Unaudited)..F-33

Condensed Consolidated Statements Cash Flows
  For the Six Months Ended June 30, 2008 and 2007 (Unaudited)............F-34

Notes to Condensed Consolidated Financial Statements (Unaudited).....F-35 - F-42
DIRECT INSITE CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    AS OF JUNE 30, 2008 AND DECEMBER 31, 2007
                        (In thousands, except share data)
June 30,           December 31,
                                                                                      2008                 2007
                                                                              --------------------- --------------------
                                                                                   (Unaudited)
ASSETS
Current assets
Cash and cash equivalents                                                   $           2,217    $            2,184
  Accounts receivable, net of allowance for doubtful accounts of
   $0 in 2008 and 2007                                                                    1,469                 1,486
  Prepaid expenses and other current assets                                                  85
                                                                              ------------------    -------------------
                                                                                                                  135

       Total current assets                                                               3,771                 3,805

Property and equipment, net                                                                 418                   443
Deferred tax asset                                                                        2,867
                                                                                                                   --
Other assets                                                                                273                   274
                                                                              ------------------    -------------------

         TOTAL ASSETS                                                          $          7,329     $           4,522
                                                                               ================     ===================

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
  Accounts payable and accrued expenses                                             $     1,556     $           1,839
  Current portion of capital lease obligations                                               18
                                                                                                                   36
  Current portion of notes payable                                                           54                    84
  Dividends payable                                                                       2,909                 3,336
  Deferred revenue                                                                          339                   123
                                                                              ------------------    -------------------
       Total current liabilities                                                          4,876                 5,418

Capital lease obligations, net of current portion                                             9                    14
              Notes payable, net of current portion                                         177                   135
                                                                              -------------------   -------------------

       Total liabilities                                                                  5,062                 5,567
                                                                              ------------------    -------------------

Commitments and contingencies

Shareholders' equity (deficiency)
  Preferred stock, $0.0001 par value; 2,000,000 shares authorized;
   Series A Convertible Preferred, 134,680 issued and outstanding
   in 2008 and 2007; liquidation preference of $2,750,000;
   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; 7,340,734 and 7,115,216
  shares issued in 2008 and 2007, respectively; and 7,300,807 and 7,075,289                   1                     1
  shares outstanding in 2008 and 2007, respectively
  Additional paid-in capital                                                            115,345               114,961
  Accumulated deficit                                                                  (112,751)             (115,679)
                                                                              ------------------    -------------------

                                                                                          2,595                  (717)

  Common stock in treasury, at cost  - 24,371 shares                                       (328)                 (328)
                                                                              ------------------    -------------------
       Total shareholders' equity (deficiency)                                            2,267                (1,045)
                                                                              ------------------    -------------------

          TOTAL LIABILITIES AND SHAREHODERS' EQUITY
        (DEFICIENCY)                                                          $           7,329      $          4,522
                                                                              ====================  ==================
See notes to condensed consolidated financial statements.

                                      F-32
DIRECT INSITE CORP. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 and 2007
                      (in thousands, except per share data)
Three Months Ended                Six Months Ended
                                                                       June 30,                         June 30,
                                                                 2008            2007             2008             2007
                                                            --------------- --------------- ----------------- ----------------

Revenue                                                     $       2,346   $       2,580   $        4,301    $        4,834
                                                            --------------- --------------- ----------------- ----------------
Costs and expenses
Operations, research and development                              1,007             987            1,832             1,862
  Sales and marketing                                                 209             291              419               629
  General and administrative                                          664             568            1,450             1,061
  Depreciation and amortization                                        76              94              153               180
                                                            --------------- --------------- ----------------- ----------------
                                                                    1,956           1,940            3,854             3,732
                                                            --------------- --------------- ----------------- ----------------
Operating income                                                      390             640             447              1,102

Other (income) expense
  Other income, net                                                    --              (8)             --                 (8)
  Interest (income) expense, net                                       (1)             31              11                 65
                                                            --------------- --------------- ----------------- ----------------
Income  before provision for income tax                               391             617                              1,045

Benefit from (provision for) income taxes                              --              --           2,867               ( 27)
                                                            --------------- --------------- ----------------- ----------------
Net income                                                            391             617           3,303              1,018

Preferred stock dividends                                            (202)           (219)           (375)              (431)
                                                            --------------- --------------- ----------------- ----------------
Net income  attributable to common shareholders             $         189   $         398   $       2,928     $          587
                                                            =============== =============== ================= ================
Basic  income  per share attributable
 to common shareholders                                     $        0.03   $        0.07  $         0.40     $         0.11
                                                            =============== =============== ================= ================
Fully diluted income  per share attributable
 to common shareholders                                     $        0.02            0.05            0.28               0.08
                                                            =============== =============== ================= ================
Basic weighted average common shares outstanding                    7,290           5,532           7,244              5,412
                                                            =============== =============== ================= ================
Fully diluted weighted average common shares outstanding            9,473           8,200          10,874              7,675
                                                            =============== =============== ================= ================
See notes to condensed consolidated financial statements.

                                      F-33
DIRECT INSITE CORP. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 and 2007
                      (in thousands, except per share data)
For the six months ended
                                                                                                  June 30,
                                                                                           2008              2007
                                                                                     ----------------- ------------------
Cash flows from operating activities
Net income                                                                            $        3,303    $        1,018

 Adjustments to reconcile net income
  to net cash provided by operations:
    Amortization and depreciation:
      Property and equipment                                                                     152               180
    Deferred taxes                                                                            (2,867)               --
    Stock based compensation expense                                                             333                97
    Gain on sale of investment                                                                    --                (8)

  Changes in operating assets and liabilities:
    Accounts receivable                                                                           17               182
    Prepaid expenses and other current assets                                                     51                72

    Accounts payable and accrued expenses                                                       (172)              155
    Deferred revenue                                                                             216                17
                                                                                     ---------------    --------------
       Net cash provided by operations                                                         1,033             1,713
                                                                                     ---------------      ------------

Cash flows used in investing activities:
    Proceeds from sale of investment                                                              --                 8
    Expenditures for property and equipment                                                     (126)              (86)
                                                                                      ---------------    --------------
           Net cash used in investing activities                                                (126)              (78)
                                                                                     ----------------    --------------

Cash flows used in financing activities:
    Proceeds from issuance of shares on exercise of options                                       --                17
    Payment of dividends on preferred stock                                                     (802)               --
    Repayments of revolving loans, net                                                            --              (232)
    Repayment of lines of credit                                                                  --              (586)
    Principal payments on capital lease obligations                                              (22)              (39)
    Repayments of long-term debt                                                                 (50)              (31)
                                                                                     ---------------    --------------
       Net cash used in financing activities                                                    (874)             (871)
                                                                                      ---------------   ---------------

Net  increase in cash and cash equivalents                                                        33               764

Cash and cash equivalents - beginning of period                                                2,184               295
                                                                                     ---------------    --------------

Cash and cash equivalents - end of period                                            $         2,217     $       1,059
                                                                                     ===============     =============
Supplemental Disclosures:

Cash paid for interest                                                               $            32     $         63
                                                                                     ===============     =============
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                                  $            --     $        104
                                                                                     ===============     =============

  Dividends accrued and unpaid                                                       $           375     $        431
                                                                                     ===============     =============

  Reclassification of warrant liability                                              $            --     $        602
                                                                                     ===============     =============

  Common stock issued for settlement of liability                                    $            51     $         --
                                                                                     ===============     =============
F-34
DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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  June  30,  2008,  and  the  condensed
     consolidated  statements of operations and cash flows for the three and six
     month  periods  ended June 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 six month periods ended
     June 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.

