UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549




FORM
10-Q




(Mark
One)




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




For the quarterly period ended
June 30, 2009.




or




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




For the
transition period from _________________________ to
_________________________________




Commission
File Number:  000-53205




Diligent
Board Member Services, Inc.


(Exact name of registrant as specified
in its charter)




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





39
West 37 St. 8th Floor


New
York, NY 10018


(Address
of principal executive offices)(Zip Code)





(212)
741-8181


(Registrant’s telephone number,
including area code)




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




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




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definition of  “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check One)




 ̈
      Large accelerated filer
               ̈
      Accelerated filer ̈
      Non-accelerated filer
              x
      Smaller Reporting Company




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


oYes x No




The
number of shares of the registrant’s common stock outstanding as of August 13,
2009 was 90,440,000.









(This
page intentionally left blank)





CONTENTS




PAGEForward
      Looking Statements
                iiAvailable
      Information
                iiPART
      I – Financial InformationItem
      1.
                Consolidated
      Financial Statements
                1Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                10Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                20Item
      4T.
                Controls
      and Procedures
                20PART
      II – Other InformationItem
      1.
                Legal
      Proceedings
                21Item
      1A.
                Risk
      Factors
                21Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                21Item
      3.
                Defaults
      Upon Senior Securities
                21Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                21Item
      5.
                Other
      Information
                21Item
      6.
                Exhibits
                21SIGNATURES
                22




i


FORWARD
LOOKING STATEMENTS





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





AVAILABLE
INFORMATION




We file
reports, proxy statements, information statements and other information with the
Securities and Exchange Commission. You may read and copy this information, for
a copying fee, at the SEC’s public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more
information on its public reference rooms. Our Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services, and at the web site maintained by the Securities and
Exchange Commission at http://www.sec.gov. Our internet address is
http://www.boardbooks.com.  We will make available through a link to
the SEC’s web site, electronic copies of the materials we file with the SEC
(including our annual reports on Form 10-K, our quarterly reports on Form 10-Q,
our current reports on Form 8-K, the Section 16 reports filed by our executive
officers, directors and 10% stockholders and amendments to those
reports).  To receive paper copies of our SEC materials, please
contact us by mail addressed to Robert E. Norton, Corporate Secretary, Diligent
Board Member Services, Inc., 39 West 37 St. 8th Floor, New York, NY 10018, (212)
741-8181.


ii


PART
I—FINANCIAL INFORMATION





Item
1. Consolidated Financial Statements.





Diligent
Board Member Services, Inc.


Consolidated
Balance Sheets


June
      30,
                            
                            
                            December
      31,2009
                            
                            
                            2008(Unaudited)ASSETSCash
      and cash equivalents
                            
                            $
                            1,843,883
                            
                            
                            $
                            1,265,347Term
      deposit
                            
                            
                            64,460
                            
                            
                            
                            58,150Accounts
      receivable, net
                            
                            
                            270,972
                            
                            
                            
                            390,180Prepaid
      expenses and other current assets
                            
                            
                            400,130
                            
                            
                            
                            222,617Total
      current assets
                            
                            
                            2,579,445
                            
                            
                            
                            1,936,294Property
      and equipment, net
                            
                            
                            1,162,460
                            
                            
                            
                            1,116,007Note
      receivable from affiliate, net of valuation allowance
                            
                            
                            1,361,791
                            
                            
                            
                            1,361,791Restricted
      cash - security deposits
                            
                            
                            240,847
                            
                            
                            
                            246,685Total
      assets
                            
                            $
                            5,344,543
                            
                            
                            $
                            4,660,777LIABILITIES, REDEEMABLE PREFERRED STOCK AND
      STOCKHOLDERS' EQUITYAccounts
      payable and accrued expenses
                            
                            $
                            552,476
                            
                            
                            $
                            474,860Deferred
      revenue
                            
                            
                            790,961
                            
                            
                            
                            601,408Current
      portion of obligations under capital leases
                            
                            
                            100,557
                            
                            
                            
                            114,308Payables
      to affiliates
                            
                            
                            -
                            
                            
                            
                            49,578Total
      current liabilities
                            
                            
                            1,443,994
                            
                            
                            
                            1,240,154Obligations
      under capital leases, less current portion
                            
                            
                            45,139
                            
                            
                            
                            50,816Other
      noncurrent liabilities
                            
                            
                            38,818
                            
                            
                            
                            -Commitments
      and contingenciesRedeemable
      preferred stock:Series
      A convertible redeemable preferred stock, $.001 par value, 50,000,000
      shares  authorized, 30,000,000 and 0 shares issued and
      outstanding (liquidation value $4,601,260)
                            
                            
                            2,970,664
                            
                            
                            
                            -Stockholders'
      equity:Common
      Stock, $.001 par value, 250,000,000 shares
      authorized,  90,440,000 shares issued and
      outstanding
                            
                            
                            90,440
                            
                            
                            
                            90,440Additional
      paid-in capital
                            
                            
                            24,531,655
                            
                            
                            
                            24,618,070Accumulated
      deficit
                            
                            
                            (23,751,264
                            )
                            
                            
                            (21,318,658
                            )Accumulated
      other comprehensive loss
                            
                            
                            (24,903
                            )
                            
                            
                            (20,045
                            )Total
      stockholders' equity
                            
                            
                            845,928
                            
                            
                            
                            3,369,807Total
      liabilities, redeemable preferred stock and stockholders'
      equity
                            
                            $
                            5,344,543
                            
                            
                            $
                            4,660,777




See
accompanying notes to consolidated financial statements


1


Diligent
Board Member Services, Inc.


Consolidated
Statements of Operations


(Unaudited)


Three Months Ended June 30,
                  
                  
                  Six Months Ended June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Revenues
                  
                  $
                  1,156,732
                  
                  
                  $
                  700,368
                  
                  
                  $
                  2,153,904
                  
                  
                  $
                  1,292,172Cost
      of revenues
                  
                  
                  539,834
                  
                  
                  
                  470,671
                  
                  
                  
                  995,567
                  
                  
                  
                  899,996Gross
      profit
                  
                  
                  616,898
                  
                  
                  
                  229,697
                  
                  
                  
                  1,158,337
                  
                  
                  
                  392,176Operating
      expenses:Selling
      and marketing expenses
                  
                  
                  593,064
                  
                  
                  
                  1,782,530
                  
                  
                  
                  1,273,661
                  
                  
                  
                  3,384,895General
      and administrative expenses
                  
                  
                  995,598
                  
                  
                  
                  1,194,963
                  
                  
                  
                  2,124,041
                  
                  
                  
                  2,543,958Research
      and development expenses
                  
                  
                  199,238
                  
                  
                  
                  291,638
                  
                  
                  
                  358,927
                  
                  
                  
                  575,838Depreciation
      and amortization
                  
                  
                  94,404
                  
                  
                  
                  69,032
                  
                  
                  
                  183,961
                  
                  
                  
                  121,745Total
      operating expenses
                  
                  
                  1,882,304
                  
                  
                  
                  3,338,163
                  
                  
                  
                  3,940,590
                  
                  
                  
                  6,626,436Operating
      loss
                  
                  
                  (1,265,406
                  )
                  
                  
                  (3,108,466
                  )
                  
                  
                  (2,782,253
                  )
                  
                  
                  (6,234,260
                  )Other
      income (expenses):Interest
      income, net
                  
                  
                  100,855
                  
                  
                  
                  172,653
                  
                  
                  
                  185,642
                  
                  
                  
                  379,616Foreign
      exchange transaction gain/(loss)
                  
                  
                  41,796
                  
                  
                  
                  (60,727
                  )
                  
                  
                  (893
                  )
                  
                  
                  18,812Other
                  
                  
                  170,954
                  
                  
                  
                  -
                  
                  
                  
                  170,954
                  
                  
                  
                  -Total
      other income
                  
                  
                  313,605
                  
                  
                  
                  111,926
                  
                  
                  
                  355,703
                  
                  
                  
                  398,428Loss
      before provision for income taxes
                  
                  
                  (951,801
                  )
                  
                  
                  (2,996,540
                  )
                  
                  
                  (2,426,550
                  )
                  
                  
                  (5,835,832
                  )Provision
      for income taxes
                  
                  
                  -
                  
                  
                  
                  17,587
                  
                  
                  
                  6,056
                  
                  
                  
                  17,587Net
      loss
                  
                  $
                  (951,801
                  )
                  
                  $
                  (3,014,127
                  )
                  
                  $
                  (2,432,606
                  )
                  
                  $
                  (5,853,419
                  )Net
      loss per share (basic and diluted)
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.06
                  )Weighted
      average shares outstanding (basic and diluted)
                  
                  
                  90,390,549
                  
                  
                  
                  102,071,000
                  
                  
                  
                  90,301,878
                  
                  
                  
                  102,071,000





See
accompanying notes to consolidated financial statements


2


Diligent
Board Member Services, Inc.


