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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number: 000-22125

DiamondCluster International, Inc.

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

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, 2003 there were 33,716,210 shares of Common Stock of Registrant outstanding. The aggregate market value of the Common Stock of the Registrant held by non-affiliates as of September 30, 2003 was an estimated $202.1 million, computed based upon the closing price of $6.84 per share on September 30, 2003.

      As of May 31, 2004, there were 39,188,037 shares of Common Stock of the Registrant outstanding.

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.

DIAMONDCLUSTER INTERNATIONAL, INC.

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

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PART I

Available Information

      DiamondCluster International, Inc.’s executive offices are located at Suite 3000, John Hancock Center, 875 North Michigan Avenue, Chicago, Illinois 60611, and our telephone number is (312) 255-5000. Our stock is traded on the NASDAQ National Market under the symbol “DTPI.” Our internet address is http://www.diamondcluster.com. We make available free of charge on the Investor Relations section of our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (the “SEC”). We also make available through our website other reports filed with the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of that Act, as well as our Code of Business Conduct and Ethics. We do not intend for information contained in our website to be part of this Annual Report on Form 10-K.

      In this Annual Report on Form 10-K, we use the terms “DiamondCluster,” “we,” “our Company,” “the Company,” “our,” and “us” to refer to DiamondCluster International, Inc. and its wholly-owned subsidiaries. All references to years, unless otherwise noted, refer to our fiscal year, which ends March 31.

Overview

      DiamondCluster International, Inc. (“DiamondCluster”) is a premier global management consulting firm. We help leading organizations worldwide to understand and leverage technology to realize value in their businesses. Our firm offers clients skills in strategy, technology and program management to help companies reduce costs, incorporate flexibility into their businesses, address changing regulations and markets, improve operations, and grow their businesses. We combine innovative strategic thinking, deep industry expertise and a thorough understanding of technology to deliver successful business solutions. We work collaboratively with our clients using small, multidisciplinary teams of consultants because we believe the most lasting and significant improvements occur when the client is integrally involved in the change. Our approach of using multidisciplinary teams allows our consultants to identify and design solutions that traditional approaches, because of their sequential nature, may not identify. We go to market by vertical industry and focus on industries that are strategically dependent upon technology. We currently serve clients in five vertical industries: financial services, insurance, telecommunications, healthcare 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 $154.8 million of net revenues (before reimbursements of out-of-pocket expenses) from 110 clients in fiscal year 2004 and at March 31, 2004, employed 481 consultants and had nine offices in North America, Europe and Latin America, including offices in Barcelona, Chicago, Düsseldorf, Lisbon, London, Madrid, Münich, Paris, 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 requirements, economic cycles, new competition, industry and market consolidation, organizational restructurings, and new technologies. Management teams are constantly assessing the potential impact of these changes on their businesses. Many of these changes are significant and impact entire organizations. Other changes impact specific products or functional areas.

      Among the most pervasive of these changes is technology. Technology often fundamentally affects how a company relates to its customers, suppliers, employees, investors and competitors. As such, organizations

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      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. 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 to design and, importantly, to implement a solution that will improve their business.

      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 comprise a majority of the consulting industry, are consolidating while also increasing their size and scope of service offerings to include larger and more complex projects, such as business process outsourcing. Second, there has been a growing acceptance around the world of the offshore programming firms, which offer a compelling economic alternative or programming services. These firms have put a good deal of pressure on the traditional information technology service providers for this type of business. Finally, 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, technology and program management, an increasingly valuable role for the foreseeable future.

      As both business and technology become increasingly complex, the market for consulting services grows. We believe that this increasing complexity, coupled with consolidation and other shifts in the consulting marketplace, also increases the importance of an objective advisor that is able to 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.

Our Competitive Strengths

      We combine innovative strategic thinking, in-depth vertical industry expertise, a global presence, a thorough understanding of technology and its applications, and complex program management skills 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 use technology to reduce costs, incorporate flexibility into their businesses, address changing regulations and markets, improve operations, and grow their businesses. We believe the following attributes distinguish us from our competitors:

      Objectivity. We provide our clients with objective advice in the areas of strategy, technology, and program management. 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 that 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 understand and leverage technology in their businesses. 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

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      Small, Multidisciplinary Teams. We work with our clients from the earliest stages of study and assessment through the creation and implementation of a solution using small teams with skills in strategy, technology and program management. We believe our approach of using small, multidisciplinary teams provides our clients with a common perspective and breadth of expertise not available from other consulting firms.

      Strategic Industry Insight and Expertise. We focus on serving five vertical industries: financial services, insurance, telecommunications, healthcare, 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.

      Senior-Level Relationships. We sell our services to “c-level” buyers within an organization (i.e., CEO, COO, CFO, CIO, CMO). We also have in place a number of programs that maintain these relationships in between engagements (see “Business Development”). 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 implement the solution to achieve the results.

      Ability to Quickly Evolve Our Offerings. The consulting industry is subject to changes in economic, business and technology cycles, which requires a consulting firm to be very agile in order to maintain the relevancy of its services to the market. Our approach of identifying and scaling new service offerings enables us to quickly evaluate and change our service offerings to meet current market demands. 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 universities, and have 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 objective partner to help them understand and leverage technology to reduce costs, incorporate flexibility into their businesses, address changing regulations and markets, improve operations, and grow their businesses. Our business model is designed to allow us to be an objective and trusted advisor who provides the highest value of services to our

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      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 universities, as well as from industry and from other consulting firms. 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.

