Ann: GENERAL: DIL: Diligent Board Member Services

• Release Date: 06/08/13 11:46
• Summary: GENERAL: DIL: Diligent Board Member Services Announcement
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DIL
06/08/2013 09:46
GENERAL

REL: 0946 HRS Diligent Board Member Services INC (NS)

GENERAL: DIL: Diligent Board Member Services Announcement

6 August 2013

Diligent Board Member Services, Inc.
Provides Update on Review of Revenue Recognition;
Intends to Restate Financial Statements;
Limited Update on Second Fiscal Quarter

Diligent Board Member Services, Inc. (the "Company") announced that based on
its previously disclosed review of its historical revenue recognition
practices, it will restate its financial statements for the fiscal years
ended December 31, 2010, 2011 and 2012 and the fiscal quarter ended March 31,
2013, and that its previously reported results for such fiscal periods and
the interim periods within such fiscal years should no longer be relied upon.
 More detail relating to the restatement will be contained in the Current
Report on Form 8-K to be filed by the Company with the U.S. Securities and
Exchange Commission.

Anticipated Adjustments and Expected Effects of Restatement

The Company is determining and quantifying the specific adjustments that need
to be made to each of the periods affected by the restatement. The revenue
recognition errors identified by the Company and the other  items described
below do not affect the total revenues ultimately earned or to be earned, the
amount or timing of cash received or to be received from individual customer
agreements, or the Company's liquidity or overall cash flow.

Based on its review to date, the Company anticipates making corrections to
its historical financial statements in the following areas:
o The Company previously disclosed that revenue attributable to particular
customer agreements was recognized from the beginning of a month rather than
from the date of contract signing, and that the Company failed to defer
revenue recognition until customers are provided access to the Company's
hosting environment, as required by U.S. GAAP. The Company will correct
these errors.  The effect of the errors was to accelerate the time when
revenues were recognized under the Company's customer agreements.
o The Company will make an additional correction as a result of a comment
letter received from the Staff of the Division of Corporation Finance of the
SEC in connection with its review of the Company's filings. In response to
the comment, the Company plans to recognize revenue from installation fees
under the Company's customer agreements over the period during which the
customer receives the benefit of the installation services, which will be a
longer period than the twelve month contract term over which the Company
previously recognized such revenue. The effect of the Company's prior policy
also was to accelerate the time when revenues (in this case installation
fees) were recognized.
o The Company will properly capitalize certain costs associated with software
developed for internal use.  These costs were previously expensed.

The Company has evaluated the impact of the foregoing errors, as well as
certain other items that may be affected by any change in revenue
recognition, such as deferred revenue and deferred commissions, in order to
make the conclusion that the errors are material for the purpose of requiring
a restatement in the Company's historical financial statements.

Timeline Going Forward and 2Q 2013 Operating Update

Until the necessary restatement adjustments are finalized, the Company is not
in a position to provide sales or revenue information for its second fiscal
quarter ended June 30, 2013.  Selected operating highlights for the Company's
second quarter ended June 30, 2013 are shown below.  The Company's Audit and
Compliance Committee has also determined to retain the Company's current
independent accounting firm, Deloitte & Touche LLP, to reaudit the Company's
financial statements for the fiscal years ended December 31, 2010, 2011 and
2012. The Company does not anticipate that it will file its Quarterly Report
on Form 10-Q for the second quarter ended June 30, 2013 with the U.S.
Securities and Exchange Commission by its due date of August 9, 2013, but
will report its full second quarter results after completing the restatement
and reaudit of its historical financial statements.

Alex Sodi, Diligent's president and CEO, said, "Company management is working
to complete the Company's restated financial results as quickly as possible.
We are fully committed to ensuring the prompt and thorough resolution of
these matters and providing our shareholders with the most accurate
disclosure possible.  We continue to be excited about the future of the
Company.  We have maintained our client retention rate of 97% in the second
quarter.  New sales in non-U.S. markets continue to be strong while we have
experienced slower new sales growth in the U.S. for the second quarter.  We
expect our recurring revenue model to continue to drive revenue growth at a
strong pace."

During the second quarter of 2013, Diligent signed a total of 173 net new
client agreements, as compared to 216 net new client agreements in the second
quarter of 2012.   As of June 30, 2013, Diligent now serves a total of 2,183
public and private companies, with 3,075 boards and over 64,000 users
worldwide. Diligent has many types of clients ranging from large publicly
listed companies to smaller not-for-profit organizations. Diligent now
services 294 Fortune 1000 companies, of which 18 were added in the second
quarter and 530 NYSE listed companies, of which 35 were added in second
quarter 2013.  In addition, we serve 39% of the FTSE 100 Index (UK) and 35%
of the ASX 20 Index (Australia).

Diligent continued to demonstrate balance sheet strength during the second
quarter.  Diligent's cash balance increased by $US 2.5 million in the second
quarter of 2013, resulting in total cash balances of $US 39.0 million as of
June 30, 2013, after payment of U.S. 2013 estimated quarterly income taxes of
$US 1.8 million and final costs relating to the Special Committee process and
related remediation activities of over $US 1.0 million.

Forward Looking Statements

This document contains forward-looking statements within the meaning of the
safe harbor provision of the Securities Litigation Reform Act of 1995. Terms
such as "expect," "believe," "continue," and "intend," as well as similar
comments, are forward-looking in nature. These forward-looking statements
include statements regarding the Company's intent to restate certain prior
period financial statements and the errors that resulted in the Audit
Committee reaching the decision that these historical financial statements
could no longer be relied upon. There can be no assurance that the Company's
Board of Directors, Audit Committee, management or independent registered
public accounting firm will not identify additional issues in connection with
the restatement or reaudit, or that these issues will not require additional
corrections to the Company's prior period financial statements. These
statements are subject to risks and uncertainties, including the risk that
additional information may become available in preparing and reauditing the
financial statements and may require the Company to make additional
corrections, the time and effort required to complete the restatement of the
financial statements, the ramifications of the Company's potential inability
to timely file periodic and other reports with the Securities and Exchange
Commission, and the risk of litigation or governmental investigations or
proceedings relating to these matters. In addition, as disclosed in our prior
filings, our Special Committee investigation identified a number of instances
in which we were not, or may not have been, in compliance with applicable New
Zealand and US regulatory obligations and such instances may expose us to
potential regulatory actions and/or contingent liabilities; certain of our
past stock issuances and stock option grants may expose us to potential
contingent liabilities, including potential rescission rights; we are subject
to New Zealand Stock Exchange Listing Rules and compliance with securities
and financial reporting laws and regulations in the US and New Zealand and
face higher costs and compliance risks than a typical US public company due
to the need to comply with these dual regulatory regimes; as of December 31,
2012 we identified material weaknesses in our internal control over financial
reporting and concluded that our disclosure controls were not effective; we
must address the material weaknesses in our internal controls, which
otherwise may impede our ability to produce timely and accurate financial
statements; our business is highly competitive and we face the risk of
declining customer renewals or upgrades; and we may fail to manage our growth
effectively. Please refer to Diligent's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 2012 filed with the Securities and Exchange
Commission for further information.

Investor inquiries:
Sonya Joyce
Phone: +64 4 894 6912

Media inquiries:
Geoff Senescall
Phone: +64 21 481 234
End CA:00239321 For:DIL    Type:GENERAL    Time:2013-08-06 09:46:12