##### 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 1934    
|                                            
|For the fiscal year ended
    March 31, 2006
|                                            
|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(State or other jurisdiction of
    incorporation or organization)                           |  | 36-4069408(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


S-K 10-K 10-K. þ o


12b-2 o þ o


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE


10-K 120-day 10-K 120-day










---



##### 










DIAMONDCLUSTER INTERNATIONAL, INC.


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


March 31, 2006


TABLE OF CONTENTS


|                                                         |  |                                                                                                                      |  |      |    | 
|-------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                         |  |                                                                                                                      |  | Page |   
|                                                         |  |                                                                                                                      |  |      |   
|PART I                                                  
|Item 1.                                                  |  | Business                                                                                                             |  |      | 2  | 
|Item 1A.                                                 |  | Risk Factors                                                                                                         |  |      | 15 | 
|Item 1B.                                                 |  | Unresolved Staff Comments                                                                                            |  |      | 21 | 
|Item 2.                                                  |  | Properties                                                                                                           |  |      | 22 | 
|Item 3.                                                  |  | Legal Proceedings                                                                                                    |  |      | 22 | 
|Item 4.                                                  |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 22 | 
|PART II                                                 
|Item 5.                                                  |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 23 | 
|Item 6.                                                  |  | Selected Financial Data                                                                                              |  |      | 25 | 
|Item 7.                                                  |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |      | 26 | 
|Item 7A.                                                 |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |      | 40 | 
|Item 8.                                                  |  | Financial Statements and Supplementary
    Data                                                                      |  |      | 40 | 
|Item 9.                                                  |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |      | 40 | 
|Item 9A.                                                 |  | Controls and Procedures                                                                                              |  |      | 40 | 
|Item 9B.                                                 |  | Other Information                                                                                                    |  |      | 42 | 
|PART III                                                
|Item 10.                                                 |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 43 | 
|Item 11.                                                 |  | Executive Compensation                                                                                               |  |      | 43 | 
|Item 12.                                                 |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |      | 43 | 
|Item 13.                                                 |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 44 | 
|Item 14.                                                 |  | Principal Accountant Fees and Services                                                                               |  |      | 44 | 
|PART IV                                                 
|Item 15.                                                 |  | Exhibits, Financial Statements and
    Schedules                                                                     |  |      | 44 | 
|Employment Agreement                                    
|Summary of Outside Director Board Compensation          
|Code of Business Conduct and Ethics                     
|Subsidiaries                                            
|Consent of Independent Registered Public Accounting Firm
|Certification                                           
|Certification                                           
|Certification                                           
|Certification                                           
|Certification                                           
|Certification                                           
|Certification                                           
|Certification                                           



1



---



##### Table of Contents






PART I


Available Information


255-5000. http://www.diamondcluster.com 10-K, 10-Q, 8-K 10-K.


10-K,







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

Overview








2



---



##### Table of Contents





Industry Background and Opportunity














3



---



##### Table of Contents



Our Competitive Strengths




Objectivity.


Collaborative Business Model.


Small, Multidisciplinary Teams.


Delivery of Results.


Strategic Industry Insight and Expertise.


Global Diversity and Perspective.


Senior-Level Relationships. i.e.,


Ability to Quickly Evolve Our Offerings.


4



---



##### Table of Contents





Continuous Innovation.


Foster A Strong Culture.


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.


5



---



##### Table of Contents





Continue to Diversify Across Industries and Geographic
Locations.


Market Our Brand.


Enhance Our Operating Efficiency.


Our Services


c-level








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



6



---



##### Table of Contents





i.e.,







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



Financial Services Practice.


7



---



##### Table of Contents



Insurance Practice.


Healthcare Practice.


Telecommunications Practice.


Enterprise Practice.


Public Sector Practice.


Business Development


c-level


8



---



##### Table of Contents










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



Unleashing the
Killer App: Digital Strategies for Market Dominance, The Seven
Steps to Nirvana: Strategic Insights into eBusiness
Transformation, E-Learning: Harvard Business Review




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



DiamondExchange tm (DX). tm




| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | DX Summit: Exchange members meet two times a year to
    discuss current issues and research findings, and their business
    implications. During these meetings, we provide the members

9



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | with the opportunity to discuss their issues with Diamond
    Fellows, our partners, and other business leaders. In fiscal
    year 2006, we conducted two DX Summits, entitled: Creating
    an Information Advantage and Faster Acting, Longer
    Lasting: Making Your Organization More Agile.                                                                                                                                                                                                                                        
|
| | DX Intelligence: These sessions, held twice a year, allow
    executives to explore a business issue at a deeper level within
    a specific industry. Diamond develops proprietary research and
    shares the findings with members and research participants. In
    fiscal year 2006, the topics for these sessions were One
    Face to the Customer and Economies of Business
    Platforms in Post Merger Integration. We also held a
    symposium in conjunction with Goldman Sachs on
    Consumer-Driven Healthcare Adoption.
|
| | 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
    DiamondExchangetm
    come to them. The workshops provide members the ability to have
    a private session within their organization, conducted by the
    Diamond 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 Diamond Fellows, and regional or
    national policymakers. The dinners provide an intimate setting
    for our members to gather and discuss pressing issues.                                                                                                                                                                                                                    

Client Relationship Executives. executives-in


Diamond Fellows. tm






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. His latest book, Surviving
    Transformation: Lessons from GMs Surprising
    Turnaround, was published in 2004.
|
| | 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                                                                                                                                                                                                                                                                                                                                                                                                                          

10



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | and co-founder and Vice Chairman of the Electronic Frontier
    Foundation, an organization that promotes freedom of expression
    in digital media. He is also a fellow at Harvard Law
    Schools Berkman Center for Internet and Society.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | 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. His current work is the MyLife
    Bits project which endeavors to capture all aspects of his life
    in a digital format.                                                                                           
|
| | Dan Bricklinis currently President of Software
    Garden, Inc., focusing on protecting open source and copyright
    for developers. He has helped to found other organizations,
    including 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.                                                                                                                                                                                                                                            
|
| | Alan Kay, Ph.D.is president of the
    Viewpoints Research Institute and is one of the earliest
    pioneers of object-oriented programming, and graphical user
    interfaces. His contributions have been recognized with the
    Charles Stark Draper Prize of the National Academy of
    Engineering, the A.M. Turing Award from the Association of
    Computing Machinery, and the Kyoto Prize from the Inamori
    Foundation. This work was done in the rich context of ARPA and
    Xerox PARC with many talented colleagues. Mr. Kay is a member of
    our Board of Directors.                                                                                                
|
| | Andrew Lippman, Ph.D.is a
    co-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 numerous presentations on
    digital entertainment, personal communications, and making the
    information highway entertaining and profitable.                                                                                                                          
|
| | Chunka Muiis a writer and consultant on business
    issues at the intersection of strategy and technology.
    Mr. Mui also chairs Diamond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 Diamond 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.                                                                                                                                                                                                                                                                    
|
| | 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.                                                                                                                                                                                                                                                                                                                                                    

11



---



##### Table of Contents





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



Diamond Knowledge Center.


Intellectual Capital Alliances. speed-to


points-of co-sponsor best-of






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



12



---



##### Table of Contents





Diamond
Exchange tm


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 Diamond; and                                                   
|
| |  | participation by all of our employees in our continuing
    development and ownership of Diamond.                                          

Recruiting.




Training and Professional Development.


Compensation.


13



---



##### Table of Contents





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 |    |  | Position
|                     |  |     |    |  |         
|Melvyn E. Bergstein  |  |     | 64 |  |          | Chairman of the Board of Directors             
|Adam J. Gutstein     |  |     | 43 |  |          | Chief Executive Officer and Director           
|Jay D. Norman        |  |     | 48 |  |          | President, Chief Operating Officer and Director
|Karl E. Bupp         |  |     | 44 |  |          | Chief Financial Officer and Treasurer          
|William R. McClayton |  |     | 61 |  |          | Chief Administrative Officer                   
|John J. Sviokla      |  |     | 48 |  |          | Vice Chairman and Director                     

14



---



##### Table of Contents



Melvyn E. Bergstein


Adam J. Gutstein


Jay D. Norman e-business


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



15



---



##### Table of Contents



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;                                                           
|
| |  | our ability to transition employees from completed projects to
    new engagements;                                                             
|
| |  | 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.




Any failure by us to timely identify or implement an
appropriate strategic alternative for portions of our
international operations could result in total costs and
expenses that are greater than expected.




16



---



##### Table of Contents





A Significant or Prolonged Economic Downturn Could Have a
Material Adverse Effect on Our Results of Operations.


out-of


Our Quarterly Operating Results Will Vary From Quarter to
Quarter, Which May Result in Increased Volatility of Our Share
Price.








| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | the business decision 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 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;                                
|
| |  | 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.




17



---



##### Table of Contents







| |   |                                            
| | - | -------------------------------------------
| |  | 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.






The Price for Our Common Stock Has Been Volatile and
Unpredictable.




18



---



##### Table of Contents







| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | 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.                                                               



An 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.






Our Global Operations Pose Complex Management, Foreign
Currency, Legal, Tax and Economic Risks, Which We May Not
Adequately Address.




19



---



##### Table of Contents







| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | 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;                                      
|
| |  | price controls or restrictions on exchange of foreign
    currencies; and                           
|
| |  | trade barriers.                                                                                     

Currency Exchange Rate Fluctuations Could Materially
Adversely Affect Our Results of Operations.




We Must Build Recognition and Client Acceptance of Our
Name.






The Failure to Integrate or Negotiate Successfully Any Future
Acquisitions Could Harm Our Business and Operating Results.




20



---



##### Table of Contents





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.




We Currently Do Not Intend to Pay Dividends.









|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments



21



---



##### Table of Contents








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










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








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



22



---



##### Table of Contents






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, 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 | 
|Fiscal year ended March 31, 2006: |                |                 |   |       |     |  |   |      
|                                  | First Quarter  |                 | $ | 16.25 |     |  | $ | 9.79  | 
|                                  | Second Quarter |                 |   | 12.13 |     |  |   | 6.96  | 
|                                  | Third Quarter  |                 |   | 8.29  |     |  |   | 5.61  | 
|                                  | Fourth Quarter |                 | $ | 10.98 |     |  | $ | 7.36  | 







23



---



##### Table of Contents





|                                       |  |                                       |   |                        |                |  |                            |                          |  |  |                             |  |  |   |            | 
|-------------------------------------- |  | ------------------------------------- | - | ---------------------- | -------------- |  | -------------------------- | ------------------------ |  |  | --------------------------- |  |  | - | ---------- | 
|                                       |  | 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, 2006 
    January 31, 2006 |  |                                       |  |                        |                |  |                           |                          |  |  |                            |  |  | $ | 18,479,945 | 
|February 1, 2006  February 28, 2006   |  |                                       |  |                        |                |  |                           |                          |  |  |                            |  |  | $ | 18,479,945 | 
|March 1, 2006 
    March 31, 2006     |  |                                       |  |                        |                |  |                           |                          |  |  |                            |  |  | $ | 18,479,945 | 

24



---



##### Table of Contents








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

10-K.


