Diligent 10Q/A 2013 Q1 Quarterly report (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013.

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________________ to _________________________________

Commission File Number: 000-53205

Diligent Board Member Services, Inc.
(Exact name of registrant as specified in its charter)

Delaware	26-1189601
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1385 Broadway, 19th Floor

New York, NY 10018

(Address of principal executive offices)(Zip Code)

(212) 741-8181

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.¨ Yesx No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).¨ Yesx No

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 “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

¨ Large accelerated filer		x Accelerated filer

¨ Non-accelerated filer		¨ Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨YesxNo

The number of shares of the registrant’s common stock outstanding as of MAY 5, 2013 was 83,776,155.

EXPLANATORY NOTE

On August 5, 2013 in the U.S., Diligent Board Member Services, Inc. (“we,” “us,” “our,” “Diligent” or the “Company”) announced that our historical financial statements for the fiscal years ended December 31, 2012, 2011 and 2010, and our interim financial statements for the fiscal quarter ended March 31, 2013, would be restated due to errors discovered in our revenue recognition review, and that our financial statements previously filed with the U.S. Securities and Exchange Commission (the “SEC”) for such periods, including interim periods within such fiscal years, should no longer be relied upon. In addition, on January 28, 2014 in the U.S., we determined that due to an additional error in our historical financial statements relating to the accounting treatment of a note receivable from our predecessor entity, our historical financial statements previously filed with the SEC for the fiscal years ended December 31, 2009, 2008 and 2007, including interim periods within such fiscal years, should no longer be relied upon. The fiscal years and interim periods affected by such announcements are referred to as the “Affected Periods”. For more information regarding the restatement, refer to Note 2, “Restatement of previously issued financial statements due to correction of errors” in Part I, Item 1and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

This Amendment No. 1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013 (“Form 10-Q/A” or “10-Q Amendment”) is being filed to present the restatement of previously issued condensed consolidated financial statements and financial data and to amend the previously filed management's discussion and analysis of financial condition and results of operations and other disclosures for the periods presented in this 10-Q/A. Concurrently herewith, we are filing Amendment No. 2 to our Annual Report on Form 10-K (the “10-K Amendment”) to restate our Consolidated Financial Statements for the fiscal years ended December 31, 2012 and December 31, 2011 and to present selected restated financial information for the fiscal quarters within such years.

Other than the 10-K Amendment and this 10-Q Amendment, we have not filed amendments to (i) our Quarterly Reports on Form 10-Q previously filed with the SEC for the interim periods in the Affected Periods, or (ii) our Annual Reports on Form 10-K previously filed with the SEC for the fiscal years included in the Affected Periods (collectively, the “Affected Reports”). Accordingly, investors should rely only on the financial information and other disclosures regarding the AffectedPeriods in the 10-K Amendment and this 10-Q Amendment, and not on the Affected Reports or any reports, sales update press releases, or similar communications relating to the Affected Periods, other than as set forth in the Company’s Preliminary Half Year Announcement and Half Year Report for the half year period ending June 30, 2013 and its Preliminary Full Year Announcement for the full year 2013 issued pursuant to the rules of the New Zealand Stock Exchange and filed as Exhibits 99.2 and 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on February 28, 2014.

As disclosed in Item 9A of the 10-K Amendment, management concluded that as of December 31, 2012, our internal controls over financial reporting were not effective due to material weaknesses in our control environment, control activities and information and communication relative to stock option grants and stock issuances. Management also evaluated the effectiveness of our disclosure controls and procedures and concluded that our disclosure controls and procedures were not effective as of December 31, 2012. In connection with the restatement and the preparation of the 10-K Amendment, management re-evaluated the effectiveness of our disclosure controls and procedures and our internal control over financial reporting as of December 31, 2012 and determined that our disclosure controls and procedures were ineffective as of December 31, 2012 and our internal control over financial reporting was subject to multiple material weaknesses in addition to those previously identified. We lacked a sufficient complement of trained finance, accounting and tax personnel and did not establish adequate accounting and financial reporting policies and procedures as a general matter. In particular, there were material weaknesses in our financial reporting control environment and the design, establishment, maintenance and communication of effective controls relating to revenue recognition, income taxes and certain transactions with our predecessor entity. In addition, our accounting and financial reporting processes were dependent on the maintenance of spreadsheets that had become inadequate to ensure accurate and timely financial reporting given the growth of the Company and the volume of transactions. Information relating to the identified material weaknesses in internal control over financial reporting, and related remedial measures, as well as additional information relating to the restatement, is contained in the 10-K Amendment.

We originally filed our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013 with the SEC on May 10, 2013 (the “Original Filing”). This Amendment No. 1 amends and restates Items 1, 2 and 4 of Part I and Items 1A and 6 of Part II of the Original Filing. As required pursuant to the Securities and Exchange Act of 1934, as amended, this Amendment No. 1 also includes updated certifications from the Company’s Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2, 32.1 and 32.2. Except as noted above, no other information included in the Original Filing is being amended by this Amendment No. 1. All of the information in this Amendment No. 1 is applicable as of the dates addressed in the Original Filing and reflect events occurring after the date of the Original Filing to modify or update disclosures affected by material subsequent events and as required to reflect the restatement described above.

In connection with the preparation of this 10-Q Amendment, management re-evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2013 and determined that our disclosure controls and procedures were not effective as of March 31, 2013.

CONTENTS

		PAGE

Forward Looking Statements		.ii

PART I – Financial Information

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 4.	Controls and Procedures	32

PART II – Other Information

Item 1A.	Risk Factors	33
Item 6.	Exhibits	45

SIGNATURES		46

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. There are numerous risks and uncertainties that could cause actual results and the timing of events to differ materially from those anticipated by the forward-looking statements in this Quarterly Report on Form 10-Q/A. Such risks and uncertainties may give rise to future claims and increase our exposure to contingent liabilities. These risks and uncertainties arise fromthe following issues (among other factors):

We have had to restate certain of our historical financial statements and as a result have not been able to timely file periodic reports with the SEC;

As of December 31, 2012 we identified material weaknesses in our internal controls over financial reporting and concluded that our disclosure controls were not effective; we must address the material weaknesses in our internal controls and our disclosure controls, which otherwise may impede our ability to produce timely and accurate financial statements and periodic reports;

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;

We face the risk of litigation or governmental investigations or proceedings relating to the restatement or the matters covered by the Special Committee investigation;

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;

Our business is highly competitive and we face the risk of declining customer renewals or upgrades;

If we do not successfully develop or introduce new product offerings, or enhancements to our existing Diligent Boardbooks offering, or keep pace with technological changes that impact the use of our product offerings, we may lose existing customers or fail to attract new customers; and

We may fail to manage our growth effectively.

These risks are described throughout this Quarterly Report on Form 10-Q/A, which you should read carefully. In particular, we refer you to Part II, Item 1A, “Risk Factors” for an extended discussion of the risks confronting our business. The forward-looking statements in this Quarterly Report on Form 10-Q/A should be considered in the context of these risk factors. The Company makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made, except as otherwise required by the federal securities laws or the NZSX Listing Rules.

EMERGING GROWTH COMPANY

We are an emerging growth company under the JOBS Act. We shall continue to be deemed an emerging growth company until the earliest of:

(a) the last day of the fiscal year during which we have total annual gross revenues of $1,000,000,000 (as such amount is indexed for inflation every 5 years by the Commission to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) or more;

(b) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement in the U.S.;

(c) the date on which we have, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or

(d) the date on which we are deemed to be a large accelerated filer, as defined in section 240.12b-2 of title 17, Code of Federal Regulation, or any successor thereto.

As an emerging growth company we are exempt from Section 404(b) of Sarbanes Oxley, which requires the independent registered public accounting firm to attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting. In addition, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We are also exempt from Section 14A (a) and (b) of the Securities Exchange Act of 1934 which require shareholder approval of executive compensation and golden parachutes.

Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. However, we are choosing to opt out of any extended transition period, and as a result we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for publicly reporting companies. Section 107 provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

iii

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

Diligent Board Member Services, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

	March 31,			December 31,
	2013			2012
	(As restated)
ASSETS
Current assets:
Cash and cash equivalents	$	36,472		$	33,311
Term deposit		-			103
Accounts receivable, net		1,629			1,542
Deferred commissions		2,066			2,081
Prepaid expenses and other current assets		1,322			899
Deferred tax assets		3,941			3,939
Total current assets		45,430			41,875

Property and equipment, net		5,110			3,913
Deferred tax assets		1,756			1,532
Security deposits		208			225
Other non-current assets		59			167
Total assets	$	52,563		$	47,712

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	933		$	222
Accrued expenses and other liabilities		5,502			4,964
Income taxes payable		308			1,391
Deferred revenue		17,855			16,972
Obligations under capital leases		704			702
Total current liabilities		25,302			24,251

Non-current liabilities:
Deferred revenue, less current portion		7,648			6,964
Obligations under capital leases, less current portion		1,449			237
Deferred tax liabilities		30			31
Other non-current liabilities		250			272
Total non-current liabilities		9,377			7,504
Total liabilities		34,679			31,755
Commitments and contingencies
Redeemable preferred stock:
Series A convertible redeemable preferred stock, $.001 par value, 50,000,000 shares authorized 32,667,123 shares issued and outstanding (liquidation value $4,989,902)		3,240			3,233
Stockholders' equity:
Common Stock, $.001 par value, 250,000,000 shares authorized, 83,776,155 and 83,586,155 shares issued and outstanding		84			84
Additional paid-in capital		26,794			26,052
Accumulated deficit		(12,251	)		(13,480	)
Accumulated other comprehensive income		17			68
Total stockholders' equity		14,644			12,724
Total liabilities, redeemable preferred stock and stockholders' equity	$	52,563		$	47,712

See accompanying notes to condensed consolidated financial statements

Diligent Board Member Services, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

(in thousands, except per share amounts)

	Three Months Ended March 31,
	2013			2012
	(As restated)			(As restated)

Revenues	$	13,708		$	7,081
Cost of revenues (excluding depreciation and amortization)		2,773			2,008
Gross profit		10,935			5,073

Operating expenses:
Selling and marketing expenses		2,279			1,942
General and administrative expenses		3,697			1,677
Research and development expenses		933			474
Depreciation and amortization		259			224
Special committee		1,632			-
Total operating expenses		8,800			4,317

Operating income		2,135			756

Other income (expense), net:
Interest income (expense), net		(8	)		42
Foreign exchange transaction gain (loss)		(116	)		6
Total other income (expense), net		(124	)		48

Income before provision for income taxes		2,011			804
Income tax expense		782			195
Net income	$	1,229		$	609

Accrued preferred stock dividends		(89	)		(89	)
Net income attributable to common stockholders	$	1,140		$	520

Earnings per share:
Basic	$	0.01		$	0.00
Diluted	$	0.01		$	0.00
Weighted average shares outstanding:
Basic		116,380			114,473
Diluted		121,692			119,992

See accompanying notes to condensed consolidated financial statements

Diligent Board Member Services, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands)

	Three Months Ended March 31,
	2013			2012
	(As restated)			(As restated)
Net income	$	1,229		$	609
Other comprehensive income (loss):
Foreign exchange translation adjustment		(51	)		46
Comprehensive income	$	1,178		$	655

See accompanying notes to condensed consolidated financial statements

Diligent Board Member Services, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Equity

Three Months Ended March 31, 2013

(Unaudited)

(in thousands)

											Accumulated
			Common		Additional						Other			Total
	Common		Stock		Paid-in-			Accumulated			Comprehensive			Stockholders'
	Shares		$.001 Par Value		Capital			Deficit			Income			Equity
Balance at January 1, 2013 (As restated)		83,586	$	84	$	26,052		$	(13,480	)	$	68		$	12,724
Net income									1,229						1,229
Other comprehensive loss												(51	)		(51	)
Total comprehensive income															1,178
Capital contribution						240									240
Share-based compensation						340									340
Excess tax benefits - stock compensation						185									185
Exercise of stock options		190				74									74
Amortization of preferred stock offering costs						(8	)								(8	)
Accrued preferred stock dividend ($.00275 per share)						(89	)								(89	)
Balance at March 31, 2013 (As restated)		83,776	$	84	$	26,794		$	(12,251	)	$	17		$	14,644

See accompanying notes to condensed consolidated financial statements

Diligent Board Member Services, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Three Months Ended March 31,
	2013			2012
	(As restated)			(As restated)

Cash flows from operating activities:
Net income	$	1,229		$	609
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		259			224
Share-based compensation		340			222
Net deferred tax assets and liabilities		(227	)		(31	)
Excess tax benefits realized from share-based compensation		(185	)		-
Changes in operating assets and liabilities:
Accounts receivable		(87	)		330
Deferred commissions		16			(15	)
Prepaid expenses and other assets		(316	)		(269	)
Security deposits		17			(35	)
Accounts payable and accrued expenses		1,519			(767	)
Income taxes payable		(899	)		-
Deferred revenue		1,568			3,373
Other		15			15
Net cash provided by operating activities		3,249			3,656
Cash flows from investing activities:
Purchases of property and equipment		(149	)		(354	)
Proceeds from maturity of term deposit		105			-
Net cash used in investing activities		(44	)		(354	)
Cash flows from financing activities:
Payment of preferred stock dividend		(120	)		(120	)
Proceeds from exercise of stock options		74			17
Excess tax benefits realized from share-based compensation		185			-
Payments of obligations under capital leases		(92	)		(28	)
Payments of obligations under software licensing agreements		(36	)		(36	)
Net cash used in financing activities		11			(167	)
Effect of exchange rates on cash and cash equivalents		(55	)		46
Net increase in cash and cash equivalents		3,161			3,181
Cash and cash equivalents at beginning of period		33,311			8,931
Cash and cash equivalents at end of period	$	36,472		$	12,112

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	11		$	5
Income taxes	$	1,775		$	53
Supplemental disclosure of noncash investing and financing activities:
Capital contribution in lieu of preferred stock dividend	$	240		$	240
Tender of common stock in lieu of interest payment on note receivable from shareholder	$	-		$	200
Property and equipment acquired under capital lease agreements	$	1,306		$	-

See accompanying notes to condensed consolidated financial statements

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Organization and nature of the business

Diligent Board Member Services, Inc. (“Diligent” or the “Company”) is a global leader in web-based portals for Boards of Directors. The Company develops and sells an online software application called Diligent Boardbooks^®, a web-based portal that board members, management and administrative staff use to compile, update, review and archive board materials during and after board meetings. Diligent provides clients with subscription-based access to the software and also provides associated services including securely hosting the clients’ data, and customer service and support for the application.

