##### 









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


FORM 10-K


|                                               |  |                                                                                             
|---------------------------------------------- |  | --------------------------------------------------------------------------------------------
|(Mark One)                                    
|þ                                              |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|                                              
|For the fiscal year ended September 30, 2006  
|                                              
|OR                                            
|                                              
|o                                              |  | 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: 000-51748


AVANADE INC.


(Exact name of Registrant as specified in its charter)


|                                |  |                                     
|------------------------------- |  | ------------------------------------
|Washington                      |  | 91-2032865                          
|(State or other jurisdiction of |  | (I.R.S. Employer Identification No.)
|incorporation or organization)  |  |                                     

2211 Elliott Avenue, Suite 200


Seattle, Washington 98121


(Address of principal executive offices)


(206) 239-5600


(Registrants telephone number, including area code)






|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange on Which Registered
|                    |  |                                          





o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2


o o þ


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE












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AVANADE INC.


TABLE OF CONTENTS


|           |  |                                                                                                                      |    |      |    | 
|---------- |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                                                      |    | Page |   
|           |  |                                                                                                                      |    |      |   
|Part I.    |  |                                                                                                                      |    |      |    | 
|Item 1.    |  | Business                                                                                                             |    |      | 1  | 
|Item 1A.   |  | Risk Factors                                                                                                         |    |      | 5  | 
|Item 1B.   |  | Unresolved Staff Comments                                                                                            |    |      | 16 | 
|Item 2.    |  | Properties                                                                                                           |    |      | 16 | 
|Item 3.    |  | Legal Proceedings                                                                                                    |    |      | 16 | 
|Item 4.    |  | Submission of Matters to a Vote of
    Securities Holders                                                            |    |      | 16 | 
|          
|Part II.   |  |                                                                                                                      |    |      |    | 
|Item 5.    |  | Market for Registrants Common Equity,
    Related Shareholder Matters and Issuer Purchases of Equity
    Securities |    |      | 17 | 
|Item 6.    |  | Selected Financial Data                                                                                              |    |      | 18 | 
|Item 7.    |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |    |      | 18 | 
|Item 7A.   |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |    |      | 33 | 
|Item 8.    |  | Financial Statements and Supplementary
    Data                                                                      |    |      | 33 | 
|Item 9.    |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |    |      | 33 | 
|Item 9A.   |  | Controls and Procedures                                                                                              |    |      | 33 | 
|Item 9B.   |  | Other Information                                                                                                    |    |      | 34 | 
|          
|Part III.  |  |                                                                                                                      |    |      |    | 
|Item 10.   |  | Directors and Executive Officers of the
    Registrant                                                               |    |      | 35 | 
|Item 11.   |  | Executive Compensation                                                                                               |    |      | 36 | 
|Item 12.   |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Shareholder Matters                   |    |      | 37 | 
|Item 13.   |  | Certain Relationships and Related
    Transactions                                                                   |    |      | 38 | 
|Item 14.   |  | Principal Accounting Fees and Services                                                                               |    |      | 39 | 
|          
|Part IV.   |  |                                                                                                                      |    |      |    | 
|Item 15.   |  | Exhibits, Financial Statement Schedules                                                                              |    |      | 41 | 
|Signatures |  |                                                                                                                      | 43 |     





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PART I


Disclosure Regarding Forward-Looking Statements


10-K


Available Information


1-800-SEC-0330.


(www.avanade.com/about/invest.aspx). 8-K.




10-K, 12-month ® 10-K





ITEM 1.  BUSINESS


Overview




1



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| |          
| | ---------
| | Solutions





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our largest area of business is driven by our clients
    demand for assistance with application development and
    integration based on the Microsoft .NET platform. Avanade uses
    Microsoft .NET technology in a cost-effective manner to design,
    develop, deploy, integrate, manage and maintain applications and
    Web services. This includes envisioning, developing, deploying,
    integrating and maintaining applications and technology-based
    systems built using the Microsoft .NET platform.                                                                                                                                                                                  
|
| |  | Another of our significant business areas is technology
    infrastructure. This encompasses activities assisting
    clients to optimize their infrastructure investments by using
    the Microsoft .NET platform to streamline operations and
    upgrade, stabilize and secure their infrastructure systems. This
    includes the evaluation, upgrade, integration and deployment of
    core elements of enterprise networking, messaging, security and
    operations based on Microsoft technology. Examples of solutions
    in this area include desktop deployment, enterprise messaging
    and platform migrations.                                                                        
|
| |  | A developing area of our business is focused on providing
    packaged solutions for our clients, including enterprise
    resource planning (ERP) and Microsoft Dynamics CRM
    (Client Relationship Management). We have built a global
    practice in providing Microsoft Dynamics-related services,
    including Microsoft Dynamics CRM and Microsoft
    Dynamics  Axapta. In addition, we assist clients with
    optimizing the performance and integration of SAP software
    systems, the development of mobile applications, and the
    development and deployment of business intelligence solutions,
    all deployed on the Microsoft platform within the enterprise
    environment.



2



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| |                     
| | --------------------
| | Material
    Clients





| |                              
| | -----------------------------
| | Geographic Business
    Areas





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Americas. As of September 30, 2006, we had
    approximately 1,300 client facing employees working in our
    Americas area, which includes the United States and Canada. Our
    Americas area generated approximately 54%, 51% and 55% of our
    worldwide revenues before reimbursements, excluding amounts not
    attributable to the business area, for the fiscal years 2006,
    2005 and 2004, respectively.                                                                                                       
|
| | Europe. As of September 30, 2006, we had
    approximately 1,100 client facing employees working in our
    European area, which includes the United Kingdom, Spain, Italy,
    France, the Netherlands, Germany, Norway, Switzerland, Belgium,
    Denmark, Sweden and Finland. Our European area generated
    approximately 39%, 42% and 37% of our worldwide revenues before
    reimbursements, excluding amounts not attributable to the
    business area, for the fiscal years 2006, 2005 and 2004,
    respectively.
|
| | Asia Pacific. As of September 30, 2006, we
    had approximately 300 client facing employees working in our
    Asia Pacific area, which includes Australia, Japan, Singapore,
    Malaysia, Thailand, India, the Philippines and China. This area
    generated approximately 7%, 7% and 8% of our worldwide revenues
    before reimbursements, excluding amounts not attributable to the
    business area, for each of the fiscal years 2006, 2005 and 2004,
    respectively.                                           



3



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| |                            
| | ---------------------------
| | Global Delivery
    Network





| |          
| | ---------
| | Contracts





| |            
| | -----------
| | Competition









| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | technical and industry expertise;                                                    
|
| |  | skills and capabilities of people;                                                   
|
| |  | quality of service and product offerings;                                            
|
| |  | perceived ability to add value;                                                      
|
| |  | reputation and client references;                                                    
|
| |  | price;                                                                               
|
| |  | scope of services;                                                                   
|
| |  | delivery approach, including an ability to deliver results on a
    timely basis; and
|
| |  | global reach and scale.                                                              



4



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##### 





| |                          
| | -------------------------
| | Intellectual
    Property







| |                            
| | ---------------------------
| | Research and
    Innovation





| |          
| | ---------
| | Employees








ITEM 1A.  RISK FACTORS


Risks that Relate to Our Financial Results and the Nature
of Our Business




| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our results of operations
    could be negatively affected if we cannot expand and develop our
    services and solutions in response to changes in technology and
    client demand.



5



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##### 





| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | The consulting and systems
    integration and technology markets are highly competitive, and
    we might not be able to compete effectively.





| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | large multinational providers, including the service arms of
    large global technology providers, that offer some or all of the
    consulting and systems integration and technology services that
    we do;                   
|
| |  | off-shore service providers in lower-cost locations,
    particularly Indian providers, which offer a subset of the
    services we offer; and                                                                                     
|
| |  | niche solution or service providers which compete with us in a
    specific geographic market, industry segment or service area,
    including companies that provide new or alternative products,
    services or delivery models.









| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Our business could be
    adversely affected if our clients are not satisfied with our
    services.





| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our results of operations
    may be affected by the rate of growth in the use of technology
    in business and the type and level of technology spending by our
    clients.



6



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| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to
    attract, retain and motivate employees or efficiently utilize
    their skills, we might not be able to compete effectively and
    will not be able to grow our business.





| |                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our results of operations
    could be affected by economic and political conditions in the
    markets in which we operate and the effects of these conditions
    on our clients businesses and levels of business
    activity.





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Our profitability could
    suffer if we are not able to maintain favorable pricing
    rates.







| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | our clients perceptions of our ability to add value
    through our services;
|
| |  | competition;                                                                  
|
| |  | introduction of new services or products by us or our
    competitors;        
|
| |  | our competitors pricing policies;                                            

7



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| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to accurately estimate, attain and sustain contract
    revenues, margins and cash flows over increasingly longer
    contract periods;
|
| |  | the use by our competitors and our clients of off-shore
    resources to provide lower-cost service delivery
    capabilities; and                 
|
| |  | general economic and political conditions in the geographic
    areas in which we operate.                                                         



| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | Our profitability could
    suffer if we are not able to maintain favorable utilization
    rates.





| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to transition employees from completed projects to
    new assignments and to hire and assimilate new employees;                    
|
| |  | our ability to forecast demand for our services and thereby
    maintain an appropriate headcount in each of our geographies and
    workforces;
|
| |  | our ability to manage attrition; and                                                                                                            
|
| |  | our need to devote time and resources to training, professional
    development and other non-chargeable activities.                            



| |                                                                            
| | ---------------------------------------------------------------------------
| | Our profitability could
    suffer if we are not able to control our costs.





| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Our work with government
    clients exposes us to additional risks inherent in the
    government contracting process.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Government entities typically fund projects through appropriated
    monies. While these projects are often planned and executed as
    multi-year projects, the government entities usually reserve the
    right to change the scope of or terminate these projects for
    lack of approved funding and at their convenience. Changes in
    government or political developments could result in charges in
    scope or in termination of our projects.                                                                                                                                                         
|
| |  | Government entities often reserve the right to audit our
    contract costs, including allocated indirect costs, and conduct
    inquiries and investigations of our business practices with
    respect to our government contracts. If the client finds that
    the costs are not reimbursable, then we will not be allowed to
    bill for such costs, or the cost must be refunded to the client
    if it has already been paid to us. Findings from an audit also
    may result in our being required to prospectively adjust
    previously agreed rates for our work and may affect our future
    margins.
|
| |  | If a government client discovers improper or illegal activities
    in the course of audits or investigations, we may become subject
    to various civil and criminal penalties and administrative
    sanctions, which may include termination of contracts,
    forfeiture of profits, suspension of payments, fines and
    suspensions or debarment from doing business with other agencies
    of that government. The inherent                                                                                                                                                                                

8



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| |   |                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | limitations of internal controls
    may not prevent or detect all improper or illegal activities,
    regardless of their adequacy.                                                                                                                                                                                                                         
|
| |  | Government contracts, and the
    proceedings surrounding them, are often subject to more
    extensive scrutiny and publicity than contracts with commercial
    clients. Negative publicity related to our government contracts,
    regardless of its accuracy, may further damage our business by
    affecting our ability to compete for new contracts.
|
| |  | Political and economic factors
    such as pending elections, revisions to governmental tax
    policies and reduced tax revenues can affect the number and
    terms of new government contracts signed.                                                                                                                                                    
|
| |  | Terms and conditions of
    government contracts tend to be more onerous and are often more
    difficult to negotiate than those for commercial contracts.                                                                                                                                                                                                  





| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Our global operations are
    subject to complex risks, some of which might be beyond our
    control.







| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our operating results may be adversely affected by
    fluctuations in foreign currency exchange rates. Although we
    report our operating results in U.S. dollars, a significant
    percentage of our revenues before reimbursements is denominated
    in currencies other than the U.S. dollar. Fluctuations in
    foreign currency exchange rates can have a number of adverse
    effects on us. Because our consolidated financial statements are
    presented in U.S. dollars, we must translate revenues,
    expenses and income, as well as assets and liabilities, into
    U.S. dollars at exchange rates in effect during or at the
    end of each reporting period. Therefore, changes in the value of
    the U.S. dollar against other major currencies will affect
    our revenues before reimbursements, operating income and the
    value of balance-sheet items originally denominated in other
    currencies. Declines in the value of other currencies against
    the U.S. dollar could cause our consolidated earnings
    stated in U.S. dollars to be lower than our consolidated
    earnings in local currency terms and could decrease the
    profitability of our contracts that are denominated in those
    currencies. There is no guarantee that our financial results
    will not be adversely affected by currency exchange rate
    fluctuations or that any efforts by us to engage in currency
    hedging activities would be effective. In addition, in some
    countries we could be subject to strict restrictions on the
    movement of cash and the exchange of foreign currencies, which
    could limit our ability to use this cash across our global
    operations. Finally, as we continue to leverage our global
    delivery model, more of our expenses are incurred in currencies
    other than those in which we bill for the related services. An
    increase in the value of certain currencies, such as the Indian
    rupee, against the U.S. dollar could increase costs for
    delivery of services at off-shore sites by increasing labor and
    other costs that are denominated in local currency.
|
| | International hostilities, terrorist activities, natural
    disasters and infrastructure disruptions could prevent us from
    effectively serving ourclients and thus adversely affect
    our operating results. Acts of terrorist
    violence  such as those of recent years in the United
    States, Spain and England  armed regional and
    international hostilities and international responses to these
    hostilities, natural disasters, global health risks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

9



---



##### 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | or pandemics or the threat of or perceived potential for these
    events, could have a negative impact on us. These events could
    adversely affect our clients levels of business activity
    and precipitate sudden significant changes in regional and
    global economic conditions and cycles. These events also pose
    significant risks to our people and to physical facilities and
    operations around the world, whether the facilities are ours or
    those of our alliance partners or clients. By disrupting
    communications and travel and increasing the difficulty of
    obtaining and retaining highly skilled and qualified personnel,
    these events could make it difficult or impossible for us to
    deliver services to our clients. Extended disruptions of
    electricity, other public utilities or network services at our
    facilities, as well as system failures at, or security breaches
    in, our facilities or systems, could also adversely affect our
    ability to serve our clients. While we plan for and prepare to
    defend against each of these occurrences, we might be unable to
    protect our people, facilities and systems against any or all
    such occurrences. We generally do not have insurance for losses
    and interruptions caused by terrorist attacks, conflicts and
    wars. If these disruptions prevent us from effectively serving
    our clients, our operating results could be adversely affected.                                                                                                                                                                                                                                                                                                                                                         
|
| | We could have liability or our reputation could be damaged if
    we do not protect client data or information systems or if our
    information systems are breached. We are dependent on
    information technology networks and systems to process, transmit
    and store electronic information and to communicate among our
    locations around the world and with our alliance partners and
    clients. Security breaches of this infrastructure could lead to
    shutdowns or disruptions of our systems and potential
    unauthorized disclosure of confidential information. We are also
    required at times to manage, utilize and store sensitive or
    confidential client or employee data. As a result, we are
    subject to numerous U.S. and foreign jurisdiction laws and
    regulations designed to protect this information, such as the
    European Union Directive on Data Protection and various
    U.S. federal and state laws governing the protection of
    health or other individually identifiable information. If any
    person, including any of our employees, negligently disregards
    or intentionally breaches our established controls with respect
    to such data or otherwise mismanages or misappropriates that
    data, we could be subject to monetary damages, fines and/or
    criminal prosecution. Unauthorized disclosure of sensitive or
    confidential client or employee data, whether through systems
    failure, employee negligence, fraud or misappropriation, could
    damage our reputation and cause us to lose clients. Similarly,
    unauthorized access to or through our information systems or
    those we develop for our clients, whether by our employees or
    third parties, could result in negative publicity, legal
    liability and damage to our reputation.
|
| | Our global operations expose us to numerous and sometimes
    conflicting legal and regulatory requirements, and violation of
    these regulations could harm our business. Because we
    provide services to clients in more than 22 countries, we are
    subject to numerous, and sometimes conflicting, legal regimes on
    matters as diverse as anticorruption regulations, import/export
    controls, content requirements, trade restrictions, tariffs,
    taxation, sanctions, government affairs, internal and disclosure
    control obligations, data privacy and labor relations.
    Violations of these regulations in the conduct of our business
    could result in fines, criminal sanctions against us or our
    officers, prohibitions on doing business and damage to our
    reputation. Violations of these regulations in connection with
    the performance of our obligations to our clients also could
    result in liability for monetary damages, fines and/or criminal
    prosecution, unfavorable publicity, restrictions on our ability
    to process information and allegations by our clients that we
    have not performed our contractual obligations. Due to the
    varying degrees of development of the legal systems of the
    countries in which we operate, local laws might be insufficient
    to protect our rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to manage
    the organizational challenges associated with the expansion of
    our company, we might be unable to achieve our business
    objectives.



