**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**
| **ý** |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|--------|----------------------------------------------------------------------------------------------|

 

**For the quarterly period ended March 31, 2004**

 

**OR**

 
| **o** |   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|--------|-----------------------------------------------------------------------------------------------|

 

**For the transition period from                to**                

 

**Commission File Number: 000-30241**

 

**DDi CORP.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                    |   | **06-1576013**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction  of incorporation or organization) |   | (I.R.S. Employer  Identification No.) |

 

**1220 Simon Circle**

**Anaheim, California  92806**

(Address of principal executive offices)  (Zip code)

 

**(714) 688-7200**

(Registrant’s telephone number, including area code)

 

**Not Applicable**

(Former name, former address and former fiscal year, if changed sincelast report)

 

Indicate by check mark whether theregistrant: (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90days:        ý  Yes    o  No

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). o  Yes    ý  No

 

Indicate by check mark whether the registranthas filed all documents and reports to be filed by Section 12, 13 or 15 (d) ofthe Securities Exchange Act of 1934 subsequent to the distribution ofsecurities under a plan confirmed by acourt.      ý  Yes    o  No

 

As of May 5, 2004, DDi Corp. had 26,080,227shares of common stock, par value $0.001 per share, outstanding.

 

 

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**DDi CORP.**

**FORM 10-Q**

 

**TABLE OF CONTENTS**

 
| PART I  | FINANCIAL INFORMATION                                                                                                                                |   |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|         |                                                                                                                                                 |   |
| Item 1.      | Financial Statements                                                                                                                                 |   |
|         |                                                                                                                                                 |   |
|         | Condensed Consolidated Balance Sheets as of  March 31, 2004 (Reorganized DDi Corp.) and December 31, 2003 (Reorganized DDi  Corp.)                   |   |
|         |                                                                                                                                                 |   |
|         | Condensed Consolidated Statements of  Operations for the three months ended March 31, 2004 (Reorganized DDi Corp.)  and 2003 (Predecessor DDi Corp.) |   |
|         |                                                                                                                                                 |   |
|         | Consolidated Statements of Comprehensive  Loss for the three months ended March 31, 2004 (Reorganized DDi Corp.) and  2003 (Predecessor DDi Corp.)   |   |
|         |                                                                                                                                                 |   |
|         | Condensed Consolidated Statements of Cash  Flows for the three months ended March 31, 2004 (Reorganized DDi Corp.) and  2003 (Predecessor DDi Corp.) |   |
|         |                                                                                                                                                 |   |
|         | Notes to Condensed Consolidated Financial  Statements                                                                                                |   |
|         |                                                                                                                                                 |   |
| Item 2       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                          |   |
|         |                                                                                                                                                 |   |
| Item 3       | Quantitative  and Qualitative Disclosures about Market Risk                                                                                          |   |
|         |                                                                                                                                                 |   |
| Item 4.      | Controls  and Procedures                                                                                                                             |   |
|         |                                                                                                                                                 |   |
| PART II | OTHER INFORMATION                                                                                                                                    |   |
|         |                                                                                                                                                 |   |
| Item 2.      | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity  Securities                                                                    |   |
|         |                                                                                                                                                 |   |
| Item 6.      | Exhibits and Reports on Form 8-K                                                                                                                     |   |
|         |                                                                                                                                                 |   |
| Signature    |                                                                                                                                                 |

 

2

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**FORWARD-LOOKING STATEMENTS**

 

On one or more occasions, we may make statements regarding ourassumptions, projections, expectations, targets, intentions or beliefs aboutfuture events. All statements other than statements of historical factsincluded in this Quarterly Report on Form 10-Q relating to expectation offuture financial performance, continued growth, changes in economic conditionsor capital markets and changes in customer usage patterns and preferences, areforward-looking statements.

 

Words or phrases such as “anticipates,” “believes,” “estimates,”“expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likelyresult,” “will continue,” “may,” “could” or similar expressions identifyforward-looking statements. Forward-looking statements involve risks anduncertainties which could cause actual results or outcomes to differ materiallyfrom those expressed. We caution that while we make such statements in goodfaith and we believe such statements are based on reasonable assumptions,including without limitation, management’s examination of historical operatingtrends, data contained in records and other data available from third parties,we cannot assure you that our expectations will be realized.

 

In addition to the factors and other matters discussed under thecaption “Factors That May Affect Future Results” in Part 1 — Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations in this Annual Report on Form 10-Q, some important factors thatcould cause actual results or outcomes for DDi Corp. or our subsidiaries todiffer materially from those discussed in forward-looking statements include:

 

•      changes in general economicconditions in the markets in which we may compete and fluctuations in demand inthe electronics industry;

 

•      our ability to sustainhistorical margins as the industry develops;

 

•      increased competition;

 

•      increased costs;

 

•      our ability to retain keymembers of management;

 

•      adverse state, federal orforeign legislation or regulation or adverse determinations by regulators; and

 

•      other factors identifiedfrom time to time in our filings with the Securities and Exchange Commission.

 

Any forward-looking statement speaks only as of the date on which suchstatement is made, and, except as required by law, we undertake no obligationto update any forward-looking statement to reflect events or circumstancesafter the date on which such statement is made or to reflect the occurrence ofunanticipated events. New factors emerge from time to time, and it is notpossible for management to predict all such factors.

 

3

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**PARTI – FINANCIAL INFORMATION**

 

**Item 1. Financial Statements****.**

 

**DDi CORP.**

CondensedConsolidated Balance Sheets

(In thousands)

(Unaudited)

 
|                                                                                     |   | **Reorganized  DDi Corp.** |    |
|------------------------------------------------------------------------------------------|--------|----------------------------|---------|
|                                                                                     |   | **March 31,  2004**        |    | **December  31,  2003** |   |
| **Assets**                                                                               |   |                       |    |   |   |
| Current assets:                                                                          |   |                       |    |   |   |
| Cash and cash equivalents                                                                |   | $                          | 21,199  |   | $ | 11,202 |   |
| Cash, cash equivalents and marketable  securities - restricted                           |   | —                     |    | 7,500 |   |
| Accounts receivable, net                                                                 |   | 48,210                     |    | 39,140 |   |
| Inventories                                                                              |   | 27,428                     |    | 26,292 |   |
| Prepaid expenses and other                                                               |   | 3,717                      |    | 2,707 |   |
| Total current assets                                                                     |   | 100,554                    |    | 86,841 |   |
| Property, plant and equipment, net                                                       |   | 70,763                     |    | 74,918 |   |
| Debt issuance costs, net                                                                 |   | 2,150                      |    | — |   |
| Goodwill                                                                                 |   | 107,200                    |    | 105,452 |   |
| Other intangibles, net                                                                   |   | 21,457                     |    | 23,376 |   |
| Other                                                                                    |   | 905                        |    | 816 |   |
| Total assets                                                                             |   | $                          | 303,029 |   | $ | 291,403 |   |
|                                                                                     |   |                       |    |   |   |
| **Liabilities, Mandatorily Redeemable  Preferred Stock and Stockholders’ Equity**   |   |                       |    |   |   |
| Current liabilities:                                                                     |   |                       |    |   |   |
| Current maturities of long-term debt and  capital lease obligations                      |   | $                          | 1,558   |   | $ | 1,439 |   |
| Revolving credit facilities                                                              |   | 26,846                     |    | 11,809 |   |
| Accounts payable                                                                         |   | 32,474                     |    | 28,687 |   |
| Accrued expenses and other liabilities                                                   |   | 22,501                     |    | 26,338 |   |
| Income taxes payable                                                                     |   | 903                        |    | 998 |   |
| Note payable                                                                             |   | —                     |    | 500 |   |
| Total current liabilities                                                                |   | 84,282                     |    | 69,771 |   |
| Long-term debt and capital lease  obligations                                            |   | 45,209                     |    | 114,799 |   |
| Deferred income tax liability                                                            |   | 221                        |    | 533 |   |
| Notes payable and other                                                                  |   | 16,125                     |    | 12,798 |   |
| Series A mandatorily redeemable preferred  stock                                         |   | 2,279                      |    | 2,066 |   |
| Total liabilities                                                                        |   | 148,116                    |    | 199,967 |   |
|                                                                                     |   |                       |    |   |   |
| Series B mandatorily redeemable preferred  stock                                         |   | 57,670                     |    | — |   |
|                                                                                     |   |                       |    |   |   |
| Stockholders’ equity:                                                               |   |                       |    |   |   |
| Common stock                                                                             |   | 26                         |    | 24 |   |
| Additional paid-in-capital                                                               |   | 151,222                    |    | 138,661 |   |
| Deferred compensation                                                                    |   | (22,158                    | )       | (32,454 | ) |
| Accumulated other comprehensive income  (loss)                                           |   | 228                        |    | (152 | ) |
| Stockholder receivables                                                                  |   | (639                       | )       | (635 | ) |
| Accumulated deficit                                                                      |   | (31,436                    | )       | (14,008 | ) |
| Total stockholders’ equity                                                          |   | 97,243                     |    | 91,436 |   |
| Total liabilities, mandatorily redeemable  preferred stock and stockholders’ equity |   | $                          | 303,029 |   | $ | 291,403 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

4

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**DDi CORP.**

CondensedConsolidated Statements of Operations

(In thousands,except share and per share data)

(Unaudited)

 
|                                                     |   | **Reorganized  DDi Corp.**               |    | **Predecessor  DDi Corp.**               |   |
|----------------------------------------------------------|--------|------------------------------------------|---------|------------------------------------------|--------|
|                                                     |   | **Three  months  ended March 31,  2004** |    | **Three  months  ended March 31,  2003** |   |
| Net sales                                                |   | $                                        | 72,350  |                                     | $      | 61,661 |   |
| Cost of goods sold:                                      |   |                                     |    |                                     |   |
| Cost of goods sold                                       |   | 58,738                                   |    | 57,198                                   |   |
| Non-cash compensation and amortization of  intangibles   |   | 6,453                                    |    | —                                   |   |
| Restructuring-related inventory impairment               |   | 499                                      |    | —                                   |   |
| Total cost of goods sold                                 |   | 65,690                                   |    | 57,198                                   |   |
|                                                     |   |                                     |    |                                     |   |
| Gross profit                                             |   | 6,660                                    |    | 4,463                                    |   |
|                                                     |   |                                     |    |                                     |   |
| Operating expenses:                                      |   |                                     |    |                                     |   |
| Sales and marketing:                                     |   |                                     |    |                                     |   |
| Sales and marketing expenses                             |   | 4,518                                    |    | 4,555                                    |   |
| Non-cash compensation                                    |   | 1,432                                    |    | —                                   |   |
| Total sales and marketing                                |   | 5,950                                    |    | 4,555                                    |   |
|                                                     |   |                                     |    |                                     |   |
| General and administration:                              |   |                                     |    |                                     |   |
| General and administration expenses                      |   | 4,381                                    |    | 4,108                                    |   |
| Non-cash compensation                                    |   | 1,426                                    |    | —                                   |   |
| Total general and administration                         |   | 5,807                                    |    | 4,108                                    |   |
|                                                     |   |                                     |    |                                     |   |
| Amortization of intangibles                              |   | 1,150                                    |    | —                                   |   |
| Restructuring and other related charges                  |   | 3,933                                    |    | 497                                      |   |
| Reorganization charges                                   |   | 940                                      |    | 3,330                                    |   |
| Operating loss                                           |   | (11,120                                  | )       | (8,027                                   | )      |
| Interest expense (net) and other expense  (net)          |   | 5,986                                    |    | 6,267                                    |   |
| Loss before income taxes                                 |   | (17,106                                  | )       | (14,294                                  | )      |
| Income tax (expense) benefit                             |   | (322                                     | )       | 467                                      |   |
| Net loss                                                 |   | $                                        | (17,428 | )                                        | $      | (13,827 | ) |
|                                                     |   |                                     |    |                                     |   |
| Net loss per share - basic and diluted                   |   | $                                        | (0.70   | )                                        | $      | (0.28 | ) |
| Weighted average shares used to compute  loss per share: |   |                                     |    |                                     |   |
| Basic and diluted                                        |   | 24,745,109                               |    | 49,214,691                               |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

5

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**DDi CORP.**

ConsolidatedStatements of Comprehensive Loss

(In thousands)