The Company was incorporated in the State of Delaware on September 27, 2007 and is listed on the New Zealand Stock Exchange (“NZSX”). On December 12, 2007, the Company completed an offshore public offering in connection with its listing on the NZSX. The Company’s corporate headquarters are located in New York, New York.

The Company has a wholly-owned subsidiary located in New Zealand, Diligent Board Member Services NZ Limited (“DBMS NZ”), which provides research and development services for the Company. The Company has a wholly-owned subsidiary in the United Kingdom, Diligent Boardbooks Limited (“DBL”) and a wholly-owned subsidiary in Australia, Diligent Board Services Australia Pty. Ltd. (“DBA”), which provide sales, marketing and customer support services in their respective regions. The Company’s Singapore subsidiary, Diligent APAC Board Services Pte. Ltd. (“APAC”) provides sales support in the Asia-Pacific region. At the end of 2012, Diligent formed a subsidiary in Hong Kong to support its Asia-Pacific sales and marketing, which has had no operations to date.

The Company’s consolidated financial statements are presented in U.S. dollars, which is the Company’s functional and reporting currency.

Restatement of Condensed Consolidated Financial Statements

Subsequent to the original issuance of the condensed consolidated financial statements for the quarter ended March 31, 2013, the Company identified errors that impacted the 2013 and 2012 quarterly financial information. Each of those errors are discussed in more detail below, and tables are included illustrating the impact of those errors on the Company’s previously issued financial statements.

We have concluded that revenue recognition of our subscription fees for our Diligent Boardbooks service should commence on the date the service is made available to the customer, as determined by the date the customer has full access to the product. Our historical practice was to consider the contract date to be the service commencement date, and to begin revenue recognition as of the beginning of the month in which the contract date falls. We have corrected recognition of revenue to prorate revenue on a daily basis starting on the date at which access is provided, which is generally later than the contract date. Additionally, we have concluded that installation fees charged for initial set-up of our product and training should be recognized ratably over the expected life of the customer relationship, which is estimated to be nine years, rather than over the initial contract period, generally one year, as had been our historical practice. The effect of correcting these two errors was to reduce previously reported revenue and increase previously reported deferred revenue by $1.4 million and $1.1 million for the three months ended March 31, 2013 and 2012, respectively.

The Company previously recorded sales commissions earned by account managers by recognizing them immediately in the period earned. In order to more appropriately match expenses with the related revenue and to be consistent with how the Company recognizes commissions for its sales staff, the Company has changed the method of recognizing commission expense for account management personnel, by amortizing commissions over the related contract period, generally twelve months. The effect of correcting this error decreased cost of revenues and increased deferred commissions by $99 thousand and $157 thousand for the three months ended March 31, 2013 and 2012, respectively. In addition, the Company historically netted deferred commissions against accrued expense. They are now presented as a separate line item on the condensed consolidated balance sheet as “Deferred Commissions”.

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company has historically not collected state sales tax on the sale of its subscription service. The Company has determined that it should have collected sales tax in certain states and may also have exposure in several other states, accordingly, the Company has recorded a provision of $183 thousand and $117.5 thousand in general and administrative costs and accrued expenses for the three months ended March 31, 2013 and 2012, respectively. The resulting cumulative provision as of March 31, 2013 related to the uncollected sales tax is $919 thousand. We intend to start collecting and remitting sales tax in certain states in 2014.

In addition, we made corrections to accrued liabilities to record expenses in the proper periods, corrected the recording of the capital contribution for the waiver of the preferred stock dividends and made other adjustments and presentation corrections discovered subsequent to the Original Filing.

The changes in the Company’s income before provision for income taxes resulting from the adjustments discussed in the above paragraphs also impacted the provision for income taxes throughout each of the periods subject to restatement. In addition, we made corrections to our provision for income taxes for each of the periods subject to the restatement to correct for errors in the calculation of our NOL limitation under Section 382 of the Internal Revenue Code, state tax apportionment factors, uncertain tax positions and other tax matters. Accordingly, throughout each of the periods subject to restatement, we have restated our income tax provision and related deferred tax assets and liabilities.

The basic earnings per share calculation has been corrected as the weighted average shares outstanding used to compute basic earnings per share has historically excluded the convertible preferred stock outstanding. The preferred stockholders are entitled to participate on an as converted basis in any dividend on the Company’s common stock, and as such are considered participating securities to which earnings should be allocated. The preferred stock should have been considered in the calculation of earnings per share using the two-class methodin periods in which the Company had net income.

Additionally, we have corrected the accounting for an equipment and software lease that was entered into in the first quarter of 2013 but initially recorded in the fourth quarter of 2012, and an internal use software license arrangement entered into in the third quarter of 2011.

The restated opening balances within the accompanying condensed consolidated statement of changes in stockholders’ equity as of January 1, 2013, which present the cumulative effect of the errors noted above through January 1, 2013, are as follows:

	January 1, 2013
	As Previously Reported			Adjustments			As Restated
	(in thousands)
Additional Paid-in-Capital	$	26,259			(207	)	$	26,052
Accumulated deficit	$	(10,656	)		(2,824	)	$	(13,480	)
Accumulated Other Comprehensive Income	$	67			1		$	68
Total stockholders' equity	$	15,754			(3,030	)	$	12,724

The following is a reconciliation of the previously reported condensed consolidated statements of income, balance sheet and statement of cash flow amounts to the restated amounts.

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Condensed Consolidated Statement of Income	As
(in thousands, except per share amounts)	Previously						As
Three Months Ended March 31, 2013	Reported			Adjustments			Restated

Revenues	$	15,133		$	(1,425	)	$	13,708
Cost of revenues (excluding depreciation and amortization)		2,872			(99	)		2,773
Gross profit		12,261			(1,326	)		10,935

Operating expenses:
Selling and marketing expenses		2,187			92			2,279
General and administrative expenses		3,514			183			3,697
Research and development expenses		933			-			933
Depreciation and amortization		413			(154	)		259
Special committee		1,632			-			1,632
Total operating expenses		8,679			121			8,800
Operating income		3,582			(1,447	)		2,135

Other expense, net:
Interest expense, net		(5	)		(3	)		(8	)
Foreign exchange transaction loss		(116	)		-			(116	)
Total other expense, net		(121	)		(3	)		(124	)

Income before provision for income taxes		3,461			(1,450	)		2,011
Income tax expense		1,422			(640	)		782
Net income	$	2,039		$	(810	)	$	1,229

Accrued preferred stock dividends		(89	)		-			(89	)
Net income attributable to common stockholders	$	1,950		$	(810	)	$	1,140

Earnings per share:
Basic	$	0.02		$	(0.01	)	$	0.01
Diluted	$	0.02		$	(0.01	)	$	0.01
Weighted average shares outstanding:
Basic		83,713			32,667			116,380
Diluted		122,371			(679	)		121,692

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

	As
	Previously						As
Condensed Consolidated Balance Sheet as of March 31, 2013	Reported			Adjustments			Restated
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	36,472			-		$	36,472
Accounts receivable, net		3,378			(1,749	)		1,629
Deferred commissions		-			2,066			2,066
Prepaid expenses and other current assets		1,270			52			1,322
Deferred tax assets		775			3,166			3,941
Total current assets		41,895			3,535			45,430

Property and equipment, net		4,811			299			5,110
Deferred tax assets		-			1,756			1,756
Intangible assets, net		181			(181	)		-
Security deposits		208			-			208
Other non-current assets		59			-			59
Total assets	$	47,154		$	5,409		$	52,563

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	933		$	-		$	933
Accrued expenses and other liabilities		3,087			2,415			5,502
Income taxes payable		1,127			(819	)		308
Deferred revenue		17,999			(144	)		17,855
Obligations under capital leases		703			1			704
Total current liabilities		23,849			1,453			25,302

Non-current liabilities:
Deferred revenue, less current portion		-			7,648			7,648
Obligations under capital leases, less current portion		1,428			21			1,449
Deferred tax liabilities		111			(81	)		30
Other non-current liabilities		198			52			250
Total non-current liabilities		1,737			7,640			9,377

Total liabilities		25,586			9,093			34,679

Redeemable preferred stock:
Series A convertible redeemable preferred stock		3,240			-			3,240

Stockholders' equity:
Common Stock		84			-			84
Additional paid-in capital		26,847			(53	)		26,794
Accumulated deficit		(8,617	)		(3,634	)		(12,251	)
Accumulated other comprehensive income		14			3			17
Total stockholders' equity		18,328			(3,684	)		14,644
Total liabilities, redeemable preferred stock and stockholders' equity	$	47,154		$	5,409		$	52,563

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Condensed Consolidated Statement of Cash Flows	As Previously						As
(in thousands)	Reported			Adjustments			Restated
Three Months Ended March 31, 2013

Cash flows from operating activities:
Net income	$	2,039		$	(810	)	$	1,229
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		413			(154	)		259
Share-based compensation		341			(1	)		340
Net deferred tax assets and liabilities		(132	)		(95	)		(227	)
Excess tax benefits realized from share-based compensation		(269	)		84			(185	)
Changes in operating assets and liabilities:
Accounts receivable		(360	)		273			(87	)
Deferred commissions		-			16			16
Prepaid expenses and other assets		(388	)		72			(316	)
Security deposits		-			17			17
Accounts payable and accrued expenses		1,183			336			1,519
Income taxes payable		-			(899	)		(899	)
Deferred revenue		418			1,150			1,568
Other		(80	)		95			15
Net cash provided by operating activities		3,165			84			3,249
Cash flows from investing activities:
Purchases of property and equipment		(149	)		-			(149	)
Proceeds from maturity of term deposit		105			-			105
Net cash used in investing activities		(44	)		-			(44	)
Cash flows from financing activities:
Payment of preferred stock dividend		(120	)		-			(120	)
Proceeds from exercise of stock options		74			-			74
Excess tax benefits realized from share-based compensation		269			(84	)		185
Payments of obligations under capital leases		(92	)		-			(92	)
Payments of obligations under software licensing agreements		(36	)		-			(36	)
Net cash used in financing activities		95			(84	)		11
Effect of exchange rates on cash and cash equivalents		(55	)		-			(55	)
Net increase in cash and cash equivalents		3,161			-			3,161
Cash and cash equivalents at beginning of period		33,311			-			33,311
Cash and cash equivalents at end of period	$	36,472		$	-		$	36,472

Supplemental disclosure of cash flow information:
Cash paid during the period for :
Interest	$	11		$	-		$	11
Income taxes	$	1,775		$	-		$	1,775
Supplemental disclosure of noncash investing and financing activities:
Capital contribution in lieu of preferred stock dividend	$	-		$	240		$	240
Property and equipment acquired under capital lease agreements	$	-		$	1,306		$	1,306

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Condensed Consolidated Statement of Income	As
(in thousands, except per share amounts)	Previously						As
Three Months Ended March 31, 2012	Reported			Adjustments			Restated

Revenues	$	8,214		$	(1,133	)	$	7,081
Cost of revenues (excluding depreciation and amortization)		2,165			(157	)		2,008
Gross profit		6,049			(976	)		5,073

Operating expenses:
Selling and marketing expenses		1,939			3			1,942
General and administrative expenses		1,509			168			1,677
Research and development expenses		474			-			474
Depreciation and amortization		228			(4	)		224
Total operating expenses		4,150			167			4,317
Operating income		1,899			(1,143	)		756

Other income, net:
Interest income, net		48			(6	)		42
Foreign exchange transaction gain		6			-			6
Total other income, net		54			(6	)		48

Income before provision for income taxes		1,953			(1,149	)		804
Income tax expense		53			142			195
Net income	$	1,900		$	(1,291	)	$	609

Accrued preferred stock dividends		(89	)		-			(89	)
Net income available to common stockholders	$	1,811		$	(1,291	)	$	520

Earnings per share:
Basic	$	0.02		$	(0.02	)	$	0.00
Diluted	$	0.02		$	(0.02	)	$	0.00

Weighted average shares outstanding:
Basic		81,806			32,667			114,473
Diluted		119,991			(370	)		119,621

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

	As
	Previously						As
Condensed Consolidated Balance Sheet as of December 31, 2012	Reported			Adjustments			Restated
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	33,311		$	-		$	33,311
Term deposit		103			-			103
Accounts receivable, net		3,018			(1,476	)		1,542
Deferred commissions		-			2,081			2,081
Prepaid expenses and other current assets		882			17			899
Deferred tax assets		643			3,296			3,939
Total current assets		37,957			3,918			41,875

Property and equipment, net		5,037			(1,124	)		3,913
Deferred tax assets		-			1,532			1,532
Intangible assets, net		217			(217	)		-
Security deposits		225			-			225
Other non-current assets		167			-			167
Total assets	$	43,603		$	4,109		$	47,712

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	222		$	-		$	222
Accrued expenses and other liabilities		2,615			2,350			4,964
Income taxes payable		1,640			(249	)		1,391
Deferred revenue		17,581			(609	)		16,972
Obligations under capital leases		702			-			702
Total current liabilities		22,760			1,490			24,251

Non-current liabilities:
Deferred revenue, less current portion		-			6,964			6,964
Obligations under capital leases, less current portion		1,522			(1,285	)		237
Deferred tax liabilities		111			(81	)		31
Other non-current liabilities		223			49			272
Total non-current liabilities		1,856			5,649			7,504

Total liabilities		24,616			7,139			31,755

Redeemable preferred stock:
Series A convertible redeemable preferred stock		3,233			-			3,233

Stockholders' equity:
Common Stock		84			-			84
Additional paid-in capital		26,259			(207	)		26,052
Accumulated deficit		(10,656	)		(2,824	)		(13,480	)
Accumulated other comprehensive income		67			1			68
Total stockholders' equity		15,754			(3,030	)		12,725
Total liabilities, redeemable preferred stock and stockholders' equity	$	43,603		$	4,109		$	47,712

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Condensed Consolidated Statement of Cash Flows	As Previously						As
(in thousands)	Reported			Adjustments			Restated
Three Months Ended March 31, 2012

Cash flows from operating activities:
Net income		1,900			(1,291	)		609
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		228			(4	)		224
Share-based compensation		222			-			222
Net deferred tax assets and liabilities		-			(31	)		(31	)
Changes in operating assets and liabilities:
Accounts receivable		189			141			330
Deferred commissions		-			(15	)		(15	)
Prepaid expenses and other assets		(298	)		29			(269	)
Security deposits		-			(35	)		(35	)
Accounts payable and accrued expenses		(887	)		120			(767	)
Deferred revenue		2,329			1,044			3,373
Other		(27	)		42			15
Net cash provided by operating activities		3,656			-			3,656
Cash flows from investing activities:
Purchases of property and equipment		(354	)		-			(354	)
Net cash used in investing activities		(354	)		-			(354	)
Cash flows from financing activities:
Payment of preferred stock dividend		(120	)		-			(120	)
Proceeds from exercise of stock options		17			-			17
Payments of obligations under capital leases		(28	)		-			(28	)
Payments of obligations under software licensing agreements		(36	)		-			(36	)
Net cash used in financing activities		(167	)		-			(167	)
Effect of exchange rates on cash and cash equivalents		46			-			46
Net increase in cash and cash equivalents		3,181			-			3,181
Cash and cash equivalents at beginning of period		8,931			-			8,931
Cash and cash equivalents at end of period		12,112			-			12,112

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		5			-			5
Income taxes		53			-			53
Supplemental disclosure of noncash investing and financing activities:
Capital contribution in lieu of preferred stock dividend		-			240			240

Tender of common stock in lieu of interest payment on note receivable from shareholder		200			-			200

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Special Committee

In December 2012, the Board of Directors of the Company appointed a Special Committee of independent directors to examine certain of Diligent's past stock issuances and stock option grants that may not have been issued in compliance with the relevant stock option and incentive plans. The Special Committee's members were not on the Board at the time of theissuance of suchgrants, were not involved in their issue, and are not the recipients of any option grants. The Special Committee was delegated broad powers from the Board to take all such action in respect of the issuances as it deemed necessary and advisable.