      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 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, while creating repeatable frameworks that can be used to implement solutions more effectively and efficiently. Internal and external experts, as well as industry practitioners including the DiamondCluster Fellows (see “Business Development — Capture Phase”), 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 economic, business and technology cycles. We currently serve clients across the globe through nine offices in North America, Europe and Latin America. We serve clients in five key industries: financial services, insurance, telecommunications, healthcare, 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 markets we serve. 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.

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Our Services

      DiamondCluster provides services that help leading organizations worldwide understand and leverage technology to reduce costs, incorporate flexibility into their businesses, address changing regulations and markets, improve operations, and grow their businesses. 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 strategy and technology in tandem. 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, 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.

      We offer services to help leading organizations worldwide to understand and leverage technology to realize value in their businesses. We deliver our services through small teams with consultants skilled in strategy, technology and program management. Generally, our services are designed to help companies reduce costs, incorporate flexibility into their businesses, address changing regulations and markets, improve operations, and grow their businesses.

      We go to market by vertical industry and focus on industries that are strategically dependent on technology. While our 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, we continuously examine and monitor our business and combine our core skills into relevant service offerings.

      We deliver both vertical industry-specific services, as well as broader based horizontal services that apply across many industries. Our vertical services are designed to address the most pressing industry-specific issues involving technology that are facing executives in our targeted industries. While the skills required to deliver these services may be the same for each vertical (i.e., strategy, technology and program management), deep knowledge of the industry is also required. Our horizontal services, which also address executives’ most pressing issues involving technology, require similar skills across industries and tend to have more repeatable

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     Vertical Industries Served

      We currently serve clients in five vertical industries: financial services, insurance, telecommunications, healthcare, and the public sector. The company also has an incubator industry it calls “Enterprise” that encompasses clients in industries outside of those formally served.

      Financial Services Practice. Our financial services 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 through strategic sourcing, prepare for Basel II implementation, grow revenues by developing enterprise-wide payment strategies and multi-channel integration strategies, and assess various leading technologies. Representative clients in the financial services industry have included: Federal Reserve Bank of Chicago; Goldman, Sachs & Co.; KeyBank National Association; MasterCard International, LLC; and Visa International Service Association. During fiscal year 2004, financial services clients represented 30% of net revenues.

      Insurance Practice. Our insurance practice provides services to property and casualty insurance (personal and commercial lines), life insurance, and reinsurance providers. We help our insurance clients to create and implement business-aligned technology strategies to drive higher performance, optimize data and information systems to speed decision making, reduce costs, support product development, increase revenue by leveraging technology to improve channel management, and design and execute market-differentiation customer service strategies, Representative clients in the insurance industry have included: Allstate Insurance Company; Standard Insurance Company; and Royal Group, Inc. During fiscal year 2004, insurance clients represented 17% of net revenues.

      Telecommunications Practice. Our telecommunications industry practice provides services to operators, vendors and content providers in the equipment, wireless, cable and fixed line markets. We assist our telecommunications clients with business and marketing strategy, customer behavior insight, profit improvement, wireless and broadband strategy and execution, wireless bid and launch, convergence, and IT assessment and strategy issues. Representative telecommunications clients have included: Belgacom Mobile N.V./ S.A.; Deutsche Telekom, AG; France Telecom, SA; Orange France, SA; Sprint PCS; and Telefónica Móviles SA. During fiscal year 2004, telecommunications clients represented 32% of net revenues.

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      Healthcare Practice. Our healthcare industry practice provides services to large healthcare payers, providers, medical equipment manufacturers, and pharmaceutical companies. We help our healthcare clients address some of their most important business issues including medical and administrative costs reduction, post-merger integration, value extraction, and legacy system rationalization. Representative healthcare clients have included: Aetna Life Insurance Company; Connecticut General Life Insurance Company; Excellus Health Plan, Inc.; Blue Cross Blue Shield of Massachusetts, Inc. During fiscal year 2004, healthcare clients represented 8% of net revenues.

      Public Sector Practice. The public sector 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 have included: Chicago Transit Authority and The Regents of the University of California. We first began offering services to the public sector in North America during fiscal year 2002. During fiscal year 2004, public sector clients represented 3% of net revenues.

      Enterprise. The Enterprise practice, a North American practice, is a cross-industry practice. It’s role is to identify, incubate and scale new vertical practices. The Enterprise practice currently focuses on marketing and customer-facing operations for its clients. The Enterprise practice, previously called the retail and distribution industry practice, have included clients such as: American Greetings Corporation; Fisher Scientific International; Deere & Company; and Lowe’s Companies, Inc. During fiscal year 2004, the Enterprise practice clients represented 10% of net revenues.

Business Development

      We primarily sell our services to “c-level” executives of national and multinational businesses. Our fees our sourced from both operating budgets as well as information technology budgets within our clients’ organizations. Our partners (the term “partner” is an internal designation only and does not refer to a partner of a general or limited partnership; all partners are vice presidents of the Company) are assigned to a vertical practice (see “Our Services: Vertical Industries Served”). Each vertical industry practice maintains a list of target prospects and a senior partner is assigned revenue and profit contribution responsibility for each practice.