Consolidated
Statements of Cash Flows


(Unaudited)


Six Months EndedJune 30,2009
                      
                      
                      2008Cash
      flows from operating activities:Net
      loss
                      
                      $
                      (2,432,606
                      )
                      
                      $
                      (5,853,419
                      )Adjustments to reconcile net
      loss to netcash
      used in operating activities:Depreciation
      and amortization
                      
                      
                      183,961
                      
                      
                      
                      121,745Share-based
      compensation
                      
                      
                      23,099
                      
                      
                      
                      481,148Accrued
      interest receivable
                      
                      
                      -
                      
                      
                      
                      (173,786
                      )Changes
      in operating assets and liabilities:Accounts
      receivable
                      
                      
                      119,208
                      
                      
                      
                      (229,633
                      )Prepaid
      expenses and other current assets
                      
                      
                      (177,513
                      )
                      
                      
                      19,573Restricted
      cash - security deposits
                      
                      
                      5,838
                      
                      
                      
                      (215,235
                      )Accounts
      payable and accrued expenses
                      
                      
                      77,616
                      
                      
                      
                      (104,255
                      )Deferred
      revenue
                      
                      
                      189,553
                      
                      
                      
                      69,167Payables
      to affiliates
                      
                      
                      (49,578
                      )
                      
                      
                      (89,364
                      )Other
      noncurrent liabilities
                      
                      
                      38,818
                      
                      
                      
                      -Net
      cash used in operating activities
                      
                      
                      (2,021,604
                      )
                      
                      
                      (5,974,059
                      )Cash
      flows from investing activities:Cash
      acquired in acquisition, net of purchase price
                      
                      
                      -
                      
                      
                      
                      83,593Investment
      in term deposit
                      
                      
                      -
                      
                      
                      
                      (1,140,660
                      )Purchase
      of property and equipment
                      
                      
                      (184,213
                      )
                      
                      
                      (601,095
                      )Net
      cash used in investing activities
                      
                      
                      (184,213
                      )
                      
                      
                      (1,658,162
                      )Cash
      flows from financing activities:Proceeds
      from issuance of Series A preferred stock, net
                      
                      
                      2,861,150
                      
                      
                      
                      -Cash
      paid for note receivable from affiliate
                      
                      
                      -
                      
                      
                      
                      (100,000
                      )Due
      from officers
                      
                      
                      -
                      
                      
                      
                      (165,876
                      )Payments
      of obligations under capital leases
                      
                      
                      (65,629
                      )
                      
                      
                      (50,644
                      )Net
      cash provided by (used in) financing activities
                      
                      
                      2,795,521
                      
                      
                      
                      (316,520
                      )Effect
      of exchange rates on cash and cash equivalents
                      
                      
                      (11,168
                      )
                      
                      
                      (350
                      )Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      578,536
                      
                      
                      
                      (7,949,091
                      )Cash
      and cash equivalents at beginning of period
                      
                      
                      1,265,347
                      
                      
                      
                      13,675,080Cash
      and cash equivalents at end of period
                      
                      $
                      1,843,883
                      
                      
                      $
                      5,725,989Supplemental
      disclosure of cash flow information:Cash
      paid during the period for :Interest
                      
                      $
                      15,300
                      
                      
                      $
                      21,224Income
      taxes
                      
                      $
                      12,634
                      
                      
                      $
                      -Supplemental
      disclosure of noncash investing and financing activities:Share-based
      compensation
                      
                      $
                      23,099
                      
                      
                      $
                      481,148Property
      and equipment acquired under capital leases
                      
                      $
                      46,200
                      
                      
                      $
                      -Conversion
      of accrued interest to loan principal
                      
                      $
                      -
                      
                      
                      $
                      173,786


See
accompanying notes to consolidated financial statements


3


Diligent
Board Member Services, Inc.


Notes to
Consolidated Financial Statements





1)           Organization
and nature of the business





Diligent Board Member Services, Inc.
(“Diligent” or the “Company”) provides worldwide online management of corporate
governance documents (“Boardbooks”) to corporate clients.  Boardbooks
is a web-based portal that directors and administrative staff use to compile,
update and examine board materials prior to and during board
meetings.  Each client of the Company enters into a service agreement
whereby the Company agrees to provide and support the Boardbooks
service.





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.  In April 2008, the Company filed
a Form 10 registration statement with the United States Securities and
Exchange Commission (“SEC”), which became effective on June 30,
2008.  The Company’s corporate headquarters are located in New York
and New Zealand.





The Company’s predecessor entity was
Services Share Holding, LLC (previously called Diligent Board Member Services,
LLC), a Delaware limited liability company (herein referred to as “SSH
LLC”).





The Company has a wholly-owned
subsidiary located in New Zealand, Diligent Board Member Services NZ Limited
(“DBMS NZ”), which was acquired on January 1, 2008.  Prior to January
1, 2008, DBMS NZ was owned by a stockholder and officer of the
Company.  DBMS NZ provides research and development services to the
Company.  The Company also has a wholly-owned subsidiary, Diligent
Boardbooks Limited (“DBL”), an England and Wales limited liability company which
was formed on December 14, 2006, and provides European sales and marketing
services.  DBL was inactive until April 2008.





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





The
Company has evaluated all subsequent events through August 13, 2009, which
represents the filing date of this Form 10-Q with the SEC, to ensure that this
Form 10-Q includes subsequent events that should be recognized in the financial
statements as of June 30, 2009, and appropriate disclosure of subsequent events,
which were not recognized in the financial statements.





2)           Liquidity





Despite growth in net sales during
2008, the Company’s growth rate lagged behind its projections.  Amid
liquidity concerns, the Company initiated plans to scale back its growth plans
in order to reduce operating expenses.  During the fourth quarter of
2008, the Company significantly reduced its sales force, reduced salaries for
some of its more highly compensated employees and reduced the number of members
of the board of directors.  The Company also actively sought
additional sources of financing and, in March 2009, issued 30,000,000 shares of
newly-created Series A Preferred Stock for US$0.10 per share, providing
additional capital of $2,861,150, net of issuance costs (See Note
7).





At the
current level of reduced expenses, coupled with current sales growth forecasts,
management believes this funding will be sufficient to support the operations
and obligations of the Company through an expected cash flow break even by the
end of the third quarter of 2010.  The primary uncertainty concerning
the Company’s capital needs pertains to its ability to achieve the expected
sales growth in a timely manner such that recurring revenues exceed operating
expenditures prior to the depletion of capital.