                                      F-35
DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     Management's liquidity plans are discussed in Note 9. Also, as described in
     Note 7, the Company has two  customers  that  accounted  for  approximately
     94.3% of the Company's revenue for the six month period ended June 30, 2008
     and 96.4% of revenue for the six month period ended June 30, 2007.  Loss of
     either of these  customers  would  have a  material  adverse  effect on the
     Company.

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 six month periods ended June 30, 2008,  the Company  recorded
     $19,000 and $64,000,  respectively,  in  compensation  expense for the fair
     value of options.  For the three and six month periods ended June 30, 2007,
     the Company  recorded  $25,000 and $58,000,  respectively,  in compensation
     expense for the fair value of options.  At June 30, 2008, there was $31,000
     of total  unrecognized  compensation costs related to stock options granted
     which is  expected to be  recognized  over a weighted  average  period of 8
     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 June 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
     six months  ended June 30, 2008 the Company  issued  75,000  options with a
     weighted  average  grant date fair  value of  $69,000.  There  were  65,000
     options  issued  during the six months  ended  June 30,  2007,  which had a
     weighted  average  grant date fair value of $20,000.  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 six months ended June
     30, 2008 is as follows:
------------------------------------ ----------------- --------------------- -------------------- ---------------------------
                                                                                  Weighted Average
                                               Shares         Weighted Average  Remaining Contractual Aggregate Intrinsic Value
                                           (in thousands)      Exercise Price      Term (in years)         (in thousands)
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
Balance, December 31, 2007                  2,592              $0.77
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
       Granted                                    75              $1.50
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
       Exercised                                (235)             $0.95
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
       Canceled                                   --                 --
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
       Forfeited                                  --                 --
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
   Balance, June 30, 2008                      2,432              $0.77                  1.8                 $1,312
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
   Exercisable, June 30, 2008                  2,372              $0.77                  1.7                 $1,291
   ------------------------------------ ----------------- --------------------- -------------------- ---------------------------
The total fair value of options vested during the six months ended June 30,
     2008  was  $64,000.  Subsequent  to June  30,  2008,  the  Company's  Chief
     Executive Officer exercised 360,000 options with an exercise price of $1.16
     per share. The unrecognized  compensation expense for non-vested options is
     $31,000 at June 30, 2008 and will be recognized  over the next nine months.

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

     During the six months ended June 30, 2008 the Company granted 21,858 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.

                                      F-36
DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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

              Non-vested Shares                    Shares (in thousands)      Weighted-average Grant Date Fair Value
------------------------------------------ ---------------------------------- ------------------------------------------------
Non-vested at January 1, 2008                                710                                $2.22
------------------------------------------ ---------------------------------- ------------------------------------------------
Granted                                                       22                                $1.50
------------------------------------------ ---------------------------------- ------------------------------------------------
Vested                                                       (81)                               $2.12
------------------------------------------ ---------------------------------- ------------------------------------------------
Forfeited                                                                                          --
                                           ---------------------------------
                                                              --
                                            --------------------
------------------------------------------ ---------------------------------- ------------------------------------------------
Non-vested at June 30, 2008                                  651                                $2.20
                                           ==================================
------------------------------------------ ---------------------------------- ------------------------------------------------
For the three and six months ended June 30, 2008 stock compensation expense
     for stock grants was $134,000 and $269,000, respectively. For the three and
     six months ended June 30, 2007 stock compensation  expense for stock grants
     was $20,000 and  $40,000,  respectively.  The future  expected  expense for
     non-vested  shares is $1,272,000 and will be recognized on a  straight-line
     basis over the period July 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 June 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 June 30, 2008 and December 31, 2007,  notes payable  consist of $231,000
     and $219,000,  respectively,  of borrowings  for the purchase of equipment.
     These notes bear  interest at rates ranging from 9.0% to 10.3% per year and
     mature through January 2012. The notes are  collateralized by the equipment
     purchased  with net book values of $182,000 and $187,000,  at June 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 10.2% to 19.2%. At June 30, 2008, the gross
     and net book value of the  related  assets is  approximately  $135,000  and
     $21,000,  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 six months ended June 30, 2008:

                                      F-37
DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
-------------------------------------------------- --------------------
                                                                               In thousands
                     -------------------------------------------------- --------------------
Balance - January 1, 2008                           $ (1,045)
                     -------------------------------------------------- --------------------
                              Dividends accrued                                     (375)
                     -------------------------------------------------- --------------------
                              Stock based compensation                               333
                     -------------------------------------------------- --------------------
                              Shares issued for settlement of
                              accrued liabilities                                     51
                     -------------------------------------------------- --------------------
                              Net income                                           3,303
                                                                               -----------
                     -------------------------------------------------- --------------------
                            Balance - June 30, 2008                            $   2,267
                     -------------------------------------------------- -------=========----
Common Stock and Option Issuances
     ---------------------------------

     During  the six  months  ended  June 30,  2008 the  Company  issued  52,500
     restricted  common shares with a fair value of $95,000 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 61,431  restricted
     common  shares  with a fair  value of $47,500 to an  employee  for  accrued
     compensation in 2007. During the six months ended June 30, 2008 the Company
     also issued  110,035 common shares on the exercise of 235,000 stock options
     on a cashless basis.

     During the six months  ended  June 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 of 3.0 years.

     During the six months  ended  June 30,  2007,  the  Company  issued  65,000
     options to employees to purchase  common  stock.  The options have exercise
     prices of $0.61 and $0.70 (the trading  prices of the shares at the date of
     the grant) and a fair value at the grant date of $19,500. The valuation was
     determined using the Black-Scholes  method. The key assumptions used were a
     volatility of 69.0% to 74.3%, dividend rate of 0%, a risk free rate of 4.9%
     and an expected  life of 3.25 years.  During the six months  ended June 30,
     2007,  the Company issued 646,176 shares on exercise of warrants and 15,000
     shares on exercise of options.  The warrant exercise was done on a cashless
     basis. The Company received proceeds of $17,000 from the option exercise.

     Subsequent  to  June  30,  2008,  the  Company's  Chief  Executive  Officer
     exercised 360,000 options with an exercise price of $1.16 per share.

