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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One)  þ
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 OR   ̈
    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
(State or other jurisdiction
of incorporation or organization)
    
    06-1576013
(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 since last report)
 Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days:
 þ Yes  ̈ No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).  þ Yes  ̈ No Indicate by check mark whether the registrant has filed all documents and reports to be filed
by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court.   þ Yes  ̈ No As of April 30, 2005, DDi Corp. had 27,160,849 shares of common stock, par value $0.001 per
share, outstanding.




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DDi CORP.
FORM 10-Q for the Quarterly Period Ended March 31, 2005 TABLE OF CONTENTS PageNo.PART I FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004 (unaudited)
    
    
    4Condensed Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 (unaudited)
    
    
    5Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2005 and 2004 (unaudited)
    
    
    6Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (unaudited)
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    27PART II OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3.
    
    Defaults Upon Senior Securities
    
    
    28Item 5.
    
    Other Information
    
    
    29Item 6.
    
    Exhibits
    
    
    29Signature
    
    
    30EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  - 2 -




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FORWARD-LOOKING STATEMENTS On one or more occasions, we may make statements regarding our assumptions, projections,
expectations, targets, intentions or beliefs about future events. All statements other than
statements of historical facts included in this Quarterly Report on Form 10-Q relating to
expectation of future financial performance, continued growth, changes in economic conditions or
capital markets and changes in customer usage patterns and preferences, are forward-looking
statements. Words or phrases such as anticipates, believes, estimates, expects, intends, plans,
predicts, projects, targets, will likely result, will continue, may, could or similar
expressions identify forward-looking statements. Forward-looking statements involve risks and
uncertainties which could cause actual results or outcomes to differ materially from those
expressed. We caution that while we make such statements in good faith and we believe such
statements are based on reasonable assumptions, including without limitation, managements
examination of historical operating trends, 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 the caption Factors That May Affect
Future Results in Part 1  Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations in this Quarterly Report on Form 10-Q, some important factors that could
cause actual results or outcomes for DDi Corp. or our subsidiaries to differ materially from those
discussed in forward-looking statements include:  
    changes in general economic conditions in the markets in which we may compete and
fluctuations in demand in the electronics industry;
    our ability to sustain historical margins as the industry develops;
    increased competition;
    increased costs;
    our ability to retain key members of management;
    adverse state, federal or foreign legislation or regulation or adverse determinations by regulators; and
    other factors identified from time to time in our filings with the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date on which such statement is made, and,
except as required by law, we undertake no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time, and it is not possible
for management to predict all such factors. - 3 -




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PART I  FINANCIAL INFORMATION 
 Item 1. Financial Statements. DDi CORP. 
    March 31,
    
    
    December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    21,863
    
    
    $
    23,526Accounts receivable, net
    
    
    28,093
    
    
    
    26,564Inventories
    
    
    18,270
    
    
    
    17,996Prepaid expenses and other
    
    
    2,306
    
    
    
    1,713Current assets held for disposal
    
    
    
    
    
    
    33,016Total current assets
    
    
    70,532
    
    
    
    102,815Property, plant and equipment, net
    
    
    35,168
    
    
    
    36,376Debt issuance costs, net
    
    
    1,399
    
    
    
    1,780Goodwill
    
    
    98,841
    
    
    
    99,375Other intangibles, net
    
    
    16,859
    
    
    
    18,009Deferred income tax
    
    
    541
    
    
    
    541Assets held for disposal
    
    
    
    
    
    
    26,245Other
    
    
    711
    
    
    
    810Total assets
    
    $
    224,051
    
    
    $
    285,951Liabilities, Mandatorily Redeemable Preferred Stock and Stockholders EquityCurrent liabilities:Current maturities of long-term debt and capital lease obligations
    
    $
    738
    
    
    $
    916Revolving credit facilities
    
    
    16,685
    
    
    
    15,948Accounts payable
    
    
    16,838
    
    
    
    16,389Accrued expenses and other liabilities
    
    
    16,319
    
    
    
    14,527Income taxes payable
    
    
    1,012
    
    
    
    1,099Current liabilities held for disposal
    
    
    
    
    
    
    67,853Total current liabilities
    
    
    51,592
    
    
    
    116,732Long-term debt and capital lease obligations
    
    
    18,204
    
    
    
    18,252Notes payable and other
    
    
    8,798
    
    
    
    8,602Liabilities held for disposal
    
    
    
    
    
    
    3,725Total liabilities
    
    
    78,594
    
    
    
    147,311Series B mandatorily redeemable preferred stock
    
    
    59,238
    
    
    
    61,557Stockholders equity:Common stock  $0.001 par value, 75,000,000 shares authorized, 27,147,543
and 25,513,522 shares issued and outstanding at March 31, 2005 and
December 31, 2004, respectively.
    
    
    27
    
    
    
    26Additional paid-in-capital
    
    
    145,620
    
    
    
    147,739Deferred compensation
    
    
    (6,082
    )
    
    
    (9,445
    )Accumulated other comprehensive income (loss)
    
    
    56
    
    
    
    (712
    )Stockholder receivables
    
    
    (656
    )
    
    
    (652
    )Accumulated deficit
    
    
    (52,746
    )
    
    
    (59,873
    )Total stockholders equity
    
    
    86,219
    
    
    
    77,083Total liabilities, mandatorily redeemable preferred stock and stockholders equity
    
    $
    224,051
    
    
    $
    285,951
 The accompanying notes are an integral part of these condensed consolidated financial statements. - 4 -




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DDi CORP. 
    Three months
    
    
    Three monthsended March 31,
    
    
    ended March 31,2005
    
    
    2004Net sales
    
    $
    44,949
    
    
    $
    48,055Cost of goods sold:Cost of goods sold
    
    
    37,217
    
    
    
    36,746Non-cash compensation and amortization of intangibles
    
    
    (279
    )
    
    
    5,701Total cost of goods sold
    
    
    36,938
    
    
    
    42,447Gross profit
    
    
    8,011
    
    
    
    5,608Operating expenses:Sales and marketing:Non-cash compensation
    
    
    (454
    )
    
    
    710Sales and marketing expenses
    
    
    3,486
    
    
    
    3,623Total sales and marketing
    
    
    3,032
    
    
    
    4,333General and administration:Non-cash compensation
    
    
    249
    
    
    
    1,336General and administration expenses
    
    
    3,951
    
    
    
    2,196Total general and administration
    
    
    4,200
    
    
    
    3,532Amortization of intangibles
    
    
    1,150
    
    
    
    1,150Restructuring and other related charges
    
    
    
    
    
    
    344Reorganization charges
    
    
    
    
    
    
    664Operating loss
    
    
    (371
    )
    
    
    (4,415
    )Interest and other expense, net
    
    
    1,191
    
    
    
    4,404Loss from continuing operations before income taxes
    
    
    (1,562
    )
    
    
    (8,819
    )Income tax expense
    
    
    (1,051
    )
    
    
    (761
    )Loss from continuing operations
    
    
    (2,613
    )
    
    
    (9,580
    )Net income (loss) from discontinued operations (including gain
on disposal of $11,053 in 2005)
    
    
    9,740
    
    
    
    (7,848
    )Net income (loss)
    
    
    7,127
    
    
    
    (17,428
    )Less: Series B preferred stock dividends and accretion
    
    
    (1,342
    )
    
    
    Net income (loss) available to common stockholders
    
    $
    5,785
    
    
    $
    (17,428
    )Loss per share of common stock from continuing operations 
basic and diluted
    
    $
    (0.15
    )
    
    $
    (0.39
    )Net income (loss) per share of common stock  basic and diluted
    
    $
    0.23
    
    
    $
    (0.70
    )Weighted average shares used in per share computations  basic
and diluted
    
    
    25,646,080
    
    
    
    24,745,109
 The accompanying notes are an integral part of these condensed consolidated financial statements. - 5 -




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DDi CORP. 
    Three months
    
    
    Three monthsended March 31,
    
    
    ended March 31,2005
    
    
    2004Net income (loss)
    
    $
    7,127
    
    
    $
    (17,428
    )Other comprehensive income:Foreign currency translation adjustments
    
    
    222
    
    
    
    380Comprehensive income (loss)
    
    $
    7,349
    
    
    $
    (17,048
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements. - 6 -




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DDi CORP. 
    Three months
    
    
    Three monthsended March 31,
    
    
    ended March 31,2005
    
    
    2004Cash flows from operating activities:Loss from continuing operations
    
    $
    (2,613
    )
    
    $
    (9,580
    )Adjustments to reconcile loss from continuing operations to cash used in operating activities:Depreciation
    
    
    2,455
    
    
    
    2,422Amortization of debt issuance costs and discount
    
    
    184
    
    
    
    901Capital senior note accretion
    
    
    
    
    
    
    581Amortization of intangible assets
    
    
    1,150
    
    
    
    1,919Non-cash compensation
    
    
    (482
    )
    
    
    6,977Non-cash and accrued restructuring and other related charges
    
    
    
    
    
    
    921Deferred income taxes
    
    
    
    
    
    
    (2
    )Interest income on stockholder receivables
    
    
    (4
    )
    
    
    (4
    )Loss on sale of fixed assets
    
    
    
    
    
    
    161Change in operating assets and liabilities:Increase in accounts receivable
    
    
    (1,552
    )
    
    
    (5,188
    )Increase in prepaid expenses and other
    
    
    (495
    )
    
    
    (797
    )Increase in inventory
    
    
    (280
    )
    
    
    (1,254
    )Increase in accounts payable
    
    
    458
    
    
    
    1,712Increase (decrease) in accrued expenses and other
    
    
    97
    
    
    
    (3,878
    )Increase (decrease) in income tax payable
    
    
    1,066
    
    
    
    (134
    )Net cash used in operating activities from continuing operations
    
    
    (16
    )
    
    
    (5,243
    )Net cash used in operating activities from discontinued operations
    
    
    (1,976
    )
    
    
    (2,735
    )Net cash used in operating activities
    
    
    (1,992
    )
    
    
    (7,978
    )Cash flows from investing activities:Purchases of equipment and leasehold improvements
    
    
    (1,239
    )
    
    
    (1,736
    )Proceeds from sale of fixed assets
    
    
    
    
    
    
    1,505Proceeds from the release of restricted cash
    
    
    
    
    
    
    7,500Cash outflows related to acquisition earn out
    
    
    
    
    
    
    (125
    )Net cash used in investing activities from discontinued operations
    
    
    (9
    )
    