(Unaudited)

 
|                                                                                 |   | **Reorganized  DDi. Corp.**              |    | **Predecessor  DDi Corp.**               |   |
|--------------------------------------------------------------------------------------|--------|------------------------------------------|---------|------------------------------------------|--------|
|                                                                                 |   | **Three  months  ended March 31,  2004** |    | **Three  months  ended March 31,  2003** |   |
| Net loss                                                                             |   | $                                        | (17,428 | )                                        | $      | (13,827 | ) |
| Other comprehensive loss:                                                            |   |                                     |    |                                     |   |
| Foreign currency translation adjustments                                             |   | 380                                      |    | (712                                     | )      |
| Unrealized net gain for the period on  interest rate swaps, net of income tax effect |   | —                                   |    | 291                                      |   |
| Unrealized holding loss on marketable  securities - available for sale               |   | —                                   |    | (5                                       | )      |
| Comprehensive loss                                                                   |   | $                                        | (17,048 | )                                        | $      | (14,253 | ) |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

6

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**DDi CORP.**

CondensedConsolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
|                                                            |   | **Reorganized  DDi Corp.**               |   | **Predecessor  DDi Corp.**               |   |
|-----------------------------------------------------------------|--------|------------------------------------------|--------|------------------------------------------|--------|
|                                                            |   | **Three  months  ended March 31,  2004** |   | **Three  months  ended March 31,  2003** |   |
| **Cash flows from operating activities:**                       |   |                                     |   |                                     |   |
| Net cash used in operating activities                           |   | $                                        | (7,978 | )                                        | $      | (10,447 | ) |
|                                                            |   |                                     |   |                                     |   |
| **Cash flows from investing activities:**                       |   |                                     |   |                                     |   |
| Purchases of property, plant and equipment                      |   | (2,565                                   | )      | (2,003                                   | )      |
| Proceeds from sale of fixed assets                              |   | 1,518                                    |   | 20                                       |   |
| Purchases of marketable securities                              |   | —                                   |   | (30                                      | )      |
| Proceeds from investment in restricted  assets                  |   | 7,500                                    |   | —                                   |   |
| Acquisition related cash outflows                               |   | (364                                     | )      | —                                   |   |
| Net cash provided by (used in) investing  activities            |   | 6,089                                    |   | (2,013                                   | )      |
|                                                            |   |                                     |   |                                     |   |
| **Cash flows from financing activities:**                       |   |                                     |   |                                     |   |
| Principal payments on long-term debt                            |   | (75,211                                  | )      | (3,808                                   | )      |
| Borrowings from revolving credit facility                       |   | 14,817                                   |   | —                                   |   |
| Net borrowings on DDi Europe Facilities  Agreement              |   | 3,444                                    |   | 4,314                                    |   |
| Payments on other notes payable                                 |   | (500                                     | )      | —                                   |   |
| Principal payments on capital lease  obligations                |   | (727                                     | )      | (469                                     | )      |
| Payment of debt issuance costs                                  |   | (2,150                                   | )      | —                                   |   |
| Payment of costs related to issuance of  preferred stock        |   | (3,329                                   | )      | —                                   |   |
| Proceeds from issuance of preferred stock                       |   | 61,000                                   |   | —                                   |   |
| Proceeds from issuance of common stock                          |   | 15,980                                   |   | —                                   |   |
| Costs incurred in connection with the  issuance of common stock |   | (1,456                                   | )      | —                                   |   |
| Issuance of common stock through Employee  Stock Purchase Plan  |   | —                                   |   | 4                                        |   |
| Proceeds from exercise of stock options                         |   | 259                                      |   | —                                   |   |
| Net cash provided by financing activities                       |   | 12,127                                   |   | 41                                       |   |
| Effect of exchange rate changes on cash                         |   | (241                                     | )      | (108                                     | )      |
| Net increase (decrease) in cash and cash  equivalents           |   | 9,997                                    |   | (12,527                                  | )      |
|                                                            |   |                                     |   |                                     |   |
| Cash and cash equivalents, beginning of  year                   |   | 11,202                                   |   | 28,934                                   |   |
|                                                            |   |                                     |   |                                     |   |
| Cash and cash equivalents, end of period                        |   | $                                        | 21,199 |                                     | $      | 16,407 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

7

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Supplemental disclosure of cash flow information:

 

Non-cashoperating activities:

During thethree months ended March 31, 2004, depreciation expense was approximately $3.8million, non-cash restructuring and reorganization charges were approximately$3.8 million, non-cash compensation expense was approximately $8.5 million andamortization of intangibles was approximately $1.9 million for Reorganized DDiCorp.

 

During thethree months ended March 31, 2003, depreciation expense was approximately $4.7million and non-cash restructuring and reorganization charges were $1.0 millionfor Predecessor DDi Corp.

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

8

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**DDi CORP.**

Notes to the Condensed Consolidated Financial Statements

March 31, 2004

(Unaudited)

 

**NOTE1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS**

 

**Basisof Presentation**

 

The unaudited condensed consolidated financial statements for DDi Corp.(“DDi Corp.”) include the accounts of its wholly owned subsidiaries, DDiIntermediate Holdings Corp. (“Intermediate”) and DDi Europe Limited (“DDiEurope” f/k/a MCM Electronics Limited (“MCM”)) and the direct and indirectsubsidiaries of Intermediate (including DDi Capital Corp. or “DDi Capital” andDynamic Details Incorporated or “Dynamic Details”).  Collectively, DDi Corp. and its subsidiaries are referred to asthe “Company.”

 

In the opinion of management, the accompanying unaudited condensedconsolidated financial statements contain all adjustments necessary (consistingonly of normal recurring adjustments) to present fairly the financial positionof DDi Corp. as of March 31, 2004, the results of operations for the threemonths ended March 31, 2004 and 2003 and cash flows for the three months endedMarch 31, 2004 and 2003. The results of operations for such interim periods arenot necessarily indicative of results of operations to be expected for the fullyear.

 

These financial statements have been prepared by the Company pursuantto the rules and regulations of the Securities and Exchange Commission. Certaininformation and disclosures normally included in financial statements preparedin accordance with generally accepted accounting principles have been condensedor omitted pursuant to such regulations, although the Company believes thedisclosures provided are adequate to prevent the information presented frombeing misleading. This report on Form 10-Q for the quarter ended March 31, 2004should be read in conjunction with the audited financial statements presentedin DDi Corp.’s Annual Report on Form 10-K for the year ended December 31, 2003.

 

The Company has historically experienced negative cash flows fromoperations.  The Company's principalsources of liquidity to fund ongoing operations has been existing cash and cashequivalents.  The Company believes thatits cash on hand, cash generated by operations, cash proceeds from its privateplacements in January and March 2004, the new Dynamic Details asset basedrevolving credit facility and the DDi Europe facilities agreement will besufficient to meet its anticipated needs to maintain operations, workingcapital, capital expenditures and debt service requirements and othercommitments as they mature for at least the next twelve months.

 

**Descriptionof Business**

 

The Company is a leading provider oftime-critical, technologically advanced, electronics manufacturing services.Headquartered in Anaheim, California, the Company offers fabrication andassembly services to customers on a global basis, from its facilities locatedacross North America and in England.

 

###### **Fresh Start Accounting**

 

Inconnection with DDi Corp.’s emergence from bankruptcy, the Company adopted“fresh-start” accounting principles prescribed by the American Institute ofCertified Public Accountants’ Statement of Position 90-7, “Financial Reportingby Entities in Reorganization Under the Bankruptcy Code” effective November 30,2003. Under fresh start accounting, a new reporting entity, known as“Reorganized DDi Corp.” or the “Successor Company”, is deemed to be created,and the recorded amounts of assets and liabilities are adjusted to reflecttheir fair value. Accordingly, the operating results and cash flows of theSuccessor Company and the Predecessor Company have been separately disclosed.For the purposes of these financial statements, references to “Predecessor DDiCorp.” or the “Predecessor Company” are references to the Company for periodsprior to December 1, 2003 and references to the “Successor Company” arereferences to the Company for periods subsequent to November 30, 2003. TheSuccessor Company’s financial statements are not comparable to the PredecessorCompany’s financial statements. Although December 2, 2003, was the date thebankruptcy court approved the Company’s plan of reorganization and December 12,2003, was the effective date of the plan of reorganization (and the date of theCompany’s emergence from bankruptcy), for financial reporting conveniencepurposes, the Company accounted for the consummation of the plan ofreorganization as of November 30, 2003. The impact of this was not material to these financial statements.  There were no material unsatisfiedconditions as of December 2, 2003.

 

**Recently Issued Accounting Standards**

 

In January 2003, the FASB issued and in December 2003,revised, FASB Interpretation No. 46 “Consolidation of Variable InterestEntities-an interpretation of ARB No. 51.” This interpretation addressesconsolidation by business enterprises of variable interest entities, which havecertain characteristics.  The effectivedate of this interpretation varies based on certain criteria.  The Company is 

 

9

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required to apply all of this interpretation no laterthan the end of the first reporting period that ends after March 15, 2004.  The adoption of this statement had noeffect on the Company’s financial position, cash flows or results ofoperations.

 

**NOTE2. INVENTORIES**

 

Inventories are stated at the lower of cost (determined on a first-in,first-out basis) or market and consist of the following (in thousands):

 
|            |   | **Reorganized  DDi Corp.** |   |
|-----------------|--------|----------------------------|--------|
|            |   | **March 31,  2004**        |   | **December  31,  2003** |   |
| Raw materials   |   | $                          | 13,073 |   | $ | 12,254 |   |
| Work-in-process |   | 8,885                      |   | 8,931 |   |
| Finished goods  |   | 5,470                      |   | 5,107 |   |
| Total           |   | $                          | 27,428 |   | $ | 26,292 |   |

 

**NOTE3. REVOLVING CREDIT FACILITIES, LONG TERM DEBT, AND CAPITAL LEASES**

 

Long-term debt and capital lease obligations consist of the following(in thousands):

 
|                                                                                                                                                             |   | **Reorganized  DDi Corp.** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|
|                                                                                                                                                             |   | **March 31,  2004**        |   | **December  31,  2003** |   |
| Senior Credit Facility, net of unamortized  discount of $895 at December 31, 2003                                                                                |   | $                          | — |   | $ | 70,799 |   |
| Dynamic Details Revolving Credit Facility  (a)                                                                                                                   |   | 14,817                     |   | — |   |
| 16% Capital Senior Accreting Notes, face amount  of $17,656, net of unamortized discount of $221 and $229 at March 31, 2004  and December 31, 2003, respectively |   | 18,327                     |   | 17,427 |   |
| DDi Europe Facilities Agreement (b)                                                                                                                              |   | 26,023                     |   | 25,344 |   |
| DDi Europe Working Capital Facility (b)                                                                                                                          |   | 12,029                     |   | 11,809 |   |
| Capital lease obligations                                                                                                                                        |   | 2,417                      |   | 2,668 |   |
| Sub-total                                                                                                                                                        |   | 73,613                     |   | 128,047 |   |
| Less: Current maturities                                                                                                                                         |   | (1,558                     | )      | (1,439 | ) |
| Less: Dynamic Details Revolving Credit  Facility                                                                                                                 |   | (14,817                    | )      | — |   |
| Less: DDi Europe Working Capital Facility                                                                                                                        |   | (12,029                    | )      | (11,809 | ) |
| Total                                                                                                                                                            |   | $                          | 45,209 |   | $ | 114,799 |   |

 

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(a)      Interest rates are based on prime rate. Theeffective interest rate as of March 31, 2004, was 7.00%.

(b)      Interest rates are LIBOR-based. The effectiveinterest rate as of March 31, 2004, was 5.88%.

 

###### **Senior Credit Facility**

 

In January 2004, the Company was required touse a portion of the proceeds ($4.5 million) from its private placement ofcommon stock (see Note 15) to pay down a portion of the outstanding principalunder the Dynamic Details Senior Credit Facility.  On March 30, 2004, the Company repaid in full the outstandingbalance of the Dynamic Details Senior Credit Facility and the related accruedinterest and fees using proceeds from the private placement of its Series B-1and Series B-2 preferred stock (see Note 6) and cash on hand of $14.9 million,including cash classified as restricted as of December 31, 2003.  In connection with the full repayment and 

 

10

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termination of the Dynamic Details SeniorCredit Facility, the warrants issued to the lenders under such credit facilitywere terminated resulting in a charge of $0.9 million through interest expense.

