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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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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,
    2003
|                                            
|or                                          
|                                            
|o                                            |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-22125



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DiamondCluster International, Inc.

(Exact name of registrant as specified in its
charter)


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

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

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


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


Class A Common Stock, par value $.001 per
share

Indicate by check mark whether the Registrant
(i) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     Yes o          No þ

Indicate by check mark whether the Registrant is
an accelerated
filer.     Yes þ          No o

As of September 30, 2002 there were
24,948,391 shares of Class A Common Stock and 6,308,911
shares of Class B Common Stock of the Registrant
outstanding. The aggregate market value of the Class A and
Class B Common Stock of the Registrant held by
non-affiliates as of September 30, 2002 was an estimated
$85.2 million, computed based upon the closing price of
$3.26 per share on September 30, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K
incorporates by reference portions of the Registrants
definitive proxy statement, to be filed with the Securities and
Exchange Commission no later than 120 days after the close
of its fiscal year; provided that if such proxy statement is not
filed with the Commission in such 120-day period, an amendment
to this Form 10-K shall be filed no later than the end of
the 120-day period.



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DIAMONDCLUSTER INTERNATIONAL, INC.

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

March 31, 2003


TABLE OF CONTENTS

|         |  |                                                                                                    |  |      |    | 
|-------- |  | -------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                                    |  | Page |   
|         |  |                                                                                                    |  |      |   
|PART I  
|Item 1.  |  | Business                                                                                           |  |      | 2  | 
|Item 2.  |  | Properties                                                                                         |  |      | 15 | 
|Item 3.  |  | Legal Proceedings                                                                                  |  |      | 15 | 
|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                            |  |      | 15 | 
|PART II 
|Item 5.  |  | Market for Registrants Common Equity and
    Related Stockholder Matters                          |  |      | 16 | 
|Item 6.  |  | Selected Consolidated Financial Data                                                               |  |      | 17 | 
|Item 7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |  |      | 18 | 
|Item 7A. |  | Quantitative and Qualitative Disclosures About
    Market Risk Sensitive Instruments               |  |      | 29 | 
|Item 8.  |  | Consolidated Financial Statements and
    Supplementary Data                                       |  |      | 30 | 
|Item 9.  |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |  |      | 30 | 
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                                 |  |      | 30 | 
|Item 11. |  | Executive Compensation                                                                             |  |      | 30 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |  |      | 31 | 
|Item 13. |  | Certain Relationships and Related Transactions                                                     |  |      | 31 | 
|Item 14. |  | Controls and Procedures                                                                            |  |      | 31 | 
|Item 15. |  | Principal Accountant Fees and Services                                                             |  |      | 32 | 
|PART IV 
|Item 16. |  | Exhibits, Consolidated Financial Statement
    Schedules and Reports on Form 8-K                   |  |      | 33 | 

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PART I




Item 1.     Business


Overview

DiamondCluster International, Inc.
(DiamondCluster) is a premier global management
consulting firm. We help leading organizations worldwide to
leverage technology to develop and implement growth strategies,
improve operations, and capitalize on technology. We work
collaboratively with our clients, utilizing small teams of
consultants with skills in strategy, technology and program
management. This multidisciplinary approach that contemplates
business strategy and technology in tandem allows us to identify
opportunities that traditional approaches may not identify. We
work closely with our clients because we believe the most
lasting and significant improvements occur when the client is
integrally involved in the change. We go to market by vertical
industry, and currently serve clients in six vertical
industries: financial services, insurance, telecommunications,
healthcare, retail and distribution, and the public sector. We
operate globally with offices in North America, Europe and Latin
America.

DiamondCluster was formed on November 28,
2000, when Diamond Technology Partners Incorporated acquired all
of the outstanding shares of Cluster Telecom BV
(Cluster). Cluster was a pan-European management
consulting firm specializing in wireless technology and digital
strategies. DiamondCluster generated $133.0 million of net
revenues (before reimbursements of out-of-pocket expenses) from
142 clients in fiscal year 2003 and at March 31, 2003,
employed 538 consultants and had eleven offices in North
America, Europe and Latin America, including Barcelona, Boston,
Chicago, Düsseldorf, Lisbon, London, Madrid, Münich,
Paris, San Francisco and São Paulo.

Industry Background and Opportunity

Demand in the consulting industry is driven by
change. The business environment today is faced with significant
changes on a wide variety of fronts, including globalization,
regulatory transformations, economic cycles, new competition,
consolidation, organizational restructurings, and new
technologies. Management teams are constantly assessing the
potential impact of these changes on their businesses, trying to
distinguish fad from necessity. Many of these changes are
significant and impact entire organizations. Other changes
impact only specific products or functional areas.

Among the most pervasive of these changes is
technology. Because technology fundamentally affects how a
company relates to its customers, suppliers, employees,
investors and competitors, it is a focus at the highest levels
of business organizations, including the CEO and the board of
directors. Large companies that have made significant
investments in building their existing sales forces, marketing
strategies, brands, supply and distribution systems, and data
management systems require new strategies to enable them to
leverage these assets to take advantage of the power of these,
and other, technologies.

Management teams turn to consultants for a number
of reasons, including the need for deep expertise in a specific
area, the need to do something in an accelerated timeframe, the
need to mitigate their risk, the need for an outside objective
perspective, or the need for someone outside the organization to
serve as an agent to implement major change within their
organizations. In addition, we believe CEOs and senior
managements today are not only faced with critical issues
regarding strategy and organization, but are also faced with
critical issues regarding technology and its implementation. We
believe that companies increasingly seek outside consultants
that can provide a combination of innovative strategic analysis,
in-depth vertical industry expertise and a thorough
understanding of technology and its applications. In addition,
time to market has become increasingly important and we believe
that companies seek consultants that cannot only identify new
approaches, but also have the resources to implement those
changes in their organizations.

While the fundamental reasons management teams
look to consultants for help have not changed in many decades,
we believe a structural change is taking place in the consulting
industry. First, the traditional information technology service
providers, which make up the majority of the industry, are
increasing their size and scope to include larger and more
complex projects, such as business process outsourcing. Second,
there

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has been a growing acceptance around the world of
the offshore programming firms, which offer a compelling
economic alternative for programming services. These firms have
put a good deal of pressure on the traditional information
technology service providers for this type of business. And
third, while the traditional strategic consulting firms have
recognized the need to expand their traditional scope of
services beyond strategy and organization, they have been either
reluctant or unable to fully integrate technology and execution
advisory services into their firms. We believe these structural
industry changes give objective consultants with deep expertise
in strategy, operations and technology an increasingly valuable
role for the foreseeable future.


As business and technology become increasingly
complex, the market for the resultant consulting services grows.
We believe that this increasing complexity also increases the
importance of an objective advisor that is able to work across
strategy and technology, and remain vendor independent.
International Data Corporation (IDC) estimates that the
worldwide business consulting and information technology
(IT) consulting services markets will reach
$54.2 billion and $32.2 billion, respectively, in
2006, based on an analysis for the years 2001-2006.

The DiamondCluster Solution and Competitive
Strengths

We combine innovative strategic thinking,
in-depth vertical industry expertise, a global presence, and a
thorough understanding of technology and its applications to
deliver powerful business solutions for our clients. We offer
clients the range of services of a traditional information
technology service provider, with the objective, advisory role
of the traditional strategic consulting firms. We help our
clients profitably grow their businesses, improve the efficiency
of their operations and manage their technology investments in
line with their business strategy. Our ability to identify,
prototype and scale business solutions for our clients is
predicated on the following attributes that we believe
distinguish us from our competitors.

Objectivity.We
provide our clients with objective advice in the areas of
strategy, operations and technology, including implementation.
We believe that the increasing complexity of technology and the
changing structure within the consulting industry (see
Industry Background and Opportunity) increases the
value to senior management of an objective advisor, such as
DiamondCluster. We have intentionally avoided offering services
or entering into alliances that might bias our objectivity, such
as selling or reselling hardware or software, or offering
programming services.

Collaborative Business Model.Our business model dictates we work
collaboratively with our clients. We believe this approach is
best because we believe the most lasting and significant
improvements occur when the client is integrally involved in the
change. We work with CEOs and senior leadership teams of leading
organizations worldwide to leverage technology to develop and
implement growth strategies, improve operations, and capitalize
on their technology investments. This approach transfers to the
client critical knowledge and accountability that is necessary
to enact lasting and productive change. Our model is designed to
provide only the highest value services to our clients. When
needed, we subcontract third-party sources, including offshore
firms, to provide a complete solution. We believe this provides
more value to our clients.

Single, Multidisciplinary Teams.We work with our clients on their most
challenging issues, from the earliest stages of study and
assessment through the creation and implementation of a
solution. We believe our approach of using single,
multidisciplinary teams that consist of experts with skills in
strategy, program management and technology provides our clients
with a single team having the perspective and expertise not
available from other consulting firms.

Strategic Industry Insight and Expertise.We focus on serving six vertical
industries: financial services, insurance, telecommunications,
healthcare, retail and distribution, and the public sector. We
believe our vertical industry focus enables us to define and
deliver solutions that effectively address the market and
regulatory dynamics, and business opportunities facing our
clients.

Global Diversity and Presence.We deliver our services worldwide
through our offices in North America, Europe and Latin America.
We believe that our global reach and knowledge, combined with
our understanding of local markets, provide us the ability to
deliver consistent, high-quality consulting services.

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Senior-Level Relationships.We sell our services to
c-level buyers within an organization (i.e.,CEO, COO, CFO, CMO, CIO). We also have in place a number of
programs that maintain these relationships in between
engagements (see Innovation and Research). These
senior level relationships allow us to work across functional
budgets (not just IT) and allow our work to track nearly
coincidently with their businesses. Our goal is to become
managements trusted advisor, with no bias towards a
particular technology or product.

Delivery of Results.DiamondCluster delivers tangible
results, not just recommendations. Our consultants work with
client management to develop a complete cost/ benefit analysis,
which focuses on metrics such as shareholder value and return on
invested capital. DiamondCluster then works with the client to
execute the implementation plan to achieve the results.

Ability to Quickly Evolve Our Offerings.The consulting industry is subject to
changes in economic, business and technology cycles, which
require a consulting firm to be very agile to remain relevant.
Our approach of identifying and scaling new service offerings
enables us to quickly evaluate and change our service offerings
to meet current market demands (see Our Services).
In addition, our people are skilled in three enduring
competencies  strategy, technology and program
management  that are independent of particular
economic, business and technology cycles.

Continuous Innovation.We believe that an enduring,
high-quality consulting firm must have three basic qualities:
employ highly talented people, maintain a track record of
successful work, and have the ability to continuously generate
new and relevant intellectual capital. While a number of
consulting firms have talented people and strong client track
records, the ability to continuously generate new intellectual
capital is somewhat more elusive. DiamondCluster has put into
place a systematic way to continuously stay ahead of the
intellectual capital curve in order to deliver the most advanced
thinking to its clients.

Foster A Strong Culture.The most important asset of a
consulting firm is its people. We have developed a strong and
enduring culture by recruiting primarily from leading graduate
and undergraduate campuses and developed an environment of
continuous learning and innovation that helps to retain our
talented professionals (see Employees and Culture).
We are committed to the long-term growth and development of each
of our professionals.

Experienced and Motivated Management.Our global management team has an
average of more than 20 years of experience. They have
experience managing consulting businesses through business,
economic and technology cycles, and have strong skills in
establishing and developing client relationships.

Our Growth Strategy

Our goal is to become the consultant of choice
for clients looking for an independent partner to help them
leverage technology to develop and implement growth strategies,
improve operations, or capitalize on technology. Our business
model is designed to allow us to be an objective and trusted
advisor who provides the highest value of services to our
clients from strategy through implementation. We believe our
business model provides our company with a fundamental
differentiation because it requires a collaborative approach
with the client, utilizes multidisciplinary teams to ensure the
best solution, and effectively leverages the ongoing stream of
new intellectual capital into our organization. The following
strategies guide our actions as we grow our business:

Attract and Retain Skilled Personnel.Our continued success and growth will
require us to expand our base of highly skilled professionals.
This emphasis on human resources begins with our recruitment of
client-serving professionals from leading graduate and
undergraduate campuses, as well as from industry and consulting.
It continues through the process of training, developing and
promoting promising professionals within DiamondCluster and
culminates in the sharing of equity in DiamondCluster as an
acknowledgment of merit, a means of retention and an alignment
of interests.

Cultivate Our Multidisciplinary Culture.In order to maintain a differentiated
service offering, we seek to develop and sustain a business
culture that is common across all disciplines in the
organization. We seek to promote our culture by exposing our
professionals to all of the various services that we provide
through training and practice, while further developing skills
in each professionals principal area of expertise.

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Focus on, and Expand Relationships with Core
Clients.We develop strong, long-term
relationships with our clients that often lead to repeat
business and referrals. We achieve this by doing very
high-impact work and cultivating close relationships with CEOs
and senior leadership teams to facilitate the transition. The
access, contact and goodwill generated through our existing
client relationships afford us significant opportunities to
provide additional services and solutions.

Nurture and Promote Our Intellectual Capital.We utilize our accumulated knowledge
and experience to provide relevant intellectual capital to a
given project and to develop innovative solutions for our
clients. We continuously seek to identify, disseminate and
incorporate new intellectual capital throughout our organization
to keep abreast of business and technology trends. Internal and
external experts, as well as industry practitioners including
the DiamondCluster Network provide intellectual capital to the
Company.

Continue to Diversify Across Geographies and
Industries.We believe that
diversifying our business across various geographies and
industries will allow the company to have steady growth through
various economic, business and technology cycles. We currently
serve clients across the globe through eleven offices in North
America, Europe and Latin America. We serve clients in six key
industries: financial services, insurance, telecommunications,
healthcare, retail and distribution, and the public sector. We
believe that our vertical market focus provides a scalable
structure for growth. We expect the number of vertical markets
we serve, as well as the services we offer and geographies in
which we work, to change and grow as our expertise and market
demands evolve.

Market Our Brand.We
intend to continue to invest in the development and maintenance
of our brand identity in the marketplace. We will continue to
promote our name and credentials through publications, seminars,
speaking engagements, media and analyst relations, and other
efforts. We believe that building a brand image facilitates both
the lead generation process and the ability to attract and
retain the best people by raising awareness of our firm,
resulting in an increase in the number of new clients and
recruitment opportunities.

Enhance Our Operating Efficiency.We have a continuous focus on cost
effectiveness and efficiency. We are committed to taking
advantage of technology in the areas of human resources,
training, recruiting, marketing, and financial and operations
management.

Our Services

DiamondCluster provides services that help
leading organizations worldwide leverage technology to develop
and implement growth strategies, improve operations, and
capitalize on technology. We offer clients the range of services
of a traditional information technology service provider, with
the objective, advisory role of the traditional strategic
consulting firms. We operate globally with offices in North
America, Europe and Latin America. We sell our services to
c-level executives and their senior leadership teams.

We have a business model that we believe is
preferred by clients, and a process for creating and quickly
bringing to market new service offerings. Our business model is
collaborative and multidisciplinary, providing better value to
clients through knowledge transfer and better solutions through
our unique perspective that contemplates business strategy and
technology in tandem. In addition, our research center,
innovation programs, and DiamondCluster Fellows offer additional
insight, experience and intellectual capital to support our
multidisciplinary teams (see Innovation and
Research). We believe this approach creates the most
lasting and powerful improvements for our clients.

We have a process for creating new service
offerings that identifies and tests market opportunities through
our ongoing innovation and research programs, refines the
service offering, then scales the service offering to bring it
to market. We are able to do this by maintaining our
consultants core skills in strategy, technology and
program management, which enables us to be more agile because we
are not dependent upon a particular economic, business or
technology cycle.

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|                                                                                                                                                                                                                                                                                                                                                                                                                    |  |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------
|Our core skills in strategy, technology and
    program management are combined through our multidisciplinary
    approach to create service lines reflecting current needs in the
    market. We currently have two services lines: Strategy and
    Operations, and Technology. Under each of these
    multidisciplinary service lines, we develop specific service
    offerings to meet specific client needs. |  | (GRAPH)



| |                                        
| | ---------------------------------------
| | Service Lines and Service
    Offerings

While our core business model and core skill
competencies do not change significantly over time, our service
lines and service offerings are designed to quickly adapt to
client and market needs. By continuously leveraging research
from our target markets and input from our innovation and
research programs, we continuously examine and monitor our
business and combine our core skills into relevant service lines
and service offerings. Under each of our two service lines are
several service offerings.

|                       |  |                                                                                                                                                  |  |                                                                                                                                                                                         |            |  |  | 
|---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- |  |  | 
|Service Line           |  | Strategy and Operations                                                                                                                          |  |                                                                                                                                                                                         | Technology | 
|                       |  |                                                                                                                                                  |  |                                                                                                                                                                                         |            | 
|Service
    Offerings: |  |  Market Penetration New Growth New Business Development Profit Improvement Operations Strategy Execution Excellence Turnaround Management |  |  IT Assessment & Strategy IT Portfolio Assessment & Strategy Outsourcing Advisory Architecture Assessment & Strategy Security Assessment & Strategy Technology Program Management

Strategy and Operations Service Line.Our strategy and operations service
line is designed to help clients identify, design and implement
strategies to grow their business through both new and existing
customers, and using both new and existing products and
services, as well as to implement operational improvements that
not only cut costs, but streamline the business. We currently
have seven strategy and operations service offerings.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Market Penetration.This service offering is designed to
    help clients amplify and extract value from existing products
    and services, using existing customer relationships to grow
    revenue, increase marketing campaign effectiveness, up-sell and
    cross-sell to profitably capture a greater share of wallet and
    boost product line profitability. This is the lowest risk growth
    alternative, and consists of work in customer relationship
    management, customer value management and multi-channel
    management.                                            
|
| | New Growth.Our
    service offering for new growth examines how to grow a business
    by identifying new products, services and markets beyond the
    clients existing business. We work with our clients to
    quickly analyze key cost and revenue drivers and generate
    fast-impact improvement ideas. This growth alternative generally
    has moderate risk and consists of work in new offering
    development, new market positioning, and strategic nerve
    analyses.                                                                                                    
|
| | New Business Development.This service offering identifies
    innovative new products, channels and markets, and
    cost-effectively tests them as a new growth alternative. We have
    a holistic approach to new business development and use a proven
    process to help clients establish new ventures and then measure
    their contribution to the organization. Among the growth options
    a company has, this is the highest risk alternative. Work in
    this area includes corporate innovation strategies, corporate
    venturing services and venture-specific services.
|
| | Profit Improvement.This service offering is designed to
    rapidly identify and extract value through existing assets in
    order to achieve challenging financial targets within aggressive
    timeframes.                                                                                                                                                                                                                                                                                                                                                                              

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| |                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Operations Strategy.An operations strategy is based on innovative analysis-based
    deployment of new and existing company assets to achieve
    significant operational improvements. This work will consist of
    efforts such as developing a customer-centric organization,
    providing outsourcing assessment, and creating effective supply
    chain strategies.
|
| | Execution
    Excellence.Working closely with our
    clients, we design and fine-tune an organization, function or
    process to deliver superior results by focusing on the customer,
    the underlying structure and systems, and establishing
    accountability.                                                                                                    
|
| | Turnaround Management.We quickly analyze and diagnose a
    growth, operations or technology project that has gotten
    off-track. We then stabilize the environment, transform the
    project and, using our Project Management Office approach, we
    help guide the client team to implement a long-term solution.                                                   

Technology Service Line.We believe that technology should be
managed like a business. Our technology service line delivers
actionable recommendations to improve IT effectiveness, build a
platform for future growth and deliver operational improvements.
We also manage the delivery of the value within our
clients organizations. We currently have six technology
service offerings.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | IT Assessment & Strategy.We work with clients to create value
    by better aligning IT investments to corporate objectives.
    Operational effectiveness is improved by setting specific
    performance goals and a process to meet them. Cost efficiency is
    attained through rigorous analyses and concrete actions. And,
    risk avoidance is maintained by uncovering potential exposures
    and identifying mitigation alternatives.
|
| | IT Portfolio Assessment &
    Strategy.Using quantitative and
    qualitative analysis, we work with our clients on a five-step
    process toward creating greater, more visible returns on an
    organizations entire portfolio of IT investments.                                                                                                                                                                                           
|
| | Outsourcing
    Advisory.We have a structured
    approach to outsourcing that guides a client through four key
    phases, resulting in concise, concrete deliverables and ensuring
    the success of the outsourcing effort.                                                                                                                                                                                                                  
|
| | Architecture Assessment &
    Strategy.Managing and governing
    technology architectures in large organizations is extremely
    complex. We work with our clients to help them define explicit
    linkages between the requirements of the business and technology
    portfolio and then devise a technology blueprint to generate a
    common vision for technology across the organization.                                              
|
| | Security Assessment &
    Strategy.We work with a client to
    guide enterprise decisions about practical approaches to
    security, tools and managed service providers to create secure
    organizations and processes.                                                                                                                                                                                                                     
|
| | Technology Program
    Management.We work with clients to
    adapt a technology program management framework and processes to
    ensure that their IT project portfolio is anchored by benefits
    and costs, and is managed through accountability, experience and
    leadership.                                                                                                                                                           

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Vertical Industries
    ServedThe
    company goes to market by vertical industry, with service lines
    and service offerings within each industry. We currently serve
    clients in six vertical industries: financial services,
    insurance, telecommunications, healthcare, retail and
    distribution, and the public sector. The company currently
    organizes these six industries into three broad vertical
    practices through which it goes to market. |  | (GRAPH)

Financial Services and Insurance Practice.The financial services portion of this
industry practice provides services to capital markets firms,
retail brokerages, credit card issuers, credit card processors
and payment system operators, and full-service retail and
commercial banks. We help these financial services clients with
the issues they face today, including the need to manage large
technology and business transformations, improve productivity,
grow revenues, combat increasing competition and assess various
technologies. Representative clients in the financial services
industry include Bank of America, Bank One, Federal Reserve
Bank, Goldman Sachs, KeyBank, MasterCard International, and
Visa. During fiscal year 2003, financial services represented
20% of net revenues. The insurance portion of this industry
practice provides services to property and casualty insurance,
life insurance, and health insurance providers. We help our
insurance clients with the issues they face today, including
industry over-capacity, pressure to improve profit margins,
integrating legacy systems, revenue generation and channel
management, pricing pressure, commoditization of products, and
shifting demographics. Representative clients in the insurance
industry include Allstate, CNA and, Royal &
SunAlliance. During fiscal year 2003, insurance represented 15%
of net revenues.

Telecommunications and Healthcare Practice.The telecommunications portion of this
industry practice provides services to wireless operators and
vendors, and fixed line operators and vendors. We assist our
telecommunications clients with profit improvement needs,
wireless strategy and execution, convergence, and IT assessment
and strategy issues. We help our clients address these
challenges through our offerings in customer value management,
cost benchmarking, data strategies, convergence consulting, and
IT strategy and execution. Representative telecommunications
clients include Belgacom, Cincinnati Bell, Deutsche Telekom,
Orange, Sprint, and Telefonica. During fiscal year 2003,
telecommunications represented 39% of net revenues. The
healthcare portion of this practice provides services to large
healthcare providers, biomedical companies, and business units
of large pharmaceutical companies. We help our healthcare
clients improve profit margins, integrate legacy systems, and
generate revenue. Representative healthcare clients include
Caremark, CIGNA, and UnumProvident. During fiscal year 2003,
healthcare represented 8% of net revenues.

Retail and Distribution and the Public Sector
Practice.The retail and distribution
portion of this industry practice provides services to companies
in the following segments: retail, consumer services, industrial
products and services, and distribution. We help our retail and
distribution clients with reducing costs, growing revenue,
mining customers, and managing the value chain. Representative
clients in the retail and distribution industry include American
Greetings, Buhrmann, Fisher Scientific International, John
Deere, Volkswagen and Lladro. During fiscal year 2003, retail
and distribution represented 16% of net revenues. The public
sector portion of this industry practice provides services to
U.S. local, state and federal governments. Issues facing this
sector today include management and accountability of technology
spending, demand for agencies to become more citizen-centric by
minimizing complexity and improving responsiveness, and homeland
security. Representative clients in the public sector include
Chicago Transit Authority and Lawrence Livermore National
Laboratory. We first began offering services to the public
sector in North America during fiscal year 2002. During fiscal
year 2003, the public sector represented 2% of net revenues.

8



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Innovation
and Research

Consulting firms are notably knowledge-intensive
organizations. In the past, the existence of accumulated
experience within a consulting firm was enough to attract and
retain clients. Today, information is more readily accessible
and the useful life of new knowledge is shortening. In
recognition of this trend, we have developed programs, alliances
and innovation centers to continuously identify, develop and
disseminate intellectual capital from individuals both within
and outside DiamondCluster.

Intellectual Capital Alliances.In an increasingly complex business
environment, Intellectual Capital Alliances are essential to
delivering high-impact, innovative technology solutions. Our
Intellectual Capital Alliance program is designed to provide
DiamondClusters professionals and clients with early
access to market-leading hardware and software, as well as to
provide specialized services and training. DiamondCluster builds
strong relationships with selected companies to build its
intellectual capital and deliver the best solutions for its
clients with lower implementation risk and accelerated
speed-to-market.

Our Intellectual Capital Alliance program has two
components  Strategic Alliances and Network
Alliances. Strategic Alliance companies work with us to develop
industry points of view and white papers, co-sponsor
conferences, develop unified professional development programs
and pursue joint business opportunities. Network alliances are
designed to address solutions that are currently relevant to our
clients by supplying best of breed technologies and services.

All of our Intellectual Capital Alliances are
non-exclusive agreements designed to deliver benefits to both
organizations through knowledge sharing and joint marketing.
DiamondCluster does not recognize revenue for work performed by
any alliance company, and there are no fees associated with
joining the Intellectual Capital Alliance program.

As of March 31, 2003, there were three
companies in our Strategic Alliance program:

|                           |  |                                                                                                                                                                                                                             
|-------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                              

Key Network Alliance companies include
Embarcadero, Enamics, HP Openview, Intel, Oracle, and Softwired.