The note receivable from affiliate, due
from SSH LLC, provides for quarterly interest payments of approximately $90
thousand due through October 1, 2010, and a $7,161,791 principal payment due
October 1, 2010.  This note is collateralized with 22,612,737 shares
of Diligent common stock.  Management believes that collection of the
note receivable is dependent upon, and limited to, the amount of cash that SSH
LLC can receive from the sale of the underlying collateral as payments become
due and has recorded a valuation allowance on the note (see Note
6).  Although management believes a portion of the principal will be
collected when due in October 2010, with the exception of interest payments due
under the note, the Company has not included the collection of the note
receivable in its liquidity planning.


4


3)           Significant
accounting policies





Basis of presentation–The accompanying interim
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information and the instructions for Form 10-Q
pursuant to the rules and regulations of the SEC.  Accordingly, they
do not include all information and notes required by GAAP and provided in the
annual consolidated financial statements.  These financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto included in Form 10-K of the Company for the year ended
December 31, 2008, as filed with the SEC on March 30, 2009 and amended on May
14, 2009.





In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial statements.  The
results of operations for the three and six months ended June 30, 2009 are not
necessarily indicative of the results to be expected for the full
year.





The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.





Fair value of financial
instruments – The Company’s financial instruments include cash and cash
equivalents, term deposits, accounts receivable, accounts payable and accrued
expenses.  The fair value of these financial instruments approximates
book value due to their short term settlements.





Earnings per share –In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128,
Earnings Per Share,
basic net loss per share is computed by dividing the net loss attributable to
common stockholders by the weighted average number of common shares outstanding
for the period, excluding unvested restricted common shares.  Diluted
net loss per share is computed using the weighted average number of common
shares outstanding and, when dilutive, unvested restricted common
shares.  Because the Company reported a net loss for all periods
presented, all potential common shares attributable to unvested restricted stock
have been excluded from the computation of the diluted net loss per share
because the effect would have been anti-dilutive.





Recent accounting pronouncements–In April 2009, the
Financial Accounting Standards Board (“FASB”) issued three final Staff Positions
(“FSP”) intended to provide additional application guidance and enhance
disclosures regarding fair value measurements and impairments of securities. The
FSPs are effective for interim and annual periods ending after June 15,
2009.





FSP
157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly, provides additional guidance on estimating fair value when the
volume and level of activity for an asset or liability have significantly
decreased in relation to normal market activity for the asset or liability. This
FSP also provides additional guidance on circumstances that may indicate that a
transaction is not orderly.  The adoption of this FSP did not have a
material impact on the Company’s consolidated financial statements.





FSP
115-2 and 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, amends existing guidance for
determining whether an other than temporary impairment of debt securities has
occurred. Among other changes, the FASB replaced the existing requirement that
an entity’s management assert it has both the intent and ability to hold an
impaired security until recovery with a requirement that management assert
(a) it does not have the intent to sell the security, and (b) it is
more likely than not it will not have to sell the security before recovery of
its cost basis.  The adoption of this FSP did not have a material
impact on the Company’s consolidated financial statements.


5


FSP FAS
107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments requires an entity to
provide the annual disclosures required by SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, in its interim financial statements. The Company
has provided the disclosures required by FSP 107-1 and APB 28-1.





In May
2009, the FASB issued SFAS No. 165, Subsequent Events, which
provides guidance on management’s assessment of subsequent
events.  This standard establishes the accounting and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. It requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date. SFAS 165 is effective for interim and annual periods ending after June 15,
2009.  The implementation of this standard did not have a material
impact on the Company’s consolidated financial statements.





In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, and SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), which change the way entities account for securitizations and
special-purpose entities.  SFAS No. 166 is a revision to SFAS No. 140,
Accounting for Transfers and
Servicing Financial Assets and Extinguishments of Liabilities and SFAS
No. 167 is a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest
Entities.  The new
standards eliminate existing exceptions, strengthen the standards relating to
securitizations and special-purpose entities, and enhance disclosure
requirements.  Both of these statements are effective for fiscal years
beginning after November 15, 2009.  The adoption of these statements
will not have a material effect on the Company’s consolidated financial
statements.





In July
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally AcceptedAccounting Principles, (the
Codification).  The Codification will be the single source of
authoritative U.S. nongovernmental generally accepted accounting
principles.  The Codification does not change generally accepted
accounting principles, but is intended to make it easier to find and research
issues and will change the way GAAP is referenced.   The
Codification is effective for interim and annual periods ending after September
15, 2009.  The Company will begin to use the new Codification when
referring to GAAP in its consolidated financial statements for the third quarter
of 2009.





4)           Acquisition
of DBMS NZ





On January 1, 2008, the Company
acquired all the outstanding shares of DBMS NZ, for NZD 5,000
(US$3,804).  Prior to the acquisition, DBMS NZ provided research and
development services for the Company.  The purchase price was
allocated to the assets and liabilities as follows:


AssetsCash
                          
                          $
                          87,397Accounts
      receivable
                          
                          
                          24,809Other
      current assets
                          
                          
                          24,300Property
      and equipment, net
                          
                          
                          4,688141,194LiabilitiesAccounts
      payable
                          
                          
                          52,271Accrued
      employee entitlements
                          
                          
                          85,119137,390Net
      assets acquired
                          
                          $
                          3,804




6


5)           Term
deposit





At June 30, 2009, the Company had a
term deposit with a New Zealand bank with an original term of 365
days.  The term deposit in the amount of NZD 100,000 ($64,460 at June
30, 2009) bears interest at 4.50% and matures in March 2010.





At December 31, 2008, the Company had a
term deposit with a New Zealand bank with an original term of 100
days.  The term deposit in the amount of NZD 100,000 ($58,150 at
December 31, 2008) bore interest at 6.00% and matured in March
2009.





6)           Note
receivable from affiliate





The note receivable from affiliate
represents amounts due from SSH LLC under a Promissory Note and Security
Agreement dated October 1, 2007 (the “Note”).





The Note bears interest at 5% per
annum, which is payable in arrears on the first day of each calendar quarter,
commencing April 1, 2008.  SSH LLC elected, under the terms of the
Note, to defer each of the first four quarterly interest payments through
January 1, 2009, in which case they were added to the principal balance and bear
interest from the date the payment was due. The loan matures on October 1, 2010,
when the entire principal balance and all accrued interest will be due and
payable.  At December 31, 2008, the Note was secured by 25,000,000
shares of the Company’s stock which were pledged as collateral by members of SSH
LLC.





At June 30, 2009 and December 31, 2008,
the contractual outstanding loan balance was $7,161,791 (including accrued
interest through December 31, 2008 of $371,778).  In accordance with
SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, the Company evaluated the
collectability of the loan and determined that at December 31, 2008 it was
probable that the Company would be unable to collect all amounts contractually
due under the Note.  This conclusion was principally based on the
deterioration in the value of the underlying collateral and the worsening
economic environment.





At December 31, 2008, the Company
recorded a $5.8 million valuation allowance and a corresponding charge to
impairment loss in order to write down the Note to the estimated fair value of
the underlying collateral.  In the absence of an active market for the
Company’s stock, or other observable inputs for similar instruments, the Company
based its valuation principally on the value of the recent issue of preferred
stock, adjusted using an assumed discount rate of 20%, which is management’s
estimate based on the value of the preferred features of the Series A Preferred
Stock.  In addition, management assumed that SSH LLC and/or its
members would sell a portion of the underlying collateral to meet their
quarterly interest payments, thereby reducing the amount of collateral expected
to be available when the Note matures in 2010.  These are considered
unobservable inputs falling within the definition of Level 3 inputs pursuant to
SFAS No. 157, Fair Value
Measurements.





On March 30, 2009, SSH LLC sold
2,387,263 pledged shares to Spring Street Partners, L.P. in a private
transaction valued at $0.075 per share, or $179,045 in the
aggregate.  The proceeds were applied against the Note interest
payments due April 1 and July 1, 2009.  As a result, the number of
shares securing the Note at June 30, 2009 is 22,612,737.