     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 six
     months ended June 30, 2008 and 2007:

                                      F-38
DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
                                                     Three Months Ended   Three Months Ended    Six Months Ended    Six Months Ended
                                                        June 30, 2008        June 30, 2007        June 30, 2008       June 30, 2007
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
                                                       (in thousands)       (in thousands)       (in thousands)       (in thousands)
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
Weighted Average Common shares outstanding             7,290                5,532                 7,244                5,412
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
       Warrants to purchase common stock                        902                1,247                   946                1,146
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
       Options to purchase common stock                       1,273                1,421                 1,330                1,117
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
       Stock grants                                               8                   --                     7                   --
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
       Series A Convertible preferred stock                      --                   --                 1,347                   --
                                                              -----                -----                ------               -------
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
       Total fully diluted shares                             9,473                8,200                10,874                7,675
                                                              =====                =====               =======               ======
------------------------------------------------- -------------------- -------------------- -------------------- -------------------
Securities that could potentially dilute basic EPS in the future, that were
     not included in the  computation  of the diluted EPS because to do so would
     have been antidilutive for the periods presented,  consist of the following
     (in thousands):
----------------------------------------------------- --------------------------------------- -------------------------------------
                                                            Three Months Ended June 30,             Six Months Ended June 30,
----------------------------------------------------- --------------------------------------- -------------------------------------
                                                                 2008             2007                   2008             2007
                                                                 ----             ----                   ----             ----
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
Options to purchase common stock                            93              923                     93              923
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       Warrants to purchase common stock                          552              643                    552              643
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       Restricted stock grants                                    620               --                    620               --
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
       Series A Convertible preferred stock                     1,347            1,347                     --            1,347
                                                                -----            -----                  -----            -----
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------

----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
             Total potential common shares                      2,612            2,913                  1,265            2,913
                                                                =====            =====                  =====            =====
----------------------------------------------------- ---------------- ---------------------- ---------------- --------------------
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):
Three Months Ended June 30,     Six Months Ended June 30,
                                               2008                2007                  2008                 2007
                                               ----                ----                  ----                 ----
ASP IOL fees                     $1,823               $1,895             $ 3,652                 $ 3,559

             Custom engineering fees             523                  685                 649                   1,275
                                             -------               ------             --------                --------
           Total Revenue                      $2,346               $2,580              $4,301                  $4,834
                                              ======               ======             =======                 =======
Major Customers

     For the three and six month periods ended June 30, 2008,  IBM accounted for
     47.1% and 47.3% of revenue,  respectively,  compared to 48.4% and 49.2% for
     the three and six month periods ended June 30, 2007, respectively.  For the
     three and six month  periods  ended June 30, 2008,  EDS accounted for 44.4%
     and 47.0% of  revenue,  respectively,  compared  to 48.3% and 47.2% for the
     three and six month  periods  ended June 30, 2007,  respectively.  Accounts
     receivable  from these  customers  amounted to $1,292,000 and $1,416,000 at
     June 30, 2008 and December 31, 2007, respectively.

                                      F-39
DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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
     June 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 six
     months  ended June 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 six months ended June 30, 2008 in accordance with APB
     28.  As a result  the  Company's  effective  tax rate for the three and six
     months  ended June 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 six months ended June 30, 2008 and the year ended December 31,
          2007 the Company had net cash provided by operations of $1,033,000 and
          $3,255,000,  respectively.  The Company  will  continue to monitor and
          control  expenses  and  anticipates  that it will  continue to achieve
          positive cash flows from operations.

                                      F-40
DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     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 2008,
          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
          six months  ended June 30,  2008,  the Company  paid  dividends on the
          Series B  Preferred  Stock of  $802,000  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 June 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 our  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.

                                      F-41
DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     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
     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.

                                      F-42
ALTERNATIVE PAGE

The  information in this  prospectus is not complete and may be changed.  We may
not sell  these  securities  until the  registration  statement  filed  with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell or a solicitation of an offer to buy these securities in any state where
the offer is not permitted.

                  SUBJECT TO COMPLETION, DATED October 2, 2008
                             Preliminary Prospectus
                                 350,000 Shares

                               DIRECT INSITE CORP.
                                  Common Stock

     This  prospectus  relates  to the resale  shares of common  stock of Direct
Insite  Corp.  by  certain  of  our  securityholders,  referred  to  as  selling
securityholders  throughout  this  document.  The  selling  securityholders  are
offering to sell up to 350,000  shares of our common stock.  We will not receive
any  proceeds  from the resale of shares by the selling  securityholders,  which
include:

          up to 100,000  shares  issuable  upon the exercise of our common stock
          purchase warrants dated March 29, 2005; and

          up to 250,000  shares  issuable  upon the exercise of our common stock
          purchase warrants dated July 12, 2005.

     All of the shares being offered by this prospectus are being offered by the
selling  securityholders  named in this  prospectus.  This offering is not being
underwritten.  We will  not  receive  any of the  proceeds  from the sale of the
shares of our common stock in this offering.  If the March 29, 2005 warrants are
exercised so that the underlying shares may be sold, we will receive the initial
exercise  price of the warrants,  which is $.01 per share.  If the July 12, 2005
warrants  are  exercised  so that the  underlying  shares  may be sold,  we will
receive the initial  exercise  price of the warrants,  which is $1.00 per share.
There can be no  assurance,  however,  that all or any of the  warrants  will be
exercised. The selling securityholders  identified in this prospectus,  or their
pledgees,  donees,  transferees or other  successors-in-interest,  may offer the
common  stock or interests  therein from time to time through  public or private
transactions at prevailing market prices, at prices related to prevailing market
prices,  or at  privately  negotiated  prices.  We  will  pay  all  expenses  of
registering this offering of securities.

     The common  stock is traded in the  over-the-counter  market and prices are
quoted on the  over-the-counter  Bulletin  Board under the symbol  "DIRI.OB." On
September  25, 2008 the closing  price per share of our common  stock was $1.30.
Except under certain  circumstances,  the selling  securityholders will sell the
shares  from  time  to  time  through   independent   brokerage   firms  in  the
over-the-counter market at prices prevailing at the time of sale.

INVESTING IN OUR COMMON STOCK INVOLVES  RISK.  SEE "RISK  FACTORS"  BEGINNING ON
PAGE 4.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR  DISAPPROVED  OF THESE  SECURITIES  OR PASSED  UPON THE  ACCURACY OR
ADEQUACY  OF THE  PROSPECTUS.  ANY  REPRESENTATIONS  MADE TO THE  CONTRARY  IS A
CRIMINAL OFFENSE.

                The date of this Prospectus is ___________ ,2008.

                                       A-1
ALTERNATIVE PAGE

                                     SUMMARY

     This summary highlights  information contained elsewhere in the prospectus.
You  should  read the  entire  prospectus  carefully;  especially  the  risks of
investing in the  securities  discussed  under "Risk  Factors" and the financial
statements  and related  notes  included  elsewhere  in this  prospectus  before
deciding to invest in our common stock.

Our Company

     Direct Insite Corp. was organized as a public company under the name Unique
Ventures,  Inc.  under the laws of the State of Delaware on August 27, 1987.  In
August, 2000, we changed our name to Direct Insite Corp. Our principal executive
offices are located at 80 Orville Drive, Bohemia, New York. Our telephone number
is (631)  873-2900.  Unless the context  requires  otherwise,  all references to
"we," "our," "us,"  "company,"  "registrant,"  "Direct  Insite" or  "management"
refers to Direct Insite Corp. and its subsidiaries.

Our Current Business

     We operate 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.  Our 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.