10



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| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | Our business could be
    negatively affected if we incur legal liability in connection
    with providing our solutions and services.





| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our pricing structures
    do not accurately anticipate the cost and complexity of
    performing our work, then our contracts could be
    unprofitable.





| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Our results of operations
    could be adversely affected if our clients terminate their
    contracts with us on short notice.



11



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| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | If we are unable to
    collect our receivables our results of operations could be
    adversely affected.





| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We could be subject to
    liabilities if our subcontractors or the third parties with whom
    we partner cannot deliver their project contributions on time or
    at all.





| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | We have only a limited
    ability to protect our intellectual property rights, which are
    important to our success.





12



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##### 





| |                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our services or solutions
    could infringe upon the intellectual property rights of others,
    which could result in legal liability, reduced operating income
    and/or have a materially adverse affect on our ability to
    operate in the future.





| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There will not be a
    consistent pattern in our financial results from quarter to
    quarter, which may result in increased volatility of the value
    of our stock.



Risks That Relate to Our Relationships with Accenture,
Microsoft and Their Related Entities




| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Loss of our significant
    corporate relationships could reduce our revenue and growth
    prospects.





| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because we are controlled
    by Accenture, we have limited ability to set our own independent
    strategies, and our business strategy and direction may be
    dictated by Accentures overall business
    strategy.



13



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| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | control our management and policies; and                                                                                                                                             
|
| |  | determine the outcome of most corporate transactions or other
    matters submitted to the Board of Directors for approval,
    including mergers or acquisitions less than $100,000.



| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on Accenture as a
    primary source of our liquidity and the loss of that liquidity
    could have a material adverse impact on our ability to fund our
    cash needs.





| |                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on Accenture for
    the majority of our revenue. The loss of that revenue would have
    a significant adverse impact on our results of operations and
    may affect our ability to continue to operate.





| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in economic conditions may decrease the demand from
    Accenture for our services;                                                                                                       
|
| |  | a lack of any contractual obligation by Accenture to continue
    using our services, which allows Accenture to decrease or stop
    its use of our services at any time without penalty;         
|
| |  | certain internal Accenture practices are currently in place that
    encourage the use of our services, and these practices may be
    changed or modified; and                                   
|
| |  | we may be incurring lower sales and marketing costs due to our
    relationships with Accenture and Microsoft. In the absence of
    such relationship, sales and marketing costs could be higher.



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | Our global delivery
    network relies on Accenture, and the loss of that network would
    increase our operating expenses.





| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | the termination or material modification of this relationship at
    any time on short notice by Accenture; and                           
|
| |  | efforts to recruit and retain personnel may be compromised by
    the individuals not having a direct employment relationship with
    us.



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | Microsoft has certain
    minority rights, and may exercise those rights to protect its
    own interests which may not align with our own.



14



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| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the issuance of equity in the Company to certain competitors of
    Microsoft;                                                                                                                                                    
|
| |  | the acquisition or disposition of assets in excess of
    $100,000; and                                                                                                                                                           
|
| |  | certain business activities identified in the Third Amended and
    Restated Contribution and Stockholders Agreement, including
    limiting our ability to enter into a line of business not
    related to Microsoft technology.



| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are committed to using
    Microsoft-related technologies, and our inability to use those
    technologies would adversely impact our results of
    operations.





| |   |                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | general acceptance of competitive products may put us at a
    competitive disadvantage to other consulting companies that are
    able to focus on such non-Microsoft-based technology;                                                                                                     
|
| |  | our business is dependent, in part, upon continued growth in the
    use of Microsoft-based technology by our clients and prospective
    clients and this demand for Microsoft-based technologies may
    grow at a reduced rate or decrease, thus reducing the market for
    our services;
|
| |  | we may be perceived as having a narrow focus that may limit our
    ability to attract new clients;                                                                                                                                                                                          
|
| |  | Microsoft may acquire or significantly grow its own consulting
    capacity that directly competes with us; and                                                                                                                                                                              
|
| |  | we have access to certain Microsoft assets and information and
    loss of that access could negatively impact to our business.                                                                                                                                                              

Risks that Relate to Our Employee Put Options




| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All stock issued pursuant
    to awards granted under our stock option plans is subject to
    certain put rights, which, if exercised, could have a materially
    adverse impact on our liquidity.



15



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##### 






ITEM 1B.     UNRESOLVED STAFF
COMMENTS







ITEM 2.     PROPERTIES


month-to





ITEM 3.     LEGAL PROCEEDINGS









ITEM 4.     SUBMISSION OF MATTERS TO
A VOTE OF SECURITIES HOLDERS




16



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##### 






PART II







|        |                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
    SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

over-the




10-K,


Recent Sales of Unregistered Securities




Purchases of Common Shares




|                                     |  |                  |           |  |            |                     |      |                    |                 |  |                 |  |  |  |   | 
|------------------------------------ |  | ---------------- | --------- |  | ---------- | ------------------- | ---- | ------------------ | --------------- |  | --------------- |  |  |  | - | 
|                                     |  |                  |           |  |            |                     |      | Approximate Dollar |                
|                                     |  |                  |           |  |            |                     |      | Value of Shares    |                
|                                     |  |                  |           |  |            | Total Number of     |      |                    | that May Yet Be | 
|                                     |  |                  |           |  |            | Shares Purchased as |      |                    | Purchased Under | 
|                                     |  | Total Number of  |           |  | Average    |                     |      | Part of Publicly   |                 |  | Publicly        | 
|                                     |  | Shares Purchased |           |  | Price Paid |                     |      | Announced Plans or |                 |  | Announced Plans | 
|Period                               |  | (1)              |           |  | per Share  |                     |      | Programs           |                 |  | or Programs     | 
|                                     |  |                  |           |  |            |                     |      |                    |                 |  |                 | 
|July 1, 2006July 31, 2006           |  |                  | 1,463,733 |  |            | $                   | 6.70 |                    |                 |  |                |  |  |  |  | 
|August 1, 2006August 31, 2006       |  |                  | 6,382     |  |            | $                   | 6.91 |                    |                 |  |                |  |  |  |  | 
|September 1, 2006September 30, 2006 |  |                  | 16,885    |  |            | $                   | 6.91 |                    |                 |  |                |  |  |  |  | 
|                                     |  |                  |           |  |            |                     |      |                    |                 |  |                 | 
|Total                                |  |                  | 1,487,000 |  |            | $                   | 6.70 |                    |                 |  |                 |  |  |  |   | 
|                                     |  |                  |           |  |            |                     |      |                    |                 |  |                 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | During the fourth quarter of fiscal 2006, the Company purchased
    1,487,000 of its common shares in transactions unrelated to
    publicly announced share plans or programs. These transactions
    included the acquisition of 35,386 shares of the
    Companys common stock via share withholding for payroll
    for obligations due from employees in connection with the
    delivery of shares of the Company common stock under the
    Companys various equity share plans. 1,451,614 of these
    shares were purchased by the Company as a result of the Company
    exercising its right to call shares, or the shareholder
    exercising his or her right to put shares, under the
    Companys equity share plans.

17



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##### 






ITEM 6.     SELECTED FINANCIAL
DATA




|                                                                                                                 |                                 |                          |         |   |         |   |         |      |         |   |         |   |         |      |         |   |         |   |         |   |        | 
|---------------------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------ | ------- | - | ------- | - | ------- | ---- | ------- | - | ------- | - | ------- | ---- | ------- | - | ------- | - | ------- | - | ------ | 
|                                                                                                                 |                                 | Year Ended September 30, |        
|                                                                                                                 |                                 |                          |        
|                                                                                                                 |                                 | 2006(1)                  |         |   | 2005    |   |         | 2004 |         |   | 2003    |   |         | 2002 |        
|                                                                                                                 |                                 |                          |         |   |         |   |         |      |         |   |         |   |         |      |        
|                                                                                                                 |                                 | (in thousands)           |        
|Income Statement Data:                                                                                           |                                 |                          |         |   |         |   |         |      |         |   |         |   |         |      |         |   |         |   |         |  
|Revenues:                                                                                                        |                                 |                          |         |   |         |   |         |      |         |   |         |   |         |      |         |   |         |   |         |  
|                                                                                                                 | Revenues before reimbursements: |                          |         |   |         |   |         |      |         |   |         |   |         |      |         |   |         |   |         |   |       
|                                                                                                                 |                                 | Related parties          |         | $ | 354,566 |   |         | $    | 288,368 |   |         | $ | 186,808 |      |         | $ | 106,528 |   |         | $ | 70,873 | 
|                                                                                                                 |                                 | Other                    |         |   | 129,298 |   |         |      | 98,946  |   |         |   | 90,738  |      |         |   | 65,983  |   |         |   | 50,289 | 
|                                                                                                                 |                                 |                          |         |   |         |   |         |      |         |   |         |   |         |      |        
|                                                                                                                 |                                 |                          | 483,864 |   |         |   | 387,314 |      |         |   | 277,546 |   |         |      | 172,511 |   |         |   | 121,162 |  
|                                                                                                                 | Reimbursements:                 |                          |         |   |         |   |         |      |         |   |         |   |         |      |         |   |         |   |         |   |       
|                                                                                                                 |                                 | Related parties          |         |   | 19,747  |   |         |      | 18,064  |   |         |   | 12,383  |      |         |   | 8,135   |   |         |   | 8,312  | 
|                                                                                                                 |                                 | Other                    |         |   | 14,195  |   |         |      | 16,933  |   |         |   | 9,100   |      |         |   | 8,173   |   |         |   | 4,454  | 
|                                                                                                                 |                                 |                          |         |   |         |   |         |      |         |   |         |   |         |      |        
|                                                                                                                 |                                 |                          | 33,942  |   |         |   | 34,997  |      |         |   | 21,483  |   |         |      | 16,308  |   |         |   | 12,766  |  
|                                                                                                                 |                                 |                          |         |   |         |   |         |      |         |   |         |   |         |      |        
|Revenues                                                                                                         |                                 | $                        | 517,806 |   |         | $ | 422,311 |      |         | $ | 299,029 |   |         | $    | 188,819 |   |         | $ | 133,928 |  
|                                                                                                                 |                                 |                          |         |   |         |   |         |      |         |   |         |   |         |      |        
|Operating expenses                                                                                               |                                 | $                        | 463,288 |   |         | $ | 375,349 |      |         | $ | 273,857 |   |         | $    | 190,043 |   |         | $ | 183,807 |  
|                                                                                                                 |                                 |                          |         |   |         |   |         |      |         |   |         |   |         |      |        
|Income (loss) from continuing operations before income taxes                                                     |                                 | $                        | 56,598  |   |         | $ | 43,542  |      |         | $ | 24,226  |   |         | $    | (842    | ) |         | $ | (48,886 | )
|Provision for income taxes                                                                                       |                                 |                          | 9,888   |   |         |   | 12,270  |      |         |   | 7,688   |   |         |      | 838     |   |         |   | 22      |  
|Income (loss) from discontinued operations including tax expense
    of zero, $2, $33, $70, and $1, respectively |                                 |                          |        |   |         |   | 140     |      |         |   | (2,085  | ) |         |      | (1,134  | ) |         |   | (2,417  | )
|                                                                                                                 |                                 |                          |         |   |         |   |         |      |         |   |         |   |         |      |        
|Net income (loss)                                                                                                |                                 | $                        | 46,710  |   |         | $ | 31,412  |      |         | $ | 14,453  |   |         | $    | (2,814  | ) |         | $ | (51,325 | )
|                                                                                                                 |                                 |                          |         |   |         |   |         |      |         |   |         |   |         |      |        






|    |                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes the impact of Statement of Financial Accounting
    Standards No. 123R, Share-Based Payment.
    For additional information, refer to Footnote 7
    (Share-Based Compensation) to our Consolidated Financial
    Statements under Financial Statements and Supplementary
    Data.

|                                       |  |                     |         |  |      |   |         |      |  |   |         |  |  |      |        |  |  |   |        | 
|-------------------------------------- |  | ------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------ |  |  | - | ------ | 
|                                       |  | As of September 30, |        
|                                       |  |                     |        
|                                       |  | 2006                |         |  | 2005 |   |         | 2004 |  |   | 2003    |  |  | 2002 |       
|                                       |  |                     |         |  |      |   |         |      |  |   |         |  |  |      |       
|                                       |  | (in thousands)      |        
|Balance Sheet Data:                    |  |                     |         |  |      |   |         |      |  |   |         |  |  |      |        |  |  |   |        | 
|Cash and cash equivalents              |  | $                   | 72,898  |  |      | $ | 55,256  |      |  | $ | 18,630  |  |  | $    | 12,998 |  |  | $ | 24,971 | 
|Working capital                        |  |                     | 121,062 |  |      |   | 79,253  |      |  |   | 43,758  |  |  |      | 30,186 |  |  |   | 26,236 | 
|Total assets                           |  |                     | 240,857 |  |      |   | 179,474 |      |  |   | 137,470 |  |  |      | 93,297 |  |  |   | 77,884 | 
|Long-term debt, net of current portion |  |                     |        |  |      |   |        |      |  |   |        |  |  |      | 9,938  |  |  |   |       | 
|Shareholders equity                   |  |                     | 25,627  |  |      |   | 29,655  |      |  |   | 21,215  |  |  |      | 31,251 |  |  |   | 38,398 | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in
conjunction with our Consolidated Financial Statements and
related Notes included elsewhere in this Annual Report on
Form 10-K. This
discussion and analysis also contains forward-looking statements
and should also be read in conjunction with the disclosures


18



---



##### 



and information contained in Disclosure Regarding
Forward-Looking Statements and Risk Factors in
this Annual Report on
Form 10-K.


We use the terms Avanade, we,
our Company, our and us in
this report to refer to Avanade Inc. and its subsidiaries. We
use the term Accenture to refer to our majority
shareholder, which is a subsidiary of Accenture Ltd, and its
affiliates. We use the term Microsoft to refer to
Microsoft Corporation, a minority shareholder, and its
affiliates. All references to years, unless otherwise noted,
refer to our fiscal year, which ends on September 30. For
example, a reference to fiscal 2006 or fiscal
year 2006 means the
12-month period that
ended on September 30, 2006. All references to quarters,
unless otherwise noted, refer to the quarters of our fiscal
year. All amounts expressed in dollars are in thousands of
dollars unless otherwise indicated. For example, a reference to
$40,800 means $40.8 million.


Overview


out-of






|                                |           |               |  |    |      |  |  |      |   |  |  |    |  
|------------------------------- | --------- | ------------- |  | -- | ---- |  |  | ---- | - |  |  | -- | -
|                                |           | Year Ended    | 
|                                |           | September 30, | 
|                                |           |               | 
|                                |           | 2006          |  |    | 2005 |  |  | 2004 |  
|                                |           |               |  |    |      |  |  |      |  
|Revenues before reimbursements: |           |               |  |    |      |  |  |      |   |  |  |   
|                                | Accenture |               |  | 67 | %    |  |  | 67   | % |  |  | 56 | %
|                                | Microsoft |               |  | 6  | %    |  |  | 8    | % |  |  | 11 | %





19



---



##### 







Share-Based Payment










20



---



##### 







Critical Accounting Policies and Estimates




Revenue Recognition


percentage-of Accounting for
Performance of Construction-Type and Certain Production-Type
Contracts. percentage-of


00-21, Accounting for Revenue Arrangements with Multiple
Deliverables.