At June 30, 2009, the Company reviewed
the valuation of the Note and determined that no further adjustment to the
valuation allowance of $5.8 million is necessary.





7)           Redeemable Preferred Stock
–On March 11,
2009, the Company issued 30,000,000 shares of newly-created Series A Preferred
Stock for US$0.10 per share, for an aggregate of $3,000,000 in additional
capital.  Expenses relating to the share issuance were
$138,850.  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, etc).  The dividend,
which is due on the first business day of each calendar year for the prior year,
may (at the Company’s option) be paid either in cash or in kind by the issuance
of additional Preferred Shares (PIK Shares), to be issued at the same issue
price of US$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 (ordinary shares).  In addition to the 11%
preferred dividend, the holders of the Preferred Shares will also be entitled to
participate pro rata in any dividend paid on the Company’s common
stock.


7


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 at a conversion
price of US$0.10 per share. 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
$40,000,000 of gross proceeds.





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 US$0.10
per share plus accrued and unpaid dividends, at any time after 60 months from
the date of issue of the Preferred Shares.





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 price
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 US$0.10 plus any dividends
which have become due but have not been paid.





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 15,000,000 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 – SFAS No. 133, Accounting for Derivative Financial
Interests and Hedging Activities, provides certain criteria that, if met,
require companies to bifurcate conversion options from their host instruments
and account for them as free standing derivative instruments.  The
Company has evaluated the conversion option on the Preferred Shares and
determined that the embedded conversion option should not be
bifurcated.  Additionally, the Company has considered the
provisions of Emerging Issues Task Force (“EITF”) Issue No. 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features, and EITF Issue No. 00-27,
Application of EITF 98-5 to
Certain Convertible Instruments,which require that a beneficial
conversion feature be valued separately at issuance.  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.  The Company followed the
guidance of SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity, and EITF
Topic D-98, Classification and
Measurement of Redeemable Securities, which provide that preferred
securities that are redeemable for cash be classified outside of permanent
equity if 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.  Accordingly, the Preferred Shares have been classified as
temporary equity.  The securities are carried at their face value net
of issuance costs (representing fair value) because the contingency has not been
met and it is not probable that it will be met.  If the redemption
were considered likely to occur, the carrying value would be adjusted to its
liquidation value.


8


The value
of the Preferred Shares at June 30, 2009 is as follows:


Gross
      proceeds
                          
                          $
                          3,000,000Less:
      Issuance costs
                          
                          
                          (138,850
                          )$
                          2,861,150Cumulative
      amortization of offering costs
                          
                          
                          8,254Cumulative
      in kind dividend
                          
                          
                          101,260Balance
      at June 30, 2009
                          
                          $
                          2,970,664




8)           Stockholders’ equity –In
March 2009, the stockholders of the Company approved an increase in the number
of authorized shares of common stock from 200,000,000 to
250,000,000.





9)           Stock option and incentive
plan – In
November 2007, the Company adopted the 2007 Stock Option and Incentive Plan
(“the Plan”) authorizing the granting of 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. The Plan is
administrated by the Company's Board of Directors. The Company's Board of
Directors determines the number of shares, the term, the frequency and date, the
type, the exercise periods, any performance criteria pursuant to which 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 Plan.  The
Plan authorizes the issuance of up to 10,000,000 shares of the Company’s common
stock.





On November 8, 2007, the Company
granted 4,000,000 shares of common stock to selected employees (3,064,000
shares), directors (200,000 shares) and consultants (736,000 shares) of the
Company, and its affiliates. Of these shares, 2,071,000 shares were fully vested
upon issuance on December 12, 2007, 160,000 shares were forfeited during 2008
and 1,769,000 shares vested on January 1, 2009, based on continued employment
through that date. The fair value of the awards to employees was estimated to be
NZD 0.90(US$0.69) per share, which is the closing price of the Company's stock
on December 12, 2007. The fair values of the awards to non-employees were
closing prices on various measurement dates.





On October 23, 2008, the Company
granted 600,000 shares of restricted stock to two officers in accordance with
the terms of their employment agreements, which included 250,000 shares which
vested immediately, 250,000 shares which vested on February 15, 2009, and
100,000 shares which vested on May 15, 2009, based on continued employment
through that date.  The estimated fair value of the shares at the
award date was measured using the closing price of NZD 0.25 (US$0.14) per share
on the date of grant.





During the six months ended June 30,
2009 and 2008, share-based compensation costs of $23,099 and $481,148,
respectively, were recognized.





There
were 2,119,000 shares of nonvested restricted stock at December 31, 2008, of
which 1,769,000 became fully vested on January 1, 2009, 250,000 became fully
vested in February 2009, and the remaining 100,000 vested in May
2009.  Accordingly, at June 30, 2009 there is no non-vested restricted
stock and no unrecognized compensation cost.





No stock
options have been granted under the Plan.





10)           Income taxes –The Company
records an income tax provision for foreign tax obligations in New
Zealand.  No US current income taxes have been provided due to losses
incurred.  The Company has recorded a full valuation allowance
against all US deferred tax assets because it is not more likely than not
that the deferred tax assets will be realized.





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 federal, state and foreign income tax
returns for the tax years ended December 31, 2008 and 2007 are open for
examination by the respective taxing jurisdictions.


9


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





The
following discussions of our financial condition and results of operations
should be read in conjunction with the financial statements and the notes
thereto included elsewhere in this Form 10-Q.  In addition to
historical consolidated financial information, the following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements.





Overview




We
develop and sell an online software application called Diligent Boardbooks,
which is a web-based portal that directors and administrative staff use to
compile, update and examine board materials prior to and during board
meetings.  Each of our clients enters into a service agreement whereby
we agree to provide and support the Diligent Boardbooks service.





The Diligent Boardbooks product
features an on-screen interface that resembles a book and displays documents in
single web-viewable pages, from a secure central database.  The
software is accessed via the internet and is a “point and click” system that
gives directors the ability to navigate throughout the entire virtual
book.





The first phase of our business focus
was developing and testing the Diligent Boardbooks system, building a loyal core
of blue chip customers to become champions of the product, and promoting product
awareness through 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.  We are now in the customer
acquisition phase of our business and currently provide the Diligent Boardbooks
service to over 210 companies and over 5,600 users.





In December 2007, the Company raised
$16.4 million, net of expenses, in its initial public offering on the New
Zealand Stock Exchange.  Our plan was to use the proceeds of the IPO
to significantly expand our sales force and aggressively target
growth.  By the first quarter of 2008, much of the infrastructure for
this growth was set up.





Despite growth in net sales, our growth
rate lagged behind the projections we had set for the Company, which was
exacerbated by the global financial crisis.  By the third quarter of
2008, we initiated plans to scale back our growth plans in order to reduce our
operating expenses.  We significantly reduced our sales force, reduced
salaries for some of our more highly compensated employees and reduced the
number of members of the board of directors from nine to six.





In March 2009, the Company secured $2.9
million of financing, net of issuance costs, through the issuance of Series A
Convertible Preferred Stock.  At the current level of reduced
expenses, coupled with conservative sales growth forecasts, management believes
this funding will be sufficient to support sales growth and achieve cash flow
breakeven by the end of the third quarter of 2010.





We started the year strong, with the
first quarter posting our second highest quarterly new license sales figures
since we began offering our product five years ago.  The Company
continued our strong start to the 2009 year with the addition of 20 new
agreements for Boardbook licenses in the second quarter, boosting annual
recurring revenue by a further $0.46 million.  While the global
economic climate continues to be challenging, interest in Boardbooks remains
strong with the level of inquiry high, the sales pipeline growing, and a
significant number of discussions with prospective clients in the well-developed
stage.  In these difficult economic conditions, companies still seek
to implement and upgrade Diligent Boardbooks as a way to save costs, improve
efficiencies and broaden their corporate governance and compliance
standards.