     Through extensive automation for presenting, receiving, approving or paying
invoices, Direct Insite is helping its customers reduce costs, resolve disputes,
enhance cash flow efficiency, and improve customer satisfaction.

     We are currently delivering invoicing services across the Americas, Europe,
and Asia, including 62 countries, 15 languages and all major currencies.  Direct
Insite processes,  distributes and hosts millions of invoices,  purchase orders,
and  supporting  attachment  documents.   Suppliers,   customers,  and  internal
departments,  such as Finance  and  Accounting  or  Customer  Service can easily
access these critical business  documents whenever they need them through Direct
Insite's self-service portal.

     Currently, IBM, our largest customer,  representing approximately 47.1% and
47.3% of  revenue  for the three  and six month  periods  ended  June 30,  2008,
respectively  and  48.4% and  49.2% of our  revenue  for the three and six month
periods  ended June 30,  2007,  respectively,  utilizes our suite of services to
allow their  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 24 hours a day, 7 days a week,  365 days a year.  IBM accounted for
51% and 69% of our  revenue  for the years  ended  December  31,  2007 and 2006,
respectively.  Our  second  largest  customer,  Electronic  Data  Systems  Corp.
("EDS"),  accounted for  approximately  44.4% and 47.0% of revenue for the three
and six month periods ended June 30, 2008,  respectively  and 48.3% and 47.2% of
revenue for the three and six month periods  ended June 30, 2007,  respectively.
EDS accounted  for 46% and 29% of revenue for the years ended  December 31, 2007
and 2006, respectively.

The Offering

     The  selling  securityholders  may offer and sell up to  350,000  shares of
common  stock,  an amount  equal to 3.7 % of our  currently  outstanding  common

                                      A-2
ALTERNATIVE PAGE

stock. For a list of selling  securityholders and the amount of shares that each
of them expects to sell, see "Selling Securityholders."

     The offering is made by the selling  securityholders  for their benefit. We
will not receive any of the proceeds of their sale of common stock.

                                  RISK FACTORS

     You  should  carefully  consider  the  factors  described  below  and other
information contained in this prospectus.  The risks and uncertainties described
below are not the only ones we face.  Additional  risks  and  uncertainties  not
presently  known to us, which we currently deem  immaterial or which are similar
to those faced by other  companies in our  industry or business in general,  may
also impair our business  operations.  If any of the  following  risks  actually
occurs,  our business,  financial  condition or results of  operations  could be
materially and adversely affected. In such case, the trading price of our common
stock  could  decline,  and you may  lose all or part of your  investment.  This
prospectus  also  contains  forward-looking  statements  that involve  risks and
uncertainties.   Please  refer  to  "Special  Note   Regarding   Forward-Looking
Statements" included elsewhere in this prospectus.

The large number of shares available for future sale may adversely effect the
market price of our stock.

     We have  9,352,616  shares of common stock  outstanding as of September 26,
2008, of which approximately  4,993,000 shares are freely tradable. We also have
4,350,238  shares issuable upon the conversion of preferred  stock,  exercise of
options and exercise of warrants. If all of our outstanding options and warrants
were exercised,  we would have 13,702,854  shares  outstanding.  The issuance of
such a large number of shares  could have a  significant  adverse  effect on the
market for, as well as the price of, our common  stock.  A decline in the market
price also may make the terms of future  financings  using our  common  stock or
using convertible debt more burdensome.

Our planned growth may cause a strain on our management and other resources.

     We are  pursuing a business  strategy  that has involved and is expected to
continue to involve  significant growth over at least the next twelve months. We
cannot   guarantee  that  we  will  be  able  to  achieve  our  planned  growth.
Accomplishing our objectives will depend upon a number of factors, including our
ability to develop new customer  relationships.  We may also incur  development,
acquisition  or  expansion  costs that  represent a higher  percentage  of total
revenues than larger or more established  companies,  which may adversely affect
our results of operations.

We may not be able to compete favorably in the competitive information solutions
industry.

     The market for our information solutions is intensely competitive.  We face
competition  from a broad  range  of  competitors,  many of  whom  have  greater
financial,  technical  and  marketing  resources  than  we do.  There  can be no
assurance that we will be able to compete effectively with such entities.

Our operations are dependent upon key management personnel.

     We believe that our continued success depends to a significant  extent upon
the efforts and abilities of our senior management.  In particular,  the loss of

                                      A-3
ALTERNATIVE PAGE

James Cannavino, our Chairman and Chief Furthermore,  we may in the future adopt
other  measures  that may delay,  defer or prevent a change in  control.  We may
adopt  some  of  these   measures   without  any  further   vote  or  action  by
securityholders.

                           FORWARD-LOOKING STATEMENTS

     All statements  other than  statements of historical  fact included in this
prospectus  including,  without  limitation,   statements  under,  "Management's
Discussion and Analysis or Plan of Operation"  regarding our financial position,
business  strategy  and the  plans  and  objectives  of  management  for  future
operations, are forward-looking statements. When used in this prospectus,  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,  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
the dependence on key personnel.  Such  statements  reflect the current views of
management  with  respect to future  events  and are  subject to these and other
risks,  uncertainties  and assumptions  relating to the  operations,  results of
operations,  growth  strategy and  liquidity.  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.

                                 USE OF PROCEEDS

     This  prospectus  relates to shares of our common stock that may be offered
and sold from time to time by the selling  securityholders.  We will not receive
any of the proceeds from the sale of shares of common stock in this offering. If
the selling securityholder  exercises its warrants, we will receive the exercise
price of the warrants, which is currently $1.00 per share for the warrants dated
July 12, 2005  (250,000  warrants),  and $.01 per share for the  warrants  dated
March 29, 2005  (100,000  warrants).  We intend to use the net proceeds from the
exercise of the warrants for our general working capital needs.  There can be no
assurance that all, or any, of the warrants will be exercised.

                             SELLING SECURITYHOLDERS

     On March 29 2005 we entered into a Securities Purchase Agreement with Sigma
Opportunity  Fund L.L.C.  ("Sigma") and  Metropolitan  Venture Partners II, L.P.
("MetVP"),  collectively  the  "Buyers",  whereby  the Buyers  purchased  Senior
Subordinated  Secured notes (the "Note  Purchase")  in the  aggregate  amount of
$750,000.  The notes bear  interest  at the rate of five  percent  (5%) per year
beginning  June 28, 2005 and mature on the earlier to occur of (i) September 29,
2006;  (ii) the date on which  demand for payment of the Grid Demand  Promissory
Note,  dated as of June 27,  2005  payable to JPMorgan  Chase Bank is made,  and
(iii) the due date of the loan payment to JPMorgan  Chase Bank  pursuant to such
Grid  Demand  Promissory  Note,  including  if due on demand and  whether or not
demand for payment is actually made. Interest is payable in cash or shares of

                                      A-4
ALTERNATIVE PAGE

our common stock,  at the Buyer's  election.  In the event we do not approve the
payment of interest by issuing shares in lieu of cash and do not pay the cash by
the interest  payment date, we must issue shares of common stock.  The number of
shares to be issued is determined by dividing the average price per share of our
common  stock for the ten (10) trading  days  immediately  preceding an interest
payment date into the dollar amount of interest which would have been payable if
paid in  cash.  The  first  interest  payment  date was  October  31,  2005.  In
connection  with the Note  Purchase the Buyers were issued  warrants to purchase
750,000 of our common  shares.  The exercise price of the warrants was $0.90 per
share of common stock subject to adjustment on the occurrence of certain events.
Sigma  had the right to lead a  "Follow-on  Financing."  In the  event  that the
Follow-on-Financing  did not occur,  the exercise price of the warrants would be
$0.01 per common share. As of the date hereof, we have elected not to pursue the
Follow-on-Financing  with Sigma and therefore the exercise price of the warrants
is $0.01 per share.  Michael Levin, a Managing Director of Metropolitan  Venture
Partners Corp., serves as a member of our Board of Directors.