 

**Revolving Credit Facility**

 

On March 30, 2004, immediately after theDynamic Details’ Senior Credit Facility was paid off, Dynamic Details and theCompany’s other North American subsidiaries entered into an asset basedrevolving credit facility with a commitment up to $40 million through March 30,2007, depending upon the value of the asset base.  Initially, on March 30, 2004, Dynamic Details was able borrow upto $14.9 million, of which $14.8 million was outstanding at March 31,2004.  The facility bears interest atLIBOR plus 4% on LIBOR loans and prime plus 3% for index rate loans.  Pricing will be determined by Dynamic Details’adjusted EBITDA numbers, and will range from LIBOR plus 3 to 4% on LIBOR loansor prime plus 2 to 3% for index rate loans. The effective interest rate atMarch 31, 2004 was 7.0%. The revolving credit facility has covenants which havea limit on the level of capital expenditures and a minimum fixed charge ratiowhich go into effect for the quarter ending June 30, 2004. The Company incurreddebt issuance costs of $2.2 million in connection with obtaining this revolvingcredit facility and will amortize such costs into interest expense using thestraight-line method (which approximates the effective interest method) overthe facility period. On April 2, 2004, Dynamic Details repaid the balanceoutstanding on this facility.

 

**CapitalSenior Accreting Notes**

 

DDi Capital issued $17.7 million in senioraccreting notes pursuant to its plan of reorganization.  Interest is payable on the senior accretingnotes by issuance of additional senior accreting notes at an annual rate of 16%or, at DDi Capital’s election, in cash at an annual rate of 14%.  The notes mature on January 1, 2009 and areredeemable by DDi Capital upon a change of control or upon sale of stock orproperty or other assets except through ordinary course of business.  The notes have covenants customary forsecurities of this type. The covenants restrict the Company from incurringadditional indebtedness and from making certain payments, including dividendpayments to its stockholders. As of March 31, 2004, the Company was incompliance with these covenants. Each holder of the senior discount notes alsoreceived a warrant to purchase pro rata shares of 762,876 shares of theCompany’s common stock.  In connectionwith the completion of a private placement of common stock in January 2004 (seeNote 15), the amount of warrants issued was adjusted, pursuant to theanti-dilution provisions of the warrants, to purchase an aggregate of 807,090shares.  The Company recorded thewarrants at an aggregate fair value of $0.2 million at November 30, 2003 and isusing the effective interest rate method to accrete the debt value to facevalue at maturity through interest expense. For the three months ended March 31, 2004, total accretion was $0.008million, or $8,000.  These warrants areheld in an escrow account until December 12, 2005 and are exercisable at aninitial exercise price of $0.001 per share from December 13, 2005 through July31, 2008.  The warrants will beterminated if, on or before December 12, 2005, DDi Capital pays all of itsindebtedness to the holders of the senior accreting notes.

 

**DDiEurope Facilities Agreement**

 

DDi Europe has a separate European debtfacility made up of £14.3 million ($26.0 million) in term loans and a workingcapital facility having a maximum borrowing limit of £10.0 million ($17.8million) for its European operations as of March 31, 2004.  Any amounts drawn under the working capitalfacility are repayable upon demand by the lender.  The term loan has a maturity date of December 30, 2007.  Based upon current and expected marketconditions for the DDi Europe operations, the European lender had stated itsdesire that DDi Europe not draw down more than £7.0 million ($12.5 million) ofthe working capital facility.  InJanuary 2004, the Company completed a private placement of its common stock(see Note 15), of which $4.0 million (approximately £2.4 million) was used toreduce the drawn balance of this working capital facility.  As of March 31, 2004, an aggregate of £6.6million ($12.0 million) was outstanding under this facility.

 

**NotePayable**

 

DDi Corp. issued a note payable of $0.5million to its independent financial advisor in consideration of their feesrelated to the consummation of the plan of reorganization.  The note was repaid in January 2004 in connectionwith proceeds received from a private placement of common stock (see Note 15).

 

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**NOTE 4. EARNINGS PERSHARE**

 

*Basic and diluted earnings per share*–Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings PerShare,” requires DDi Corp. to report both basic net income (loss) per share,which is based on the weighted average number of common shares outstanding anddiluted net income (loss) per share, which is based on the weighted averagenumber of common shares outstanding and dilutive potential common sharesoutstanding.

 

For the three months ended March 31, 2004, potentially dilutive sharesfrom the exercise of stock options, warrants and Series B-1 and B-2 ConvertiblePreferred Stock were not included in diluted earnings per share because to doso would be anti-dilutive. For the three months ended 2003, potentiallydilutive shares from the exercise of stock options, warrants and the conversionof the convertible subordinated debt were not included in diluted earnings pershare because to do so would be anti-dilutive. The number of potentiallydilutive shares of common stock for the three months ended March 31, 2004 and2003 were 7,162,636 (Reorganized DDi Corp.) and 12,634,670 (Predecessor DDiCorp.), respectively.

 

**NOTE5. SERIES A MANDATORILY REDEEMABLE PREFERRED STOCK**

 

Inconnection with the plan of reorganization, the Company’s certificate ofincorporation and bylaws were amended and restated.  The Company has authorized 5,000,000 shares of Preferred Stock at$0.001 par value per share.  The Companyfiled a Certificate of Designation designating 1,000,000 shares of PreferredStock as Series A Preferred Stock (the “Series A Preferred”) and issued suchshares to the Company’s former Convertible Subordinated Noteholders.  The Series A Preferred has an annualdividend of 15% and an aggregate liquidation preference of $15 million with amandatory cash redemption date of January 31, 2009.  The Series A Preferred will only be paid to the extent there isvalue, as defined in the Certificate of Determination , in DDi Europe beyondwhat is owed on the DDi Europe Facility Agreement.  As of November 30, 2003, the Company recorded a liability inaccordance with SFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity,” related to the Series APreferred at its estimated fair value of $2 million.  This estimated fair value was based on the valuation of anindependent third party.  The Company isaccreting the Series A Preferred to the amount expected to be paid at maturityusing the effective interest method. Total accretion for the three months endedMarch 31, 2004 was $0.2 million, with such amount being reflected as interestexpense. Total accrued dividends (also recorded as interest expense) were $0.7million for the three months ended March 31, 2004 and are included in “Notespayable and other” in the accompanying balance sheet.

 

**NOTE 6. SERIES BMANDATORILY REDEEMABLE PREFERRED STOCK**

 

On March 30, 2004, the Company completed aprivate placement of 147,679 shares of Series B-1 Preferred Stock and 1,139,238shares of Series B-2 Convertible Preferred Stock (collectively, the “Series BPreferred”) to certain institutional investors at a price of $47.40 per sharefor an aggregate sales price of $61,000,000 before placement fees and offeringexpenses.  Each share of the Series BPreferred stock will be initially convertible into four shares of common stockat any time at a conversion price of $11.85 per share, subject to certainanti-dilution adjustments. In general, the Series B Preferredvote together with the common shares based on the number of shares into whichthe Series B Preferred could convert on the day that the Series B Preferred wasissued.  In addition, the Series BPreferred is entitled to elect a member of the Company’s Board of Directors inthe event the Company fails to redeem the Series B Preferred when required. The Series B Preferred bears dividends at therate of 6% per annum, payable quarterly commencing March 31, 2005 and issubject to mandatory redemption in five years. In addition, the holders of the Series B Preferred have the option torequire the Company to redeem the shares in three equal installments in 18 months,24 months and 30 months from issuance or earlier upon a change of control,certain events of default or other specified occurrences. The Company also hasthe right to redeem the Series B Preferred if Reorganized DDi Corp.’s commonstock trades above $20.75 for 30 consecutive trading days.  The redemption price is at cost plus accrueddividends, except in the case of certain defaults where there are premiums tothe redemption cost.  The Company hasthe option to make dividend and redemption payments using Reorganized DDiCorp.’s common stock if Reorganized DDi Corp.’s shareholders approve suchproposal at a future shareholders’ meeting. The Company recorded theredemption value of the Series B Preferred, $61.0 million net of issuance costsof $3.3 million, in the mezzanine section of the balance sheet.

 

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On March 30, 2004, the Company repaid in fullthe outstanding balance of the Dynamic Details Senior Credit Facility andrelated accrued interest and fees using proceeds of $54.8 million from theprivate placement of the Series B Preferred (see Note 3).

 

**NOTE7. STOCK OPTIONS**

 

The Company uses the intrinsic value method prescribed by AccountingPrinciples Board Opinion No. 25, “Accounting for Stock Issued to Employees,” toaccount for employee stock options and other stock-based compensation. Underthis method, compensation expense is recognized when the exercise price of theCompany’s employee stock options is less than the market price of theunderlying stock on the date of the grant. During the three months ended March31, 2004, the Company recorded compensation expense related to stock optionsgranted of $ 8.5 million.

 

In December 2002, the FASB issued SFAS No. 148, “Accounting forStock-Based Compensation—Transition and Disclosure—an Amendment to SFAS No.123.” SFAS No. 148 provides alternative methods of transition for a voluntarychange to the fair value based method of accounting for stock-based employeecompensation. The Company has adopted the disclosure only provisions of SFASNo. 123 and, accordingly, the implementation of SFAS No. 148 has not had amaterial effect on the Company’s consolidated financial position or results ofoperations.

 

The Company determined its pro forma results below using the alternatefair value method as prescribed by SFAS No. 123. Under the fair value basedmethod of accounting for stock-based employee compensation, the fair value ofeach option grant is estimated at the date of grant using the Black-Scholesoption pricing model and recognized over the vesting period, generally fouryears. Pricing model assumptions included an expected term of four years; and arisk-free interest rate, dividend yield, and volatility assumptions consistentwith the expected term and particular grant date. Had compensation cost for allstock-based compensation plans been determined consistent with SFAS No. 123,DDi Corp.’s net loss and net loss per share would have been as follows (amountsin millions, except per share data):

 
|                                                          |   | **Reorganized  DDi Corp.**                |   | **Predecessor  DDi Corp.**                |   |
|---------------------------------------------------------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|
|                                                          |   | **Three months  ended March 31,****2004** |   | **Three months  ended March 31,****2003** |   |
| Net loss:                                                     |   |                                      |   |                                      |   |
| As Reported – basic and diluted                          |   | $                                         | (17.4  | )                                         | $      | (13.8 | ) |
| Less: non-cash compensation expenses under  FAS 123           |   | (8.8                                      | )      | (2.8                                      | )      |
| Add: non-cash compensation expenses under  APB 25, net of tax |   | 8.5                                       |   | —                                    |   |
| Pro Forma                                                     |   | $                                         | (17.7  | )                                         | $      | (16.6 | ) |
|                                                          |   |                                      |   |                                      |   |
| Net loss per share – basic and diluted:                  |   |                                      |   |                                      |   |
| As Reported                                                   |   | $                                         | (0.70  | )                                         | $      | (0.28 | ) |
| Pro Forma                                                     |   | $                                         | (0.72  | )                                         | $      | (0.34 | ) |

 

**NOTE8. INDEMNIFICATION OF DIRECTORS AND OFFICERS**

 

The Company's certificate of incorporationprovides that it will indemnify its directors and officers to the fullestextent permitted by the Delaware General Corporation Law. The Company hasobtained liability insurance for its directors and officers with respect toliability arising out of their capacity or status as directors and officersagainst expenses (including attorney's fees), judgments, fines and amounts paidin settlement actually and reasonably incurred in connection with such action,suit or proceeding. Currently, several of the Company's current and formerofficers and directors are named defendants in several securities class actioncomplaints and other litigation. At this time, management believes the Companywill not incur significant costs associated with these matters.

 

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**NOTE9. ACQUISITION OF KAMTRONICS LIMITED**

 

On October 24, 2002, DDi Europe completed the acquisition of KamtronicsLimited (“Kamtronics”), a market leader in sourcing printed circuit boards forEuropean customers, based in Calne, England, for approximately $4.2 millionplus contingent consideration based on earnings in each of the two yearsfollowing the date of acquisition. The total purchase price has been allocatedto underlying assets acquired and liabilities assumed based upon theirrespective fair market value at the date of acquisition. In the first quarterof 2004, DDi Europe amended the original sales agreement and replaced it with asettlement in an amount of £1.5million ($2.7 million) plus related interest to be paid by June 30, 2006 inplace of the contingent consideration. As of March 31, 2004, additionalconsideration of $1.4 million was accrued and capitalized as additionalpurchase price to goodwill.

