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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission File Number: 000-22125

DiamondCluster International, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

Common Stock, par value $.001 per share

      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, 2004 there were 34,138,020 shares of Common Stock of the Registrant outstanding. The aggregate market value of the Common Stock of the Registrant held by non-affiliates as of September 30, 2004 was an estimated $371.8 million, computed based upon the closing price of $12.20 per share on September 30, 2004.

      As of May 31, 2005, there were 34,638,613 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.

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DIAMONDCLUSTER INTERNATIONAL, INC.

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

March 31, 2005

TABLE OF CONTENTS

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, increase flexibility, address changing regulations and markets, improve operations, and grow their businesses. We combine innovative strategic thinking, industry expertise, and a thorough understanding of technology to deliver results for our clients. We work collaboratively with our clients using small, multidisciplinary teams because we believe the most lasting and significant improvements occur when the client is integrally involved in the change. Our multidisciplinary approach enables our consultants to develop innovative strategies that may not be identified by consulting firms that use more traditional team structures. We go to market by vertical industry and focus on businesses that are strategically dependent upon technology. We currently serve clients primarily in six industries: financial services, insurance, telecommunications, healthcare, utilities, and the public sector. The Company also has an incubator industry it calls “Enterprise” that encompasses clients in industries outside of those formally served, and includes retail and distribution companies. We operate globally with offices in North America, Europe, the Middle East, and South 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 $193.2 million of net revenue (before reimbursable expenses) from 126 clients in fiscal year 2005. At March 31, 2005, we employed 568 consultants and had offices in Barcelona, Chicago, Dubai, Düsseldorf, Lisbon, London, Madrid, Münich, Paris, São Paulo, and Washington D.C.

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

often invest significant resources in technology. Consequently, technology is increasingly an area of focus among the highest levels of business organizations, including the CEO and the board of directors.

      Management teams turn to consultants for a number of reasons, including the need for deep expertise in a specific area, shorter execution timeframes, risk mitigation, objective perspectives, and the presence of an outside change agent. We believe that companies increasingly seek outside consultants that can provide a combination of innovative strategic analysis, in-depth industry expertise, and a thorough understanding of technology and its applications to help them create and execute plans that will improve their businesses.

      While the fundamental reasons management teams turn to consultants have not changed in decades, we believe a structural change is taking place in the technology consulting industry. The industry is comprised of three main segments: management and advisory, solution delivery and system integration, and offshore maintenance and development. The management and advisory segment is comprised of companies that compete on the basis of their objectivity, relationships, and intellectual capital. Traditional management advisory firms include McKinsey & Company, Booz Allen Hamilton, Inc., and The Boston Consulting Group. These firms have traditionally offered services in corporate strategy, organization, and business processes, and they have recently begun to offer technology advisory services as well. DiamondCluster fits squarely in the management and advisory space.

      The largest portion of the industry is comprised of solution delivery and system integration companies, such as Accenture Ltd., International Business Machines Corporation (IBM), Electronic Data Systems Corporation (EDS), and Computer Sciences Corporation (CSC). These companies typically compete on scale and scope of services, and there are natural trends toward consolidation, more integrated offerings, and establishment of offshore development sites to drive down cost. The offshore segment is comprised of companies that compete on cost and quality, and are generally located in developing economies, such as India, Mexico, Russia, and China. Examples of these firms are Infosys Technologies Limited and Wipro Ltd. These firms have traditionally offered call center and application maintenance and development services, and they are steadily moving upstream to compete directly with the solution delivery and system integration companies. The line between the solution delivery and offshore segments is blurring.

      We believe that the growth and continued consolidation among solution providers, as well as expanding service offerings of offshore firms, will enhance the demand for advisory firms that provide objective advice as a core business, particularly firms with deep competency in technology and operations like DiamondCluster. Further, as both business and technology become increasingly complex, the market for consulting services in general is growing. We believe that this increasing complexity, coupled with the changes in industry structure, increases the importance of an objective advisor that is able to remain vendor independent. Kennedy Information, an independent professional service research company, estimates that, in 2006, the worldwide consulting market will reach $139.4 billion and the information technology (“IT”) consulting portion of that will reach $69.6 billion, based on analysis that took place in 2004.

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 economic impact for our clients. We offer clients the skills 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, increase flexibility, address changing regulations and markets, improve operations, and grow their businesses. We believe the following attributes, in combination, 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 cost and complexity of technology and the changing structure within the consulting industry increase 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 software development services.

      Collaborative Business Model. Our small-team business model demands 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. 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 work with third-party sources, including offshore firms, to execute strategies and plans. We believe this provides maximum value to our clients.

      Small, Multidisciplinary Teams. We work with our clients from the earliest stages of study and assessment, through idea generation, strategy creation, and execution, 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. This model also enables our clients to develop a relationship with every member of the team.

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

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

      Global Diversity and Presence. We deliver our services worldwide through our offices in North America, Europe, the Middle East, and South 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, and to effectively serve our global clients.