|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |         |         |         |   |         |         |         | 
|------------------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------------------------------ | -------- | ------- | ------- | - | -------- | -------- | ------- | - | ------ | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                |                                                      | Year Ended March 31,                             |         
|                                                                                |                                                      |                                                  |         
|                                                                                |                                                      | 2002                                             |          |         | 2003    |   |          | 2004     |         |   | 2005   |         |         | 2006 |        
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|                                                                                |                                                      | (Amounts in thousands, except per share amounts) |         
|Statement of Operations Data:                                                   |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |         |         |         |   |         |        
|Revenue:                                                                        |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |         |         |         |   |         |        
|                                                                                | Net revenue                                          |                                                  | $        | 112,964 |         |   | $        | 89,040   |         |   | $      | 104,822 |         |      | $       | 144,900 |         |   | $       | 145,224 |        
|                                                                                | Reimbursable expenses                                |                                                  |          | 13,948  |         |   |          | 13,217   |         |   |        | 14,133  |         |      |         | 16,848  |         |   |         | 18,444  |        
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|                                                                                |                                                      | Total revenue                                    |          |         | 126,912 |   |          |          | 102,257 |   |        |         | 118,955 |      |         |         | 161,748 |   |         |         | 163,668 | 
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|Project personnel expenses:                                                     |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |         |         |         |   |         |        
|                                                                                | Project personnel costs before reimbursable expenses |                                                  |          | 101,664 |         |   |          | 75,748   |         |   |        | 74,614  |         |      |         | 86,243  |         |   |         | 99,111  |        
|                                                                                | Reimbursable expenses                                |                                                  |          | 13,948  |         |   |          | 13,217   |         |   |        | 14,133  |         |      |         | 16,848  |         |   |         | 18,444  |        
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|                                                                                |                                                      | Total project personnel expenses                 |          |         | 115,612 |   |          |          | 88,965  |   |        |         | 88,747  |      |         |         | 103,091 |   |         |         | 117,555 | 
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|Gross margin                                                                    |                                                      |                                                  | 11,300   |         |         |   | 13,292   |          |         |   | 30,208 |         |         |      | 58,657  |         |         |   | 46,113  |        
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|Other operating expenses:                                                       |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |         |         |         |   |         |        
|                                                                                | Professional development and recruiting              |                                                  |          | 7,564   |         |   |          | 3,203    |         |   |        | 3,523   |         |      |         | 6,107   |         |   |         | 6,689   |        
|                                                                                | Marketing and sales                                  |                                                  |          | 7,105   |         |   |          | 3,719    |         |   |        | 2,750   |         |      |         | 3,507   |         |   |         | 3,522   |        
|                                                                                | Management and administrative support                |                                                  |          | 33,997  |         |   |          | 24,820   |         |   |        | 22,867  |         |      |         | 24,328  |         |   |         | 25,328  |        
|                                                                                | Goodwill amortization                                |                                                  |          | 1,672   |         |   |          |         |         |   |        |        |         |      |         |        |         |   |         |        |        
|                                                                                | Restructuring charges                                |                                                  |          | 11,958  |         |   |          | 18,301   |         |   |        | 1,432   |         |      |         |        |         |   |         | 400     |        
|                                                                                | Impairment charge on long lived assets               |                                                  |          |        |         |   |          | 14,403   |         |   |        |        |         |      |         |        |         |   |         |        |        
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|                                                                                |                                                      | Total other operating expenses                   |          |         | 62,296  |   |          |          | 64,446  |   |        |         | 30,572  |      |         |         | 33,942  |   |         |         | 35,939  | 
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|Income (loss) from operations                                                   |                                                      |                                                  | (50,996  | )       |         |   | (51,154  | )        |         |   | (364   | )       |         |      | 24,715  |         |         |   | 10,174  |        
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|                                                                                | Interest income, net                                 |                                                  |          | 4,436   |         |   |          | 1,730    |         |   |        | 840     |         |      |         | 1,652   |         |   |         | 2,868   |        
|                                                                                | Other income (expense)                               |                                                  |          | (4,542  | )       |   |          | (1,891   | )       |   |        | 514     |         |      |         | (216    | )       |   |         | 102     |        
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|                                                                                |                                                      | Total other income (expense), net                |          |         | (106    | ) |          |          | (161    | ) |        |         | 1,354   |      |         |         | 1,436   |   |         |         | 2,970   | 
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|Income (loss) from continuing operations before taxes                           |                                                      |                                                  | (51,102  | )       |         |   | (51,315  | )        |         |   | 990    |         |         |      | 26,151  |         |         |   | 13,144  |        
|Income tax expense (benefit)                                                    |                                                      |                                                  | (12,809  | )       |         |   | 17,125   |          |         |   | (807   | )       |         |      | (13,420 | )       |         |   | 11,151  |        
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|Income (loss) from continuing operations                                        |                                                      |                                                  | (38,293  | )       |         |   | (68,440  | )        |         |   | 1,797  |         |         |      | 39,571  |         |         |   | 1,993   |        
|Discontinued operations:                                                        |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |         |         |         |   |         |        
|                                                                                | Loss from discontinued operations (net of tax)(1)    |                                                  |          | (95,379 | )       |   |          | (291,621 | )       |   |        | (7,208  | )       |      |         | (6,533  | )       |   |         | (12,577 | )      
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|Net income (loss)                                                               |                                                      | $                                                | (133,672 | )       |         | $ | (360,061 | )        |         | $ | (5,411 | )       |         | $    | 33,038  |         |         | $ | (10,584 | )      
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|Basic income (loss) per share of Common Stock(2):                               |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |         |         |         |   |         |        
|                                                                                | Income (loss) from continuing operations             |                                                  |          | (1.24   | )       |   |          | (2.17    | )       |   |        | 0.05    |         |      |         | 1.18    |         |   |         | 0.06    |        
|                                                                                | Loss from discontinued operations (net of tax)       |                                                  |          | (3.10   | )       |   |          | (9.24    | )       |   |        | (0.22   | )       |      |         | (0.19   | )       |   |         | (0.38   | )      
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|                                                                                | Net income (loss)                                    |                                                  | $        | (4.34   | )       |   | $        | (11.41   | )       |   | $      | (0.17   | )       |      | $       | 0.99    |         |   | $       | (0.32   | )      
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|Diluted income (loss) per share of Common Stock(2):                             |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |         |         |         |   |         |        
|                                                                                | Income (loss) from continuing operations             |                                                  |          | (1.24   | )       |   |          | (2.17    | )       |   |        | 0.05    |         |      |         | 1.09    |         |   |         | 0.06    |        
|                                                                                | Loss from discontinued operations (net of tax)       |                                                  |          | (3.10   | )       |   |          | (9.24    | )       |   |        | (0.21   | )       |      |         | (0.18   | )       |   |         | (0.36   | )      
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|                                                                                | Net income (loss)                                    |                                                  | $        | (4.34   | )       |   | $        | (11.41   | )       |   | $      | (0.16   | )       |      | $       | 0.91    |         |   | $       | (0.31   | )      
|                                                                                |                                                      |                                                  |          |         |         |   |          |          |         |   |        |         |         |      |        
|Shares used in computing basic income (loss) per share of Common
    Stock(2)   |                                                      |                                                  | 30,813   |         |         |   | 31,548   |          |         |   | 32,710 |         |         |      | 33,516  |         |         |   | 32,963  |        
|Shares used in computing diluted income (loss) per share of
    Common Stock(2) |                                                      |                                                  | 30,813   |         |         |   | 31,548   |          |         |   | 34,206 |         |         |      | 36,281  |         |         |   | 34,682  |        

25



---



##### Table of Contents



|                    |                               |                        |   |         |      |  |   |         |  |  |      |         |  |      |   |         |  |  |   |         |    
|------------------- | ----------------------------- | ---------------------- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  | ---- | - | ------- |  |  | - | ------- | ---
|                    |                               | March 31,              |  
|                    |                               |                        |  
|                    |                               | 2002                   |   |         | 2003 |  |   | 2004    |  |  | 2005 |         |  | 2006 |  
|                    |                               |                        |   |         |      |  |   |         |  |  |      |         |  |      |  
|                    |                               | (Amounts in thousands) |  
|Balance Sheet Data: |                               |                        |   |         |      |  |   |         |  |  |      |         |  |      |   |         |  |  |   |        
|                    | Cash and cash equivalents     |                        | $ | 95,473  |      |  | $ | 26,953  |  |  | $    | 39,004  |  |      | $ | 42,270  |  |  | $ | 75,392  | (4)
|                    | Short-term investments        |                        |   | 1,300   |      |  |   | 48,375  |  |  |      | 42,300  |  |      |   | 55,975  |  |  |   |        |    
|                    | Working capital               |                        |   | 103,564 |      |  |   | 67,326  |  |  |      | 79,585  |  |      |   | 104,086 |  |  |   | 74,352  | (4)
|                    | Total assets                  |                        |   | 401,176 |      |  |   | 109,491 |  |  |      | 122,667 |  |      |   | 153,672 |  |  |   | 128,487 |    
|                    | Total stockholders equity(3) |                        | $ | 375,098 |      |  | $ | 72,377  |  |  | $    | 80,787  |  |      | $ | 117,945 |  |  | $ | 91,888  |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | During the year ended March 31, 2002, our loss from
    discontinued operations included $60.2 million of goodwill
    amortization. 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 earnings (loss) per share data.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(3) | We have never declared or paid cash dividends.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(4) | As of March 31, 2006, 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



---



##### Table of Contents













27



---



##### Table of Contents









Disclosure Regarding Forward-Looking Statements


10-K


Critical Accounting Policies and Estimates




28



---



##### Table of Contents







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

out-of






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







29



---



##### Table of Contents







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





94-3,




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



30



---



##### Table of Contents









31



---



##### Table of Contents



Results of Operations






|                                               |                                                      |                                  |    |     |      |  |    |      |     |  |    |     |     | 
|---------------------------------------------- | ---------------------------------------------------- | -------------------------------- | -- | --- | ---- |  | -- | ---- | --- |  | -- | --- | --- | 
|                                               |                                                      | Year Ended                       |   
|                                               |                                                      | March 31,                        |   
|                                               |                                                      |                                  |   
|                                               |                                                      | 2004                             |    |     | 2005 |  |    | 2006 |    
|                                               |                                                      |                                  |    |     |      |  |    |      |    
|Revenue:                                       |                                                      |                                  |    |     |      |  |    |      |     |  |    |    
|                                               | Net revenue                                          |                                  |    | 100 | %    |  |    | 100  | %   |  |    | 100 | %  
|                                               | Reimbursable expenses                                |                                  |    | 14  |      |  |    | 12   |     |  |    | 13  |    
|                                               |                                                      |                                  |    |     |      |  |    |      |    
|                                               |                                                      | Total revenue                    |    |     | 114  |  |    |      | 112 |  |    |     | 113 | 
|Project personnel expenses:                    |                                                      |                                  |    |     |      |  |    |      |     |  |    |    
|                                               | Project personnel costs before reimbursable expenses |                                  |    | 71  |      |  |    | 60   |     |  |    | 68  |    
|                                               | Reimbursable expenses                                |                                  |    | 14  |      |  |    | 12   |     |  |    | 13  |    
|                                               |                                                      |                                  |    |     |      |  |    |      |    
|                                               |                                                      | Total project personnel expenses |    |     | 85   |  |    |      | 72  |  |    |     | 81  | 
|                                               |                                                      |                                  |    |     |      |  |    |      |    
|Gross margin                                   |                                                      |                                  | 29 |     |      |  | 40 |      |     |  | 32 |    
|                                               |                                                      |                                  |    |     |      |  |    |      |    
|Other operating expenses:                      |                                                      |                                  |    |     |      |  |    |      |     |  |    |    
|                                               | Professional development and recruiting              |                                  |    | 3   |      |  |    | 4    |     |  |    | 5   |    
|                                               | Marketing and sales                                  |                                  |    | 3   |      |  |    | 2    |     |  |    | 2   |    
|                                               | Management and administrative support                |                                  |    | 22  |      |  |    | 17   |     |  |    | 17  |    
|                                               | Restructuring charges                                |                                  |    | 1   |      |  |    |     |     |  |    | 1   |    
|                                               |                                                      |                                  |    |     |      |  |    |      |    
|                                               |                                                      | Total other operating expenses   |    |     | 29   |  |    |      | 23  |  |    |     | 25  | 
|                                               |                                                      |                                  |    |     |      |  |    |      |    
|Income (loss) from operations                  |                                                      |                                  |   |     |      |  | 17 |      |     |  | 7  |    
|Other income, net                              |                                                      |                                  | 1  |     |      |  | 1  |      |     |  | 2  |    
|                                               |                                                      |                                  |    |     |      |  |    |      |    
|Income from continuing operations before taxes |                                                      |                                  | 1  |     |      |  | 18 |      |     |  | 9  |    
|Income tax expense (benefit)                   |                                                      |                                  | (1 | )   |      |  | (9 | )    |     |  | 7  |    
|                                               |                                                      |                                  |    |     |      |  |    |      |    
|Income from continuing operations after taxes  |                                                      |                                  | 2  |     |      |  | 27 |      |     |  | 2  |    
|Discontinued operations:                       |                                                      |                                  |    |     |      |  |    |      |     |  |    |    
|                                               | Loss from discontinued operations (net of tax)       |                                  |    | (7  | )    |  |    | (4   | )   |  |    | (9  | )  
|                                               |                                                      |                                  |    |     |      |  |    |      |    
|Net income (loss)                              |                                                      |                                  | (5 | )%  |      |  | 23 | %    |     |  | (7 | )% 
|                                               |                                                      |                                  |    |     |      |  |    |      |    

Revenue






32



---



##### Table of Contents







|                   |  |                    |      |  |                    |  |      |      |  |  |      |  |  |      |      |  |      |  |      |  |  |  |      | 
|------------------ |  | ------------------ | ---- |  | ------------------ |  | ---- | ---- |  |  | ---- |  |  | ---- | ---- |  | ---- |  | ---- |  |  |  | ---- | 
|                   |  | Billed Fee Revenue |      |  | New Client Revenue | 
|                   |  |                    |      |  |                    | 
|Industry           |  | 2004               |      |  | 2005               |  |      | 2006 |  |  | 2004 |  |  | 2005 |      |  | 2006 | 
|                   |  |                    |      |  |                    |  |      |      |  |  |      |  |  |      |      |  |      | 
|Financial Services |  |                    | 37%  |  |                    |  | 37%  |      |  |  | 37%  |  |  |      | 55%  |  |      |  | 42%  |  |  |  | 32%  | 
|Insurance          |  |                    | 24%  |  |                    |  | 26%  |      |  |  | 22%  |  |  |      | 15%  |  |      |  | 5%   |  |  |  | 22%  | 
|Healthcare         |  |                    | 13%  |  |                    |  | 14%  |      |  |  | 15%  |  |  |      | 1%   |  |      |  | 16%  |  |  |  | 17%  | 
|Enterprise         |  |                    | 12%  |  |                    |  | 11%  |      |  |  | 13%  |  |  |      | 19%  |  |      |  | 22%  |  |  |  | 22%  | 
|Telecommunications |  |                    | 10%  |  |                    |  | 9%   |      |  |  | 9%   |  |  |      | 5%   |  |      |  | 6%   |  |  |  | 5%   | 
|Public Sector      |  |                    | 4%   |  |                    |  | 3%   |      |  |  | 4%   |  |  |      | 5%   |  |      |  | 9%   |  |  |  | 2%   | 
|                   |  |                    |      |  |                    |  |      |      |  |  |      |  |  |      |      |  |      | 
|                   |  |                    | 100% |  |                    |  | 100% |      |  |  | 100% |  |  |      | 100% |  |      |  | 100% |  |  |  | 100% | 
|                   |  |                    |      |  |                    |  |      |      |  |  |      |  |  |      |      |  |      | 

Operating Expenses




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









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



33



---



##### Table of Contents









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

tm




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





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









Other Income, Net






34



---



##### Table of Contents





Income Tax Expense (Benefit)






Discontinued Operations


.


