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EX-10.17 - EXHIBIT 10.17 - Diligent Board Member Services, Inc.v326276_ex10-17.htm

 

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

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2012.

 

or

 

¨ 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.)

 

39 West 37 St. 8th 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. x Yes ¨ 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). x Yes ¨ 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 ¨ Accelerated filer
   
¨ Non-accelerated filer x Smaller Reporting Company

 

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

¨Yes x No

 

The number of shares of the registrant’s common stock outstanding as of NOVEMBER 2, 2012 was 82,666,191.

 

 

 

 
 

 

(This page intentionally left blank)

 

 
 

 

CONTENTS

 

    PAGE
     
Forward Looking Statements ii
Available Information   ii
     
  PART I – Financial Information  
     
Item 1. Condensed Consolidated Financial Statements 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
     
  PART II – Other Information  
     
Item 1. Legal Proceedings 19
Item 1A. Risk Factors 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. [Reserved] 19
Item 5. Other Information 19
Item 6. Exhibits 19
     
SIGNATURES   20

 

i
 

 

FORWARD LOOKING STATEMENTS

 

Except for statements of historical fact, certain information described in this document contains "forward-looking statements" that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," "would" or similar words. The statements that contain these or similar words should be read carefully because these statements discuss our future expectations, contain projections of our future results of operations or of our financial position, or state other "forward-looking" information. Diligent Board Member Services, Inc. believes that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able accurately to predict or control. Further, we urge you to be cautious of the forward-looking statements which are contained in this Form 10-Q because they involve risks, uncertainties and other factors affecting our operations, market growth, service, products and licenses. Events in the future may cause our actual results and achievements, whether expressed or implied, to differ materially from the expectations we describe in our forward-looking statements. The occurrence of future events could have a material adverse effect on our business, results of operations and financial position.

 

AVAILABLE INFORMATION

 

We file reports, proxy statements, information statements and other information with the Securities and Exchange Commission. You may read and copy this information, for a copying fee, at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on its public reference rooms. Our Securities and Exchange Commission filings are also available to the public from commercial document retrieval services, and at the web site maintained by the Securities and Exchange Commission at http://www.sec.gov. Our internet address is http://www.boardbooks.com. We make available through our web site, electronic copies of our annual reports on Form 10-K and quarterly reports on Form 10-Q. To receive paper copies of our SEC materials, please contact us by mail addressed to Robert E. Norton, Corporate Secretary, Diligent Board Member Services, Inc., 39 West 37 St. 8th Floor, New York, NY 10018, (212) 741-8181.

 

ii
 

  

PART I—FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements.

Diligent Board Member Services, Inc.

Consolidated Balance Sheets

 

   September 30,   December 31, 
   2012   2011 
   (Unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $25,497,236   $8,930,695 
Term deposit   103,725    97,188 
Accounts receivable   2,814,246    1,956,527 
Prepaid expenses and other current assets   686,814    764,518 
Deferred tax assets, net of valuation allowance   377,597    300,840 
Note receivable from affiliate   -    3,071,563 
Total current assets   29,479,618    15,121,331 
Property and equipment, net   3,532,564    2,088,495 
Net deferred tax assets, net of valuation allowance   1,121,793    882,600 
Intangible assets, net   253,519    362,170 
Security deposits   233,613    97,885 
Total assets  $34,621,107   $18,552,481 
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Accounts payable  $355,874   $857,883 
Accrued expenses and other liabilities   2,154,160    1,399,099 
Income taxes payable   2,056,291    37,725 
Deferred revenue   14,429,873    8,495,661 
Current portion of obligations under capital leases   372,738    99,250 
Total current liabilities   19,368,936    10,889,618 
Non-current liabilities:          
Obligations under capital leases, less current portion   658,258    70,009 
Other non-current liabilities   256,494    268,842 
Total non-current liabilities   914,752    338,851 
           
Total liabilities   20,283,688    11,228,469 
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 $4,900,685)   3,225,961    3,204,993 
Stockholders' equity:          
Common Stock, $.001 par value, 250,000,000 shares authorized, 82,651,191 and 81,861,335 shares issued and outstanding   82,651    81,861 
Additional paid-in capital   24,510,199    23,837,196 
Accumulated deficit   (13,536,266)   (19,797,321)
Accumulated other comprehensive income (loss)   54,874    (2,717)
Total stockholders' equity   11,111,458    4,119,019 
Total liabilities, redeemable preferred stock and stockholders' equity  $34,621,107   $18,552,481 

 

See accompanying notes to condensed consolidated financial statements

 

1
 

 

Diligent Board Member Services, Inc.

