##### Table of Contents



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, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-30241
 DDi CORP.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    06-1576013(State or other jurisdiction
of incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 1220 Simon Circle
Anaheim, California 92806
 
 (Address of principal executive offices) (Zip code)
 (714) 688-7200
 
 (Registrants
telephone number, including area code)
Not Applicable
 
 (Former name, former address and former fiscal year, if changed since last report)
  þ o
  o þ o
  o þ
  þ o




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##### 



DDi CORP.
FORM 10-Q for the Quarterly Period Ended March 31, 2006
 TABLE OF CONTENTS
 PageNoPART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31,
2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended March 31,
2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4.
    
    Controls and Procedures
    
    
    29PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    30Item 1A.
    
    Risk Factors
    
    
    30Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3.
    
    Defaults Upon Senior Securities
    
    
    30Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    30Item 5.
    
    Other Information
    
    
    30Item 6.
    
    Exhibits
    
    
    31Signatures
    
    
    
    
    32EXHIBIT 10.5EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 DDi CORP.
 
    March 31,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    27,545
    
    
    $
    25,985Cash and cash equivalents  restricted (see Note 7)
    
    
    2,686
    
    
    
    2,972Accounts receivable, net
    
    
    31,990
    
    
    
    29,710Inventories
    
    
    17,860
    
    
    
    16,117Prepaid expenses and other
    
    
    1,476
    
    
    
    1,506Total current assets
    
    
    81,557
    
    
    
    76,290Property and equipment, net
    
    
    29,453
    
    
    
    31,063Goodwill
    
    
    41,845
    
    
    
    41,845Intangible assets, net
    
    
    12,261
    
    
    
    13,411Other
    
    
    1,549
    
    
    
    1,719Total assets
    
    $
    166,665
    
    
    $
    164,328Liabilities, Mandatorily Redeemable Preferred Stock and Stockholders EquityCurrent liabilities:Revolving credit facility
    
    $
    19,660
    
    
    $
    19,929Accounts payable
    
    
    18,238
    
    
    
    15,443Accrued expenses and other current liabilities
    
    
    15,121
    
    
    
    14,709Total current liabilities
    
    
    53,019
    
    
    
    50,081Other long-term liabilities
    
    
    4,521
    
    
    
    4,745Series A preferred stock
    
    
    
    
    
    
    Total liabilities
    
    
    57,540
    
    
    
    54,826Commitments and contingenciesSeries B mandatorily redeemable preferred stock
    
    
    2,884
    
    
    
    1,513Stockholders equity:Common stock  $0.001 par
 value, 190,000,000 shares authorized, 18,301,958 and
18,259,356 shares issued and outstanding at March 31, 2006 and December 31,
2005, respectively
    
    
    18
    
    
    
    18Additional paid-in-capital
    
    
    230,134
    
    
    
    231,821Deferred compensation
    
    
    
    
    
    
    (349
    )Accumulated other comprehensive income
    
    
    439
    
    
    
    346Accumulated deficit
    
    
    (124,350
    )
    
    
    (123,847
    )Total stockholders equity
    
    
    106,241
    
    
    
    107,989Total liabilities, mandatorily redeemable preferred stock and stockholders equity
    
    $
    166,665
    
    
    $
    164,328
  3




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##### Table of Contents



DDi CORP.
 
    Three months
    
    
    Three monthsended March 31,
    
    
    ended March 31,2006
    
    
    2005Net sales
    
    $
    50,953
    
    
    $
    44,949Cost of goods sold:Cost of goods sold
    
    
    40,542
    
    
    
    37,217Non-cash compensation
    
    
    121
    
    
    
    (279
    )Total cost of goods sold
    
    
    40,663
    
    
    
    36,938Gross profit
    
    
    10,290
    
    
    
    8,011Operating expenses:Sales and marketing:Sales and marketing expenses
    
    
    4,003
    
    
    
    3,486Officers severance
    
    
    240
    
    
    
    Non-cash compensation
    
    
    13
    
    
    
    (454
    )Total sales and marketing
    
    
    4,256
    
    
    
    3,032General and administration:General and administration expenses
    
    
    3,784
    
    
    
    3,951Non-cash compensation
    
    
    109
    
    
    