Liquidity and Capital Resources




|                                     |  |               |       |  |      |   |      | 
|------------------------------------ |  | ------------- | ----- |  | ---- | - | ---- | 
|                                     |  | March 31,     |      
|                                     |  |               |      
|                                     |  | 2005          |       |  | 2006 |  
|                                     |  |               |       |  |      |  
|                                     |  | (In millions) |      
|Working capital(1)(2)                |  | $             | 104.1 |  |      | $ | 74.4 | 
|Cash and cash equivalents(1)         |  |               | 42.3  |  |      |   | 75.4 | 
|Short-term investments(1)            |  |               | 56.0  |  |      |   |     | 
|Unutilized bank credit facilities(1) |  |               | 9.2   |  |      |   | 9.2  | 
|Stockholders equity(2)              |  | $             | 117.9 |  |      | $ | 91.9 | 






|    |                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts reported as of March 31, 2005 include combined
    (continuing and discontinued) operations. Amounts reported as of
    March 31, 2006 include only continuing operations.

35



---



##### Table of Contents





|    |                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | We repurchased 2.4 million shares of treasury stock and
    3.5 million shares of treasury stock during fiscal year
    2005 and 2006 for an aggregate cost of $31.5 million and
    $34.3 million, respectively.







time-to




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



|                                                                                                     |  |                   |       |  
|---------------------------------------------------------------------------------------------------- |  | ----------------- | ----- | -
|                                                                                                     |  | Fiscal Year Ended |      
|                                                                                                     |  | March 31, 2006    |      
|                                                                                                     |  |                   |      
|                                                                                                     |  | (In thousands)    |      
|Net loss                                                                                             |  | $                 | (10.6 | )
|Total non-cash charges                                                                               |  |                   | 17.8  |  
|Deferred income taxes                                                                                |  |                   | 10.0  |  
|Restructuring charge                                                                                 |  |                   | 9.0   |  
|Total increases in cash flows from operating activities due to
    changes in assets and liabilities |  |                   | 1.5   |  
|Total decreases in cash flows from operating activities due to
    changes in assets and liabilities |  |                   | (15.6 | )
|                                                                                                     |  |                   |      
|Net cash provided by operating activities                                                            |  | $                 | 12.1  |  
|                                                                                                     |  |                   |      

36



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Total non-cash charges aggregating $17.8 million are
    excluded from the net loss of $10.6 million to arrive at
    net cash provided by operating activities. The principal
    non-cash charges were due to stock-based compensation
    ($15.1 million) and depreciation and amortization
    ($2.7 million). These non-cash charges are summarized as
    follows (in thousands):

|                              |  |                   |      | 
|----------------------------- |  | ----------------- | ---- | 
|                              |  | Fiscal Year Ended |     
|                              |  | March 31, 2006    |     
|                              |  |                   |     
|Stock-based compensation      |  | $                 | 15.1 | 
|Depreciation and amortization |  |                   | 2.7  | 
|                              |  |                   |     
|Total non-cash charges        |  | $                 | 17.8 | 
|                              |  |                   |     



| |   |                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A restructuring charge was recorded in September 2005 for
    $11.0 million. In March 2006, the Company recorded a
    reversal of a previously recorded restructuring charge of
    $2.0 million. These net charges of $9.0 million are
    also excluded from the net loss of $10.6 million to arrive
    at cash flows from operations.
|
| |  | Deferred income taxes decreased $10.0 million during fiscal
    year 2006 due primarily to the utilization of net operating loss
    carryforwards in the U.S. This change is also excluded from
    the net loss of $10.6 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 $1.5 million. The
    increase was the result of an increase in income taxes payable
    ($1.2 million) and accounts payable ($0.3 million).
    The increases are summarized as follows (in thousands):                      

|                                                                                                     |  |                   |     | 
|---------------------------------------------------------------------------------------------------- |  | ----------------- | --- | 
|                                                                                                     |  | Fiscal Year Ended |    
|                                                                                                     |  | March 31, 2006    |    
|                                                                                                     |  |                   |    
|Income taxes payable                                                                                 |  | $                 | 1.2 | 
|Accounts payable                                                                                     |  |                   | 0.3 | 
|                                                                                                     |  |                   |    
|Total increases in cash flows from operating activities due to
    changes in assets and liabilities |  | $                 | 1.5 | 
|                                                                                                     |  |                   |    



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The total decrease in cash flows from operating activities due
    to changes in assets and liabilities was $15.6 million. The
    decrease was primarily the result of cash outflows to reduce the
    restructuring accrual ($7.8 million), which included
    payments under contractual lease obligations, an increase in
    accounts receivable ($6.8 million), an increase in prepaid
    expenses and other ($0.5 million) and a decrease in accrued
    bonuses ($0.3 million). The decreases are summarized as
    follows (in thousands):

|                                                                                                     |  |                   |       |  
|---------------------------------------------------------------------------------------------------- |  | ----------------- | ----- | -
|                                                                                                     |  | Fiscal Year Ended |      
|                                                                                                     |  | March 31, 2006    |      
|                                                                                                     |  |                   |      
|Restructuring accrual                                                                                |  | $                 | (7.8  | )
|Accounts receivable                                                                                  |  |                   | (6.8  | )
|Prepaid expenses and other                                                                           |  |                   | (0.5  | )
|Accrued bonuses                                                                                      |  |                   | (0.3  | )
|Deferred revenue                                                                                     |  |                   | (0.1  | )
|Other assets and liabilities                                                                         |  |                   | (0.1  | )
|                                                                                                     |  |                   |      
|Total decreases in cash flows from operating activities due to
    changes in assets and liabilities |  | $                 | (15.6 | )
|                                                                                                     |  |                   |      



37



---



##### Table of Contents







| |                                                    
| | ---------------------------------------------------
| | Contractual Obligations  Continuing
    Operations



|                                                               |  |                        |       |  |           |   |           |           |  |   |         |  |  |       |    |  |  |   |        | 
|-------------------------------------------------------------- |  | ---------------------- | ----- |  | --------- | - | --------- | --------- |  | - | ------- |  |  | ----- | -- |  |  | - | ------ | 
|                                                               |  | Payments Due By Period |      
|                                                               |  |                        |      
|                                                               |  | Less Than              |       |  |           |   | More Than |           |  |  
|                                                               |  | One Year               |       |  | 1-3 Years |   |           | 3-5 Years |  |   | 5 Years |  |  | Total |   
|                                                               |  |                        |       |  |           |   |           |           |  |   |         |  |  |       |   
|Operating leases                                               |  | $                      | 1,847 |  |           | $ | 4,734     |           |  | $ | 1,404   |  |  | $     | 91 |  |  | $ | 8,076  | 
|Cash outlays for restructuring and other related activities(1) |  |                        | 888   |  |           |   | 467       |           |  |   | 60      |  |  |       |   |  |  |   | 1,415  | 
|Purchase obligations(2)                                        |  |                        | 810   |  |           |   | 436       |           |  |   |        |  |  |       |   |  |  |   | 1,246  | 
|                                                               |  |                        |       |  |           |   |           |           |  |   |         |  |  |       |   
|Total                                                          |  | $                      | 3,545 |  |           | $ | 5,637     |           |  | $ | 1,464   |  |  | $     | 91 |  |  | $ | 10,737 | 
|                                                               |  |                        |       |  |           |   |           |           |  |   |         |  |  |       |   






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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, 2006.



| |                                                      
| | -----------------------------------------------------
| | Contractual Obligations  Discontinued
    Operations



|                                                               |  |                        |       |  |           |   |           |           |  |   |         |  |  |       |       |  |  |   |        | 
|-------------------------------------------------------------- |  | ---------------------- | ----- |  | --------- | - | --------- | --------- |  | - | ------- |  |  | ----- | ----- |  |  | - | ------ | 
|                                                               |  | Payments Due By Period |      
|                                                               |  |                        |      
|                                                               |  | Less Than              |       |  |           |   | More Than |           |  |  
|                                                               |  | One Year               |       |  | 1-3 Years |   |           | 3-5 Years |  |   | 5 Years |  |  | Total |      
|                                                               |  |                        |       |  |           |   |           |           |  |   |         |  |  |       |      
|Operating leases                                               |  | $                      | 1,568 |  |           | $ | 1,075     |           |  | $ | 2,433   |  |  | $     | 2,609 |  |  | $ | 7,685  | 
|Cash outlays for restructuring and other related activities(1) |  |                        | 1,391 |  |           |   | 1,637     |           |  |   | 1,564   |  |  |       | 615   |  |  |   | 5,207  | 
|Purchase obligations(2)                                        |  |                        | 1,048 |  |           |   | 367       |           |  |   | 15      |  |  |       |      |  |  |   | 1,430  | 
|                                                               |  |                        |       |  |           |   |           |           |  |   |         |  |  |       |      
|Total                                                          |  | $                      | 4,007 |  |           | $ | 3,079     |           |  | $ | 4,012   |  |  | $     | 3,224 |  |  | $ | 14,322 | 
|                                                               |  |                        |       |  |           |   |           |           |  |   |         |  |  |       |      

38



---



##### Table of Contents








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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
    $3.6 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, 2006.



| |                                     
| | ------------------------------------
| | Cash Flows from Investing Activities





| |                                     
| | ------------------------------------
| | Cash Flows from Financing Activities





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





39



---



##### Table of Contents





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








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

Foreign Currency Risk




non-U.S.


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

13a-15(e) 15d-15(e)


40



---



##### Table of Contents







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





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

13a-15(f) 15d-15(f) Internal Control 
Integrated Framework


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




Internal Control  Integrated Framework






41



---



##### Table of Contents





Internal
Control  Integrated Framework






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










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



42



---



##### Table of Contents






PART III


10-K 120-day 10-K 120-day







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

10-K. 10-K S-K. 10-K. S-K 10-K.


10-K.







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

10-K.







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



|                                                              |       |                   |        |        |                   |   |                         |                         |  |  |        |        | 
|------------------------------------------------------------- | ----- | ----------------- | ------ | ------ | ----------------- | - | ----------------------- | ----------------------- |  |  | ------ | ------ | 
|                                                              |       | Number of         |        |        |                   |   | Number of securities    |                        
|                                                              |       | securities to be  |        |        |                   |   | remaining available for |                        
|                                                              |       | issued upon       |        |        | Weighted-average  |   |                         | future issuance under   | 
|                                                              |       | exercise of       |        |        | exercise price of |   |                         | equity compensation     | 
|                                                              |       | outstanding       |        |        | outstanding       |   |                         | plans (excluding        | 
|                                                              |       | options, warrants |        |        | options, warrants |   |                         | securities reflected in | 
|Plan Category                                                 |       | and rights        |        |        | and rights        |   |                         | column (a))             | 
|                                                              |       |                   |        |        |                   |   |                         |                         | 
|                                                              |       | (a)               |        |        | (b)               |   |                         | (c)                     | 
|Equity compensation plans approved by security holders        |       |                   | 13,661 | (1)    |                   | $ | 10.90                   | (2)                     |  |  | 17,113 | (3)   
|Equity compensation plans not approved by security holders(4) |       |                   |       |        |                   | $ | 0.00                    |                         |  |  | 429    |       
|                                                              |       |                   |        |        |                   |   |                         |                         | 
|                                                              | Total |                   |        | 13,661 |                   |   |                         |                         |  |  |        | 17,542 | 
|                                                              |       |                   |        |        |                   |   |                         |                         | 






|    |                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 3,768,000 shares issuable upon vesting of
    outstanding stock awards and 4,086,000 stock-settled stock
    appreciation rights (SARs).

43



---



##### 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 1,792,000 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 525,000 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 525,000 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. No additional grants will be made under this plan.

10-K.







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

10-K.







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

10-K.





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 (b) below

Exhibits


S-K 10-K.