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

     The following  table sets forth  information  concerning  the resale of the
shares of common stock by the selling  securityholders.  We will not receive any
proceeds from the resale of the common stock by the selling securityholders.  We
will receive  proceeds  from the exercise of warrants in the event that they are
exercised,  however  there can be no  assurance  that all or any of the warrants
will be exercised.  The table below assumes that all the shares registered below
are sold by the selling securityholders.

     The following  table sets forth the name of each person who is offering the
resale of shares of common  stock by this  prospectus,  the  number of shares of
common stock  beneficially  owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the  offering,  assuming  they sell all of the shares
being offered.  Unless otherwise  indicated,  each of the following  persons has
sole voting and investment  power with respect to the shares of common stock set
forth opposite their respective names. None of the selling securityholders is an
affiliate of a registered broker-dealer.
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------

                                Number of shares                                        Number of
                                  beneficially                                           shares
                                owned before the                      Number of       beneficially
                                    offering                         shares being      owned after
   Selling Securityholder                            Percentage        offered        the offering       Percentage
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------
Metropolitan Venture           2,492,657(1)              24.2 %       100,000(3)        2,392,657              23.4 %
Partners II, L.P.
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------
Tall Oaks Group L.L.C.           847,406(2)              10.2%        250,000(3)          597,406(2)            6.1 %
------------------------------ ------------------- --------------- ----------------- ---------------- -----------------

                                      A-5
ALTERNATIVE PAGE
(1)  Includes  962,010  shares  issuable  upon exercise of options and warrants.
     Metropolitan  Venture  Partners  (Advisors) L.P holds voting and investment
     control over the shares held by Metropolitan  Venture Partners II, L.P. Mr.
     Michael  Levin is a Managing  Director  of  Metropolitan  Venture  Partners
     Corp.,  which is the  general  partner  of  Metropolitan  Venture  Partners
     (Advisors)  L.P.,  which,  in turn, is the general  partner of Metropolitan
     Venture Partners II, L.P. Mr. Levin is a member of our Board of Directors.

(2)  Includes 769,219 shares issuable upon exercise of options and warrants. Mr.
     Lawrence Hite holds voting and  investment  control over the shares held by
     Tall Oaks. Mr. Hite is the General  Manager of Tall Oaks.  Does not include
     an additional 259,000 shares directly owned by Mr. Hite,  including 150,000
     shares  issuable upon  exercise of options and warrants.  Mr. Hite and Tall
     Oaks  constitute a "group" for purposes of Section 13(d) of the  Securities
     Exchange Act of 1934.

(3)  Represents shares underlying warrants.
PLAN OF DISTRIBUTION

     The selling securityholders, or their pledgees, donees, transferees, or any
of their  successors in interest  selling  shares  received from a named selling
securityholder   as  a  gift,   partnership  or  other   distribution  or  other
non-sale-related  transfer after the date of this prospectus (all of whom may be
selling securityholders), may sell some or all of the shares of our common stock
covered  by this  prospectus  from  time to  time on the  NASD  Over-the-Counter
Bulletin Board or any stock exchange or automated  interdealer  quotation system
or tracking  facility on which the shares are  listed,  in the  over-the-counter
market, in privately negotiated  transactions or otherwise, at fixed prices that
may be  changed,  at market  prices  prevailing  at the time of sale,  at prices
related to  prevailing  market  prices or at prices  otherwise  negotiated.  The
selling  securityholders  may sell the shares of our common stock covered by the
prospectus  by  one  or  more  of  the  following  methods,  including,  without
limitation:

     1.   ordinary   brokerage   transactions  and  transactions  in  which  the
          broker-dealer solicits purchasers;

     2.   block  trades in which the  broker-dealer  so engaged  will attempt to
          sell the shares as agent but may  position and resell a portion of the
          block as principal to facilitate the transaction;

     3.   purchases  by  a   broker-dealer   as  principal  and  resale  by  the
          broker-dealer for its account pursuant to this prospectus;

     4.   an  exchange   distribution  in  accordance  with  the  rules  of  the
          applicable stock exchange on which the shares are listed;

     5.   privately negotiated transactions;

     6.   short sales,  either directly or with a broker-dealer  or an affiliate
          thereof;

     7.   broker-dealers  may  agree  with a  selling  securityholder  to sell a
          specified number of shares at a stipulated price per share;

     8.   through  the  writing  or  settlement  of  options  or  other  hedging
          transactions  relating to the  shares,  whether or not the options are
          listed on an options exchange or otherwise;

     9.   through  loans or  pledges  of the  shares  to a  broker-dealer  or an
          affiliate thereof;

     10.  by entering into transactions with third parties who may (or may cause
          others to) issue securities  convertible or exchangeable  into, or the
          return of which is  derived in whole or in part from the value of, our
          common stock;

                                      A-6
ALTERNATIVE PAGE

     11.  through the  distribution of shares of our common stock by any selling
          securityholder  to its  partners,  members,  stockholders,  investors,
          interest  holders  and/or  creditors  or  to  the  partners,  members,
          investors,  stockholders,  interest  holders  and/or  creditors of its
          affiliates;

     12.  one or  more  underwritten  offerings  on a firm  commitment  or  best
          efforts basis;

     13.  a combination of any such methods of sale; or

     14.  any other method permitted pursuant to applicable law.

     The selling  securityholders  may also sell shares under Rule 144 under the
Securities  Act of 1933,  as  amended,  if  available,  rather  than  under this
prospectus.

     We do not know of any arrangements by the selling  securityholders  for the
sale of any of the securities.

Broker-dealers  or  underwriters  engaged by the
selling  securityholders  may participate in effecting sales of our shares,  and
any  broker-dealers  or underwriters  may arrange for other  brokers-dealers  to
participate in sales of our shares. These broker-dealers or underwriters may act
as  principals,  or as agents of a selling  securityholder.  Broker  dealers may
receive  commissions or discounts from the selling  securityholders  (or, if any
broker-dealer acts as agent for the purchaser of shares,  from the purchaser) in
amounts  to be  negotiated,  but,  in the case of an agency  transaction  not in
excess of a customary  brokerage  commission in compliance with NASDR Rule 2440;
and in the case of a principal  transaction  a markup or markdown in  compliance
with NASDR IM-2440.