Consolidated Income Statements

(Unaudited)

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2012   2011   2012   2011 
                 
Revenues  $11,830,471   $4,826,544   $30,163,255   $11,467,838 
Cost of revenues   2,648,364    1,360,428    7,241,193    3,320,902 
Gross profit   9,182,107    3,466,116    22,922,062    8,146,936 
                     
Operating expenses:                    
Selling and marketing expenses   2,276,429    1,402,901    6,294,114    3,428,423 
General and administrative expenses   2,044,719    1,217,648    6,160,545    3,394,105 
Research and development expenses   576,056    386,736    1,629,691    1,076,806 
Depreciation and amortization   337,342    125,234    833,124    366,738 
Total operating expenses   5,234,546    3,132,519    14,917,474    8,266,072 
                     
Operating income (loss)   3,947,561    333,597    8,004,588    (119,136)
                     
Other income:                    
Impairment recovery on note receivable from affiliate   -    -    -    1,200,000 
Interest income, net   26,596    45,642    126,935    134,404 
Foreign exchange transaction gain (loss)   38,693    (36,575)   24,019    (32,652)
Total other income   65,289    9,067    150,954    1,301,752 
                     
Income before provision for income taxes   4,012,850    342,664    8,155,542    1,182,616 
                     
Income tax expense   1,109,608    17,521    1,894,487    36,510 
                     
Net income  $2,903,242   $325,143   $6,261,055   $1,146,106 
                     
Net income per share:                    
Basic  $0.03   $0.00   $0.07   $0.01 
Diluted  $0.02   $0.00   $0.05   $0.01 
Weighted average shares outstanding:                    
Basic   82,067,858    82,018,001    81,917,705    81,999,649 
Diluted   119,977,272    117,246,530    119,589,696    115,824,670 

 

See accompanying notes to condensed consolidated financial statements

 

2
 

Diligent Board Member Services, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2012   2011   2012   2011 
Net income  $2,903,242   $325,143   $6,261,055   $1,146,106 
Other comprehensive income (loss):                    
Foreign exchange translation adjustment   32,811    9,179    57,591    (64)
Comprehensive income  $2,936,053   $334,322   $6,318,646   $1,146,042 

 

See accompanying notes to condensed consolidated financial statements

 

3
 

 

Diligent Board Member Services, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

Nine months Ended September 30, 2012

(Unaudited)

 

                   Accumulated     
       Common   Additional       Other   Total 
   Common   Stock   Paid-in-   Accumulated   Comprehensive   Stockholders' 
   Shares   $.001 Par Value   Capital   Deficit   (Loss) Income   Equity 
Balance at                              
January 1, 2012   81,861,335   $81,861   $23,837,196   $(19,797,321)  $(2,717)  $4,119,019 
Net income   -    -    -    6,261,055    -    6,261,055 
Foreign exchange translation adjustment   -    -    -    -    57,591    57,591 
Share-based compensation   -    -    1,030,336    -    -    1,030,336 
Tender of common stock in lieu of interest payment on note receivable from affiliate   (133,811)   (134)   (199,518)   -    -    (199,652)
Exercise of stock options   923,667    924    132,657    -    -    133,581 
Amortization of preferred stock offering costs   -    -    (20,968)   -    -    (20,968)
Accrued preferred stock dividend   -    -    (269,504)   -    -    (269,504)
Balance at                              
September 30, 2012 (Unaudited)   82,651,191   $82,651   $24,510,199   $(13,536,266)  $54,874   $11,111,458 

 

See accompanying notes to condensed consolidated financial statements

 

4
 

 

Diligent Board Member Services, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

   Nine Months Ended September 30, 
   2012   2011 
Cash flows from operating activities:          
Net income  $6,261,055   $1,146,106 
Adjustments to reconcile net income to net cash provided by operating activities:          
Impairment recovery on note receivable from affiliate   -    (1,200,000)
Depreciation and amortization   833,124    366,738 
Share-based compensation   1,030,336    686,813 
Deferred tax benefit   (293,136)   - 
Other non-cash   73,487    1,119 
Changes in operating assets and liabilities:          
Accounts receivable   (857,719)   (997,157)
Prepaid expenses and other current assets   (121,948)   (309,757)
Security deposits   (135,728)   138,249 
Accounts payable and accrued expenses, net   103,328    168,154 
Income taxes payable   2,018,566    (13,108)
Deferred revenue   5,934,211    2,307,208 
Net cash provided by operating activities   14,845,576    2,294,365 
Cash flows from investing activities:          
Purchase of property and equipment   (1,152,900)   (580,437)
Net cash used in investing activities   (1,152,900)   (580,437)
Cash flows from financing activities:          
Payment of preferred stock dividend, net of capital contribution in lieu of dividend   (119,781)   (159,338)
Proceeds from exercise of stock options   133,581    8,318 
Proceeds from repayment of principal on note receivable from affiliate   3,071,563    4,122 
Payments of obligations under capital leases   (161,978)   (64,175)
Payments of obligations under software licensing agreements   (108,651)   - 
Net cash provided by (used in) financing activities   2,814,734    (211,073)
Effect of exchange rates on cash and cash equivalents   59,131    108 
Net increase in cash and cash equivalents   16,566,541    1,502,963 
Cash and cash equivalents at beginning of period   8,930,695    3,212,449 
Cash and cash equivalents at end of period  $25,497,236   $4,715,412 
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for :          
Interest  $14,717   $21,515 
Income taxes  $142,490   $51,264 
Supplemental disclosure of noncash investing and financing activities:          
Capital contribution in lieu of preferred stock dividend  $-   $200,000 
Accrual of preferred stock dividend  $269,504   $269,504 
Tender of common stock in lieu of interest payment on note receivable from affiliate  $199,652   $- 
Property and equipment acquired under capital lease agreements  $1,023,715   $- 