      Senior-Level Relationships. We serve “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.

      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 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 client 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 high-impact 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 more difficult. DiamondCluster has a systematic approach to innovation, which ensures that we stay ahead of the intellectual capital curve and deliver the most advanced thinking to our 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, promoting from within, and developing 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, increase flexibility, 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 clients from strategy through execution. We believe our business model provides our Company with a fundamental differentiation because it requires a collaborative approach with the client, utilizes multidisciplinary teams, and effectively leverages the ongoing stream of new intellectual capital into our organization. The following strategies guide our actions as we grow our business:

      Attract and Retain Skilled Personnel. Our continued success and growth requires 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 it includes 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 work to develop and sustain a business culture that is common across all of our organizational competencies. We 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 high-impact work and cultivating close relationships with CEOs and senior leadership teams, even after our work is complete. The access, contact, and goodwill generated through our existing client relationships afford us opportunities to provide additional services, often resulting in multiple projects at a single client and referrals to new clients.

      Nurture and Promote Our Intellectual Capital. We utilize our accumulated knowledge and experience to provide relevant intellectual capital to each project. 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 leveraged to deliver results 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 Geographic Locations and Industries. We believe that diversifying our business across various geographic locations and industries will allow the Company to have steady growth through economic, business, and technology cycles. We currently serve clients across the globe through eleven offices in North America, Europe, the Middle East, and South America. We serve clients in six key industries: financial services, insurance, telecommunications, healthcare, utilities, and the public sector. The Company also has an incubator industry it calls “Enterprise” that encompasses clients in industries outside of those formally served, and includes retail and distribution companies. 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 geographic locations in which we work, to change and grow as our expertise and client 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.

Our Services

      DiamondCluster provides services that help leading organizations worldwide understand and leverage technology to reduce costs, increase flexibility, address changing regulations and markets, improve operations, and grow their businesses. We offer clients the skills 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, the Middle East, and South 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 results through our unique perspective that combines strategy and technology. 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. By maintaining our consultants’ core skills in strategy, technology, and program management, we are able 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, increase flexibility, address changing regulations and markets, improve operations, and grow their businesses.

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

      We deliver both vertical industry-specific services, and 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 competencies 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

processes that can be leveraged across a number of different industries. Below is a representative list of current vertical (industry-specific) and horizontal (cross-industry) services:

      We currently serve clients primarily in six vertical industries: financial services, insurance, telecommunications, healthcare, utilities, and the public sector. We are working to grow healthcare, utilities, and the public sector as a percent of revenues because these industries are non-cyclical and increase long-term revenue predictability. The Company also has an incubator industry it calls “Enterprise” that encompasses clients in industries outside of those formally served, and includes retail and distribution companies.

      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 Group Inc.; MasterCard Incorporated; and Visa International. During fiscal year 2005, financial services clients represented 30% of gross revenue.

      Insurance Practice. Our insurance practice provides services to life, property and casualty, reinsurance, and brokerage firms. We advise and collaborate with our clients to address important business issues, such as speed to market, market agility, agent and customer experience and retention, distribution efficiency and effectiveness, information strategies to improve decision-making and execution, technology strategy, technology operations and enterprise architecture, large-scale technology and business transformation, and strategic sourcing. Representative clients in the insurance industry have included: Allstate Corporation and Royal and Sun Alliance Group PLC. During fiscal year 2005, insurance clients represented 20% of gross revenue.

      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 Inc.; Excellus Health Plan, Inc.; and Blue Cross Blue Shield of Massachusetts, Inc. During fiscal year 2005, healthcare clients represented 11% of gross revenue.

      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; Sprint PCS; U.S. Cellular Corp. and Telefónica Móviles SA. During fiscal year 2005, telecommunications clients represented 26% of gross revenue.

      Utilities Practice. Our utilities industry practice provides services to energy companies in generation and wholesale, gas supply, distribution, and commercialization. We help our clients define and implement innovative strategies in an environment of gas-electricity convergence and evolving regulations. Representative clients in the utilities sector have included: EDF; Gaz de France; Endesa, SA; and Electricidade de Portugal. During fiscal year 2005, utilities clients represented 2% of gross revenue.

      Enterprise Practice. The enterprise practice, a North American practice, is a cross-industry practice. Its role is to identify, incubate, and scale new vertical practices. The enterprise practice currently includes clients in the retail, distribution, manufacturing, and logistics industries. We help our clients better understand customer needs across the value chain, increase visibility to their customers, and assist with strategic pricing alternatives to maximize operating income. The enterprise practice, previously called the retail and distribution industry practice, has included clients such as: American Greetings Corporation; Sears Holdings; Fisher Scientific International, Inc.; Deere & Company; and Lowe’s Companies, Inc. During fiscal year 2005, the enterprise practice clients represented 8% of gross revenue.

