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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549



FORM 10-K/A
(Amendment No. 1)

ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2013ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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(State or Other Jurisdiction of
Incorporation or Organization)

26-1189601(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)

Securities
registered pursuant to Section 12(b) of the Act:None

Securities
registered pursuant to Section 12(g) of the Act:

Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value $0.001 per share

The New Zealand Stock Exchange


Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o    No ý

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. Yes o    No ý

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). Yes o    No ý

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to their Form 10-K.

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

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a
smaller reporting company)

Smaller reporting company o


Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No ý

The aggregate market value of common equity held by non-affiliates as of the last business day of the registrant's second fiscal quarter, computed by reference to
the last sales price as reported by NZX on June 30, 2013 of NZD 6.80 (US$5.27) per share, was US$375.8 million.

The
number of shares of the registrant's common stock outstanding as of May 11, 2014 was 86,556,610.

DOCUMENTS
INCORPORATED BY REFERENCE

None





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AMENDMENT EXPLANATORY NOTE

Diligent Board Member Services, Inc. is filing this Amendment No. 1 on Form 10-K/A ("Amendment No. 1") to
its Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the "Original Filing"), filed with the Securities and Exchange Commission (the "SEC") on May 19, 2014,
to amend certain clerical omissions from the Original Filing. This Amendment No. 1 is being filed solely to include completed dates on the signature page to the Original Filing and completed
dates on Exhibits 31.1, 31.2, 32.1 and 32.2 filed therewith, which were inadvertently omitted from the Original Filing.

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."

On
April 7, 2014, we filed with the SEC Amendment No. 2 to the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2012 (the "2012
10-K Amendment") and Amendment No. 1 to the Company's Quarterly Report on Form 10-Q/A for the quarterly period ended March 31, 2013 (the "10-Q Amendment"). The 2012 10-K Amendment
and the 10-Q Amendment
contain restated financial information for the fiscal years ended December 31, 2012 and 2011, the quarterly periods within such fiscal years and the quarterly period ended March 31,
2013. Other than the 2012 10-K Amendment and the 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 Affected Periods in the 2012 10-K Amendment and the 10-Q Amendment, and not on the
Affected Reports or any reports, sales update press releases, or similar communications relating to the Affected Periods provided prior to February 28, 2014.

Management
evaluated the effectiveness of our disclosure controls and procedures and our internal control over financial reporting as of December 31, 2013 and determined that our
disclosure controls and procedures were ineffective and our internal control over financial reporting was subject to multiple material weaknesses as of such date. These material weaknesses also
existed as of December 31, 2012 and were previously reported in our 2012 10-K Amendment, together with our remediation plan. We continue to evaluate the sufficiency of our planned remedial
measures and to dedicate substantial resources to our remediation efforts. The disclosed material weaknesses cannot be considered fully remediated until the applicable controls are implemented,
operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. For a description of the material weaknesses in our internal
control over financial reporting and the status of our plan to remediate those material weaknesses, see Part II, Item 9A "Controls and Procedures" of this Annual Report.

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CONTENTS



PAGEForward Looking StatementsPART IItem 1.

Business


1Item 1A.

Risk Factors


7Item 1B.

Unresolved Staff Comments


21Item 2.

Property


22Item 3.

Legal Proceedings


22PART IIItem 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


23Item 6.

Selected Financial Information


25Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations


26Item 7A.

Quantitative and Qualitative Disclosure About Market Risk


39Item 8.

Financial Statements and Supplementary Data


40Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


73Item 9A.

Controls and Procedures


73Item 9B.

Other Information


79PART IIIItem 10.

Directors, Executive Officers and Corporate Governance


80Item 11.

Executive Compensation


87Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder


97Item 13.

Certain Relationships and Related Transactions, and Director Independence


100Item 14.

Principal Accountant Fees and Services


101PART IVItem 15.

Exhibits, Financial Statement Schedules


103SIGNATURES


105INDEX TO EXHIBITS


107


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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 Annual Report. Such risks and uncertainties may give rise to future claims and
increase our exposure to contingent liabilities. These risks and uncertainties arise from the following issues (among other factors):



These
risks are described throughout this Annual Report, which you should read carefully. In particular, we refer you to read the "Risk Factors" section for an extended discussion of the
risks confronting our business. The forward-looking statements in this Annual Report 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 U.S. federal securities laws or the NZSX Listing Rules.

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AVAILABLE INFORMATION

We maintain a corporate website with the address www.boardbooks.com. We intend to use our website as a regular means of disclosing
material non-public information and for complying with disclosure obligations under Regulation FD promulgated by the Securities and Exchange Commission (the "SEC"). Accordingly, investors
should monitor such portions of the website, in addition to following the Company's press releases, SEC filings and public conference calls and webcasts.

We
are not incorporating information contained in the website by reference into this Annual Report on Form 10-K. The Company makes available, free of charge, through the website,
its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to these reports as soon as reasonably practicable after
electronically filing such material with, or furnishing such material to, the SEC.

Materials
filed with the SEC can be read and copies made 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 further information about the Public Reference Room. The SEC also maintains a website, www.sec.gov containing the reports, proxy and other information filed with the SEC. Recent New Zealand
regulatory filings are available on www.nzx.com.

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PART I

ITEM 1.    BUSINESS

As used herein, unless the context otherwise requires, the terms "Company," "we," "us," "our" and words of
similar import refer to the combined business of Diligent Board Member Services, Inc. and its subsidiaries.

GENERAL
INFORMATION

History

We are a Delaware corporation that was incorporated on September 27, 2007. On October 1, 2007, our accounting predecessor
entity and sole stockholder at that time, Services Share Holding, LLC (previously known as Diligent Board Member Services, LLC and referred to in this document as "SSH LLC"),
contributed substantially all of its assets and its Diligent Boardbooks ®(1) business to Diligent Board Member Services, Inc. SSH LLC was founded in 1994 and developed
complex database-driven software for large and small companies until 2003, when it shifted its focus to corporate governance service delivery software.

Company Overview

We develop and sell a software application called Diligent Boardbooks. We deliver Diligent Boardbooks as a service via all major
browsers and on certain major mobile device operating systems, including the iPad and Windows-supported tablets. Our Diligent Boardbooks secure board portal speeds and simplifies how meeting materials
are produced, delivered and reviewed. The service provides directors and management with immediate access to time sensitive and confidential information online and offline, along with the tools to
review, discuss and vote. Work flow features get board materials out more efficiently and serves to free up internal administration and IT resources, Using the Diligent board portal, corporate
executives can streamline board communications and discussions, helping to improve the quality of leadership decisions. Each of our clients enters into a service agreement whereby we agree to provide
and support the Diligent Boardbooks service. Diligent provides clients with subscription-based access to its software and also provides associated services including securely hosting the clients'
data, customer service and support for the application.

The
Diligent Boardbooks product features an on-screen interface that looks and works like a book and displays documents in single pages, from a secure central database. The software can
be accessed via either the iPad or Windows apps, the OneClick client or using a personal computer browser, and lets directors swipe or click to navigate easily throughout the entire virtual book.

Diligent
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, Diligent offers annual renewable subscriptions for customer access to its Diligent Boardbooks product which is hosted on Diligent's secure servers, and offers a complete suite of related
services including training, support, data migration and data security/backup.

The
SaaS model allows Diligent 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 companies to retain control over access to the application while outsourcing to Diligent the support activities, such as managing the IT infrastructure and maintaining the
software.

The
first phase of our business focus was developing and testing the Diligent Boardbooks system, building a loyal core customer base for the product, and promoting product awareness
through



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exposure
in print media. During this phase we did not focus on revenue growth or profitability, and sales and marketing had been conducted by two to three staff members, who fit this role alongside
their other responsibilities. By 2007 we had a commercially viable product and shifted our focus to commit substantial resources to the sales and marketing of our Diligent Boardbooks product. By 2009
we entered the customer acquisition phase of our business and in 2010 saw the introduction of the Diligent Boardbooks iPad app sharply accelerate demand. By 2013 we saw adoption across a number of new
markets, and benefited from continued referrals and growth from our existing client base.

Development Timeline

The discussion below provides a general timeline of the development of the Diligent Boardbooks system:



New Zealand Offering

On December 12, 2007, we completed an offshore offering of 24,000,000 common shares to members of the public in conjunction with
a listing of our stock on the New
Zealand Stock Exchange. The net proceeds of the offering were approximately $16.4 million, which we used to recruit additional staff to grow our business, including more sales people in North
America, Europe and the Pacific Rim; invest in the operational infrastructure required to scale the business; provide working capital to sustain the operations of the business while we further built
our revenue streams; and retire certain debt obligations incurred by SSH LLC in connection with the development of the Diligent Boardbooks business.

Our
common stock is listed on the New Zealand Stock Exchange and trades under the symbol "DIL."



The Company has the following wholly-owned foreign subsidiaries:

Diligent Board Member Services NZ Limited ("DBMS NZ")

New ZealandDiligent Boardbooks Limited ("DBL")

United KingdomDiligent APAC Board Services Pte. Ltd. ("APAC")

SingaporeDiligent Board Services Australia Pty. Ltd. ("DBA")

AustraliaDiligent APAC Limited

Hong KongDiligent Boardbooks GmbH

Germany


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DBMS
NZ primarily provides research and development services for the Company, as well as customer support and account management. DBL provides European sales, marketing, account
management, customer support and IT support. APAC provides Asia-Pacific sales and marketing services. DBA began operations in 2012 and provides sales and marketing in Australia and New Zealand. In
December 2012, the Company formed Diligent APAC Limited in Hong Kong, which has had no operations to date. In February, 2014, the Company formed Diligent Boardbooks GmbH, which holds the
Company's German data center operations. The Company has no domestic subsidiaries.

Market Opportunity

The digital board portal industry can be described as a two tier market consisting of both mature and emerging markets. The U.S.,
Canada, U.K. and Australia have higher awareness and adoption rates, with growth now starting to take hold in a number of new board portal markets in all major regions of the world. Financial
information regarding our revenue, by geographic location of the customer, and long-lived assets located outside the Americas is included in Note 10 to the Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K.

Our
client base was initially comprised of blue chip companies predominantly in the financial services sector. These entities were prime prospects because their board materials are
crucial to effectively managing the corporate governance process. Public recognition by prominent publications helped us become a leader in the provision of board portal software in this sector, as
have referrals from a substantial number of directors using the product. We believe additional opportunities remain in the global financial services sector as well as industries with greater
regulatory and compliance requirements, and specific country sectors with "paperless" environmental mandates.

In
addition to the financial services sector, Diligent has expanded into numerous other sectors as well, including banking, insurance, utilities, oil and gas, retail, consumer products,
manufacturing, construction, telecommunications, health care, universities, not-for-profits and government in the Americas (U.S., Canada, Latin America and the Caribbean), EMEA (Europe, Middle East
and Africa) and the Asia Pacific region. While the newer geographic regions are showing strong growth, North America still remains our largest market, with approximately 32% of the Fortune 1000
companies using Diligent Boardbooks.

In
2013, Diligent achieved revenue of $64.8 million, a year-to-year increase of 65.5%. We believe the Company's ability to continue to significantly grow its recurring income each
quarter confirms that its SaaS business model is strongly positioned for the future.

We
further believe the drivers behind Diligent's significant sales growth include:



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Our Product Strengths

The market for our Diligent Boardbooks system is extremely competitive. Our ability to differentiate our offering from the competition
is based on a number of factors, the most significant of which are described below.

Established Brand.We began development in early 1998 ahead of many of our competitors. As a result, we believe our brand is more
established in the
marketplace. We are also investing to continue to build brand awareness and leadership.

Ease of Use.Diligent Boardbooks portal looks and works just like a book - making it incredibly intuitive and easy to use. Directors
can click or
swipe single pages, or navigate off the agenda. This "ease of use" has been one of the many key elements to Diligent Boardbooks' popularity among executives with little time to learn a new system.

Flexible Online and Offline Viewing.Diligent Boardbooks may be viewed online or offline via Internet or
Wi-fi on the user's tablet or computer. The offline version of Diligent Boardbooks allows a user to download a secure encrypted database of their own corporation's entire Diligent Boardbooks database.
This allows meetings to be run off-site without an Internet connection. The same book-like interface is used to view offline as well as online. This system is secured through high-level security and
encryption technology.

Additionally,
when paper copies are requested, Diligent Boardbooks has a "Print Book" feature that allows directors to print the entire collated boardbook complete with page numbers,
agenda-related footers and more. This feature is controlled by the user, allowing a page, a tab or a whole book to be printed. This is a password-specific functionality controlled by the users.

Offline Synchronization.The main distinction between Diligent Boardbooks and other systems is that Diligent Boardbooks maintains a
single copy and
does not download information that has already been downloaded, making synchronization an efficient and rapid process. Accordingly, there is no risk of having multiple copies or outdated documents
floating on devices or personal computers.

Regular Upgrades.The Diligent Boardbooks software is regularly updated by our software development team. Updates are applied
automatically and users
receive the benefit of enhanced functionality without the inconvenience of software reinstallation.

Application Security.We designed a powerful and secure network to promote protection and availability of client data. Primaries,
secondaries and
fail-over servers and systems are located in geographically diverse locations for application and data delivery security. An automated intrusion detection system blocks malicious activity and reverse
proxy authentication provides another barrier of protection for sensitive data. For complete security, each individual Diligent Boardbooks user has a distinct user name and password that is required
to access the Diligent Boardbooks site. All data is encrypted.

We
have been SSAE 16/ ISAE 3402 Type 2 (SOC 1) or SAS 70Series II Audited (Statement on Auditing StandardsService Organizations) audited
for eight consecutive years.

Global Support.We serve the highest level officers and directors of some of the largest companies in the world. To assist with
completely meeting
the expectations of these individuals and their key employees,
we have staff in seven countries. Our support team is trained to work with its high-level clients to solve any problem a user might encounter.

Full Management and Implementation Team.We provide personalized and high quality account management and implementation to our clients.
Each client
has a dedicated team including an assigned day-to-day account manager and security engineer and executive resources.

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Rapid, Cost Effective Deployment.Diligent Boardbooks can be rapidly deployed for use within an organization. Once a company chooses to
use Diligent
Boardbooks, it can begin to realize the benefits almost immediately. Director training typically takes less than 45 minutes and full product administration training less than 10 hours. We
consider this a very important distinguishing factor relative to key competitors whose systems can take considerably longer to implement.

Business Model

We use the SaaS model to distribute our Diligent Boardbooks software to the market and maintain the security and integrity of our
clients' data. Under this model, we grant customer access to our Diligent Boardbooks product, which is hosted on our secure servers, and offer a complete suite of related services including training,
support, data migration and data security/backup.

The
SaaS model is characterized by a company providing on-demand access to its complex software through a web-based interface in return for subscription-based revenue. The SaaS industry
has undergone significant growth over the past five years, spurred on by several factors:



Central
characteristics of implementing the SaaS model include the:



Marketing; Growth Strategy

We believe building a successful sales and marketing team to present to and serve the boards of the world's major corporations is a
significant undertaking. Staff must have a deep understanding of corporate governance issues while also being able to interact credibly with the board members and senior executives of major U.S. and
international corporations.

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We
believe the Company has built a team with deep experience in business-to-business, technology and governance marketing and sales. We believe we have taken a prominent position in key
channels to build awareness with target audiences. We have built strategic relationships and invested in the preeminent groups and communities serving board members and their administrative teams in a
number of regions. We have committed to provide an educational series on the latest developments in technology in the boardroom and best practices in how organizations are using board portals -through
white papers and at conferences, webinars and invitation-only events, as well as through private one-on-one information sessions provided by our sales force. Lastly, we are working closely with
clients to highlight their success in using the Diligent Boardbooks board portal to improve governance and board communications.

Intellectual Property

We have protected our unique graphical user interface by copyright. We have registered our "Diligent Boardbooks" trademark and will
continue to take steps to protect our intellectual property.

All
software developed by us is protected by copyright. Employees and contractors have no rights to the application source code, design, user interface or any other aspect of the
application, which is protected by copyright and provisions in our employment contracts.

Clients
have no rights, other than the right to access the application source code, and generally have no visibility of the source code. We make occasional exceptions to allow clients to
perform due diligence security audits, which are protected by non-disclosure/non-use agreements. Client rights to the application are defined and protected by the client service agreement with us.

Customers and Certain Contracts

We serve major corporations and a variety of private firms, non-profits and government agencies globally and across multiple industry
sectors. While confidentiality arrangements limit Diligent from disclosing its client base, those who have permitted disclosure include Air New Zealand, Bombardier, Centennial Coal, First Rand Bank,
Gwinnett Medical Center, Goodman Property, Heineken, International Personal Finance, Kingfisher, NZ Rugby Union, Sydney Airport, Randstad Holding and Rio Tinto. We have implemented Diligent Boardbooks
for over 3,400 boards and 72,000 users, with 32% of the Fortune 1000 companies and 37% of the U.K. FTSE 100 companies using our board portal.

Research and Development

Our research and development efforts are now focused on improving and enhancing our Diligent Boardbooks system. Research and
development costs were $ 4.5 million, $2.3 million and $1.5 million for the years 2013, 2012 and 2011, respectively.

Competition

We are subject to significant competition that could increase the price pressure on our service, and impact our ability to gain market
share and win business. We face strong competition from a wide variety of firms, both large and small, including the following:



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We
believe the principal factors that generally determine a company's competitive advantage in the market in which Diligent Boardbooks competes
are:



We
believe that we compete favorably regarding each of these factors.

Regulation

Our business is not subject to any industry-specific regulation that affects our business as currently conducted, although we are
subject to general tax, corporate, securities, employment, privacy and other laws and regulations that affect businesses generally. We are subject to the Listing Rules of the New Zealand Stock
Exchange, New Zealand securities laws and United States securities laws, New Zealand financial reporting and audit laws and regulations applicable to a U.S. public company not listed on a U.S.
national securities exchange. Our need to comply with both New Zealand and U.S. regulatory regimes increases the focus we must place on compliance as well as the cost of compliance. See Item 1A
"Risk Factors" regarding risks associated with our past non-compliance.

Environmental Matters

We do not believe that the costs and effects of compliance with environmental laws will be material to our business.

Employees

As of December 31, 2013, we had approximately 182 full-time employees. Of these, the majority are located in our New York
offices. The remaining employees are located predominantly in our Christchurch, New Zealand office, which provides software and help desk support for several large corporations, as well as providing
the software development of the Diligent Boardbooks product. We also have sales offices in London, Hong Kong, the Netherlands, Sydney and Montreal, and an administrative office in Wayne, New Jersey.

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

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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 December 31, 2013, our disclosure controls were not effective and we identified material weaknesses in our internal control over
financial reporting. 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. In our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed
with the SEC on March 18, 2013, we disclosed 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. In Amendment No. 2 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on
April 7, 2014 in connection with the restatement of our financial statements, we disclosed 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 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, 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. As described in the "Controls and Procedures" section of this Annual
Report, the Company has adopted remedial measures intended to address the material weaknesses described in our prior filings. However, management has determined that these material weaknesses still
existed as of December 31, 2013 because the remedial measures had not been fully implemented and tested as of such date. In addition, management determined that our disclosure controls were
ineffective as of December 31, 2013 due to the existence of these material weaknesses.

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.

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 control over financial reporting on a regular basis, these controls may not always be effective. There

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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 issued substitute awards to the Company's CEO pursuant to 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 were cancelled, as described in Note 14 to the Notes to Consolidated Financial Statements included in this Annual
Report.

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.

9

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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 the "Controls and Procedures" section of this Annual Report.

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 agreements in our financial results in a particular period may expose us to potential regulatory
investigations.

On July 2, 2013, the Audit and Compliance 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 and Compliance 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 reaudit 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 $5.6 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.

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

10

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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 a 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, the 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.

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).

The
Company's US independent registered public accounting firm, Deloitte & Touche LLP has completed its audit of our financial statements in connection with this Annual
Report. Given that Deloitte is a limited liability partnership, Deloitte cannot register under the Auditor Regulation Act of

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2011.
Accordingly, Deloitte is not and cannot be licensed under that Act. The Company therefore sought and was granted, with effect from 18 April 2014, exemptions from the Financial Reporting
Act of 1993 so that it can continue to prepare its financial statements under U.S. GAAP and have them audited by an auditor that is not a licensed audit firm under the Auditor Regulation Act of
2011. The exemption notices being relied upon by Diligent are the Financial Reporting Act (Diligent Board Member Services, Inc.) Exemption Notice 2014 and Securities Act (Diligent Board Member
Services, Inc.) Exemption Notice 2014 ("Exemption Notices"). The Exemption Notices are available on the Financial Markets Authority's website
(http://www.fma.govt.nz/laws-we-enforce/legislation/exemption-notices/current-exemption-notices/)

The
Financial Reporting Act (Diligent Board Member Services, Inc.) Exemption Notice 2014 expires on 31 July 2015 and the Securities Act (Diligent Board Member
Services, Inc.) Exemption Notice 2014 expires on 30 November 2016. The Company will need to reapply to the FMA (NZ) for new exemption notices once the Exemption Notices expire. If new
exemption notices are not granted the Company will not be able to comply with its obligations in New Zealand regarding the preparation and audit of its financial statements.

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, renew for shorter contract lengths, or renew for
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 our clients' 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

12

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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. These 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.

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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 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 2013, our
revenues increased from $5.0 million to $64.8 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:



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 the "Control and Procedures" section included in this Annual Report 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

14

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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 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

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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
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 provisions of $736 thousand and $1.5 million as of December 31, 2012 and 2013, respectively, with respect to sales and use tax liabilities 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

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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

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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, revenues from clients outside the Americas represented approximately 25% of our total revenues for the year ended December 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:



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.