    249Total general and administration
    
    
    3,893
    
    
    
    4,200Amortization of intangible assets
    
    
    1,150
    
    
    
    1,150Restructuring and other related charges
    
    
    397
    
    
    
    Operating income (loss)
    
    
    594
    
    
    
    (371
    )Interest and other expense, net
    
    
    549
    
    
    
    1,191Income (loss) from continuing operations before income taxes
    
    
    45
    
    
    
    (1,562
    )Income tax expense
    
    
    (548
    )
    
    
    (1,051
    )Loss from continuing operations
    
    
    (503
    )
    
    
    (2,613
    )Income from discontinued operations (see Note 13)
    
    
    
    
    
    
    9,740Net income (loss)
    
    
    (503
    )
    
    
    7,127Less: Series B preferred stock dividends and accretion
    
    
    (1,800
    )
    
    
    (1,342
    )Net income (loss) applicable to common stockholders
    
    $
    (2,303
    )
    
    $
    5,785Loss per share from continuing operations applicable to common
stockholders  basic and diluted
    
    $
    (0.13
    )
    
    $
    (1.00
    )Net income (loss) per share applicable to common stockholders  basic and
diluted
    
    $
    (0.13
    )
    
    $
    1.47Weighted-average shares used in per share computations  basic and diluted
    
    
    18,277,110
    
    
    
    3,936,280
  4




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##### Table of Contents



DDi CORP.
 
    Three months
    
    
    Three monthsended March 31,
    
    
    ended March 31,2006
    
    
    2005Cash flows from operating activities:Loss from continuing operations
    
    $
    (503
    )
    
    $
    (2,613
    )Adjustments to reconcile loss from continuing operations to cash provided by
(used in) operating activities:Depreciation
    
    
    2,687
    
    
    
    2,455Amortization of debt issuance costs and discount
    
    
    179
    
    
    
    184Amortization of intangible assets
    
    
    1,150
    
    
    
    1,150Non-cash compensation
    
    
    243
    
    
    
    (482
    )Non-cash and accrued restructuring and other related charges
    
    
    637
    
    
    
    Other
    
    
    44
    
    
    
    (4
    )Change in operating assets and liabilities:Accounts receivable
    
    
    (2,266
    )
    
    
    (1,552
    )Prepaid expenses and other
    
    
    21
    
    
    
    (495
    )Inventories
    
    
    (1,739
    )
    
    
    (280
    )Accounts payable
    
    
    2,792
    
    
    
    458Accrued expenses and other liabilities
    
    
    (1,039
    )
    
    
    97Income tax payable
    
    
    596
    
    
    
    1,066Net cash provided by (used in) operating activities from continuing operations
    
    
    2,802
    
    
    
    (16
    )Net cash used in operating activities from discontinued operations
    
    
    
    
    
    
    (1,976
    )Net cash provided by (used in) operating activities
    
    
    2,802
    
    
    
    (1,992
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,116
    )
    
    
    (1,239
    )Proceeds from the release of restricted cash
    
    
    290
    
    
    
    Net cash used in investing activities from discontinued operations
    
    
    
    
    
    
    (9
    )Net cash used in investing activities
    
    
    (826
    )
    
    
    (1,248
    )Cash flows from financing activities:Principal payments on capital leases
    
    
    
    
    
    
    (234
    )Net borrowings on revolving credit facility
    
    
    (269
    )
    
    
    737Refund of debt issuance costs
    
    
    
    
    
    
    206Payment of Series B preferred stock dividend
    
    
    (290
    )
    
    
    Proceeds from exercise of stock options
    
    
    75
    
    
    
    10Net cash provided by financing activities from discontinued operations
    
    
    
    
    
    
    884Net cash provided by (used in) financing activities
    
    
    (484
    )
    
    
    1,603Effect of exchange rate changes on cash and cash equivalents
    
    
    68
    
    
    
    (26
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,560
    
    
    
    (1,663
    )Cash and cash equivalents, beginning of period
    
    
    25,985
    
    
    
    23,526Cash and cash equivalents, end of period
    
    $
    27,545
    
    
    $
    21,863
  5




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##### Table of Contents



DDi CORP.
 