      Public Sector Practice. The public sector practice provides services to U.S. local, state, and federal government agencies. Issues facing this sector today include increased scrutiny to demonstrate performance and measurable results for 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: the U.S. Department of Justice, the Chicago Transit Authority, and a major U.S. national laboratory. We first began offering services to the public sector in North America during fiscal year 2002. During fiscal year 2005, public sector clients represented 3% of gross revenue.

Business Development

      We primarily serve “c-level” executives of national and multinational businesses. Our fees are sourced from both operating budgets as well as information technology budgets within our clients’ organizations. Our practice 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 officers of the Company) are assigned to a vertical practice (see “Our Services: Vertical Industries Served”). Each vertical industry practice maintains a list of 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 sustain 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.

      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.

      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 2005 Global IT Outsourcing Study,” “The 2004 Global IT Outsourcing Study,” “IT Portfolio Management: Challenges and Best Practices,” and “The 2002 Global IT Outsourcing Study.” Recently published viewpoints produced by the Company include: “Banking on Payments: Protecting and Extending Banks’ Electronic Payments Franchise,” “Heroic IT Management Is No Longer Enough: Moving to Systematic Technology Management,” “The Calculus of Commerce: Why Business Models Are Aging Faster and What To Do About It,” “Closing the Customer Loyalty Loop,” “A Root-Cause Analysis Strategy for Improving Customer Satisfaction,” and “The Rise of the Networked Organization.”

      Capture programs are designed to create relationships 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).

      Diamond Exchange (DX). 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 members with innovative, leading-edge research to explore and understand the strategic risks and opportunities of emerging technologies. The Diamond Exchange offers four learning forums:

      Client Relationship Executives. Client Relationship Executives, or CREs, provide an alternative relationship development 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. CREs do not directly offer DiamondCluster services, but facilitate introductions to industry buyers of consulting services. Our CREs have non-exclusive contracts with the firm and are typically paid on commission basis. At March 31, 2005, we had 24 CREs globally, the majority of which are former CEOs, COOs, and CFOs.

      DiamondCluster Fellows. The DiamondCluster Fellows are a group currently comprised of 11 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 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, 2005, DiamondCluster Fellows include:

      Programs within this phase are designed to convert 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 technology savvy strategies and high-impact results. 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 develop its intellectual capital and provide the best ideas to its clients with lower execution 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 identify best-of-breed technologies and services that are currently relevant to our clients.

      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 Technologies, Enamics, Hewlett-Packard, Intel, Oracle, and SAS Institute, Inc. As of March 31, 2005, 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 achievement of results through proven processes, reusable templates, guides, and technical papers. Our various strategic alliance companies provide the hardware and software in the Center for Technology Innovation.

      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.

      Diamond 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, 2005, we had 751 employees. Of these employees, 568 were client-serving professionals and 183 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 have an average of twenty years 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 competencies and industry practices 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:

      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, career development, attractive long-term career advancement opportunities, a small-team work environment, 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 primarily from the leading undergraduate and graduate business and technology programs at leading universities. Senior-level positions are 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 opportunities. We use equity-based instruments at all levels within DiamondCluster to provide long-term wealth creation opportunities and to retain individuals through multi-year, long-term vesting provisions. We believe that offering equity-based compensation packages will be more successful in attracting and retaining talented individuals.

      Our partners are eligible to receive an annual bonus comprised of cash and equity-based instruments commensurate with their level of responsibility and based on overall performance. Our partners are granted equity upon being elected a partner. Equity-based instruments that we issue to partners typically vest 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-based instruments at the time of hire, which typically vest 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 organization and 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, including the provision of offshore software development.

      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 we are 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 increasing complexity of technology, and the current structural changes in the consulting industry, increase the value to senior management of an objective advisor with deep expertise in strategy, operations, and technology, including the ability to accelerate program execution.

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 Chief Administrative Officer 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 the sales and delivery of our North American services, revenue, and profit contribution. Effective April 1, 2005,

Mr. Norman assumed the additional responsibility of Managing Director of the United Kingdom. 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 cases, has edited books, and has been a consultant to large and small companies around the world. He has been a guest professor at many universities including Kellogg, MIT, The London Business School, the Melbourne Business School, and the Hong Kong Institute of Science and Technology.

      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. We also have leased office space in Washington D.C.

      European, South American and Middle Eastern operations are based in leased offices in Barcelona and Madrid, Spain; Dubai, United Arab Emirates; 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 2005.