The Special Committee, assisted by attorneys in the U.S. and New Zealand, conducted a thorough review and analysis of all stock issuances and stock option grants during the relevant period. As discussed in Notes 7 and 9, the Special Committee found that three option awards exceeded the applicable plan caps on the number of shares covered by an award issued to a single recipient in a particular year. The Special Committee was delegated the authority to develop appropriate alternative compensation packages for the affected employees. These awards were determined by the Board to be reasonable compensation at the time, and were an important incentive component of the employees’ compensation packages.

As part of its work, the Special Committee also reviewed the Company's compliance with applicable regulations, including U.S. and New Zealand securities regulations and the NZSX Listing Rules. The Special Committee identified a number of instances where it appears that Diligent was not, or may not have been, in compliance with its U.S. and New Zealand regulatory obligations.

The Special Committee determined that these instances of non-compliance were inadvertent and attributable in part to the constrained resources of Diligent in a period of financial difficulty in the years following its listing on NZSX, and the complex regulatory and compliance obligations across multiple jurisdictions with differing regulations and requirements. It has recommended, and the Board fully endorses, that the Company work with its regulators to resolve these issues. It is possible that while Diligent seeks to work constructively with the regulators, that fines or penalties for non-compliance could be imposed (see Note 9 – Subsequent Events).

Costs for the Special Committee for the three months ended March 31, 2013 were $1.6 million, with an additional $0.3 million incurred in the fourth quarter of 2012. Included in Special Committee expenses are professional fees incurred for legal, accounting and compensation consultants, estimated NZX penalties and proposed compensation to be paid to Special Committee members. During the second quarter of 2013, the Special Committee was disbanded and the Company is in the process of implementing the recommendations of the Special Committee to remediate the compliance and internal control weaknesses identified. The Company incurred additional Special Committee expenses through the second quarter of 2013.

Significant accounting policies

Basis of presentation –The accompanying interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to SEC rules. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Amendment No. 2 to the Annual Report on Form 10-K/A of the Company for the year ended December 31, 2012.

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made by management include the deferral and recognition of revenue, the fair value of share-based compensation, accounting for income taxes, including the realization of deferred tax assets and uncertain tax positions, and the useful lives of tangible and intangible assets. Actual results could differ from those estimates.

Principles of consolidation – The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Cash and cash equivalents – The Company considers all highly liquid investments with original maturities of three months or less at the time of purchaseto be cash equivalents. The Company invests its excess cash primarily in bank and money market funds of major financial institutions. Accordingly, its cash equivalents are subject to minimal credit and market risk. At March 31, 2013, cash equivalents include investments in U.S. treasury bills of $7 million and U.S. treasury money market funds of $19 million, which are carried at cost which approximates fair value. The fair value of money market funds was determined by reference to quoted market prices. At December 31, 2012, cash equivalents include investments in U.S. treasury bills of $11 million and U.S. treasury money market funds of $13 million.

Term deposits – Term deposits are short-term investments with banks, with maturities greater than three months at inception.

Fair value of financial instruments – The fair value of the Company’s accounts receivable, accounts payable and accrued expenses and other liabilities approximates book value due to their short term settlements.

Revenue recognition– We derive our revenues primarily from subscription fees and installation fees, including training. We sell subscriptions to our cloud application that are generally one year in length. Our arrangements do not include a general right of return and automatically renew unless we are notified 30 days prior to the expiration of the initial term. Our subscription agreements do not provide the customer the right to take possession of the software that supports the application. Installation fees consist of the configuration of our service and training of our customers.

We commence revenue recognition when all of the following conditions are met;

There is persuasive evidence of the arrangement;

The service has been made available to the customer;

The fee is fixed or determinable; and

The collectability of the fees is reasonably assured.

We have determined that the installation fee does not have standalone value, so accordingly, we account for our arrangements as a single unit of accounting.

Revenue from our subscription service is recognized on a daily basis over the subscription term as the services are delivered. The service is considered delivered, and hence revenue recognition commences, when the customer has access to the Diligent Boardbooks product. Revenue is recorded ratably through the end of the contract period, which is generally twelve months from the contract date.

Installation fees paid by customers in connection with the subscription service are deferred and are recognized ratably over the expected lives of the customer relationships, generally nine years.

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

In estimating the expected customer relationship period, the Company looked to guidance on the determination of the useful life of an intangible asset for the appropriate factors to be considered in estimating expected customer life and specifically focused on its customer renewal rate. The Company’s customer contracts contain a standard “autorenew” feature which provides for one-year renewals unless either party provides written notice of termination. In addition, the Company’s renewal history with its customers has been and remains at very high rates. As a result, the Company believes that its customers will renew numerous times during their tenure with the Company and consequently have a very low annual attrition rate. As noted previously, after considering these factors, the Company determined that a nine year estimated customer life was appropriate.

Deferred Revenue –Deferred revenue represents installation and subscription fees for which cash has been received but for which the Company has not yet delivered its services or the criteria for the recognition of revenue have not yet been met. Deferred revenues presented in the consolidated balance sheet do not include amounts receivable (both billed and unbilled) for executed subscription agreements for which the Company has not yet received payment.Accordingly, the deferred revenue balance does not represent the total contract value of annual, non-cancelable subscription agreements.

Long term deferred revenue consists of installation fees that will be recognized over the estimated life of the customer relationship, generally nine years. Installation fees expected to be recognized within the next 12 months of the balance sheet date are included in the current portion of deferred revenue.

Accounts receivable –The Company generally invoices its customers on an annual or quarterly basis. Accounts receivable represents amounts due from our customers for which revenue has been recognized. A provision for doubtful accounts is recorded based on management’s assessment of amounts considered uncollectable for specific customers based on age of the receivable, history of payments and other relevant information. At each of March 31, 2013 and 2012, the Company has recorded a provision for doubtful accounts of $100 thousand.

Research and development – Research and development expenses are incurred as the Company upgrades and maintains the Diligent Boardbooks software, and develops product enhancements. Such expenses include compensation and employee benefits of engineering and testing personnel, materials, travel and direct costs associated with the design and required testing of the product line. The Company does not allocate indirect overhead to research and development. Direct development costs related to software enhancements that add functionality have been expensed as incurred as the Company has not historically maintained sufficiently detailed records of its development efforts to be able to capitalize such costs.

Share-based compensation – The Company measures the cost of employee services received in exchange for an equity-based award using the fair value of the award on the date of the grant, and recognizes the cost over the period that the award recipient is required to provide services to the Company in exchange for the award.

The Company measures compensation cost for awards granted to non-employees based on the fair value of the award at the measurement date, which is the date performance is satisfied or services are rendered by the non-employee.

Earnings per share –Basic earnings per share is computed by dividing the net income attributable to common stockholders, after deducting accrued preferred stock dividends, by the weighted average number of common and preferred shares outstanding for the period. The basic earnings per share calculation has been corrected as the weighted average shares outstanding used to compute basic earnings per share has historically excluded the outstanding convertible preferred stock. The preferred stockholders are entitled to participate on an as converted basis in any dividend on the Company’s common stock, and as such are considered participating securities to which earnings should be allocated using the two-class method.

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock, unless the effect is anti-dilutive. All stock options and convertible redeemable preferred stock were included as potential dilutive securities for all periods applicable.

The computation of shares used in calculating basic and diluted earnings per common share are as follows:

	Three months ended March 31,
	2013		2012
	(in thousands)
Basic weighted average common shares outstanding		83,713		81,806
Basic weighted average preferred shares outstanding		32,667		32,667
Basic weighted average shares outstanding		116,380		114,473
Dilutive effect of stock options		5,312		5,148
Diluted weighted average shares outstanding		121,692		119,621

Recent accounting pronouncements– In February 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which requires disclosure of significant amounts reclassified out of accumulated other comprehensive income by component and their corresponding effect on the respective line items of net income. This guidance was effective for the Company beginning January 1, 2013 and had no impact on the Company’s condensed consolidated financial statements.

Obligations Under Capital Leases

During the quarter the Company entered into two capital leases for computer equipment and software which mature on February 2016. The leases have a total obligation of $1.3 million and bear interest rates of 5.449% and 3.804%, with monthly payments of $28 thousand and $14 thousand, respectively.

Fair Value of Financial Instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants. As of March 31, 2013 and December 31, 2012, the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses and other liabilities approximated fair value due to the short-term nature of these instruments. ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for input into valuation techniques as follows:

i.	Level 1 input - unadjusted quoted prices in active markets for identical instrument;

ii.

Level 2 input - observable market data for the same or similar instrument but not Level 1, including quoted prices for identical or similar assets or liabilities in markets that are active or not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

iii.	Level 3 input - unobservable inputs developed using management's assumptions about the inputs used for pricing the asset or liability.

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Level 2 inputs were utilized to determine the fair value of the Company’s investments in U.S. treasury bills, U.S treasury money market funds, and term deposits. Due to the short-term nature of these investments, which mature between 90 days and 365 days, amortized cost is used to estimate the fair value. At March 31, 2013, cash equivalents include investments in U.S. treasury bill of $7 million and U.S. treasury money markets of $19 million, which are carried at cost, which approximates fair value. At December 31, 2012, cash equivalents include investments in U.S. treasury bills of $11 million and U.S. treasury money market funds of $13 million. At December 31, 2012, the Company had a term deposit with a New Zealand bank with an initial term of 365 days. The term deposit in the amount of NZD125 thousand (US$103 thousand) bore interest at 4.4% and matured March 15, 2013. Upon maturity, the principal was reinvested in a term deposit with a term of 31 days, which has been included in cash and cash equivalents on the March 31, 2013 condensed consolidated balance sheet.

Redeemable Preferred Stock

On March 11, 2009, the Company issued 30 million shares of Series A Preferred Stock at $0.10 per share in a private offering, for aggregate gross proceeds of $3.0 million. Expenses relating to the preferred stock issuance were $139 thousand.

The carrying value of the Preferred Stock at March 31, 2013 and December 31, 2012 is as follows:

	March 31,			December 31,
	2013			2012
	(in thousands)
Gross proceeds	$	3,000		$	3,000
Less: Issuance costs		(139	)		(139	)
		2,861			2,861
Dividends paid by issuance of paid-in-kind shares		267			267
Cumulative amortization of issuance costs		112			105
Balance	$	3,240		$	3,233

The Preferred Stock carries a fixed, cumulative, dividend of 11% per annum (adjusted for stock splits, consolidation, etc). The dividend, which is due on the first business day of each calendar year for the prior year, may (at the Company’s option) be paid either in cash or in kind by the issuance of additional Preferred Stock (paid-in-kind Shares), to be issued at the same issue price as the Series A Preferred Stock of $0.10 per share. The 11% annual dividend on the Preferred Stock will have preference over the declaration or payment of any dividends on the Company’s common stock. In addition to the 11% preferred dividend, the holders of the Preferred Stock will also be entitled to participate pro rata in any dividend paid on the Company’s common stock.

In 2013, the Company anticipates that accumulated unpaid dividends will be paid in cash on the Series A Preferred Stock. Accordingly, preferred stock dividends of $89 thousand for the three months ended March 31, 2013 are included in accrued expenses.

Spring Street Partners, L.P., a holder of the Series A Preferred Stock, waived its right to the preferred stock dividend payable on January 1, 2013 of $240 thousand. This was recorded as a capital contribution in 2013 when waived. The founder and managing partner of Spring Street Partners, L.P. is also the Chairman of the Board of Directors of the Company and the holder of 4.2 million shares of common stock of the Company.

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Stock option and incentive plan

As discussed in Note 3, in December of 2012 the Company’s Board of Directors authorized a Special Committee of independent directors to conduct a review of certain of the Company’s past stock issuances and stock option grants to determine whether they were in accordance with the relevant incentive plans. The Special Committee found that three option awards exceeded the applicable plan caps on the number of shares covered by an award issued to a single recipient in a particular year. Specifically, a 2009 award to the chief executive officer exceeded the cap in the 2007 Plan by 1.6 million shares, a 2011 award to the chief executive officer exceeded the cap in the 2010 Plan by 2.5 million shares, and a 2011 award to another officer exceeded the cap in the 2010 Plan by 250 thousand shares.