 
 NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
 Basis of Presentation
     Description of Business
  Common Stock Reverse Split
  Recently Adopted Accounting Standards
  6




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##### Table of Contents



DDi CORP.
 
    NOTE 2. INVENTORIES
  March 31,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    8,475
    
    
    $
    8,630Work-in-process
    
    
    6,631
    
    
    
    5,059Finished goods
    
    
    2,754
    
    
    
    2,428Total
    
    $
    17,860
    
    
    $
    16,117
 NOTE 3. REVOLVING CREDIT FACILITY
  7




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##### Table of Contents



DDi CORP.
 
  NOTE 4. PRODUCT WARRANTY
  Three Months endedMarch 31,
    
    
    March 31,2006
    
    
    2005Beginning balance
    
    $
    527
    
    
    $
    656Current period warranty charges
    
    
    806
    
    
    
    830Actual warranty costs incurred
    
    
    (727
    )
    
    
    (821
    )Ending balance
    
    $
    606
    
    
    $
    665
 NOTE 5. NET INCOME (LOSS) PER SHARE
  Three Months endedMarch 31,
    
    
    March 31,2006
    
    
    2005Loss from continuing operations
    
    $
    (503
    )
    
    $
    (2,613
    )Less: Series B preferred stock dividends and accretion
    
    
    (1,800
    )
    
    
    (1,342
    )Loss from continuing operations applicable to common stockholders
    
    $
    (2,303
    )
    
    $
    (3,955
    )Weighted-average shares of common stock outstanding (basic and diluted)
    
    
    18,277,110
    
    
    
    3,936,280Loss per share from continuing operations applicable to common stockholders
    
    $
    (0.13
    )
    
    $
    (1.00
    )Net income from discontinued operations, net of tax
    
    $
    
    
    
    $
    9,740Weighted-average shares of common stock outstanding (basic and diluted)
    
    
    18,277,110
    
    
    
    3,936,280Net income per share of common stock from discontinued operations
    
    $
    
    
    
    $
    2.47Net income (loss)
    
    $
    (503
    )
    
    $
    7,127Less: Series B preferred stock dividends and accretion
    
    
    (1,800
    )
    
    
    (1,342
    )Net income (loss) applicable to common stockholders
    
    $
    (2,303
    )
    
    $
    5,785Weighted average shares of common stock outstanding (basic and diluted)
    
    
    18,277,110
    
    
    
    3,936,280Net income (loss) per share applicable to common stockholders
    
    $
    (0.13
    )
    
    $
    1.47
 8




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DDi CORP.
 
   NOTE 6. SERIES B MANDATORILY REDEEMABLE PREFERRED STOCK
    9




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DDi CORP.
 
    
    
    provide that upon completion of a rights offering and/or related standby purchase
commitments that raise aggregate gross proceeds of at least $65 million (a Qualified
Rights Offering), the Company would redeem one-third of the outstanding shares of Series B
Preferred Stock at a redemption price payable in cash equal to the stated value of the
Series B Preferred Stock plus all accrued but unpaid dividends on such shares through the
date of redemption;
    
    provide that upon completion of a Qualified Rights Offering the Company would redeem an
additional one-third of the outstanding shares of Series B Preferred Stock at a redemption
price payable in cash equal to 101% of the Stated Value of such shares;
    
    upon the completion of a Qualified Rights Offering, eliminate the option of the holders
of the Series B Preferred to require the Company to redeem a portion of the Series B
Preferred Stock on September 30, 2005 and March 30, 2006; and
    
    provide that the issuance of the Companys common stock pursuant to a Qualified Rights
Offering, related standby agreement and related warrants (each as defined in the
Certificate of Designation) would not constitute a change of control as defined in the
Certificate of Designation.
     10




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##### Table of Contents



DDi CORP.
 
 NOTE 7. SUBSCRIPTION RIGHTS OFFERING AND STANDBY PURCHASE AGREEMENT
   NOTE 8. STOCK-BASED COMPENSATION
 Stock-Based Compensation Plans
    11




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DDi CORP.
 