DiamondCluster Network.The DiamondCluster Network is a group
currently comprised of 13 recognized business and
technology leaders associated with DiamondCluster. Members of
the DiamondCluster Network, whom we refer to as DiamondCluster
Fellows, provide us with a set of skills that augment and
enhance the value that we can provide to our clients.
DiamondCluster Fellows provide a source of intellectual capital,
introduce us to prospective clients, author and contribute to
industry publications, serve as faculty to the Exchange, and
participate in client projects. DiamondCluster Fellows are
contractually committed to dedicate a certain number of days
annually to DiamondCluster to support marketing, sales, and
client work. DiamondCluster Fellows are compensated with a
combination of equity and per diem payments for services
provided to us, or to our clients on our behalf.

As of March 31, 2003, DiamondCluster Fellows
include:



| |                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | John Perry Barlowis a writer and lecturer on the
    social, legal and economic issues arising on the border between
    the physical and virtual worlds. He is a contributing writer for
    Wiredmagazine and co-founder and vice chairman of the
    Electronic Frontier Foundation, an organization that promotes
    freedom of expression in digital media.

9



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Gordon Bellis a senior researcher with
    Microsoft Corporation and computer consultant-at-large.
    Mr. Bell spent 23 years at Digital Equipment Corp. as
    vice president of research and development where he managed the
    development of the first time-sharing and mini-computers. He
    also led the development of Digital Equipments VAX.
    Additionally, Mr. Bell directed the National Science
    Foundations efforts in computing research.                                                                                                                                                                 
|
| | Dan Bricklinis currently founder and Chief
    Technology Officer of Trellix Corporation, the leading provider
    of private-label web site publishing technology and managed
    hosting services to top online providers for small-business and
    personal web sites. 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.                                                                                              
|
| | George Dayis
    a Geoffrey T. Boisi Professor, professor of marketing, and
    director of the Mack Center for the Management of Technological
    Innovation at the Wharton School of the University of
    Pennsylvania. Mr. Day was previously the executive director
    of the Marketing Science Institute and has authored
    14 books and 125 articles in the areas of marketing,
    strategy development, organization change, and competitive
    strategies. His most recent books are Wharton on Managing
    Emerging Technologies(John Wiley & Sons, 2000) and
    The Market-Driven Organization(Free Press, 1999).
|
| | James J. Duderstadtis President Emeritus of the
    University of Michigan. Mr. Duderstadt teaches and conducts
    research in the areas of science, mathematics and engineering,
    including work in computer simulation, science policy, higher
    education, information technology, nuclear fission reactors,
    thermonuclear fusion, and high-powered lasers. He has served on
    and/or chaired numerous boards including the National Science
    Board, the Nuclear Energy Research Advisory Committee of the
    Department of Energy, Unisys and CMS Energy.                                                       
|
| | Steve Hindmanis founder and principal of
    SPHindman, LLC, a consulting firm. He has spent the past three
    decades devising strategies for start-up business, companies in
    difficult business situations, and those that need significant
    improvement in sales and profit growth. Previously he led the
    turnaround of a software start-up, launched his own software
    company, and worked as a consultant for McKinsey & Co.,
    a general manager in Boise Cascades housing division, and
    as a president of a small manufacturing concern.                                                               
|
| | Michael Kraussis a leading marketer, researcher,
    product innovator and communicator. Mr. Krauss serves as
    Vice Chair of Chicago Mayor Richard M. Daleys Council of
    Technology Advisors and chairs the Mayors Technology
    Advocacy Committee. He served on the faculty of the University
    of Chicagos Graduate School of Business and is a frequent
    speaker and presenter on marketing and technology topics,
    including the Technology Marketing Columnist for Marketing
    News, the official publication of the American Marketing
    Association.                                                  
|
| | Andrew Lippman, Ph.D.is an associate director and
    founding member of the Media Lab at the Massachusetts Institute
    of Technology. Mr. Lippman is the principal investigator of
    the Digital Life research program, a consortium of
    45 companies and 15 faculties that researches the
    technical, social, and economic aspects of computing in everyday
    life. He has published widely and made over
    100 presentations on digital entertainment, personal
    communications, and making the information highway entertaining
    and profitable.                                                            
|
| | Chunka Muiis
    a writer and consultant on business issues at the intersection
    of strategy and technology. Mr. Mui also chairs
    DiamondClusters Diamond Fellows advisory group.
    Mr. Mui is perhaps best known as the co-author of the best
    selling Unleashing the Killer App, which the New York
    Timescalled a practical and persuasive guide to
    the dramatic changes being wrought by technology.                                                                                                                                                                                                       
|
| | B. Joseph Pine IIis co-founder of Strategic
    Horizons LLP. Mr. Pine is co-author of The Experience
    Economy: Work is Theatre and Every Business a Stage(Harvard
    Business School Press, 1999). His earlier publication, Mass
    Customization: The New Frontier in Business Competition(Harvard Business School Press, 1993), received the 1995
    Shingo Prize for Excellence in Manufacturing Research.                                                                                                                                                                                                                

10



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| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | David P. Reed, Ph.D.is an information architect and
    independent entrepreneur who focuses on designing the
    information space in which people, groups and organizations
    operate. He was a senior scientist at Interval Research Corp.,
    vice-president and chief scientist for Lotus Development Corp.,
    and vice-president of research and development and chief
    scientist at Software Arts Inc.
|
| | James Spirais president and chief operating
    officer of American Greetings Corporation and the Chairman of
    AmericanGreetings.com. He co-founded Cleveland Consulting
    Associates in 1974 (which was acquired by Computer Science Corp.
    in 1989) after spending several years with Ernst &
    Young and A.T. Kearney. Jim was also a partner with
    DiamondCluster from 1995 to 1999.                
|
| | Marvin Zonis, Ph.D.is a professor of international
    political economy and leadership at the University of Chicago
    Graduate School of Business. He is an expert and consultant on
    political risk and emerging markets, Mideast politics, the oil
    industry, and the foreign policies of Russia and the United
    States.                                                                               

Innovation Center and Programs.Our innovation center provides a lab
where our people work with experts inside and outside our
organization to research and devise practical applications for
various business and technology advances. Our other innovation
programs support our business goals around knowledge sharing and
keeping our organization on the leading edge.

Center for Technology Innovation.The Center for Technology Innovation,
based in Chicago, serves as the proving ground for our ideas.
DiamondCluster professionals work with our Fellows and other
knowledge leaders to support and enable inventive client work,
and build our intellectual capital around emerging technologies.
A series of technology frameworks and tools are developed and
maintained at the Center for Technology Innovation. These tools
are designed to accelerate the delivery of solutions through
proven processes, reusable templates, guides, and technical
papers. Our various strategic alliance companies provide the
hardware and software in the Center for Technology Innovation.

Exchange.The
Exchange is a series of executive learning forums that we
launched in February 1997. CEOs and other senior executives are
invited to participate in the Exchange. We provide our paid
subscription members with innovative, leading-edge research to
explore and understand the strategic risks and opportunities of
emerging technologies. Exchange members meet three times a year
to discuss current issues and research findings, and their
business implications. During these meetings, we provide the
members with the opportunity to discuss their issues with
DiamondCluster Network members, our senior consultants and other
business leaders.

Books and Other Publications.We believe that books and other
publications provide an important source of intellectual capital
for our firm and our clients. DiamondCluster professionals and
Fellows publish books from time to time that provide insight
into timely and relevant areas of business and technology. Books
published by employees or Fellows in the past include
Unleashing the Killer App: Digital Strategies for Market
Dominance(Harvard Business School Press, 1998), The
Seven Steps to Nirvana: Strategic Insights into eBusiness
Transformation(McGraw-Hill, 2001), E-Learning:
Strategies for Delivering Knowledge in the Digital Age(McGraw-Hill, 2001), and The Venture Imperative: A New
Model for Corporate Innovation(Harvard Business School
Press, 2002). In addition, we publish electronic and physical
newsletters to CEOs and senior managers, and our partners and
DiamondCluster Network members are frequent speakers at business
and technology forums.

Sales and Marketing

Our senior partners manage our principal sales
activities. They are responsible for building relationships with
CEOs and senior leadership teams of existing and potential
clients and for formulating and executing our sales and
marketing strategy. Our senior partners call on existing and
potential clients, discuss potential engagements, negotiate the
terms of engagements, and direct the staffing and execution of
consulting projects. The term partners is an
internal designation only and does not refer to a partner of a
general or limited partnership. All of our partners are vice
presidents of the Company.

11



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We primarily sell our services to
c-level executives of national and multinational
businesses. A majority of our fees are sourced from CEO and
senior managements operating budgets as opposed to
information technology budgets. We have divided our senior
partners into three vertical practices, comprised of six
vertical industries (see Our Services: Vertical Industries
Served): 1) financial services and insurance,
2) telecommunications and healthcare, and, 3) retail
and distribution and the public sector. A senior partner is
assigned revenue and profit contribution responsibility for each
practice and leads the sales efforts. Senior partners are
assigned to clients and prospects, as opposed to projects, to
maximize the value and services provided to each client. We seek
projects within each practice from both new prospects and
existing clients. Each vertical industry practice maintains a
current list of targeted prospects that are tracked on an
ongoing basis by our senior management. Building on leads
generated through our marketing and innovation programs, senior
partners pursue formal consulting engagements.

The primary focus of our marketing programs is to
generate leads through building relationships and educating
client prospects about DiamondCluster. We have initiated a
number of marketing programs designed to complement, encourage
and accelerate client relationships. We build relationships both
directly and on a collaborative basis with DiamondCluster
Network members and through relationships with certain
third-party industry executives who we call client
relationship executives. These executives are typically
retired senior executives with a wide network of contacts in a
given industry. As of March 31, 2003, we currently have 36
client relationship executives.

Complementing the relationship-marketing programs
are a variety of other business development and marketing
techniques used to communicate directly with current and
prospective clients, including publications, surveys, e-mail
newsletters, media and analyst relations, speeches and a
homepage on the World Wide Web. Each of our programs is designed
to educate the market, demonstrate our intellectual capital, and
create an ongoing dialogue with clients and prospects. See
Innovation and Research for a description of these
efforts.

Employees and Culture

Employees.As of
March 31, 2003, we had 735 employees. Of these employees,
538 were client-serving professionals and 197 were management
and administrative personnel comprising intellectual capital
development, marketing, human resources, finance, accounting,
legal, internal information systems, and administrative support.
The responsibilities of our partners include client relationship
development, business development, client management, program
management, thought leadership, professional staff development,
and mentoring. Our partners typically have ten to twenty years
or more of experience.

Culture.We believe
our ability to simultaneously provide expertise in strategy,
technology and program management is dependent upon our ability
to develop and sustain a business culture that is common across
all disciplines and vertical industries in the organization.
DiamondClusters employees are talented and energetic
professionals that come from a multitude of professional
backgrounds. DiamondCluster believes that this fosters an
exciting and diverse work environment. Three primary elements
comprise our 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 disciplines and skill sets within DiamondCluster; and                              
|
| |  | participation by all of our employees in our
    continuing development and ownership of DiamondCluster.                                   

Recruiting.We
believe our long-term success will depend on our ability to
continue to attract, retain and motivate highly skilled
employees. We attribute our success in hiring these people to
our ability to provide individuals with high impact client
opportunities, multidisciplinary training and career
development, attractive long-term career advancement
opportunities, small teams and a collaborative approach to
consulting, and competitive compensation.

12



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Although a number of our current employees were
hired directly from other firms, our long term strategy is to
hire professionals annually from the leading undergraduate and
graduate business and technology programs at universities. Over
time, we expect senior level positions will be predominantly
filled from internal promotions.

Training and Professional Development.Our training and professional
development programs help us to deliver high-quality services to
our clients, as well as to attract and retain highly skilled
professionals. We have developed programs that ensure all
individuals have the opportunity to develop consulting, business
and technology skills throughout their careers. Leveraging our
innovation programs and innovation centers, our professional
development programs reinforce our culture by exposing all
professionals to the various services we provide while further
developing deep skills in each professionals principal
area of expertise.

Compensation.Our
compensation programs have been structured to attract and retain
highly skilled professionals by offering competitive base
salaries coupled with annual cash bonus opportunities. We use
equity-based instruments at all levels within DiamondCluster to
provide long-term wealth creation opportunities and to retain
individuals through multi-year, long-term vesting provisions. We
believe that those professional services firms able to offer
equity-based instruments will be more successful in attracting
and retaining talented individuals to their organizations.

Our partners are eligible to receive an annual
bonus comprised of cash and equity commensurate with their level
of responsibility and based on our overall performance. Our
partners are granted equity upon being elected a partner. We
grant additional equity in conjunction with movement through the
partner levels. Equity that we issue to partners typically vests
ratably over five years. Individuals below the partner level are
awarded annual cash bonuses based on their performance and our
overall performance. Our non-partners are generally granted
equity at the time of hire and promotion, which typically vests
ratably over four years.

Competition

We operate in a competitive and rapidly changing
global market and compete with a variety of organizations that
offer services similar to those that we offer. Our clients
generally retain us on a non-exclusive basis. We compete with a
number of different types of businesses, including:

Traditional management and strategy consulting
firmsthat focus on advising
managements on high-level corporate strategy. Many of the
traditional strategic consulting firms have recently added
services in information technology.

Systems integration and IT consulting firmsthat design and implement technology
solutions, including software installation, for departments and
enterprises. These firms have recently grown in size and scope
of services.

Information technology product and service
vendorsthat offer technical
consulting to support their own products. Many of these firms
have also developed various alliances with systems integration
and IT consulting firms to augment their own capabilities.

In addition, we also compete with the internal
strategy or technology departments of a client, as they may
choose to conduct the work internally.

Many of our competitors are substantially larger
than us and have significantly greater financial, technical and
marketing resources, greater name recognition and greater
revenues. Furthermore, we face the challenge of competing for
and retaining the best personnel available in the business
services market. Changes in our market may create new, larger or
better-capitalized competitors with enhanced abilities to
attract and retain professionals.

We believe that the principal criteria considered
by prospective clients when selecting a consulting firm include
skills and capabilities of consultants, scope of services,
service model approach, global presence, technical and industry
expertise, reputation and quality of past work, perceived value
and a results orientation.

13



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We believe we are well positioned against these
competitors. Furthermore, we believe the current structural
changes in the consulting industry (see Industry
Background and Opportunity) increases the value to senior
management of an objective advisor with deep expertise in
strategy, operations and technology, including implementation.

Executive Officers of the Registrant

Our executive officers as of March 31, 2003
are as follows:

|                     |  |     |    |  |          |                                                                   
|-------------------- |  | --- | -- |  | -------- | ------------------------------------------------------------------
|Name                 |  | Age |    |  | Position
|                     |  |     |    |  |         
|Melvyn E. Bergstein  |  |     | 61 |  |          | Chairman of the Board of Directors and Chief
    Executive Officer
|Karl E. Bupp         |  |     | 41 |  |          | Chief Financial Officer and Treasurer                             
|Michael J. Connolly  |  |     | 41 |  |          | President, Global Services                                        
|Adam J. Gutstein     |  |     | 40 |  |          | President, North America and Director                             
|William R. McClayton |  |     | 58 |  |          | Senior Vice President, Finance and Administration                 
|Javier Rubio         |  |     | 42 |  |          | President, Europe and Latin America                               
|John J. Sviokla      |  |     | 45 |  |          | Vice Chairman and Director                                        

Melvyn E. Bergsteinco-founded Diamond Technology
Partners, Inc. (Diamond) in January 1994 and has
served as our Chairman and Chief Executive Officer since that
time. Mr. Bergstein has been a member of our board of
directors since January 1994. Prior to co-founding Diamond,
Mr. Bergstein held several senior executive positions with
Technology Solutions Company from 1991 to 1993. Prior to that
time, Mr. Bergstein held several senior positions with
other consulting firms, including twenty-one years in various
positions with Arthur Andersen & Co.s consulting
division, now Accenture.

Karl E. Buppco-founded Diamond and joined us
in April 1994 as Vice President of Financial Planning
responsible for our internal planning, analysis and treasury
functions. Since July 1998, Mr. Bupp has served as our
Chief Financial Officer and Treasurer. Prior to joining us,
Mr. Bupp was the corporate controller, and director of
planning and treasury services for Technology Solutions Company.
From 1985 to 1993, he held various financial management and
analyst positions with MCI Telecommunications Corporation.

Michael J. Connollyjoined us in May 1995 as a partner
and Vice President. Mr. Connolly is currently President,
Global Services for DiamondCluster and was previously President,
Diamond Marketspace Solutions. Prior to joining Diamond,
Mr. Connolly was an associate partner with Andersen
Consulting, now Accenture.

Adam J. Gutsteinco-founded Diamond in January 1994
and has served as a partner and Vice President since inception,
and as a member of our board of directors since August 1999.
From July 1998 to April 2000, Mr. Gutstein served as Chief
Operating Officer responsible for the client-serving operations
including sales and delivery of our services, revenue and profit
contribution. On November 28, 2000, Mr. Gutstein
assumed the title of President, North America. Prior to joining
us, Mr. Gutstein was a vice president at Technology
Solutions Company and a manager with Andersen Consulting, now
Accenture.

William R. McClaytonjoined the Company in April 2001
as a partner and Senior Vice President of Finance and
Administration responsible for finance, planning, legal, human
resources, investor relations, information technology, marketing
and facilities worldwide. Prior to joining DiamondCluster,
Mr. McClayton was a partner of Arthur Andersen LLP. During
his 35-year career at Arthur Andersen, Mr. McClayton served
public and private audit clients, and led the firms
Chicago-based global financial markets practice for ten years.

Javier Rubiobecame President, Europe and Latin
America and a member of our board of directors in November 2000
when the Cluster merger was completed. Mr. Rubio founded
Cluster Consulting in 1993 and served as Chairman of its Board
of Directors and Chief Executive Officer. Prior to founding
Cluster,

14



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Mr. Rubio held several senior positions with
other consulting firms, including seven years in various
positions with the MAC Group (Gemini Consulting) and the Monitor
Company.


John J. Svioklajoined us in September 1998 as a
partner and Vice President and became a member of our board of
directors in August 1999. Since April 1, 2000,
Dr. Sviokla has served as Vice Chairman. Prior to joining
us, Dr. Sviokla was a professor at the Harvard Business
School from October 1986 to August 1998. His pioneering work on
Marketspace established Harvards first course on
electronic commerce, and he co-authored the seminal articles
Managing in the Marketspaceand Exploiting the Virtual
Value Chain,both appearing in the Harvard Business Review.
Dr. Sviokla has authored over 90 articles and cases, has
edited books, and has been a consultant to large and small
companies around the world. He has been a guest professor at
many universities including Kellogg, MIT, The London Business
School, the Melbourne Business School and the Hong Kong
Institute of Science and Technology.



Item 2.     Properties


Our international headquarters and principal
administrative, information systems, financial, accounting,
marketing, legal and human resources operations are located in
leased office space in Chicago, Illinois. In North America, we
also have leased offices in San Francisco, California; and
Boston, Massachusetts as of March 31, 2003.

European and Latin American operations are based
in Barcelona, Spain and we have leased offices in Madrid, Spain;
Düsseldorf and Münich, Germany; Lisbon, Portugal;
London, UK; Paris, France; and São Paulo, Brazil.



Item 3.     Legal
Proceedings


We are not party to any claims or actions that we
believe could have a material effect on our results of
operations or financial position.



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


No matter was submitted to a vote of security
holders, through the solicitation of proxies or otherwise,
during the fourth quarter of fiscal 2003.

15



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PART II




Item 5.     Market
for Registrants Common Equity and Related Stockholder
Matters


The Class A Common Stock is quoted on the
Nasdaq National Market under the symbol DTPI. The
following table sets forth for the periods indicated the high
and low sales prices for the Class A Common Stock.

|                                  |                |                 |   |       |     |  |   |       | 
|--------------------------------- | -------------- | --------------- | - | ----- | --- |  | - | ----- | 
|                                  |                |                
|                                  |                | Sales Price Per |  
|                                  |                | Share           |  
|                                  |                |                 |  
|                                  |                | High            |   |       | Low | 
|                                  |                |                 |   |       |     | 
|Fiscal year ended March 31, 2002: |                |                 |   |       |     |  |   |      
|                                  | First Quarter  |                 | $ | 18.75 |     |  | $ | 7.50  | 
|                                  | Second Quarter |                 |   | 12.50 |     |  |   | 9.44  | 
|                                  | Third Quarter  |                 |   | 14.27 |     |  |   | 7.60  | 
|                                  | Fourth Quarter |                 | $ | 16.34 |     |  | $ | 10.21 | 
|Fiscal year ended March 31, 2003: |                |                 |   |       |     |  |   |      
|                                  | First Quarter  |                 | $ | 13.65 |     |  | $ | 4.66  | 
|                                  | Second Quarter |                 |   | 5.97  |     |  |   | 2.01  | 
|                                  | Third Quarter  |                 |   | 3.84  |     |  |   | 2.25  | 
|                                  | Fourth Quarter |                 | $ | 3.40  |     |  | $ | 1.40  | 

On June 5, 2003, the closing price of
Class A Common Stock was $3.59 per share. At such
date, we had approximately 6,500 holders of record of
Class A Common Stock.

Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board
of Directors out of funds legally available therefore, subject
to any preferential dividend rights of outstanding Preferred
Stock, if any. To date, we have not paid any cash dividends on
our Common Stock and do not expect to declare or pay any cash or
other dividends in the foreseeable future. Our financing
arrangements currently do not prohibit us from declaring or
paying dividends or making other distributions on the Common
Stock. Under the terms of our credit agreement, we are required
to maintain a minimum tangible net worth of $20 million.

16



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Item 6.     Selected
Consolidated Financial Data


The selected consolidated financial data
presented below has been derived from our consolidated financial
statements. The data presented below should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations, the
Consolidated Financial Statements and the notes thereto and
other financial information appearing elsewhere in this Annual
Report on Form 10-K.

|                                                                                       |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |          |         |         |   |          |         |         | 
|-------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------------------ | ------ | ------ | ------ | - | ------ | ------- | ------- | - | ------- | ------- | ------- | ---- | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                                                                                       |                                                                                       |                                                 
|                                                                                       |                                                                                       | Year Ended March 31,                             |       
|                                                                                       |                                                                                       |                                                  |       
|                                                                                       |                                                                                       | 1999                                             |        |        | 2000   |   |        | 2001    |         |   | 2002    |         |         | 2003 |         
|                                                                                       |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |         
|                                                                                       |                                                                                       |                                                 
|                                                                                       |                                                                                       | (Dollars in thousands, except per share amounts) |       
|Statement of Operations Data:                                                          |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |          |         |         |   |          |        
|Revenue:                                                                               |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |          |         |         |   |          |        
|                                                                                       | Revenue before out-of-pocket expense
    reimbursements (net revenue)                 |                                                  | $      | 84,809 |        |   | $      | 139,627 |         |   | $       | 266,536 |         |      | $        | 181,215 |         |   | $        | 132,974 |        
|                                                                                       | Out-of-pocket expense reimbursements                                                  |                                                  |        | 11,811 |        |   |        | 28,379  |         |   |         | 40,864  |         |      |          | 21,745  |         |   |          | 19,331  |        
|                                                                                       |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |         
|                                                                                       |                                                                                       | Total revenue                                    |        |        | 96,620 |   |        |         | 168,006 |   |         |         | 307,400 |      |          |         | 202,960 |   |          |         | 152,305 | 
|                                                                                       |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |         
|Operating expenses:                                                                    |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |          |         |         |   |          |        
|                                                                                       | Project personnel and related expenses before
    out-of-pocket reimbursable expenses |                                                  |        | 45,695 |        |   |        | 75,747  |         |   |         | 141,980 |         |      |          | 132,627 |         |   |          | 109,085 |        
|                                                                                       | Out-of-pocket reimbursable expenses                                                   |                                                  |        | 11,811 |        |   |        | 28,379  |         |   |         | 40,864  |         |      |          | 21,745  |         |   |          | 19,331  |        
|                                                                                       |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |         
|                                                                                       |                                                                                       | Total project personnel and related expenses     |        |        | 57,506 |   |        |         | 104,126 |   |         |         | 182,844 |      |          |         | 154,372 |   |          |         | 128,416 | 
|                                                                                       | Professional development and recruiting                                               |                                                  |        | 9,448  |        |   |        | 13,199  |         |   |         | 26,673  |         |      |          | 10,834  |         |   |          | 4,134   |        
|                                                                                       | Marketing and sales                                                                   |                                                  |        | 4,669  |        |   |        | 7,325   |         |   |         | 13,431  |         |      |          | 7,136   |         |   |          | 3,865   |        
|                                                                                       | Management and administrative support                                                 |                                                  |        | 11,298 |        |   |        | 18,260  |         |   |         | 41,989  |         |      |          | 46,794  |         |   |          | 37,363  |        
|                                                                                       | Goodwill amortization                                                                 |                                                  |        |       |        |   |        | 493     |         |   |         | 21,928  |         |      |          | 61,850  |         |   |          |        |        
|                                                                                       | Non-cash compensation                                                                 |                                                  |        |       |        |   |        |        |         |   |         | 18,187  |         |      |          | 52,305  |         |   |          | 53,078  |        
|                                                                                       | Restructuring charges                                                                 |                                                  |        |       |        |   |        |        |         |   |         |        |         |      |          | 15,542  |         |   |          | 29,266  |        
|                                                                                       | Impairment charge on long lived assets                                                |                                                  |        |       |        |   |        |        |         |   |         |        |         |      |          |        |         |   |          | 94,315  |        
|                                                                                       |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |         
|                                                                                       |                                                                                       | Total operating expenses                         |        |        | 89,921 |   |        |         | 143,403 |   |         |         | 305,052 |      |          |         | 348,833 |   |          |         | 350,437 | 
|                                                                                       |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |         
|Income (loss) from operations                                                          |                                                                                       |                                                  | 13,699 |        |        |   | 24,603 |         |         |   | 2,348   |         |         |      | (145,873 | )       |         |   | (198,132 | )      
|                                                                                       |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |         
|                                                                                       | Interest income, net                                                                  |                                                  |        | 2,488  |        |   |        | 2,002   |         |   |         | 11,999  |         |      |          | 4,138   |         |   |          | 2,586   |        
|                                                                                       | Other expense                                                                         |                                                  |        |       |        |   |        |        |         |   |         | (8,714  | )       |      |          | (2,985  | )       |   |          | (2,442  | )      
|                                                                                       |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |         
|                                                                                       |                                                                                       | Total other income, net                          |        |        | 2,488  |   |        |         | 2,002   |   |         |         | 3,285   |      |          |         | 1,153   |   |          |         | 144     | 
|                                                                                       |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |         
|Income (loss) before taxes and cumulative
    effect of change in accounting principle |                                                                                       |                                                  | 16,187 |        |        |   | 26,605 |         |         |   | 5,633   |         |         |      | (144,720 | )       |         |   | (197,988 | )      
|Income tax expense (benefit)                                                           |                                                                                       |                                                  | 6,351  |        |        |   | 10,377 |         |         |   | 18,500  |         |         |      | (11,048  | )       |         |   | 21,209   |        
|                                                                                       |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |         
|Income (loss) before cumulative effect of
    change in accounting principle           |                                                                                       |                                                  | 9,836  |        |        |   | 16,228 |         |         |   | (12,867 | )       |         |      | (133,672 | )       |         |   | (219,197 | )      
|Cumulative effect of change in accounting
    principle, net of income tax benefit     |                                                                                       |                                                  |       |        |        |   |       |         |         |   |        |         |         |      |         |         |         |   | (140,864 | )      
|                                                                                       |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |         
|Net income (loss)                                                                      |                                                                                       | $                                                | 9,836  |        |        | $ | 16,228 |         |         | $ | (12,867 | )       |         | $    | (133,672 | )       |         | $ | (360,061 | )      
|                                                                                       |                                                                                       |                                                  |        |        |        |   |        |         |         |   |         |         |         |      |         
|Basic net income (loss) per share of common
    stock (1),(2)                          |                                                                                       | $                                                | 0.49   |        |        | $ | 0.78   |         |         | $ | (0.49   | )       |         | $    | (4.34    | )       |         | $ | (11.41   | )      
|Diluted net income (loss) per share of
    common stock (1), (2)                       |                                                                                       | $                                                | 0.42   |        |        | $ | 0.62   |         |         | $ | (0.49   | )       |         | $    | (4.34    | )       |         | $ | (11.41   | )      
|Shares used in computing basic net income
    (loss) per share of common stock (1)     |                                                                                       |                                                  | 19,915 |        |        |   | 20,807 |         |         |   | 26,448  |         |         |      | 30,813   |         |         |   | 31,548   |        
|Shares used in computing diluted net income
    (loss) per share of common stock (1)   |                                                                                       |                                                  | 23,346 |        |        |   | 25,984 |         |         |   | 26,448  |         |         |      | 30,813   |         |         |   | 31,548   |        