10


Despite
these encouraging trends, our overall performance continues to depend in part on
worldwide economic conditions. The United States and other key international
economies are currently undergoing a period of severe recession, characterized
by falling demand for a variety of goods and services, restricted credit, going
concern threats to financial institutions and major multi-national companies,
poor liquidity, declining asset values, reduced corporate
profitability, extreme volatility in credit, equity and foreign exchange markets
and increased bankruptcies. These conditions could adversely affect our
customers’ ability or willingness to purchase our service, delay prospective
customers’ purchasing decisions, reduce the value or duration of their
subscription contracts, or affect renewal rates, all of which could adversely
affect our operating results.





Critical
Accounting Policies and Estimates





Our consolidated financial statements
are prepared in accordance with accounting principles generally accepted in the
United States of America. 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 revenue recognition, deferral of costs, the allowance for
accounts receivable, software development costs, the impairment of long-lived
assets and note receivable, income taxes and assumptions for stock-based
compensation. 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 both those most
important to the portrayal of our financial condition and those that require the
most subjective judgment.




Revenues
and Accounts Receivable





We derive our revenues from set-up and
training fees (“installation fees”) of the Boardbooks system and license fees
for the ongoing use of our Diligent Boardbooks software.  We have no
other significant sources of revenues at this time.





Diligent recognizes revenue in
accordance with the provisions of the Securities and Exchange Commission (SEC)
Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition which
states that revenue is realized and earned when all of the following criteria
are met: (a) persuasive evidence of the arrangement exists, (b) delivery has
occurred or services have been rendered, (c) the seller’s price to the buyer is
fixed and determinable and (d) collectability is reasonably
assured.  Revenue from Diligent Boardbooks licenses is accrued ratably
over the contract period.  License fees paid in advance are recorded
as deferred revenue until recognized.  Through September 30, 2008,
revenue from installations was recognized upon completion of the
installation.  Effective October 1, 2008, revenue from installations
is accrued ratably over the contract period.  The effect of this
change is not material to the Company’s financial condition, operations or cash
flow.





Accounts receivable are recorded at
estimated net realizable value.  A provision for doubtful accounts is
based on management’s assessment of amounts considered uncollectable for
specific customers based on age of debt, history of payments and other relevant
information.  An allowance for doubtful accounts is provided for
accounts receivable which management determines will not be collectable in
full.


11


Cost
of Revenues and Operating Expenses





Cost of
Revenues.  Cost of revenues consists of direct expenses related
to account management, customer support and IT hosting.  We do not
allocate indirect overhead to cost of revenues.





Selling and Marketing Expenses.  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.





General and Administrative
Expenses.  General
and administrative expenses consist of compensation and related expenses for
executive, finance, accounting, administrative, legal, professional fees, other
corporate expenses and overhead costs such as rents, utilities etc.





Research and Development
Expenses.  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 all direct overhead associated with design and required
testing of our product line.   We do not allocate indirect
overhead to research and development.





Statement
of Financial Accounting Standards (SFAS) 86, “Accounting for Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed,” requires companies
to expense software development costs as they incur them until technological
feasibility has been established, at which time those costs are capitalized
until the product is available for general release to customers.  To
date, our software has been available for general release concurrent with the
establishment of technological feasibility and, accordingly, we have not
capitalized any development costs.  SFAS 2, “Accounting for Research and
Development Costs,”establishes accounting
and reporting standards for research and development.  In accordance
with SFAS 2, costs we incur to enhance products or after the general release of
the service using the product are expensed in the period they are incurred and
included in research and development costs in our consolidated statements of
operations.





Prior to January 1, 2008, our research
and development was outsourced to Diligent Board Member Services NZ Limited
(“DBMS NZ”), an affiliate through common ownership by a stockholder and former
director of the Company.  Effective January 1, 2008, the Company
acquired DBMS NZ and now the research and development activities are fully
integrated into the Company.





Share-Based
Compensation.  In November 2007, we adopted our 2007 Stock
Option and Incentive Plan pursuant to which we intend to issue share-based
compensation from time to time, in the form of stock, stock options and other
equity based awards.





Share-based
compensation consists of stock issued to employees and contractors for services
rendered.  In accordance with SFAS 123(R), Share-Based Payment, Diligent
measures the cost of employee services received in exchange for an award of
equity-based securities 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 Diligent in exchange for the award.





Diligent
measures the cost of nonemployee services received in exchange for an award of
equity-based securities using the fair value method prescribed by Emerging
Issues Task Force (“EITF”) 96-18, Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services.Compensation cost for awards
granted to non-employees is measured 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.  Compensation costs are amortized over
the underlying awards’ vesting terms, and are recorded as share-based
compensation expense.  These costs are included in general and
administrative expense in our statement of operations.


12


Interest
Income, net





Interest
income is derived from interest bearing bank deposits held by US, UK and New
Zealand bank accounts, together with investment income from a loan receivable
due from a related party, SSH LLC.  Interest expense is attributable
to financing costs of capital leases.





Foreign
Exchange Transactions





As a
worldwide company, certain of Diligent’s revenues and expenses are denominated
in foreign currencies, which are recorded at the approximate rates of exchange
in effect at the transaction dates.  Assets and liabilities are
translated at the exchange rates in effect at the balance sheet dates, with
differences recorded as foreign exchange gains or losses in the statements of
operations.  Additionally, the Company has cash balances maintained in
New Zealand Dollars (NZD) and British Pounds Sterling (GBP).





The
Company’s wholly-owned subsidiaries, Diligent Boardbooks Limited (“DBL”) and
DBMS NZ, utilize the GBP and the NZD, respectively, as their functional
currencies.  Assets and liabilities of these subsidiaries are
translated to US 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.





Income
taxes





The
parent 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 carry-forwards.
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.





In June 2006, the Financial Accounting
Standards Board (“FASB”) issued Interpretation No. 48
(FIN 48) Accounting
for Uncertainty in Income Taxes—an interpretation of FASB Statement No.
109. FIN 48 clarifies the criteria that must be met for financial
statement recognition and measurement of tax positions taken or expected to be
taken in a tax return. This Interpretation also addresses recognition and
derecognition of related penalties and interest, classification of liabilities
and disclosures of unrecognized tax benefits. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The Company adopted
FIN 48 as of October 1, 2007.  The adoption of FIN 48 did not
have a material impact on the Company.





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 federal, state and foreign income tax
returns for the tax years ended December 31, 2008 and 2007 are open for
examination by the respective taxing jurisdictions.





Note
receivable from affiliate





The note receivable from affiliate
represents amounts due from SSH LLC under a Promissory Note and Security
Agreement dated October 1, 2007 (the “Note”).





The Note bears interest at 5% per
annum, which is payable in arrears on the first day of each calendar quarter,
commencing April 1, 2008.  SSH LLC elected, under the terms of the
Note, to defer each of the first four quarterly interest payments through
January 1, 2009, in which case they were added to the principal balance and bear
interest from the date the payment was due. The loan matures on October 1, 2010,
when the entire principal balance and all accrued interest will be due and
payable.  At December 31, 2008, the Note was secured by 25,000,000
shares of the Company’s stock which were pledged as collateral by members of SSH
LLC.





At June 30, 2009 and December 31, 2008,
the contractual outstanding loan balance was $7,161,791 (including accrued
interest through December 31, 2008 of $371,778).  In accordance with
SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, the Company evaluated the
collectability of the loan and determined that at December 31, 2008 it was
probable that the Company would be unable to collect all amounts contractually
due under the Note.  This conclusion was principally based on the
deterioration in the value of the underlying collateral and the worsening
economic environment.