     In connection with the sale of our common stock or interests  therein,  the
selling  securityholders may enter into hedging transactions with broker-dealers
or other financial institutions,  which may in turn engage in short sales of our
common stock in the course of hedging the  positions  they  assume.  The selling
securityholders   may  also  enter  into  option  or  other   transactions  with
broker-dealers  or other  financial  institutions or the creation of one or more
derivative  securities which require the delivery to such broker-dealer or other
financial  institution of shares offered by this  prospectus,  which shares such
broker-dealer  or  other  financial  institution  may  resell  pursuant  to this
prospectus.

     Any broker-dealers or agents engaged by a selling  securityholder  that are
involved in selling the shares covered hereby may be deemed to be "underwriters"
within the meaning of the Securities Act in connection  with such sales. In such
event, any commissions received by such broker-dealers or agents and any profits
on the resale of the shares  purchased by them may be deemed to be  underwriting
commissions or discounts under the Securities  Act. Each selling  securityholder
has  informed  us that  it does  not  have  any  written  or oral  agreement  or
understanding,  directly or indirectly, with any person who is to distribute our
common stock covered hereby.

     We are required to pay certain fees and expenses incurred by us incident to
the registration of certain shares covered by this prospectus. We have agreed to
indemnify certain of the selling  securityholders  and their affiliates  against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act. Certain of the selling  securityholders have agreed to indemnify
us in certain circumstances  against certain liabilities,  including liabilities
under the  Securities  Act. We and  certain  selling  securityholders  have also
agreed, if these  indemnification  procedures are unavailable,  to contribute to
certain liabilities incurred by the others,  including in respect of liabilities
under the Securities Act.

     The shares  offered  hereby  were  originally  issued to or acquired by the
selling   securityholders   pursuant  to  an  exemption  from  the  registration
requirements of the Securities Act.

     Under applicable  rules and regulations  under the Exchange Act, any person
engaged in the distribution of the resale shares may not  simultaneously  engage
in market making  activities with respect to our common stock for the applicable
restricted  period, as defined in Regulation M, prior to the commencement of the
distribution.  In  addition,  the  selling  securityholders  will be  subject to
applicable  provisions  of the  Exchange  Act  and  the  rules  and  regulations
thereunder,  including Regulation M, which may limit the timing of purchases and
sales of shares of our common stock by the selling  securityholders or any other
person.  We  will  make  copies  of this  prospectus  available  to the  selling
securityholders  and have  informed  them of the need to  deliver a copy of this
prospectus  to each  purchaser  at or prior to the  time of sale  (including  by
compliance with Rule 172 under the Securities Act).

     We will not receive any proceeds from the sale of securities by the selling
securityholders hereto.

     We cannot assure you that the selling  securityholders will sell all or any
portion of the shares of our common stock offered hereby.

                                      A-7
PART II

                   INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

     The estimated expenses of the distribution, all of which are to be borne by
us, are as follows. All amounts are estimates except the Securities and Exchange
Commission registration fee:

         Registration Fee                            $     74.08
         Accounting Fees and Expenses                   8,500.00
         Legal Fees and Expenses                       20,000.00
         Miscellaneous                               -----------
                  Total                              $ 29,574.08
                                                     ===========

Item 14. Indemnification of Directors

     Under the  provisions of the  Certificate of  Incorporation  and By-Laws of
     Registrant,  each person who is or was a director or officer of  Registrant
     shall be indemnified by Registrant as of right to the full extent permitted
     or authorized by the General Corporation Law of Delaware.

     Under such law, to the extent that such person is  successful on the merits
     in the defense of a suit or proceeding brought against him by reason of the
     fact  that  he  is a  director  or  officer  of  Registrant,  he  shall  be
     indemnified  against  expenses   (including   attorneys'  fees)  reasonably
     incurred in connection with such action.

     If unsuccessful  in defense of a third-party  civil suit or a criminal suit
     is settled,  such a person shall be indemnified under such law against both
     (1)  expenses  (including  attorneys'  fees) and (2)  judgments,  fines and
     amounts  paid in  settlement  if he acted in good  faith and in a manner he
     reasonably  believed  to be in, or not opposed  to, the best  interests  of
     Registrant,  and with respect to any  criminal  action,  had no  reasonable
     cause to believe his conduct was unlawful.

     If  unsuccessful  in  defense  of a  suit  brought  by or in the  right  of
     Registrant,  or if such suit is settled, such a person shall be indemnified
     under such law only against expenses  (including  attorneys' fees) incurred
     in the defense or  settlement of such suit if he acted in good faith and in
     a manner he  reasonably  believed  to be in, or not  opposed  to,  the best
     interests of Registrant,  except that if such a person is adjudicated to be
     liable in such suit for negligence or misconduct in the  performance of his
     duty to  Registrant,  he cannot be made whole even for expenses  unless the
     court  determines  that  he  is  fairly  and  reasonably   entitled  to  be
     indemnified for such expenses.

     The  officers  and  directors of  registrant  are covered by officers'  and
     directors' liability insurance.  The policy coverage is $10,000,000,  which
     includes  reimbursement  for costs and fees.  There is a maximum  aggregate
     deductible for each loss under the policy of $200,000.

Item 15. Recent Sales of Unregistered Securities

     On November  21,  2007,  the Company and MetVP  entered  into an  agreement
resolving  certain  disputes  which had arisen  with  respect to the  payment of
dividends and interest to MetVP. The Agreement provides that, in addition to the
undisputed  sum of  approximately  $1,406,000,  the  Company  will be  paying an
additional $500,000 through September 25, 2008 in consideration of past, present
and future  dividend and interest  payments  through that date. All payments are
conditioned upon there being funds legally available for such payments when due.

                                      II-1
The agreement  further provided for the issuance to MetVP of 100,000  restricted
shares of the Company's common stock.  These shares were issued in November 2007
and had a fair value based on the closing stock price on the date of issuance of
$213,000 which was recorded as a dividend during the fourth quarter of 2007.