44



---



##### Table of Contents





|        |        |             |  |                                                                                                                                                                                                                                                                                                                                   
|------- | ------ | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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*  |             |  | Employment Agreement between each of the Named Officers and the
    Company.                                                                                                                                                                                                                                                      
|        | 10.3   |             |  | North America and United Kingdom Partners Operating
    Agreement dated as of November 13, 2003, including Addendum
    No. 1 dated January 29, 2004, among the Company and
    the partners of the Company filed as Exhibit 10.3 to the
    Form 10-K by the Company on March 31, 2004 and
    incorporated herein by reference.
|        | 10.4   |             |  | Form of Notices of Grant and Restricted Stock Unit Agreement
    (filed as Exhibit 10.4 to the Form 10-K by the Company
    on March 31, 2005 and incorporated herein by reference)                                                                                                                                               
|        | 10.5   |             |  | Form of Notices of Grant and Stock Appreciation Rights Agreement
    (filed as Exhibit 10.5 to the Form 10-K by the Company
    on March 31, 2005 and incorporated herein by reference)                                                                                                                                           
|        | 10.6*  |             |  | Summary of Outside Director Board Compensation                                                                                                                                                                                                                                                                                    
|        | 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.                                                                                                                                                                                               
|        | 31.4*  |             |  | Chairman of the Board of Directors 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.                                                                                                                                                                                               
|        | 32.4*  |             |  | Chairman of the Board of Directors Certification Pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                






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

45



---



##### Table of Contents



SIGNATURES






| |                                       
| | --------------------------------------
| | DiamondCluster
    International, Inc.



| |     |                         
| | --- | ------------------------
| | By: | /s/ Adam J.
    Gutstein

| |                        
| | -----------------------
| | Adam J. Gutstein       
| | Chief Executive Officer

POWER OF ATTORNEY


attorneys-in 10-K, attorneys-in attorneys-in




|                                           |  |                                                                                        |  |               |  | 
|------------------------------------------ |  | -------------------------------------------------------------------------------------- |  | ------------- |  | 
|Signature                                  |  | Title                                                                                  |  | Date         
|                                           |  |                                                                                        |  |              
|                                          
|/s/ Adam J. GutsteinAdam J. Gutstein       |  | Chief Executive Officer (Principal Executive Officer) and
    Director                 |  | June 14, 2006
|                                          
|/s/ Karl E. BuppKarl E. Bupp               |  | Chief Financial Officer and Treasurer (Principal Financial and
    Accounting Officer) |  | June 14, 2006
|                                          
|/s/ Jay D. NormanJay D. Norman             |  | President, Chief Operating Officer and Director                                        |  | June 14, 2006
|                                          
|/s/ Melvyn E. BergsteinMelvyn E. Bergstein |  | Chairman of the Board                                                                  |  | June 14, 2006
|                                          
|/s/ John J. SvioklaJohn J. Sviokla         |  | Vice Chairman and Director                                                             |  | June 14, 2006
|                                          
|/s/ Donald R. CaldwellDonald R. Caldwell   |  | Lead Director                                                                          |  | June 14, 2006
|                                          
|/s/ Edward R. AndersonEdward R. Anderson   |  | Director                                                                               |  | June 14, 2006

46



---



##### Table of Contents



|                                                     |  |          |  |               |  | 
|---------------------------------------------------- |  | -------- |  | ------------- |  | 
|Signature                                            |  | Title    |  | Date         
|                                                     |  |          |  |              
|                                                    
|/s/ Mark L. GordonMark L. Gordon                     |  | Director |  | June 14, 2006
|                                                    
|/s/ Alan C. KayAlan C. Kay                           |  | Director |  | June 14, 2006
|                                                    
|/s/ Michael E.
    MikolajczykMichael E. Mikolajczyk |  | Director |  | June 14, 2006
|                                                    
|/s/ Javier RubioJavier Rubio                         |  | Director |  | June 14, 2006
|                                                    
|/s/ Pauline A.
    SchneiderPauline A. Schneider     |  | Director |  | June 14, 2006
|                                                    
|/s/ Samuel K. SkinnerSamuel K. Skinner               |  | Director |  | June 14, 2006
|                                                    
|/s/ Arnold R. WeberArnold R. Weber                   |  | Director |  | June 14, 2006

47



---



##### 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, 2005 and 2006                                                                   |      |  | F-3 | 
|                                   | Consolidated Statements of Operations and
    Comprehensive Income (Loss) for the Years Ended March 31,
    2004, 2005 and 2006 |      |  | F-4 | 
|                                   | Consolidated Statements of
    Stockholders Equity for the Years Ended March 31,
    2004, 2005 and 2006                       |      |  | F-5 | 
|                                   | Consolidated Statements of Cash Flows for
    the Years Ended March 31, 2004, 2005 and 2006                                     |      |  | 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, 2005 and 2006


|                                                                                                                            |                                                                                                                                               |                                            |         |          |         |  |         |          |         | 
|--------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | -------- | ------- |  | ------- | -------- | ------- | 
|                                                                                                                            |                                                                                                                                               | 2005                                       |         |          | 2006    | 
|                                                                                                                            |                                                                                                                                               |                                            |         |          |         | 
|                                                                                                                            |                                                                                                                                               | (In thousands,                             |        
|                                                                                                                            |                                                                                                                                               | except per share data)                     |        
|ASSETS                                                                                                                     
|Current assets:                                                                                                             |                                                                                                                                               |                                            |         |          |         |  |         |         
|                                                                                                                            | Cash and cash equivalents                                                                                                                     |                                            | $       | 42,270   |         |  | $       | 75,392   |        
|                                                                                                                            | Short-term investments                                                                                                                        |                                            |         | 55,975   |         |  |         |         |        
|                                                                                                                            | Accounts receivable, net of allowance of $1,079 and $629 as of
    March 31, 2005 and 2006, respectively                                      |                                            |         | 22,044   |         |  |         | 11,908   |        
|                                                                                                                            | Deferred tax asset  current portion                                                                                                          |                                            |         | 9,819    |         |  |         | 1,457    |        
|                                                                                                                            | Prepaid expenses                                                                                                                              |                                            |         | 2,008    |         |  |         | 2,055    |        
|                                                                                                                            | Other current assets                                                                                                                          |                                            |         | 3,997    |         |  |         | 1,050    |        
|                                                                                                                            | Current assets of discontinued operations                                                                                                     |                                            |         |         |         |  |         | 21,097   |        
|                                                                                                                            |                                                                                                                                               |                                            |         |          |         | 
|Total current assets                                                                                                        |                                                                                                                                               |                                            | 136,113 |          |         |  | 112,959 |         
|Computers, equipment, leasehold improvements and software, net                                                              |                                                                                                                                               |                                            | 5,145   |          |         |  | 1,431   |         
|Deferred tax asset  long term portion                                                                                      |                                                                                                                                               |                                            | 10,841  |          |         |  | 8,008   |         
|Other assets                                                                                                                |                                                                                                                                               |                                            | 1,573   |          |         |  | 3,322   |         
|Non-current assets of discontinued operations                                                                               |                                                                                                                                               |                                            |        |          |         |  | 2,767   |         
|                                                                                                                            |                                                                                                                                               |                                            |         |          |         | 
|                                                                                                                            |                                                                                                                                               | Total assets                               |         | $        | 153,672 |  |         | $        | 128,487 | 
|                                                                                                                            |                                                                                                                                               |                                            |         |          |         | 
|                                                                                                                           
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                       
|Current liabilities:                                                                                                        |                                                                                                                                               |                                            |         |          |         |  |         |         
|                                                                                                                            | Accounts payable                                                                                                                              |                                            | $       | 4,652    |         |  | $       | 2,260    |        
|                                                                                                                            | Accrued compensation                                                                                                                          |                                            |         | 6,762    |         |  |         | 4,966    |        
|                                                                                                                            | Deferred revenue                                                                                                                              |                                            |         | 1,609    |         |  |         | 999      |        
|                                                                                                                            | Income taxes payable                                                                                                                          |                                            |         | 1,611    |         |  |         | 899      |        
|                                                                                                                            | Restructuring accruals, current portion                                                                                                       |                                            |         | 2,848    |         |  |         | 896      |        
|                                                                                                                            | Other accrued liabilities                                                                                                                     |                                            |         | 14,545   |         |  |         | 7,490    |        
|                                                                                                                            | Current liabilities of discontinued operations                                                                                                |                                            |         |         |         |  |         | 14,746   |        
|                                                                                                                            |                                                                                                                                               |                                            |         |          |         | 
|                                                                                                                            |                                                                                                                                               | Total current liabilities                  |         |          | 32,027  |  |         |          | 32,256  | 
|                                                                                                                            | Restructuring accrual, less current portion                                                                                                   |                                            |         | 3,700    |         |  |         | 527      |        
|                                                                                                                            | Non-current liabilities of discontinued operations                                                                                            |                                            |         |         |         |  |         | 3,816    |        
|                                                                                                                            |                                                                                                                                               |                                            |         |          |         | 
|                                                                                                                            |                                                                                                                                               | Total liabilities                          |         |          | 35,727  |  |         |          | 36,599  | 
|                                                                                                                            |                                                                                                                                               |                                            |         |          |         | 
|Stockholders equity:                                                                                                       |                                                                                                                                               |                                            |         |          |         |  |         |         
|                                                                                                                            | Preferred Stock, $1.00 par value, 2,000 shares
    authorized, no shares issued                                                               |                                            |         |         |         |  |         |         |        
|                                                                                                                            | Common Stock, $.001 par value, 300,000 shares
    authorized, 40,168 and 40,071 shares issued as of
    March 31, 2005 and 2006, respectively |                                            |         | 40       |         |  |         | 40       |        
|                                                                                                                            | Additional paid-in capital                                                                                                                    |                                            |         | 639,795  |         |  |         | 623,760  |        
|                                                                                                                            | Stock-based compensation                                                                                                                      |                                            |         | (2,174   | )       |  |         |         |        
|                                                                                                                            | Accumulated other comprehensive income                                                                                                        |                                            |         | 2,660    |         |  |         | 2,473    |        
|                                                                                                                            | Accumulated deficit                                                                                                                           |                                            |         | (446,294 | )       |  |         | (456,878 | )      
|                                                                                                                            |                                                                                                                                               |                                            |         |          |         | 
|                                                                                                                            |                                                                                                                                               |                                            | 194,027 |          |         |  | 169,395 |         
|Less Common Stock in treasury, at cost, 5,732 shares held
    at March 31, 2005 and 7,572 shares held at
    March 31, 2006 |                                                                                                                                               |                                            | 76,082  |          |         |  | 77,507  |         
|                                                                                                                            |                                                                                                                                               |                                            |         |          |         | 
|                                                                                                                            |                                                                                                                                               | Total stockholders equity                 |         |          | 117,945 |  |         |          | 91,888  | 
|                                                                                                                            |                                                                                                                                               |                                            |         |          |         | 
|                                                                                                                            |                                                                                                                                               | Total liabilities and stockholders equity |         | $        | 153,672 |  |         | $        | 128,487 | 
|                                                                                                                            |                                                                                                                                               |                                            |         |          |         | 



F-3



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)


Fiscal Years Ended March 31, 2004, 2005 and 2006


|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |         |         |         |       |         |         | 
|---------------------------------------------------------------------------- | --------------------------------- | ------------------------------------------------------- | -------------------------------- | ----- | ------- | ------- | ------- | ----- | ------- | ------- | ------- | ----- | ------- | ------- | 
|                                                                             |                                   | 2004                                                    |                                  |       | 2005    |         |         | 2006  |        
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|                                                                             |                                   | (In thousands, except per share data)                   |                                 
|Revenue:                                                                     |                                   |                                                         |                                  |       |         |         |         |       |         |         |         |      
|                                                                             |                                   | Net revenue                                             |                                  | $     | 104,822 |         |         | $     | 144,900 |         |         | $     | 145,224 |        
|                                                                             |                                   | Reimbursable expenses                                   |                                  |       | 14,133  |         |         |       | 16,848  |         |         |       | 18,444  |        
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|                                                                             |                                   |                                                         | Total revenue                    |       |         | 118,955 |         |       |         | 161,748 |         |       |         | 163,668 | 
|Project personnel expenses:                                                  |                                   |                                                         |                                  |       |         |         |         |       |         |         |         |      
|                                                                             |                                   | Project personnel costs before reimbursable expenses    |                                  |       | 74,614  |         |         |       | 86,243  |         |         |       | 99,111  |        
|                                                                             |                                   | Reimbursable expenses                                   |                                  |       | 14,133  |         |         |       | 16,848  |         |         |       | 18,444  |        
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|                                                                             |                                   |                                                         | Total project personnel expenses |       |         | 88,747  |         |       |         | 103,091 |         |       |         | 117,555 | 
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|Gross margin                                                                 |                                   |                                                         | 30,208                           |       |         |         | 58,657  |       |         |         | 46,113  |      
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|Other operating expenses:                                                    |                                   |                                                         |                                  |       |         |         |         |       |         |         |         |      
|                                                                             |                                   | Professional development and recruiting                 |                                  |       | 3,523   |         |         |       | 6,107   |         |         |       | 6,689   |        
|                                                                             |                                   | Marketing and sales                                     |                                  |       | 2,750   |         |         |       | 3,507   |         |         |       | 3,522   |        
|                                                                             |                                   | Management and administrative support                   |                                  |       | 22,867  |         |         |       | 24,328  |         |         |       | 25,328  |        
|                                                                             |                                   | Restructuring charges                                   |                                  |       | 1,432   |         |         |       |        |         |         |       | 400     |        
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|                                                                             |                                   |                                                         | Total other operating expenses   |       |         | 30,572  |         |       |         | 33,942  |         |       |         | 35,939  | 
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|Income (loss) from operations                                                |                                   |                                                         | (364                             | )     |         |         | 24,715  |       |         |         | 10,174  |      
|                                                                             |                                   | Interest income                                         |                                  |       | 1,026   |         |         |       | 1,704   |         |         |       | 2,959   |        
|                                                                             |                                   | Interest expense                                        |                                  |       | (186    | )       |         |       | (52     | )       |         |       | (91     | )      
|                                                                             |                                   | Other income (expense), net                             |                                  |       | 514     |         |         |       | (216    | )       |         |       | 102     |        
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|                                                                             |                                   |                                                         | Total other income, net          |       |         | 1,354   |         |       |         | 1,436   |         |       |         | 2,970   | 
|Income from continuing operations before income taxes                        |                                   |                                                         | 990                              |       |         |         | 26,151  |       |         |         | 13,144  |      
|Income tax expense (benefit)                                                 |                                   |                                                         | (807                             | )     |         |         | (13,420 | )     |         |         | 11,151  |      
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|Income from continuing operations after income taxes                         |                                   |                                                         | 1,797                            |       |         |         | 39,571  |       |         |         | 1,993   |      
|Discontinued operations:                                                     |                                   |                                                         |                                  |       |         |         |         |       |         |         |         |      
|                                                                             |                                   | Loss from discontinued operations (net of income taxes) |                                  |       | (7,208  | )       |         |       | (6,533  | )       |         |       | (12,577 | )      
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|Net income (loss)                                                            |                                   |                                                         | (5,411                           | )     |         |         | 33,038  |       |         |         | (10,584 | )    
|                                                                             |                                   | Foreign currency translation adjustments                |                                  |       | 1,127   |         |         |       | 119     |         |         |       | (172    | )      
|                                                                             |                                   | Unrealized gain (loss) on investment                    |                                  |       | 437     |         |         |       | (317    | )       |         |       | (15     | )      
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|Comprehensive income (loss)                                                  |                                   | $                                                       | (3,847                           | )     |         | $       | 32,840  |       |         | $       | (10,771 | )    
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|Basic income (loss) per share of common stock:                               |                                   |                                                         |                                  |       |         |         |         |       |         |         |         |      
|                                                                             | Income from continuing operations |                                                         | $                                | 0.05  |         |         | $       | 1.18  |         |         | $       | 0.06  |        
|                                                                             | Loss from discontinued operations |                                                         |                                  | (0.22 | )       |         |         | (0.19 | )       |         |         | (0.38 | )      
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|                                                                             | Net income (loss)                 |                                                         | $                                | (0.17 | )       |         | $       | 0.99  |         |         | $       | (0.32 | )      
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|Diluted income (loss) per share of common stock:                             |                                   |                                                         |                                  |       |         |         |         |       |         |         |         |      
|                                                                             | Income from continuing operations |                                                         | $                                | 0.05  |         |         | $       | 1.09  |         |         | $       | 0.06  |        
|                                                                             | Loss from discontinued operations |                                                         | $                                | (0.21 | )       |         | $       | (0.18 | )       |         | $       | (0.36 | )      
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|                                                                             | Net income (loss)                 |                                                         | $                                | (0.16 | )       |         | $       | 0.91  |         |         | $       | (0.31 | )      
|                                                                             |                                   |                                                         |                                  |       |         |         |         |       |        
|Shares used in computing basic income (loss) per share of common
    stock   |                                   |                                                         | 32,710                           |       |         |         | 33,516  |       |         |         | 32,963  |      
|Shares used in computing diluted income (loss) per share of
    common stock |                                   |                                                         | 34,206                           |       |         |         | 36,281  |       |         |         | 34,682  |      