    
    (1,055
    )Net cash provided by (used in) investing activities
    
    
    (1,248
    )
    
    
    6,089Cash flows from financing activities:Principal payments on capital leases
    
    
    (234
    )
    
    
    (662
    )Principal payments on long-term debt
    
    
    
    
    
    
    (71,695
    )Net borrowings on revolving credit facility
    
    
    737
    
    
    
    14,817Refund (payments) of debt issuance costs
    
    
    206
    
    
    
    (2,150
    )Payments on other notes payable
    
    
    
    
    
    
    (500
    )Proceeds from issuance of Series B preferred stock
    
    
    
    
    
    
    61,000Costs incurred in connection with issuance of Series B preferred stock
    
    
    
    
    
    
    (3,329
    )Proceeds from issuance of common stock
    
    
    
    
    
    
    15,980Costs incurred in connection with the issuance of common stock
    
    
    
    
    
    
    (1,456
    )Proceeds from exercise of stock options
    
    
    10
    
    
    
    259Net cash provided by (used in) financing activities from discontinued operations
    
    
    884
    
    
    
    (137
    )Net cash provided by financing activities
    
    
    1,603
    
    
    
    12,127Effect of exchange rate changes on cash
    
    
    (26
    )
    
    
    (241
    )Net increase (decrease) in cash and cash equivalents
    
    
    (1,663
    )
    
    
    9,997Cash and cash equivalents, beginning of year
    
    
    23,526
    
    
    
    11,202Cash and cash equivalents, end of period
    
    $
    21,863
    
    
    $
    21,199
 The accompanying notes are an integral part of these condensed consolidated financial statements. - 7 -




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DDi CORP. 
    NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS Basis of Presentation The unaudited condensed consolidated financial statements for DDi Corp. include the accounts of its
wholly owned subsidiaries, DDi Intermediate Holdings Corp. (Intermediate) and DDi Europe Limited
(DDi Europe f/k/a MCM Electronics Limited (MCM)) and the direct and indirect subsidiaries of
Intermediate (including DDi Capital Corp. or DDi Capital and Dynamic Details Incorporated or
Dynamic Details). Collectively, DDi Corp. and its subsidiaries are referred to as the Company. The Company announced the discontinuation of its European business and the placement into
administration of DDi Europe on February 9, 2005 (see Note 12). Accordingly, DDi Europe is
presented in the condensed consolidated financial statements as a discontinued operation. As a
discontinued operation, revenues, expenses and cash flows of DDi Europe have been aggregated and
reclassified separately from the respective captions of continuing operations in the Condensed
Consolidated Statement of Operations and Condensed Consolidated Statements of Cash Flows. The
assets and liabilities of DDi Europe have been aggregated and classified as current and non-current
assets held for disposal and current and non-current liabilities held for disposal, respectively,
in the Condensed Consolidated Balance Sheet as of December 31, 2004. The disposition of DDi Europe
was completed as of March 31, 2005. As of March 31, 2005, Dynamic Details represents the operating
division of DDi Corp. In the opinion of management, the accompanying unaudited condensed consolidated financial
statements contain all adjustments necessary (consisting only of normal recurring adjustments) to
present fairly the financial position of DDi Corp. and its subsidiaries as of March 31, 2005, the
results of operations for the three months ended March 31, 2005 and 2004 and cash flows for the
three months ended March 31, 2005 and 2004. The results of operations for such interim periods are
not necessarily indicative of results of operations to be expected for the full year. These financial statements have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and disclosures normally included in
financial statements prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such regulations, although the Company believes the disclosures
provided are adequate to prevent the information presented from being misleading. This report on
Form 10-Q for the quarter ended March 31, 2005 should be read in conjunction with the audited
financial statements presented in DDi Corp.s Annual Report on Form 10-K for the year ended
December 31, 2004. Description of Business The Company is a leading provider of time-critical, technologically advanced printed circuit board
engineering, manufacturing and other value added services. Headquartered in Anaheim, California,
the Company offers fabrication and assembly services from its facilities located across North
America to customers on a global basis. Recently Issued Accounting Standards In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 151, Inventory costs, an amendment of ARB No. 43 Chapter 4.
This statement amends guidance in ARB No. 43 Chapter 4, Inventory Pricing, to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). It requires that those items be recognized as current-period charges
regardless of whether they meet the criterion. In addition, this Statement requires that allocation
of fixed production overheads to the costs of conversion be based on the normal capacity of the
production facilities. The provisions of this statement shall be applied prospectively for
inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not
expect the adoption of this statement would have a material impact on its results of operations or
financial position. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R),
which replaces SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123) and supercedes
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.
SFAS 123R requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values, beginning with
the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro
forma disclosures previously permitted under SFAS 123, no longer will be an alternative to
financial statement recognition. Under SFAS 123R, the Company must determine the transition - 8 -




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DDi CORP.


Notes to the Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited) method to be used at date of adoption, the appropriate fair value model to be used for valuing
share-based payments and the amortization method for compensation cost. The transition methods
include prospective and retroactive adoption options. Under the retroactive options, prior periods
may be restated either as of the beginning of the year of adoption or for all periods presented.
The prospective method requires that compensation expense be recorded for all unvested stock
options and restricted stock at the beginning of the first quarter of
adoption of SFAS 123, while
the retroactive methods would record compensation expense for all unvested stock options and
restricted stock beginning with the first period restated. In March 2005, The Securities Exchange
Commission staff issued guidance on FASB Statement No. 123 (revised 2004), Share-Based Payment,
(FAS 123(R)). Staff Accounting Bulletin No. 107 (SAB 107) was issued to assist in the
implementation of FAS 123(R). On April 14, 2005, the SEC issued new rules to allow companies to
implement SFAS No. 123R effective the first interim period in the fiscal year beginning after June
15, 2005. The Company is required to adopt SFAS 123R in the first quarter of fiscal 2006, beginning
January 1, 2006. The Company anticipates adopting the prospective method and expects that the
adoption of SFAS 123R will have an impact similar to the current pro forma disclosure for existing
options under SFAS 123 in Note 7. NOTE 2. 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): March 31,
    
    
    December 31,2005
    
    
    2004Raw materials
    
    $
    8,166
    
    
    $
    8,094Work-in-process
    
    
    7,434
    
    
    
    7,020Finished goods
    
    
    2,670
    
    
    
    2,882Total
    
    $
    18,270
    
    
    $
    17,996
 NOTE 3. REVOLVING CREDIT FACILITY, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt and capital lease obligations consist of the following (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Capital Senior Accreting Notes, due
January 1, 2009, face amount of $18,394 at
March 31, 2005 and December 31, 2004, net of
unamortized discount of $190 and $200 at
March 31, 2005 and December 31, 2004,
respectively
    
    $
    18,204
    
    
    $
    18,194Dynamic Details Revolving Credit Facility (a)
    
    
    16,685
    
    
    
    15,948Capital lease obligations
    
    
    738
    
    
    
    974Total
    
    
    35,627
    
    
    
    35,116Less: current maturities
    
    
    (738
    )
    
    
    (916
    )Less: Dynamic Details Revolving Credit Facility
    
    
    (16,685
    )
    
    
    (15,948
    )Total non-current liabilities
    
    $
    18,204
    
    
    $
    18,252
   (a)
    
    Interest rate is based on Prime rate. The effective interest rate as of March 31, 2005, was
8.75%. Senior Credit Facility At December 31, 2003, the Company had a senior credit facility with a balance outstanding of $71.7
million which the Company repaid in full in March 2004. Revolving Credit Facility On March 30, 2004, Dynamic Details and the Companys other North American subsidiaries entered into
an asset-based revolving credit facility with a commitment up to $40 million through March 30,
2007, depending upon the value of the asset base. The asset base is calculated as 85% of eligible
accounts receivable as defined by the agreement. During the second quarter of 2004, the asset base
on the revolving credit facility was expanded to include the Companys Canadian operations. As of
March 31, 2005, the Company was able to borrow up to $16.7 million against the revolving credit
facility of which $16.7 million was outstanding. The - 9 -




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DDi CORP.

Notes to the Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited) facility bears interest at LIBOR plus 4% on LIBOR loans and prime plus 3% for index rate loans.
Interest will be determined by Dynamic Details adjusted EBITDA numbers, and will range from LIBOR
plus 3 to 4% on LIBOR loans or prime plus 2 to 3% for index rate loans. The effective interest rate
at March 31, 2005 was 8.75%. The revolving credit facility has covenants that place a limit on the
level of capital expenditures and a minimum fixed charge ratio. The Companys asset-based revolving
credit facility restricts the Companys ability to pay cash dividends on its common stock and
restricts the Companys subsidiaries ability to pay dividends to DDi Corp. without the lenders
consent. The Company was in compliance with these covenants as of March 31, 2005. The Company has
incurred debt issuance costs of $2.1 million in connection with obtaining this revolving credit
facility and amortizes such costs into interest expense using the straight-line method (which
approximates the effective interest method) over the facility period, through March 2007. As of
March 31, 2005, a total of $0.7 million of debt issuance costs has been amortized. Capital Senior Accreting Notes On December 12, 2003, DDi Capital issued $17.7 million in senior accreting notes pursuant to its
plan of reorganization. Interest is payable on the senior accreting notes 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% to be paid on a quarterly basis. Because of the decrease in DDi Capitals leverage
ratio, on June 1, 2004, DDi Capital was required to elect to pay interest due on all subsequent
interest payments in cash starting June 15, 2004. Interest is calculated on the accreted principal
balance as of March 14, 2004, the most recent scheduled accreted interest payment date per the note
indenture, of $18.4 million. As of March 31, 2005, DDi Capital has paid a total of $2.6 million
in interest in cash to the holders of the senior accreting notes. The notes mature on January 1,
2009 and are redeemable by DDi Capital upon a change of control or upon sale of stock or property
or other assets except through ordinary course of business; or, at the option of DDi Capital, in
whole at any time, in each case, at a redemption price that is greater than the accreted value of
the notes, plus accrued and unpaid interest, if any, to the redemption date. The notes have
covenants customary for securities of this type. The covenants restrict the Company from incurring
additional indebtedness and from making certain payments, including dividend payments to its
stockholders. As of March 31, 2005, the Company was in compliance with these covenants. Each holder
of the senior accreting notes also received a warrant to purchase pro rata shares of 762,876 shares
of the Companys common stock. In connection with the completion of a private placement of common
stock in January 2004, the amount of warrants issued was adjusted, pursuant to the anti-dilution
provisions of the warrants, to purchase an aggregate of 807,090 shares. The Company recorded the
warrants at an aggregate fair value of $0.2 million at November 30, 2003 and is using the effective
interest rate method to accrete the debt value to face value at maturity through interest expense.
For the three months ended March 31, 2005 and 2004, total warrant accretion was $10,000 and $8,000,
respectively. These warrants are held in an escrow account until December 12, 2005 and are
exercisable at an initial exercise price of $0.001 per share from December 13, 2005 through July
31, 2008. The warrants will be terminated if, on or before December 12, 2005, DDi Capital pays all
of its indebtedness to the holders of the senior accreting notes. NOTE 4. PRODUCT WARRANTY The change in the Companys warranty reserves for the three months ended March 31, 2005 is as
follows: Three monthsendedMarch 31,2005Beginning balance
    
    $
    656Current period warranty charges
    
    
    830Utilization
    
    
    (821
    )Ending balance
    
    $
    665
 - 10 -




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DDi CORP.

