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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 March 31, 2005
|                                        
|or                                      
|                                        
|o                                        |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-22125





DiamondCluster International, Inc.


(Exact name of registrant as specified in its charter)


|                                                                                                     |  |                                         
|---------------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                             |  | 36-4069408                              
|(State or other jurisdiction of
    incorporation or organization)                                   |  | (I.R.S. Employer
    Identification No.)
|                                                                                                    
|875 N. Michigan Avenue,
    Suite 3000
    Chicago, Illinois(Address of Principal Executive Offices) |  | 60611(Zip Code)                         

Registrants telephone number, including area code:
(312) 255-5000


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


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


Common Stock, par value $.001 per share


þ o


o þ


þ o






DOCUMENTS INCORPORATED BY REFERENCE












---










DIAMONDCLUSTER INTERNATIONAL, INC.


Annual Report on Form 10-K for the Fiscal Year Ended


March 31, 2005


TABLE OF CONTENTS


|                                                                 |  |                                                                                                                      |  |      |    | 
|---------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                 |  |                                                                                                                      |  | Page |   
|                                                                 |  |                                                                                                                      |  |      |   
|PART I                                                          
|Item 1.                                                          |  | Business                                                                                                             |  |      | 2  | 
|Item 2.                                                          |  | Properties                                                                                                           |  |      | 15 | 
|Item 3.                                                          |  | Legal Proceedings                                                                                                    |  |      | 15 | 
|Item 4.                                                          |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 15 | 
|PART II                                                         
|Item 5.                                                          |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 16 | 
|Item 6.                                                          |  | Selected Financial Data                                                                                              |  |      | 18 | 
|Item 7.                                                          |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |      | 19 | 
|Item 7A.                                                         |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |      | 34 | 
|Item 8.                                                          |  | Financial Statements and Supplementary
    Data                                                                      |  |      | 35 | 
|Item 9.                                                          |  | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure                             |  |      | 35 | 
|Item 9A.                                                         |  | Controls and Procedures                                                                                              |  |      | 35 | 
|Item 9B.                                                         |  | Other Information                                                                                                    |  |      | 36 | 
|PART III                                                        
|Item 10.                                                         |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 37 | 
|Item 11.                                                         |  | Executive Compensation                                                                                               |  |      | 37 | 
|Item 12.                                                         |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |      | 37 | 
|Item 13.                                                         |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 38 | 
|Item 14.                                                         |  | Principal Accountant Fees and Services                                                                               |  |      | 38 | 
|PART IV                                                         
|Item 15.                                                         |  | Exhibits, Financial Statements and
    Schedules                                                                     |  |      | 38 | 
|Form of Notices of Grant and Restricted stock Unit Agreement    
|Form of Notices of Grant and Stock Appreciation Rights Agreement
|Notices of Grant and Restricted Stock Unit Agreement            
|Notices of Grant and Appreciation Rights Agreement              
|Summary of Outside Director Board Compensation                  
|Code of Business Conduct and Ethics                             
|Subsidiaries of the Registrant                                  
|Consent of Independent Registered Public Accounting Firm        
|Certifications                                                  
|Certifications                                                  
|Certifications                                                  
|Certifications                                                  
|Certifications                                                  
|Certifications                                                  
|Risk Factors                                                    



1



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PART I


Available Information











|        |         
|------- | --------
|Item 1. | Business

Overview






Industry Background and Opportunity






2



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Our Competitive Strengths




Objectivity.


3



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Collaborative Business Model.


Small, Multidisciplinary Teams.


Delivery of Results.


Strategic Industry Insight and Expertise.


Global Diversity and Presence.


Senior-Level Relationships. i.e.,


Ability to Quickly Evolve Our Offerings.


Continuous Innovation.


Foster A Strong Culture.


4



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Experienced and Motivated Management.


Our Growth Strategy




Attract and Retain Skilled Personnel.


Cultivate Our Multidisciplinary Culture.


Focus on, and Expand Relationships with Core Clients.


Nurture and Promote Our Intellectual Capital.


Continue to Diversify Across Geographic Locations and
Industries.


Market Our Brand.


5



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Enhance Our Operating Efficiency.


Our Services










| |                  
| | -----------------
| | Service Offerings





i.e.,


6



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| |                           
| | --------------------------
| | Vertical Industries Served



Financial Services Practice.


Insurance Practice.


Healthcare Practice.


7



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Telecommunications Practice.


Utilities Practice.


Enterprise Practice.


Public Sector Practice.


Business Development









8



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| |              
| | -------------
| | Attract Phase



Unleashing the
Killer App: Digital Strategies for Market Dominance, The Seven
Steps to Nirvana: Strategic Insights into eBusiness
Transformation, E-Learning: Strategies for Delivering
Knowledge in the Digital Age.




| |              
| | -------------
| | Capture Phase



Diamond Exchange (DX).




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | DX Summit: Exchange members meet three times a year to
    discuss current issues and research findings, and their business
    implications. During these meetings, we provide the members with
    the opportunity to discuss their issues with DiamondCluster
    Fellows, our partners, and other business leaders. In fiscal
    year 2005, we conducted three DX Summits, entitled:
    Fortifying Customer Loyalty, Reinvigorating
    Innovation, and Staple Yourself to a Customer:
    Putting One Face Forward.       
|
| | DX Intelligence: These sessions, held twice a year, allow
    executives to explore a business issue at a deeper level within
    a specific industry. DiamondCluster develops proprietary
    research and shares the findings with members and research
    participants.                                                                                                                                                                                                                                                            
|
| | DX Workshop: Exchange members that are particularly
    intrigued by a specific topic or presentation given at a DX
    Summit or DX Intelligence session are able to have the
    DiamondExchange come to them. The workshops provide members the
    ability to have a private session within their organization,
    conducted by the DiamondCluster partners, Fellows, and Exchange
    team.                                                                                                                                      
|
| | DX Dinner: Dinners are held once per quarter and are
    hosted by well-known innovators and trendsetters in the business
    and technology field, our own DiamondCluster Fellows, and
    regional or national policymakers. The dinners provide an
    intimate setting for our members to gather and discuss pressing
    issues. During fiscal year 2005 Marvin Zonis, DiamondCluster
    Fellow, global and political expert, and author, hosted a dinner
    entitled Leading in Todays Political and Economic
    Landscape.

Client Relationship Executives.


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DiamondCluster Fellows.






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Dan Arielyis a professor at MIT with a joint
    appointment between MITs program in Media Arts and
    Sciences and the Sloan School of Management. He is the principal
    investigator of the MIT Media Labs eRationality group and
    co-director of the Labs SIMPLICITY consortium. His current
    projects include examinations of on-line auction behaviors,
    personal health monitoring, the effects of different pricing
    mechanisms, and the development of systems to overcome
    day-to-day irrationality.                                   
|
| | Vincent Barabbais the former General Manager of
    Corporate Strategy and Knowledge Development of the General
    Motors Corporation. Mr. Barabba twice served as Director of
    the United States Bureau of the Census. He has served as
    U.S. Representative to the Population Commission of the
    United Nations. Mr. Barabba is the author of Meeting of
    the Minds, and co-author of Hearing the Voice of the
    Market and Decision Making Amid Turbulence, the Story of the
    1980 Census.                                                      
|
| | John Perry Barlowis a writer and lecturer on the
    social, legal, and economic issues arising on the border between
    the physical and virtual worlds. He is a contributing writer for
    Wiredmagazine and co-founder and Vice Chairman of the
    Electronic Frontier Foundation, an organization that promotes
    freedom of expression in digital media.                                                                                                                                                                                                   
|
| | Gordon Bellis a Senior Researcher with Microsoft
    Corporation and computer consultant-at-large. Mr. Bell
    spent 23 years at Digital Equipment Corp. as Vice President
    of Research and Development where he managed the development of
    the first time-sharing and mini-computers. He also led the
    development of Digital Equipments VAX. Additionally,
    Mr. Bell directed the National Science Foundations
    efforts in computing research.                                                                                                  
|
| | Dan Bricklinis Chief Technology Officer of
    Interland, Inc., the largest Web hosting and online services
    company dedicated to helping small and medium businesses achieve
    success by providing the knowledge, services, and tools to
    build, manage, and promote businesses. Mr. Bricklin is best
    known for co-developing VisiCalc, the first electronic
    spreadsheet, while he was a student at the Harvard Business
    School. VisiCalc is widely credited for fueling the rapid growth
    of the personal computer industry.               
|
| | Eric Clemonsis professor of operations and
    information management at the Wharton School of the University
    of Pennsylvania. He has been a pioneer in the systematic study
    of the transformational impacts of information on the strategy
    and practice of business. He specializes in assessing the
    competitive implications of information technology, and in
    managing the risks of large-scale implementation efforts.                                                                                                                       
|
| | Andrew Lippman, Ph.D. is an Associate
    Director and founding member of the Media Lab at the
    Massachusetts Institute of Technology. Mr. Lippman is the
    principal investigator of the Digital Life research program, a
    consortium of 45 companies and 15 faculties that researches
    the technical, social, and economic aspects of computing in
    everyday life. He has published widely and made over 100
    presentations on digital entertainment, personal communications,
    and making the information highway entertaining and profitable.

10



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Chunka Muiis a writer and consultant on business
    issues at the intersection of strategy and technology.
    Mr. Mui also chairs DiamondClusters Diamond Fellows
    advisory group. Mr. Mui is perhaps best known as the
    co-author of the best selling Unleashing the Killer App,
    which the New York Timescalled a practical and
    persuasive guide to the dramatic changes being wrought by
    technology. Mr. Mui was a Partner with DiamondCluster from
    1996 to 2003.
|
| | David P. Reed, Ph.D.is an information
    architect and independent entrepreneur who focuses on designing
    the information space in which people, groups, and organizations
    operate. He was a senior scientist at Interval Research Corp.,
    Vice President and Chief Scientist for Lotus Development Corp.,
    and Vice President of Research and Development and Chief
    Scientist at Software Arts Inc.                                                                        
|
| | James Spirais former President and Chief
    Operating Officer of American Greetings Corporation. He
    co-founded Cleveland Consulting Associates in 1974 (which was
    acquired by Computer Science Corp. in 1989) after spending
    several years with Ernst & Young and A.T. Kearney. Jim
    was a Partner with DiamondCluster from 1995 to 1999.                                                                                                                                     
|
| | Marvin Zonis, Ph.D. is a Professor of
    International Political Economy and Leadership at the University
    of Chicago Graduate School of Business. He is an expert and
    consultant on political risk and emerging markets, Mideast
    politics, the oil industry, and the foreign policies of Russia
    and the United States.                                                                                                                                                       



| |              
| | -------------
| | Convert Phase



DiamondCluster Knowledge Center.


Intellectual Capital Alliances.






11



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|                           |  |                                                                                                                                                                                                                               
|-------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Strategic Alliance Company |  | Description                                                                                                                                                                                                                   
|                           |  |                                                                                                                                                                                                                               
|IBM                        |  | IBM strives to lead in the creation, development, and
    manufacture of the industrys most advanced information
    technologies, including computer systems, networking systems,
    storage devices, and microelectronics.
|Microsoft                  |  | Microsoft is the worldwide leader in software, services, and
    Internet technologies for personal and business computing.                                                                                                   
|Sun Microsystems           |  | Sun Microsystems is a leading provider of industrial-strength
    hardware, software, and services that power the Internet.                                                                                                   

Center for Technology Innovation.




| |             
| | ------------
| | Retain Phase



Diamond Exchange.


Ongoing Communications.


Employees and Culture


Employees.


Culture.




| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | an environment that intellectually challenges our personnel
    through continuous training and innovative and high-impact
    client work;
|
| |  | consistent compensation and career paths across all competencies
    within DiamondCluster; and                                            
|
| |  | participation by all of our employees in our continuing
    development and ownership of DiamondCluster.                                   

12



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Recruiting.




Training and Professional Development.


Compensation.




Competition




Traditional management and strategy consulting firms


Systems integration and IT consulting firms


Information technology product and service vendors






13



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Executive Officers of the Registrant




|                     |  |     |    |  |          |                                                                          
|-------------------- |  | --- | -- |  | -------- | -------------------------------------------------------------------------
|Name                 |  | Age |    |  | Position
|                     |  |     |    |  |         
|Melvyn E. Bergstein  |  |     | 63 |  |          | Chairman of the Board of Directors and Chief Executive Officer           
|Karl E. Bupp         |  |     | 43 |  |          | Chief Financial Officer and Treasurer                                    
|Adam J. Gutstein     |  |     | 42 |  |          | President, Managing Director  Europe and Latin
    America, and Director
|William R. McClayton |  |     | 60 |  |          | Chief Administrative Officer                                             
|Jay D. Norman        |  |     | 48 |  |          | Managing Director  North America and the United
    Kingdom             
|John J. Sviokla      |  |     | 47 |  |          | Vice Chairman and Director                                               

Melvyn E. Bergstein


Karl E. Bupp


Adam J. Gutstein


William R. McClayton


Jay D. Norman


14



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John J. Sviokla Marketspace Managing in the Marketspace Exploiting the Virtual
Value Chain, Harvard Business
Review. Dr. Sviokla has authored over 90 articles and
cases, has edited books, and has been a consultant to large and
small companies around the world. He has been a guest professor
at many universities including Kellogg, MIT, The London Business
School, the Melbourne Business School, and the Hong Kong
Institute of Science and Technology.







|        |           
|------- | ----------
|Item 2. | Properties










|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








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



15



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PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|                                  |                |                 |   |       |     |  |   |       | 
|--------------------------------- | -------------- | --------------- | - | ----- | --- |  | - | ----- | 
|                                  |                | Sales Price Per |  
|                                  |                | Share           |  
|                                  |                |                 |  
|                                  |                | High            |   |       | Low | 
|                                  |                |                 |   |       |     | 
|Fiscal year ended March 31, 2004: |                |                 |   |       |     |  |   |      
|                                  | First Quarter  |                 | $ | 3.89  |     |  | $ | 1.38  | 
|                                  | Second Quarter |                 |   | 7.38  |     |  |   | 3.50  | 
|                                  | Third Quarter  |                 |   | 10.46 |     |  |   | 6.56  | 
|                                  | Fourth Quarter |                 | $ | 12.00 |     |  | $ | 7.98  | 
|Fiscal year ended March 31, 2005: |                |                 |   |       |     |  |   |      
|                                  | First Quarter  |                 | $ | 10.91 |     |  | $ | 6.73  | 
|                                  | Second Quarter |                 |   | 12.79 |     |  |   | 6.48  | 
|                                  | Third Quarter  |                 |   | 14.98 |     |  |   | 10.80 | 
|                                  | Fourth Quarter |                 | $ | 17.25 |     |  | $ | 13.74 | 