|                                                     |                                                               |                                        |       |       |        |   |       |       |        |   |       |        |        | 
|---------------------------------------------------- | ------------------------------------------------------------- | -------------------------------------- | ----- | ----- | ------ | - | ----- | ----- | ------ | - | ----- | ------ | ------ | 
|                                                     |                                                               | 2004                                   |       |       | 2005   |   |       | 2006  |       
|                                                     |                                                               |                                        |       |       |        |   |       |       |       
|Project personnel costs before reimbursable expenses |                                                               | $                                      | 4,229 |       |        | $ | 7,301 |       |        | $ | 9,203 |       
|Professional development and recruiting              |                                                               |                                        | 71    |       |        |   | 57    |       |        |   | 67    |       
|Marketing and sales                                  |                                                               |                                        | 78    |       |        |   | 248   |       |        |   | 385   |       
|Management and administrative support                |                                                               |                                        | 587   |       |        |   | 1,399 |       |        |   | 2,219 |       
|                                                     |                                                               |                                        |       |       |        |   |       |       |       
|                                                     | Stock-based compensation expense from continuing operations   |                                        |       | 4,965 |        |   |       | 9,005 |        |   |       | 11,874 |       
|                                                     | Stock-based compensation expense from discontinued operations |                                        |       | 7,727 |        |   |       | 5,308 |        |   |       | 3,211  |       
|                                                     |                                                               |                                        |       |       |        |   |       |       |       
|                                                     |                                                               | Total stock-based compensation expense |       | $     | 12,692 |   |       | $     | 14,313 |   |       | $      | 15,085 | 
|                                                     |                                                               |                                        |       |       |        |   |       |       |       



F-4



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


Fiscal Years Ended March 31, 2004, 2005 and 2006


|                                                                               |  |                |     |   |         |   |    |        |  |            |         |            |  |              |           |   |           |          |             |           |  |   |               |   |  |        |          |   |               |   |         |   |  |   |       |   |  |   |         |  
|------------------------------------------------------------------------------ |  | -------------- | --- | - | ------- | - | -- | ------ |  | ---------- | ------- | ---------- |  | ------------ | --------- | - | --------- | -------- | ----------- | --------- |  | - | ------------- | - |  | ------ | -------- | - | ------------- | - | ------- | - |  | - | ----- | - |  | - | ------- | -
|                                                                               |  |                |     |   |         |   |    |        |  |            |         | Notes      |  |              |           |   |           |          | Accumulated |           |  |  
|                                                                               |  |                |     |   |         |   |    |        |  |            |         | Receivable |  |              |           |   |           |          | Other       |           |  |  
|                                                                               |  | Class A        |     |   | Class B |   |    |        |  | Additional |         |            |  |              | from Sale |   |           | Retained |             |           |  |   | Comprehensive |   |  | Total  |         
|                                                                               |  | Common         |     |   | Common  |   |    | Common |  |            | Paid-In |            |  | Stock-based  |           |   | of Common |          |             | Earnings  |  |   | Treasury      |   |  | Income |          |   | Stockholders |  
|                                                                               |  | Stock          |     |   | Stock   |   |    | Stock  |  |            | Capital |            |  | Compensation |           |   | Stock     |          |             | (Deficit) |  |   | Stock         |   |  | (Loss) |          |   | Equity        |  
|                                                                               |  |                |     |   |         |   |    |        |  |            |         |            |  |              |           |   |           |          |             |           |  |   |               |   |  |        |          |   |               |  
|                                                                               |  | (In thousands) |    
|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-based compensation                         |  |                |    |   |         |   |   |        |  |            |        |            |  |              | 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 |  
|Issuance, forfeiture and cancellation of stock                                 |  |                |    |   |         |   |   |        |  |            | 1       |            |  |              |          |   |           |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |      |   |  |   | 1       |  
|Reclassification of stock-based compensation                                   |  |                |    |   |         |   |   |        |  |            |        |            |  |              | (2,174    | ) |           |          | 2,174       |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |      |   |  |   |        |  
|Stock-based compensation                                                       |  |                |    |   |         |   |   |        |  |            |        |            |  |              | 15,085    |   |           |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |      |   |  |   | 15,085  |  
|Stock-based compensation related to restructuring charges                      |  |                |    |   |         |   |   |        |  |            |        |            |  |              | 606       |   |           |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |      |   |  |   | 606     |  
|Exercise of stock options                                                      |  |                |    |   |         |   |   |        |  |            | 1       |            |  |              | 1,949     |   |           |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |      |   |  |   | 1,950   |  
|Issuance 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     |   |           |          |            |           |  |   |              |   |  |        |         |   |               |   |        |   |  |   |      |   |  |   | 1,716   |  
|Unrealized 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 |   |  | $ | 91,888  |  
|                                                                               |  |                |     |   |         |   |    |        |  |            |         |            |  |              |           |   |           |          |             |           |  |   |               |   |  |        |          |   |               |  



F-5



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


Fiscal Years Ended March 31, 2004, 2005 and 2006


|                                                    |                                                                                          |                                                                                                    |                              |        |        |        |         |         |         |        |         |         |        |        |  
|--------------------------------------------------- | ---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ---------------------------- | ------ | ------ | ------ | ------- | ------- | ------- | ------ | ------- | ------- | ------ | ------ | -
|                                                    |                                                                                          | 2004                                                                                               |                              |        | 2005   |        |         | 2006    |        
|                                                    |                                                                                          |                                                                                                    |                              |        |        |        |         |         |        
|                                                    |                                                                                          | (In thousands)                                                                                     |                             
|Cash flows from operating activities:               |                                                                                          |                                                                                                    |                              |        |        |        |         |         |         |        |         |        
|                                                    | Net income (loss)                                                                        |                                                                                                    | $                            | (5,411 | )      |        | $       | 33,038  |         |        | $       | (10,584 | )     
|                                                    | Adjustments to reconcile income (loss) to net cash provided by
    operating activities: |                                                                                                    |                              |        |        |        |         |         |         |        |         |         |       
|                                                    |                                                                                          | Restructuring charges                                                                              |                              |        | 3,975  |        |         |         |        |        |         |         | 9,069  |       
|                                                    |                                                                                          | Depreciation and amortization                                                                      |                              |        | 4,702  |        |         |         | 3,190   |        |         |         | 2,744  |       
|                                                    |                                                                                          | Write-down of net book value of computers, equipment, leasehold
    improvements and software, net |                              |        | 774    |        |         |         | 71      |        |         |         |       |       
|                                                    |                                                                                          | Stock-based compensation                                                                           |                              |        | 12,692 |        |         |         | 14,313  |        |         |         | 15,085 |       
|                                                    |                                                                                          | Deferred income taxes                                                                              |                              |        |       |        |         |         | (20,633 | )      |         |         | 10,008 |       
|                                                    |                                                                                          | Tax benefits from employee stock plans, net of adjustments                                         |                              |        |       |        |         |         | 4,748   |        |         |         |       |       
|                                                    |                                                                                          | Changes in assets and liabilities:                                                                 |                              |        |        |        |         |         |         |        |         |         |        |       
|                                                    |                                                                                          |                                                                                                    | Accounts receivable          |        |        | (4,951 | )       |         |         | 1,951  |         |         |        | (6,792 | )
|                                                    |                                                                                          |                                                                                                    | Prepaid expenses and other   |        |        | (3,929 | )       |         |         | 4,601  |         |         |        | (519   | )
|                                                    |                                                                                          |                                                                                                    | Accounts payable             |        |        | 1,085  |         |         |         | (1,856 | )       |         |        | 263    |  
|                                                    |                                                                                          |                                                                                                    | Accrued compensation         |        |        | 5,524  |         |         |         | 919    |         |         |        | (354   | )
|                                                    |                                                                                          |                                                                                                    | Restructuring accrual        |        |        | (8,800 | )       |         |         | (2,980 | )       |         |        | (7,805 | )
|                                                    |                                                                                          |                                                                                                    | Deferred revenue             |        |        | 634    |         |         |         | 332    |         |         |        | (130   | )
|                                                    |                                                                                          |                                                                                                    | Income taxes payable         |        |        | (1,279 | )       |         |         | 2,178  |         |         |        | 1,198  |  
|                                                    |                                                                                          |                                                                                                    | Other assets and liabilities |        |        | 2,822  |         |         |         | (7,036 | )       |         |        | (127   | )
|                                                    |                                                                                          |                                                                                                    |                              |        |        |        |         |         |        
|Net cash provided by operating activities           |                                                                                          |                                                                                                    | 7,838                        |        |        |        | 32,836  |         |         |        | 12,056  |        
|                                                    |                                                                                          |                                                                                                    |                              |        |        |        |         |         |        
|Cash flows from investing activities:               |                                                                                          |                                                                                                    |                              |        |        |        |         |         |         |        |         |        
|                                                    | Net redemptions (purchases) of short-term investments                                    |                                                                                                    |                              | 6,075  |        |        |         | (13,675 | )       |        |         | 55,975  |       
|                                                    | Capital expenditures, net                                                                |                                                                                                    |                              | (935   | )      |        |         | (1,763  | )       |        |         | (1,580  | )     
|                                                    | Other assets                                                                             |                                                                                                    |                              | 843    |        |        |         | 151     |         |        |         | 60      |       
|                                                    |                                                                                          |                                                                                                    |                              |        |        |        |         |         |        
|Net cash provided by (used in) investing activities |                                                                                          |                                                                                                    | 5,983                        |        |        |        | (15,287 | )       |         |        | 54,455  |        
|                                                    |                                                                                          |                                                                                                    |                              |        |        |        |         |         |        
|Cash flows from financing activities:               |                                                                                          |                                                                                                    |                              |        |        |        |         |         |         |        |         |        
|                                                    | Common stock issued                                                                      |                                                                                                    |                              | 6,609  |        |        |         | 16,802  |         |        |         | 3,767   |       
|                                                    | Tax benefits from employee stock plans, net of adjustments                               |                                                                                                    |                              |       |        |        |         |        |         |        |         | (307    | )     
|                                                    | Purchase of treasury stock                                                               |                                                                                                    |                              | (9,204 | )      |        |         | (31,547 | )       |        |         | (34,337 | )     
|                                                    |                                                                                          |                                                                                                    |                              |        |        |        |         |         |        
|Net cash used in financing activities               |                                                                                          |                                                                                                    | (2,595                       | )      |        |        | (14,745 | )       |         |        | (30,877 | )      
|                                                    |                                                                                          |                                                                                                    |                              |        |        |        |         |         |        
|Effect of exchange rate changes on cash             |                                                                                          |                                                                                                    | 825                          |        |        |        | 462     |         |         |        | (188    | )      
|                                                    |                                                                                          |                                                                                                    |                              |        |        |        |         |         |        
|Net increase in cash and cash equivalents           |                                                                                          |                                                                                                    | 12,051                       |        |        |        | 3,266   |         |         |        | 35,446  |        
|Cash and cash equivalents at beginning of year      |                                                                                          |                                                                                                    | 26,953                       |        |        |        | 39,004  |         |         |        | 42,270  |        
|                                                    |                                                                                          |                                                                                                    |                              |        |        |        |         |         |        
|Cash and cash equivalents at end of year(1)         |                                                                                          | $                                                                                                  | 39,004                       |        |        | $      | 42,270  |         |         | $      | 77,716  |        
|                                                    |                                                                                          |                                                                                                    |                              |        |        |        |         |         |        
|Supplemental disclosure of cash flow information:   |                                                                                          |                                                                                                    |                              |        |        |        |         |         |         |        |         |        
|                                                    | Cash paid during the year for interest                                                   |                                                                                                    | $                            |       |        |        | $       | 21      |         |        | $       | 55      |       
|                                                    | Cash paid during the year for income taxes                                               |                                                                                                    |                              | 3,127  |        |        |         | 1,264   |         |        |         | 1,379   |       
|Non-cash financing activities:                      |                                                                                          |                                                                                                    |                              |        |        |        |         |         |         |        |         |        
|                                                    | Reclassification 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



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







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







Accounting for the Impairment or Disposal of Long-Lived
Assets.