21



---



##### 



99-19, Reporting Revenues Gross as a Principal versus Net as an
Agent






out-of


Income Taxes












22



---



##### 





Share-Based Compensation






Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees




Redeemable Common Stock and Employee Put Rights




23



---



##### 







Revenues by Segment/ Geographic Business Area






|                                     |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      |  |     |    |   |  |     |    |  
|------------------------------------ | ------------ | ------------- | ------- | ------- | ---------- | ------- | ------- | ---------- | ------------ | ---------------- | ------------- | -- | - | ---- | --- | -- | ---- |  | --- | -- | - |  | --- | -- | -
|                                     |              |               |         |         |            |         |         |            |              | Percent of Total |              
|                                     |              |               |         |         |            |         |         |            |              | Revenues Before  |              
|                                     |              |               |         |         |            |         |         |            |              | Reimbursements   |              
|                                     |              |               |         |         |            | Percent |         |            | for the Year |                 
|                                     |              | Year Ended    |         |         | Percent    |         |         | Increase/  |              |                  | Ended         |   
|                                     |              | September 30, |         |         | Increase/  |         |         | (Decrease) |              |                  | September 30, |   
|                                     |              |               |         |         | (Decrease) |         |         | Local      |              |                  |               |   
|                                     |              | 2006          |         |         | 2005       |         |         | US$        |              |                  | Currencies    |    |   | 2006 |     |    | 2005 | 
|                                     |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      | 
|SEGMENT                              |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      |  |     |    |   |  |     |   
|                                     | Americas     |               | $       | 263,473 |            |         | $       | 199,791    |              |                  |               | 32 | % |      |     | 31 | %    |  |     | 55 | % |  |     | 52 | %
|                                     | Europe       |               |         | 190,446 |            |         |         | 164,301    |              |                  |               | 16 | % |      |     | 19 | %    |  |     | 39 |   |  |     | 42 |  
|                                     | Asia Pacific |               |         | 33,233  |            |         |         | 25,707     |              |                  |               | 29 | % |      |     | 32 | %    |  |     | 7  |   |  |     | 7  |  
|Corporate and eliminations(1)        |              |               | (3,288  | )       |            |         | (2,485  | )          |              |                  | n/m           |    |   |      | n/m |    |      |  | (1  | )  |   |  | (1  | ) 
|                                     |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      | 
|Total revenues before reimbursements |              |               | 483,864 |         |            |         | 387,314 |            |              |                  | 25            | %  |   |      | 26  | %  |      |  | 100 | %  |   |  | 100 | % 
|                                     |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      | 
|Reimbursements                       |              |               | 33,942  |         |            |         | 34,997  |            |              |                  | (3            | )% |   |      | (3  | )% |      |  |     |    |   |  |     |   
|                                     |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      | 
|Total revenues                       |              | $             | 517,806 |         |            | $       | 422,311 |            |              |                  | 23            | %  |   |      | 23  | %  |      |  |     |    |   |  |     |   
|                                     |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      | 






|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|(1) | Corporate and eliminations include inter-company eliminations
    and other revenues not directly attributable to the segments.

24



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##### 





|               |  |               |    |   |      |  |    |      |  |  |    |  
|-------------- |  | ------------- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|               |  | September 30, |   
|               |  |               |   
|               |  | 2006          |    |   | 2005 |  |    | 2004 | 
|               |  |               |    |   |      |  |    |      | 
|United States  |  |               | 47 | % |      |  | 47 | %    |  |  | 51 | %
|United Kingdom |  |               | 17 | % |      |  | 22 | %    |  |  | 21 | %

Year Ended September 30, 2006 Compared to Year Ended
September 30, 2005


Revenues










Operating Expenses




25



---



##### 





| |                     
| | --------------------
| | Cost of
    Services







| |                                              
| | ---------------------------------------------
| | Selling, General and
    Administrative Costs



Operating Income (loss)






|                         |                            |                          |        |          |      |   |        |            |   |   |       |         |  
|------------------------ | -------------------------- | ------------------------ | ------ | -------- | ---- | - | ------ | ---------- | - | - | ----- | ------- | -
|                         |                            | Year Ended September 30, |       
|                         |                            |                          |       
|                         |                            |                          |        | Increase |     
|                         |                            | 2006                     |        |          | 2005 |   |        | (Decrease) |  
|                         |                            |                          |        |          |      |   |        |            |  
|Operating income (loss): |                            |                          |        |          |      |   |        |            |   |   |       |        
|                         | Americas                   |                          | $      | 58,431   |      |   | $      | 31,860     |   |   | $     | 26,571  |  
|                         | Europe                     |                          |        | 29,989   |      |   |        | 31,552     |   |   |       | (1,563  | )
|                         | Asia Pacific               |                          |        | (1,127   | )    |   |        | (1,430     | ) |   |       | 303     |  
|                         | Corporate and eliminations |                          |        | (32,775  | )    |   |        | (15,020    | ) |   |       | (17,755 | )
|                         |                            |                          |        |          |      |   |        |            |  
|                         |                            | $                        | 54,518 |          |      | $ | 46,962 |            |   | $ | 7,556 |        
|                         |                            |                          |        |          |      |   |        |            |  





| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Americas operating income increased primarily due to a 32%
    increase in revenues before reimbursements, improved gross
    margins and reduction in payroll-related costs as a percentage
    of revenues before reimbursements.
|
| |  | Europe operating income decreased primarily due to higher costs
    related to increased headcount, partially offset by reduced use
    of sub-contractors.                                                                        
|
| |  | Asia Pacific operating loss was lower primarily due to improved
    gross margins in Japan and Australia, partially offset by higher
    costs related to increased headcount in Japan.                                            

26



---



##### 





| |   |                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Corporate and eliminations increased primarily due to higher
    costs related to research and innovation activities, increased
    headcount and an increase in share-based compensation expense as
    a result of the adoption of SFAS No. 123R.

Other income (expense)






| |                               
| | ------------------------------
| | Provision for Income
    Taxes





Year Ended September 30, 2005 Compared to Year Ended
September 30, 2004




|                                     |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      |  |     |    |   |  |     |    |  
|------------------------------------ | ------------ | ------------- | ------- | ------- | ---------- | ------- | ------- | ---------- | ------------ | ---------------- | ------------- | -- | - | ---- | --- | -- | ---- |  | --- | -- | - |  | --- | -- | -
|                                     |              |               |         |         |            |         |         |            |              | Percent of Total |              
|                                     |              |               |         |         |            |         |         |            |              | Revenues         |              
|                                     |              |               |         |         |            |         |         |            |              | Before           |              
|                                     |              |               |         |         |            |         |         |            |              | Reimbursements   |              
|                                     |              |               |         |         |            | Percent |         |            | for the Year |                 
|                                     |              | Year Ended    |         |         | Percent    |         |         | Increase/  |              |                  | Ended         |   
|                                     |              | September 30, |         |         | Increase/  |         |         | (Decrease) |              |                  | September 30, |   
|                                     |              |               |         |         | (Decrease) |         |         | Local      |              |                  |               |   
|                                     |              | 2005          |         |         | 2004       |         |         | US$        |              |                  | Currencies    |    |   | 2005 |     |    | 2004 | 
|                                     |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      | 
|SEGMENT                              |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      |  |     |    |   |  |     |   
|                                     | Americas     |               | $       | 199,791 |            |         | $       | 154,111    |              |                  |               | 30 | % |      |     | 30 | %    |  |     | 52 | % |  |     | 55 | %
|                                     | Europe       |               |         | 164,301 |            |         |         | 104,272    |              |                  |               | 58 | % |      |     | 51 | %    |  |     | 42 |   |  |     | 38 |  
|                                     | Asia Pacific |               |         | 25,707  |            |         |         | 21,395     |              |                  |               | 20 | % |      |     | 14 | %    |  |     | 7  |   |  |     | 8  |  
|Corporate and eliminations(1)        |              |               | (2,485  | )       |            |         | (2,232  | )          |              |                  | n/m           |    |   |      | n/m |    |      |  | (1  | )  |   |  | (1  | ) 
|                                     |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      | 
|Total revenues before reimbursements |              |               | 387,314 |         |            |         | 277,546 |            |              |                  | 40            | %  |   |      | 36  | %  |      |  | 100 | %  |   |  | 100 | % 
|                                     |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      | 
|Reimbursements                       |              |               | 34,997  |         |            |         | 21,483  |            |              |                  | 63            | %  |   |      | 60  | %  |      |  |     |    |   |  |     |   
|                                     |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      | 
|Total revenues                       |              | $             | 422,311 |         |            | $       | 299,029 |            |              |                  | 41            | %  |   |      | 38  | %  |      |  |     |    |   |  |     |   
|                                     |              |               |         |         |            |         |         |            |              |                  |               |    |   |      |     |    |      | 






|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|(1) | Corporate and eliminations include inter-company eliminations
    and other revenues not directly attributable to the segments.



| |         
| | --------
| | Revenues



27



---



##### 













| |                       
| | ----------------------
| | Operating
    Expenses





| |                     
| | --------------------
| | Cost of
    Services







| |                                              
| | ---------------------------------------------
| | Selling, General and
    Administrative Costs



28



---



##### 







| |                                                        
| | -------------------------------------------------------
| | Restructuring and Asset
    Impairment Costs (Benefits)





| |                            
| | ---------------------------
| | Operating Income
    (loss)





|                         |                            |                          |        |          |      |   |        |            |   |   |        |        |  
|------------------------ | -------------------------- | ------------------------ | ------ | -------- | ---- | - | ------ | ---------- | - | - | ------ | ------ | -
|                         |                            | Year Ended September 30, |       
|                         |                            |                          |       
|                         |                            |                          |        | Increase |     
|                         |                            | 2005                     |        |          | 2004 |   |        | (Decrease) |  
|                         |                            |                          |        |          |      |   |        |            |  
|Operating income (loss): |                            |                          |        |          |      |   |        |            |   |   |        |       
|                         | Americas                   |                          | $      | 31,860   |      |   | $      | 27,208     |   |   | $      | 4,652  |  
|                         | Europe                     |                          |        | 31,552   |      |   |        | 18,428     |   |   |        | 13,124 |  
|                         | Asia Pacific               |                          |        | (1,430   | )    |   |        | (5,803     | ) |   |        | 4,373  |  
|                         | Corporate and eliminations |                          |        | (15,020  | )    |   |        | (14,661    | ) |   |        | (359   | )
|                         |                            |                          |        |          |      |   |        |            |  
|                         |                            | $                        | 46,962 |          |      | $ | 25,172 |            |   | $ | 21,790 |       
|                         |                            |                          |        |          |      |   |        |            |  





| |   |                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Americas operating income increased primarily due to a 30%
    increase in revenues before reimbursements, improved
    profitability of our Canada business and improved gross margins.
|
| |  | The increase in the Europe segment reflected an increase in
    revenues before reimbursements in our business in the United
    Kingdom and improved gross margins.                    
|
| |  | Asia Pacific operating loss decreased due to a 20% increase in
    revenues before reimbursements and improved gross margins.                                                           



| |                           
| | --------------------------
| | Other income
    (expense)





| |                               
| | ------------------------------
| | Provision for Income
    Taxes



29



---



##### 





Liquidity and Capital Resources






|                                                             |                      |                          |        |         |      |   |        |         |   |   |        |        |   |   |         |         |  
|------------------------------------------------------------ | -------------------- | ------------------------ | ------ | ------- | ---- | - | ------ | ------- | - | - | ------ | ------ | - | - | ------- | ------- | -
|                                                             |                      | Year Ended September 30, |       
|                                                             |                      |                          |       
|                                                             |                      |                          |        | 2006 to |     
|                                                             |                      |                          |        | 2005    |     
|                                                             |                      | 2006                     |        |         | 2005 |   |        | 2004    |   |   | Change |       
|                                                             |                      |                          |        |         |      |   |        |         |   |   |        |       
|Net cash provided by (used in):                              |                      |                          |        |         |      |   |        |         |   |   |        |        |   |   |         |        
|                                                             | Operating activities |                          | $      | 29,030  |      |   | $      | 59,364  |   |   | $      | 2,230  |   |   | $       | (30,334 | )
|                                                             | Investing activities |                          |        | (5,250  | )    |   |        | (11,679 | ) |   |        | (1,958 | ) |   |         | 6,429   |  
|                                                             | Financing activities |                          |        | (4,857  | )    |   |        | (9,670  | ) |   |        | 4,627  |   |   |         | 4,813   |  
|Effect of exchange rate changes on cash and cash equivalents |                      |                          | (1,281 | )       |      |   | (1,389 | )       |   |   | 733    |        |   |   | 108     |        
|                                                             |                      |                          |        |         |      |   |        |         |   |   |        |       
|Net increase in cash and cash equivalents                    |                      | $                        | 17,642 |         |      | $ | 36,626 |         |   | $ | 5,632  |        |   | $ | (18,984 | )      
|                                                             |                      |                          |        |         |      |   |        |         |   |   |        |       

Operating activities:


Investing activities:


Financing activities:


30



---



##### 



Borrowing Facilities






| |                                 
| | --------------------------------
| | Foreign Exchange
    Instruments

Accounting for Derivative
Instruments and Hedging Activities.




| |                                                    
| | ---------------------------------------------------
| | Redeemable Common Stock
    and Employee Put Rights





Subsequent Event




31



---



##### 







| |                                          
| | -----------------------------------------
| | Available Funds and Future
    Cash Flows



Obligations and Commitments




|                             |  |                        |        |           |        |   |       |           |           |   |           |  |  |         |       |  |  |   |       | 
|---------------------------- |  | ---------------------- | ------ | --------- | ------ | - | ----- | --------- | --------- | - | --------- |  |  | ------- | ----- |  |  | - | ----- | 
|                             |  | Payments due by period |       
|                             |  |                        |       
|                             |  |                        |        | Less than |        |   |       |           | More than |  
|Contractual Cash Obligations |  | Total                  |        |           | 1 year |   |       | 1-3 years |           |   | 3-5 years |  |  | 5 years |      
|                             |  |                        |        |           |        |   |       |           |           |   |           |  |  |         |      
|Operating leases             |  | $                      | 17,021 |           |        | $ | 4,320 |           |           | $ | 6,835     |  |  | $       | 2,377 |  |  | $ | 3,489 | 
|Other commitments            |  |                        | 289    |           |        |   | 289   |           |           |   |          |  |  |         |      |  |  |   |      | 
|                             |  |                        |        |           |        |   |       |           |           |   |           |  |  |         |      
|Total                        |  | $                      | 17,310 |           |        | $ | 4,609 |           |           | $ | 6,835     |  |  | $       | 2,377 |  |  | $ | 3,489 | 
|                             |  |                        |        |           |        |   |       |           |           |   |           |  |  |         |      

Off-Balance Sheet Arrangements




Newly Issued Accounting Standards


Accounting for Uncertainty in Income Taxes  An
Interpretation of FASB Statement No. 109


32



---



##### 










|         |                                                                
|-------- | ---------------------------------------------------------------
|ITEM 7A. | QUANTITIATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK

Foreign Currency Risk






Interest Rate Risk









|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA








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








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures


10-K, 13a-15(e) 15d-15(e)


33



---



##### 



Changes in Internal Control Over Financial Reporting









|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION



34



---



##### 






PART III







|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors


Robert N. Frerichs,


Pamela J. Craig,


Karl-Heinz Flöther,


Mitchell C. Hill,


Basilio Rueda,


Simon Witts,


Board Committees






35



---



##### 



Board Committee Composition




Executive Officers


Mitchell C. Hill,


Howard Kilman,


Dennis Knapp,


Ashish Kumar,


Adam Warby,


Andrew White,


Section 16(a) Beneficial Ownership Reporting
Compliance




Code of Business Ethics


www.avanade.com/about/invest.aspx 10-K. 8-K.