 

See accompanying notes to condensed consolidated financial statements

 

5
 

 

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1)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 its initial public offering on the NZSX. The Company’s corporate headquarters are located in New York and Christchurch, New Zealand.

 

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, Diligent Boardbooks Limited (“DBL”), an England and Wales limited liability company which provides European sales and marketing services. The Company also has a Singapore-based wholly-owned subsidiary, APAC Board Services PTE. Ltd. (“APAC”), which was formed on December 23, 2010 to provide Asia-Pacific sales and marketing services, and at the end of 2011, the Company formed an Australian-based wholly-owned subsidiary, Diligent Board Services Australia PTY Ltd., which commenced operations in 2012. Diligent, together with its subsidiaries, are hereinafter referred to as “the Company”.

 

The Company’s consolidated financial statements are presented in U.S. dollars, rounded to the nearest dollar, which is the Company’s functional and presentational currency.

 

The Company has evaluated all subsequent events through the filing date of this Form 10-Q with the Securities and Exchange Commission (SEC), to ensure that this Form 10-Q includes subsequent events that should be recognized in the financial statements as of September 30, 2012, and appropriate disclosure of subsequent events which were not recognized in the financial statements.

 

2)Significant accounting policies

 

Basis of presentationThe accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions for Form 10-Q pursuant to the rules and regulations of the SEC. Accordingly, they do not include all information and notes required by GAAP and provided in the annual consolidated financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Form 10-K of the Company for the year ended December 31, 2011, as filed with the SEC on March 26, 2012.

 

In the opinion of management, the accompanying unaudited 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 nine months ended September 30, 2012 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. Actual results could differ from those estimates.

 

Cash and cash equivalents – The Company considers all highly liquid investments with original maturities of three months or less to 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 September 30, 2012, cash equivalents include investments in U.S. treasury bills of $6,999,080 and U.S. treasury money market funds of $9,000,467, which are carried at cost which approximates fair value. At December 31, 2011, cash equivalents include investments in U.S. treasury bills of $1,999,919, U.S. treasury money market funds of $3,000,046 and other money market funds of $2,750.

 

6
 

 

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Fair value of financial instruments – The fair value of our cash and cash equivalents, term deposits, accounts receivable, accounts payable and accrued expenses approximates book value due to their short term settlements. The note receivable from affiliate (the “Note”) was recorded at estimated net realizable value, adjusted for any valuation allowance for amounts considered uncollectable, and was reviewed for impairment each reporting period.

 

Revenue recognition – The Company recognizes revenue when all of the following criteria are met: (a) persuasive evidence of the arrangement exists, (b) delivery has occurred or services have been rendered, (c) the seller’s price to the buyer is fixed and determinable and (d) collectability is reasonably assured. Revenue from the Boardbooks service agreements is recorded ratably over the contract period, which is generally twelve months. Subscription fees paid in advance are recorded as deferred revenue until earned. The Company also earns fees for set-up and training (“installation fees”) of the Boardbooks system. Installation fees are recorded ratably over the contract period. 

 

Share-based compensationThe 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.

 

Net income per share – Basic net income 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 shares outstanding for the period.

 

Diluted net income 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. Stock options and convertible preferred stock are included as potential dilutive securities for all periods applicable.