      Our business development process is designed to efficiently attract the Company’s best prospects, leverage the firm’s strong track record of project successes and references, and then hold them in a long-term, value-added relationship. Across the various phases of the business development process, programs are designed to build brand recognition, create and provide for the placement of new intellectual capital, promote industry practices, and develop and deepen client relationships in a focused manner. The process has four stages — Attract, Capture, Convert and Retain — each with different objectives and programs within each stage specifically designed to support these objectives.

     Attract Phase

      Programs within the Attract phase of our business development pipeline are designed to create awareness of DiamondCluster and its capabilities. There are a number of programs within the Attract phase including: media relations, speeches, books, published viewpoints, surveys, and an Internet website for the Company. These programs are built around specific intellectual capital within our target industries, and are very focused on executives within our target clients and prospects.

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      Books, surveys and published viewpoints provide intellectual capital for our business development programs. Books published by employees or Fellows in the past include: Unleashing the Killer App: Digital Strategies for Market Dominance, The Seven Steps to Nirvana: Strategic Insights into eBusiness Transformation, and E-Learning: Strategies for Delivering Knowledge in the Digital Age. Recent surveys conducted by the Company, or in conjunction with an academic institution, include: “The 2004 Global IT Outsourcing Study,” “IT Portfolio Management: Challenges and Best Practices,” “The 2002 Global IT Outsourcing Study.” Recently published viewpoints produced by the Company include: “Telecom: Turnaround Program For Fixed Operators”, “The Seven Deadly Sins of Customer Value Management,” “Voice Pricing in a 3G World”, “Enterprise Portals: Building Value Through Organizational Knowledge,” and “Unified Communications: The Time Is Now.”

     Capture Phase

      Capture programs are designed to create a relationship with interested executives, while continuing to showcase the Company’s capabilities. We build relationships directly through our partners, as well as collaboratively with our DiamondCluster Fellows and Client Relationship Executives (see below).

      Exchange. The Exchange is a series of executive learning forums that we launched in February 1997. CEOs and other senior executives within our target vertical industries 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 Fellows, our partners and other business leaders. In fiscal year 2004, we conducted three Exchange programs, entitled: “The Global Marketplace for Knowhow”, The No-Nonsense Guide to Technology Management”, and “Seven Strategies to Manage Customer Migration”.

      Industry Meetings. From time to time, the firm will host small groups of senior-level clients and prospects to explore topical industry issues that leverage the firm’s service offerings. These settings provide a very focused and personal setting to build relationships and showcase our knowledge.

      Client Relationship Executives. Client Relationship Executives, or CRE’s, provide an alternative sales channel for DiamondCluster. Our CREs are comprised of retired executives, executives-in-transition and professional sales executives. The program leverages these executives’ senior-level contacts within our targeted vertical industries. The program is also designed to enhance brand awareness of our capabilities among industry sector senior executives. CRE’s do not directly sell DiamondCluster services, but facilitate introductions to industry buyers of consulting services. Our CRE’s have non-exclusive contracts with the firm and are paid on commission-only basis. At March 31, 2004, DiamondCluster had 39 CRE’s globally, the majority of which are former CEO’s, COO’s and CFO’s.

      DiamondCluster Fellows. The DiamondCluster Fellows are a group currently comprised of 12 recognized business and technology leaders associated with DiamondCluster. 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, 2004, DiamondCluster Fellows include:

Vincent Barabba is the recently retired General Manager of Corporate Strategy and Knowledge Development of the General Motors Corporation. Mr. Barabba twice served as Director of the United States Bureau of the Census. He has served as U.S. Representative to the Population Commission of the United Nations. Mr. Barabba is the author of Meeting of the Minds, and co-author of Hearing the Voice of the Market and Decision Making Amid Turbulence, the Story of the 1980 Census.

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	John Perry Barlow is 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 Wired magazine and co-founder and Vice Chairman of the Electronic Frontier Foundation, an organization that promotes freedom of expression in digital media.
	Gordon Bell is 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 Bricklin is Chief Technology Officer of Interland, Inc. the largest Web hosting and online services company dedicated to helping small and medium businesses achieve success by providing the knowledge, services and tools to build, manage and promote businesses. Mr. Bricklin is best known for co-developing VisiCalc, the first electronic spreadsheet, while he was a student at the Harvard Business School. VisiCalc is widely credited for fueling the rapid growth of the personal computer industry.
	George Day is 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).
	Steve Hindman is 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.
	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 Mui is 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 Times called a “practical and persuasive guide” to the dramatic changes being wrought by technology. Mr. Mui was a Partner with DiamondCluster from 1996 to 2003.
	B. Joseph Pine II is 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.
	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 Spira is former President and Chief Operating Officer of American Greetings Corporation. He co-founded Cleveland Consulting Associates in 1974 (which was acquired by Computer Science

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	Corp. in 1989) after spending several years with Ernst & Young and A.T. Kearney. Jim was a Partner with DiamondCluster from 1995 to 1999.
	Marvin Zonis, Ph.D. is a Professor of International Political Economy and Leadership at the University of Chicago Graduate School of Business. He is an expert and consultant on political risk and emerging markets, Mideast politics, the oil industry, and the foreign policies of Russia and the United States.