On April 15, 2013, the Company announced that the Board of Directors approved a term sheet for an incentive compensation package to be provided to the Company’s Chief Executive Officer in substitution for certain awards that will be cancelled, subject to stockholder approval of the terms of the substitute incentive compensation package and a new incentive plan (see Note 10, Subsequent events). The information below includes the stock options which the Company intends to cancel, because they are outstanding at March 31, 2013, and alternate compensation arrangements had not yet been approved by the stockholders of the Company at March 31, 2013.

A summary of stock option activity for the quarter ended March 31, 2013 is as follows:

	Options			Weighted average exercise price		Weighted average remaining contractual term
	(in thousands)
Outstanding at January 1, 2013		8,318		$	0.85	7.82 years
Granted		-
Exercised		(190	)		0.39
Forfeited		-
Outstanding at March 31, 2013		8,128			0.86	7.58 years
Exercisable at March 31, 2013		3,503			0.16	6.39 years

Total share-based compensation expense recognized for the three months ended March 31, 2013 and 2012 was $340 thousand and $222 thousand, respectively. At March 31, 2013 there was $2.8 million of unrecognized share-based compensation expense related to options granted that will be recognized over the next 5.25 years. Such amount does not include any impact of the alternative compensation package for the Company’s CEO.

Income taxes

Income tax expense is provided on an interim basis based upon management’s estimate of the annual effective tax rate. The income tax provision for the three months ended March 31, 2013 provides income taxes at an effective rate of 39%. The effective rate in 2012 of 24% was significantly lower due to the expected utilization of approximately $5.3 million of net operating loss carryforwards against which the Company had previously recorded a valuation allowance, as discussed further below.

Section 382 of the U.S. Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that can be used to offset taxable income when a corporation has undergone significant changes in stock ownership. During the second quarter of 2012, the Company completed its Section 382 study and determined that, due to changes in stock ownership in prior years, certain of its net operating loss carryforwards would be limited. This limitation resulted in $5.3 million of net operating loss carryforwards being available to offset taxable income in 2012. Beginning in 2013, the Company’s annual net operating loss carryforward is subject to a limitation of approximately $350 thousand to offset expected taxable income until expiration of the carryforwards. Based on this limitation, the Company expects that approximately $4.9 million of its total net operating loss will expire unutilized in 2029. A full valuation allowance had previously been provided on the related deferred tax asset, and therefore the deferred tax asset and valuation allowance relating to the net operating loss carryforwards expected to expire unutilized were written off during 2012.

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company and its subsidiaries are subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. The Company’s U.S. federal and state income tax returns for the tax years 2010 and forward are open for examination by the taxing jurisdictions. The Company’s foreign income tax returns are open for examination by the local taxing jurisdictions for the following years: New Zealand – 2009 and forward; U.K. – 2010 and forward; Australia – 2012.

10)

Subsequent events

Diligent Board Member Services, Inc. 2013 Incentive Plan.

On May 3, 2013, the Board adopted the Diligent Board Member Services, Inc. 2013 Incentive Plan (the “Plan”), which was approved by the Company’s stockholders in June 2013 at the Company’s Annual Meeting. An aggregate of 8,500,000 shares of the Company’s common stock may be issued pursuant to the Plan to employees, directors and consultants of the Company and its affiliates. Of the shares available under the Plan, 4,100,000 will be utilized in connection with the replacement incentive awards issued in accordance with the CEO Substitute Remuneration Package discussed below. The Board has resolved to discontinue use of the Company’s 2007 Stock Option and Incentive Plan and the 2010 Stock Option and Incentive Plan.

Awards under the Plan may be made in the form of stock options (which may constitute incentive stock options or nonqualified stock options), share appreciation rights, restricted shares, restricted share units, performance awards, bonus shares and other awards. In addition, certain awards under the Plan may be denominated or settled in cash, including performance awards.

Approval of 2013 Remuneration and Subsequent Calendar Years.

The Nominations Committee recommended to the Board and the Board and the Company’s stockholders have approved a remuneration package for non-executive directors for the 2013 fiscal year (the “New Remuneration Package”). The New Remuneration Package is intended to ensure that the Company remains competitive with its peer companies and is able to continue to compete for director talent, including in the U.S. market. The New Remuneration Package consists of both a cash component, designed to compensate members for their service on the Board and its Committees, and an equity component designed to align the interests of directors with Diligent’s stockholders. The total value of the New Remuneration Package for standard board service will be $130 thousand per annum, $50 thousand of which will be payable in cash.

The Company’s non-executive directors, other than the chairman of the Board, will receive a stock grant for 2013 service with a total value of $80 thousand, which will be paid to such non-executive directors in equal installments at the end of each quarter of the calendar year. As of June 30, 2013 no shares have been issued to the non-executive directors as their issuance has been deferred until the earlier of the date on which the Company files a Registration Statement on Form S-8 with the Securities and Exchange Commission and March 15, 2014. On March 14, 2014, the Company issued 86,497 restricted shares to its directors based on the volume weighted average trading price of our common stock on our primary trading market for the 20 trading days immediately prior to such date, and was pro-rated for any director who served on the Board for less than the full calendar year.

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Board believes that including a significant equity compensation component in the New Remuneration Package will align the interests of directors with those of stockholders and better reflects the practice for director remuneration in the U.S. for directors of software and technology companies. With a view to seeing that any equity component of directors’ remuneration complies with the NZSX Rules, common stock grants will only be issued after the end of each quarter of the calendar year to which Board service relates and the number of shares issued for each period of service will be determined in accordance with the provisions of the NZSX Rules. The Nominations Committee has also recommended that directors who are committee members receive additional cash compensation. Previously, committee members were not paid an additional fee for their work on a committee. At the 2013 Annual Meeting, stockholders approved the aggregate monetary sum per annum which may be paid to the Company’s non-executive directors.

CEO Substitute Remuneration Package.

On December 23, 2013, the Company and the Company’s chief executive officer entered into an Amendment to Replacement Grant Agreement which finalized the terms of the incentive compensation package provided to the Company’s CEO in substitution for certain awards that would be cancelled, as described in Note 8.

Under the terms of the Amendment to Replacement Grant Agreement, on December 23, 2013 (the “Grant Date”) the CEO’s fully vested option to purchase 2.4 million shares of the Company’s common stock for an exercise price of U.S. $0.14 per share was cancelled to the extent it was in excess of the applicable plan cap, consisting of 1.6 million of such shares. In exchange for the cancellation of the relevant portion of the award, the CEO received:

An option to purchase 1.6 million shares of common stock having an exercise price of U.S. $2.79, which was the Company’s closing price per share expressed in U.S. dollars on the last trading day on the NZSX immediately prior to the Grant Date (the “Exercise Price”) of December 23, 2013. The option vested on December 31, 2013, and will have a term of ten years from the Grant Date.

A performance cash award of U.S. $4.2 million, determined based on 1.6 million multiplied by the excess of the Exercise Price of U.S. $2.79 over U.S. $0.14. The CEO’s right to receive such cash award is contingent on the Company achieving revenue growth of at least 7% during the twelve month period ended June 30, 2014 and his continued employment through such date. Any cash award, once earned, will be paid in three equal annual installments in 2014, 2015 and 2016, or, if earlier, upon a change in control of the Company or the CEO’s separation from service. Any payment due on any installment date will be proportionally reduced if the sum of the Company’s stock price plus dividends for a measurement period prior to each payment date falls below 75% of the Exercise Price.

In addition, the CEO held an option to purchase 3 million shares of the Company’s common stock for an exercise price of U.S. $0.82 per share, which remains subject to vesting. Under the terms of the Amendment to Replacement Grant Agreement, the Company cancelled the portion of such option in excess of the applicable plan cap, consisting of 2.5 million of such shares. In exchange for the cancellation of the relevant portion of the award, the CEO received:

Performance share units for 2.25 million shares of common stock contingent on the Company achieving revenue growth of at least 7% during the twelve month period ended June 30, 2014. For purposes of clarification, performance share units in this context are units of common stock issued to the CEO upon satisfaction of the performance criteria outlined herein. Once earned, the award will vest in four equal installments based on continued employment, commencing June 30, 2015, with full vesting occurring on June 30, 2018. The delivery dates for the vested performance shares will be 50% in 2018 and 50% in 2019 or, if earlier, on a change in control of the Company or the CEO’s separation from service.

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Performance share units for up to 250 thousand shares of common stock contingent on the Company achieving either at least 15% fully diluted EPS growth (adjusted to exclude stock-based compensation expense and extraordinary items) or 15% total stockholder return (“TSR”) growth in four one-year measurement periods beginning April 1, 2013. TSR growth will be measured based on the Company’s stock price performance during the 20 trading days prior to the relevant measurement date. Performance share units for 62.5 thousand shares of common stock will be earned in each year for which the applicable target is met, with the additional opportunity to earn such shares at the end of the four year performance period if the cumulative fully diluted EPS growth or TSR growth meet the cumulative performance target. The delivery dates for the vested performance shares will be in 2018 or, if earlier, upon a change in control of the Company or the CEO’s separation from service.

The vesting of the options, performance cash award and performance stock units described above will be subject to certain acceleration provisions in the event of a change in control of the Company, upon death or disability or if the CEO is terminated without cause or resigns for good reason.

The Company expects to record compensation expense of $2.9 million in the second half of 2013 relating to the replacement award. The replacement award is expected to result in compensation cost of $3.1 million in 2014, $0.7 million in 2015, $0.4 million in 2016, $0.2 million in 2017 and $0.1 million in 2018.

NZSX Listing Rules Settlement.

On September 6, 2013 New Zealand Daylight Time, the Company issued an announcement relating to the approval by the NZ Markets Disciplinary Tribunal of a settlement reached by the Company and the New Zealand Stock Exchange regarding the previously disclosed breaches of the NZSX Listing Rules by the Company. The settlement provided for the payment of fines and costs by the Company, consisting of NZ $15 thousand as a penalty to the NZX Discipline Fund and NZ $4 thousand towards the costs of NZXR.

Audit Committee Investigation

On July 2, 2013 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 was 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. The early inclusion of such contracts did not have a material impact on previously reported revenue for fiscal quarters including the first quarter of 2010 through the first quarter of 2013. The Audit Committee investigation resulted in no finding of intentional misconduct or fraud.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Explanatory Note” at the beginning of this report and our condensed consolidated financial statements and related notes that appear elsewhere in this 10-Q Amendment. This discussion contains a number of forward-looking statements, all of which are based on our current expectations and all of which could be affected by uncertainties and risks. Our actual results may differ materially from the results contemplated in these forward-looking statements as a result of many factors including, but not limited to, those described under “Risk Factors” in Part II, Item 1A of this Form 10-Q/A.

Restatement

The following management’s discussion and analysis reflects a restatement of our condensed consolidated balance sheets as of March 31, 2013 and December 31, 2012 and the condensed consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the three months ended March 31, 2013 and 2012 in Part I, Item 1 of this Form 10-Q/A.

We have made the following corrections to our historical financial statements in connection with the restatement:

We have concluded that revenue recognition of our subscription fees for our Diligent Boardbooks service should not commence until the date the service is made available to the customer, as determined by the date the customer has full access to the product. Our historical practice was to consider the contract date to be the service commencement date, and to begin revenue recognition as of the beginning of the month in which the contract date falls. We have corrected recognition of revenue to prorate revenue on a daily basis starting on the date at which access is provided, which is generally later than the contract date. Additionally, we have concluded that installation fees charged for initial set-up of our product and training should be recognized ratably over the expected life of the customer relationship, which is estimated to be nine years, rather than over the initial contract period, generally one year, as had been our historical practice. The effect of correcting these two errors was to reduce previously reported revenue and increase previously reported deferred revenue by $1.4 million and $1.1 million for the three months ended March, 2013 and 2012, respectively.

The Company previously recorded sales commissions earned by account managers by recognizing them immediately in the period earned. In order to more appropriately match expenses with the related revenue and to be consistent with how the Company recognizes commissions for its sales staff, the Company has changed the method of recognizing commission expense for account management personnel, by amortizing commissions over the related contract period, generally twelve months. The effect of correcting this error decreases commissions by $99 thousand and $157 thousand for the three months ended March 31, 2013 and 2012, respectively. In addition, the Company historically netted deferred commissions against accrued expense. Deferred commissions are now presented as a separate line item on the condensed consolidated balance sheet as “Deferred Commissions”.

The changes in the Company’s income before provision for income taxes resulting from the adjustments discussed in the above paragraphs also impacted the provision for income taxes throughout each of the periods subject to restatement. In addition, we made corrections to our provision for income taxes for each of the periods subject to the restatement to correct for errors in the calculation of our NOL limitation under Section 382 of the Internal Revenue Code, state tax apportionment factors, uncertain tax positions and other tax matters. Accordingly, throughout each of the periods subject to restatement, we have restated our provision for income tax and related deferred tax assets and liabilities.

The basic earnings per share calculation has been corrected as the weighted average shares outstanding used to compute basic earnings per share has historically excluded the convertible preferred stock outstanding. The preferred stockholders are entitled to participate on an as converted basis in any dividend on the Company’s common stock, and as such are considered participating securities to which earnings should be allocated. The preferred stock should have been considered in the calculation of earnings per share in all periods in which the Company had net income.

In general, the restatement had the effect of shifting revenue and profits from the periods covered by this 10-Q/A to future periods:

The following items are not affected by the restatement:

•

The restatement does not call into question the existence of our total previously reported revenue but does change the time period over which such previously reported amounts will be recognized as revenue.

•

The restatement does not impact actual cash received or the previously reported cash balance as of March 31, 2013 and December 31, 2012, respectively.

Because the following discussion and analysis of our financial condition and results of operations incorporates the restated amounts, the data set forth in this section may not be comparable to discussion and data in our previously filed Quarterly Report. See “Restatement of condensed consolidated financial statements” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 for a detailed discussion of the effect of the restatement.

Overview

The Company develops and makes available an online software application called Diligent Boardbooks^®, a web-based portal that board members, management and administrative staff use to compile, update, review and archive board materials before, during and after board meetings. The Company provides clients with subscription-based access to its software and also provides associated services including securely hosting the client’s data, and customer service and support for the application.