17



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|                    |                                           |                        |   |        |      |  |   |         |  |  |      |         |  |      |   |         |  |  |   |         | 
|------------------- | ----------------------------------------- | ---------------------- | - | ------ | ---- |  | - | ------- |  |  | ---- | ------- |  | ---- | - | ------- |  |  | - | ------- | 
|                    |                                           |                       
|                    |                                           | March 31,              |  
|                    |                                           |                        |  
|                    |                                           | 1999                   |   |        | 2000 |  |   | 2001    |  |  | 2002 |         |  | 2003 |  
|                    |                                           |                        |   |        |      |  |   |         |  |  |      |         |  |      |  
|                    |                                           |                       
|                    |                                           | (Dollars in thousands) |  
|Balance Sheet Data: |                                           |                        |   |        |      |  |   |         |  |  |      |         |  |      |   |         |  |  |   |        
|                    | Cash and cash equivalents                 |                        | $ | 47,698 |      |  | $ | 182,945 |  |  | $    | 151,358 |  |      | $ | 96,773  |  |  | $ | 75,328  | 
|                    | Working capital                           |                        |   | 46,872 |      |  |   | 183,967 |  |  |      | 132,501 |  |      |   | 103,564 |  |  |   | 67,326  | 
|                    | Total assets                              |                        |   | 67,086 |      |  |   | 249,410 |  |  |      | 522,256 |  |      |   | 401,176 |  |  |   | 109,491 | 
|                    | Long-term debt, including current portion |                        |   |       |      |  |   | 1,000   |  |  |      | 500     |  |      |   |        |  |  |   |        | 
|                    | Total stockholders equity                |                        | $ | 53,301 |      |  | $ | 218,318 |  |  | $    | 452,367 |  |      | $ | 375,098 |  |  | $ | 72,377  | 



---



|    |                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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.                        
|   
|(2) | In fiscal year 2003, the basic and diluted net
    loss per share of common stock included a net loss of
    $(4.47) per share due to the cumulative effect of change in
    accounting principle.



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


The following information should be read in
conjunction with the information contained in the consolidated
financial statements and related notes included elsewhere in
this annual report.

Overview

We are a premier global management consulting
firm. We help leading organizations worldwide leverage
technology to develop and implement growth strategies, improve
operations, and capitalize on technology. We work
collaboratively with our clients, utilizing small teams of
consultants with skills in strategy, technology and program
management. During fiscal year 2003 we generated
$133.0 million of net revenues (before reimbursements of
out-of-pocket expenses) from 142 clients. As of March 31,
2003, we employed 538 client-serving professionals and had
eleven offices in North America, Europe and Latin America.

We regularly review our fees for services,
professional compensation and overhead costs to ensure that our
services and compensation are competitive within the industry,
and that our overhead costs are balanced with our revenue level.
In addition, we monitor the progress of client projects with
client senior management. We manage the activities of our
professionals by closely monitoring engagement schedules and
staffing requirements for new engagements. However, a rapid
decline in the demand for the professional services we provide
could result in lower utilization of our professionals than we
planned. In addition, because most of our client engagements are
terminable by our clients without penalty, an unanticipated
termination of a client project could require us to maintain
underutilized employees. While professional staff levels must be
adjusted to reflect active engagements, we must also maintain a
sufficient number of senior professionals to oversee existing
client engagements and participate in our sales efforts to
secure new client assignments.

Forward-Looking Statements

Statements contained anywhere in this report that
are not historical facts contain forward-looking statements
including such statements identified by the words
anticipate, believe,
estimate, expect and similar terminology
used with respect to the Company and its management. These
forward-looking statements are subject to risks and
uncertainties which could cause the Companys actual
results, performance and prospects to differ materially from
those expressed in, or implied by, the forward-looking
statements. The forward-looking statements speak only as of the
date hereof and the Company undertakes no obligation to revise
or update them to reflect events or circumstances that arise in
the future. Readers are cautioned not to place undue reliance on
forward-looking statements. For a statement of the Risk Factors
that might adversely affect the Companys operating or
financial results, see Exhibit 99.1 to this Annual Report
on Form 10-K.

18



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Critical Accounting Policies and
Estimates

We prepare our consolidated financial statements
in conformity with accounting principles generally accepted in
the United States of America. As such, we are required to make
certain estimates, judgments and assumptions that we believe are
reasonable based upon the information available. These estimates
and assumptions affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the periods
presented. The significant accounting policies which we believe
are the most critical to aid in fully understanding and
evaluating our reported financial results include the following:

Revenue
Recognition

We earn revenues from a range of consulting
services, including helping organizations worldwide to leverage
technology to develop and implement growth strategies, improve
operations, and capitalize on technology. Our revenues are
comprised of professional fees for services rendered to our
clients plus reimbursement of out-of-pocket expenses. Prior to
the commencement of a client engagement, we and our client agree
on fees for services based upon the scope of the project, our
staffing requirements and the level of client involvement. We
recognize revenue as services are performed in accordance with
the terms of the client engagement.

Service revenue recognition inherently involves a
degree of estimation. Examples of important estimates in this
area include determining the level of effort required to execute
the project, calculating costs incurred and assessing our
progress toward project completion on an ongoing basis. We
believe that these are critical accounting estimates because
they can materially effect our revenues and earnings and require
us to make judgments about matters that are uncertain. We
utilize a number of management processes to monitor project
performance and revenue recognition including monthly reviews of
the progress of each project against plan, staff and resource
usage, service quality and client feedback. From time to time,
as part of our normal management process, circumstances are
identified that require us to revise our estimates of the
revenues to be realized on a project. In most cases, these
revisions relate to changes in the scope of the project, and do
not significantly impact the expected fees on a contract. To the
extent that a revised estimate affects revenue previously
recognized, we record the full effect of the revision in the
period when the underlying facts become known.

Allowance for
Doubtful Accounts and Deferred Revenue

We earn our revenues by providing consulting
services to clients. We bill our clients for these services on
either a monthly or semi-monthly basis in accordance with the
terms of the client engagement. Accordingly, we recognize
amounts due from our clients as the related services are
rendered and revenue is earned even though we may not be able to
bill for those services until a later date. The terms of our
client engagements also require us to assume the risk of
non-collection of amounts billed to clients.

Management makes estimates of the amount of our
billed and unbilled accounts receivable that may not be
collected from clients. We believe the allowance for doubtful
accounts is a critical accounting estimate because it can
materially effect our operating results and requires us to make
judgments about matters that are uncertain. In making these
estimates, management specifically analyzes individual client
balances, the composition of the aging of accounts receivable,
historical bad debts, customer credit-worthiness and current
economic trends, and considers our overall experience with
estimating uncollectible amounts. We recognize the effect of
changes in our estimates, assumptions and assessments of the
factors impacting the collectibility of amounts due from
customers on an ongoing basis. As of March 31, 2003, our
accounts receivable balance was $16.3 million, including
unbilled accounts receivable of $4.5 million, and net of
allowance for doubtful accounts of $1.6 million. Unbilled
receivables represent revenues earned for services performed
that have not been billed. Unbilled receivables are typically
billed the following month.

Although we and our clients agree on the scope of
projects, expected deliverables and related fees in advance,
from time to time we have made revisions to the scope of work
and deliverables without making a corresponding adjustment to
the fees for the project. We refer to this as project
run-on as these revisions

19



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##### 



generally cause a project to extend beyond its
targeted completion. We monitor our actual project run-on
experience on an ongoing basis and perform monthly reviews of
projects in progress against plan. We provide for project run-on
costs based on our analysis of historical experience. These
provisions, net of actual costs incurred on completed projects,
are reflected in deferred revenue. As of March 31, 2003,
our deferred revenue balance was $0.8 million. While we
have been required to make revisions to our clients
estimated deliverables and to incur additional project costs in
some instances, to date there have been no such revisions that
have had a material adverse effect on our operating results.


Operating
Expenses

The largest portion of our operating expenses
consists of project personnel and related expenses. Project
personnel expenses consist of payroll costs and related benefits
associated with professional staff. Other related expenses
include travel, subcontracting, third-party vendor payments and
unbillable costs associated with the delivery of services to our
clients. The amount of these other direct costs can vary
substantially from period to period depending largely on
revenue. However, project personnel and related expenses are
relatively fixed in nature, and declines in revenue will often
result in reduced utilization of professional personnel and
lower operating margins.

The remainder of our recurring operating expenses
are comprised of expenses associated with the development of our
business and the support of our client-serving professionals,
such as professional development and recruiting, marketing and
sales, and management and administrative support. Professional
development and recruiting expenses consist primarily of
recruiting and training content development and delivery costs.
Marketing and sales expenses consist primarily of the costs
associated with the development and maintenance of our marketing
materials and programs. Management and administrative support
expenses consist primarily of the costs associated with
operations, finance, information systems, facilities, including
the rent of office space, and other administrative support for
project personnel.

In December 2001, September 2002 and December
2002 we recorded restructuring charges related to specific
actions we took to better align our cost infrastructure with our
near term revenue expectations. We estimated these costs based
upon our restructuring plans and accounted for these plans in
accordance with EITF Issue No. 94-3, Liability
Recognition for Certain Employee Benefits and Other Costs to
Exit an Activity (including Certain Costs incurred in a
Restructuring). The restructuring charges and accruals
required certain significant estimates of costs related to
severance and other personnel-related expenses, as well as costs
related to reductions in office space and estimated sublease
income to be realized in the future, the write-off of associated
leasehold improvements, and the establishment of accruals for
other contractual commitments which are not expected to provide
future benefit. These estimates and assumptions are monitored on
at least a quarterly basis for changes in circumstances.
Although we do not expect there to be significant changes to our
plans, it is reasonably possible that such estimates could
change in the near term due to unanticipated events, resulting
in adjustments to the amounts recorded, and the effect could be
material. Such revisions will be reflected in the financial
statements in the period they occur.

Valuation of
Long-Lived Assets and Goodwill

On April 1, 2002 we adopted SFAS
No. 142, Goodwill and Other Intangible Assets.
With the adoption of SFAS No. 142, goodwill and other
indefinite life intangible assets (intangibles) are
no longer subject to amortization, rather they are subject to an
assessment for impairment whenever events or circumstances
indicate that impairment may have occurred, but at least
annually, by applying a fair value based test. Under SFAS
No. 142, goodwill impairment is assessed at the reporting
unit level, using a discounted cash flow method. Prior to
April 1, 2002, the Company amortized goodwill and
identifiable intangible assets on a straight-line basis over
their estimated useful life not to exceed 40 years, and
periodically reviewed the recoverability of these assets based
on the expected future undiscounted cash flows.

Our goodwill was recognized in connection with
acquisitions we made in fiscal 2000 and 2001. The majority of
our goodwill related to our acquisition of Cluster Telecom BV, a
pan-European consulting firm specializing in wireless technology
and digital strategies, which occurred in November 2000.

20



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##### 



Under SFAS No. 142, goodwill impairment is
determined using a two-step process. The first step of the
goodwill impairment test is used to identify potential
impairment by comparing the fair value of a reporting unit with
its net book value (or carrying amount), including goodwill. If
the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is considered not to be impaired
and the second step of the impairment test is unnecessary. If
the carrying amount of a reporting unit exceeds its fair value,
the second step of the goodwill impairment test is performed to
measure the amount of impairment loss, if any. The second step
of the goodwill impairment test compares the implied fair value
of the reporting units goodwill with the carrying amount
of that goodwill. If the carrying amount of the reporting
units goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to
that excess. The implied fair value of goodwill is determined in
the same manner as the amount of goodwill recognized in a
business combination. That is, the fair value of the reporting
unit is allocated to all of the assets and liabilities of that
unit (including any unrecognized intangible assets) as if the
reporting unit had been acquired in a business combination and
the fair value of the reporting unit was the purchase price paid
to acquire the reporting unit.

Determining the fair value of a reporting unit
under the first step of the goodwill impairment test and
determining the fair value of individual assets and liabilities
of a reporting unit (including unrecognized intangible assets)
under the second step of the goodwill impairment test requires
our management to make significant judgments, estimates and
assumptions. These estimates and assumptions could have a
significant impact on whether or not an impairment charge is
recognized and also the magnitude of any such charge. To assist
in the process of determining goodwill impairment, the Company
obtains appraisals from independent valuation firms. In addition
to the use of independent valuation firms, the Company performs
internal valuation analyses and considers other market
information that is publicly available. Estimates of fair value
are primarily determined using discounted cash flows. This
approach requires the use of significant estimates and
assumptions including projected future cash flows (including
timing), discount rate reflecting the risk inherent in future
cash flows and perpetual growth rate, among others.

During the first quarter of fiscal 2003, we
completed our initial impairment review following the guidance
in SFAS No. 142 and recorded a $140.9 million non-cash
pretax charge for the impairment of goodwill, all of which was
generated in the acquisition of Cluster Telecom BV. The charge
reflected overall market declines since the acquisition was
completed in November 2000, was non-operational in nature and is
reflected as a cumulative effect of an accounting change in the
accompanying consolidated financial statements.

During the fourth quarter of fiscal 2003, we
performed the required annual impairment review for goodwill and
recorded an additional non-cash charge of $94.3 million,
which was recorded as a component of operating income (loss) in
the accompanying consolidated statement of operations. This
impairment charge was recognized to reduce the carrying value of
goodwill at our Europe and Latin America reporting unit
($84.3 million) and our North American reporting unit
($10.0 million). These charges reflect the units
lower than expected performance, including the continued decline
in the consulting market, and lower valuations in the consulting
industry primarily due to current market conditions and related
competitive pressures. The impairment charges are non-cash in
nature and do not affect the Companys liquidity. As a
result of the charges recognized during the year ended
March 31, 2003, the carrying value of our goodwill was
reduced to zero at March 31, 2003.

Valuation of
Deferred Tax Assets

In determining our current income tax provision
we assess temporary differences resulting from differing
treatments of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which
are recorded in our consolidated balance sheets. When we
maintain deferred tax assets we must assess the likelihood that
these assets will be recovered from future taxable income. To
the extent we believe recovery is not likely, we establish a
valuation allowance. We record an allowance to reduce the net
deferred tax asset to a value we believe will be recoverable by
future taxable income. We believe the accounting estimate
related to the valuation allowance is a critical accounting
estimate because it is highly susceptible to change from period
to period as it requires management to make assumptions about
the Companys future income over the life of the deferred
tax asset, and the impact of increasing or decreasing the

21



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##### 



valuation allowance is potentially material to
our results of operations. Managements assumptions about
future income require significant judgment because actual income
has fluctuated in the past and may continue to do so.


In estimating future income, we use our internal
operating budgets and long-range planning projections. We
develop our budgets and long-range projections based on recent
results, trends, economic and industry forecasts influencing our
performance, our project pipeline, and other appropriate factors.

As a result of net operating losses incurred in
fiscal years 2002 and 2003, anticipated additional net operating
losses for the first quarter of fiscal year 2004, and
uncertainty as to the extent and timing of taxable profits in
future periods, the Company recorded a charge of
$46.0 million to increase the valuation allowance against
the net federal, state and foreign deferred tax assets during
the fiscal year ended March 31, 2003. As of March 31,
2003, we had a full valuation allowance against our deferred tax
assets of $50.2 million. If the realization of deferred tax
assets in the future is considered more likely than not, an
adjustment to the deferred tax assets would increase net income
in the period such determination was made.

New Accounting Policies

On April 1, 2002, the Company adopted SFAS
No. 144, Accounting for the Impairment and Disposal
of Long-Lived Assets. This statement supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Assets to Be Disposed Of. This Statement
establishes a single accounting model, based on the framework
established in SFAS No. 121, for long-lived assets to be
disposed of by sale. The Statement retains most of the
requirements of SFAS No. 121 related to the recognition of
the impairment of long-lived assets to be held and used. There
was no impact on the financial condition or operating results of
the Company from adopting SFAS No. 144 in fiscal 2003.

In July 2002, the Financial Accounting Standards
Board (FASB) issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS
No. 146 requires that a liability for a cost that is
associated with an exit or disposal activity be recognized when
the liability is incurred. It supersedes the guidance in EITF
Issue No. 94-3. Under EITF 94-3, an entity recognized
a liability for an exit cost on the date that the entity
committed itself to an exit plan. In SFAS 146, an
entitys commitment to a plan does not, by itself, create a
present obligation to other parties that meets the definition of
a liability. SFAS 146 also establishes that fair value is
the objective for the initial measurement of the liability. SFAS
No. 146 is effective for exit or disposal activities that
are initiated after December 31, 2002, however, we will
continue to follow the guidance of EITF 94-3 for any
changes in our restructuring estimates for the initiatives
implemented prior to that date.

In November 2002, the FASBs Emerging Issues
Task Force finalized EITF Issue No. 00-21
(EITF 00-21), Revenue Arrangements with Multiple
Deliverables. EITF 00-21 addresses how to determine
whether an arrangement involving multiple deliverables contains
more than one unit of accounting. EITF 00-21 also addresses
how arrangement consideration should be measured and allocated
to the separate units of accounting in the arrangement. However,
it does not address when the criteria for revenue recognition
are met or provide guidance on the appropriate revenue
recognition convention for a given unit of accounting.
EITF 00-21 is effective for all revenue arrangements
entered into in fiscal periods beginning after June 15,
2003, and early application is permitted. Upon adoption,
entities may elect to either apply EITF 00-21 prospectively
or report the change in accounting as a cumulative-effect
adjustment. The adoption of EITF 00-21 is not expected to
have a significant impact on our results of operations or
financial position.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment
to FASB Statement No. 123, which amends SFAS
No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. The transition
and annual disclosure provisions of SFAS No. 148 are
effective for fiscal years ending after December 15, 2002.
In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee
compensation and the effect of the method used on reported
results. We have included the required

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disclosures in the consolidated financial
statements included in this annual report on Form 10-K. As
of April 1, 2003 we will begin to account for stock-based
compensation issued to employees under SFAS No. 123 and
related interpretations. We intend to apply the fair value based
method of accounting to awards granted, modified or settled
after April 1, 2003.


Results of Operations

The following table sets forth, for the periods
indicated, selected statements of operations data as a
percentage of net revenues:

|                                                                                       |                                                                                       |                                              |      |       |       |  |       |       |       |  |        |       |       | 
|-------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------- | ---- | ----- | ----- |  | ----- | ----- | ----- |  | ------ | ----- | ----- | 
|                                                                                       |                                                                                       |                                             
|                                                                                       |                                                                                       | Year Ended March 31,                         |     
|                                                                                       |                                                                                       |                                              |     
|                                                                                       |                                                                                       | 2001                                         |      |       | 2002  |  |       | 2003  |      
|                                                                                       |                                                                                       |                                              |      |       |       |  |       |       |      
|Revenue:                                                                               |                                                                                       |                                              |      |       |       |  |       |       |       |  |        |      
|                                                                                       | Revenue before out-of-pocket-expense
    reimbursements (net revenue)                 |                                              |      | 100.0 | %     |  |       | 100.0 | %     |  |        | 100.0 | %    
|                                                                                       | Out-of-pocket expense reimbursements                                                  |                                              |      | 15.3  |       |  |       | 12.0  |       |  |        | 14.5  |      
|                                                                                       |                                                                                       |                                              |      |       |       |  |       |       |      
|                                                                                       |                                                                                       | Total revenue                                |      |       | 115.3 |  |       |       | 112.0 |  |        |       | 114.5 | 
|Operating Expenses:                                                                    |                                                                                       |                                              |      |       |       |  |       |       |       |  |        |      
|                                                                                       | Project personnel and related expenses before
    out-of-pocket reimbursable expenses |                                              |      | 53.3  |       |  |       | 73.2  |       |  |        | 82.0  |      
|                                                                                       | Out-of-pocket reimbursable expenses                                                   |                                              |      | 15.3  |       |  |       | 12.0  |       |  |        | 14.5  |      
|                                                                                       |                                                                                       |                                              |      |       |       |  |       |       |      
|                                                                                       |                                                                                       | Total project personnel and related expenses |      |       | 68.6  |  |       |       | 85.2  |  |        |       | 96.5  | 
|                                                                                       | Professional development and recruiting                                               |                                              |      | 10.0  |       |  |       | 6.0   |       |  |        | 3.1   |      
|                                                                                       | Marketing and sales                                                                   |                                              |      | 5.0   |       |  |       | 3.9   |       |  |        | 2.9   |      
|                                                                                       | Management and administrative support                                                 |                                              |      | 15.8  |       |  |       | 25.8  |       |  |        | 28.1  |      
|                                                                                       | Goodwill amortization                                                                 |                                              |      | 8.2   |       |  |       | 34.1  |       |  |        |      |      
|                                                                                       | Non-cash compensation                                                                 |                                              |      | 6.8   |       |  |       | 28.9  |       |  |        | 39.9  |      
|                                                                                       | Restructuring charge                                                                  |                                              |      |      |       |  |       | 8.6   |       |  |        | 22.0  |      
|                                                                                       | Impairment charge on long lived assets                                                |                                              |      |      |       |  |       |      |       |  |        | 71.0  |      
|                                                                                       |                                                                                       |                                              |      |       |       |  |       |       |      
|                                                                                       |                                                                                       | Total operating expenses                     |      |       | 114.4 |  |       |       | 192.5 |  |        |       | 263.5 | 
|                                                                                       |                                                                                       |                                              |      |       |       |  |       |       |      
|Income (loss) from operations                                                          |                                                                                       |                                              | 0.9  |       |       |  | (80.5 | )     |       |  | (149.0 | )    
|Other income, net                                                                      |                                                                                       |                                              | 1.2  |       |       |  | 0.6   |       |       |  | 0.1    |      
|                                                                                       |                                                                                       |                                              |      |       |       |  |       |       |      
|Income (loss) before taxes and cumulative
    effect of change in accounting principle |                                                                                       |                                              | 2.1  |       |       |  | (79.9 | )     |       |  | (148.9 | )    
|Income tax expense (benefit)                                                           |                                                                                       |                                              | 6.9  |       |       |  | (6.1  | )     |       |  | 16.0   |      
|                                                                                       |                                                                                       |                                              |      |       |       |  |       |       |      
|Loss before cumulative effect of change in
    accounting principle                    |                                                                                       |                                              | (4.8 | )     |       |  | (73.8 | )     |       |  | (164.9 | )    
|Cumulative effect of change in accounting
    principle, net of income tax benefit     |                                                                                       |                                              |     |       |       |  |      |       |       |  | (105.9 | )    
|                                                                                       |                                                                                       |                                              |      |       |       |  |       |       |      
|Net loss                                                                               |                                                                                       |                                              | (4.8 | )%    |       |  | (73.8 | )%    |       |  | (270.8 | )%   
|                                                                                       |                                                                                       |                                              |      |       |       |  |       |       |      

Fiscal 2003 Compared to Fiscal 2002

Our net loss of $360.1 million during fiscal
2003 increased $226.4 million compared to our net loss of
$133.7 million during fiscal 2002, primarily due to the
non-cash loss related to the impairment in the value of
goodwill, the increase in the valuation allowance against the
deferred tax assets, and an increase in the operating loss
before the impairment or amortization of goodwill, partially
offset by decreased goodwill amortization resulting from the
adoption of SFAS No. 142 in fiscal 2003.

The Company applies Accounting Principles Board
(APB) Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for
stock issued to employees. Effective April 1, 2003,

23



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the Company adopted SFAS No. 123,
Accounting for Stock Based Compensation, in accounting
for stock issued to employees for grants awarded, modified or
settled subsequent to that date. Had compensation expense on
options issued to employees been determined based on the fair
value at the grant date consistent with the methodology
prescribed in SFAS No. 123, the Companys net loss and
diluted loss per share would have increased by $9.0 million
to a net loss of $369.1 million for the year ended
March 31, 2003, or $(11.70) per share.