|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION



36



---



##### 








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED SHAREHOLDER MATTERS



|                                                             |  |                      |            |  |                 |  |      |                     |  |  |              |     |  |              |      |  |              |  |            |     |  |  |      | 
|------------------------------------------------------------ |  | -------------------- | ---------- |  | --------------- |  | ---- | ------------------- |  |  | ------------ | --- |  | ------------ | ---- |  | ------------ |  | ---------- | --- |  |  | ---- | 
|                                                             |  | Convertible Series A |            |  |                 |  |     
|                                                             |  | Preferred Stock(1)   |            |  | Common Stock(1) |  |      | Fully Diluted Basis | 
|                                                             |  |                      |            |  |                 |  |      |                     | 
|                                                             |  | Stock                |            |  | % of Stock      |  |      | Stock               |  |  | % of Stock   |     |  | Stock        |      |  | % of Stock   | 
|Name and Address of                                          |  | Beneficially         |            |  | Beneficially    |  |      | Beneficially        |  |  | Beneficially |     |  | Beneficially |      |  | Beneficially | 
|Beneficial Owner                                             |  | Owned                |            |  | Owned           |  |      | Owned               |  |  | Owned        |     |  | Owned        |      |  | Owned        | 
|                                                             |  |                      |            |  |                 |  |      |                     |  |  |              |     |  |              |      |  |              | 
|Robert N. Frerichs                                           |  |                      |           |  |                 |  |     |                     |  |  |             |     |  |              |     |  |              |  |           |     |  |  |     | 
|Pamela J. Craig                                              |  |                      |           |  |                 |  |     |                     |  |  |             |     |  |              |     |  |              |  |           |     |  |  |     | 
|Karl-Heinz Flöther                                           |  |                      |           |  |                 |  |     |                     |  |  |             |     |  |              |     |  |              |  |           |     |  |  |     | 
|Mitchell C. Hill                                             |  |                      |           |  |                 |  |     |                     |  |  | 2,450,000    | (2) |  |              | 34.1 |  |              |  | 2,450,000  | (2) |  |  | 2.6  | 
|Basilio Rueda                                                |  |                      |           |  |                 |  |     |                     |  |  |             |     |  |              |     |  |              |  |           |     |  |  |     | 
|Simon Witts                                                  |  |                      |           |  |                 |  |     |                     |  |  |             |     |  |              |     |  |              |  |           |     |  |  |     | 
|Howard Kilman                                                |  |                      |           |  |                 |  |     |                     |  |  | 540,000      | (3) |  |              | 10.2 |  |              |  | 540,000    | (3) |  |  | *    | 
|Ashish Kumar                                                 |  |                      |           |  |                 |  |     |                     |  |  | 500,000      | (4) |  |              | 9.5  |  |              |  | 500,000    | (4) |  |  | *    | 
|Adam Warby                                                   |  |                      |           |  |                 |  |     |                     |  |  | 890,000      | (5) |  |              | 15.8 |  |              |  | 890,000    | (5) |  |  | 1.0  | 
|Andrew White                                                 |  |                      |           |  |                 |  |     |                     |  |  | 1,000,000    | (6) |  |              | 17.4 |  |              |  | 1,000,000  | (6) |  |  | 1.0  | 
|Accenture, 1661 Page Mill Road, Palo Alto, CA 94304          |  |                      | 59,271,768 |  |                 |  | 79.3 |                     |  |  | 59,271,868   | (7) |  |              | 92.6 |  |              |  | 59,271,868 | (7) |  |  | 62.0 | 
|Microsoft, One Microsoft Way, Redmond, WA 98052              |  |                      | 15,479,135 |  |                 |  | 20.7 |                     |  |  | 15,479,234   | (8) |  |              | 76.6 |  |              |  | 15,479,234 | (8) |  |  | 16.2 | 
|All directors and executive officers as a group (10 persons) |  |                      |           |  |                 |  |     |                     |  |  | 5,830,000    | (9) |  |              | 53.2 |  |              |  | 5,380,000  | (9) |  |  | 5.6  | 






| |   |             
| | - | ------------
| | * | Less than 1%



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For each person who owns options that are exercisable within
    60 days or Convertible Series A preferred stock that
    is convertible within 60 days, the calculation of the
    percentage ownership assumes that only that person has exercised
    all of his options or converted his Convertible Series A
    preferred stock, and that no other person has exercised any
    outstanding options or converted any Convertible Series A
    preferred stock. If the Convertible Series A preferred
    stock were treated as converted to common shares, then all
    individual stockholders, excluding Microsoft and Accenture,
    would have less than 1%.
|   
|(2) | Includes 1,700,000 shares of common stock that may be
    acquired within 60 days upon the exercise of options.
    Shares are subject to a voting agreement requiring shares to be
    voted according to the vote of the Preferred stockholders.                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(3) | Includes 340,000 shares of common stock that may be
    acquired within 60 days upon the exercise of options.
    Shares are subject to a voting agreement requiring shares to be
    voted according to the vote of the Preferred stockholders.                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(4) | Includes 300,000 shares of common stock that may be
    acquired within 60 days upon the exercise of options.
    Shares are subject to a voting agreement requiring shares to be
    voted according to the vote of the Preferred stockholders.                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(5) | Includes 690,000 shares of common stock that may be
    acquired within 60 days upon the exercise of options.
    Shares are subject to a voting agreement requiring shares to be
    voted according to the vote of the Preferred stockholders.                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(6) | Includes 650,000 shares of common stock that may be
    acquired within 60 days upon the exercise of options.
    Shares are subject to a voting agreement requiring shares to be
    voted according to the vote of the Preferred stockholders.                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(7) | Includes 51,000,000 shares of Convertible Series A
    preferred stock owned by Accenture LLP and 8,271,768 shares
    of Convertible Series A preferred stock owned by Accenture
    International SARL. Common stock and fully diluted shares also
    include 100 shares of common stock owned by Accenture LLP.                                                                                                                                                                                                                                                                                                                                                   
|   
|(8) | Includes 14,343,008 shares of Convertible Series A
    preferred stock owned by Microsoft AVN Holdings, Inc. and
    1,136,127 shares of Convertible Series A preferred
    stock owned by Microsoft Corporation. Common stock and fully
    diluted shares also include 99 shares of common stock owned
    by Microsoft AVN Holdings, Inc.                                                                                                                                                                                                                                                                                                                          

37



---



##### 





|    |                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------
|(9) | Includes 3,680,000 shares of common stock that may be
    acquired within 60 days upon the exercise of options.

Securities Authorized for Issuance Under Equity Compensation
Plans




|                                                        |                            |                     |            |            |                     |                     |                     |                   |  |  |           |    |  
|------------------------------------------------------- | -------------------------- | ------------------- | ---------- | ---------- | ------------------- | ------------------- | ------------------- | ----------------- |  |  | --------- | -- | -
|                                                        |                            |                     |            |            |                     | Number of Shares    |                    
|                                                        |                            |                     |            |            |                     | Remaining Available |                    
|                                                        |                            | Number of Shares    |            |            |                     |                     | for Future Issuance |                  
|                                                        |                            | to be Issued        |            |            | Weighted Average    |                     |                     | (Excluding Shares | 
|                                                        |                            | Upon Exercise of    |            |            | Exercise Price of   |                     |                     | Reflected         | 
|Plan Category                                           |                            | Outstanding Options |            |            | Outstanding Options |                     |                     | in 1stColumn)     | 
|                                                        |                            |                     |            |            |                     |                     |                     |                   | 
|Equity compensation plans not approved by shareholders: |                            |                     | N/A        |            |                     |                     |                     |                   |  |  | N/A       |   
|Equity compensation plans approved by shareholders      |                            |                     |            |            |                     |                     |                     |                   |  |  |           |   
|                                                        | Employee Stock Option Plan |                     |            | 11,804,475 |                     |                     | $                   | 2.95              |  |  |           | (1 | )
|                                                        | 2000 Stock Incentive Plan  |                     |            | 6,759,417  |                     |                     | $                   | 2.51              |  |  |           | (1 | )
|                                                        |                            |                     |            |            |                     |                     |                     |                   | 
|Total                                                   |                            |                     | 18,563,892 |            |                     | $                   | 2.79                |                   |  |  | 6,160,922 |   
|                                                        |                            |                     |            |            |                     |                     |                     |                   | 






|    |                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The total number of shares remaining available for future
    issuance relate to a common pool of shares available for both
    the Employee Stock Option Pan and the 2000 Stock Incentive Plan






|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS







38



---



##### 






















|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES

INDEPENDENT AUDITORS FEES




|                      |  |      |       |  |      |   |       | 
|--------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                      |  | 2006 |       |  | 2005 |  
|                      |  |      |       |  |      |  
|Audit Fees(1)         |  | $    | 1,527 |  |      | $ | 1,271 | 
|Audit Related Fees(2) |  |      |      |  |      |   |      | 
|Tax Fees(3)           |  |      |      |  |      |   | 51    | 
|All Other Fees(4)     |  |      | 3     |  |      |   |      | 
|                      |  |      |       |  |      |  
|                      |  | $    | 1,530 |  |      | $ | 1,322 | 
|                      |  |      |       |  |      |  






|    |                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit Fees, including those for statutory audits, include the
    aggregate fees during the fiscal year indicated for professional
    services rendered by KPMG for the audit of Avanade Inc.s
    annual financial statements and review of Consolidated Financial
    Statements included in Avanades
    Forms 10-Q and
    Form 10-K.

39



---



##### 





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Audit Related Fees include the aggregate fees during the fiscal
    year indicated for assurance and related services by KPMG LLP
    that are reasonably related to the performance of the audit or
    review of Avanades financial statements and not included
    in Audit Fees. Audit Related Fees also include fees for
    accounting advice and opinions related to various benefit plans,
    and fees for internal control documentation assistance.
|   
|(3) | Tax Fees include the aggregate fees during the fiscal year
    indicated for professional services rendered by KPMG LLP for tax
    compliance, tax advice and tax planning.                                                                                                                                                                                                                                                                                   
|   
|(4) | All Other Fees include the aggregate fees during the fiscal year
    indicated for products and services provided by KPMG LLP, other
    than the services reported above, including due diligence
    reviews.                                                                                                                                                                                                                                                

PROCEDURES FOR AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND
PERMISSABLE NON-AUDIT SERVICES OF INDEPENDENT AUDITOR






40



---



##### 






PART IV







|         |                                        
|-------- | ---------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES



10-K:




| |                                                                          
| | -------------------------------------------------------------------------
| | Consolidated Balance Sheets                                              
|
| | Consolidated Income Statements                                           
|
| | Consolidated Shareholders Equity and Comprehensive Income
    Statements
|
| | Consolidated Cash Flows Statements                                       
|
| | Notes to Consolidated Financial Statements                               





| |     
| | ----
| | None



|        |       |                         |  |                                                                                                                                                                                                                    
|------- | ----- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|        | 3.1   |                         |  | Restated Articles of Incorporation of the Company, dated as of
    December 4, 2003(1)                                                                                                                             
|       
|        | 3.2   |                         |  | Amended and Restated By-laws of the Company, dated as of
    February 29, 2003(1)                                                                                                                                  
|       
|        | 4.1   |                         |  | Employee Stockholders Agreement, dated as of August 4,
    2000, by and among Avanade, Accenture, Microsoft and those
    parties listed on Attachment A thereunder(1)                                             
|       
|        | 4.2   |                         |  | Employee Stock Option Plan, as amended and restated on
    May 13, 2004(1)                                                                                                                                         
|       
|        | 4.3   |                         |  | Form of Investment Representation Statement(1)                                                                                                                                                                     
|       
|        | 4.4   |                         |  | 2000 Stock Incentive Plan, as amended and restated on
    May 13, 2004(1)                                                                                                                                          
|       
|        | 4.5   |                         |  | Third Amended and Restated Contribution and Stockholders
    Agreement among Accenture LLP, Accenture Ltd, Accenture
    International SARL, Microsoft Corporation and Avanade Inc.,
    dated February 14, 2005(1)
|       
|        | 4.6   |                         |  | Stock Repurchase Agreement between Microsoft Corporation,
    Microsoft AVN Holdings, Inc. and Avanade Inc., dated as of
    December 21, 2001(1)                                                                  
|       
|        | 4.7   |                         |  | Stock Purchase Agreement between Microsoft Corporation,
    Microsoft AVN Holdings, Inc. and Accenture Ltd, dated as of
    December 21, 2001(1)                                                                   
|       
|        | 4.8   |                         |  | Stock Purchase Agreement between Microsoft Corporation and
    Avanade Inc., dated as of February 14, 2005(1)                                                                                                      
|       
|        | 4.9   |                         |  | Form of Early Exercise Notice and Stock Purchase Agreement(1)                                                                                                                                                      
|       
|        | 4.10  |                         |  | Specimen Stock Certificate of Avanade Inc.(2)                                                                                                                                                                      
|       
|        | 10.1  |                         |  | Employment Agreement, dated as of August 4, 2000, between
    Avanade Inc. and Mitchell C. Hill(1)                                                                                                                 
|       
|        | 10.2  |                         |  | Employment Agreement, dated as of November 9, 2001, between
    Avanade Inc. and Howard Kilman(1)                                                                                                                  
|       
|        | 10.3  |                         |  | Employment Agreement, dated as of August 4, 2000, between
    Avanade Inc. and Ashish Kumar(1)                                                                                                                     
|       
|        | 10.4  |                         |  | Employment Agreement, dated as of March 5, 2001, between
    Avanade Inc. and Adam Warby(1)                                                                                                                        
|       
|        | 10.5  |                         |  | Employment Agreement, dated May 10, 2002, between Avanade
    UK and Andrew White(1)                                                                                                                               
|       
|        | 10.6  |                         |  | Form of Avanade Inc. Financial Protection Policy(1)                                                                                                                                                                
|       
|        | 10.7  |                         |  | Form of Avanade Inc. Business Protection Agreement(1)                                                                                                                                                              
|       
|        | 10.8  |                         |  | Line of Credit Agreement, dated February 7, 2003, between
    Avanade Inc. and Accenture Finance GMBH(2)                                                                                                           
|       
|        | 10.9  |                         |  | Avanade Inc. Long-Term Incentive Plan (incorporated by reference
    to Exhibit 10.1 to the Companys Form 8-K, filed
    June 23, 2006)                                                                           
|       
|        | 10.10 |                         |  | Form of Avanade Valuation Unit Grant Notice (incorporated by
    reference to Exhibit 10.2 to the Companys
    Form 8-K, filed June 23, 2006)                                                                     

41



---



##### 



|        |       |                         |  |                                                                                                                                                                                                                           
|------- | ----- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|       
|        | 10.11 |                         |  | Form of Avanade Valuation Unit Grant Notice 
    Australia (incorporated by reference to Exhibit 10.3 to the
    Companys Form 8-K, filed June 23, 2006)                                                                
|       
|        | 10.12 |                         |  | Form of Avanade Valuation Unit Agreement (incorporated by
    reference to Exhibit 10.4 to the Companys
    Form 8-K, filed on June 23, 2006)                                                                            
|       
|        | 14.1  |                         |  | Avanade Code of Business Ethics (filed herewith)                                                                                                                                                                          
|       
|        | 21.1  |                         |  | Subsidiaries of the Avande Inc. (filed herewith)                                                                                                                                                                          
|       
|        | 31.1  |                         |  | Certification of Chief Executive Officer pursuant to Rule
    13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 (filed herewith)
|       
|        | 31.2  |                         |  | Certification of Chief Financial Officer pursuant to Rule
    13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 (filed herewith)
|       
|        | 32.1  |                         |  | Certification of the Chief Executive Officer and the Chief
    Financial Officer pursuant to 18 U.S.C Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002 (filed herewith)         






|    |                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the like-numbered exhibit to the
    Companys Form 10, filed January 20, 2006.
|   
|(2) | Incorporated by reference to the like-numbered exhibit to the
    Companys Form 10/ A, filed March 17, 2006

42



---



##### 






SIGNATURES




|                        |  |             
|----------------------- |  | ------------
|Date: December 12, 2006 |  | Avanade Inc.



| |     |                     
| | --- | --------------------
| | By: | /s/ Mitchell C. Hill

| |                        
| | -----------------------
| |                        
| | Name:  Mitchell C. Hill

| |        |                        
| | ------ | -----------------------
| | Title: | Chief Executive Officer



|                                             |  |                                                                                                |  | 
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | 
|Signature                                    |  | Title                                                                                         
|                                             |  |                                                                                               
|                                            
|/s/ Robert N. FrerichsRobert N. Frerichs     |  | Chairman of the Board                                                                         
|                                            
|/s/ Mitchell C. HillMitchell C. Hill         |  | Chief Executive Officer and Director
    (principal executive officer)                        
|                                            
|/s/ Karl-Heinz
    FlötherKarl-Heinz Flöther |  | Director                                                                                      
|                                            
|/s/ Basilio RuedaBasilio Rueda               |  | Director                                                                                      
|                                            
|/s/ Simon WittsSimon Witts                   |  | Director                                                                                      
|                                            
|/s/ Pamela J. CraigPamela J. Craig           |  | Director                                                                                      
|                                            
|/s/ Dennis K. KnappDennis K. Knapp           |  | Chief Financial Officer
    (principal financial officer and
    principal accounting officer)

43



---



##### 



AVANADE INC.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                                          |                                                                           |      |     |     | 
|------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ---- | --- | --- | 
|                                                                                                                          |                                                                           | Page |    
|                                                                                                                          |                                                                           |      |    
|Report of Independent Registered Public
    Accounting Firm                                                               |                                                                           |      | F-2 |    
|Consolidated Financial Statements as of September 30, 2006
    and 2005 and for the three years ended September 30, 2006: |                                                                           |      |     |    
|                                                                                                                          | Consolidated Balance Sheets                                               |      |     | F-3 | 
|                                                                                                                          | Consolidated Income Statements                                            |      |     | F-4 | 
|                                                                                                                          | Consolidated Shareholders Equity and
    Comprehensive Income Statements |      |     | F-5 | 
|                                                                                                                          | Consolidated Cash Flows Statements                                        |      |     | F-6 | 
|Notes to Consolidated Financial
    Statements                                                                            |                                                                           |      | F-7 |    

F-1



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##### 






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders


Avanade Inc.:
















F-2



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##### 



AVANADE INC.