      Programs within this phase are designed to convert target prospects into client relationships. The programs in the Convert phase support our partners during the process of identifying and discussing potential engagements, negotiating the terms of engagements, and directing the staffing and execution of consulting projects.

      DiamondCluster Knowledge Center. The DiamondCluster Knowledge Center provides project teams with access to both internal and external research and expertise on a variety of industry, technology, economic and business topics on a global basis. The Knowledge Center is also responsible for converting existing project work into repeatable frameworks that can be leveraged for future projects.

      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.

      Key Network Alliance companies include Embarcadero, Enamics, Hewlett-Packard, Intel, Oracle, and Softwired. As of March 31, 2004, there were three companies in our Strategic Alliance program:

      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

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     Retain Phase

      Programs in the Retain phase are designed to help our partners maintain ongoing relationships and offer former clients ongoing value while allowing the Company to identify opportunities for additional work.

      Exchange. A proactive effort is made to ensure that clients that are not in an active consulting engagement continue to participate in the Exchange, ensuring that the Company keeps them in a value-added relationship.

      Ongoing Communications. Past clients are kept on a list to receive relevant intellectual capital from the Company, including survey results, viewpoints, and reprints of relevant articles.

Employees and Culture

      Employees. As of March 31, 2004, we had 652 employees. Of these employees, 481 were client-serving professionals and 171 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 provide effective multidisciplinary teams 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.

      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 reputable 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, 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 and equity-based incentive

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      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. Equity that we issue to partners typically vests ratably over five years. Individuals below the partner level are awarded annual bonuses comprised of cash and equity based on their performance and the Company’s overall performance. Our non-partners are granted equity at the time of hire, 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 firms that 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 firms that 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 vendors that 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. Mergers or consolidations 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.

      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.

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Executive Officers of the Registrant

      At present, our executive officers are as follows:

      Melvyn E. Bergstein co-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 Andersen Consulting, now Accenture.

      Karl E. Bupp co-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.

      Adam J. Gutstein co-founded Diamond in January 1994 and became President in June 2004. He has served as director of the Company since August of 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. From May 2000 through October 2000, Mr. Gutstein led our corporate development efforts resulting in the successful acquisition of Cluster Consulting in late 2000. From November 2000 through July 2003, Mr. Gutstein assumed the title of President, North America, and in July 2003 became Managing Director of Europe and Latin 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. McClayton joined 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 privately held audit clients, and led the firm’s Chicago-based global financial markets practice for ten years.

      Jay D. Norman joined the Company in January 2003 as Partner responsible for the financial services and insurance practice area. In June 2004, he became Managing Director of North America, responsible for responsible for the sales and delivery of our North American services, revenue and profit contribution. Prior to joining the Company, Mr. Norman was a Partner at PricewaterhouseCoopers, leading their financial services global e-business practice. His experience also includes positions with McKinsey and Company, Inc. and Accenture.

      John J. Sviokla joined the Company 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 Marketspace and Exploiting the Virtual Value Chain, both appearing in the Harvard Business Review. Dr. Sviokla has authored over 90 articles and

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      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.

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

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

      No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of fiscal 2004.

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PART II

      The 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 intraday sales prices for our Common Stock.

      On June 1, 2004, the closing price of Common Stock was $9.63 per share. At such date, we had approximately 7,000 holders of record of 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.

      The Company’s Board of Directors authorized the repurchase of up to six million shares of DiamondCluster’s Common Stock as part of an existing stock repurchase program, with one million shares authorized on October 16, 1998, two million shares authorized on March 1, 2001, and three million shares authorized on June 24, 2002 for repurchase. During the fourth quarter of 2004, we repurchased 0.4 million shares of the Company’s Common Stock at an average price per share of $10.32 in the following months:

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      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.

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(1)	On April 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” and ceased amortizing goodwill. During the years ended March 31, 2002, 2001 and 2000, our operating results included $61.9 million, $21.9 million and $0.5 million, respectively, of goodwill amortization. In addition, certain amounts in previously issued financial statements have been reclassified to conform to the current year presentation. The reclassifications had no effect on the reported net income (loss).
(2)	See Note 2 of “Notes to Consolidated Financial Statements” for an explanation of the methods used to compute basic and diluted earnings (loss) per share data.
(3)	In fiscal year 2003, the basic and diluted net loss per share of common stock included a net loss of $(4.47) per share due to the cumulative effect of change in accounting principle.
(4)	We have never declared or paid cash dividends.

      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 to understand and leverage technology to reduce costs, incorporate flexibility into their businesses, address changing regulations and markets, improve operations, and grow their business. We work collaboratively with our clients, utilizing small, multidisciplinary teams of consultants because we believe the most lasting and significant improvements occur when the client is integrally involved in the change. During the fiscal year ended March 31, 2004 we generated net revenue (before reimbursements of out-of-pocket expenses) of $154.8 million from 110 clients. At March 31, 2004, we employed 481 consultants and had nine offices in North America, Europe and Latin America, which included Barcelona, Chicago, Düsseldorf, Lisbon, London, Madrid, Münich, Paris, and São Paulo.