 

**NOTE10. SEGMENT REPORTING**

 

SFAS No. 131, “Disclosures about Segments of an Enterprise and RelatedInformation” established standards for reporting information about operatingsegments in annual financial statements and requires selected information aboutoperating segments in interim financial reports issued to stockholders. It alsoestablished standards for related disclosures about products and services,geographic areas and major customers. Operating segments are defined ascomponents of an enterprise that engage in business activities from which itmay earn revenues and incur expenses whose separate financial information isavailable and is evaluated regularly by the Company’s chief operating decisionmakers, or decision making group, to perform resource allocations andperformance assessments.

 

The Company’s chief operating decision maker is the Chief ExecutiveOfficer. Based on the evaluation of the Company’s financial information,management believes that the Company operates in one reportable segment whichdesigns, develops, manufactures, assembles and tests complex printed circuitboards, back panels and related electronic products. The Company operates intwo geographical areas, domestic (U.S.A.) and international. Revenues areattributed to the country to which the product is sold. Revenues by product andservice are not reported as it is impracticable to do so.

 

The following table summarizes net sales by geographic area (inthousands):

 
|       |   | **Reorganized  DDi Corp.**               |   | **Predecessor  DDi Corp.**             |   |
|------------|--------|------------------------------------------|--------|----------------------------------------|--------|
|       |   | **Three  Months  Ended March, 31  2004** |   | **Three Months  Ended March,31  2003** |   |
| Net sales: |   |                                     |   |                                   |   |
| Domestic   |   | $                                        | 44,620 |                                   | $      | 35,817 |   |
| Europe (a) |   | 24,864                                   |   | 22,794                                 |   |
| Other      |   | 2,866                                    |   | 3,050                                  |   |
| Total      |   | $                                        | 72,350 |                                   | $      | 61,661 |   |

 

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(a)      Sales to the United Kingdom represent themajority of the sales to Europe.

 

The following table summarizes long-lived assets by geographic area (inthousands):

 
|               |   | **Reorganized  DDi Corp.** |    |
|--------------------|--------|----------------------------|---------|
|               |   | **March 31,  2004**        |    | **December  31,  2003** |   |
| Long-lived assets: |   |                       |    |   |   |
| Domestic           |   | $                          | 162,507 |   | $ | 167,419 |   |
| International      |   | 39,968                     |    | 37,143 |   |
| Total              |   | $                          | 202,475 |   | $ | 204,562 |   |

 

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**NOTE11. GOODWILL AND INTANGIBLES**

 

The Company operates in one reportablesegment (see Note 10). The Company separately monitors the financialperformance of its North American and European operations. Further, each ofthese operations generally serves a distinct customer base. Based upon thesefacts, the Company considers the North American and European operations itsreporting units for the assignment of goodwill. The Company’s European operationsconsist of entities acquired in conjunction with the MCM purchase transactionin 2000, the Thomas Walter purchase transaction in 2001 and the Kamtronicspurchase transaction in 2002.

 

As part of fresh start accounting, anallocation of the reorganization value resulted in goodwill of $105.4 millionand identified intangible assets totaling $24.9 million. This balance ofidentified intangible assets consists of $23.0 million relating to the customerrelationships in North America and the remaining $1.9 million relates to thebacklog in North America. The amount relating to backlog is reported as acomponent of cost of goods sold. Amortization related to customer relationships in North America andbacklog in North America for the three months ended March 31, 2004, was $1.1million and $0.8 million, respectively.

 

In March 2004, the Company amended the contingent considerationrelating to a prior purchase transaction and replaced it with a settlement of £1.5 million ($2.7 million) plus relatedinterest to be paid by June 30, 2006. As of March 31, 2004, additionalconsideration of $1.4 million was accrued and capitalized as additionalpurchase price to goodwill.

 

The changes in the carrying amount of goodwill for the three monthsended March 31, 2004, are as follows:

 
|                                             |   | **Reorganized  DDi Corp**                 |    |
|--------------------------------------------------|--------|-------------------------------------------|---------|
|                                             |   | **Three months  ended March 31,****2004** |    |
| Beginning balance                                |   | $                                         | 105,452 |   |
| Goodwill increases, primarily due to  Kamtronics |   | 1,748                                     |    |
| Ending balance                                   |   | $                                         | 107,200 |   |

 

**NOTE12. RESTRUCTURING AND OTHER RELATED CHARGES**

 

In the first quarter of 2003, Predecessor DDi Corp. recorded chargestotaling $0.5 million, which were classified as “Restructuring and otherrelated charges.”  Such chargesprimarily represent revision of estimates from previously recordedrestructuring charges and consist of $0.2 million in accrued restructuringexpenses and $0.3 million in severance and other exit costs.  The accrued restructuring expenses of $0.2million were related to other exit costs.

 

In the first quarter of 2004, management and the Reorganized DDiCorp.’s Board of Directors approved a plan to close its operations in Tolworth,England. DDi Corp. recorded charges totaling $4.4 million which were classifiedas “Restructuring and other related charges” and “Restructuring-relatedinventory impairment.” The charges represent an inventory impairment of $0.5million recorded as cost of goods sold, $2.1 million relating to impairment ofnet property, plant and equipment primarily related to Tolworth’s operations,$0.4 million credit relating to the reduction of capital lease obligations,$0.6 million in severance and other exit costs, $0.2 million related toreadying facilities for closure, and $1.4 million in accrued expenses for thequarter.  The accrued restructuringexpenses of $1.4 million consist of $0.2 million related to severance and otherexit costs as well as $1.2 million related to costs associated with readyingfacilities for disposition, primarily an estimate of the cost to exit afacility lease.

 

Total accrued restructuring expenses at March 31, 2004 were $3.4million.  These accrued restructuringexpenses represent $0.3 million in severance and related expenses, $2.2 millionin estimated facilities closure costs, $0.7 million in estimated professionalfees and $0.2 million in other exit costs.

 

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**NOTE13. REORGANIZATION EXPENSES**

 

During the fourth quarter of 2002, Predecessor DDi Corp. initiatedplans to restructure debt and retain employees. These efforts resulted inreorganization charges of $3.3 million for the quarter ended March 31,2003.  Of these amounts, $2.0 million isrelated to professional fees and $1.3 million is related to personnel retentioncosts under the Dynamic Details Key Employee Retention Program (“KERP”).

 

Reorganization charges were $0.9 million for the first quarter of 2004relating to professional fees and other costs associated with thereorganization of Reorganized DDi Corp.’s debt structure of which $0.4 millionwas included in accrued expenses at March 31, 2004.

 

**NOTE14. COMPREHENSIVE LOSS**

 

SFAS No. 130, “Reporting Comprehensive Income,” establishesrequirements for reporting and disclosure of comprehensive income (loss) andits components. Comprehensive loss includes unrealized holding gains and lossesand other items that have previously been excluded from net loss and reflectedinstead in stockholders’ equity. Comprehensive loss consists of net loss plusthe effect of foreign currency translation adjustments, unrealized holdinglosses on marketable securities classified as available-for-sale and unrealizednet gains on interest rate swaps and related unrealized net tax impact.

 

**NOTE15.  PRIVATE PLACEMENT**

 

OnJanuary 21, 2004, the Company completed a private placement of 1,000,000 sharesof common stock to institutional investors for gross proceeds of $15,980,000,before placement fees and offering expenses of $1.5 million.  The shares of common stock were priced at$15.98 per share, which represented a 6% discount against the trading price ofDDi Corp.’s common stock as of January 9, 2004.  The Company was required to use a portion of the proceeds, $4.5million, to pay down the Senior Credit Facility.  In addition, the Company used certain of the proceeds to pay infull the note payable to the Company’s independent financial adviser plusaccrued interest, $0.5 million, and to pay down $4.0 million of the DDi Europeworking capital facility.  Each of thesepayments was made in January 2004.  Inconnection with the completion of this private placement, the amount ofwarrants issued to the holders of the Senior Accreting Notes was adjusted,pursuant to the anti-dilution provisions of the warrants, to purchase anaggregate of 807,090 shares (see Note 3).

 

**NOTE16. TEXAS LAND SALE**

 

During March 2004, the Company sold land andbuilding related to its Garland, Texas location for $2.0 million cash.  Of that amount, $0.5 million is required tobe deposited into an escrow account for 5 years for environmental remediation.  The Company incurred closing costs of $0.1million resulting in net proceeds of $1.4 million.  The Company was required to use $0.9 million of the net proceedsto pay down the Dynamic Details Senior Credit Facility.

 

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**Item 2****.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

**Overview**

 

DDi Corp. provides technologically advanced, time-critical electronicsdesign, development and manufacturing services to original equipmentmanufacturers and other electronics manufacturing service providers. Operatingthrough our primary operating subsidiaries, Dynamic Details, Incorporated(“Dynamic Details”) and DDi Europe Limited (“DDi Europe”), we target customersthat have new product development programs demanding the rapid application ofadvanced technology and design.

 

As used herein, the “Company,” “we,” “us,” or “our” means DDi Corp. andits wholly owned subsidiaries, including DDi Capital Corp. (“DDi Capital”),Dynamic Details and DDi Europe.

 

This discussion and analysis should be read in conjunction withManagement’s Discussion and Analysis of Financial Condition and Results ofOperations set forth DDi Corp.’s Annual Report on Form 10-K for the year endedDecember 31, 2003.

 

***Fresh-Start Accounting***

 

In connection with the Company’s emergencefrom bankruptcy, we have adopted “fresh-start” accounting principles prescribedby the American Institute of Certified Public Accountants’ Statement ofPosition 90-7 (“SOP 90-7”), “Financial Reporting by Entities in ReorganizationUnder the Bankruptcy Code” effective November 30, 2003. Under fresh-startaccounting, a new reporting entity, known as the “Reorganized Company”, isdeemed to be created, and the recorded amounts of assets and liabilities areadjusted to reflect their fair value.  Accordingly,the consolidated financial statements for the Reorganized Company for theperiod subsequent to November 30, 2003 will reflect the Company’s emergencefrom Chapter 11 and have been prepared utilizing the principles of fresh startreporting contained in SOP 90-7. As a result, the reported historical financialstatements of the Company for periods prior to December 1, 2003, are notcomparable to those of the Reorganized Company.

 

**Resultsof Operations**

 

***Three Months EndedMarch 31, 2004 Compared to the Three Months Ended March 31, 2003***

 

Net Sales

 

Net sales increased $10.7 million (17%) to $72.4 million for the threemonths ended March 31, 2004, from $61.7 million for the same period in 2003.The increase in DDi Corp. net sales is due to a continued strengthening ofdemand in the Company’s North American printed circuit board operations andrecent signs of a market recovery for its European operations.

 

Gross Profit

 

Gross profit for the first quarter 2004 was $6.7 million (9% of netsales) as compared to $4.5 million (7% of net sales) for the first quarter2003.  Gross profit for the firstquarter included non-cash charges totaling $6.9 million.  First quarter 2004 gross profit increaseddue to the increase in net sales.

 

Sales and Marketing Expenses

 

Sales and marketing expenses increased $1.4 million (31%) to $6.0million for the three months ended March 31, 2004, from $4.6 million for thesame period in 2003.  The increaseresulted from the $1.4 million non-cash compensation sales and marketing chargesrecorded during the first quarter of 2004.

 

General and Administration Expenses

 

General and administration expenses increased $1.7 million (41%) to$5.8 million for the three months ended March 31, 2004, from $4.1 million forthe same period in 2003.  The increasewas due to the $1.4 million non-cash compensation general and administrationcharges recorded during the first quarter of 2004.  The increase is also attributable to the increase in net salesfor the quarter.

 

Restructuring and Other Related Charges

 

Restructuring and related charges, excluding $0.5 million recorded asinventory impairment, were $3.9 million for the three months ended March 31,2004, compared to $0.5 million for the same period in 2003. Such charges in thecurrent quarter represent a non-cash 

 

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credit of $0.4 million resulting from a reduction in capital leaseobligations, $2.1 million relating to impairment of net property, plant andequipment primarily related to the Company’s European operations, $0.6 millionin severance and other exit costs, $0.2 million related to readying facilitiesfor closure, and $1.4 million in accrued expenses for the quarter.  Charges for the three months ended March 31,2003, represent additional costs incurred in connection with management’sdecision in late 2002 to close various facilities, eliminate additionaloverhead and remove underutilized assets from productive service.