Notes to the Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited) NOTE 5. EARNINGS PER SHARE Basic and diluted earnings per share SFAS No. 128, Earnings Per Share, requires DDi Corp. to
report both basic net income (loss) per share, which is based on the weighted average number of
common shares outstanding and diluted net income (loss) per share, which is based on the weighted
average number of common shares outstanding and dilutive potential common shares outstanding. The following table is a calculation of net income (loss) per share of common stock (in thousands,
except share data): Three Months endedMarch 31,
    
    
    March 31,2005
    
    
    2004Loss from continuing operations
    
    $
    (2,613
    )
    
    $
    (9,580
    )Less: Series B preferred stock dividends and accretion
    
    
    (1,342
    )
    
    
    Loss from continuing operations available to common stockholders
 basic and diluted
    
    $
    (3,955
    )
    
    $
    (9,580
    )Weighted average shares of common stock outstanding (basic and
diluted)
    
    
    25,646,080
    
    
    
    24,745,109Loss per share of common stock  basic and diluted
    
    $
    (0.15
    )
    
    $
    (0.39
    )Net income (loss) from discontinued operations  basic and diluted
    
    $
    9,740
    
    
    $
    (7,848
    )Weighted average shares of common stock outstanding (basic and
diluted)
    
    
    25,646,080
    
    
    
    24,745,109Net income (loss) per share of common stock from discontinued
operations  basic and diluted
    
    $
    0.38
    
    
    $
    (0.32
    )Net income (loss)
    
    $
    7,127
    
    
    $
    (17,428
    )Less: Series B preferred stock dividends and accretion
    
    
    (1,342
    )
    
    
    Net income (loss) available to common stockholders  basic and
diluted
    
    $
    5,785
    
    
    $
    (17,428
    )Weighted average shares of common stock outstanding (basic and
diluted)
    
    
    25,646,080
    
    
    
    24,745,109Net income (loss) per share of common stock  basic and diluted
    
    $
    0.23
    
    
    $
    (0.70
    )
 For the three months ended March 31, 2005, potentially dilutive shares from the exercise of stock
options and the issuance of Series B-1 and B-2 Convertible Preferred Stock were not included in
dilutive earnings per share because to do so would be anti-dilutive. For the three months ended
March 31, 2005, potentially dilutive shares from the restricted stock vesting, the exercise of
stock options and warrants totaling 1,874,028 shares were not included in diluted net income per
share as the Company had a loss from continuing operations. For the three months ended March 31,
2004, potentially dilutive shares from the restricted stock vesting, the exercise of stock options
and warrants and the issuance of Series B-1 and B-2 Convertible Preferred Stock were not included
in diluted earnings per share because to do so would be anti-dilutive. The number of potentially
dilutive shares of common stock for the three months ended March 31, 2005 and 2004 were 9,370,581
and 7,162,636, respectively. NOTE 6. SERIES B MANDATORILY REDEEMABLE PREFERRED STOCK The Company recorded the redemption value of the Series B Preferred Stock, $61.0 million, net of
issuance costs of $3.5 million. As of March 31, 2005 and December 31, 2004, accrued dividends were
$20,000 and $2.8 million, respectively. The Company amortizes the $3.5 million of related debt
issuance costs into additional paid-in capital using the effective interest rate method based on
the Series B Preferred Stock holders redemption option to require the Company to redeem shares in
three equal installments in 18 months, 24 months and 30 months from issuance. As of March 31, 2005
and December 31, 2004, a total of $1.7 million and $1.3 million, respectively, has been amortized. - 11 -




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DDi CORP.

Notes to the Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited) On February 23, 2005 the Board of Directors, of the Company declared a dividend on the Companys
Series B Preferred Stock, in the amount of approximately $3.6 million, for dividends accrued and
payable as of March 31, 2005. As permitted by the Certificate of Designation of the Series B
Preferred Stock, the Company irrevocably elected to pay the dividend in the form of shares of the
Companys common stock. On March 31, 2005, the Company caused to have issued 1,482,812 shares of
common stock to pay the dividend. In accordance with the Certificate of Designation of the Series B
Preferred Stock, the common stock issued was valued using a 5% discount applied to the volume
weighted average market price for the 20 trading days prior to March 31, 2005. NOTE 7. STOCK OPTIONS The Company uses the intrinsic value method prescribed by Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, to account for employee stock options and other
stock-based compensation. Under this method, compensation expense is recognized when the exercise
price of the Companys employee stock options is less than the market price of the underlying stock
on the date of the grant. As a result of the disposition of DDi Europe, the Company recorded a
reduction to deferred compensation of $1.7 million and an additional reduction of $2.7 million was
recorded related to termination of U.S. employees for the three months ended March 31, 2005. These
reductions to deferred compensation resulted in a decrease to additional paid-in capital of an
equal amount. During the three months ended March 31, 2005 and 2004, the Company recorded total
compensation expense related to stock options granted of $(1.1) million and $8.5 million,
respectively, of which $(0.5) million and $7.0 million, respectively, was included in continuing
operations and $(0.6) million and $1.5 million, respectively, was included in discontinued
operations. The following table summarizes the non-cash compensation activity related to continuing operations
for the three months ended March 31, 2005: Cost of Goods
    
    
    Sales and
    
    
    General andSold
    
    
    Marketing
    
    
    Administration
    
    
    TotalAmortization of deferred compensation
    
    $
    902
    
    
    $
    121
    
    
    $
    249
    
    
    $
    1,272Forfeitures
    
    
    (1,181
    )
    
    
    (575
    )
    
    
    
    
    
    
    (1,756
    )Total non-cash compensation expense
(credit) in continuing operations
    
    $
    (279
    )
    
    $
    (454
    )
    
    $
    249
    
    
    $
    (484
    )
 In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based CompensationTransition
and Disclosurean Amendment to SFAS No. 123. SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting for stock-based
employee compensation. The Company has adopted the disclosure only provisions of SFAS No. 123 and,
accordingly, the implementation of SFAS No. 148 has not had an effect on the Companys consolidated
financial position or results of operations. - 12 -




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DDi CORP.

Notes to the Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited) The Company determined its pro forma results below using the alternate fair value method as
prescribed by SFAS No. 123. Under the fair value based method of accounting for stock-based
employee compensation, the fair value of each option grant is estimated at the
date of grant using the Black-Scholes option pricing model and recognized over the vesting period,
generally four years. Pricing model assumptions included an expected term of four years, a
risk-free interest rate, dividend yield, and volatility assumptions
consistent with the expected term and particular grant date. Had compensation cost for all
stock-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 (amounts in millions, except per share data): Three Months endedMarch 31,
    
    
    March 31,2005
    
    
    2004Net income (loss) available to common stockholders:As reported  basic and diluted
    
    $
    5.8
    
    
    $
    (17.4
    )Less: non-cash compensation (expense) credit under FAS
123, net of tax
    
    
    0.7
    
    
    
    (8.8
    )Add: non-cash compensation expense (credit) under APB
25, net of tax
    
    
    (1.1
    )
    
    
    8.5Pro Forma  basic and diluted
    
    $
    5.4
    
    
    $
    (17.7
    )Net income (loss) per share of common stock  basic and diluted:As Reported
    
    $
    0.23
    
    
    $
    (0.70
    )Pro Forma
    
    $
    0.21
    
    
    $
    (0.72
    )
 NOTE 8. SEGMENT REPORTING SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information established
standards for reporting information about operating segments in annual financial statements and
requires selected information about operating segments in interim financial reports issued to
stockholders. It also established standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are defined as components of an enterprise
that engage in business activities from which it may earn revenues and incur expenses whose
separate financial information is available and is evaluated regularly by the Companys chief
operating decision makers, or decision making group, to perform resource allocations and
performance assessments. The Companys chief operating decision maker is the Chief Executive Officer. Based on the
evaluation of the Companys financial information, management believes that the Company operates in
one reportable segment which designs, develops, manufactures, assembles and tests complex printed
circuit boards, back panels and related electronic products. As a result of the discontinued
European operations, the Company now operates in one geographical area, North America. Revenues are
attributed to the country in which the customer buying the product is located. Revenues by product
and service are not reported as it is impracticable to do so. The following table summarizes net sales by geographic area (in thousands): Three Months endedMarch 31,
    
    
    March 31,2005
    
    
    2004Net sales:North America (a)
    
    $
    42,555
    
    
    $
    45,706Asia
    
    
    1,861
    
    
    
    1,347Other
    
    
    533
    
    
    
    1,002Total
    
    $
    44,949
    
    
    $
    48,055
   (a)
    
    Sales to the United States represent the majority of the sales to North America. - 13 -




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DDi CORP.