16



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|                                     |  |                                       |         |                        |                |   |                            |                          |  |  |                             |  |  |   |            | 
|------------------------------------ |  | ------------------------------------- | ------- | ---------------------- | -------------- | - | -------------------------- | ------------------------ |  |  | --------------------------- |  |  | - | ---------- | 
|                                     |  | Issuer Purchases of Equity Securities |        
|                                     |  |                                       |        
|                                     |  |                                       |         | Total Number of Shares |                |   | Maximum Approximate Dollar |                         
|                                     |  | Total Number of                       |         |                        | Average Price  |   |                            | Purchased as Part of     |  |  | Value of Shares That May be | 
|Period                               |  | Shares Purchased                      |         |                        | Paid per Share |   |                            | Publicly Announced Plans |  |  | Purchased Under the Plan    | 
|                                     |  |                                       |         |                        |                |   |                            |                          |  |  |                             | 
|January 1, 2005  January 31, 2005   |  |                                       | 43,800  |                        |                | $ | 14.92                      |                          |  |  | 43,800                      |  |  | $ | 15,860,891 | 
|February 1, 2005  February 28, 2005 |  |                                       | 545,300 |                        |                | $ | 16.54                      |                          |  |  | 545,300                     |  |  | $ | 6,843,719  | 
|March 1, 2005  March 31, 2005       |  |                                       | 243,200 |                        |                | $ | 16.56                      |                          |  |  | 243,200                     |  |  | $ | 2,816,593  | 

17



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |        |         |         |   |         |         |         | 
|-------------------------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------------------------------ | ------- | ------- | ------- | - | -------- | ------- | ------- | - | -------- | ------- | ------- | ---- | ------ | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                       |                                                      | Year Ended March 31,                             |        
|                                                                                       |                                                      |                                                  |        
|                                                                                       |                                                      | 2001                                             |         |         | 2002    |   |          | 2003    |         |   | 2004     |         |         | 2005 |       
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|                                                                                       |                                                      | (Amounts in thousands, except per share amounts) |        
|Statement of Operations Data(1):                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |        |         |         |   |         |        
|Revenue:                                                                               |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |        |         |         |   |         |        
|                                                                                       | Net revenue                                          |                                                  | $       | 266,536 |         |   | $        | 181,215 |         |   | $        | 132,974 |         |      | $      | 154,785 |         |   | $       | 193,163 |        
|                                                                                       | Reimbursable expenses                                |                                                  |         | 40,864  |         |   |          | 21,745  |         |   |          | 19,331  |         |      |        | 22,329  |         |   |         | 26,612  |        
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|                                                                                       |                                                      | Total revenue                                    |         |         | 307,400 |   |          |         | 202,960 |   |          |         | 152,305 |      |        |         | 177,114 |   |         |         | 219,775 | 
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|Project personnel expenses:                                                            |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |        |         |         |   |         |        
|                                                                                       | Project personnel costs before reimbursable expenses |                                                  |         | 159,910 |         |   |          | 183,979 |         |   |          | 161,038 |         |      |        | 114,054 |         |   |         | 127,611 |        
|                                                                                       | Reimbursable expenses                                |                                                  |         | 40,864  |         |   |          | 21,745  |         |   |          | 19,331  |         |      |        | 22,329  |         |   |         | 26,612  |        
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|                                                                                       |                                                      | Total project personnel expenses                 |         |         | 200,774 |   |          |         | 205,724 |   |          |         | 180,369 |      |        |         | 136,383 |   |         |         | 154,223 | 
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|Gross margin (loss)                                                                    |                                                      |                                                  | 106,626 |         |         |   | (2,764   | )       |         |   | (28,064  | )       |         |      | 40,731 |         |         |   | 65,552  |        
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|Other operating expenses:                                                              |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |        |         |         |   |         |        
|                                                                                       | Professional development and recruiting              |                                                  |         | 26,702  |         |   |          | 10,928  |         |   |          | 4,272   |         |      |        | 4,395   |         |   |         | 7,697   |        
|                                                                                       | Marketing and sales                                  |                                                  |         | 13,445  |         |   |          | 7,224   |         |   |          | 4,092   |         |      |        | 2,948   |         |   |         | 3,776   |        
|                                                                                       | Management and administrative support                |                                                  |         | 42,203  |         |   |          | 47,565  |         |   |          | 38,123  |         |      |        | 35,207  |         |   |         | 35,837  |        
|                                                                                       | Goodwill amortization                                |                                                  |         | 21,928  |         |   |          | 61,850  |         |   |          |        |         |      |        |        |         |   |         |        |        
|                                                                                       | Restructuring charges                                |                                                  |         |        |         |   |          | 15,542  |         |   |          | 29,266  |         |      |        | 3,975   |         |   |         |        |        
|                                                                                       | Impairment charge on long lived assets               |                                                  |         |        |         |   |          |        |         |   |          | 94,315  |         |      |        |        |         |   |         |        |        
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|                                                                                       |                                                      | Total other operating expenses                   |         |         | 104,278 |   |          |         | 143,109 |   |          |         | 170,068 |      |        |         | 46,525  |   |         |         | 47,310  | 
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|Income (loss) from operations                                                          |                                                      |                                                  | 2,348   |         |         |   | (145,873 | )       |         |   | (198,132 | )       |         |      | (5,794 | )       |         |   | 18,242  |        
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|                                                                                       | Interest income, net                                 |                                                  |         | 11,999  |         |   |          | 4,138   |         |   |          | 2,586   |         |      |        | 1,062   |         |   |         | 1,520   |        
|                                                                                       | Other expense                                        |                                                  |         | (8,714  | )       |   |          | (2,985  | )       |   |          | (2,442  | )       |      |        | (25     | )       |   |         | 31      |        
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|                                                                                       |                                                      | Total other income, net                          |         |         | 3,285   |   |          |         | 1,153   |   |          |         | 144     |      |        |         | 1,037   |   |         |         | 1,551   | 
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|Income (loss) before taxes and cumulative effect of change in
    accounting principle |                                                      |                                                  | 5,633   |         |         |   | (144,720 | )       |         |   | (197,988 | )       |         |      | (4,757 | )       |         |   | 19,793  |        
|Income tax expense (benefit)                                                           |                                                      |                                                  | 18,500  |         |         |   | (11,048  | )       |         |   | 21,209   |         |         |      | 654    |         |         |   | (13,245 | )      
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|Income (loss) before cumulative effect of change in accounting
    principle           |                                                      |                                                  | (12,867 | )       |         |   | (133,672 | )       |         |   | (219,197 | )       |         |      | (5,411 | )       |         |   | 33,038  |        
|Cumulative effect of change in accounting principle, net of
    income tax benefit     |                                                      |                                                  |        |         |         |   |         |         |         |   | (140,864 | )       |         |      |       |         |         |   |        |        
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|Net income (loss)                                                                      |                                                      | $                                                | (12,867 | )       |         | $ | (133,672 | )       |         | $ | (360,061 | )       |         | $    | (5,411 | )       |         | $ | 33,038  |        
|                                                                                       |                                                      |                                                  |         |         |         |   |          |         |         |   |          |         |         |      |       
|Basic net income (loss) per share of Common Stock(2),(3)                               |                                                      | $                                                | (0.49   | )       |         | $ | (4.34    | )       |         | $ | (11.41   | )       |         | $    | (0.17  | )       |         | $ | 0.99    |        
|Diluted net income (loss) per share of Common Stock(2),(3)                             |                                                      | $                                                | (0.49   | )       |         | $ | (4.34    | )       |         | $ | (11.41   | )       |         | $    | (0.17  | )       |         | $ | 0.91    |        
|Shares used in computing basic net income (loss) per share of
    Common Stock(2)      |                                                      |                                                  | 26,448  |         |         |   | 30,813   |         |         |   | 31,548   |         |         |      | 32,710 |         |         |   | 33,516  |        
|Shares used in computing diluted net income (loss) per share of
    Common Stock(2)    |                                                      |                                                  | 26,448  |         |         |   | 30,813   |         |         |   | 31,548   |         |         |      | 32,710 |         |         |   | 36,281  |        

18



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|                    |                                           |                        |   |         |      |  |   |         |  |  |      |         |  |      |   |         |  |  |   |         | 
|------------------- | ----------------------------------------- | ---------------------- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  | ---- | - | ------- |  |  | - | ------- | 
|                    |                                           | March 31,              |  
|                    |                                           |                        |  
|                    |                                           | 2001                   |   |         | 2002 |  |   | 2003    |  |  | 2004 |         |  | 2005 |  
|                    |                                           |                        |   |         |      |  |   |         |  |  |      |         |  |      |  
|                    |                                           | (Amounts in thousands) |  
|Balance Sheet Data: |                                           |                        |   |         |      |  |   |         |  |  |      |         |  |      |   |         |  |  |   |        
|                    | Cash and cash equivalents                 |                        | $ | 87,758  |      |  | $ | 95,473  |  |  | $    | 26,953  |  |      | $ | 39,004  |  |  | $ | 42,270  | 
|                    | Short-term investments                    |                        |   | 63,600  |      |  |   | 1,300   |  |  |      | 48,375  |  |      |   | 42,300  |  |  |   | 55,975  | 
|                    | Working capital                           |                        |   | 132,501 |      |  |   | 103,564 |  |  |      | 67,326  |  |      |   | 79,585  |  |  |   | 104,086 | 
|                    | Total assets                              |                        |   | 522,256 |      |  |   | 401,176 |  |  |      | 109,491 |  |      |   | 122,667 |  |  |   | 153,672 | 
|                    | Long-term debt, including current portion |                        |   | 500     |      |  |   |        |  |  |      |        |  |      |   |        |  |  |   |        | 
|                    | Total stockholders equity(4)             |                        | $ | 452,367 |      |  | $ | 375,098 |  |  | $    | 72,377  |  |      | $ | 80,787  |  |  | $ | 117,945 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On April 1, 2002, we adopted Statement of Financial
    Accounting Standards No. 142, Goodwill and Other
    Intangible Assets, and ceased amortizing goodwill. During
    the years ended March 31, 2002 and 2001, our operating
    results included $61.9 million and $21.9 million,
    respectively, of goodwill amortization. In addition, certain
    amounts in previously issued financial statements have been
    reclassified to conform to the current year presentation. The
    reclassifications had no effect on the reported net income
    (loss).
|   
|(2) | See Note 2 of Notes to Consolidated Financial
    Statements for an explanation of the methods used to
    compute basic and diluted earnings (loss) per share data.                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(3) | In fiscal year 2003, the basic and diluted net loss per share of
    Common Stock included a net loss of $(4.47) per share due to the
    cumulative effect of change in accounting principle.                                                                                                                                                                                                                                                                                                                                                                         
|   
|(4) | We have never declared or paid cash dividends.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



Overview






19



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Disclosure Regarding Forward-Looking Statements






| |   |                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our results of operations are materially affected by economic
    conditions, levels of business activity and rates of change in
    the industries we serve.                                                                                         
|
| |  | Our profitability will suffer if we are not able to maintain our
    pricing and utilization rates and control our costs. A
    continuation of pricing pressures could result in permanent
    changes in pricing policies and delivery capabilities.
|
| |  | If we are unable to attract, retain and motivate employees, we
    will not be able to compete effectively and will not be able to
    grow our business.                                                                                             
|
| |  | Our global operations pose complex management, foreign currency,
    legal, tax and economic risks, which we may not adequately
    address.                                                                                                          
|
| |  | Our engagements with clients may not be profitable.                                                                                                                                                                                                   
|
| |  | Our business will be negatively affected if we are not able to
    anticipate and keep pace with rapid changes in technology or if
    growth in the use of technology in business is not as rapid as
    in the past.                                
|
| |  | We may face damage to our professional reputation or legal
    liability if our clients are not satisfied with our services.                                                                                                                          
|
| |  | The consulting and technology markets are highly competitive. As
    a result, we may not be able to compete effectively if we cannot
    efficiently respond to market developments in a timely manner.                                              

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| |   |                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our quarterly revenues, operating results and profitability will
    vary from quarter to quarter, which may result in increased
    volatility of our share price.



Critical Accounting Policies and Estimates






| |                    
| | -------------------
| | Revenue Recognition







| |                                                         
| | --------------------------------------------------------
| | Allowance for Doubtful Accounts and Deferred
    Revenue





22



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







23



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| |                                 
| | --------------------------------
| | Valuation of Deferred Tax Assets









| |                                            
| | -------------------------------------------
| | Valuation of Long-Lived Assets and Goodwill







24



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Results of Operations




|                                                                                       |                                                      |                                  |        |       |       |  |      |       |       |  |      |       |       | 
|-------------------------------------------------------------------------------------- | ---------------------------------------------------- | -------------------------------- | ------ | ----- | ----- |  | ---- | ----- | ----- |  | ---- | ----- | ----- | 
|                                                                                       |                                                      | Year Ended March 31,             |       
|                                                                                       |                                                      |                                  |       
|                                                                                       |                                                      | 2003                             |        |       | 2004  |  |      | 2005  |      
|                                                                                       |                                                      |                                  |        |       |       |  |      |       |      
|Revenue:                                                                               |                                                      |                                  |        |       |       |  |      |       |       |  |      |      
|                                                                                       | Net revenue                                          |                                  |        | 100.0 | %     |  |      | 100.0 | %     |  |      | 100.0 | %    
|                                                                                       | Reimbursable expenses                                |                                  |        | 14.5  |       |  |      | 14.4  |       |  |      | 13.8  |      
|                                                                                       |                                                      |                                  |        |       |       |  |      |       |      
|                                                                                       |                                                      | Total revenue                    |        |       | 114.5 |  |      |       | 114.4 |  |      |       | 113.8 | 
|Project personnel expenses:                                                            |                                                      |                                  |        |       |       |  |      |       |       |  |      |      
|                                                                                       | Project personnel costs before reimbursable expenses |                                  |        | 121.1 |       |  |      | 73.7  |       |  |      | 66.1  |      
|                                                                                       | Reimbursable expenses                                |                                  |        | 14.5  |       |  |      | 14.4  |       |  |      | 13.8  |      
|                                                                                       |                                                      |                                  |        |       |       |  |      |       |      
|                                                                                       |                                                      | Total project personnel expenses |        |       | 135.6 |  |      |       | 88.1  |  |      |       | 79.9  | 
|                                                                                       |                                                      |                                  |        |       |       |  |      |       |      
|Gross margin                                                                           |                                                      |                                  | (21.1  | )     |       |  | 26.3 |       |       |  | 33.9 |      
|                                                                                       |                                                      |                                  |        |       |       |  |      |       |      
|Other operating expenses:                                                              |                                                      |                                  |        |       |       |  |      |       |       |  |      |      
|                                                                                       | Professional development and recruiting              |                                  |        | 3.2   |       |  |      | 2.8   |       |  |      | 4.0   |      
|                                                                                       | Marketing and sales                                  |                                  |        | 3.1   |       |  |      | 1.9   |       |  |      | 2.0   |      
|                                                                                       | Management and administrative support                |                                  |        | 28.6  |       |  |      | 22.8  |       |  |      | 18.5  |      
|                                                                                       | Restructuring charges                                |                                  |        | 22.0  |       |  |      | 2.6   |       |  |      |      |      
|                                                                                       | Impairment charge on long lived assets               |                                  |        | 71.0  |       |  |      |      |       |  |      |      |      
|                                                                                       |                                                      |                                  |        |       |       |  |      |       |      
|                                                                                       |                                                      | Total other operating expenses   |        |       | 127.9 |  |      |       | 30.1  |  |      |       | 24.5  | 
|                                                                                       |                                                      |                                  |        |       |       |  |      |       |      
|Income (loss) from operations                                                          |                                                      |                                  | (149.0 | )     |       |  | (3.8 | )     |       |  | 9.4  |      
|Other income, net                                                                      |                                                      |                                  | 0.1    |       |       |  | 0.7  |       |       |  | 0.8  |      
|                                                                                       |                                                      |                                  |        |       |       |  |      |       |      
|Income (loss) before taxes and cumulative effect of change in
    accounting principle |                                                      |                                  | (148.9 | )     |       |  | (3.1 | )     |       |  | 10.2 |      
|Income tax expense (benefit)                                                           |                                                      |                                  | 16.0   |       |       |  | 0.4  |       |       |  | (6.9 | )    
|                                                                                       |                                                      |                                  |        |       |       |  |      |       |      
|Income (loss) before cumulative effect of change in accounting
    principle           |                                                      |                                  | (164.9 | )     |       |  | (3.5 | )     |       |  | 17.1 |      
|Cumulative effect of change in accounting principle, net of
    income tax benefit     |                                                      |                                  | (105.9 | )     |       |  |     |       |       |  |     |      
|                                                                                       |                                                      |                                  |        |       |       |  |      |       |      
|Net income (loss)                                                                      |                                                      |                                  | (270.8 | )%    |       |  | (3.5 | )%    |       |  | 17.1 | %    
|                                                                                       |                                                      |                                  |        |       |       |  |      |       |      