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 2, 2005, the closing price of Common Stock was $13.10 per share. At such date, we had approximately 6,000 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 Board of Directors (the “Board”) has authorized, from time to time, the repurchase of the Company’s Common Stock in the open market or through privately negotiated transactions (“Buy-back Program”). During the period beginning with the inception of the Buy-back Program in October 1998 until the meeting of directors on September 14, 2004, the Board had authorized the repurchase of up to six million shares, of which 0.7 million were subject to repurchase as of September 14, 2004. At the meeting of directors on September 14, 2004, the Board restated the aggregate amount of repurchases that could be made under the Buy-back Program to be based on a maximum dollar amount rather than a maximum number of shares. The authorization approved the repurchase of shares under the Buy-back Program having an aggregate market value of no more than $25.0 million. In the absence of an additional buy-back authorization from the Board, the Buy-back Program expires when the existing authorized amounts for share repurchases has been expended. As of March 31, 2005, the amount available for repurchase under the Board authorization was $2.8 million. In April 2005, the Board authorized the repurchase of additional shares of the Company’s outstanding Common Stock under the existing Buy-back Program having an aggregate market value of up to $50.0 million. As of May 1, 2005, the amount available for repurchase under the Buy-back Program was

$52.8 million. During the quarter ended March 31, 2005, we repurchased 0.8 million shares at an aggregate cost of $13.7 million, or an average price of $16.46, in the following months:

      The selected 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.

      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 realize value in their businesses. Our firm offers clients skills in strategy, technology, and program management to help companies reduce costs, increase flexibility, 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 results for our clients. 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, 2005 we generated net revenue of $193.2 million from 126 clients. At March 31, 2005, we employed 568 consultants and had eleven offices in North America, Europe, South America and the Middle East, which included Barcelona, Chicago, Dubai, Düsseldorf, Lisbon, London, Madrid, Münich, Paris, São Paulo and Washington, D.C.

      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 reimbursable 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 agreement. Accordingly, we recognize amounts due from our clients as the related services are rendered and revenue is earned even though we may be contractually required to bill for those services at an earlier or later date than the date services are provided. 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 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.

      We have had eight consecutive quarters of net revenue growth resulting from an increase in the demand for our services. Net revenue for the fourth quarter of fiscal year 2005 increased 4% compared to the third quarter of fiscal year 2005, and 21% compared to the fourth quarter of the prior fiscal year. For the fiscal year ended March 31, 2005, our net revenue was $193.2 million, an increase of $38.4 million, or 25%, compared with the prior year.

      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. Assuming constant foreign currency translation rates, net revenue for the fourth quarter of fiscal year 2005 would have increased 3% compared to the third quarter of fiscal year 2005 and 19% compared to the fourth quarter of the prior fiscal year. Assuming constant foreign currency translation rates, net revenue for the fiscal year ended March 31, 2005 would have increased 22% over fiscal year 2004.

      The largest portion of our operating expenses consists of project personnel costs. Project personnel costs consist of payroll costs, stock-based compensation expense related to project personnel, variable incentive compensation, and related benefits associated with professional staff. Other expenses included in project personnel costs are travel, subcontracting fees, third-party vendor payments and non-billable costs associated with the delivery of services to our clients. We consider the relationship between net revenue and project personnel costs before reimbursable expenses to be an important measure of our operating performance. Net revenue less project personnel costs before reimbursable expenses, or gross margin, is driven largely by the chargeability of our consultant base, the prices we charge to our clients, project personnel compensation costs, and the level of non-billable costs associated with securing new client engagements and developing new service offerings. To accommodate the growth in the demand for our services, we increased our practice headcount to 568 at March 31, 2005, compared to 538 at December 31, 2004 and 481 at March 31, 2004. Our gross margin increased $5.5 million, or 42%, in the fourth quarter of fiscal year 2005 compared to the fourth quarter of the prior fiscal year. Gross margin increased $24.8 million, or 61%, in fiscal year 2005 compared to fiscal year 2004. These increases are primarily due to increased headcount, higher realized billing rates and higher utilization of consultants. Our annualized net revenue per practice professional was $372 thousand for fiscal year 2005, compared to $320 thousand for fiscal year 2004.

      Our other 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, management and administrative support, and stock-based compensation expense earned by personnel working in these functional areas. 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 renting of office space), and other administrative support for project personnel. Management believes that income from operations, which is gross margin less other operating expenses is an important measure of our operating performance. Income from operations increased $3.3 million, or 139%, in the fourth quarter of fiscal year 2005 compared to the fourth quarter of the prior fiscal year. Income from operations in fiscal year 2005 increased $24.0 million from a loss of $5.8 million in fiscal year 2004, to income of $18.2 million in fiscal year 2005.

      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. Our utilization rate for the fourth quarter of fiscal year 2005 was 66% which was consistent with the third quarter of fiscal year 2005 and increased slightly from 65% in the fourth quarter of the prior fiscal year. Our utilization rate for fiscal year 2005 remained relatively stable at 65% compared to 66% in fiscal year 2004.

      Our net cash provided by operations for the fiscal year ended March 31, 2005 was $32.8 million and included net income of $33.0 million, a decrease in accounts receivable of $2.0 million due to an increase in collections and a change in deferred tax assets of $20.6 million primarily due to the reversal of certain valuation allowances for deferred tax assets of $20.1 million.