CONSOLIDATED BALANCE SHEETS


September 30, 2006 and 2005


(In thousands of U.S. dollars, except share and per
share amounts)


|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |   |         |          |         | 
|-------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | -------- | ------- | - | ------- | -------- | ------- | 
|                                                   |                                                                                                                                                                                                                                                                                                                               | 2006                       |         |          | 2005    |  
|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |  
|ASSETS                                            
|CURRENT ASSETS:                                    |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |   |         |         
|                                                   | Cash and cash equivalents                                                                                                                                                                                                                                                                                                     |                            | $       | 72,898   |         |   | $       | 55,256   |        
|                                                   | Receivables from clients, net of allowances of $1,303 and
    $1,042, respectively                                                                                                                                                                                                                                            |                            |         | 21,253   |         |   |         | 16,125   |        
|                                                   | Due from related parties                                                                                                                                                                                                                                                                                                      |                            |         | 55,426   |         |   |         | 43,433   |        
|                                                   | Unbilled services to clients                                                                                                                                                                                                                                                                                                  |                            |         | 21,256   |         |   |         | 14,421   |        
|                                                   | Unbilled services to related parties                                                                                                                                                                                                                                                                                          |                            |         | 32,101   |         |   |         | 18,580   |        
|                                                   | Deferred income taxes, net                                                                                                                                                                                                                                                                                                    |                            |         | 1,394    |         |   |         | 450      |        
|                                                   | Other current assets                                                                                                                                                                                                                                                                                                          |                            |         | 6,116    |         |   |         | 4,647    |        
|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |  
|                                                   |                                                                                                                                                                                                                                                                                                                               | Total current assets       |         |          | 210,444 |   |         |          | 152,912 | 
|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |  
|NON-CURRENT ASSETS:                                |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |   |         |         
|                                                   | Restricted cash equivalents                                                                                                                                                                                                                                                                                                   |                            |         | 222      |         |   |         | 278      |        
|                                                   | Property and equipment, net of accumulated depreciation of
    $36,487 and $29,917, respectively                                                                                                                                                                                                                              |                            |         | 10,004   |         |   |         | 11,084   |        
|                                                   | Goodwill                                                                                                                                                                                                                                                                                                                      |                            |         | 11,975   |         |   |         | 11,975   |        
|                                                   | Other intangible assets, net of accumulated amortization of
    $4,250 and $3,091, respectively                                                                                                                                                                                                                               |                            |         | 1,281    |         |   |         | 2,440    |        
|                                                   | Deferred income taxes, net                                                                                                                                                                                                                                                                                                    |                            |         | 5,556    |         |   |         | 117      |        
|                                                   | Other non-current assets                                                                                                                                                                                                                                                                                                      |                            |         | 1,375    |         |   |         | 668      |        
|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |  
|                                                   |                                                                                                                                                                                                                                                                                                                               | Total non-current assets   |         |          | 30,413  |   |         |          | 26,562  | 
|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |  
|TOTAL ASSETS                                       |                                                                                                                                                                                                                                                                                                                               | $                          | 240,857 |          |         | $ | 179,474 |         
|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |  
|                                                  
|LIABILITIES AND STOCKHOLDERS EQUITY              
|CURRENT LIABILITIES:                               |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |   |         |         
|                                                   | Due to related parties                                                                                                                                                                                                                                                                                                        |                            | $       | 9,999    |         |   | $       | 6,654    |        
|                                                   | Accounts payable                                                                                                                                                                                                                                                                                                              |                            |         | 14,204   |         |   |         | 12,748   |        
|                                                   | Deferred revenues                                                                                                                                                                                                                                                                                                             |                            |         | 3,009    |         |   |         | 2,737    |        
|                                                   | Accrued payroll and related benefits                                                                                                                                                                                                                                                                                          |                            |         | 39,890   |         |   |         | 30,428   |        
|                                                   | Accrued expenses                                                                                                                                                                                                                                                                                                              |                            |         | 12,747   |         |   |         | 14,008   |        
|                                                   | Income taxes payable                                                                                                                                                                                                                                                                                                          |                            |         | 8,251    |         |   |         | 6,801    |        
|                                                   | Other accrued liabilities                                                                                                                                                                                                                                                                                                     |                            |         | 1,282    |         |   |         | 283      |        
|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |  
|                                                   |                                                                                                                                                                                                                                                                                                                               | Total current liabilities  |         |          | 89,382  |   |         |          | 73,659  | 
|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |  
|NON-CURRENT LIABILITIES                            |                                                                                                                                                                                                                                                                                                                               |                            | 1,884   |          |         |   | 780     |         
|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |  
|COMMITMENTS AND CONTINGENCIES                      |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |   |         |         
|REDEEMABLE COMMON STOCK AND EMPLOYEE STOCK OPTIONS |                                                                                                                                                                                                                                                                                                                               |                            | 123,964 |          |         |   | 75,380  |         
|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |  
|STOCKHOLDERS EQUITY:                              |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |   |         |         
|                                                   | Convertible Series A preferred stock, par value of
    $0.0001 per share (aggregate liquidation preference of
    $587,329 as of September 30, 2006 and 2005, respectively),
    105,000,000 shares authorized,74,750,903 shares issued
    and outstanding as of September 30, 2006 and
    September 30, 2005, respectively |                            |         | 7        |         |   |         | 7        |        
|                                                   | Common stock, par value $0.0001 per share,
    150,000,000 shares authorized, 4,244,536 and
    2,891,313 shares outstanding as of September 30, 2006
    and September 30, 2005, respectively                                                                                                                                |                            |         |         |         |   |         |         |        
|                                                   | Additional paid-in-capital                                                                                                                                                                                                                                                                                                    |                            |         | 178,128  |         |   |         | 226,654  |        
|                                                   | Deferred share-based compensation                                                                                                                                                                                                                                                                                             |                            |         |         |         |   |         | (1,728   | )      
|                                                   | Notes receivable from exercise of stock options                                                                                                                                                                                                                                                                               |                            |         | (653     | )       |   |         |         |        
|                                                   | Accumulated deficit                                                                                                                                                                                                                                                                                                           |                            |         | (154,363 | )       |   |         | (201,073 | )      
|                                                   | Accumulated other comprehensive income                                                                                                                                                                                                                                                                                        |                            |         | 2,508    |         |   |         | 5,795    |        
|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |  
|                                                   |                                                                                                                                                                                                                                                                                                                               | Total stockholders equity |         |          | 25,627  |   |         |          | 29,655  | 
|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY         |                                                                                                                                                                                                                                                                                                                               | $                          | 240,857 |          |         | $ | 179,474 |         
|                                                   |                                                                                                                                                                                                                                                                                                                               |                            |         |          |         |  



F-3



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##### 



AVANADE INC.





CONSOLIDATED INCOME STATEMENTS


For the Years Ended September 30, 2006, 2005 and 2004


(In thousands of U.S. dollars)


|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |         |   |         |        |         | 
|------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------- | ------- | ------ | ------- | - | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                                                                                                        |                                                     | 2006                                          |         |        | 2005    |   |         | 2004   |        
|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |        
|REVENUES:                                                                                               |                                                     |                                               |         |        |         |   |         |        |         |   |         |       
|                                                                                                        | Revenues before reimbursements:                     |                                               |         |        |         |   |         |        |         |   |         |        |        
|                                                                                                        |                                                     | Related parties                               |         | $      | 354,566 |   |         | $      | 288,368 |   |         | $      | 186,808 | 
|                                                                                                        |                                                     | Other                                         |         |        | 129,298 |   |         |        | 98,946  |   |         |        | 90,738  | 
|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |        
|                                                                                                        |                                                     |                                               | 483,864 |        |         |   | 387,314 |        |         |   | 277,546 |       
|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |        
|                                                                                                        | Reimbursements:                                     |                                               |         |        |         |   |         |        |         |   |         |        |        
|                                                                                                        |                                                     | Related parties                               |         |        | 19,747  |   |         |        | 18,064  |   |         |        | 12,383  | 
|                                                                                                        |                                                     | Other                                         |         |        | 14,195  |   |         |        | 16,933  |   |         |        | 9,100   | 
|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |        
|                                                                                                        |                                                     |                                               | 33,942  |        |         |   | 34,997  |        |         |   | 21,483  |       
|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |        
|                                                                                                        |                                                     | Revenues                                      |         |        | 517,806 |   |         |        | 422,311 |   |         |        | 299,029 | 
|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |        
|OPERATING EXPENSES:                                                                                     |                                                     |                                               |         |        |         |   |         |        |         |   |         |       
|                                                                                                        | Cost of services:                                   |                                               |         |        |         |   |         |        |         |   |         |        |        
|                                                                                                        |                                                     | Cost of services before reimbursable expenses |         |        | 330,957 |   |         |        | 262,436 |   |         |        | 184,381 | 
|                                                                                                        |                                                     | Reimbursable expenses                         |         |        | 33,942  |   |         |        | 34,997  |   |         |        | 21,483  | 
|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |        
|                                                                                                        |                                                     | Cost of services                              |         |        | 364,899 |   |         |        | 297,433 |   |         |        | 205,864 | 
|                                                                                                        | Selling, general and administrative costs           |                                               |         | 98,389 |         |   |         | 77,937 |         |   |         | 66,360 |        
|                                                                                                        | Restructuring and asset impairment (benefits) costs |                                               |         |       |         |   |         | (21    | )       |   |         | 1,633  |        
|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |        
|                                                                                                        |                                                     | Total operating expenses                      |         |        | 463,288 |   |         |        | 375,349 |   |         |        | 273,857 | 
|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |        
|OPERATING INCOME                                                                                        |                                                     |                                               | 54,518  |        |         |   | 46,962  |        |         |   | 25,172  |       
|Interest income                                                                                         |                                                     |                                               | 1,996   |        |         |   | 925     |        |         |   | 205     |       
|Interest expense                                                                                        |                                                     |                                               | (36     | )      |         |   | (560    | )      |         |   | (893    | )     
|Other income (expense)                                                                                  |                                                     |                                               | 120     |        |         |   | (3,785  | )      |         |   | (258    | )     
|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |        
|INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                                                   |                                                     |                                               | 56,598  |        |         |   | 43,542  |        |         |   | 24,226  |       
|Provision for income taxes                                                                              |                                                     |                                               | 9,888   |        |         |   | 12,270  |        |         |   | 7,688   |       
|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |        
|INCOME FROM CONTINUING OPERATIONS                                                                       |                                                     |                                               | 46,710  |        |         |   | 31,272  |        |         |   | 16,538  |       
|Income (loss) from discontinued operations, including tax
    expense of zero, $2 and $33, respectively |                                                     |                                               |        |        |         |   | 140     |        |         |   | (2,085  | )     
|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |        
|NET INCOME                                                                                              |                                                     | $                                             | 46,710  |        |         | $ | 31,412  |        |         | $ | 14,453  |       
|                                                                                                        |                                                     |                                               |         |        |         |   |         |        |        



F-4



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##### 



AVANADE INC.





CONSOLIDATED STOCKHOLDERS EQUITY AND COMPREHENSIVE
INCOME STATEMENTS


For the Years Ended September 30, 2006, 2005 and 2004


(In thousands of U.S. dollars, except share amounts)


|                                                            |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   |         |        |        |  
|----------------------------------------------------------- | ---------- | ---------------------------------------- | - |  | ------------ |  | ---------- | ---------- |  | ---------- | ----------- | ----- | ---------- | ----------- | ---------- | ------------ | ----------- | - | ------- | ------------- |  | ------- | ------------- | - | ------ | - | ------ | ------ |  | - | -------- | ------ |  | - | ----- |  | ------ | - | ------- | ------ | ------ | -
|                                                            |            |                                          |   |  |              |  |            |            |  |            |             | Notes |            |             |            |              |             |   |        
|                                                            |            | Convertible                              |   |  |              |  |            |            |  |            |             |       | Receivable |             |            |              |             |   |         |              
|                                                            |            | Series A Preferred                       |   |  |              |  |            |            |  |            | from        |       |            |             |            | Accumulated  |             |   |        
|                                                            |            | Stock                                    |   |  | Common Stock |  |            | Additional |  |            | Deferred    |       |            | Exercise of |            |              |             |   | Other   |               |  | Total   |              
|                                                            |            |                                          |   |  |              |  |            | Paid-In    |  |            | Share-Based |       |            | Stock       |            |              | Accumulated |   |         | Comprehensive |  |         | Stockholders |  
|                                                            |            | Amount                                   |   |  | No. Shares   |  |            | Amount     |  | No. Shares |             |       | Capital    |             |            | Compensation |             |   | Options |               |  | Deficit |               |   | Income |   |        | Equity | 
|                                                            |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        | 
|Balance as of September 30, 2003                            |            | $                                        | 7 |  |              |  | 73,614,776 |            |  | $          |            |       |            |             | 2,389,053  |              |             | $ | 274,240 |               |  | $       | (77           | ) |        | $ |       |        |  | $ | (246,938 | )      |  | $ | 4,019 |  |        | $ | 31,251  |       
|Comprehensive Income:                                       |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   |         |       
|                                                            | Net income |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |   |          | 14,453 |  |   |       |  |        |   |         | 14,453 |       
|                                                            |            | Foreign currency translation adjustments |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  | 1,811  |   |         |        | 1,811  |  
|                                                            |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |  
|Comprehensive income                                        |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 16,264  |       
|Accenture contribution                                      |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   | 1,566   |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 1,566   |       
|Change in redeemable common stock and options               |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   | (28,517 | )             |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | (28,517 | )     
|Share-based compensation expense                            |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         | 252           |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 252     |       
|Employee stock options granted                              |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   | 650     |               |  |         | (650          | ) |        |   |        |        |  |   |          |        |  |   |       |  |        |   |        |       
|Exercise of stock options                                   |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             | 256,211    |              |             |   | 399     |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 399     |       
|                                                            |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |  
|Balance as of September 30, 2004                            |            |                                          | 7 |  |              |  | 73,614,776 |            |  |            |            |       |            |             | 2,645,264  |              |             |   | 248,338 |               |  |         | (475          | ) |        |   |       |        |  |   | (232,485 | )      |  |   | 5,830 |  |        |   | 21,215  |       
|Comprehensive Income:                                       |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   |         |       
|                                                            | Net income |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |   |          | 31,412 |  |   |       |  |        |   |         | 31,412 |       
|                                                            |            | Foreign currency translation adjustments |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  | (35    | ) |         |        | (35    | )
|                                                            |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |  
|Comprehensive income                                        |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 31,377  |       
|Issuance of preferred stock                                 |            |                                          |   |  |              |  | 1,136,127  |            |  |            |             |       |            |             |            |              |             |   | 5,646   |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 5,646   |       
|Accenture contribution                                      |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   | 328     |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 328     |       
|Change in redeemable common stock and options               |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   | (31,406 | )             |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | (31,406 | )     
|Share-based compensation expense                            |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         | 1,570         |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 1,570   |       
|Income tax benefit on share-based compensation plans        |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   | 694     |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 694     |       
|Employee stock options granted                              |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   | 3,063   |               |  |         | (3,063        | ) |        |   |        |        |  |   |          |        |  |   |       |  |        |   |        |       
|Employee stock options forfeited                            |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   | (240    | )             |  |         | 240           |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   |        |       
|Exercise of stock options                                   |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             | 314,448    |              |             |   | 606     |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 606     |       
|Repurchase of common stock                                  |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             | (68,399    | )            |             |   | (375    | )             |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | (375    | )     
|                                                            |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |  
|Balance as of September 30, 2005                            |            |                                          | 7 |  |              |  | 74,750,903 |            |  |            |            |       |            |             | 2,891,313  |              |             |   | 226,654 |               |  |         | (1,728        | ) |        |   |       |        |  |   | (201,073 | )      |  |   | 5,795 |  |        |   | 29,655  |       
|Comprehensive income:                                       |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   |         |       
|                                                            | Net income |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |   |          | 46,710 |  |   |       |  |        |   |         | 46,710 |       
|                                                            |            | Foreign currency translation adjustments |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  | (3,287 | ) |         |        | (3,287 | )
|                                                            |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |  
|Comprehensive income                                        |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 43,423  |       
|Income tax benefit on share-based compensation plans        |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   | 644     |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 644     |       
|Accenture contributions                                     |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   | 5       |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 5       |       
|Change in redeemable common stock and options               |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   | (48,584 | )             |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | (48,584 | )     
|Share-based compensation expense                            |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   | 5,977   |               |  |         |               |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   | 5,977   |       
|Effect of adoption of SFAS 123R                             |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   | (1,728  | )             |  |         | 1,728         |   |        |   |        |        |  |   |          |        |  |   |       |  |        |   |        |       
|Issuance of common stock related to employee share programs |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             | 3,151,359  |              |             |   | 7,093   |               |  |         |               |   |        |   | (2,121 | )      |  |   |          |        |  |   |       |  |        |   | 4,972   |       
|Purchases of common stock                                   |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             | (1,798,136 | )            |             |   | (11,933 | )             |  |         |               |   |        |   | 1,570  |        |  |   |          |        |  |   |       |  |        |   | (10,363 | )     
|Repayments of employee notes receivable                     |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   | 8      |        |  |   |          |        |  |   |       |  |        |   | 8       |       
|Interest on notes received from exercise of stock options   |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   | (110   | )      |  |   |          |        |  |   |       |  |        |   | (110    | )     
|                                                            |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |  
|Balance as of September 30, 2006                            |            | $                                        | 7 |  |              |  | 74,750,903 |            |  | $          |            |       |            |             | 4,244,536  |              |             | $ | 178,128 |               |  | $       |              |   |        | $ | (653   | )      |  | $ | (154,363 | )      |  | $ | 2,508 |  |        | $ | 25,627  |       
|                                                            |            |                                          |   |  |              |  |            |            |  |            |             |       |            |             |            |              |             |   |         |               |  |         |               |   |        |   |        |        |  |  



F-5



---



##### 



AVANADE INC.