Revenue








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|                   |  |               |      |            |         |  |      |      |  |  |      |  |  |  |      | 
|------------------ |  | ------------- | ---- | ---------- | ------- |  | ---- | ---- |  |  | ---- |  |  |  | ---- | 
|                   |  |               |      | New Client |        
|                   |  | Gross Revenue |      |            | Revenue | 
|                   |  |               |      |            |         | 
|Industry           |  | 2004          |      |            | 2005    |  |      | 2004 |  |  | 2005 | 
|                   |  |               |      |            |         |  |      |      |  |  |      | 
|Financial Services |  |               | 30%  |            |         |  | 30%  |      |  |  | 40%  |  |  |  | 31%  | 
|Telecommunications |  |               | 32%  |            |         |  | 26%  |      |  |  | 25%  |  |  |  | 25%  | 
|Insurance          |  |               | 17%  |            |         |  | 20%  |      |  |  | 10%  |  |  |  | 5%   | 
|Healthcare         |  |               | 8%   |            |         |  | 11%  |      |  |  | 7%   |  |  |  | 11%  | 
|Enterprise         |  |               | 10%  |            |         |  | 8%   |      |  |  | 13%  |  |  |  | 16%  | 
|Public Sector      |  |               | 3%   |            |         |  | 3%   |      |  |  | 4%   |  |  |  | 9%   | 
|Utilities          |  |               | 0%   |            |         |  | 2%   |      |  |  | 1%   |  |  |  | 3%   | 
|                   |  |               |      |            |         |  |      |      |  |  |      | 
|                   |  |               | 100% |            |         |  | 100% |      |  |  | 100% |  |  |  | 100% | 
|                   |  |               |      |            |         |  |      |      |  |  |      | 

Operating Expenses




| |                        
| | -----------------------
| | Project Personnel Costs







27



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| |                                        
| | ---------------------------------------
| | Professional Development and Recruiting





| |                    
| | -------------------
| | Marketing and Sales



Context




| |                                      
| | -------------------------------------
| | Management and Administrative Support







| |                      
| | ---------------------
| | Restructuring Charges



28



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| |                                       
| | --------------------------------------
| | Impairment Charge on Long-Lived Assets



Other Income, Net






Income Tax Expense (Benefit)








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Cumulative Effect of Change in Accounting Principle




Liquidity and Capital Resources




|                                  |  |               |      |  |      |   |       | 
|--------------------------------- |  | ------------- | ---- |  | ---- | - | ----- | 
|                                  |  | March 31,     |     
|                                  |  |               |     
|                                  |  | 2004          |      |  | 2005 |  
|                                  |  |               |      |  |      |  
|                                  |  | (In millions) |     
|Working capital                   |  | $             | 79.6 |  |      | $ | 104.1 | 
|Cash and cash equivalents         |  |               | 39.0 |  |      |   | 42.3  | 
|Short-term investments            |  |               | 42.3 |  |      |   | 56.0  | 
|Unutilized bank credit facilities |  |               | 9.2  |  |      |   | 9.2   | 
|Stockholders equity              |  | $             | 80.8 |  |      | $ | 117.9 | 







| |                                     
| | ------------------------------------
| | Cash Flows from Operating Activities

|                                                                                                     |  |                |         |  
|---------------------------------------------------------------------------------------------------- |  | -------------- | ------- | -
|                                                                                                     |  | Year Ended     |        
|                                                                                                     |  | March 31, 2005 |        
|                                                                                                     |  |                |        
|                                                                                                     |  | (In thousands) |        
|Net income                                                                                           |  | $              | 33,038  |  
|Total non-cash charges                                                                               |  |                | (3,059  | )
|Tax benefit from employee stock plans                                                                |  |                | 4,748   |  
|Total increases in cash flows from operating activities due to
    changes in assets and liabilities |  |                | 9,981   |  
|Total decreases in cash flows from operating activities due to
    changes in assets and liabilities |  |                | (11,872 | )
|                                                                                                     |  |                |        
|Net cash provided by operating activities                                                            |  | $              | 32,836  |  
|                                                                                                     |  |                |        

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net income of $33.0 million, which includes a net non-cash
    benefit aggregating $3.1 million that must be excluded to
    arrive at cash flows from operating activities. The principal
    non-cash charges were due to stock-based compensation
    ($14.3 million) and depreciation and amortization
    ($3.2 million), offset by a non-cash deferred income tax
    benefit related primarily to the reversal of certain valuation
    allowances for deferred tax assets ($20.6 million). These
    non-cash charges are summarized as follows (in thousands):

|                                                                                                   |  |                |         |  
|-------------------------------------------------------------------------------------------------- |  | -------------- | ------- | -
|                                                                                                   |  | Year Ended     |        
|                                                                                                   |  | March 31, 2005 |        
|                                                                                                   |  |                |        
|Stock-based compensation                                                                           |  | $              | 14,313  |  
|Depreciation and amortization                                                                      |  |                | 3,190   |  
|Deferred income tax benefits                                                                       |  |                | (20,633 | )
|Write-down of net book value of computers, equipment, leasehold
    improvements and software, net |  |                | 71      |  
|                                                                                                   |  |                |        
|Total non-cash charges                                                                             |  | $              | (3,059  | )
|                                                                                                   |  |                |        



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A tax benefit from employee stock plans of $4.7 million
    also contributed to the net cash provided by operating
    activities.                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Cash flows from operating activities was increased by
    $10.0 million as a result of a decrease in accounts
    receivable ($2.0 million); increases in accrued
    compensation ($0.9 million), deferred revenue
    ($0.3 million) and income taxes payable
    ($2.2 million); and a decrease in prepaid expenses and
    other current assets ($4.6 million), primarily related to a
    decrease in value added tax (VAT) receivables and
    prepaid insurance. The changes are summarized as follows (in
    thousands):

|                                                                                                     |  |                |       | 
|---------------------------------------------------------------------------------------------------- |  | -------------- | ----- | 
|                                                                                                     |  | Year Ended     |      
|                                                                                                     |  | March 31, 2005 |      
|                                                                                                     |  |                |      
|Accounts receivable                                                                                  |  | $              | 1,951 | 
|Accrued compensation                                                                                 |  |                | 919   | 
|Deferred revenue                                                                                     |  |                | 332   | 
|Income taxes payable                                                                                 |  |                | 2,178 | 
|Prepaid expenses and other current assets                                                            |  |                | 4,601 | 
|                                                                                                     |  |                |      
|Total increases in cash flows from operating activities due to
    changes in assets and liabilities |  | $              | 9,981 | 
|                                                                                                     |  |                |      



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash flows from operating activities decreased by
    $11.9 million as a result of cash outflows to reduce the
    restructuring accrual ($3.0 million), which included
    payments under contractual lease obligations, a decrease in
    accounts payable ($1.9 million), and a decrease in other
    assets and liabilities, net ($7.0 million) primarily
    related to a decrease in VAT payable, the acceleration of the
    fiscal year 2005 cash bonus to non-partner employees and an
    increase in notes receivable related to new hire sign-on
    bonuses. The decreases are summarized as follows (in thousands):

|                                                                                                     |  |                |         |  
|---------------------------------------------------------------------------------------------------- |  | -------------- | ------- | -
|                                                                                                     |  | Year Ended     |        
|                                                                                                     |  | March 31, 2005 |        
|                                                                                                     |  |                |        
|Restructuring accrual                                                                                |  | $              | (2,980  | )
|Accounts payable                                                                                     |  |                | (1,856  | )
|Other assets and liabilities                                                                         |  |                | (7,036  | )
|                                                                                                     |  |                |        
|Total decreases in cash flows from operating activities due to
    changes in assets and liabilities |  | $              | (11,872 | )
|                                                                                                     |  |                |        

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|                                                               |  |                        |       |  |           |   |           |           |  |   |         |  |  |       |       |  |  |   |        | 
|-------------------------------------------------------------- |  | ---------------------- | ----- |  | --------- | - | --------- | --------- |  | - | ------- |  |  | ----- | ----- |  |  | - | ------ | 
|                                                               |  | Payments Due By Period |      
|                                                               |  |                        |      
|                                                               |  | Less Than              |       |  |           |   | More Than |           |  |  
|                                                               |  | One Year               |       |  | 1-3 Years |   |           | 3-5 Years |  |   | 5 Years |  |  | Total |      
|                                                               |  |                        |       |  |           |   |           |           |  |   |         |  |  |       |      
|Operating leases                                               |  | $                      | 4,242 |  |           | $ | 7,054     |           |  | $ | 7,331   |  |  | $     | 5,274 |  |  | $ | 23,901 | 
|Cash outlays for restructuring and other related activities(1) |  |                        | 1,693 |  |           |   | 1,328     |           |  |   | 548     |  |  |       |      |  |  |   | 3,569  | 
|Purchase obligations(2)                                        |  |                        | 565   |  |           |   | 240       |           |  |   | 22      |  |  |       |      |  |  |   | 827    | 
|                                                               |  |                        |       |  |           |   |           |           |  |   |         |  |  |       |      
|Total                                                          |  | $                      | 6,500 |  |           | $ | 8,622     |           |  | $ | 7,901   |  |  | $     | 5,274 |  |  | $ | 28,297 | 
|                                                               |  |                        |       |  |           |   |           |           |  |   |         |  |  |       |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Cash outlays for restructuring and other related activities
    include minimum future lease and related payments for excess
    facilities, net of estimated sublease income of
    $3.2 million under existing sublease arrangements.                                                                                                                                                                                                                                                                                                                                                     
|   
|(2) | Purchase obligations represent minimum commitments due to third
    parties, including subcontractor agreements, IT maintenance
    contracts in support of internal use software and hardware,
    lease commitments on Company automobiles and other marketing and
    consulting contracts. Contracts for which our commitment is
    variable based on volumes, with no fixed minimum quantities, and
    contracts that can be cancelled without payment penalties, have
    been excluded. Amounts presented also exclude accounts payable
    and accrued expenses at March 31, 2005.





| |                                    
| | -----------------------------------
| | Cash Flow from Investing Activities





| |                                    
| | -----------------------------------
| | Cash Flow from Financing Activities



32



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| |                            
| | ---------------------------
| | Treasury Stock Transactions







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







33



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| |        
| | -------
| | Summary








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk

Foreign Currency Risk










Interest Rate Risk




34



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|        |                                            
|------- | -------------------------------------------
|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





| |                                                         
| | --------------------------------------------------------
| | Changes in Internal Control Over Financial
    Reporting





| |                                                                     
| | --------------------------------------------------------------------
| | Managements Report on Internal Control Over
    Financial Reporting

Internal Control  Integrated
Framework


Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting




Internal Control  Integrated Framework


35



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Internal
Control  Integrated Framework






| |             
| | ------------
| | /s/ KPMG LLP










|         |                  
|-------- | -----------------
|Item 9B. | Other Information



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PART III









|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant










|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters



|                                                              |       |                  |        |        |                   |   |                         |                         |  |  |        |        | 
|------------------------------------------------------------- | ----- | ---------------- | ------ | ------ | ----------------- | - | ----------------------- | ----------------------- |  |  | ------ | ------ | 
|                                                              |       | Number of        |        |        |                   |   |                        
|                                                              |       | securities to be |        |        |                   |   | Number of securities    |                        
|                                                              |       | issued upon      |        |        |                   |   | remaining available for |                        
|                                                              |       | exercise of      |        |        | Weighted-average  |   |                         | future issuance under   | 
|                                                              |       | outstanding      |        |        | exercise price of |   |                         | equity compensation     | 
|                                                              |       | options,         |        |        | outstanding       |   |                         | plans (excluding        | 
|                                                              |       | warrants and     |        |        | options, warrants |   |                         | securities reflected in | 
|Plan Category                                                 |       | rights           |        |        | and rights        |   |                         | column (a))             | 
|                                                              |       |                  |        |        |                   |   |                         |                         | 
|                                                              |       | (a)              |        |        | (b)               |   |                         | (c)                     | 
|Equity compensation plans approved by security holders        |       |                  | 12,222 | (1)    |                   | $ | 11.21                   | (2)                     |  |  | 20,119 | (3)   
|Equity compensation plans not approved by security holders(4) |       |                  | 8      |        |                   | $ | 7.75                    |                         |  |  | 425    |       
|                                                              |       |                  |        |        |                   |   |                         |                         | 
|                                                              | Total |                  |        | 12,230 |                   |   |                         |                         |  |  |        | 20,544 | 
|                                                              |       |                  |        |        |                   |   |                         |                         | 






|    |                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 2,500 shares issuable upon vesting of outstanding
    stock awards and 1,779 stock-settled stock appreciation rights
    (SARs).                      
|   
|(2) | The weighted-average exercise price does not take into account
    the shares issuable upon vesting of outstanding stock awards
    which have no exercise price.

37



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##### Table of Contents





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Includes 2,031 shares available for future issuance under
    the Companys Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(4) | The Advisors Stock Option Plan (the Advisors
    Plan) relates to a maximum of 525 shares of Common
    Stock, which may be issued upon the exercise of stock options
    granted to outside advisors of the Company during the period
    February 26, 1997 through August 10, 1999. The terms
    of the Advisors Plan mirror the terms of the Companys 1998
    Equity Incentive Plan previously adopted by the shareholders in
    all material respects, except that (i) the maximum number
    of shares available for issuance under the Advisors Plan is
    525 shares, and (ii) the eligible participants under
    the Advisors Plan are those outside consultants to the Company
    as the Plan Committee shall decide from time to time. The
    options issued under the Advisors Plan were granted at the fair
    market value on the grant date (calculated based on the average
    of the closing price on the Nasdaq Market System of the Common
    Stock for the ten trading days preceding the grant date). The
    options vest over periods ranging from 2 to 4 years after
    the date of grant, and expire on dates ranging from 5 to
    8 years after the date of grant.