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



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





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



F-7



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





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







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





F-8



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












F-9



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                     |                                                                                                                            |                             |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | --------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                     |                                                                                                                            | Fiscal Year Ended March 31, |  
|                                                     |                                                                                                                            |                             |  
|                                                     |                                                                                                                            | 2004                        |   |        | 2005 |  |   | 2006   |  
|                                                     |                                                                                                                            |                             |   |        |      |  |   |        |  
|Income from continuing operations:                   |                                                                                                                            |                             |   |        |      |  |   |        |   |  |   |       
|                                                     | As reported                                                                                                                |                             | $ | 1,797  |      |  | $ | 39,571 |   |  | $ | 1,993  |  
|                                                     | Add: Stock-based employee compensation expense included in
    reported net income, net of related tax effects             |                             |   | 4,965  |      |  |   | 4,536  |   |  |   | 8,026  |  
|                                                     | Deduct: Stock-based employee compensation expense determined
    under fair value based method, net of related tax effects |                             |   | (7,847 | )    |  |   | (7,863 | ) |  |   | (8,026 | )
|                                                     |                                                                                                                            |                             |   |        |      |  |   |        |  
|                                                     | Pro forma                                                                                                                  |                             | $ | (1,085 | )    |  | $ | 36,244 |   |  | $ | 1,993  |  
|                                                     |                                                                                                                            |                             |   |        |      |  |   |        |  
|Basic income from continuing operations per share:   |                                                                                                                            |                             |   |        |      |  |   |        |   |  |   |       
|                                                     | As reported                                                                                                                |                             | $ | 0.05   |      |  | $ | 1.18   |   |  | $ | 0.06   |  
|                                                     | Pro forma                                                                                                                  |                             | $ | (0.03  | )    |  | $ | 1.08   |   |  | $ | 0.06   |  
|Diluted income from continuing operations per share: |                                                                                                                            |                             |   |        |      |  |   |        |   |  |   |       
|                                                     | As reported                                                                                                                |                             | $ | 0.05   |      |  | $ | 1.09   |   |  | $ | 0.06   |  
|                                                     | Pro forma                                                                                                                  |                             | $ | (0.03  | )    |  | $ | 1.00   |   |  | $ | 0.06   |  



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





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







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



F-10



---



##### 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





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





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



F-11



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                                                                                             |  |                             |        |  |      |  |        |      |  |  |        | 
|-------------------------------------------------------------------------------------------- |  | --------------------------- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                                                                                             |  | Fiscal Year Ended March 31, |       
|                                                                                             |  |                             |       
|                                                                                             |  | 2004                        |        |  | 2005 |  |        | 2006 | 
|                                                                                             |  |                             |        |  |      |  |        |      | 
|Shares used in computing basic income (loss) per share                                       |  |                             | 32,710 |  |      |  | 33,516 |      |  |  | 32,963 | 
|Dilutive effect of stock options, SARs, and restricted
    stock/units                       |  |                             | 1,496  |  |      |  | 2,765  |      |  |  | 1,719  | 
|                                                                                             |  |                             |        |  |      |  |        |      | 
|Shares used in computing diluted income (loss) per share(1)                                  |  |                             | 34,206 |  |      |  | 36,281 |      |  |  | 34,682 | 
|                                                                                             |  |                             |        |  |      |  |        |      | 
|Antidilutive securities not included in dilutive net income
    (loss) per share calculation |  |                             | 12,282 |  |      |  | 4,262  |      |  |  | 6,993  | 






|    |                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.



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





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



(3) Accumulated Other Comprehensive Income




|                                         |  |      |       |  |      |   |       | 
|---------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                                         |  | 2005 |       |  | 2006 |  
|                                         |  |      |       |  |      |  
|Foreign currency translation adjustments |  | $    | 120   |  |      | $ | 105   | 
|Unrealized gain on investment            |  |      | 2,540 |  |      |   | 2,368 | 
|                                         |  |      |       |  |      |  
|Accumulated other comprehensive income   |  |      | 2,660 |  |      |   | 2,473 | 
|                                         |  |      |       |  |      |  

(4) New Accounting Policies




F-12



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




(5) Discontinued Operations




|                                                            |  |                             |        |   |      |   |        |      |  |   |         |  
|----------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                            |  | Fiscal Year Ended March 31, |       
|                                                            |  |                             |       
|                                                            |  | 2004                        |        |   | 2005 |   |        | 2006 | 
|                                                            |  |                             |        |   |      |   |        |      | 
|Net revenue                                                 |  | $                           | 49,963 |   |      | $ | 48,263 |      |  | $ | 54,666  |  
|Total revenue                                               |  |                             | 58,159 |   |      |   | 58,027 |      |  |   | 63,495  |  
|Gross margin                                                |  |                             | 10,523 |   |      |   | 6,895  |      |  |   | 12,525  |  
|Loss from discontinued operations                           |  |                             | (5,430 | ) |      |   | (6,473 | )    |  |   | (10,994 | )
|Interest expense (income)                                   |  |                             | 317    |   |      |   | (115   | )    |  |   | 150     |  
|Loss from discontinued operations before income tax expense |  |                             | (5,747 | ) |      |   | (6,358 | )    |  |   | (11,144 | )
|Income tax expense                                          |  |                             | 1,461  |   |      |   | 175    |      |  |   | 1,433   |  
|Loss from discontinued operations (net of income taxes)     |  |                             | (7,208 | ) |      |   | (6,533 | )    |  |   | (12,577 | )



F-13



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                               |                                              |                |        |        | 
|-------------------------------------------------------------- | -------------------------------------------- | -------------- | ------ | ------ | 
|                                                               |                                              | March 31, 2006 |       
|                                                               |                                              |                |       
|Cash and cash equivalents                                      |                                              | $              | 2,324  |       
|Accounts receivable                                            |                                              |                | 15,664 |       
|Prepaid expenses                                               |                                              |                | 3,109  |       
|Computers, equipment, leasehold improvements and software, net |                                              |                | 1,658  |       
|Deferred tax asset  long-term portion                         |                                              |                | 1,109  |       
|                                                               |                                              |                |       
|                                                               | Total assets of discontinued operations      |                | $      | 23,864 | 
|                                                               |                                              |                |       
|Accounts payable                                               |                                              | $              | 2,422  |       
|Accrued compensation                                           |                                              |                | 1,325  |       
|Deferred revenue                                               |                                              |                | 448    |       
|Income taxes payable                                           |                                              |                | 1,907  |       
|Restructuring accrual, current portion                         |                                              |                | 1,218  |       
|VAT payable                                                    |                                              |                | 2,274  |       
|Other accrued liabilities                                      |                                              |                | 5,152  |       
|Restructuring accrual, less current portion                    |                                              |                | 3,816  |       
|                                                               |                                              |                |       
|                                                               | Total liabilities of discontinued operations |                | $      | 18,562 | 
|                                                               |                                              |                |       

(6) Restructuring Charges






| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | Fiscal Year 2006 Restructuring Charges from Combined
    (Continuing and Discontinued) Operations



F-14



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | Fiscal Year 2004 Restructuring Charges from Combined
    (Continuing and Discontinued) Operations







| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | Fiscal Year 2003 Restructuring Charges from Combined
    (Continuing and Discontinued) Operations



F-15



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










F-16



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                          |  |                                            |        |  |                   |   |       |           |  |   |                |  |  |          |         |   |             |   |       |         |  |   |        |   |  |        |       |  |        |   |     |        |  |   |       |  |  |          |      |   |             |   |      |         |  |   |        |  |  |   |       |  |  |   |      |   |  |   |       | 
|----------------------------------------------------------------------------------------- |  | ------------------------------------------ | ------ |  | ----------------- | - | ----- | --------- |  | - | -------------- |  |  | -------- | ------- | - | ----------- | - | ----- | ------- |  | - | ------ | - |  | ------ | ----- |  | ------ | - | --- | ------ |  | - | ----- |  |  | -------- | ---- | - | ----------- | - | ---- | ------- |  | - | ------ |  |  | - | ----- |  |  | - | ---- | - |  | - | ----- | 
|                                                                                          |  |                                            |        |  |                   |   |       |           | 
|                                                                                          |  | Restructuring Charge for the Quarter Ended |        |  | Accrual Reduction |   |       |           |  |  
|                                                                                          |  |                                            |        |  |                   |   |       | Other     |  |   | Remaining      | 
|                                                                                          |  |                                            |        |  |                   |   |       |           |  |   |                |  |  |          | Accrual |  
|                                                                                          |  | September 2002                             |        |  | December 2002     |   |       | June 2003 |  |   | September 2005 |  |  | Utilized |         |   | Currency    |   |       | Balance | 
|                                                                                          |  |                                            |        |  |                   |   |       |           |  |   |                |  |  |          |         |   | Translation |   |       | as of   | 
|Description                                                                               |  | Charge                                     |        |  | Adj(1)            |   |       | Adj(3)    |  |   | Adj(5)         |  |  | Charge   |         |   | Adj(2)      |   |       | Charge  |  |   | Adj(2) |   |  | Charge |       |  | Adj(4) |   |     | Adj(5) |  |   | Cash  |  |  | Non-cash |      |   | Adjustments |   |      | 3/31/06 | 
|                                                                                          |  |                                            |        |  |                   |   |       |           |  |   |                |  |  |          |         |   |             |   |       |         |  |   |        |   |  |        |       |  |        |   |     |        |  |   |       |  |  |          |      |   |             |   |      |         | 
|Severance and related costs                                                               |  | $                                          | 5,638  |  |                   | $ |      |           |  | $ |               |  |  | $        |        |   |             | $ | 7,761 |         |  | $ | (89    | ) |  | $      | 2,497 |  |        | $ | (43 | )      |  | $ | 6,184 |  |  | $        | (281 | ) |             | $ | (415 | )       |  | $ | 18,979 |  |  | $ | 1,735 |  |  | $ | (248 | ) |  | $ | 290   | 
|Contractual commitments and leasehold improvements related to
    office space reductions |  |                                            | 12,105 |  |                   |   | 1,736 |           |  |   | 3,006          |  |  |          | (1,984  | ) |             |   | 397   |         |  |   | (91    | ) |  |        |      |  |        |   | (35 | )      |  |   | 1,509 |  |  |          | 351  |   |             |   | (165 | )       |  |   | 11,666 |  |  |   | 262   |  |  |   | 857  |   |  |   | 5,758 | 
|Write-off of property, plant, equipment and leases                                        |  |                                            | 2,714  |  |                   |   |      |           |  |   |               |  |  |          | 615     |   |             |   | 251   |         |  |   |       |   |  |        |      |  |        |   |    |        |  |   | 288   |  |  |          | (34  | ) |             |   |     |         |  |   | 823    |  |  |   | 2,602 |  |  |   |     |   |  |   | 409   | 
|                                                                                          |  |                                            |        |  |                   |   |       |           |  |   |                |  |  |          |         |   |             |   |       |         |  |   |        |   |  |        |       |  |        |   |     |        |  |   |       |  |  |          |      |   |             |   |      |         | 
|                                                                                          |  | $                                          | 20,457 |  |                   | $ | 1,736 |           |  | $ | 3,006          |  |  | $        | (1,369  | ) |             | $ | 8,409 |         |  | $ | (180   | ) |  | $      | 2,497 |  |        | $ | (78 | )      |  | $ | 7,981 |  |  | $        | 36   |   |             | $ | (580 | )       |  | $ | 31,468 |  |  | $ | 4,599 |  |  | $ | 609  |   |  | $ | 6,457 | 
|                                                                                          |  |                                            |        |  |                   |   |       |           |  |   |                |  |  |          |         |   |             |   |       |         |  |   |        |   |  |        |       |  |        |   |     |        |  |   |       |  |  |          |      |   |             |   |      |         | 






|    |                                           
|--- | ------------------------------------------
|(1) | Adjustment was recorded in June 2003.     
|   
|(2) | Adjustment was recorded in March 2004.    
|   
|(3) | Adjustment was recorded in September 2005.
|   
|(4) | Adjustment was recorded in December 2005. 
|   
|(5) | Adjustment was recorded in March 2006.    





|    |                                                                   
|--- | ------------------------------------------------------------------
|(7) | Computers, Equipment, Leasehold Improvements and Software,
    Net



|                                               |  |      |         |   |      |   |         |  
|---------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                               |  | 2005 |         |   | 2006 |  
|                                               |  |      |         |   |      |  
|Computers and equipment                        |  | $    | 16,997  |   |      | $ | 12,330  |  
|Leasehold improvements                         |  |      | 6,684   |   |      |   | 4,765   |  
|Software                                       |  |      | 11,797  |   |      |   | 10,460  |  
|                                               |  |      |         |   |      |  
|                                               |  |      | 35,478  |   |      |   | 27,555  |  
|Less accumulated depreciation and amortization |  |      | (30,333 | ) |      |   | (26,124 | )
|                                               |  |      |         |   |      |  
|                                               |  | $    | 5,145   |   |      | $ | 1,431   |  
|                                               |  |      |         |   |      |  