CONSOLIDATED CASH FLOWS STATEMENTS


For the Years Ended September 30, 2006, 2005 and 2004


(In thousands of U.S. dollars)


|                                              |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |        |       |         |   |        |       |         |  
|--------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------- | --------------------------------------------------- | ------- | ------ | ------- | ---- | ------ | ----- | ------- | - | ------ | ----- | ------- | -
|                                              |                                                                                       | 2006                                                                                             |                                                                   |                                                     | 2005    |        |         | 2004 |       
|                                              |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |       
|CASH FLOWS FROM OPERATING ACTIVITIES:         |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |        |       |         |  
|                                              |                                                                                       | Net income                                                                                       |                                                                   | $                                                   | 46,710  |        |         | $    | 31,412 |       |         | $ | 14,453 |      
|                                              | Adjustments to reconcile Net income to net cash provided by
    operating activities |                                                                                                  |                                                                   |                                                     |         |        |         |      |        |       |         |   |       
|                                              |                                                                                       |                                                                                                  | Depreciation and amortization                                     |                                                     |         | 7,543  |         |      |        | 6,808 |         |   |        | 8,384 |        
|                                              |                                                                                       |                                                                                                  | Unrealized foreign currency (gain) loss on intercompany
    notes |                                                     |         | (7,173 | )       |      |        | 1,498 |         |   |        |      |        
|                                              |                                                                                       |                                                                                                  | Loss on disposal of property and equipment, net                   |                                                     |         | 58     |         |      |        | 6     |         |   |        | 278   |        
|                                              |                                                                                       |                                                                                                  | Loss on impairment of assets                                      |                                                     |         |       |         |      |        |      |         |   |        | 766   |        
|                                              |                                                                                       |                                                                                                  | Deferred income tax (benefit) expense                             |                                                     |         | (6,330 | )       |      |        | 291   |         |   |        | (919  | )      
|                                              |                                                                                       |                                                                                                  | Non-cash related party interest expense                           |                                                     |         |       |         |      |        | 484   |         |   |        | 841   |        
|                                              |                                                                                       |                                                                                                  | Share-based compensation expense                                  |                                                     |         | 5,977  |         |      |        | 1,570 |         |   |        | 252   |        
|                                              |                                                                                       |                                                                                                  | Change in operating assets and liabilities, net of acquisitions:  |                                                     |         |        |         |      |        |       |         |   |        |       |        
|                                              |                                                                                       |                                                                                                  |                                                                   | Receivables from clients, net                       |         |        | (146    | )    |        |       | (6,404  | ) |        |       | (574    | )
|                                              |                                                                                       |                                                                                                  |                                                                   | Due from related parties                            |         |        | (9,702  | )    |        |       | (2,778  | ) |        |       | (25,536 | )
|                                              |                                                                                       |                                                                                                  |                                                                   | Unbilled services to clients                        |         |        | (6,660  | )    |        |       | 287     |   |        |       | (3,410  | )
|                                              |                                                                                       |                                                                                                  |                                                                   | Unbilled services to related parties                |         |        | (12,620 | )    |        |       | 7,621   |   |        |       | (13,634 | )
|                                              |                                                                                       |                                                                                                  |                                                                   | Other current assets                                |         |        | (845    | )    |        |       | (1,312  | ) |        |       | 95      |  
|                                              |                                                                                       |                                                                                                  |                                                                   | Other non-current assets                            |         |        | (45     | )    |        |       | 241     |   |        |       | 289     |  
|                                              |                                                                                       |                                                                                                  |                                                                   | Due to related parties                              |         |        | 3,389   |      |        |       | 3,457   |   |        |       | 1,480   |  
|                                              |                                                                                       |                                                                                                  |                                                                   | Accounts payable                                    |         |        | (313    | )    |        |       | 3,597   |   |        |       | 445     |  
|                                              |                                                                                       |                                                                                                  |                                                                   | Deferred revenues                                   |         |        | 84      |      |        |       | (982    | ) |        |       | 2,467   |  
|                                              |                                                                                       |                                                                                                  |                                                                   | Accrued payroll and related benefits                |         |        | 7,674   |      |        |       | 8,624   |   |        |       | 7,193   |  
|                                              |                                                                                       |                                                                                                  |                                                                   | Accrued expenses                                    |         |        | (1,778  | )    |        |       | 2,355   |   |        |       | 3,651   |  
|                                              |                                                                                       |                                                                                                  |                                                                   | Income taxes payable                                |         |        | 1,160   |      |        |       | 2,121   |   |        |       | 4,716   |  
|                                              |                                                                                       |                                                                                                  |                                                                   | Other current liabilities                           |         |        | 2,047   |      |        |       | 468     |   |        |       | 993     |  
|                                              |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |       
|                                              |                                                                                       |                                                                                                  |                                                                   | Net cash provided by operating activities           |         |        | 29,030  |      |        |       | 59,364  |   |        |       | 2,230   |  
|                                              |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |       
|CASH FLOWS FROM INVESTING ACTIVITIES:         |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |        |       |         |  
|                                              |                                                                                       | Proceeds from sales of property and equipment                                                    |                                                                   |                                                     | 2       |        |         |      | 10     |       |         |   | 71     |      
|                                              |                                                                                       | Purchases of property and equipment                                                              |                                                                   |                                                     | (5,359  | )      |         |      | (7,098 | )     |         |   | (3,853 | )    
|                                              |                                                                                       | Purchase of businesses, net of cash acquired                                                     |                                                                   |                                                     |        |        |         |      | (4,614 | )     |         |   | 278    |      
|                                              |                                                                                       | Transfer from restricted cash equivalents                                                        |                                                                   |                                                     | 107     |        |         |      | 23     |       |         |   | 1,546  |      
|                                              |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |       
|                                              |                                                                                       |                                                                                                  |                                                                   | Net cash used in investing activities               |         |        | (5,250  | )    |        |       | (11,679 | ) |        |       | (1,958  | )
|                                              |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |       
|CASH FLOWS FROM FINANCING ACTIVITIES:         |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |        |       |         |  
|                                              |                                                                                       | Purchases of common shares                                                                       |                                                                   |                                                     | (10,363 | )      |         |      | (375   | )     |         |   |       |      
|                                              |                                                                                       | Proceeds from the exercise of stock options                                                      |                                                                   |                                                     | 4,972   |        |         |      | 606    |       |         |   | 399    |      
|                                              |                                                                                       | Repayments of employee notes receivable                                                          |                                                                   |                                                     | 8       |        |         |      |       |       |         |   |       |      
|                                              |                                                                                       | Proceeds from short-term borrowing from related party                                            |                                                                   |                                                     |        |        |         |      |       |       |         |   | 5,000  |      
|                                              |                                                                                       | Repayment of short-term borrowing from related party                                             |                                                                   |                                                     |        |        |         |      | (5,000 | )     |         |   |       |      
|                                              |                                                                                       | Payment of note payable to related party                                                         |                                                                   |                                                     |        |        |         |      | (4,853 | )     |         |   |       |      
|                                              |                                                                                       | Payment of capital lease obligations                                                             |                                                                   |                                                     | (1      | )      |         |      | (48    | )     |         |   | (772   | )    
|                                              |                                                                                       | Excess tax benefits from share-based payment arrangements                                        |                                                                   |                                                     | 522     |        |         |      |       |       |         |   |       |      
|                                              |                                                                                       | Capital contribution from Accenture                                                              |                                                                   |                                                     | 5       |        |         |      |       |       |         |   |       |      
|                                              |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |       
|                                              |                                                                                       |                                                                                                  |                                                                   | Net cash (used in) provided by financing activities |         |        | (4,857  | )    |        |       | (9,670  | ) |        |       | 4,627   |  
|                                              |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |       
|                                              |                                                                                       | Effect of exchange rate changes on cash and cash equivalents                                     |                                                                   |                                                     | (1,281  | )      |         |      | (1,389 | )     |         |   | 733    |      
|                                              |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |       
|NET INCREASE IN CASH AND CASH EQUIVALENTS     |                                                                                       |                                                                                                  | 17,642                                                            |                                                     |         |        | 36,626  |      |        |       | 5,632   |  
|CASH AND CASH EQUIVALENTS,beginning of period |                                                                                       |                                                                                                  | 55,256                                                            |                                                     |         |        | 18,630  |      |        |       | 12,998  |  
|                                              |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |       
|CASH AND CASH EQUIVALENTS,end of period       |                                                                                       | $                                                                                                | 72,898                                                            |                                                     |         | $      | 55,256  |      |        | $     | 18,630  |  
|                                              |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |       
|Supplemental cash flow information:           |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |        |       |         |  
|                                              |                                                                                       | Cash paid for interest                                                                           |                                                                   | $                                                   | 36      |        |         | $    | 104    |       |         | $ | 27     |      
|                                              |                                                                                       | Cash paid for income taxes                                                                       |                                                                   | $                                                   | 13,585  |        |         | $    | 10,378 |       |         | $ | 3,912  |      
|Non-cash investing and financing activities:  |                                                                                       |                                                                                                  |                                                                   |                                                     |         |        |         |      |        |       |         |  
|                                              |                                                                                       | Convertible Series A preferred stock issued to Microsoft
    for note payable                    |                                                                   | $                                                   |        |        |         | $    | 5,646  |       |         | $ |       |      
|                                              |                                                                                       | Common stock issued upon exercise of employee stock options in
    exchange for notes receivable |                                                                   | $                                                   | 2,121   |        |         | $    |       |       |         | $ |       |      
|                                              |                                                                                       | Capital contribution from Accenture                                                              |                                                                   | $                                                   |        |        |         | $    |       |       |         | $ | 1,130  |      



F-6



---



##### 



AVANADE INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)




|   |                                           
|-- | ------------------------------------------
|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business








Principles of Consolidation




Revenue Recognition


percentage-of Accounting for
Performance of Construction-Type and Certain Production-Type
Contracts. Percentage-of percentage-of


F-7



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)




00-21, Accounting for Revenue Arrangements with Multiple
Deliverables.


99-19, Reporting Revenues Gross as a Principal versus Net as an
Agent


out-of


Operating Expenses




|                               |  |                          |        |  |      |   |       |      |  |   |       | 
|------------------------------ |  | ------------------------ | ------ |  | ---- | - | ----- | ---- |  | - | ----- | 
|                               |  | Year Ended September 30, |       
|                               |  |                          |       
|                               |  | 2006                     |        |  | 2005 |   |       | 2004 | 
|                               |  |                          |        |  |      |   |       |      | 
|Research and development costs |  | $                        | 11,568 |  |      | $ | 3,873 |      |  | $ | 2,590 | 
|Advertising costs              |  |                          | 1,551  |  |      |   | 172   |      |  |   | 195   | 

Translation of
Non-U.S.Currency
Amounts


non-U.S.




F-8



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)


Cash and Cash Equivalents and Restricted Cash Equivalents




Receivables from Clients, Net




Foreign Exchange Instruments




Accounting for Derivative
Instruments and Hedging Activities




|                                      |  |               |       |  |      |   |       | 
|------------------------------------- |  | ------------- | ----- |  | ---- | - | ----- | 
|                                      |  | September 30, |      
|                                      |  |               |      
|                                      |  | 2006          |       |  | 2005 |  
|                                      |  |               |       |  |      |  
|Included in Other current assets      |  | $             | 1,476 |  |      | $ | 1,626 | 
|Included in Other current liabilities |  |               | 53    |  |      |   | 2     | 



F-9



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)


Property and Equipment




|                                          |  |                                  |               | 
|----------------------------------------- |  | -------------------------------- | ------------- | 
|Computers, related equipment and software |  |                                  | 2 to 5 years  | 
|Furniture and fixtures                    |  |                                  | 3 to 10 years | 
|Leasehold improvements                    |  | Term of lease, 15  years maximum



Long-Lived Assets




Goodwill and Other Intangible Assets






Share-Based Compensation Awards


Share-Based Payment Accounting for Stock-Based
Compensation Accounting for Stock Issued to Employees


Income Taxes




F-10



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)






year-to


Accumulated Other Comprehensive Income




Comprehensive Income




Use of Estimates




Reclassifications




Certain Concentrations




| |            
| | -----------
| | Credit Risk



F-11



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)






| |        
| | -------
| | Clients





| |         
| | --------
| | Services



Newly Issued Accounting Standards


Accounting for Uncertainty in Income Taxes  An
Interpretation of FASB Statement No. 109




|   |                    
|-- | -------------------
|2. | RESTRUCTURING COSTS



F-12



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)






|                                                         |  |               |      |   |      |   |       |  
|-------------------------------------------------------- |  | ------------- | ---- | - | ---- | - | ----- | -
|                                                         |  | Year Ended    |     
|                                                         |  | September 30, |     
|                                                         |  |               |     
|                                                         |  | 2006          |      |   | 2005 |  
|                                                         |  |               |      |   |      |  
|Restructuring liability balance, beginning of the period |  | $             | 887  |   |      | $ | 1,791 |  
|Payments made and other(1)                               |  |               | (598 | ) |      |   | (904  | )
|                                                         |  |               |      |   |      |  
|Restructuring liability balance, end of the period       |  | $             | 289  |   |      | $ | 887   |  
|                                                         |  |               |      |   |      |  






|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(1) | Other represents imputed interest, immaterial changes in lease
    estimates and foreign currency translation.





|   |                       
|-- | ----------------------
|3. | PROPERTY AND EQUIPMENT



|                                                |                               |               |         |        |      |   |         |        | 
|----------------------------------------------- | ----------------------------- | ------------- | ------- | ------ | ---- | - | ------- | ------ | 
|                                                |                               | September 30, |        
|                                                |                               |               |        
|                                                |                               | 2006          |         |        | 2005 |  
|                                                |                               |               |         |        |      |  
|Computers, related equipment and software       |                               | $             | 38,304  |        |      | $ | 33,445  |       
|Furniture and fixtures                          |                               |               | 2,803   |        |      |   | 2,549   |       
|Leasehold improvements                          |                               |               | 5,384   |        |      |   | 5,007   |       
|                                                |                               |               |         |        |      |  
|                                                | Property and equipment, gross |               |         | 46,491 |      |   |         | 41,001 | 
|Total accumulated depreciation and amortization |                               |               | (36,487 | )      |      |   | (29,917 | )     
|                                                |                               |               |         |        |      |  
|Property and equipment, net                     |                               | $             | 10,004  |        |      | $ | 11,084  |       
|                                                |                               |               |         |        |      |  



|   |                                                      
|-- | -----------------------------------------------------
|4. | BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS



Goodwill and Other Intangible Assets


F-13



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)






|                                 |           |   |        |       | 
|-------------------------------- | --------- | - | ------ | ----- | 
|Balance as of September 30, 2004 |           | $ | 9,267  |      
|                                 | Additions |   |        | 2,708 | 
|                                 |           |   |       
|Balance as of September 30, 2005 |           |   | 11,975 |      
|                                 | Additions |   |        |      | 
|                                 |           |   |       
|Balance as of September 30, 2006 |           | $ | 11,975 |      
|                                 |           |   |       





|   |             
|-- | ------------
|5. | INCOME TAXES



|          |                      |                          |        |        |      |   |        |        |  |   |       |       |  
|--------- | -------------------- | ------------------------ | ------ | ------ | ---- | - | ------ | ------ |  | - | ----- | ----- | -
|          |                      | Year Ended September 30, |       
|          |                      |                          |       
|          |                      | 2006                     |        |        | 2005 |   |        | 2004   | 
|          |                      |                          |        |        |      |   |        |        | 
|Current:  |                      |                          |        |        |      |   |        |        |  |   |       |      
|          | U.S. Federal         |                          | $      | 469    |      |   | $      | 72     |  |   | $     | 392   |  
|          | U.S. state and local |                          |        | 264    |      |   |        | 80     |  |   |       | 111   |  
|          | Foreign              |                          |        | 15,485 |      |   |        | 11,827 |  |   |       | 8,104 |  
|          |                      |                          |        |        |      |   |        |        | 
|          |                      |                          | 16,218 |        |      |   | 11,979 |        |  |   | 8,607 |      
|          |                      |                          |        |        |      |   |        |        | 
|Deferred: |                      |                          |        |        |      |   |        |        |  |   |       |      
|          | U.S. Federal         |                          |        | 42     |      |   |        |       |  |   |       |      |  
|          | U.S. state and local |                          |        |       |      |   |        |       |  |   |       |      |  
|          | Foreign              |                          |        | (6,372 | )    |   |        | 291    |  |   |       | (919  | )
|          |                      |                          |        |        |      |   |        |        | 
|          |                      |                          | (6,330 | )      |      |   | 291    |        |  |   | (919  | )    
|          |                      |                          |        |        |      |   |        |        | 
|          |                      | $                        | 9,888  |        |      | $ | 12,270 |        |  | $ | 7,688 |      
|          |                      |                          |        |        |      |   |        |        | 

non-U.S.