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







|         |                                             
|-------- | --------------------------------------------
|Item 15. | Exhibits, Financial Statements and Schedules

Financial Statements and Schedules




| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | (1) The consolidated financial statements and schedule
    listed in the index on page F-1 are filed as part of this
    Form 10-K.





| |                  
| | -----------------
| | (2) see (1) above
|
| | (3) see (c) below

38



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##### Table of Contents



Exhibits




|        |        |             |  |                                                                                                                                                                                                                                                                                                                                               
|------- | ------ | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | 3.1(a) |             |  | Form of Restated Certificate of Incorporation of the Company
    (filed as Exhibit 3.1(a) to the Companys
    Form 8-A filed by the Company on October 21, 2003 (the
    Form 8A) and incorporated herein by reference).                                                                                                                   
|        | 3.2    |             |  | Amended and Restated By-laws of the Company (filed as
    Exhibit 3.2 to the Form 8-A and incorporated herein by
    reference).                                                                                                                                                                                                              
|        | 10.1   |             |  | Amended and Restated DiamondCluster International, Inc. 1998
    Equity Incentive Plan (filed as Annex B to the
    Companys Definitive Proxy Statement on Schedule 14A
    dated July 11, 2001 (File No. 000-22125) and
    incorporated herein by reference).                                                                              
|        | 10.2   |             |  | Form of Employment Agreement between each of the Named Officers
    and the Company (filed as Exhibit 10 to the Companys
    Registration Statement on Form S-1 (No. 333-17785) and
    incorporated herein by reference).                                                                                                                   
|        | 10.3   |             |  | North America and United Kingdom Partners Operating
    Agreement dated as of November 13, 2003 among the Company
    and the partners of the Company, including Addendum No. 1
    dated January 29, 2004 filed as Exhibit 10.3 to the
    Form 10-K by the Company on March 31, 2004 (the
    Form 10K) incorporated herein by reference.
|        | 10.4*  |             |  | Form of Notices of Grant and Restricted Stock Unit Agreement.                                                                                                                                                                                                                                                                                 
|        | 10.5*  |             |  | Form of Notices of Grant and Stock Appreciation Rights Agreement.                                                                                                                                                                                                                                                                             
|        | 10.6*  |             |  | Notices of Grant and Restricted Stock Unit Agreement for the
    Chairman and Chief Executive Officer.                                                                                                                                                                                                                                        
|        | 10.7*  |             |  | Notices of Grant and Stock Appreciation Rights Agreement for the
    Chairman and Chief Executive Officer.                                                                                                                                                                                                                                    
|        | 10.8*  |             |  | Summary of Outside Director Board Compensation.                                                                                                                                                                                                                                                                                               
|        | 14*    |             |  | Code of Business Conduct and Ethics.                                                                                                                                                                                                                                                                                                          
|        | 21*    |             |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                               
|        | 23*    |             |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                     
|        | 24.1*  |             |  | Power of Attorney (included on signature page).                                                                                                                                                                                                                                                                                               
|        | 31.1*  |             |  | CEO Certification Pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to section 302 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                                                                                           
|        | 31.2*  |             |  | CFO Certification Pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to section 302 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                                                                                           
|        | 31.3*  |             |  | Chief Administrative Officer Certification Pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                  
|        | 32.1*  |             |  | CEO Certification Pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to section 906 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                                                                                           
|        | 32.2*  |             |  | CFO Certification Pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to section 906 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                                                                                           
|        | 32.3*  |             |  | Chief Administrative Officer Certification Pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                  
|        | 99.1*  |             |  | Risk Factors.                                                                                                                                                                                                                                                                                                                                 






|  |               
|- | --------------
|* | Filed herewith

39



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##### Table of Contents



SIGNATURES






| |                                       
| | --------------------------------------
| | Diamondcluster
    International, Inc.



| |     |                            
| | --- | ---------------------------
| | By: | /s/ Melvyn E.
    Bergstein

| |                                     
| | ------------------------------------
| | Melvyn E. Bergstein                 
| | Chairman and Chief Executive Officer

POWER OF ATTORNEY






|                                               |  |                                                                                        |  |      |               | 
|---------------------------------------------- |  | -------------------------------------------------------------------------------------- |  | ---- | ------------- | 
|Signature                                      |  | Title                                                                                  |  | Date |              
|                                               |  |                                                                                        |  |      |              
|                                              
|/s/ Melvyn E. BergsteinMelvyn
    E. Bergstein |  | Chairman and Chief Executive Officer (Principal Executive
    Officer)                 |  |      | June 10, 2005 | 
|                                              
|/s/ Karl E. BuppKarl
    E. Bupp               |  | Chief Financial Officer and Treasurer (Principal Financial and
    Accounting Officer) |  |      | June 10, 2005 | 
|                                              
|/s/ Adam J. GutsteinAdam
    J. Gutstein       |  | President, Managing Director  Europe and Latin
    America, and Director              |  |      | June 10, 2005 | 
|                                              
|/s/ John J. SvioklaJohn
    J. Sviokla         |  | Vice Chairman and Director                                                             |  |      | June 10, 2005 | 
|                                              
|/s/ Edward R. AndersonEdward
    R. Anderson   |  | Director                                                                               |  |      | June 10, 2005 | 
|                                              
|/s/ Donald R. CaldwellDonald
    R. Caldwell   |  | Director                                                                               |  |      | June 10, 2005 | 
|                                              
|/s/ Mark L. GordonMark
    L. Gordon           |  | Director                                                                               |  |      | June 10, 2005 | 

40



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##### Table of Contents



|                                                         |  |          |  |      |               | 
|-------------------------------------------------------- |  | -------- |  | ---- | ------------- | 
|Signature                                                |  | Title    |  | Date |              
|                                                         |  |          |  |      |              
|                                                        
|/s/ Alan C. KayAlan
    C. Kay                           |  | Director |  |      | June 10, 2005 | 
|                                                        
|/s/ Michael E.
    MikolajczykMichael
    E. Mikolajczyk |  | Director |  |      | June 10, 2005 | 
|                                                        
|/s/ Javier RubioJavier
    Rubio                         |  | Director |  |      | June 10, 2005 | 
|                                                        
|/s/ Pauline A.
    SchneiderPauline
    A. Schneider     |  | Director |  |      | June 10, 2005 | 
|                                                        
|/s/ Samuel K. SkinnerSamuel
    K. Skinner               |  | Director |  |      | June 10, 2005 | 
|                                                        
|/s/ Arnold R. WeberArnold
    R. Weber                   |  | Director |  |      | June 10, 2005 | 

41



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                   |                                                                                                                             |      |  |     | 
|---------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | ---- |  | --- | 
|                                   |                                                                                                                             | Page | 
|                                   |                                                                                                                             |      | 
|Consolidated Financial Statements: |                                                                                                                             |      |  |    
|                                   | Report of Independent Registered Public Accounting Firm                                                                     |      |  | F-2 | 
|                                   | Consolidated Balance Sheets as of March 31, 2004 and 2005                                                                   |      |  | F-3 | 
|                                   | Consolidated Statements of Operations and Comprehensive Income
    (Loss) for the Years Ended March 31, 2003, 2004 and 2005 |      |  | F-4 | 
|                                   | Consolidated Statements of Stockholders Equity for the
    Years Ended March 31, 2003, 2004 and 2005                       |      |  | F-5 | 
|                                   | Consolidated Statements of Cash Flows for the Years Ended
    March 31, 2003, 2004 and 2005                                 |      |  | F-6 | 
|                                   | Notes to Consolidated Financial Statements                                                                                  |      |  | F-7 | 
|Supplemental Financial Schedules:  |                                                                                                                             |      |  |    
|                                   | Report of Independent Registered Public Accounting Firm                                                                     |      |  | S-1 | 
|                                   | Schedule II  Valuation and Qualifying Accounts                                                                             |      |  | S-2 | 

F-1



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














Internal
Control  Integrated Framework




| |             
| | ------------
| | /s/ KPMG LLP





F-2



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


CONSOLIDATED BALANCE SHEETS


March 31, 2004 and 2005


|                                                                                                                             |                                                                                                                                                |                                            |         |          |         |  |         |          |         | 
|---------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | -------- | ------- |  | ------- | -------- | ------- | 
|                                                                                                                             |                                                                                                                                                | 2004                                       |         |          | 2005    | 
|                                                                                                                             |                                                                                                                                                |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                | (In thousands,                             |        
|                                                                                                                             |                                                                                                                                                | except per share data)                     |        
|ASSETS                                                                                                                      
|Current assets:                                                                                                              |                                                                                                                                                |                                            |         |          |         |  |         |         
|                                                                                                                             | Cash and cash equivalents                                                                                                                      |                                            | $       | 39,004   |         |  | $       | 42,270   |        
|                                                                                                                             | Short-term investments                                                                                                                         |                                            |         | 42,300   |         |  |         | 55,975   |        
|                                                                                                                             | Accounts receivable, net of allowance of $1,650 and $1,079 as of
    March 31, 2004 and 2005, respectively                                     |                                            |         | 23,219   |         |  |         | 22,044   |        
|                                                                                                                             | Income taxes receivable                                                                                                                        |                                            |         | 569      |         |  |         |         |        
|                                                                                                                             | Deferred income taxes                                                                                                                          |                                            |         |         |         |  |         | 9,819    |        
|                                                                                                                             | Prepaid expenses                                                                                                                               |                                            |         | 10,373   |         |  |         | 6,005    |        
|                                                                                                                             |                                                                                                                                                |                                            |         |          |         | 
|Total current assets                                                                                                         |                                                                                                                                                |                                            | 115,465 |          |         |  | 136,113 |         
|Computers, equipment, leasehold improvements and software, net                                                               |                                                                                                                                                |                                            | 6,473   |          |         |  | 5,145   |         
|Deferred income taxes                                                                                                        |                                                                                                                                                |                                            |        |          |         |  | 10,841  |         
|Other assets                                                                                                                 |                                                                                                                                                |                                            | 729     |          |         |  | 1,573   |         
|                                                                                                                             |                                                                                                                                                |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                | Total assets                               |         | $        | 122,667 |  |         | $        | 153,672 | 
|                                                                                                                             |                                                                                                                                                |                                            |         |          |         | 
|                                                                                                                            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                        
|Current liabilities:                                                                                                         |                                                                                                                                                |                                            |         |          |         |  |         |         
|                                                                                                                             | Accounts payable                                                                                                                               |                                            | $       | 6,250    |         |  | $       | 4,652    |        
|                                                                                                                             | Accrued compensation                                                                                                                           |                                            |         | 5,749    |         |  |         | 6,762    |        
|                                                                                                                             | Deferred revenue                                                                                                                               |                                            |         | 1,380    |         |  |         | 1,609    |        
|                                                                                                                             | Income taxes payable                                                                                                                           |                                            |         |         |         |  |         | 1,611    |        
|                                                                                                                             | Restructuring accrual, current portion                                                                                                         |                                            |         | 3,528    |         |  |         | 2,848    |        
|                                                                                                                             | Other accrued liabilities                                                                                                                      |                                            |         | 18,973   |         |  |         | 14,545   |        
|                                                                                                                             |                                                                                                                                                |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                | Total current liabilities                  |         |          | 35,880  |  |         |          | 32,027  | 
|                                                                                                                             | Restructuring accrual, less current portion                                                                                                    |                                            |         | 6,000    |         |  |         | 3,700    |        
|                                                                                                                             |                                                                                                                                                |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                | Total liabilities                          |         |          | 41,880  |  |         |          | 35,727  | 
|                                                                                                                             |                                                                                                                                                |                                            |         |          |         | 
|Stockholders equity:                                                                                                        |                                                                                                                                                |                                            |         |          |         |  |         |         
|                                                                                                                             | Preferred Stock, $1.00 par value, 2,000 shares
    authorized, no shares issued                                                                |                                            |         |         |         |  |         |         |        
|                                                                                                                             | Common Stock, $0.001 par value, 300,000 shares
    authorized, 38,683 and 40,168 shares issued as of
    March 31, 2004 and 2005, respectively |                                            |         | 39       |         |  |         | 40       |        
|                                                                                                                             | Additional paid-in capital                                                                                                                     |                                            |         | 624,682  |         |  |         | 639,795  |        
|                                                                                                                             | Stock-based compensation                                                                                                                       |                                            |         | (6,324   | )       |  |         | (2,174   | )      
|                                                                                                                             | Accumulated other comprehensive income                                                                                                         |                                            |         | 2,858    |         |  |         | 2,660    |        
|                                                                                                                             | Accumulated deficit                                                                                                                            |                                            |         | (479,332 | )       |  |         | (446,294 | )      
|                                                                                                                             |                                                                                                                                                |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                |                                            | 141,923 |          |         |  | 194,027 |         
|Less: Common Stock in treasury, at cost, 4,336 shares held
    at March 31, 2004 and 5,732 shares held at
    March 31, 2005 |                                                                                                                                                |                                            | (61,136 | )        |         |  | (76,082 | )       
|                                                                                                                             |                                                                                                                                                |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                | Total stockholders equity                 |         |          | 80,787  |  |         |          | 117,945 | 
|                                                                                                                             |                                                                                                                                                |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                | Total liabilities and stockholders equity |         | $        | 122,667 |  |         | $        | 153,672 | 
|                                                                                                                             |                                                                                                                                                |                                            |         |          |         | 



F-3



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)