Item 16.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

3.1  (a)  Certificate of Incorporation, as amended.(Incorporated by reference to
          Exhibit 3(a) of Form S-1 Registration Statement).(1)
     (b)  Certificate of Amendment  (Change in Name)  (Incorporated by reference
          to Exhibit 3(a) of Form S-1 Registration Statement).(1)
     (c)  Certificate of Amendment  (Change in Name)  (Incorporated by reference
          to Exhibit 3(a) of Form S-1 Registration Statement).(1)
     (d)  Certificate  of  Amendment  (Authorizing  Increase in Shares of Common
          Stock).  (Incorporated  by reference to Exhibit 3 (i) (d) to Form 10-K
          for the year ended 1995).
     (e)  Certificate of Amendment  (Authorizing one for ten reverse-stock split
          as of March 30, 1998). (1)
     (f)  Certificate  of  Designation,  Preferences  and  Rights  of  Series  A
          Convertible  Preferred  Stock filed October 3, 2002  (Incorporated  by
          reference to Exhibit 3.1 to the Company's  Current  Report on Form 8-K
          dated September 25, 2002).
     (g)  Certificate of Amendment of Certificate  of  Designation,  Preferences
          and Rights of Series A Convertible  Preferred Stock filed December 20,
          2002  (Incorporated  by reference to Exhibit 3.2 of Company's  Current
          Report on Form 8-K dated December 24, 2002).
     (h)  Certificate of Amendment of Certificate  of  Designation,  Preferences
          and Rights of Series A  Convertible  Preferred  Stock filed January 2,
          2003  (Incorporated  by reference to Exhibit 3.3 of Company's  Current
          Report on Form 8-K dated January 2, 2003).
     (i)  Certificate  of  Designation,  Preferences  and  Rights  of  Series  B
          Redeemable  Preferred Stock filed December 10, 2003  (Incorporated  by
          reference  to  Exhibit  3(i) of the  Company's  Annual  Report on Form
          10-KSB filed April 14, 2004).
     (j)  Certificate  of  Designation,  Preferences  and  Rights  of  Series  C
          redeemable  Preferred Stock filed December 16, 2003  (Incorporated  by
          reference  to  Exhibit  3(j) of the  Company's  Annual  Report on Form
          10-KSB filed April 14, 2004).
     (k)  Certificate of Amendment of Certificate  of  Designation,  Preferences
          and  Rights  of  Series  C  Preferred   Stock  filed  March  29,  2005
          (Incorporated  by reference to Exhibit  3(k) of the  Company's  Annual
          Report on Form 10-KSB filed April 29, 2005).
     (l)  Certificate  of  Designation,  Preferences  and  Rights  of  Series  D
          Redeemable  Preferred  Stock filed  October 7, 2004  (Incorporated  by
          reference to Exhibit 3.1L of the Company's  Registration  Statement on
          Form SB-2, No. 333-128039 filed September 1, 2005).

3.2       By-Laws.  (Incorporated  by reference to Exhibit 3(d) of the Company's
          Form S-1 Registration Statement).(1)

4.1       Form of  Common  Stock  Certificate.  (Incorporated  by  reference  to
          Exhibit 4 of the Company's Form S-1 Registration Statement).(1)

4.2       Rights  Agreement  dated as of August 28, 2001 between the Company and
          Manhattan Transfer Registrar Company,  as Rights Agent.  (Incorporated
          by reference to Exhibit 4 of the  Company's  Form 8-K dated August 28,
          2001.

                                      II-2
4.3       Securities  Purchase Agreement between the Company,  Sigma Opportunity
          Fund, LLC and Metropolitan Venture Partners II, L.P.  (Incorporated by
          reference to Exhibit 4.1 of the Current Report on Form 8-K filed March
          31, 2005).

4.4       Form of Senior Subordinated Secured Note (Incorporated by reference to
          Exhibit 4.2 of the Current Report on Form 8-K filed March 31, 2005).

4.5       Form of Common Stock Purchase  Warrant  (Incorporated  by reference to
          Exhibit  4.3 of the  Current  Report  on Form 8-K  filed on March  31,
          2005.)

4.6       Common Stock Purchase  Warrant issued July 12, 2005 to Tall Oaks Group
          L.L.C. (Incorporated by reference to Exhibit 4.6 to Amendment No. 1 to
          the Company's  Registration  Statement on Form SB-2,  No.  333-128039,
          filed December 8, 2005.)

5         Opinion of Beckman, Lieberman & Barandes, LLP.

10.1      Directors,   Officers   and   Consultants   1993  Stock   Option  Plan
          (Incorporated   by   reference   to  Exhibit  4.1  of  the   Company's
          Registration Statement on Form S-8 filed on June 28, 1995).

10.2      Employees 1993 Stock Option Plan (Incorporated by reference to Exhibit
          4.2 of the Company's  Registration Statement on Form S-8 filed on June
          28, 1995).

10.3      995 Incentive Stock Plan  (Incorporated  by reference to Exhibit 5 of
          the Company's Proxy Statement filed on January 29, 1996).

10.4      2000 Stock Option Plan  (Incorporated  by reference to Exhibit 10.4 of
          the Company's  Annual Report on Form 10-K for the year ended  December
          31, 2001).

10.5      2001 Stock  Option/Stock  Issuance Plan  (Incorporated by reference to
          Exhibit 10.5 of the Company's  Annual Report on Form 10-K for the year
          ended December 31, 2001).

10.6      2001-A Stock Option/Stock Issuance Plan. (Incorporated by reference to
          Exhibit 10.6 of the Company's  Annual Report on Form 10-K for the year
          ended December 31, 2001).

10.7      2002 Stock  Option/Stock  Issuance Plan  (Incorporated by reference to
          Exhibit 10.7 of the Company's  Annual Report on Form 10-K for the year
          ended December 31, 2001).

10.8      2003 Stock Option /Stock Issuance Plan.  (Incorporated by reference to
          Exhibit 10.8 of the Company's  Annual  Report on Form-10K  filed April
          15, 2003).

10.9      Lease  Extension  Agreement  between Atrium  Executive  Center and the
          Company  (Incorporated  by  reference  to  Exhibit  10 (g) (ii) of the
          Company's  Annual Report on Form 10-K for the year ended  December 31,
          1993).

10.10     Offer to Purchase dated  December 23, 1999,  among Eagle Merger Corp.,
          EMC Corporation and the Company  (Incorporated by reference to Exhibit
          1 of the Company's Form 8-K filed on February 9, 2000).

10.11     Indemnification   Agreement   dated  December  21,  1999,   among  EMC
          Corporation,  Eagle  Merger  Corp.  and the Company  (Incorporated  by
          reference to Exhibit 2 of the Company's  Form 8-K filed on February 9,
          2000).

                                      II-3
10.12     Indemnification  Agreement dated December 21, 1999, between Softworks,
          Inc.  and the Company  (Incorporated  by reference to Exhibit 3 of the
          Company's Form 8-K filed on February 9, 2000).

10.13     Escrow Agreement dated December 21, 1999, among EMC Corporation, Eagle
          Merger  Corp.,  the Company and State  Street Bank and Trust  Company,
          Inc. as escrow  agent  (Incorporated  by reference to Exhibit 4 of the
          Company's Form 8-K filed on February 9, 2000).

10.14     Exchange  Agreement,  dated  February  10,  2000,  among the  Company,
          NetWolves Corporation and ComputerCOP Corp. (Incorporated by reference
          to Exhibit 10.1 of the Company's Form 8-K filed on March 2, 2000).

10.15     Agreement and Plan of Merger by and among Platinum  Acquisition Corp.,
          the Company, Platinum Communications, Inc., Kevin Ford and Ken Tanoury
          dated May 10, 2001  (Incorporated  by reference to Exhibit 10.1 of the
          Company's Report on Form 10-Q for the quarter ended June 30, 2001).

10.16     Employment  Agreement between the Company and Kevin Ford dated May 10,
          2001  (Incorporated  by  reference  to Exhibit  10.2 of the  Company's
          Report on Form 10-Q for the quarter ended June 30, 2001).

10.17     Employment Agreement between the Company and Ken Tanoury dated May 10,
          2001  (Incorporated  by  reference  to Exhibit  10.3 of the  Company's
          Report on Form 10-Q for the quarter ended June 30, 2001).