  WeightedWeighted
    
    AverageAverage Exercise
    
    RemainingPrice
    
    Contractual Life in
    
    Aggregate IntrinsicOptions Outstanding
    
    per Option
    
    Years
    
    ValueBalance as of December 31, 2005
    
    
    1,164,836
    
    
    $
    12.43
    
    
    
    8.7Granted
    
    
    60,000
    
    
    $
    7.44Exercised
    
    
    (43,662
    )
    
    $
    1.80Forfeited
    
    
    (74,634
    )
    
    $
    10.62Balance as of March 31, 2006
    
    
    1,106,540
    
    
    $
    12.70
    
    
    
    9.1
    
    
    $
    1,942Options exercisable as of March 31, 2006
    
    
        296,147
    
    
    $
    32.10
    
    
    
    
    
    
    $
    135
  Accelerated Vesting of Certain Stock Options
  Adoption of SFAS 123-R
   12




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##### Table of Contents



DDi CORP.
 
   Determining Fair Value
 Valuation and amortization method
 Expected Term
 Expected Stock Price Volatility 
 Expected Dividend Yield
 Risk-Free Interest Rate
 Estimated Forfeiture Rate
 Fair Value
 13




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DDi CORP.
 
 Three Months endedMarch 31,
    
    March 31,2006
    
    2005Expected term (years)
    
    
    4
    
    
    
    4Expected stock price volatility
    
    
    75
    %
    
    
    60
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    4.83
    %
    
    
    3.70
    %Expected forfeiture rate
    
    
    10
    %
    
    
    N/AWeighted average fair value per share
    
    $
    4.39
    
    
    $
    10.11
 Stock Compensation Expense
    Three MonthsEndedMarch 31,2005Net income applicable to common stockholders:As reported  basic and diluted
    
    $
    5,785Add: non-cash compensation credit under APB 25, net of tax
    
    
    (1,086
    )Less: non-cash compensation credit under FAS 123, net of tax
    
    
    748Pro forma  basic and diluted
    
    $
    5,447Net income per share applicable to common stockholders  basic and diluted:As reported
    
    $
    1.47Pro forma
    
    $
    1.38
 NOTE 9. SEGMENT REPORTING
  14




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DDi CORP.
 
  Three Months endedMarch 31,
    
    
    March 31,2006
    
    
    2005Net sales:North America (a)
    
    $
    47,003
    
    
    $
    42,555Asia
    
    
    3,082
    
    
    
    1,861Other
    
    
    868
    
    
    
    533Total
    
    $
    50,953
    
    
    $
    44,949
 
 (a)
    
    The majority of sales in North America represent sales to the United States. NOTE 10. GOODWILL AND INTANGIBLES
    NOTE 11. RESTRUCTURING
  15




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DDi CORP.
 
    EmployeeTermination
    
    
    Contract
    
    
    Facility
    
    
    Other ExitBenefits
    
    
    Terminations
    
    
    Closure
    
    
    Costs
    
    
    TotalAccrued restructuring costs at
December 31, 2005
    
    $
    
    
    
    $
    16
    
    
    $
    999
    
    
    $
    67
    
    
    $
    1,082Additional accruals:Arizona closure
    
    
    17
    
    
    
    195
    
    
    
    160
    
    
    
    20
    
    
    
    392Colorado closure
    
    
    2
    
    
    
    7
    
    
    
    
    
    
    
    2
    
    
    
    11Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Payments
    
    
    (19
    )
    
    
    (218
    )
    
    
    (692
    )
    
    
    (72
    )
    
    
    (1,001
    )Accrued restructuring costs at
March 31, 2006
    
    $
    
    
    
    $
    
    
    
    $
    467
    
    
    $
    11
    
    
    $
    478
  NOTE 12. COMPREHENSIVE INCOME (LOSS)
  Three Months endedMarch 31,
    
    
    March 31,2006
    
    
    2005Net income (loss)
    
    $
    (503
    )
    
    $
    7,127Other comprehensive income:Foreign currency translation adjustments
    
    
    93
    
    
    
    222Comprehensive income (loss)
    
    $
    (410
    )
    
    $
    7,349
 16




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##### Table of Contents



DDi CORP.
 