 

The components of the calculation of basic and diluted net income per common share are as follows:

 

   Three months ended September 30,   Nine months ended September 30, 
   2012   2011   2012   2011 
Numerator:                    
Net income  $2,903,242   $325,143   $6,261,055   $1,146,106 
Preferred stock dividends   (89,835)   (89,835)   (269,504)   (269,504)
Basic net income available to common shareholders  $2,813,407   $235,308   $5,991,551   $876,602 
Diluted net income available to common shareholders  $2,903,242   $325,143   $6,261,055   $1,146,106 
Denominator:                    
Basic weighted average shares outstanding   82,067,858    82,018,001    81,917,705    81,999,649 
Dilutive effect of stock options   5,242,291    2,561,406    5,004,868    1,157,898 
Dilutive effect of convertible preferred stock   32,667,123    32,667,123    32,667,123    32,667,123 
Diluted weighted average shares outstanding   119,977,272    117,246,530    119,589,696    115,824,670 
Basic earnings per share  $0.03   $0.00   $0.07   $0.01 
Diluted earnings per share  $0.02   $0.00   $0.05   $0.01 

 

7
 

 

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Recent accounting pronouncements – In June 2011, the FASB issued new guidance regarding the presentation of comprehensive income, which requires entities to present the total of comprehensive income, the components of net income and the components of other comprehensive income (OCI) in either a single continuous statement of comprehensive income or in two separate consecutive statements. The guidance does not change the components of OCI or when an item of OCI must be reclassified to net income, or the earnings per share calculation. The Company implemented this guidance in the first quarter of 2012.

 

From time to time, new accounting pronouncements are issued by the FASB and are adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of other recently issued accounting pronouncements will not have a material impact on the consolidated financial position, results of operations, and cash flows, or do not apply to the Company’s operations.

 

3)Term deposit

 

At September 30, 2012, the Company has a term deposit with a New Zealand bank with an initial term of 365 days. The term deposit in the amount of NZD125,000 (US$103,725) bears interest at 4.4% and matures in March 2013.

 

4)Note receivable from affiliate

 

The Note receivable from affiliate of $3,071,563 at December 31, 2011 (the “Note”) represents the principal due on October 1, 2012 from Services Share Holding, LLC (“SSH LLC”, the Company’s predecessor entity). SSH LLC prepaid the Note on August 27, 2012, together with accrued interest of $126,661.

 

5)Line of credit facility

 

The Company had a $1.0 million line of credit facility with a related party which expired unused on September 12, 2012.

 

6)Redeemable Preferred Stock

 

On March 11, 2009, the Company issued 30,000,000 shares of Series A Preferred Stock for $0.10 per share in a private offering, for aggregate proceeds of $3,000,000 in additional capital. Expenses relating to the share issuance were $138,850.

 

The carrying value of the Preferred Shares at September 30, 2012 and December 31, 2011 is as follows:

 

   September 30,   December 31, 
   2012   2011 
Gross proceeds  $3,000,000   $3,000,000 
Less: Issuance costs   (138,850)   (138,850)
    2,861,150    2,861,150 
Issuance of paid-in-kind shares   266,712    266,712 
Cumulative amortization of issuance costs   98,099    77,131 
Balance  $3,225,961   $3,204,993 

 

In 2013, the Company anticipates that accumulated cash dividends will be paid on the Series A Preferred Stock. Accordingly, preferred stock dividends of $269,504 for the nine months ended September 30, 2012 are included in accrued expenses.

 

8
 

 

Diligent Board Member Services, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

In December 2011, Spring Street Partners, L.P., one of the holders of the Series A Preferred Stock, waived its right to the preferred stock dividend payable on January 1, 2012 of $239,557. This was recorded as a capital contribution in 2011 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 4.9 million shares of common stock of the Company.

 

7)Stockholders’ equity

 

On January 4, 2012, the Company received 133,811 shares of its common stock from SSH LLC, in satisfaction of the interest due on the Note on January 1, 2012 of $199,652. The shares were valued at $1.492 per share, which was the market value on the last trading day prior to the transaction. The shares were subsequently cancelled.

 

8)Stock option and incentive plan

 

During the first three quarters of 2012, the Company issued 1.3 million stock options to employees, which were valued at $3,399,862 and will be recognized as expense over a three year vesting period. Total share-based compensation expense recognized for the three and nine months ended September 30, 2012 was $432,643 and $1,030,336, respectively. At September 30, 2012 there was $4,589,300 of unrecognized share-based compensation expense related to options granted that will be recognized over the next 5.75 years.

 

9)Income taxes

 

Income tax expense is provided on an interim basis based upon management’s estimate of the annual effective tax rates in each tax jurisdiction. The income tax provision for the nine months ended September 30, 2012 includes U.S. income taxes at an effective rate of 22.4 % and foreign tax obligations of our U.K., New Zealand and Australian subsidiaries. The U.S. effective rate is lower than the statutory rate due to the expected utilization of approximately $6.2 million of net operating loss carryforwards in 2012, 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, some of its net operating loss carryforwards will be limited. This limitation results in only $6.2 million available to offset expected taxable income in 2012. Beginning in 2013, a further limitation of approximately $0.5 million per year will be available to offset expected taxable income until expiration. Based on this limitation, the Company expects that approximately $2.5 million of its total net operating loss carryforwards of $16.7 million will expire unutilized in 2029. A full valuation allowance had previously been provided on the related deferred tax asset, and in the second quarter of 2012 the deferred tax asset and valuation allowance relating to the net operating loss carryforwards expected to expire unutilized were written off.