      Management believes that the free cash flow metric, defined as net cash provided by operating activities ($32.8 million) net of capital expenditures ($1.8 million), provides a consistent metric from which the performance of the business may be monitored. Free cash flow was $31.1 million for the fiscal year ended March 31, 2005 and $6.9 million for the fiscal year ended March 31, 2004.

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 operations and other matters that are based on our current expectations, estimates and projections. Words such as “expects,” “intends,” “plans,” “projects,” “believes,” “estimates” and similar expressions are used to identify these forward-looking statements. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecast in these forward-looking statements. The reasons for this include changes in general economic and political conditions, including fluctuations in exchange rates, and the following factors:

      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, 2005. 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. Revenue is recognized over the term of the client engagement in direct proportion to the level of services performed by each member of the engagement team during the period relative to the estimated total level of effort required to perform the project. Therefore, the amount of revenue recognized in a period is for all intents and purposes, equal to the amount that would be recognized based on the stated contract price and the ratio of direct costs incurred in the period to perform the service to the total estimated direct costs of the project.

      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 timing of revenues to be realized on a project. 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, 2005, our accounts receivable balance was $22.0 million, including unbilled accounts receivable of $5.6 million, and net of an allowance for doubtful accounts of $1.1 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, 2005, our deferred revenue balance was $1.6 million. Also included in the deferred revenue balance is $0.6 million of prepaid client fees related to consulting services that the Company expects to earn in future 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 costs. Project personnel costs consist of payroll costs, stock-based compensation expense related to project personnel, variable incentive compensation, and related benefits associated with professional staff. Other related expenses include travel, subcontracting fees, third-party vendor payments and non-billable 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 stable in nature, and declines in revenue will often result in reduced utilization of professional personnel and lower operating margins.

      Our other 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, management and administrative support, and stock-based compensation expense earned by personnel working in these functional areas. 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, facilities (including the renting 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.

      In determining our current income tax provision we assess temporary differences resulting from differing treatments of items for tax and financial reporting 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 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.

      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 the realization of deferred tax assets. Management judgment is required in determining any valuation allowance recorded against the gross deferred tax assets. Management recorded a full valuation allowance against the net deferred tax assets as of March 31, 2003 largely due to the tax losses we incurred during fiscal years 2002 and 2003. Based on the positive financial performance in the U.S. in fiscal years 2004 and 2005, the Company reversed $20.1 million of the valuation allowance as of March 31, 2005. As of March 31, 2005, the remaining valuation allowance against deferred tax assets was $45.5 million and covered international deferred tax assets, capital loss carryforwards, and certain state net operating loss carryforwards. The need to maintain a valuation allowance will be reviewed on at least a quarterly basis.

      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 been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

      Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and liabilities of a reporting unit (including unrecognized intangible assets) under the second step of the goodwill impairment test requires our management to make significant judgments, 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 then 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 at zero at March 31, 2004 and 2005.

Results of Operations

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

Revenue

      On a consolidated basis, net revenue increased $38.4 million, or 25%, during the fiscal year 2005 as compared to fiscal year 2004. Net revenue increased $21.8 million, or 16%, during the fiscal year 2004 as compared to fiscal year 2003. These increases are primarily due to continued improvement in the environment for our services over the past two fiscal years coupled with higher realized billing rates at new and existing clients.

      We served 126 clients during fiscal year 2005, compared to 110 clients during fiscal year 2004 and 142 clients during fiscal year 2003. Average revenue per client increased to $1.5 million during fiscal year 2005 from $1.4 million during fiscal year 2004 and $0.9 million during fiscal year 2003. These increases reflect the higher realized billing rates and overall expansion in the complexity of and our resource commitment to projects during the past two fiscal years.

      Revenue from new clients (defined as clients that generated revenue in the current period but were absent from the prior period) accounted for 15% of revenue during the fiscal year 2005, compared to 17%

during fiscal year 2004. For fiscal years 2004 and 2005, revenue and new client revenue mix by the industries that we serve was as follows:

Operating Expenses

      Project personnel costs before reimbursable expenses increased $13.6 million, or 12%, during fiscal year 2005 as compared to fiscal year 2004. The increase in project personnel costs is primarily due to increases in practice headcount and practice personnel compensation. Also contributing to the increase in project personnel costs is an increase in stock-based compensation expense related to stock-based awards granted to project personnel during fiscal year 2005. As a percentage of net revenue, project personnel costs before reimbursable expenses decreased from 74% during fiscal year 2004 to 66% during fiscal year 2005 primarily due to an increase in revenues resulting from an increase in clients and higher realized billing rates, which more than offset the increase in compensation costs. Our net revenue per practice professional was $372 thousand for fiscal year 2005, compared to $320 thousand fiscal year 2004.

