**Exhibit 99.1**
**RISK FACTORS**
     You should carefully consider the risks described below. The risks described are not the onlyones we face. Any of the following risks could have a material adverse effect on our business,financial condition and operating results. You should also refer to the other information containedin this report, including our financial statements and the related notes.
**Our Profitability Will Suffer If We Are Not Able to Maintain Our Pricing and Utilization Rates andControl Our Costs.**
     Our profit margin, and therefore our profitability, is largely a function of the rates we areable to recover for our services and the utilization rate, or chargeability, of our professionals.Accordingly, if we are not able to maintain the pricing for our services or an appropriateutilization rate for our professionals and correspondingly reduce our costs, we will not be able tosustain our profit margin and our profitability will suffer. We are currently experiencing pressureon our pricing as a result of the challenging economic environment. The rates we are able torecover for our services are affected by a number of factors, including:
 •  our clients’ perception of our ability to add value through ourservices;  •  competition;  •  introduction of new services or products by us or our competitors;  •  pricing policies of our competitors; and  •  general economic conditions.
     Our utilization rates are also affected by a number of factors, including:
 •  seasonal trends, primarily as a result of our hiring cycle and holidayand summer vacations (particularly in Europe);  •  our ability to transition employees from completed projects to newengagements; and  •  our ability to forecast demand for our services and thereby maintainan appropriate headcount in the appropriate areas of our workforce.
     Our profitability is also a function of our ability to control our costs and improve ourefficiency. Current and future cost reduction initiatives may not be sufficient to maintain ourmargins if the current challenging economic environment continues for several quarters.
**Our Global Operations Pose Complex Management, Foreign Currency, Legal, Tax and Economic Risks,Which We May Not Adequately Address.**
     We conduct business in a number of countries around the world. In the fiscal year ended March31, 2005, approximately 68% of our revenue was attributable to activities in North America, 20% ofour revenue was attributable to our activities in Europe, and 12% of our revenue was attributableto our activities in Latin America, Asia/Pacific, the Middle East and Africa. As a result, we aresubject to a number of risks, including:
 

 

 •  the burdens of complying with a wide variety of national and local laws;  •  multiple and possibly overlapping and conflicting tax laws;  •  successful conversion to global operating and financial systems;  •  coordinating geographically separated organizations;  •  restrictions on the movement of cash;  •  the absence in some jurisdictions of effective laws to protect ourintellectual property rights;  •  political instability;  •  currency fluctuations;  •  longer payment cycles;  •  restrictions on the import and export of certain technologies;  •  price controls or restrictions on exchange of foreign currencies; and  •  trade barriers.
**A Significant or Prolonged Economic Downturn Could Have a Material Adverse Effect on Our Results ofOperations.**
     Our results of operations are affected by the level of business activity of our clients, whichin turn is affected by the level of economic activity in the industries and markets that theyserve. A decline in the level of business activity of our clients could have a material adverseeffect on our revenue and profit margin. Although current economic conditions have improved overprevious quarters, future economic conditions could cause some clients to reduce or defer theirexpenditures for consulting services. Net revenue (before out-of-pocket expense reimbursements) forthe fiscal year ended March 31, 2005 increased by 25% from the fiscal year ended March 31, 2004.We have implemented and will continue to implement cost-savings initiatives to manage our expensesas a percentage of revenue. However, current and future cost-management initiatives may not besufficient to maintain our margins if economic environment should weaken for a prolonged period.
**Our Quarterly Operating Results Will Vary From Quarter to Quarter, Which May Result in IncreasedVolatility of Our Share Price.**
     We have experienced, and may in the future continue to experience, fluctuations in ourquarterly operating results. These fluctuations could reduce the market price of our Common Stock.
     Factors that may cause our quarterly operating results to vary include:
 •  the business decisions of our clients regarding the use of our services;  •  the timing of projects and their termination;  •  the timing of revenue or income;  •  our ability to transition employees quickly from completed projects tonew engagements;  •  the introduction of new products or services by us or our competitors;
 

