October 4, 2006
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-0406
Attention: Barbara C. Jacobs, Assistant Director
Maryse Mills-Apenteng, Division of Corporate Finance
Christine Davis, Division of Corporate Finance
Anne Nguyen, Division of Corporate Finance
Re: Direct Insite Corp.
Registration Statement on Form SB-2
Amendment No. 3 filed on September 15, 2006
File No. 333-128039
Form 10-KSB/A for the year ended December 31, 2005
Form 10-QSB for the fiscal quarters ended March 31,
2006 and June 30, 2006
File No. 0-20660
Ladies and Gentlemen:
Following are our responses, including supplemental information, to the
comments of the Securities and Exchange Commission (the "SEC") set forth in its
letter dated September 25, 2006 with respect to the above-referenced documents
filed by Direct Insite Corp. (the "Company" or "Direct Insite"). Supplemental
information provided to you in this letter is based upon information and/or
documentation provided by the Company. The numbers of the Company's responses
parallel the numbers in your September 25, 2006 comment letter.
Form 10-KSB for the Fiscal Year Ended December 31, 2005
Financial Statements
Notes to Consolidated Financial Statements
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Note 2 - Significant Accounting Policies
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Revenue Recognition, page F-9
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1. In response to the Staff's comment, please be advised supplementally that
the Company's non-ASP contracts which are principally for change requests
are not directly or indirectly related to the renewal of its ASP service
contracts. These changes to the existing hosted software are at the request
of the customer and as such change requests are received throughout the
year. While some change requests may be in process at the time of the
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October 4, 2006
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renewal of the ASP service agreement, the renewal of the ASP service
agreement is not, nor has it been in the past, contingent on completion or
implementation of the change requests. Fees for such change requests are
negotiated separately from the renewal of the ASP service agreements based
on estimated hours and the Company's standard hourly billing rates. The
contracts for the change requests are not "bundled" with the renewal of the
ASP service agreements.
Paragraph 2 of EITF 00-21 states "This Issue addresses certain aspects of
the accounting by a vendor for arrangements under which it will perform
multiple revenue-generating activities. Specifically, this Issue addresses
how to determine whether an arrangement involving multiple deliverables
contains more than one unit of accounting. In applying this Issue, separate
contracts with the same entity or related parties that are entered into at
or near the same time are presumed to have been negotiated as a package and
should, therefore, be evaluated as a single arrangement in considering
whether there are one or more units of accounting. That presumption may be
overcome if there is sufficient evidence to the contrary."
As noted above, renewals and custom engineering service contracts are
entered into at various times throughout the year. The Company's ASP
services renewals are based on contractual arrangements which are generally
negotiated on an annual basis based on estimated usage or volume of
transactions. Custom Engineering services contract negotiations are not at
discounts in order to secure ASP Services. Custom Engineering contracts are
negotiated based on labor hours needed to perform the Custom Engineering
services and the competitive rates at which such hours can be billed. The
Company does not consider these non-ASP contracts to be multiple-element
arrangements in accordance with paragraph 2 of EITF 00-21.
As such for Custom Engineering services the Company recognizes revenue on a
percentage of completion basis of accounting in accordance with SOP 81-1.
2 In response to the Staff's comment plese be advised supplementally that the
Company has reviewed SOP 97-2 paragraph 2 to determine if our custom
engineering services fall within the scope of SOP 97-2. Paragraph 2 states
"This SOP provides guidance on when revenue should be recognized and in
what amounts for licensing (defined as "Granting the right to use but not
to own software through leases or licenses"), selling, leasing, or
otherwise marketing computer software. It should be applied to those
activities by all entities that earn such revenue. It does not apply,
however, to revenue earned on products or services containing software that
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October 4, 2006
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is incidental to the products or services as a whole." As the Company's
Custom Engineering services are not for licensing, selling, leasing or
otherwise marketing computer software services, it does not fall within the
scope of SOP 97-2.
We have reviewed the scope provisions of SOP 81-1 in paragraph 11 which
states "This statement of position applies to accounting for performance of
contracts for which specifications are provided by the customer for the
construction of facilities or the production of goods or the provision of
related services that are reported in financial statements prepared in
conformity with generally accepted accounting principles". Further it
states that "The scope of the statement is not limited to construction-type
contracts."
Footnote 1 to this paragraph states "This statement is not intended to
apply to "service transactions" as defined in the FASB's October 23, 1978
Invitation to Comment, Accounting for Certain Service Transactions.
However, it applies to separate contracts to provide services essential to
the construction or production of tangible property, such as design,
engineering, procurement, and construction management (see paragraph .13
for examples)."
SOP 81-1 paragraph 12 further states that "contracts covered by this
statement of position are binding agreements between buyers and sellers in
which the seller agrees, for compensation, to perform a service to the
buyer's specifications. Contracts consist of legally enforceable agreements
in any form and include amendments, revisions, and extensions of such
agreements. Performance will often extend over long periods, and the
seller's right to receive payment depends on his performance in accordance
with the agreement. The service may consist of designing, engineering,
fabricating, constructing, or manufacturing related to the construction or
the production of tangible assets"
As noted in our response to your comment #1, the Company's custom
engineering services involve modifications or customization of its IOL
solution which is provided to the Company's customers in an ASP
environment. The Company offers under separately negotiated contracts these
engineering services to its customers. Services under these contracts may
take from one week to several months to complete. Custom Engineering
services are billed based on expected hours to complete the customers
request at established hourly billing rates. Should the Company not deliver
these custom engineering services it will not be entitled to payment under
the terms of the contract. Because of these factors it is our belief that
the criteria under paragraphs 11 and 12 of SOP 81-1 are met and should be
accounted for under the percentage of completion method. The Company will
revise its disclosures accordingly in all future filings
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October 4, 2006
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Controls and Procedures
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3. Please be advised supplementally that the Company confirms that there were
no changes in internal control over financial reporting during the quarter
ending December 31, 2005. The Company further confirms that it will conform
its disclosure to the requirements of Item 308(c) in all future filings.
Form 10-QSB For The Fiscal Quarter Ended March 31, 2006
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4. Please be advised supplementally that the full definition of Disclosure
Controls and Procedures applies to the March 31, 2006 Form 10-QSB. The
Company further represents that it will include the full language of the
definition in all future periodic filings.
Please call me at if you have any questions you wish to discuss with us
concerning this letter or any of the enclosed materials.
Very truly yours,
Beckman, Lieberman &
Barandes, LLP
/s/ David H. Lieberman
By: David H. Lieberman
cc: Michael J. Beecher
Chief Financial Officer
and Secretary