Fiscal years ended March 31, 2003, 2004 and 2005


|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |         |       |         |   |         |      |         | 
|-------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ----------------- | -------------------------------- | -------- | ------ | ------- | ---- | ------- | ----- | ------- | - | ------- | ---- | ------- | 
|                                                                                       |                                                                                                                                                      | 2003                                                                         |                   |                                  | 2004     |        |         | 2005 |        
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|                                                                                       |                                                                                                                                                      | (In thousands, except per share data)                                        |                  
|Revenue:                                                                               |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |         |       |         |  
|                                                                                       |                                                                                                                                                      | Net revenue                                                                  |                   | $                                | 132,974  |        |         | $    | 154,785 |       |         | $ | 193,163 |     
|                                                                                       |                                                                                                                                                      | Reimbursable expenses                                                        |                   |                                  | 19,331   |        |         |      | 22,329  |       |         |   | 26,612  |     
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|                                                                                       |                                                                                                                                                      |                                                                              |                   | Total revenue                    |          |        | 152,305 |      |         |       | 177,114 |   |         |      | 219,775 | 
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|Project personnel expenses:                                                            |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |         |       |         |  
|                                                                                       |                                                                                                                                                      | Project personnel costs before reimbursable expenses                         |                   |                                  | 161,038  |        |         |      | 114,054 |       |         |   | 127,611 |     
|                                                                                       |                                                                                                                                                      | Reimbursable expenses                                                        |                   |                                  | 19,331   |        |         |      | 22,329  |       |         |   | 26,612  |     
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|                                                                                       |                                                                                                                                                      |                                                                              |                   | Total project personnel expenses |          |        | 180,369 |      |         |       | 136,383 |   |         |      | 154,223 | 
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|Gross margin (loss)                                                                    |                                                                                                                                                      |                                                                              | (28,064           | )                                |          |        | 40,731  |      |         |       | 65,552  |  
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|Other operating expenses:                                                              |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |         |       |         |  
|                                                                                       |                                                                                                                                                      | Professional development and recruiting                                      |                   |                                  | 4,272    |        |         |      | 4,395   |       |         |   | 7,697   |     
|                                                                                       |                                                                                                                                                      | Marketing and sales                                                          |                   |                                  | 4,092    |        |         |      | 2,948   |       |         |   | 3,776   |     
|                                                                                       |                                                                                                                                                      | Management and administrative support                                        |                   |                                  | 38,123   |        |         |      | 35,207  |       |         |   | 35,837  |     
|                                                                                       |                                                                                                                                                      | Restructuring charges                                                        |                   |                                  | 29,266   |        |         |      | 3,975   |       |         |   |        |     
|                                                                                       |                                                                                                                                                      | Impairment charge on long-lived assets                                       |                   |                                  | 94,315   |        |         |      |        |       |         |   |        |     
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|                                                                                       |                                                                                                                                                      |                                                                              |                   | Total other operating expenses   |          |        | 170,068 |      |         |       | 46,525  |   |         |      | 47,310  | 
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|                                                                                       |                                                                                                                                                      | Income (loss) from operations                                                |                   |                                  | (198,132 | )      |         |      | (5,794  | )     |         |   | 18,242  |     
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|                                                                                       |                                                                                                                                                      | Interest income                                                              |                   |                                  | 2,635    |        |         |      | 1,130   |       |         |   | 1,700   |     
|                                                                                       |                                                                                                                                                      | Interest expense                                                             |                   |                                  | (49      | )      |         |      | (68     | )     |         |   | (180    | )   
|                                                                                       |                                                                                                                                                      | Other income (expense), net                                                  |                   |                                  | (2,442   | )      |         |      | (25     | )     |         |   | 31      |     
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|                                                                                       |                                                                                                                                                      |                                                                              |                   | Total other income, net          |          |        | 144     |      |         |       | 1,037   |   |         |      | 1,551   | 
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|Income (loss) before taxes and cumulative effect of change in
    accounting principle |                                                                                                                                                      |                                                                              | (197,988          | )                                |          |        | (4,757  | )    |         |       | 19,793  |  
|Income tax expense (benefit)                                                           |                                                                                                                                                      |                                                                              | 21,209            |                                  |          |        | 654     |      |         |       | (13,245 | )
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|Income (loss) before cumulative effect of change in accounting
    principle           |                                                                                                                                                      |                                                                              | (219,197          | )                                |          |        | (5,411  | )    |         |       | 33,038  |  
|Cumulative effect of change in accounting principle                                    |                                                                                                                                                      |                                                                              | (140,864          | )                                |          |        |        |      |         |       |        |  
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|Net income (loss)                                                                      |                                                                                                                                                      |                                                                              | (360,061          | )                                |          |        | (5,411  | )    |         |       | 33,038  |  
|                                                                                       |                                                                                                                                                      | Foreign currency translation adjustments                                     |                   |                                  | 4,104    |        |         |      | 1,127   |       |         |   | 119     |     
|                                                                                       |                                                                                                                                                      | Unrealized gain (loss) on investment                                         |                   |                                  |         |        |         |      | 437     |       |         |   | (317    | )   
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|Comprehensive income (loss)                                                            |                                                                                                                                                      | $                                                                            | (355,957          | )                                |          | $      | (3,847  | )    |         | $     | 32,840  |  
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|Basic net income (loss) per share of Common Stock:                                     |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |         |       |         |  
|                                                                                       |                                                                                                                                                      | Income (loss) before cumulative effect of change in accounting
    principle |                   | $                                | (6.95    | )      |         | $    | (0.17   | )     |         | $ | 0.99    |     
|                                                                                       |                                                                                                                                                      | Cumulative effect of change in accounting principle                          |                   |                                  | (4.47    | )      |         |      |        |       |         |   |        |     
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|                                                                                       |                                                                                                                                                      |                                                                              | Net income (loss) |                                  | $        | (11.41 | )       |      | $       | (0.17 | )       |   | $       | 0.99 |        
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|Diluted net income (loss) per share of Common Stock:                                   |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |         |       |         |  
|                                                                                       |                                                                                                                                                      | Income (loss) before cumulative effect of change in accounting
    principle |                   | $                                | (6.95    | )      |         | $    | (0.17   | )     |         | $ | 0.91    |     
|                                                                                       |                                                                                                                                                      | Cumulative effect of change in accounting principle                          |                   |                                  | (4.47    | )      |         |      |        |       |         |   |        |     
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|                                                                                       |                                                                                                                                                      | Net income (loss)                                                            |                   | $                                | (11.41   | )      |         | $    | (0.17   | )     |         | $ | 0.91    |     
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|Shares used in computing basic net income (loss) per share of
    Common Stock         |                                                                                                                                                      |                                                                              | 31,548            |                                  |          |        | 32,710  |      |         |       | 33,516  |  
|Shares used in computing diluted net income (loss) per share of
    Common Stock       |                                                                                                                                                      |                                                                              | 31,548            |                                  |          |        | 32,710  |      |         |       | 36,281  |  
|                                                                                       | The following amounts of non-cash stock-based compensation
    expense are included in each of the respective expense
    categories reported above: |                                                                              |                   |                                  |          |        |         |      |         |       |         |   |        
|                                                                                       |                                                                                                                                                      | Project personnel and related expenses                                       |                   | $                                | 51,953   |        |         | $    | 11,625  |       |         | $ | 12,527  |     
|                                                                                       |                                                                                                                                                      | Professional development and recruiting                                      |                   |                                  | 138      |        |         |      | 107     |       |         |   | 58      |     
|                                                                                       |                                                                                                                                                      | Marketing and sales                                                          |                   |                                  | 227      |        |         |      | 112     |       |         |   | 254     |     
|                                                                                       |                                                                                                                                                      | Management and administrative support                                        |                   |                                  | 760      |        |         |      | 848     |       |         |   | 1,474   |     
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        
|                                                                                       |                                                                                                                                                      |                                                                              |                   | Total stock-based compensation   |          | $      | 53,078  |      |         | $     | 12,692  |   |         | $    | 14,313  | 
|                                                                                       |                                                                                                                                                      |                                                                              |                   |                                  |          |        |         |      |        



F-4



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


Fiscal years ended March 31, 2003, 2004 and 2005


|                                                                           |  |                |     |   |         |   |    |        |  |            |         |            |  |              |              |   |        |          |             |           |  |   |               |   |  |        |          |   |               |   |         |   |  |   |        |   |  |   |          |  
|-------------------------------------------------------------------------- |  | -------------- | --- | - | ------- | - | -- | ------ |  | ---------- | ------- | ---------- |  | ------------ | ------------ | - | ------ | -------- | ----------- | --------- |  | - | ------------- | - |  | ------ | -------- | - | ------------- | - | ------- | - |  | - | ------ | - |  | - | -------- | -
|                                                                           |  |                |     |   |         |   |    |        |  |            |         | Notes      |  |              |              |   |        |          | Accumulated |           |  |  
|                                                                           |  |                |     |   |         |   |    |        |  |            |         | Receivable |  |              |              |   |        |          | Other       |           |  |  
|                                                                           |  | Class A        |     |   | Class B |   |    |        |  | Additional |         |            |  |              | from sale of |   |        | Retained |             |           |  |   | Comprehensive |   |  | Total  |         
|                                                                           |  | Common         |     |   | Common  |   |    | Common |  |            | Paid-In |            |  | Stock-based  |              |   | Common |          |             | Earnings  |  |   | Treasury      |   |  | Income |          |   | Stockholders |  
|                                                                           |  | Stock          |     |   | Stock   |   |    | Stock  |  |            | Capital |            |  | Compensation |              |   | Stock  |          |             | (Deficit) |  |   | Stock         |   |  | (Loss) |          |   | Equity        |  
|                                                                           |  |                |     |   |         |   |    |        |  |            |         |            |  |              |              |   |        |          |             |           |  |   |               |   |  |        |          |   |               |  
|                                                                           |  | (In thousands) |    
|Balance at March 31, 2002                                                  |  | $              | 27  |   |         | $ | 7  |        |  | $          |        |            |  | $            | 659,844      |   |        | $        | (121,340    | )         |  | $ | (80           | ) |  | $      | (113,860 | ) |               | $ | (46,690 | ) |  | $ | (2,810 | ) |  | $ | 375,098  |  
|Issuance, forfeiture and cancellation of stock                             |  |                |    |   |         |   | 1  |        |  |            |        |            |  |              | 751          |   |        |          | 352         |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 1,104    |  
|Forfeiture and cancellation of stock options issued below
    market  net |  |                |    |   |         |   |   |        |  |            |        |            |  |              | (20,986      | ) |        |          | 20,580      |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | (406     | )
|Stock-based compensation                                                   |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          | 53,078      |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 53,078   |  
|Exercise of stock options                                                  |  |                |    |   |         |   |   |        |  |            |        |            |  |              | 2,343        |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 2,343    |  
|Income tax benefit related to stock option exercises                       |  |                |    |   |         |   |   |        |  |            |        |            |  |              | 333          |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 333      |  
|Purchase of treasury stock                                                 |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   | (5,242  | ) |  |   |       |   |  |   | (5,242   | )
|Conversion to Class A                                                      |  |                | 2   |   |         |   | (2 | )      |  |            |        |            |  |              |             |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   |         |  
|Repayment of notes                                                         |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          |            |           |  |   | 9             |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 9        |  
|Employee stock purchase plan                                               |  |                |    |   |         |   |   |        |  |            |        |            |  |              | 2,017        |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 2,017    |  
|Translation adjustment                                                     |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   | 4,104  |   |  |   | 4,104    |  
|Net loss                                                                   |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          |            |           |  |   |              |   |  |        | (360,061 | ) |               |   |        |   |  |   |       |   |  |   | (360,061 | )
|                                                                           |  |                |     |   |         |   |    |        |  |            |         |            |  |              |              |   |        |          |             |           |  |   |               |   |  |        |          |   |               |  
|Balance at March 31, 2003                                                  |  | $              | 29  |   |         | $ | 6  |        |  | $          |        |            |  | $            | 644,302      |   |        | $        | (47,330     | )         |  | $ | (71           | ) |  | $      | (473,921 | ) |               | $ | (51,932 | ) |  | $ | 1,294  |   |  | $ | 72,377   |  
|Issuance, forfeiture and cancellation of stock                             |  |                |    |   |         |   |   |        |  |            | 3       |            |  |              |             |   |        |          | 70          |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 73       |  
|Forfeiture and cancellation of stock options issued below
    market  net |  |                |    |   |         |   |   |        |  |            |        |            |  |              | (30,298      | ) |        |          | 32,391      |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 2,093    |  
|Stock-based compensation                                                   |  |                |    |   |         |   |   |        |  |            |        |            |  |              | 4,147        |   |        |          | 8,545       |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 12,692   |  
|Exercise of stock options                                                  |  |                |    |   |         |   |   |        |  |            | 1       |            |  |              | 5,143        |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 5,144    |  
|Purchase of treasury stock                                                 |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   | (9,204  | ) |  |   |       |   |  |   | (9,204   | )
|Conversion to one class Common Stock                                       |  |                | (29 | ) |         |   | (6 | )      |  |            | 35      |            |  |              |             |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   |         |  
|Repayment of notes                                                         |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          |            |           |  |   | 71            |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 71       |  
|Employee stock purchase plan                                               |  |                |    |   |         |   |   |        |  |            |        |            |  |              | 1,388        |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 1,388    |  
|Unrealized gain on investment                                              |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   | 437    |   |  |   | 437      |  
|Translation adjustment                                                     |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   | 1,127  |   |  |   | 1,127    |  
|Net loss                                                                   |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          |            |           |  |   |              |   |  |        | (5,411   | ) |               |   |        |   |  |   |       |   |  |   | (5,411   | )
|                                                                           |  |                |     |   |         |   |    |        |  |            |         |            |  |              |              |   |        |          |             |           |  |   |               |   |  |        |          |   |               |  
|Balance at March 31, 2004                                                  |  | $              |    |   |         | $ |   |        |  | $          | 39      |            |  | $            | 624,682      |   |        | $        | (6,324      | )         |  | $ |              |   |  | $      | (479,332 | ) |               | $ | (61,136 | ) |  | $ | 2,858  |   |  | $ | 80,787   |  
|Issuance, forfeiture and cancellation of stock                             |  |                |    |   |         |   |   |        |  |            | (1      | )          |  |              |             |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | (1       | )
|Forfeiture and cancellation of stock options issued below
    market  net |  |                |    |   |         |   |   |        |  |            |        |            |  |              | (395         | ) |        |          | 396         |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 1        |  
|Stock-based compensation                                                   |  |                |    |   |         |   |   |        |  |            |        |            |  |              | 10,559       |   |        |          | 3,754       |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 14,313   |  
|Exercise of stock options                                                  |  |                |    |   |         |   |   |        |  |            | 2       |            |  |              | 15,110       |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 15,112   |  
|Issuance of treasury stock under equity incentive plans                    |  |                |    |   |         |   |   |        |  |            |        |            |  |              | (16,601      | ) |        |          |            |           |  |   |              |   |  |        |         |   |               |   | 16,601  |   |  |   |       |   |  |   |         |  
|Income tax benefit related to stock option exercises                       |  |                |    |   |         |   |   |        |  |            |        |            |  |              | 4,748        |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 4,748    |  
|Purchase of treasury stock                                                 |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   | (31,547 | ) |  |   |       |   |  |   | (31,547  | )
|Employee stock purchase plan                                               |  |                |    |   |         |   |   |        |  |            |        |            |  |              | 1,692        |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |       |   |  |   | 1,692    |  
|Unrealized loss on investment                                              |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   | (317   | ) |  |   | (317     | )
|Translation adjustment                                                     |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   | 119    |   |  |   | 119      |  
|Net income                                                                 |  |                |    |   |         |   |   |        |  |            |        |            |  |              |             |   |        |          |            |           |  |   |              |   |  |        | 33,038   |   |               |   |        |   |  |   |       |   |  |   | 33,038   |  
|                                                                           |  |                |     |   |         |   |    |        |  |            |         |            |  |              |              |   |        |          |             |           |  |   |               |   |  |        |          |   |               |  
|Balance at March 31, 2005                                                  |  | $              |    |   |         | $ |   |        |  | $          | 40      |            |  | $            | 639,795      |   |        | $        | (2,174      | )         |  | $ |              |   |  | $      | (446,294 | ) |               | $ | (76,082 | ) |  | $ | 2,660  |   |  | $ | 117,945  |  
|                                                                           |  |                |     |   |         |   |    |        |  |            |         |            |  |              |              |   |        |          |             |           |  |   |               |   |  |        |          |   |               |  