 

Reorganization Expenses

 

Reorganization charges for the first quarter of 2004 were $0.9 millionrelating to professional fees and other costs associated with thereorganization of our debt structure of which $0.4 million was included inaccrued expenses at March 31, 2004. Reorganization charges for the firstquarter of 2003 were $3.3 million. Such charges represent $2.0 million of costsrelating to professional fees incurred in connection with our efforts to effecta plan of reorganization to deleverage our capital structure and $1.3 millionof costs relating to our Key Employee Retention Plan.

 

Net Interest Expense

 

Net interest expense for the first quarter 2004 decreased to $6.0million, from $6.3 million for the corresponding period in 2003.  The decrease in net interest expense is dueprincipally to the termination of the Company’s 5.25% and 6.25% ConvertibleSubordinated Notes in December 2003, largely offset by $0.9 million foramortization of warrant discount, $0.5 million for debt administrator fees and$1.0 million for accrued deferred simple interest in the first quarter 2004which was associated with the termination of the Dynamic Details Senior CreditFacility.

 

Income Taxes

Net tax expense for the first quarter 2004 was $0.3 million as comparedto income tax benefit of $0.5 million for the same period in 2003. Income taxexpense in the first quarter of 2004 was net of changes in valuation allowancesapplied to both U.S. and European deferred tax assets that would otherwise havebeen recorded for the quarter. Such allowances were based upon management’sexpectation that the deferred tax assets would not likely be realized.

 

**Liquidityand Capital Resources**

 

General

 

Our principal sources of liquidity to fundongoing operations has been existing cash and cash equivalents.  We believe that our cash on hand, cashgenerated by operations, cash proceeds from our private placements in Januaryand March 2004, the new Dynamic Details asset based revolving credit facilityand the DDi Europe facilities agreement will be sufficient to meet ouranticipated needs to maintain operations, working capital, capital expendituresand debt service requirements and other commitments as they mature for at leastthe next twelve months.

 

Consolidated Cash Flows

 

Net cash used in operating activities for thequarter ended March 31, 2004 was $8.0 million, compared to $10.4 million forthe quarter ended March 31, 2003. The decrease in net cash used in operatingactivities is due to growth in sales and timing of accounts receivablecollection.

 

Net cash provided by investing activities forthe quarter ended March 31, 2004 was $6.1 million compared to $2.0 million cashused for the quarter ended March 31, 2003. The increase in cash provided byinvesting activities is due to the restriction of cash and cash equivalentsbeing lifted due to the repayment of the Senior Credit Facility and an increasein proceeds from sales of fixed assets due to the sale of land and building inGarland, Texas during the quarter ended March 31, 2004.

 

Net cash provided by financing activities forthe quarter ended March 31, 2004 was $12.1 million compared to $0.04 millionfor the quarter ended March 31, 2003. The increase in cash provided byfinancing activities is due primarily to the proceeds received from the privateplacements of common and preferred stock during the first quarter of 2004.

 

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Capital Expenditures

 

Capital expenditures for the three monthsended March 31, 2004 were $2.5 million compared to $2.0 million for the quarterended March 31, 2003. Capital expenditures increased because the Companyrequired slightly more investment in property, plant and equipment in 2004.

 

Capital Raising Transactions in the Quarter

 

On January 21, 2004, we issued 1,000,000shares of common stock to two institutional investors in a private placementfor a total gross proceeds of $15,980,000. Immediately after the closing of that transaction, we used $0.9 millionof the proceeds to pay down the Dynamic Details Senior Credit Facility, $4.0 millionof the proceeds to pay down the DDi Europe revolving credit facility and $0.8million of the proceeds to pay our placement agent and advisor.  The remaining proceeds have been, and willcontinue to be, used for general corporate purposes.

 

On March 30, 2004, we issued 147,679 sharesof Series B-1 Preferred Stock and 1,139,238 shares of Series B-2 PreferredStock to certain institutional investors in a private placement at a price of$47.40 per share for an aggregate sales price of $61 million before placementfees and offering expenses (collectively, the “Series B Preferred”).  Each share of the preferred stock willinitially be convertible into four shares of Common Stock at any time at aconversion price of $11.85 per share, subject to certain anti-dilution andother customary adjustments.  Immediately after the closing of this transaction, on March 30,2004, we repaid in full the outstanding balance of the Dynamic Details SeniorCredit Facility and related accrued interest and fees thereon using proceeds of$54.8 million from the private placement of the Series B Preferred and $14.0million cash on hand, including $7.5 million in restricted cash which was in anaccount deposited with the lender of such senior credit facility.

 

The Series B Preferred bear dividends at therate of 6% per annum, payable quarterly commencing March 31, 2005 and issubject to mandatory redemption in five years. In addition, the holders of the Series B Preferred have the option torequire us to redeem the shares in three equal installments in 18 months, 24months and 30 months from issuance or earlier upon a change of control, certainevents of default or other specified occurrences.  We also have the right to redeem the Series B Preferred if ourcommon stock trades above $20.75 for 30 consecutive trading days.  The redemption price is at cost plus accrueddividends, except in the case of certain defaults where there are premiums tothe redemption cost.  We have the optionto make dividend and redemption payments using our common stock if ourshareholders approve such proposal at a future shareholders’ meeting.

 

***Current Indebtedness of the Company***

 

***$40million Revolving Credit Facility***

 

On March 30, 2004, Dynamic Details and ourNorth American subsidiaries entered into a three-year, $40,000,000 asset-basedrevolving credit facility with General Electric Capital Corporation, as agentand lender.  The interest rate atclosing is LIBOR plus 4% on LIBOR loans and prime plus 3% for index rateloans.  On a go-forward basis, pricingwill be determined by Dynamic Details’ adjusted EBITDA numbers, and will rangefrom LIBOR plus 3 to 4% on LIBOR loans or prime plus 2 to 3% for index rateloans.  Availability under the creditfacility is based on the borrower reaching various liquidity and borrowing basetests.  The borrower was required tohave initial liquidity (after giving effect to the initial revolving creditadvances) of at least $15,000,000.  Thecredit facility contains customary representations and warranties, covenantsand events of default for a facility of this size including, covenants whichhave a limit on the level of capital expenditures and a minimum fixed chargeratio which go into effect for the quarter ending June 30, 2004.  The credit facility is guaranteed by DDiCorp. and its subsidiaries, DDi Intermediate Holdings Corp., or DDiIntermediate, and DDi Capital Corp. The asset-based credit facility is securedby the assets of our domestic operating subsidiary, Dynamic Details.  In addition, the common stock of DDiIntermediate, DDi Capital and Dynamic Details is pledged as collateral tosecure the credit facility. At March 31, 2004, Dynamic Details was able toborrow up to $14.9 million on this facility, of which $14.8 million was drawn.On April 2, 2004, we repaid this facility and on May 10, 2004, Dynamic Detailshad available borrowings of $15.5 million.

 

***DDiEurope Facilities Agreement***

 

DDi Europe has a separate European debtfacility made up of £14.3 million ($26.0 million) in term loans and a workingcapital facility having a maximum borrowing limit of £10.0 million ($18.2million) for its European operations as of March 31, 2004. Any amounts drawnunder the working capital facility are repayable upon demand by thelender.  Based upon current and expectedmarket conditions for the DDi Europe operations, the European lender had statedits desire that DDi Europe not draw down more than £7.0 million ($12.5 million)of the working capital facility. As of March 31, 2004, an aggregate of £6.6million ($12.0 million) was outstanding under the DDi Europe working capitalfacility.

 

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***DDiCapital Accreting Notes***

 

The DDi Capital 16% senior accreting notesdue 2009 were issued in an original principal amount of $17.7 million and willmature on January 1, 2009.  The senior accretingnotes were issued under an indenture dated as of December 12, 2003 between DDiCapital Corp., as issuer, and Wilmington Trust Co., as trustee.  The senior accreting notes are seniorunsecured obligations of DDi Capital. Interest is payable on the notes byissuance of additional senior accreting notes at an annual rate of 16% or, atDDi Capital’s election, in cash at an annual rate of 14%. The notes mature onJanuary 1, 2009 and are redeemable by DDi Capital. The DDi Capital senioraccreting notes may be redeemed at the option of DDi Capital, in whole at anytime, at a redemption price that is greater than the accreted value of thenotes, plus accrued and unpaid interest, if any, to the redemption date.  We have not redeemed any notes as ofDecember 31, 2003.  Each holder of thesenior discount notes also received a warrant to purchase a pro rata portion of762,876 shares of the Company’s common stock. These warrants are held in anescrow account until December 12, 2005 and are exercisable at an initialexercise price of $0.01 per share from December 13, 2005 through July 31,2008.  In connection with the completionof a private placement of common stock in January 2004 (see Note 15), theamount of warrants issued was adjusted, pursuant to the anti-dilutionprovisions of the warrants, to purchase an aggregate of 807,090 shares.  The warrants issued to the senior notesholders will be terminated if, on or before December 12, 2005, DDi Capital paysall of its indebtedness to the holders of the senior accreting notes.

 

***SeriesA Mandatorily Redeemable Preferred Stock***

 

Inconnection with the plan of reorganization, the DDi Corp. issued 1,000,000shares of its Series A Preferred Stock to its former convertible subordinatednoteholders.  The Series A Preferred hasan annual dividend of 15% and an aggregate liquidation preference of $15million with a mandatory redemption date of January 31, 2009.  The Series A Preferred will only be paid tothe extent there is value, as defined in the related certificate of determination,in DDi Europe beyond what is owed on the DDi Europe Facility Agreement.

 

***Contractual CashObligations and Commercial Commitments***

 

The following table shows our contractual cash obligations andcommercial commitments as of March 31, 2004:

 

Payments Dueby Period

(in millions) 

 
|                                                 |   | **For the  Nine Months  Ending December 31,** |   | **Year  Ending December 31,** |   |
|------------------------------------------------------|--------|-----------------------------------------------|--------|-------------------------------|--------|
| **Commitments**                                      |   | **2004**                                      |   | **2005**                      |   | **2006** |   | **2007** |   | **2008** |   | **Thereafter** |   | **Total** |   |
| Long-Term Debt (a)                                   |   | $                                             | — |                          | $      | 3.7 |   | $ | 10.9 |   | $ | 11.4 |   | $ | — |   | $ | 18.4 |   | $ | 44.4 |   |
| Series A mandatorily redeemable preferred  stock (b) |   | $                                             | — |                          | — |   | — |   | — |   | — |   | 15.0 |   | 15.0 |   |
| Series B mandatorily redeemable preferred  stock (b) |   | $                                             | — |                          | — |   | — |   | — |   | — |   | 61.0 |   | 61.0 |   |
| Capital Lease Obligations                            |   | 1.0                                           |   | 1.4                           |   | — |   | — |   | — |   | — |   | 2.4 |   |
| Operating Leases                                     |   | 6.7                                           |   | 8.7                           |   | 7.4 |   | 6.2 |   | 5.3 |   | 8.4 |   | 42.7 |   |
| Total Commitments                                    |   | $                                             | 7.7    |                          | $      | 13.8 |   | $ | 18.3 |   | $ | 17.6 |   | $ | 5.3 |   | $ | 102.8 |   | $ | 165.5 |   |

 

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(a)   Amounts include DDi Europe Facilities Agreement andDDi Capital Accreting Notes.

(b)   Amounts payable are due to mandatory redemptionfeature of the respective preferred stock instrument.

 

**FactorsThat May Affect Future Results**

 

***Werecently emerged from a Chapter 11 Bankruptcy reorganization and have a historyof losses.***

 

We sought protection under Chapter 11 of theU.S. Bankruptcy Code in August 2003. We incurred net losses of approximately$288.1 million and $85.1 million during the fiscal years ended December 31,2002 and December 31, 2001, respectively. See “Management’s Discussion andAnalysis of Financial Condition and Results of Operations.” On December 12,2003, we emerged from Chapter 11 protection pursuant to our plan ofreorganization, under which our equity ownership and capital structure wassignificantly altered and four new independent directors were elected to ourseven-member board. Our return to profitability is not assured and we cannotassure you that we will grow or achieve profitability in the near future, or atall.

 

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***OurChapter 11 reorganization and uncertainty over our financial condition may harmour businesses and our customer relationships.***

 

Any adverse publicity or news coverageregarding our recent Chapter 11 reorganization and financial condition couldhave an adverse effect on parts of our business. Due to the potential effect ofthat publicity, we may find it difficult to maintain relationships withexisting customers or obtain new customers. Although we have successfullyconsummated our plan of reorganization, there is no assurance that any suchnegative publicity will not adversely impact our results of operations or havea long-term negative effect on our businesses or customer relationships in thefuture.