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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:



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 customers and contacts. Federal, state and foreign governments, including
the European Union, and agencies have adopted or are considering adopting laws and regulations regarding the confidentiality, 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, the requirements imposed by data privacy laws and regulations in one jurisdiction can conflict with laws, and the demands of regulators and other governmental authorities,
in other jurisdictions. For example, U.S. authorities can demand access to data that is accessible to or controlled or collected by us because we are located in the U.S., pursuant to the Foreign
Intelligence Surveillance Act, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism, or the Patriot Act, and other similar laws and
regulations, including data collected or controlled by affiliates located outside of the U.S. If any of this data includes personal data and/or confidential information, it is possible that any such
disclosure could cause us to breach data protection

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and
privacy laws and regulations in one or more member states of the European Union or other jurisdictions.

FISA,
the Patriot Act and other similar laws and regulations could adversely affect our ability to expand internationally and attract and retain non-U.S. clients with concerns regarding
the extent to which U.S. governmental and law enforcement agencies may obtain data. Such non-U.S. clients may decide that the privacy risks of storing data with a U.S.-based company may outweigh the
benefits and opt to seek solutions from a company based outside of the United States. Moreover, certain foreign governments are considering mandating on-shore storage of their citizens' data. If any
such requirements are adopted, it may adversely affect our ability to attract, retain or cost-effectively serve non-U.S. clients.

In
addition to government activity, privacy advocacy groups and other 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:



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

20

---



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 affected
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, 2013 and
September 30, 2013, our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and our Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2014 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 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 1B.    UNRESOLVED STAFF COMMENTS



21

---



ITEM 2.    PROPERTIES

Our headquarters are located at 1385 Broadway, 19th Floor, New York, NY 10018, where our primary executive, sales
and administrative offices are located. We also have an ancillary administrative office located at 155 Willowbrook Boulevard, Suite 100, Wayne, NJ 07470. We have sales offices in Canada,
England, Singapore and Australia. We also have an office at 49 Carlyle Street, Christchurch, New Zealand, where our software development takes place. We lease all of these properties and do not own
any real property.

We
believe that our current facilities with the addition of our new office in Christchurch, New Zealand, are suitable and adequate to meet our current needs, and that suitable additional
or substitute space will be available as needed to accommodate expansion of our operations. We intend to open additional sales offices as our geographic sales footprint warrants.

We
believe that our facilities are adequately covered by insurance.

ITEM 3.    LEGAL PROCEEDINGS

The Company is not a party to any material legal proceeding required to be disclosed under Item 103 of Regulation S-K.

ITEM 4.    MINE SAFETY DISCLOSURES



22

---





PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

On December 12, 2007, we completed an offshore offering of 24,000,000 shares of our common stock to members of the public in
conjunction with our listing of our stock on the New Zealand Stock Exchange. Our common stock currently trades on the New Zealand Stock Exchange under the symbol "DIL."

Our
common stock also trades periodically on the Over-the-Counter Bulletin Board (OTCBB) under the symbol "DLBDF." Trading in stocks quoted on the OTCBB is often thin and is
characterized by
wide fluctuations in trading prices due to many factors that may be unrelated to a company's operations or business prospects. OTCBB securities are not listed or traded on the floor of an organized
national or regional stock exchange. Instead, OTCBB securities transactions are conducted through a telephone and computer network connecting dealers in stocks.

The
following table shows the high and low sales prices for our common stock on the New Zealand Stock Exchange in New Zealand dollars.

Price of
Common
Stock (NZD)Period

High

Low20121st Quarter


3.25


1.8920122nd Quarter


3.80


3.2020123rd Quarter


4.09


3.6520124th Quarter


5.61


3.5020131st Quarter


6.49


5.1020132nd Quarter


8.20


6.2020133rd Quarter


6.96


4.2020134th Quarter


5.80


2.76


Holders

As of May 11, 2014, there are 2,875 holders of record of our common stock.

Dividends

We have not paid any dividends on our common stock within the past two fiscal years or during the current fiscal year.

Recent Sales of Unregistered Securities

During the three months ended December 31, 2013, the Company did not issue any unregistered securities except as disclosed in
its Current Report on Form 8-K filed with the SEC on December 24, 2013.

Issuer Purchases of Equity Securities

During the three months ended December 31, 2013, the Company did not repurchase any shares of its common stock.

23

---



Stock Performance Graph

The following shall not be deemed incorporated by reference into any of our other filings under the Securities Exchange Act of 1934, as
amended, or the Securities Act of 1933, as amended. The graph below compares the cumulative total stockholder return on our common stock with the cumulative total return on the Standard &
Poor's 500 Index and the S&P Information Technology Index for each of the last five fiscal years ended December 31, 2013, assuming an initial investment of $100. Data for the Standard &
Poor's 500 Index and the S&P Information Technology Index assume reinvestment of dividends.

The
comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.

GRAPHIC

24

---





ITEM 6.    SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with our audited consolidated financial statements and
related notes thereto and with Management's Discussion and Analysis of Financial Condition and Results of Operations, which are included elsewhere in this Form 10-K. The consolidated statement
of operations data for the years ended December 31, 2013, 2012, and 2011, and the selected consolidated balance sheet data as of December 31, 2013 and 2012 are derived from, and are
qualified by reference to, the audited consolidated financial statements included in this Form 10-K. The consolidated balance sheet data as of December 31, 2011 are derived from audited
consolidated financial statements which are not included in this Form 10-K. The consolidated statement of operations data for the years ended December 31, 2010 and 2009 and the
consolidated balance sheet data as of December 31, 2010 and 2009 are derived from unaudited consolidated financial statements which are not included in this Form 10-K.

Year ended December 31,2013

2012

2011

2010

2009(in thousands)(As restated)

(As restated)Revenues

$
64,757

$
39,127

$
15,584

$
7,563

$
5,001Cost of revenues (excluding depreciation and amortization)


12,959


9,535


4,837


2,756


2,187​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Gross profit


51,798


29,592


10,747


4,807


2,814Operating expenses:Selling and marketing


9,617


8,657


5,165


2,653


2,437General and administrative


20,137


9,593


4,959


3,897


3,944Research and development


4,497


2,276


1,533


964


730Depreciation and amortization


1,645


1,187


579


473


419Investigations and restatement


5,571


263








​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total operating expenses


41,467


21,976


12,236


7,987


7,530​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Operating income (loss)


10,331


7,616


(1,489
)

(3,180
)

(4,716
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Other income (expense), net:Interest income (expense), net


(91
)

97


168


233


358Foreign exchange transaction gain (loss)


(236
)

16


(95
)

(13
)

61Other














171​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total other income (expense), net


(327
)

113


73


220


590​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Income (loss) before (benefit) provision for income taxes


10,004


7,729


(1,416
)

(2,960
)

(4,126
)Income tax expense (benefit)


3,744


(2,924
)

52


24


36​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net income (loss)

$
6,260

$
10,653

$
(1,468
)
$
(2,984
)
$
(4,162
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Accrued preferred stock dividends


(359
)

(359
)

(359
)

(359
)

(267
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net income (loss) attributable to common stockholders

$
5,901

$
10,294

$
(1,827
)
$
(3,343
)
$
(4,429
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Earnings (loss) per share:Basic

$
0.05

$
0.09

$
(0.02
)
$
(0.03
)
$
(0.04
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Diluted

$
0.05

$
0.09

$
(0.02
)
$
(0.03
)
$
(0.04
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Weighted average shares outstanding:Basic


116,427


114,850


114,632


117,154


115,088​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Diluted


121,729


119,597


114,632


119,353


115,088​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


25

---





As of December 31,2013

2012

2011

2010

2009(in thousands)(As restated)

(As restated)Consolidated Balance Sheet Data:Cash and cash equivalent

$
43,583

$
33,311

$
8,931

$
3,212

$
1,130Short-term investments


12,497


103


97


97


73Total assets


78,350


47,712


15,732


5,877


3,224Total non-current liabilities


13,872


7,504


3,254


111


191Total liabilities


53,405


31,755


16,055


5,251


2,302Redeemable preferred stock


3,261


3,233


3,205


3,177


3,150Total stockholders' equity


21,684


12,724


(3,528
)

(2,551
)

(2,228
)


ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management's 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, "Business" under Item 1, and the consolidated financial statements and the related notes thereto which appear
elsewhere in this report. 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" under Part I, Item 1A of this Annual Report on Form 10-K.

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 clients' data and customer service and support for the application.

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 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 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:



26

---





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 the New Zealand Stock Exchange. While our common stock trades on a periodic basis on
the over-the counter bulletin board ("OTCBB"), there is no established public trading market for our common stock in the United States. However, because the Company is a U.S. company incorporated in
Delaware with over 500 shareholders, it is also treated as a public company in the U.S. subject to the reporting and regulatory requirements of the SEC and the Securities Exchange Act of 1934. We are
subject to the Listing Rules of the New Zealand Stock Exchange, New Zealand securities and financial reporting laws and United States securities laws and regulations applicable to a U.S. public
company not listed on a U.S. national securities exchange. Our need to comply with both New Zealand and U.S. regulatory regimes increases the focus we must place on compliance as well as the cost of
compliance.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of
America (GAAP). This is consistent
with the requirements of the Financial Reporting Act of 1993. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during
the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to 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. Management bases its
estimates and judgments on historical experience, known trends or events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.

We
define our "critical accounting policies" as those that require us to make subjective estimates about matters that are uncertain and are likely to have a material impact on our
financial condition and results of operations or that concern the specific manner in which we apply GAAP. Our estimates are based upon assumptions and judgments about matters that are highly uncertain
at the time the accounting estimate is made and applied and require us to assess a range of potential outcomes.

We
believe the following critical accounting policies to be those most important to the portrayal of our financial condition and those that require the most subjective judgment.

27

---



Revenue Recognition

The Company derives its revenues primarily from subscription fees and installation fees, including training. The Company sells
subscriptions to its cloud-based application that are generally one year in length. Its arrangements do not include a general right of return and automatically renew unless the Company is notified
30 days prior to the expiration of the subscription term. The Company's 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 the Company's service and training of its customers.

Revenue
recognition commences when all of the following conditions are met:



In
October 2009, the Financial Accounting Standards Board, or FASB, ratified authoritative accounting guidance regarding revenue recognition for arrangements with multiple deliverables
effective for fiscal periods beginning on or after June 15, 2010. The guidance affects the determination of separate units of accounting in arrangements with multiple deliverables. To qualify
as a separate unit of accounting, the delivered item must have value to the customer on a standalone basis. The Company has determined that the installation fee does not have standalone value, so
accordingly it accounts for its 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 subscription term, which is generally twelve months from the
date of the contract.

Installation
fees paid by customers in connection with the subscription service are deferred and are recognized ratably over the expected life of the customer relationships, generally
nine years. 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. 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 we have not yet
delivered our services or the criteria for the recognition of revenue have not yet been met. Deferred revenues presented in our consolidated balance sheet do not include amounts receivable (either
billed or unbilled) for executed subscription agreements for which we have 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.

28

---



The
Company also discloses gross deferred revenue which consists of deferred revenue 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 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 December 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 of gross accounts receivable and deferred revenue to net accounts receivable and deferred revenue at December 31, 2013, is as follows:

Gross

Adjustment(1)

Net(in thousands)Accounts receivable, net

$
16,443

$
(14,693
)
$
1,750​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Deferred revenuecurrent

$
42,121

$
(14,693
)
$
27,428Deferred revenueless current portion

$
10,471

$


$
10,471​
​
​
​
​
​
​
​
​
​
​Total deferred revenue

$
52,592

$
(14,693
)
$
37,899​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


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
)
$
16,972Deferred 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.


Cost of Revenues and Operating Expenses

Cost of Revenues (exclusive of depreciation and amortization).Cost of revenues consists of direct expenses related to account
management, customer
support and IT services. We do not allocate depreciation, amortization or indirect overhead to cost of revenues.

Selling and Marketing.Selling and marketing expenses are comprised of sales commissions, salaries for sales and marketing employees,
and direct
advertising expenses, including mailings and travel. We do not allocate indirect overhead to selling and marketing.

29

---



General and Administrative.General and administrative expenses consist of compensation and related expenses for executive, finance,
accounting,
administrative and legal, human resources, professional fees, other corporate expenses and costs such as office space and utilities.

Research and Development.Research and development expenses are incurred as we upgrade and maintain our software, and develop 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 our product line.
We do not allocate indirect overhead to research and development. Direct development costs related to software enhancements that add functionality are permitted to be capitalized and amortized over
their useful lives, however we have not historically maintained sufficient detail records of our development efforts to be able to capitalize such costs.

Investigations and Restatement.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. Included in investigations and restatement are the
expenses relating to the Special Committee investigation, including professional fees incurred for legal, accounting and compensation consultants and compensation paid to Special Committee members.
Investigation and restatement costs also include the costs of our Audit Committee's investigation of the accounting errors that gave rise to the need to restate the Company's financial statements and
the costs related to the restatement of our financial
statements and re-audits of the years ended December 31, 2012, 2011 and 2010, which are comprised of legal, accounting and consulting fees.

Share-Based Compensation.Share-based compensation consists of stock, stock options and other share-based compensation awards issued to
employees and
contractors for services rendered. 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 fair value of restricted stock units and performance stock
units is estimated using the market price of the Company's common stock at the date of the grant and we recognize compensation expense for the portion of the award that is expected to vest.

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.

Results of Operations for the Years Ended December 31, 2013 and 2012 (in thousands):

Year ended
December 31,Increase /
(Decrease)2013

2012

% ChangeRevenues

$
64,757

$
39,127

$
25,630


66
%


The
growth in total revenues of 66% for the year ended December 31, 2013 when compared with 2012 is primarily the result of an increase in new subscription agreements, as well as
our client retention rate of 97%. The Company has continued to add subscription agreements each quarter since inception. At December 31, 2013, the total number of client agreements (net of
cancellations) was 2,450, compared with 1,808 at December 31, 2012. A net of 642 new subscription agreements were added during 2013, compared with 782 added in 2012, representing a decrease of
18% in the rate of growth in new subscription agreements. The rate of growth in new sales decreased in both the Americas and Asia/Pacific regions and increased in EMEA (Europe, Middle East and
Africa). Additionally, upgrades from existing customers in 2013, which represents the increase during the year in the value of existing agreements due primarily to additional users being added to the
agreement, increased 4% over 2012.

30

---





The
Company recognizes subscription fees ratably over the contract period, which is generally twelve months. Accordingly, we expect that the growth in subscription agreements will be
reflected by increases in revenues over the next twelve months.

Cost of Revenues and Operating Expenses

Year ended
December 31,Increase /
(Decrease)2013

2012

% ChangeCost of Revenues (excluding depreciation and amortization)

$
12,959

$
9,535

$
3,424


36
%% of Revenues


20
%

24
%


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 $2.7 million, consisting of $1.4 million in account management,
$0.4 million in customer support and $0.9 million in IT services. Hosting costs increased by $0.8 million due to the increase in capacity of our existing centers. These increases
were offset by a decrease due to the transfer of MIS related costs to general and administrative expenses of $0.3 million. Included within these increases are higher costs in the U.K. of
$0.3 million as a result of the increase in European account management, customer support and information technology services staff. We would expect to see additional cost increases in the
future as a result of the opening of our German data center.

Cost
of revenues increased at a lower rate than revenues, resulting in an increase in the gross profit margin to 80% for the year ended 2013, compared with 76% for the year ended 2012.

Year ended
December 31,Increase /
(Decrease)2013

2012

% ChangeSelling and Marketing

$
9,617

$
8,657

$
960


11
%% of Revenues


15
%

22
%


Selling
and marketing expenses consist of $5.6 million of selling expenses and $4.0 million of marketing expense. The net increase is comprised of a decrease in selling
expenses of $1.7 million, offset by an increase in marketing expenses of $2.6 million. The decrease in selling expenses is primarily a result of a decrease in U.S. sales commissions, as
our new sales in the U.S. have declined. The increase in marketing expenses of $2.6 million consists of $1.7 million in the U.S. and $0.8 million in the U.K. and
$0.1 million in Australia. The Company has significantly increased its marketing initiatives in both the U.S. and the U.K. The Company does not have a sales office in New Zealand.

Year ended
December 31,Increase /
(Decrease)2013

2012

% ChangeGeneral and Administrative

$
20,137

$
9,593

$
10,544


110
%% of Revenues


31
%

25
%


The
increase in general and administrative expenses of $10.5 million is comprised of increases of $10.1 million in the U.S., $0.3 million in the U.K.,
$0.2 million in New Zealand and a decline of $0.1 million in Australia. The U.S. increase consists of $1.3 million relating to salaries for the Company's executive officers and
employees offset by a decrease of $0.6 million in executive bonuses. Other increases include: $2.3 million in professional fees resulting from increased compliance costs as a result of
remediation measures taken to correct certain inadvertent regulatory non-compliance;

31

---



$2.2 million
for the performance cash awards for the CEO (see Note 14 to the consolidated financial statements); Management Information Systems (MIS) expenses of $0.2 million;
share-based
compensation of $1.0 million; Directors fees and expenses of $0.5 million, due to the expansion of the Board of Directors; Occupancy and related costs of $0.9 million; Recruiting
fees of $0.3 million; Costs associated with an Enterprise Resource Planning (ERP) implementation of $1.4 million; Insurance costs of $0.1 million and an accrual for sales tax
exposure of $0.3 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 decrease in Australia is due to a reduction in salaries and the New Zealand increase is a result of an increase in salaries and recruiting expenses.

We
anticipate that the cost of remedial measures to improve our internal controls and compliance with applicable regulatory requirements, the costs associated with the ERP
implementation, and the cost of the modification of the incentive compensation package for the Company's CEO, as discussed further in Note 14 of the consolidated financial statements, will
continue through 2014.

Year ended
December 31,Increase /
(Decrease)2013

2012

% ChangeResearch and Development

$
4,497

$
2,276

$
2,221


98
%% of Revenues


7
%

6
%


The
increase in research and development expenses is primarily due to increased staffing in the Company's New Zealand subsidiary for product upgrades and enhancements. The Company
maintains a small research and development department at its New York headquarters, which also had an increase in headcount. Worldwide, R&D labor costs increased $1.6 million, while the
remaining increase is due to the employment of outside consultants for $0.4 million, $0.1 million for travel and $0.1 million in recruiting costs. During 2014, the Company expects
to further increase its investment in research and development to further support increased product development.

Year ended
December 31,Increase /
(Decrease)2013

2012

% ChangeDepreciation and Amortization

$
1,645

$
1,187

$
458


39
%% 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. During
2013 and 2012, the Company made capital expenditures of $3.3 million and $3.7 million, respectively.

Year ended
December 31,Increase /
(Decrease)2013

2012

% ChangeInvestigations and restatement

$
5,571

$
263

$
5,308


N/A% of Revenues


9
%

1
%


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. As of December 31, 2013, the Company incurred costs of
$2.3 million related to the Special Committee investigation and costs of $3.3 million related to the restatement of

32

---



our
historical financial statements, re-audits of the years ended December 31, 2012, 2011 and 2010 and the related Audit Committee investigation. Included in investigations and restatement are
professional fees incurred for legal, accounting and compensation consultants and compensation paid to Special Committee members. Costs incurred during the year ended December 31, 2012 were
fees and expenses for legal counsel related to the Special Committee and estimated NZX penalties.

Year ended
December 31,Increase /
(Decrease)2013

2012

% ChangeInterest Income, net

$
(91
)
$
97

$
(188
)

(194
)%% of Revenues


-0.1
%

0.2
%


Interest
income, net, includes interest income on the note receivable from our predecessor and interest on the Company's cash and cash equivalents and short-term investments which are
interest-bearing, offset by interest expense on capital lease obligations. The decrease in net interest income is attributable to a decrease in interest income on the note receivable, which was repaid
at the end of August 2012 and increased interest expense related to capital leases. This decrease more than exceeded the increase in interest earned on the Company's cash held in interest-bearing
accounts and short-term investments.

Year ended
December 31,Increase /
(Decrease)2013

2012

% ChangeForeign Exchange Gain/(Loss)

$
(236
)
$
16

$
(252
)

N/A% of Revenues


-0.4
%

0.0
%


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 Canadian dollar, the New Zealand dollar, the British Pound and the Australian dollar. 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 large decrease in 2013 is due to the strengthening of
the U.S. dollar against the British Pound (GBP) which caused losses on the settlement of intercompany receivables and on cash held in GBP.

Year ended
December 31,Increase
(Decrease)2013

2012Income Tax (Benefit) Expense

$
3,744

$
(2,924
)
$
6,668Effective Tax Rate


37.4
%

-37.8
%


Income
tax expense increased significantly as the Company's profits have increased and we are subject to tax in multiple jurisdictions. The Company had a net income tax benefit in 2012
as a result of the release of the valuation allowance against the Company's U.S. net deferred tax assets of $4.9 million in the third quarter of 2012. Due to a history of tax losses, resulting
in a cumulative loss position, the Company had recorded a full valuation allowance against all of its U.S. net deferred tax assets at December 31, 2011. In the third quarter of 2012, management
determined that the Company was no longer in a cumulative loss position and it was more likely than not that the Company's net deferred tax assets would be realized through future taxable income.
Accordingly, the Company

33

---



released
the valuation allowance previously provided. This resulted in a deferred tax benefit for the year which exceeded the current tax provision, resulting in a net tax benefit for the year of
$2.9 million.

