##### Table of Contents



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 1934For the fiscal year ended
    March 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number:
    000-22125
 Diamond Management &
    Technology Consultants, 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
 Nasdaq Global Market
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2 o þ o
  rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE
  Form 10-K 120-day Form 10-K 120-day




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##### 



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  Annual Report on
    Form 10-K
    for the Fiscal Year Ended
 March 31, 2007
  TABLE OF CONTENTS
  
  PagePART IItem 1.

Business


2Item 1A.

Risk
    Factors


15Item 1B.

Unresolved Staff
    Comments


21Item 2.

Properties


21Item 3.

Legal
    Proceedings


21Item 4.

Submission of
    Matters to a Vote of Security Holders


21PART IIItem 5.

Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


22Item 6.

Selected Financial
    Data


25Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


26Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


38Item 8.

Financial
    Statements and Supplementary Data


39Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


39Item 9A.

Controls and
    Procedures


39Item 9B.

Other
    Information


42PART IIIItem 10.

Directors,
    Executive Officers and Corporate Governance


42Item 11.

Executive
    Compensation


42Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


42Item 13.

Certain
    Relationships and Related Transactions, and Director
    Independence


43Item 14.

Principal
    Accountant Fees and Services


43PART IVItem 15.

Exhibits and
    Financial Statement Schedules


43Partners' Operating AgreementForm of Notices of Grant and Restricted Stock Unit AgreementCode of Business Conduct and EthicsSubsidiaries of the RegistrantConsent of Independent Registered Public Accounting Firm302 CEO Certification302 CFO Certification302 CAO Certification906 CEO Certification906 CFO Certification906 CAO Certification   1




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##### Table of Contents



PART I  Form 10-K
  Form 10-K,
  Available
    Information
  (312) 255-5000. http://www.diamondconsultants.com Form 10-K, Form 10-Q, Form 8-K Form 10-K.
  Item 1.
    Business  Overview
       2




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Industry
    Background and Opportunity
           3




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Our
    Competitive Strengths
    Objectivity.
  Senior-Level Relationships. i.e.,
  Small, Multidisciplinary Teams.
  Collaborative Business Model.
  Delivery of Results.
  Strategic Industry Insight and Expertise.
 4




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Continuous Innovation.
  Ability to Quickly Evolve Our Offerings.
  Global Diversity and Perspective.
  Foster A Strong Culture.
  Experienced and Motivated Management.
  Our
    Growth Strategy
    Focus on, and Expand Relationships with Core
    Clients.
  Continue to Diversify Across Industries and Geographic
    Locations.
 5




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Market Our Brand.
  Nurture and Promote Our Intellectual
    Capital.
  Cultivate Our Multidisciplinary Culture.
  Attract and Retain Skilled Personnel.
  Enhance Our Operating Efficiency.
  Our
    Services
       6




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Service
    Offerings
      i.e.,
  
  Vertical
    Industries Served
    Financial Services Practice.
 7




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Insurance Practice.
  Healthcare Practice.
  Enterprise Practice.
  Telecommunications Practice.
  Public Sector Practice.
   8




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Business
    Development
      
  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.
 9




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Capture
    Phase
    DiamondExchangetm (DX)
    half-day
  Diamond Network.
  Diamond Fellows.
  Dan Ariely co-director day-to-day
  Vincent Barabba Meeting of the Minds Hearing the
    Voice of the Market and Decision Making Amid Turbulence, the
    Story of the 1980 Census. Surviving Transformation: Lessons from GMs Surprising
    Turnaround
  John Perry Barlow Wired
 10




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Gordon Bell consultant-at-large.
  Dan Bricklin
  Alan Kay, Ph.D.
  Andrew Lippman, Ph.D. co-Director
  Chunka Mui Unleashing the Killer App New York Times
  David P. Reed, Ph.D.
  Marvin Zonis, Ph.D.
  Client Relationship Executives. executives-in-transition,
 11




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Convert
    Phase
    Diamond Knowledge Center.
  Intellectual Capital Alliances. speed-to-market.
  points-of-view best-of-breed
      Strategic Alliance Company

DescriptionIBM

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
   12




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##### Table of Contents



Diamond
    Exchangetm
  Ongoing Communications & Direct
    Mail.
  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 Diamond; and
    participation by all of our employees in our continuing
    development and ownership of Diamond.  Recruiting.
    Training and Professional Development.
  Compensation.
   13




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Competition
    Traditional management and strategy consulting firms
  Systems integration and IT consulting firms
  Information technology product and service vendors
          Executive
    Officers of the Registrant
    Name

Age

PositionMelvyn E. Bergstein


65


Chairman of the Board of DirectorsAdam J. Gutstein


44


President, Chief Executive Officer
    and DirectorKarl E. Bupp


45


Chief Financial Officer and
    TreasurerWilliam R. McClayton


62


Chief Administrative Officer and
    SecretaryJohn J. Sviokla


49


Vice Chairman and Director   Melvyn E. Bergstein
 14




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##### Table of Contents



Adam J. Gutstein
  Karl E. Bupp
  William R. McClayton 35-year
  John J. Sviokla Marketspace Managing in the Marketspace Exploiting the Virtual Value Chain, Harvard Business Review.
  Item 1A.
    Risk
    Factors    Our
    Profitability Will Suffer If We Are Not Able to Maintain Our
    Pricing and Utilization Rates and Control Our Costs.
    
    our clients perception of our ability to add value through
    our services;
    competition;
    introduction of new services or products by us or our
    competitors;
    pricing policies of our competitors; and
    general economic conditions.    
    seasonal trends, primarily as a result of our hiring cycle and
    holiday vacations; 15




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
    our ability to transition employees from completed projects to
    new engagements; and
    our ability to forecast demand for our services and thereby
    maintain an appropriate headcount in the appropriate areas of
    our workforce.    Recruitment
    and Retention of Professionals.
    Our
    Revenue Could Be Adversely Affected by the Loss of a Significant
    Client or the Failure to Collect a Large Account
    Receivable.
    A
    Significant or Prolonged Economic Downturn Could Have a Material
    Adverse Effect on Our Results of Operations.
    Our
    Quarterly Operating Results Will Vary From Quarter to Quarter,
    Which May Result in Increased Volatility of Our Share
    Price.
      
    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;
    the timing of hiring, compensation and benefits expenses;
    our ability to transition employees quickly from completed
    projects to new engagements;
    the introduction of new products or services by us or our
    competitors;
    changes in our pricing policies or those of our competitors; 16




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
    our ability to manage costs, including personnel costs and
    support services costs; and
    global economic and political conditions and related risks,
    including acts of terrorism.    Competition
    in Our Industry is Intense and Could Harm Our
    Business.
    
    results orientation;
    technical and industry expertise;
    perceived value;
    effectiveness of strategic business models;
    service delivery approach;
    diagnostic capabilities; and
    scope of services.      The
    Absence of Long-Term Contracts With Our Clients Reduces the
    Predictability of Our Revenue.
    Failure
    to Meet Client Expectations Could Result in Losses and Negative
    Publicity.
   17




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The Price
    for Our Common Stock Has Been Volatile and
    Unpredictable.
    