F-5



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


Fiscal Years ended March 31, 2003, 2004 and 2005


|                                                     |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |        |        |         |         |         |        |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ---------------------------- | -------- | ------ | ------- | ------ | ------ | ------ | ------ | ------- | ------- | ------- | ------ | -
|                                                     |                                                                                                                                                                   | 2003                                                                                               |                              |          | 2004   |         |        | 2005   |       
|                                                     |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |       
|                                                     |                                                                                                                                                                   | (In thousands)                                                                                     |                             
|Cash flows from operating activities:                |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |        |        |         |        
|                                                     | Income (loss) before cumulative effect of change in accounting
    principle                                                                                      |                                                                                                    | $                            | (219,197 | )      |         | $      | (5,411 | )      |        | $       | 33,038  |        
|                                                     | Adjustments to reconcile income (loss) before cumulative effect
    of change in accounting principle to net cash provided by (used
    in) operating activities: |                                                                                                    |                              |          |        |         |        |        |        |        |         |         |        
|                                                     |                                                                                                                                                                   | Restructuring charges                                                                              |                              |          | 29,266 |         |        |        | 3,975  |        |         |         |        |       
|                                                     |                                                                                                                                                                   | Depreciation and amortization                                                                      |                              |          | 5,766  |         |        |        | 4,702  |        |         |         | 3,190   |       
|                                                     |                                                                                                                                                                   | Write-down of net book value of computers, equipment, leasehold
    improvements and software, net |                              |          | 2,071  |         |        |        | 774    |        |         |         | 71      |       
|                                                     |                                                                                                                                                                   | Impairment charge on long-lived assets                                                             |                              |          | 94,315 |         |        |        |       |        |         |         |        |       
|                                                     |                                                                                                                                                                   | Stock-based compensation                                                                           |                              |          | 53,078 |         |        |        | 12,692 |        |         |         | 14,313  |       
|                                                     |                                                                                                                                                                   | Deferred income taxes (benefits)                                                                   |                              |          | 22,536 |         |        |        |       |        |         |         | (20,633 | )     
|                                                     |                                                                                                                                                                   | Tax benefits from employee stock plans                                                             |                              |          | 333    |         |        |        |       |        |         |         | 4,748   |       
|                                                     |                                                                                                                                                                   | Changes in assets and liabilities:                                                                 |                              |          |        |         |        |        |        |        |         |         |         |       
|                                                     |                                                                                                                                                                   |                                                                                                    | Accounts receivable          |          |        | 8,205   |        |        |        | (4,951 | )       |         |         | 1,951  |  
|                                                     |                                                                                                                                                                   |                                                                                                    | Prepaid expenses and other   |          |        | 1,826   |        |        |        | (3,929 | )       |         |         | 4,601  |  
|                                                     |                                                                                                                                                                   |                                                                                                    | Accounts payable             |          |        | (2,433  | )      |        |        | 1,085  |         |         |         | (1,856 | )
|                                                     |                                                                                                                                                                   |                                                                                                    | Accrued compensation         |          |        |        |        |        |        | 5,524  |         |         |         | 919    |  
|                                                     |                                                                                                                                                                   |                                                                                                    | Restructuring accrual        |          |        | (18,895 | )      |        |        | (8,800 | )       |         |         | (2,980 | )
|                                                     |                                                                                                                                                                   |                                                                                                    | Deferred revenue             |          |        | (306    | )      |        |        | 634    |         |         |         | 332    |  
|                                                     |                                                                                                                                                                   |                                                                                                    | Income taxes payable         |          |        | 1,899   |        |        |        | (1,279 | )       |         |         | 2,178  |  
|                                                     |                                                                                                                                                                   |                                                                                                    | Other assets and liabilities |          |        | (518    | )      |        |        | 2,822  |         |         |         | (7,036 | )
|                                                     |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |       
|Net cash provided by (used in) operating activities  |                                                                                                                                                                   |                                                                                                    | (22,054                      | )        |        |         | 7,838  |        |        |        | 32,836  |        
|                                                     |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |       
|Cash flows from investing activities:                |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |        |        |         |        
|                                                     | Net (purchases) redemptions of short-term investments                                                                                                             |                                                                                                    |                              | (47,075  | )      |         |        | 6,075  |        |        |         | (13,675 | )      
|                                                     | Capital expenditures, net                                                                                                                                         |                                                                                                    |                              | (1,528   | )      |         |        | (935   | )      |        |         | (1,763  | )      
|                                                     | Other assets                                                                                                                                                      |                                                                                                    |                              | 872      |        |         |        | 843    |        |        |         | 151     |        
|                                                     |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |       
|Net cash provided by (used in) investing activities  |                                                                                                                                                                   |                                                                                                    | (47,731                      | )        |        |         | 5,983  |        |        |        | (15,287 | )      
|                                                     |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |       
|Cash flows from financing activities:                |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |        |        |         |        
|                                                     | Common Stock issued                                                                                                                                               |                                                                                                    |                              | 5,067    |        |         |        | 6,609  |        |        |         | 16,802  |        
|                                                     | Purchase of treasury stock                                                                                                                                        |                                                                                                    |                              | (5,242   | )      |         |        | (9,204 | )      |        |         | (31,547 | )      
|                                                     |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |       
|Net cash used in financing activities                |                                                                                                                                                                   |                                                                                                    | (175                         | )        |        |         | (2,595 | )      |        |        | (14,745 | )      
|                                                     |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |       
|Effect of exchange rate changes on cash              |                                                                                                                                                                   |                                                                                                    | 1,440                        |          |        |         | 825    |        |        |        | 462     |        
|                                                     |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |       
|Net increase (decrease) in cash and cash equivalents |                                                                                                                                                                   |                                                                                                    | (68,520                      | )        |        |         | 12,051 |        |        |        | 3,266   |        
|Cash and cash equivalents at beginning of year       |                                                                                                                                                                   |                                                                                                    | 95,473                       |          |        |         | 26,953 |        |        |        | 39,004  |        
|                                                     |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |       
|Cash and cash equivalents at end of year             |                                                                                                                                                                   | $                                                                                                  | 26,953                       |          |        | $       | 39,004 |        |        | $      | 42,270  |        
|                                                     |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |       
|Supplemental disclosure of cash flow information:    |                                                                                                                                                                   |                                                                                                    |                              |          |        |         |        |        |        |        |         |        
|                                                     | Cash paid during the year for interest                                                                                                                            |                                                                                                    | $                            | 221      |        |         | $      |       |        |        | $       | 21      |        
|                                                     | Cash paid during the year for income taxes                                                                                                                        |                                                                                                    | $                            | 3,006    |        |         | $      | 3,127  |        |        | $       | 1,264   |        



F-6



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|    |                                                      
|--- | -----------------------------------------------------
|(1) | Description of the Business and Basis of Presentation







|    |                                           
|--- | ------------------------------------------
|(2) | Summary of Significant Accounting Policies



| |                            
| | ---------------------------
| | Principles of Consolidation





| |                             
| | ----------------------------
| | Foreign Currency Translation





| |                    
| | -------------------
| | Revenue Recognition



F-7



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                                                         
| | --------------------------------------------------------
| | Allowance for Doubtful Accounts and Deferred
    Revenue







| |                         
| | ------------------------
| | Stock-based Compensation







F-8



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                       |                                                                                                                                                     |                             |   |          |      |  |   |        |     |  |   |         |  
|-------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | - | -------- | ---- |  | - | ------ | --- |  | - | ------- | -
|                                       |                                                                                                                                                     | Fiscal Year Ended March 31, |  
|                                       |                                                                                                                                                     |                             |  
|                                       |                                                                                                                                                     | 2003                        |   |          | 2004 |  |   | 2005   |    
|                                       |                                                                                                                                                     |                             |   |          |      |  |   |        |    
|Net earnings (loss):                   |                                                                                                                                                     |                             |   |          |      |  |   |        |     |  |   |        
|                                       | As reported                                                                                                                                         |                             | $ | (360,061 | )    |  | $ | (5,411 | )   |  | $ | 33,038  |  
|                                       | Add: Stock-based employee compensation expense included in
    reported net income (loss), net of related tax effects                               |                             |   | 53,843   | (1)  |  |   | 12,777 | (1) |  |   | 11,246  |  
|                                       | Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |                             |   | (62,870  | )    |  |   | (5,316 | )   |  |   | (11,144 | )
|                                       |                                                                                                                                                     |                             |   |          |      |  |   |        |    
|                                       | Pro forma                                                                                                                                           |                             | $ | (369,088 | )    |  | $ | 2,050  |     |  | $ | 33,140  |  
|                                       |                                                                                                                                                     |                             |   |          |      |  |   |        |    
|Basic net earnings (loss) per share:   |                                                                                                                                                     |                             |   |          |      |  |   |        |     |  |   |        
|                                       | As reported                                                                                                                                         |                             | $ | (11.41   | )    |  | $ | (0.17  | )   |  | $ | 0.99    |  
|                                       | Pro forma                                                                                                                                           |                             | $ | (11.70   | )    |  | $ | 0.06   |     |  | $ | 0.99    |  
|Diluted net earnings (loss) per share: |                                                                                                                                                     |                             |   |          |      |  |   |        |     |  |   |        
|                                       | As reported                                                                                                                                         |                             | $ | (11.41   | )    |  | $ | (0.17  | )   |  | $ | 0.91    |  
|                                       | Pro forma                                                                                                                                           |                             | $ | (11.70   | )    |  | $ | 0.06   |     |  | $ | 0.91    |  






|    |                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In fiscal years 2003 and 2004, amount includes $0.8 million
    and $0.1 million, respectively, of compensation expense
    related to restricted stock that was recorded as part of the
    restructuring charge expense in the Consolidated Statements of
    Operations and Comprehensive Income (Loss).



| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                       
| | ----------------------
| | Short-term Investments







| |                                    
| | -----------------------------------
| | Accounting for Investment Interests



F-9



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                  
| | -----------------
| | Long-Lived Assets





| |                                                    
| | ---------------------------------------------------
| | Costs Incurred to Develop Software for Internal Use





| |                           
| | --------------------------
| | Other Comprehensive Income





| |                                              
| | ---------------------------------------------
| | Derivative Instruments and Hedging Activities





F-10



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








| |                                                           
| | ----------------------------------------------------------
| | Financial Instruments and Concentration of Credit
    Risk





| |             
| | ------------
| | Income Taxes





| |                            
| | ---------------------------
| | Net Income (Loss) Per Share



F-11



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                                                             |  |                             |        |  |      |  |        |      |  |  |        | 
|-------------------------------------------------------------------------------------------- |  | --------------------------- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                                                                                             |  | Fiscal Year Ended March 31, |       
|                                                                                             |  |                             |       
|                                                                                             |  | 2003                        |        |  | 2004 |  |        | 2005 | 
|                                                                                             |  |                             |        |  |      |  |        |      | 
|Shares used in computing basic net income (loss) per share                                   |  |                             | 31,548 |  |      |  | 32,710 |      |  |  | 33,516 | 
|Dilutive effect of stock options, SARs, and restricted
    stock/units                       |  |                             |       |  |      |  |       |      |  |  | 2,765  | 
|                                                                                             |  |                             |        |  |      |  |        |      | 
|Shares used in computing diluted net income (loss) per share                                 |  |                             | 31,548 |  |      |  | 32,710 |      |  |  | 36,281 | 
|                                                                                             |  |                             |        |  |      |  |        |      | 
|Antidilutive securities not included in dilutive net income
    (loss) per share calculation |  |                             | 17,161 |  |      |  | 12,282 |      |  |  | 4,262  | 
|Dilutive securities not included in dilutive net loss per share
    due to loss              |  |                             | 451    |  |      |  | 1,496  |      |  |  |       | 



| |                      
| | ---------------------
| | Financial Instruments





| |                 
| | ----------------
| | Use of Estimates





|    |                        
|--- | -----------------------
|(3) | New Accounting Policies







|    |                      
|--- | ---------------------
|(4) | Restructuring Charges



F-12



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                                       
| | --------------------------------------
| | Fiscal Year 2004 Restructuring Charges







| |                                       
| | --------------------------------------
| | Fiscal Year 2003 Restructuring Charges







F-13



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








| |                                       
| | --------------------------------------
| | Fiscal Year 2002 Restructuring Charges







|                                                                                          |  |                                            |        |  |                   |   |     |               |  |   |           |  |  |          |       |  |             |   |       |         |  |   |         |   |  |      |       |  |          |   |     |             |  |   |           |  |  |   |       |  |  |   |     |  |  |   |       | 
|----------------------------------------------------------------------------------------- |  | ------------------------------------------ | ------ |  | ----------------- | - | --- | ------------- |  | - | --------- |  |  | -------- | ----- |  | ----------- | - | ----- | ------- |  | - | ------- | - |  | ---- | ----- |  | -------- | - | --- | ----------- |  | - | --------- |  |  | - | ----- |  |  | - | --- |  |  | - | ----- | 
|                                                                                          |  | Restructuring Charge for the Quarter Ended |        |  | Accrual Reduction |   |     | Other         |  |   |          
|                                                                                          |  |                                            |        |  |                   |   |     |               |  |   | Remaining | 
|                                                                                          |  |                                            |        |  |                   |   |     |               |  |   |           |  |  | Accrual  |      
|                                                                                          |  | December 2001                              |        |  | September 2002    |   |     | December 2002 |  |   | June 2003 |  |  | Utilized |       |  | Currency    |   |       | Balance | 
|                                                                                          |  |                                            |        |  |                   |   |     |               |  |   |           |  |  |          |       |  | Translation |   |       | as of   | 
|Description                                                                               |  | Charge                                     |        |  | Adj (1)           |   |     | Charge        |  |   | Adj (2)   |  |  | Charge   |       |  | Adj (3)     |   |       | Charge  |  |   | Adj (3) |   |  | Cash |       |  | Non-cash |   |     | Adjustments |  |   | 3/31/2005 | 
|                                                                                          |  |                                            |        |  |                   |   |     |               |  |   |           |  |  |          |       |  |             |   |       |         |  |   |         |   |  |      |       |  |          |   |     |             |  |   |           | 
|Severance and related costs                                                               |  | $                                          | 10,847 |  |                   | $ | 53  |               |  | $ | 5,638     |  |  | $        |      |  |             | $ | 7,761 |         |  | $ | (89     | ) |  | $    | 2,497 |  |          | $ | (43 | )           |  | $ | 24,195    |  |  | $ | 2,512 |  |  | $ | 43  |  |  | $ |      | 
|Contractual commitments and leasehold improvements related to
    office space reductions |  |                                            | 3,089  |  |                   |   | (28 | )             |  |   | 12,105    |  |  |          | 1,736 |  |             |   | 397   |         |  |   | (91     | ) |  |      |      |  |          |   | (35 | )           |  |   | 10,096    |  |  |   | 1,567 |  |  |   | 892 |  |  |   | 6,402 | 
|Write-off of property, plant, equipment and leases                                        |  |                                            | 1,606  |  |                   |   | 375 |               |  |   | 2,714     |  |  |          |      |  |             |   | 215   |         |  |   |        |   |  |      |      |  |          |   |    |             |  |   | 2,684     |  |  |   | 2,116 |  |  |   |    |  |  |   | 146   | 
|                                                                                          |  |                                            |        |  |                   |   |     |               |  |   |           |  |  |          |       |  |             |   |       |         |  |   |         |   |  |      |       |  |          |   |     |             |  |   |           | 
|                                                                                          |  | $                                          | 15,542 |  |                   | $ | 400 |               |  | $ | 20,457    |  |  | $        | 1,736 |  |             | $ | 8,409 |         |  | $ | (180    | ) |  | $    | 2,497 |  |          | $ | (78 | )           |  | $ | 36,975    |  |  | $ | 6,195 |  |  | $ | 935 |  |  | $ | 6,548 | 
|                                                                                          |  |                                            |        |  |                   |   |     |               |  |   |           |  |  |          |       |  |             |   |       |         |  |   |         |   |  |      |       |  |          |   |     |             |  |   |           | 

F-14



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)







|    |                                           
|--- | ------------------------------------------
|(1) | Adjustment was recorded in September 2002.
|   
|(2) | Adjustment was recorded in June 2003.     
|   
|(3) | Adjustment was recorded in March 2004.    