The
Company's U.S. tax rate in 2013 was lower than the statutory rate due to lower tax rates in foreign jurisdictions, the inclusion in the U.S. tax return of the losses of our Singapore
subsidiary which is a disregarded entity for tax purposes, and the availability of research and development credits in the U.S. The tax rate in 2012 was lower than the statutory rate primarily due to
the utilization in 2012 of $5.3 million of net operating loss carryforwards against which the Company had previously provided a valuation allowance, and due to the inclusion in the U.S. tax
return of the losses of our Singapore subsidiary which is a disregarded entity for tax purposes. 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 were subject to limitation. Beginning in 2013, the Company has an annual limitation of
$350 thousand of the amount of net operating loss carryforwards which may be utilized pursuant to Section 382 of the U.S. Internal Revenue Code, which 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 a significant change in ownership.

Results of Operations for the Years Ended December 31, 2012 and 2011 (in thousands):

Year ended
December 31,Increase /
(Decrease)2012

2011

% ChangeRevenues

$
39,127

$
15,584

$
23,543


151
%


The
growth in total revenues of 151% for the year ended December 31, 2012 when compared with 2011 is primarily the result of the increase in new subscription agreements, as well
as our client retention rate of 97%. The Company has continued to add subscription agreements each quarter since inception. At December 31, 2012, the total number of client agreements (net of
cancellations) was 1,808, compared with 1,026 at December 31, 2011. A net of 782 new subscription agreements were added during 2012, compared with 570 in 2011, an increase of 37%. Sales
increased in all of our major regions, with particularly strong growth in Europe and Australia. Additionally, upgrades from existing customers in 2012, which represents the increase during the year in
the value of existing agreements due primarily to additional users being added to the agreement, increased 213% over 2011.

The
Company recognizes subscription fees 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

Year ended
December 31,Increase /
(Decrease)2012

2011

% ChangeCost of Revenues (excluding depreciation and amortization)

$
9,535

$
4,837

$
4,698


97
%% of Revenues


24
%

31
%


Cost
of revenues is comprised of account management, customer support and information technology hosting 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 $3.4 million, consisting of $2.0 million in account management,
$0.7 million in customer support and $0.7 million in IT services. Hosting costs increased by $0.8 million due to the opening of an additional hosting center and the increase in
capacity at our existing centers. The remainder of the

34

---



increase
consists of higher costs in bandwidth and phone support ($0.2 million), travel ($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. ($0.8 million), Australia ($0.6 million) and New Zealand ($0.4 million) as a result of the increase in European account
management, customer support and IT services staff, the commencement of operations in Australia in 2012 and the addition of customer support staff in New Zealand.

Cost
of revenues increased at a lower rate than revenues, resulting in an increase in the gross profit margin to 76% for the year ended December 31, 2012, compared with 69% for
2011.

Year ended
December 31,Increase /
(Decrease)2012

2011

% ChangeSelling and Marketing

$
8,657

$
5,165

$
3,492


68
%% of Revenues


22
%

33
%


Selling
and marketing expenses increased by 68% in 2012 when compared with 2011 primarily as a result of an increase in salaries and commissions for the Company's worldwide sales force,
the addition of staff in the U.K., and the commencement of operations in Australia.

Selling
expenses increased by $3.0 million worldwide, with salaries and commissions accounting for $2.8 million of the increase. The remainder of the increase is from
recruiting, travel and other selling-related expenses. The Company's U.S. sales force is the largest and accounted for $1.5 million of the increase in salaries and commissions, with the
remainder coming from the U.K. ($0.8 million), Australia ($0.3 million) and Singapore ($0.2 million). The Company does not have a sales office in New Zealand.

Marketing
expenses increased by $0.6 million worldwide, consisting of $0.3 million in the U.S., $0.2 million in the U.K., and a small increase in Australia.
Approximately $0.2 million of the worldwide
increase is attributable to headcount, including the addition of a Chief Marketing Officer in the U.S. Advertising expenses increased by $0.2 million, with trade shows and public relations
accounting for an additional $0.2 million of the increase.

Year ended
December 31,Increase /
(Decrease)2012

2011

% ChangeGeneral and Administrative

$
9,593

$
4,959

$
4,634


93
%% of Revenues


25
%

32
%


The
increase in general and administrative expenses of $4.6 million is comprised of increases of $3.4 million in the U.S., $0.7 million in the U.K.,
$0.3 million in Australia and $0.2 million in New Zealand. The U.S. increase consists primarily of increases in headcount, salaries and bonuses for the Company's executive officers and
employees of $1.2 million. Other increases include professional fees of $0.5 million; MIS expenses of $0.5 million; share-based compensation of $0.5 million; Directors fees
and expenses of $0.3 million due to the expansion of the Board of Directors; occupancy costs of $0.2 million; $0.2 million for potential sales tax exposure in the U.S. and other
expenses related to the growth of the Company.

The
increase in the U.K. is due to the expansion of the Company's European operations, and includes $0.3 million in employee costs, including the addition of an executive director
in the U.K., and $0.3 million in occupancy costs. The increase in Australia is due to the commencement of operations in that country, and the New Zealand increase is a result of an increase in
salaries, professional fees, occupancy and recruiting expenses due to the growth of the Company.

Year ended
December 31,Increase /
(Decrease)2012

2011

% ChangeResearch and Development

$
2,276

$
1,533

$
743


48
%% of Revenues


6
%

10
%


35

---





The
increase in research and development expenses is primarily due to increased staffing in the Company's New Zealand subsidiary for product upgrades and enhancements. The Company
maintains a small research and development department at its New York headquarters, which also had a slight increase in headcount. Worldwide, R&D labor costs increased $0.6 million, while the
remaining increase is due to software, internet and disaster recovery expenses.

Year ended
December 31,Increase /
(Decrease)2012

2011

% ChangeDepreciation and Amortization

$
1,187

$
579

$
608


105
%% of Revenues


3
%

4
%


The
increase in depreciation and amortization is attributable to the net increase in property and equipment, consisting principally of computer equipment and computer software. During
2012 and 2011, the Company made capital expenditures of $3.7 million and $1.5 million, respectively, primarily for computer equipment and computer software.

Year ended
December 31,Increase /
(Decrease)2012

2011

% ChangeSpecial committee expenses

$
263

$


$
263


N/A% of Revenues


1
%




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 fees and expenses
incurred by legal counsel through December 31, 2012, and estimated NZX penalties.

Year ended
December 31,Increase /
(Decrease)2012

2011

% ChangeInterest Income, net

$
97

$
168

$
(71
)

-42
%% of Revenues


0.2
%

1
%


Interest
income, net, includes interest income on the note receivable from our predecessor and interest on the Company's cash and cash equivalents and term deposits which are
interest-bearing, offset by interest expense on capital lease obligations. The decrease in net interest income is attributable to a decrease in interest income on the note receivable, which was repaid
at the end of August 2012. This decrease more than exceeded the increase in interest earned on the Company's cash held in interest-bearing accounts.

Year ended
December 31,Increase /
(Decrease)2012

2011

% ChangeForeign Exchange Gain/(Loss)

$
16

$
(95
)
$
111


117
%% of Revenues


0.0
%

-0.6
%


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

36

---



portion
of its cash balances in foreign currencies, primarily the Canadian dollar, the New Zealand dollar, the British Pound and the Australian dollar. 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 small gain in 2012 is the result of the relative stability over the year in the currencies in which the Company transacts business, as well as the prompt settlement of intercompany
receivables and payables. The loss in 2011 was primarily a result of the strengthening of the U.S. dollar against the New Zealand dollar and British Pound.

Year ended
December 31,Increase
(Decrease)2012

2011Income Tax (Benefit) Expense

$
(2,924
)
$
52

$
(2,976
)Effective Tax Rate


-37.8
%

N/A


The
income tax benefit of $2.9 million in 2012 is a result of the release of the valuation allowance against the Company's U.S. net deferred tax assets of $4.9 million in
the third quarter of 2012. Due to a history of tax losses, resulting in a cumulative loss position, the Company had recorded a full valuation allowance against all of its U.S. net deferred tax assets
at December 31, 2011. In the third quarter of 2012, management determined that the Company was no longer in a cumulative loss position and it was more likely than not that the Company's net
deferred tax assets would be realized through future taxable income. Accordingly, the Company released the valuation allowance previously provided. This resulted in a deferred tax benefit for the year
which exceeded the current tax provision, resulting in a net tax benefit for the year of $2.9 million. The income tax provision in 2011 consists of foreign taxes on the Company's New Zealand
subsidiary.

The
Company's U.S. current tax rate was lower than the statutory rate due to the utilization in 2012 of $5.3 million of net operating loss carryforwards against which the Company
had previously provided a valuation allowance, and due to the inclusion in the U.S. tax return of the losses of our Singapore subsidiary which is a disregarded entity for tax purposes. 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 were
subject to limitation. Beginning in 2013, the Company has an annual limitation of $350 thousand of the amount of net operating loss carryforwards which may be utilized pursuant to
Section 382 of the U.S. Internal Revenue Code, which 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 a significant change in ownership.

Liquidity and Capital Resources

At December 31, 2013, the Company's sources of liquidity consist of cash and cash equivalents and short-term investments of
approximately $56.1 million.

In
the early stages of the Company's history, its 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 it relied on capital infusions to sustain and grow the business, 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

37

---



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.

In
order to minimize credit and market risk at December 31, 2013, the Company had invested $27.5 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. In addition, the Company invested $12.5 million in U.S. treasury instruments with maturities greater than
90 days. The remainder of our cash was 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.

As
of December 31, 2013, 2012 and 2011, the undistributed earnings in our international subsidiaries were $2.9 million, $463 thousand and $187 thousand,
respectively. We intend to permanently reinvest the undistributed earnings of the Company's foreign operations. We are not dependent on foreign earnings to fund our domestic operations. We believe
that our existing sources of liquity will be sufficient to support our operating, capital and debt service requirements for the foreseeable future.

Cash flows

2013

2012

2011(in thousands)Cash provided by (used in):Operating activities

$
27,062

$
22,796

$
6,940Investing activities

$
(16,165
)
$
(2,460
)
$
(663
)Financing activities

$
(516
)
$
3,972

$
(554
)




Cash provided by operating activities for the year ended December 31, 2013 increased compared with 2012, due to the increase in
the amount of cash provided by the growth in deferred revenue compared to the prior year and an increase in accounts payable and accrued expenses.



Cash used in investing activities for the year ended December 31, 2013 consists of purchases of computer equipment, software and
leasehold improvements of $3.3 million, and net purchases of short-term investments of $12.5 million and a security deposit of $462 thousand.



During 2013, the Company recognized a $0.3 million excess 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 of $0.1 million, as well as payments under capital lease and software licensing obligations of $0.8 million. In 2012, cash inflows included the repayment of the note receivable
from the Company's predecessor entity of $3.1 million and $0.6 million in cash from the exercise of stock options offset by cash outflows from dividends paid on preferred stock and
repayments of capital leases and software licensing agreements.

38

---



Contractual Commitments

Payments Due by Period(1)Total

Up to
1 Year

2 - 3
Years

4 - 5
Years

After
5 Years(in thousands)Capital Lease and Software Licensing Obligations

$
1,939

$
1,055

$
884

$


$
Operating Leases


14,040


1,663


3,229


2,682


6,466​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
15,979

$
2,718

$
4,113

$
2,682

$
6,466​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)Does
not include our liabilities for uncertain tax positions of $439 thousand. Because the timing of future cash outflows associated with our
liabilities for uncertain tax positions is highly uncertain, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities (see
Note 11 to our consolidated financial statements).


Off-Balance Sheet Arrangements

The Company is not a party to any off-balance sheet arrangements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures about Market Risk

Foreign currency exchange risk

The Company's wholly-owned subsidiaries, DBL, DBMS NZ and DBA, utilize the British Pound Sterling (GBP), New Zealand Dollar (NZD) and
Australian Dollar (AUD), respectively, as their functional currencies. Assets and liabilities of these subsidiaries are translated to U.S. dollars at exchange rates in effect at the balance sheet
dates, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive income or loss. Prior to the fourth quarter of 2012, the Company's
Singapore subsidiary used the Singapore dollar as its functional currency. Effective October 1, 2012, the Company changed the functional currency to the U.S. dollar. The Company believes that
the growth in this subsidiary's U.S. dollar denominated revenues and expenses indicated a change in the economic facts and circumstances that justified the change in the functional currency. The
effects of the change in functional currency were not significant to the Company's consolidated financial statements.

Transactions
in foreign currencies are reported at the rates of exchange at the transaction date. Assets and liabilities are translated at the rates of exchange in effect at the balance
sheet date. All differences are recorded in results of operations.

From
time to time, the Company uses foreign currency option contracts or foreign currency forward contracts that are not designated as hedging instruments to manage exposure to
fluctuations in foreign currency. The Company uses these instruments as economic hedges and not for speculative or trading purposes. The fair value of the foreign currency contracts represents the
amount the Company would receive or pay to terminate the contract at the reporting date, and is recorded in other assets or liabilities, depending on whether the net amount is a gain or loss. During
2013 and 2012, the Company did not enter into any foreign currency contracts.

Interest Rate Sensitivity

We had cash, cash equivalents and short-term investments totaling $56.1 million at December 31, 2013. This amount was
invested primarily in money market funds and government securities. The cash, cash equivalents and short-term marketable securities are held for general corporate purposes including possible
acquisitions of, or investments in, services or technologies, working capital and capital expenditures. Our investments are made for capital preservation purposes. We do not enter into investments for
trading or speculative purposes.

39

---





ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS



PAGEReport of Independent Registered Public Accounting Firm


41Consolidated Balance Sheets


42Consolidated Statements of Operations


43Consolidated Statements of Comprehensive Income (Loss)


44Consolidated Statements of Changes in Stockholders' Equity


45Consolidated Statements of Cash Flows


46Notes to Consolidated Financial Statements


47


40

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
Diligent Board Member Services, Inc.
New York, New York

We
have audited the accompanying consolidated balance sheets of Diligent Board Member Services, Inc. and subsidiaries (the "Company") as of December 31, 2013 and 2012, and
the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2013.
Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Diligent Board Member Services, Inc. and
subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/
Deloitte & Touche LLP

New
York, New York

April 29,
2014

41

---





Diligent Board Member Services, Inc.        CONSOLIDATED BALANCE SHEETS        (in thousands, except share and per share amounts)

December 31,2013

2012ASSETSCurrent assets:Cash and cash equivalents

$
43,583

$
33,311Short-term investments


12,497


103Accounts receivable, net


1,750


1,542Deferred commissions


1,532


2,081Prepaid expenses and other current assets


1,936


899Deferred tax assets


3,111


3,939Income tax receivable


1,430


​
​
​
​
​
​
​
​Total current assets


65,839


41,875Property and equipment, net


8,228


3,913Deferred tax assets


3,607


1,532Security deposits


676


225Other non-current assets





167​
​
​
​
​
​
​
​Total assets

$
78,350

$
47,712​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
2,402

$
222Accrued expenses and other liabilities


8,856


4,964Income taxes payable





1,391Deferred revenue


27,428


16,972Obligations under capital leases


847


702​
​
​
​
​
​
​
​Total current liabilities


39,533


24,251Non-current liabilities:Deferred revenue, less current portion


10,471


6,964Obligations under capital leases, less current portion


767


237Deferred tax liabilities





31Other non-current liabilities


2,634


272​
​
​
​
​
​
​
​Total non-current liabilities


13,872


7,504​
​
​
​
​
​
​
​Total liabilities


53,405


31,755​
​
​
​
​
​
​
​Commitments and contingenciesRedeemable 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 $5,259)


3,261


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


84Additional paid-in capital


28,861


26,052Accumulated deficit


(7,220
)

(13,480
)Accumulated other comprehensive (loss) income


(41
)

68​
​
​
​
​
​
​
​Total stockholders' equity


21,684


12,724​
​
​
​
​
​
​
​Total liabilities, redeemable preferred stock and stockholders' equity

$
78,350

$
47,712​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​




See accompanying notes to consolidated financial statements

42

---





Diligent Board Member Services, Inc.        CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share amounts)

Year ended December 31,2013

2012

2011Revenues

$
64,757

$
39,127

$
15,584Cost of revenues (excluding depreciation and amortization)


12,959


9,535


4,837​
​
​
​
​
​
​
​
​
​
​Gross profit


51,798


29,592


10,747Operating expenses:Selling and marketing


9,617


8,657


5,165General and administrative


20,137


9,593


4,959Research and development


4,497


2,276


1,533Depreciation and amortization


1,645


1,187


579Investigations and restatement


5,571


263


​
​
​
​
​
​
​
​
​
​
​Total operating expenses


41,467


21,976


12,236​
​
​
​
​
​
​
​
​
​
​Operating income (loss)


10,331


7,616


(1,489
)​
​
​
​
​
​
​
​
​
​
​Other income (expense), net:Interest income (expense), net


(91
)

97


168Foreign exchange transaction gain (loss)


(236
)

16


(95
)​
​
​
​
​
​
​
​
​
​
​Total other income (expense), net


(327
)

113


73​
​
​
​
​
​
​
​
​
​
​Income before (benefit) provision for income taxes


10,004


7,729


(1,416
)Income tax (benefit) expense


3,744


(2,924
)

52​
​
​
​
​
​
​
​
​
​
​Net income (loss)

$
6,260

$
10,653

$
(1,468
)​
​
​
​
​
​
​
​
​
​
​Accrued preferred stock dividends


(359
)

(359
)

(359
)​
​
​
​
​
​
​
​
​
​
​Net income (loss) attributable to common stockholders

$
5,901

$
10,294

$
(1,827
)​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Earnings (loss) per share:Basic

$
0.05

$
0.09

$
(0.02
)​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Diluted

$
0.05

$
0.09

$
(0.02
)​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Weighted average shares outstanding:Basic


116,427


114,850


114,632​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Diluted


121,729


119,597


114,632​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​




See accompanying notes to consolidated financial statements

43

---





Diligent Board Member Services, Inc.        Consolidated Statements of Comprehensive Income (Loss)        (in thousands)

Year ended December 31,2013

2012

2011Net income (loss)

$
6,260

$
10,653

$
(1,468
)Other comprehensive income (loss):Foreign exchange translation adjustment


(109
)

71


(1
)​
​
​
​
​
​
​
​
​
​
​Comprehensive income (loss)

$
6,151

$
10,724

$
(1,469
)​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​




See accompanying notes to consolidated financial statements

44

---





Diligent Board Member Services, Inc.        Consolidated Statement of Changes in Stockholders' Equity        (in thousands, except per share amounts)

Common
Shares

Common
Stock

Additional
Paid-in-
Capital

Note
Receivable
from
Shareholder

Accumulated
Deficit

Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders'
EquityBalance at January 1, 2011


81,968

$
82

$
23,108

$
(3,076
)
$
(22,665
)
$
(2
)

(2,553
)Net loss














(1,468
)




(1,468
)Other comprehensive loss

















(1
)

(1
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total comprehensive loss




















(1,469
)Capital contribution








200











200Share-based compensation








908











908Repurchase and cancellation of common stock


(225
)




(250
)










(250
)Repayment of note receivable from shareholder











4








4Exercise of stock options


118





19











19Amortization of preferred stock offering costs








(28
)










(28
)Preferred stock dividend ($0.01 per share)








(359
)










(359
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Balance at January 1, 2012


81,861


82


23,598


(3,072
)

(24,133
)

(3
)

(3,528
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net income














10,653





10,653Other comprehensive income

















71


71​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total comprehensive loss




















10,724Capital contribution








240











240Share-based compensation








1,384











1,384Tender of common stock in lieu of interest payment on note receivable from shareholder


(134
)




(200
)










(200
)Repayment of note receivable from shareholder











3,072








3,072Exercise of stock options


1,849


2


543











545Shares issued under employee stock purchase plan


10





30











30Excess tax benefitsstock compensation








844











844Amortization of preferred stock offering costs








(28
)










(28
)Preferred stock dividend ($0.01 per share)








(359
)










(359
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Balance at December 31, 2012


83,586


84


26,052





(13,480
)

68


12,724​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net income














6,260





6,260Other comprehensive loss

















(109
)

(109
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total comprehensive income




















6,151Capital contribution








240











240Share-based compensation








2,581











2,581Exercise of stock options


190





73











73Excess tax benefitsstock compensation








302











302Amortization of preferred stock offering costs








(28
)










(28
)Preferred stock dividend ($0.01 per share)








(359
)










(359
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Balance at December 31, 2013


83,776

$
84

$
28,861

$


$
(7,220
)
$
(41
)
$
21,684​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​




See accompanying notes to consolidated financial statements

45

---





Diligent Board Member Services, Inc.        Consolidated Statements of Cash Flows        (in thousands)

Year ended December 31,2013

2012

2011Cash flows from operating activities:Net income (loss)

$
6,260

$
10,653

$
(1,468
)Adjustments to reconcile net income to net cash provided by operating activities:Deferred taxes


(1,278
)

(5,440
)

Excess tax benefits realized from share-based compensation


(302
)

(844
)

Depreciation and amortization


1,645


1,187


579Share-based compensation


2,581


1,384


908Allowance for doubtful accounts





50


Changes in operating assets and liabilities:Accounts receivable


(209
)

(431
)

(947
)Deferred commissions


549


152


(1,512
)Prepaid expenses and other assets


(871
)

(470
)

(470
)Security deposits


11


(127
)

129Accounts payable and accrued expenses


4,677


1,221


2,195Income taxes payable


(2,518
)

2,236


Deferred revenue


13,964


13,065


7,513Other non-current liabilities


2,508





Other


45


160


13​
​
​
​
​
​
​
​
​
​
​Net cash provided by operating activities


27,062


22,796


6,940​
​
​
​
​
​
​
​
​
​
​Cash flows from investing activities:Purchase of short-term investments


(17,495
)




Proceeds from maturity of short-term investments


5,101





Restricted cashsecurity deposit


(462
)




Purchases of property and equipment


(3,309
)

(2,460
)

(663
)​
​
​
​
​
​
​
​
​
​
​Net cash used in investing activities


(16,165
)

(2,460
)

(663
)​
​
​
​
​
​
​
​
​
​
​Cash flows from financing activities:Repayment of note receivable from shareholder





3,072


4Payment of preferred stock dividend


(120
)

(120
)

(159
)Proceeds from exercise of stock options and purchase of shares under stock purchase plan


73


575


19Excess tax benefits realized from share-based compensation


302


844


Repayments of obligations under capital leases


(626
)

(254
)

(96
)Payments of obligations under software licensing agreements


(145
)

(145
)

(72
)Repurchase of common stock








(250
)​
​
​
​
​
​
​
​
​
​
​Net cash provided by (used in) financing activities


(516
)

3,972


(554
)​
​
​
​
​
​
​
​
​
​
​Effect of exchange rates on cash and cash equivalents


(109
)

72


(4
)​
​
​
​
​
​
​
​
​
​
​Net increase in cash and cash equivalents


10,272


24,380


5,719Cash and cash equivalents at beginning of year


33,311


8,931


3,212​
​
​
​
​
​
​
​
​
​
​Cash and cash equivalents at end of year

$
43,583

$
33,311

$
8,931​
​
​
​
​
​
​
​
​
​
​Supplemental disclosure of cash flow information:Cash paid during the year for :Interest

$
90

$
33

$
27Income taxes

$
7,158

$
212

$
51Supplemental disclosure of noncash investing and financing activities:Tender of common stock in lieu of interest payment on note receivable from shareholder

$


$
200

$
Capital contribution in lieu of preferred stock dividend

$
240

$
240

$
200Property and equipment acquired under capital leases

$
1,306

$
1,024

$
118Acquisition of software licenses

$


$


$
389Accounts payable for property and equipment

$
1,395

$


$
742




See accompanying notes to consolidated financial statements

46

---





DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

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 before, 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, 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 Ltd. ("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.