 

***Ifthe demand for our customers’ products decline, demand for our products will besimilarly affected and our revenues, gross margins and operating performancewill be adversely affected.***

 

Our customers that purchase printed circuitboard engineering and manufacturing services from us are subject to their ownbusiness cycles. Some of these cycles show predictability from year to year.However, other cycles, are unpredictable in commencement, depth and duration. Adownturn, or any other event leading to additional excess capacity willnegatively impact our revenues, gross margins and operating performance.  We cannot accurately predict the continueddemand for our customers’ products and the demands of our customers for ourproducts and services. As a result of this uncertainty, our past operatingresults, earnings and cash flows may not be indicative of our future operatingresults, earnings and cash flows.

 

***Unlesswe are able to respond to technological change at least as quickly as ourcompetitors, our services could be rendered obsolete, which would reduce ourrevenue and operating margins.***

 

The market for our services is characterizedby rapidly changing technology and continuing process development. The futuresuccess of our business will depend in large part upon our ability to maintainand enhance our technological capabilities, to develop and market services thatmeet evolving customer needs and to successfully anticipate or respond totechnological changes on a cost-effective and timely basis. We are moreleveraged than some of our principal competitors, and therefore may not havethe financial flexibility to respond to technological changes as quickly asthese competitors.

 

In addition, the printed circuit boardengineering and manufacturing services industry could in the future encountercompetition from new or revised technologies that render existing technologyless competitive or obsolete or that reduce the demand for our services. Wecannot assure you that we will effectively respond to the technologicalrequirements of the changing market. To the extent we determine that newtechnologies and equipment are required to remain competitive, the development,acquisition and implementation of such technologies and equipment may requireus to make significant capital investments. We cannot assure you that we willbe able to obtain capital for these purposes in the future or that anyinvestments in new technologies will result in commercially viabletechnological processes.

 

***Wemay experience significant fluctuation in our revenue because we sell primarilyon a purchase order basis, rather than pursuant to long-term contracts.***

 

Our operating results fluctuate because wesell on a purchase-order basis rather than pursuant to long-term contracts, andwe expect these fluctuations to continue in the future. We are thereforesensitive to variability in demand by our customers. Because we time ourexpenditures in anticipation of future sales, our operating results may be lessthan we estimate if the timing and volume of customer orders do not match ourexpectations.  Furthermore, we may notbe able to capture all potential revenue in a given period if our customers’demand for quick-turn services exceeds our capacity during that period. Becauseof these factors, you should not rely on

quarter-to-quarter comparisons of our resultsof operations as an indication of our future performance. Because a significantportion of our operating expenses are fixed, even a small revenue shortfall canhave a disproportionate effect on our operating results. It is possible that,in future periods, our results may be below the expectations of public marketanalysts and investors. This could cause the market price of our common stockto decline.

 

***Werely on a core group of significant customers for a substantial portion of ournet sales, and a reduction in demand, or an inability to pay, from this coregroup could adversely affect our total revenue.***

 

Although we have a large number of customers,net sales to our largest customer accounted for approximately 6% of our netsales for the three months ended March 31, 2004. Net sales to our ten largestcustomers accounted for approximately 25% of our net sales during the sameperiod. We may depend upon a core group of customers for a material percentageof our net sales in the future. Substantially all of our sales are made on thebasis of purchase orders rather than long-term agreements. We cannot assure youthat significant customers will order services from us in the future or thatthey will not reduce or delay the amount of services ordered. Any reduction ordelay in orders could negatively impact our revenues. In addition, we generatesignificant accounts receivable in 

 

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connection with providing services to ourcustomers. If one or more of our significant customers were to become insolventor otherwise were unable to pay us for the services provided, our results ofoperations would be adversely affected.

 

***Ifwe experience excess capacity due to variability in customer demand, our grossmargins may decline.***

 

We maintain our production facilities at lessthan full capacity to retain our ability to respond to additional quick-turnorders. However, if these orders are not received, we could experience lossesdue to excess capacity.  Whenever we experienceexcess capacity, our sales revenue may be insufficient to fully cover our fixedoverhead expenses and our gross margins will decline. Conversely, we may not beable to capture all potential revenue in a given period if our customers’demands for quick-turn services exceed our capacity during that period.

 

***Weare subject to intense competition, and our business may be adversely affectedby these competitive pressures.***

 

The printed circuit board industry is highlyfragmented and characterized by intense competition. We principally compete withindependent and captive manufacturers of complex quick-turn and longer-leadprinted circuit boards. Our principal competitors include other establishedpublic companies, smaller private companies and integrated subsidiaries of morebroadly based volume producers that also manufacture multi-layer printedcircuit boards and other electronic assemblies. Some of our principalcompetitors are less highly–leveraged than us and may have greater financialand operating flexibility.  For us to becompetitive in the quick-turn sector, we must maintain a large customer base, alarge staff of sales and marketing personnel, considerable engineeringresources and proper tooling and equipment to permit fast turnaround of smalllots on a daily basis.

 

***IfAsian based production capabilities increase in sophistication, we may losemarket share and our gross margins may be adversely affected by increasedpricing pressure.***

 

Price competition from printed circuit boardmanufacturers based in Asia and other locations with lower production costs mayplay an increasing role in the printed circuit board markets in which wecompete. While printed circuit board manufacturers in these locations havehistorically competed primarily in markets for less technologically advancedproducts, they are expanding their manufacturing capabilities to produce higherlayer count, higher technology printed circuit boards. In the future,competitors in Asia may be able to effectively compete in our higher technologymarkets, which may force us to lower our prices, reducing our gross margins ordecreasing our net sales.

 

***Werely on suppliers for the timely delivery of raw materials used inmanufacturing our printed circuit boards, and an increase in industry demand orthe presence of a shortage for these raw materials may increase the price ofthese raw materials and reduce our gross margins.***

 

To manufacture our printed circuit boards, weuse raw materials such as laminated layers of fiberglass, copper foil andchemical solutions, which we generally order from our suppliers on a purchaseorder basis. We use just-in-time procurement practices to maintain rawmaterials inventory at low levels and do not have guaranteed supply contractswith our suppliers. Although we have preferred suppliers for most of our rawmaterials, the materials we use are generally readily available in the openmarket, and numerous other potential suppliers exist. However, from time totime manufacturers of products that also use these raw materials increase theirdemand for these materials and, as a result, the prices of these materialsincrease. During these periods of increased demand, our gross margins maydecrease as we have to pay more for our raw materials. If a raw materialsupplier fails to satisfy our product quality standards, it could harm ourcustomer relationships.  Suppliers mayfrom time to time extend lead times, limit supplies or increase prices due tocapacity constraints or other factors, which could harm our ability to deliverour products on a timely basis.

 

In addition, uncertainty during ourrecapitalization process and losses experienced by certain of our unsecuredcreditors may have adversely affected our relationships with our suppliers. Ifsuppliers become increasingly concerned about our financial condition, they maydemand faster payments or refuse to extend normal trade credit, both of whichcould further adversely affect our cash flow and our results of operations. Wemay not be successful in obtaining alternative suppliers if the need arises,and this would adversely affect our results of operations.

 

***Defectsin our products could result in financial or other damages to our customers,which could result in reduced demand for our services and liability claimsagainst us.***

 

Defects in the products we manufacture,whether caused by a design, manufacturing or materials failure or error, mayresult in delayed shipments, customer dissatisfaction, or a reduction in orcancellation of purchase orders. If these defects occur either in large 

 

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quantities or too frequently, our businessreputation may be impaired.  Defects inour products could result in financial or other damages to our customers. Oursales arrangements generally contain provisions designed to limit our exposureto product liability and related claims, but existing or future laws orunfavorable judicial decisions could negate these limitation of liabilityprovisions. Product liability claims made against us, even if unsuccessful,would be time consuming and costly to defend. Although we maintain a warrantyreserve, this reserve may not be sufficient to cover our warranty or otherexpenses that could arise as a result of defects in our products.

 

***Ifwe are unable to protect our intellectual property or infringe or are allegedto infringe others’ intellectual property, our operating results may beadversely affected.***

 

We primarily rely on trade secret laws andrestrictions on disclosure to protect our intellectual property rights. Wecannot be certain that the steps we have taken to protect our intellectualproperty rights will prevent unauthorized use of our technology. Our inabilityto protect our intellectual property rights could diminish or eliminate thecompetitive advantages that we derive from our proprietary technology.

 

We may become involved in litigation in thefuture to protect our intellectual property or because others may allege thatwe infringe on their intellectual property. These claims and any resultinglitigation could subject us to significant liability for damages and invalidateour proprietary rights. In addition, these lawsuits, regardless of theirmerits, would likely be time consuming and expensive to resolve and woulddivert management’s time and attention. Any potential intellectual propertylitigation alleging our infringement of a third-party’s intellectual propertyalso could force us or our customers to:

 

• stop producing products that use theintellectual property in question;

 

• obtain an intellectual property license to sellthe relevant technology at an additional cost, which license may not beavailable on reasonable terms, or at all; and

 

• redesign those products or services that use thetechnology in question.

 

The costs to us resulting from having to takeany of these actions could be substantial and our operating results could beadversely affected.

 

***Complyingwith applicable environmental laws requires significant resources and if wefail to comply, we could be subject to substantial liability.***

 

Our operations are regulated under a numberof federal, state, local and foreign environmental and safety laws andregulations that govern, among other things, the discharge of hazardousmaterials into the air and water, as well as the handling, storage and disposalof such materials. These laws and regulations include the Clean Air Act, theClean Water Act, the Resource Conservation and Recovery Act and theComprehensive Environmental Response, Compensation and Liability Act, as wellas analogous state and foreign laws. Compliance with these environmental lawsis a major consideration for us because we use in our manufacturing processmaterials classified as hazardous such as ammoniacal etching solutions, copperand nickel. Our efforts to comply with applicable environmental laws require anongoing and significant commitment of our resources. Over the years,environmental laws have become, and may in the future become, more stringent,imposing greater compliance costs on us. In addition, because we are agenerator of hazardous wastes and our sites may become contaminated, we may besubject to potential financial liability for costs associated with aninvestigation and any remediation of such sites. Even if we fully comply withapplicable environmental laws and are not directly at fault for thecontamination, we may still be liable. The wastes we generate include spentammoniacal etching solutions, solder stripping solutions and hydrochloric acidsolution containing palladium, waste water which contains heavy metals, acids,cleaners and conditioners; and filter cake from equipment used for on-sitewaste treatment.

 

Violations of environmental laws couldsubject us to revocation of the environmental permits we require to operate ourbusiness. Any such revocations could require us to cease or limit production atone or more of our facilities, thereby negatively impacting revenues andpotentially causing the market price of our common stock to decline.Additionally, if we are liable for any violation of environmental laws, wecould be required to undertake expensive remedial actions and be subject toadditional penalties.

 

***Severalof our officers and directors are named defendants in several securities classaction complaints and other litigation, which could divert management attentionand result in substantial indemnification costs.***

 

Certain of our current and former officersand directors have been named as defendants in a number of class action andrelated lawsuits. Under Delaware law, our charter documents, and certainindemnification agreements we entered into with our executive 

 

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officers and directors, we must indemnify ourcurrent and former officers and directors to the fullest extent permitted bylaw. The indemnification covers any expenses and/or liabilities reasonablyincurred in connection with the investigation, defense, settlement or appeal oflegal proceedings. The obligation to provide indemnification does not apply ifthe officer or director is found to be liable for fraudulent or criminalconduct. For the period in which the claims were asserted, we had in placedirector and officer’s liability insurance policies. We are unable to estimatewhat our indemnification liability in these matters may be. If our director’sand officer’s liability insurance policies do not adequately cover our expensesrelated to those class action lawsuits, we may be required to pay judgments orsettlements and incur expenses in aggregate amounts that could have a materialadverse effect on our financial condition, cash flows or results of operations.In addition, these lawsuits could divert management attention from ourday-to-day operations, which could have a material adverse effect on ourbusiness.