 NOTE 13. DISCONTINUED OPERATIONS
    DDi Europe Statements of Operations
   Three MonthsEndedMarch 31,2005Net sales
    
    $
    7,873Cost of goods sold
    
    
    6,843Gross profit
    
    
    1,030Operating expenses:Sales and marketing
    
    
    126General and administration
    
    
    1,618Restructuring and other related charges
    
    
    219Operating loss
    
    
    (933
    )Gain on disposal of DDi Europe
    
    
    11,053Interest expense and other expense, net
    
    
    (380
    )Income from discontinued operations before income taxes
    
    
    9,740Income taxes
    
    
    Income from discontinued operations
    
    $
    9,740
 17




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DDi CORP.
 
 NOTE 14. SUBSEQUENT EVENT
 
 18




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 The following is a discussion of the financial condition and results of operations for our fiscal
quarter ended March 31, 2006. As used herein, the Company, we, us, or our means DDi Corp.
and its wholly-owned subsidiaries, including DDi Capital Corp. and Dynamic Details,
Incorporated. 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, 2005.
 On February 3, 2006, we effected a one-for-seven reverse stock split. All share and per share
information has been retroactively adjusted to reflect the reverse stock split.
 Some of the statements in this section contain forwardlooking statements regarding our
assumptions, projections, expectations, targets, intentions or beliefs about future events, which
involve risks and uncertainties. All statements other than statements of historical facts included
in this section 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. In some cases, you can identify forward-looking statements by terms
such as may, will, should, expect, plan, intend, forecast, anticipate, believe, estimate, predict,
potential, continue or the negative of these terms or other comparable terminology. The
forward-looking statements contained in this section involve known and unknown risks, uncertainties
and situations that may cause our or our industrys actual results, level of activity, performance
or achievements to be materially different from any future results, levels of activity, performance
or achievements expressed or implied by these statements. Factors that might cause actual events or
results to differ materially from those indicated by these forward-looking statements may include
the matters listed under Risk Factors in item 1A in our most recently filed 10-K and elsewhere in
this Form 10-Q, including, but not limited to, changes in general economic conditions in the
markets in which we may compete and fluctuations in demand in the electronics industry; increased
competition; increased costs; our ability to retain key members of management; our ability to
address changes to environmental laws and regulations; 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.
 Our Company
  Market Overview
  19




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##### Table of Contents




    
    Increasing customer demand for quick-turn production and integrated solutions.Rapid
advances in technology are significantly shortening product life-cycles and placing
increased pressure on original equipment manufacturers to develop new products in shorter
periods of time. In response to these pressures, original equipment manufacturers look to
printed circuit board manufacturers that can offer design and engineering support and
quick-turn manufacturing and assembly services to reduce time-to-market.
    
    Increasing complexity of electronic equipment.Original equipment manufacturers are
continually designing more complex and higher performance electronic equipment, which
requires sophisticated printed circuit boards that accommodate higher speeds and
frequencies and increased component densities and operating temperatures. In turn, original
equipment manufacturers rely on printed circuit board manufacturers that can provide
advanced engineering and manufacturing services early in the new product development cycle.
    
    Shifting of high volume production to Asia.Asian based manufacturers of printed
circuit boards are capitalizing on their lower labor costs and are increasing their
production and market share of printed circuit boards used, for example, in high-volume
consumer electronics applications, such as personal computers and cell phones. Asian-based
manufacturers have been generally unable to meet the lead time requirements for the
production of complex printed circuit boards on a quick-turn basis.
  Results of Operations and Other Financial Data
  Three Months endedMarch 31,
    
    
    March 31,
    
    
    $ Change
    
    
    % Change2006
    
    
    2006
    
    
    2005 to 2006
    
    
    2005 to 2006Net sales
    
    $
    50,953
    
    
    $
    44,949
    
    
    $
    6,004
    
    
    
    13.4
    %Cost of goods sold
    
    
    40,663
    
    
    
    36,938
    
    
    
    3,725
    
    
    
    10.1
    %Gross profit
    
    
    10,290
    
    
    
    8,011
    
    
    
    2,279
    
    
    
    28.4
    %Gross profit as a percentage of net sales
    
    
    20.2
    %
    
    
    17.8
    %
 Net Sales
  20




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##### Table of Contents



Gross Profit
  Non-Cash Compensation
  Three Months endedMarch 31,
    
    
    March 31,2006
    
    
    2006Non-cash compensation:Cost of good sold
    
    $
    121
    
    
    $
    (279
    )Sales and marketing expenses
    
    
    13
    
    
    