      Our revenue is driven by our ability to secure new client engagements, maintain existing client engagements and develop and implement solutions that add value to our clients. Our revenue is 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 agreement. 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. Provisions are made based on our experience for estimated uncollectible amounts. These provisions, net of write-offs of accounts receivable, are reflected in the allowance for doubtful accounts. We also set aside a portion of the revenue from each client engagement to cover the estimated costs that are likely to be incurred subsequent to targeted project completion. This portion of the project revenue is reflected in deferred revenue and is calculated based on our historical experience. While we have been required to make revisions to our clients’ estimated

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      We generate revenue in many different countries throughout the world and our revenues are denominated in multiple currencies, including the U.S. dollar, the euro, the British pound sterling and the Brazilian real. As such, our revenues and expenses may be significantly impacted by fluctuations in foreign currency exchange rates. The strengthening of foreign currencies relative to the U.S. dollar over the last several quarters has had a favorable foreign currency translation impact on our consolidated financial statements and increased our revenues. For the fiscal year ended March 31, 2004, our net revenue was $154.8 million, an increase of $21.8 million, or 16.4%, compared with the same period in the prior year. Assuming constant foreign currency translation rates, net revenue for the fiscal year ended March 31, 2004 would have increased $12.4 million or 9%.

      Our ability to generate revenue is affected by the level of business activity of our clients, which in turn is affected by the level of economic activity in the industries and markets that they serve. A decline in the level of business activity of our clients could have a material adverse effect on our revenue and profit margin. During the two year period ending in late fiscal 2003, our business had been negatively impacted by weakened economic conditions, which had caused some clients to reduce or defer their expenditures for consulting services. We have implemented and will continue to implement cost-savings initiatives to manage our expenses as a percentage of revenue as appropriate.

      The largest portion of our operating expenses consists of project personnel and related expenses. Project personnel expenses consist of payroll costs, variable compensation, and related benefits associated with professional staff. Other related expenses include travel, subcontracting, third-party vendor payments and non-billable costs associated with the delivery of services to our clients. We consider the relationship between project personnel expenses and net revenue to be an important measure of our operating performance. The relationship between project personnel expenses and net revenue is driven largely by the chargeability of our consultant base, the prices we charge to our clients and the non-billable costs associated with securing new client engagements and developing new service offerings. 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 including finance, information systems, human resources, facilities (including the rent of office space), and other administrative support for project personnel. As with revenues, the strengthening of foreign currencies relative to the U.S. dollar over the last several quarters has increased our expenses. The increase of both revenues and expenses created as a result of foreign currency translation results in an immaterial impact on net income.

      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 that 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.

Disclosure Regarding Forward-Looking Statements

      This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act relating to our operations, results of

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

      For a more detailed discussion of these factors, see Exhibit 99.1 to this Annual Report on Form 10-K for the fiscal year ended March 31, 2004. We undertake no obligation to update or revise any forward-looking statements.

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:

      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.

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      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 affect 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.

      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 affect 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, 2004, our accounts receivable balance was $23.2 million, including unbilled accounts receivable of $1.6 million, and net of allowance for doubtful accounts of $1.7 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 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, 2004, our deferred revenue balance was $1.4 million. Also included in the deferred revenue balance are $0.4 million of prepaid client fees related to consulting services that the Company expects to earn in subsequent periods. 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.

      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.

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      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, December 2002 and June 2003 we recorded restructuring charges related to specific actions we took to better align our cost infrastructure with our near term revenue expectations. For the December 2001, September 2002 and December 2002 restructuring charges, we estimated these costs based upon our restructuring plans and accounted for these plans in accordance with Emerging Issues Task Force (“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).” For the June 2003 restructuring charge, we estimated these costs based upon our restructuring plan and accounted for this plan in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” 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.

      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 lives 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.

      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

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      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, assumptions and estimates. 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 and remained zero at March 31, 2004.

      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 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 of March 31, 2004, we had a full valuation allowance against our deferred tax assets of $67.0 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 or periods such determination was made.

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Results of Operations

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

Revenue

      During the two year period ending in late fiscal year 2003, our Company had been negatively affected by the weakened economic conditions in the geographic regions we serve. This resulted in a decrease in demand for our services as companies tempered their spending on consulting services. The weakened economic conditions led to pricing pressures, a lengthening of the Company’s sales cycle and reductions and/or deferrals of client expenditures for consulting services. However, over the last year the environment for our services has markedly improved. On a global basis, revenue before out-of-pocket expense reimbursements increased to $154.8 million during fiscal 2004 as compared to $133.0 million during fiscal 2003. Total revenue, including out-of-pocket expense reimbursements, increased 16.3% to $177.1 million for fiscal 2004 compared with $152.3 million reported for fiscal 2003. Our annualized revenue per professional increased to $320 thousand during fiscal 2004 compared to $194 thousand in fiscal 2003 due to revenue growth and headcount reduction. We served 110 clients during fiscal 2004 as compared to 142 clients during fiscal 2003. Revenue from new clients accounted for 17% of revenue during fiscal 2004, compared to 22% during fiscal 2003. The term “new

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      During fiscal 2003, revenue before out-of-pocket expense reimbursements decreased to $133.0 million as compared to $181.2 million during fiscal 2002. Total revenue, including out-of-pocket expense reimbursements, decreased 25.0% to $152.3 million for fiscal 2003 compared with $203.0 million reported for fiscal 2002. The decline in revenue in fiscal 2003 was principally attributed to the weakness in the global economy, resulting in a decline in the demand for the Company’s services. We increased our annualized revenue per professional during fiscal 2003 to $194 thousand compared to $173 thousand in fiscal 2002 as a result of personnel reduction. Clients served in fiscal 2003 declined to 142 as compared to 156 clients served in fiscal 2002. Revenue from new clients accounted for 22% of revenue for fiscal 2003, compared to 17% for fiscal 2002.