 

Significant management judgment is required in determining any valuation allowance recorded against deferred tax assets. The benefit expected to be realized from the utilization of the net operating loss carryforwards in 2012 has been reflected in the current year through the reduction in the effective tax rate. The Company has recorded a partial valuation allowance against the remaining net operating loss carryforwards available to offset future income through 2029 to the extent that it believes it is more likely than not that they will not be realized.

 

The Company and its subsidiaries may be subject to, but are not currently under, audit by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. The Company’s federal and state income tax returns for the 2009 through 2011 tax years are open for, but are not currently under, examination by the respective taxing jurisdictions.

 

9
 

 

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 our consolidated financial statements and related notes that appear elsewhere in this Form 10-Q. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

 

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 offering 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 customer access to its 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 customer 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 Company has developed one 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 customers who want to run the software on their own premises. These economies allow the Company to spend resources on developing increased functionalities for its 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.

 

10
 

 

Better expense visibility. Because revenue is more predictable, the Company is able 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 a public share 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 NZX Limited, as well as the securities legislation of New Zealand and the regulatory oversight of the Financial Markets Authority of New Zealand. There is no United States established public trading market for our common stock. However, because the Company is a U.S. company incorporated in Delaware with over 500 shareholders, it 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.

 

We are pleased to report Diligent’s revenue growth. Diligent recorded quarterly revenue of $11.8 million for the third quarter of 2012, which represents a 145% increase over the third quarter of 2011. Year-to-date revenue was $30.2 million, a 163% increase over the first nine months of 2011. Diligent records its revenue from subscription-based sales and installation fees ratably over the contract period. In the third quarter of 2012, Diligent signed new contracts and upgrades to existing contracts with annual recurring revenue of $6.4 million, a 29% increase over the third quarter of 2011. Year-to-date, annual recurring revenue from new contracts and upgrades was $19.9 million, a 103% increase over the comparable 2011 period. This growth is evidence of a strong demand for the Diligent Boardbooks product.

 

The Company now serves over 1,600 public and private companies with over 2,330 boards and 46,000 users in the U.S., Canada, EMEA (Europe, Middle East and Africa), Australia and the Asia-Pacific region. During the third quarter of 2012, Diligent signed a total of 168 net new client agreements versus 170 in the same quarter last year. Diligent now services over 240 Fortune 1000 companies, of which 18 were added in the third quarter. The Company also added 34 New York Stock Exchange listed companies, 14 Toronto Stock Exchange and 15 London Stock Exchange companies as clients in the third quarter of 2012.

 

Critical Accounting Policies and Estimates

 

There have been no material changes to the critical accounting policies as filed in our 2011 annual report on Form 10-K.

 

Recent Accounting Pronouncements

 

See Note 2 to the condensed consolidated financial statements at Item 1 of this Form 10-Q

 

Results of Operations for the Three Months Ended September 30, 2012 and 2011

 

   Three months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Revenues  $11,830,471   $4,826,544   $7,003,927    145%

 

The growth in total revenues of 145% in the third quarter of 2012 when compared with the 2011 third quarter is a result of the increase in new subscription agreements. The Company has continued to add subscription agreements each quarter since inception. At September 30, 2012, the total number of client agreements (net of cancellations) was 1,615, compared with 823 at September 30, 2011. A net of 168 new subscription agreements were added during the third quarter of 2012, compared with 170 for the third quarter of 2011. Sales increased in all of our major regions, with particularly strong growth in Europe and Australia. Additionally, upgrades from existing customers in the third quarter, based on dollar value added to existing annual contracts, increased 205% over the third quarter of 2011.

 

11
 

 

The Company recognizes revenue ratably over the contract period, which is generally twelve months. Accordingly, the full impact of the growth in subscription agreements during the quarter will be recognized over the next twelve months. All of the deferred revenue of $14.4 million recorded on the balance sheet at September 30, 2012 is expected to be recognized as revenue in the next twelve months.

 

Cost of Revenues and Operating Expenses

 

   Three months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Cost of Revenues  $2,648,364   $1,360,428   $1,287,936    95%
% of Revenues   22%   28%          

 

Cost of revenues is comprised of account management, customer support and IT services. The Company increased headcount in order to service our larger client base, resulting in an increase in employee salaries and incentive pay of approximately $1.0 million in total, consisting of $0.6 million in account management, $0.2 million in customer support and $0.2 million in IT services. Hosting costs increased by $0.2 million, due to the opening of an additional hosting center and the increase in capacity at our existing centers. The remainder of the increase consists of higher costs in support and maintenance, travel, and other expenses related to supporting our larger client base. Included within these increases are higher customer service and account management costs in the U.K. ($0.2 million), Australia ($0.2 million) and New Zealand ($0.1 million) as a result of the increase in European sales, the commencement of operations in Australia in 2012 and the addition of account management staff in New Zealand.