13


At December 31, 2008, the Company
recorded a $5.8 million valuation allowance and a corresponding charge to
impairment loss in order to write down the Note to the estimated fair value of
the underlying collateral.  In the absence of an active market for the
Company’s stock, or other observable inputs for similar instruments, the Company
based its valuation principally on the value of the recent issue of preferred
stock, adjusted using an assumed discount rate of 20%, which is management’s
estimate based on the value of the preferred features of the Series A Preferred
Stock.  In addition, management assumed that SSH LLC and/or its
members would sell a portion of the underlying collateral to meet their
quarterly interest payments, thereby reducing the amount of collateral expected
to be available when the Note matures in 2010.  These are considered
unobservable inputs falling within the definition of Level 3 inputs pursuant to
SFAS No. 157, Fair Value
Measurements.





On March 30, 2009, SSH LLC sold
2,387,263 pledged shares to Spring Street Partners, L.P. in a private
transaction valued at $0.075 per share or $179,045 in the
aggregate.  The proceeds were applied against the Note interest
payments due April 1 and July 1, 2009.  As a result, the number of
shares securing the Note at June 30, 2009 is 22,612,737.





At June 30, 2009, the Company reviewed
the valuation of the Note and determined that no further adjustment to the
valuation allowance of $5.8 million is necessary.





Recent
accounting pronouncements





In April 2009, the Financial Accounting
Standards Board (“FASB”) issued three final Staff Positions (“FSP”) intended to
provide additional application guidance and enhance disclosures regarding fair
value measurements and impairments of securities. The FSPs are effective for
interim and annual periods ending after June 15, 2009.





FSP
157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly, provides additional guidance on estimating fair value when the
volume and level of activity for an asset or liability have significantly
decreased in relation to normal market activity for the asset or liability. This
FSP also provides additional guidance on circumstances that may indicate that a
transaction is not orderly.  The adoption of this FSP did not have a
material impact on the Company’s consolidated financial statements.





FSP
115-2 and 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments, amends existing guidance for determining whether an other
than temporary impairment of debt securities has occurred. Among other changes,
the FASB replaced the existing requirement that an entity’s management assert it
has both the intent and ability to hold an impaired security until recovery with
a requirement that management assert (a) it does not have the intent to
sell the security, and (b) it is more likely than not it will not have to
sell the security before recovery of its cost basis.  The adoption of
this FSP did not have a material impact on the Company’s consolidated financial
statements.





FSP FAS
107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments requires an entity to
provide the annual disclosures required by SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, in its interim financial statements. The Company
has provided the disclosures required by FSP 107-1 and APB 28-1.





In May
2009, the FASB issued SFAS No. 165, Subsequent Events, which
provides guidance on management’s assessment of subsequent
events.  This standard establishes the accounting and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. It requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date. SFAS 165 is effective for interim and annual periods ending after June 15,
2009.  The implementation of this standard did not have a material
impact on the Company’s consolidated financial statements.


14


In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, and SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), which change the way entities account for securitizations and
special-purpose entities.  SFAS No. 166 is a revision to SFAS No. 140,
Accounting for Transfers and
Servicing Financial Assets and Extinguishments of Liabilities and SFAS
No. 167 is a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest
Entities.  The new standards eliminate existing exceptions,
strengthen the standards relating to securitizations and special-purpose
entities, and enhance disclosure requirements.  Both of these
statements are effective for fiscal years beginning after November 15,
2009.  The adoption of these statements will not have a material
effect on the Company’s consolidated financial statements.





In July
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, (the
Codification).  The Codification will be the single source of
authoritative U.S. nongovernmental generally accepted accounting
principles.  The Codification does not change generally accepted
accounting principles, but is intended to make it easier to find and research
issues and will change the way GAAP is referenced.   The Codification
is effective for interim and annual periods ending after September 15,
2009.  The Company will begin to use the new Codification when
referring to GAAP in its consolidated financial statements for the third quarter
of 2009.





Results
of Operations for the Three Months Ended June 30, 2009 and 2008





Revenues





Three months ended June 30,2009
                
                
                2008
                
                
                Increase/(Decrease)Revenues
                
                $
                1,156,732
                
                
                $
                700,368
                
                
                $
                456,364





The growth in total revenues of 65% in
the second quarter of 2009 when compared with the 2008 second quarter is a
result of the cumulative addition of license agreements each
quarter.  The Company has continued to add license agreements each
quarter since inception.  At June 30, 2009, the cumulative license
agreements were 213, compared with 117 at June 30, 2008.  A net of 20
new licenses were added during the second quarter of 2009, compared with 28 for
the second quarter of 2008.  This increase in revenues is in line with
our targets and was achieved at a significantly lower customer acquisition
cost.





Cost
of Revenues and Operating Expenses





Cost
of Revenues





Three months ended June 30,2009
                
                
                2008
                
                
                Increase/(Decrease)Cost
      of Revenues
                
                $
                539,834
                
                
                $
                470,671
                
                
                $
                69,163





Cost of revenues is comprised of
account management, customer support and IT services.  For the three
months ended June 30, 2009, account management costs increased by approximately
$69 thousand as compared to the 2008 second quarter, primarily as a result of
additional staffing requirements.  Customer support costs decreased by
approximately $36 thousand, primarily due to headcount
reductions.  The remainder of the increase in cost of revenues is
attributable to IT services.  IT services costs have increased
primarily due to additional hosting facilities the Company has added as a result
of the growth in the number of users.





Cost of revenues as a percentage of
revenues decreased to 46.7% for the 2009 second quarter, compared with 67.2% for
the second quarter of 2008, as a result of the greater economies of scale that
we have achieved as our client base increased.





Selling
and Marketing Expenses





Three months ended June 30,2009
                
                
                2008
                
                
                Increase/(Decrease)Selling
      and Marketing Expenses
                
                $
                593,064
                
                
                $
                1,782,530
                
                
                $
                (1,189,466
                )


15


Subsequent to our initial public
offering at the end of 2007, we significantly increased our sales and marketing
efforts, and the first half of 2008 includes the effect of this
initiative.  By the third quarter of 2008, we initiated plans to scale
back our growth plans in order to reduce our operating
expenses.  These cost reductions were fully implemented by the first
quarter of 2009, and resulted in the significant decrease in selling and
marketing expenses for the three months ended June 30, 2009 as compared to the
comparable 2008 period. Despite this decrease in sales and marketing
expenditures, we were able to achieve an increase in revenues, in large part
because our smaller sales force was more experienced, fully trained and better
focused.





We reduced our total sales force to 7
at June 30, 2009 from 18 at June 30, 2008, and our fully trained sales force to
a quarterly average of 9 for the second quarter of 2009 from 14 for the
comparable 2008 quarter, resulting in a decrease in salaries, commissions and
benefits of approximately $0.53 million for the three months ended June 30,
2009, as compared to the first quarter of 2008.  In addition, we
refocused our efforts on the North American market, resulting in a decrease in
costs of our UK sales office of $0.33 million.  Other significant
decreases included travel and entertainment ($0.03 million), outside contractors
($0.09 million), marketing salaries and wages ($0.06 million) and other
marketing costs ($0.12 million).





General
and Administrative Expenses





Three months ended June 30,2009
                
                
                2008
                
                
                Increase/(Decrease)General
      and Administrative Expenses
                
                $
                995,598
                
                
                $
                1,194,963
                
                
                $
                (199,365
                )





General and administrative expenses
included approximately $3 thousand of share-based compensation expense for the
three months ended June 30, 2009, compared with $241 thousand for the three
months ended June 30, 2008.  General and administrative expenses,
excluding share-based compensation, were $993 thousand and $954 thousand for the
three months ended June 30, 2009 and 2008, respectively.  While the
total general and administrative expenses increased by approximately $39
thousand, it includes a net increase in professional fees of approximately $12
thousand, and an increase of $42 thousand in salaries and wages as a result of
additional staffing requirements.  These increases were offset by a
decrease in directors’ fees and travel expenses, as we decreased the number of
directors from nine at June 30, 2008 to six at June 30, 2009, as part of our
cost reduction initiative.