      Project personnel costs before reimbursable expenses decreased $47.0 million, or 29%, during fiscal year 2004 as compared to fiscal year 2003. The decrease in project personnel costs during fiscal year 2004 as compared to fiscal year 2003 was primarily due to a $40.3 million decrease in stock-based compensation expense for project personnel. The decrease is due to stock options previously cancelled as a result of forfeitures from terminated employees, resulting in $9.5 million less expense recorded in fiscal year 2004 than fiscal year 2003, an increase in the reversal of previously recognized expense for forfeitures of $9.0 million in fiscal year 2004 compared with fiscal year 2003, and $12.8 million less amortization recorded in fiscal year 2004 than fiscal year 2003 due to only a partial year of amortization remaining on some restricted shares. Finally, the decrease in stock-based compensation for project personnel is also attributable to the non-recurring nature of the $8.4 million of expense recognized during fiscal year 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. The remaining decrease in project personnel costs before reimbursable expenses reflects savings resulting from cost-reduction programs implemented throughout fiscal year 2004. During fiscal year 2004 we reduced client-serving professionals as part of the Company’s restructuring plans. We reduced our client-serving professional staff to 481 at March 31, 2004 from 538 at March 31, 2003. As a percentage of net revenue, project personnel costs before reimbursable expenses decreased from 121% during fiscal 2003 to 74% during fiscal 2004 primarily due to the reduction in our client serving personnel and stock-based compensation expenses as previously described. Our net revenue per practice professional was $320 thousand for fiscal year 2004, compared to $194 thousand fiscal year 2003.

      Our global utilization rate for fiscal year 2005 was 65% compared to 66% in fiscal year 2004 and 55% in fiscal year 2003. Utilization decreased slightly in fiscal year 2005 compared to the prior fiscal year due to a decrease in international utilization. Utilization increased in fiscal year 2004 compared to fiscal year 2003 due

to the overall increase in client projects during fiscal year 2004. Annualized voluntary attrition decreased to 18% in fiscal year 2005, compared to 22% in fiscal year 2004. Annualized voluntary attrition was 17% for fiscal year 2003. Total attrition, defined as voluntary attrition plus company initiated attrition, decreased to 21% in fiscal year 2005, compared to 35% in fiscal year 2004 and 52% in fiscal year 2003.

      Professional development and recruiting expenses increased $3.3 million, or 75%, during fiscal year 2005 as compared to fiscal year 2004. The increase is primarily due to our increased campus and experienced recruiting initiatives as well as increases in our level of training development and conduct expenditures. Due to the increased demand for our services, we are again recruiting candidates from college campuses. We are also recruiting non-campus hires at all levels. The costs incurred to recruit consultants include travel and lodging costs for our consultants and recruiting staff, travel expense reimbursements for candidates, and sourcing fees related to non-campus hire searches. As a result of increased headcount, training expenditures have also increased as we have conducted more frequent new hire training programs in fiscal year 2005. We have also continued to invest in developing our training curriculum and have increased the number of training courses offered to employees in fiscal year 2005 compared to fiscal year 2004.

      Marketing and sales expenses increased $0.8 million, or 28%, during fiscal year 2005 as compared to fiscal year 2004. The increase is primarily due to increases in marketing personnel, increased external consulting fees related to the continued development of our marketing materials and programs, and increased expenditures related to the Company’s executive learning forums, known as the Exchange, due to an increase in the number of events held during fiscal year 2005.

      Marketing and sales expenses decreased $1.1 million, or 28%, during fiscal year 2004 as compared to fiscal year 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.

      Management and administrative support expenses increased $0.6 million, or 2%, during fiscal year 2005 as compared to fiscal year 2004. Management and administrative support expenses included the rent expense associated with our eleven offices located in North America, Europe, South America and the Middle East. The increase is primarily due to increases in the costs incurred for third-party consulting services related to the Sarbanes-Oxley compliance initiative, stock-based compensation expense, and incentive compensation for management and administrative personnel, which were partially offset by a decrease in information technology-related depreciation.

      Management and administrative support expenses decreased $2.9 million, or 8%, during fiscal 2004 as compared to fiscal year 2003. The decrease in management and administrative support expense was 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. Also contributing to the decrease in management and administrative support costs during fiscal year 2004 as compared to fiscal year 2003 was a decrease in stock-based compensation expense related to stock-based awards granted to management and administrative support personnel during fiscal year 2004.

      Restructuring charge expense was $4.0 million during fiscal year 2004 compared to $29.3 million during fiscal year 2003. 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 current and future periods. 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. The Company did not have any restructuring activity during fiscal year 2005.

      During the fourth quarter of fiscal year 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 reflected the units’ lower than expected performance, including the continued decline in the consulting market, and lower valuations in the consulting industry primarily due to then current market conditions and related competitive pressures. The impairment charges were noncash in nature and did not affect the Company’s liquidity. As of March 31, 2003, 2004 and 2005, the carrying amount of goodwill was zero.

Other Income, Net

      Other income, net increased $0.5 million, or 50%, during fiscal year 2005 as compared to fiscal year 2004 primarily due to an increase in interest income resulting from a higher cash balance and higher interest rate yields, partially offset by a decrease in foreign exchange gains recorded in fiscal year 2005.