 

The gross profit ratio for the three months ended September 30, 2012 was 78%, compared with 72% for the third quarter of 2011.

 

   Three months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Selling and Marketing  $2,276,429   $1,402,901   $873,528    62%
% of Revenues   19%   29%          

 

Selling and marketing expenses increased in the third quarter of 2012 as a result of an increase in salaries and commissions for our U.S. sales force of approximately $0.2 million. Foreign salaries and commissions increased by approximately $0.3 million, primarily due to an increase in sales staff in the U.K., commissions for existing sales staff and our expansion into the Australian market. U.K. marketing expenses increased by $0.1 million, as a result of our initiative to direct our European marketing efforts from the U.K. The remaining increase in selling and marketing expenses is due to increases in other selling expenses, including travel and support services, as well as a small increase in marketing, primarily due to trade shows and web advertising.

 

12
 

 

   Three months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
General and Administrative  $2,044,719   $1,217,648   $827,071    68%
% of Revenues   17%   25%          

 

The increase in general and administrative expenses is comprised primarily of increases in the U.S. of $0.5 million and increases in the U.K. of $0.3 million. The U.S. increase primarily consists of share-based compensation costs of $0.4 million, with other increases in directors fees and expenses, professional fees, and office costs related to the growth of the Company. The U.K. increase is due to the significant expansion of our European operations based in the U.K., and consists principally of salaries and office costs.

 

   Three months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Research and Development  $576,056   $386,736   $189,320    49%
% of Revenues   5%   8%          

 

The increase in research and development expenses is primarily due to increased staffing in our New Zealand subsidiary for product upgrades and enhancements. We maintain a small research and development department in our New York headquarters which also had a small increase in headcount.

 

 

   Three months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Depreciation and Amortization  $337,342   $125,234   $212,108    169%
% of Revenues   3%   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 September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Interest Income, net  $26,596   $45,642   $(19,046)   -42%
% of Revenues   0.2%   0.9%          

 

Interest income, net, includes interest income on the note receivable from our affiliate and interest on the Company’s cash and cash equivalents and term deposits which are interest-bearing, offset by interest expense on our capital lease obligations. The decrease in net interest income is attributable to a decrease in interest income on the note receivable, which was prepaid at the end of August 2012. This decrease more than exceeded the increase in interest earned on our cash due to higher cash deposits, and a small increase in interest expense on our capital lease obligations resulting from the addition of new leases in 2012.

 

13
 

 

   Three months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Foreign Exchange Transaction Gain (Loss)  $38,693   $(36,575)  $75,268    206%
% of Revenues   0.3%   -0.8%          

 

The Company’s U.S. and foreign operations have transactions with customers 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 New Zealand dollar and British Pound. 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 gain recorded in the third quarter is due to the weakening of the U.S. dollar, while the loss recorded in the third quarter of 2011 is primarily a result of the strengthening of the U.S. dollar against the New Zealand dollar and British Pound.

 

   Three months ended September 30       
   2012   2011   Increase /
(Decrease)
   
Income Tax Expense  $1,109,608   $17,521   $1,092,087   

 

 

Income tax expense is provided on an interim basis based upon management’s estimate of the annual effective tax rates in each tax jurisdiction. The income tax provision for the three months ended September 30, 2012 includes U.S. income taxes at an expected effective rate of 22.4%, and foreign tax obligations of our U.K., New Zealand and Australian subsidiaries. The U.S. effective rate is lower than the statutory rate due to the expected utilization of approximately $6.2 million of net operating loss carryforwards in 2012, as discussed further in Note 9 to the condensed consolidated financial statements at Item 1 of this Form 10-Q. The significant increase in income tax expense is due to the fact that 2012 is the first year in which the Company expects to have taxable income after utilization of net operating loss carryforwards.

 

The income tax provision for the third quarter of 2011 consists entirely of foreign taxes.

 

Results of Operations for the Nine months Ended September 30, 2012 and 2011

 

   Nine months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Revenues  $30,163,255   $11,467,838   $18,695,417    163%

 

The growth in total revenues of 163% in the first three quarters of 2012 when compared with the first three quarters of 2011 is a result of the increase in new subscription agreements. The Company has continued to add subscription agreements each quarter since inception. At September 30, 2012, the total number of client agreements (net of cancellations) was 1,615, compared with 823 at September 30, 2011. A net of 589 new subscription agreements were added during the first three quarters of 2012, compared with 367 for the first three quarters of 2011, an increase of 60%. Sales increased in all of our major regions, with particularly strong growth in Europe and Australia. Additionally, upgrades from existing customers in the first three quarters of the year, based on dollar value added to existing annual contracts, increased 302% over the first three quarters of 2011.