Our goal is to help companies streamline the creation and delivery of board materials through an easy-to-use and secure online software platform. Key elements of our strategy include:

Strengthening the existing product and offering new functionality,

Further building our existing client base through geographic expansion and new client acquisition,

Deepening relationships with existing client base, and

Minimizing client cancellations by offering superior customer service and support.

The Company uses the Software-as-a-Service (“SaaS”) model to distribute its Diligent Boardbooks application to the market and maintain the security and integrity of its clients’ data. Under this model, the Company offers annual renewable subscriptions for client access to its Diligent Boardbooks product which is hosted on the Company’s secure servers, and offers a complete suite of related services including training, support, data migration and data security/backup.

The SaaS model allows the Company to differentiate itself through technological innovation and client service while the subscription billing approach results in a predictable and recurring revenue stream. This SaaS model also allows clients to retain control over access to the application while outsourcing to the Company the support activities, such as managing the IT infrastructure and maintaining the software.

The Company’s SaaS model addresses several difficulties found in the traditional software model and offers the following critical advantages for our company:

•

Highly scalable operations.Because our clients’ boards do not ordinarily meet on a daily or monthly basis, our system has the capability to support many more Boards without absorbing increased costs associated with customer growth.

•

Better revenue visibility.By offering renewable annual subscriptions instead of one-time perpetual licenses, the Company has much better revenue foresight. This high revenue visibility allows the Company to undertake much better planning and budgeting, with significant advantages for corporate strategy and profitability.

•

Lower cost of development.The Companyhas developed an application that is cost-effectively shared across thousands of end users. This is considerably less expensive than developing all the permutations (data bases, operating systems, etc) needed by clients who want to run the software on their own premises. These economies allow the Company to spend resources on developing increased functionalities for its Diligent Boardbooks application instead of on creating multiple versions of the same code.

•

Longer corporate life.The SaaS model has a long tail of recurring revenue that reduces investment risk, simplifies corporate planning and leads to extended corporate life.

•

Optimal expense planning.Because of the recurring nature of the SaaS model our revenue is more predictable and that allows the Company to better plan expenses.

We began developing components of the Diligent Boardbooks system starting in 1998, culminating in the roll-out of an international sales force in 2007.

On December 12, 2007 we completed an offshore public offering of 24,000,000 shares of our common stock in conjunction with a listing of our stock on the New Zealand Stock Exchange under the symbol “DIL.” As a result, the Company is subject to the regulation and reporting requirements imposed by the New Zealand Stock Exchange, the Securities Act of 1978 (NZ), the Securities Markets Act of 1988 (NZ) and the Financial Reporting Act of 1993 (NZ). There is no United States established public trading market for our common stock. However, the Company is also subject to the U.S. reporting and regulatory requirements of the Securities and Exchange Commission (“SEC”) and the Securities Exchange Act of 1934. Because of this dual regulation in New Zealand and the U.S., the Company is required to meet both standards, which means the Company sometimes is faced with conflicting requirements and always must comply with the more stringent rule.

Critical Accounting Policies and Estimates

The 10-K Amendment filed concurrently with this Form 10-Q Amendment contains an updated description of our critical accounting policies after giving effect to our revenue recognition review and restatement. There have been no material changes to our critical accounting policies as described in the 10-K Amendment.

The Company also discloses gross deferred revenue which consists of deferred revenue, as defined above, and installation and subscription fees which have been billed to the customer pursuant to an executed subscription agreement, but for which payment has not yet been received and the criteria for the recognition of revenue has not yet been met.As a result of our subscription-based model and historically high renewal rates, at the end of any period, we generally have subscription contracts in place for a high percentage of our total revenues for the next 12 months and therefore we believe it is useful to the users of our condensed consolidated financial statements to disclose gross deferred revenues.

Accounts receivable – The Company generally invoices its customers on an annual or quarterly basis. Accounts receivable represents amounts due from our customers for which revenue has been recognized. A provision for doubtful accounts is recorded based on management’s assessment of amounts considered uncollectable for specific customers based on age of the receivable, history of payments and other relevant information. At each of March 31, 2013 and 2012, the Company has recorded a provision for doubtful accounts of $100 thousand. The Company also discloses gross accounts receivable which consists of all billings to customers for installation and subscription fees.

The reconciliation from gross to net for accounts receivable and deferred revenue is as follows:

The reconciliation of gross accounts receivable and deferred revenue to net accounts receivable and deferred revenue at March 31, 2013, is as follows:

	Gross		Adjustment (1)			Net
	(in thousands)
Accounts receivable, net	$	10,578		(8,949	)	$	1,629

Deferred revenue - current	$	26,804		(8,949	)	$	17,855
Deferred revenue - less current portion	$	7,648		-		$	7,648
Total deferred revenue	$	34,452		(8,949	)	$	25,503

The reconciliation of gross accounts receivable and deferred revenue to net accounts receivable and deferred revenue at December 31, 2012, is as follows:

	Gross		Adjustment (1)			Net
	(in thousands)
Accounts receivable, net	$	12,299		(10,757	)	$	1,542

Deferred revenue - current	$	27,729		(10,757	)	$	16,972
Deferred revenue - less current portion	$	6,964		-		$	6,964
Total deferred revenue	$	34,693		(10,757	)	$	23,936

(1) Represents installation and subscription fees which have been billed to customers but for which payment has not been received and the criteria for revenue recognition has not been met.

Recent Accounting Pronouncements

See Note 4 to the condensed consolidated financial statements at Item 1 of this Form 10-Q Amendment.

Results of Operations for the Three Months Ended March 31, 2013 and 2012

	Three months ended March 31,				Increase /
	2013		2012		(Decrease)		% Change
	(in thousands)
Revenues	$	13,708	$	7,081	$	6,627		94	%

The growth in total revenues of 94% for the first quarter of 2013 when compared with the first quarter of 2012 is primarily the result of the increase in new subscription agreements, as well as our client retention rate of 97% for the trailing twelve months ended March 31, 2013. The Company has continued to add subscription agreements each quarter since inception. At March 31, 2013, the total number of client agreements (net of cancellations) was 2,009, compared with 1,808 at December 31, 2012, and 1,231 at March 31, 2012. A net of 201 new subscription agreements were added during the first quarter of 2013, compared with 205 added in the first quarter of 2012. Sales increased in all of our major regions, with North America accounting for 65% of the dollar value of new subscriptions added in the first quarter, EMEA (Europe, Middle East and Africa) accounting for 25% and the remaining 10% from Asia/Pacific. Additionally, upgrades in the first quarter of 2013, which consist of the addition of users by existing clients, increased 29% over the first quarter of 2012, based on the dollar value added to existing annual contracts.

The Company recognizes subscription revenue ratably over the contract period, which is generally twelve months. Accordingly, the full impact of the growth in subscription agreements will be recognized over the next twelve months.

Cost of Revenues and Operating Expenses

	Three months ended March 31,						Increase /
	2013			2012			(Decrease)		% Change
	(in thousands)
Cost of Revenues (excluding depreciation and amortization)	$	2,773		$	2,008		$	765		38	%
% of Revenues		20	%		28	%

Cost of revenues is comprised of account management, customer support and information technology services. The increase in costs of revenues is predominantly due to the increase in headcount to service the Company’s larger client base. Worldwide, employee salaries and incentive pay increased by $0.7 million, consisting of $0.4 million in account management, $0.1 million in customer support and $0.2 million in IT services. Hosting costs increased by $0.1 million due to the opening of an additional hosting center and the increase in capacity at our existing centers. These increases were offset by a decrease in recruiting costs of $0.1 million. Included within these increases are higher costs in the U.K. of $0.1 million and Australia of $0.1 million, as a result of the increase in European account management, customer support and information technology services staff and the commencement of operations in Australia in 2012 and growth in 2013.

Cost of revenues increased at a lower rate than revenues, resulting in an increase in the gross profit margin to 80% for the first quarter of 2013, compared with 72% for the first quarter of 2012.

	Three months ended March 31,						Increase /
	2013			2012			(Decrease)		% Change
	(in thousands)
Selling and Marketing	$	2,279		$	1,942		$	337		17	%
% of Revenues		17	%		27	%

Selling and marketing expenses consist of $1.6 million of selling expense and $0.7 million of marketing expense. The net increase is comprised of a decrease in selling expenses of $0.1 million, offset by an increase in marketing expenses of $0.4 million. The decrease in selling expense is primarily a result of a decrease in U.S. sales commissions, as our new sales in the U.S. have declined slightly.

The increase in marketing expenses of $0.4 million consists of $0.2 million in the U.S. and $0.2 million in the U.K. The Company has significantly increased its marketing initiatives in both the U.S. and the U.K. The Company expects to further increase its marketing expense during the remainder of 2013.

	Three months ended March 31,						Increase /
	2013			2012			(Decrease)		% Change
	(in thousands)
General and Administrative	$	3,697		$	1,677		$	2,020		120	%
% of Revenues		27	%		24	%

The increase in general and administrative expenses of $2.0 million is comprised of increases of $1.5 million in the U.S., $0.3 million in the U.K., $0.1 million in New Zealand and $0.1 million in Australia. The U.S. increase consists of $0.4 million relating to salaries and bonuses for the Company’s executive officers and employees, and an increase of $0.5 million in professional fees resulting from increased compliance costs as a result of remediation measures taken to correct certain inadvertent regulatory non-compliance discussed further in Part I, Item 4 of this 10-Q Amendment. Other increases include: MIS (management information systems) expenses of $0.4 million; share-based compensation of $0.1 million; Directors fees and expenses of $0.1 million, due to the expansion of the Board of Directors; and occupancy costs of $0.1 million.

The increase in the U.K. is due to the expansion of the Company’s European operations, and consists principally of an increase in employee costs, including salaries and bonuses and additional support staff. The increase in Australia is due to the commencement and growth of operations during 2012, and the New Zealand increase is a result of an increase in salaries, occupancy and recruiting expenses.

We anticipate that general and administrative expenses will increase going forward due to the implementation of remedial measures to improve our internal controls and compliance with applicable regulatory requirements, the restatement and re-audits of prior years, as discussed in Part I, Item 4 of this Quarterly Report on Form 10-Q/A, and as a result of the modification of the incentive compensation package for the Company’s CEO, as discussed further in Notes 3, 8 and 10 of the condensed consolidated financial statements.

	Three months ended March 31,					Increase /
	2013			2012		(Decrease)		% Change
	(in thousands)
Special committee expenses	$	1,632		$	-	$	1,632		N/A
% of Revenues		12	%

The Company’s Board of Directors authorized and empowered a Special Committee of independent directors to conduct a review of the Company’s past stock issuances and stock option grants to determine if they were in accordance with the relevant incentive plans. As a result of the review, the Special Committee identified a number of instances of inadvertent non-compliance with applicable regulations, and determined that certain executive’s options were inadvertently issued in excess of applicable plan caps. Included in Special Committee expenses are professional fees incurred for legal, accounting and compensation consultants, estimated NZX penalties and proposed compensation to be paid to Special Committee members. During the second quarter of 2013, the Special Committee was disbanded and the Company is in the process of implementing the recommendations of the Special Committee to remediate the compliance and internal control weaknesses identified. The Company expects that there will be additional Special Committee expenses through the second quarter of 2013.

	Three months ended March 31,						Increase /
	2013			2012			(Decrease)		% Change
	(in thousands)
Research and Development	$	933		$	474		$	459		97	%
% of Revenues		7	%		7	%

The increase in research and development expenses is primarily due to increased staffing. In the first quarter of 2013, the Company hired an additional seven people in research and development, the majority being added to the New Zealand team for product upgrades and enhancements. The Company maintains a small research and development department at its New York headquarters, which also had a small increase in headcount. Worldwide, labor costs in the first quarter of 2013 were $0.3 million higher than the first quarter of 2012, while the remaining increase is due to travel, recruiting and consulting.

The Company expects to increase its investment in research and development over the remainder of 2013.

	Three months ended March 31,						Increase /
	2013			2012			(Decrease)		% Change
	(in thousands)
Depreciation and Amortization	$	259		$	224		$	35		16	%
% of Revenues		2	%		3	%

The increase in depreciation and amortization is attributable to the net increase in property and equipment, consisting principally of computer equipment and computer software.

	Three months ended March 31,						Increase /
	2013			2012			(Decrease)			% Change
	(in thousands)
Interest Income (Expense), net	$	(8	)	$	42		$	(50	)		-119	%
% of Revenues		-0.1	%		1	%

Interest income, net, includes interest on the Company’s cash and cash equivalents and term deposits which are interest-bearing, offset by interest expense on capital lease obligations. In 2012, it also includes interest income on a note receivable from our predecessor entity and shareholder, which was repaid in August of 2012. The decrease in net interest income (expense) is attributable to the decrease in interest income due to the repayment of the note in 2012. This decrease more than exceeded the increase in interest earned on the Company’s cash held in interest-bearing accounts. Additionally, interest expense on the Company’s capital lease obligations increased as a result of the addition of new leases in 2013.

	Three months ended March 31,						Increase /
	2013			2012			(Decrease)
	(in thousands)
Foreign Exchange (Loss) Gain	$	(116	)	$	6		$	(122	)
% of Revenues		-0.8	%		0.1	%

The Company’s U.S. and foreign operations have transactions with clients and suppliers denominated in currencies other than their functional currencies, and the U.S. parent company has transactions with its foreign subsidiaries in the subsidiaries’ functional currencies which create foreign currency intercompany receivables and payables. Additionally, the U.S. parent company maintains a portion of its cash balances in foreign currencies, primarily the Canadian dollar (CAD), the New Zealand dollar (NZD), the British Pound (GBP) and the Australian dollar (AUD). Foreign exchange transaction gains and losses arise on the settlement of foreign currency transactions at amounts different from the recorded amounts, and the measurement of the unrealized foreign currency gains and losses in the related assets and liabilities at the end of the period. The net gain or loss is an accumulation of the effects of the foregoing transactions. The loss in the first quarter of 2013 is due to strengthening of the U.S. dollar against the GBP which caused losses on the settlement of intercompany receivables and on cash held in GBP.