    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.    Inability
    to Keep Pace with Rapidly Changing Technology May Impair Our
    Ability to Remain Competitive.
    
    continue to develop our strategic and technical experience;
    develop new services that meet changing client needs; and
    effectively use leading technologies.    If We Are
    Unable to Protect Our Intellectual Property Rights or If We
    Infringe Upon the Intellectual Property Rights of Others Our
    Business May Be Harmed.
     18




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We Must
    Build Recognition and Client Acceptance of Our Name.
      Our
    Global Operations Pose Complex Management, Foreign Currency,
    Legal, Tax and Economic Risks, Which We May Not Adequately
    Address.
    
    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 movement of cash;
    the absence in some jurisdictions of effective laws to protect
    our intellectual property rights;
    political instability;
    currency fluctuations;
    longer payment cycles;
    restrictions on the import and export of certain technologies;
    restrictions on operating in certain geographic markets and
    industries for a period of time pursuant to the non-compete
    provisions of the agreement to sell of a portion of our
    international operations;
    price controls or restrictions on exchange of foreign
    currencies; and
    trade barriers.  Currency
    Exchange Rate Fluctuations Could Materially Adversely Affect Our
    Results of Operations.
   19




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The
    Failure to Integrate or Negotiate Successfully Any Future
    Acquisitions Could Harm Our Business and Operating
    Results.
    We May
    Need to Raise Additional Capital in the Future Which May Not Be
    Available.
    Future
    Sales of Our Common Stock in the Public Market Could Cause the
    Price of Our Stock to Decline.
    Our
    Charter Documents and Delaware Law May Discourage an Acquisition
    of Diamond.
   20




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Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings  Form 10-K,
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   21




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PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    Information
    Sales Price PerShareHigh


LowFiscal year ended March 31,
    2006:First Quarter

$
16.25


$
9.79Second Quarter


12.13



6.96Third Quarter


8.29



5.61Fourth Quarter

$
10.98


$
7.36Fiscal year ended March 31,
    2007:First Quarter

$
11.40


$
7.30Second Quarter


11.30



7.57Third Quarter


12.54



10.20Fourth Quarter

$
15.98


$
10.77   Holders
    Dividends
    Securities
    Authorized for Issuance Under Equity Compensation
    Plans
  Form 10-K.
 22




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Shareholder
    Return Performance Graph
    
  3/02


3/03


3/04


3/05


3/06


3/07Diamond Management &
    Technology Consultants, Inc.


$
100.00



$
10.84



$
74.69



$
124.61



$
82.82



$
92.78NASDAQ Composite Index



100.00




72.11




109.76




111.26




132.74




139.65Goldman Sachs Technology
    Index   Computer Services



100.00




60.53




79.81




81.64




97.72




104.34Russell 2000 Index



100.00




73.04




119.66




126.13




158.73




168.11  23




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Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers
    Issuer Purchases of Equity SecuritiesTotal Number of Shares


Maximum Approximate DollarTotal Number of


Average Price


Purchased as Part of


Value of Shares That May bePeriod

Shares Purchased


Paid per Share(1)


Publicly Announced Plans


Purchased Under the PlanJanuary 1, 2007 
    January 31, 2007


296,505


$
12.83



296,505


$
22,707,695February 1, 2007 
    February 28, 2007


160,000


$
14.79



160,000


$
20,341,274March 1, 2007 
    March 31, 2007


358,800


$
12.06



358,800


$
66,015,069     (1)
    
    Average price paid per share of stock repurchased under the
    Buy-Back Program is execution price, including commissions paid
    to brokers. 24




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Item 6.
    Selected
    Financial Data  Form 10-K.
  Year Ended March 31,2003


2004


2005


2006


2007(Amounts in thousands, except per share amounts)Statement of Operations
    Data:Revenue:Net revenue

$
89,040


$
104,822


$
144,900


$
145,224


$
168,699Reimbursable expenses


13,217



14,133



16,848



18,444



21,574Total revenue


102,257



118,955



161,748



163,668



190,273Project personnel expenses:Project personnel costs before
    reimbursable expenses


75,748



74,614



86,243



99,111



118,596Reimbursable expenses


13,217



14,133



16,848



18,444



21,574Total project personnel expenses


88,965



88,747



103,091



117,555



140,170Gross margin


13,292



30,208



58,657



46,113



50,103Other operating expenses:Professional development and
    recruiting


3,203



3,523



6,107



6,689



8,838Marketing and sales


3,719



2,750



3,507



3,522



3,766Management and administrative
    support


24,820



22,867



24,328



25,328



27,499Restructuring charges


18,301



1,432







400



(24
)Impairment charge on long lived
    assets


14,403















Total other operating expenses


64,446



30,572



33,942



35,939



40,079Income (loss) from operations


(51,154
)


(364
)


24,715



10,174



10,024Interest income, net


1,730



840



1,652



2,868



4,238Other income (expense)


(1,891
)


514



(216
)


102



(139
)Total other income (expense), net


(161
)


1,354



1,436



2,970



4,099Income (loss) from continuing
    operations before income taxes


(51,315
)


990



26,151



13,144



14,123Income tax expense (benefit)


17,125



(807
)


(13,420
)


11,151



6,908Income (loss) from continuing
    operations after income taxes


(68,440
)


1,797



39,571



1,993



7,215Discontinued operations:Gain on disposal of discontinued
    operations, including income taxes


















22,932Income (loss) from discontinued
    operations, net of income taxes(1)


(291,621
)


(7,208
)


(6,533
)


(12,577
)


1,254Discontinued operations, net of
    income taxes


(291,621
)


(7,208
)


(6,533
)


(12,577
)


24,186Net income (loss)

$
(360,061
)

$
(5,411
)

$
33,038


$
(10,584
)

$
31,401Basic income (loss) per share of
    Common Stock(2):Income (loss) from continuing
    operations


(2.17
)


0.05



1.18



0.06



0.23Income (loss) from discontinued
    operations, net of income taxes


(9.24
)


(0.22
)


(0.19
)


(0.38
)


0.76Net income (loss)

$
(11.41
)

$
(0.17
)

$
0.99


$
(0.32
)

$
0.98Diluted income (loss) per share of
    Common Stock(2):Income (loss) from continuing
    operations


(2.17
)


0.05



1.09



0.06



0.21Income (loss) from discontinued
    operations, net of income taxes


(9.24
)


(0.21
)


(0.18
)


(0.36
)


0.71Net income (loss)

$
(11.41
)