 

***Weare subject to risks arising from our international sales and supply chainwhich could adversely affect our revenue and operating results.***

 

We generate a significant portion of ourrevenue from non-U.S. sales, and a significant portion of the raw materials andcomponents we use to produce our products are provided by internationalsuppliers. As a result of our international operations and supply chain, we areaffected by economic and political conditions in foreign countries, including:

 

• the imposition of government controls;

 

• export license requirements;

 

• political and economic instability;

 

• trade restrictions;

 

• changes in tariffs and duties;

 

• labor unrest and difficulties in staffing;

 

• coordinating communications among and managinginternational operations;

 

• fluctuations in currency exchange rates;

 

• earnings expatriation restrictions;

 

• misappropriation of intellectual property; and

 

• constraints on our ability to maintain orincrease prices.

 

Any of these factors could adversely impactour ability to secure our raw materials or our ability to sell our productsinternationally. This could reduce our revenue and adversely impact ouroperating results.

 

***Wedepend on our key personnel and may have difficulty attracting and retainingskilled employees.***

 

Our future success will depend to asignificant degree upon the continued contributions of our key management,marketing, technical, financial, accounting and operational personnel,including Bruce D. McMaster, our President and Chief Executive Officer. None ofour key employees has entered into an employment agreement or other similararrangement, with the exception of a non-solicitation agreement between BruceD. McMaster and us. The loss of the services of one or more key employees couldhave a material adverse

effect on our results of operations. We alsobelieve that our future success will depend in large part upon our ability toattract and retain additional highly skilled managerial and technicalresources. Competition for such personnel is intense. There can be no assurancethat we will be successful in attracting and retaining such personnel. Inaddition, recent and potential future facility shutdowns and workforcereductions may have a negative impact on employee recruiting and retention.

 

***Ourmanufacturing processes depend on the collective industry experience of ouremployees. If these employees were to leave and take this knowledge with them,our manufacturing processes may suffer, and we may not be able to competeeffectively.***

 

Other than our trade secret protection, werely on the collective experience of our employees to ensure that wecontinuously evaluate and adopt new technologies in our industry. If asignificant number of employees involved in our manufacturing processes were to

 

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leave our employment and we are not able toreplace these people with new employees with comparable experience, ourmanufacturing processes may suffer as we may be unable to keep up withinnovations in the industry. As a result, we may not be able to continue tocompete effectively.

 

***Theterms of our lending arrangements may restrict our financial and operationalflexibility.***

 

The terms of our indebtedness under oursenior credit facility restrict, among other things, our ability to incur additionalindebtedness, pay dividends or make certain other restricted payments,consummate certain asset sales, enter into certain transactions withaffiliates, merge or consolidate with any other person or sell, assign,transfer, lease, convey or otherwise dispose of all or substantially all of ourassets. DDi Europe, DDi Capital and Dynamic Details are also required tomaintain specified financial ratios and satisfy certain financial conditiontests. Our subsidiaries’ ability to meet those financial ratios and tests canbe affected by events beyond our subsidiaries’ control, and there can be noassurance that they will meet those tests. Substantially all of the assets ofDDi Europe are pledged as security under the DDi Europe facilities agreement.

 

***Wemay need additional capital in the future and it may not be available onacceptable terms, or at all.***

 

Looking ahead at long-term needs, we may needto raise additional funds for the following purposes:

 

• to fund our operations beyond March 31, 2005;

 

• to fund working capital requirements for futuregrowth that we may experience;

 

• to enhance or expand the range of services weoffer;

 

• to increase our sales and marketing activities;or

 

• to respond to competitive pressures or perceivedopportunities, such as investment, acquisition and international expansionactivities.

 

If such funds are not available when requiredor on acceptable terms, our business and financial results could suffer.

 

***Ifwe make unprofitable acquisitions or are unable to successfully integratefuture acquisitions, our business could suffer.***

 

We have in the past and from time to time inthe future may acquire businesses, products or technologies that we believecomplement or expand our existing business. Acquisitions involve numerous risks,including the following:

 

• difficulties in integrating the operations,technologies, products and personnel of the acquired companies, especiallygiven the specialized nature of our business;

 

• diversion of management’s attention from normaldaily operations of the business;

 

• potential difficulties in completing projectsassociated with in-process research and development;

 

• initial dependence on unfamiliar supply chainsor relatively small supply partners; and

 

• the potential loss of key employees of theacquired companies.

 

Acquisitions may also cause us to:

 

• issue stock that would dilute our currentstockholders’ percentage ownership;

 

• assume liabilities;

 

• record goodwill and non-amortizable intangibleassets that will be subject to impairment testing and potential periodicimpairment charges;

 

• incur amortization expenses related to certainintangible assets;

 

• incur large and immediate write-offs; or

 

• become subject to litigation.

 

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Mergers and acquisitions of high-technologycompanies are inherently risky, and no assurance can be given that any futureacquisitions by us will be successful and will not materially adversely affectour business, operating results or financial condition. The failure to manageand successfully integrate acquisitions we make could materially harm ourbusiness and operating results.

 

***Salesof large amounts of our common stock or the perception that sales could occurmay depress our stock price.***

We issued an aggregate of 23,749,926 sharesof our common stock upon our emergence from bankruptcy to former holders of ourdebt and equity securities and other claimants. These shares may be sold at anytime, subject to compliance with applicable law, including the Securities Actand certain provisions of our certificate of incorporation, bylaws andregistration rights agreements with the holders of such shares.

 

Sales in the public market of large blocks ofshares of our common stock acquired pursuant to our plan of reorganization, orthe perception that those sales could occur, could lower our stock price andimpair our ability to raise funds in future stock offerings. Such sales couldalso impair our ability to raise additional capital through the sale of ourequity securities in the future.

 

***Thetrading price of our old common stock may not have any correlation to thetrading prices of the common stock issued in connection with our recentbankruptcy, and the trading price may continue to be volatile.***

 

We recently emerged from Chapter 11Bankruptcy, and the current market price of our common stock may not beindicative of prices that will prevail in the trading markets in the future. Wecanceled all of our outstanding common stock in our recently completedbankruptcy proceeding. The market price of our old common stock fluctuatedsubstantially, even before our bankruptcy proceedings commenced. Shares of ourold common stock traded between a high of $33.63 and a low of $5.71 in fiscalyear 2001, between a high of $13.06 and a low of $0.12 in fiscal year 2002 andbetween a high of $0.27 and a low of $0.01 in fiscal year 2003 through December12, 2003.

 

The trading prices of our old common stockmay not have any correlation to the trading price of our new common stock. BetweenDecember 12, 2003 and May 5, 2004, the price of our Common Stock on the OTCBulletin Board has ranged from a high of $19.50 to a low of $8.39 per share.See “*MarketPrice Information and Dividend Policy*.”

 

The market price of our common stock could besubject to wide fluctuations in response to numerous factors, many of which arebeyond our control. These factors include, among other things, actual oranticipated variations in our operating results and cash flow, the nature andcontent of our earnings releases and our competitors’ earnings releases,announcements of technological innovations that impact our services, customers,competitors or markets, changes in financial estimates by securities analysts,business conditions in our markets and the general state of the securitiesmarkets and the market for similar stocks, changes in capital markets thataffect the perceived availability of capital to companies in our industries,governmental legislation or regulation, currency and exchange rate fluctuations,as well as general economic and market conditions, such as recessions.

 

***Thetrading price of our common stock may be affected by the future trading volume.***

 

Our common stock is listed on the NasdaqNational Market. Our old common stock, which was cancelled in connection withthe bankruptcy proceedings, had traded on the OTC Bulletin Board after beingdelisted from the Nasdaq SmallCap Market effective April 15, 2003. Limitedtrading volume of our common stock could affect the trading price by magnifyingthe effect of larger purchase or sale orders and could increase the tradingprice volatility in general. No prediction can be made as to future tradingvolumes of our common stock on the Nasdaq National Market.

 

***Wemay in the future seek to raise funds through equity offerings, or there may beother events which could have a dilutive effect on our common stock.***

 

In the future we may seek to raise capitalthrough offerings of our common stock, securities convertible into our commonstock, or rights to acquire such securities or our common stock. In any suchcase, the result could ultimately be dilutive to our common stock by increasingthe number of shares outstanding.

 

In connection with our plan ofreorganization, we issued warrants that were exercisable for 807,090 shares ofour common stock as of February 6, 2004. The shares issuable upon exercise ofthe warrants may increase subject to anti-dilutive rights which we granted tothe warrant holders. The warrants are held in an escrow account until December 12,2005 and are subject to reduction or termination.

 

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We also granted options to purchase anaggregate of 2,620,434 shares of our common stock and 1,250,000 shares ofrestricted stock under our 2003 Management Equity Incentive Plan, and anadditional 2,919,686 shares of our common stock may be issued to members ofmanagement under our 2003 Management Incentive Plan and 2003 Directors EquityIncentive Plan upon the exercise of options not yet granted under the plans orpursuant to restricted stock grants.

 

***Anti-takeoverprovisions in our charter documents and under Delaware law may make anacquisition of us more difficult even though it may be beneficial to ourstockholders.***

 

We are incorporated in Delaware. Certainanti-takeover provisions of Delaware law and our charter documents may make achange in control of our company more difficult, even if a change in controlwould be beneficial to the stockholders. Our anti-takeover provisions includeprovisions in the certificate of incorporation providing that stockholders’meetings may only be called by the board of directors and a provision in thebylaws providing that the stockholders may not take action by written consent.Additionally, our board of directors has the authority to issue an additional4,000,000 shares of preferred stock and to determine the terms of those sharesof stock without any further action by the stockholders. The rights of holdersof our common stock are subject to the rights of the holders of any preferredstock that may be issued. The issuance of preferred stock could make it moredifficult for a third party to acquire a majority of our outstanding votingstock. Delaware law also prohibits corporations from engaging in a businesscombination with any holders of 15% or more of their capital stock until theholder has held the stock for three years unless, among other possibilities,the board of directors approves the transaction. Our board of directors may usethese provisions to prevent changes in the management and control of ourcompany. Also, under applicable Delaware law, our board of directors may adoptadditional anti-takeover measures in the future.

 

**Item 3****.  Quantitative and Qualitative DisclosuresAbout Market Risk.**

 

Interest Rate Risk

 

The Dynamic Details revolving credit facility and DDi Europe FacilitiesAgreement bear interest at floating rates and the Senior Accreting Notes bearinterest at fixed rates.

 

The Dynamic Details revolving credit facilitybears interest at LIBOR plus 4% on LIBOR loans and prime plus 3% for index rateloans.  Pricing will be determined byDynamic Details’ adjusted EBITDA numbers, and will range from LIBOR plus 3 to4% on LIBOR loans or prime plus 2 to 3% for index rate loans the effectiveinterest rate at March 31, 2004 was 7.0%. The DDi Europe Facilities Agreement bears interest basedon three-month U.K. LIBOR plus a margin of 1.50%. Based upon our anticipatedutilization of the DDi Europe revolving credit facility through the periodending March 31, 2005, a 10% change in interest rates is not expected tomaterially affect the interest expense to be incurred on this facility duringsuch period.  As of March 31, 2004,three-month U.K. LIBOR was 4.38%.  Ifthree-month U.K. LIBOR increased by 10% to 4.82%, interest expense related tothe term loan facility would increase approximately $0.1 million.  The overall effective interest rate for theterm loan facilities, as of March 31, 2004, was 5.88%.

 

A change in interest rates would not have an effect on our interestexpense on the Senior Accreting Notes because these instruments bear a fixedrate of interest.

 

Foreign Currency Exchange Risk

 

Sales and expenses and financial results of DDi Europe and of ourCanadian operations are denominated in British pounds and Canadian dollars,respectively.  We have foreign currencytranslation risk equal to our net investment in those operations; however,since nearly all of our sales are denominated in local currency or in U.S. dollars,we have relatively little exposure to foreign currency transaction risk withrespect to sales made.  Based uponannualizing the most recent quarter’s results, the effect of an immediate 10%change in exchange rates would have an annual net impact on our operatingresults of approximately ($0.2) million. We do not use forward exchange contracts to hedge exposures to foreigncurrency denominated transactions and do not utilize any other derivativefinancial instruments for trading or speculative purposes.

 

**Item 4****.  Controls and Procedures.**

 

Based on an evaluation of the effectiveness of DDi Corp.’s disclosurecontrols and procedures (as defined in Rules 13a-15(e) under the Securities Actof 1934, as amended), DDi Corp.’s Chief Executive Officer and Chief FinancialOfficer have concluded that such controls and procedures were effective as ofthe end of the period covered by this report. In connection with such evaluation, no change in DDi Corp.’s internalcontrol over financial reporting occurred during the period covered by thisreport that has materially affected, or is reasonably likely to materiallyaffect, DDi Corp.’s internal control over financial reporting.