Notes to the Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited) NOTE 9. GOODWILL AND INTANGIBLES Goodwill relates to the allocation of the reorganized value of the Company resulting from
fresh-start accounting subsequent to the Companys emergence from bankruptcy in December 2003.
Identified intangible assets consist of $23.0 million relating to customer relationships and $1.9
million relating to backlog, of which $6.1 million and $1.9 million, respectively, has been
amortized through March 31, 2005. Amortization related to customer relationships for the three
months ended March 31, 2005 and 2004, was $1.1 million for each period. Amortization related to
backlog for the three months ended March 31, 2005 and 2004, was zero and $0.8 million,
respectively, and was reported as a component of cost of goods sold. In March 2005, the Company reduced goodwill $0.5 million resulting from the reversal of a valuation
allowance for Canadian tax credits associated with activity prior to the December 2003 emergence
from bankruptcy. The changes in the carrying amount of goodwill for the three months ended March 31, 2005, are as
follows: Three monthsendedMarch 31,2005Beginning balance
    
    $
    99,375Goodwill reduction related to an adjustment to fresh
start accounting
    
    
    (534
    )Ending balance
    
    $
    98,841
 NOTE 10. RESTRUCTURING Total accrued restructuring expenses at March 31, 2005 were $0.3 million. These accrued
restructuring expenses represent $0.1 million in other exit costs and $0.2 million associated with
readying facilities for disposition. The Company made payments related to the restructuring accrual
totaling $0.1 million during the three months ended March 31, 2005. The Company expects to pay
these accrued amounts through 2005. NOTE 11. COMPREHENSIVE LOSS SFAS No. 130, Reporting Comprehensive Income, establishes requirements for reporting and
disclosure of comprehensive income (loss) and its components. Comprehensive income (loss) includes
unrealized holding gains and losses and other items that have previously been excluded from net
loss and reflected instead in stockholders equity. Comprehensive income (loss) for DDi Corp.
consists of net income (loss) plus the effect of foreign currency translation adjustments. NOTE 12. DISCONTINUED OPERATIONS The Company announced the discontinuation of its European business, and the placement into
administration of DDi Europe, on February 9, 2005. The Companys Board of Directors had previously
concluded that the valuation of DDi Europe did not justify any further investment by the Company in
support of its European subsidiaries. The Company subsequently announced it was unable to reach a
satisfactory agreement on restructuring the terms of, and obtaining a further extension of credit
under, the DDi European credit facilities. The Company completed the disposition of DDi Europe
during the first quarter of fiscal 2005. The Company received no cash proceeds from the disposition
of DDi Europe resulting in a non-cash gain on disposition of DDi Europe of $11.1 million. Although
February 9, 2005 was the date the discontinuation of DDi Europe was effective, for financial
reporting convenience purposes, the Company accounted for the consummation of the discontinuation
as of January 31, 2005; therefore, the operating results for 2005 for DDi Europe are for the period
through January 31, 2005. Pursuant to SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,and EITF
Issue No. 03-13, Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining
Whether to Report Discontinued Operations, DDi Europe has been accounted for as a discontinued
operation. In accordance with SFAS No. 144, the results of operations presented in the Condensed
Consolidated Financial Statements have been reclassified to reflect DDi Europe as a discontinued
operation. As a discontinued operation, revenues, expenses and cash flows of DDi Europe have been
aggregated and reclassified separately from the respective captions of continuing operations in the
Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash
Flows. - 14 -




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DDi CORP.
Notes to the Condensed Consolidated Financial Statements
(In thousands)
(Unaudited) The results of operations of the discontinued business of DDi Europe is summarized as follows: DDi Europe Statements of Operations
(In thousands)
(Unaudited) Three Months endedMarch 31,
    
    
    March 31,2005
    
    
    2004Net sales
    
    $
    7,873
    
    
    $
    24,295Cost of goods sold
    
    
    (6,843
    )
    
    
    23,243Gross profit
    
    
    1,030
    
    
    
    1,052Operating expenses:Sales and marketing
    
    
    126
    
    
    
    1,617General and administration
    
    
    1,618
    
    
    
    2,275Restructuring and other related charges
    
    
    219
    
    
    
    3,589Reorganization expenses
    
    
    
    
    
    
    276Operating loss
    
    
    (933
    )
    
    
    (6,705
    )Gain on disposal of DDi Europe
    
    
    11,053
    
    
    
    Interest expense and other expense, net
    
    
    (380
    )
    
    
    (1,582
    )Income (loss) from discontinued operations before income taxes
    
    
    9,740
    
    
    
    (8,287
    )Income tax benefit
    
    
    
    
    
    
    439Net income (loss) from discontinued operations
    
    $
    9,740
    
    
    $
    (7,848
    )
 NOTE 13. SUBSEQUENT EVENT In order to further increase operational efficiency, the Companys Board of Directors, on May 3, 2005,
approved plans to close the Companys Arizona facility, which has produced mass lamination
cores for four North American PCB plants, and to shift this work back into other facilities. The
Companys Virginia facility will assume the majority of the internal mass lamination work
previously manufactured by the Arizona facility. This change will tighten turn-around time and
reduce inter-facility transfer time and costs. The Company is in the process of determining
whether assets of the Arizona facility are impaired in value by this action and if there are
impaired assets, the associated impairment charge to be recorded in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. In addition, other consolidation
associated costs such as inventory, workforce reduction, relocation and organization charges will
be reported as restructuring costs in accordance with SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, when incurred. The restructuring charge is expected to be
accounted for during the second quarter of 2005. - 15 -




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. Overview DDi Corp. provides time-critical, technologically advanced printed circuit board engineering,
manufacturing and other value-added services. The Company specializes in engineering and
fabricating complex multi-layer printed circuit boards on a quick-turn basis and delivering
technologically advanced solutions  with lead times as short as 24 hours. The Company has
approximately 1,100 customers in the communications and networking, medical, test and industrial
instruments, high-end computing, military and aerospace equipment markets. With such a broad
customer base and an average of 40 to 50 new printed circuit board designs tooled per day, the
Company has accumulated significant process and engineering expertise. The Companys core strength
is developing innovative, high-performance solutions to customers during the engineering, test and
launch phases of their new electronic product development. The entire organization is focused on
rapidly and reliably filling complex customer orders and building lasting client relationships. The
Companys engineering capabilities and highly scalable manufacturing facilities in the United
States and Canada enable the Company to respond to time-critical orders and technology challenges
for its customer on a global basis. As used herein, the Company, we, us, or our means DDi Corp. and its wholly owned
subsidiaries, including DDi Capital Corp. (DDi Capital), and Dynamic Details, Incorporated
(Dynamic Details). This discussion and analysis should be read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations set forth in DDi Corp.s Annual Report on
Form 10-K for the year ended December 31, 2004. Recent Accounting Pronouncements In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 151, Inventory costs, an amendment of ARB No. 43 Chapter 4.
This statement amends guidance in ARB No. 43 Chapter 4, Inventory Pricing, to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted
material (spoilage). It requires that those items be recognized as current-period charges
regardless of whether they meet the criterion. In addition, this Statement requires that allocation
of fixed production overheads to the costs of conversion be based on the normal capacity of the
production facilities. The provisions of this statement shall be applied prospectively for
inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not
expect the adoption of this statement would have a material impact on its results of operations or
financial position. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R),
which replaces SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123) and supercedes
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.
SFAS 123R requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values, beginning with
the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro
forma disclosures previously permitted under SFAS 123, no longer will be an alternative to
financial statement recognition. Under SFAS 123R, the Company must determine the transition method
to be used at date of adoption, the appropriate fair value model to be used for valuing share-based
payments and the amortization method for compensation cost. The transition methods include
prospective and retroactive adoption options. Under the retroactive options, prior periods may be
restated either as of the beginning of the year of adoption or for all periods presented. The
prospective method requires that compensation expense be recorded for all unvested stock options
and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the
retroactive methods would record compensation expense for all unvested stock options and restricted
stock beginning with the first period restated. In March 2005, The Securities Exchange Commission
staff issued guidance on FASB Statement No. 123 (revised 2004), Share-Based Payment, (FAS 123®).
Staff Accounting Bulletin No. 107 (SAB 107) was issued to assist in the implementation of FAS 123
FAS 123®. On April 14, 2005, the SEC issued new rules to allow companies to implement SFAS No.
123R effective the first interim period in the fiscal year beginning after June 15, 2005. The
Company is required to adopt SFAS 123R in the first quarter of fiscal 2006, beginning January 1,
2006. The Company anticipates adopting the prospective method and expects that the adoption of SFAS
123R will have an impact similar to the current pro forma disclosure for existing options under
SFAS 123 in Note 7. Discontinuation of European Business The Company announced the discontinuation of its European business, and the placement into
administration of DDi Europe, on February 9, 2005. Pursuant to the actions of the Administrators,
DDi Europe underwent a restructuring pursuant to which the Company no longer has U.K.-based
businesses. On February 9, 2005, DDi Technologies Limited, DDi Tewkesbury Limited and DDi
International, each operating subsidiaries of DDi Europe were acquired by the eXception Group Ltd.,
a newly-formed U.K. corporation (the eXception Group) for up to £21.5 million (approximately
U.S.$39.8 million) of which £20.1 million (approximately U.S.$37.2 million) was the initial sales
consideration paid. The purchase price was determined by the Administrators. 16