$
(0.16
)

$
0.91


$
(0.31
)

$
0.92Shares used in computing basic
    income (loss) per share of Common Stock(2)


31,548



32,710



33,516



32,963



31,951Shares used in computing diluted
    income (loss) per share of Common Stock(2)


31,548



34,206



36,281



34,682



34,076Cash dividends declared per share
    of Common Stock

$



$



$



$



$
0.30   25




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##### Table of Contents



March 31,2003


2004


2005


2006


2007(Amounts in thousands)Balance Sheet Data:Cash and cash equivalents(3)

$
26,953


$
39,004


$
42,270


$
69,899


$
84,125Short-term investments


48,375



42,300



55,975







Restricted cash














5,493



6,095Working capital(3)


67,827



79,998



104,506



76,091



81,905Total assets


108,546



121,304



153,060



127,620



120,875Total stockholders equity

$
72,377


$
80,787


$
117,945


$
91,888


$
95,927     (1)
    
    On April 1, 2002, we adopted SFAS No. 142,
    Goodwill and Other Intangible Assets, and ceased
    amortizing goodwill. As a result of our initial impairment
    review of goodwill, during fiscal year ended March 31, 2003
    the loss from discontinued operations included a
    $140.9 million charge related to the impairment of goodwill
    associated with the acquisition of Cluster Telecom B.V. This was
    reported as a cumulative effect of change in accounting
    principle. Also included in the loss from discontinued
    operations during the fiscal year ended March 31, 2003 is
    an impairment charge of $79.9 million that resulted from
    the annual impairment review of goodwill under
    SFAS No. 142 and $50.2 million of stock-based
    compensation expense.(2)
    
    See Note 2 of Notes to Consolidated Financial
    Statements for an explanation of the methods used to
    compute basic and diluted income (loss) per share data.(3)
    
    As of March 31, 2006 and 2007, amounts reported include
    only continuing operations. Prior to March 31, 2006,
    amounts reported include combined (continuing and discontinued)
    operations.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
       26




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27




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Critical
    Accounting Policies and Estimates
    Revenue
    Recognition
  out-of-pocket
 28




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Allowance
    for Doubtful Accounts and Deferred Revenue
        Stock-based
    Compensation
   29




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Operating
    Expenses
     30




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Valuation
    of Deferred Tax Assets
        Revenue
     31




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Billed Fee Revenue


New Client RevenueIndustry

2005


2006


2007


2005


2006


2007Financial Services


39%



37%



32%



42%



32%



37%Insurance


26%



22%



26%



5%



22%



7%Healthcare


14%



15%



19%



16%



17%



22%Enterprise


11%



13%



13%



22%



22%



12%Telecommunications


7%



9%



6%



6%



5%



10%Public Sector


3%



4%



4%



9%



2%



12%100%



100%



100%



100%



100%



100%   Operating
    Expenses
  Project
    Personnel Costs
        2005


2006


2007Practice headcount


415



441



507Annualized net revenue per
    practice professional (in thousands)

$
390


$
336


$
351Utilization rate


70
%


63
%


63
%Annualized voluntary attrition


16
%


17
%


18
%Total annualized attrition(1)


19
%


23
%


22
%     (1)
    
    Defined as voluntary attrition plus Company initiated attrition.  Professional
    Development and Recruiting
   32




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Marketing
    and Sales
    Management
    and Administrative Support
    Restructuring
    Charges (Recovery)
    Other
    Income, Net
    Income
    Tax Expense (Benefit)
   33




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Discontinued
    Operations
    Liquidity
    and Capital Resources
    March 31,2006


2007(In millions)Working capital(1)

$
76.1


$
81.9Cash and cash equivalents


69.9



84.1Restricted cash


5.5



6.1Unutilized bank credit facilities


9.2



7.5Stockholders equity(1)

$
91.9


$
95.9     (1)
    
    We repurchased 3.5 million and 3.3 million shares of
    treasury stock during fiscal years 2006 and 2007, respectively,
    for an aggregate cost of $34.3 million and
    $37.5 million, respectively.     34




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Cash
    Flows from Operating Activities
    Fiscal Year EndedMarch 31, 2007Net income

$
31.4Total non-cash items


17.0Gain on disposal of discontinued
    operations


(22.4
)Deferred income taxes


0.8Restructuring recovery


(0.5
)Total increases in cash flows from
    operating activities due to changes in assets and liabilities


7.7Total decreases in cash flows from
    operating activities due to changes in assets and liabilities


(10.8
)Net cash provided by operating
    activities

$
23.2  35




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
    Total non-cash items aggregating $17.0 million were added
    to net income of $31.4 million to arrive at net cash
    provided by operating activities. The principal non-cash items
    were stock-based compensation expense ($15.2 million) and
    depreciation and amortization ($1.8 million). These
    non-cash items are summarized as follows (in millions):  Fiscal Year EndedMarch 31, 2007Stock-based compensation

$
15.2Depreciation and amortization


1.8Total non-cash items

$
17.0   
    A net gain on the disposal of discontinued operations before
    income taxes ($22.4 million) was excluded from net income
    of $31.4 million to arrive at net cash provided by
    operating activities.
    Deferred income taxes decreased $0.8 million during fiscal
    year 2007 due primarily to the utilization of net operating loss
    and AMT credit carryforwards in the U.S. This change was
    added to net income of $31.4 million to arrive at cash
    flows from operations.
    A recovery of previously accrued restructuring charges was
    recorded during fiscal year 2007 for $0.5 million and was
    excluded from net income of $31.4 million to arrive at cash
    flows from operations.
    The total increase in cash flows from operating activities due
    to changes in assets and liabilities was $7.7 million. The
    increase was the result of an increase in accrued compensation
    ($3.6 million), an increase in income taxes payable
    ($1.8 million), net cash inflows from other assets and
    liabilities ($1.8 million), an increase in deferred revenue
    ($0.3 million) and a decrease in prepaid expenses and other
    ($0.2 million). The increases are summarized as follows (in
    millions):  Fiscal Year EndedMarch 31, 2007Accrued compensation

$
3.6Income taxes payable


1.8Other assets and liabilities


1.8Deferred revenue


0.3Prepaid expenses and other


0.2Total increases in cash flows from
    operating activities due to changes in assets and liabilities

$
7.7   
    The total decrease in cash flows from operating activities due
    to changes in assets and liabilities was $10.8 million. The
    decrease was primarily the result of an increase in accounts
    receivable ($8.4 million), cash outflows to reduce the
    restructuring accrual ($1.3 million), which included
    payments under contractual lease obligations, and a decrease in
    accounts payable ($1.1 million). The decreases are
    summarized as follows (in millions):  Fiscal Year EndedMarch 31, 2007Accounts receivable