    (454
    )General and administrative expenses
    
    
    109
    
    
    
    249Total non-cash compensation
    
    $
    243
    
    
    $
    (484
    )
  Sales and Marketing Expenses
  Three Months endedMarch 31,
    
    March 31,
    
    $ Change
    
    % Change2006
    
    2005
    
    2005 to 2006
    
    2005 to 2006Sales and marketing expenses
    
    $
    4,256
    
    
    $
    3,032
    
    
    $
    1,224
    
    
    
    40.4
    %Percentage of net sales
    
    
    8.4
    %
    
    
    6.7
    %
 21
    Table of Contents    General and Administration Expenses
  Three Months endedMarch 31,
    
    March 31,
    
    $ Change
    
    % Change2006
    
    2005
    
    2005 to 2006
    
    2005 to 2006General and administration expenses
    
    $
    3,893
    
    
    $
    4,200
    
    
    $
    (307
    )
    
    
    (7.3
    %)Percentage of net sales
    
    
    7.6
    %
    
    
    9.3
    %
  Restructuring and other related charges
    22    Table of Contents  EmployeeTermination
    
    
    Contract
    
    
    Facility
    
    
    Other ExitBenefits
    
    
    Terminations
    
    
    Closure
    
    
    Costs
    
    
    TotalAccrued restructuring costs at
December 31, 2005
    
    $
    
    
    
    $
    16
    
    
    $
    999
    
    
    $
    67
    
    
    $
    1,082Additional accruals:Arizona closure
    
    
    17
    
    
    
    195
    
    
    
    160
    
    
    
    20
    
    
    
    392Colorado closure
    
    
    2
    
    
    
    7
    
    
    
    
    
    
    
    2
    
    
    
    11Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Payments
    
    
    (19
    )
    
    
    (218
    )
    
    
    (692
    )
    
    
    (72
    )
    
    
    (1,001
    )Accrued restructuring costs at
March 31, 2006
    
    $
    
    
    
    $
    
    
    
    $
    467
    
    
    $
    11
    
    
    $
    478
  Amortization of intangible assets
  Net Interest and Other Expense
  Income Tax Expense
  23
    Table of Contents  Net Income From Discontinued Operations
  Series B Preferred Stock Dividends and Accretion
  Liquidity and Capital Resources
 Three Months endedMarch 31,
    
    March 31,(Dollars in thousands)
    
    2006
    
    2005Working capital
    
    $
    28,538
    
    
    $
    26,209Current ratio (current assets to current liabilities)
    
    
    1.54 : 1.0
    
    
    
    1.52 : 1.0Cash and cash equivalents, excluding restricted cash
    
    $
    27,545
    
    
    $
    25,985Short term borrowings
    
    $
    19,660
    
    
    $
    19,929
   24
    Table of Contents  Revolving Credit Facility
   Series B Preferred Stock
    25
    Table of Contents  
    
    provide that upon completion of a rights offering and/or related standby purchase
commitments that raise aggregate gross proceeds of at least $65 million (a Qualified
Rights Offering), we would redeem one-third of the outstanding shares of Series B
Preferred Stock at a redemption price payable in cash equal to the stated value of the
Series B Preferred Stock plus all accrued but unpaid dividends on such shares through the
date of redemption;
    
    provide that upon completion of a Qualified Rights Offering we would redeem an
additional one-third of the outstanding shares of Series B Preferred Stock at a redemption
price payable in cash equal to 101% of the Stated Value of such shares;
    
    upon the completion of a Qualified Rights Offering, eliminate the option of the holders
of the Series B Preferred to require us to redeem a portion of the Series B Preferred Stock
on September 30, 2005 and March 30, 2006; and
    
    provide that the issuance of our common stock pursuant to a Qualified Rights Offering,
related standby agreement and related warrants (each as defined in the Certificate of
Designation) would not constitute a change of control as defined in the Certificate of
Designation.
     26
    Table of Contents  Consolidated Cash Flows
  Three Months endedMarch 31,
    