|    |                                                                   
|--- | ------------------------------------------------------------------
|(5) | Computers, Equipment, Leasehold Improvements and Software,
    net



|                                               |  |      |         |   |      |   |         |  
|---------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                               |  | 2004 |         |   | 2005 |  
|                                               |  |      |         |   |      |  
|Computers and equipment                        |  | $    | 15,577  |   |      | $ | 16,997  |  
|Leasehold improvements                         |  |      | 6,715   |   |      |   | 6,684   |  
|Software                                       |  |      | 11,700  |   |      |   | 11,797  |  
|                                               |  |      |         |   |      |  
|                                               |  |      | 33,992  |   |      |   | 35,478  |  
|Less accumulated depreciation and amortization |  |      | (27,519 | ) |      |   | (30,333 | )
|                                               |  |      |         |   |      |  
|                                               |  | $    | 6,473   |   |      | $ | 5,145   |  
|                                               |  |      |         |   |      |  



|    |                          
|--- | -------------------------
|(6) | Other Accrued Liabilities



|                          |       |      |        |        |      |   |        |        | 
|------------------------- | ----- | ---- | ------ | ------ | ---- | - | ------ | ------ | 
|                          |       | 2004 |        |        | 2005 |  
|                          |       |      |        |        |      |  
|VAT taxes payable         |       | $    | 6,626  |        |      | $ | 2,052  |       
|Other accrued liabilities |       |      | 12,347 |        |      |   | 12,493 |       
|                          |       |      |        |        |      |  
|                          | Total |      | $      | 18,973 |      |   | $      | 14,545 | 
|                          |       |      |        |        |      |  



|    |            
|--- | -----------
|(7) | Commitments



|                      |  |   |        | 
|--------------------- |  | - | ------ | 
|Year ending March 31, |  |  
|                      |  |  
|2006                  |  | $ | 5,935  | 
|2007                  |  |   | 4,902  | 
|2008                  |  |   | 3,480  | 
|2009                  |  |   | 4,772  | 
|2010                  |  |   | 3,107  | 
|Thereafter            |  |   | 5,274  | 
|                      |  |   |       
|                      |  | $ | 27,470 | 
|                      |  |   |       

F-15



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|    |               
|--- | --------------
|(8) | Line of Credit





|    |                     
|--- | --------------------
|(9) | Stockholders Equity



| |                                        
| | ---------------------------------------
| | Conversion To One Class of Common Stock





| |                  
| | -----------------
| | Stock Repurchases



F-16



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                  |       |                             |       |       |        |   |        |               |  |   |       |       | 
|----------------- | ----- | --------------------------- | ----- | ----- | ------ | - | ------ | ------------- |  | - | ----- | ----- | 
|                  |       | Repurchases of Common Stock |      
|                  |       |                             |      
|                  |       | Shares                      |       |       | Amount |   |        | Average Price | 
|                  |       |                             |       |       |        |   |        |               | 
|2005              |       |                             | 2,433 |       |        | $ | 31,547 |               |  | $ | 12.97 |      
|2004              |       |                             | 944   |       |        |   | 9,204  |               |  |   | 9.75  |      
|2003              |       |                             | 968   |       |        |   | 5,242  |               |  |   | 5.42  |      
|Inception to 2002 |       |                             | 2,424 |       |        |   | 46,690 |               |  |   | 19.26 |      
|                  |       |                             |       |       |        |   |        |               | 
|                  | Total |                             |       | 6,769 |        |   | $      | 92,683        |  |   | $     | 13.69 | 
|                  |       |                             |       |       |        |   |        |               | 



F-17



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                          |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |       |   |  |      |     |   |  |        |   | 
|------------------------- | -------------------------------------------- | ------ | ------ | ------- | ---------------- |  | ------- | ------- | - |  | ------ | ------ | - | ------- | ------ |  | ------- |  | ------ | ------ | - |  | -------- | ----- | - |  | ---- | --- | - |  | ------ | - | 
|                          |                                              | Issued |        |         | Held in Treasury | 
|                          |                                              |        |        |         |                  | 
|                          |                                              |        |        | Class A |                  |  | Class B |         |   |  |        |        |   | Class A |        |  | Class B |  |        |       
|                          |                                              | Common |        |         | Common           |  |         | Common  |   |  | Total  |        |   | Common  |        |  | Common  |  |        | Common |   |  | Total    |      
|                          |                                              | Stock  |        |         | Stock            |  |         | Stock   |   |  | Issued |        |   | Stock   |        |  | Stock   |  |        | Stock  |   |  | Treasury |      
|                          |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |      
|Balance at March 31, 2002 |                                              |        |       |         |                  |  | 27,497  |         |   |  | 6,562  |        |   |         | 34,059 |  |         |  |       |        |   |  | (2,111   | )     |   |  | (313 | )   |   |  | (2,424 | )
|                          |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |      
|Issued                    |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |       |   |  |      |     |   |  |        |  
|                          | Equity incentive plans                       |        |        |        |                  |  |         | 95      |   |  |        | 1,071  |   |         |        |  |         |  |        |       |   |  |          |      |   |  |      |    |   |  |        |   | 
|                          | Acquisitions                                 |        |        |        |                  |  |         | 2       |   |  |        |       |   |         |        |  |         |  |        |       |   |  |          |      |   |  |      |    |   |  |        |   | 
|                          | Conversion                                   |        |        |        |                  |  |         | 1,139   |   |  |        | (1,139 | ) |         |        |  |         |  |        |       |   |  |          |      |   |  |      |    |   |  |        |   | 
|Treasury Stock            |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |       |   |  |      |     |   |  |        |  
|                          | Repurchases                                  |        |        |        |                  |  |         |        |   |  |        |       |   |         |        |  |         |  |        |       |   |  |          | (970  | ) |  |      | (1  | ) |  |        |   | 
|                          | Retirement                                   |        |        |        |                  |  |         | (2      | ) |  |        | (1     | ) |         |        |  |         |  |        |       |   |  |          | 2     |   |  |      | 1   |   |  |        |   | 
|                          |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |      
|Balance at March 31, 2003 |                                              |        |       |         |                  |  | 28,731  |         |   |  | 6,493  |        |   |         | 35,224 |  |         |  |       |        |   |  | (3,079   | )     |   |  | (313 | )   |   |  | (3,392 | )
|                          |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |      
|Issued                    |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |       |   |  |      |     |   |  |        |  
|                          | Equity incentive plans                       |        |        | 1,575   |                  |  |         | 190     |   |  |        | 1,695  |   |         |        |  |         |  |        |       |   |  |          |      |   |  |      |    |   |  |        |   | 
|                          | Conversion                                   |        |        | 37,109  |                  |  |         | (28,921 | ) |  |        | (8,188 | ) |         |        |  |         |  |        |       |   |  |          |      |   |  |      |    |   |  |        |   | 
|Treasury Stock            |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |       |   |  |      |     |   |  |        |  
|                          | Repurchases                                  |        |        |        |                  |  |         |        |   |  |        |       |   |         |        |  |         |  |        | (945   | ) |  |          |      |   |  |      |    |   |  |        |   | 
|                          | Retirement                                   |        |        | (1      | )                |  |         |        |   |  |        |       |   |         |        |  |         |  |        | 1      |   |  |          |      |   |  |      |    |   |  |        |   | 
|                          | Conversion                                   |        |        |        |                  |  |         |        |   |  |        |       |   |         |        |  |         |  |        | (3,392 | ) |  |          | 3,079 |   |  |      | 313 |   |  |        |   | 
|                          |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |      
|Balance at March 31, 2004 |                                              |        | 38,683 |         |                  |  |        |         |   |  |       |        |   |         | 38,683 |  |         |  | (4,336 | )      |   |  |         |       |   |  |     |     |   |  | (4,336 | )
|                          |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |      
|Issued                    |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |       |   |  |      |     |   |  |        |  
|                          | Equity incentive plans                       |        |        | 1,850   |                  |  |         |        |   |  |        |       |   |         |        |  |         |  |        | 1,037  |   |  |          |      |   |  |      |    |   |  |        |   | 
|Treasury Stock            |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |       |   |  |      |     |   |  |        |  
|                          | Repurchases                                  |        |        |        |                  |  |         |        |   |  |        |       |   |         |        |  |         |  |        | (2,433 | ) |  |          |      |   |  |      |    |   |  |        |   | 
|                          | Shares withheld under equity incentive plans |        |        |        |                  |  |         |        |   |  |        |       |   |         |        |  |         |  |        | (365   | ) |  |          |      |   |  |      |    |   |  |        |   | 
|                          | Retirement                                   |        |        | (365    | )                |  |         |        |   |  |        |       |   |         |        |  |         |  |        | 365    |   |  |          |      |   |  |      |    |   |  |        |   | 
|                          |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |      
|Balance at March 31, 2005 |                                              |        | 40,168 |         |                  |  |        |         |   |  |       |        |   |         | 40,168 |  |         |  | (5,732 | )      |   |  |         |       |   |  |     |     |   |  | (5,732 | )
|                          |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |      



| |                                 
| | --------------------------------
| | Stockholder Rights Plan Adoption



F-18



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                             
| | ----------------------------
| | Employee Stock Purchase Plan







|                        |  |        |     |  |                 |                |                |           |  |   |      | 
|----------------------- |  | ------ | --- |  | --------------- | -------------- | -------------- | --------- |  | - | ---- | 
|                        |  |        |     |  |                 | Weighted-      |               
|                        |  |        |     |  |                 | Average        |               
|                        |  |        |     |  |                 | Purchase Price |               
|                        |  | Shares |     |  | Range of Prices |                |                | Per Share | 
|                        |  |        |     |  |                 |                |                |           | 
|Issued fiscal year 2003 |  |        | 586 |  |                 | $              | 2.38 to $10.78 |           |  | $ | 3.44 | 
|Issued fiscal year 2004 |  |        | 827 |  |                 | $              | 1.41 to $7.56  |           |  | $ | 1.65 | 
|Issued fiscal year 2005 |  |        | 210 |  |                 | $              | 7.68 to $11.58 |           |  | $ | 8.16 | 



| |                            
| | ---------------------------
| | Stock Option Rehabilitation





| |                       
| | ----------------------
| | Stock Options and SARs



F-19



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)












F-20



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                         |           |             |        |         |                 |           |                |                |  |   |       |       | 
|------------------------ | --------- | ----------- | ------ | ------- | --------------- | --------- | -------------- | -------------- |  | - | ----- | ----- | 
|                         |           |             |        |         |                 | Weighted- |               
|                         |           | Shares      |        |         |                 |           | Average        |               
|                         |           | Under       |        |         |                 |           | Exercise Price |               
|                         |           | Option/SARs |        |         | Range of Prices |           |                | Per Share      | 
|                         |           |             |        |         |                 |           |                |                | 
|Balances, March 31, 2002 |           |             | 26,266 |         |                 | $         | 0.81 to $87.60 |                |  | $ | 15.46 |      
|                         | Granted   |             |        | 2,730   |                 |           |                | 0.56 to 13.02  |  |   |       | 5.25  | 
|                         | Exercised |             |        | (325    | )               |           |                | 0.58 to 11.41  |  |   |       | 5.94  | 
|                         | Forfeited |             |        | (11,510 | )               |           |                | 0.56 to 87.60  |  |   |       | 19.35 | 
|                         |           |             |        |         |                 |           |                |                | 
|Balances, March 31, 2003 |           |             | 17,161 |         |                 | $         | 0.76 to $60.35 |                |  | $ | 11.36 |      
|                         | Granted   |             |        | 368     |                 |           |                | 1.57 to 10.67  |  |   |       | 5.49  | 
|                         | Exercised |             |        | (1,029  | )               |           |                | 0.76 to 10.82  |  |   |       | 5.00  | 
|                         | Forfeited |             |        | (4,774  | )               |           |                | 0.76 to 60.35  |  |   |       | 12.63 | 
|                         |           |             |        |         |                 |           |                |                | 
|Balances, March 31, 2004 |           |             | 11,726 |         |                 | $         | 0.76 to $32.86 |                |  | $ | 11.32 |      
|                         | Granted   |             |        | 2,170   |                 |           | $              | 2.71 to $12.27 |  |   | $     | 9.72  | 
|                         | Exercised |             |        | (2,162  | )               |           |                | 0.76 to 14.30  |  |   |       | 9.05  | 
|                         | Forfeited |             |        | (2,004  | )               |           |                | 0.76 to 32.86  |  |   |       | 12.76 | 
|                         |           |             |        |         |                 |           |                |                | 
|Balances, March 31, 2005 |           |             | 9,730  |         |                 | $         | 0.76 to $32.86 |                |  | $ | 11.21 |      
|                         |           |             |        |         |                 |           |                |                | 





|                         |  |              |                          |  |                  |  |      |                  |  |              |                |  |  |                  |           |  |  |   |       | 
|------------------------ |  | ------------ | ------------------------ |  | ---------------- |  | ---- | ---------------- |  | ------------ | -------------- |  |  | ---------------- | --------- |  |  | - | ----- | 
|Options/SARs Outstanding |  |              | Options/SARs Exercisable | 
|                         |  |              |                          | 
|                         |  | Weighted-    |                          |  |                  |  |     
|                         |  | Average      |                          |  |                  |  |     
|                         |  | Options/SARs |                          |  | Remaining        |  |      |                  |  | Options/SARs |                |  | 
|                         |  | Outstanding  |                          |  | Contractual Life |  |      | Weighted-Average |  |              | Exercisable at |  |  | Weighted-Average |          
|Range of Exercise Prices |  | at 3/31/05   |                          |  | (in years)       |  |      | Exercise Price   |  |              | 3/31/05        |  |  | Exercise Price   |          
|                         |  |              |                          |  |                  |  |      |                  |  |              |                |  |  |                  |          
|$0.76 to $7.06           |  |              | 1,001,421                |  |                  |  | 2.91 |                  |  | $            | 3.57           |  |  |                  | 343,458   |  |  | $ | 2.98  | 
|7.60 to 8.81             |  |              | 2,066,077                |  |                  |  | 3.39 |                  |  |              | 8.65           |  |  |                  | 879,318   |  |  |   | 8.48  | 
|8.95 to 10.02            |  |              | 1,909,133                |  |                  |  | 3.08 |                  |  |              | 9.32           |  |  |                  | 979,199   |  |  |   | 9.30  | 
|10.07 to 12.08           |  |              | 2,328,748                |  |                  |  | 2.61 |                  |  |              | 10.48          |  |  |                  | 1,301,165 |  |  |   | 10.45 | 
|12.13 to 15.96           |  |              | 1,243,752                |  |                  |  | 2.46 |                  |  |              | 13.23          |  |  |                  | 938,808   |  |  |   | 13.44 | 
|16.23 to 25.61           |  |              | 570,710                  |  |                  |  | 3.45 |                  |  |              | 20.99          |  |  |                  | 566,898   |  |  |   | 21.02 | 
|26.37 to 32.86           |  |              | 610,306                  |  |                  |  | 2.33 |                  |  |              | 27.74          |  |  |                  | 547,406   |  |  |   | 27.72 | 
|                         |  |              |                          |  |                  |  |      |                  |  |              |                |  |  |                  |          
|$0.76 to $32.86          |  |              | 9,730,147                |  |                  |  | 2.91 |                  |  | $            | 11.21          |  |  |                  | 5,556,252 |  |  | $ | 12.76 | 
|                         |  |              |                          |  |                  |  |      |                  |  |              |                |  |  |                  |          