|                 |  |                          |        |  |      |   |        |      |  |   |        | 
|---------------- |  | ------------------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                 |  | Year Ended September 30, |       
|                 |  |                          |       
|                 |  | 2006                     |        |  | 2005 |   |        | 2004 | 
|                 |  |                          |        |  |      |   |        |      | 
|U.S. sources     |  | $                        | 29,932 |  |      | $ | 19,906 |      |  | $ | 8,888  | 
|Non-U.S. sources |  |                          | 26,666 |  |      |   | 23,636 |      |  |   | 15,338 | 
|                 |  |                          |        |  |      |   |        |      | 
|Total            |  | $                        | 56,598 |  |      | $ | 43,542 |      |  | $ | 24,226 | 
|                 |  |                          |        |  |      |   |        |      | 

F-14



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)




|                                       |  |               |       |   |      |  |       |      |  |  |      |  
|-------------------------------------- |  | ------------- | ----- | - | ---- |  | ----- | ---- |  |  | ---- | -
|                                       |  | Year Ended    |      
|                                       |  | September 30, |      
|                                       |  |               |      
|                                       |  | 2006          |       |   | 2005 |  |       | 2004 | 
|                                       |  |               |       |   |      |  |       |      | 
|U.S. Federal statutory income tax rate |  |               | 35.0  | % |      |  | 35.0  | %    |  |  | 35.0 | %
|Change in valuation allowance          |  |               | (16.4 | ) |      |  | (14.2 | )    |  |  | (4.4 | )
|Tax credits                            |  |               | (5.8  | ) |      |  | (2.3  | )    |  |  | (3.9 | )
|Dividends from foreign subsidiaries    |  |               | 3.3   |   |      |  |      |      |  |  | 4.0  |  
|Nondeductible expenses                 |  |               | 1.3   |   |      |  | 4.5   |      |  |  | 4.1  |  
|State and local taxes                  |  |               | (0.7  | ) |      |  | 6.0   |      |  |  | 3.7  |  
|Foreign operations                     |  |               | 0.2   |   |      |  | (2.1  | )    |  |  | (8.6 | )
|Other                                  |  |               | 0.6   |   |      |  | 1.3   |      |  |  | 1.8  |  
|                                       |  |               |       |   |      |  |       |      | 
|                                       |  |               | 17.5  | % |      |  | 28.2  | %    |  |  | 31.7 | %
|                                       |  |               |       |   |      |  |       |      | 



|                         |                                  |                           |         |        |        |  |         |        |        |  |         |        |        | 
|------------------------ | -------------------------------- | ------------------------- | ------- | ------ | ------ |  | ------- | ------ | ------ |  | ------- | ------ | ------ | 
|                         |                                  | September 30,             |        
|                         |                                  |                           |        
|                         |                                  | 2006                      |         |        | 2005   |  |         | 2004   |       
|                         |                                  |                           |         |        |        |  |         |        |       
|Deferred tax assets      |                                  |                           |         |        |        |  |         |        |        |  |         |       
|                         | Net operating loss carryforwards |                           | $       | 63,948 |        |  | $       | 73,731 |        |  | $       | 81,821 |       
|                         | Tax credit carryforwards         |                           |         | 5,151  |        |  |         | 2,945  |        |  |         | 1,895  |       
|                         | Property and equipment           |                           |         | 1,543  |        |  |         | 1,116  |        |  |         | 1,087  |       
|                         | Intangible assets                |                           |         | 700    |        |  |         | 469    |        |  |         | 383    |       
|                         | Accrued expenses                 |                           |         | 7,402  |        |  |         | 2,172  |        |  |         | 2,701  |       
|                         | Deferred revenues                |                           |         | 465    |        |  |         | 550    |        |  |         | 464    |       
|                         | Other                            |                           |         | 417    |        |  |         | 1,542  |        |  |         | 721    |       
|                         |                                  |                           |         |        |        |  |         |        |       
|                         |                                  | Total deferred tax assets |         |        | 79,626 |  |         |        | 82,525 |  |         |        | 89,072 | 
|Less valuation allowance |                                  |                           | (72,676 | )      |        |  | (81,958 | )      |        |  | (88,140 | )     
|                         |                                  |                           |         |        |        |  |         |        |       
|                         |                                  | Net deferred tax assets   |         | $      | 6,950  |  |         | $      | 567    |  |         | $      | 932    | 
|                         |                                  |                           |         |        |        |  |         |        |       



F-15



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)














|   |                       
|-- | ----------------------
|6. | EMPLOYEE BENEFIT PLANS



F-16



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)








|   |                         
|-- | ------------------------
|7. | SHARE-BASED COMPENSATION





|                                                      |  |                          |        |           |        |   |        |  
|----------------------------------------------------- |  | ------------------------ | ------ | --------- | ------ | - | ------ | -
|                                                      |  | Year Ended September 30, |       
|                                                      |  | 2006                     |       
|                                                      |  |                          |       
|                                                      |  |                          |        | Under APB |       
|                                                      |  | As Reported              |        |           | No. 25 |  
|                                                      |  |                          |        |           |        |  
|Income from continuing operations before income taxes |  | $                        | 56,598 |           |        | $ | 61,798 |  
|Net income                                            |  | $                        | 46,710 |           |        | $ | 51,622 |  
|Cash flows provided by operating activities           |  | $                        | 29,030 |           |        | $ | 29,552 |  
|Cash flows used in financing activities               |  | $                        | (4,857 | )         |        | $ | (5,379 | )



F-17



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)




|                                                                                                                                        |          |               |         |        |      |   |        |        |  
|--------------------------------------------------------------------------------------------------------------------------------------- | -------- | ------------- | ------- | ------ | ---- | - | ------ | ------ | -
|                                                                                                                                        |          | Year Ended    |        
|                                                                                                                                        |          | September 30, |        
|                                                                                                                                        |          |               |        
|                                                                                                                                        |          | 2005          |         |        | 2004 |  
|                                                                                                                                        |          |               |         |        |      |  
|Net income as reported                                                                                                                  |          | $             | 31,412  |        |      | $ | 14,453 |       
|Add: Share-based compensation expense already included in Net
    income as reported, net of tax                                        |          |               | 1,534   |        |      |   | 222    |       
|Deduct: Pro forma share-based employee compensation expense
    determined under fair value based method for all awards, net of
    tax |          |               | (10,899 | )      |      |   | (4,771 | )     
|                                                                                                                                        |          |               |         |        |      |  
|                                                                                                                                        | Subtotal |               |         | (9,365 | )    |   |        | (4,549 | )
|                                                                                                                                        |          |               |         |        |      |  
|Pro forma net income                                                                                                                    |          | $             | 22,047  |        |      | $ | 9,904  |       
|                                                                                                                                        |          |               |         |        |      |  



|                                                                                  |  |                          |       |  |      |   |       |      |  |   |     | 
|--------------------------------------------------------------------------------- |  | ------------------------ | ----- |  | ---- | - | ----- | ---- |  | - | --- | 
|                                                                                  |  | Year Ended September 30, |      
|                                                                                  |  |                          |      
|                                                                                  |  | 2006                     |       |  | 2005 |   |       | 2004 | 
|                                                                                  |  |                          |       |  |      |   |       |      | 
|Total share-based compensation expense included in Net income                     |  | $                        | 7,361 |  |      | $ | 1,610 |      |  | $ | 252 | 
|Income tax benefit related to share-based compensation included
    in Net income |  | $                        | 409   |  |      | $ | 76    |      |  | $ | 30  | 





| |                                   
| | ----------------------------------
| | Overview of Stock Option
    Plans



F-18



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)






30-day




30-day


F-19



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)




| |                              
| | -----------------------------
| | 2000 Stock Incentive
    Plan









| |                               
| | ------------------------------
| | Employee Stock Option
    Plan







|                                             |           |        |            |                  |                |                  |                  |            |  |                     |       |  |  |   |        |  | 
|-------------------------------------------- | --------- | ------ | ---------- | ---------------- | -------------- | ---------------- | ---------------- | ---------- |  | ------------------- | ----- |  |  | - | ------ |  | 
|                                             |           |        |            |                  |                | Weighted Average |                  |            | 
|                                             |           |        |            |                  |                | Remaining        |                  |            | 
|                                             |           |        |            | Weighted Average |                |                  | Contractual Term |            |  | Aggregate Intrinsic |      
|                                             |           | Number |            |                  | Exercise Price |                  |                  | (In Years) |  |                     | Value | 
|                                             |           |        |            |                  |                |                  |                  |            |  |                     |       | 
|Options outstanding as of September 30, 2005 |           |        | 22,789,518 |                  |                | $                | 2.74             |            |  |                     | 6.7   |  |  | $ | 77,375 | 
|                                             | Granted   |        |            |                 |                |                  | $                |           |  |                     |       |  |  |   |        |  | 
|                                             | Exercised |        |            | (3,151,359       | )              |                  | $                | 2.25       |  |                     |       |  |  |   |        |  | 
|                                             | Expired   |        |            | (444,785         | )              |                  | $                | 2.88       |  |                     |       |  |  |   |        |  | 
|                                             | Forfeited |        |            | (629,482         | )              |                  | $                | 3.76       |  |                     |       |  |  |   |        |  | 
|                                             |           |        |            |                  |                |                  |                  |            |  |                     |       | 
|Options outstanding as of September 30, 2006 |           |        | 18,563,892 |                  |                | $                | 2.79             |            |  |                     | 6.0   |  |  | $ | 95,954 | 
|                                             |           |        |            |                  |                |                  |                  |            |  |                     |       | 
|Options exercisable as of September 30, 2006 |           |        | 16,099,765 |                  |                | $                | 2.60             |            |  |                     | 5.8   |  |  | $ | 86,354 | 
|Options exercisable as of September 30, 2005 |           |        | 17,047,808 |                  |                | $                | 2.40             |            |  |                     | 6.2   |  |  | $ | 63,762 | 
|Options exercisable as of September 30, 2004 |           |        | 6,788,584  |                  |                | $                | 2.20             |            |  |                     | 7.4   |  |  | $ | 18,833 | 



F-20



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)




|                                                                |  |                          |        |  |      |   |       |      |  |   |       | 
|--------------------------------------------------------------- |  | ------------------------ | ------ |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                                                |  | Year Ended September 30, |       
|                                                                |  |                          |       
|                                                                |  | 2006                     |        |  | 2005 |   |       | 2004 | 
|                                                                |  |                          |        |  |      |   |       |      | 
|Weighted average grant-date fair value of stock options granted |  | $                        | n/a    |  |      | $ | 3.01  |      |  | $ | 1.80  | 
|Total fair value of stock options vested                        |  | $                        | 9,310  |  |      | $ | 6,264 |      |  | $ | 7,221 | 
|Total intrinsic value of stock options exercised                |  | $                        | 13,913 |  |      | $ | 1,223 |      |  | $ | 489   | 





|                         |  |               |      |   |      |  |      |  
|------------------------ |  | ------------- | ---- | - | ---- |  | ---- | -
|                         |  | Year Ended    |     
|                         |  | September 30, |     
|                         |  |               |     
|                         |  | 2005          |      |   | 2004 | 
|                         |  |               |      |   |      | 
|Expected life (in years) |  |               | 6.0  |   |      |  | 6.2  |  
|Risk-free interest rate  |  |               | 3.90 | % |      |  | 3.82 | %
|Expected volatility      |  |               | 55   | % |      |  | 58   | %
|Expected dividend yield  |  |               | 0    | % |      |  | 0    | %

Share-Based Payments.




| |                                          
| | -----------------------------------------
| | Avanade Inc. Long-Term
    Incentive Plan



F-21



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)










|                                          |           |                |           |                  |            |                  |                  |            |  |                     |       |  |  |   |       |  | 
|----------------------------------------- | --------- | -------------- | --------- | ---------------- | ---------- | ---------------- | ---------------- | ---------- |  | ------------------- | ----- |  |  | - | ----- |  | 
|                                          |           |                |           |                  |            | Weighted Average |                  |            | 
|                                          |           |                |           |                  |            | Remaining        |                  |            | 
|                                          |           |                |           | Weighted Average |            |                  | Contractual Term |            |  | Aggregate Intrinsic |      
|                                          |           | Number of AVUs |           |                  | Base Value |                  |                  | (In Years) |  |                     | Value | 
|                                          |           |                |           |                  |            |                  |                  |            |  |                     |       | 
|AVUs outstanding as of September 30, 2005 |           |                |          |                  |            | $                |                 |            |  |                     |       |  |  |   |       | 
|                                          | Granted   |                |           | 2,845,699        |            |                  | $                | 6.14       |  |                     |       |  |  |   |       |  | 
|                                          | Forfeited |                |           | (51,820          | )          |                  | $                | 6.14       |  |                     |       |  |  |   |       |  | 
|                                          |           |                |           |                  |            |                  |                  |            |  |                     |       | 
|AVUs outstanding as of September 30, 2006 |           |                | 2,793,879 |                  |            | $                | 6.14             |            |  |                     | 3.2   |  |  | $ | 5,085 | 
|                                          |           |                |           |                  |            |                  |                  |            |  |                     |       | 



|                         |  |  |      |  
|------------------------ |  |  | ---- | -
|Expected life (in years) |  |  | 3.2  |  
|Risk-free interest rate  |  |  | 4.61 | %
|Expected volatility      |  |  | 40   | %
|Expected dividend yield  |  |  | 0    | %



F-22



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)






| |                         
| | ------------------------
| | Stock and Put
    Rights









|                                          |  |               |         |  |      |   |        | 
|----------------------------------------- |  | ------------- | ------- |  | ---- | - | ------ | 
|                                          |  | September 30, |        
|                                          |  |               |        
|                                          |  | 2006          |         |  | 2005 |  
|                                          |  |               |         |  |      |  
|Vested common stock subject to put rights |  | $             | 33,785  |  |      | $ | 17,752 | 
|Intrinsic value of stock options          |  |               | 90,179  |  |      |   | 57,628 | 
|                                          |  |               |         |  |      |  
|                                          |  | $             | 123,964 |  |      | $ | 75,380 | 
|                                          |  |               |         |  |      |  



|   |                     
|-- | --------------------
|8. | STOCKHOLDERS EQUITY



| |                    
| | -------------------
| | Preferred
    Stock



F-23



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)












| |             
| | ------------
| | Common Stock

winding-up




F-24



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)




| |                                              
| | ---------------------------------------------
| | Common Stock Reserved for
    Future Issuance



|                                           |  |  |            | 
|------------------------------------------ |  |  | ---------- | 
|Convertible Series A preferred stock       |  |  | 74,750,903 | 
|Upon exercise of outstanding stock options |  |  | 18,563,892 | 
|                                           |  |  |           
|                                           |  |  | 93,314,795 | 
|                                           |  |  |           



|   |                  
|-- | -----------------
|9. | LEASE COMMITMENTS



|                          |  |              |        |  |           |   |     | 
|------------------------- |  | ------------ | ------ |  | --------- | - | --- | 
|Year Ending September 30, |  | Office Space |        |  | Equipment |  
|                          |  |              |        |  |           |  
|2007                      |  | $            | 4,156  |  |           | $ | 163 | 
|2008                      |  |              | 3,918  |  |           |   | 149 | 
|2009                      |  |              | 2,650  |  |           |   | 118 | 
|2010                      |  |              | 1,441  |  |           |   | 103 | 
|2011                      |  |              | 765    |  |           |   | 70  | 
|Thereafter                |  |              | 3,488  |  |           |   |    | 
|                          |  |              |        |  |           |  
|                          |  | $            | 16,418 |  |           | $ | 603 | 
|                          |  |              |        |  |           |  





|    |                              
|--- | -----------------------------
|10. | COMMITMENTS AND CONTINGENCIES

Guarantees




F-25



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)




