UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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.

1220 Simon Circle
Anaheim, California 92806

     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.

DDi CORP.
FORM 10-Q for the Quarterly Period Ended March 31, 2005

TABLE OF CONTENTS

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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.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

DDi CORP.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DDi CORP.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DDi CORP.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DDi CORP.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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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

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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):

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):

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

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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:

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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):