Revenue before out-of-pocket expense
reimbursements (net revenue) for fiscal 2003 was
$133.0 million, down 26.6% compared with
$181.2 million reported for fiscal 2002. Total revenue
including out-of-pocket expense reimbursements was
$152.3 million for fiscal 2003, down 25.0% compared with
$203.0 million reported for fiscal 2002. The decline in
revenue in fiscal 2003 can be principally attributed to the
continued weakness in the global economy, resulting in a decline
in current demand for the Companys services. The unstable
economic conditions have also led to pricing pressures, a
lengthening of the Companys sales cycle and reductions
and/or deferrals of client expenditures for consulting services.
Clients served in fiscal 2003 declined to 142 as compared
to 156 clients served in fiscal 2002. Revenue from new
clients accounted for 21.6% of fiscal 2003 revenue as compared
to 16.9% in fiscal 2002. Revenue from existing clients accounted
for 78.4% of total revenue in fiscal 2003 as compared to 83.1%
in fiscal 2002.

Project personnel and related expenses before
out-of-pocket reimbursable expenses decreased
$23.5 million, or 17.7%, to $109.1 million during
fiscal 2003 as compared to $132.6 million reported for
fiscal 2002. Project personnel and related expenses including
out-of-pocket reimbursable expenses decreased
$26.0 million, or 16.8%, to $128.4 million during
fiscal 2003 as compared to fiscal 2002. The decrease in project
personnel and related expenses reflects savings resulting from
cost reduction programs implemented during the third quarter of
fiscal 2002 and throughout fiscal 2003. During the quarters
ended December 31, 2001, September 30, 2002 and
December 31, 2002, we further reduced personnel as part of
the Companys restructuring plans. Overall, we reduced our
client-serving professional staff 36.2% from 843 at
March 31, 2002 to 538 at March 31, 2003. As a
percentage of net revenue, project personnel and related
expenses before out-of-pocket reimbursable expenses increased
from 73.2% in fiscal 2002 to 82.0% during fiscal 2003, due
primarily to a decline in revenue and lower utilization of
personnel. Similarly, project personnel and related expenses
including out-of-pocket reimbursable expenses increased as a
percentage of net revenue from 85.2% in fiscal 2002 to 96.5%
during fiscal 2003.

Professional development and recruiting expenses
decreased $6.7 million to $4.1 million during fiscal
2003 as compared to fiscal 2002. This decrease primarily
reflects decreases in our level of recruiting personnel and
activities, and decreased training conduct expenditures. As a
percentage of net revenues, these expenses decreased to 3.1%
from 6.0% during the prior year.

Marketing and sales expenses decreased
$3.3 million to $3.9 million during fiscal 2003 as
compared to fiscal 2002 as a result of decreased marketing
activities including the discontinuance of the publication of
the Companys magazine Context. As a percentage of
net revenues, these expenses decreased to 2.9% as compared to
3.9% during the prior year.

Management and administrative support expenses
decreased from $46.8 million to $37.4 million, or
20.1%, during fiscal 2003 as compared to fiscal 2002 principally
as a result of our cost reduction programs, including the
closing of the New York office and the downsizing of other
offices globally. As a percentage of net revenues, these
expenses increased from 25.8% to 28.1% due to reduced revenues.

Goodwill amortization decreased
$61.9 million to zero during fiscal 2003 as compared to
fiscal 2002 as a result of the Companys adoption of SFAS
No. 142 on April 1, 2002. As a percentage of net
revenues, these expenses decreased from 34.1% to zero.

Non-cash compensation increased from $52.3 during
fiscal 2002 to $53.1 million during fiscal 2003. Non-cash
compensation expense is primarily the amortization of unearned
compensation resulting from the issuance of stock options at
prices below fair market value to Cluster employees in
connection with the Cluster acquisition. The unearned
compensation will be earned over time contingent on the
continued employment of these employees. The increase in
non-cash compensation expense is due to the recognition of
$8.6 million of

24



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additional expense related to the remaining
unamortized original intrinsic value of certain non-vested stock
options cancelled by the Company on May 14, 2002, pursuant
to an offer to employees (other than senior officers) to
surrender certain stock options previously granted to them in
exchange for a future grant of new options to purchase the same
class of shares. As a percentage of net revenues, non-cash
compensation expense increased to 39.9% as compared to 28.9%
during the prior year primarily due to reduced revenues.


Restructuring charge expense increased from
$15.5 million during fiscal year 2002 to $29.3 million
during fiscal year 2003. In September and December 2002, the
Company recorded restructuring charges of $20.9 million and
$8.4 million, respectively, as a result of
managements plan to better align the Companys
operating infrastructure with anticipated levels of business in
fiscal 2003 and beyond. Combined, the two charges included
$13.5 million for severance and related expenses. A total
of 205 employees were terminated as part of the workforce
reductions included in these charges, 71% of whom were project
personnel and 29% of whom were operational personnel. Also
included in the restructuring charges was $12.5 million for
estimated contractual commitments related to office space
reductions. The office space reductions included the further
consolidation of office space in Barcelona, Boston, Chicago,
Madrid, Munich, New York and Sao Paulo. Estimated costs for the
reduction in physical office space are comprised of contractual
rental commitments for office space vacated, attorney fees and
related costs to sublet the office space, offset by estimated
sub-lease rental income. The charges also included
$2.9 million for the write-off of various depreciable
assets and the termination of certain equipment leases and
$0.4 million of additional expense recorded in connection
with the restructuring plan implemented in December 2001, due
primarily to a change in estimate related to the cost of
terminating an equipment lease. The Company expects the combined
savings from the September 2002 and December 2002 restructuring
plans to be in the range of $30  $33 million on
an annualized basis. As a percentage of net revenues,
restructuring charge expense increased from 8.6% to 22.0%.

During the fourth quarter of fiscal 2003, the
Company conducted its annual assessment of the carrying value of
goodwill. As a result, the Company recorded an impairment charge
of $94.3 million to write-down the carrying value of
goodwill to zero. This impairment charge was recognized to
reduce the carrying value of goodwill at our Europe and Latin
America reporting unit ($84.3 million) and our North
American reporting unit ($10.0 million). These charges
reflect the units lower than expected performance,
including the continued decline in the consulting market, and
lower valuations in the consulting industry primarily due to
current market conditions and related competitive pressures. The
impairment charges are non-cash in nature and do not affect the
Companys liquidity. As a percentage of net revenues, the
impairment charge was 71.0%. As of March 31, 2003, the
carrying amount of goodwill was zero.

Loss from operations increased from a loss of
$145.9 million in fiscal 2002 to a loss of
$198.1 million during fiscal 2003 due primarily to the
reduced revenues and the goodwill impairment charge, partially
offset by decreases in operating expenses as a result of the
discontinuation of goodwill amortization effective April 1,
2002 and the cost reduction programs implemented throughout
fiscal years 2002 and 2003.

Other income decreased $1.0 million from
$1.2 million in fiscal 2002 to $0.2 million during
fiscal 2003, primarily due to a decrease in interest yields and
cash balances throughout fiscal year 2003 resulting in a
decrease in interest income of $1.5 million, which was
partially offset by foreign exchange gains. As a percentage of
net revenues, other income decreased from 0.6% to 0.1%.

The Company has deferred tax assets which have
arisen primarily as a result of operating losses incurred in
fiscal year 2002 and fiscal year 2003, as well as other
temporary differences between book and tax accounting. Statement
of Financial Accounting Standards No. 109, Accounting
for Income Taxes, requires the establishment of a valuation
allowance to reflect the likelihood of realization of deferred
tax assets. Management judgment is required in determining the
Companys provision for income taxes, its deferred tax
assets and liabilities and any valuation allowance recorded
against the gross deferred tax assets. Income tax expense
increased from an income tax benefit of $11.0 million
during fiscal year 2002 to an income tax expense of
$21.2 million during fiscal year 2003 due principally to a
non-cash charge of $46.0 million to increase the valuation
allowance against the net federal, state and foreign deferred
tax assets. As of March 31, 2003, the valuation allowance
against deferred tax assets was $50.2 million, and covered
the full amount of the Companys net federal, state and
international deferred tax assets.

25



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During the first quarter of fiscal 2003, the
Company completed its initial impairment review following the
guidance in SFAS No. 142 and recorded a $140.9 million
non-cash pretax charge for the impairment of goodwill, all of
which was generated in the acquisition of Cluster Telecom BV.
The charge reflects overall market declines since the
acquisition was completed in November 2000, and is reflected as
a cumulative effect of an accounting change in the consolidated
financial statements for 2003.

Fiscal 2002 Compared to Fiscal 2001

Our net loss of $12.9 million during fiscal
2001 increased by $120.8 million resulting in a net loss of
$133.7 million during fiscal 2002, primarily due to
increased amortization of goodwill and non-cash compensation
costs recorded in connection with the Cluster transaction that
closed on November 28, 2000, a decrease in operating income
before amortization of goodwill and non-cash compensation, and
costs associated with the restructuring plan implemented in the
quarter ended December 31, 2001.

Revenue before out-of-pocket expense
reimbursements (net revenue) for fiscal 2002 was
$181.2 million, down 32.0% compared with
$266.5 million reported for fiscal 2001. Total revenue
including out-of-pocket expense reimbursements was
$203.0 million for fiscal 2002, down 34.0% compared with
$307.4 million reported for fiscal 2001. The decline in
revenue in fiscal 2002 can be principally attributed to the
weakness in the global economy, resulting in a decline in
current demand for the Companys services. The unstable
economic conditions have also led to pricing pressures, a
lengthening of the Companys sales cycle and reductions and
deferrals of client expenditures for consulting services.
Clients served in fiscal 2002 declined to 156 as compared to 169
clients served in fiscal 2001. Revenue from new clients
accounted for 17% of fiscal 2002 revenue as compared to 55% in
fiscal 2001. Revenue from existing clients accounted for 83% of
total revenue in fiscal 2002 as compared to 45% in fiscal 2001.

Project personnel and related expenses before
out-of-pocket reimbursable expenses decreased $9.4 million,
or 6.6%, to $132.6 million during fiscal 2002 as compared
to $142.0 million reported for fiscal 2001. Project
personnel and related expenses including out-of-pocket
reimbursable expenses decreased $28.5 million, or 15.6%, to
$154.4 million during fiscal 2002 as compared to fiscal
2001. The decrease in project personnel and related expenses
reflects savings resulting from cost reduction programs
implemented throughout fiscal 2002. Beginning June 2001, we
reduced salaries between 10% and 15% for most employees, and in
August 2001, we reduced salaries 65% for approximately 200
furloughed employees. During the quarters ended
December 31, 2001 and March 31, 2002, we further
reduced personnel as part of the Companys restructuring
plan. Overall, we reduced our client-serving professional staff
from 1,141 at March 31, 2001 to 843 at March 31, 2002.
As a percentage of net revenue, project personnel and related
expenses before out-of-pocket reimbursable expenses increased
from 53.3% to 73.2% during fiscal 2002 as compared to fiscal
2001, due primarily to decreases in utilization of our client
serving professionals. Similarly, project personnel and related
expenses including out-of-pocket reimbursable expenses increased
as a percentage of net revenue from 68.6% to 85.2% during fiscal
2002 as compared to fiscal 2001.

Professional development and recruiting expenses
decreased $15.8 million to $10.8 million during fiscal
2002 as compared to fiscal 2001. This decrease primarily
reflects decreases in our level of recruiting and recruiting
staff and the cancellation of several firm wide meetings. As a
percentage of net revenues, these expenses decreased to 6.0%
from 10.0% during the prior year.

Marketing and sales expenses decreased
$6.3 million to $7.1 million during fiscal 2002 as
compared to fiscal 2001 as a result of decreased marketing
activities. As a percentage of net revenues, these expenses
decreased to 3.9% as compared to 5.0% during the prior year.

Management and administrative support expenses
increased from $42.0 million to $46.8 million, or
11.4%, during fiscal 2002 as compared to fiscal 2001 as a result
of the full year cost of the additional offices located in
Barcelona, Boston, Düsseldorf, Lisbon, London, Madrid,
Münich, Paris, and São Paolo resulting from the
Cluster transaction, and additional equipment and personnel
necessary to support our increased consulting capacity. As a
percentage of net revenues, these expenses increased from 15.8%
to 25.8% due mainly to increased costs associated with the new
offices, coupled with reduced revenues.

26



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Goodwill amortization increased
$40.0 million from $21.9 million to $61.9 million
during fiscal 2002 as compared to fiscal 2001 due primarily to
the full year effect of goodwill amortization resulting from
acquisitions of Momentus Group Limited and Cluster which were
completed in May and November 2000, respectively. As a
percentage of net revenues, these expenses increased from 8.2%
to 34.1%.

Non-cash compensation increased from
$18.2 million during fiscal 2001 to $52.3 million
during fiscal 2002. This is primarily the amortization of
unearned compensation resulting from the issuance of stock
options at prices below fair market value to Cluster employees
as a result of the Cluster acquisition. This unearned
compensation will be earned over time contingent on the
continued employment of these employees. As a percentage of net
revenues, non-cash compensation was 28.9%.

In the third quarter of fiscal 2002, the Company
recorded a restructuring charge of $15.5 million based on
an evaluation of competitive conditions in our global markets.
The Company completed an assessment of the infrastructure needed
to support anticipated levels of business in fiscal 2003, and
developed and implemented a restructuring plan designed to
better align its cost structure and areas of operation with
current business requirements. The restructuring charge
consisted of $10.8 million for workforce reductions,
$3.1 million for the reduction of office space, and
$1.6 million for the write-down of other depreciable assets
and equipment leases. The Company expects the restructuring will
produce cost savings of $22 million on an annualized basis,
of which approximately 68% relates to project personnel and
related costs, and approximately 32% relates to other operating
expenses.

Income from operations decreased from
$2.3 million to a loss of $145.9 million during fiscal
2002 as compared to fiscal 2001 due primarily to the increased
amortization of goodwill and non-cash compensation, reduced
revenue and the restructuring charge.

Other income decreased $2.1 million from
$3.3 million to $1.2 million during fiscal 2002 as
compared to fiscal 2001, primarily due to a decrease in cash
balances throughout fiscal year 2002 resulting in a decrease in
interest income of $7.9 million, which was partially offset
by foreign exchange gains and a decrease in realized losses on
equity investments. Realized losses on equity investments
decreased by $4.0 million from $8.6 million in fiscal
2001 to $4.6 million in fiscal 2002. As a percentage of net
revenues, other income decreased from 1.2% to 0.6%.

Income taxes decreased from an expense of
$18.5 million to a benefit of $11.0 million due
principally to the loss incurred in the current year. The
realization of this benefit is dependent upon the Companys
ability to generate taxable income in the future.

Liquidity and Capital Resources

We maintain a revolving line of credit pursuant
to the terms of a secured credit agreement with a commercial
bank under which we may borrow up to $10.0 million at an
annual interest rate based on the prime rate or based on the
LIBOR plus 1.50%, at our discretion. The line of credit is
secured by cash and certain accounts receivable of the
Companys wholly-owned subsidiary DiamondCluster
International North America, Inc. This line of credit is
reduced, as necessary, to account for letters of credit
outstanding. As of March 31, 2003, we had approximately
$9.1 million available under this line of credit. The line
of credit expires July 31, 2003, at which time we expect to
renew it under similar terms.

Net cash used in operating activities was
$22.1 million, which primarily included a net loss of
$12.2 million after non-cash items (measured by adding back
$207.0 million of the following non-cash items to the
consolidated net loss before cumulative effect of change in
accounting principle of $219.2 million: depreciation and
amortization, restructuring charges, write-down of net book
value of fixed assets, impairment charge on long lived assets,
non-cash compensation and deferred income taxes), and
$9.9 million used for working capital and other activities.
Net cash used for working capital and other activities consisted
mainly of fiscal 2002 and 2003 restructuring costs (e.g.,
severance and benefits) that were paid out during fiscal 2003
and a decrease in accounts payable, offset by decreases in
accounts receivable and prepaid expenses. Our billings for the
quarter ended March 31, 2003 totaled $32.7 million.
These amounts include VAT (which are not included in recognized
revenue) and billings to clients for reimbursable expenses. Cash
used in investing

27



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activities was $0.7 million for fiscal 2003.
Cash used in investing activities resulted primarily from
purchases of property and equipment of $1.5 million,
partially offset by cash provided by other assets of
$0.8 million.


Cash used in financing activities was
$0.2 million for fiscal 2003. Cash used by financing
activities resulted primarily from the proceeds from
DiamondClusters common stock issued during fiscal 2003
totaling $5.1 million, net of the repurchase of
DiamondClusters common stock totaling approximately
$5.3 million in fiscal 2003. The Companys Board of
Directors has authorized the repurchase of the Companys
common stock through open market transactions. As of
March 31, 2003 the number of shares available for
repurchase was 2.6 million. At March 31, 2003, the
number of shares purchased under this authorization was
3.4 million shares at an aggregate cost of
$51.9 million.

On May 2, 2002, the Company offered
employees (other than senior officers) a plan, approved by the
Board of Directors, which gave employees a choice to surrender
certain stock options previously granted to them in exchange for
a future grant of a smaller number of new options to purchase
the same class of shares, a majority of which would vest over a
three-year period. The original options were granted under
DiamondClusters 2000 Plan and under DiamondClusters
1998 Equity Incentive Plan. Employees who accepted this offer
were required to make an election with respect to all covered
options by May 14, 2002. In order to receive the new options,
the employees were required to remain employed by DiamondCluster
until November 15, 2002. The exchange offer was not
available to the members of the Board of Directors or senior
officers of DiamondCluster. A total of 4.3 million stock
options were surrendered as a part of this plan. Certain of
these options had intrinsic value at the original grant date,
the unvested portion of which had not been amortized to non-cash
compensation expense at the date surrendered. The voluntary
surrender of these options resulted in a non-cash charge to
compensation expense of $8.6 million during the quarter
ended June 30, 2002 relating to the remaining unamortized
compensation expense related to these surrendered options. On
November 15, 2002, approximately 1.0 million new
options were granted to employees who remained employed by
DiamondCluster. The exercise price for a majority of the options
granted on November 15, 2002 was $0.76, or 25% of the fair
market value of the Companys common stock on that date.

On January 30, 2001, we offered our
employees (other than senior officers) a plan, approved by the
Board of Directors, which gave employees a choice to cancel
certain stock options granted to them in exchange for a future
grant of a lesser number of new options to purchase the same
class of shares, a majority of which would vest proportionately
over a four year period. The original options were granted under
DiamondClusters 2000 Stock Option Plan and under
DiamondClusters 1998 Equity Incentive Plan. Employees who
accepted the offer were required to make an election with
respect to all covered options by February 8, 2001. In
order to receive the new options, the employees were required to
remain employed by DiamondCluster until August 9, 2001. The
exchange offer was not available to the members of the Board of
Directors or senior officers of DiamondCluster. A total of
2.3 million stock options were cancelled as part of this
plan. On August 9, 2001, a total of 1.5 million of new
options were granted as part of this plan, which represented
between 75% and 100% of the original grant and had an exercise
price that was set on the grant date. The exercise price for a
majority of the options granted on August 9, 2001 was set
at fair market value.

In fiscal year 2003, the Company recorded
restructuring charges totaling $29.3 million as a result of
managements plan to better align the Companys
operating infrastructure with anticipated levels of business in
fiscal 2003 and beyond. The total cash outlay for these
restructuring charges is expected to approximate
$25.5 million. The remaining $3.8 million of
restructuring costs consisted of non-cash charges primarily
related to non-cash severance items, the write-down of certain
assets to their estimated net realizable value, the write-off of
sign-on bonuses previously paid to terminated employees, and a
$0.4 million adjustment to the restructuring charge
recorded in fiscal year 2002 due primarily to a change in
estimate related to the cost of terminating an equipment lease.
As of March 31, 2003, $12.8 million of cash had been
expended for these initiatives. The Company expects the combined
savings from the fiscal year 2003 restructuring plans to be in
the range of $30  $33 million on an annualized
basis.

In the quarter ended December 31, 2001, the
Company incurred a restructuring charge of $15.5 million to
adjust its operations to levels more appropriate for current
business requirements. The total cash outlay for the
restructuring is expected to approximate $13.2 million. The
remaining $2.3 million of restructuring costs

28



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##### 



consisted of non-cash charges primarily for
write-offs of leasehold improvements for the facilities being
downsized, as well as the write-off of sign-on bonuses
previously paid to terminated employees. As of March 31,
2003, $12.3 million of cash had been expended for this
initiative, primarily related to severance and related costs.
The Company expects the restructuring will produce cost savings
of $22 million on an annualized basis.


The minimum future lease payments under operating
leases with non-cancelable terms in excess of one year are
disclosed in Note 8 of the Notes to Consolidated
Financial Statements.

We believe that our current cash balances,
amounts available under our existing line of credit and cash
flow from existing and future operations will be sufficient to
fund our operating requirements at least through fiscal 2005. If
necessary, we believe that additional bank credit would be
available to fund any additional operating and capital
requirements. In addition, we could consider seeking additional
public or private debt or equity financing to fund future growth
opportunities, although there is no assurance that such
financing would be available to us on acceptable terms.



Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk Sensitive
Instruments


Foreign Currency Risk

International revenues are generated primarily
from our services in the respective countries by our foreign
subsidiaries and are typically denominated in the local currency
of each country, most of which are the euro. These subsidiaries
also incur most of their expenses in the local currency, most of
which are the euro. Accordingly, all foreign subsidiaries use
the local currency as their functional currency. Our
international business is subject to risks typical of an
international business, including, but not limited to, differing
economic conditions, changes in political climate, differing tax
structures, other regulations and restrictions and foreign
exchange rate volatility. Our future results could be materially
adversely impacted by changes in these or other factors.

The financial statements of our non-U.S.
businesses are typically denominated in the local currency of
the foreign subsidiary in order to centralize foreign exchange
risk with the parent company in the United States. As a result,
we are also exposed to foreign exchange rate fluctuations as the
financial results of foreign subsidiaries are translated into
U.S. dollars in consolidation. As exchange rates fluctuate,
these results, when translated, may vary from expectations and
adversely impact overall expected results and profitability.

In the past, the Company has entered into
transactions to reduce the effect of foreign exchange
transaction gains and losses on recorded foreign currency
denominated assets and liabilities, and to reduce the effect of
foreign exchange translation gains and losses on the parent
companys net investment in its foreign subsidiaries. These
transactions involve the use of forward foreign exchange
contracts in certain European currencies. As of March 31,
2003, there were no open forward foreign exchange contracts
outstanding. A forward foreign exchange contract obligates the
Company to exchange predetermined amounts of specified foreign
currencies at specified exchange rates on specified dates or to
make an equivalent U.S. dollar payment equal to the value of
such exchange. As a result, increases or decreases in the U.S.
dollar value of the Companys foreign currency transactions
and investments in foreign subsidiaries are partially offset by
gains and losses on the forward contracts, so as to mitigate the
possibility of significant foreign currency transaction and
translation gains and losses. The Company does not use foreign
currency contracts for trading purposes. The Company does not
currently hedge anticipated foreign currency-denominated
revenues and expenses. All foreign currency transactions and
outstanding forward contracts are marked-to-market on a monthly
basis.

DiamondCluster has net investments in foreign
operations located throughout Europe and Latin America. In order
to mitigate the impact of foreign currency movements on the
Companys financial position, in some cases the Company
hedges its euro exposures through the use of euro/ U.S. dollar
forward contracts. These contracts have been designated and have
qualified as hedging instruments of the foreign currency
exposure related to the Companys net investment in its
foreign operations. Accordingly, the net amount of gains or
losses on these forward foreign exchange contracts offset losses
and gains on the Companys exposure to foreign currency
movements related to its net investments in its foreign
operations and are reflected in the

29



---



##### 



cumulative translation adjustment account and
included as a component of other comprehensive income. At
March 31, 2002, the Company had one euro/ U.S. dollar
forward contract outstanding in the notional principal amount of
EUR 62.8 million. On June 28, 2002, the Company
settled its euro/ U.S. dollar forward contract for EUR
62.8 million. As noted above, the Company entered into this
contract to mitigate the effect of an adverse movement of
foreign exchange rates. As a result of the weakening of the U.S.
dollar against the euro in the first quarter of fiscal 2003, the
Company recorded a net loss on the forward exchange contract of
$7.4 million in the cumulative translation adjustments
account which was offset by the related gain on the net
investment in the foreign operations during the period. As of
March 31, 2003, there were no open euro/ U.S. dollar or
other forward contracts outstanding.


Interest Rate Risk

The Company invests its cash in highly liquid
investments with original maturities of three months or less.
The interest rate risk associated with our investing activities
at March 31, 2003 is not material in relation to our
consolidated financial position, results of operations or cash
flows. We have not used derivative financial instruments to
alter the interest rate characteristics of our investment
holdings.



Item 8.     Consolidated
Financial Statements and Supplementary Data


The information required by this item is
contained in the consolidated financial statements and schedules
set forth in Item 14(a) under the captions
Consolidated Financial Statements and Schedules as a
part of this report.



Item 9.     Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure


None.



PART III


Part III of this Annual Report on
Form 10-K incorporates by reference portions of the
Registrants definitive proxy statement, to be filed with
the Securities and Exchange Commission no later than
120 days after the close of its fiscal year; provided that
if such proxy statement is not filed with the Commission in such
120-day period, an amendment to this Form 10-K shall be
filed no later than the end of the 120-day period.



Item 10.     Directors
and Executive Officers of the Registrant


Information with respect to Directors of the
Company will be set forth in the Proxy Statement under the
heading Election of Directors, which information is
incorporated herein by reference, or in an amendment to this
Form 10-K. Information regarding the executive officers of
the Company is included in Part I of this Form 10-K as
permitted by Instruction 3 to Item 401(b) of
Regulation S-K. Information required by Item 405 of
Regulation S-K will be set forth in the Proxy Statement
under the heading Compliance with Section 16(a) of
the Securities Exchange Act of 1934, which information is
incorporated herein by reference, or in an amendment to this
Form 10-K.