	Three months ended March 31,						Increase /
	2013			2012			(Decrease)
	(in thousands)
Income Tax Expense	$	782		$	195		$	587
Effective Tax Rate		38.9	%		24.2	%

Income tax expense increased significantly, as the Company has become profitable and is now subject to tax in multiple jurisdictions. The overall effective tax rate of 39% is lower than the combined U.S. statutory rate for federal, state and local taxes due to lower tax rates in foreign jurisdictions. The significant increase in the Company’s effective tax rate is due to the utilization of a substantial portion of its net operating loss carryforwards in 2012 (on which a valuation allowance had previously been provided) and the annual limitation on future utilization of net operating loss carryforwards imposed by Section 382 of the U.S. Internal Revenue Code.

Liquidity and Capital Resources

At March 31, 2013, the Company’s sources of liquidity consist of cash and cash equivalents of approximately $36.5 million. The Company previously had a $1.0 million revolving line of credit facility with a related party which expired unutilized in September 2012.

In the early stages of the Company’s history, its primary source of liquidity was the cash received from common and preferred stock issuances. Through the third quarter of 2010, the Company’s cash flow from operations was negative and it relied on capital infusions to sustain and grow the business, and combined with cost containment activity. By the third quarter of 2010, the Company began generating positive cash flows from operations and 2010 marked the first year since inception of the Company that Diligent generated positive cash flow from operations. The Company has continued to generate positive cash flows each subsequent quarter. Additionally, in August 2012, the Company received $3.1 million in cash from the repayment of the note receivable from its predecessor entity which was due October 1, 2012. The Company has no long-term debt, except for obligations under capital leases and software licensing agreements and, thus far, its financing costs have consisted principally of the annual dividend on the preferred stock and repayments of capital lease and software licensing obligations. The Company anticipates increased cash flow from operations for the remainder of 2013.

On April 15, 2013, the Company announced that the Board of Directors approved a term sheet for an incentive compensation package to be provided to the Company’s chief executive officer Alessandro Sodi in substitution for certain awards that would be cancelled, subject to stockholder approval of the terms of the substitute incentive compensation package and a new incentive plan. On May 3, 2013, in order to effectuate the substitute incentive compensation provided for in the term sheet, the chief executive officer and the Company entered into a definitive Replacement Grant Agreement and certain agreed upon ancillary award agreements related thereto. At the time of the Original Filing, the costs and cash commitments of the alternative compensation arrangements were not known. In June 2013, the substitute remuneration package was approved by the Company’s stockholders and on December 23, 2013 the chief executive officer and the Company entered into an amendment to the Replacement Grant Agreement which fixed the terms of the incentive compensation package. In addition to stock options and performance shares, the amended Replacement Grant Agreement includes a performance fixed cash award of $4.2 million, which is earned if the Company achieves a specified growth in revenue over the performance period from July 1, 2013 through June 30, 2014. Once earned, the award is payable in three installments of $1.4 million each, with the first payment due in the third quarter of 2014 and the remaining two payments due March 30, 3015 and March 30, 2016. The Company considers it likely that the performance target will be met.

In order to minimize credit and market risk, the Company has invested $26 million of its cash in short-term U.S. treasury instruments, through the direct purchase of treasury bills and through a U.S. treasury money market fund. The remainder of our cash is held in various financial institutions by the parent company and its subsidiaries based on our projected cash needs. To minimize our foreign currency exposure, we maintain funds in foreign currency bank accounts, based on projected foreign currency expenditures.

Cash flows

	Three months ended March 31,
	2013			2012
	(in thousands)
Cash provided by (used in):
Operating activities	$	3,249		$	3,656
Investing activities	$	(44	)	$	(354	)
Financing activities	$	11		$	(167	)

Net Cash Flows from Operating Activities

Cash provided by operating activities for the three months ended March 31, 2013 decreased compared with the first quarter of 2012, primarily due to estimated income tax payments made in 2013, a reduction in the amount of cash provided by the growth in deferred revenue compared to the prior year and offset by an increase in accounts payable and accrued expenses.

Net Cash Flows from Investing Activities

Cash used in investing activities in the first quarter of 2013 consists of purchases of computer equipment, software and leasehold improvements, offset by the proceeds from the maturity of a term deposit. Cash used in investing activities for the first quarter of 2012 consists entirely of purchases of property and equipment.

Net Cash Flows from Financing Activities

During the first quarter of 2013, the Company recognized a $0.2 million tax benefit from the exercise of stock options, which is recorded directly to equity as additional paid-in-capital, and the receipt of $0.1 million in cash from the exercise of stock options. This was offset by the dividend paid on the Company’s preferred stock, as well as payments under capital lease and software licensing obligations. In 2012, cash outflows from dividends paid on preferred stock and repayments of capital leases and software licensing agreements, exceeded the proceeds from stock option exercises.

Item 4. Controls and Procedures.

Introduction

As discussed in the Explanatory Note above, the Company is concurrently filing both its 10-K Amendment and this 10-Q Amendment. Investors are encouraged to refer to the disclosure contained in Item 9A of the 10-K Amendment, which contains a description of the Company’s Special Committee process, revenue recognition review and restatement and re-audit process. Item 9A of the 10-K Amendment also contains management’s conclusions on the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting as of December 31, 2012, as well as a discussion of remedial measures adopted by the Company.

(a)

Evaluation of disclosure controls and procedures (as revised).

Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, are controls and other procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the rules and forms promulgated by the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

In connection with the preparation of the Original Filing, the Company completed an evaluation, as of March 31, 2013, under the supervision of and with participation from the Company’s management, including the Chief Executive Officer and former Chief Financial Officer, as to the effectiveness of the Company’s disclosure controls and procedures. Based upon the evaluation, the Company’s Chief Executive Officer and former Chief Financial Officer concluded that, because of the material weaknesses in its internal control over financial reporting identified in connection with the Special Committee process and the Company’s failure to file certain Current Reports on Form 8-K required under the Exchange Act within their required time periods, the Company’s disclosure controls and procedures were not effective as of March 31, 2013.

In connection with the preparation of this Form 10-Q Amendment, the Company re-evaluated, as of March 31, 2013, under the supervision of and with participation from the Company’s management, including the Chief Executive Officer and our new Chief Financial Officer, as to the effectiveness of the Company’s disclosure controls and procedures. Based upon such re-evaluation, the Company’s Chief Executive Officer and our new Chief Financial Officer have concluded that, because of the material weaknesses in its internal control over financial reporting identified in connection with the Special Committee process, the restatement of revenue, other adjustments identified as part of the re-audit process, and the Company’s failure to file certain Current Reports on Form 8-K required under the Exchange Act within their required time periods, the Company’s disclosure controls and procedures were not effective as of March 31, 2013.

(b)

Changes in Internal Controls.

There has been no change in the Company’s internal control over financial reporting required by Exchange Act Rule 13a-15 or 15d-15 that occurred during the fiscal quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect or improve the Company’s internal control over financial reporting. As disclosed in Item 9A of the 10-K Amendment, the Company had determined that as of December 31, 2012, the Company had material weaknesses in internal controls over financial reporting and that the Company is committed to improving its overall control environment and financial reporting processes. Subsequent to the fiscal quarter ended March 31, 2013, the Company is implementing, or has implemented, remedial and other actions relating to the improvement of our internal controls and governance.

PART II—OTHER INFORMATION

Item 1A. Risk Factors.

An investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included in this report and in our other public filings. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations. If any of the following risks and uncertainties, or if any other risks and uncertainties, actually occurs, our business, financial condition or operating results could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly.

We have concluded that as of March 31, 2013, our disclosure controls were not effective and we identified material weaknesses in our internal controls over financial reporting as of December 31, 2012. Our adoption of remedial measures to improve our internal controls will cause us to incur additional costs in future periods. Any failure in our remediation efforts could have a material adverse effect on our ability to file required reports with the SEC, NZX or the New Zealand Registrar of Companies and report our financial results timely and accurately.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended. As disclosed in the 10-K Amendment for the fiscal year ended December 31, 2012, management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012, and identified material weaknesses in our control environment, control activities and information and communication relative to stock option grants and stock issuances. We did not follow adequate practices to ensure that such issuances and grants were in compliance with our stock option and incentive plans, New Zealand securities laws, U.S. securities laws, and New Zealand exchange listing requirements. Management also evaluated the effectiveness of our disclosure controls and procedures and concluded that our disclosure controls and procedures were not effective as of December 31, 2012 due to the material weaknesses in internal controls and a failure to file certain Current Reports on Form 8-K with the SEC.

In connection with the restatement and preparation of the 10-K Amendment, management re-evaluated the effectiveness of our disclosure controls and procedures and our internal control over financial reporting as of December 31, 2012 and determined that our disclosure controls and procedures were ineffective as of December 31, 2012 and our internal control over financial reporting was subject to multiple material weaknesses in addition to those previously identified. We lacked a sufficient compliment of trained finance, accounting and tax personnel and did not establish adequate accounting and financial reporting policies and procedures as a general matter. In particular, there were material weaknesses in our control environment and the design, establishment, maintenance and communication of effective controls relating to revenue recognition, income taxes and certain transactions with our predecessor entity, SSH LLC. In addition, our accounting and financial reporting processes were dependent on the maintenance of spreadsheets that had become inadequate to ensure accurate and timely financial reporting given the growth of the Company and the volume of transactions. These material weaknesses resulted in errors in our historical financial statements which led to our conclusion to restate our financial statements to correct these items.

A material weakness is defined as a control deficiency, or combination of significant control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. An effective internal control environment is necessary for us to produce reliable financial reports.

For further information about these material weaknesses, please see Item 4 “Controls and Procedures” included in this Form 10-Q/A filing and Item 9A in our 10-K Amendment. Because of these material weaknesses, management concluded that, as of December 31, 2012, our internal control over financial reporting was not effective. In addition, we concluded that as of March 31, 2013, our disclosure controls and procedures and our internal controls were not effective. We plan to implement a number of remedial measures designed to address the material weaknesses identified. If we do not successfully improve our internal controls, and remediate the material weaknesses identified in management’s evaluations, we may fail to meet our future reporting obligations on a timely basis, our financial statements may contain material misstatements, our operating results may be negatively impacted, and we may be subject to litigation and regulatory actions. In addition, even if we are successful in improving our internal controls and procedures, those controls and procedures may not be adequate to prevent or identify irregularities or facilitate the fair presentation of our financial statements or our periodic reports filed with the SEC, the NZX or the New Zealand Registrar of Companies. While management evaluates the effectiveness of our internal controls over financial reporting on a regular basis, these controls may not always be effective. There are inherent limitations on the effectiveness of internal controls, including collusion, management override, and failure of human judgment.

As an “emerging growth company” we are not required to comply with the auditor attestation requirement under Section 404(b) of the Sarbanes-Oxley Act, which may cause investors to have less confidence in our internal control over financial reporting.

The auditor attestation requirement under Section 404(b) of the Sarbanes-Oxley Act provides that a public company’s independent auditor must attest to and report on management’s internal control over financial reporting. Because we qualify as an “emerging growth company” under the JOBS Act, we are not required to comply with the auditor attestation requirement. The lack of an auditor attestation concerning management’s assessment of our internal controls over financial reporting may cause investors to have less confidence in our internal control over financial reporting.

We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

Our Special Committee’s review of certain stock issuances and stock option grants and our compliance with applicable regulations identified a number of instances in which we were not, or may not have been, in compliance with applicable New Zealand and U.S. regulatory obligations and such instances may expose us to potential regulatory actions and/or contingent liabilities.

On December 24, 2012 in the U.S, we announced that a Special Committee of our Board of Directors had commenced an independent investigation to review certain stock and stock option grants to certain executives that may not have been issued in compliance with the relevant stock option and incentive plans. On January 18, 2013, we announced that, based on information obtained by the Special Committee relating to a portion of the historical grants under review, the Special Committee found that three option awards appeared to have exceeded the applicable plan caps on the number of shares covered by an award issued to a single recipient in a particular year. On the recommendation of the Special Committee, the Company announced that the option awards that exceeded the caps would be cancelled and that the Special Committee would work with the executives affected by those cancellations to develop appropriate alternative compensation packages. On December 23, 2013, the Company and the Company’s chief executive officer (CEO) entered into an Amendment to Replacement Grant Agreement which finalized the terms of the incentive compensation package to be provided to the Company’s CEO in substitution for certain awards that would be cancelled, as described in Note 9 of the Notes to the Condensed Consolidated Financial Statements.

As part of its work regarding stock issuances and stock option grants under the relevant stock option and incentive plans, the Special Committee also reviewed the Company’s compliance with applicable regulations since listing on the NZSX market in 2007, including U.S. and New Zealand securities regulations and the NZSX Listing Rules. The Special Committee identified a number of instances where it appears that the Company was not, or may not have been, in compliance with its New Zealand regulatory obligations. In addition, it was noted that the Company had not registered shares authorized for grant under its stock incentive plans pursuant to the Securities Act of 1933. The Special Committee determined that these instances of non-compliance were inadvertent, and attributable in part to the constrained resources of the Company in a period of financial difficulty in the years following its listing on the NZSX market, and the complex regulatory and compliance obligations across multiple jurisdictions with differing regulations and requirements.

On March 12, 2013, the Board unanimously adopted remedial actions in response to the findings and recommendations of the Special Committee. The Special Committee investigation and findings and remedial measures adopted by our Board of Directors are described in further detail in Amendment No. 2 to our AnnualReport on Form 10-K/A for the year ended December 31, 2012 at Item 9A, “Controls and Procedures”.

We entered into a settlement agreement, dated August 30, 2013, New Zealand time, with the NZX Limited in respect of past breaches of the NZSX Listing Rules. In connection with this settlement, the NZX Markets Disciplinary Tribunal issued a public censure and imposed a fine of NZ $15 thousand plus certain expenses. The action by the NZX Limited and NZX Markets Disciplinary Tribunal does not foreclose the risk of litigation or other regulatory actions relating to the historical instances of non-compliance identified. Due to the instances of non-compliance, we may be subject to an increased risk of regulatory actions, claims or litigation, the defense of which would require our management to devote significant attention and to incur significant legal expense and which could require us to pay substantial judgments, settlements or other penalties.

Our past practices related to the timing of the inclusion of customer agreement in our financial results in a particular period may expose us to potential regulatory investigations.