Legal Contingencies






|    |                                        
|--- | ---------------------------------------
|11. | RELATED-PARTY BALANCES AND TRANSACTIONS



|                                              |           |                          |   |         |         |  |   |         |         |  |   |         |         | 
|--------------------------------------------- | --------- | ------------------------ | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                              |           | Year Ended September 30, |  
|                                              |           |                          |  
|                                              |           | 2006                     |   |         | 2005    |  |   | 2004    |        
|                                              |           |                          |   |         |         |  |   |         |        
|Related-party revenues before reimbursements: |           |                          |   |         |         |  |   |         |         |  |   |        
|                                              | Accenture |                          | $ | 324,185 |         |  | $ | 258,782 |         |  | $ | 155,074 |        
|                                              | Microsoft |                          |   | 30,381  |         |  |   | 29,586  |         |  |   | 31,734  |        
|                                              |           |                          |   |         |         |  |   |         |        
|                                              |           | Total                    |   | $       | 354,566 |  |   | $       | 288,368 |  |   | $       | 186,808 | 
|                                              |           |                          |   |         |         |  |   |         |        
|Related-party reimbursements:                 |           |                          |   |         |         |  |   |         |         |  |   |        
|                                              | Accenture |                          | $ | 15,124  |         |  | $ | 14,406  |         |  | $ | 8,864   |        
|                                              | Microsoft |                          |   | 4,623   |         |  |   | 3,658   |         |  |   | 3,519   |        
|                                              |           |                          |   |         |         |  |   |         |        
|                                              |           | Total                    |   | $       | 19,747  |  |   | $       | 18,064  |  |   | $       | 12,383  | 
|                                              |           |                          |   |         |         |  |   |         |        
|Related-party expenses:                       |           |                          |   |         |         |  |   |         |         |  |   |        
|                                              | Accenture |                          | $ | 31,576  |         |  | $ | 16,076  |         |  | $ | 8,833   |        
|                                              | Microsoft |                          |   | 3,280   |         |  |   | 2,999   |         |  |   | 3,365   |        
|                                              |           |                          |   |         |         |  |   |         |        
|                                              |           | Total                    |   | $       | 34,856  |  |   | $       | 19,075  |  |   | $       | 12,198  | 
|                                              |           |                          |   |         |         |  |   |         |        

F-26



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)




|                                      |           |               |   |        |        |  |   |        |        | 
|------------------------------------- | --------- | ------------- | - | ------ | ------ |  | - | ------ | ------ | 
|                                      |           | September 30, |  
|                                      |           |               |  
|                                      |           | 2006          |   |        | 2005   | 
|                                      |           |               |   |        |        | 
|Due from related parties:             |           |               |   |        |        |  |   |       
|                                      | Accenture |               | $ | 52,170 |        |  | $ | 38,297 |       
|                                      | Microsoft |               |   | 3,256  |        |  |   | 5,136  |       
|                                      |           |               |   |        |        | 
|                                      |           | Total         |   | $      | 55,426 |  |   | $      | 43,433 | 
|                                      |           |               |   |        |        | 
|Unbilled services to related parties: |           |               |   |        |        |  |   |       
|                                      | Accenture |               | $ | 28,294 |        |  | $ | 17,064 |       
|                                      | Microsoft |               |   | 3,807  |        |  |   | 1,516  |       
|                                      |           |               |   |        |        | 
|                                      |           | Total         |   | $      | 32,101 |  |   | $      | 18,580 | 
|                                      |           |               |   |        |        | 
|Due to related parties:               |           |               |   |        |        |  |   |       
|                                      | Accenture |               | $ | 9,154  |        |  | $ | 6,357  |       
|                                      | Microsoft |               |   | 845    |        |  |   | 297    |       
|                                      |           |               |   |        |        | 
|                                      |           | Total         |   | $      | 9,999  |  |   | $      | 6,654  | 
|                                      |           |               |   |        |        | 
|Deferred revenue:                     |           |               |   |        |        |  |   |       
|                                      | Accenture |               | $ | 1,036  |        |  | $ | 386    |       
|                                      | Microsoft |               |   | 1,013  |        |  |   | 369    |       
|                                      |           |               |   |        |        | 
|                                      |           | Total         |   | $      | 2,049  |  |   | $      | 755    | 
|                                      |           |               |   |        |        | 

month-to






|    |                  
|--- | -----------------
|12. | SEGMENT REPORTING

Disclosures about Segments of an Enterprise and Related
Information




F-27



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)






|                                |                            |                          |         |         |      |   |         |         |   |   |         |         |  
|------------------------------- | -------------------------- | ------------------------ | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                |                            | Year Ended September 30, |        
|                                |                            |                          |        
|                                |                            | 2006                     |         |         | 2005 |   |         | 2004    |  
|                                |                            |                          |         |         |      |   |         |         |  
|Revenues before reimbursements: |                            |                          |         |         |      |   |         |         |   |   |         |        
|                                | Americas                   |                          | $       | 263,473 |      |   | $       | 199,791 |   |   | $       | 154,111 |  
|                                | Europe                     |                          |         | 190,446 |      |   |         | 164,301 |   |   |         | 104,272 |  
|                                | Asia Pacific               |                          |         | 33,233  |      |   |         | 25,707  |   |   |         | 21,395  |  
|                                | Corporate and eliminations |                          |         | (3,288  | )    |   |         | (2,485  | ) |   |         | (2,232  | )
|                                |                            |                          |         |         |      |   |         |         |  
|                                |                            | $                        | 483,864 |         |      | $ | 387,314 |         |   | $ | 277,546 |        
|                                |                            |                          |         |         |      |   |         |         |  
|Depreciation and amortization:  |                            |                          |         |         |      |   |         |         |   |   |         |        
|                                | Americas                   |                          | $       | 3,035   |      |   | $       | 3,279   |   |   | $       | 3,104   |  
|                                | Europe                     |                          |         | 1,659   |      |   |         | 1,180   |   |   |         | 1,383   |  
|                                | Asia Pacific               |                          |         | 530     |      |   |         | 617     |   |   |         | 1,216   |  
|                                | Corporate and eliminations |                          |         | 2,319   |      |   |         | 1,732   |   |   |         | 2,596   |  
|                                |                            |                          |         |         |      |   |         |         |  
|                                |                            | $                        | 7,543   |         |      | $ | 6,808   |         |   | $ | 8,299   |        
|                                |                            |                          |         |         |      |   |         |         |  
|Operating income (loss):        |                            |                          |         |         |      |   |         |         |   |   |         |        
|                                | Americas                   |                          | $       | 58,431  |      |   | $       | 31,860  |   |   | $       | 27,208  |  
|                                | Europe                     |                          |         | 29,989  |      |   |         | 31,552  |   |   |         | 18,428  |  
|                                | Asia Pacific               |                          |         | (1,127  | )    |   |         | (1,430  | ) |   |         | (5,803  | )
|                                | Corporate and eliminations |                          |         | (32,775 | )    |   |         | (15,020 | ) |   |         | (14,661 | )
|                                |                            |                          |         |         |      |   |         |         |  
|                                |                            | $                        | 54,518  |         |      | $ | 46,962  |         |   | $ | 25,172  |        
|                                |                            |                          |         |         |      |   |         |         |  

|        |                            |               |         |         |      |   |         |        |  
|------- | -------------------------- | ------------- | ------- | ------- | ---- | - | ------- | ------ | -
|        |                            | September 30, |        
|        |                            |               |        
|        |                            | 2006          |         |         | 2005 |  
|        |                            |               |         |         |      |  
|Assets: |                            |               |         |         |      |   |         |       
|        | Americas                   |               | $       | 135,616 |      |   | $       | 88,712 |  
|        | Europe                     |               |         | 102,947 |      |   |         | 85,402 |  
|        | Asia Pacific               |               |         | 17,277  |      |   |         | 14,897 |  
|        | Corporate and eliminations |               |         | (14,983 | )    |   |         | (9,537 | )
|        |                            |               |         |         |      |  
|        |                            | $             | 240,857 |         |      | $ | 179,474 |       
|        |                            |               |         |         |      |  

F-28



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)




|               |  |               |    |   |      |  |    |      |  |  |    |  
|-------------- |  | ------------- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|               |  | Year Ended    |   
|               |  | September 30, |   
|               |  |               |   
|               |  | 2006          |    |   | 2005 |  |    | 2004 | 
|               |  |               |    |   |      |  |    |      | 
|United States  |  |               | 47 | % |      |  | 47 | %    |  |  | 51 | %
|United Kingdom |  |               | 17 | % |      |  | 22 | %    |  |  | 21 | %



|    |                        
|--- | -----------------------
|13. | DISCONTINUED OPERATIONS







|                                |                                     |                                            |      |      |      |  |       |       |        |  
|------------------------------- | ----------------------------------- | ------------------------------------------ | ---- | ---- | ---- |  | ----- | ----- | ------ | -
|                                |                                     | Year Ended                                 |     
|                                |                                     | September 30,                              |     
|                                |                                     |                                            |     
|                                |                                     | 2005                                       |      |      | 2004 | 
|                                |                                     |                                            |      |      |      | 
|Revenues before reimbursements: |                                     |                                            |      |      |      |  |       |      
|                                | Related parties                     |                                            | $    |     |      |  | $     | 3     |       
|                                | Other                               |                                            |      |     |      |  |       | 1,682 |       
|                                |                                     |                                            |      |      |      | 
|                                |                                     |                                            |     |      |      |  | 1,685 |      
|                                |                                     |                                            |      |      |      | 
|Operating expenses:             |                                     |                                            |      |      |      |  |       |      
|                                | Related parties                     |                                            |      |     |      |  |       | 98    |       
|                                | Restructuring and impairment losses |                                            |      |     |      |  |       | 34    |       
|                                | Other                               |                                            |      | (154 | )    |  |       | 3,589 |       
|                                |                                     |                                            |      |      |      | 
|                                |                                     |                                            | (154 | )    |      |  | 3,721 |      
|                                |                                     |                                            |      |      |      | 
|                                |                                     | Income (loss) from operations              |      |      | 154  |  |       |       | (2,036 | )
|Other income (expense)          |                                     |                                            | (12  | )    |      |  | (16   | )    
|                                |                                     |                                            |      |      |      | 
|                                |                                     | Income (loss) before income taxes          |      |      | 142  |  |       |       | (2,052 | )
|Provision for income taxes      |                                     |                                            | 2    |      |      |  | 33    |      
|                                |                                     |                                            |      |      |      | 
|                                |                                     | Income (loss) from discontinued operations |      | $    | 140  |  |       | $     | (2,085 | )
|                                |                                     |                                            |      |      |      | 

F-29



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)






|    |                 
|--- | ----------------
|14. | SUBSEQUENT EVENT





|    |                           
|--- | --------------------------
|15. | QUARTERLY DATA (unaudited)

|                                |                 |         |         |        |                |   |         |         |  |   |                |        |  |        |         |        |  |   |         |         | 
|------------------------------- | --------------- | ------- | ------- | ------ | -------------- | - | ------- | ------- |  | - | -------------- | ------ |  | ------ | ------- | ------ |  | - | ------- | ------- | 
|                                |                 | First   |         |        |                |   | Third   |         |  |   |                |       
|Year Ended September 30, 2006   |                 | Quarter |         |        | Second Quarter |   |         | Quarter |  |   | Fourth Quarter |        |  | Annual |        
|                                |                 |         |         |        |                |   |         |         |  |   |                |        |  |        |        
|Revenues before reimbursements: |                 |         |         |        |                |   |         |         |  |   |                |        |  |        |         |        |  |   |         |        
|                                | Related parties |         | $       | 75,732 |                |   | $       | 86,872  |  |   | $              | 95,207 |  |        | $       | 96,755 |  |   | $       | 354,566 | 
|                                | Others          |         |         | 27,464 |                |   |         | 31,345  |  |   |                | 31,639 |  |        |         | 38,850 |  |   |         | 129,298 | 
|                                |                 |         |         |        |                |   |         |         |  |   |                |        |  |        |        
|                                |                 |         | 103,196 |        |                |   | 118,217 |         |  |   | 126,846        |        |  |        | 135,605 |        |  |   | 483,864 |        
|                                |                 |         |         |        |                |   |         |         |  |   |                |        |  |        |        
|Reimbursements:                 |                 |         |         |        |                |   |         |         |  |   |                |        |  |        |         |        |  |   |         |        
|                                | Related parties |         |         | 4,410  |                |   |         | 4,456   |  |   |                | 5,353  |  |        |         | 5,528  |  |   |         | 19,747  | 
|                                | Others          |         |         | 3,071  |                |   |         | 3,472   |  |   |                | 3,430  |  |        |         | 4,222  |  |   |         | 14,195  | 
|                                |                 |         |         |        |                |   |         |         |  |   |                |        |  |        |        
|                                |                 |         | 7,481   |        |                |   | 7,928   |         |  |   | 8,783          |        |  |        | 9,750   |        |  |   | 33,942  |        
|                                |                 |         |         |        |                |   |         |         |  |   |                |        |  |        |        
|Revenues                        |                 | $       | 110,677 |        |                | $ | 126,145 |         |  | $ | 135,629        |        |  | $      | 145,355 |        |  | $ | 517,806 |        
|                                |                 |         |         |        |                |   |         |         |  |   |                |        |  |        |        
|Operating income                |                 | $       | 3,224   |        |                | $ | 10,222  |         |  | $ | 14,801         |        |  | $      | 26,271  |        |  | $ | 54,518  |        
|Net income                      |                 | $       | 2,471   |        |                | $ | 7,655   |         |  | $ | 11,063         |        |  | $      | 25,521  |        |  | $ | 46,710  |        



F-30



---



##### 



AVANADE INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(In thousands of U.S. dollars, except share amounts or
as otherwise disclosed)


|                                |                 |         |        |        |                |   |         |         |  |   |                |        |  |        |         |        |  |   |         |         | 
|------------------------------- | --------------- | ------- | ------ | ------ | -------------- | - | ------- | ------- |  | - | -------------- | ------ |  | ------ | ------- | ------ |  | - | ------- | ------- | 
|                                |                 | First   |        |        |                |   | Third   |         |  |   |                |       
|Year Ended September 30, 2005   |                 | Quarter |        |        | Second Quarter |   |         | Quarter |  |   | Fourth Quarter |        |  | Annual |        
|                                |                 |         |        |        |                |   |         |         |  |   |                |        |  |        |        
|Revenues before reimbursements: |                 |         |        |        |                |   |         |         |  |   |                |        |  |        |         |        |  |   |         |        
|                                | Related parties |         | $      | 66,345 |                |   | $       | 74,057  |  |   | $              | 74,707 |  |        | $       | 73,259 |  |   | $       | 288,368 | 
|                                | Others          |         |        | 20,236 |                |   |         | 19,990  |  |   |                | 27,417 |  |        |         | 31,303 |  |   |         | 98,946  | 
|                                |                 |         |        |        |                |   |         |         |  |   |                |        |  |        |        
|                                |                 |         | 86,581 |        |                |   | 94,047  |         |  |   | 102,124        |        |  |        | 104,562 |        |  |   | 387,314 |        
|                                |                 |         |        |        |                |   |         |         |  |   |                |        |  |        |        
|Reimbursements:                 |                 |         |        |        |                |   |         |         |  |   |                |        |  |        |         |        |  |   |         |        
|                                | Related parties |         |        | 3,706  |                |   |         | 4,256   |  |   |                | 4,869  |  |        |         | 5,233  |  |   |         | 18,064  | 
|                                | Others          |         |        | 2,779  |                |   |         | 4,402   |  |   |                | 6,403  |  |        |         | 3,349  |  |   |         | 16,933  | 
|                                |                 |         |        |        |                |   |         |         |  |   |                |        |  |        |        
|                                |                 |         | 6,485  |        |                |   | 8,658   |         |  |   | 11,272         |        |  |        | 8,582   |        |  |   | 34,997  |        
|                                |                 |         |        |        |                |   |         |         |  |   |                |        |  |        |        
|Revenues                        |                 | $       | 93,066 |        |                | $ | 102,705 |         |  | $ | 113,396        |        |  | $      | 113,144 |        |  | $ | 422,311 |        
|                                |                 |         |        |        |                |   |         |         |  |   |                |        |  |        |        
|Operating income                |                 | $       | 6,811  |        |                | $ | 8,656   |         |  | $ | 14,388         |        |  | $      | 17,107  |        |  | $ | 46,962  |        
|Net income                      |                 | $       | 3,851  |        |                | $ | 6,011   |         |  | $ | 9,928          |        |  | $      | 11,622  |        |  | $ | 31,412  |        

F-31