Operating Expenses

      Project personnel and related expenses before out-of-pocket reimbursable expenses decreased $6.7 million, or 6.1%, to $102.4 million during fiscal 2004 as compared to $109.1 million during fiscal 2003. The decrease in project personnel and related expenses reflects savings resulting from cost-reduction programs implemented throughout fiscal years 2003 and 2004. During fiscal 2003 and 2004 we reduced client-serving professionals as part of the Company’s restructuring plans. We reduced our client-serving professional staff from 538 at March 31, 2003 to 481 at March 31, 2004. As a percentage of net revenue, project personnel and related expenses before out-of-pocket expense reimbursements decreased from 82.0% during fiscal 2003 to 66.2% during fiscal 2004. Project personnel and related expenses including out-of-pocket reimbursable expenses decreased $3.7 million to $124.8 million during fiscal 2004 as compared with fiscal 2003. Our global utilization increased from 55% during the fiscal year ended March 31, 2003 to 66% during the fiscal year ended March 31, 2004, within our target range of 65% to 70%. Annualized voluntary attrition remained flat in fiscal year 2004 compared to fiscal year 2003 at 16%.

      During fiscal 2003, project personnel and related expenses before out-of-pocket reimbursable expenses decreased $23.5 million, or 17.7%, to $109.1 million as compared to $132.6 million reported for 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 reduced personnel as part of the Company’s restructuring plans. Overall, we reduced our client-serving professional staff 36% 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. Project personnel and related expenses including out-of-pocket reimbursable expenses decreased $26.0 million to $128.4 million during fiscal 2003 as compared with fiscal 2002.

      Professional development and recruiting expenses increased $0.2 million to $4.3 million during fiscal 2004 as compared to fiscal 2003. The increase is primarily due to the relaunch of hiring initiatives and increases in our level of training conduct expenditures towards the end of fiscal year 2004.

      During fiscal 2003, professional development and recruiting expenses decreased $6.7 million to $4.1 million as compared to fiscal 2002. This decrease primarily reflected decreases in our level of recruiting personnel and activities, and decreased training conduct expenditures.

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      Marketing and sales expenses decreased $1.0 million to $2.8 million during fiscal 2004 as compared to fiscal 2003. The decrease was the result of reduced marketing activities including the discontinuation of Context magazine, the magazine we published from November 1997 until December 2002.

      During fiscal 2003, marketing and sales expenses decreased $3.3 million to $3.9 million as compared to fiscal 2002 as a result of decreased marketing activities including the discontinuance of the publication of the Context magazine.

      Management and administrative support expenses decreased 8.0% to $34.4 million or 22.2% of net revenue during fiscal 2004 as compared to fiscal year 2003. Management and administrative support expenses include the rent expense associated with our nine offices located in North America, Europe and Latin America. The decreases in management and administrative support expense is principally a result of our cost reduction programs implemented in fiscal years 2003 and 2004, including the closing of the Boston, New York, and San Francisco offices and the downsizing of certain offices globally.

      During fiscal 2003, management and administrative support expenses decreased 20.1% to $37.4 million or 28.1% of net revenue 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.

      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. Goodwill amortization remained at zero during fiscal 2004.

      Noncash compensation decreased from $53.1 million or 39.9% of net revenue during fiscal 2003 to $12.7 million or 8.2% of net revenue during fiscal 2004. Noncash compensation expense had been primarily due to the amortization of unearned compensation resulting from the issuance of stock and stock options at prices below fair market value to Cluster employees in connection with the Cluster acquisition. Effective April 1, 2003, noncash compensation also includes amortization of the fair value of employee stock awards granted or modified after April 1, 2003 calculated under the fair value method of SFAS 123, “Accounting for Stock Based Compensation.” In both cases, stock-based compensation is earned over the service period and is contingent on the continued employment of these employees. The decrease in noncash compensation is primarily due to stock option cancellations as a result of forfeitures from terminated employees. Reversal of amortization for previously recognized expense for forfeitures increased $9.3 million in fiscal 2004 compared with fiscal 2003. In addition, $9.8 million less expense was recorded in fiscal 2004 than fiscal 2003 due to cancelled options, and $12.8 million less amortization was recorded in fiscal 2004 than fiscal 2003 due to only a partial year of amortization remaining on some restricted shares. Finally, the decrease in noncash compensation is also attributable to the non-recurring nature of the $8.6 million of expense recognized during fiscal 2003 consisting of 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.