On July 2, 2013 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 was 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. The early inclusion of such contracts did not have a material impact on previously reported revenue for fiscal quarters including the first quarter of 2010 through the first quarter of 2013. While the Audit Committee investigation resulted in no finding of intentional misconduct or fraud, due to this practice, we may be subject to an increased risk of regulatory actions, claims or litigation, the defense of which would require our management to devote significant attention and to incur significant legal expense and which could require us to pay substantial judgments, settlements or other penalties.

Due to our Special Committee investigation, the restatement and reaudit of certain of our historical financial statements, and the related Audit Committee investigation, we have incurred substantial expenses for accounting, legal and other professional services and we expect to incur additional costs in future periods.

The restatement and re-audit of certain of our historical financial statements, the related Audit Committee investigation, and the Special Committee’s investigation of our historical stock issuances and stock option grants and related matters have required us to expend significant management time and incur significant accounting, legal and other expenses totaling $0.3 million in 2012 and $7.8 million in 2013. We expect to incur additional costs in future periods, including general and administrative expenses relating to the implementation of remedial measures to improve our internal controls and compliance with applicable regulatory requirements, as discussed in Part II, Item 9A of Amendment No. 2 to our10-KAmendment.

Certain of our past stock issuances and stock option grants may not have complied with applicable securities laws and regulations and may expose us to potential contingent liabilities, including potential rescission rights or regulatory actions.

Previously, we have offered and sold our common stock and options over common stock to employees, directors and others in transactions that may not have been in compliance with applicable New Zealand and U.S. requirements. We did not file with the SEC registration statements covering issuances under our stock incentive plans and certain of the sales and issuances may not have qualified for a valid exemption under the Securities Act of 1933. Consequently, regulatory actions and/or private proceedings could be commenced against us seeking to require us to conduct a rescission offer regarding certain prior sales, whereby we would offer to stockholders the right to rescind or unwind such sales. If a stockholder elects to accept a rescission offer, we would be obligated to pay that stockholder the purchase price plus interest and costs for his/her shares (less distributions previously paid on such shares). The costs required to conduct a rescission offer could be significant. The Securities Act generally requires a private action for a violation of Section 5 of the Securities Act to be brought within one year of the violation. Applicable statutes of limitations in state securities law actions vary.

We previously offered our securities to employees and directors in New Zealand for subscription without a registered prospectus and investment statement. The effect of doing so is that the securities so offered may have been invalid under the Securities Act of 1978 (NZ). We submitted an application to the High Court of New Zealand to have the foregoing securities validated and an order validating the securities was granted by the High Court on July 22, 2013, New Zealand time.

Even though it is difficult to estimate the financial impact potential rescission rights or similar rights may have on our business, based on the current trading prices of our common stock and the prices at which such issuances occurred, we do not anticipate that any amounts paid would materially affect our liquidity. However, there can be no assurance that our anticipations would prove accurate. Additionally, even given the grant of the High Court order, we could become subject to enforcement action and fines and penalties imposed by New Zealand authorities, the SEC, or state securities agencies.

We are subject to U.S. securities laws as an SEC-registered company and New Zealand securities and financial reporting laws as a listed company in New Zealand, and these dual regimes increase both our costs and the risk of noncompliance.

As a public company, we incur significant legal, accounting and other expenses associated with compliance with applicable laws, rules, regulations and listing requirements. From a New Zealand perspective, these include the NZSX Listing Rules, the Securities Act of 1978, Securities Markets Act of 1988 and the Financial Reporting Act of 1993. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Act, and rules subsequently implemented by the SEC and the FMA (NZ), have imposed a variety of compliance requirements on public companies, including requiring changes in corporate governance practices. In addition, the SEC, the U.S. Congress and the New Zealand Parliament may continue to increase the scope of applicable disclosure and corporate governance-related rules. Our management and other personnel may need to devote a substantial amount of time to the compliance requirements associated with being an SEC-registered company and a New Zealand-listed company. Moreover, requirements imposed by these laws, rules and regulations have increased and may continue to increase the scope, complexity and cost of our corporate governance, reporting and disclosure practices.

We are subject to New Zealand financial reporting and audit requirements as an entity listed on a New Zealand registered exchange. Our accounts must therefore comply with the Financial Reporting Act of 1993 and the Auditor Regulation Act of 2011. Our independent registered public accounting firm is not registered under the Auditor Regulation Act. The no-action relief we received from the FMA and the NZX relating to this issue only covers our 2012 audit.

The Directors of the Company are responsible for preparing and arranging for its financial statements to be audited in accordance with the Financial Reporting Act of 1993 and the Auditor Regulation Act of 2011 (NZ). These financial statements must be filed with the Registrar of Companies in New Zealand and with NZX under the NZSX Listing Rules. The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP)which is permitted under the Financial Reporting Act of 1993. The Financial Reporting Act of 1993 and the Auditor Regulation Act of 2011 require the Company to engage a registered audit firm or licensed auditor to audit the financial statements prepared by the Company.

The Company’s US independent registered public accounting firm, Deloitte & Touche LLP has completed its audit of our restated historical financial statementsin connection with Amendment No. 2 to our AnnualReport on Form 10-K/Afor the year ended December 31, 2012. Given that Deloitte is a limited liability partnership, Deloitte cannot register under the New Zealand Auditor Regulation Act. Accordingly, Deloitte is not and cannot be licensed under that Act. Diligent therefore sought a waiver from NZX’s Listing Rule that would require the auditor engaged in the restatement of its financial statements for the year ending December 31, 2012 to be licensed under the Auditor Regulation Act. NZX has advised Diligent that it will not grant a waiver from the applicable rule but will take no action against Diligent for non-compliance with it.

Similarly, Diligent also sought a no action letter from the FMA in relation to the fact that Deloitte cannot be licensed under the Auditor Regulation Act. The FMA has issued Diligent a no action letter in respect of its financial statements for the year ending December 31, 2012. Diligent has applied for a further waiver or no-action letter from both NZX and the FMA for the fiscal year ending December 31, 2013. Unless the law is changed, Diligent will apply for further waivers or no-action letters from both NZX and the FMA for future fiscal years. If we were not able to obtain such waivers or no-action letters, we could be subject to regulatory actions and contingent liabilities due to non-compliance with the requirements of the Financial Reporting Act and the Auditor Regulation Act.

Our business depends on clients renewing and upgrading their subscriptions for our services, and any decline in our client renewals or upgrades may harm our future revenue and operating results.

Our clients have no obligation to renew their subscriptions for our services after the expiration of their initial subscription period, which is typically 12 months, and in fact, some clients have elected not to renew. In addition, our clients may renew for fewer subscriptions, or renew for shorter contract lengths, or lower cost subscriptions. Moreover, under specific circumstances, our clients have the right to cancel their service agreements before they expire. As a result, our ability to grow is dependent in part on clients renewing their subscription contracts. We may not accurately predict future trends in client renewals and upgrades and our client renewal or upgrade rates may decline or fluctuate because of a variety of factors, including their satisfaction or dissatisfaction with our services, the prices of our services, the prices of services offered by our competitors or reductions in our clients’ spending levels. If our clients do not renew their subscription contracts, renew on less favorable terms, or if clients terminate subscription contracts before the end of their respective terms, our revenue may grow more slowly than expected or decline, which could adversely affect our operating results.

The markets in which we compete are intensely competitive, and if we do not compete effectively, our operating results may be harmed.

The markets in which we operate are intensely competitive and rapidly changing with relatively low barriers to entry. With the introduction of new technologies and market entrants, we expect competition to intensify in the future. In addition, pricing pressures and increased competition generally could result in reduced sales, reduced margin or the failure of our services to achieve or maintain more widespread market acceptance. Often we compete to sell our product against existing applications that our potential clients have already made significant expenditures to install. Competition in our market is based principally upon service breadth and functionality; service performance, security and reliability; ease of use of the service; speed and ease of deployment, integration and configuration; total cost of ownership, including price and implementation and support costs; and financial resources of the vendor.

We face competition from both traditional software vendors and SaaS providers. Our principal competitors include Thomson Reuters, BoardVantage, Inc., NASDAQ OMX, Computershare, and ICSA Software International. Many of our actual and potential competitors enjoy substantial competitive advantages over us, such as greater name recognition, longer operating histories, more varied products and services and larger marketing budgets, as well as substantially greater financial, technical and other resources. In addition, many of our competitors have established marketing relationships and access to larger client bases, and have major distribution agreements with consultants, system integrators and resellers. If we are not able to compete effectively, our operating results will be harmed.

If we do not successfully develop or introduce new product offerings, or enhancements to our existing Diligent Boardbooks offerings, or keep pace with technological changes that impact the use of our product offerings, we may lose existing customers or fail to attract new customers and our financial performance and revenue growth may suffer

Our future growth and success depends in part on our ability to sell additional features and services related to our existing Diligent Boardbooks product offering and new products to complement our current offering. In addition, we must continually modify and enhance our Diligent Boardbooks product offering to keep pace with changes in hardware and software platforms, database technology and other items. Uncertainties related to the timing and nature of new product announcements or introductions, or modifications by vendors of operating systems, browsers and other internet-related applications, could impact our ability to keep pace with changes and could harm acceptance of our product offering.

We anticipate that sales growth in our Diligent Boardbooks product offering will be subject to slower growth in the U.S. as the market for our product matures and sales remain subject to intense competition. We are continually seeking to develop new offerings and remain subject to all of the risks inherent in product development, including unanticipated technical or other development problems. The introduction of new enhancements or new products may require increasingly sophisticated and costly sales efforts that are targeted at senior management. Similarly, the rate at which our existing clients or new customers purchase new or enhanced services depends on a number of factors, including general economic conditions and that our existing clients do not react negatively to any price changes related to additional features and services. If our efforts to up sell to our clients are not successful and negative reaction occurs, or if we are not successful in attracting new customers to new product offerings, our business may suffer. There can be no assurance that we will be able to develop enhanced or new product offerings successfully, or to introduce and gain market acceptance of new products in a timely manner.

We are dependent on our direct sales force to maintain and increase sales of our product offering and any future product offerings in the marketplace. If we lose or fail to attract key personnel upon whom we are dependent, our business will be adversely affected.

In order to continue to develop our product offering and remain competitive in competition with well-established companies such as Thomson Reuters, NASDAQ OMX, Computershare and others, we must rely on highly specialized engineering and sales talent. Our key employees represent a significant asset, and the competition for these employees is intense in the software and SaaS markets. We continue to anticipate significant increases in human resources, particularly in engineering and sales resources, through 2014 to support our growth.

We sell our product offering primarily through our direct sales force. Our ability to achieve sales and revenue growth in the future will depend on the success of our direct sales force and our ability to adapt our sales efforts to address the evolving markets for our product offering and any new product offerings. We anticipate the need to continue to increase our direct sales force. There is significant competition for direct sales personnel with the advanced sales skills and technical knowledge we need. If we were not able to hire or retain competent sales personnel our business would suffer. In addition, by relying primarily on a direct sales model, we may miss sales opportunities that might be available through other sales channels, such as domestic and international resellers and strategic referral arrangements.

Any inability to hire and retain salespeople or any other qualified personnel would negatively impact our ability to grow our business and continue to develop our product offerings.

Because we recognize revenue from subscriptions for our services over the term of the subscription, downturns or upturns in new business may not be immediately reflected in our operating results.

We generally recognize revenue from clients is recognized on a daily basis over the subscription term as the services are delivered. Revenue recognition does not commence until the customer has access to the Diligent Boardbooks product, which is typically 3 to 4 weeks after the subscription agreement is executed. As a result, most of the revenue we report in each quarter is the result of subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any one quarter may not be reflected in our revenue results for that quarter. Any such decline, however, will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our services, and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new clients must be recognized over the applicable subscription term.

We have experienced rapid growth in recent periods. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately.

We have grown our business rapidly over the past few years. Between the fiscal years ended December 31, 2009 and 2012, our revenues increased from $5.0 million to $39.1 million. During such time, we significantly increased our sales force. We plan to expand our sales and marketing capabilities and broaden our customer support capabilities which will significantly increase our operating expenses. Our expansion has placed, and our anticipated growth may continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We intend to further expand our overall business, client base, headcount and operations. We also intend to continue expanding our operations internationally. Creating a global organization and managing a geographically dispersed workforce will require substantial management effort and significant additional investment in our infrastructure. To manage our expected growth, we will have to:

retain existing personnel;

hire, train, manage and retain additional qualified personnel, including sales and marketing personnel;

implement additional operational controls, financial and reporting systems, controls and procedures; and

effectively manage and expand our relationships with clients, subcontractors and other third parties responsible for manufacturing and delivering our products.

If we are unable to effectively manage such growth, our business may become inefficient and we may not be able to effectively compete, increase our revenues or control our expenses. See also Item 4 for disclosures relating to our need to hire additional compliance staff.

Interruptions or delays in service from any one of our data center hosting facilities could impair the delivery of our services and harm our business.

We currently serve our clients from multiple data center hosting facilities located in the United States and in Canada. Any damage to, or failure of, one or more of these facilities or systems generally could impair the delivery of our services. Interruptions or delays in our services may reduce our revenue, cause us to issue credits or pay penalties, cause clients to terminate their subscriptions and adversely affect our renewal rates and our ability to attract new clients. Our business will also be harmed if our clients and potential clients believe our services are unreliable.

As part of our current disaster recovery arrangements, our production environment and all of our clients’ data is currently backed up and/or replicated in near real-time in a facility located in the United States and/or Canada. Companies and products added through acquisition may be temporarily served through alternate facilities. We do not control the operation of any of these facilities, and they are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, power loss, telecommunications failures and similar events. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. Despite precautions taken at these facilities, the occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in the need to replace facilities and related expenses. Even with the disaster recovery arrangements, our services could be interrupted. Our data center facility providers have no obligations to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew our agreements with the facility providers on commercially reasonable terms or if in the future we add additional data center facility providers, we may experience additional costs in connection with the transfer to, or the addition of, new data center facilities.

As we continue to add data centers and add capacity in our existing data centers, we may move or transfer our data and our clients’ data. Despite precautions taken during this process, any unsuccessful data transfers may impair the delivery of our services.

If our security measures are breached and unauthorized access is obtained to a client’s data or our data or our IT systems, our services may be perceived as not being secure, clients may curtail or stop using our services and we may incur significant legal and financial exposure and liabilities.