$
(8.4
)Restructuring accrual


(1.3
)Accounts payable


(1.1
)Total decreases in cash flows from
    operating activities due to changes in assets and liabilities

$
(10.8
)    36




---



##### Table of Contents



Contractual
    Obligations
    Payments Due By PeriodLess Than








More ThanOne Year


1-3 Years


3-5 Years


5 Years


TotalOperating leases

$
2,367


$
3,564


$
441


$



$
6,372Cash outlays for restructuring and
    other related activities(1)


221



338











559Purchase obligations(2)


1,338



383











1,721Total

$
3,926


$
4,285


$
441


$



$
8,652     (1)
    
    Cash outlays for restructuring and other related activities
    include minimum future lease and related payments for excess
    facilities.(2)
    
    Purchase obligations represent minimum commitments due to third
    parties, including IT maintenance contracts in support of
    internal use software and hardware 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, 2007.  Off
    Balance Sheet Arrangements
    Cash
    Flows from Investing Activities
    Cash
    Flows from Financing Activities
   37




---



##### Table of Contents



Treasury
    Stock Transactions
      Summary
   Item 7A.  Quantitative
    and Qualitative Disclosures About Market Risk  Foreign
    Currency Risk
    non-U.S. businesses
 38




---



##### Table of Contents



Interest
    Rate Risk
    Item 8.
    Financial
    Statements and Supplementary Data    Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
  Managements
    Report on Internal Control Over Financial
    Reporting
  Rule 13a-15(f) Rule 15d-15(f)
         39




---



##### Table of Contents



Internal Control  Integrated Framework
  Changes
    in Internal Control Over Financial Reporting
   40




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm on
 Internal Control Over Financial Reporting
    Internal Control 
    Integrated Framework
        Internal Control  Integrated
    Framework
    
    41




---



##### Table of Contents



Item 9B.Other
    Information   PART III  Form 10-K 120-day Form 10-K 120-day
  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Form 10-K. Form 10-K Regulation S-K. Form 10-K. Regulation S-K Form 10-K.
  Form 10-K.
  Item 11.
    Executive
    Compensation  Form 10-K.
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Number of





Number of securitiessecurities to be





remaining available forissued upon


Weighted-average


future issuance underexercise of


exercise price of


equity compensationoutstanding


outstanding


plans (excludingoptions, warrants


options, warrants


securities reflected inPlan Category

and rights


and rights


column (a))(a)


(b)


(c)Equity compensation plans approved
    by security holders


8,354
(1)

$
11.37
(2)


19,893
(3)Equity compensation plans not
    approved by security holders










Total


8,354







19,893     (1)
    
    Includes 3,536 shares issuable upon vesting of outstanding
    stock awards and 2,459 stock-settled stock appreciation rights
    (SARs). 42




---



##### Table of Contents



(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.(3)
    
    Includes 1,484 shares available for future issuance under
    the Companys Employee Stock Purchase Plan.  Form 10-K.
  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence  Form 10-K.
  Item 14.
    Principal
    Accountant Fees and Services  Form 10-K.
 PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements and Schedules
  page F-1 Form 10-K.
        Exhibits
  Regulation S-K Form 10-K.
  ExhibitNumber

Description3
.1(a)

Form of Restated Certificate of
    Incorporation of the Company (filed as Exhibit 3.1(a) to
    the Companys quarterly report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference).3
.2

Amended and Restated By-laws of
    the Company (filed as Exhibit 3.2 to the Companys
    quarterly report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference).10
.1

Stock Purchase Agreement dated
    July 19, 2006 by and between DiamondCluster International
    B.V. and Mercer Management Consulting, Inc. (filed as
    Exhibit 10.1 to the Companys quarterly report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference).10
.2

Employment Agreement between each
    of the Named Officers and the Company (filed as
    Exhibit 10.2 to the
    Form 10-K
    by the Company on March 31, 2006 and incorporated herein by
    reference).10
.3*

Partners Operating Agreement
    dated as of April 1, 2007. 43




---



##### Table of Contents



ExhibitNumber

Description10
.4*

Form of Notices of Grant and
    Restricted Stock Unit Agreement.10
.6

Summary of Outside Director Board
    Compensation (incorporated by reference to the Registrants
    definitive proxy statement, to be filed with the Securities and
    Exchange Commission no later than 120 days after the close
    of its fiscal year).14
*

Code of Business Conduct and
    Ethics and Supplemental Code of Ethics for Senior Financial
    Officers.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*

CAO 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*

CAO Certification Pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    Filed herewith 44




---



##### Table of Contents



SIGNATURES
    Diamond
    Management & Technology Consultants, Inc.
  By:
    /s/  Adam
    J. Gutstein   President and Chief Executive Officer
    POWER OF
    ATTORNEY
  attorneys-in-fact Form 10-K, attorneys-in-fact attorneys-in-fact
    Signature

Title

Date/s/  Adam
    J. GutsteinAdam
    J. Gutstein

President and Chief Executive
    Officer (Principal Executive Officer); Director

June 8, 2007/s/  Karl
    E. BuppKarl
    E. Bupp

Chief Financial Officer and
    Treasurer (Principal Financial Officer)

June 8, 2007/s/  Melvyn
    E.
    BergsteinMelvyn
    E. Bergstein

Chairman and Director

June 8, 2007/s/  John
    J. SvioklaJohn
    J. Sviokla

Vice Chairman and Director

June 8, 2007/s/  Donald
    R. CaldwellDonald
    R. Caldwell

Director

June 8, 2007/s/  Edward
    R. AndersonEdward
    R. Anderson

Director

June 8, 2007/s/  Alan
    C. KayAlan
    C. Kay

Director

June 8, 2007 45




---



##### Table of Contents



Signature

Title

Date/s/  Michael
    E.
    MikolajczykMichael
    E. Mikolajczyk

Director

June 8, 2007/s/  Javier
    RubioJavier
    Rubio

Director

June 8, 2007/s/  Pauline
    A.
    SchneiderPauline
    A. Schneider

Director

June 8, 2007/s/  Samuel
    K. SkinnerSamuel
    K. Skinner

Director

June 8, 2007/s/  Arnold
    R. WeberArnold
    R. Weber

Director

June 8, 2007  46




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageConsolidated Financial Statements:Report of
    Independent Registered Public Accounting Firm


F-2Consolidated
    Balance Sheets as of March 31, 2006 and 2007


F-3Consolidated
    Statements of Operations and Comprehensive Income (Loss) for the
    Years Ended March 31, 2005, 2006 and 2007


F-4Consolidated
    Statements of Stockholders Equity for the Years Ended
    March 31, 2005, 2006 and 2007


F-5Consolidated
    Statements of Cash Flows for the Years Ended March 31,
    2005, 2006 and 2007


F-6Notes to
    Consolidated Financial Statements


F-7Supplemental Financial Schedules:Report of
    Independent Registered Public Accounting Firm


S-1Schedule II 
    Valuation and Qualifying Accounts


S-2  F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM             Internal Control  Integrated
    Framework
  
    F-2




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.