 

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**PARTII – OTHER INFORMATION**

 

**Item 2 Changes in Securities****, Use of Proceeds and Issuer Purchasesof Equity Securities**

 

On January 21, 2004, we issued 1,000,000 shares of common stock to twoinstitutional investors for total gross proceeds of $15,980,000.  We paid our placement agent and advisor aplacement fee of $728,900 out of the proceeds of the offering. We issued thesesecurities under an exemption provided by Rule 506 of Regulation D under theSecurities Act Rules.  The purchasers ofthese securities certified that they were “accredited investors” as defined inRule 501 of Regulation D, were acquiring the securities as an investment andnot with a view to distribution, and would not resell the securities unlessthey became registered or another exemption from registration wasavailable.  The holders are entitled,under certain circumstances, to require us to register the resale of theircommon stock under the Securities Act. We filed a registration statement onFebruary 12, 2004 relating to these shares of common stock, which was declaredeffective on April 19, 2004.

 

On March 30, 2004, we sold in a private placement 147,679 shares ofSeries B-1 Preferred Stock and 1,139,238 shares of Series B-2 Preferred Stock(collectively, the “Series B Preferred”) to certain institutional investors ata price of $47.40 per share for an aggregate sales price of $61 million beforeplacement fees and offering expenses. We paid our placement agent and advisor a placement fee of $3,040,000out of the proceeds of the offering.  Wepaid off the Dynamic Details Senior Credit Facility in full using $54.8 millionof the proceeds from this placement.  Weissued the Series B Preferred under an exemption provided by Rule 506 ofRegulation D under the Securities Act Rules. The purchasers of these securities certified that they were “accreditedinvestors,” as defined in Rule 501 of Regulation D, were acquiring thesecurities as an investment and not with a view to distribution, and would notresell the securities unless they became registered or another exemption fromregistration was available.  Each shareof Series B Preferred will initially be convertible into four shares of commonstock at anytime at a conversion price of $11.85 per share, subject to certainanti-dilution and other customary adjustments. The Series B Preferred bear dividends at the rate of 6% per annum,payable commencing March 31, 2005, at our election, either in cash or in commonstock.

 

The preferred shares are subject to mandatory redemption in five years.At the option of the holders, we are required to redeem the preferred shares inthree equal installments in 18 months, 24 months and 30 months from issuance orearlier upon a change of control, certain events of default, or other specifiedoccurrences. We also have the right to redeem the preferred shares if theCompany’s stock trades above $20.75 for 30 consecutive trading days. Theredemption price is at cost plus accrued dividends, except in the case ofcertain defaults where there are premiums to the redemption cost.

 

Subject to the shareholder approval requirement discussed below, wehave the option to make dividend and redemption payments in either cash orcommon stock (up to a maximum of 10,000,000 shares, unless the holdersotherwise agree), except in the event of a default or certain other occurrenceswhen the redemption payments must be made in cash. If we use our stock to paydividends or make redemptions, then its stock is valued at a 5% discount tomarket in making such payments.

 

Until we obtain stockholder approval, the holders of Series B Preferredare not entitled to receive common stock equal to more than 19.9% of the numberof shares of our common stock which were outstanding immediately prior to theissuance of the Series B Preferred and we are not entitled to satisfy dividendand redemption payments using shares of our common stock.  We have submitted these proposals to ourshareholders for action at our 2004 Annual Meeting of Stockholders scheduled tothe held in May 2004.

 

We have agreed to register the shares of common stock the holders willreceive upon conversion of the Series B Preferred and the shares of commonstock used to make dividends and redemption payments.  We filed a registration statement on April 28, 2004 relating tothese shares of common stock.

 

In general, the Series B Preferred vote together with the common sharesbased on the number of shares into which the Series B Preferred could converton the day that the Series B Preferred were issued.  In addition, the Series B Preferred is entitled to elect a memberof our Board of Directors in the event we fail to redeem the Series B Preferredwhen required.

 

The terms of the Series B Preferred prohibit us from taking certainactions without the consent of the majority of the holders of the Series BPreferred, including incurring certain levels of indebtedness, issuingpreferred stock that is equal to or senior to the Series B-1 or B-2 PreferredStock, or issuing certain securities prior the registration of the shares ofcommon stock underlying the Series B Preferred.  The purchasers of the preferred shares have the right toparticipate in future private placements through March 2005.

 

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**Item 6.  Exhibits and Reports on Form 8-K****.**

 

(a)       *Exhibits.*

 
| **Exhibit No**. |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|----------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                  |   | Certificate of Designation of Series B Preferred Stock of DDi Corp.  (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.1                 |   | Stock Purchase Agreement dated January 21, 2004 by and among DDi  Corp. and the purchasers identified on the schedule of investors attached  thereto. (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.2                 |   | Registration Rights Agreement dated January 21, 2004 by and among DDi  Corp. and certain purchasers of DDi Corp.’s capital stock listed on the  signature pages thereof. (2)                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.2                 |   | Purchase Agreement dated as of March 29, 2004, by and between DDi  Corp. and each of the purchasers whose names and addresses are set forth on  the signature page thereof. (1)                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.4                 |   | Credit Agreement dated as of March 30, 2004, among Dynamic Details,  Incorporated, Dynamic Details, Incorporated, Virginia, Dynamic Details  Incorporated, Silicon Valley, and Laminate Technology Corp.,; the other  Credit Parties signatory thereto; General Electric Capital Corporation, for  itself, as Lender, and as Agent for Lenders, and the other Lenders signatory  thereto from time to time. (1)                                                                                                                                                                                                         |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.5                 |   | Security Agreement, dated as of March 30, 2004, made by Dynamic  Details, Incorporated, Dynamic Details Incorporated, Virginia, Dynamic  Details Incorporated, Silicon Valley, Laminate Technology Corp., Dynamic  Details Incorporated, Colorado Springs, DDi Sales Corp., Dynamic Details  Texas, LLC, DDi-Texas Intermediate Partners II, L.L.C., DDi-Texas  Intermediate Holdings II, L.L.C., and Dynamic Details, L.P., in favor of  General Electric Capital Corporation, as agent for the lenders from time to  time party to the Credit Agreement. (1)                                                          |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.6                 |   | Guaranty dated as of March 30, 2004, made by DDi Corp., DDi  Intermediate Holdings Corp., DDi Capital Corp., Dynamic Details Incorporated,  Colorado Springs, DDi Sales Corp., Dynamic Details Texas, LLC, DDi-Texas  Intermediate Partners II, L.L.C., DDi-Texas Intermediate Holdings II, L.L.C.,  Dynamic Details, L.P., in favor of General Electric Capital Corporation, as  agent for the lenders from time to time party to the Credit Agreement. (1)                                                                                                                                                            |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.7                 |   | Pledge Agreement dated as of March 30, 2004, made by Dynamic Details,  Incorporated, Dynamic Details, Incorporated, Virginia, Dynamic Details  Incorporated, Silicon Valley, Laminate Technology Corp., DDi Corp., DDi  Intermediate Holdings Corp., DDi Capital Corp., Dynamic Details Incorporated,  Colorado Springs, DDi Sales Corp., Dynamic Details Texas, LLC, DDi-Texas  Intermediate Partners II, L.L.C., DDi-Texas Intermediate Holdings II, L.L.C.,  Dynamic Details, L.P., in favor of General Electric Capital Corporation, as  agent for the lenders from time to time party to the Credit Agreement. (1) |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.8                 |   | Credit Agreement dated as of March 30, 2004, among Dynamic Details,  Incorporated, Dynamic Details, Incorporated, Virginia, Dynamic Details  Incorporated, Silicon Valley, and Laminate Technology Corp.,; the other  Credit Parties signatory thereto; General Electric Capital Corporation, for  itself, as Lender, and as Agent for Lenders, and the other Lenders signatory  thereto from time to time. (1)                                                                                                                                                                                                         |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.9                 |   | Security Agreement, dated as of March 30, 2004, made by Dynamic  Details, Incorporated, Dynamic Details Incorporated, Virginia, Dynamic  Details Incorporated, Silicon Valley, Laminate Technology Corp., Dynamic  Details Incorporated, Colorado Springs, DDi Sales Corp., Dynamic Details  Texas, LLC, DDi-Texas Intermediate Partners II, L.L.C., DDi-Texas  Intermediate Holdings II, L.L.C., and Dynamic Details, L.P., in favor of  General Electric Capital Corporation, as agent for the lenders from time to  time party to the Credit Agreement. (1)                                                          |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.10                |   | Guaranty dated as of March 30, 2004, made by DDi Corp., DDi  Intermediate Holdings Corp., DDi Capital Corp., Dynamic Details Incorporated,  Colorado Springs, DDi Sales Corp., Dynamic Details Texas, LLC, DDi-Texas  Intermediate Partners II, L.L.C., DDi-Texas Intermediate Holdings II, L.L.C.,  Dynamic Details, L.P., in favor of General Electric Capital Corporation, as  agent for the lenders from time to time party to the Credit Agreement. (1)                                                                                                                                                            |

 

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| 10.11  |   | Pledge Agreement dated as of March 30,  2004, made by Dynamic Details, Incorporated, Dynamic Details, Incorporated,  Virginia, Dynamic Details Incorporated, Silicon Valley, Laminate Technology  Corp., DDi Corp., DDi Intermediate Holdings Corp., DDi Capital Corp., Dynamic  Details Incorporated, Colorado Springs, DDi Sales Corp., Dynamic Details  Texas, LLC, DDi-Texas Intermediate Partners II, L.L.C., DDi-Texas  Intermediate Holdings II, L.L.C., Dynamic Details, L.P., in favor of General  Electric Capital Corporation, as agent for the lenders from time to time party  to the Credit Agreement. (1) |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 31.1   |   | Certification of Chief Executive Officer of DDi Corp., pursuant to  Rule 13a-14 of the Securities Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 31.2   |   | Certification of Chief Financial Officer of DDi Corp., pursuant to  Rule 13a-14 of the Securities Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 32.1   |   | Certification of Chief Executive Officer of DDi Corp., pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 32.2   |   | Certification of Chief Financial Officer of DDi Corp., pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

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(1)       Previously filed with the Commission on April 7,2004 as an exhibit to DDi Corp.’s Current Report on Form 8-K and herebyincorporated by reference into this Report.

 

(2)       Previously filed with the Commission on February12, 2004 as an exhibit to DDI Corp.’s Registration Statement on Form S-1,Registration No. 333-112786 and hereby incorporated by reference into thisReport.

 

 (b)     *Reports on Form 8-K.*

 

The following Current Reports on Form 8-K were filed in the quarterlyperiod ended March 31, 2004:

 

(i) On January 22, 2004, DDi Corp. filed a report on Form 8-K datedJanuary 21, 2004 announcing the completion of a private placement of 1,000,000shares of restricted common stock to institutional investors for gross proceedsof $15,980,000, before placement fees and offering expenses.

 

(ii) On February 23, 2004, DDi Corp. filed a report on Form 8-K datedFebruary 23, 2004 announcing the date of the next Annual Meeting ofStockholders and the deadlines for Stockholder Proposals and Director Nominationsfor the 2004 Annual Meeting.

 

(iii) On March 2, 2004, DDi Corp. filed a report on Form 8-K datedFebruary 26, 2004 announcing the financial results for the fourth quarter andyear ended December 31, 2003.

 

(iv) On March 4, 2004, DDi Corp. filed a report on Form 8-K dated March3, 2004 announcing that Nasdaq approved its application for a listing on theNasdaq National Market System.

 

(v) On March 29, 2004, DDi Corp. filed a report on Form 8-K dated March26, 2004 announcing revised financial results for the fourth quarter and yearended December 31, 2003.

 

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**SIGNATURE**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,DDi Corp. has duly caused this report to be signed on its behalf by theundersigned, thereto duly authorized.

 
| **Date**:  May 14, 2004 | **DDi CORP.** |
|-------------------------|---------------|
|                    |          |
|                    | By:           | /s/ Joseph Gisch |
|                    |          | **Joseph Gisch** |
|                    |          | **Senior Vice President,  Chief Financial Officer and  Treasurer  (Authorized Signatory and  Principal Financial Officer)** |

 

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