2) Investigations and restatement

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 the issuance of such grants, 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 Note 14, 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.

47

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

2) Investigations and restatement (Continued)

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 recommended,
and the Board fully endorsed, that the Company work with its regulators to resolve these issues. In September, 2013 the NZ Markets Disciplinary Tribunal approved 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.

Costs
for the Special Committee for the year ended December 31, 2013 were $2.3 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, NZX penalties and compensation 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.

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. Costs of
the investigation for the year ended December 31, 2013 were $0.9 million and consisted of legal fees.

Restatement and Re-audit Engagements

In August, 2013, the Company announced that its historical financial statements for the years ended December 31, 2012, 2011 and
2010 and the quarter ended March 31, 2013 would be restated due to revenue recognition errors. The Company completed the restatement process in April of 2014. Costs for the restatement and
re-audits incurred during the year ended December 31, 2013 were $2.3 million, with additional costs to be incurred in the first quarter of 2014. These costs were comprised of
professional fees incurred for accounting, auditing and consulting services and restatement bonuses.

48

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

3) Significant accounting policies

Basis of presentationThe Company's consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America.

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 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 purchase 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.

Short-term investmentsShort-term investments consist of U.S. treasury bills with original maturities of more than three
months at the time of purchase and term deposits with banks, with maturities greater than three months at inception.

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 December 31, 2013 and 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:



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.

49

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

3) Significant accounting policies (Continued)

At
December 31, 2013, cash equivalents include investments in U.S. treasury bills of $4.5 million and U.S. treasury money markets of $23 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, 2013, short-term investments include
investments in U.S. treasury bills of $12.5 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, short-term investments include a term deposit with a New Zealand bank with an initial term of approximately 365 days, in the amounts of NZD 125 thousand
(US$103 thousand), which approximates fair value.

Property and equipmentProperty and equipment consists of computer and office equipment, leasehold improvements and
internal-use computer software. Property and equipment are carried at cost, less accumulated depreciation and amortization and any impairment losses.

Depreciation and amortizationDepreciation on property and equipment is computed on a straight line basis at rates
adequate to recover the cost of the assets over their estimated useful lives, which range from three to five years. Leasehold improvements are depreciated over estimated useful lives of the assets or
the term of the underlying lease, whichever is shorter. Amortization of internal-use computer software is computed on the straight-line method over its estimated useful life, which is three years.
Expenditures for repair and maintenance costs are expensed as incurred.

Impairment of long-lived assetsThe Company periodically reviews the carrying amounts of its tangible and intangible
assets to determine whether events or changes in circumstances indicate the carrying amount of an asset may not be fully recoverable. The carrying amount of a long-lived asset is not recoverable if it
exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Measurement of an impairment loss for long-lived assets and certain identifiable
intangible assets that management expects to hold and use is based on the fair value of the asset. An impairment loss is measured as the amount by which the carrying amount of the long-lived asset
exceeds its fair value.

Revenue recognitionThe Company derives its revenues primarily from subscription fees and installation fees, including
training. The Company sells subscriptions to its cloud-based application that are generally one year in length. Its arrangements do not include a general right of return and automatically renew unless
the Company is notified 30 days prior to the expiration of the initial term. The Company's 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 the Company's service and training of its customers.

Revenue
recognition commences when all of the following conditions are met:



50

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

3) Significant accounting policies (Continued)



In
October 2009, the Financial Accounting Standards Board, or FASB, ratified authoritative accounting guidance regarding revenue recognition for arrangements with multiple deliverables
effective for fiscal periods beginning on or after June 15, 2010. The guidance affects the determination of separate units of accounting in arrangements with multiple deliverables. To qualify
as a separate unit of accounting, the delivered item must have value to the customer on a standalone basis. The Company has determined that the installation fee does not have standalone value, so
accordingly, it accounts for its arrangements as a single unit of accounting.

Revenue
from the Company's 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 life of the customer relationships, generally
nine years. 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. 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 December 31, 2013 and 2012, the Company has recorded a provision for doubtful
accounts of $100 thousand.

51

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

3) Significant accounting policies (Continued)

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 sufficient detail records of its development efforts to be able to capitalize such
costs.

Operating leasesThe Company records rental costs, including costs related to fixed rent escalation clauses and rent
holidays, on a straight-line basis over the lease term.

Income taxesThe Company files U.S. federal and state income tax returns. Foreign operations file income tax
returns in their respective foreign jurisdictions. The Company accounts for deferred income taxes under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. A valuation allowance is recorded if it is considered more likely than not that some or all of a deferred tax asset may not be realized. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The
tax effects of an uncertain tax position taken or expected be taken in income tax returns are recognized only if it is "more likely-than-not" to be sustained on examination by the
taxing authorities, based on its technical merits as of the reporting date. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that
has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company recognizes the benefit of an uncertain tax position in the period when it is effectively settled.
Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the tax position would be sustained upon examination. The Company recognizes
accrued interest and penalties related to uncertain tax positions in income tax expense.

Foreign exchangeThe Company's wholly-owned subsidiaries, DBL, DBMS NZ and DBA, utilize the British Pound Sterling (GBP),
New Zealand Dollar (NZD) and Australian Dollar (AUD), respectively, as their functional currencies. Assets and liabilities of these subsidiaries are translated to U.S. dollars at exchange rates in
effect at the balance sheet date, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive income or loss. Prior to the fourth quarter of
2012, the Company's Singapore subsidiary used the Singapore dollar as its functional currency. Effective October 1, 2012, the Company changed the functional currency of this subsidiary to the
U.S. dollar. The Company believes that the growth in this subsidiary's U.S. dollar denominated revenues and expenses indicated a change in the economic facts and circumstances that justified the
change in the functional currency. The effects of the change in functional currency were not significant to the Company's consolidated financial statements.

52

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

3) Significant accounting policies (Continued)

Transactions
in foreign currencies are reported at the rates of exchange at the transaction date. Assets and liabilities are translated at the rates of exchange in effect at the balance
sheet date. All differences are recorded in results of operations.

From
time to time, the Company uses foreign currency option contracts or foreign currency forward contracts that are not designated as hedging instruments to manage exposure to
fluctuations in foreign currency. The Company uses these instruments as economic hedges and not for speculative or trading
purposes. The fair value of the foreign currency contracts represents the amount the Company would receive or pay to terminate the contract at the reporting date, and is recorded in other assets or
liabilities, depending on whether the net amount is a gain or loss.

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 fair value of restricted stock units and performance stock units is estimated using the market price of the Company's common stock at the date of the grant and we recognize compensation
expense for the portion of the award that is expected to vest.

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.

Segment reportingOperating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated on a regular basis by the chief operating decision-maker, or decision making group, in deciding how to allocate resources to an individual segment and in
assessing performance of the segment. In light of the Company's current product offering, management believes that the Company has one operating segment.

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 preferred stockholders are entitled to participate on
an "as converted basis" in any dividends paid on the Company's common stock, and as such are considered participating securities to which earnings should be allocated using the two-class method.

Diluted
earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised, settled or converted into common stock,
unless the effect is anti-dilutive. Stock options and employee share awards are included as potential dilutive securities for the applicable periods, except that 360 thousand and
475 thousand stock options have been excluded in 2013 and 2012, respectively because their effect is antidilutive.

53

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

3) Significant accounting policies (Continued)

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

Year ended December 31,2013

2012

2011(in thousands)Basic weighted average common shares outstanding


83,760


82,183


81,965Basic weighted average preferred shares outstanding


32,667


32,667


32,667​
​
​
​
​
​
​
​
​
​
​Basic weighted average shares outstanding


116,427


114,850


114,632Dilutive effect of stock options


5,236


4,747


Dilutive effect of restricted stock units


66





​
​
​
​
​
​
​
​
​
​
​Diluted weighted average shares outstanding


121,729


119,597


114,632​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


Recent accounting pronouncementsIn February 2013, the FASB issued ASU 2013-02, "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 as of January 1, 2013 and did not have a material impact on the Company's consolidated financial statements.

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 are not expected to have a material impact on the consolidated financial position, results of operations, and cash flows, or do not apply to the Company's
operations.

4) Short-term investments

At December 31, 2013, short-term investments include investments in U.S. treasury bills of $12.5 million, which are carried at cost which approximates fair value.

At
December 31, 2012, short-term investments include a term deposit with a New Zealand bank with an initial term of 365 days. The term deposit in the amount of NZD
125 thousand (US$103 thousand at December 31, 2012) bears interest at 4.4% and matured in March 2013.

54

---





DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

5) Property and equipment and obligations under capital leases

Property and equipment is comprised of the following:

December 31,2013

2012(in thousands)Equipment

$
8,523

$
4,893Computer software


2,201


1,743Leasehold improvements


2,106


233​
​
​
​
​
​
​
​12,830


6,869Less: Accumulated depreciation and amortization


(4,602
)

(2,956
)​
​
​
​
​
​
​
​Net property and equipment

$
8,228

$
3,913​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


Depreciation
and amortization expense for the years ended December 31, 2013, 2012 and 2011 were $1.6 million, $1.2 million and $579 thousand, respectively.

Obligations
under capital leases consist of various financing arrangements entered into by the Company to acquire computer equipment and software. The leases bear interest at rates
ranging from 3.0% to 5.6% per annum, with monthly payments ranging from $2 thousand to $31 thousand, and maturities from September 1, 2014 through February 1, 2016.

Each
lease is secured by the underlying leased asset. Amortization of assets recorded under capital leases is included in depreciation expense. The assets relating to capital leases,
included in property and equipment on the balance sheet, are as follows:

December 31,2013

2012(in thousands)Capital lease assets included in equipment

$
1,937

$
1,299Capital lease assets included in computer software


511


190Less: Accumulated depreciation and amortization


(579
)

(321
)​
​
​
​
​
​
​
​$
1,869

$
1,168​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​




Year ended
December 31,2013

2012

2011Depreciation expense relating to capital lease assets

$
417

$
208

$
49​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


55

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

5) Property and equipment and obligations under capital leases (Continued)

The
following is a schedule of future minimum lease payments due under capital leases and software licensing agreements as of December 31, 2013:

Year ending December 31,

Future Minimum
Lease Payments
(in thousands)2014

$
1,0552015


7912016


93​
​
​
​
​Total minimum payments


1,939Less interest portion of payments


(88
)Less executory costs


(237
)​
​
​
​
​Present value of minimum payments

$
1,614​
​
​
​
​​
​
​
​
​


6) Derivatives

From
time to time, the Company uses foreign currency option and forward contracts that are not designated as hedging instruments to manage exposure to fluctuations in foreign currency.
The Company did not enter into any foreign currency contracts in 2013 or 2012. At December 31, 2011, the Company had three foreign currency forward exchange contracts outstanding to purchase
NZD 525 thousand in the aggregate, which matured in the first quarter of 2012. As of December 31, 2011, the fair value of these contracts resulted in a gain of $15 thousand
which was recorded in foreign currency transaction gain/loss and prepaid expenses and other current assets.

7) Accrued expenses and other current liabilities

Accrued expenses and other current liabilities are comprised of the following:

December 31,2013

2012(in thousands)Accrued commissions, bonuses, and payroll

$
1,762

$
2,705Performance cash awards


1,564


Equipment maintenance contracts


152


243Special Committee and other one-time costs


1,836


263Accrued Value Added Tax and Goods and Services Tax for foreign subsidiaries


464


231Software license commitments


72


259Accrued Sales Taxes


1,468


736Accrued preferred stock dividend


359


359Other (individually less than 5% of total current liabilities)


1,179


168​
​
​
​
​
​
​
​Total accrued expenses and other liabilities

$
8,856

$
4,964​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


56

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

8) Line of credit facility

In March 2010, the Company entered into an agreement with Spring Street Partners, L.P. ("the Lender") pursuant to which the Lender extended a $1.0 million revolving line of
credit facility to the Company. The Lender is the holder of approximately 22 million shares of the Company's Series A Preferred Stock and 4.2 million shares of the Company's
common stock. The founder and managing partner of the Lender is also the Chairman of the Board of Directors of the Company.

The
line of credit initially bore interest at a fixed rate of 9.50% per annum on outstanding borrowings and had a maturity date of September 2011. In September 2011, the credit agreement
was amended to extend the maturity date to September 2012 and reduce the interest rate under the facility to 7.0%.

The
Company never drew any amounts under this credit facility and the facility expired unused on September 12, 2012.

9) Related party transactions

Marketing expenseDuring the years ended December 31, 2012 and 2011, the Company incurred marketing expenses of
approximately $61 thousand and $228 thousand respectively for services rendered by an entity owned by a stockholder of the Company.

Line of CreditThe line of credit described in Note 8 was with a related party, as Spring Street
Partners, L.P. is a significant stockholder in the Company.

Payables to related partiesThere were no material payables to related parties at December 31, 2013 and 2012.

Note Receivable from ShareholderAt December 31, 2011 the Company had a note receivable from a shareholder with a
principal balance of $3.1 million that was due on October 1, 2012 from Services Share Holding, LLC ("SSH LLC") (the Company's predecessor entity). SSH LLC repaid the
Note in full on August 27, 2012, together with all outstanding accrued interest of $127 thousand.

10) Geographic information

The Company's revenue, by geographic location of the customer, and long-lived assets located outside the Americas are as follows:

Year ended December 31,2013

2012

2011(in thousands)Revenues:Americas

$
48,723

$
32,108

$
14,138Europe


11,857


5,639


1,442Asia Pacific


4,177


1,380


4​
​
​
​
​
​
​
​
​
​
​Total

$
64,757

$
39,127

$
15,584​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


57

---





DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

10) Geographic information (Continued)

December 31,2013

2012

2011Long-lived assets outside the Americas, net

$
330

$
537

$
210​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


11) Income taxes

Income before provision for income taxes is comprised of the following:

Year ended December 31,2013

2012

2011(in thousands)Domestic

$
7,080

$
8,436

$
(1,054
)Foreign


2,924


(707
)

(362
)​
​
​
​
​
​
​
​
​
​
​$
10,004

$
7,729

$
(1,416
)​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


Domestic
income (loss) includes intercompany charges to foreign affiliates for management fees, cost sharing and royalties. Foreign income (loss) includes losses from all of the
Company's foreign subsidiaries, including the Singapore subsidiary, which is a disregarded entity for tax purposes.

The
significant components of the consolidated income tax provision are as follows:

Year ended December 31,2013

2012

2011(in thousands)Income tax (benefit) expense:Current:Federal

$
2,947

$
1,675

$
9State and local


714


457


Foreign


1,361


578


55​
​
​
​
​
​
​
​
​
​
​Total current

$
5,022

$
2,710

$
64​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Deferred:Federal

$
(680
)
$
(4,377
)
$
State and local


(90
)

(579
)

Foreign


(508
)

(678
)

(12
)​
​
​
​
​
​
​
​
​
​
​Total deferred

$
(1,278
)
$
(5,634
)
$
(12
)​
​
​
​
​
​
​
​
​
​
​Income tax (benefit) expense:

$
3,744

$
(2,924
)
$
52​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


58

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

11) Income taxes (Continued)

The
income tax provision differs from the amount of tax determined by applying the federal statutory rate as follows:

Year ended December 31,2013

2012

2011Federal income tax statutory rate


34.0
%

34.0
%

34.0
%State and local income taxes, net of federal benefit


3.8


5.4


3.2Change in valuation allowance





(76.5
)

(44.9
)Tax credits


(2.2
)

(2.6
)

14.2Stock-based compensation


0.9


1.5


(8.1
)Other permanent differences


0.3


0.7


(2.7
)Effect of non-U.S. operations, net


(1.2
)

(0.2
)

2.0Prior year true-up


1.9





Changes in tax rates








(0.8
)Other


(0.1
)

(0.1
)

(0.6
)​
​
​
​
​
​
​
​
​
​
​Income tax expense (benefit)


37.4
%

(37.8
)%

(3.7
)%​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


Significant
components of deferred tax assets and liabilities are as follows:

December 31,2013

2012(in thousands)Deferred Tax Assets (Liabilities)Net operating loss and tax credit carryforwards

$
2,191

$
2,330Deferred revenue


2,808


2,936Stock-based compensation


1,290


519Deferred compensation


789


Accruals and reserves


903


399Other


19


Net fixed assets


(1,282
)

(744
)​
​
​
​
​
​
​
​Net Deferred Tax Assets

$
6,718

$
5,440​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


At
December 31, 2013, the Company had net operating loss carryforwards of U.S. income taxes of $5.6 million which expire from 2027 through 2029. At December 31,
2013, the Company also has a foreign tax credit carryforward of $20 thousand available to offset future income tax expense, which expires in 2017.

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 a 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.

59

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

11) Income taxes (Continued)

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 carryforwards 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.

The
amounts recorded as net deferred tax assets represent the amount of tax benefits of existing deductible temporary differences and loss carryforwards that are more likely than not to
be realized through the generation of sufficient future taxable income within the carryforward period. Significant management judgment is required in determining any valuation allowance recorded
against deferred tax assets.

Due
to a history of tax losses, resulting in a cumulative loss position, the Company had recorded a full valuation allowance of $5.8 million against all of its U.S. and U.K. net
deferred tax assets at December 31, 2011. In the third quarter of 2012, management determined that the Company was no longer in a cumulative loss position, and it was more likely than not that
the Company's net deferred tax assets would be realized through future taxable income. Accordingly, the Company released the valuation allowance previously provided.

The
total amount of unrecognized tax benefits at December 31, 2013 and 2012 was $439 thousand and $175 thousand, respectively. Prior to 2012, the Company had no
material unrecognized tax benefits.

Reconciliation
of Unrecognized Tax Benefits:

December 31,2013

2012

2011(in thousands)Beginning balance

$
175

$


$
Additions for tax positions of prior years








Reductions for tax positions of prior years








Additions for tax positions of current year


264


175


Reductions for tax positions of current year








Reductions due to settlements








Reductions due to lapse of statute of limitations








​
​
​
​
​
​
​
​
​
​
​Ending balance

$
439

$
175

$
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


We
have established a liability for unrecognized tax benefits that management believes to be adequate. Once established, unrecognized tax benefits are adjusted if more accurate
information becomes available, or a change in circumstance or an event occurs necessitating a change to the liability. Given the inherent complexities of the business and that we are subject to
taxation in a substantial number of jurisdictions, we routinely assess the likelihood of additional assessment in each of the taxing jurisdictions.

60

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

11) Income taxes (Continued)

The
total amount of unrecognized benefits that, if recognized, would affect our effective tax rate was $439 thousand and $175 thousand at December 31, 2013 and 2012,
respectively. There were no
unrecognized tax benefits at December 31, 2011. The Company does not anticipate any significant changes in its reserves for uncertain tax benefits within the next 12 months.

The
Company classifies interest and penalties on uncertain tax positions in income tax expense. There was no interest or penalties on uncertain tax positions in 2013, 2012 and 2011, and
there was no accrued interest or penalties at December 31, 2013, 2012 and 2011.