F-17



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                          
|--- | -------------------------
|(8) | Other Accrued Liabilities



|                                 |       |      |        |        |      |   |       |       | 
|-------------------------------- | ----- | ---- | ------ | ------ | ---- | - | ----- | ----- | 
|                                 |       | 2005 |        |        | 2006 |  
|                                 |       |      |        |        |      |  
|Accrued employee expenses        |       | $    | 1,334  |        |      | $ | 1,431 |      
|VAT taxes payable                |       |      | 2,052  |        |      |   | 1,203 |      
|Accrued medical insurance claims |       |      | 691    |        |      |   | 1,003 |      
|Other accrued liabilities        |       |      | 10,468 |        |      |   | 3,853 |      
|                                 |       |      |        |        |      |  
|                                 | Total |      | $      | 14,545 |      |   | $     | 7,490 | 
|                                 |       |      |        |        |      |  





|    |            
|--- | -----------
|(9) | Commitments



|                      |  |   |       | 
|--------------------- |  | - | ----- | 
|Year Ending March 31, |  |  
|                      |  |  
|2007                  |  | $ | 2,735 | 
|2008                  |  |   | 2,555 | 
|2009                  |  |   | 2,646 | 
|2010                  |  |   | 953   | 
|2011                  |  |   | 511   | 
|Thereafter            |  |   | 91    | 
|                      |  |   |      
|                      |  | $ | 9,491 | 
|                      |  |   |      







|     |               
|---- | --------------
|(10) | Line of Credit



F-18



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |                     
|---- | --------------------
|(11) | Stockholders Equity



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





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





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



F-19



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                  |       |                             |       |        |        |   |        |               |  |   |       |       | 
|----------------- | ----- | --------------------------- | ----- | ------ | ------ | - | ------ | ------------- |  | - | ----- | ----- | 
|                  |       | Repurchases of Common Stock |      
|                  |       |                             |      
|                  |       | Shares                      |       |        | Amount |   |        | Average Price | 
|                  |       |                             |       |        |        |   |        |               | 
|2006              |       |                             | 3,537 |        |        | $ | 34,337 |               |  | $ | 9.71  |      
|2005              |       |                             | 2,433 |        |        |   | 31,547 |               |  |   | 12.97 |      
|2004              |       |                             | 944   |        |        |   | 9,204  |               |  |   | 9.75  |      
|Inception to 2003 |       |                             | 3,392 |        |        |   | 51,932 |               |  |   | 15.31 |      
|                  |       |                             |       |        |        |   |        |               | 
|                  | Total |                             |       | 10,306 |        |   | $      | 127,020       |  |   | $     | 12.32 | 
|                  |       |                             |       |        |        |   |        |               | 





|                          |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |       |  |  |      |     |  |  |        |   | 
|------------------------- | -------------------------------------------- | ------ | ------ | ------- | ---------------- |  | ------- | ------- | - |  | ------ | ------ | - | ------- | ------ |  | ------- |  | ------ | ------ | - |  | -------- | ----- |  |  | ---- | --- |  |  | ------ | - | 
|                          |                                              | 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, 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 | )
|Issued:                   |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |       |  |  |      |     |  |  |        |  
|                          | Equity incentive plans                       |        |        | 354     |                  |  |         |        |   |  |        |       |   |         |        |  |         |  |        | 1,697  |   |  |          |      |  |  |      |    |  |  |        |   | 
|Treasury Stock:           |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |       |  |  |      |     |  |  |        |  
|                          | Repurchases                                  |        |        |         |                  |  |         |        |   |  |        |       |   |         |        |  |         |  |        | (3,537 | ) |  |          |      |  |  |      |    |  |  |        |   | 
|                          | Shares withheld under equity incentive plans |        |        |         |                  |  |         |        |   |  |        |       |   |         |        |  |         |  |        | (451   | ) |  |          |      |  |  |      |    |  |  |        |   | 
|                          | Retirement                                   |        |        | (451    | )                |  |         |        |   |  |        |       |   |         |        |  |         |  |        | 451    |   |  |          |      |  |  |      |    |  |  |        |   | 
|                          |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |      
|Balance at March 31, 2006 |                                              |        | 40,071 |         |                  |  |        |         |   |  |       |        |   |         | 40,071 |  |         |  | (7,572 | )      |   |  |         |       |  |  |     |     |  |  | (7,572 | )
|                          |                                              |        |        |         |                  |  |         |         |   |  |        |        |   |         |        |  |         |  |        |        |   |  |          |      

F-20



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |            
|---- | -----------
|(12) | Stock Plans



| |                  
| | -----------------
| | Share-Based Plans









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







F-21



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                             |           |            |       |        |            |   |       |       | 
|---------------------------- | --------- | ---------- | ----- | ------ | ---------- | - | ----- | ----- | 
|                             |           | Non-Vested |       |        | Weighted-  |  
|                             |           | Stock      |       |        | Average    |  
|                             |           | Awards     |       |        | Grant-Date |  
|                             |           | (000)      |       |        | Fair Value |  
|                             |           |            |       |        |            |  
|Non-vested at March 31, 2003 |           |            | 116   |        |            | $ | 12.73 |      
|                             | Granted   |            |       | 3,267  |            |   |       | 4.03  | 
|                             | Vested    |            |       | (586   | )          |   |       | 5.48  | 
|                             | Forfeited |            |       | (241   | )          |   |       | 3.82  | 
|                             |           |            |       |        |            |  
|Non-vested at March 31, 2004 |           |            | 2,556 |        |            | $ | 4.11  |      
|                             | Granted   |            |       | 2,016  |            |   |       | 10.42 | 
|                             | Vested    |            |       | (1,024 | )          |   |       | 4.76  | 
|                             | Forfeited |            |       | (365   | )          |   |       | 6.18  | 
|                             |           |            |       |        |            |  
|Non-vested at March 31, 2005 |           |            | 3,183 |        |            | $ | 7.64  |      
|                             | Granted   |            |       | 2,789  |            |   |       | 9.49  | 
|                             | Vested    |            |       | (1,343 | )          |   |       | 6.98  | 
|                             | Forfeited |            |       | (577   | )          |   |       | 9.49  | 
|                             |           |            |       |        |            |  
|Non-vested at March 31, 2006 |           |            | 4,052 |        |            | $ | 8.87  |      
|                             |           |            |       |        |            |  





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



F-22



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|                                                                |  |             |  |             |  |              
|--------------------------------------------------------------- |  | ----------- |  | ----------- |  | -------------
|                                                                |  | 2004        |  | 2005        |  | 2006         
|                                                                |  |             |  |             |  |              
|Expected volatility                                             |  | 69 - 79%    |  | 45%         |  | 40% - 65%    
|Weighted-average volatility                                     |  | 75%         |  | 45%         |  | 56%          
|Expected dividend yield                                         |  | 0%          |  | 0%          |  | 0%           
|Average expected life (in years)                                |  | 3.26        |  | 3.18        |  | 3.42         
|Risk-free interest rate                                         |  | 1.5% - 2.5% |  | 0.9% - 3.9% |  | 3.35% - 4.53%
|Weighted-average grant date fair value of options/ SARs granted |  | $2.76       |  | $3.07       |  | $4.87        

F-23



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                              |                      |             |        |        |                |           |       |             |  |  |           |  |  |   |        |  | 
|----------------------------- | -------------------- | ----------- | ------ | ------ | -------------- | --------- | ----- | ----------- |  |  | --------- |  |  | - | ------ |  | 
|                              |                      |             |        |        |                | Weighted- |       |             | 
|                              |                      | Shares      |        |        | Weighted-      |           |       | Average     |  |  | Aggregate | 
|                              |                      | Under       |        |        | Average        |           |       | Remaining   |  |  | Intrinsic | 
|                              |                      | Option/SARs |        |        | Exercise Price |           |       | Contractual |  |  | Value     | 
|Options/SARs                  |                      | (000)       |        |        | Per Share      |           |       | Term        |  |  | ($000)    | 
|                              |                      |             |        |        |                |           |       |             |  |  |           | 
|Outstanding at March 31, 2003 |                      |             | 17,161 |        |                | $         | 11.36 |             |  |  |           |  |  |   |        | 
|                              | Granted              |             |        | 368    |                |           |       | 5.49        |  |  |           |  |  |   |        |  | 
|                              | Exercised            |             |        | (1,029 | )              |           |       | 5.00        |  |  |           |  |  |   |        |  | 
|                              | Forfeited or expired |             |        | (4,774 | )              |           |       | 12.63       |  |  |           |  |  |   |        |  | 
|                              |                      |             |        |        |                |           |       |             |  |  |           | 
|Outstanding at March 31, 2004 |                      |             | 11,726 |        |                | $         | 11.32 |             |  |  | 3.23      |  |  | $ | 11,925 | 
|                              | Granted              |             |        | 2,170  |                |           |       | 9.72        |  |  |           |  |  |   |        |  | 
|                              | Exercised            |             |        | (2,162 | )              |           |       | 9.05        |  |  |           |  |  |   |        |  | 
|                              | Forfeited or expired |             |        | (2,004 | )              |           |       | 12.76       |  |  |           |  |  |   |        |  | 
|                              |                      |             |        |        |                |           |       |             |  |  |           | 
|Outstanding at March 31, 2005 |                      |             | 9,730  |        |                | $         | 11.21 |             |  |  | 2.92      |  |  | $ | 55,970 | 
|                              | Granted              |             |        | 2,776  |                |           |       | 11.21       |  |  |           |  |  |   |        |  | 
|                              | Exercised            |             |        | (901   | )              |           |       | 7.57        |  |  |           |  |  |   |        |  | 
|                              | Forfeited or expired |             |        | (1,712 | )              |           |       | 14.87       |  |  |           |  |  |   |        |  | 
|                              |                      |             |        |        |                |           |       |             |  |  |           | 
|Outstanding at March 31, 2006 |                      |             | 9,893  |        |                | $         | 10.90 |             |  |  | 2.86      |  |  | $ | 14,680 | 
|                              |                      |             |        |        |                |           |       |             |  |  |           | 
|Exercisable at March 31, 2006 |                      |             | 5,568  |        |                | $         | 11.65 |             |  |  | 1.95      |  |  | $ | 6,201  | 
|                              |                      |             |        |        |                |           |       |             |  |  |           | 





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





F-24



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |  |               |     |  |                 |                |                |           |  |   |      | 
|----------------------- |  | ------------- | --- |  | --------------- | -------------- | -------------- | --------- |  | - | ---- | 
|                        |  |               |     |  |                 | Weighted-      |               
|                        |  |               |     |  |                 | Average        |               
|                        |  |               |     |  |                 | Purchase Price |               
|                        |  | Shares Issued |     |  | Range of Prices |                |                | Per Share | 
|                        |  |               |     |  |                 |                |                |           | 
|Issued fiscal year 2004 |  |               | 827 |  |                 | $              | 1.41 to $7.56  |           |  | $ | 1.65 | 
|Issued fiscal year 2005 |  |               | 210 |  |                 | $              | 7.68 to $11.58 |           |  | $ | 8.16 | 
|Issued fiscal year 2006 |  |               | 240 |  |                 | $              | 6.11 to $14.28 |           |  | $ | 7.16 | 



|                                                       |  |             |  |             |  |            
|------------------------------------------------------ |  | ----------- |  | ----------- |  | -----------
|                                                       |  | 2004        |  | 2005        |  | 2006       
|                                                       |  |             |  |             |  |            
|Expected volatility                                    |  | 65% - 71%   |  | 45%         |  | 42% - 69%  
|Weighted-average volatility                            |  | 66%         |  | 45%         |  | 54%        
|Expected dividend yield                                |  | 0%          |  | 0%          |  | 0%         
|Average expected life (in years)                       |  | 1.12        |  | 1.06        |  | 1.13       
|Risk-free interest rate                                |  | 1.1% - 1.8% |  | 1.3% - 3.1% |  | 2.9% - 4.6%
|Weighted average grant date fair value of ESPP granted |  | $1.58       |  | $1.66       |  | $1.69      



| |      
| | -----
| | Other







F-25



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |             
|---- | ------------
|(13) | Income Taxes



|          |         |      |      |      |      |   |         |         |   |   |        |       | 
|--------- | ------- | ---- | ---- | ---- | ---- | - | ------- | ------- | - | - | ------ | ----- | 
|          |         | 2004 |      |      | 2005 |   |         | 2006    |  
|          |         |      |      |      |      |   |         |         |  
|Current:  |         |      |      |      |      |   |         |         |   |   |        |      
|          | Federal |      | $    | (845 | )    |   | $       | 4,238   |   |   | $      | 4     | 
|          | State   |      |      | 37   |      |   |         | 1,838   |   |   |        | 146   | 
|          | Foreign |      |      | 1    |      |   |         | 705     |   |   |        | 275   | 
|          |         |      |      |      |      |   |         |         |  
|          |         | $    | (807 | )    |      | $ | 6,781   |         |   | $ | 425    |      
|Deferred: |         |      |      |      |      |   |         |         |   |   |        |      
|          | Federal |      |      |     |      |   |         | (15,951 | ) |   |        | 9,604 | 
|          | State   |      |      |     |      |   |         | (4,250  | ) |   |        | 1,122 | 
|          | Foreign |      |      |     |      |   |         |        |   |   |        | 0     | 
|          |         |      |      |      |      |   |         |         |  
|          |         | $    |     |      |      | $ | (20,201 | )       |   | $ | 10,726 |      
|          |         |      |      |      |      |   |         |         |  
|          |         | $    | (807 | )    |      | $ | (13,420 | )       |   | $ | 11,151 |      
|          |         |      |      |      |      |   |         |         |  



|                                                                                                                   |  |      |         |   |      |   |         |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                                                   |  | 2004 |         |   | 2005 |   |         | 2006 | 
|                                                                                                                   |  |      |         |   |      |   |         |      | 
|Federal income taxes (benefit) at statutory rate                                                                   |  | $    | 337     |   |      | $ | 9,153   |      |  | $ | 4,600  |  
|Effect of intercompany revenue and expenses eliminated in
    consolidation and related to discontinued operations |  |      | 1,639   |   |      |   | 1,487   |      |  |   | 1,878  |  
|Nondeductible meals and entertainment                                                                              |  |      | 163     |   |      |   | 205     |      |  |   | 333    |  
|Nondeductible stock-based compensation                                                                             |  |      | 41      |   |      |   | 470     |      |  |   | 780    |  
|State income taxes, net of federal benefit                                                                         |  |      | 826     |   |      |   | 1,195   |      |  |   | 824    |  
|Effect of foreign tax credit converted to a net operating loss
    carryover                                       |  |      |        |   |      |   |        |      |  |   | 1,820  |  
|Other                                                                                                              |  |      | 766     |   |      |   | (805    | )    |  |   | 1,298  |  
|Writedown in investment in subsidiary                                                                              |  |      | (15,264 | ) |      |   |        |      |  |   | (5,096 | )
|Change in valuation allowance for deferred tax assets                                                              |  |      | 10,685  |   |      |   | (25,125 | )    |  |   | 4,714  |  
|                                                                                                                   |  |      |         |   |      |   |         |      | 
|                                                                                                                   |  | $    | (807    | ) |      | $ | (13,420 | )    |  | $ | 11,151 |  
|                                                                                                                   |  |      |         |   |      |   |         |      | 