      During fiscal 2003, noncash compensation increased to $53.1 million or 39.9% of net revenue from $52.3 million or 28.9% of net revenue during fiscal 2002. Noncash compensation expense in fiscal 2003 is primarily due to 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 noncash compensation expense is due to the recognition of $8.6 million of additional expense

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      Restructuring charge expense was $4.0 million during fiscal 2004 compared to $29.3 million during fiscal 2003. During fiscal 2003, restructuring charge expense increased to $29.3 million from $15.5 million during fiscal year 2002. During fiscal years 2002, 2003 and early 2004, our Company suffered from a decrease in global demand as we saw clients decrease their spending on consulting services. As a result, management implemented plans to restructure the Company’s operating infrastructure to better align it with the anticipated levels of business during those times and beyond. We recorded four separate restructuring charges during fiscal years 2002, 2003, and 2004. The primary actions underlying these restructuring charges included facilities downsizing, workforce reduction, and fixed asset write-offs. We expected annualized savings from these charges to be a combined $56 million to $62 million. Refer to the notes to consolidated financial statements for a detailed description of the activities surrounding each of these restructuring charges.

      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 noncash in nature and do not affect the Company’s liquidity. As of March 31, 2003 and 2004, the carrying amount of goodwill was zero.

Other Income (Expense)

      Other income, net increased $0.9 million from $0.1 million in fiscal 2003 to $1.0 million during fiscal 2004. This increase is primarily due to increased foreign exchange gains recorded in fiscal year 2004 partially offset by a decrease in interest income as well as the write-down of fixed assets in connection with the downsizing of certain European offices.

      During fiscal 2003, other income, net decreased $1.1 million to $0.1 million from $1.2 million in fiscal 2002, 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.

Income Tax Expense

      Income tax expense decreased from $21.2 million during fiscal 2003 to $0.7 million during fiscal 2004. The income tax expense recorded in fiscal year 2004 was related to the income earned by certain foreign subsidiaries in jurisdictions where we do not have tax loss carryforwards. The income tax expense recorded in fiscal year 2003 was principally related to the $46.0 million increase in the valuation allowance for deferred tax assets recognized by the Company. We have 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 differences between the tax bases of assets and liabilities and their related amounts in the financial statements. SFAS 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 any valuation allowance recorded against the gross deferred tax assets. As of March 31, 2004, the valuation allowance against deferred tax assets was $67.0 million and covered the full amount of our net federal, state and international deferred tax assets.

      Income tax expense increased from an income tax benefit of $11.0 million during fiscal 2002 to an income tax expense of $21.2 million during fiscal 2003 due principally to a non-cash charge of $46.0 million to increase the valuation allowance against the net federal, state and international deferred tax assets. As of

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Cumulative Effect of Change in Accounting Principle

      During the quarter ended June 30, 2002, we completed our initial impairment review in accordance with 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, and is reflected as the cumulative effect of an accounting change in the consolidated financial statements for 2003.

Liquidity and Capital Resources

      The following table describes our liquidity and financial position on March 31, 2003 and 2004:

      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 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, 2004, there were no outstanding borrowings and we had approximately $9.2 million available under this line of credit.

      During the fiscal year ended March 31, 2004, net cash provided by operating activities was $7.8 million. This primarily resulted from the following activities:

	•	The net loss was $5.4 million.
	•	The net loss includes noncash charges aggregating $22.1 million that must be excluded to arrive at cash flows from operating activities. The principal noncash charges are stock-based compensation ($12.7 million), the restructuring charges ($4.0 million), and depreciation and amortization ($4.7 million).
	•	Cash outflows to reduce the restructuring accrual aggregated $8.8 million, including payments under contractual lease obligations and severance and related costs.
	•	Changes in assets and liabilities that result from operating activities are also considered in arriving at cash flows from operations. Cash flows from operating activities was reduced by $0.1 million as a result of increases in accounts receivable ($5.0 million) and prepaid expenses and other ($3.9 million), offset by the accrual of performance bonuses to be paid in early fiscal year 2005 ($5.5 million), net of changes in accounts payable, deferred revenue, income taxes payable and other assets and liabilities of $3.3 million.

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      At March 31, 2004, we had the following contractual obligations (amounts in thousands):

(1)	Cash outlays for restructuring and other related activities include minimum future lease and related payments for excess facilities, net of estimated sublease income of $6.1 million under existing and expected sublease arrangements.
(2)	Purchase obligations represent minimum commitments due to third parties, including subcontractor agreements, IT maintenance contracts in support of internal use software and hardware, lease commitments on company automobiles and other marketing and consulting contracts. Contracts for which our commitment is variable based on volumes, with no fixed minimum quantities, and contracts that can be cancelled without payment penalties, have been excluded. Amounts presented also exclude accounts payable and accrued expenses at March 31, 2004.

      Our billings for the three and twelve months ended March 31, 2004 totaled $52.0 million and $185.4 million, respectively, compared to $32.7 million and $161.8 million for the three and twelve months ended March 31, 2003, respectively. These amounts include VAT (which are not included in recognized revenue) and billings to clients for reimbursable expenses. Our gross accounts receivable balance of $24.9 million at March 31, 2004 represented 43 days of billings for the quarter ended March 31, 2004. This compares to a gross receivable balance of $17.9 million at March 31, 2003 representing 49 days of billings for the quarter ended March 31, 2003.