As
of December 31, 2013, 2012 and 2011, the undistributed earnings in our international subsidiaries were $2.9 million, $463 thousand and $187 thousand,
respectively. Undistributed earnings of the Company's foreign operations are intended to remain permanently invested, and accordingly, no U.S. income taxes have been provided on these earnings. If at
some future date these earnings cease to be permanently invested, the Company may be subject to U.S. income taxes and foreign withholding and other taxes on such amounts. Because the time and manner
of repatriation is uncertain, we cannot reasonably estimate the amount of the deferred income tax liability relating to unrepatriated earnings at this time.

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.

12) Redeemable Preferred Stock

On March 11, 2009, the Company issued 30 million shares of Series A Preferred Stock for $0.10 per share in a private offering, providing aggregate gross proceeds of
$3 million. Expenses relating to the share issuance were $139 thousand. The principal terms of the Preferred Shares are as follows:

Dividend
rightsThe Preferred Shares carry a fixed, cumulative, dividend of 11% per annum (adjusted for stock splits, consolidation, and other factors). 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 Shares (PIK 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 Shares 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 Shares are also entitled to participate pro rata in any dividend paid on the Company's common stock.

Conversion
rightsThe Preferred Shares are convertible at any time at the option of the holders into the Company's common stock on a one-for-one basis. In addition, Preferred
Shares will automatically be converted into common stock upon the closing of an underwritten share offering by the Company on a registered stock exchange which realizes at least $40 million of
gross proceeds.

61

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DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

12) Redeemable Preferred Stock (Continued)

Redemption
rightsThe holders of the Preferred Shares have the option to require the Preferred Shares (including any PIK shares) to be redeemed in cash, at $0.10 per share
plus accrued and unpaid dividends, at any time after 60 months from the date of issue of the Preferred Shares. Any redeemed amounts will be paid in four equal quarterly installments commencing
60 days after the redemption request.

Anti-Dilution
ProvisionIn the event of a future offering of the Company's stock at a price per common share which is less than the Preferred Share conversion rate
immediately before such offering, the conversion price for the Preferred Shares is adjusted according to a weighted average formula.

Liquidation
entitlementIn the event of any voluntary or involuntary liquidation of the Company, the holders of Preferred Shares are entitled to an amount per Preferred Share
equal to 1.5 times the original issue price of $0.10 plus any accrued but unpaid dividends.

Voting
rightsPreferred Shares have equal voting rights (one vote per share) to common stock, except that Preferred Shares do not vote in the general election of directors.

Other
provisionsFor as long as not less than 15 million Preferred Shares are outstanding, the holders of the Preferred Shares have the right between them to appoint
one director, and the Company may not take action relating to certain major transactions without obtaining the consent of not less than 60% of the Preferred Shares or without obtaining the approval of
the director appointed by the holder of the Preferred Shares (for matters requiring Board of Directors approval).

Accounting
for Preferred SharesIf certain criteria are met, companies must bifurcate conversion options from their host instruments and account for them as free standing
derivative instruments. The Company has evaluated the redemption, conversion and contingent conversion features of the Preferred Shares and determined that the embedded conversion option is not
required to be bifurcated. Additionally, the Company analyzed the conversion feature and determined that the effective conversion price was higher than the market price at date of issuance; therefore
no beneficial conversion feature was recorded. However, if the Company were to pay Preferred Stock dividends by issuing PIK shares, the issuance of such PIK shares would result in a beneficial
conversion feature if the fair value of the Company's common stock at the dividend declaration date exceeds the per share conversion price of the Preferred Shares. The Company has classified the
Preferred Shares as temporary equity because they are redeemable upon the occurrence of an event that is not solely within the control of the issuer. As noted above, the holders of the Preferred
Shares may demand redemption any time after 60 months from the date of issue. The carrying value of the securities, which were initially recorded at their face value net of issuance costs, is
increased to the redemption value over the period from the date of issuance to the earliest date of redemption.

62

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DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

12) Redeemable Preferred Stock (Continued)

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

December 31,2013

2012(in thousands)Gross proceeds

$
3,000

$
3,000Less: Issuance costs


(139
)

(139
)​
​
​
​
​
​
​
​2,861


2,861Issuance of PIK shares


267


267Cumulative amortization of offering costs


133


105​
​
​
​
​
​
​
​Carrying value at December 31

$
3,261

$
3,233​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


13) Stockholders' equity

In 2013 and 2012, the aggregate shares of common stock issued to employees upon the exercise of stock options were 190 thousand and 1.8 million, respectively. In 2012, the
Company adopted a Stock Purchase Plan, under which employees and directors could purchase shares of common stock of the Company. The number of shares purchased under this plan in 2013 and 2012 was 0
and 9,964, respectively. The Company has reserved 42.4 million shares to be issued upon conversion of its Series A Preferred Stock, outstanding stock options and shares available for
future issuance under its existing Stock Option and Incentive Plans.

Spring
Street Partners, L.P., a holder of the Series A Preferred Stock, waived its right to the preferred stock dividend payable on January 3, 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.

Spring
Street Partners, L.P. waived its right to the preferred stock dividend payable on January 4, 2012 of $240 thousand. This was recorded as a capital
contribution in 2012 when waived.

14) Stock option and incentive plans

In November 2007, the Company adopted the 2007 Stock Option and Incentive Plan (the "2007 Plan") authorizing the issuance of up to 10 million shares of the Company's common stock
as awards to selected employees, directors and consultants of the Company and its affiliates, in the form of incentive stock options, non-qualified stock options, and stock awards. In June 2010, the
Company adopted the 2010 Stock Option and Incentive Plan (the "2010 Plan") authorizing the issuance of up to 5 million shares of the Company's common stock to employees, directors and
consultants of the Company and its affiliates, as incentive stock options and non-qualified stock options. The 2010 Plan was amended in April 2012 to authorize the issuance of an additional
2.5 million shares. The Company's Board of Directors or the Compensation Committee determined the number of shares, the term, the frequency and date, the type, the exercise periods, and any
performance criteria pursuant to

63

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DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

14) Stock option and incentive plans (Continued)

which
stock option awards may be granted and the restrictions and other terms and conditions of each grant of restricted shares in accordance with the terms of the 2007 and 2010 Plans.

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.
An aggregate of 8.5 million 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, 4.1 million were utilized in connection with the replacement incentive awards issued in accordance with the CEO Substitute Remuneration Package as discussed below. As
of the date of approval of the 2013 Plan, 46 thousand and 2.6 million shares remained available for issuance under the 2007 and 2010 Plans, respectively. Upon approval of the 2013 Plan,
the Company discontinued use of the 2007 and 2010 Plans and no shares remain available for future issuance under these plans.

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.

The
Board and the Company's stockholders have approved a remuneration package for non-executive directors for the 2013 and subsequent fiscal years (the "New Remuneration Package"). 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. The total value of the New
Remuneration Package for standard board service is $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. On March 14, 2014, the Company satisfied such grant through the issuance of
86.5 thousand restricted shares to its directors based on the volume weighted average trading price of the Company's common stock on its primary trading market for the 20 trading days
immediately prior to such date. The grant for 2013 service was pro-rated for any director who served on the Board for less than the full calendar year.

In
December of 2012 the Company's Board of Directors authorized a Special Committee of independent directors to conduct a review of the Company's past stock issuances and stock option
grants to determine that they were in accordance with the relevant incentive plans. The Special Committee found that three option awardsone under the 2007 Plan, and two under the 2010
Plan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 (CEO) exceeded the cap in the 2007 Plan by 1.6 million shares, a 2011 award to the CEO 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.

In
May 2013, the Company and the Company's CEO entered into a Replacement Grant Agreement providing for the cancellation of certain stock options and the issuance of a replacement award,
which was to become effective upon the occurrence of certain future events.

64

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

14) Stock option and incentive plans (Continued)

On
June 12, 2013, the Company entered into an agreement with respect to the options for 250 thousand shares issued to the other officer in excess of the applicable plan
cap, under which the 250 thousand
options were cancelled, the vesting schedule for the remaining nonvested options were extended over a four and a half year period, and replaced with 150 thousand Restricted Stock Units, with
graded vesting over four and a half years. The modification of this award resulted in additional expense of $66 thousand, which will be recognized on a graded basis through December 2017.

On
December 23, 2013, the Company and the 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 exceeded the applicable plan caps.

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:



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 remained 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:



65

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

14) Stock option and incentive plans (Continued)



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
liability for the performance cash award of $1.6 million is recorded in accrued expenses and other current liabilities and $0.6 million is recorded in Other non-current
liabilities on the Consolidated Balance Sheet as of December 31, 2013. The Company recorded 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.

Stock Option AwardsIn January 2011, the Company granted 750 thousand stock options to one of its executive
officers at an exercise price of $0.46 per share, with graded vesting over three years, and in June 2011, the Company granted 3 million stock options to its Chief Executive Officer, with graded
vesting over seven years. In 2012, the Company granted 1.4 million stock options to five of its executive officers, with cliff vesting after three years. In 2013, in addition to the
1.6 million stock options issued to the CEO as part of the replacement compensation package, the Company issued 380 thousand options to various officers at exercise prices ranging from
$3.92 - $6.44 per share, with graded vesting over four years.

The
exercise price of each option is the market price of the Company's stock for the last sale prior to the grant date, converted to U.S. dollars using the exchange rate in effect on the
grant date. The options generally expire after a period not to exceed ten years, except in the event of termination, whereupon vested options must be exercised generally within three months, or upon
death or disability, in which cases the vested options must be exercised within twelve months, but in all cases the exercise date may not exceed the expiration date.

The
fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. The resulting fair value is recorded as share-based compensation
expense on either a straight line or a graded basis depending on the vesting terms, over the option vesting period, ranging from six months to seven years. The fair value of options granted to
nonemployees is initially

66

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

14) Stock option and incentive plans (Continued)

measured
at grant date and remeasured each quarter until the vesting date, which is the measurement date for share-based compensation issued to nonemployees.

The
weighted average fair value per share for options granted during 2013, 2012 and 2011 was $1.69, $1.51 and $0.72, respectively. The fair values were estimated using the following
range of assumptions:

Year Ended December 31,2013

2012

2011Expected volatility(1)

58.06 - 59.20%

54.13 - 58.75%

156.67 - 167.79%Expected term(2)

5.0 - 6.3 years

6.50 years

6.00 - 7.25 yearsRisk-free interest rate(3)

1.08 - 1.68%

0.94 - 1.60%

1.93 - 2.19%Dividend yield








(1)The
expected volatility was determined using historical volatility data for comparable companies.(2)The
expected term of the options has been estimated using the simplified method which calculates the average of the vesting period and the contractual term
of the options, because the Company's limited historical share option exercise experience does not provide a reasonable basis upon which to estimate the expected term.(3)The
risk free interest rate is based on the U.S. Treasury constant maturity nominal yield with a term approximately equal to the expected terms of the
options.


In
determining expected volatility, the Company uses historical volatility data for comparable companies because the period of active trading history of its own stock is less than the
expected term of the options. In 2012, the Company refined its estimate of expected volatility, by adjusting the entities previously identified as comparable based on the growth and stage of the
Company. This resulted in a lower volatility, which is consistent with the Company's own stock price history. The Company made this determination in the fourth quarter for all grants issued in 2012.
The effect on each of the previous three quarters in 2012 was not material to the quarterly or annual financial statements.

67

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

14) Stock option and incentive plans (Continued)

A
summary of stock option activity for the year ended December 31, 2013 and 2012 is as follows:

Options

Weighted
average
exercise price

Weighted average
remaining
contractual term(in thousands)Outstanding at January 1, 2012


8,822

$
0.43

8.43 yearsGranted


1,375


2.77Exercised


(1,849
)

0.29Forfeited


(30
)

0.16​
​
​
​
​
​
​
​
​Outstanding at January 1, 2013


8,318


0.85

7.82 years​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​Granted


1,980


3.42Exercised


(190
)

0.39Cancelled


(4,350
)

0.55Forfeited


​
​
​
​
​
​
​
​
​Outstanding at December 31, 2013


5,758

$
1.97

7.97 years​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​Exercisable at December 31, 2013


3,681

$
1.37

7.71 years​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​Options expected to vest


3,681

$
1.37

7.71 years​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​


The
aggregate intrinsic value of the stock options exercisable at December 31, 2013, 2012 and 2011 was $6.5 million, $15.0 million and $5.2 million,
respectively. The aggregate intrinsic value of options exercised during 2013, 2012 and 2011 was $0.8 million, $5.7 million and $114 thousand, respectively. The aggregate intrinsic
value of options expected to vest at December 31, 2013 was $7.8 million. This includes options issued in excess of plan limits discussed above, until such time as alternative
compensation is determined.

Performance Stock UnitsAs noted above, in 2013, the Company issued Performance Stock Units ("PSUs") to its CEO as part
of his substitute compensation package. A summary of activity in PSUs is as follows:

Performance Stock
Units

Weighted Average
Grant Date Fair
Value Per Share(in thousands)Nonvested January 1, 2013





Granted


2,500

$
2.79Vested





Forfeited





​
​
​
​
​
​
​
​Nonvested December 31, 2013


2,500

$
2.79​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


The
Company estimates the fair value of the PSUs as of the grant date utilizing the closing price of its common stock on that date.

68

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DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

14) Stock option and incentive plans (Continued)

Restricted Stock UnitsAs noted above, in June 2013, the Company agreed to issue 150,000 Restricted Stock Units ("RSUs")
as replacement compensation for the 250,000 stock options issued to an employee of the Company in excess of the 2010 Plan cap. In June 2013, the Company also agreed to issue 164,000 RSUs to two
officers, which vest 25% per year over the next four years, as long as the officers remain in the employ of the Company on each vesting date. The fair market value of the stock on the date of issuance
of the RSUs was $5.38 per share. A summary of RSU activity is as follows:

Restricted Stock
Units

Weighted Average
Grant Date Fair
Value Per Share(in thousands)Nonvested January 1, 2013





Granted


314

$
5.38Vested





Forfeited





​
​
​
​
​
​
​
​Nonvested December 31, 2013


314

$
5.38​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


The
Company estimates the fair value of the RSUs as of the grant date utilizing the closing price of its common stock on that date.

During
the years ended December 31, 2013, 2012 and 2011, the Company recognized aggregate share-based compensation expense related to stock options, RSUs and PSUs of
$2.6 million, $1.4 million and $0.9 million, respectively, which is included in general and administrative expenses in the statements of operations. In 2013, total stock
compensation expense of $2.6 million included $2.3 million for stock options, $0.3 million for RSUs and $22 thousand for PSUs. In 2012 and 2011, stock compensation expense
included only stock options. The total income tax benefit recognized in the income statement for share-based compensation costs was $0.8 million, $351 thousand and $0 for 2013, 2012 and
2011, respectively. At December 31, 2013 there was $4.8 million of unrecognized share-based compensation expense, which includes $1.7 million for stock options,
$0.7 million for RSUs and $2.4 million for PSUs. The weighted average period for this cost to be recognized is 1.3 years.

For
awards that are expected to result in a tax deduction, a deferred tax asset is recorded in the period in which share-based compensation is recognized. Any corporate income tax
benefit realized upon exercise of a stock option award in excess of that previously recognized in earnings (referred to as an excess tax benefit) is presented in the consolidated statements of cash
flows as a financing cash flow. Realized excess tax benefits are credited to additional paid-in-capital in the consolidated balance sheet and statement of changes in stockholders' equity. Realized
shortfall tax benefits (amounts which are less than that previously recognized in earnings) are first offset against the cumulative balance of excess tax benefits, if any, and then charged directly to
income tax expense.

The
Company sponsors a defined contribution 401(k) plan, which covers all U.S. employees. The Company's matching contribution to the plan was $362 thousand and
$219 thousand in 2013 and 2012, respectively. The Company did not offer an employer match in 2011.

69

---





DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

14) Stock option and incentive plans (Continued)

In 2012, the Company adopted a non-compensatory stock purchase plan to facilitate the purchase of the Company's common stock by employees and directors, at a purchase price equal to the
average market value over the five trading days preceding the purchase date. The maximum aggregate dollar amount of shares which can be purchased under the plan in any quarter may not exceed
$0.5 million. No shares were purchased under this plan in 2013 as the Company has discontinued this plan. During 2012, employees and directors purchased 9,964 shares under the plan.

15) Commitments

Operating leasesThe Company has non-cancelable operating lease agreements for office space in New York City and New
Jersey in the United States, Christchurch, New Zealand; London, England; and Sydney, Australia; which expire at various dates through 2024. Rent expense for leases
with rent escalations is recognized on a straight-line basis over the term of the lease. Rent expense under operating leases for the years ended December 31, 2013 and 2012 was
$1.3 million and $0.7 million, respectively.

The
lease agreements require security deposits in the amount of $676 thousand at December 31, 2013, which is recorded in the balance sheet.

The
Company entered into sub-lease that commenced on December 1, 2013 and will terminate on February 2018. The Company will receive future rental income of $842 thousand
and have operating rent expense of $920 thousand. As of December 31, 2013, the Company has recorded a loss of $96 thousand related to the sublease that has been charged to rent
expense.

Future
minimum lease payments and sublease income for leases that have initial or non-cancelable lease terms in excess of one year at December 31, 2013 are as follows:

Year ending December 31,

Minimum Lease
Commitments

Sublease

Minimum Net
Rentals(in thousands)2014

$
1,663

$
(173
)
$
1,4902015


1,618


(204
)

1,4142016


1,611


(211
)

1,4002017


1,529


(217
)

1,3122018


1,153


(37
)

1,116Thereafter


6,466





6,466​
​
​
​
​
​
​
​
​
​
​$
14,040

$
(842
)
$
13,198​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


Warranties and indemnificationThe Company's service is warranted to perform in a manner materially consistent with its
marketing and training materials, specifications and technical information provided to users. The Company's arrangements generally include certain provisions for indemnifying customers against
liabilities if its products or services infringe a third-party's intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and has not
accrued any liabilities related to such obligations.

70

---



DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

15) Commitments (Continued)

The
Company has also agreed to indemnify its directors and officers to the fullest extent allowed under applicable law for costs associated with any fees, expenses, judgments, fines and
settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person's services as a director
or officer of the Company, or arising as a result of that person serving at the request of the Company as a director,
officer, employee or agent of another enterprise. The Company maintains director and officer insurance coverage that should enable the Company to recover a portion of any future amounts paid.

Employment contractsIn 2011, the Company entered into a three year employment contract with its Chief Executive Officer
which calls for base compensation of $510 thousand per annum with a minimum 15% increase each year for the term of the contract. The contract states that if the officer were to be terminated
for a reason other than cause, the officer shall be paid one year of his then current base salary.

16) Contingencies

Sales tax risk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 provisions of $736 thousand and $1.5 million as of December 31, 2012 and 2013, respectively, with respect to sales and use tax
liabilities 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.

17) Risks and uncertainties

Interest rate riskInterest rate risk is the risk that market interest rates will change and impact the Company's
financial results by affecting the rate of interest charged or received by the Company. It is not expected that changes in interest rates will materially affect the Company's results of operations.

Currency rate riskThe Company is subject to currency rate risk primarily from export sales to Canada, Europe, Australia,
Singapore and New Zealand, and from cash balances maintained in foreign currencies. Transactions in foreign currencies are reported at the rates of exchange at the transaction date. Assets and
liabilities are translated at the rates of exchange in effect at the balance sheet date. All differences are recorded in results of operations.

Concentrations of credit and other risksFinancial instruments which potentially subject the Company to concentrations of
credit risk consist of trade accounts receivable, money market funds, time deposits and a term deposit.

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DILIGENT BOARD MEMBER SERVICES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: YEARS ENDED DECEMBER 31, 2013, 2012 & 2011 (Continued)

ALL AMOUNTS IN US$ UNLESS OTHERWISE NOTED

17) Risks and uncertainties (Continued)

The
Company sells its service to a diverse number of customers and performs ongoing credit evaluations of its customers' financial condition as part of its accounts receivable monitoring
procedures. No single customer accounted for more than 10% of the accounts receivable balance at December 31, 2013 and 2012. No single customer generated more than 10% of revenue in 2013 or
2012.

Our
(1) money market funds and time deposits which are classified as cash and cash equivalents and (2) our term deposit, are maintained with high credit quality banking
institutions in the United States, New Zealand and Great Britain. At times the cash balances may be in excess of the insurance limits at a particular bank.

18) Selected quarterly financial data (unaudited)

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Fiscal Year(in thousands, except per share amounts)Fiscal 2013Revenues

$
13,708

$
15,629

$
17,235

$
18,185

$
64,757Gross profit


10,935


12,630


13,991


14,242


51,798Income from operations


2,135


3,684


3,484


1,028


10,331Net income


1,229


2,229


2,153


649


6,260Accrued preferred stock dividends


(89
)

(89
)

(89
)

(92
)

(359
)Net income attributable to common stockholders


1,140


2,140


2,064


557


5,901Basic net income per share

$
0.01

$
0.02

$
0.02

$
0.00

$
0.05Diluted net income per share

$
0.01

$
0.02

$
0.02

$
0.00

$
0.05Fiscal 2012Revenues

$
7,081

$
8,865

$
10,831

$
12,350

$
39,127Gross profit


5,073


6,527


8,355


9,637


29,592Income from operations


756


908


2,959


2,993


7,616Net income


609


709


7,082


2,253


10,653Accrued preferred stock dividends


(89
)

(89
)

(89
)

(92
)

(359
)Net income attributable to common stockholders


520


620


6,993


2,161


10,294Basic net income per share

$
0.00

$
0.01

$
0.06

$
0.02

$
0.09Diluted net income per share

$
0.00

$
0.01

$
0.06

$
0.02

$
0.09


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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

BACKGROUND

Special Committee Investigation

In December of 2012 the Company appointed a Special Committee of independent directors to examine whether some options and shares
granted to some executives may not have been issued in strict compliance with the relevant stock option and 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. As part of its work, 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 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 the Company in a period of financial difficulty in the years following its listing on NZSX on
December 12, 2007, and the complex regulatory and compliance obligations across multiple jurisdictions with differing regulations and requirements.