 

 •  changes in our pricing policies or those of our competitors;  •  our ability to manage costs, including personnel costs and supportservices costs; and  •  global economic and political conditions and related risks, including acts of terrorism.
     The timing of revenue is difficult to forecast because our sales cycle is relatively long andour services are affected by both the financial condition and management decisions of our clientsand general economic conditions. A high percentage of our expenses are relatively fixed at thebeginning of any period. Because our general policy is not to adjust our staffing levels based uponwhat we view as short-term circumstances, a variation in the timing, initiation or completion ofclient assignments, particularly at or near the end of any quarter, can cause significantvariations in operating results from quarter to quarter and could result in losses for anyparticular period.
**Our Revenue Could Be Adversely Affected by the Loss of a Significant Client or the Failure toCollect a Large Account Receivable.**
     We have in the past derived, and may in the future derive, a significant portion of ourrevenue from a relatively limited number of major clients. From year to year, revenue from one ormore individual clients may exceed 10% of our revenue for the quarter. During the fiscal yearended March 31, 2005, we had one client that individually accounted for more than 12% of our netrevenue. If we lose any major clients or any of our clients cancel or significantly reduce a largeproject’s scope, we would lose a significant amount of revenue. In addition, if we fail to collecta large account receivable, we could be subject to significant financial exposure.
**The Absence of Long-Term Contracts With Our Clients Reduces the Predictability of Our Revenue.**
     Our clients are generally able to reduce or cancel their use of our professional serviceswithout penalty and, in some circumstances, with little notice. As a result, we believe that thenumber of clients or the number and size of our existing projects are not reliable indicators ormeasures of future revenue. We have in the past provided, and are likely in the future to provide,services to clients without long-term agreements. When a client defers, modifies or cancels aproject, there is no assurance that we will be able to rapidly redeploy our professionals to otherprojects in order to minimize the underutilization of employees and the resulting adverse impact onoperating results. We may not be able to replace cancelled or reduced contracts with new businesswith the result that our revenue and profits may decline.
**Failure to Meet Client Expectations Could Result in Losses and Negative Publicity.**
     A failure or inability by us or one of our subcontractors to meet a client’s expectationscould damage our reputation and adversely affect our ability to attract new business and result indelayed or lost revenue. Our client engagements involve the creation, implementation andmaintenance of business systems and other applications that can be critical to our clients’businesses. We may be sued or unable to collect accounts receivable if a client is not satisfiedwith our service.
     Our client contracts may not protect us from liability for damages in the event that we aresued. In addition, our general liability insurance coverage may not continue to be available onreasonable terms or in sufficient amounts. The successful assertion of any large claim against usor the failure by us to collect a large account receivable could result in significant financialexposure to us.
**The Price for Our Common Stock Has Been Volatile and Unpredictable.**
     The price for our Common Stock has been volatile. Our Common Stock has been listed on theNASDAQ National Market since February 1997. The closing market price of the Common Stock hasexperienced variations, and since January 1, 1999 through May 31, 2005, our high and low salesprice has
 

 