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The eXception Group secured a separate credit facility from the Bank of Scotland to finance the
purchase price for these companies. The Administrators applied approximately £20.1 million
(approximately U.S.$37.2 million) of the proceeds from the sale of DDi Technologies Limited, DDi
Tewkesbury Limited and DDi International to the outstanding indebtedness of DDi Europe and its
subsidiaries under the DDi Europe credit facilities of £21.5 million (approximately U.S.$39.8
million), leaving approximately £1.4 million (approximately U.S.$2.6 million) outstanding under the
DDi Europe credit facilities. The Administrators will seek the sale or other disposition of the
remaining assets of DDi Europe, including the businesses of the remaining operating subsidiaries of
DDi Europe not transferred to eXception. The proceeds from the disposition of the remaining assets
will be applied to satisfy the remaining £1.4 million outstanding under the DDi Europe credit
facilities. To the extent that the net proceeds of such assets is less than £1.4 million, the
eXception Group will pay any deficiency. Accordingly, pursuant to Statement of Financial Accounting Standards (SFAS) No. 144, Accounting
for the Impairment of Disposal of Long-Lived Assets, and Emerging Issues Task Force (EITF) Issue
No. 03-13, Applying the Conditions in Paragraph 42 of Financial Accounting Standards Board
(FASB) No. 144 in Determining Whether to Report Discontinued Operations, the results of
operations presented in the accompanying Condensed Consolidated Financial Statements have been
present to reflect DDi Europe as a discontinued operation. As a discontinued operation, revenues,
expenses and cash flows of DDi Europe have been excluded from the respective captions in the
Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash
Flows. All other references to operating results and statistical information reflect the
operations of DDi Corp. and its subsidiaries, excluding DDi Europe. Arizona Facility In order to further increase operational efficiency, our Board of Directors, on May 3, 2005,
approved plans to close our Arizona facility, which has produced mass lamination cores for four
North American PCB plants, and to shift this work back into other facilities. Our Virginia
facility will assume the majority of the internal mass lamination work previously manufactured by
the Arizona facility. This change will tighten our turn-around time and reduce inter-facility
transfer time and costs. We are in the process of determining whether assets of the Arizona
facility are impaired in value by this action and if there are impaired assets, the associated
impairment charge to be recorded in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. In addition, other consolidation associated costs such as
inventory, workforce reduction, relocation and organization charges will be reported as
restructuring costs in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, when incurred. The restructuring charge is expected to be
accounted for during the second quarter of 2005. Results of Operations Three Months Ended March 31, 2005 Compared to the Three Months Ended March 31, 2004 Net Sales Net sales decreased $3.2 million (7%) to $44.9 million for the three months ended March 31, 2005,
from $48.1 million for the same period in 2004. The decrease in net sales was due to a decrease in
printed circuit board (PCB) layers shipped, reflecting a softer PCB market than in 2004. Average
PCB pricing was relatively flat between the two periods. Partially offsetting the decrease in
PCB-related revenues was an increase of $1.8 million in net sales from the complementary quick-turn
assembly operation, resulting from growth in the customer base. Non-Cash Compensation Expense (Credit) We have recorded non-cash compensation expense as a component of total cost of goods sold, total
sales and marketing expense and total general and administration expense in both 2005 and 2004,
resulting from the granting of equity compensation to certain members of our senior management.
The lower level of non-cash compensation charges in the first quarter 2005 reflects: (i) $1.2
million in non-cash compensation expense related to unvested stock options and restricted stock
grants, partially offset by an adjustment of $1.7 million for the three months ended March 31, 2005
to account for the forfeiture of certain unvested options by two members of management, resulting
from their decision to leave the Company. The non-cash compensation charges in the first quarter
2004 reflects higher non-cash compensation expenses mainly due to restricted stock grants which
vested over a short period of time, from December 12, 2003 through March 2, 2004. 17




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The following table summarizes the non-cash compensation activity for the three months ended March
31, 2005: Cost of Goods
    
    
    Sales and
    
    
    General andSold
    
    
    Marketing
    
    
    Administration
    
    
    TotalAmortization of deferred compensation
    
    $
    0.9
    
    
    $
    0.1
    
    
    $
    0.2
    
    
    $
    1.2Forfeitures
    
    
    (1.2
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (1.7
    )Total non-cash compensation credit
    
    $
    (0.3
    )
    
    $
    (0.4
    )
    
    $
    0.2
    
    
    $
    (0.5
    )
 Gross Profit Gross profit for the three months ended March 31, 2005 was $8.0 million (18% of net sales) as
compared to $5.6 million (12% of net sales) for the first quarter 2004. The increase in gross
profit of $2.4 million was due to a $6.0 million decrease in non-cash compensation charges and
amortization of intangibles between the two periods. Partially offsetting the benefit of the
foregoing item was the impact of the decrease in PCB layer shipments. Sales and Marketing Expenses Total sales and marketing expenses decreased $1.3 million to $3.0 million for the first quarter
2005, from $4.3 million for the first quarter 2004. The decrease was due principally to a $1.2
million reduction in non-cash compensation costs. The remaining decrease in sales and marketing
expenses results principally from the reduction in net sales. General and Administration Expenses Total general and administration expenses increased $0.7 million to $4.2 million for the first
quarter 2005, from $3.5 million for the first quarter 2004. The increase was principally due to a
$0.9 million increase in professional fees associated with Sarbanes-Oxley Section 404 compliance
($0.5 million) and strategic reviews of our capital structure ($0.4 million). We also incurred a
number of individually minor increases in expenses totaling another $0.9 million, inclusive of
other professional/contractor fees, personnel costs and insurance costs. The foregoing were
partially offset by a $1.1 million reduction in non-cash compensation charges. Restructuring and Reorganization Charges For the three months ended March 31, 2004, we incurred a total of $0.3 million in restructuring and
other related charges representing adjustments to estimates of the ultimate cost of restructuring
initiatives commenced prior to 2004. For the first quarter 2004, we also recorded reorganization
charges of $0.7 million representing professional fees related to the completion of our financial
restructuring. There were no comparable charges incurred in the first quarter 2005. Net Interest Expense Net interest expense for the first quarter 2005 decreased to $1.2 million, from $4.4 million for
the first quarter 2004. The decrease is due to repayment of our former senior term loans in the
first quarter 2004. Income Taxes Income tax expense increased to $1.1 million for the first quarter 2005, from $0.8 million for the
first quarter 2004. Canada had taxable income in both first quarter 2005 and 2004. The increase
was due principally to the generation of taxable income in the U.S. in the first quarter 2005, as
compared to a taxable loss in the first quarter 2004. The determination of taxable income reflects
the impact of substantial non-deductible items. Although we have significant net operating loss
(NOLs) carryforwards available to offset taxable income, any adjustments to valuation allowances
that were in existence as of applying fresh-start accounting will be recognized as a decrease to
the remaining balance of goodwill established through fresh-start accounting. Due to the tax
regulations pertaining to the utilization of NOLs, taxable income is first applied to oldest NOLs.
We anticipate, at present, that any U.S. taxable income generated in 2005 would be applied to NOLs
that existed as of the date of applying fresh-start accounting. The provisions for income taxes
are based upon our expected effective tax rate in the respective fiscal year. Net Income (Loss) From Discontinued Operations We reported income from discontinued operations of $9.7 million for the first quarter of 2005 and a
loss from discontinued operations of $7.9 million for the first quarter of 2004, associated with
our European operations. In the first quarter of 2005, we recorded a gain 18




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of $11.1 million on the disposition of DDi Europe. The gain represents DDi Corp.s net investment
in DDi Europe as of January 31, 2005 (the effective date of disposition used for financial
reporting purposes), net of foreign currency translation adjustments. The gain was partially offset
by pre tax losses of $1.3 million incurred though January 31, 2005 by DDi Europe. Series B Preferred Stock Dividends and Accretion In the first quarter 2005, we reported $1.3 million of Series B preferred stock dividends and
accretion. Of this amount, $0.9 million represents accrued dividends and the remaining $0.4
million represents amortization of the costs of issuing this security. Liquidity and Capital Resources General Our principal sources of liquidity to fund ongoing operations have been existing cash and cash
equivalents. We believe that our cash on hand, cash generated by operations and the Dynamic
Details asset-based revolving credit facility will be sufficient to meet our anticipated needs to
maintain operations, working capital, capital expenditures and debt service requirements and other
commitments as they mature for at least the next twelve months. There can be no assurance, however,
that we will be successful in executing our business plan, achieving profitability, attracting new
customers or maintaining our existing customer base. Accordingly, we have made, and in the future
may make, offerings of debt, preferred stock and/or common stock which we expect to improve our
liquidity position. Consolidated Cash and Cash Equivalents and Available Borrowings As of March 31, 2005, cash and cash equivalents were $21.9 million, inclusive of $16.7 million of
borrowings under the revolving credit facility. The amount drawn under the revolving credit
facility as of March 31, 2005 effectively represents the full borrowing availability at that time. Consolidated Cash Flows Net cash used in operating activities from continuing operations was $(16,000) for the first
quarter 2005 and was $(5.2) million for the like period in 2004. The improvement is due primarily a
lower level of net working capital demand as the rate of growth in our net sales was higher in the
first quarter 2004 than in the first quarter 2005. The working capital demand in the first quarter
2004 was partially mitigated by the higher level of sales and margins in that period. Net cash provided by (used in) investing activities from continuing operations was $(1.2) million
for the first quarter 2005, compared to $7.1 million for the like period in 2004. The change is
primarily due to proceeds from the disposition of restricted assets and a sale of fixed assets
during the first quarter 2004. Net cash provided by financing activities from continuing operations for the first quarter 2005 was
$0.7 million, compared to $12.3 million for the first quarter 2004. The first quarter 2005 activity
resulted principally from net borrowings on the revolving credit facility. The first quarter 2004
activity resulted primarily from the issuance of Series B preferred stock and common stock and
borrowing on the revolving credit facility, partially offset by the repayment of long-term debt. Current Indebtedness of the Company Dynamic Details Asset-based Credit Facility On March 30, 2004, Dynamic Details Incorporated and the Companys other U.S. subsidiaries entered
into an asset-based revolving credit facility with a commitment up to $40 million through March 30,
2007, depending upon the value of the asset base. During the second quarter of 2004, the asset base
on the revolving credit facility was expanded to include the Companys Canadian operations. As of
March 31, 2005, the Company was able to borrow up to $16.7 million against the revolving credit
facility of which $16.7 million was outstanding. The facility bears interest at LIBOR 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 loans or prime plus 2 to
3% for index rate loans. The effective interest rate at March 31, 2005 was 8.75%. The Companys
asset-based revolving credit facility restricts the Companys ability to pay cash dividends on its
common stock and restricts the Companys subsidiaries ability to pay dividends to DDi Corp.
without the lenders consent. The revolving credit facility has covenants that place a limit on the
level of capital expenditures and a minimum fixed charge ratio. The Company was in compliance with
these covenants as of March 31, 2005. 19