Despite
the fact that the instances of non-compliance were inadvertent, several findings of the Special Committee indicated that the internal control environment at the Company requires
improvement. The relevant findings of the Special Committee included that:



As
described in further detail below, the Company intends to take appropriate steps to make the necessary improvements to remediate the identified deficiencies, and has implemented a
number of remedial actions as of the time of this Annual Report.

Revenue Recognition Review and Restatement of Certain Historical Financial Statements

On June 20, 2013, New Zealand time, we announced that senior management had identified and communicated to the Audit Committee
of the Board of Directors an error in a revenue recognition practice affecting certain customer agreements. The Company, with the assistance of its new Chief Financial Officer and in consultation with
its independent accounting firm, engaged in an analysis of its revenue recognition practices under its customer agreements to determine whether they were in accordance with GAAP and applicable
accounting guidance. The Company also assessed the materiality of the identified errors to make a conclusion as to whether they were material for the purpose of

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requiring
a restatement of the Company's historical financial statements for any fiscal period. On August 5, 2013 in the U.S., we announced that our historical financial statements for the
fiscal years ended December 31, 2012, 2011 and 2010, and the interim financial statements for the fiscal quarter ended March 31, 2013, should no longer be relied upon as a result of
errors in revenue recognition identified in our review. 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. On April 7, 2014, we filed with the SEC the 2012 10-K Amendment and the 10-Q Amendment.
The 2012 10-K Amendment and the 10-Q Amendment contained restated financial information for the fiscal years ended December 31, 2012 and 2011, the quarterly periods within such fiscal years and
the quarterly period ended March 31, 2013, as well as an updated assessment of our internal control over financial reporting as of December 31, 2012.

In
connection with our restatement process and the filing of the 2012 10-K Amendment in April 2014, management re-assessed the effectiveness of our internal control over financial
reporting and determined that our financial reporting control environment was ineffective as of December 31, 2012. As discussed in management's report on internal control over financial
reporting below, these conditions had not been remediated as of December 31, 2013. 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 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. As a result of these material weaknesses, the following accounting errors occurred, which led to our determination that our financial statements for the fiscal years ended
December 31, 2012, 2011 and 2010 should no longer be relied upon:



Audit Committee Investigation

On July 2, 2013 the Audit Committee engaged outside 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 Audit Committee investigation, it
was determined that the Company included in its financial results certain

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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
U.S. GAAP (assuming all other criteria for revenue recognition were met at such time). 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.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

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 this Annual Report, the Company evaluated under the supervision of and with participation from the Company's management, including our Chief
Executive Officer and Chief Financial Officer, as to the effectiveness of the Company's disclosure controls and procedures. Based upon such evaluation, the Company's Chief Executive Officer and 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 and the revenue
recognition review and restatement, the Company's disclosure controls and procedures were not effective as of December 31, 2013.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate "internal control over financial reporting" for the Company, as
that term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in
accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect every misstatement. Any evaluation of effectiveness is subject to the
risk that the controls may subsequently become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may decrease over time.

The
Company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized use, acquisition, or disposition of the Company's assets that could have a material effect on the
financial statements.

A
"material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

In
connection with the preparation of this Annual Report, management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the
Company's

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internal
control over financial reporting as of December 31, 2013. Management completed its assessment using the criteria set forth in "Internal ControlIntegrated Framework (1992)"
by COSO, an integrated framework for evaluation of internal controls issued to identify the risks and control objectives related to the evaluation of the control environment. The COSO framework
summarizes each of the components of a company's internal control system, including (1) the control environment, (2) risk assessment, (3) control activities,
(4) information and communication, and (5) monitoring. Management, taking into consideration the Special Committee's findings, and matters identified through the revenue recognition
review and restatement, concluded that our internal controls over financial reporting were not effective as of December 31, 2013 due to the following:



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Due
to the aforementioned material weaknesses in internal control over financial reporting, management performed additional analyses and implemented mitigating controls and procedures in
connection with preparing the financial statements for the periods covered by this Annual Report. Notwithstanding the material weaknesses described above, the Company and its management have concluded
that the Company's consolidated financial statements for the periods covered by and included in this Annual Report are fairly stated, in all material respects, in accordance with generally
accepted accounting principles in the United States of America for each of the periods presented herein.

REMEDIATION PLAN AND CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

We intend to take appropriate steps to make the necessary improvements to remediate the deficiencies identified in connection with the
Special Committee process and the Company's revenue recognition review and restatement process, and we intend to consider the results of our remediation efforts and related testing as part of our next
year-end assessment of the effectiveness of our internal control over financial reporting. The Company continues to evaluate the remedial measures and to dedicate substantial resources to our
remediation efforts. The material weaknesses identified cannot be considered fully remediated until the applicable controls operate for a sufficient period of time and management has concluded,
through testing, that these controls are operating effectively. As the Company continues to evaluate and test the improvements to its internal control over financial reporting, the Company may
determine to take additional measures to address control deficiencies or decide to modify certain of the remediation measures described herein.

The
Company is committed to improving its overall control environment and financial reporting processes. As part of this commitment, the Company is implementing or has implemented during
the year the following remedial and other actions relating to the improvement of our internal controls and governance:

Control Environment and Compliance



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Controls over Stock Option Grants and Stock Issuances



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Controls over Revenue Recognition and Financial Reporting



We
are committed to maintaining a strong internal control environment, and believe that these remediation actions will represent significant improvements in our controls when they are
fully implemented. Our remediation efforts are ongoing and have not been completed. Additional remediation measures may be required, which may require additional implementation time. We will continue
to assess the effectiveness of our remediation efforts in connection with our evaluations of internal control over financial reporting. Prior to the completion of our remedial measures, there remains
risk that the processes and procedures on which we currently rely will fail to be sufficiently effective, which could result in material misstatement of our financial position or results of operations
and require a restatement. Moreover, because of the inherent limitations in all control systems, no evaluation of controlseven where we conclude the controls are operating
effectivelycan provide absolute assurance that all control issues, including instances of fraud, if any, have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion
of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, our control systems, as we develop them, may become inadequate because
of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

ITEM 9B.    OTHER INFORMATION

Not applicable

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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Company's Certificate of Incorporation provides for a classified Board of Directors, with three classes of directors, as nearly
equal in number as possible, elected by the holders of the Company's common stock. The classes serve staggered three-year terms, with the term of the Class II directors expiring at the 2014
Annual Meeting of Shareholders, the term of the Class III directors expiring at the 2015 Annual Meeting of Shareholders and the term of the Class I directors expiring at the 2016 Annual
Meeting of Shareholders. Pursuant to the Company's Certificate of Incorporation, the Series A Director is appointed by the holders of the Company's Series A Preferred Stock.

Name, age and present
position, if any, with the
Company

Period served as director, other business experienceGreg B. Petersen, 51
(Class I)

Mr. Petersenhas served as a director since April 2013. Mr. Petersen also serves on the Board of Directors of two other companies. He has served on the Board of PROS Holdings, Inc. (NYSE: PRO)
since 2007 and is currently the compensation committee chairman for PROS. He has served on the Board of Piksel, Inc. since 2012 and is currently the audit committee and compensation committee chairman for Piksel. Previously Mr. Petersen was the
executive vice president and chief financial officer for several technology companies, including: Activant Solutions, Inc. a provider of business management solutions to retail and wholesale distribution businesses from 2001-2007; Lombardi Software,
Inc. a business process management software provider, which was sold to IBM, from 2008 to 2010; and CBG Holdings from 2011-2012. Mr. Petersen also served in finance and treasury roles with Trilogy Software (a provider of enterprise software and
business services), in planning and development roles with RailTex (a short-line and regional rail service provider), and in finance and strategy roles at American Airlines. Mr. Petersen holds a Bachelor of Arts in Economics from Boston College
and a Master of Business Administration from the Fuqua School of Business at Duke University. Mr. Petersen has business and leadership experience in software companies, merger and acquisition experience, and extensive accounting and risk
management knowledge.


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Name, age and present
position, if any, with the
Company

Period served as director, other business experienceA. Laurence Jones, 61
(Class I)

Mr. Joneshas served on our Board since November 2013. Mr. Jones currently serves as the Executive Chairman
of Coalfire Systems, Inc., a provider of IT audit, security and compliance solution. From January 2007 to June 2011, Mr. Jones served as Chief Executive Officer and a member of the board of directors of StarTek, Inc. (NYSE: SRT), a
provider of outsourced call center and customer support services for the communications industry with over 9,000 employees in the United States, Canada and the Philippines. From 2004 to 2006, Mr. Jones was Chief Executive Officer and President
of Activant Solutions, a vertical market ERP software company which was sold to Hellman and Freidman, a private equity firm, in May 2006. Prior to that, Mr. Jones was chairman of WebClients, an internet marketing firm from 2002 to 2004, and also
served as Chairman and Chief Executive Officer of Interelate, Inc., a CRM services firm from 2002 to 2004. In addition, Mr. Jones served as President and Chief Executive Officer of MessageMedia (NASDAQ: MESG), an email marketing firm from
1999 to 2002. Mr. Jones also served as Chief Executive Officer of Neodata Services, Inc. from 1993 to 1998, was founding Chief Executive Officer of GovPX from 1992 to 1993, as Senior Vice President at Automatic Data Processing from 1987 to
1992 and spent the first 10 years of his career at Wang Laboratories from 1977 to 1987. Mr. Jones is currently the finance chair of the Board of Advisors for the Deming Center entrepreneurial program at the Leeds School of Business at the
University of Colorado and has served in various capacities since 2002. He also serves on the Colorado Board of Directors at the National Association of Corporate Directors. Over the past 10 years, Mr. Jones has served as a director of
numerous public and private companies, including Comverge, Inc., Work Options Group, Exabyte, Activant Solutions, Realm Solutions, SARCOM, WebClients, DIMAC and Fulcrum Analytics. Mr. Jones currently serves as a director of Essential Power,
 LLP, a private power company. Mr. Jones was selected as a director due to his leadership experience at technology companies, his financial and accounting experience and his expertise in governance matters.


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Name, age and present
position, if any, with the
Company

Period served as director, other business experienceJoseph Carrabino, Jr., 52
(Class II)

Mr. Carrabino has served on our Board since April 2012. Mr. Carrabino has been a Partner of AEA Investors LP since 2004 and is
Head of the Private Debt Group, which focuses on mezzanine and senior debt investing in the middle market. From 1999 to 2003, Mr. Carrabino was a Partner at a private equity firm, J. H. Whitney & Co. His responsibilities included
serving as co-head of the mezzanine debt and structured products groups and as a member of their credit and investment committees. Mr. Carrabino also spent considerable time on J. H. Whitney's private equity activities. From 1987 to 1999,
Mr. Carrabino worked in the Investment Banking Department of Credit Suisse First Boston, attaining the position of Managing Director. His areas of focus included leveraged finance and private equity sponsor coverage, high yield finance, and
corporate restructurings and reorganizations. Mr. Carrabino is currently a member of the board of directors of Ramsey Industries LLC and has served on other boards in his various capacities at AEA and J. H. Whitney. Mr. Carrabino was
selected as a director because of his experience with financings and capital raising, his financial expertise and his experience as a director.Mark Weldon, 46
(Class II)

Mr. Weldon has served on our Board since May 2012. Mr. Weldon currently owns and operates Terra Sancta Vineyards. From
2002 to 2012, Mr. Weldon served as a Chief Executive Officer of the New Zealand Stock Exchange (the "NZSX"). Prior to that, Mr. Weldon was an attorney at Skadden, Arps, Slade, Meagher & Flom and then became a Senior Engagement
Manager at McKinsey & Company. Mr. Weldon graduated from Auckland University with a Masters degree in Economics (First Class Honours), a Bachelor of Commerce and a Bachelor of Arts. He then studied at Columbia University School of Law,
graduating in 1997 with a law degree and a diploma in International Law. Mr. Weldon's experience in working in both the United States and New Zealand with listed companies, including as CEO of NZSX, is seen as an asset to the Board.


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Name, age and present
position, if any, with the
Company

Period served as director, other business experienceMark Russell, 57
(Class III)

Mr. Russellhas served on our Board since September 2007. Mr. Russell is a senior commercial partner of the
New Zealand law firm Buddle Findlay, acting for a wide range of public and private companies and has extensive experience in corporate finance and structuring, and banking and insolvency. He acts for a number of companies listed on the NZSX and NZX
Alternative Market, with particular emphasis on the NZSX Rules, compliance advice, initial listing and IPOs. He gives banking and securities advice to New Zealand and overseas banks and overseas law firms, and he also provides advice to trustee
companies and issuers on public securities issues and managed funds. He was ranked as a leading individual in banking and finance in Asia Pacific Legal 500 2010. Mr. Russell was selected as a director because of his familiarity with our Company
as a result of having served as a director since our initial public offering in New Zealand, and his broad legal experience is seen as an asset to the Company.Alessandro Sodi, 54
(Class III)

Mr. Sodiserves as our Chief Executive Officer and President and a director of the Board. Before
our founding in 1998, Mr. Sodi served as an officer of our predecessor entity, Diligent Board Member Services, LLC, which was previously known as Manhattan Creative Partners, LLC ("MCP"), a consulting firm specializing in software
development and the internet. Subsequently, in 2003, MCP switched its focus to corporate governance service delivery. From 2001 to 2003, Mr. Sodi managed the development of software that would become the Diligent Boardbooks system. Mr. Sodi
was selected as a director because as the Company's Chief Executive Officer and President, he has in-depth knowledge of the Company's operations, strategy and competitive position.David Liptak, 56
(Series A Director)

Mr. Liptakwas elected Chairman of our Board in March 2010 and was elected as a director by the
holders of our Series A Preferred Stock in April 2009. Mr. Liptak is the founder and Managing Partner of Spring Street Partners, L.P., which he formed in 1995. Mr. Liptak was the founder and President of West Broadway Partners,
 Inc., an investment partnership that ultimately managed more than U.S. $700 million in investor capital in the West Broadway Partners group of funds until March 2005. At that time, Mr. Liptak left the firm and began managing Spring
Street Partners, L.P. on a full-time basis. Spring Street Partners, L.P. is the holder of approximately 22 million shares of the Company's Series A Preferred Stock (representing a majority of the outstanding Series A
Preferred Stock), and also holds approximately 4.17 million shares of the Company's common stock, representing beneficial ownership of approximately 25% of our common stock in the aggregate. Mr. Liptak was selected as a director by the
holders of our Series A Preferred Stock due to Spring Street Partners, L.P. substantial investment in our capital stock, as well as due to Mr. Liptak's extensive financial and investment experience.


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Executive Officers

The following persons currently serve as our executive officers in the capacities indicated below. Our executive officers are
responsible for the management of our operations, subject to the oversight of the Board.

Name

Position & Other Business ExperienceAlessandro Sodi, 54
Director, CEO, President

Please see biographical information provided above.Carl D. Blandino, 63
Chief Financial Officer, EVP(1)

Mr. Blandinoserves as our Executive Vice President and Chief Financial Officer ("CFO"). Prior
to his employment with the Company on May 15, 2013, Mr. Blandino served as Senior Vice President and Chief Financial Officer at CashEdge, Inc., a U.S. software-as-a-service (SaaS) provider of a mobile and online payments network and
risk management services to financial institutions. Prior to his service at CashEdge, Inc., Mr. Blandino served as CFO at several U.S. public and private high technology and software companies, including most recently Open Solutions,
 Inc., a provider of technology solutions to the financial services marketplace. He also spent over 10 years in public accounting in various management positions with Coopers and Lybrand and Deloitte Haskings & Sells, both
international public accounting firms.Michael Flickman, 53
Chief Technology Officer, EVP

Mr. Flickmanserves as our Executive Vice President and Chief Technology Officer ("CTO"). Prior
to joining the Company in September 2011, Mr. Flickman served as CTO at Survey Sampling International from July 2008 to August 2011. Prior to that time, Mr. Flickman served as CTO at CYA Technologies, Inc. since November 2004.
Mr. Flickman has been working in the technology field for nearly 30 years, specializing in commercial software development, infrastructure architecture and management, enterprise software, product management, development process improvement
and project management.Jeffrey Hilk, 49
Director of Client Services, EVP

Mr. Hilkserves as Executive Vice President and Director of Client Services, and has global
responsibility for Account Management and worldwide Client Support. Prior to joining the Company in March 2011, Mr. Hilk held senior-level sales positions with IT consulting firms, specifically Shore Group, Inc. from November 2009 to March
2011 and Presidio Networked Solutions from July 2007 to November 2009. Mr. Hilk has more than twenty-five years of experience in the technology industry, having led teams in account management, sales, product management and engineering, during
his career at large multi-national companies such as NCR, AT&T, McDonnell-Douglas Aerospace Corp., and Boundless Corporation.


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Name

Position & Other Business ExperienceThomas N. Tartaro, 51
General Counsel, Corporate Secretary, EVP

Mr. Tartarohas served as our Executive Vice President, General Counsel and Corporate Secretary since June 2013. From
2001-2012, he was Corporate Executive Vice President, Chief Administrative Officer, General Counsel and Secretary of Open Solutions, Inc. (NASDAQ: OPEN), a multinational provider of enterprise-wide SaaS and technology license solutions for financial
institutions. Prior to that, Mr. Tartaro was in private practice in the Washington, D.C. area for 10 years with law firms such as LeBouef, Lamb and Preston, Gates, among others.


(1)As
previously disclosed, on April 29, 2014, the Company and Mr. Blandino mutually agreed that he would resign from his position as Chief
Financial Officer on the later of the day immediately following (i) filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 and Quarterly Reports
on Form 10-Q for the quarters ended June 30, 2013 and September 30, 2013 and (ii) May 15, 2014. Mr. Blandino will provide certain transition services to
assist the Company with its accounting and financial reporting functions. Upon Mr. Blandino's resignation, Alexander Sanchez, the Company's Controller, will serve as interim Chief Financial
Officer (Principal Financial and Accounting Officer).


None
of our directors or executive officers have been involved in any legal proceeding enumerated in Securities and Exchange Commission Regulation S-K, Item 401, within the
time periods described in that regulation.

Director Nomination Process

The Company's goal is to assemble a Board that brings to the Company a variety of perspectives and skills derived from business and
professional experience. The Board considers a variety of criteria when evaluating potential Board members, as described below, and expects that its candidates be of the highest ethical character,
share the values of the Company, be capable of discharging their fiduciary duties to the shareholders of the Company, have reputations, both personal and professional, consistent with the image and
reputation of the Company, be highly accomplished in their respective fields, and possess the relevant expertise and experience necessary to assist the Company with enhancing shareholder value.

The
Board considers nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are
relevant to the Company's business and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board with that
of obtaining a new perspective. The Nominations Committee seeks new nominees for election to the Board, when necessary, through a variety of channels, including informal recommendations through
business and personal contacts. Current members of the Board and the CEO are polled for suggestions. In addition, research also may be performed to identify qualified individuals. To date, the Company
has not engaged third parties to identify, evaluate, or assist in identifying potential nominees, although the Company reserves the right in the future to retain a third party search firm, if
necessary.

Pursuant
to NZSX Rule 3.3.5, shareholders of the Company have the right to propose nominees for directors of the Company to be elected at each annual meeting of shareholders in
accordance with the opening date and closing date for nominations announced by the Company for each applicable annual meeting. Under the U.S. federal securities laws, shareholders who submit a
nomination pursuant to NZSX Rule 3.3.5 are also required to submit a filing with the SEC containing the information required by Schedule 14N. The Board will evaluate any candidate
recommended for nomination as a

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director,
whether proposed by a shareholder, or identified through the Board's own search processes, about whom it is provided appropriate information in a timely manner.

All
new candidates for election to the Board and all Board members eligible for nomination for re-election to the Board are evaluated based upon a variety of criteria, including the
following:



The
Nominations Committee does not have a policy with respect to the consideration of diversity in identifying director nominees. While the Nominations Committee focuses on obtaining a
diversity of professional expertise on the Board rather than a diversity of personal characteristics, it recognizes the desirability of racial, ethnic and gender diversity and considers it an
additional benefit when a new director can also increase the personal diversity of the Board as a whole. The Nominations Committee and the Board may also consider such other factors as it may deem to
be in the best interests of the Company and its shareholders.

Code of Conduct

We have a written Code of Conduct that applies to all employees, including our Chief Executive Officer, Chief Financial Officer and
Treasurer. The full text of our Code of Conduct is published on our website at www.boardbooks.com under the "Investor Relations-Corporate Governance" caption. We will disclose any future amendments
to, or waivers from, certain provisions of the Code of Conduct applicable to our Chief Executive Officer and Chief Financial Officer on our website within four business days following the date of any
such amendment or waiver.

