Ann: QUARTER: DIL: Diligent Board Member Services

• Release Date: 14/01/14 11:03
• Summary: QUARTER: DIL: Diligent Board Member Services - Limited Q4 2013 Update
• Price Sensitive: No
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					DIL
14/01/2014 09:03
QUARTER

REL: 0903 HRS Diligent Board Member Services INC (NS)

QUARTER: DIL: Diligent Board Member Services - Limited Q4 2013 Update

January 14, 2014

Diligent Board Member Services, Inc.
Provides Limited Update on Fourth Fiscal Quarter 2013

As promised in our December release, today we are providing an update on our
fourth quarter results. Because we are in the process of restating our
financials (announced on August 6, 2013) the Company is not in a position to
provide full financial information and business metrics for the Company's
fourth quarter or full year ended December 31, 2013.  However, in an effort
to remain as transparent as possible, we are today providing operating
highlights for the Company's fourth quarter ended December 31, 2013.
Management looks forward to discussing and providing further information on
the following quarterly operating update in more detail at the conclusion of
the restatement process.

4Q 2013 Operating Update

During the fourth quarter of 2013, Diligent signed a total of 145 net new
client agreements.   Comparing the fourth quarter of 2012 to the fourth
quarter of 2013, Diligent increased the number of organizations it services
by 35.5%, from 1,808 to 2,450, while the number of boards served by Diligent
increased 32.4%, from 2,571 to 3405 and the number of Diligent Boardbooks
users increased 39.6%, from 52,000 users to over 72,600 users globally.  Also
of note, Diligent maintained its client retention rate at 97% as of the end
of the fourth quarter 2013.
Diligent continued to add clients in both the private sector and with public
companies across multiple industries worldwide, and the company's client base
is now comprised of 53.4% public companies and 46.6% private entities.
Notably, Diligent now services 319 Fortune 1000 companies, of which 11 were
added in the fourth quarter of 2013, and 575 New York Stock Exchange listed
companies, of which 22 were added in fourth quarter 2013.  The number of New
Zealand Exchange listed companies served by Diligent has grown from 7
companies at the end of fourth quarter 2012, to 16 companies at the end of
the fourth quarter 2013.   Of the 16 NZX listed companies, 11 are in the
NZX50 Index, reflecting 22% of the NZX50 Index.

Of note financially, Diligent closed the 2013 fiscal year with $US 56.1
million in cash balances and no bank debt, which is an increase of $US22.8
million in the company's cash balance as compared to the cash balance on
December 31, 2012.  During the 2013 fiscal year, the Company incurred
obligations of approximately $US5.1 million related to the restatement and
re-audit of certain of the Company's financial statements, the Audit
Committee's investigation of the accounting errors that gave rise to the need
to restate the Company's financial statements, and the Special Committee
investigation. Of this amount, $US3.3 million has been paid in 2013 and
$US1.8 million will be accrued as of December 31, 2013.  In addition, the
Company  incurred an obligation for previously disclosed and approved
compensation of $US4.4 million for the Chief Executive Officer to be ratably
paid in 2014, 2015 and 2016, which will also be accrued as of December 31,
2013.

With respect to Diligent's business operations, management has decided to
accelerate its plans to expand more widely across Europe by establishing
operations and a data center in Germany.  "We felt that the time was right to
invest more in growing our European presence.  We have had good success in
the UK so far, and we believe that there is a large opportunity for us in the
continental European countries.  Having operations and a data center in
Europe should allow us to establish a leadership position more quickly," said
Alessandro Sodi, Diligent's President & Chief Executive Officer.  Diligent
currently has data centers in the United States and Canada.  The Company
estimates that it will spend over $2 million building out the European data
center.

Update on Revenue Recognition Review

The Company continues to focus significant resources on completing its
previously announced restatement of certain of its financial statements.  The
Company is working toward providing its preliminary half year announcement,
half year report and preliminary full year results for 2013 by 28 February
2014.

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.  This investigation is complete and resulted in no finding of
intentional misconduct or fraud.

The Company previously disclosed material weaknesses in its internal control
over financial reporting in its Annual Report on Form 10-K for the fiscal
year ended December 31, 2012.  As a result of the matters covered by the
restatement and the Audit Committee investigation, management has determined
that there were material weaknesses in the Company's internal controls over
financial reporting relating to revenue recognition, including that the
Company lacked sufficient personnel with appropriate knowledge, experience
and training in the complexities of software revenue recognition.  The
Company will provide an updated assessment of internal controls over
financial reporting and related remedial measures upon completion of the
restatement and re-audit process.

In the past twelve months the Company has undertaken a number of remedial
measures, including that the Company has retained a new Chief Financial
Officer, a new Controller, a new General Counsel and a new independent
registered public accounting firm.  The Company's new Chief Financial Officer
has implemented new revenue recognition conventions and controls in
accordance with U.S. Generally Accepted Accounting Principles.

In addition, the Company has added two new independent directors as Audit
Committee members with the requisite experience to qualify as audit committee
financial experts pursuant to the applicable rules of the U.S. Securities and
Exchange Commission.  The Board of Directors and management are continuing to
evaluate additional remedial measures to strengthen the Company's internal
controls over financial reporting in response to the Audit Committee
investigation.

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:00246018 For:DIL    Type:QUARTER    Time:2014-01-14 09:03:09