    
    March 31,2006
    
    
    2005Net cash provided by (used in):Operating activities from continuing operations
    
    $
    2,802
    
    
    $
    (16
    )Investing activities from continuing operations
    
    
    (826
    )
    
    
    (1,239
    )Financing activities from continuing operations
    
    
    (484
    )
    
    
    719Effect of exchange rates on cash
    
    
    68
    
    
    
    (26
    )Effect of discontinued operations on cash
    
    
    
    
    
    
    (1,101
    )Net increase (decrease) in cash and cash equivalents
    
    $
    1,560
    
    
    $
    (1,663
    )
    Critical Accounting Policies and Estimates
   Revenue recognition
 Valuation of long-lived assets
 27
    Table of Contents  Goodwill impairment
 Inventory obsolescence
 Receivables and Allowance for Doubtful Accounts
 Income taxes
 Stock-Based
Compensation
 Litigation and other contingencies
 Recently Adopted Accounting Standards
  28
    Table of Contents  Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Interest Rate Risk
  Foreign Currency Exchange Risk
  
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  29
    Table of Contents  PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  30
    Table of Contents  Item 6. Exhibits
 Exhibit No.
    
    Description3.1
    
    Certificate of Amendment to Amended and Restated Certificate of
Incorporation, previously filed with the Commission on February 8, 2006 as
an exhibit to DDi Corp.s Current Report on Form 8-K, which is incorporated
herein by reference.10.1
    
    Severance Agreement between DDi Corp. and Bruce McMaster, previously filed
with the Commission on February 15, 2006 as an exhibit to DDi Corp.s
Current Report on Form 8-K, which is incorporated herein by reference.10.2
    
    Employment Letter dated March 9, 2006 between DDi Corp. and Sally Goff,
previously filed with the Commission on March 31, 2006 as an exhibit to DDi
Corp.s Current Report on Form 8-K, which is incorporated herein by
reference.10.3
    
    Employment Letter dated March 21, 2006 between DDi Corp. and Michael K.
Sheehy, previously filed with the Commission on March 31, 2006 as an exhibit
to DDi Corp.s Current Report on Form 8-K, which is incorporated herein by
reference.10.4
    
    Employment Agreement dated March 16, 2006 between DDi Corp. and Mikel
Williams, previously filed with the Commission on March 16, 2006 as an
exhibit to DDi Corp.s Current Report on Form 8-K, which is incorporated
herein by reference.10.5
    
    Separation Agreement and General Release dated March 31, 2006 between DDi
Corp. and Diane Brundage.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.
 31
    Table of Contents  SIGNATURES
  Date
 DDi CORP./s/  MIKEL H. WILLIAMSMikel H. WilliamsPresident and Chief Executive Officer/s/  SALLY L. GOFFSally L. GoffChief Financial Officer 32
    Table of Contents  Exhibit Index
 Exhibit No.
    
    Description3.1
    
    Certificate of Amendment to Amended and Restated Certificate of
Incorporation, previously filed with the Commission on February 8, 2006 as
an exhibit to DDi Corp.s Current Report on Form 8-K, which is incorporated
herein by reference.10.1
    
    Severance Agreement between DDi Corp. and Bruce McMaster, previously filed
with the Commission on February 15, 2006 as an exhibit to DDi Corp.s
Current Report on Form 8-K, which is incorporated herein by reference.10.2
    
    Employment Letter dated March 9, 2006 between DDi Corp. and Sally Goff,
previously filed with the Commission on March 31, 2006 as an exhibit to DDi
Corp.s Current Report on Form 8-K, which is incorporated herein by
reference.10.3
    
    Employment Letter dated March 21, 2006 between DDi Corp. and Michael K.
Sheehy, previously filed with the Commission on March 31, 2006 as an exhibit
to DDi Corp.s Current Report on Form 8-K, which is incorporated herein by
reference.10.4
    
    Employment Agreement dated March 16, 2006 between DDi Corp. and Mikel
Williams, previously filed with the Commission on March 16, 2006 as an
exhibit to DDi Corp.s Current Report on Form 8-K, which is incorporated
herein by reference.10.5
    
    Separation Agreement and General Release dated March 31, 2006 between DDi
Corp. and Diane Brundage.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.