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DDi Capital Accreting Notes The DDi Capital senior accreting notes were issued in an original principal amount of $17.7 million
and mature on January 1, 2009. The senior accreting notes were issued under an indenture dated as
of December 12, 2003 between DDi Capital Corp., as issuer, and Wilmington Trust Co., as trustee.
The senior accreting notes are senior unsecured obligations of DDi Capital. Interest is payable on
the senior accreting notes 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% to be paid on a quarterly
basis. Because of the decrease in DDi Capitals leverage ratio, on June 1, 2004, DDi Capital was
required to elect to pay interest due on all subsequent interest payments in cash starting June 15,
2004. Interest is calculated on the accreted principal balance as of March 14, 2004, the most
recent scheduled accreted interest payment date per the note indenture, of $18.4 million. As of
March 31, 2005, DDi Capital paid a total of $2.6 million in interest in cash to the holders of the
senior accreting notes. The notes mature on January 1, 2009 and are redeemable by DDi Capital upon
a change of control or upon sale of stock or property or other assets except through ordinary
course of business; or, at the option of DDi Capital, in whole at any time, in each case, at a
redemption price that is greater than the accreted value of the notes, plus accrued and unpaid
interest, if any, to the redemption date. The senior accreting notes have covenants customary for
securities of this type. The covenants restrict the Company from incurring additional indebtedness
and from making certain payments, including dividend payments to its stockholders. As of March 31,
2005, the Company was in compliance with these covenants. Each holder of the senior accreting notes
also received a warrant to purchase pro rata shares of 762,876 shares of the Companys common
stock. In connection with the completion of a private placement of common stock in January 2004,
the amount of warrants issued was adjusted, pursuant to the anti-dilution provisions of the
warrants, to purchase an aggregate of 807,090 shares. The Company recorded the warrants at an
aggregate fair value of $0.2 million at November 30, 2003 and is using the effective interest rate
method to accrete the debt value to face value at maturity through interest expense. For the three
months ended March 31, 2005 and 2004, total accretion was $10,000 and $8,000, respectively. These
warrants are held in an escrow account until December 12, 2005 and are exercisable at an initial
exercise price of $0.001 per share from December 13, 2005 through July 31, 2008. The warrants will
be terminated if, on or before December 12, 2005, DDi Capital pays all of its indebtedness to the
holders of the senior accreting notes. Series B Preferred Stock On March 31, 2005, 147,679 shares of Series B-1 Preferred Stock and 1,139,238 shares of Series B-2
Convertible Preferred Stock (collectively, the Series B Preferred) were outstanding. Each share
of the Series B Preferred is initially convertible into four shares of common stock at any time at
a conversion price of $11.85 per share, subject to certain anti-dilution and other customary
adjustments. The Series B Preferred bears dividends at the rate of 6% per annum, payable quarterly,
in cash or common stock, commencing March 31, 2005 and is subject to mandatory redemption in five
years. All accrued dividends on the Series B-1 and Series B-2 Preferred Stock must be paid before
any dividends are declared or paid on shares of common stock. In addition, the holders of the
Series B Preferred have the option to require 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 has the right
to redeem the Series B Preferred if the common stock trades above $20.75 for 30 consecutive trading
days. The redemption price is at $40.47 per share plus accrued dividends, except in the case of
certain defaults where there are premiums to the redemption cost. The Company has the option to
make dividend and redemption payments using its common stock; provided that the Company may use no
more than 10 million shares of common stock in the aggregate for such redemption payments. Shares
of common stock issued as dividends or redemption payments are issued at a 5% discount to the
volume weighted-average market price over the 20 trading days prior to the dividend payment date.
The Series B Preferred Stock Certificate of Determination also has covenants that restrict the
Company from incurring additional indebtedness in excess of the greater of (i) in the aggregate,
$80.0 million, or (ii) three times the Companys EBITDA for the most recent four consecutive
fiscal quarters. On February 23, 2005, the Board of Directors of the Company declared a dividend on the Companys
Series B Preferred Stock, in the amount of approximately $3.6 million, for dividends accrued and
payable as of March 31, 2005. As permitted by the Certificate of Designation of the Series B
Preferred Stock, the Company irrevocably elected to pay the dividend in the form of shares of the
Companys common stock. On March 31, 2005, the Company caused to have issued 1,482,812 shares of
common stock to pay the dividend. In accordance with the Certificate of Designation of the Series B
Preferred Stock, the common stock issued was valued using a 5% discount applied to the volume
weighted average market price for the 20 trading days prior to March 31, 2005. 20




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##### Table of Contents



Contractual Cash Obligations and Commercial Commitments The following table shows our contractual cash obligations and commercial commitments as of March
31, 2005: Payments Due by Period
(in millions) For the Nine MonthsEnding December 31,
    
    
    Year Ending December 31,Commitments
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    TotalDDi Capital Accreting Notes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18.4
    
    
    $
    
    
    
    $
    
    
    
    $
    18.4Interest  Capital Accreting Notes
    
    
    1.9
    
    
    
    2.6
    
    
    
    2.6
    
    
    
    2.6
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    9.8Series B mandatorily redeemable
preferred stock (1)- Series B
    
    
    20.3
    
    
    
    40.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61.0- Dividends
    
    
    2.4
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.6Capital Lease Obligations
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.8Note payable
    
    
    0.4
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.7Operating Leases
    
    
    4.6
    
    
    
    5.2
    
    
    
    4.4
    
    
    
    3.7
    
    
    
    3.0
    
    
    
    2.0
    
    
    
    1.4
    
    
    
    24.3Total Commitments
    
    $
    30.4
    
    
    $
    50.0
    
    
    $
    7.0
    
    
    $
    6.3
    
    
    $
    21.5
    
    
    $
    2.0
    
    
    $
    1.4
    
    
    $
    118.6
   (1)
    
    The Series B preferred stock is due to be repaid no later than March 30, 2009. Holders
have the option to require the Company to redeem the shares earlier in three equal
installments in 18 months, 24 months and 30 months from issuance. This presentation assumes
that the holders of the Series B preferred stock will exercise their option to require the
Company to redeem the shares. To the extent shares of Series B preferred stock are not
redeemed at the option of the holders, interest shall accrue on the notes at 6% per annum
on any unredeemed shares until maturity in 2009. Both the redemption amounts and the 6%
dividends may be paid in shares of common stock of the Company, or in cash, at the election
of the Company. The shares of common stock of the Company available to be utilized for
redemption are limited to 10 million shares. Factors That May Affect Future Results Holders of our Series B Preferred Stock have the right to convert their preferred stock into common
stock and to receive dividends payable in common stock causing substantial dilution to common
shareholders. The holders of our Series B Preferred Stock have the right to convert the principal amount of
their shares into Common Stock. In addition, we have the option of paying the redemption price for
and dividends on the Series B Preferred Stock in shares of common stock. Shares issued as dividends
or redemption payments are issued at a 5% discount to the market price at the time of the payment.
The holders of our Series B Preferred Stock have anti-dilution protections. The conversion price
for the Series B Preferred Stock is subject to weighted average antidilution provisions whereby, if
we issue shares in the future for consideration below the existing conversion price (currently
$11.85), then (with certain exceptions, including the issuance of common stock as payment of
dividends or redemption payments on the Series B Preferred Stock) the conversion price for the
Series B Preferred Stock will automatically be decreased, allowing the holders of the Series B
Preferred Stock to receive additional shares of common stock upon conversion. The issuance of
additional shares of Common Stock pursuant to the terms of the Series B Preferred Stock could cause
possibly substantial dilution to our common stockholders. Further, subsequent sales of the shares
in the public market could depress the market price of our stock by creating an excess in supply of
shares for sale. Issuance of these shares and sale of these shares in the public market could also
impair our ability to raise capital by selling equity securities. The holders of our Series B Preferred Stock might become entitled to demand that we redeem the
preferred stock. If we are unable to comply with that demand, the redemption price and dividends on
the preferred stock may increase. On March 30, 2004, we sold in a private placement 147,679 shares of Series B-1 Preferred Stock and
1,139,238 shares of Series B-2 Preferred Stock (collectively, the Series B Preferred Stock) to
institutional investors. At the option of the holders of the Series B Preferred Stock, we are
required to redeem the preferred 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 first optional redemption date is September 30, 2005, on which date the
holders of the Series B Preferred Stock can require us to redeem up to one-third of the outstanding
Series B Preferred Stock. We have the option to make redemption payments in either cash or common
stock 21




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(up to a maximum of 10 million shares, unless the holders otherwise agree), except in the event of
a default or certain other occurrences when the redemption payments must be made in cash. If the
holders of the Series B Preferred Stock exercise their right to require us to redeem the Series B
Preferred Stock and we are not permitted to pay the redemption price in shares of common stock or
have insufficient common stock available to pay the redemption price in full because of the 10
million share limit, we may not have enough funds to pay the redemption price in cash for all
tendered shares of Series B Preferred Stock. If the Company is unable to redeem all of the Series
B Preferred Stock submitted for redemption, (a) the Company must redeem a pro rata amount from each
holder of the Series B Preferred Stock, (b) the redemption price for any shares not redeemed as
required would increase to 108% of the stated value of the Preferred Stock plus accrued dividends;
(c) in addition to any dividends required to be paid on the Series B Preferred Stock, the unpaid
portion of the redemption price would accrue interest at the rate of 8.0% per annum, payable
monthly in cash; and (d) the holders of the Series B Preferred Stock holding in the aggregate at
least a majority in interest of the then outstanding Series B Preferred Stock, would have the right
to demand a stockholders meeting and, at such meeting the holders of the Series B Preferred Stock
would have the right to elect an additional director to the Board of Directors. We may need additional capital in the future and it may not be available on acceptable terms, or at
all. Looking ahead at long-term needs, we may need to raise additional funds for the following purposes:  
    to fund our operations beyond March 31, 2006;
    to fund working capital requirements for future growth that we may experience;
    to enhance or expand the range of services we offer;
    to increase our sales and marketing activities; or
    to respond to competitive pressures or perceived opportunities, such as investment,
acquisition and international expansion activities. If such funds are not available when required or on acceptable terms, our business and financial
results could suffer. The terms of our lending arrangements and outstanding Series B Preferred Stock may restrict our
financial and operational flexibility. The terms of our indebtedness restrict, among other things, our ability to incur additional
indebtedness, pay dividends or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, merge or consolidate with other persons or
sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all or our
assets. Further, DDi Capital and Dynamic Details are also required to maintain specific financial
ratios and satisfy certain financial condition tests. Our subsidiaries ability to meet those
financial ratios and tests can be affected by events beyond the subsidiaries control, and there
can be no assurance that they will meet those tests. Substantially all of our assets and our
subsidiaries assets are pledged as security under our senior credit facility. If the demand for our customers products decline, demand for our products will be similarly
affected and our revenues, gross margins and operating performance will be adversely affected. Our customers that purchase printed circuit board engineering and manufacturing services from us
are subject to their own business cycles. Some of these cycles show predictability from year to
year. However, other cycles, are unpredictable in commencement, depth and duration. A downturn or
any other event leading to additional excess capacity will negatively impact our revenues, gross
margins and operating performance. We cannot accurately predict the continued demand for our customers products and the demands of
our customers for our products and services. As a result of this uncertainty, our past operating
results, earnings and cash flows may not be indicative of our future operating results, earnings
and cash flows. 22