Item 11.     Executive
Compensation


Information with respect to executive
compensation will be set forth in the Proxy Statement under the
heading Compensation of Executive Officers, which
information is incorporated herein by reference (except for the
Compensation Committee Report on Executive Compensation and the
Performance Graph), or in an amendment to this Form 10-K.

30



---



##### 





Item 12.     Security
Ownership of Certain Beneficial Owners and
Management


The following table summarizes information about
the Companys equity incentive plans as of March 31,
2003 (share amounts in thousands):

|                                                                  |       |                   |        |        |                   |   |                      |                           |  |  |        |        | 
|----------------------------------------------------------------- | ----- | ----------------- | ------ | ------ | ----------------- | - | -------------------- | ------------------------- |  |  | ------ | ------ | 
|                                                                  |       | Number of         |        |        |                   |   | Number of securities |                          
|                                                                  |       | securities to be  |        |        |                   |   | remaining available  |                          
|                                                                  |       | issued upon       |        |        | Weighted-average  |   |                      | for 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        |       |                   | 16,962 |        |                   | $ | 11.34                |                           |  |  | 19,409 | (1)   
|Equity compensation plans not approved by
    security holders(2) |       |                   | 199    |        |                   | $ | 13.40                |                           |  |  | 84     |       
|                                                                  |       |                   |        |        |                   |   |                      |                           | 
|                                                                  | Total |                   |        | 17,161 |                   |   |                      |                           |  |  |        | 19,493 | 
|                                                                  |       |                   |        |        |                   |   |                      |                           | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 996,658 shares available for future
    issuance under the Companys Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(2) | The Advisors Stock Option Plan (the
    Advisors Plan) relates to a maximum of 525,000
    shares of Class A 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 Class A 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.

Information with respect to security ownership of
certain beneficial owners and management will be set forth in
the Proxy Statement under the heading Beneficial Ownership
of Common Stock, which information is incorporated herein
by reference, or in an amendment to this Form 10-K.



Item 13.     Certain
Relationships and Related Transactions


Information with respect to certain relationships
and related transactions will be set forth in the footnotes to
the consolidated financial statements included herein, and in
the Proxy Statement, which information is incorporated herein by
reference, or in an amendment to this Form 10-K.



Item 14.     Controls
and Procedures


Evaluation of Controls and
Procedures

We maintain disclosure controls and procedures,
which we have designed to ensure that material information
related to the Company, including our consolidated subsidiaries,
is properly identified and evaluated on a regular basis and
disclosed in accordance with all applicable laws and
regulations. In response to recent legislation and proposed
regulations, we reviewed our disclosure controls and procedures.
We also established a disclosure committee which consists of
certain members of our senior management. The Chairman and Chief
Executive Officer, the Senior Vice President of Finance and
Administration and the Chief Financial Officer of DiamondCluster
International, Inc. (its principal executive officer and
principal financial officers, respectively) have concluded,
based on their evaluations as of a date within 90 days
prior to the date of the filing of this Report, that the
Companys disclosure controls and procedures are effective
to

31



---



##### 



ensure that information required to be disclosed
by the Company in the reports filed or submitted by it under the
Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and
forms, and include controls and procedures designed to ensure
that information required to be disclosed by the Company in such
reports is accumulated and communicated to the Companys
management as appropriate to allow timely decisions regarding
required disclosure.


Changes in Controls and Procedures

There were no significant changes in the
Companys internal controls, or in other factors that could
significantly affect these internal controls, subsequent to the
date of our most recent evaluation.



Item 15.     Principal
Accountant Fees and Services


Information with respect to principal accountant
fees and services will be set forth in the Proxy Statement under
the heading Principal Accountant Fees and Services,
which information is incorporated herein by reference, or in an
amendment to this Form 10-K.

32



---



##### 





PART IV




Item 16.     Exhibits,
Consolidated Financial Statement Schedules and Reports on
Form 8-K


(a) Consolidated 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.

All information for which provision is made in
the applicable accounting regulations of the Securities and
Exchange Commission is either included in the consolidated
financial statements or is not required under the related
instructions or are inapplicable, and therefore have been
omitted.



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

(b) Reports on Form 8-K



| |      
| | -----
| | None.

(c) Exhibits

The following is a list of exhibits required by
Item 601 of Regulation S-K filed as part of this
Form 10-K. Where so indicated by footnote, exhibits which
were previously filed are incorporated by reference. For
exhibits incorporated by reference, the location of the exhibit
in the previous filing is indicated in parentheses.

|        |        |  |             |                                                                                                                                                                                                                                                                                              
|------- | ------ |  | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 10-Q for the Quarter ended September 30, 2002 and
    incorporated herein by reference).                                                                                 
|        | 3.2**  |  |             | Amended and Restated By-laws of the Company.                                                                                                                                                                                                                                                 
|        | 10.1** |  |             | Amended and Restated DiamondCluster
    International, Inc. 1998 Equity Incentive Plan (filed as Annex B
    to the Companys Definitive Proxy Statement on
    Schedule 14A dated July 11, 2001 (File
    No. 000-22125) and incorporated herein by reference).                             
|        | 10.2** |  |             | Form of Employment Agreement between each of the
    Named Officers and the Company.                                                                                                                                                                                                         
|        | 10.7** |  |             | Amended and Restated Voting and Stock Restriction
    Agreement dated as of April 1, 1996 among the Company,
    Technology Leaders L.P., Technology Leaders Offshore C. V., CIP
    Capital L.P., Safeguard Scientifics (Delaware), Inc. and certain
    of the shareholders of the Company.
|        | 10.8   |  |             | Amended and Restated Partners Operating Agreement
    dated as of November 16, 2001 among the Company and the
    partners of the Company (filed as Exhibit 10.8 to the
    Companys Form 10-K for the Fiscal Year ended
    March 31, 2002 and incorporated herein by reference).          
|        | 21     |  |             | Subsidiaries of the Registrant (filed as
    Exhibit 21 to the Companys Form 10-K for the
    Fiscal Year ended March 31, 2002 and incorporated herein by
    reference).                                                                                                                   
|        | 23*    |  |             | Consent of Independent Public Accountants.                                                                                                                                                                                                                                                   
|        | 24.1*  |  |             | Power of Attorney (included on signature page).                                                                                                                                                                                                                                              
|        | 99.1*  |  |             | Risk Factors.                                                                                                                                                                                                                                                                                
|        | 99.2*  |  |             | CEO Certifications Pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to sections 302
    and 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                
|        | 99.3*  |  |             | CFO Certifications Pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to sections 302
    and 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                
|        | 99.4*  |  |             | Senior Vice President, Finance and Administration
    Certifications Pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to sections 302 and 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                              



---



|   |                                                                                                                                            
|-- | -------------------------------------------------------------------------------------------------------------------------------------------
|*  | Filed herewith                                                                                                                             
|  
|** | Incorporated by reference to the corresponding
    exhibits filed with the Companys Registration Statement on
    Form S-1 (No. 333-17785)

33



---



##### 





SIGNATURES


Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                                   
| | ----------------------------------
| | DIAMONDCLUSTER INTERNATIONAL, INC.



| |     |                        
| | --- | -----------------------
| | By: | /s/ MELVYN E. BERGSTEIN

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

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Melvyn E. Bergstein and William R. McClayton, and each of them,
his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact
and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all
that each said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the
following persons in the capacities and on the dates indicated.

|                                           |  |                                                                                        |  |      |               | 
|------------------------------------------ |  | -------------------------------------------------------------------------------------- |  | ---- | ------------- | 
|Signature                                  |  | Title                                                                                  |  | Date |              
|                                           |  |                                                                                        |  |      |              
|                                          
|/s/ MELVYN E. BERGSTEINMelvyn E. Bergstein |  | Chairman and Chief Executive Officer (Principal
    Executive Officer)                 |  |      | June 23, 2003 | 
|                                          
|/s/ KARL E. BUPPKarl E. Bupp               |  | Chief Financial Officer and Treasurer (Principal
    Financial and Accounting Officer) |  |      | June 23, 2003 | 
|                                          
|/s/ ADAM J. GUTSTEINAdam J. Gutstein       |  | President, North America and Director                                                  |  |      | June 23, 2003 | 
|                                          
|/s/ JAVIER RUBIOJavier Rubio               |  | President, Europe and Latin America and Director                                       |  |      | June 23, 2003 | 
|                                          
|/s/ JOHN J. SVIOKLAJohn J. Sviokla         |  | Vice Chairman and Director                                                             |  |      | June 23, 2003 | 
|                                          
|/s/ EDWARD R. ANDERSONEdward R. Anderson   |  | Director                                                                               |  |      | June 23, 2003 | 
|                                          
|/s/ DONALD R. CALDWELLDonald R. Caldwell   |  | Director                                                                               |  |      | June 23, 2003 | 

34



---



##### 



|                                                 |  |          |  |      |               | 
|------------------------------------------------ |  | -------- |  | ---- | ------------- | 
|Signature                                        |  | Title    |  | Date |              
|                                                 |  |          |  |      |              
|                                                
|/s/ MARK L. GORDONMark L. Gordon                 |  | Director |  |      | June 23, 2003 | 
|                                                
|/s/ ALAN C. KAYAlan C. Kay                       |  | Director |  |      | June 23, 2003 | 
|                                                
|/s/ MICHAEL E. MIKOLAJCZYKMichael E. Mikolajczyk |  | Director |  |      | June 23, 2003 | 
|                                                
|/s/ ARNOLD R. WEBERArnold R. Weber               |  | Director |  |      | June 23, 2003 | 

35



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                   |                                                                                                                         |      |  |     | 
|---------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ---- |  | --- | 
|                                   |                                                                                                                         | Page | 
|                                   |                                                                                                                         |      | 
|Consolidated Financial Statements: |                                                                                                                         |      |  |    
|                                   | Independent Auditors Report                                                                                            |      |  | F-2 | 
|                                   | Consolidated Balance Sheets as of March 31,
    2002 and 2003.                                                          |      |  | F-3 | 
|                                   | Consolidated Statements of Operations and
    Comprehensive Loss for the Years Ended March 31, 2001, 2002
    and 2003. |      |  | F-4 | 
|                                   | Consolidated Statements of Stockholders
    Equity for the Years Ended March 31, 2001, 2002 and 2003                   |      |  | F-5 | 
|                                   | Consolidated Statements of Cash Flows for the
    Years Ended March 31, 2001, 2002 and 2003.                            |      |  | F-6 | 
|                                   | Notes to Consolidated Financial Statements                                                                              |      |  | F-7 | 
|Supplemental Financial Schedules:  |                                                                                                                         |      |  |    
|                                   | Independent Auditors Report                                                                                            |      |  | S-1 | 
|                                   | Schedule II  Valuation and
    Qualifying Accounts                                                                     |      |  | S-2 | 

F-1



---



##### 





INDEPENDENT AUDITORS REPORT


The Stockholders and Board of Directors

DiamondCluster International, Inc.:


We have audited the accompanying consolidated
balance sheets of DiamondCluster International, Inc. and
subsidiaries (the Company) as of March 31, 2002 and 2003,
and the related consolidated statements of operations and
comprehensive loss, stockholders equity and cash flows for
each of the years in the three-year period ended March 31,
2003. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of DiamondCluster
International, Inc. and subsidiaries as of March 31, 2002
and 2003, and the results of their operations and their cash
flows for each of the years in the three-year period ended
March 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.

As described in Note 2 to the consolidated
financial statements, the Company adopted Statement of Financial
Standards No. 142, Goodwill and Other Intangible
Assets, as of April 1, 2002.



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

Chicago, Illinois

April 25, 2003


F-2



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.



CONSOLIDATED BALANCE SHEETS


March 31, 2002 and 2003


|                                                                                                                             |                                                                                                                                                       |                                            |         |          |         |  |         |          |         | 
|---------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | -------- | ------- |  | ------- | -------- | ------- | 
|                                                                                                                             |                                                                                                                                                       | 2002                                       |         |          | 2003    | 
|                                                                                                                             |                                                                                                                                                       |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                       |                                           
|                                                                                                                             |                                                                                                                                                       | (In thousands, except                      |        
|                                                                                                                             |                                                                                                                                                       | per share data)                            |        
|ASSETS                                                                                                                      
|Current assets:                                                                                                              |                                                                                                                                                       |                                            |         |          |         |  |         |         
|                                                                                                                             | Cash and cash equivalents                                                                                                                             |                                            | $       | 96,773   |         |  |         | 75,328   |        
|                                                                                                                             | Accounts receivable, net of allowance of $1,089
    and $1,597 as of March 31, 2002 and 2003, respectively                                            |                                            |         | 22,131   |         |  |         | 16,314   |        
|                                                                                                                             | Income taxes receivable                                                                                                                               |                                            |         | 1,321    |         |  |         |         |        
|                                                                                                                             | Prepaid expenses and short-term deferred taxes                                                                                                        |                                            |         | 9,417    |         |  |         | 5,598    |        
|                                                                                                                             |                                                                                                                                                       |                                            |         |          |         | 
|Total current assets                                                                                                         |                                                                                                                                                       |                                            | 129,642 |          |         |  | 97,240  |         
|Computers, equipment, leasehold improvements and
    software, net                                                           |                                                                                                                                                       |                                            | 15,789  |          |         |  | 10,349  |         
|Other assets and long-term deferred taxes                                                                                    |                                                                                                                                                       |                                            | 20,566  |          |         |  | 1,902   |         
|Goodwill, net                                                                                                                |                                                                                                                                                       |                                            | 235,179 |          |         |  |        |         
|                                                                                                                             |                                                                                                                                                       |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                       | Total assets                               |         | $        | 401,176 |  |         | $        | 109,491 | 
|                                                                                                                             |                                                                                                                                                       |                                            |         |          |         | 
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                    
|Current liabilities:                                                                                                         |                                                                                                                                                       |                                            |         |          |         |  |         |         
|                                                                                                                             | Accounts payable                                                                                                                                      |                                            | $       | 6,277    |         |  | $       | 4,193    |        
|                                                                                                                             | Deferred revenue                                                                                                                                      |                                            |         | 893      |         |  |         | 760      |        
|                                                                                                                             | Income taxes payable                                                                                                                                  |                                            |         |         |         |  |         | 730      |        
|                                                                                                                             | Restructuring accrual, current portion                                                                                                                |                                            |         | 3,963    |         |  |         | 7,134    |        
|                                                                                                                             | Other accrued liabilities                                                                                                                             |                                            |         | 14,945   |         |  |         | 17,097   |        
|                                                                                                                             |                                                                                                                                                       |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                       | Total current liabilities                  |         |          | 26,078  |  |         |          | 29,914  | 
|                                                                                                                             | Restructuring accrual, less current portion                                                                                                           |                                            |         |         |         |  |         | 7,200    |        
|                                                                                                                             |                                                                                                                                                       |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                       | Total liabilities                          |         |          | 26,078  |  |         |          | 37,114  | 
|                                                                                                                             |                                                                                                                                                       |                                            |         |          |         | 
|Stockholders equity:                                                                                                        |                                                                                                                                                       |                                            |         |          |         |  |         |         
|                                                                                                                             | Preferred Stock, $1.00 par value, 2,000
    shares authorized, no shares issued                                                                       |                                            |         |         |         |  |         |         |        
|                                                                                                                             | Class A Common Stock, $.001 par value,
    200,000 shares authorized, 27,497 and 28,731 shares issued as of
    March 31, 2002 and 2003, respectively |                                            |         | 27       |         |  |         | 29       |        
|                                                                                                                             | Class B Common Stock, $.001 par value,
    100,000 shares authorized, 6,562 and 6,493 shares issued as of
    March 31, 2002 and 2003, respectively   |                                            |         | 7        |         |  |         | 6        |        
|                                                                                                                             | Additional paid-in capital                                                                                                                            |                                            |         | 659,844  |         |  |         | 644,302  |        
|                                                                                                                             | Unearned compensation                                                                                                                                 |                                            |         | (121,340 | )       |  |         | (47,330  | )      
|                                                                                                                             | Notes receivable from sale of common stock                                                                                                            |                                            |         | (80      | )       |  |         | (71      | )      
|                                                                                                                             | Accumulated other comprehensive income (loss)                                                                                                         |                                            |         | (2,810   | )       |  |         | 1,294    |        
|                                                                                                                             | Accumulated deficit                                                                                                                                   |                                            |         | (113,860 | )       |  |         | (473,921 | )      
|                                                                                                                             |                                                                                                                                                       |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                       |                                            | 421,788 |          |         |  | 124,309 |         
|Less Common Stock in treasury, at cost, 2,424
    shares held at March 31, 2002 and 3,392 shares held at
    March 31, 2003. |                                                                                                                                                       |                                            | 46,690  |          |         |  | 51,932  |         
|                                                                                                                             |                                                                                                                                                       |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                       | Total stockholders equity                 |         |          | 375,098 |  |         |          | 72,377  | 
|                                                                                                                             |                                                                                                                                                       |                                            |         |          |         | 
|                                                                                                                             |                                                                                                                                                       | Total liabilities and stockholders equity |         | $        | 401,176 |  |         | $        | 109,491 | 
|                                                                                                                             |                                                                                                                                                       |                                            |         |          |         | 

See accompanying notes to consolidated financial
statements.

F-3



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.



CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS


Fiscal years ended March 31, 2001, 2002
and 2003


|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |         |   |          |          |         | 
|-------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------- | ------- | ------- | ------- | - | -------- | -------- | ------- | - | -------- | -------- | ------- | 
|                                                                                       |                                                                                                                                                              | 2001                                         |         |         | 2002    |   |          | 2003     |        
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|                                                                                       |                                                                                                                                                              |                                             
|                                                                                       |                                                                                                                                                              | (In thousands, except per share data)        |        
|Revenue:                                                                               |                                                                                                                                                              |                                              |         |         |         |   |          |          |         |   |          |         
|                                                                                       | Revenue before out-of-pocket expense
    reimbursements (net revenue)                                                                                        |                                              | $       | 266,536 |         |   | $        | 181,215  |         |   | $        | 132,974  |        
|                                                                                       | Out-of-pocket expense reimbursements                                                                                                                         |                                              |         | 40,864  |         |   |          | 21,745   |         |   |          | 19,331   |        
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|                                                                                       |                                                                                                                                                              | Total revenue                                |         |         | 307,400 |   |          |          | 202,960 |   |          |          | 152,305 | 
|Operating expenses:                                                                    |                                                                                                                                                              |                                              |         |         |         |   |          |          |         |   |          |         
|                                                                                       | Project personnel and related expenses before
    out-of-pocket reimbursable expenses                                                                        |                                              |         | 141,980 |         |   |          | 132,627  |         |   |          | 109,085  |        
|                                                                                       | Out-of-pocket reimbursable expenses                                                                                                                          |                                              |         | 40,864  |         |   |          | 21,745   |         |   |          | 19,331   |        
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|                                                                                       |                                                                                                                                                              | Total project personnel and related expenses |         |         | 182,844 |   |          |          | 154,372 |   |          |          | 128,416 | 
|                                                                                       | Professional development and recruiting                                                                                                                      |                                              |         | 26,673  |         |   |          | 10,834   |         |   |          | 4,134    |        
|                                                                                       | Marketing and sales                                                                                                                                          |                                              |         | 13,431  |         |   |          | 7,136    |         |   |          | 3,865    |        
|                                                                                       | Management and administrative support                                                                                                                        |                                              |         | 41,989  |         |   |          | 46,794   |         |   |          | 37,363   |        
|                                                                                       | Goodwill amortization                                                                                                                                        |                                              |         | 21,928  |         |   |          | 61,850   |         |   |          |         |        
|                                                                                       | Non-cash compensation*                                                                                                                                       |                                              |         | 18,187  |         |   |          | 52,305   |         |   |          | 53,078   |        
|                                                                                       | Restructuring charges                                                                                                                                        |                                              |         |        |         |   |          | 15,542   |         |   |          | 29,266   |        
|                                                                                       | Impairment charge on long-lived assets                                                                                                                       |                                              |         |        |         |   |          |         |         |   |          | 94,315   |        
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|                                                                                       |                                                                                                                                                              | Total operating expenses                     |         |         | 305,052 |   |          |          | 348,833 |   |          |          | 350,437 | 
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|                                                                                       | Income (loss) from operations                                                                                                                                |                                              |         | 2,348   |         |   |          | (145,873 | )       |   |          | (198,132 | )      
|                                                                                       | Interest income                                                                                                                                              |                                              |         | 12,055  |         |   |          | 4,164    |         |   |          | 2,635    |        
|                                                                                       | Interest expense                                                                                                                                             |                                              |         | (56     | )       |   |          | (26      | )       |   |          | (49      | )      
|                                                                                       | Other expense, net                                                                                                                                           |                                              |         | (8,714  | )       |   |          | (2,985   | )       |   |          | (2,442   | )      
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|                                                                                       |                                                                                                                                                              | Total other income, net                      |         |         | 3,285   |   |          |          | 1,153   |   |          |          | 144     | 
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|Income (loss) before taxes and cumulative
    effect of change in accounting principle |                                                                                                                                                              |                                              | 5,633   |         |         |   | (144,720 | )        |         |   | (197,988 | )       
|Income tax expense (benefit)                                                           |                                                                                                                                                              |                                              | 18,500  |         |         |   | (11,048  | )        |         |   | 21,209   |         
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|Loss before cumulative effect of change in
    accounting principle                    |                                                                                                                                                              |                                              | (12,867 | )       |         |   | (133,672 | )        |         |   | (219,197 | )       
|Cumulative effect of change in accounting
    principle                                |                                                                                                                                                              |                                              |        |         |         |   |         |          |         |   | (140,864 | )       
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|Net loss                                                                               |                                                                                                                                                              |                                              | (12,867 | )       |         |   | (133,672 | )        |         |   | (360,061 | )       
|                                                                                       | Unrealized loss from securities, net of income
    tax benefit of $232 for the fiscal year ended 2001.                                                       |                                              |         | (363    | )       |   |          |         |         |   |          |         |        
|                                                                                       | Reclassification adjustment, net of income tax
    expense of $344 and income tax benefit of $232 for the fiscal
    years ended 2001 and 2002, respectively |                                              |         | (539    | )       |   |          | 363      |         |   |          |         |        
|                                                                                       | Foreign currency translation adjustments                                                                                                                     |                                              |         | (886    | )       |   |          | (1,924   | )       |   |          | 4,104    |        
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|Comprehensive loss                                                                     |                                                                                                                                                              | $                                            | (14,655 | )       |         | $ | (135,233 | )        |         |   | (355,957 | )       
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|Basic and diluted loss per share of common stock:                                      |                                                                                                                                                              |                                              |         |         |         |   |          |          |         |   |          |         
|Loss before cumulative effect of change in
    accounting principle                    |                                                                                                                                                              | $                                            | (0.49   | )       |         | $ | (4.34    | )        |         | $ | (6.95    | )       
|Cumulative effect of change in accounting
    principle                                |                                                                                                                                                              |                                              |        |         |         |   |         |          |         |   | (4.47    | )       
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|Net loss                                                                               |                                                                                                                                                              | $                                            | (0.49   | )       |         | $ | (4.34    | )        |         | $ | (11.41   | )       
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|Shares used in computing basic and diluted net
    loss per share of common stock      |                                                                                                                                                              |                                              | 26,448  |         |         |   | 30,813   |          |         |   | 31,548   |         
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|*Non-cash compensation:                                                                |                                                                                                                                                              |                                              |         |         |         |   |          |          |         |   |          |         
|                                                                                       | Project personnel and related expenses                                                                                                                       |                                              | $       | 17,930  |         |   | $        | 51,352   |         |   | $        | 51,953   |        
|                                                                                       | Professional development and recruiting                                                                                                                      |                                              |         | 29      |         |   |          | 94       |         |   |          | 138      |        
|                                                                                       | Marketing and sales                                                                                                                                          |                                              |         | 14      |         |   |          | 88       |         |   |          | 227      |        
|                                                                                       | Management and administrative support                                                                                                                        |                                              |         | 214     |         |   |          | 771      |         |   |          | 760      |        
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        
|                                                                                       |                                                                                                                                                              | Total non-cash compensation                  |         | $       | 18,187  |   |          | $        | 52,305  |   |          | $        | 53,078  | 
|                                                                                       |                                                                                                                                                              |                                              |         |         |         |   |          |          |        

See accompanying notes to consolidated financial
statements.

F-4



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.



CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY


Fiscal years ended March 31, 2001, 2002
and 2003


|                                                                           |  |                |    |  |         |   |    |            |  |            |              |   |              |        |          |          |             |   |      |          |               |   |          |       |  |               |         |   |  |   |        |   |  |   |          |  
|-------------------------------------------------------------------------- |  | -------------- | -- |  | ------- | - | -- | ---------- |  | ---------- | ------------ | - | ------------ | ------ | -------- | -------- | ----------- | - | ---- | -------- | ------------- | - | -------- | ----- |  | ------------- | ------- | - |  | - | ------ | - |  | - | -------- | -
|                                                                           |  |                |    |  |         |   |    |            |  | Notes      |              |   |              |        |          |          | Accumulated |   |      |         
|                                                                           |  |                |    |  |         |   |    |            |  | Receivable |              |   |              |        |          |          | Other       |   |      |         
|                                                                           |  | Class A        |    |  | Class B |   |    | Additional |  |            |              |   | from sale of |        |          | Retained |             |   |      |          | Comprehensive |   |          | Total | 
|                                                                           |  | Common         |    |  | Common  |   |    | Paid-in    |  |            | Unearned     |   |              | Common |          |          | Earnings    |   |      | Treasury |               |   | Income   |       |  | Stockholders |        
|                                                                           |  | Stock          |    |  | Stock   |   |    | Capital    |  |            | Compensation |   |              | Stock  |          |          | (Deficit)   |   |      | Stock    |               |   | (Loss)   |       |  | Equity        |        
|                                                                           |  |                |    |  |         |   |    |            |  |            |              |   |              |        |          |          |             |   |      |          |               |   |          |       |  |               |        
|                                                                           |  |               
|                                                                           |  | (In thousands) |   
|Balance at March 31, 2000                                                  |  | $              | 22 |  |         | $ | 3  |            |  | $          | 195,372      |   |              | $      |         |          |             | $ | (232 | )        |               | $ | 32,679   |       |  | $             | (10,065 | ) |  | $ | 539    |   |  | $ | 218,318  |  
|Issuance of stock                                                          |  |                |   |  |         |   | 6  |            |  |            | 246,867      |   |              |        |         |          |             |   | (543 | )        |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 246,330  |  
|Issuance of stock options below
    market  net                           |  |                |   |  |         |   |   |            |  |            | 190,062      |   |              |        | (195,562 | )        |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | (5,500   | )
|Non-cash compensation                                                      |  |                |   |  |         |   |   |            |  |            |             |   |              |        | 18,187   |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 18,187   |  
|Exercise of stock options                                                  |  |                | 1  |  |         |   | 1  |            |  |            | 7,661        |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 7,663    |  
|Income tax benefit related to stock option
    exercises                   |  |                |   |  |         |   |   |            |  |            | 7,910        |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 7,910    |  
|Purchase of treasury stock                                                 |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               | (30,691 | ) |  |   |       |   |  |   | (30,691  | )
|Conversion to Class A                                                      |  |                | 1  |  |         |   | (1 | )          |  |            |             |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   |         |  
|Repayment of notes                                                         |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   | 443  |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 443      |  
|Employee stock purchase plan                                               |  |                |   |  |         |   |   |            |  |            | 4,362        |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 4,362    |  
|Unrealized loss on securities                                              |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   | (902   | ) |  |   | (902     | )
|Translation adjustment                                                     |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   | (886   | ) |  |   | (886     | )
|Net loss                                                                   |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   |     |          |               |   | (12,867  | )     |  |               |        |   |  |   |       |   |  |   | (12,867  | )
|                                                                           |  |                |    |  |         |   |    |            |  |            |              |   |              |        |          |          |             |   |      |          |               |   |          |       |  |               |        
|Balance at March 31, 2001                                                  |  | $              | 24 |  |         | $ | 9  |            |  | $          | 652,234      |   |              | $      | (177,375 | )        |             | $ | (332 | )        |               | $ | 19,812   |       |  | $             | (40,756 | ) |  | $ | (1,249 | ) |  | $ | 452,367  |  
|                                                                           |  |                |    |  |         |   |    |            |  |            |              |   |              |        |          |          |             |   |      |          |               |   |          |       |  |               |        
|Issuance of stock                                                          |  |                |   |  |         |   | 1  |            |  |            | 5,274        |   |              |        | (4,707   | )        |             |   | 59   |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 627      |  
|Forfeiture and cancellation of stock options
    issued below market  net |  |                |   |  |         |   |   |            |  |            | (7,620       | ) |              |        | 8,437    |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 817      |  
|Non-cash compensation                                                      |  |                |   |  |         |   |   |            |  |            |             |   |              |        | 52,305   |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 52,305   |  
|Exercise of stock options                                                  |  |                |   |  |         |   | 1  |            |  |            | 5,358        |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 5,359    |  
|Income tax benefit related to stock option
    exercises                   |  |                |   |  |         |   |   |            |  |            | 1,456        |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 1,456    |  
|Purchase of treasury stock                                                 |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               | (5,934  | ) |  |   |       |   |  |   | (5,934   | )
|Conversion to Class A                                                      |  |                | 3  |  |         |   | (4 | )          |  |            |             |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | (1       | )
|Repayment of notes                                                         |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   | 193  |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 193      |  
|Employee stock purchase plan                                               |  |                |   |  |         |   |   |            |  |            | 3,142        |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 3,142    |  
|Unrealized gain on securities                                              |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   | 363    |   |  |   | 363      |  
|Translation adjustment                                                     |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   | (1,924 | ) |  |   | (1,924   | )
|Net loss                                                                   |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   |     |          |               |   | (133,672 | )     |  |               |        |   |  |   |       |   |  |   | (133,672 | )
|                                                                           |  |                |    |  |         |   |    |            |  |            |              |   |              |        |          |          |             |   |      |          |               |   |          |       |  |               |        
|Balance at March 31, 2002                                                  |  | $              | 27 |  |         | $ | 7  |            |  | $          | 659,844      |   |              | $      | (121,340 | )        |             | $ | (80  | )        |               | $ | (113,860 | )     |  | $             | (46,690 | ) |  | $ | (2,810 | ) |  | $ | 375,098  |  
|                                                                           |  |                |    |  |         |   |    |            |  |            |              |   |              |        |          |          |             |   |      |          |               |   |          |       |  |               |        
|Issuance of stock                                                          |  |                |   |  |         |   | 1  |            |  |            | 751          |   |              |        | 352      |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 1,104    |  
|Forfeiture and cancellation of stock options
    issued below market  net |  |                |   |  |         |   |   |            |  |            | (20,986      | ) |              |        | 20,580   |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | (406     | )
|Non-cash compensation                                                      |  |                |   |  |         |   |   |            |  |            |             |   |              |        | 53,078   |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 53,078   |  
|Exercise of stock options                                                  |  |                |   |  |         |   |   |            |  |            | 2,343        |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 2,343    |  
|Income tax benefit related to stock option
    exercises                   |  |                |   |  |         |   |   |            |  |            | 333          |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 333      |  
|Purchase of treasury stock                                                 |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               | (5,242  | ) |  |   |       |   |  |   | (5,242   | )
|Conversion to Class A                                                      |  |                | 2  |  |         |   | (2 | )          |  |            |             |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   |         |  
|Repayment of notes                                                         |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   | 9    |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 9        |  
|Employee stock purchase plan                                               |  |                |   |  |         |   |   |            |  |            | 2,017        |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   |       |   |  |   | 2,017    |  
|Translation adjustment                                                     |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   |     |          |               |   |         |       |  |               |        |   |  |   | 4,104  |   |  |   | 4,104    |  
|Net loss                                                                   |  |                |   |  |         |   |   |            |  |            |             |   |              |        |         |          |             |   |     |          |               |   | (360,061 | )     |  |               |        |   |  |   |       |   |  |   | (360,061 | )
|                                                                           |  |                |    |  |         |   |    |            |  |            |              |   |              |        |          |          |             |   |      |          |               |   |          |       |  |               |        
|Balance at March 31, 2003                                                  |  | $              | 29 |  |         | $ | 6  |            |  | $          | 644,302      |   |              | $      | (47,330  | )        |             | $ | (71  | )        |               | $ | (473,921 | )     |  | $             | (51,932 | ) |  | $ | 1,294  |   |  | $ | 72,377   |  
|                                                                           |  |                |    |  |         |   |    |            |  |            |              |   |              |        |          |          |             |   |      |          |               |   |          |       |  |               |        

See accompanying notes to consolidated financial
statements.

F-5



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.



CONSOLIDATED STATEMENTS OF CASH
FLOWS


Fiscal Years ended March 31, 2001, 2002
and 2003


|                                                                             |                                                                                               |                                                                                                    |                              |         |        |         |         |          |         |         |         |          |        |         |  
|---------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ---------------------------- | ------- | ------ | ------- | ------- | -------- | ------- | ------- | ------- | -------- | ------ | ------- | -
|                                                                             |                                                                                               | 2001                                                                                               |                              |         | 2002   |         |         | 2003     |        
|                                                                             |                                                                                               |                                                                                                    |                              |         |        |         |         |          |        
|                                                                             |                                                                                               |                                                                                                   
|                                                                             |                                                                                               | (In thousands)                                                                                     |                             
|Cash flows from operating activities:                                        |                                                                                               |                                                                                                    |                              |         |        |         |         |          |         |         |         |         
|                                                                             | Net loss before cumulative effect of change in
    accounting principle                       |                                                                                                    | $                            | (12,867 | )      |         | $       | (133,672 | )       |         | $       | (219,197 | )     
|                                                                             | Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                                                                    |                              |         |        |         |         |          |         |         |         |          |       
|                                                                             |                                                                                               | Restructuring charges                                                                              |                              |         |       |         |         |          | 15,542  |         |         |          | 29,266 |        
|                                                                             |                                                                                               | Depreciation and amortization                                                                      |                              |         | 6,333  |         |         |          | 7,156   |         |         |          | 5,766  |        
|                                                                             |                                                                                               | Write-down of net book value of computers,
    equipment, leasehold improvements and software, net |                              |         |       |         |         |          |        |         |         |          | 2,071  |        
|                                                                             |                                                                                               | Impairment charge on long-lived assets                                                             |                              |         |       |         |         |          |        |         |         |          | 94,315 |        
|                                                                             |                                                                                               | Goodwill amortization                                                                              |                              |         | 21,928 |         |         |          | 61,850  |         |         |          |       |        
|                                                                             |                                                                                               | Non-cash compensation                                                                              |                              |         | 18,187 |         |         |          | 52,305  |         |         |          | 53,078 |        
|                                                                             |                                                                                               | Deferred income taxes                                                                              |                              |         | (4,282 | )       |         |          | (10,475 | )       |         |          | 22,536 |        
|                                                                             |                                                                                               | Tax benefits from employee stock plans                                                             |                              |         | 7,921  |         |         |          | 1,456   |         |         |          | 333    |        
|                                                                             |                                                                                               | Write-down of equity investments                                                                   |                              |         | 8,555  |         |         |          | 4,577   |         |         |          |       |        
|                                                                             |                                                                                               | Other                                                                                              |                              |         |       |         |         |          | (1,846  | )       |         |          |       |        
|                                                                             |                                                                                               | Changes in assets and liabilities, net of effects
    of acquisitions:                             |                              |         |        |         |         |          |         |         |         |          |        |        
|                                                                             |                                                                                               |                                                                                                    | Accounts receivable          |         |        | 5,028   |         |          |         | 10,369  |         |          |        | 8,205   |  
|                                                                             |                                                                                               |                                                                                                    | Prepaid expenses and other   |         |        | 10,042  |         |          |         | 2,106   |         |          |        | 1,826   |  
|                                                                             |                                                                                               |                                                                                                    | Accounts payable             |         |        | (1,739  | )       |          |         | (521    | )       |          |        | (2,433  | )
|                                                                             |                                                                                               |                                                                                                    | Accrued compensation         |         |        | 14,117  |         |          |         | (28,336 | )       |          |        |        |  
|                                                                             |                                                                                               |                                                                                                    | Restructuring accrual        |         |        |        |         |          |         | (11,579 | )       |          |        | (18,895 | )
|                                                                             |                                                                                               |                                                                                                    | Deferred revenue             |         |        | (944    | )       |          |         | (1,791  | )       |          |        | (306    | )
|                                                                             |                                                                                               |                                                                                                    | Income taxes payable         |         |        | 5,527   |         |          |         | (12,318 | )       |          |        | 1,899   |  
|                                                                             |                                                                                               |                                                                                                    | Other assets and liabilities |         |        | (12,162 | )       |          |         | (837    | )       |          |        | (518    | )
|                                                                             |                                                                                               |                                                                                                    |                              |         |        |         |         |          |        
|Net cash provided by (used in) operating
    activities                      |                                                                                               |                                                                                                    | 65,644                       |         |        |         | (46,014 | )        |         |         | (22,054 | )       
|                                                                             |                                                                                               |                                                                                                    |                              |         |        |         |         |          |        
|Cash flows from investing activities:                                        |                                                                                               |                                                                                                    |                              |         |        |         |         |          |         |         |         |         
|                                                                             | Capital expenditures, net                                                                     |                                                                                                    |                              | (9,258  | )      |         |         | (6,817   | )       |         |         | (1,528   | )     
|                                                                             | Acquisitions, net of cash acquired                                                            |                                                                                                    |                              | (54,174 | )      |         |         | (1,781   | )       |         |         |         |       
|                                                                             | Other assets                                                                                  |                                                                                                    |                              | (2,500  | )      |         |         | (2,205   | )       |         |         | 872      |       
|                                                                             |                                                                                               |                                                                                                    |                              |         |        |         |         |          |        
|Net cash used in investing activities                                        |                                                                                               |                                                                                                    | (65,932                      | )       |        |         | (10,803 | )        |         |         | (656    | )       
|                                                                             |                                                                                               |                                                                                                    |                              |         |        |         |         |          |        
|Cash flows from financing activities:                                        |                                                                                               |                                                                                                    |                              |         |        |         |         |          |         |         |         |         
|                                                                             | Repayment of note                                                                             |                                                                                                    |                              | (12,484 | )      |         |         | (500     | )       |         |         |         |       
|                                                                             | Common stock issued                                                                           |                                                                                                    |                              | 12,484  |        |         |         | 9,137    |         |         |         | 5,067    |       
|                                                                             | Purchase of treasury stock                                                                    |                                                                                                    |                              | (30,691 | )      |         |         | (5,934   | )       |         |         | (5,242   | )     
|                                                                             |                                                                                               |                                                                                                    |                              |         |        |         |         |          |        
|Net cash provided by (used in) financing
    activities                      |                                                                                               |                                                                                                    | (30,691                      | )       |        |         | 2,703   |          |         |         | (175    | )       
|                                                                             |                                                                                               |                                                                                                    |                              |         |        |         |         |          |        
|Effect of exchange rate changes on cash                                      |                                                                                               |                                                                                                    | (608                         | )       |        |         | (471    | )        |         |         | 1,440   |         
|                                                                             |                                                                                               |                                                                                                    |                              |         |        |         |         |          |        
|Net decrease in cash and cash equivalents                                    |                                                                                               |                                                                                                    | (31,587                      | )       |        |         | (54,585 | )        |         |         | (21,445 | )       
|Cash and cash equivalents at beginning of year                               |                                                                                               |                                                                                                    | 182,945                      |         |        |         | 151,358 |          |         |         | 96,773  |         
|                                                                             |                                                                                               |                                                                                                    |                              |         |        |         |         |          |        
|Cash and cash equivalents at end of year                                     |                                                                                               | $                                                                                                  | 151,358                      |         |        | $       | 96,773  |          |         | $       | 75,328  |         
|                                                                             |                                                                                               |                                                                                                    |                              |         |        |         |         |          |        
|Supplemental disclosure of cash flow information:                            |                                                                                               |                                                                                                    |                              |         |        |         |         |          |         |         |         |         
|                                                                             | Cash paid during the year for interest                                                        |                                                                                                    | $                            | 25      |        |         | $       | 77       |         |         | $       | 221      |       
|                                                                             | Cash paid during the year for income taxes                                                    |                                                                                                    |                              | 316     |        |         |         | 7,296    |         |         |         | 3,006    |       
|Supplemental disclosure for non-cash investing
    and financing activities: |                                                                                               |                                                                                                    |                              |         |        |         |         |          |         |         |         |         
|                                                                             | Issuance of common stock for notes                                                            |                                                                                                    | $                            | 543     |        |         | $       |         |         |         | $       |         |       

See accompanying notes to consolidated financial
statements.

F-6



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


(1) Description of the Business and Basis
of Presentation

DiamondCluster International, Inc. (the
Company or Diamond) is a premier global
management consulting firm that helps leading organizations
worldwide leverage technology to develop and implement growth
strategies, improve operations, and capitalize on technology.
The Company works collaboratively with its clients, utilizing
small teams of consultants with skills in strategy, technology
and program management. As of March 31, 2003, the Company
employed 538 client-serving professionals and had eleven offices
in North America, Europe and Latin America.

The consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America. Certain prior period
amounts have been reclassified to conform to current period
presentation.

(2) Summary of Significant Accounting
Policies

Principles of
Consolidation

The accompanying consolidated financial
statements include the accounts of the Company and its
majority-owned subsidiaries. All intercompany accounts and
balances have been eliminated in consolidation.

Foreign
Currency Translation

All assets and liabilities denominated in foreign
currencies are translated at the exchange rate on the balance
sheet date. Revenues, costs and expenses are translated at
average rates of exchange prevailing during the period.
Translation adjustments are deferred as a separate component of
stockholders equity. Gains and losses resulting from
foreign currency transactions are included in the results of
operations.

Revenue
Recognition

The Company earns revenues from a range of
consulting services, including helping organizations worldwide
to develop and implement growth strategies, improve operations,
and capitalize on technology. Revenues are comprised of
professional fees for services rendered to clients plus
reimbursement of out-of-pocket expenses. The Company bills
clients for services and expenses incurred either monthly or
semi-monthly in accordance with the terms of the client
engagement. Prior to the commencement of a client engagement,
the Company and the client agree on fees for services based upon
the scope of the project, staffing requirements and the level of
client involvement. The Company recognizes revenue as services
are performed in accordance with the terms of the client
engagement. Unbilled receivables represent revenues earned for
services performed that have not been billed.

Allowance for
Doubtful Accounts and Deferred Revenue

Management makes estimates of the amount of
billed and unbilled accounts receivable that may not be
collected from clients. In making these estimates, management
specifically analyzes individual client balances, the
composition of the aging of accounts receivable, historical bad
debts, customer credit-worthiness and current economic trends,
and considers the Companys overall experience with
estimating uncollectible amounts. As of March 31, 2003, the
accounts receivable balance was $16.3 million, including
unbilled accounts receivable of $4.5 million, and net of
allowance for doubtful accounts of $1.6 million. Unbilled
accounts receivable are typically billed the following month.

Provisions are also made for estimated costs to
be incurred subsequent to targeted project completion. These
provisions are estimated based principally on historical
experience and a review of projects in progress and are
reflected, net of actual costs incurred on completed projects,
in deferred revenue. Although from time to time the Company has
been required to make revisions to clients estimated
deliverables, to date there have

F-7



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

been no such revisions that have had a material
effect on the Companys operating results. The deferred
revenue balance, measured based on the gross amount of services
to be rendered subsequent to the targeted completion date, was
$0.8 million as of March 31, 2003. Also included in
the deferred revenue balance are prepaid client fees related to
consulting services that the Company expects to earn in
subsequent periods. These prepaid amounts historically have been
and continue to be immaterial to the total deferred revenue
balance.

Cash and Cash
Equivalents

Cash equivalents are highly liquid investments
with original maturities of three months or less and are stated
at cost, which approximates fair value. Cash equivalents consist
of money market funds.

Long-Lived
Assets

Computers and equipment, leasehold improvements
and software are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed by
applying the straight-line method over the estimated useful
lives of assets, which range from eighteen months to five years
for computers and equipment, five years for leasehold
improvements and three to five years for software. Costs
capitalized for internally developed software include external
consulting fees and employee salaries. Related depreciation and
amortization expense was $6.3 million, $7.2 million
and $5.8 million for the years ended March 31, 2001, 2002
and 2003, respectively.

Goodwill

Goodwill resulting from business acquisitions
represents the excess of purchase price over the fair value of
the net assets acquired and prior to April 1, 2002 was
being amortized on a straight-line basis over useful lives
ranging between 5 and 25 years. Accumulated amortization
amounted to $22.4 million and $84.3 million as of
March 31, 2001 and 2002, respectively. On April 1,
2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. With the adoption of SFAS No. 142,
goodwill and other indefinite life intangible assets
(intangibles) are no longer subject to amortization,
rather they are subject to an assessment for impairment whenever
events or circumstances indicate that impairment may have
occurred, but at least annually, by applying a fair value based
test. Under SFAS No. 142, goodwill impairment is assessed
at the reporting unit level, using a discounted cash flow
method. The Company completed its initial impairment test on
goodwill using the methodology described in SFAS No. 142 in
the first quarter of fiscal 2003, and conducted an annual
assessment of impairment based on fair value in accordance with
the requirements of SFAS No. 142 during the fourth quarter
of fiscal year 2003. In connection with the adoption of SFAS
No. 142 on April 1, 2002, the Company recognized an
impairment loss of $140.9 million as the cumulative effect
of a change in accounting principle. In connection with the
annual assessment during the fourth quarter of fiscal year 2003,
the Company recognized an additional impairment loss of
$94.3 million. The carrying value of goodwill as of
March 31, 2003 was zero.

F-8



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth an analysis of the
changes in the total carrying amount of goodwill for the fiscal
years ended March 31, 2002 and 2003 (in thousands):

|                                           |  |   |          |  
|------------------------------------------ |  | - | -------- | -
|Balance as of April 1, 2001                |  | $ | 295,600  |  
|Goodwill acquired during the year          |  |   | 1,429    |  
|Goodwill amortized during the year         |  |   | (61,850  | )
|                                           |  |   |         
|Balance as of March 31, 2002               |  |   | 235,179  |  
|Goodwill amortized during the year         |  |   |         |  
|Impairment loss recognized during the year |  |   | (235,179 | )
|                                           |  |   |         
|Balance as of March 31, 2003               |  | $ |         |  
|                                           |  |   |         

The following table sets forth a reconciliation
of reported net income (loss) to adjusted net income for
fiscal 2001 and 2002 (in thousands):

|                                |  |                   |         |   |      |   |          |  
|------------------------------- |  | ----------------- | ------- | - | ---- | - | -------- | -
|                                |  |                  
|                                |  | Fiscal Year Ended |        
|                                |  | March 31,         |        
|                                |  |                   |        
|                                |  | 2001              |         |   | 2002 |  
|                                |  |                   |         |   |      |  
|Reported net income (loss)      |  | $                 | (12,867 | ) |      | $ | (133,672 | )
|Add back: Goodwill amortization |  |                   | 21,928  |   |      |   | 61,850   |  
|                                |  |                   |         |   |      |  
|Adjusted net income (loss)      |  | $                 | 9,061   |   |      | $ | (71,822  | )
|                                |  |                   |         |   |      |  
|Basic earnings per share:       |  |                   |         |   |      |   |          |  
|Reported net income             |  | $                 | (0.49   | ) |      | $ | (4.34    | )
|Goodwill amortization           |  |                   | 0.83    |   |      |   | 2.01     |  
|                                |  |                   |         |   |      |  
|Adjusted net income (loss)      |  | $                 | 0.34    |   |      | $ | (2.33    | )
|                                |  |                   |         |   |      |  
|Diluted earnings per share:     |  |                   |         |   |      |   |          |  
|Reported net income (loss)      |  | $                 | (0.49   | ) |      | $ | (4.34    | )
|Goodwill amortization           |  |                   | 0.77    |   |      |   | 2.01     |  
|                                |  |                   |         |   |      |  
|Adjusted net income (loss)      |  | $                 | 0.28    |   |      | $ | (2.33    | )
|                                |  |                   |         |   |      |  

Accounting
for Investment Interests

Occasionally, the Company may obtain
non-controlling equity ownership interests either for cash or as
compensation for services performed. Equity securities are
accounted for under the cost method of accounting unless these
securities have readily determinable fair values based on quoted
market prices. Securities for which the fair market value is
determinable are recorded under SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities. The Company classifies these securities as
available-for-sale securities. Unrealized gains and losses on
these investments are reported in comprehensive income or loss
as unrealized gain (loss) on securities, and
accumulated as a separate component of stockholders
equity, net of any related tax effect. Declines in value that
are judged to be other than temporary result in a reduction of
the carrying amount of the investment to fair value and the
recognition of an impairment charge in other income (expense).
As of March 31, 2003 the carrying value of such investments
was zero.

Unearned
Compensation

Unearned compensation represents stock-based
compensation that has not yet been earned, and is reported as
unearned compensation within the stockholders
equity section of the consolidated balance sheet. The Company
has chosen to account for stock-based compensation arising from
fixed awards to

F-9



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

employees using the intrinsic value method
prescribed in Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Accordingly,
compensation cost of stock options (non-cash
compensation) is measured as the excess, if any, of the
quoted market price of the Companys stock at the date of
the grant over the options exercise price, and is charged
to operations over the vesting period, which generally ranges
between two and five years.

The Company applies SFAS No. 123,
Accounting for Stock Based Compensation, in
accounting for stock issued to individuals or groups other than
employees. The Company applies APB Opinion No. 25 and
related interpretations in accounting for stock issued to
employees. Had compensation expense on these options been
determined based on the fair value at the grant date for awards
under these plans consistent with the methodology prescribed
under SFAS No. 123, the Companys net loss and basic
and diluted loss per share would have been reduced to the pro
forma amounts indicated below (in thousands, except per share
amounts):

|                                      |                                                                                                                                                     |      |   |         |      |  |   |          |   |  |   |          |  
|------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | - | ------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                      |                                                                                                                                                     | 2001 |   |         | 2002 |  |   | 2003     |  
|                                      |                                                                                                                                                     |      |   |         |      |  |   |          |  
|Net income (loss):                    |                                                                                                                                                     |      |   |         |      |  |   |          |   |  |   |         
|                                      | As reported                                                                                                                                         |      | $ | (12,867 | )    |  | $ | (133,672 | ) |  | $ | (360,061 | )
|                                      | Add: Stock-based employee compensation expense
    included in reported net income, net of related tax effects                                      |      |   | 18,187  |      |  |   | 52,305   |   |  |   | 53,843   | *
|                                      | Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |      |   | (55,568 | )    |  |   | (127,749 | ) |  |   | (62,870  | )
|                                      |                                                                                                                                                     |      |   |         |      |  |   |          |  
|                                      | Pro forma                                                                                                                                           |      | $ | (50,248 | )    |  | $ | (209,116 | ) |  | $ | (369,088 | )
|                                      |                                                                                                                                                     |      |   |         |      |  |   |          |  
|Basic and diluted net loss per share: |                                                                                                                                                     |      |   |         |      |  |   |          |   |  |   |         
|                                      | As reported                                                                                                                                         |      | $ | (0.49   | )    |  | $ | (4.34    | ) |  | $ | (11.41   | )
|                                      | Pro forma                                                                                                                                           |      |   | (1.90   | )    |  |   | (6.79    | ) |  |   | (11.70   | )



---



|  |                                                                                                                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | In fiscal year 2003, this amount includes
    $0.8 million of compensation expense related to restricted
    stock that was recorded as part of the restructuring charge
    expense in the Consolidated Statement of Operations.

Other
Comprehensive Income

Other comprehensive income represents unrealized
gains and losses on available-for-sale securities, net of the
related tax effect, and cumulative foreign currency translation
adjustments.

Derivative
Instruments and Hedging Activities

On April 1, 2001, the Company adopted SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities and SFAS No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment of SFAS 133. SFAS No. 133
and SFAS No. 138 require that all derivative instruments be
recorded on the balance sheet at their respective fair values.