Our services involve the storage and transmission of clients’ proprietary information, and security breaches could expose us to a risk of loss of this information, litigation and possible liability. These security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise and result in someone obtaining unauthorized access to our clients’ data or our data, including our intellectual property and other confidential business information, or our IT systems. Additionally, third parties may attempt to fraudulently induce employees or clients into disclosing sensitive information such as user names, passwords or other information in order to gain access to our clients’ data or our data or IT systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, our clients may authorize third-party technology providers to access their client data. Because we do not control the transmissions between our clients and third-party technology providers, or the processing of such data by third-party technology providers, we cannot ensure the integrity or security of such transmissions or processing. Any security breach could result in a loss of confidence in the security of our services, damage our reputation, negatively impact our future sales, disrupt our business and lead to legal liability.

We rely on third-party computer hardware and software that may be difficult to replace or which could cause errors or failures of our service.

We rely on computer hardware purchased or leased and software licensed from third parties in order to offer our services. This hardware and software may not continue to be available at reasonable prices or on commercially reasonable terms, or at all. Any loss of the right to use any of this hardware or software could significantly increase our expenses and otherwise result in delays in the provision of our services until equivalent technology is either developed by us, or, if available, is identified, to our clients purchased or licensed and then integrated into our business. Any errors or defects in third-party hardware or software could result in errors or a failure of our services which could harm our business.

The market for cloud-based applications may develop more slowly than we expect.

Our success will depend, to a large extent, on the willingness of organizations to accept cloud-based services for applications that they view as critical to the success of their organization. Many organizations have invested substantial effort and financial resources to integrate traditional enterprise software into their organizations and may be reluctant or unwilling to switch to a different application or to migrate these applications to cloud-based services. Other factors that may affect market acceptance of our application include:

the security capabilities, reliability and availability of cloud-based services;

client concerns with entrusting a third party to store and manage their data, especially confidential or sensitive data;

our ability to minimize the time and resources required to implement our suite;

our ability to maintain high levels of client satisfaction;

our ability to implement upgrades and other changes to our software without disrupting our service;

the level of customization or configuration we offer;

our ability to provide rapid response time during periods of intense activity on client websites; and

the price, performance and availability of competing products and services.

The market for these services may not develop further, or may develop more slowly than we expect, either of which would harm our business.

Our business may be subject to additional obligations to collect and remit sales tax and other taxes, and we may be subject to tax liability for past sales. Any successful action by state, foreign or other authorities to collect additional or past sales tax could adversely harm our business.

States and some local taxing jurisdictions have differing rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, the applicability of sales taxes to our subscription services in various jurisdictions is unclear. We have recorded sales tax provision of $919 thousand as of March 31, 2013 and increased it to $1.5 million as of December 31, 2013 with respect to uncollected sales and use tax in various states and local jurisdictions. It is possible that we could face sales tax audits and that our liability for these taxes could exceed our estimates as state tax authorities could still assert that we are obligated to collect additional amounts as taxes from our customers and remit those taxes to those authorities. We could also be subject to audits with respect to states and international jurisdictions for which we have not accrued tax liabilities. A successful assertion that we should be collecting additional sales or other taxes on our services in jurisdictions where we have not historically done so and do not accrue for sales taxes could result in substantial tax liabilities for past sales, discourage customers from purchasing our application or otherwise harm our business and operating results.

We are in the process of filing sales tax returns in certain states within the United States as required by law for our subscription services. We do not collect sales or other similar taxes in other states and many of the states do not apply sales or similar taxes to the services that we provide. However, one or more states or foreign authorities could seek to impose additional sales, use or other tax collection and record-keeping obligations on us or may determine that such taxes should have, but have not been, paid by us. Liability for past taxes may also include substantial interest and penalty charges. Any successful action by state, foreign or other authorities to compel us to collect and remit sales tax, use tax or other taxes, either retroactively, prospectively or both, could adversely affect our results of operations and business.

Assertions by a third party of intellectual property infringement, whether successful or not, could subject us to costly and time-consuming litigation or expensive licenses.

The software and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent and an increasing amount of litigation based on allegations of infringement or other violations of intellectual property rights. As we continue to grow, the possibility of claim of intellectual property rights against us may increase. Our technologies may not be able to withstand any third-party claims or rights against their use. Additionally, although we have licensed from other parties proprietary technology covered by patents, we cannot be certain that any such patents will not be challenged, invalidated or circumvented. Furthermore, our service agreements require us to indemnify our clients for certain third-party intellectual property infringement claims, which could increase our costs as a result of defending such claims and may require that we pay damages if there were an adverse ruling related to any such claims. These types of claims could harm our relationships with our clients, may deter future clients from subscribing to our services or could expose us to litigation for these claims. Even if we are not a party to any litigation between a client and a third party, an adverse outcome in any such litigation could make it more difficult for us to defend our intellectual property in any subsequent litigation in which we are a named party.

Any intellectual property rights claim against us or our clients, with or without merit, could be time-consuming, expensive to litigate or settle and could divert management attention and financial resources. An adverse determination could prevent us from offering our suite of services to our clients and may require that we procure or develop substitute services.

For any intellectual property rights claim against us or our clients, we may have to pay damages, license fees and/or stop using technology found to be in violation of a third party’s rights. We may have to seek a license for the technology. Such license may not be available on reasonable terms, if at all, and may significantly increase our operating expenses or may require us to restrict our business activities and limit our ability to deliver certain products and services. As a result, we may also be required to develop alternative non-infringing technology, which could require significant effort and expense and/or cause us to alter our product and service offerings which could negatively affect our business.

Our success depends in large part on our ability to protect and enforce our intellectual property rights.

We rely on a combination of copyright, service mark, trademark and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. We do not have any issued patents and currently have no patent applications pending. Any patents that may be issued in the future may not provide sufficiently broad protection or they may not prove to be enforceable in actions against alleged infringers. Also, we cannot assure you that any future service mark or trademark registrations will be issued for future applications or that any registered service marks or trademarks will be enforceable or provide adequate protection of our proprietary rights.

We enter into agreements with our employees and contractors and agreements with parties with whom we do business to limit access to and disclosure of our proprietary information. The steps we have taken, however, may not prevent unauthorized use or the reverse engineering of our technology. Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual property. Enforcement of our intellectual property rights also depends on our successful legal actions against infringement by third parties, but these actions may not be successful, even when our rights have been infringed.

Furthermore, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which our services are available. In addition, the legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in Internet-related industries are uncertain and still evolving.

Sales to clients outside the United States expose us to risks inherent in international sales.

We sell our products and services throughout the world and are subject to risks and challenges associated with international business. For example, sales to clients in foreign countries represented approximately 22% of our total revenues for the three months ended March 31, 2013, and we intend to continue to expand our international sales efforts. The risks and challenges associated with sales to clients outside the United States include:

localization of our service, including translation into foreign languages and associated expenses;

laws and business practices favoring local competitors;

compliance with multiple overlapping and changing governmental laws and regulations, including employment, tax, privacy and data protection laws and regulations;

pressure on the creditworthiness of sovereign nations, particularly in Europe, where we have clients and a cash balance. Liquidity issues or political actions by sovereign nations effecting exchange rates could result in decreased values for our cash and cash equivalents as all assets and liabilities denominated in a foreign currency that are translated into U.S. dollars at the exchange rate on the balance sheet date;

regional data privacy laws that apply to the transmission of our clients’ data across international borders;

treatment of revenue from international sources and changes to tax codes, including being subject to foreign tax laws and being liable for paying withholding income or other taxes in foreign jurisdictions;

foreign currency fluctuations and controls;

different pricing environments;

difficulties in staffing and managing foreign operations;

different or lesser protection of our intellectual property;

longer accounts receivable payment cycles and other collection difficulties;

natural disasters, acts of war, terrorism, pandemics or security breaches; and

regional economic and political conditions.

Any of these factors could negatively impact our business and results of operations.

Additionally, our international subscription fees are denominated in either in U.S. dollars or local currency. As a result, fluctuations in the value of the U.S. dollar in relation to foreign currencies may make our services more expensive for international clients, which could harm our business.

Material defects or errors in the software we use to deliver our services could harm our reputation, result in significant costs to us and impair our ability to sell our services.

The software applications underlying our services are inherently complex and may contain material defects or errors, particularly when first introduced or when new versions or enhancements are released. We have from time to time found defects in our services, and new errors in our existing services may be detected in the future. Any defects that cause interruptions to the availability of our services could result in:

a reduction in sales or delay in market acceptance of our services;

sales credits or refunds to our clients;

loss of existing clients and difficulty in attracting new clients;

diversion of development resources;

harm to our reputation; and

increased warranty and insurance costs.

After the release of our services, defects or errors may also be identified from time to time by our internal team and by our clients. The costs incurred in correcting any material defects or errors in our services may be substantial and could harm our operating results.

Privacy concerns and laws or other domestic or foreign regulations may reduce the effectiveness of our application suite and harm our business.

As Internet commerce continues to evolve, increasing regulation by federal, state or foreign governments and agencies becomes more likely. For example, we believe increased regulation is occurring in the area of data privacy, and laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information could affect our clients’ ability to use and share data, potentially reducing demand for our solutions and restricting our ability to store, process and share data with our clients.

Our clients can use our services to store contact and other personal or identifying information regarding their clients and contacts. Federal, state and foreign governments and agencies have adopted or are considering adopting laws and regulations regarding the collection, use and disclosure of personal information obtained from consumers and individuals in addition to laws and regulations that impact the cross-border transfer of personal information. The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our clients may limit the use and adoption of our services and reduce overall demand for it, or lead to significant fines, penalties or liabilities for any noncompliance with such privacy laws. Furthermore, privacy concerns may cause our clients’ customers to resist providing the personal data necessary to allow our clients to use our services effectively. Even the perception of privacy concerns, whether or not valid, may inhibit market adoption of our services in certain industries.

In addition to government activity, privacy advocacy groups and industry groups are considering various new, additional or different self-regulatory standards that may place additional burdens on us. If the gathering of personal information were to be curtailed in this manner, our application suite would be less effective, which may reduce demand for our services and harm our business.

Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt, and the terms of our Series A preferred stock include significant consent rights.

Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our Board of Directors. Our corporate governance documents include provisions:

providing for a classified board of directors, meaning that only one-third of our board stands for election at each annual meeting;

authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;

limiting the liability of, and providing indemnification to, our directors and officers;

limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;

requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our Board of Directors;

controlling the procedures for the conduct and scheduling of board and stockholder meetings;

providing the Board of Directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings;

limiting the total number of directors on our board to seven and the filling of vacancies or newly created seats on the board to our Board of Directors then in office; and

providing that directors may be removed by stockholders only for cause.

These provisions, alone or together, could delay hostile takeovers and changes in control or changes in our management. In addition, the holders of our Series A Preferred Stock have the requisite power to significantly affect certain of our significant decisions, including the power to approve an acquisition of the Company.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without a supermajority approval of our outstanding common stock.

Any provision of our amended and restated certificate of incorporation or our amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

As an entity listed on the NZSX, the takeover provisions of the listing rules apply except for the compulsory acquisition provisions of listing rules 4.8 and 4.8.5. The takeover provisions are reflected in the Company’s amended and restated bylaws. These provisions restrict transfers of quoted equity securities to directors and associated persons of directors and those who hold non-public material information about the Company (each, an “Insider”). In summary, transfers are restricted where they would result in an Insider controlling more than 20% or more of the votes attached to the relevant class of quoted equity securities or if 20% or more votes are controlled, an increase occurring in excess of 5% over the preceding 12 months. In order for a restricted transfer to be effected the notice and pause process described in the NZSX takeover provisions must be followed. Additionally, the Company may be required to prepare an appraisal report in connection with any potential takeover by an Insider. This process may deter a change in control by an Insider and, therefore, limit the opportunity for stockholders to receive a premium for their shares of our common stock.

Due to the delayed filing of our periodic reports with the SEC, we have not been in compliance with SEC periodic reporting requirements and are not currently eligible to use a registration statement on Form S-3 to register the offer and sale of securities, which may adversely affect our ability to raise future capital.

As a result of the delayed filing of our Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30 and September 30, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 with the SEC, we will not be eligible to register the offer and sale of our securities using a registration statement on Form S-3 until we have timely filed all periodic reports required under the Securities Exchange Act of 1934 for one year and there can be no assurance that we will be able to timely file such reports in the future. Should we wish to register the offer and sale of our securities to the public, our transaction costs would increase and the amount of time required to complete the transaction could increase, making it more difficult to execute any such transaction successfully and potentially harming our financial condition.

Our securities are not currently traded on any United States public markets other than periodic trading on the over-the-counter bulletin board (“OTCBB”).

Other than periodic trading on the OTCBB, there is no public market for our shares in the United States or in any other jurisdiction other than New Zealand. The trading price of our shares on the OTCBB may not accurately reflect the price or prices at which purchasers or sellers would be willing to purchase or sell our common stock in a liquid market. We have not determined whether we will seek the quotation of our shares on any national exchange in the United States. We cannot assure you that we will seek to be quoted on any national exchange in the United States or that we would meet any applicable listing requirements.

Item 6. Exhibits.

Exhibit Numbers		Exhibits

10.1		Replacement Grant Agreement, dated May 3, 2013, by and between Alessandro Sodi and Diligent Board Member Services, Inc. (incorporated by reference to Annex B of our Preliminary Proxy Statement filed with the SEC on May 8, 2013)

31.1		CEO Certification pursuant to Rule 13a-14(a)

31.2		CFO Certification pursuant to Rule 13a-14(a)

32.1		CEO Certification furnished pursuant to Rule 13a-14(b) and 18 U.S.C. 1350

32.2		CFO Certification furnished pursuant to Rule 13a-14(b) and 18 U.S.C. 1350

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DILIGENT BOARD MEMBER SERVICES, INC.

Dated: April 7, 2014	By:	/s/ Alessandro Sodi
		Alessandro Sodi, Chief Executive Officer (Principal Executive Officer)

Dated: April 7, 2014	By:	/s/ Carl Blandino
		Carl Blandino, Chief Financial Officer (Principal Financial Officer)

Diligent (DIL) Inactive 10-Q/A2013 Q1 Quarterly report (amended)