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Unless we are able to respond to technological change at least as quickly as our competitors, our
services could be rendered obsolete, which would reduce our revenue and operating margins. The market for our services is characterized by rapidly changing technology and continuing process
development. The future success of our business will depend in large part upon our ability to
maintain and enhance our technological capabilities, to develop and market services that meet
evolving customer needs and to successfully anticipate or respond to technological changes on a
cost-effective and timely basis. We are more leveraged than some of our principal competitors, and
therefore may not have the financial flexibility to respond to technological changes as quickly as
these competitors. In addition, the printed circuit board engineering and manufacturing services industry could in the
future encounter competition from new or revised technologies that render existing technology less
competitive or obsolete or that reduce the demand for our services. We cannot assure you that we
will effectively respond to the technological requirements of the changing market. To the extent we
determine that new technologies and equipment are required to remain competitive, the development,
acquisition and implementation of such technologies and equipment may require us to make
significant capital investments. We cannot assure you that we will be able to obtain capital for
these purposes in the future or that any investments in new technologies will result in
commercially viable technological processes. We may experience significant fluctuation in our revenue because we sell primarily on a purchase
order basis, rather than pursuant to long-term contracts. Our operating results fluctuate because we sell on a purchase-order basis rather than pursuant to
long-term contracts, and we expect these fluctuations to continue in the future. We are therefore
sensitive to variability in demand by our customers. Because we time our expenditures in
anticipation of future sales, our operating results may be less than we estimate if the timing and
volume of customer orders do not match our expectations. Furthermore, we may not be able to
capture all potential revenue in a given period if our customers demand for quick-turn services
exceeds our capacity during that period. Because of these factors, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of our future
performance. Because a significant portion of our operating expenses are fixed, even a small
revenue shortfall can have a disproportionate effect on our operating results. It is possible that,
in future periods, our results may be below the expectations of public market analysts and
investors. This could cause the market price of our common stock to decline. We rely on a core group of significant customers for a substantial portion of our net sales, and a
reduction in demand from, or an inability to pay of, this core group could adversely affect our total
revenue. Although we have a large number of customers, net sales to our largest customer accounted for
approximately 8% of our net sales for the three months ended March 31, 2005. Net sales to our ten
largest customers accounted for approximately 35% of our net sales during the same period. We may
depend upon a core group of customers for a material percentage of our net sales in the future.
Substantially all of our sales are made on the basis of purchase orders rather than long-term
agreements. We cannot assure you that significant customers will order services from us in the
future or that they will not reduce or delay the amount of services ordered. Any reduction or delay
in orders could negatively impact our revenues. In addition, we generate significant accounts
receivable in connection with providing services to our customers. If one or more of our
significant customers were to become insolvent or otherwise were unable to pay us for the services
provided, our results of operations would be adversely affected. If we experience excess capacity due to variability in customer demand, our gross margins may
decline. We maintain our production facilities at less than full capacity to retain our ability to respond
to additional quick-turn orders. However, if these orders are not received, we could experience
losses due to excess capacity. Whenever we experience excess capacity, our sales revenue may be
insufficient to fully cover our fixed overhead expenses and our gross margins will decline.
Conversely, we may not be able to capture all potential revenue in a given period if our customers
demands for quick-turn services exceed our capacity during that period. We are subject to intense competition, and our business may be adversely affected by these
competitive pressures. The printed circuit board industry is highly fragmented and characterized by intense competition.
We principally compete with independent and captive manufacturers of complex quick-turn and
longer-lead printed circuit boards. Our principal competitors include other established public
companies, smaller private companies and integrated subsidiaries of more broadly based volume
producers that also manufacture multi-layer printed circuit boards and other electronic assemblies.
We also expect that competition will increase as a result of industry consolidation. Some of our
principal competitors are less highly-leveraged than us and may have greater financial and
operating flexibility. 23




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##### Table of Contents



For us to be competitive in the quick-turn sector, we must maintain a large customer base, a large
staff of sales and marketing personnel, considerable engineering resources and proper tooling and
equipment to permit fast turnaround of small lots on a daily basis. If Asian based production capabilities increase in sophistication, we may lose market share and our
gross margins may be adversely affected by increased pricing pressure. Price competition from printed circuit board manufacturers based in Asia and other locations with
lower production costs may play an increasing role in the printed circuit board markets in which we
compete. While printed circuit board manufacturers in these locations have historically competed
primarily in markets for less technologically advanced products, they are expanding their
manufacturing capabilities to produce higher layer count, higher technology printed circuit boards.
In the future, competitors in Asia may be able to effectively compete in our higher technology
markets, which may force us to lower our prices, reducing our gross margins or decreasing our net
sales. Defects in our products could result in financial or other damages to our customers, which could
result in reduced demand for our services and liability claims against us. Defects in the products we manufacture, whether caused by a design, manufacturing or materials
failure or error, may result in delayed shipments, customer dissatisfaction, or a reduction in or
cancellation of purchase orders. If these defects occur either in large quantities or too
frequently, our business reputation may be impaired. Defects in our products could result in
financial or other damages to our customers. Our sales terms and conditions generally contain
provisions designed to limit our exposure to product liability and related claims: however,
competing terms and provisions of our customers or existing or future laws or unfavorable judicial
decisions could negate these limitation of liability provisions. Product liability claims made
against us, even if unsuccessful, would be time consuming and costly to defend. Although we
maintain a warranty reserve, this reserve may not be sufficient to cover our warranty or other
expenses that could arise as a result of defects in our products. If we are unable to protect our intellectual property or infringe or are alleged to infringe
others intellectual property, our operating results may be adversely affected. We primarily rely on trade secret laws and restrictions on disclosure to protect our intellectual
property rights. We cannot be certain that the steps we have taken to protect our intellectual
property rights will prevent unauthorized use of our technology. Our inability to protect our
intellectual property rights could diminish or eliminate the competitive advantages that we derive
from our proprietary technology. We may become involved in litigation in the future either to protect our intellectual property or
in defense of allegations that we infringe others intellectual property rights. These claims and
any resulting litigation could subject us to significant liability for damages and invalidate our
property rights. In addition, these lawsuits, regardless of their merits, could be time consuming
and expensive to resolve and could divert managements time and attention. Any potential
intellectual property litigation alleging our infringement of a third-partys intellectual property
also could force us or our customers to:  
    stop producing products that use the intellectual property in question;
    obtain an intellectual property license to sell the relevant technology at an additional
cost, which license may not be available on reasonable terms, or at all; and
    redesign those products or services that use the technology in question. The costs to us resulting from having to take any of these actions could be substantial and our
operating results could be adversely affected. Complying with applicable environmental laws requires significant resources, and if we fail to
comply, we could be subject to substantial liability. Our operations are regulated under a number of federal, state, local and foreign environmental and
safety laws and regulations that govern, among other things, the discharge of hazardous materials
into the air and water, as well as the handling, storage and disposal of such materials. These laws
and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act, as well
as analogous state and 24




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##### Table of Contents



foreign laws. Compliance with these environmental laws is a major consideration for us because we
use in our manufacturing process materials classified as hazardous such as ammoniacal etching
solutions, copper and nickel. Our efforts to comply with applicable environmental laws require an
ongoing 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 a generator of hazardous wastes and our sites may become contaminated, we
may be subject to potential financial liability for costs associated with an investigation and any
remediation of such sites. Even if we fully comply with applicable environmental laws and are not
directly at fault for the contamination, we may still be liable. The wastes we generate include
spent ammoniacal etching solutions, solder stripping solutions and hydrochloric acid solution
containing palladium, waste water which contains heavy metals, acids, cleaners and conditioners,
and filter cake from equipment used for on-site waste treatment. Violations of environmental laws could subject us to revocation of the environmental permits we
require to operate our business. Any such revocations could require us to cease or limit production
at one or more of our facilities, thereby negatively impacting revenues and potentially causing the
market price of our common stock to decline. Additionally, if we are liable for any violation of
environmental laws, we could be required to undertake expensive remedial actions and be subject to
additional penalties. Several of our officers and directors are named defendants in a securities class action complaint
which could divert management attention and result in substantial indemnification costs. Certain of our current and former officers and directors have been named as defendants in
securities class action lawsuit. Under Delaware law, our charter documents, and certain
indemnification agreements we entered into with our executive officers and directors, we must
indemnify our current and former officers and directors to the fullest extent permitted by law. The
indemnification covers any expenses and/or liabilities reasonably incurred in connection with the
investigation, defense, settlement or appeal of legal proceedings. The obligation to provide
indemnification does not apply if the officer or director is found to be liable for fraudulent or
criminal conduct. For the period in which the claims were asserted, we had in place director and
officers liability insurance policies. We are unable to estimate what our indemnification
liability in these matters may be. If our directors and officers liability insurance policies do
not adequately cover our expenses related to this class action lawsuit, we may be required to pay
judgments or settlements and incur expenses in aggregate amounts that could have a material adverse
effect on our financial condition, cash flows or results of operations. In addition, this lawsuit
could divert management attention from our day-to-day operations, which could have a material
adverse effect on our business. We depend on our key personnel and may have difficulty attracting and retaining skilled employees. Our future success will depend to a significant 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 of our key employees has entered into
an employment agreement or other similar arrangement, with the exception of a non-solicitation
agreement between Bruce D. McMaster and us. The loss of the services of one or more key employees
could have a material adverse effect on our results of operations. We also believe that our future
success will depend in large part upon our ability to attract and retain additional highly skilled
managerial and technical resources. Competition for such personnel is intense. There can be no
assurance that we will be successful in attracting and retaining such personnel. In addition,
recent and potential future facility shutdowns and workforce reductions may have a negative impact
on employee recruiting and retention. Our manufacturing processes depend on the collective industry experience of our employees. If
these employees were to leave and take this knowledge with them, our manufacturing processes may
suffer, and we may not be able to compete effectively. Other than our trade secret protection, we rely on the collective experience of our employees to
ensure that we continuously evaluate and adopt new technologies in our industry. If a significant
number of employees involved in our manufacturing processes were to leave our employment and we are
not able to replace these people with new employees with comparable experience, our manufacturing
processes may suffer as we may be unable to keep up with innovations in the industry. As a result,
we may not be able to continue to compete effectively. Sale of large amounts of our common stock or the perception that sales could occur may depress our
stock price. We issued an aggregate of 23,749,926 shares of our common stock upon our emergence from bankruptcy
to our former holders of our debt and equity securities and other claimants. In addition, in March
2005, we issued an aggregate of 1,482,812 shares of common stock to the holders of our Series B
Preferred Stock to pay the dividend on the Series B Preferred Stock. All of these shares of common
stock may be sold at any time, subject to compliance with applicable law, including the Securities
Act and certain provisions of our certificate of incorporation, bylaws and registration rights
agreements with holders of such shares. 25