The Companys use of derivative instruments
has been limited to forward foreign currency contracts, which
have been used to hedge net investments in certain foreign
operations. All derivatives are recognized on the balance sheet
at their fair value. On the date a derivative foreign currency
contract is entered into, the Company designates the derivative
as a hedge of a net investment in a foreign operation. The
Company documents the hedging relationship and its
risk-management objective and strategy for undertaking the
hedge, the hedging instrument, the item, the nature of the risk
being hedged, how the hedging instruments effectiveness in
offsetting the hedged risk will be assessed, and a description
of the method of measuring ineffectiveness. The Company also
formally assesses, both at the hedges inception and on an
ongoing basis,

F-10



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

whether the derivatives that are used in hedging
transactions are effective in offsetting changes in fair values
or cash flows of hedged items. When it is determined that a
derivative is not highly effective as a hedge or that it has
ceased to be a highly effective hedge, the Company discontinues
hedge accounting prospectively. Changes in the fair value of a
derivative, to the extent effective as a hedge, that is used as
a hedge of a net investment in a foreign operation are recorded
in the cumulative translation adjustments account within other
comprehensive income.

The Company has entered into transactions to
reduce the effect of foreign exchange rate fluctuations on
recorded foreign currency denominated assets and liabilities,
and to mitigate the effect of such foreign exchange rate changes
on the parent companys net investment in its foreign
subsidiaries. These transactions involve the use of forward
foreign exchange contracts in certain European currencies. A
forward foreign exchange contract obligates the Company to
exchange predetermined amounts of specified foreign currencies
at specified exchange rates on specified dates or to make an
equivalent U.S. dollar payment equal to the value of such
exchange. As a result, increases or decreases in the U.S. dollar
value of the Companys foreign currency transactions are
partially offset by gains and losses on the forward contracts,
so as to mitigate the possibility of significant foreign
currency transaction and translation gains and losses. The
Company does not use foreign currency contracts for trading
purposes. The Company does not currently hedge anticipated
foreign currency-denominated revenues and expenses. All foreign
currency transactions and outstanding forward contracts are
marked-to-market on a monthly basis. There were no open
euro/U.S. dollar or other foreign currency contracts outstanding
as of March 31, 2003.

Concentrations
of Credit Risk

Financial instruments that potentially subject
the Company to significant concentration of market or credit
risk consist principally of cash equivalent instruments,
investments and accounts receivable. The Company places its cash
balances with high quality financial institutions. Investments
are carried at cost or fair value, as appropriate, and are not
significant at March 31, 2003. Trade receivables
potentially subject the Company to credit risk. The Company
extends credit to its customers based upon an evaluation of the
customers financial condition and credit history and
generally does not require collateral. The Company has
historically incurred minimal credit losses. The Company had one
client that accounted for 12% of revenues for the year ended
March 31, 2001, and did not have any clients that
individually accounted for greater than 10% of its net revenues
for the years ended March 31, 2002 and 2003, respectively.
The Company had no clients that accounted for greater than 10%
of accounts receivable at March 31, 2003.

Income
Taxes

The Company accounts for income taxes using the
asset and the liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be reversed or settled.

Net Income
(Loss) Per Share

Basic net income (loss) per share is
computed using the weighted average number of common shares
outstanding. Diluted net income (loss) per share is computed
using the weighted average number of common shares outstanding
and, where dilutive, the assumed exercise of stock options and
warrants (using the treasury

F-11



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

stock method). Following is a reconciliation of
the shares (in thousands) used in computing basic and diluted
net income (loss) per share for the fiscal years ended
March 31, 2001, 2002 and 2003:

|                                                                                             |  |      |        |  |      |  |        |      |  |  |        | 
|-------------------------------------------------------------------------------------------- |  | ---- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                                                                                             |  | 2001 |        |  | 2002 |  |        | 2003 | 
|                                                                                             |  |      |        |  |      |  |        |      | 
|Shares used in computing basic net income (loss)
    per share                               |  |      | 26,448 |  |      |  | 30,813 |      |  |  | 31,548 | 
|Dilutive effect of stock options and warrants                                                |  |      |       |  |      |  |       |      |  |  |       | 
|                                                                                             |  |      |        |  |      |  |        |      | 
|Shares used in computing diluted net income
    (loss) per share                             |  |      | 26,448 |  |      |  | 30,813 |      |  |  | 31,548 | 
|                                                                                             |  |      |        |  |      |  |        |      | 
|Antidilutive securities not included in dilutive
    net income (loss) per share calculation |  |      | 18,206 |  |      |  | 26,266 |      |  |  | 17,161 | 
|                                                                                             |  |      |        |  |      |  |        |      | 

Financial
Instruments

The fair value of the Companys financial
instruments approximates their carrying value.

Use of
Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities, and the amounts of revenues and expenses during the
period. Actual results could differ from those estimates.

(3) New Accounting Policies

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment
to FASB Statement No. 123, which amends SFAS
No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. The transition
and annual disclosure provisions of SFAS No. 148 are
effective for fiscal years ended after December 15, 2002.
In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee
compensation and the effect of the method used on reported
results. The Company has included the required annual
disclosures related to stock-based compensation in Notes 2
and 10 to the consolidated financial statements. As of
April 1, 2003 the Company will begin accounting for awards
granted, modified or settled after that date using the fair
value method under SFAS No. 123 and related interpretations.

(4) Restructuring Charges

As a result of managements plan to better
align the Companys operating infrastructure with
anticipated levels of business in fiscal 2003 and beyond, the
Company restructured its workforce and operations in December
2002, September 2002, and December 2001.

In connection with the restructuring plan
implemented in December 2002, the Company recorded a
restructuring charge of $8.4 million ($5.4 million on
an after-tax basis, or $0.17 per share). The
$8.4 million charge consisted of $7.8 million for
severance and related expenses, $0.4 million related to
office space reductions and $0.2 million for the write-off
of various depreciable assets. The principal actions in the
December 2002 restructuring plan included workforce reductions,
resulting in the termination of approximately
115 employees, of whom 7 were still employed by the Company
as of March 31, 2003. The Company terminated most of these
remaining employees early in the first quarter of fiscal 2004
upon the completion of project assignments. Of the total
employees severed, 79% were project personnel and 21% were
operational personnel.

F-12



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In connection with the restructuring plan
implemented in September 2002, the Company recorded a
restructuring charge of $20.5 million ($12.8 million
on an after-tax basis or $0.41 per share). The
$20.5 million charge consisted of $12.1 million for
contractual commitments related to office space reductions,
$5.7 million for severance and related expenses and
$2.7 million for the write-off of various depreciable
assets and the termination of certain equipment leases. The
principal actions in the September 2002 restructuring plan
involved office space reductions, which included further
consolidation of office space in multiple offices globally.
Estimated costs for the reduction in physical office space are
comprised of contractual rental commitments for office space
vacated, attorney fees and related costs to sublet the office
space, offset by estimated sub-lease rental income. The
restructuring plan also included workforce reductions, resulting
in the termination of approximately 90 employees, none of whom
were still employed by the Company as of March 31, 2003. Of
the total employees severed, 60% were project personnel and 40%
were operational personnel. Also included in the restructuring
plan were the costs associated with the termination of certain
equipment leases and costs related to the write-down of other
assets to their estimated net realizable value.

In connection with the restructuring plan
announced in December 2001, the Company recorded a restructuring
charge of $15.5 million ($9.5 million on an after-tax
basis, or $0.31 per share). In September 2002, the Company
adjusted this charge and recognized $0.4 million of
additional expense due primarily to a change in estimate related
to the cost of terminating an equipment lease, bringing the
total restructuring charge to $15.9 million
($9.7 million on an after-tax basis). The
$15.9 million charge consisted of $10.8 million for
severance and related expenses, $3.1 million for
contractual commitments and leasehold improvements related to
office space reductions, and $2.0 million for other
depreciable assets and certain equipment leases. The principal
actions in the December 2001 restructuring plan involved
workforce reductions, including the discontinuation of certain
business activities within the Diamond Marketspace Solutions
group. The restructuring plan included the termination of
approximately 300 employees, none of whom remained employed by
the Company as of March 31, 2003. Of the total employees
severed, 90% were project personnel and 10% were operational
personnel. In addition, the restructuring plan included office
space reductions in San Francisco, New York and Chicago.
Estimated costs related to the reduction of office space
comprise contractual rental commitments for office space being
vacated and certain equipment leases, as well as costs
associated with the write-off of leasehold improvements and
write-down of other assets to their estimated net realizable
value.

The total cash outlay for the restructuring
announced in December 2002 is expected to approximate
$7.5 million. The remaining $0.9 million of
restructuring costs consist of non-cash charges primarily
related to non-cash severance items and the write-down of
certain assets to their estimated net realizable value. As of
March 31, 2003, approximately $5.3 million of cash had
been expended for this initiative, primarily related to
severance and related costs.

The total cash outlay for the restructuring
announced in September 2002 is expected to approximate
$18.0 million. The remaining $2.5 million of
restructuring costs consist of non-cash charges primarily for
the write-down of certain assets to their estimated net
realizable value, as well as the write-off of sign-on bonuses
previously paid to terminated employees. As of March 31,
2003, $7.5 million of cash had been expended for this
initiative, primarily related to severance and related costs.

The total cash outlay for the restructuring
announced in December 2001 is expected to approximate
$13.2 million. The remaining $2.7 million of
restructuring costs consist of non-cash charges primarily for
the write-off of leasehold improvements and other related costs
for the facilities being downsized, as well as the write-off of
sign-on bonuses previously paid to terminated employees. As of
March 31, 2003, $12.3 million of cash had been
expended for this initiative, primarily related to severance and
related costs.

F-13



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The major components of the restructuring charges
are as follows (amounts in thousands):

|                                                                                          |  |         |        |  |            |   |     |         |  |          |         |  |  |      |       |  |          |   |         |              |  |   |         |   |  |   |     |  |  |   |        | 
|----------------------------------------------------------------------------------------- |  | ------- | ------ |  | ---------- | - | --- | ------- |  | -------- | ------- |  |  | ---- | ----- |  | -------- | - | ------- | ------------ |  | - | ------- | - |  | - | --- |  |  | - | ------ | 
|                                                                                          |  |         |        |  |            |   |     |         |  |          |         |  |  |     
|                                                                                          |  |         |        |  |            |   |     |         |  | Utilized |         |  |  |      |      
|                                                                                          |  | FY02 Q3 |        |  | FY02 Q3    |   |     | FY03 Q2 |  |          | FY03 Q3 |  |  |      |       |  | Other    |   |         | Balance      | 
|Description                                                                               |  | Charge  |        |  | Adjustment |   |     | Charge  |  |          | Charge  |  |  | Cash |       |  | Non-cash |   |         | Adjustments* |  |   | 3/31/03 |  
|                                                                                          |  |         |        |  |            |   |     |         |  |          |         |  |  |      |       |  |          |   |         |              |  |   |         |  
|Severance and related costs                                                               |  | $       | 10,847 |  |            | $ | 53  |         |  | $        | 5,638   |  |  | $    | 7,761 |  |          | $ | (19,755 | )            |  | $ | (2,360  | ) |  | $ | 329 |  |  | $ | 2,513  | 
|Contractual commitments and leasehold
    improvements related to office space reductions |  |         | 3,089  |  |            |   | (28 | )       |  |          | 12,105  |  |  |      | 397   |  |          |   | (3,803  | )            |  |   | (1,452  | ) |  |   | 240 |  |  |   | 10,548 | 
|Write-off of property, plant, equipment and
    obligations for equipment leases          |  |         | 1,606  |  |            |   | 375 |         |  |          | 2,714   |  |  |      | 251   |  |          |   | (1,557  | )            |  |   | (2,116  | ) |  |   |    |  |  |   | 1,273  | 
|                                                                                          |  |         |        |  |            |   |     |         |  |          |         |  |  |      |       |  |          |   |         |              |  |   |         |  
|                                                                                          |  | $       | 15,542 |  |            | $ | 400 |         |  | $        | 20,457  |  |  | $    | 8,409 |  |          | $ | (25,115 | )            |  | $ | (5,928  | ) |  | $ | 569 |  |  | $ | 14,334 | 
|                                                                                          |  |         |        |  |            |   |     |         |  |          |         |  |  |      |       |  |          |   |         |              |  |   |         |  



---



|  |                                    
|- | -----------------------------------
|* | Relates to translation adjustments.

These restructuring charges and accruals required
certain significant estimates and assumptions, including
estimates of sub-lease rental income to be realized in the
future. These estimates and assumptions are monitored on at
least a quarterly basis for changes in circumstances. It is
reasonably possible that such estimates could change in the near
term resulting in additional adjustments to the amounts
recorded, and the effect could be material.

(5) Computers, Equipment, Leasehold
Improvements and Software, Net

Computers, equipment, leasehold improvements and
software, net at March 31, 2002 and 2003 are summarized as
follows (amounts in thousands):

|                                               |  |      |         |   |      |   |         |  
|---------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                               |  | 2002 |         |   | 2003 |  
|                                               |  |      |         |   |      |  
|Computers and equipment                        |  | $    | 16,702  |   |      | $ | 15,396  |  
|Leasehold improvements                         |  |      | 7,304   |   |      |   | 6,800   |  
|Software                                       |  |      | 11,323  |   |      |   | 11,504  |  
|                                               |  |      |         |   |      |  
|                                               |  |      | 35,329  |   |      |   | 33,700  |  
|Less accumulated depreciation and amortization |  |      | (19,540 | ) |      |   | (23,351 | )
|                                               |  |      |         |   |      |  
|                                               |  | $    | 15,789  |   |      | $ | 10,349  |  
|                                               |  |      |         |   |      |  

(6) Other Assets and Long-Term Deferred
Taxes

Other assets and long-term deferred taxes at
March 31, 2002 and 2003 are summarized as follows (amounts
in thousands):

|                                  |       |      |        |        |      |   |       |       | 
|--------------------------------- | ----- | ---- | ------ | ------ | ---- | - | ----- | ----- | 
|                                  |       | 2002 |        |        | 2003 |  
|                                  |       |      |        |        |      |  
|Deferred income taxes  long term |       | $    | 16,818 |        |      | $ |      |      
|Notes receivable from employees   |       |      | 2,205  |        |      |   | 1,902 |      
|Other assets                      |       |      | 1,543  |        |      |   |      |      
|                                  |       |      |        |        |      |  
|                                  | Total |      | $      | 20,566 |      |   | $     | 1,902 | 
|                                  |       |      |        |        |      |  

F-14



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(7) Other Accrued Liabilities

Other accrued liabilities at March 31, 2002
and 2003 are summarized as follows (amounts in thousands):

|                            |       |      |       |        |      |   |       |        | 
|--------------------------- | ----- | ---- | ----- | ------ | ---- | - | ----- | ------ | 
|                            |       | 2002 |       |        | 2003 |  
|                            |       |      |       |        |      |  
|Social Security tax accrual |       | $    | 4,047 |        |      | $ | 2,481 |       
|VAT taxes payable           |       |      | 1,036 |        |      |   | 2,833 |       
|Other taxes payable         |       |      | 2,658 |        |      |   | 2,748 |       
|Other accrued liabilities   |       |      | 7,204 |        |      |   | 9,035 |       
|                            |       |      |       |        |      |  
|                            | Total |      | $     | 14,945 |      |   | $     | 17,097 | 
|                            |       |      |       |        |      |  

(8) Commitments

The Company leases office space and equipment
under various operating leases. As of March 31, 2003, the
minimum future lease payments under operating leases with
non-cancelable terms in excess of one year are as follows
(amounts in thousands):

|                      |  |   |        | 
|--------------------- |  | - | ------ | 
|Year ending March 31, |  |  
|                      |  |  
|2004                  |  | $ | 7,561  | 
|2005                  |  |   | 6,468  | 
|2006                  |  |   | 5,249  | 
|2007                  |  |   | 4,560  | 
|2008                  |  |   | 3,919  | 
|Thereafter            |  |   | 11,053 | 
|                      |  |   |       
|                      |  | $ | 38,810 | 
|                      |  |   |       

Rent expense under operating leases amounted to
$9.6 million, $10.9 million and $11.1 million for
the years ended March 31, 2001, 2002 and 2003, respectively.

The Company is party to standby letters of credit
in support of the minimum future lease payments under leases for
permanent office space and office furniture amounting to
$0.9 million as of March 31, 2003. These letter of
credit obligations decline annually during the lease terms.

(9) Line of Credit

The Company maintains a revolving line of credit
pursuant to the terms of a secured credit agreement with a
commercial bank. Under this agreement, the Company may borrow up
to $10.0 million at an annual interest rate based on the
prime rate or based on LIBOR plus 1.5%, at our discretion. The
line of credit is secured by cash and certain accounts
receivable of the Companys wholly-owned subsidiary
DiamondCluster International North America, Inc. This line of
credit has been reduced, as necessary, to account for letters of
credit outstanding. As of March 31, 2003, the Company had
approximately $9.1 million available under this line of
credit. The line of credit expires on July 31, 2003. The
Company expects to renew the line of credit under similar terms
at that time.

(10) Stockholders Equity

The Companys Board of Directors authorized
the repurchase of up to six million shares of
DiamondClusters Class A Common Stock as part of an
existing stock repurchase program. These repurchases were
authorized to be made in the open market or in privately
negotiated transactions with the timing and

F-15



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

volume dependent upon market conditions. At
March 31, 2003, the number of shares purchased under this
authorization was 3.4 million shares at an aggregate cost
of $51.9 million.

In August 2001, the Companys Board of
Directors adopted and the Companys shareholders
subsequently approved the Restated and Amended Employee Stock
Purchase Plan. The Restated and Amended Employee Stock Purchase
Plan is designed to qualify for certain income tax benefits for
employees under the section 423 of the Internal Revenue
Code and contains 2.4 million shares of Class B Common
Stock. The plan allows qualifying employees to purchase
Class B Common Stock each quarter, at 85% of the lesser of
the fair market value of the Class A Common Stock on the
individuals enrollment date or the purchase date. The
amount each employee can purchase is limited to the lesser of
(i) 10% of pay or (ii) $6,250 of stock value in any
three month period. At March 31, 2003, approximately
1.0 million shares are still available for future issuance
under this plan.

Class A Common Stock is entitled to one vote
per share and Class B Common Stock is entitled to five
votes per share on all matters submitted to the vote of holders
of common stock. Class B Common Stock may only be owned
beneficially or of record by (i) employees of the Company,
(ii) a company, partnership or trust controlled by an
employee or (iii) the Company.

Stock Option
Rehabilitation

On May 2, 2002, the Company offered
employees (other than senior officers) a plan, approved by the
Board of Directors, which gave employees a choice to surrender
certain stock options previously granted to them in exchange for
a future grant of a smaller number of new options to purchase
the same class of shares, a majority of which would vest over a
three-year period. The original options were granted under
DiamondClusters 2000 Stock Option Plan (2000 Plan) and
under DiamondClusters 1998 Equity Incentive Plan.
Employees who accepted this offer were required to make an
election with respect to all covered options by May 14,
2002. In order to receive the new options, the employees were
required to remain employed by DiamondCluster until
November 15, 2002. The exchange offer was not available to
the members of the Board of Directors or senior officers of
DiamondCluster. A total of 4.3 million stock options were
surrendered as a part of this plan. Certain of these options had
intrinsic value at the original grant date, the unvested portion
of which had not been amortized to non-cash compensation expense
at the date surrendered. The voluntary surrender of these
options resulted in a non-cash charge to compensation expense of
$8.6 million during the quarter ended June 30, 2002
relating to the remaining unamortized compensation expense
related to these surrendered options. On November 15, 2002,
approximately 1.0 million new options were granted to
employees who remained employed by DiamondCluster. The exercise
price for a majority of the options granted on November 15,
2002 was $0.76, or 25% of the fair market value of the
Companys common stock on that date.

On January 30, 2001, the Company offered
employees (other than senior officers) a plan, approved by the
Board of Directors, which gave employees a choice to cancel
certain stock options previously granted to them in exchange for
a future grant of a lesser number of new options to purchase the
same class of shares, a majority of which would vest
proportionately over a four year period. The original options
were granted under the 2000 Plan and under the 1998 Equity
Incentive Plan. Employees who accepted the offer were required
to make an election with respect to all covered options by
February 8, 2001. In order to receive the new options, the
employees were required to remain employed by DiamondCluster
until August 9, 2001. The exchange offer was not available
to the members of the Board of Directors or senior officers of
DiamondCluster. A total of 2.3 million stock options were
cancelled as part of this plan. On August 9, 2001, a total
of 1.5 million of new options were granted, which
represented between 75% and 100% of the original grant and had
an exercise price that was set on the grant date. The exercise
price for a majority of the options granted on August 9,
2001 was set at fair market value.

F-16



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Stock
Options

The Company has adopted various stock incentive
and option plans that authorize the granting of qualified and
non-qualified stock options, stock appreciation rights
(SARs) and stock awards to officers and employees
and non-qualified stock options, SARs and stock awards to
certain persons who were not employees on the date of grant, and
certain non-employee members of the Board of Directors. Under
the 2000 Plan, 8.5 million shares were authorized for
grant, and at March 31, 2003, approximately
4.3 million shares are still available for future grant.
Under the 1998 Equity Incentive Plan (collectively, the
Stock Option Plans or Plans),
41.4 million shares were authorized for grant, and at
March 31, 2003, approximately 14.1 million shares were
still available for future grant. All such options are for
Class B shares of common stock.

The Stock Option Plans provide that fair market
value will be determined based on the average of the closing
price of a share of Class A Common Stock on the Nasdaq
Stock Market System for the ten trading days immediately
preceding the date of grant. Options granted under the 1998
Equity Incentive Plan must have an exercise price at or above
the fair market value on the date of grant. Options granted
under the 2000 Plan can have an exercise price that is below the
fair market value on the date of grant. Options have been
granted to officers which vest incrementally, in varying
percentages, on the first through fifth anniversaries of the
date of grant, respectively, and expire either on the seventh
anniversary of the date of grant or six months after the fifth
anniversary of the date of grant for more recent grants. Options
have been granted to non-officer employees which fully vest
either upon the third anniversary of the date of grant and
expire on the fifth anniversary of the date of grant, or which
vest ratably over four years and expire either on the sixth
anniversary of the date of grant or six months after the fourth
anniversary of the date of grant for more recent grants. Options
were also granted to employees at various times which vest over
periods ranging from 18 months to 3 years from the
date of grant, and which expire on the fifth anniversary of the
date of grant. Non-qualified stock options vest over periods
ranging from immediately to five years. The Company allocates
the cost of compensatory stock awards over the vesting period
using the straight-line method.

During fiscal 2003, the Company granted options
to purchase 2.7 million shares of Class B Common
Stock. Approximately 0.7 million of these options were
granted in connection with the stock option rehabilitation
program discussed above.

During fiscal 2002, the Company granted options
to purchase 12.3 million shares of Class B Common
Stock. A portion of such options were granted in connection with
the Companys efforts to contain costs and conserve cash.
Stock options were granted to certain employees in lieu of cash
bonuses and as an incentive to accept salary decreases. During
fiscal 2002, 1.6 million options were granted in connection
with the stock option rehabilitation program discussed above.

During fiscal 2001, options to purchase
7.5 million shares of Class B Common Stock were
granted to employees of Cluster in connection with the Cluster
business combination.

F-17



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes the transactions,
both incentive and non-qualified, pursuant to the Plans (share
amounts in thousands):

|                         |           |        |        |         |                 |           |                 |                |  |   |       |       | 
|------------------------ | --------- | ------ | ------ | ------- | --------------- | --------- | --------------- | -------------- |  | - | ----- | ----- | 
|                         |           |        |        |         |                 | Weighted- |                
|                         |           | Shares |        |         |                 |           | Average         |               
|                         |           | Under  |        |         |                 |           | Exercise Price  |               
|                         |           | Option |        |         | Range of Prices |           |                 | Per Share      | 
|                         |           |        |        |         |                 |           |                 |                | 
|Balances, March 31, 2000 |           |        | 8,370  |         |                 |           | $0.81 to $92.55 |                |  | $ | 15.83 |      
|                         | Granted   |        |        | 14,157  |                 |           |                 | 5.24 to  92.90 |  |   |       | 28.63 | 
|                         | Exercised |        |        | (1,045  | )               |           |                 | 0.81 to  31.00 |  |   |       | 7.27  | 
|                         | Canceled  |        |        | (3,276  | )               |           |                 | 7.75 to  92.90 |  |   |       | 51.49 | 
|                         |           |        |        |         |                 |           |                 |                | 
|Balances, March 31, 2001 |           |        | 18,206 |         |                 |           | $0.81 to $89.95 |                |  | $ | 19.98 |      
|                         | Granted   |        |        | 12,258  |                 |           |                 | 4.56 to  16.99 |  |   |       | 9.87  | 
|                         | Exercised |        |        | (840    | )               |           |                 | 1.21 to  15.23 |  |   |       | 6.85  | 
|                         | Canceled  |        |        | (3,358  | )               |           |                 | 2.12 to  92.90 |  |   |       | 24.06 | 
|                         |           |        |        |         |                 |           |                 |                | 
|Balances, March 31, 2002 |           |        | 26,266 |         |                 |           | $0.81 to $87.60 |                |  | $ | 15.46 |      
|                         | Granted   |        |        | 2,730   |                 |           |                 | 0.56 to  13.02 |  |   |       | 5.25  | 
|                         | Exercised |        |        | (325    | )               |           |                 | 0.58 to  11.41 |  |   |       | 5.94  | 
|                         | Canceled  |        |        | (11,510 | )               |           |                 | 0.56 to  87.60 |  |   |       | 19.35 | 
|                         |           |        |        |         |                 |           |                 |                | 
|Balances, March 31, 2003 |           |        | 17,161 |         |                 |           | $0.76 to $60.35 |                |  | $ | 11.36 |      
|                         |           |        |        |         |                 |           |                 |                | 

At March 31, 2001, 2002 and 2003,
1.4 million, 6.4 million and 7.5 million options
were exercisable, respectively, under the Plans.