CONSOLIDATED
    BALANCE SHEETS

March 31, 2006 and 2007 2006


2007(In thousands,except per share data)ASSETSCurrent assets:Cash and cash equivalents

$
69,899


$
84,125Accounts receivable, net of
    allowance of $629 and $573 as of March 31, 2006 and 2007,
    respectively


11,908



14,883Deferred tax asset 
    current portion


1,457



865Prepaid expenses


2,055



2,064Other current assets


1,064



1,269Current assets of discontinued
    operations


21,097



Total current assets


107,480



103,206Restricted cash


5,493



6,095Computers, equipment, leasehold
    improvements and software, net


1,431



2,750Deferred tax asset 
    long term portion


8,008



7,826Other assets


2,441



998Non-current assets of discontinued
    operations


2,767



Total assets

$
127,620


$
120,875LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
2,260


$
1,656Share repurchase payable






1,172Accrued compensation


4,966



7,916Deferred revenue


999



1,430Income taxes payable


899



1,743Other accrued liabilities


7,519



7,384Current liabilities of
    discontinued operations


14,746



Total current liabilities


31,389



21,301Restructuring accrual, less
    current portion


527



340Net tax indemnification obligation






3,307Non-current liabilities of
    discontinued operations


3,816



Total liabilities


35,732



24,948Stockholders equity:Preferred Stock, $1.00 par
    value, 2,000 shares authorized, no shares issued






Common Stock, $.001 par
    value, 300,000 shares authorized, 40,071 and
    40,023 shares issued as of March 31, 2006 and 2007,
    respectively


40



40Additional paid-in capital


623,760



627,599Accumulated other comprehensive
    income (loss)


2,473



(2,771
)Accumulated deficit


(456,878
)


(435,177
)169,395



189,691Less Common Stock in treasury, at
    cost, 7,572 shares held at March 31, 2006 and
    8,325 shares held at March 31, 2007


77,507



93,764Total stockholders equity


91,888



95,927Total liabilities and
    stockholders equity

$
127,620


$
120,875    F-3




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
    (LOSS)
 Fiscal Years Ended March 31, 2005, 2006 and 2007
  2005


2006


2007(In thousands, except per share data)Revenue:Net revenue

$
144,900


$
145,224


$
168,699Reimbursable expenses


16,848



18,444



21,574Total revenue


161,748



163,668



190,273Project personnel expenses:Project personnel costs before
    reimbursable expenses


86,243



99,111



118,596Reimbursable expenses


16,848



18,444



21,574Total project personnel expenses


103,091



117,555



140,170Gross margin


58,657



46,113



50,103Other operating expenses:Professional development and
    recruiting


6,107



6,689



8,838Marketing and sales


3,507



3,522



3,766Management and administrative
    support


24,328



25,328



27,499Restructuring charges (recovery)






400



(24
)Total other operating expenses


33,942



35,939



40,079Income from operations


24,715



10,174



10,024Interest income


1,704



2,959



4,301Interest expense


(52
)


(91
)


(63
)Other income (expense), net


(216
)


102



(139
)Total other income, net


1,436



2,970



4,099Income from continuing operations
    before income taxes


26,151



13,144



14,123Income tax expense (benefit)


(13,420
)


11,151



6,908Income from continuing operations
    after income taxes


39,571



1,993



7,215Discontinued operations:Gain on disposal of discontinued
    operations, including income tax benefit of $574 for the fiscal
    year ended March 31, 2007










22,932Income (loss) from discontinued
    operations, net of income taxes


(6,533
)


(12,577
)


1,254Discontinued operations, net of
    income taxes


(6,533
)


(12,577
)


24,186Net income (loss)


33,038



(10,584
)


31,401Foreign currency translation
    adjustments:Foreign currency translation
    adjustments arising during the period


119



(172
)


890Less: reclassification adjustment
    for foreign currency translation realized from the sale of
    discontinued operations










(6,065
)Total foreign currency translation
    adjustments


119



(172
)


(5,175
)Unrealized loss on investment


(317
)


(15
)


(69
)Comprehensive income (loss)

$
32,840


$
(10,771
)

$
26,157Basic income (loss) per share of
    common stock:Income from continuing operations

$
1.18


$
0.06


$
0.23Income (loss) from discontinued
    operations


(0.19
)


(0.38
)


0.76Net income (loss)

$
0.99


$
(0.32
)

$
0.98Diluted income (loss) per share of
    common stock:Income from continuing operations

$
1.09


$
0.06


$
0.21Income (loss) from discontinued
    operations


(0.18
)


(0.36
)


0.71Net income (loss)

$
0.91


$
(0.31
)

$
0.92Shares used in computing basic
    income (loss) per share of common stock


33,516



32,963



31,951Shares used in computing diluted
    income (loss) per share of common stock


36,281



34,682



34,076     2005


2006


2007Project personnel costs before
    reimbursable expenses

$
7,301


$
9,203


$
11,318Professional development and
    recruiting


57



67



101Marketing and sales


248



385



345Management and administrative
    support


1,399



2,219



2,925SBC included in income from
    continuing operations


9,005



11,874



14,689SBC included in income (loss) from
    discontinued operations


5,308



3,211



52714,313



15,085



15,216SBC recorded against the gain on
    disposal of discontinued operations










1,379Total SBC

$
14,313


$
15,085


$
16,595    F-4




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
 Fiscal Years Ended March 31, 2005, 2006 and 2007
  AccumulatedAdditional





Retained





Other


TotalCommon


Paid-in


Stock-based


Earnings


Treasury


Comprehensive


StockholdersStock


Capital


Compensation


(Deficit)


Stock


Income (Loss)


Equity(In thousands)Balance at March 31,
    2004

$
39


$
624,682


$
(6,324
)

$
(479,332
)

$
(61,136
)

$
2,858


$
80,787Issuance, forfeiture and
    cancellation of stock


(1
)






















(1
)Forfeiture and cancellation of
    stock options issued below market  net






(395
)


396















1Stock-based compensation






10,559



3,754















14,313Exercise of stock options


2



15,110



















15,112Issuance of treasury stock under
    equity incentive plans






(16,601
)










16,601







Income tax benefit related to
    stock-based compensation, net of adjustments






4,748



















4,748Purchase of treasury stock


















(31,547
)






(31,547
)Employee stock purchase plan






1,692



















1,692Unrealized loss on investment






















(317
)


(317
)Translation adjustment






















119



119Net income














33,038











33,038Balance at March 31,
    2005

$
40


$
639,795


$
(2,174
)

$
(446,294
)

$
(76,082
)