Audit and Compliance Committee

The Company maintains a separately-designated standing Audit and Compliance Committee, which assists the Board in fulfilling its
oversight responsibilities by reviewing the integrity of the Company's financial statements and financial reporting process, the qualifications, independence and performance of the Company's U.S.
independent registered public accounting firm, and compliance with legal and regulatory requirements. The current members of the Audit and Compliance Committee are Mark Russell, Greg B. Petersen,
Laurence Jones and Joseph Carrabino, Jr. Mr. Petersen serves as Chairman of the Audit and Compliance Committee. The Board has determined that Mr. Petersen qualifies as an "audit
committee financial expert," and has the required "accounting or financial background" in accordance with the applicable rules of the SEC and the NZSX Rules and meets the independence

86

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standards
applicable to audit committee members under the listing rules of the NASDAQ Stock Market ("NASDAQ").

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company's directors and officers, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of beneficial ownership and changes in beneficial ownership of the Company's securities with the SEC on Forms 3, 4 and
5. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely upon the Company's
review of copies of Forms 3, 4 and 5 furnished to the Company, the Company believes that all of its directors, executive officers and any other applicable shareholders timely filed all reports
required by Section 16(a) of the Exchange Act except two reports, covering two reporting transactions, were filed late by Alessandro Sodi.

ITEM 11.    EXECUTIVE COMPENSATION

The summary compensation table below summarizes information concerning compensation for the twelve months ended December 31,
2013 and the twelve months ended December 31, 2012, of our Chief Executive Officer and our two other most highly compensated executive officers during our 2013 fiscal year. We refer to these
individuals as the "Named Executive Officers."

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SUMMARY COMPENSATION TABLE

The following table sets forth information with respect to the compensation of our Named Executive Officers for services in all
capacities to us and our subsidiaries.

Name and Principal Position

Year

Salary
($)

Bonus
($)

Stock
Awards
($)

Option
Awards
($)(3)

All other
Compensation
($)(4)

Total
($)Alessandro Sodi


2013


631,164


300,000
(5)

6,976,800
(1)

2,276,053
(6)

15,850


10,199,867Chief Executive Officer


2012


549,133


750,000
(7)

0


0


14,633


1,313,766Carl D. Blandino(8)


2013


198,087


98,500
(5)

591,800
(2)

740,890


5,165


1,634,442Chief Financial Officer


2012


N/A


N/A





N/A


N/A


N/AThomas N. Tartaro(9)


2013


148,958


74,500
(5)

290,520
(2)

279,327


7,197


800,502General Counsel & Corporate Secretary


2012


N/A


N/A





N/A


N/A


N/A


(1)The
amounts reported for Mr. Sodi include 2,250,000 shares of common stock, subject to performance share units ("PSUs"), that will be earned only if
a performance target is achieved over the course of a one-year measurement period beginning July 1, 2013; and 250,000 shares of common stock, subject to PSUs, that will be awarded only if
certain performance targets are achieved over the course of four, one year measurement periods beginning April 1, 2013, subject, in each case, to vesting based on continued employment. The
amounts in this column reflect the grant date fair value of the PSUs computed in accordance with ASC Topic 718 based on the closing price of our common stock on the grant date. The grant date fair
value of PSUs granted to Mr. Sodi in 2013 were determined based on the vesting of 100% of the nominal PSUs awarded. The assumptions made in calculating the grant date fair value amounts for
PSUs are incorporated herein by reference to the discussion of those assumptions in Note 14 to the financial statements contained in this Annual Report. Note that the amounts reported in this
column reflect our accounting cost for the PSUs, and do not correspond to the actual economic value that will be received by the Named Executive Officers from the awards.(2)The
amounts reported for Mr. Blandino and Mr. Tartaro include restricted stock units (the "RSUs") computed in accordance with ASC Topic 718
based on the closing price of our common stock on June 25, 2013, which is the grant date of the RSUs for accounting purposes. The assumptions made in calculating the grant date fair value
amounts for RSUs are incorporated herein by reference to the discussion of those assumptions in Note 14 to the financial statements contained in this Annual Report. Note that the amounts
reported in this column reflect our accounting cost for the RSUs, and do not correspond to the actual economic value that will be received by the Named Executive Officers from the awards.(3)The
amounts reported in this column represent the aggregate grant date fair value of the stock option awards granted to the Named Executive Officers in 2012
and 2013, respectively. The assumptions made in calculating the grant date fair value amounts for stock option awards are incorporated herein by reference to the discussion of those assumptions in
Note 14 to the financial statements contained in this Annual Report. Note that the amounts reported in this column reflect our accounting cost for the stock option awards, and do not correspond
to the actual economic value that will be received by the Named Executive Officers from the awards.(4)The
amounts reported in this column represent amounts paid for health benefits and the matching funds we provide in connection with the Named Executive
Officers' contributions to our 401(k) savings plan.


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(5)These
amounts represent discretionary bonuses approved by the Board of Directors or the Compensation Committee, as applicable, in 2013. Mr. Sodi was
awarded an annual bonus of $150,000 in April 2013 and a discretionary bonus of $150,000 in December 2013, payable in 2014 upon determination of the performance condition set forth in certain of the
PSU grants, in connection with entering into the Amendment to Replacement Grant Agreement as described herein. Mr. Blandino and Mr. Tartaro were each awarded a prorated 2013 annual bonus
in accordance with the terms of their respective employment agreements. These bonuses will not be paid to Mr. Blandino and Mr. Tartaro until after this Annual Report is filed with the
SEC.(6)The
amount reported represents 1,600,000 shares subject to options granted on December 23, 2013 and exercisable as of December 31, 2013.(7)The
amount reported represents a discretionary bonus approved by the Board on April 17, 2012. The bonus was payable in three equal installments on
each of April 30, 2012, July 31, 2012 and October 31, 2012.(8)Mr. Blandino
was hired as our Executive Vice President and Chief Financial Officer, effective May 15, 2013. On April 29, 2014, we
announced that we had entered into an agreement with Mr. Blandino (the "Transition Agreement") pursuant to which Mr. Blandino would resign as Executive Vice President and Chief Financial
Officer following the later of (i) the completion of the submission of this Annual Report and our Quarterly Reports on Form 10-Q for the 2013 fiscal year filed with the SEC, and
(ii) May 15, 2014. Mr. Blandino will provide certain transition services following his resignation, as described herein.(9)Mr. Tartaro
was hired as our Executive Vice President, General Counsel and Corporate Secretary, effective June 17, 2013.


Narrative to Summary Compensation Table

In fiscal 2013, the primary components of our executive compensation program were:



Base Salary

We use base salary to fairly and competitively compensate our employees, including the Named Executive Officers, for the
responsibilities we ask them to undertake in
performing their jobs. We view the base salary as the most stable component of our compensation program, as this amount is not at risk. Since our emphasis is on performance-based compensation for
executive officers, base salary adjustments tend to be made when we believe there is a significant deviation from the general market or an executive officer's responsibilities increase significantly.

Annual Incentives

The Compensation Committee has the authority to make discretionary incentive awards to our employees and executives, including the
Named Executive Officers. These awards are intended to reward our employees and executives for achieving strategic and operational objectives. Bonuses were earned by our Named Executive Officers in
2013 in recognition of our financial performance and progress in the restatement and reaudit of our historical financial statements, as well as the remedial measures as described in Item 9A of
the 10-K Amendment.

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In
September 2013, the Compensation Committee adopted the 2013 Remediation Bonus Plan (the "Remediation Bonus Plan") and approved bonus opportunities for the employees designated by the
Compensation Committee as participants in the Remediation Bonus Plan. The Remediation Bonus Plan provided for the payment of cash bonuses to participants upon the completion of the previously
announced restatement of our financial statements for the fiscal years ended December 31, 2010 through 2012 and the quarter ended March 31, 2013, and necessary filings with the U.S.
Securities and Exchange Commission in connection therewith. A participant would cease to be eligible for a bonus payment pursuant to the Remediation Bonus Plan upon ceasing to be an employee of the
Company, except in the event of death or disability. The aggregate amount available for bonuses that may be approved by the Compensation Committee under the Remediation Bonus Plan was approximately
$400,000. Under the Remediation Bonus Plan, Mr. Blandino's bonus opportunity was set at $250,000 and Mr. Tartaro's bonus opportunity was set at $70,000. The bonuses under the Remediation
Bonus Plan were paid in April 2014.

Equity Compensation

We use equity compensation to promote an ownership culture that encourages preserving and building value for our shareholders. Equity
compensation awards have been
granted under our 2007 Stock Option and Incentive Plan (the "2007 Plan"), our 2010 Stock Option and Incentive Plan (the "2010 Plan") and our 2013 Incentive Plan (the "2013 Plan").

Each
of Mr. Blandino and Mr. Tartaro received grants of stock options and RSUs upon the commencement of their service with the Company, as contemplated by their respective
employment agreements. The issuance of the RSUs has been deferred pending the Company's ability to file a Registration Statement on Form S-8 registering the shares of stock issuable
pursuant to the 2013 Plan.

On
April 15, 2013, we announced that the Board of Directors approved a term sheet for an incentive compensation package to be provided to Alessandro Sodi, our Chief Executive
Officer, 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, we entered into a definitive Replacement Grant Agreement with Mr. Sodi and
certain agreed upon ancillary award agreements related thereto. In June 2013, the substitute remuneration package was approved by our stockholders and, on December 23, 2013 (the "grant date")
we entered into an amendment to the Replacement Grant Agreement (the "Amendment to Replacement Grant Agreement") with Mr. Sodi which fixed the terms of the incentive compensation package.

Under
the terms of the Amendment to Replacement Grant Agreement, on December 23, 2013 (the "Grant Date"), Mr. Sodi's fully vested option to purchase 2.4 million
shares of our common stock for an exercise price of US$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, Mr. Sodi received:



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In
addition, Mr. Sodi held an option to purchase 3 million shares of our common stock for an exercise price of US$0.82 per share, which remained subject to vesting. Under
the terms of the Amendment to Replacement Grant Agreement, we 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, Mr. Sodi received:



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

Other Benefits

Historically, we have not provided retirement benefits to our executives, including our Named Executive Officers. However, we offer all
of our U.S. employees, including our Named Executive Officers, the opportunity to participate in our 401(k) savings plan. This plan serves as the primary vehicle for our employees to accumulate
retirement benefits. In 2013, we provided a 4% match of any employee contributions (including contributions of the Named Executive Officers) made to the 401(k) plan. We believe that the total amount
of retirement benefits made available to our executive officers, including the Named Executive Officers, under this plan is consistent with the level of total compensation that we seek to provide our
executive officers.

We
provide medical, disability and life insurance benefits to our executives, including the Named Executive Officers, on the same terms and conditions as are generally available to all
of our salaried employees.

Tax Deductibility of Executive Compensation

Section 162(m) of the U.S. Internal Revenue Code limits the Company from taking a tax deduction for certain compensation in
excess of U.S. $1 million in any taxable year paid to each of our Named Executive Officers other than qualified performance based compensation. The Replacement Awards described above have been
designed to meet this exception. We may also grant stock-based or cash awards under our 2013 Plan that will meet this exception. While we generally seek to ensure the deductibility of the incentive
compensation paid to our executive officers, the Compensation Committee retains the flexibility necessary to provide cash and equity compensation, consistently with the NZSX Rules, in line with
competitive practice and the best interests of shareholders even if these amounts are not fully tax deductible.

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Employment Agreements

Chief Executive Officer

We entered into an employment agreement with Alessandro Sodi on June 27, 2011 for a term of three years. Mr. Sodi's
employment agreement provides for annual base compensation of U.S. $510,000 per year which will increase 15% per year during the term. In addition, at the beginning of the second quarter of every
fiscal year, the Board will consider approving a lump sum payment of U.S. $150,000 to Mr. Sodi (which was awarded to Mr. Sodi in 2014 and will be reflected in the Company's summary
compensation table contained in the Company's applicable filings with the SEC in 2015). This payment will be at the discretion of the Board, taking into consideration market conditions and the
then-current performance of the Company.

In
the event Mr. Sodi voluntarily resigns in connection with a change of control, for health issues related to him or his spouse or he is removed as the CEO of the Company or his
employment agreement is not renewed or extended, Mr. Sodi will be paid one year of his then-current salary. The agreement contains other provisions normally found in such agreements such as, by
way of example, non-competition, confidentiality and inventions clauses.

Executive Vice President and Chief Financial Officer

We entered into an employment agreement with Mr. Blandino on May 15, 2013. The agreement provides for: (i) a
three-year term, (ii) an annual base salary at the rate of U.S. $315,000, (ii) an annual target bonus opportunity of not less than 50% of base salary (subject to the attainment of
performance targets to be approved by the Compensation Committee of the Board), (iii) the grant of an option to purchase 260,000 shares of our common stock pursuant to the 2013 Plan,
(iv) the grant of 110,000 RSUs pursuant to the 2013 Plan, (v) the payment of six months' base salary as severance in the event Mr. Blandino's employment is terminated by us
without "cause" or by Mr. Blandino for "good reason," as set forth in the Agreement, and (vi) customary post-termination restrictive covenants in favor of us (including, confidentiality,
non-competition and non-solicitation covenants). The Compensation Committee of the Board approved the grant of the equity awards described above and the exercise price of the option to purchase shares
of common stock was set at U.S. $6.12 per share, based on the closing price of our common stock on the New Zealand Stock Exchange on May 15, 2013. The issuance of the RSUs remains subject to
the effectiveness of a Registration Statement on Form S-8 covering the shares issuable pursuant to the 2013 Plan. The equity
awards will vest in four equal installments on each anniversary of the Agreement, subject to Mr. Blandino's continued employment as of such dates. Vesting is subject to acceleration in the
event of a termination in connection with a change of control.

On
April 29, 2014, we entered into a transition agreement (the "Transition Agreement") with Mr. Blandino specifying the terms of his departure from the Company. We and
Mr. Blandino agreed that Mr. Blandino would resign from his position as Chief Financial Officer and Executive Vice President on the later of the day immediately following
(i) filing of this Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the quarters ended June 30, 2013 and September 30, 2013 with the SEC and
(ii) May 15, 2014 (the "Transition Start Date"). Commencing on the Transition Start Date, Mr. Blandino will provide transition services to support us in our accounting and
financial reporting functions for a period of seventy-five (75) days (the "Transition Period"). Upon the Transition Start Date, we will pay to Mr. Blandino certain accrued obligations,
including his bonus earned for the fiscal year ended December 31, 2013 of $98,500. During the Transition Period, Mr. Blandino will be entitled to receive aggregate compensation of
$52,500 (subject to applicable withholdings and customary payroll deductions).

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In
connection with the Transition Agreement, we and Mr. Blandino agreed to enter into a mutual general release agreement upon Mr. Blandino's resignation. The release
contains customary terms and provides that Mr. Blandino will relinquish any right to his outstanding and pending equity awards. Subject to the execution and effectiveness of the release, we
agreed to pay Mr. Blandino (i) a severance payment in the aggregate amount of $157,500 (subject to applicable withholdings and customary payroll deductions) and (ii) an RSU
payment in the amount of $110,000 (subject to applicable withholdings and customary payroll deductions).

Following
the Transition Period, we will pay Mr. Blandino a retention payment of $50,000 following the reaffirmation of the release. For an additional six months following the
Transition Period, Mr. Blandino will provide services as a part-time consultant for us on an as-needed basis.

Executive Vice President and General Counsel

We entered into an employment agreement with Mr. Tartaro on June 17, 2013 for a term of three years. Mr. Tartaro's
employment agreement provides for (i) annual base compensation of U.S. $275,000, (ii) an annual target bonus opportunity of not less than 50% of base salary (subject to the attainment of
performance targets to be approved by the Compensation Committee of the Board), (iii) the grant of an option to purchase 100,000 shares of our common stock pursuant to the 2013 Plan,
(iv) the grant of 54,000 RSUs pursuant to the 2013 Plan, (v) the payment of six months' base salary as severance in the event Mr. Tartaro 's employment is terminated by us without
"cause" or by Mr. Tartaro for "good reason," as set forth in the Agreement, and (vi) customary post-termination restrictive covenants in favor of us (including, confidentiality,
non-competition and non-solicitation covenants). Mr. Tartaro's base salary was increased to U.S. $300,000 in March 1, 2014. The Compensation Committee of the Board approved the grant of
the equity awards described above and the exercise price of the option to purchase shares of common stock was set at U.S. $6.40 per share, based on the closing price of our common stock on the New
Zealand Stock Exchange on June 17, 2013. The issuance of the
RSUs remains subject to the effectiveness of a Registration Statement on Form S-8 covering the shares issuable pursuant to the 2013 Plan. The equity awards will vest in four equal installments
on each anniversary of the Agreement, subject to Mr. Tartaro's continued employment as of such dates. Vesting is subject to acceleration in the event of a termination in connection with a
change of control.

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OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2013

The following table shows information concerning stock options outstanding held by the Named Executive Officers at December 31,
2013. No stock options of any of the Named Executive Officers were repriced.

Option Awards

Stock AwardsName

Number of
Securities
Underlying
Unexercised
Option (#)
Exercisable

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

Equity
incentive
plan
awards:
number of
securities
underlying
unexercised
unearned
options
(#)

Options
Exercise
Price
(U.S. $)

Option
Expiration
Date

Number of
shares or
units of
stock that
have not
vested (#)

Market
value of
shares of
units of
stock that
have not
vested
(#)

Equity
Incentive Plan
Award:
number of
unearned
shares, units
or other
rights
that have not
vested
(#)

Equity
incentive
plan
awards:
market or
payout value
of unearned
shares, units or
other rights that
have not vested
($)Alessandro Sodi,


800,000
(1)

0




$
0.14


8/19/2019











Chief Executive Officer


1,600,000
(2)

0




$
2.79


12/22/2023











(CEO)


378,049
(3)

121,951
(3)



$
0.82


6/27/2021


























0


0


2,500,000
(4)
$
6,976,800Carl D. Blandino,


0


260,000
(5)



$
6.12


5/14/2023











Chief Financial OfficerThomas N. Tartaro,


0


100,000
(6)



$
6.40


6/17/2023











General Counsel & Corporate Secretary


The
Company had no other equity incentive plan awards or stock awards outstanding as of December 31, 2013 with its Named Executive Officers. (1)Represents
an option to purchase 800,000 shares of common stock granted on August 20, 2009, which vested in full on August 20, 2010.(2)Represents
an option to purchase 1,600,000 shares of common stock granted on December 23, 2013, which vested in full on December 31, 2013.(3)Represents
an option to purchase 500,000 shares of common stock granted on June 27, 2011 and amended on December 23, 2013, with 378,049 vested
on June 28, 2013 and 121,951 vested on January 1, 2014.(4)Represents
2,250,000 shares of common stock subject to Level 1 PSUs and 250,000 shares of common stock subject to Level 2 PSUs. The issuance
of the shares of common stock subject to the Level 1 PSUs is contingent on the satisfaction of a performance target achieved over the course of a one-year measurement period beginning
July 1, 2013. Subject to achievement of the performance target, the Level 1 PSUs vest based on continued service as follows: (i) 562,500 vesting June 30, 2015 to be
delivered in two equal installments annually beginning February 15, 2018; (ii) 562,500 vesting June 30, 2016 to be delivered in two equal installments annually beginning
February 15, 2018; (iii) 562,500 vesting June 30, 2017 to be delivered on February 15, 2018; (iv) 562,500 vesting June 30, 2018 to be delivered on
February 15, 2019. The amounts also include 250,000 shares of common stock, subject to PSUs, contingent on the satisfaction of certain performance targets achieved over the course of four, one
year measurement periods beginning April 1, 2013 ("Level 2 PSUs"). Subject to achievement of the performance targets, the Level 2 PSUs vest based on continued service in four
equal installments annually beginning March 31, 2014 with a delivery date of February 15, 2018.(5)Represents
an option to purchase 260,000 shares of common stock granted on May 15, 2013, subject to stockholder approval of the 2013 Plan which
occurred on June 25, 2013, vesting in four equal annual installments beginning May 15, 2014. In connection with the Transition Agreement, dated April 29, 2014, Mr. Blandino
entered into a mutual general release agreement with us that provided for, among other things, his relinquishment of any rights to his outstanding and pending equity awards.(6)Represents
an option to purchase 100,000 shares of common stock granted on June 17, 2013, subject to stockholder approval of the 2013 Plan which
occurred on June 25, 2013, vesting in four equal annual installments beginning June 17, 2014.


Potential Payments Upon Termination or Change In Control

Under the terms of Mr. Sodi's employment agreement, Mr. Sodi is entitled to be paid one year of his then-current salary
in the event he voluntarily resigns in connection with a change of control, for health issues related to him or his spouse or if he is removed as the CEO of the Company or his employment agreement is
not renewed or extended. If Mr. Sodi's employment agreement had been terminated as of December 31, 2013, he would have received U.S. $549,133. Under the 2007 Plan, the 2010 Plan and 2013
Plan, Mr. Sodi would have been eligible to exercise vested options as of the date of his termination within the earlier of (i) the three month period following his termination date, or
(ii) the expiration of the term of such options.

Since
Mr. Sodi's stock option awards under the 2009 Plan, 2010 Plan and 2013 Plan were fully vested as of December 31, 2013, there are no relevant acceleration provisions
for these awards. Under the Amendment to Replacement Grant Agreement, Mr. Sodi's performance cash award is subject to certain vesting terms and deferred payments. If a change in control were to
occur, any outstanding

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vesting
would accelerate and any outstanding deferred payments would become due for delivery immediately prior to such change in control. In addition, pursuant to the Level 1 PSU award and the
Level 2 PSU award, if a change in control were to occur, any outstanding performance vesting would accelerate, any outstanding service vesting would accelerate, and delayed delivery of the
shares of common stock underlying the PSUs would accelerate. If a change in control had occurred as of December 31, 2013, Mr. Sodi would have been entitled to receive
$4.24 million. In addition, he would have been eligible (x) to exercise all of his outstanding options, and (y) to receive the shares of common stock subject to the Level 1
PSU and Level 2 PSU awards.

