FLLYR: DIL: DIL - Preliminary 2009 Annual Results

25 Feb 2010 8:30 am

DIL 25/02/2010 FLLYR

REL: 0830 HRS Diligent Board Member Services INC (NS)

FLLYR: DIL: DIL - Preliminary 2009 Annual Results

SUMMARY OF PRELIMINARY FULL YEAR ANNOUNCEMENT

Name of Listed Issuer: Diligent Board Member Services, Inc

Reporting Period: 12 months to 31st December 2009

CONSOLIDATED INCOME STATEMENT

(Format - Current full year $US : up (down) % : Previous corresponding full year $US)

OPERATING REVENUE 5,000,639 : 71% : 2,930,702

OPERATING SURPLUS (DEFICIT) BEFORE INCOME TAX (4,125,653) : 77% : (17,615,804)

OPERATING SURPLUS (DEFICIT) AFTER INCOME TAX (4,161,990) : 76% : (17,648,602)

PRELIMINARY FULL YEAR REVIEW From the Chairman and Chief Executive

Diligent Board Member Services Inc. ("Diligent") is pleased to announce its full year results for the 12 months ending 31 December 2009. These results are presented in compliance with US GAAP.*

The 2009 financial year was an exceptional one for Diligent. In the face of what many commentators described as the worst financial crisis in decades, Diligent produced record-breaking sales growth across its key performance metrics. In these dire conditions, companies still sought to implement and upgrade Diligent Boardbooks as a way to save costs, improve efficiencies and broaden their corporate governance and compliance standards.

Operating Performance Diligent achieved a number of milestones in the period under review. It signed 110 new agreements during the year (up 63% on the corresponding period) generating an additional $US2.5 million in annual recurring revenue. This takes the cumulative annualised license fees total to $US6.3 million as at 31 December 2009. This recurring revenue increases with each sale. Diligent's ability to continue to significantly grow its recurring revenue each quarter confirms that its SaaS (Software-as- a-Service) business model is strongly positioned for the future.

Actual annual sales, which is revenue generated from existing and new contacts or upgrades, exceeded $US5.0 million for the first time - a year-to-year increase of 71%. The year also saw Diligent reach new highs in quarterly sales performance, with the fourth quarter its best ever since inception with the addition of 41 new agreements for boardbook licenses producing $US0.75 million in recurring revenue.

The drivers behind Diligent's significant sales growth include: Greater brand recognition of the Diligent Boardbooks product. Client referrals. A highly skilled and focused sales force.

*The financial statements are in the process of being audited and are therefore subject to adjustment. All amounts are in $US unless otherwise stated.

Faster sales turnaround driven, in part, by a general return of business confidence. High customer confidence in, and satisfaction with, the product; supporting a trend where existing clients continue to upgrade services, add new users and provide new client referrals.

It should be noted that this growth has been achieved even though the number of trained sales staff has remained relatively consistent throughout 2009 and significantly down from sales staffing levels of 2008.

As at 31 December 2009, Diligent has 284 worldwide clients (up 63%) and over 7,300 users of its Diligent Boardbooks product. In addition to the financial services sector which has been the main target group, Diligent has successfully expanded into numerous other sectors as well, including energy, oil and gas, health care, and universities. In spite of the financial stress in the key US market, an impressive list of new clients has been added, including several international brand names. Further inroads have also been made into Canada, with major energy companies and one of Canada's largest pension funds selecting the Diligent Boardbooks board portal to provide them with real time access to their vital board materials.

Whilst Diligent has achieved significant revenue growth it has also managed costs. Cost of revenues as a percentage of revenues decreased to 43.7% in 2009, compared with 64.1% for 2008, as a result of the greater economies of scale achieved through an increased client base.

Cash used in operating activities for the year ended December 31, 2009 was $US2.5 million, compared with $US11.4 million for 2008. This reduction in cash used in operations resulted from an increase in revenues of $US2.1 million and a decrease in operating expenses of $US5.4 million. During 2008, Diligent incurred significant expenses to expand its sales and marketing efforts. By the end of 2008, it had scaled back expenses, which is reflected in the results for 2009. Additionally, there is an increase of approximately $US1.0 million in cash attributable to deferred revenue from license agreements which have not yet been fully recognized as revenue.

As of December 31, 2009, the company had approximately $US1.2 million of cash reserves and accounts receivable of approximately $US0.3 million. The primary source of the liquidity for the past year has come from the financing secured in March, 2009 when $US3.0 million of financing was obtained 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 $US0.10 per share.

Outlook At the current level of reduced expenses, coupled with current sales growth forecasts, Diligent's management believes that it will achieve cash flow breakeven around the end of the third quarter of the current financial year.

On January 18, 2010, Diligent reached an agreement in principle for a $US1.0 million line of credit from Spring Street Partners, L.P. The credit agreement is in the process of being finalized. As stated above, management believes its current funding will be sufficient to support sales growth and achieve cash flow breakeven around the end of the third quarter of 2010. However, this line of credit offers the Company cash flow support if needed.

On February 9, 2010, the Company entered into an agreement with Services Share Holding, LLC ("SSH LLC"), which requires shareholder approval in May 2010. The agreement provides for the repayment of approximately $US1.0 million in cash from SSH LLC in partial satisfaction of the outstanding SSH LLC note held by the Company (the "Note"). The cash was obtained from the sale by SSH LLC of 4,823,000 shares of Diligent stock, owned by SSH LLC and held as collateral for the Note, in eight separate transactions. The agreement also calls for the surrender and cancellation of 11,650,000 Diligent shares which were held as collateral for the Note. The repayment of the remaining outstanding principal of approximately $US3.1 million (which, subsequent to the surrender of the 11,650,000 shares, will be secured by 5,205,597 shares of Diligent stock) will be extended by two years to October 2012 and the increased interest payments (from 5% to 6.5%) will be due annually, as opposed to quarterly. If approved by our shareholders, the additional cash of $US1.0 million will provide further financial flexibility.

Conclusion The 2009 financial year has been a defining one for Diligent. Its excellent sales performance in such harsh economic conditions provides a new level of confidence moving forward. It sees the Company start the year with $US6.3 million of contracted annual revenue and the opportunity to significantly add to this total throughout 2010.

Costs have been managed down. Diligent's current operating expenses and expected capital expenditures are fixed, predictable and adequate to support budgeted growth.

At the current level of reduced expenses, coupled with current sales growth forecasts, management believes it will achieve cash flow breakeven around the end of the third quarter of 2010. This is a significant milestone - from an operating, financing and investment perspective.

As confidence returns to US companies and the Diligent sales pipeline continues to grow, the Company is considering gradual expansion of its sales force to take advantage of growth opportunities. Given the sales performance to date, management has now achieved a proven model when it comes to driving results from its sales force. Moreover, the online board portal industry remains in its early stages with market penetration still relatively low.

In conclusion the outlook for Diligent in the current financial year is robust.

[signed by chairman and or chief executive]

Detailed information: The preliminary Full Year Announcement and detailed financial statements can be located in the Investor Center section of our website under "Shareholder Reporting" http://www.boardbooks.co.nz/nzdiligentbooks/investor.shtml End CA:00191631 For:DIL Type:FLLYR Time:2010-02-25:08:30:19

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