$
2,660


$
117,945Issuance, forfeiture and
    cancellation of stock


1























1Reclassification of stock-based
    compensation






(2,174
)


2,174















Stock-based compensation






15,085



















15,085Stock-based compensation related to
    restructuring charges






606



















606Exercise of stock options


1



1,949



















1,950Issuance of treasury stock under
    equity incentive plans


(2
)


(32,910
)










32,912







Income tax expense related to
    stock-based compensation, net of adjustments






(307
)


















(307
)Purchase of treasury stock


















(34,337
)






(34,337
)Employee stock purchase plan






1,716



















1,716Unrealized loss on investment






















(15
)


(15
)Translation adjustment






















(172
)


(172
)Net loss














(10,584
)










(10,584
)Balance at March 31,
    2006

$
40


$
623,760


$



$
(456,878
)

$
(77,507
)

$
2,473


$
91,888Issuance, forfeiture and
    cancellation of stock


1























1Stock-based compensation






16,595



















16,595Tender offer cash settlements






(1,805
)


















(1,805
)Exercise of stock options


1



4,829



















4,830Issuance of treasury stock under
    equity incentive plans


(2
)


(21,208
)










21,208







(2
)Income tax expense related to
    stock-based compensation, net of adjustments






3,459



















3,459Purchase of treasury stock


















(37,465
)






(37,465
)Employee stock purchase plan






1,969



















1,969Unrealized loss on investment






















(69
)


(69
)Translation adjustment






















(5,175
)


(5,175
)Dividend paid on Common Stock,
    $0.30 per share














(9,700
)










(9,700
)Net income














31,401











31,401Balance at March 31,
    2007

$
40


$
627,599


$



$
(435,177
)

$
(93,764
)

$
(2,771
)

$
95,927    F-5




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 Fiscal Years Ended March 31, 2005, 2006 and 2007
  2005


2006


2007(In thousands)Cash flows from operating
    activities:Net income (loss)

$
33,038


$
(10,584
)

$
31,401Adjustments to reconcile income
    (loss) to net cash provided by operating activities:Restructuring charges (recovery)






9,069



(478
)Depreciation and amortization


3,190



2,744



1,754Write-down of net book value of
    computers, equipment, leasehold improvements and software, net


71







Stock-based compensation


14,313



15,085



15,216Gain on sale of discontinued
    operations










(22,358
)Deferred income taxes


(20,633
)


10,008



757Tax benefits from employee stock
    plans, net of adjustments


4,748







Changes in assets and liabilities:Accounts receivable


1,951



(6,792
)


(8,395
)Prepaid expenses and other


3,850



(264
)


154Accounts payable


(1,856
)


263



(1,088
)Accrued compensation


919



(354
)


3,638Restructuring accrual


(2,980
)


(7,805
)


(1,309
)Deferred revenue


332



(130
)


306Income taxes payable


2,178



1,198



1,806Other assets and liabilities


(6,285
)


(382
)


1,746Net cash provided by operating
    activities


32,836



12,056



23,150Cash flows from investing
    activities:Increase in restricted cash






(5,493
)


(602
)Net redemptions (purchases) of
    short-term investments


(13,675
)


55,975



Net proceeds from sale of
    discontinued operations










29,462Capital expenditures, net


(1,763
)


(1,580
)


(2,902
)Other assets


151



60



227Net cash provided by (used in)
    investing activities


(15,287
)


48,962



26,185Cash flows from financing
    activities:Stock option and employee stock
    purchase plan proceeds


20,905



8,095



14,271Shares withheld for option exercise
    price


(1,597
)


(1,363
)


(2,586
)Shares withheld for employee
    withholding taxes


(2,506
)


(2,965
)


(4,990
)Tender offer cash settlements










(1,805
)Common stock cash dividends










(9,700
)Tax benefits from employee stock
    plans, net of adjustments






(307
)


3,459Purchase of treasury stock


(31,547
)


(34,337
)


(36,293
)Net cash used in financing
    activities


(14,745
)


(30,877
)


(37,644
)Effect of exchange rate changes on
    cash


462



(188
)


211Net increase in cash and cash
    equivalents


3,266



29,953



11,902Cash and cash equivalents at
    beginning of year


39,004



42,270



72,223Cash and cash equivalents at end of
    year(1)

$
42,270


$
72,223


$
84,125Supplemental disclosure of cash
    flow information:Cash paid during the year for
    interest

$
21


$
55


$
12Cash paid during the year for
    income taxes


1,264



1,379



808Non-cash financing activities:Treasury stock repurchase obligation

$



$



$
1,172Reclassification of stock-based
    compensation balance to additional paid-in capital






2,174



     (1)
    
    Cash and cash equivalents includes
    $2,324 of cash and cash equivalents classified as discontinued
    operations as of March 31, 2006.   F-6




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  (1)
    Description
    of the Business and Basis of Presentation            (2)
    Summary
    of Significant Accounting Policies  Principles
    of Consolidation
    Reclassification
   F-7




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Foreign
    Currency Translation
    Revenue
    Recognition
  out-of-pocket
  Allowance
    for Doubtful Accounts and Deferred Revenue
      Stock-based
    Compensation
     F-8




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           F-9




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fiscal Year EndedMarch 31, 2005Income from continuing operations
    after income taxes:As reported

$
39,571Add: Stock-based employee
    compensation expense included in reported net income, net of
    related tax effects


4,536Deduct: Stock-based employee
    compensation expense determined under fair value based method,
    net of related tax effects


(7,863
)Pro forma

$
36,244Basic income from continuing
    operations per share:As reported

$
1.18Pro forma

$
1.08Diluted income from continuing
    operations per share:As reported

$
1.09Pro forma

$
1.00   Cash
    and Cash Equivalents
    Short-term
    Investments
  available-for-sale available-for-sale
    Restricted
    Cash
    Accounting
    for Investment Interests
  available-for-sale.
 F-10




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Long-Lived
    Assets
    Costs
    Incurred to Develop Software for Internal Use
  98-1, SOP 98-1,
  Other
    Comprehensive Income
  available-for-sale
  Financial
    Instruments and Concentration of Credit Risk
    Income
    Taxes
   F-11




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Financial
    Instruments
    Use of
    Estimates
    (3)
    Recent
    Accounting Pronouncements          (4)
    Discontinued
    Operations     F-12




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Fiscal Year Ended March 31,2005


2006


2007Net revenue

$
48,263


$
54,666


$
22,339Total revenue


58,027



63,495



25,757Gross margin


6,895



12,525



4,077Loss from operations


(6,473
)


(10,994
)


(132
)Other income (expense)


(115
)


150



1,213Income (loss) from discontinued
    operations before income taxes


(6,358
)


(11,144
)


1,081Income tax expense (benefit)


175



1,433



(173
)Income (loss) from discontinued
    operations (net of income taxes)


(6,533
)


(12,577
)