ranged from a high of $106.00 to a low of $1.38. The market price of our Common Stock mayexperience fluctuations in the future for a variety of reasons. These include:
 •  negative news about other publicly traded companies in our industry;  •  general economic or stock market conditions unrelated to our operating performance;  •  quarterly variations in our operating results;  •  changes in earnings estimates by analysts;  •  announcements of new contracts or service offerings by us or our competitors;  •  financial performance of the Company; and  •  other events or factors.
     In addition, the stock market in recent years has experienced significant price and volumefluctuations which have affected the market prices of technology related companies. Thesefluctuations may continue to occur and disproportionately impact our stock price.
**An Inability to Keep Pace with Rapidly Changing Technology May Impair Our Ability to RemainCompetitive.**
     Our failure to develop business and technology consulting services that keep pace withcontinuing changes in technology, evolving industry standards, information technology and clientpreferences will result in decreased demand for our services. Among our challenges in this area arethe need to:
 •  continue to develop our strategic and technical experience;  •  develop new services that meet changing client needs; and  •  effectively use leading technologies.
We may not be able to meet these objectives on a timely or successful basis.
**Competition in Our Industry is Intense and Could Harm Our Business.**
     Increased competition in our industry could result in price reductions, reduced gross marginsor loss of market share, any of which could seriously harm our business. The business andtechnology consulting services market, which includes a large number of participants, is subject torapid technological changes and is highly competitive. We compete with a number of companies thathave significantly greater financial, technical and marketing resources, greater name recognition,and greater revenue than ours. We believe that the principal competitive factors in our industryinclude:
 •  diagnostic capabilities;  •  effectiveness of strategic business models;  •  scope of services;  •  service delivery approach;  •  technical and industry expertise;  •  perceived value; and  •  results orientation.
     We believe that our ability to compete also depends in part on a number of competitive factorsoutside of our control, including the ability of our competitors to hire, retain and motivatesenior consultants, the price at which others offer comparable services, and the extent of ourcompetitors’ responsiveness to client needs. We may not be able to compete successfully with ourcompetitors in the future.
     In addition, there are relatively low barriers to entry in our industry. We do not own anypatented technology that inhibits competitors from entering that market or providing servicessimilar to ours. As a result, new and unknown market entrants could pose a threat to our business.
 

 

**If We Are Unable to Protect Our Intellectual Property Rights or If We Infringe Upon theIntellectual Property Rights of Others Our Business May Be Harmed.**
     Failure to secure or maintain protection of our intellectual property could adversely affectour ability to service our clients and generate revenue. We rely on a combination of non-disclosureand other contractual agreements and copyright and trademark laws to protect our proprietaryrights. We enter into confidentiality agreements with our employees, require that our clients enterinto such agreements, and limit access to and distribution of our proprietary information. However,these efforts may be insufficient to prevent misappropriation of our proprietary information or todetect unauthorized use of our intellectual property rights.
     Ownership of intellectual property developed during our client engagements is the subject ofnegotiation and is frequently assigned to the client upon payment for our services. We generallyretain the right to use any intellectual property that is developed during a client engagement thatis of general applicability and is not specific to the client’s project. Issues relating to theownership of and rights to use intellectual property developed during the course of a clientengagement can be complicated. Clients may demand assignment of ownership or restrictions on ouruse of the work product. In addition, disputes may arise that affect our ability to resell or reuseintellectual property. We may have to pay economic damages in these disputes which could adverselyaffect our business.
**Currency Exchange Rate Fluctuations Could Materially Adversely Affect Our Results of Operations.**
     Approximately 32% of DiamondCluster’s revenue for the fiscal year ended March 31, 2005 wasderived from operations outside North America. The results of operations for DiamondCluster in thefuture could be significantly affected by factors associated with international operations, such aschanges in foreign currency exchange rates and uncertainties relative to regional economic orpolitical circumstances, as well as by other risks sometimes associated with internationaloperations. Since the revenue and expenses of DiamondCluster’s foreign operations will generally bedenominated in local currencies, exchange rate fluctuations between such local currencies and theU.S. Dollar subject us to currency translation risk with respect to the reported results of ourforeign operations. As exchange rates fluctuate, these results, when translated, may vary fromexpectations and adversely impact overall expected results and profitability. Also, we may besubject to foreign currency translation risks when transactions are denominated in a currency otherthan the currency in which we incur expenses related to such transactions. There can be noassurance that we will not experience fluctuations in financial results from our operations outsidethe United States as a result of foreign currency fluctuations, and there can be no assurance thatwe will be able to reduce contractually or otherwise favorably affect the currency translation riskassociated with our operations.
**We Must Build Recognition and Client Acceptance of Our Name.**
     DiamondCluster has invested significant efforts in building recognition and client acceptanceof its name. We believe that market acceptance of the name DiamondCluster International, Inc. is animportant aspect of our efforts to retain and attract clients.
     Promoting and maintaining name recognition depends largely on the success of our marketingefforts and the ability of DiamondCluster to provide high quality, reliable and cost-effectiveservices. These efforts will require significant expenses, which will affect our results ofoperations. Client dissatisfaction with Company performance could diminish the value of ourbrand.
 

