Ann: GENERAL: DIL: Provides Restatement Update

• Release Date: 04/12/13 17:12
• Summary: GENERAL: DIL: Provides Restatement Update
• Price Sensitive: No
• Download Document  9.93KB

					DIL
04/12/2013 15:12
GENERAL

REL: 1512 HRS Diligent Board Member Services INC (NS)

GENERAL: DIL: Provides Restatement Update

December 4, 2013

Diligent Board Member Services, Inc.
Provides Restatement Update

Diligent Board Member Services, Inc. (the "Company"), today provided an
update on the status of its previously announced restatement of financial
results.

Timing to Provide Financial Results

The Company continues to focus significant resources on completing its
previously announced restatement of certain of its financial statements.  Due
to complexities in the restatement process, the Company has determined that
it will not be able to provide its preliminary half year announcement by 12
December 2013 as previously expected.  The Company currently expects that it
will provide its preliminary half year announcement, half year report and
preliminary full year report by 28 February 2014.

The Company is subject to the reporting requirements in the NZX Listings
Rules, which required the Company's preliminary half year announcement and
half year report to be released by the end of August and September,
respectively.  The NZX has indicated that it does not intend to take action
to suspend trading in Diligent's shares if the Company provides its half year
and preliminary full year announcements by 28 February 2014 as currently
expected.

While the Company cannot disclose detailed financial results at this time due
to the ongoing restatement process, the Company expects to provide selected
operating highlights for the Company's fourth quarter of 2013 in mid-January.
The Company confirms that it has disclosed to the market all material
information required to be released under its continuous disclosure
requirements.

Alessandro Sodi, Diligent's President & CEO, stated "we are looking forward
to providing investors information about the performance of our business and
initiatives for future growth.  Until the restatement process is complete,
our ability to provide business information to our shareholders is limited
because of disclosure laws in New Zealand and the United States that prohibit
us from providing financial information that might be deemed to be
incomplete."
Update on Restatement

On 6 August 2013, the Company announced that it would 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 interim periods within such fiscal years
should no longer be relied upon.   As previously announced, the revenue
recognition errors identified by the Company do not affect the total revenues
ultimately earned or to be earned, or the amount or timing of cash received
or to be received from individual customer agreements. However, the
restatement process is very complex and time consuming and involves reviewing
the recognition of revenue for approximately 20,000 transactions over the
period covered by the restatement.  Due to limitations in the Company's
legacy accounting systems, extensive manual spreadsheet entries are necessary
in order to recalculate revenue and deferred revenue using the new revenue
recognition conventions.

In order to expedite the restatement process, the Company has recently
retained PricewaterhouseCoopers LLP to supplement the Company's internal
accounting resources in preparing restated financial statements.  The Company
also retained two other outside financial accounting experts to support its
efforts.  When such financial statements are complete, they will be audited
by the Company's independent registered public accounting firm, Deloitte &
Touche LLP.  Because the restatement, reaudit and Audit Committee
investigation processes described below are ongoing, additional required
corrections to the Company's prior period financial statements may be
identified.

The Company is working toward providing unaudited financial statements for
2013 by 28 February 2014.  Audited financial statements and the accompanying
audit reports would be released separately as soon as these are available.

Greg Petersen, the Chairman of the Audit Committee, said "The Company is
working to complete its restatement and provide financial information to
investors as soon as possible. After the restatement is complete, we are
confident that the Company will emerge from this difficult process with
substantial improvements in internal controls, which will provide a strong
framework for future compliance and financial reporting."
Update on Revenue Recognition Review

The Company previously announced that it anticipates making corrections to
its historical financial statements in the following areas:

 o The Company recognized revenue  attributable to particular customer
agreements from the beginning of a month rather than from the date of
contract signing, and 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 effect of the errors was to accelerate the time
when revenues were recognized under the Company's customer agreements. The
Company will correct these errors by deferring revenue recognition until such
time as customers are provided access to the Company's hosting environment
and a fully executed customer agreement is received.

 o The Company recognized revenue from installation fees under the Company's
customer agreements over the twelve month contract term, rather than the
period during which the customer receives the benefit of the installation
services. The effect of the Company's prior policy also was to accelerate the
time when revenues (in this case installation fees) were recognized.   The
Company expects to correct this error by recognizing revenue from
installation fees over an estimated nine-year customer life, based on current
customer history and renewal rates.

As previously reported, the Audit Committee of the Board of Directors engaged
outside company  counsel to investigate the accounting errors that gave rise
to the need to restate the Company's financial statements, as well as other
historical accounting practices impacting the timing of recognition of
revenue.   In connection with the investigation, it has been determined that
the Company included in its financial results certain customer agreements
that, while having an effective date within a quarter, had not been signed by
all parties within the quarter, as would be required to commence revenue
recognition under US GAAP.  At this time, it does not appear that the early
inclusion of such contracts had a material impact on previously reported
revenue or other reported non-GAAP financial metrics such as New Sales for
fiscal quarters which have currently been reviewed (second quarter of 2011 to
the present).  The Audit Committee review is continuing, including an
assessment of the impact of the identified errors on the Company's internal
controls over financial reporting, and the evaluation of potential remedial
measures.   Except as described above, no new revenue recognition issues have
been discovered during the restatement process.

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 ability to complete the
restatement of its prior period financial statements and become current in
its financial reporting obligations.   These statements are subject to risks
and uncertainties, including the risk that the Company's Board of Directors,
Audit Committee, management or independent registered public accounting firm
will identify additional issues in connection with the restatement or
reaudit, or the Audit Committee investigation, or that these issues will
require additional corrections to the Company's prior period financial
statements.  In addition, the Company is subject to risks relating to the
time and effort required to complete the restatement, actions which may be
taken by the NZX in respect of the Company's continued listing, the
ramifications of the Company's potential inability to timely file periodic
and other reports with the SEC, and the risk of litigation or governmental
investigations or proceedings relating to these matters.  As disclosed in the
Company's prior filings, its Special Committee investigation identified a
number of instances in which the Company was not, or may not have been, in
compliance with applicable New Zealand and US regulatory obligations and such
instances may expose the Company to potential regulatory actions and/or
contingent liabilities; certain of the Company's past stock issuances and
stock option grants may expose it to potential contingent liabilities,
including potential rescission rights; the Company is 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 faces 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 the
Company identified material weaknesses in its internal control over financial
reporting and concluded that its disclosure controls were not effective; the
Company must address the material weaknesses in its internal controls, which
otherwise may impede its ability to produce timely and accurate financial
statements; the Company's business is highly competitive and it faces the
risk of declining customer renewals or upgrades; and it may fail to manage
its growth effectively. Please refer to the Company's Annual Report on Form
10-K for the Fiscal Year ended December 31, 2012 filed with the SEC for
further information.

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

Media inquiries:
Geoff Senescall
Phone: +64 21 481 234
End CA:00244732 For:DIL    Type:GENERAL    Time:2013-12-04 15:12:59