Under
the terms of Mr. Blandino's employment agreement, Mr. Blandino was entitled to be paid six months of his then-current salary in the event he was terminated by the
Company without cause or resigned for good reason, each as defined in the employment agreement. If Mr. Blandino's employment agreement had been terminated without cause or resigned for good
reason as of December 31, 2013, he would have received $157,500. In addition, if Mr. Blandino had been terminated without cause or resigned for good reason as of December 31,
2013, within six months following a change in control, (i) his award of 110,000 restricted stock units would have become fully vested, in accordance with his Restricted Share Unit Award
Agreement, dated as of May 15, 2013, and (ii) the shares underlying his stock option award would have become exercisable to the extent vested, in accordance his Stock Option Award
Agreement, dated May 15, 2013, until the earlier of (x) one year from the date of his termination of employment or (y) the expiration of his option award agreement. Under the
terms of the Transition Agreement, Mr. Blandino is entitled to receive certain payments upon his resignation as Executive Vice President and Chief Financial Officer and in respect of certain
transition services. The terms of the Transition Agreement are described above under the heading "Employment AgreementsExecutive Vice President and Chief Financial Officer".

Under
the terms of Mr. Tartaro's employment agreement, Mr. Tartaro is entitled to be paid six months of his then-current salary in the event he is terminated by the Company
without cause or resigns for good reason, each as defined in the employment agreement. If Mr. Tartaro's employment agreement had been terminated without cause or resigned for good reason as of
December 31, 2013, he would have received $150,000. In addition, if Mr. Tartaro had been terminated without cause or resigned for good reason as of December 31, 2013, within six
months following a change in control, (i) his award of 54,000 restricted stock units would have become fully vested, in accordance with his Restricted Share Unit Award Agreement, dated as of
June 17, 2013, and (ii) the shares underlying his stock option award would have become exercisable to the extent vested, in accordance his Stock Option Award Agreement, dated
June 17, 2013, until the earlier of (x) one year from the date of his termination of employment or (y) the expiration of his option award agreement.

Other
than the Company's employment agreements with Mr. Sodi, Mr. Blandino and Mr. Tartaro, and the Transition Agreement with Mr. Blandino, the Company does
not maintain any contracts, agreements, plans, or arrangements that provide for payments to the Named Executive Officers at, following, or in connection with any termination of employment, including,
without limitation, resignation, severance, retirement, or a constructive termination of a Named Executive Officer, or a change in control of the Company or a change in the Named Executive Officers
responsibilities.

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COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed with management the foregoing summary of the Company's executive compensation
and, based on such review and discussions, the Compensation Committee recommended to our Board that the discussion on executive compensation be included in this Annual Report on Form 10-K

Compensation Committee for the fiscal year ended December 31, 2013 of Diligent Board Member Services, Inc.A. Laurence Jones (Chairman)
Greg Petersen
Mark Weldon


DIRECTOR COMPENSATION  YEAR ENDED DECEMBER 31, 2013

The following table provides each element of compensation paid or granted to each non-employee director for service rendered during the
year ended December 31, 2013.

Name

Fees earned
or paid in
Cash
(U.S.$)(1)

Stock
awards
(U.S. $)

Option
awards
(U.S. $)

All other
compensation
(U.S. $)

Total
(U.S. $)Rick Bettle

$
27,500

$
37,041







$
64,541Joseph Carrabino, Jr.

$
137,489

$
80,000







$
217,489A. Laurence Jones

$
10,272

$
12,272







$
22,544David Liptak(2)














Greg B. Petersen

$
51,910

$
59,836







$
111,746Mark Russell

$
66,859

$
80,000







$
146,859Mark Weldon

$
132,625

$
80,000







$
212,625


(1)The
amounts shown represent fees in U.S. dollars. Messrs. Bettle, Russell and Weldon were paid in New Zealand dollars. Messrs. Carrabino,
Jones and Petersen were paid in U.S. dollars.(2)Mr. Liptak,
the Chairman of the Board, has declined to take any directors' fees and has never been paid directors' fees.


In
June 2013, our shareholders approved a new remuneration package in an amount equal to US$856,000, all or any portion of which may be payable through the issuance of equity securities,

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subject
to compliance with applicable NZSX Rules. The new remuneration package provides for a mix of cash and grants of shares of common stock as outlined below.

Position

Fee Amount
(Amounts are in U.S. dollars)General Board Member Retainer

$50,000*Audit and Compliance Committee Chair Retainer

$15,000Compensation Committee Chair Retainer

$10,000Nominations Committee Chair Retainer

$6,000*Audit and Compliance Committee Member Retainer

$7,500Compensation Committee Member Retainer

$5,000Nominations Committee Retainer

$3,000Initial Equity Grant

Annual Equity Grant
on a pro rata basisAnnual Equity Grant

$80,000 value (100% shares
of common stock)(1)


(1)On
March 14, 2014, we satisfied such grant through the issuance of 86,497 restricted shares to our non-executive directors, other than David Liptak,
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, pro-rated for any director who served on
the Board for less than the full calendar year.


The
Board believes that the new remuneration package is consistent with governance best practices in aligning board remuneration with shareholder value by including a substantial equity
component. With a view to seeing that any equity component of director's remuneration complies with the NZSX Rules, the Board only issues shares of our common stock 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 is determined in accordance with the NZSX Rules.

The
directors are also entitled to be paid for all reasonable travel, accommodation and other expenses incurred by them in connection with their attendance at board or shareholder
meetings, or otherwise in connection with our business.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table provides information concerning beneficial ownership of our common stock as of May 11, 2014
by:



Except
as indicated in the footnotes to this table, the persons or entities named have sole voting and investment power with respect to all shares of our common stock and preferred stock
shown as beneficially owned by them. Beneficial ownership representing less than one percent is denoted with an asterisk ("*").

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Unless
otherwise indicated, the principal address of each of the persons below is c/o Diligent Board Member Services, Inc., 1385 Broadway, 19th floor, New York,
NY 10018.

Name of Beneficial Owner

Number of
Shares
Beneficially
Owned(1)

Percentage of
Outstanding
Shares(2)Officers and DirectorsAlessandro Sodi, Director, CEO, President(3)


5,377,742


6.01
%David Liptak, Chairman; Director(4)


25,896,973


24.30
%Joseph Carrabino, Jr., Director


30,169


*A. Laurence Jones, Director(5)


35,074


*Greg Petersen, Director


46,858


*Mark Russell, Director


111,143


*Mark Weldon, Director(6)


175,186


*Michael Flickman, Chief Technology Officer, EVP


0


*Jeffrey Hilk, Director of Client Services, EVP


10,000


*Thomas Tartaro, General Counsel, Corporate Secretary, EVP(7)


25,000


*Carl D. Blandino, Chief Financial Officer, EVP(8)


65,000


*All directors and executive officers as a group (11 persons)


31,773,145


28.92
%5% Security HoldersSpring Street Partners, L.P.(4)


25,896,973


24.30
%Carroll Capital Holdings, LLC(9)


14,989,763


15.52
%Accident Compensation Corporation(10)


7,127,853


8.23
%HSBC Nominees (New Zealand) Limited


6,761,837


7.81
%Wasatch Advisors, Inc.(11)


6,279,960


7.26
%Wasatch International Growth Fund(12)


4,379,359


5.06
%


(1)Includes
(i) stock held in joint tenancy, (ii) stock owned as tenants in common, (iii) stock owned or held by spouse or other members
of the individual's household, and (iv) stock in which the individual either has or shares voting and/or investment power, even though the individual disclaims any beneficial interest in such
stock.(2)Shares
of common stock subject to options currently exercisable or exercisable on or before July 10, 2014, and shares of common stock issuable upon
conversion of the Series A Preferred Stock, are deemed outstanding and beneficially owned by the person holding such options or Series A Preferred Stock for purposes of computing the
number of shares and percentage beneficially owned by such person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person.(3)Includes
(i) 2,477,742 shares of common stock directly owned; and (ii) 2,900,000 shares of common stock subject to options currently
exercisable. Does not include 2,500,000 shares of common stock underlying PSUs for which performance targets have not been satisfied.(4)Includes
shares of common stock beneficially owned by Spring Street Partners, L.P., with a principal address at 488 Madison Avenue,
21st Floor, New York, New York 10022. David Liptak is the sole manager and member of West Broadway Advisors, L.L.C., which is the sole general partner of Spring Street, L.P. Spring
Street Partners, L.P. is the beneficial owner of 25,896,973 shares of common stock, which include (i) 20,000,000 shares of Series A Preferred Stock that are convertible into
common stock on a one to one basis and (ii) 5,896,973 shares of common stock.(5)Includes
(i) 26,667 shares of common stock directly owned; and (ii) 8,407 shares of common stock beneficially owned by Aegis
Management, LLC, with a principal address at 840 Sixth Street,


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Boulder,
Colorado 80302. Mr. Jones and his spouse are the sole members of Aegis Management, LLC. (6)Includes
(i) 75,000 shares of common stock directly owned; and (ii) 100,186 shares of common stock beneficially owned by Lola Nominees
Limited, an entity wholly owned by Mark Weldon, with a principal address at 3 Ree Crescent, Cromwell, Central Otago, 9310 New Zealand.(7)Includes
25,000 shares of common stock subject to options exercisable on or before July 10, 2014.(8)Includes
65,000 shares of common stock subject to options exercisable on or before July 10, 2014.(9)Includes
(i) 10,000,000 shares of Series A Preferred Stock and 3,389,763 shares of common stock owned by Carroll Capital Holdings LLC;
(ii) 600,000 shares owned by Kenneth Carroll, Trustee, the Elizabeth Carroll 2012 Descendants Trust; and (iii) 1,000,000 shares owned by the Kenneth Carroll 2012 Family Trust. Carroll
Capital Holdings, LLC's principal address is 94 Long Pond Road, Hewitt, New Jersey 07421.(10)Based
on an SSH Notice filed in New Zealand by Accident Compensation Corporation ("ACC") on January 24, 2014, Nicholas Bagnall, Blair Tallot, Paul
Robertshawe, Blair Cooper and Jason Familton are employees and portfolio managers or equity analysts for ACC. Under current ACC investment policies, they have the discretion to exercise control over
some or all of the rights to vote and the power to acquire or dispose of some or all of the securities of which ACC is the beneficial owner. ACC's principal address is Justice Centre, 19 Aitken
Street, PO Box 242, Wellington, New Zealand. As of January 24, 2014, ACC reduced the number of shares beneficially owned to 7,127,653 or 8.23% based on a subsequent SSH Notice, dated
December 6, 2013.(11)Based
on an SSH Notice filed in New Zealand by Wasatch Advisors, Inc. ("Wasatch"), dated May 30, 2013, is an investment manager with
investment and voting discretion for mutual funds and institutional accounts. Wasatch's principal address is 150 Social Hall Avenue, 4th floor, Salt Lake City, Utah 84111. As of
March 27, 2013, Wasatch became a substantial security holder.(12)Based
on an SSH Notice filed in New Zealand by Wasatch International Growth Fund ("WIGF") on April 1, 2014, WIGF is an investment manager with
investment and voting discretion for mutual funds and institutional accounts. WIGF's principal address is 150 Social Hall Avenue, 4th floor, Salt Lake City, Utah 84111. As of March 27,
2014, Wasatch became a substantial security holder.


We
are not aware of any arrangements involving our shareholders, the operation of which would result in a change of control.

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EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth, as of December 31, 2013, certain information related to the Company's equity compensation plans.

Plan Category

Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights(2)

Weighted-average exercise
price of outstanding
options, warrants and
Rights(2) (U.S. $)

Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))(in thousands)



(in thousands)(a)

(b)

(c)Equity compensation plans approved by security holders(1)


8,572

$
1.97


3,706Equity compensation plans not approved by security holders








Total:


8,572

$
1.97


3,706


(1)In
November 2007, the shareholders of Diligent approved the 2007 Plan to offer incentive stock options, non-qualified stock options and restricted shares of
common stock to employees, directors and consultants of the Company. In June 2010, the shareholders of Diligent adopted the 2010 Plan to offer up to 5.0 million shares of common stock as
incentive stock options and non-qualified stock options to employees, directors and consultants of the Company. The 2010 Plan was amended in April 2012 to authorize the issuance of an additional
2.5 million shares. In
May 2013, the Board adopted the Diligent Board Member Services, Inc. 2013 Incentive Plan, which was approved by the Company's stockholders in June 2013. An aggregate of 8.5 million
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. As of the date of approval of the 2013 Plan,
46 thousand and 2.6 million shares remained available for issuance under the 2007 and 2010 Plans, respectively. Upon approval of the 2013 Plan, the Company discontinued use of the 2007
and 2010 Plans and no shares remain available for future issuance under these plans. (2)The
number of securities to be issued upon exercise of outstanding options, warrants and rights in column (a) includes 2.5 million Performance
Share Units (PSUs) and 314 thousand Restricted Stock Units (RSUs). The PSUs are units of common stock issued to the Company's Chief Executive Office upon satisfaction of certain performance
criteria. Once earned the PSUs vest over a defined service period. The RSUs represent units of common stock to be issued to certain employees over a defined vesting period, as long as the employees
remain in the employ of the Company. The weighted average exercise price in column (b) above does not take these awards into account.


ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

Since the beginning of our 2013 fiscal year, there has been no transaction, and there is no currently proposed transaction, in which
the Company was or is to be a participant in an amount requiring disclosure under the Exchange Act and in which any related person had or will have a direct or indirect material interest that would
require disclosure under the Exchange Act.

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Procedures for Approval of Related Party Transactions

Pursuant to our Audit and Compliance Committee Charter, our Audit and Compliance Committee reviews and approves any material
transaction between the Company and any director or executive officer of the Company (or any person or entity controlled by or controlling such director or executive officer, or in which such director
or executive officer has a direct or indirect material financial interest). Prior to approving any such transaction, the Audit and Compliance Committee considers whether such transaction is in the
best interests of the Company. If the Audit and Compliance Committee approves the transaction, the Audit and Compliance Committee reviews the public disclosure of such transaction prior to such
disclosure.

Independence Standards for Directors

As our common stock is not listed on a U.S. national securities exchange, the Board has elected to evaluate the independence of our
directors using the applicable listing standards of the The NASDAQ Stock Market (the "NASDAQ Rules"). A majority of our board members are independent directors based on the definition of independence
in the NASDAQ Rules, specifically, A. Laurence Jones, Mark Russell, Mark Weldon, Greg B. Petersen, Joseph Carrabino, Jr. and David Liptak. Under the NZSX Rules, A. Laurence Jones, Mark Russell, Mark
Weldon, Greg B. Petersen and Joseph Carrabino are independent directors. Further, given that Mark Russell and Mark Weldon are New Zealand residents, the Company satisfies the requirement under the
NZSX Rules that at least two directors must be residents in New Zealand.

None
of the nominees, nor any other member of our Board or executive officers, have been involved in any legal proceeding enumerated in Securities and Exchange Commission
Regulation S-K, Item 401, within the time periods described in that regulation.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table shows fees incurred for audit and other services provided by Deloitte & Touche LLP, our independent
U.S. registered public accounting firm for the fiscal year ended December 31, 2013

AUDIT FEES

2013Audit Fees(1)

$
2,719,350Audit Related Fees(2)

$
121,835Tax Fees(3)

$
10,000Total Fees*

$
2,851,185


*Amounts
are shown in U.S. dollars.(1)The
Audit Fees for Deloitte & Touche LLP (Deloitte) represent billed fees and anticipated fees in connection with the audit of our
consolidated financial statements for the period ended December 31, 2013; and the reviews of our consolidated financial statements for the periods ended September 30, 2013;
June 30, 2013; and March 31, 2013, of $846,637. Also includes fees for the re-audit for the years ended 2012, 2011 and 2010 and out of pocket expenses, of $1,872,713.(2)The
Audit Related Fees for Deloitte represent cost incurred for accounting related matters for which Deloitte consulted with its National Office.(3)Tax
Fees consist of fees billed for professional services for tax advice and tax planning for the fiscal year ended December 31, 2013.


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Pre-Approval of Services

The Audit and Compliance Committee selected Deloitte & Touche LLP to serve for the fiscal year ended December 31,
2013 as the Company's independent accountants after considering Deloitte's independence and effectiveness. The Audit and Compliance Committee pre-approved all audit, audit related and non-audit
services performed by Deloitte and the fees and other compensation paid to Deloitte by reviewing and approving the overall nature and scope of the audit process, reviewing and approval of any requests
for non-audit services and receiving and reviewing all reports and recommendations of Deloitte. All non-audit services provided by Deloitte were pre-approved by the Audit and Compliance Committee.

102

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PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as a part of this Report:





103

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DILIGENT BOARD MEMBER SERVICES, INC  SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  (in thousands)

Balance at
beginning
of period

Additions
(reductions)
charged to
costs and
expenses

Write-offs
and other
adjustments

Balance at
end of periodDeferred tax valuation allowance for the period ended:December 31, 2013

$


$


$


$
December 31, 2012

$
5,787

$
(5,787
)
$


$
December 31, 2011

$
5,124

$
663

$


$
5,787


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: May 19, 2014

DILIGENT BOARD MEMBER SERVICES, INC.By:

/s/ CARL D. BLANDINO Carl D. Blandino, Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)


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POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alessandro Sodi, Alex Sanchez
and Thomas N. Tartaro, and each of them, as his true and lawful attorney-in-fact and agent, each with full power of substitution and re-substitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all Annual Reports of the Registrant on Form 10-K and to sign any and all amendments to such reports and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities & Exchange Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agents, or any of them or their, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated on
the dates indicated.

Name

Title

Date/s/ ALESSANDRO SODI Alessandro Sodi

Chief Executive Officer, President, Director (Principal Executive Officer)

May 19, 2014/s/ CARL D. BLANDINO Carl D. Blandino

Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

May 19, 2014/s/ DAVID LIPTAK David Liptak

Director and Chairman

May 19, 2014/s/ JOSEPH D. CARRABINO, JR. Joseph D. Carrabino, Jr

Director

May 19, 2014/s/ A. LAURENCE JONES A. Laurence Jones

Director

May 19, 2014/s/ GREG PETERSEN Greg Petersen

Director

May 19, 2014/s/ MARK RUSSELL Mark Russell

Director

May 19, 2014/s/ MARK WELDON Mark Weldon

Director

May 19, 2014


106

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INDEX TO EXHIBITS

Exhibit
Numbers

Exhibits3.1

Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the SEC on April 20, 2012).3.2

Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed with the SEC on May 15, 2012).4.1

Form of common stock certificate (incorporated herein by reference to Exhibit 4.7 to the Company's Original Form 10 filed with the SEC on April 30, 2008).10.1

Contribution Agreement dated October 1, 2007 between Diligent Board Member Services, LLC and Diligent Board Member Services, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company's
Original Form 10 filed with the SEC on April 30, 2008).10.2

Diligent Board Member Services, Inc. 2007 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.6 to the Company's Original Form 10 filed with the SEC on April 30,
2008).10.3

Diligent Board Member Services, Inc. 2010 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.6.1 to the Company's Annual Report on Form 10-K filed with the SEC on
March 22, 2011).10.4

Amendment to Diligent Board Member Services, Inc. 2010 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.6.2 to the Company's Quarterly Report on Form 10-Q filed with the
SEC on May 15, 2012).10.5

Form of Restricted Stock Award Agreement for restricted stock awards under the Diligent Board Member Services, Inc. 2007 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.7 to
the Company's Original Form 10 filed with the SEC on April 30, 2008).10.6

Investor Rights Agreement dated March 9, 2009 among Diligent Board Member Services, Inc., Spring Street Partners, L.P. and Carroll Capital Holdings, LLC (incorporated herein by reference to
Exhibit 99.3 to the Company's Current Report on Form 8-K filed with the SEC on March 13, 2009).10.7

Employment Agreement between Diligent Board Member Services, Inc. and Alessandro Sodi (incorporated herein by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q filed with the SEC
on August 9, 2011).10.8

Employment Agreement between Diligent Board Member Services, Inc. and Carl D. Blandino (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on
May 15, 2013).10.19

Transition Agreement between Diligent Board Member Services, Inc. and Carl D. Blandino (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on
May 2, 2014).10.10

Employment Agreement between Diligent Board Member Services, Inc. and Thomas N. Tartaro.*10.12

Diligent Board Member Services, Inc. 2013 Incentive Plan (incorporated herein by reference to Annex A to the Company's Definitive Proxy Statement filed with the SEC on June 4, 2013).


107

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Exhibit
Numbers

Exhibits10.13

Replacement Grant Agreement between Alessandro Sodi and the Company (incorporated herein by reference to Annex B of the Company's Definitive Proxy Statement filed with the SEC on June 4, 2013).10.14

Amendment to Replacement Grant Agreement between Alessandro Sodi and the Company (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on
December 24, 2013).10.15

Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on August 1, 2013).10.16

Form of Award Agreement (Option Award) under the Diligent Board Member Services, Inc. 2013 Incentive Plan.*21

Subsidiaries of Diligent Board Member Services, Inc.*24

Powers of Attorney executed by all officers and directors of the Company who have signed this report on Form 10-K (included on the Signatures page of this Annual Report on Form 10-K).*31.1

CEO Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002.*31.2

CFO Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002.*32.1

CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2

CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*


*Filed
herewith


108

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