 

**The Failure to Integrate or Negotiate Successfully Any Future Acquisitions Could Harm Our Businessand Operating Results.**
     If we acquire businesses in the future and are unable to integrate successfully thesebusinesses, it could harm our business and operating results. In order to remain competitive or toexpand our business, we may find it necessary or desirable to acquire other businesses, products ortechnologies. We may be unable to identify appropriate acquisition candidates. If we identify anappropriate acquisition candidate, we may not be able to negotiate the terms of the acquisitionsuccessfully, to finance the acquisition or to integrate the acquired businesses, products ortechnologies into our existing business and operations. Further, completing a potential acquisitionand integrating an acquired business may strain our resources and require significant managementtime. In addition, we may revalue or write-down the value of goodwill and other intangible assetsin connection with future acquisitions which would harm our operating results.
**We May Need to Raise Additional Capital in the Future Which May Not Be Available.**
     We may not be able to raise capital in the future to meet our liquidity needs and finance ouroperations and future growth. We were not profitable in the eleven quarters prior to the quarterended December 31, 2003 and we may not be profitable at times in the future. We believe thatexisting cash resources, the amounts available under our revolving line of credit and cashgenerated from operations will be sufficient to satisfy our operating cash needs at least throughfiscal 2006. Any future decreases in our operating income, cash flow, or stockholders’ equity mayimpair our future ability to raise additional funds to finance operations. As a result, we may notbe able to maintain adequate liquidity to support our operations.
**Future Sales of Our Common Stock in the Public Market Could Cause the Price of Our Stock toDecline.**
     In the future, our stockholders could sell substantial amounts of our common stock in thepublic market which could cause our market price to decline. A substantial number of outstandingshares of common stock and shares of our common stock issuable upon exercise of outstanding stockoptions and warrants will become eligible for future sale in the public market at various times. Anincrease in the number of shares of our common stock in the public market could adversely affectprevailing market prices and could impair our future ability to raise capital through the sale ofour equity securities.
**Our Charter Documents and Delaware Law May Discourage an Acquisition of DiamondCluster.**
     Provisions of our certificate of incorporation, by-laws, and Delaware law could make it moredifficult for a third party to acquire us, even if doing so would be beneficial to ourstockholders. We may issue shares of preferred stock in the future without stockholder approval andupon such terms as our board of directors may determine. Our issuance of this preferred stock couldhave the effect of making it more difficult for a third party to acquire, or of discouraging athird party from acquiring, a majority of our outstanding stock. In addition, the Company hasadopted a Shareholder Rights Purchase Plan which could also have the effect of making it moredifficult for a third party to acquire, or of discouraging a third party from acquiring a majorityof our outstanding stock. Our charter and by-laws also provide that special stockholders meetingsmay be called only by our Chairman of the board of directors, by our Secretary at the writtenrequest of the chairman or by our board of directors, with the result that any third-party takeovernot supported by the board of directors could be subject to significant delays and difficulties. Inaddition, our board of directors is divided into three classes, each of which serves for astaggered three-year term, which may make it more difficult for a third party to gain control ofour board of directors.
**We Currently Do Not Intend to Pay Dividends.**
     We have never paid any cash dividends on our common stock and do not expect to declare or payany cash or other dividends in the foreseeable future.