The following table summarizes information about
stock options under the Plans at March 31, 2003:

|                         |  |             |                     |  |                  |  |      |                  |  |         |             |  |  |                  |           |  |  |   |       | 
|------------------------ |  | ----------- | ------------------- |  | ---------------- |  | ---- | ---------------- |  | ------- | ----------- |  |  | ---------------- | --------- |  |  | - | ----- | 
|                         |  |            
|Options Outstanding      |  |             | Options Exercisable | 
|                         |  |             |                     | 
|                         |  | Weighted-   |                     |  |                  |  |     
|                         |  | Options     |                     |  | Average          |  |      |                  |  | Options |             |  | 
|                         |  | Outstanding |                     |  | Remaining        |  |      | Weighted-Average |  |         | Exercisable |  |  | Weighted-Average |          
|Range of Exercise Prices |  | at 3/31/03  |                     |  | Contractual Life |  |      | Exercise Price   |  |         | at 3/31/03  |  |  | Exercise Price   |          
|                         |  |             |                     |  |                  |  |      |                  |  |         |             |  |  |                  |          
|$0.76 to $7.75           |  |             | 2,946,194           |  |                  |  | 3.14 |                  |  | $       | 4.21        |  |  |                  | 1,401,310 |  |  | $ | 5.56  | 
|7.85 to 8.79             |  |             | 2,514,370           |  |                  |  | 4.60 |                  |  |         | 8.75        |  |  |                  | 606,407   |  |  |   | 8.64  | 
|8.93 to 9.27             |  |             | 3,296,555           |  |                  |  | 4.60 |                  |  |         | 9.26        |  |  |                  | 835,369   |  |  |   | 9.22  | 
|9.28 to 10.47            |  |             | 2,969,883           |  |                  |  | 4.28 |                  |  |         | 10.33       |  |  |                  | 1,170,206 |  |  |   | 10.37 | 
|10.52 to 13.53           |  |             | 2,821,762           |  |                  |  | 2.96 |                  |  |         | 12.40       |  |  |                  | 1,804,206 |  |  |   | 12.26 | 
|13.60 to 30.81           |  |             | 2,461,174           |  |                  |  | 4.36 |                  |  |         | 22.62       |  |  |                  | 1,657,581 |  |  |   | 22.15 | 
|31.23 to 60.35           |  |             | 150,599             |  |                  |  | 4.00 |                  |  |         | 57.65       |  |  |                  | 73,647    |  |  |   | 57.18 | 
|                         |  |             |                     |  |                  |  |      |                  |  |         |             |  |  |                  |          
|$0.76 to $60.35          |  |             | 17,160,537          |  |                  |  | 3.98 |                  |  | $       | 11.36       |  |  |                  | 7,548,726 |  |  | $ | 12.71 | 
|                         |  |             |                     |  |                  |  |      |                  |  |         |             |  |  |                  |          

The weighted-average fair value of the options
granted under the Stock Option Plans in 2001, 2002 and 2003,
calculated using the Black-Scholes option pricing model, was
$26.88, $6.36 and $3.29 respectively. The

F-18



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

following assumptions were used in the
Black-Scholes pricing model for options granted in 2001, 2002
and 2003:

|                      |  |      |              |  |      |  |              |      |  |  |              | 
|--------------------- |  | ---- | ------------ |  | ---- |  | ------------ | ---- |  |  | ------------ | 
|                      |  | 2001 |              |  | 2002 |  |              | 2003 | 
|                      |  |      |              |  |      |  |              |      | 
|Expected life (years) |  |      | 1.5 to 6.0   |  |      |  | 0.5 to 4.0   |      |  |  | 0.08 to 4.4  | 
|Interest rate         |  |      | 5.0% to 6.8% |  |      |  | 2.8% to 4.4% |      |  |  | 1.3% to 4.6% | 
|Volatility            |  |      | 89%          |  |      |  | 84%          |      |  |  | 82%          | 
|Dividend yield        |  |      |             |  |      |  |             |      |  |  |             | 

(11) Income Taxes

The provision (benefit) for income taxes for
the fiscal years ended March 31, 2001, 2002 and 2003 consisted
of the following (in thousands):

|          |                                      |      |        |        |      |   |         |        |   |   |        |        | 
|--------- | ------------------------------------ | ---- | ------ | ------ | ---- | - | ------- | ------ | - | - | ------ | ------ | 
|          |                                      | 2001 |        |        | 2002 |   |         | 2003   |  
|          |                                      |      |        |        |      |   |         |        |  
|Current:  |                                      |      |        |        |      |   |         |        |   |   |        |       
|          | Federal                              |      | $      | 11,588 |      |   | $       | (3,885 | ) |   | $      | 503    | 
|          | State                                |      |        | 3,423  |      |   |         | (464   | ) |   |        |       | 
|          | Foreign income and withholding taxes |      |        | 6,131  |      |   |         | 3,776  |   |   |        | 570    | 
|          |                                      |      |        |        |      |   |         |        |  
|          |                                      | $    | 21,142 |        |      | $ | (573    | )      |   | $ | 1,073  |       
|Deferred: |                                      |      |        |        |      |   |         |        |   |   |        |       
|          | Federal                              |      | $      | (1,639 | )    |   | $       | (5,636 | ) |   | $      | 11,242 | 
|          | State                                |      |        | (990   | )    |   |         | (3,260 | ) |   |        | 5,689  | 
|          | Foreign                              |      |        | (13    | )    |   |         | (1,579 | ) |   |        | 3,205  | 
|          |                                      |      |        |        |      |   |         |        |  
|          |                                      | $    | (2,642 | )      |      | $ | (10,475 | )      |   | $ | 20,136 |       
|          |                                      |      |        |        |      |   |         |        |  
|          |                                      | $    | 18,500 |        |      | $ | (11,048 | )      |   | $ | 21,209 |       
|          |                                      |      |        |        |      |   |         |        |  

The total tax provision (benefit) differs from
the amount computed by applying the federal statutory income tax
rate of 34 percent for 2001, 2002 and 2003 to income before
taxes and cumulative effect of change in accounting principle
for the following reasons (in thousands):

|                                                                |  |      |        |  |      |   |         |      |  |   |          |  
|--------------------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                |  | 2001 |        |  | 2002 |   |         | 2003 | 
|                                                                |  |      |        |  |      |   |         |      | 
|Federal income taxes (benefit) at statutory rate                |  | $    | 1,916  |  |      | $ | (49,205 | )    |  | $ | (115,209 | )
|Effect of non-deductible goodwill and non-cash
    compensation |  |      | 13,533 |  |      |   | 37,465  |      |  |   | 94,400   |  
|Effect of other permanent differences                           |  |      | 809    |  |      |   | 166     |      |  |   | (4,098   | )
|State income taxes, net of federal effect                       |  |      | 1,600  |  |      |   | (2,457  | )    |  |   |         |  
|Foreign tax rate differential                                   |  |      | 642    |  |      |   | (941    | )    |  |   | 103      |  
|Change in valuation allowance for deferred tax
    assets       |  |      |       |  |      |   | 3,924   |      |  |   | 46,013   |  
|                                                                |  |      |        |  |      |   |         |      | 
|                                                                |  | $    | 18,500 |  |      | $ | (11,048 | )    |  | $ | 21,209   |  
|                                                                |  |      |        |  |      |   |         |      | 

F-19



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The tax effects of the temporary differences that
give rise to the deferred tax assets and liabilities at
March 31, 2002 and 2003 are presented below (in thousands):

|                                          |                                 |                                 |        |        |        |   |   |        |         |  
|----------------------------------------- | ------------------------------- | ------------------------------- | ------ | ------ | ------ | - | - | ------ | ------- | -
|                                          |                                 | 2002                            |        |        | 2003   |  
|                                          |                                 |                                 |        |        |        |  
|Deferred tax assets attributable to:      |                                 |                                 |        |        |        |   |   |       
|                                          | Net operating loss carryforward |                                 | $      | 13,055 |        |   | $ | 33,052 |        
|                                          | Foreign tax credit carryforward |                                 |        | 3,084  |        |   |   | 4,402  |        
|                                          | Reserves and allowances         |                                 |        | 4,704  |        |   |   | 6,832  |        
|                                          | Goodwill  Omnitech             |                                 |        |       |        |   |   | 2,546  |        
|                                          | Depreciation                    |                                 |        | 350    |        |   |   | 407    |        
|                                          | Capital loss carryforward       |                                 |        | 3,351  |        |   |   | 3,305  |        
|                                          |                                 |                                 |        |        |        |  
|                                          |                                 | Total gross deferred tax assets |        |        | 24,544 |   |   |        | 50,544  |  
|                                          |                                 | Less valuation allowance        |        |        | (4,221 | ) |   |        | (50,235 | )
|                                          |                                 |                                 |        |        |        |  
|                                          |                                 | Net deferred tax assets         |        |        | 20,323 |   |   |        | 309     |  
|Deferred tax liabilities attributable to: |                                 |                                 |        |        |        |   |   |       
|                                          | Goodwill  Omnitech             |                                 |        | 248    |        |   |   |       |        
|                                          | Other                           |                                 |        | 241    |        |   |   | 309    |        
|                                          |                                 |                                 |        |        |        |  
|                                          |                                 | Total deferred tax liabilities  |        |        | 489    |   |   |        | 309     |  
|                                          |                                 |                                 |        |        |        |  
|Net deferred income taxes                 |                                 | $                               | 19,834 |        |        | $ |  |       
|                                          |                                 |                                 |        |        |        |  

During 2003, the Company recorded a non-cash
charge of $46.0 million to increase the valuation allowance
against net Federal, state and foreign deferred tax assets. The
valuation allowance was recorded in accordance with the
provisions of SFAS No. 109 , Accounting for Income
Taxes, which requires an assessment of both negative and
positive evidence when determining the need for a valuation
allowance. Management concluded that the Companys losses
in recent periods represented sufficient negative evidence to
require a full valuation allowance against its net Federal,
state and foreign deferred tax assets under SFAS No. 109.

As of March 31, 2003, the Company has net
operating loss carryfowards for federal income tax purposes of
approximately $47.1 million, which are available to offset
future federal taxable income through 2023. The Company also has
net operating loss carryforwards for state income tax purposes
of approximately $83.0 million, which may be used to offset
future state taxable income. The expiration of these loss
carryforwards ranges between two and twenty years. In addition,
the Company has foreign net operating loss carryforwards of
approximately $45.0 million, of which approximately
$26.8 million expire through 2018, and the remainder may be
carried forward indefinitely. The Company has foreign tax credit
carryforwards of approximately $3.2 million, the majority
of which expire in 2007.

The Company made net cash payments for income
taxes in 2001, 2002 and 2003 of $0.3 million,
$7.3 million and $3.0 million, respectively

(12) Geographic Data

The Company operates only in one segment,
providing consulting services. Even though the Company has
different legal entities operating in various countries, its
operations and management are performed on a global basis.

F-20



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Data for the geographic regions in which the
Company operates is presented below for the periods presented in
the consolidated statements of operations and the consolidated
balance sheets (in thousands):

|                                    |                     |                         |   |         |         |  |   |         |         |  |   |        |         | 
|----------------------------------- | ------------------- | ----------------------- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------ | ------- | 
|                                    |                     | 2001                    |   |         | 2002    |  |   | 2003    |        
|                                    |                     |                         |   |         |         |  |   |         |        
|Net revenues:                       |                     |                         |   |         |         |  |   |         |         |  |   |       
|                                    | North America       |                         | $ | 223,890 |         |  | $ | 103,098 |         |  | $ | 79,278 |        
|                                    | Europe              |                         |   | 34,650  |         |  |   | 59,036  |         |  |   | 50,017 |        
|                                    | All other countries |                         |   | 7,996   |         |  |   | 19,081  |         |  |   | 3,679  |        
|                                    |                     |                         |   |         |         |  |   |         |        
|                                    |                     | Total net revenues      |   | $       | 266,536 |  |   | $       | 181,215 |  |   | $      | 132,974 | 
|                                    |                     |                         |   |         |         |  |   |         |        
|Long-lived assets (as of March 31): |                     |                         |   |         |         |  |   |         |         |  |   |       
|                                    | North America       |                         | $ | 28,210  |         |  | $ | 22,884  |         |  | $ | 7,920  |        
|                                    | Europe              |                         |   | 290,530 |         |  |   | 230,482 |         |  |   | 3,895  |        
|                                    | All other countries |                         |   | 1,126   |         |  |   | 1,351   |         |  |   | 436    |        
|                                    |                     |                         |   |         |         |  |   |         |        
|                                    |                     | Total long-lived assets |   | $       | 319,866 |  |   | $       | 254,717 |  |   | $      | 12,251  | 
|                                    |                     |                         |   |         |         |  |   |         |        

The segregation of revenue by geographic region
is based upon the location of the legal entity performing the
services. Prior to fiscal 2001, all revenue was generated in
North America.

(13) Benefit Plans

401(k)
Plan

The Company has a defined contribution plan
covering substantially all of its North American employees. This
plan is qualified under Section 401(k) of the Internal
Revenue Code of 1986. The Company may elect to make
contributions to this plan but to date has not done so.

(14) Business Combinations

On November 28, 2000, the Company acquired
Cluster Telecom B.V. (Cluster), a pan-European
management consulting firm specializing in wireless technology,
internet and digital strategies. Under the terms of the
agreement, the Company paid $494.2 million, consisting of
$44 million in cash and an aggregate of 6.3 million
shares of the Companys Class B Common Stock and
7.5 million options to purchase shares of the
Companys Class B Common Stock. In connection with the
acquisition, the Company changed its name from Diamond
Technology Partners Incorporated to DiamondCluster
International, Inc. The excess of net assets acquired
(Goodwill) recorded for the Cluster acquisition was
approximately $301.4 million. Additionally, the Company
recorded unearned compensation in connection with this
acquisition.

In May 2000, the Company acquired Momentus Group
Limited (Momentus), a London-based e-business
consulting company. Under the terms of the acquisition
agreement, the Company paid $5.7 million, consisting of
approximately $2.9 million in cash and 44,252 shares of the
Companys Class A Common Stock. Additionally, Momentus
shareholders received 35,985 shares of the Companys
Class A Common Stock during fiscal year 2002 related to the
achievement of certain performance measures. The goodwill
recorded for the Momentus acquisition was approximately
$5.9 million.

In October 1999, the Company acquired Leverage
Information Systems, Inc. (Leverage), a San
Francisco based systems architecture and development company
specializing in the building of complex web sites and intranets.
Under the terms of the acquisition, the Company paid
$3.4 million, consisting of $1.0 million in cash and
97,500 shares of the Companys Class A Common Stock.
The goodwill recorded for the Leverage acquisition was
approximately $3.3 million.

F-21



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In April 1999, the Company acquired OmniTech
Consulting Group, Inc. (Omnitech), a Chicago-based
change management firm specializing in web-based and other
multimedia corporate learning. Under the terms of the
acquisition agreement, the Company paid $9.0 million,
consisting of $6.0 million in cash (which included an
annual earn-out of $1.0 million for each of the years ended
March 31, 2000 and March 31, 2001 for the achievement
of certain performance measures), a $1.0 million note
(which has been fully paid) and 173,461 shares of the
Companys Class A Common Stock. The goodwill recorded
for the Omnitech acquisition was approximately $8.8 million

The acquisitions were accounted for under the
purchase method of accounting and, accordingly, the operating
results of OmniTech, Leverage, Momentus and Cluster have been
included in the Companys consolidated financial statements
since the dates of the acquisitions. The amount of goodwill
recorded for OmniTech, Leverage, Momentus and Cluster
approximated $319.4 million, and prior to April 1,
2002, was being amortized on a straight-line basis over useful
lives ranging between 5 and 25 years. Amortization of
goodwill was $21.9 million and $61.9 million for the
years ended March 31, 2001 and 2002. respectively. With the
adoption of SFAS No. 142, goodwill and other indefinite
life intangible assets (intangibles) are no longer
subject to amortization, rather they are subject to an
assessment for impairment whenever events or circumstances
indicate that impairment may have occurred, but at least
annually, by applying a fair value based test. The Company
completed its initial impairment test on goodwill using the
methodology described in SFAS No. 142 in the first quarter
of fiscal 2003, and conducted an annual assessment of impairment
based on fair value in accordance with the requirements of SFAS
No. 142 during the fourth quarter of fiscal year 2003. In
connection with the adoption of SFAS No. 142 on
April 1, 2002, the Company recognized an impairment loss of
$140.9 million as the cumulative effect of a change in
accounting principle. In connection with the annual assessment
during the fourth quarter of fiscal year 2003, the Company
recognized an additional impairment loss of $94.3 million.
The carrying value of goodwill as of March 31, 2003 was
zero.

The following summarized unaudited pro forma
financial information for the year ended March 31, 2001
assumes the Momentus and Cluster acquisitions occurred as of
April 1, 2000 (in thousands, except per share data):

|                                                                      |  |      |         |  
|--------------------------------------------------------------------- |  | ---- | ------- | -
|                                                                      |  | 2001 |        
|                                                                      |  |      |        
|Revenue before out-of-pocket-expense
    reimbursements (net revenue) |  | $    | 327,203 |  
|                                                                      |  |      |        
|Total revenue (including out-of-pocket expense
    reimbursements)    |  | $    | 375,722 |  
|                                                                      |  |      |        
|Net loss                                                              |  | $    | (75,484 | )
|                                                                      |  |      |        
|Net loss per share: basic and diluted                                 |  | $    | (2.36   | )
|                                                                      |  |      |        

These amounts are based upon certain assumptions
and estimates, and do not necessarily represent results that
would have occurred if the acquisitions had taken place on the
basis assumed above, nor are they indicative of the results of
future combined operations.

(15) Foreign Exchange Risk
Management

Objectives
and Context

The Company operates internationally; therefore
its earnings, cash flows and financial position are exposed to
foreign currency risk from foreign currency-denominated
receivables and payables, forecasted service transactions, and
net investments in certain foreign operations. These items are
denominated in various foreign currencies, including the euro,
the pound sterling and the brazilian real.

Management believes it is prudent to minimize the
variability caused by foreign currency risk. Management attempts
to minimize foreign currency risk by pricing contracts in the
respective local countrys functional currency

F-22



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and by using derivative instruments when
necessary. The Companys financial management continually
monitors foreign currency risk and the use of derivative
instruments. The Company does not use derivative instruments for
purposes other than hedging net investments in foreign
subsidiaries.

Strategies

International revenues are generated primarily
from sales of services in various countries and are typically
denominated in the local currency of each country, most of which
now use the euro. The Companys foreign subsidiaries also
incur most of their expenses in the local currency. Accordingly,
all foreign subsidiaries use the local currency as their
functional currency. As a result, management does not believe
that its financial position is significantly exposed to foreign
currency risk from foreign currency-denominated receivables and
payables or forecasted service transactions.

DiamondCluster has net investments in foreign
operations located throughout Europe and Latin America. In order
to mitigate the impact of foreign currency movements on the
Companys financial position, in some cases the Company
hedges its euro exposures through the use of euro/ U.S. dollar
forward contracts. These contracts have been designated and have
qualified as hedging instruments of the foreign currency
exposure related to the Companys net investment in its
foreign operations. Accordingly, the net amount of gains or
losses on these forward foreign exchange contracts offset losses
and gains on the Companys exposure to foreign currency
movements related to its net investments in its foreign
operations and are reflected in the cumulative translation
adjustment account and included as a component of other
comprehensive income (loss). At March 31, 2002, the Company
had one euro/ U.S. dollar forward contract outstanding in the
notional principal amount of EUR 62.8 million. On
June 28, 2002, the Company settled its euro/ U.S. dollar
forward contract for EUR 62.8 million. As noted above, the
Company entered into this contract to mitigate the effect of an
adverse movement of foreign exchange rates. As a result of the
weakening of the U.S. dollar against the euro in the first
quarter of fiscal 2003, the Company recorded a net loss on the
forward exchange contract of $7.4 million in the cumulative
translation adjustments account which was offset by the related
gain on the net investment in the foreign operations during the
period. As of March 31, 2003, there were no open euro/ U.S.
dollar or other foreign currency contracts outstanding.

(16) Related Party Transactions

It is the Companys policy to reimburse the
business use of private airplanes in connection with Company
business in order to minimize the time spent by employees
traveling to client sites, provided the cost of such travel is
at or below prevailing market rates for private or chartered
aircrafts. During the year ended March 31, 2003, in
accordance with this policy, the Company reimbursed two
executive officers of the Company $0.6 million for
business-related travel on airplanes they each indirectly owned.

F-23



---



##### 



DIAMONDCLUSTER INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(17) Quarterly Financial Information
(Unaudited)

The following table presents the unaudited
quarterly financial information for fiscal 2002 and 2003 (in
thousands, except per share amounts):

|                                                                                         |  |               |          |   |         |   |         |        |  |   |         |   |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ------- | - | ------- | ------ |  | - | ------- | - |  | - | -------- | -
|                                                                                         |  |              
|                                                                                         |  | Quarter Ended |         
|                                                                                         |  |               |         
|                                                                                         |  | June 30       |          |   | Sept 30 |   |         | Dec 31 |  |   | Mar 31  |  
|                                                                                         |  |               |          |   |         |   |         |        |  |   |         |  
|Year Ended March 31, 2002                                                                |  |               |          |   |         |   |         |        |  |   |         |   |  |   |          |  
|Revenue before out-of-pocket expense
    reimbursements (net revenue)                    |  | $             | 58,185   |   |         | $ | 50,756  |        |  | $ | 36,159  |   |  | $ | 36,115   |  
|Total revenue (including out-of-pocket expense
    reimbursements)                       |  |               | 65,708   |   |         |   | 56,765  |        |  |   | 40,396  |   |  |   | 40,091   |  
|Loss from operations                                                                     |  |               | (29,142  | ) |         |   | (29,520 | )      |  |   | (54,041 | ) |  |   | (33,170  | )
|Loss before taxes                                                                        |  |               | (29,563  | ) |         |   | (29,885 | )      |  |   | (52,688 | ) |  |   | (32,584  | )
|Net loss                                                                                 |  |               | (30,448  | ) |         |   | (28,187 | )      |  |   | (43,108 | ) |  |   | (31,929  | )
|Basic loss per share                                                                     |  | $             | (1.00    | ) |         | $ | (0.92   | )      |  | $ | (1.39   | ) |  | $ | (1.02    | )
|Diluted loss per share                                                                   |  | $             | (1.00    | ) |         | $ | (0.92   | )      |  | $ | (1.39   | ) |  | $ | (1.02    | )
|                                                                                        
|Year Ended March 31, 2003                                                                |  |               |          |   |         |   |         |        |  |   |         |   |  |   |          |  
|Revenue before out-of-pocket expense
    reimbursements (net revenue)                    |  | $             | 38,327   |   |         | $ | 38,107  |        |  | $ | 30,077  |   |  | $ | 26,463   |  
|Total revenue (including out-of-pocket expense
    reimbursements)                       |  |               | 43,793   |   |         |   | 44,692  |        |  |   | 33,528  |   |  |   | 30,292   |  
|Loss from operations                                                                     |  |               | (26,510  | ) |         |   | (35,056 | )      |  |   | (25,792 | ) |  |   | (110,774 | )
|Loss before income taxes and the cumulative
    effect of change in accounting principle |  |               | (26,809  | ) |         |   | (35,132 | )      |  |   | (25,455 | ) |  |   | (110,592 | )
|Cumulative effect of change in accounting
    principle                                  |  |               | (140,864 | ) |         |   |        |        |  |   |        |   |  |   |         |  
|Net loss                                                                                 |  |               | (165,758 | ) |         |   | (27,755 | )      |  |   | (20,917 | ) |  |   | (145,631 | )
|Basic loss per share                                                                     |  | $             | (5.21    | ) |         | $ | (0.89   | )      |  | $ | (0.67   | ) |  | $ | (4.59    | )
|Diluted loss per share                                                                   |  | $             | (5.21    | ) |         | $ | (0.89   | )      |  | $ | (0.67   | ) |  | $ | (4.59    | )

F-24



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##### 





INDEPENDENT AUDITORS REPORT


The Board of Directors

DiamondCluster International, Inc.:


We have audited the accompanying consolidated
balance sheets of DiamondCluster International, Inc. and
subsidiaries as of March 31, 2002 and 2003, and the related
consolidated statements of operations and comprehensive loss,
stockholders equity and cash flows for each of the years
in the three-year period ended March 31, 2003. In
connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial
statement schedule. This financial statement schedule is the
responsibility of the Companys management. Our
responsibility is to express an opinion on the schedule based on
our audits.

In our opinion, such financial statement
schedule, when considered in relation to the consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.



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

Chicago, Illinois

April 25 , 2003


S-1



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##### 



DIAMONDCLUSTER INTERNATIONAL, INC.



SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS


|                                   |                                                                  |                        |   |       |            |  |   |            |  |            |          |       |  |  |   |       | 
|---------------------------------- | ---------------------------------------------------------------- | ---------------------- | - | ----- | ---------- |  | - | ---------- |  | ---------- | -------- | ----- |  |  | - | ----- | 
|Column A                           |                                                                  | Column B               |   |       | Column C   |  |   | Column D   |  |            | Column E |      
|                                   |                                                                  |                        |   |       |            |  |   |            |  |            |          |      
|                                   |                                                                  | Balance at             |   |       | Charged to |  |   |            |  | Balance at |         
|                                   |                                                                  | Beginning              |   |       | Costs and  |  |   |            |  | End of     |         
|Description                        |                                                                  | of Period              |   |       | Expenses   |  |   | Deductions |  |            | Period   |      
|                                   |                                                                  |                        |   |       |            |  |   |            |  |            |          |      
|                                   |                                                                  |                       
|                                   |                                                                  | (Amounts in thousands) |  
|For the Year Ended March 31, 2003: |                                                                  |                        |   |       |            |  |   |            |  |            |          |       |  |  |   |      
|                                   | Deducted from accounts receivable for
    uncollectible accounts |                        | $ | 1,089 |            |  | $ | 3,324      |  |            | $        | 2,816 |  |  | $ | 1,597 | 
|For the Year Ended March 31, 2002: |                                                                  |                        |   |       |            |  |   |            |  |            |          |       |  |  |   |      
|                                   | Deducted from accounts receivable for
    uncollectible accounts |                        | $ | 2,028 |            |  | $ | 1,810      |  |            | $        | 2,749 |  |  | $ | 1,089 | 
|For the Year Ended March 31, 2001: |                                                                  |                        |   |       |            |  |   |            |  |            |          |       |  |  |   |      
|                                   | Deducted from accounts receivable for
    uncollectible accounts |                        | $ | 1,279 |            |  | $ | 9,293      |  |            | $        | 8,544 |  |  | $ | 2,028 | 

S-2