10.18     Employment  Agreement  between the Company and Anthony  Coppola  dated
          December 1, 2001  (Incorporated  by reference to Exhibit  10.17 of the
          Company's  Annual Report on Form 10-K for the year ended  December 31,
          2001).

10.19     Services  Agreement  between the Company and James A. Cannavino  dated
          January 25, 2003.  (Incorporated  by reference to Exhibit 10.19 of the
          Company's Annual Report on Form-10K filed April 15, 2003).

10.20     Stock Purchase and Registration  Rights Agreement  between the Company
          and  Metropolitan  Venture Partners II, L.P. dated as of September 25,
          2002  (Incorporated  by  reference  to  Exhibit  10.1 of  Registrant's
          Current Report on Form 8-K dated September 25, 2002).

10.21     Stock Purchase and Registration  Rights Agreement  between the Company
          and  Metropolitan  Venture  Partners II, L.P. dated as of December 24,
          2002  (Incorporated  by  reference  to  Exhibit  10.1 of  Registrant's
          Current Report on Form 8-K dated December 24, 2002).

10.22     Promissory  Note between the Company and Tall Oaks Group L.L.C.  dated
          January 13, 2003  (Incorporated  by reference to Exhibit  10.22 of the
          Company's Annual Report on Form-10K filed April 15, 2003).

10.23     Amendment  and Notice dated January 13, 2003 by and among the Company,
          Metropolitan  Venture  Partners  II, L.P.  and Tall Oaks Group  L.L.C.
          (Incorporated  by reference to Exhibit 10.23 of the  Company's  Annual
          Report on Form-10K filed April 15, 2003).

                                      II-4
10.24     Form of Subscription Agreement for Series C Redeemable Preferred Stock
          (Incorporated  by reference to Exhibit 3(j)) of the  Company's  Annual
          Report on Form-10K filed April 14, 2004).

10.25     Employment and Consulting  Agreement between the Company and Robert L.
          Carberry  (Incorporated  by reference to Exhibit 10.2 of  registrant's
          Current Report on Form 8-K dated December 5, 2003).

10.26     Amended and Restated Reimbursement Agreement dated as of June 27, 2005
          by and among the Company,  Lawrence D. Hite and Tall Oaks Group L.L.C.
          (Incorporated  by reference to Exhibit 10.26 to Amendment No. 1 of the
          Company's Registration  Statement on Form SB-2, No. 333-128039,  filed
          December 8, 2005).

10.27     Settlement  Agreement  dated November 21, 2007 between the Company and
          Metropolitan  Venture Partners II, L.P.  (Incorporated by reference to
          Exhibit 10 of registrant's  Current Report on Form 8-K, dated November
          27, 2007).

23.1      Consent of Marcum & Kliegman, LLP.

23.2      Consent of Beckman,  Lieberman & Barandes,  LLP (included in Exhibit 5
          hereof).

----------
(1)  Filed with Form S-1, Registration Statement of the Company Reg. No 33-47322
     and are incorporated herein by reference.

Item 17. Undertakings

     A. Insofar as indemnification  for liabilities arising under the Securities
Act of 1933 may be permitted to our directors,  officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange  Commission such  indemnification  is
against  public  policy  as  expressed  in the  Securities  Act of 1933  and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such  liabilities,  other than the payment by us of expenses incurred or paid by
our director,  officer or controlling  person in the  successful  defense of any
action, suit or proceeding, is asserted by such director, officer or controlling
person in connection with the securities being  registered,  we will,  unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit  to a  court  of  appropriate  jurisdiction  the  question  whether  such
indemnification  by it is against  public policy as expressed in the  Securities
Act of 1933 and will be governed by the final adjudication of such issue.

     B. We hereby undertake:

     (1) To file,  during any period in which  offers or sales are being made, a
post--effective amendment to this Registration Statement:

          (i) To include any  prospectus  required  by Section  10(a) (3) of the
     Securities Act of 1933;

          (ii) To specify in the  prospectus  any facts or events  arising after
     the  effective   date  of  the   Registration   Statement  or  most  recent
     post--effective  amendment thereof which, individually or in the aggregate,
     represent  a  fundamental  change  in  the  information  set  forth  in the
     Registration  Statement.  Notwithstanding  the  foregoing,  any increase or
     decrease in volume of  securities  offered,  if the total  dollar  value of
     securities  offered  would not exceed  that which was  registered,  and any
     deviation from the low or high end of the estimated  maximum offering range
     may be reflected in the form of prospectus  filed with the  Securities  and
     Exchange  Commission  pursuant to Rule 424(b),  if, in the  aggregate,  the

                                      II-5
changes  in volume  and price  represent  no more than a 20%  change in the
     maximum  aggregate   offering  price  set  forth  in  the  "Calculation  of
     Registration Fee" table in the effective Registration Statement; and

          (iii) To  include  material  information  with  respect to the plan of
     distribution not previously disclosed in the Registration  Statement or any
     material change to such information in the Registration Statement.

     (2) That, for the purpose of determining any liability under the Securities
Act of 1933,  each such  post--effective  amendment  shall be deemed to be a new
Registration  Statement  relating to the  securities  offered  therein,  and the
offering of such  securities at that time shall be deemed to be the initial bona
fide offering thereof.

     (3) To remove from registration by means of a post--effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

                                      II-6
SIGNATURES

     In  accordance  with the  requirements  of the  Securities  Act of 1933, as
amended, the registrant has duly caused this Registration Statement to be signed
on its behalf by the  undersigned,  thereunto  duly  authorized,  in the City of
Bohemia, State of New York, on the 29th day of September, 2008.

                                      DIRECT INSITE CORP.

                                      By:  /s/  James A. Cannavino
                                           -------------------------------------
                                           James A. Cannavino
                                           Chairman of the Board,
                                           Chief Executive Officer

                                POWER OF ATTORNEY

Pursuant to the  requirements of the Securities Act. of 1933, this  Registration
Statement has been signed below on September  29, 2008 by the following  persons
in the  capacities  indicated.  Each person whose  signature  appears below also
constitutes   and   appoints   James  A.   Cannavino,   his   true  and   lawful
attorney-in-fact  and agent, with full power of substitution and resubstitution,
for him and in his name,  place and stead, in any and all capacities to sign any
and all amendments  (including  post-effective  amendments) to this Registration
Statement,  and to file  the  same,  with all  exhibits  thereto  and all  other
documents in  connection  therewith,  with the  Commission,  granting  unto said
attorney-in-fact  and agent full power and  authority to do and perform each and
every act and thing  requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person,  hereby ratifying and confirming
all that said  attorney-in-fact  and agent or his substitute or substitutes  may
lawfully do or cause to be done by virtue hereof.

/s/James A. Cannavino
---------------------  Chairman of the Board,
James A. Cannavino     Chief Executive Officer

/s/Michael J. Beecher
---------------------
Michael J. Beecher     Chief Financial Officer, Principal Accounting Officer and
                       Secretary

/s/Bernard Puckett
---------------------
Bernard Puckett        Director

/s/Dennis J. Murray
---------------------
Dennis J. Murray       Director

/s/Michael Levin
---------------------
Michael Levin          Director