      Other income, net increased $0.9 million, during fiscal year 2004 as compared to fiscal year 2003 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.

Income Tax Expense (Benefit)

      We recorded an income tax benefit in fiscal year 2005 of $13.2 million, compared to income tax expense of $0.7 million in fiscal year 2004. The income tax benefit recorded in fiscal year 2005 was principally related to the reversal of the valuation allowance for U.S. deferred tax assets at year-end. The income tax benefit from the reversal of the valuation allowance was partially offset by income tax expense recorded as a result of income earned in jurisdictions where tax loss carryforwards are limited.

      Income tax expense decreased $20.6 million, or 97%, during fiscal year 2004 compared to fiscal year 2003. 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. Management recorded a full valuation allowance against the net deferred tax assets as of March 31, 2003 largely due to the tax losses we incurred during fiscal years 2002 and 2003. Based on the positive financial performance in the U.S. in fiscal years 2004 and 2005, the Company reversed $20.1 million of the valuation allowance as of March 31, 2005. As of March 31, 2005, the remaining valuation allowance against deferred tax assets was $45.5 million attributable to net operating loss carryforwards in foreign and certain state jurisdictions, as well as U.S. federal capital loss carryforwards. As of March 31, 2005, the valuation allowance included $1.3 million which will be credited to additional paid-in-capital when that portion of the valuation allowance is reversed.

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, 2004 and 2005:

      Over the past several years, our principal sources of liquidity have consisted of our existing cash and cash equivalents, short-term investments, cash flow from operations and proceeds received upon the exercise of stock options by our employees. These internal sources of liquidity have been adequate to support our operating and capital expenditure requirements as well as to provide the funding needed for our stock repurchase program. We anticipate that these sources will provide sufficient liquidity to fund our operating and capital requirements at least through fiscal year 2006.

      As a matter of prudent business practice, we also 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 1.5%, at our discretion. The line of credit is secured by 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, 2005, there were no outstanding borrowings and we had approximately $9.2 million available under this line of credit. This line of credit is set to expire on July 31, 2005. While we expect to renew the line of credit agreement on terms similar to those of the existing agreement, we do not rely on our line of credit for liquidity, as evidenced by the fact that we have never borrowed cash against the line of credit, and therefore do not believe that non-renewal of the line would have a material adverse effect on our business.

      During the fiscal year ended March 31, 2005, net cash provided by operating activities was $32.8 million. This primarily resulted from the following activities:

      At the meeting of directors on September 14, 2004, the Board of Directors authorized a partial advance of the fiscal year 2005 cash bonus to all non-partner employees for services performed from April 1, 2004 to September 30, 2004. The cash payment of $2.7 million was accelerated from the usual payout date of April 2005 and was paid to all non-partner employees on December 1, 2004.

      At March 31, 2005, we had the following contractual obligations (amounts in thousands):

      Our billings for the three and twelve months ended March 31, 2005 totaled $59.7 million and $225.6 million, respectively, compared to $52.0 million and $185.4 million for the three and twelve months ended March 31, 2004. The increase in billings is due to an increase in revenue and reimbursable expenses resulting from both increased consultants and revenue generating projects. These amounts include value added tax (“VAT”) (which are not included in net revenue) and billings to clients for reimbursable expenses. Our gross accounts receivable balance of $23.1 million at March 31, 2005 represented 35 days of billings for the quarter ended March 31, 2005. This compares to a gross receivable balance of $24.9 million at March 31, 2004 which represented 43 days of billings for the quarter ended March 31, 2004. The decrease in accounts receivable at March 31, 2005 as compared to March 31, 2004 was principally due to the timing of client payments. The reduction in days of billings in accounts receivable was primarily due to the timing of client billings and payments. An increase or decrease in accounts receivable and days of billings in accounts receivable between periods is primarily the result of the timing of the collection of payments and issuance of invoices, therefore, it is not indicative of a trend in the business.

      Cash used in investing activities was $15.3 million for fiscal year 2005. Cash used in investing activities resulted primarily from purchases of short-term investments, net of redemptions, of $13.7 million and capital expenditures of $1.8 million, partially offset by cash provided from other assets resulting from the collection of certain employee notes receivable.

      Cash used in financing activities was $14.7 million for fiscal year 2005 resulting from the repurchase of DiamondCluster Common Stock in the amount of $31.5 million, less $19.3 million in proceeds from option exercises and the issuance of Common Stock in connection with the Employee Stock Purchase Plan, offset by $2.5 million for employee shares withheld for tax purposes.