      Cash used in investing activities was $0.1 million for fiscal year 2004. Cash used in investing activities resulted primarily from capital expenditures, partially offset by cash provided from other assets resulting from the collection of certain employee notes receivable.

      Cash used in financing activities was $2.6 million for fiscal 2004 resulting from the repurchase of DiamondCluster common stock in the amount of $9.2 million, offset by $6.6 million in proceeds from the issuance of common stock in connection with the Employee Stock Purchase Plan and option exercises. The Board of Directors (the “Board”) has authorized the repurchase of the Company’s common stock through open market transactions. During fiscal 2004, we repurchased 0.9 million shares at an average price of $9.75. As of March 31, 2004 the number of shares available for repurchase under the Board authorization was 1.7 million. Through March 31, 2004, the number of shares purchased under this authorization was 4.3 million shares at an aggregate cost of $61.1 million. Following is a summary of the repurchase activity over the last three fiscal years (amounts in thousands except average price data):

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      On September 23, 2003, the Board of Directors and shareholders approved a plan of recapitalization, thereby converting all Class A and B Common Stock to a new class of capital stock called Common Stock, on a one-to-one basis. The total authorized number of shares of Common Stock is 300,000,000 shares. This plan of recapitalization was based on a detailed review of our system of corporate governance. The Board considered the effect of the Sarbanes-Oxley Act and the corporate governance standards being developed for listed companies by the NASDAQ National Market. After a thorough review, the Board concluded that a modification to the Corporation’s Restated Certificate of Incorporation and internal governance agreements should be made to assure continued independence of a majority of the Board and the proper functioning of the audit and other committees of the Board.

      Because each outstanding share of Class B Common Stock had five votes, the holders of the Class B Common Stock could significantly influence all matters brought to a vote of our stockholders. In addition, all of the holders of our Class B Common Stock had granted proxies to our Chief Executive Officer to vote their shares. Accordingly, the Chief Executive Officer had the right to vote 100% of the outstanding shares of Class B Common Stock. Our Board of Directors had determined that it was no longer in our best interest for our Chief Executive Officer to have such voting control. The Board of Directors approved this plan of recapitalization in order to bring our system of corporate governance more in line with the governance of other public companies. Implementation of this plan eliminated the voting control then held by our Chief Executive Officer by reducing the number of votes for employee shares and eliminating the CEO proxy, although certain aspects of our internal governance procedures remain under the Partners’ Operating Agreement, as amended.

      On May 2, 2002, we 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 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 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 noncash compensation expense at the date surrendered. The voluntary surrender of these options resulted in a noncash charge to compensation expense of $8.6 million during the quarter ended June 30, 2002, relating to the remaining unamortized compensation expense associated with 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.

      We believe that our current cash balances, existing lines of credit, and cash flow from existing and future operations will be sufficient to fund our operating requirements at least through fiscal year 2006. If necessary,

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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 involved the use of forward foreign exchange contracts in certain European currencies. As of March 31, 2004, 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 some cases, the Company hedges its euro exposures through the use of euro/U.S. dollar forward contracts in order to mitigate the impact of foreign currency movements on the Company’s financial position. 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. 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. During fiscal year 2004 and as of March 31, 2004, there were no open euro/U.S. dollar or other forward contracts outstanding.

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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, 2004 is not material in relation to our consolidated financial position, results of operations or cash flows. We have not used derivative financial instruments in fiscal year 2004 to alter the interest rate characteristics of our investment holdings.

      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.

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      None.

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 the end of the period covered by this Report, that the Company’s disclosure controls and procedures are effective to 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.

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.

      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 with respect to the members of the audit committee will be set forth in the Proxy Statement under the heading “Audit Committee,” which information is incorporated herein by reference, or an amendment to this Form 10-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.

      The Company has adopted a Code of Business Conduct and Ethics applicable to all employees, its Board of Directors and vendors. The Code of Business Conduct and Ethics is supplemented by a Code of Ethics for Senior Financial Officers setting forth additional requirements applicable only to the Company’s senior officers (together with the Code of Business Conduct and Ethics, the “Code”). A copy of the Code is filed as Exhibit 14 to this Annual Report of Form 10-K.

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      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.

      The following table summarizes information about the Company’s equity incentive plans as of March 31, 2004 (share amounts in thousands):

(1)	Includes 2,241,000 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 Common Stock, which may be issued upon the exercise of stock options granted to outside advisors of the Company during the period February 26, 1997 through August 10, 1999. The terms of the Advisors’ Plan mirror the terms of the Company’s 1998 Equity Incentive Plan previously adopted by the shareholders in all material respects, except that (i) the maximum number of shares available for issuance under the Advisors’ Plan is 525,000 shares, and (ii) the eligible participants under the Advisors’ Plan are those outside consultants to the Company as the Plan Committee shall decide from time to time. The options issued under the Advisors’ Plan were granted at the fair market value on the grant date (calculated based on the average of the closing price on the Nasdaq Market System of the Common Stock for the ten trading days preceding the grant date). The options vest over periods ranging from 2 to 4 years after the date of grant, and expire on dates ranging from 5 to 8 years after the date of grant.

      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.

      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.

      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.

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PART IV

      (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

	Form 8-K dated January 28, 2004

      (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.

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*	Filed herewith

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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.

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