Research
and Development Expenses





Three months ended June 30,2009
                
                
                2008
                
                
                Increase/(Decrease)Research
      and Development Expenses
                
                $
                199,238
                
                
                $
                291,638
                
                
                $
                (92,400
                )





Research and development expenses
decreased 32% in the second quarter of 2009 as compared to the second quarter of
2008.  Our research and development is performed primarily by our New
Zealand subsidiary.  The primary contributor to this overall decrease
is the decline in the average NZD/US$ exchange rate of 22% for the second
quarter of 2009 versus 2008.  There was also a reduction in R&D
staffing after the achievement of certain key product enhancements.





Depreciation
and Amortization





Three months ended June 30,2009
                
                
                2008
                
                
                Increase/(Decrease)Depreciation
      and Amortization
                
                $
                94,404
                
                
                $
                69,032
                
                
                $
                25,372





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


16


Interest
Income, net





Three months ended June 30,2009
                
                
                2008
                
                
                Increase/(Decrease)Interest
      Income, net
                
                $
                100,855
                
                
                $
                172,653
                
                
                $
                (71,798
                )





Interest income, net, includes interest
income on the Note Receivable from our affiliate, as well as interest on the
Company’s cash and cash equivalents and term deposits which are
interest-bearing.  The decrease in interest income is attributable to
the decrease in our cash and term deposit balances to $1.9 million at June 30,
2009 from $6.9 million at June 30, 2008.





Foreign
Exchange Transaction Gain/(Loss)





Three months ended June 30,2009
                  
                  
                  2008
                  
                  
                  Increase/(Decrease)Foreign
      Exchange Gain (Loss)
                  
                  $
                  41,796
                  
                  
                  $
                  (60,727
                  )
                  
                  $
                  102,523





The parent Company maintains a portion
of its cash balances in NZD and GBP.  The foreign exchange gain of
$41,796 for the three months ended June 30, 2009 is a result of the weakening of
the US dollar against both the NZD and GBP from March 31, 2009 to June 30,
2009.





Other
Income





Three months ended June 30,2009
                
                
                2008
                
                
                Increase/(Decrease)Other
      Income
                
                $
                170,954
                
                
                $
                -
                
                
                $
                170,954





Other income consists of a recovery of
UK Value Added Tax (VAT) on prior year expenses.





Results
of Operations for the Six Months Ended June 30, 2009 and 2008





Revenues





Six months ended June 30,2009
                  
                  
                  2008
                  
                  
                  Increase/(Decrease)Revenues
                  
                  $
                  2,153,904
                  
                  
                  $
                  1,292,172
                  
                  
                  $
                  861,732





The
growth in revenues of 67% in the first half of 2009 when compared with the first
half of 2008 is a result of the cumulative addition of license agreements each
quarter.  The Company has continued to add license agreements each
quarter since inception.  At June 30, 2009, the cumulative license
agreements were 213, compared with 117 at June 30, 2008.  A net of 39
new licenses were added during the first half of 2009, compared with 43 for the
first half of 2008.  This increase in revenues is in line with our
targets and was achieved at a significantly lower customer acquisition
cost.





Cost
of Revenues and Operating Expenses





Cost
of Revenues





Six months ended June 30,2009
                  
                  
                  2008
                  
                  
                  Increase/(Decrease)Cost
      of Revenues
                  
                  $
                  995,567
                  
                  
                  $
                  899,996
                  
                  
                  $
                  95,571





Cost of revenues is comprised of
account management, customer support and IT services.  For the six
months ended June 30, 2009, account management costs increased by approximately
$72 thousand as compared to the six months ended June 30, 2008, primarily as a
result of additional staffing requirements.  Customer support costs
decreased by approximately $56 thousand, primarily due to headcount
reductions.  The remainder of the increase in cost of revenues is
attributable to IT services.  IT services costs have increased
primarily due to additional hosting facilities the Company has added as a result
of the growth in the number of users.


17


Cost of revenues as a percentage of
revenues decreased to 46.2% for the first half of 2009, compared with 69.7% for
the comparable 2008 period, as a result of the greater economies of scale that
we have achieved as our client base increased.





Selling
and Marketing Expenses





Six months ended June 30,2009
                  
                  
                  2008
                  
                  
                  Increase/(Decrease)Selling
      and Marketing Expenses
                  
                  $
                  1,273,661
                  
                  
                  $
                  3,384,895
                  
                  
                  $
                  (2,111,234
                  )





Subsequent to our initial public
offering at the end of 2007, we significantly increased our sales and marketing
efforts, and the first half of 2008 includes the effect of this
initiative.  By the third quarter of 2008, we initiated plans to scale
back our growth plans in order to reduce our operating
expenses.  These cost reductions were fully implemented by the first
quarter of 2009, and resulted in the significant decrease in selling and
marketing expenses for the six months ended June 30, 2009.  Despite
this decrease in sales and marketing expenditures, we were able to achieve an
increase in revenues, in large part because our smaller sales force was more
experienced, fully trained and better focused.





We reduced our total sales force to 7
at June 30, 2009 from 18 at June 30, 2008, and our fully trained sales force to
a quarterly average of 9 for the second quarter of 2009 from 14 for the
comparable 2008 quarter, resulting in a decrease in salaries, commissions and
benefits of approximately $0.89 million for the six months ended June 30, 2009,
as compared to the first six months of 2008.   In addition, we
refocused our efforts on the North American market, resulting in a decrease in
costs of our UK sales office of $0.61 million.  Other significant
decreases included travel and entertainment ($0.08 million), outside contractors
($0.15 million), marketing salaries and wages ($0.09 million) and other
marketing costs ($0.27 million).





General
and Administrative Expenses





Six months ended June 30,2009
                
                
                2008
                
                
                Increase/(Decrease)General
      and Administrative Expenses
                
                $
                2,124,041
                
                
                $
                2,543,958
                
                
                $
                (419,917
                )





General and administrative expenses
included approximately $23 thousand of share-based compensation expense for the
six months ended June 30, 2009, compared with $481 thousand for the six months
ended June 30, 2008.  General and administrative expenses, excluding
share-based compensation, were $2,101 thousand and $2,063 thousand for the six
months ended June 30, 2009 and 2008, respectively.  While the total
general and administrative expenses increased by approximately $38 thousand, the
first half of 2009 included a net increase in professional fees of approximately
$113 thousand, and an increase of $145 thousand in salaries and wages as a
result of additional staffing requirements.  These increases were
offset by decreases in directors’ fees and travel expenses, as we decreased the
number of directors from nine at June 30, 2008 to six at June 30, 2009, as part
of our cost reduction initiative.





Research
and Development Expenses





Six months ended June 30,2009
                
                
                2008
                
                
                Increase/(Decrease)Research
      and Development Expenses
                
                $
                358,927
                
                
                $
                575,838
                
                
                $
                (216,911
                )





Research and development expenses
decreased 38% in the first half of 2009 as compared to the first half of
2008.  Our research and development is performed primarily by our New
Zealand subsidiary. The primary contributor to this overall decrease is the
decline in the average NZD/US$ exchange rate of 28% for the first six months of
2009 versus 2008.  There was also a reduction in R&D staffing
after the achievement of certain key product enhancements.