 

The Company recognizes revenue ratably over the contract period, which is generally twelve months. Accordingly, the full impact of the growth in subscription agreements during the quarter will be recognized over the next twelve months. All of the deferred revenue of $14.4 million recorded on the balance sheet at September 30, 2012 is expected to be recognized as revenue in the next twelve months.

 

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Cost of Revenues and Operating Expenses

 

   Nine months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Cost of Revenues  $7,241,193   $3,320,902   $3,920,291    118%
% of Revenues   24%   29%          

 

Cost of revenues is comprised of account management, customer support and IT services. The Company increased headcount in order to service our larger client base, resulting in an increase in employee salaries and incentive pay of approximately $2.8 million in total, consisting of $1.7 million in account management, $0.5 million in customer support and $0.6 million in IT services. Hosting costs increased by $0.5 million due to the opening of an additional hosting center and the increase in capacity at our existing centers. The remainder of the increase consists of higher costs in support and maintenance ($0.3 million), travel ($0.1 million), recruiting ($0.1 million), and other expenses related to supporting our larger client base. Included within these increases are higher customer service and account management costs in the U.K. ($0.6 million), Australia ($0.4 million) and New Zealand ($0.3 million) as a result of the increase in European sales, the commencement of operations in Australia in 2012 and the addition of account management staff in New Zealand.

 

The gross profit ratio for the nine months ended September 30, 2012 was 76%, compared with 71% for the comparable 2011 period.

 

   Nine months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Selling and Marketing  $6,294,114   $3,428,423   $2,865,691    84%
% of Revenues   21%   30%          

 

Selling and marketing expenses increased in the first three quarters of 2012 when compared to the first three quarters of 2011 as a result of an increase in salaries and commissions for our U.S. sales force of approximately $1.4 million. Foreign salaries and commissions increased by approximately $1.0 million, primarily due to an increase in sales staff in the U.K., commissions for existing sales staff and our expansion into the Australian market. Marketing expenses increased by $0.1 million in the U.S., primarily due to an increase in headcount, including the addition of a Chief Marketing Officer. U.K. marketing expenses increased by $0.1 million, as a result of our initiative to direct our European marketing efforts from the U.K. The remaining increase in selling and marketing expenses is due to increases in other selling expenses, including travel and support services, as well as a small increase in marketing, primarily due to trade shows and web advertising.

 

   Nine months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
General and Administrative  $6,160,545   $3,394,105   $2,766,440    82%
% of Revenues   20%   30%          

 

The increase in general and administrative expenses is comprised of increases in the U.S. of $2.2 million, the U.K. of $0.5 million and New Zealand of $0.1 million. The U.S. expense increases include executive compensation of $1.1 million, share-based compensation costs of $0.3 million, directors’ fees and expenses of $0.2 million, rent and other office costs of $0.2 million, and professional fees of $0.2 million. The U.S. increases are due to increases in headcount, salaries and bonuses for our New York executive office, expansion of our Board of Directors, and other costs related to the growth of the Company. The U.K. increase is due to the significant expansion of our European operations based in the U.K., and consists principally of salaries and office costs.

 

15
 

 

   Nine months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Research and Development  $1,629,691   $1,076,806   $552,885    51%
% of Revenues   5%   9%          

 

The increase in research and development expenses is primarily due to increased staffing in our New Zealand subsidiary for product upgrades and enhancements. We maintain a small research and development department in our New York headquarters which also had a small increase in headcount.

 

   Nine months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Depreciation and Amortization  $833,124   $366,738   $466,386    127%
% of Revenues   3%   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.

 

   Nine months ended September 30       
   2012   2011   Increase /
(Decrease)
   
Impairment recovery on note receivable from affiliate  $-   $1,200,000   $(1,200,000)  

 

At June 30, 2011, the Company determined that the value of the note receivable from affiliate was no longer impaired and the remaining balance in the valuation allowance of $1.2 million was reversed and recorded as income. In August 2012, the Note, which was due October 1, 2012, was prepaid at its full contractual value of $3.1 million.

 

   Nine months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Interest Income, net  $126,935   $134,404   $(7,469)   -6%
% of Revenues   0.4%   1%          

 

Interest income, net, includes interest income on the note receivable from our affiliate and interest on the Company’s cash and cash equivalents and term deposits which are interest-bearing, offset by interest expense on our capital lease obligations. The decrease in net interest income is attributable to a decrease in interest income on the note receivable, which was prepaid at the end of August 2012. This decrease more than exceeded the increase in interest earned on our cash due to higher cash deposits, and a small increase in interest expense on our capital lease obligations resulting from the addition of new leases in 2012.