F-21



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                      |  |      |              |  |      |  |              |      |  |  |              | 
|--------------------- |  | ---- | ------------ |  | ---- |  | ------------ | ---- |  |  | ------------ | 
|                      |  | 2003 |              |  | 2004 |  |              | 2005 | 
|                      |  |      |              |  |      |  |              |      | 
|Expected life (years) |  |      | 0.1 to 4.4   |  |      |  | 0.5 to 5.5   |      |  |  | 0.5 to 6.0   | 
|Interest rate         |  |      | 1.3% to 4.6% |  |      |  | 1.5% to 2.5% |      |  |  | 0.9% to 3.9% | 
|Volatility            |  |      | 82%          |  |      |  | 68%          |      |  |  | 45%          | 
|Dividend yield        |  |      |             |  |      |  |             |      |  |  |             | 



| |                                                               
| | --------------------------------------------------------------
| | Restricted Stock and Restricted Stock Units (Stock
    Awards)









|                          |                                                  |          |       |        |  
|------------------------- | ------------------------------------------------ | -------- | ----- | ------ | -
|                          |                                                  | Unvested |      
|                          |                                                  | Stock    |      
|                          |                                                  | Awards   |      
|                          |                                                  |          |      
|Balance at March 31, 2003 |                                                  |          | 116   |       
|                          | Granted at weighted average fair value of $4.03  |          |       | 3,267  |  
|                          | Vested                                           |          |       | (586   | )
|                          | Forfeited                                        |          |       | (241   | )
|                          |                                                  |          |      
|Balance at March 31, 2004 |                                                  |          | 2,556 |       
|                          | Granted at weighted average fair value of $10.42 |          |       | 2,016  |  
|                          | Vested                                           |          |       | (1,024 | )
|                          | Forfeited                                        |          |       | (365   | )
|                          |                                                  |          |      
|Balance at March 31, 2005 |                                                  |          | 3,183 |       
|                          |                                                  |          |      

F-22



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|     |             
|---- | ------------
|(10) | Income Taxes



|          |         |      |        |        |      |   |     |       |   |   |         |         |  
|--------- | ------- | ---- | ------ | ------ | ---- | - | --- | ----- | - | - | ------- | ------- | -
|          |         | 2003 |        |        | 2004 |   |     | 2005  |  
|          |         |      |        |        |      |   |     |       |  
|Current:  |         |      |        |        |      |   |     |       |   |   |         |        
|          | Federal |      | $      | 503    |      |   | $   | (845  | ) |   | $       | 4,678   |  
|          | State   |      |        |       |      |   |     | 37    |   |   |         | 1,838   |  
|          | Foreign |      |        | 570    |      |   |     | 1,462 |   |   |         | 976     |  
|          |         |      |        |        |      |   |     |       |  
|          |         | $    | 1,073  |        |      | $ | 654 |       |   | $ | 7,492   |        
|Deferred: |         |      |        |        |      |   |     |       |   |   |         |        
|          | Federal |      |        | 11,242 |      |   |     |      |   |   |         | (15,951 | )
|          | State   |      |        | 5,689  |      |   |     |      |   |   |         | (4,250  | )
|          | Foreign |      |        | 3,205  |      |   |     |      |   |   |         | (536    | )
|          |         |      |        |        |      |   |     |       |  
|          |         | $    | 20,136 |        |      | $ |    |       |   | $ | (20,737 | )      
|          |         |      |        |        |      |   |     |       |  
|          |         | $    | 21,209 |        |      | $ | 654 |       |   | $ | (13,245 | )      
|          |         |      |        |        |      |   |     |       |  



|                                                                                 |  |      |          |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                 |  | 2003 |          |   | 2004 |   |         | 2005 | 
|                                                                                 |  |      |          |   |      |   |         |      | 
|Federal income taxes (benefit) at statutory rate                                 |  | $    | (115,209 | ) |      | $ | (1,617  | )    |  | $ | 6,927   |  
|Non-deductible goodwill amortization/impairment and stock-based
    compensation |  |      | 94,400   |   |      |   | 2,073   |      |  |   | 1,482   |  
|Write-down of investment in subsidiary                                           |  |      |         |   |      |   | (12,552 | )    |  |   |        |  
|State income taxes, net of federal effect                                        |  |      |         |   |      |   | 24      |      |  |   | 1,195   |  
|Foreign tax rate differential                                                    |  |      | 103      |   |      |   | (4,434  | )    |  |   | 239     |  
|Other permanent differences                                                      |  |      | (4,098   | ) |      |   | 366     |      |  |   | (1,564  | )
|Change in valuation allowance for deferred tax assets                            |  |      | 46,013   |   |      |   | 16,794  |      |  |   | (21,524 | )
|                                                                                 |  |      |          |   |      |   |         |      | 
|                                                                                 |  | $    | 21,209   |   |      | $ | 654     |      |  | $ | (13,245 | )
|                                                                                 |  |      |          |   |      |   |         |      | 

F-23



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                          |                                                 |                                 |   |        |         |   |        |        |         |  
|----------------------------------------- | ----------------------------------------------- | ------------------------------- | - | ------ | ------- | - | ------ | ------ | ------- | -
|                                          |                                                 | 2004                            |   |        | 2005    |  
|                                          |                                                 |                                 |   |        |         |  
|Deferred tax assets attributable to:      |                                                 |                                 |   |        |         |   |        |       
|                                          | Net operating loss carryforwards                |                                 | $ | 51,569 |         |   | $      | 49,309 |        
|                                          | Foreign tax credit and AMT credit carryforwards |                                 |   | 4,416  |         |   |        | 5,812  |        
|                                          | Allowances and accruals                         |                                 |   | 4,385  |         |   |        | 3,458  |        
|                                          | Stock-based compensation                        |                                 |   | 1,472  |         |   |        | 2,518  |        
|                                          | Goodwill                                        |                                 |   | 2,315  |         |   |        | 2,135  |        
|                                          | Depreciation                                    |                                 |   | 675    |         |   |        | 487    |        
|                                          | Capital loss carryforwards                      |                                 |   | 3,305  |         |   |        | 3,384  |        
|                                          |                                                 |                                 |   |        |         |  
|                                          |                                                 | Total gross deferred tax assets |   |        | 68,137  |   |        |        | 67,103  |  
|                                          |                                                 | Less valuation allowance        |   |        | (67,029 | ) |        |        | (45,505 | )
|                                          |                                                 |                                 |   |        |         |  
|                                          |                                                 | Net deferred tax assets         |   |        | 1,108   |   |        |        | 21,598  |  
|Deferred tax liabilities attributable to: |                                                 |                                 |   |        |         |   |        |       
|                                          | Intangibles                                     |                                 |   |       |         |   |        | 342    |        
|                                          | Prepaids                                        |                                 |   |       |         |   |        | 405    |        
|                                          | Other                                           |                                 |   | 1,108  |         |   |        | 191    |        
|                                          |                                                 |                                 |   |        |         |  
|                                          |                                                 | Total deferred tax liabilities  |   |        | 1,108   |   |        |        | 938     |  
|                                          |                                                 |                                 |   |        |         |  
|Net deferred income taxes                 |                                                 | $                               |  |        |         | $ | 20,660 |       
|                                          |                                                 |                                 |   |        |         |  







F-24



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|     |                
|---- | ---------------
|(11) | Geographic Data





|                                    |                     |                         |   |        |         |  |   |        |         |  |   |         |         | 
|----------------------------------- | ------------------- | ----------------------- | - | ------ | ------- |  | - | ------ | ------- |  | - | ------- | ------- | 
|                                    |                     | 2003                    |   |        | 2004    |  |   | 2005   |        
|                                    |                     |                         |   |        |         |  |   |        |        
|Net revenues:                       |                     |                         |   |        |         |  |   |        |         |  |   |        
|                                    | North America       |                         | $ | 79,278 |         |  | $ | 93,602 |         |  | $ | 132,614 |        
|                                    | Europe              |                         |   | 50,017 |         |  |   | 58,861 |         |  |   | 53,447  |        
|                                    | All other countries |                         |   | 3,679  |         |  |   | 2,322  |         |  |   | 7,102   |        
|                                    |                     |                         |   |        |         |  |   |        |        
|                                    |                     | Total net revenues      |   | $      | 132,974 |  |   | $      | 154,785 |  |   | $       | 193,163 | 
|                                    |                     |                         |   |        |         |  |   |        |        
|Long-lived assets (as of March 31): |                     |                         |   |        |         |  |   |        |         |  |   |        
|                                    | North America       |                         | $ | 7,920  |         |  | $ | 4,271  |         |  | $ | 4,138   |        
|                                    | Europe              |                         |   | 3,895  |         |  |   | 2,682  |         |  |   | 2,363   |        
|                                    | All other countries |                         |   | 436    |         |  |   | 249    |         |  |   | 217     |        
|                                    |                     |                         |   |        |         |  |   |        |        
|                                    |                     | Total long-lived assets |   | $      | 12,251  |  |   | $      | 7,202   |  |   | $       | 6,718   | 
|                                    |                     |                         |   |        |         |  |   |        |        





|     |              
|---- | -------------
|(12) | Benefit Plans



| |            
| | -----------
| | 401(k) Plan





|     |                                 
|---- | --------------------------------
|(13) | Foreign Exchange Risk Management



| |                       
| | ----------------------
| | Objectives and Context



F-25



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |           
| | ----------
| | Strategies







|     |                           
|---- | --------------------------
|(14) | Related Party Transactions





|     |                       
|---- | ----------------------
|(15) | Short-term Investments



F-26



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##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|     |                                            
|---- | -------------------------------------------
|(16) | Quarterly Financial Information (Unaudited)



|                                                |  |               |         |   |         |   |        |        |  |   |        |  |  |   |        | 
|----------------------------------------------- |  | ------------- | ------- | - | ------- | - | ------ | ------ |  | - | ------ |  |  | - | ------ | 
|                                                |  | Quarter Ended |        
|                                                |  |               |        
|                                                |  | June 30       |         |   | Sept 30 |   |        | Dec 31 |  |   | Mar 31 | 
|                                                |  |               |         |   |         |   |        |        |  |   |        | 
|Year Ended March 31, 2004                       |  |               |         |   |         |   |        |        |  |   |        |  |  |   |        | 
|Net revenue                                     |  | $             | 34,030  |   |         | $ | 38,213 |        |  | $ | 39,510 |  |  | $ | 43,032 | 
|Total revenue (including reimbursable expenses) |  |               | 39,217  |   |         |   | 43,366 |        |  |   | 44,790 |  |  |   | 49,741 | 
|Gross margin                                    |  |               | 5,330   |   |         |   | 10,816 |        |  |   | 11,404 |  |  |   | 13,181 | 
|Income (loss) from operations                   |  |               | (9,944  | ) |         |   | 738    |        |  |   | 1,061  |  |  |   | 2,351  | 
|Income (loss) before income taxes               |  |               | (9,542  | ) |         |   | 951    |        |  |   | 1,350  |  |  |   | 2,484  | 
|Net income (loss)                               |  |               | (10,053 | ) |         |   | 461    |        |  |   | 980    |  |  |   | 3,201  | 
|Basic income (loss) per share                   |  | $             | (0.31   | ) |         | $ | 0.01   |        |  | $ | 0.03   |  |  | $ | 0.10   | 
|Diluted income (loss) per share                 |  | $             | (0.31   | ) |         | $ | 0.01   |        |  | $ | 0.03   |  |  | $ | 0.09   | 

|                                                |  |               |        |  |         |   |        |        |  |   |        |  |  |   |        | 
|----------------------------------------------- |  | ------------- | ------ |  | ------- | - | ------ | ------ |  | - | ------ |  |  | - | ------ | 
|                                                |  | Quarter Ended |       
|                                                |  |               |       
|                                                |  | June 30       |        |  | Sept 30 |   |        | Dec 31 |  |   | Mar 31 | 
|                                                |  |               |        |  |         |   |        |        |  |   |        | 
|Year Ended March 31, 2005                       |  |               |        |  |         |   |        |        |  |   |        |  |  |   |        | 
|Net revenue                                     |  | $             | 44,865 |  |         | $ | 46,116 |        |  | $ | 50,168 |  |  | $ | 52,014 | 
|Total revenue (including reimbursable expenses) |  |               | 51,551 |  |         |   | 52,498 |        |  |   | 56,622 |  |  |   | 59,104 | 
|Gross margin                                    |  |               | 13,944 |  |         |   | 15,138 |        |  |   | 17,787 |  |  |   | 18,683 | 
|Income from operations                          |  |               | 3,285  |  |         |   | 4,194  |        |  |   | 5,149  |  |  |   | 5,614  | 
|Income before income taxes                      |  |               | 3,600  |  |         |   | 4,457  |        |  |   | 5,590  |  |  |   | 6,146  | 
|Net income                                      |  |               | 3,441  |  |         |   | 4,120  |        |  |   | 5,424  |  |  |   | 20,053 | 
|Basic income per share                          |  | $             | 0.10   |  |         | $ | 0.12   |        |  | $ | 0.16   |  |  | $ | 0.59   | 
|Diluted income per share                        |  | $             | 0.10   |  |         | $ | 0.12   |        |  | $ | 0.15   |  |  | $ | 0.53   | 



F-27



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












| |             
| | ------------
| | /s/ KPMG LLP





S-1



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


|                                   |                                                              |                        |   |       |            |  |   |            |   |            |          |       |  |  |   |       | 
|---------------------------------- | ------------------------------------------------------------ | ---------------------- | - | ----- | ---------- |  | - | ---------- | - | ---------- | -------- | ----- |  |  | - | ----- | 
|Column A                           |                                                              | Column B               |   |       | Column C   |  |   | Column D   |   |            | Column E |      
|                                   |                                                              |                        |   |       |            |  |   |            |   |            |          |      
|                                   |                                                              | Balance at             |   |       | Charged to |  |   |            |   | Balance at |         
|                                   |                                                              | Beginning              |   |       | Costs and  |  |   |            |   | End of     |         
|Description                        |                                                              | of Period              |   |       | Expenses   |  |   | Deductions |   |            | Period   |      
|                                   |                                                              |                        |   |       |            |  |   |            |   |            |          |      
|                                   |                                                              | (Amounts in thousands) |  
|For the Year Ended March 31, 2005: |                                                              |                        |   |       |            |  |   |            |   |            |          |       |  |  |   |      
|                                   | Deducted from accounts receivable for uncollectible accounts |                        | $ | 1,650 |            |  | $ | (145       | ) |            | $        | 426   |  |  | $ | 1,079 | 
|For the Year Ended March 31, 2004: |                                                              |                        |   |       |            |  |   |            |   |            |          |       |  |  |   |      
|                                   | Deducted from accounts receivable for uncollectible accounts |                        | $ | 1,597 |            |  | $ | 413        |   |            | $        | 360   |  |  | $ | 1,650 | 
|For the Year Ended March 31, 2003: |                                                              |                        |   |       |            |  |   |            |   |            |          |       |  |  |   |      
|                                   | Deducted from accounts receivable for uncollectible accounts |                        | $ | 1,089 |            |  | $ | 3,324      |   |            | $        | 2,816 |  |  | $ | 1,597 | 

S-2