1,254Net gain on disposal of
    discontinued operations (including income taxes)










22,932  F-13




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    March 31, 2006Cash and cash equivalents

$
2,324Accounts receivable


15,664Prepaid expenses


3,109Computers, equipment, leasehold
    improvements and software, net


1,658Deferred tax asset 
    long-term portion


1,109Total assets of discontinued
    operations

$
23,864Accounts payable

$
2,422Accrued compensation


1,325Deferred revenue


448Income taxes payable


1,907Restructuring accrual, current
    portion


1,218VAT payable


2,274Other accrued liabilities


5,152Restructuring accrual, less
    current portion


3,816Total liabilities of discontinued
    operations

$
18,562      F-14




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (5) Geographic
    Data
      2005


2006


2007Net revenue:North America

$
132,614


$
137,502


$
155,948United Kingdom and India


12,286



7,722



12,751Total net revenue

$
144,900


$
145,224


$
168,699Long-lived assets (as of
    March 31):North America





$
3,804


$
3,625United Kingdom and India






68



123Total long-lived assets





$
3,872


$
3,748     (6)
    Restricted
    Cash   F-15




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (7)
    Computers,
    Equipment, Leasehold Improvements and Software, Net    2006


2007Computers and equipment

$
12,330


$
5,079Leasehold improvements


4,765



4,894Software


10,460



5,68227,555



15,655Less accumulated depreciation and
    amortization


(26,124
)


(12,905
)$
1,431


$
2,750   (8)
    Other
    Accrued Liabilities    2006


2007Accrued employee expenses

$
1,431


$
1,543Accrued medical insurance claims


1,003



1,032Other accrued liabilities


5,085



4,809Total

$
7,519


$
7,384   (9)
    Commitments,
    Guarantees and Contingencies  Lease
    Commitments
    Year Ending March 31,2008

$
2,5882009


2,6222010


1,2802011


3782012


63Thereafter


$
6,931       Guarantees
   F-16




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Legal
    Contingencies
    (10)
    Line of
    Credit    (11)
    Accumulated
    Other Comprehensive Income (Loss)    2006


2007Foreign currency translation
    adjustments

$
2,368


$
(2,807
)Unrealized gain on investment


105



36Accumulated other comprehensive
    income (loss)

$
2,473


$
(2,771
)     (12)
    Income
    (Loss) Per Share   F-17




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fiscal Year Ended March 31,2005


2006(1)


2007Shares used in computing basic
    income (loss) per share


33,516



32,963



31,951Dilutive effect of stock options,
    SARs, and restricted stock/units


2,765



1,719



2,125Shares used in computing diluted
    income (loss) per share


36,281



34,682



34,076Antidilutive securities not
    included in dilutive net income (loss) per share calculation


4,262



6,993



2,352     (1)
    
    In accordance with SFAS No. 128, Earnings Per
    Share, the Company reported income from continuing
    operations and therefore used diluted shares in computing all
    other per-share amounts even though those amounts would have
    been antidilutive to their respective basic per-share amounts.  (13)
    Stockholders
    Equity  Stockholder
    Rights Plan Adoption & Termination
    Dividend
    Distribution
    Stock
    Repurchases
   F-18




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Repurchases of Common StockShares


Amount


Average Price2007


3,341


$
37,465


$
11.212006


3,537


$
34,337


$
9.712005


2,433


$
31,547


$
12.97Inception to 2004


4,336


$
61,136


$
14.10Total


13,647


$
164,485


$
12.05         Common StockHeld inIssued


TreasuryBalance at March 31,
    2004


38,683



(4,336
)Issued:Equity incentive plans


1,850



1,037Treasury Stock:Repurchases






(2,433
)Shares withheld under equity
    incentive plans






(365
)Retirement


(365
)


365Balance at March 31,
    2005


40,168



(5,732
)Issued:Equity incentive plans


354



1,697Treasury Stock:Repurchases






(3,537
)Shares withheld under equity
    incentive plans






(451
)Retirement


(451
)


451Balance at March 31,
    2006


40,071



(7,572
)Issued:Equity incentive plans


615



2,588Treasury Stock:Repurchases






(3,341
)Shares withheld under equity
    incentive plans






(663
)Retirement


(663
)


663Balance at March 31,
    2007


40,023



(8,325
)  F-19




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (14)
    Stock
    Plans  Share-Based
    Plans
          Restricted
    Stock and Restricted Stock Units (Stock Awards)
     F-20




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Non-Vested


Weighted-Stock


AverageAwards


Grant-Date(000)


Fair ValueNon-vested at March 31, 2004


2,556


$
4.11Granted


2,016



10.42Vested


(1,024
)


4.76Forfeited


(365
)


6.18Non-vested at March 31, 2005


3,183


$
7.64Granted


2,789



9.49Vested


(1,343
)


6.98Forfeited


(577
)


9.49Non-vested at March 31, 2006


4,052


$
8.87Granted


2,359



10.41Vested


(1,439
)


8.18Forfeited


(1,344
)


9.11Non-vested at March 31, 2007


3,628


$
10.01     Stock
    Options and SARs
   F-21




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            2005

2006

2007Expected volatility

45%

40% - 65%

46% - 56%Weighted-average volatility

45%

56%

54%Expected dividend yield

0%

0%

0% - 2.6%Average expected life (in years)

3.18

3.42

3.61Risk-free interest rate

0.9% - 3.9%

3.35% - 4.53%

4.54% - 5.14%Weighted-average grant date fair
    value of options/SARs granted

$3.07

$4.87

$4.41  F-22




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted-Shares


Weighted-


Average


AggregateUnder


Average


Remaining


IntrinsicOption/SARs


Exercise Price


Contractual


ValueOptions/SARs

(000)


Per Share


Term


($000)Outstanding at March 31, 2004


11,726


$
11.32



3.23


$
11,925Granted


2,170



9.72Exercised


(2,162
)


9.05Forfeited or expired


(2,004
)


12.76Outstanding at March 31, 2005


9,730


$
11.21



2.92


$
55,970Granted


2,776



11.21Exercised


(901
)


7.57Forfeited or expired


(1,712
)


14.87Outstanding at March 31, 2006


9,893


$
10.90



2.86


$
14,680Granted


37



10.71Exercised


(2,076
)


8.62Forfeited or expired


(3,036
)


11.76Outstanding at March 31, 2007


4,818


$
11.37



2.37


$
9,674Exercisable at March 31, 2007


2,872


$
12.15



1.70


$
4,704     Employee
    Stock Purchase Plan
     F-23




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Weighted-AveragePurchase PriceShares Issued