 

16
 

 

   Nine months ended September 30         
   2012   2011   Increase /
(Decrease)
   % Change 
Foreign Exchange Gain/(Loss)  $24,019   $(32,652)  $56,671    174%
% of Revenues   0.1%   -0.3%          

 

The Company’s U.S. and foreign operations have transactions with customers 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 New Zealand dollar and British Pound. 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 gain recorded for the first three quarters of 2012 is primarily a result of the weakening of the U.S. dollar, while the loss recorded in the first three quarters of 2011 is primarily a result of the strengthening of the U.S. dollar against the New Zealand dollar and British Pound.

 

   Nine months ended September 30       
   2012   2011   Increase
(Decrease)
   
Income Tax Expense  $1,894,487   $36,510   $1,857,977   

 

Income tax expense is provided on an interim basis based upon management’s estimate of the annual effective tax rates in each tax jurisdiction. The income tax provision for the nine months ended September 30, 2012 includes U.S. income taxes at an expected effective rate of 22.4%, and foreign tax obligations of our U.K., New Zealand and Australian subsidiaries. The U.S. effective rate is lower than the statutory rate due to the expected utilization of approximately $6.2 million of net operating loss carryforwards in 2012, as discussed further in Note 9 to the condensed consolidated financial statements at Item 1 of this Form 10-Q. The significant increase in income tax expense is due to the fact that 2012 is the first year in which the Company expects to have taxable income after utilization of operating loss carryforwards.

 

The income tax provision for the first three quarters of 2011 consists entirely of foreign taxes.

 

Liquidity and Capital Resources

 

At September 30, 2012, the Company’s sources of liquidity consist of cash and cash equivalents and term deposits of approximately $25.6 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, the Company’s primary source of liquidity was the cash received from stock issuances. Through the third quarter of 2010, the Company’s cash flow from operations was negative and we relied on capital raises to sustain and grow our business. 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 achieved positive cash flow from operations. The Company has continued to generate positive cash flows each subsequent quarter. The Company has no long-term debt, except for obligations under capital leases and software licensing agreements, and thus far our financing costs have consisted principally of the dividend on our preferred stock and repayments of our capital lease obligations. The Company anticipates that this trend will continue through the foreseeable future, with increased cash growth expected from operations in 2012. Additionally, in August 2012, the Company received $3.1 million in cash from the prepayment of the note receivable from our predecessor entity which was due October 1, 2012.

 

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In order to minimize credit and market risk, the Company has invested $16.0 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

 

   Nine months ended September 30 
   2012   2011 
Cash provided by (used in):          
Operating activities  $14,845,576   $2,294,365 
Investing activities   (1,152,900)   (580,437)
Financing activities   2,814,734    (211,073)

 

Net Cash Flows from Operating Activities

 

Cash provided by operating activities for the nine months ended September 30, 2012 increased significantly compared with the first three quarters of 2011, due to the increase in the number of customers under contract. Note that $5.9 million of the cash generated by operating activities for the period came from the increase in deferred revenue, as subscription fees are paid in advance and recorded as deferred revenue until recognized.

 

Net Cash Flows from Investing Activities

 

Cash used in investing activities in the first nine months of 2012 and 2011 consists entirely of purchases of property and equipment.

 

Net Cash Flows from Financing Activities

 

During the third quarter of 2012, the $3.1 million note receivable from our predecessor entity was repaid. This was offset by the dividend paid on the Company’s preferred stock, as well as repayments of capital leases and software licensing agreements, offset by proceeds of stock option exercises. In the first three quarters of 2011, cash used in financing activities included $159,338 of cash dividends paid on preferred stock and repayments of capital leases, offset by proceeds of stock option exercises.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Because the Company qualifies as a smaller reporting company, as defined by §229.10(f)(1) it is not required to provide the information required by this Item.

 

Item 4. Controls and Procedures.

 

(a) Evaluation of disclosure controls and procedures. As of the end of the quarter ended September 30, 2012, our Chief Executive Officer and Chief Financial Officer have each reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have each concluded that our current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

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(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 September 30, 2012 that has materially affected, or is reasonably likely to materially affect Diligent Board Member Services, Inc.’s internal control over financial reporting.

 

PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None

 

Item 1A. Risk Factors.

 

Not required

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None

 

Item 3. Defaults Upon Senior Securities.

 

Not applicable

 

Item 4. [Reserved]

 

Item 5. Other Information.

 

Not applicable

 

Item 6. Exhibits.

 

Exhibit    
Numbers   Exhibits
     
10.17   Diligent Board Member Services Stock Purchase Plan
     
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

 

19
 

 

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:  November 13, 2012 By:  /s/ Alessandro Sodi
  Alessandro Sodi, Chief Executive Officer (Principal Executive Officer)
   
Dated:  November 13, 2012 By:  /s/ Steven P. Ruse
  Steven P. Ruse, Chief Financial Officer (Principal Financial Officer)

 

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