18


Depreciation
and Amortization





Six months ended June 30,2009
                  
                  
                  2008
                  
                  
                  Increase/(Decrease)Depreciation
      and Amortization
                  
                  $
                  183,961
                  
                  
                  $
                  121,745
                  
                  
                  $
                  62,216





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





Interest
Income, net





Six months ended June 30,2009
                
                
                2008
                
                
                Increase/(Decrease)Interest
      Income, net
                
                $
                185,642
                
                
                $
                379,616
                
                
                $
                (193,974
                )





Interest income, net, includes interest
income on the Note Receivable from our affiliate, as well as interest on the
Company’s cash and cash equivalents and term deposits which are
interest-bearing.  The decrease in interest income is attributable to
the decrease in our cash and term deposit balances from $6.9 million at June 30,
2008 to $1.9 million at June 30, 2009.





Foreign
Exchange Transaction Gain/(Loss)





Six months ended June 30,2009
                
                
                2008
                
                
                Increase/(Decrease)Foreign
      Exchange Gain/(Loss)
                
                $
                (893
                )
                
                $
                18,812
                
                
                $
                (19,705
                )





The parent Company maintains a portion
of its cash balances in NZD and GBP.  The foreign exchange loss of
$893 for the six months ended June 30, 2009 is a result of the strengthening of
the US dollar against the NZD and GBP in the first quarter of 2009, which more
than offset the gains of the second quarter.





Other
Income





Six months ended June 30,2009
                
                
                2008
                
                
                Increase/(Decrease)Other
      Income
                
                $
                170,954
                
                
                $
                -
                
                
                $
                170,954





Other income consists of a recovery of
UK Value Added Tax (VAT) on prior year expenses.





Liquidity
and Capital Resources





As of June 30, 2009, our principal
sources of liquidity were cash and cash equivalents and term deposits totaling
approximately $1.9 million, and accounts receivable of approximately $0.3
million.  On March 11, 2009, the Company secured $2.9 million (net) of
financing from Spring Street Partners, L.P. and Carroll Capital Holdings, LLC,
who collectively purchased 30 million shares of newly-created Series A Preferred
Stock for $0.10 per share.  Prior to March 2009, our primary source of
financing was the proceeds of our New Zealand public offering completed in
December 2007, which raised $16.4 million (net) from the issuance of 24 million
shares of common stock.





Despite growth in net sales, our growth
rate lagged behind the projections we had set for the Company at the time of the
IPO, which was exacerbated by the global financial crisis.  Amid
liquidity concerns, we initiated plans to scale back our growth plans in order
to reduce our operating expenses.  During the fourth quarter of 2008,
we significantly reduced our sales force, reduced salaries for some of our more
highly compensated employees and reduced the number of members of the board of
directors.  At the current level of reduced expenses, coupled with
current sales growth forecasts, management believes this funding will be
sufficient to support the operations and obligations of the Company through an
expected cash flow break even by the end of the third quarter of
2010.


19


The Company continues to consider and
evaluate strategic growth opportunities that could result in additional capital
requirements and are not currently within the budget.  Our current
operating expenses and expected capital expenditures are fixed, predictable and
adequate to support our budgeted growth.  The primary uncertainty
concerning our capital needs pertains to our ability to achieve the expected
sales growth in a timely manner such that recurring revenues exceed operating
expenditures prior to the depletion of capital.





Net Cash Flows from Operating
Activities





Cash used in operating activities for
the first half of 2009 was $2.02 million, compared with $5.97 million for the
first half of 2008.  This reduction in cash used in operations
resulted from an increase in sales of $0.86 million and a decrease in operating
expenses of $2.69 million.  During the first half of 2008, the Company
incurred significant expenses to expand our sales and marketing
efforts.  By the end of 2008, we had scaled back expenses, which is
reflected in the results for the first half of 2009.





Net Cash Flows from Investing
Activities





Cash used in investing activities
decreased from $1.66 million in the first half of 2008 to $0.18 million in the
first half of 2009, predominantly used for purchases of property and
equipment.  Subsequent to the IPO in December 2007, the Company
invested significant amounts in our infrastructure, which resulted in additions
to property and equipment of over $0.60 million during the first half of
2008.  Additionally, over $1.0 million of cash was invested in a term
deposit during the first half of 2008.





Net Cash Flows from Financing
Activities





For the
first half of 2009, cash provided by financing activities was $2.80 million,
compared with $0.32 million used in financing activities for the first half of
2008.  During the first quarter of 2009, the Company secured $2.9
million in financing, net of issuance costs, from the issuance of Series A
preferred stock.





Item
3. Quantitative and Qualitative Disclosures About Market Risk.





Not
applicable.





Item
4T. Controls and Procedures.





(a)  Evaluation of
disclosure controls and procedures.As of the end of the
quarter ended June 30, 2009, our Chief Executive Officer and Chief Financial
Officer have each reviewed and evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act).  Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer have each concluded that our current disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms, and include
controls and procedures designed to ensure that information required to be
disclosed by the Company in such reports is accumulated and communicated to the
Company’s management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required
disclosure.





(b)  Changes in Internal
Controls.There has been no change in the Company’s internal
control over financial reporting required by Exchange Act Rule 13a-15 or 15d-15
that occurred during the fiscal quarter ended June 30, 2009 that has materially
affected, or is reasonably likely to materially affect Diligent Board Member
Services, Inc.’s internal control over financial reporting.


20


PART
II—OTHER INFORMATION





Item
1. Legal Proceedings.





None.





Item
1A. Risk Factors.





Not
required.





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





None





Item
3. Defaults Upon Senior Securities.





Not
applicable.





Item
4. Submission of Matters to a Vote of Security Holders.







At the Company’s Annual Meeting of
Stockholders held on May 29, 2009 (New Zealand time), Alessandro Sodi, Sharon
Daniels, Peter Huljich, Rick Bettle and Mark Russell were re-elected as common
directors, each to hold office until the 2010 Annual Meeting of Stockholders and
until their respective successors are duly elected and qualified. The term of
David Liptak as the director elected by the holders of the Company’s Series A
Preferred Stock continued after the meeting. At the Annual Meeting of
Stockholders, the selection of Holtz Rubenstein Reminick LLP as independent
registered public accounting firm of the Company for fiscal year 2009 was
ratified by the stockholders. Votes cast on these issues were as
follows:




For
              
              
              Against/Withheld
              
              
              AbstainAlessandro
      Sodi
              
              
              61,020,578
              
              
              
              55,000
              
              
              
              139,333Sharon
      Daniels
              
              
              61,153,911
              
              
              
              61,000
              
              
              
              —Peter
      Huljich
              
              
              61,026,578
              
              
              
              55,000
              
              
              
              133,333Rick
      Bettle
              
              
              60,911,621
              
              
              
              303,290
              
              
              
              —Mark
      Russell
              
              
              61,159,911
              
              
              
              55,000
              
              
              
              —Holtz
      Rubenstein Reminick
              
              
              61,081,578
              
              
              
              —
              
              
              
              133,333




Item
5. Other Information.





Not applicable.





Item
6. Exhibits.





Exhibit
                  Numbers
                
                Exhibits31.1
                
                CEO
      Certification pursuant to Rule 13a-14(a)31.2
                
                CFO
      Certification pursuant to Rule 13a-14(a)32.1
                
                CEO
      Certification furnished pursuant to Rule 13a-14(b) and 18 U.S.C.
      135032.2
                
                CFO
      Certification furnished pursuant to Rule
  13a-14(b)


21


SIGNATURES





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




DILIGENT
      BOARD MEMBER SERVICES, INC.Dated:  August
      13, 2009
                By:
                /s/ Alessandro SodiAlessandro
      Sodi, Chief Executive Officer (Principal Executive
  Officer)Dated:  August
      13, 2009
                By:
                /s/ Hunter CohenHunter
      Cohen, Chief Financial Officer (Principal Financial
    Officer)


22