Range of Prices


Per ShareIssued fiscal year 2005


210


$
7.68 to $11.58


$
8.16Issued fiscal year 2006


240


$
6.11 to $14.28


$
7.16Issued fiscal year 2007


308


$
6.11 to $11.44


$
6.39     2005

2006

2007Expected volatility

45%

42% - 69%

21% - 57%Weighted-average volatility

45%

54%

42%Expected dividend yield

0%

0%

0% - 2.6%(1)Average expected life (in years)

1.06

1.13

1.13Risk-free interest rate

1.3% - 3.1%

2.9% - 4.6%

4.7% - 5.2%Weighted average grant date fair
    value of ESPP granted

$1.66

$1.69

$1.92     (1)
    
    For ESPP enrollment dates since November 7, 2006, the date
    the Board declared a dividend.  Other
       F-24




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (15)
    Income
    Taxes    2005


2006


2007Current:Federal

$
4,238


$
4


$
5,747State


1,838



146



206Foreign


705



275



137$
6,781


$
425


$
6,090Deferred:Federal


(15,951
)


9,604



168State


(4,250
)


1,122



650Foreign










$
(20,201
)

$
10,726


$
818$
(13,420
)

$
11,151


$
6,908     2005


2006


2007Federal income taxes (benefit) at
    statutory rate

$
9,153


$
4,600


$
4,944Effect of intercompany revenue and
    expenses eliminated in consolidation and related to discontinued
    operations


1,487



1,878



(189
)Nondeductible meals and
    entertainment


205



333



407Nondeductible stock-based
    compensation


470



780



304State income taxes, net of federal
    benefit


1,195



824



556Effect of foreign tax credit
    converted to a net operating loss carryover






1,820



Other


(805
)


1,298



371Writedown in investment in
    subsidiary






(5,096
)


Change in valuation allowance for
    deferred tax assets


(25,125
)


4,714



515$
(13,420
)

$
11,151


$
6,908  F-25




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2007Deferred tax assets attributable
    to:Net operating loss carryforwards

$
29,089


$
8,411Foreign tax credit and AMT credit
    carryforwards


1,459



427Allowances and accruals


1,613



1,512Stock-based compensation


3,427



3,914Goodwill


1,898



1,648Depreciation


722



642Capital loss carryforwards


2,760



1,248Total gross deferred tax assets


40,968



17,802Less valuation allowance


(30,655
)


(8,631
)Net deferred tax assets


10,313



9,171Deferred tax liabilities
    attributable to:Intangibles


447



Prepaids


350



446Other


51



34Total deferred tax liabilities


848



480Net deferred income taxes

$
9,465


$
8,691   paid-in-capital
       F-26




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     (16)
    Benefit
    Plans  401(k)
    Plan
    (17)
    Foreign
    Exchange Risk Management  Objectives
    and Context
      Strategies
    (18)
    Related
    Party Transactions   F-27




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (19)
    Short-term
    Investments  available-for-sale Available-for-sale available-for-sale available-for-sale other-than-temporary
  (20)
    Quarterly
    Financial Information (Unaudited)    Quarter EndedJune 30


Sept 30(1)


Dec 31


Mar 31Year Ended March 31,
    2006Net revenue

$
35,597


$
36,554


$
34,244


$
38,829Total revenue (including
    reimbursable expenses)


39,800



41,454



38,429



43,985Gross margin


11,326



13,557



8,611



12,619Professional development and
    recruiting


1,410



1,572



1,850



1,857Marketing and sales


628



961



776



1,157Management and administrative
    support


5,941



6,230



6,471



6,686Restructuring charges






2,350



10



(1,960
)Income (loss) from operations


3,347



2,444



(496
)


4,879Income from continuing operations
    before income taxes


4,033



3,312



179



5,620Income (loss) from continuing
    operations after income taxes


1,179



1,451



(1,029
)


392Per share of common
    stock  basic


0.03



0.04



(0.03
)


0.01Per share of common
    stock  diluted


0.03



0.04



(0.03
)


0.01Income (loss) from discontinued
    operations (net of tax)


(2,701
)


(11,672
)


1,658



138Per share of common
    stock  basic


(0.08
)


(0.35
)


0.05



Per share of common
    stock  diluted


(0.07
)


(0.34
)


0.05



Net income (loss)


(1,522
)


(10,221
)


629



530Per share of common
    stock  basic

$
(0.04
)

$
(0.31
)

$
0.02


$
0.02Per share of common
    stock  diluted

$
(0.04
)

$
(0.30
)

$
0.02


$
0.02   F-28




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Quarter EndedJune 30


Sept 30


Dec 31


Mar 31Year Ended March 31,
    2007Net revenue

$
40,896


$
41,163


$
43,736


$
42,904Total revenue (including
    reimbursable expenses)


46,230



46,610



49,158



48,275Gross margin


12,923



8,653



14,939



13,588Professional development and
    recruiting


2,243



2,009



2,662



1,924Marketing and sales


709



650



1,182



1,225Management and administrative
    support


6,607



7,341



6,892



6,659Restructuring charges


(24
)










Income (loss) from operations


3,388



(1,347
)


4,203



3,780Income (loss) from continuing
    operations before income taxes


4,250



(229
)


5,175



4,927Income from continuing operations
    after income taxes


2,088



18



2,544



2,565Per share of common
    stock  basic


0.06



0.00



0.08



0.08Per share of common
    stock  diluted


0.06



0.00



0.08



0.08Gain (loss) on disposal of
    discontinued operations, including income taxes






23,036



(147
)


43Income (loss) from discontinued
    operations, net of income taxes


(677
)


1,549



457



(75
)Discontinued operations, net of
    income taxes


(677
)


24,585



310



(32
)Per share of common
    stock  basic


(0.02
)


0.75



0.01



Per share of common
    stock  diluted


(0.02
)


0.73



0.01



Net income


1,411



24,603



2,854



2,533Per share of common
    stock  basic

$
0.04


$
0.75


$
0.09


$
0.08Per share of common
    stock  diluted

$
0.04


$
0.73


$
0.08


$
0.08     (1)
    
    During the fourth quarter of fiscal year 2006, the Company
    recorded an adjustment to increase the restructuring reserve in
    the second quarter of that fiscal year by $170 thousand. F-29




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM         
    S-1




---



##### Table of Contents



DIAMOND
    MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.



SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS  Column A

Column B


Column C


Column D


Column EBalance at


Charged to





Balance atBeginning


Costs and





End ofDescription

of Period


Expenses


Deductions


Period(Amounts in thousands)For the Year Ended March 31,
    2007:Deducted from accounts receivable
    for uncollectible accounts

$
629


$
(19
)

$
37


$
573For the Year Ended March 31,
    2006:Deducted from accounts receivable
    for uncollectible accounts

$
1,079


$
28


$
478
(1)

$
629For the Year Ended March 31,
    2005:Deducted from accounts receivable
    for uncollectible accounts

$
1,650


$
(145
)

$
426


$
1,079     (1)
    
    $311 relates to discontinued operations. S-2