F-26



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                          |                                                 |                                 |        |        |         |   |       |        |         |  
|----------------------------------------- | ----------------------------------------------- | ------------------------------- | ------ | ------ | ------- | - | ----- | ------ | ------- | -
|                                          |                                                 | 2005                            |        |        | 2006    |  
|                                          |                                                 |                                 |        |        |         |  
|Deferred tax assets attributable to:      |                                                 |                                 |        |        |         |   |       |       
|                                          | Net operating loss carryforwards                |                                 | $      | 49,309 |         |   | $     | 29,089 |        
|                                          | Foreign tax credit and AMT credit carryforwards |                                 |        | 5,812  |         |   |       | 1,459  |        
|                                          | Allowances and accruals                         |                                 |        | 3,458  |         |   |       | 1,613  |        
|                                          | Stock-based compensation                        |                                 |        | 2,518  |         |   |       | 3,427  |        
|                                          | Goodwill                                        |                                 |        | 2,135  |         |   |       | 1,898  |        
|                                          | Depreciation                                    |                                 |        | 487    |         |   |       | 722    |        
|                                          | Capital loss carryforwards                      |                                 |        | 3,384  |         |   |       | 2,760  |        
|                                          |                                                 |                                 |        |        |         |  
|                                          |                                                 | Total gross deferred tax assets |        |        | 67,103  |   |       |        | 40,968  |  
|                                          |                                                 | Less valuation allowance        |        |        | (45,505 | ) |       |        | (30,655 | )
|                                          |                                                 |                                 |        |        |         |  
|                                          |                                                 | Net deferred tax assets         |        |        | 21,598  |   |       |        | 10,313  |  
|Deferred tax liabilities attributable to: |                                                 |                                 |        |        |         |   |       |       
|                                          | Intangibles                                     |                                 |        | 342    |         |   |       | 447    |        
|                                          | Prepaids                                        |                                 |        | 405    |         |   |       | 350    |        
|                                          | Other                                           |                                 |        | 191    |         |   |       | 51     |        
|                                          |                                                 |                                 |        |        |         |  
|                                          |                                                 | Total deferred tax liabilities  |        |        | 938     |   |       |        | 848     |  
|                                          |                                                 |                                 |        |        |         |  
|Net deferred income taxes                 |                                                 | $                               | 20,660 |        |         | $ | 9,465 |       
|                                          |                                                 |                                 |        |        |         |  
|Continuing Operations                     |                                                 | $                               | 20,124 |        |         |   |       |       
|Discontinued Operations                   |                                                 |                                 | 536    |        |         |   |       |       
|                                          |                                                 |                                 |        |        |         |  
|Total net deferred income taxes           |                                                 | $                               | 20,660 |        |         |   |       |       
|                                          |                                                 |                                 |        |        |         |  

paid-in paid-in






F-27



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






time-to


non-U.S.




|     |                
|---- | ---------------
|(14) | Geographic Data





|                                       |                |                    |       |        |         |   |       |         |         |  |   |         |         | 
|-------------------------------------- | -------------- | ------------------ | ----- | ------ | ------- | - | ----- | ------- | ------- |  | - | ------- | ------- | 
|                                       |                | 2004               |       |        | 2005    |   |       | 2006    |        
|                                       |                |                    |       |        |         |   |       |         |        
|Net revenues:                          |                |                    |       |        |         |   |       |         |         |  |   |        
|                                       | North America  |                    | $     | 93,602 |         |   | $     | 132,614 |         |  | $ | 137,502 |        
|                                       | United Kingdom |                    |       | 11,220 |         |   |       | 12,286  |         |  |   | 7,722   |        
|                                       |                |                    |       |        |         |   |       |         |        
|                                       |                | Total net revenues |       | $      | 104,822 |   |       | $       | 144,900 |  |   | $       | 145,224 | 
|                                       |                |                    |       |        |         |   |       |         |        
|Long-lived assets (as of March 31):(1) |                |                    |       |        |         |   |       |         |         |  |   |        
|North America                          |                | $                  | 4,138 |        |         | $ | 4,685 |        
|Europe                                 |                |                    | 2,363 |        |         |   | 68    |        
|All other countries                    |                |                    | 217   |        |         |   |      |        
|                                       |                |                    |       |        |         |  
|Total long-lived assets                |                | $                  | 6,718 |        |         | $ | 4,753 |        
|                                       |                |                    |       |        |         |  






|    |                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As of March 31, 2005, amounts reported include combined
    (continuing and discontinued) operations. As of March 31,
    2006, amounts reported include only continuing operations.

F-28



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|     |              
|---- | -------------
|(15) | Benefit Plans



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





|     |                                 
|---- | --------------------------------
|(16) | Foreign Exchange Risk Management



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







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





|     |                           
|---- | --------------------------
|(17) | Related Party Transactions





|     |                       
|---- | ----------------------
|(18) | Short-term Investments



F-29



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|     |                                            
|---- | -------------------------------------------
|(19) | Quarterly Financial Information (Unaudited)



|                                                        |                                     |               |        |      |         |   |        |        |   |   |        |       |   |   |        |       |  
|------------------------------------------------------- | ----------------------------------- | ------------- | ------ | ---- | ------- | - | ------ | ------ | - | - | ------ | ----- | - | - | ------ | ----- | -
|                                                        |                                     | Quarter Ended |       
|                                                        |                                     |               |       
|                                                        |                                     | June 30       |        |      | Sept 30 |   |        | Dec 31 |   |   | Mar 31 |      
|                                                        |                                     |               |        |      |         |   |        |        |   |   |        |      
|Year Ended March 31, 2005                               |                                     |               |        |      |         |   |        |        |   |   |        |       |   |   |        |      
|Net revenue                                             |                                     | $             | 32,506 |      |         | $ | 35,523 |        |   | $ | 37,730 |       |   | $ | 39,141 |      
|Total revenue (including reimbursable expenses)         |                                     |               | 36,885 |      |         |   | 39,724 |        |   |   | 41,751 |       |   |   | 43,388 |      
|Gross margin                                            |                                     |               | 11,434 |      |         |   | 13,889 |        |   |   | 16,311 |       |   |   | 17,023 |      
|Professional development and recruiting                 |                                     |               | 1,059  |      |         |   | 1,288  |        |   |   | 2,080  |       |   |   | 1,680  |      
|Marketing and sales                                     |                                     |               | 762    |      |         |   | 582    |        |   |   | 970    |       |   |   | 1,193  |      
|Management and administrative support                   |                                     |               | 5,983  |      |         |   | 5,931  |        |   |   | 6,079  |       |   |   | 6,335  |      
|Income from operations                                  |                                     |               | 3,630  |      |         |   | 6,088  |        |   |   | 7,182  |       |   |   | 7,815  |      
|Income from continuing operations before income taxes   |                                     |               | 3,722  |      |         |   | 6,484  |        |   |   | 7,572  |       |   |   | 8,373  |      
|Income from continuing operations after income taxes    |                                     |               | 3,483  |      |         |   | 6,232  |        |   |   | 7,140  |       |   |   | 22,716 |      
|                                                        | Per share of common stock  basic   |               |        | 0.10 |         |   |        | 0.19   |   |   |        | 0.21  |   |   |        | 0.67  |  
|                                                        | Per share of common stock  diluted |               |        | 0.10 |         |   |        | 0.18   |   |   |        | 0.20  |   |   |        | 0.60  |  
|Income (loss) from discontinued operations (net of tax) |                                     |               | (42    | )    |         |   | (2,112 | )      |   |   | (1,716 | )     |   |   | (2,663 | )    
|                                                        | Per share of common stock  basic   |               |        |     |         |   |        | (0.06  | ) |   |        | (0.05 | ) |   |        | (0.08 | )
|                                                        | Per share of common stock  diluted |               |        |     |         |   |        | (0.06  | ) |   |        | (0.05 | ) |   |        | (0.07 | )
|Net income                                              |                                     |               | 3,441  |      |         |   | 4,120  |        |   |   | 5,424  |       |   |   | 20,053 |      
|                                                        | Per share of common stock  basic   |               | $      | 0.10 |         |   | $      | 0.12   |   |   | $      | 0.16  |   |   | $      | 0.59  |  
|                                                        | Per share of common stock  diluted |               | $      | 0.10 |         |   | $      | 0.12   |   |   | $      | 0.15  |   |   | $      | 0.53  |  

F-30



---



##### Table of Contents



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                             |                                     |               |        |       |            |   |         |        |   |   |        |       |   |   |        |      | 
|------------------------------------------------------------ | ----------------------------------- | ------------- | ------ | ----- | ---------- | - | ------- | ------ | - | - | ------ | ----- | - | - | ------ | ---- | 
|                                                             |                                     | Quarter Ended |       
|                                                             |                                     |               |       
|                                                             |                                     | June 30       |        |       | Sept 30(1) |   |         | Dec 31 |   |   | Mar 31 |      
|                                                             |                                     |               |        |       |            |   |         |        |   |   |        |      
|Year Ended March 31, 2006                                    |                                     |               |        |       |            |   |         |        |   |   |        |       |   |   |        |     
|Net revenue                                                  |                                     | $             | 35,597 |       |            | $ | 36,554  |        |   | $ | 34,244 |       |   | $ | 38,829 |     
|Total revenue (including reimbursable expenses)              |                                     |               | 39,800 |       |            |   | 41,454  |        |   |   | 38,429 |       |   |   | 43,985 |     
|Gross margin                                                 |                                     |               | 11,326 |       |            |   | 13,557  |        |   |   | 8,611  |       |   |   | 12,619 |     
|Professional development and recruiting                      |                                     |               | 1,410  |       |            |   | 1,572   |        |   |   | 1,850  |       |   |   | 1,857  |     
|Marketing and sales                                          |                                     |               | 628    |       |            |   | 961     |        |   |   | 776    |       |   |   | 1,157  |     
|Management and administrative support                        |                                     |               | 5,941  |       |            |   | 6,230   |        |   |   | 6,471  |       |   |   | 6,686  |     
|Restructuring charges                                        |                                     |               |       |       |            |   | 2,350   |        |   |   | 10     |       |   |   | (1,960 | )   
|Income (loss) from operations                                |                                     |               | 3,347  |       |            |   | 2,444   |        |   |   | (496   | )     |   |   | 4,879  |     
|Income (loss) from continuing operations before income taxes |                                     |               | 4,033  |       |            |   | 3,312   |        |   |   | 179    |       |   |   | 5,620  |     
|Income (loss) from continuing operations after income taxes  |                                     |               | 1,179  |       |            |   | 1,451   |        |   |   | (1,029 | )     |   |   | 392    |     
|                                                             | Per share of common stock  basic   |               |        | 0.03  |            |   |         | 0.04   |   |   |        | (0.03 | ) |   |        | 0.01 | 
|                                                             | Per share of common stock  diluted |               |        | 0.03  |            |   |         | 0.04   |   |   |        | (0.03 | ) |   |        | 0.01 | 
|Income (loss) from discontinued operations (net of tax)      |                                     |               | (2,701 | )     |            |   | (11,672 | )      |   |   | 1,658  |       |   |   | 138    |     
|                                                             | Per 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    |       |   |   | 530    |     
|                                                             | Per share of common stock  basic   |               | $      | (0.04 | )          |   | $       | (0.31  | ) |   | $      | 0.02  |   |   | $      | 0.02 | 
|                                                             | Per share of common stock  diluted |               | $      | (0.04 | )          |   | $       | (0.30  | ) |   | $      | 0.02  |   |   | $      | 0.02 | 






|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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-31



---



##### 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(1) |   |            | Period   |    
|                                   |                                                              |                        |   |       |            |  |   |               |   |            |          |    
|                                   |                                                              | (Amounts in thousands) |  
|For the Year Ended March 31, 2006: |                                                              |                        |   |       |            |  |   |               |   |            |          |     |  |  |   |      
|                                   | Deducted from accounts receivable for uncollectible accounts |                        | $ | 1,079 |            |  | $ | 28            |   |            | $        | 478 |  |  | $ | 629   | 
|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 | 






|    |                                         
|--- | ----------------------------------------
|(1) | $311 relates to discontinued operations.

S-2