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Sales in the public market of large blocks of shares of our common stock acquired pursuant to our
plan of reorganization or pursuant to the Series B preferred Stock dividend payment, or the
perception that those sales could occur, could lower our stock price and impair our ability to
raise funds in future stock offerings. Such sales could also impair our ability to raise additional
capital through the sale of our equity securities in the future. The trading price of our common stock may continue to be volatile. The market price of our common stock could be subject to wide fluctuations in response to numerous
factors, many of which are beyond our control. These factors include, among other things, actual or
anticipated variations in our operating results and cash flow, the nature and content 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
securities markets and the market for similar stocks, changes in capital markets that affect 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. In addition, our common stock is listed on the Nasdaq National
Market. Limited trading volume of our common stock could affect the trading price by magnifying the
effect of larger purchase or sale orders and could increase the trading price volatility in
general. No prediction can be made as to future trading volumes of our common stock on the Nasdaq
National Market. We may in the future seek to raise funds through equity offerings, or there may be other events
which could have a dilutive effect on our stock. In the future, we may seek to raise capital through offerings of our common stock, securities
convertible into our common stock, or rights to acquire such securities or our common stock. In any
such case, the result could ultimately be dilutive to our common stock by increasing the number of
shares outstanding. In connection with our plan of reorganization, we issued warrants that were exercisable for
4,035,454 shares of our common stock as of February 6, 2004. The shares issuable upon exercise of
the warrants may increase subject to anti-dilutive rights which we granted to the warrant holders.
The warrants are held in an escrow account until December 12, 2005 and are subject to reduction or
termination. We also granted options to purchase an aggregate of 2,620,434 shares of our common
stock and 1,250,000 shares of restricted stock under our 2003 Management Equity Incentive Plan, and
an additional 2,919,686 shares of our common stock may be issued to members of management under our
2003 Management Incentive Plan and 2003 Directors Equity Incentive Plan upon the exercise of
options not yet granted under the plans or pursuant to restricted stock grants. The maximum number
of options that will become exercisable will be less than the number of options granted based on
the level of the Companys repayment of its Senior Credit Facility. If these options or warrants to
purchase our common stock are exercised or other equity interests are granted under our 2003
Management Incentive Plan and 2003 Directors Equity Incentive Plan or under other plans adopted in
the future, such equity interests will have a dilutive effect on our common stock. 26




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Item 3. Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk The asset-based revolving credit facility bears interest at a floating rate, while the senior
accreting notes bear interest at fixed rates. The interest rate for the revolving credit facility at March 31, 2005 was prime plus 3% for index
rate loans. On a going-forward basis, pricing will be determined by the Companys adjusted EBITDA,
and will range from LIBOR plus 3 to 4% on LIBOR loans or prime plus 2 to 3% for index rate loans.
As of March 31, 2005, one-month LIBOR was 2.86% and prime rate was 5.75%. If one-month LIBOR or
prime rate increased by 10% to 3.14% or 6.33%, respectively, cash interest expense related to the
revolving credit facility would increase by less than $0.1 million based on the expected usage of
the revolving credit facility. The overall effective cash interest rate based on prime plus 3% for
index rate loans as of March 31, 2005, was 8.75%. A change in interest rates would not have an effect on our interest expense on the senior accreting
notes because these instruments bear a fixed rate of interest. Foreign Currency Exchange Risk Sales and expenses and financial results of our Canadian operations are denominated in Canadian
dollars. We have foreign currency translation risk equal to our net investment in those
operations. However, since nearly all of our sales and expenses in our Canadian subsidiary are
denominated in local currency or in U.S. dollars, we have relatively little exposure to foreign
currency transaction risk with respect to sales made. Based upon annualizing the most recent
quarters results, the effect of an immediate 10% change in exchange rates would have an annual net
impact on our operating results of approximately $(0.4) million. We do not use forward exchange
contracts to hedge exposures to foreign currency denominated transactions and do not utilize any
other derivative financial instruments for trading or speculative purposes. 
 Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial
Officer have concluded, based on their evaluation as of the end of the period covered by this
report, that our disclosure controls and procedures (as defined in Rules 13(a)-15(e) under the
Securities Act of 1934, as amended) are effective to ensure that all information required to be
disclosed by the Company in the reports filed or submitted by it under the Securities and Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the SECs
rules and forms, and include controls and procedures designed to ensure that information required
to be disclosed by the Company in such reports is accumulated and communicated to the Companys
management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate
and allow timely decisions regarding required disclosure. Changes in Internal Controls.In connection with the above-referenced evaluation, no change in the
Companys internal control over financial reporting occurred during the period covered by this
report that has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting. 27




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PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings Reference is made to the Companys Annual Report on Form 10-K for the period ended December 31,
2004 (the 10-K), for a summary the Companys legal proceedings previously reported. Since the
date of the 10-K, there have been no material developments in previously reported legal
proceedings, except as set forth below. In re DDi Corp. Securities Litigation, Case No. CV 03-7063 MMM (SHx) multiple defendant groups
filed motions to dismiss the plaintiffs Second Amended Complaint on March 25, 2005. Plaintiffs
filed an opposition to the motions to dismiss on April 25, 2005, and the Company expects to file
reply briefs on May 16, 2005. Argument on the motions to dismiss is presently scheduled to be
heard on May 23, 2005. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On February 23, 2005, the Board of Directors the Company declared a dividend on the Companys
Series B Preferred Stock, in the amount of approximately $3.6 million, for dividends accrued and
payable as of March 31, 2005. As permitted by the Certificate of Designation of the Series B
Preferred Stock, the Company irrevocably elected to pay the dividend in the form of shares of the
Companys common stock. On March 31, 2005, the Company caused to have issued 1,482,812 shares of
common stock to pay the dividend. In accordance with the Certificate of Designation of the Series B
Preferred Stock, the common stock issued was valued using a 5% discount applied to the volume
weighted average market price for the 20 trading days prior to March 31, 2005. The shares of
common stock issued had previously been registered for resale pursuant to a registration statement
on Form S-3 (File No. 333-114967). This issuance of unregistered equity securities does not require
an exemption from registration as it does not constitute a sale of securities; however, in the
event that an exemption would be required, the exemption would be a Section 4(2) private offering,
involving no underwriters. 
 Item 3. Defaults Upon Senior Securities On February 8, 2005, DDi Europe and certain of its operating subsidiaries received demands from the
Bank of Scotland for immediate repayment of all amounts outstanding under the DDi Europe credit
facilities. Pursuant to the demand notices, £21.5 million (approximately U.S.$39.8 million) which
equals the unpaid principal amount under the DDi Europe credit facilities, plus accrued interest
and applicable fees, became immediately due and payable. In response to these payment demands, DDi Europe and certain of its subsidiaries sought appointment
of an administrator. In the United Kingdom, an administrator is a third party appointed to assume
day-to-day direction of a company. Upon appointment of an administrator, creditors claims are
temporarily suspended while assets are managed for the benefit of the creditors and shareholders. On February 9, 2005, two partners at Krolls Corporate Advisory and Restructuring Group were
appointed Joint Administrators (collectively, the Administrators) to assume day-to-day management
of DDi Europe and certain of its subsidiaries. Pursuant to the actions of the Administrators, DDi
Europe underwent a restructuring pursuant to which the Company no longer has U.K.-based businesses.
On February 9, 2005, DDi Technologies Limited, DDi Tewkesbury Limited and DDi International, each
operating subsidiaries of DDi Europe were acquired by the eXception Group Ltd., a newly-formed U.K.
corporation (the eXception Group) for up to £21.5 million (approximately U.S.$39.8 million) of
which £20.1 million was the initial sales consideration. The purchase price was determined by the
Administrators. The eXception Group secured a separate credit facility from the Bank of Scotland to
finance the purchase price for these companies. The Administrators applied the proceeds from the sale of DDi Technologies Limited, DDi Tewkesbury
Limited and DDi International to the outstanding indebtedness of DDi Europe and its subsidiaries
under the DDi Europe credit facilities, leaving approximately £1.4 million (approximately U.S.$2.6
million) outstanding under the DDi Europe credit facilities. The Administrators will seek the sale
or other disposition of the remaining assets of DDi Europe, including the businesses of the
remaining operating subsidiaries of DDi Europe not transferred to eXception. The proceeds from the
disposition of the remaining assets will be applied to satisfy the remaining £1.4 million
outstanding under the DDi Europe credit facilities. To the extent that the net proceeds of such
assets is less than £1.4 million, the eXception Group will pay any deficiency. DDi Europe is presented in the Companys condensed consolidated financial statements as a
discontinued operation. The disposition of DDi Europe was completed during the first quarter of
fiscal 2005, resulting in a non-cash gain on disposition of DDi Europe of $11.1 million. See Note
12 to the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on
Form 10-Q. 28




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Item 5. Other Information On March 4, 2005, the Company filed a Current Report on Form 8-K disclosing under Item 5.02 the
appointment of Brad Tesch as the Companys Chief Operations Officer. In such filing, the Company
disclosed Mr. Teschs current salary as of the date of the filing. Subsequent to the filing of the
Form 8-K, on March 21, 2005, the Compensation Committee of the Board of Directors of the Company
approved an increase in the base salary of Mr. Tesch from $200,000 to $252,000 and granted Mr.
Tesch 150,000 Tranche B stock options pursuant to the Companys 2003 Management Equity Incentive
Plan at an exercise price of $2.53 per share, which was the fair market value of the Companys
common stock on the date of grant. 
 Item 6. Exhibits (a) Exhibits. Exhibit No.
    
    Description10.1
    
    Form of Amendment to Restricted Stock Agreement (with
schedule of parties attached), previously filed with the
Commission on January 12, 2005 as an exhibit to DDi
Corp.s Current Report on Form 8-K, which is
incorporated herein by reference.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.
 29




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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 the undersigned, thereto duly authorized. Date: May 5, 2005DDi CORP.By:
    /s/ Mikel WilliamsMikel WilliamsSenior Vice President, Chief Financial Officer
(Authorized Signatory and
Principal Financial Officer) 30




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Exhibit Index Exhibit No.
    
    Description10.1
    
    Form of Amendment to Restricted Stock Agreement (with
schedule of parties attached), previously filed with the
Commission on January 12, 2005 as an exhibit to DDi
Corp.s Current Report on Form 8-K, which is
incorporated herein by reference.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.