      The Board has authorized, from time to time, the repurchase of the Company’s Common Stock in the open market or through privately negotiated transactions. During the period beginning with the inception of the Buy-back Program in October 1998 until the meeting of directors on September 14, 2004, the Board had authorized the repurchase of up to six million shares, of which 0.7 million were subject to repurchase as of September 14, 2004. At the meeting of directors on September 14, 2004, the Board restated the aggregate amount of repurchases that could be made under the Buy-back Program to be based on a maximum dollar amount rather than a maximum number of shares. The authorization approved the repurchase of shares under the Buy-back Program having an aggregate market value of no more than $25.0 million. During the fiscal year ended March 31, 2005, we repurchased 2.4 million shares at an average price of $12.97. As of March 31, 2005, the amount available for repurchase under the Board authorization was $2.8 million. In April 2005, the Board authorized the repurchase of additional shares of the Company’s outstanding Common Stock under the existing Buy-back Program having an aggregate market value of up to $50.0 million. As of May 1, 2005, the amount available for repurchase under the Buy-back program was $52.8 million. During the period beginning with the inception of the Buy-back Program in October 1998 through March 31, 2005, the number of shares repurchased under the current and prior authorizations was 6.8 million shares at an aggregate cost of $92.7 million and an average price of $13.69 per share.

      The Company, in an effort to reduce the treasury share balance, decided in the fourth quarter of fiscal year 2005 to issue treasury shares whenever shares are issued under its equity incentive plans. During the fiscal year ended March 31, 2005, the Company issued 1.0 million treasury shares.

      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 stock-based compensation expense at the date surrendered. The voluntary surrender of these options resulted in a charge to stock-based 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.

      We believe that our current cash and short-term investment 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, we believe that additional bank credit would be available to fund any additional operating and capital requirements. In addition, we could consider seeking additional public or private debt or equity financing to fund future growth opportunities. However, there is no assurance that such financing would be available to us on acceptable terms.

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. 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. The Company does not use foreign currency contracts for trading purposes. The Company does not currently hedge anticipated foreign currency-denominated revenues and expenses. As of March 31, 2005, there were no open forward foreign exchange contracts outstanding.

      DiamondCluster has net investments in foreign operations located throughout Europe and South 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. During fiscal year 2005 and as of March 31, 2005, there were no open Euro/ U.S. dollar or other forward contracts outstanding.

Interest Rate Risk

      The Company invests its cash in highly liquid investments with original maturities of three months or less as well as in other short-term debt instruments. The interest rate risk associated with our investing activities at March 31, 2005 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 2005 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 15(a) under the captions “Financial Statements and Schedules” as a part of this report.

      None.

      Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this annual report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that information relating to the Company (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

      There were no changes in our internal control over financial reporting identified in connection with the evaluation referred to above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

      Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our senior management, including our chief executive officer, chief administrative officer and chief financial officer, we assessed the effectiveness of our internal control over financial reporting as of March 31, 2005, using the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that our internal control over financial reporting is effective as of March 31, 2005. KPMG LLP, our independent registered public accounting firm, has issued an audit report on management’s assessment of our internal control over financial reporting which is included herein.

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

The Stockholders and Board of Directors DiamondCluster International, Inc.:

      We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that DiamondCluster International, Inc. maintained effective internal control over financial reporting as of March 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). DiamondCluster International, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control

over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of DiamondCluster International, Inc.’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management’s assessment that DiamondCluster International, Inc. maintained effective internal control over financial reporting as of March 31, 2005, is fairly stated, in all material respects, based on criteria in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, DiamondCluster International, Inc. maintained, in all material respects, effective internal control over financial reporting as of March 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of DiamondCluster International, Inc. as of March 31, 2005 and 2004, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for each of the years in the three-year period ended March 31, 2005, and our report dated June 10, 2005 expressed an unqualified opinion on those financial statements.

Chicago, Illinois

June 10, 2005

      None.

PART III

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

      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 in 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”). The Code is re-affirmed annually by existing employees. A copy of the Code is filed as Exhibit 14 to this Annual Report of Form 10-K.

      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, 2005 (share amounts in thousands):

      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 footnote 14 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.

PART IV

      (a) Financial Statements and Schedules

      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.

      (b) 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.

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.

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.

DIAMONDCLUSTER INTERNATIONAL, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Stockholders and Board of Directors

DiamondCluster International, Inc.:

      We have audited the accompanying consolidated balance sheets of DiamondCluster International, Inc. and subsidiaries (the Company) as of March 31, 2004 and 2005, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for each of the years in the three-year period ended March 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DiamondCluster International, Inc. and subsidiaries as of March 31, 2004 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2005, in conformity with U.S. generally accepted accounting principles.

      As described in Note 2 to the consolidated financial statements, the Company changed its method of accounting for stock-based compensation effective April 1, 2003.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of DiamondCluster International, Inc.’s internal control over financial reporting as of March 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 10, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

Chicago, Illinois

June 10, 2005

DIAMONDCLUSTER INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

March 31, 2004 and 2005

See accompanying notes to consolidated financial statements.

DIAMONDCLUSTER INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Fiscal years ended March 31, 2003, 2004 and 2005

See accompanying notes to consolidated financial statements.

DIAMONDCLUSTER INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Fiscal years ended March 31, 2003, 2004 and 2005